Securities Investor Protection Corporation: Order Approving a Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members, 61263-61265 [2016-21269]

Download as PDF Federal Register / Vol. 81, No. 172 / Tuesday, September 6, 2016 / Notices provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2016–63 and should be submitted on or before September 27, 2016. Rebuttal comments should be submitted by October 11, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–21252 Filed 9–2–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. SIPA–178; File No. SIPC–2016– 02] Securities Investor Protection Corporation: Order Approving a Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members August 30, 2016. On May 2, 2016, the Securities Investors Protection Corporation (‘‘SIPC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed bylaw change pursuant to section 3(e)(1) of the Securities Investor Protection Act of 1970 (‘‘SIPA’’) 1 relating to assessments on SIPC member broker-dealers.2 On May 27, 2016, SIPC consented to a 60-day extension of time before the proposed bylaw change takes effect pursuant to section 3(e)(1) of SIPA.3 Pursuant to section 3(e)(1)(B) of 18 17 CFR 200.30–3(a)(57). U.S.C. 78ccc(e)(1). 2 See letter dated May 2, 2016 from Josephine Wang, Secretary, SIPC, to Brent J. Fields, Secretary, Commission. 3 15 U.S.C. 78ccc(e)(1). This section provides that a proposed bylaw change shall take effect thirty days after the date of the filing of a copy thereof with the Commission, or upon such later date as SIPC may designate or such earlier date as the Commission may determine unless: (1) The Commission, by notice to SIPC setting forth the reasons therefor, disapproves such proposed bylaw change as being contrary to the public interest or contrary to the purposes of SIPA; or (2) the mstockstill on DSK3G9T082PROD with NOTICES 1 15 VerDate Sep<11>2014 17:04 Sep 02, 2016 Jkt 238001 SIPA, the Commission found that the proposed bylaw change involved a matter of such significant public interest that public comment should be obtained.4 This meant that the Commission could require the proposed bylaw change to be treated under the procedures in section 3(e)(2) of SIPA applicable to a proposed SIPC rule change.5 Consequently, pursuant to section 3(e)(2)(A) of SIPA,6 notice requesting comment on the proposed bylaw change was published in the Federal Register on June 20, 2016.7 The Commission received one comment regarding the proposal.8 This order approves the proposed bylaw change under section 3(e)(2) of SIPA.9 I. Description of the Proposed Bylaw Change A. Background SIPA requires SIPC, by bylaw, to impose assessments upon its member broker-dealers as, after consultation with self-regulatory organizations, SIPC may deem necessary and appropriate to establish and maintain a broker-dealer liquidation fund administered by SIPC (the ‘‘SIPC Fund’’) from which all expenditures by SIPC are to be made, including funds used to facilitate the liquidation of broker-dealers.10 Pursuant to this authority, SIPC collects annual assessments from its members.11 The amount of the annual assessment is prescribed by SIPA and the SIPC bylaws and is a percentage of the member broker-dealer’s net operating revenues from its securities business.12 Commission finds that such proposed bylaw change involves a matter of such significant public interest that public comment should be obtained, in which case it may, after notifying SIPC in writing of such finding, require that the procedures set forth in section 3(e)(2) of SIPA be followed with respect to such proposed bylaw change, in the same manner as if such proposed bylaw change were a proposed SIPC rule change. 4 15 U.S.C. 78ccc(e)(1)(B). 5 See 15 U.S.C. 78ccc(e)(1)(B); 15 U.S.C. 78ccc(e)(2). 6 15 U.S.C. 78ccc(e)(2)(A). 7 See Securities Investor Protection Corporation; Notice of Filing of Proposed Bylaw Amendment Relating to Assessment of SIPC Members, Release No. SIPA–177 (June 15, 2016), 81 FR 39986 (June 20, 2016). 8 See email dated June 17, 2016 from Jay Lanstein, Chief Executive Officer, Cantella & Co., Inc., available at https://www.sec.gov/comments/sipc2016-02/sipc201602-1.htm. 9 See 15 U.S.C. 78ccc(e)(2). 10 15 U.S.C. 78ddd. SIPC stated that it solicited the views of self-regulatory organizations regarding the proposed bylaw change. See email dated July 22, 2016 from Josephine Wang, Secretary, SIPC, to Brent J. Fields, Secretary, Commission. 11 15 U.S.C. 78ddd(d)(2)(C). 