Document ID: SEC-2016-0376-0001
Agency: sec
Document Type: Proposed Rule
Title: Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act
Posted Date: 2016-03-02T05:00Z

[Federal Register Volume 81, Number 41 (Wednesday, March 2, 2016)]
[Proposed Rules]
[Pages 10798-10820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03874]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AE39

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 302

RIN 3235-AL51
[Release No. 34-77157; File No. S7-02-16]

Covered Broker-Dealer Provisions Under Title II of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act

AGENCY: Federal Deposit Insurance Corporation (``FDIC'' or 
``Corporation''); Securities and Exchange Commission (``SEC'' or 
``Commission'' and, collectively with the FDIC, the ``Agencies'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Agencies, in accordance with section 205(h) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act''), are jointly proposing a rule to implement provisions applicable 
to the orderly liquidation of covered brokers and dealers under Title 
II of the Dodd-Frank Act (``Title II'').

DATES: Comments should be received on or before May 2, 2016.

ADDRESSES: Comments may be submitted by any of the following methods:

FDIC

     FDIC Web site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the FDIC Web 
site.
     FDIC email: Comments@FDIC.gov. Include ``RIN 3064-AE39'' 
in the subject line of the message.
     FDIC mail: Robert E. Feldman, Executive Secretary, 
Attention: Comments, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.
     Hand delivery/courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (Eastern Time).
     Federal eRulemaking portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Public inspection: All comments received will be posted 
without change to http://www.fdic.gov/regulations/laws/federal 
including any personal information provided. Paper copies of public 
comments may be ordered from the Public Information Center by telephone 
at (877) 275-3342 or (703) 562-2200.

SEC

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-02-16 on the subject line; or

[[Page 10799]]

     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-02-16. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Web site (http://www.sec.gov/rules/proposed.shtml). 
Comments also are 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. 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 
publicly available.
    Studies, memoranda or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the Commission's Web site. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: 

FDIC

    Peter Miller, Assistant Director, Division of Resolutions and 
Receiverships, at (917) 320-2589; John Oravec, Senior Resolution 
Advisor, Office of Complex Financial Institutions, at (202) 898-6612; 
Elizabeth Falloon, Supervisory Counsel, Legal Division, at (703) 562-
6148; Pauline Calande, Senior Counsel, Legal Division, at (202) 898-
6744.

SEC

    Thomas K. McGowan, Associate Director, at (202) 551-5521; Randall 
W. Roy, Deputy Associate Director, at (202) 551-5522; Raymond A. 
Lombardo, Branch Chief, at (202) 551-5755; Jane D. Wetterau, Attorney 
Advisor, at (202) 551-4483, Division of Trading and Markets, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

I. Background
II. Proposed Rule
    A. Definitions
    1. Definitions Relating to Covered Broker-Dealers
    2. Additional Definitions
    B. Appointment of Receiver and Trustee for Covered Broker-Dealer
    C. Notice and Application for Protective Decree for Covered 
Broker-Dealer
    D. Bridge Broker-Dealer
    1. Power To Establish Bridge Broker-Dealer; Transfer of Customer 
Accounts and Other Assets and Liabilities
    2. Other Provisions With Respect to Bridge Broker-Dealer
    E. Claims of Customers and Other Creditors of a Covered Broker-
Dealer
    F. Additional Proposed Sections
III. Requests for Comments
    A. In General
    B. Requests for Comment on Certain Specific Matters
IV. Paperwork Reduction Act
V. Economic Analysis
    A. Introduction and General Economic Considerations
    B. Economic Baseline
    1. SIPC's Role
    2. The Corporation's Power To Establish Bridge Broker-Dealers
    3. Satisfaction of Customer Claims
    C. Benefits, Costs and Effects on Efficiency, Competition, and 
Capital Formation
    1. Anticipated Benefits
    2. Anticipated Costs
    3. Effects on Efficiency, Competition, and Capital Formation
    D. Alternatives Considered
    E. Request for Comment
VI. Regulatory Analysis and Procedures
    A. Regulatory Flexibility Act Analysis
    B. The Treasury and General Government Appropriations Act, 
1999--Assessment of Federal Regulations and Policies on Families
    C. Plain Language
VII. Consideration of Impact on the Economy
VIII. Statutory Authority

I. Background

    Title II of the Dodd-Frank Act \1\ provides an alternative 
insolvency regime for the orderly liquidation of large financial 
companies that meet specified criteria.\2\ Section 205 of Title II sets 
forth certain provisions specific to the orderly liquidation of certain 
large broker-dealers, and paragraph (h) of section 205 requires the 
Agencies, in consultation with the Securities Investor Protection 
Corporation (``SIPC''), jointly to issue rules to implement section 
205.\3\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010, Public Law 111-203, 124 Stat. 1376 (2010) and codified at 12 
U.S.C. 5301 et seq. Title II of the Dodd-Frank Act is codified at 12 
U.S.C. 5381-5394.
    \2\ See 12 U.S.C. 5384 (pertaining to the orderly liquidation of 
covered financial companies).
    \3\ See 12 U.S.C. 5385 (pertaining to the orderly liquidation of 
covered broker-dealers).
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    In the case of a broker-dealer, or in which the largest U.S. 
subsidiary of a financial company \4\ is a broker-dealer, the Board of 
Governors of the Federal Reserve (``Board'') and the Commission are 
authorized jointly to issue a written orderly liquidation 
recommendation to the U.S. Treasury Secretary (``Secretary''). The FDIC 
must be consulted in such a case.
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    \4\ Section 201(a)(11) of the Dodd-Frank Act (12 U.S.C. 
5381(a)(11)) (defining financial company).
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    The recommendation, which may be sua sponte or at the request of 
the Secretary, must contain a discussion regarding eight criteria 
enumerated in section 203(a)(2) \5\ and be approved by a vote of not 
fewer than a two-thirds majority of each agency's governing body then 
serving.\6\ Based on similar but not identical criteria enumerated in 
section 203(b), the Secretary would consider the recommendation and (in 
consultation with the President) determine whether the financial 
company poses a systemic risk meriting liquidation under Title II.\7\
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    \5\ See 12 U.S.C. 5383(a)(2)(A) through (G).
    \6\ See 12 U.S.C. 5383(a)(1)(B) (pertaining to vote required in 
cases involving broker-dealers).
    \7\ See 12 U.S.C. 5383(b) (pertaining to a determination by the 
Secretary).
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    Title II also provides that in any case in which the Corporation is 
appointed receiver for a covered financial company,\8\ the Corporation 
may appoint itself as receiver for any covered subsidiary \9\ if the 
Corporation and the Secretary make the requisite joint determination 
specified in section 210.\10\
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    \8\ See 12 U.S.C. 5381(a)(8) (definition of covered financial 
company).
    \9\ See 12 U.S.C. 5381(a)(