12 See 15 U.S.C. 78ddd(d); Bylaws of the Securities Investor Protection Corporation, Article 6, available at https://www.sipc.org/about-sipc/ statute-and-rules/bylaws. Net operating revenues PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 61263 Article 6 of the SIPC bylaws (‘‘Article 6’’) currently provides for an assessment rate of 1⁄4 of one percent until the SIPC Fund reaches $2.5 billion and SIPC determines that the Fund will remain at or above $2.5 billion for at least six months. Once that determination is made, the assessment rate falls to the minimum assessment permitted under SIPA, which is 0.02 percent.13 Article 6 also provides that the assessment rate is 1⁄4 of one percent if it is reasonably likely that the balance of the Fund will fall below $2.5 billion and remain at less than $2.5 billion for six months or more. SIPC represented in its proposed bylaw change filing that it continues to examine whether the Fund ‘‘target balance’’ of $2.5 billion is adequate for SIPC to carry out its mission of customer protection, and that it wished to ensure that at a minimum, and to the extent possible, the Fund does not fall below $2.5 billion. SIPC indicated that it believed it was prudent to consider not only the size of the Fund over a sixmonth period, but also SIPC’s actual expenditures and its projected expenditures from the Fund over a longer term. In addition, SIPC stated that the size of the Fund is more likely to stay at or above the target balance if there is a more gradual reduction in assessment rates before the minimum assessment rate is imposed. Finally, SIPC stated that such measures would make less likely sudden changes in the assessment rate while giving SIPC members some relief in the amount of the assessment that they owe. B. The Proposed Amendments With these considerations in mind, SIPC proposed to modify Article 6 in two respects. First, SIPC proposed to impose an intermediary assessment rate that would apply when the balance of the SIPC Fund is expected to be $2.5 billion for at least six months but SIPC’s unrestricted net assets—a measure of net assets that takes into account the anticipated cost of ongoing customer protection proceedings—are less than $2.5 billion, as reflected in its most recent audited Statement of Financial Position.14 Secondly, SIPC proposed to from the securities business are gross revenues from the securities business, as defined in section 16(9) of SIPA, 15 U.S.C. 78lll(9), less total interest and dividend expense, but not exceeding total interest and dividend income. See Article 6; SIPC Form SIPC–6, available at https://www.sipc.org/Content/ media/filing-forms/SIPC–6–20130830.PDF. 13 15 U.S.C. 78ddd(c)(2). 14 See, e.g., SIPC, 2015 Annual Report at 20, available at https://www.sipc.org/Content/media/ annual-reports/2015-annual-report.pdf (audited E:\FR\FM\06SEN1.SGM Continued 06SEN1 61264 Federal Register / Vol. 81, No. 172 / Tuesday, September 6, 2016 / Notices lengthen the time period with respect to when a change in assessments becomes effective after notice of the change is published. mstockstill on DSK3G9T082PROD with NOTICES 1. Imposition of an Intermediary Assessment Rate When large SIPA liquidation proceedings are pending that require sizeable advances by SIPC, the SIPC Fund could remain at or above the $2.5 billion target level for six months, but then fall significantly below that amount as additional advances are made. Under Article 6, once the Fund reaches the $2.5 billion target level and is projected to remain at or above that amount for six months or more, SIPC could change the assessment rate from 1⁄4 of one percent to 0.02 percent. On the other hand, because projected expenditures in pending proceedings could reasonably cause the balance of the SIPC Fund to be less than $2.5 billion for six months or more, SIPC alternatively could require that the assessment rate remain at 1⁄4 of one percent. SIPC proposed to amend Article 6 to provide clarity as to what actions it might take when the Fund reaches the $2.5 billion target level, to maintain the SIPC Fund at or above the target balance of $2.5 billion, and to offer some relief in the amount of the assessment that member broker-dealers must pay while reducing the likelihood of sudden changes in the rates. Under the proposed bylaw change, when the SIPC Fund reaches $2.5 billion and is projected to be at $2.5 billion for six months or more, SIPC would consider the balance of its unrestricted net assets, as reflected in its most recent audited Statement of Financial Position.15 Specifically, SIPC could impose an annual assessment rate of 0.15 percent of a member’s net operating revenues from the securities business if: (1) The amount of the SIPC Fund were at $2.5 billion or more; (2) SIPC determined that the Fund will remain at or above $2.5 billion for at least six months; but (3) SIPC’s unrestricted net assets were less than $2.5 billion, as reflected in its most recent audited Statement of Financial Condition. assessments becomes effective. Currently, Article 6 provides that a change in assessments is to occur on the first day of the month following the date on which SIPC announces a change in the assessment and continue until SIPC provides otherwise (‘‘Notice Provision’’). Under current practice, the SIPC Board of Directors in the ordinary course determines the rate of assessment at its September meeting. The Board’s determination is announced shortly thereafter, and is made effective the first day of the following month. SIPC proposed to amend the Notice Provision in order to give its member broker-dealers earlier notice of the assessment rate for the following year. Under the proposal, an assessment rate would be effective on the first day of the year following the date on which SIPC announces its determination. Consequently, under the current practice where the assessment is determined at a September meeting of the Board, an assessment rate would be effective on January 1 of the new year. However, the proposal recognizes that there may be emergency situations when the need for an assessment rate to become effective is more immediate. In that case, the assessment rate would be effective on the date announced by SIPC provided that the exigency of the circumstances so warrants. 2. Amendment of the Effective Date of a Change in the Assessment SIPC also proposed to amend Article 6 with respect to when a change in II. Comments Received The Commission received one comment regarding the proposal.16 The commenter stated that the SIPC assessment rate ‘‘should be lowered as soon as the SIPC fund reaches its target balance, rather than waiting potentially a full year.’’ The commenter also stated that the proposed reductions in the assessment rate should be further reduced and that unless there is ‘‘another major crisis’’ the flat fee assessment should be reinstated. The commenter further stated that since under the proposal SIPC can immediately raise assessments when warranted and SIPC can borrow from the Treasury if necessary, extracting ‘‘unnecessary fees’’ presents a financial burden to customers of firms that pass the assessments to their customers. On July 22, 2016, SIPC filed with the Commission a response to the comment.17 With regard to the comment that the assessment rate should be lowered as soon as the SIPC Fund statement of financial position reporting unrestricted net assets of $1,622,910,520). 15 Among other items included in the calculation of unrestricted net assets is a provision for trustees’ estimated costs to complete ongoing customer protection proceedings. See, e.g., SIPC, 2015 Annual Report at 20. 16 See email dated June 17, 2016 from Jay Lanstein, Chief Executive Officer, Cantella & Co., Inc., available at https://www.sec.gov/comments/ sipc-2016-02/sipc201602-1.htm. 17 See email dated July 22, 2016 from Josephine Wang, Secretary, SIPC, to Brent J. Fields, Secretary, Commission. VerDate Sep<11>2014 17:04 Sep 02, 2016 Jkt 238001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 reaches its target balance, SIPC stated that it believes that lowering the assessment rate gradually ‘‘balances the financial interests of its members with the need for robust reserves that are vital to SIPC’s mission.’’ In addition, SIPC stated that ‘‘with a gradual reduction in rates, the Fund is more likely to stay above the current target balance.’’ With regard to the comment that assessments should be further reduced and that SIPC extracts ‘‘unnecessary fees,’’ SIPC stated that ‘‘in 20 of its 45 years of operation, most recently from 1996 to March 2009, assessments were the minimum allowed by statute, ranging from $25 to $150 annually.’’ SIPC further stated that ‘‘even since the financial crisis of 2008, SIPC has assessed its members at only a fraction of the maximum percentage legally permissible.’’ SIPC also stated that ‘‘relating its assessment needs to its net assets instead of to the balance of the SIPC Fund, offers a more realistic and accurate starting point for measuring potential future needs.’’ Accordingly, SIPC stated that it ‘‘believes it prudent to consider booked liabilities in addition to the size of the Fund in determining the appropriate assessment rate.’’ With regard to the comment that SIPC should reinstate a flat fee assessment, SIPC stated that ‘‘absent legislative change, SIPC may no longer assess a ‘flat fee’ minimum as suggested by the comment’’ because ‘‘SIPA section 78ddd(d)(1)(C) was amended in 2010 to provide for a minimum assessment no greater than 0.02 percent of the gross revenues from the securities business of SIPC members.’’ III. Commission Findings Section 3(e)(2)(D) of SIPA provides that the Commission shall approve a proposed rule change if it finds that the proposed rule change is in the public interest and is consistent with the purposes of SIPA.18 The Commission finds, pursuant to section 3(e)(2)(D) of SIPA, that the proposed bylaw change is in the public interest and consistent with the purposes of SIPA.19 The SIPC Fund, which is built from assessments on its members and the interest earned on the Fund, is used for the protection of customers of members liquidated under SIPA to maintain investor confidence in the securities markets.20 In order to reduce the 18 15 U.S.C. 78ccc(e)(2)(D). U.S.C. 78ccc(e)(2)(D). 20 See, e.g., Securities Investor Protection Corporation; Notice of Filing of Proposed Bylaw Amendment Relating to Assessment of SIPC Members, Release No. SIPA–177 (June 15, 2016), 81 FR 39986, 39988 (June 20, 2016). 19 15 E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 81, No. 172 / Tuesday, September 6, 2016 / Notices likelihood that the SIPC Fund does not fall below the $2.5 billion target, the Commission believes that, in setting the assessment rate, it is appropriate to consider not only the size of the Fund over a six-month period, but SIPC’s actual expenditures and its projected expenditures from the Fund over a longer term. In addition, the Commission believes that the size of the Fund is more likely to remain at or above the target level if there is a more gradual reduction in rates before the minimum assessment rate is imposed. Finally, the Commission believes that the proposed bylaw change would give SIPC members appropriate relief in the amount of assessment that they owe while maintaining the assessment rate at a level that is designed to keep the fund at the target level. Further, the Commission notes that the Fund plays a critical role in protecting customers of failed broker-dealer. In addition, the Commission believes that the proposed amendment to the Notice Provision will provide SIPC member broker-dealers with earlier notice of the assessment rate for the following year but also allow for more prompt changes to the assessment level when merited in certain emergency situations. IV. Conclusion IT IS THEREFORE ORDERED, pursuant to section 3(e)(2) of SIPA, that the proposed bylaw change is approved.21 By the Commission. Dated: August 30, 2016. Brent J. Fields, Secretary. [FR Doc. 2016–21269 Filed 9–2–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 32246; 812–14571] Voya ETF Trust, et al., Notice of Application August 30, 2016. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and mstockstill on DSK3G9T082PROD with NOTICES AGENCY: 21 15 U.S.C. 78ccc(e)(2). VerDate Sep<11>2014 17:04 Sep 02, 2016 Jkt 238001 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act. The requested order would permit (a) actively-managed series of certain open-end management investment companies (‘‘Funds’’) to issue shares redeemable in large aggregations only (‘‘Creation Units’’); (b) secondary market transactions in Fund shares to occur at negotiated market prices rather than at net asset value (‘‘NAV’’); (c) certain Funds to pay redemption proceeds, under certain circumstances, more than seven days after the tender of shares for redemption; (d) certain affiliated persons of a Fund to deposit securities into, and receive securities from, the Fund in connection with the purchase and redemption of Creation Units; (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the Funds (‘‘Funds of Funds’’) to acquire shares of the Funds; and (f) certain Funds (‘‘Feeder Funds’’) to create and redeem Creation Units in-kind in a master-feeder structure. Voya ETF Trust (the ‘‘Trust’), a Delaware statutory trust that will be registered under the Act as an open-end management investment company with multiple series, Voya Investments, LLC, an Arizona limited liability company, and Directed Services, LLC, a Delaware limited liability company (each of Voya Investments, LLC and Directed Services, LLC, an ‘‘Initial Adviser’’), each registered as an investment adviser under the Investment Advisers Act of 1940, Voya Investments Distributor, LLC (the ‘‘Distributor’’), an Arizona limited liability company and broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’). FILING DATES: The application was filed on October 27, 2015 and amended on April 1, 2016. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on September 26, 2016, and should be accompanied by proof of service on applicants, in the form of an affidavit, or for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts APPLICANTS: PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 61265 bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090; Applicants: Voya Investment Management, 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258. FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at (202) 551–3038, or Mary Kay Frech, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Summary of the Application 1. Applicants request an order that would allow Funds to operate as actively-managed exchange traded funds (‘‘ETFs’’).1 Fund shares will be purchased and redeemed at their NAV in Creation Units only. All orders to purchase Creation Units and all redemption requests will be placed by or through an ‘‘Authorized Participant’’, which will have signed a participant agreement with the Distributor. Shares will be listed and traded individually on a national securities exchange, where share prices will be based on the current bid/offer market. Certain Funds may operate as Feeder Funds in a masterfeeder structure. Any order granting the requested relief would be subject to the terms and conditions stated in the application. 2. Each Fund will consist of a portfolio of securities and other assets and investment positions (‘‘Portfolio Positions’’). Each Fund will disclose on its Web site the identities and quantities of the Portfolio Positions that will form the basis for the Fund’s calculation of NAV at the end of the day. 1 Applicants request that the order apply to the initial Fund, as well as future series of the Trust and other open-end management investment companies or series thereof that currently exist or that may be created in the future (each, included in the term ‘‘Fund’’), each of which will operate as an activelymanaged ETF. Any Fund will (a) be advised by an Initial Adviser or an entity controlling, controlled by, or under common control with such Initial Adviser (each, an ‘‘Adviser’’) and (b) comply with the terms and conditions of the application. E:\FR\FM\06SEN1.SGM 06SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 172 (Tuesday, September 6, 2016)]
[Notices]
[Pages 61263-61265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21269]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-178; File No. SIPC-2016-02]

Securities Investor Protection Corporation: Order Approving a
Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members

August 30, 2016.
On May 2, 2016, the Securities Investors Protection Corporation
(``SIPC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed bylaw change pursuant to section 3(e)(1) of
the Securities Investor Protection Act of 1970 (``SIPA'') \1\ relating
to assessments on SIPC member broker-dealers.\2\ On May 27, 2016, SIPC
consented to a 60-day extension of time before the proposed bylaw
change takes effect pursuant to section 3(e)(1) of SIPA.\3\ Pursuant to
section 3(e)(1)(B) of SIPA, the Commission found that the proposed
bylaw change involved a matter of such significant public interest that
public comment should be obtained.\4\ This meant that the Commission
could require the proposed bylaw change to be treated under the
procedures in section 3(e)(2) of SIPA applicable to a proposed SIPC
rule change.\5\ Consequently, pursuant to section 3(e)(2)(A) of
SIPA,\6\ notice requesting comment on the proposed bylaw change was
published in the Federal Register on June 20, 2016.\7\ The Commission
received one comment regarding the proposal.\8\ This order approves the
proposed bylaw change under section 3(e)(2) of SIPA.\9\
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\1\ 15 U.S.C. 78ccc(e)(1).
\2\ See letter dated May 2, 2016 from Josephine Wang, Secretary,
SIPC, to Brent J. Fields, Secretary, Commission.
\3\ 15 U.S.C. 78ccc(e)(1). This section provides that a proposed
bylaw change shall take effect thirty days after the date of the
filing of a copy thereof with the Commission, or upon such later
date as SIPC may designate or such earlier date as the Commission
may determine unless: (1) The Commission, by notice to SIPC setting
forth the reasons therefor, disapproves such proposed bylaw change
as being contrary to the public interest or contrary to the purposes
of SIPA; or (2) the Commission finds that such proposed bylaw change
involves a matter of such significant public interest that public
comment should be obtained, in which case it may, after notifying
SIPC in writing of such finding, require that the procedures set
forth in section 3(e)(2) of SIPA be followed with respect to such
proposed bylaw change, in the same manner as if such proposed bylaw
change were a proposed SIPC rule change.
\4\ 15 U.S.C. 78ccc(e)(1)(B).
\5\ See 15 U.S.C. 78ccc(e)(1)(B); 15 U.S.C. 78ccc(e)(2).
\6\ 15 U.S.C. 78ccc(e)(2)(A).
\7\ See Securities Investor Protection Corporation; Notice of
Filing of Proposed Bylaw Amendment Relating to Assessment of SIPC
Members, Release No. SIPA-177 (June 15, 2016), 81 FR 39986 (June 20,
2016).
\8\ See email dated June 17, 2016 from Jay Lanstein, Chief
Executive Officer, Cantella & Co., Inc., available at https://www.sec.gov/comments/sipc-2016-02/sipc201602-1.htm.
\9\ See 15 U.S.C. 78ccc(e)(2).
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I. Description of the Proposed Bylaw Change

A. Background

SIPA requires SIPC, by bylaw, to impose assessments upon its member
broker-dealers as, after consultation with self-regulatory
organizations, SIPC may deem necessary and appropriate to establish and
maintain a broker-dealer liquidation fund administered by SIPC (the
``SIPC Fund'') from which all expenditures by SIPC are to be made,
including funds used to facilitate the liquidation of broker-
dealers.\10\ Pursuant to this authority, SIPC collects annual
assessments from its members.\11\ The amount of the annual assessment
is prescribed by SIPA and the SIPC bylaws and is a percentage of the
member broker-dealer's net operating revenues from its securities
business.\12\
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\10\ 15 U.S.C. 78ddd. SIPC stated that it solicited the views of
self-regulatory organizations regarding the proposed bylaw change.
See email dated July 22, 2016 from Josephine Wang, Secretary, SIPC,
to Brent J. Fields, Secretary, Commission.
\11\ 15 U.S.C. 78ddd(d)(2)(C).
\12\ See 15 U.S.C. 78ddd(d); Bylaws of the Securities Investor
Protection Corporation, Article 6, available at https://www.sipc.org/about-sipc/statute-and-rules/bylaws. Net operating revenues from the
securities business are gross revenues from the securities business,
as defined in section 16(9) of SIPA, 15 U.S.C. 78lll(9), less total
interest and dividend expense, but not exceeding total interest and
dividend income. See Article 6; SIPC Form SIPC-6, available at
https://www.sipc.org/Content/media/filing-forms/SIPC-6-20130830.PDF.
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Article 6 of the SIPC bylaws (``Article 6'') currently provides for
an assessment rate of \1/4\ of one percent until the SIPC Fund reaches
$2.5 billion and SIPC determines that the Fund will remain at or above
$2.5 billion for at least six months. Once that determination is made,
the assessment rate falls to the minimum assessment permitted under
SIPA, which is 0.02 percent.\13\ Article 6 also provides that the
assessment rate is \1/4\ of one percent if it is reasonably likely that
the balance of the Fund will fall below $2.5 billion and remain at less
than $2.5 billion for six months or more.
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\13\ 15 U.S.C. 78ddd(c)(2).
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SIPC represented in its proposed bylaw change filing that it
continues to examine whether the Fund ``target balance'' of $2.5
billion is adequate for SIPC to carry out its mission of customer
protection, and that it wished to ensure that at a minimum, and to the
extent possible, the Fund does not fall below $2.5 billion. SIPC
indicated that it believed it was prudent to consider not only the size
of the Fund over a six-month period, but also SIPC's actual
expenditures and its projected expenditures from the Fund over a longer
term. In addition, SIPC stated that the size of the Fund is more likely
to stay at or above the target balance if there is a more gradual
reduction in assessment rates before the minimum assessment rate is
imposed. Finally, SIPC stated that such measures would make less likely
sudden changes in the assessment rate while giving SIPC members some
relief in the amount of the assessment that they owe.

B. The Proposed Amendments

With these considerations in mind, SIPC proposed to modify Article
6 in two respects. First, SIPC proposed to impose an intermediary
assessment rate that would apply when the balance of the SIPC Fund is
expected to be $2.5 billion for at least six months but SIPC's
unrestricted net assets--a measure of net assets that takes into
account the anticipated cost of ongoing customer protection
proceedings--are less than $2.5 billion, as reflected in its most
recent audited Statement of Financial Position.\14\ Secondly, SIPC
proposed to

[[Page 61264]]

lengthen the time period with respect to when a change in assessments
becomes effective after notice of the change is published.
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\14\ See, e.g., SIPC, 2015 Annual Report at 20, available at
https://www.sipc.org/Content/media/annual-reports/2015-annual-report.pdf (audited statement of financial position reporting
unrestricted net assets of $1,622,910,520).
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1. Imposition of an Intermediary Assessment Rate
When large SIPA liquidation proceedings are pending that require
sizeable advances by SIPC, the SIPC Fund could remain at or above the
$2.5 billion target level for six months, but then fall significantly
below that amount as additional advances are made. Under Article 6,
once the Fund reaches the $2.5 billion target level and is projected to
remain at or above that amount for six months or more, SIPC could
change the assessment rate from \1/4\ of one percent to 0.02 percent.
On the other hand, because projected expenditures in pending
proceedings could reasonably cause the balance of the SIPC Fund to be
less than $2.5 billion for six months or more, SIPC alternatively could
require that the assessment rate remain at \1/4\ of one percent. SIPC
proposed to amend Article 6 to provide clarity as to what actions it
might take when the Fund reaches the $2.5 billion target level, to
maintain the SIPC Fund at or above the target balance of $2.5 billion,
and to offer some relief in the amount of the assessment that member
broker-dealers must pay while reducing the likelihood of sudden changes
in the rates.
Under the proposed bylaw change, when the SIPC Fund reaches $2.5
billion and is projected to be at $2.5 billion for six months or more,
SIPC would consider the balance of its unrestricted net assets, as
reflected in its most recent audited Statement of Financial
Position.\15\ Specifically, SIPC could impose an annual assessment rate
of 0.15 percent of a member's net operating revenues from the
securities business if: (1) The amount of the SIPC Fund were at $2.5
billion or more; (2) SIPC determined that the Fund will remain at or
above $2.5 billion for at least six months; but (3) SIPC's unrestricted
net assets were less than $2.5 billion, as reflected in its most recent
audited Statement of Financial Condition.
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\15\ Among other items included in the calculation of
unrestricted net assets is a provision for trustees' estimated costs
to complete ongoing customer protection proceedings. See, e.g.,
SIPC, 2015 Annual Report at 20.
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2. Amendment of the Effective Date of a Change in the Assessment
SIPC also proposed to amend Article 6 with respect to when a change
in assessments becomes effective. Currently, Article 6 provides that a
change in assessments is to occur on the first day of the month
following the date on which SIPC announces a change in the assessment
and continue until SIPC provides otherwise (``Notice Provision'').
Under current practice, the SIPC Board of Directors in the ordinary
course determines the rate of assessment at its September meeting. The
Board's determination is announced shortly thereafter, and is made
effective the first day of the following month.
SIPC proposed to amend the Notice Provision in order to give its
member broker-dealers earlier notice of the assessment rate for the
following year. Under the proposal, an assessment rate would be
effective on the first day of the year following the date on which SIPC
announces its determination. Consequently, under the current practice
where the assessment is determined at a September meeting of the Board,
an assessment rate would be effective on January 1 of the new year.
However, the proposal recognizes that there may be emergency situations
when the need for an assessment rate to become effective is more
immediate. In that case, the assessment rate would be effective on the
date announced by SIPC provided that the exigency of the circumstances
so warrants.

II. Comments Received

The Commission received one comment regarding the proposal.\16\ The
commenter stated that the SIPC assessment rate ``should be lowered as
soon as the SIPC fund reaches its target balance, rather than waiting
potentially a full year.'' The commenter also stated that the proposed
reductions in the assessment rate should be further reduced and that
unless there is ``another major crisis'' the flat fee assessment should
be reinstated. The commenter further stated that since under the
proposal SIPC can immediately raise assessments when warranted and SIPC
can borrow from the Treasury if necessary, extracting ``unnecessary
fees'' presents a financial burden to customers of firms that pass the
assessments to their customers.
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\16\ See email dated June 17, 2016 from Jay Lanstein, Chief
Executive Officer, Cantella & Co., Inc., available at https://www.sec.gov/comments/sipc-2016-02/sipc201602-1.htm.
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On July 22, 2016, SIPC filed with the Commission a response to the
comment.\17\ With regard to the comment that the assessment rate should
be lowered as soon as the SIPC Fund reaches its target balance, SIPC
stated that it believes that lowering the assessment rate gradually
``balances the financial interests of its members with the need for
robust reserves that are vital to SIPC's mission.'' In addition, SIPC
stated that ``with a gradual reduction in rates, the Fund is more
likely to stay above the current target balance.'' With regard to the
comment that assessments should be further reduced and that SIPC
extracts ``unnecessary fees,'' SIPC stated that ``in 20 of its 45 years
of operation, most recently from 1996 to March 2009, assessments were
the minimum allowed by statute, ranging from $25 to $150 annually.''
SIPC further stated that ``even since the financial crisis of 2008,
SIPC has assessed its members at only a fraction of the maximum
percentage legally permissible.'' SIPC also stated that ``relating its
assessment needs to its net assets instead of to the balance of the
SIPC Fund, offers a more realistic and accurate starting point for
measuring potential future needs.'' Accordingly, SIPC stated that it
``believes it prudent to consider booked liabilities in addition to the
size of the Fund in determining the appropriate assessment rate.'' With
regard to the comment that SIPC should reinstate a flat fee assessment,
SIPC stated that ``absent legislative change, SIPC may no longer assess
a `flat fee' minimum as suggested by the comment'' because ``SIPA
section 78ddd(d)(1)(C) was amended in 2010 to provide for a minimum
assessment no greater than 0.02 percent of the gross revenues from the
securities business of SIPC members.''
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\17\ See email dated July 22, 2016 from Josephine Wang,
Secretary, SIPC, to Brent J. Fields, Secretary, Commission.
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III. Commission Findings

Section 3(e)(2)(D) of SIPA provides that the Commission shall
approve a proposed rule change if it finds that the proposed rule
change is in the public interest and is consistent with the purposes of
SIPA.\18\ The Commission finds, pursuant to section 3(e)(2)(D) of SIPA,
that the proposed bylaw change is in the public interest and consistent
with the purposes of SIPA.\19\
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\18\ 15 U.S.C. 78ccc(e)(2)(D).
\19\ 15 U.S.C. 78ccc(e)(2)(D).
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The SIPC Fund, which is built from assessments on its members and
the interest earned on the Fund, is used for the protection of
customers of members liquidated under SIPA to maintain investor
confidence in the securities markets.\20\ In order to reduce the

[[Page 61265]]

likelihood that the SIPC Fund does not fall below the $2.5 billion
target, the Commission believes that, in setting the assessment rate,
it is appropriate to consider not only the size of the Fund over a six-
month period, but SIPC's actual expenditures and its projected
expenditures from the Fund over a longer term. In addition, the
Commission believes that the size of the Fund is more likely to remain
at or above the target level if there is a more gradual reduction in
rates before the minimum assessment rate is imposed. Finally, the
Commission believes that the proposed bylaw change would give SIPC
members appropriate relief in the amount of assessment that they owe
while maintaining the assessment rate at a level that is designed to
keep the fund at the target level. Further, the Commission notes that
the Fund plays a critical role in protecting customers of failed
broker-dealer.
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\20\ See, e.g., Securities Investor Protection Corporation;
Notice of Filing of Proposed Bylaw Amendment Relating to Assessment
of SIPC Members, Release No. SIPA-177 (June 15, 2016), 81 FR 39986,
39988 (June 20, 2016).
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In addition, the Commission believes that the proposed amendment to
the Notice Provision will provide SIPC member broker-dealers with
earlier notice of the assessment rate for the following year but also
allow for more prompt changes to the assessment level when merited in
certain emergency situations.

IV. Conclusion

IT IS THEREFORE ORDERED, pursuant to section 3(e)(2) of SIPA, that
the proposed bylaw change is approved.\21\
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\21\ 15 U.S.C. 78ccc(e)(2).

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By the Commission.

Dated: August 30, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016-21269 Filed 9-2-16; 8:45 am]
BILLING CODE 8011-01-P

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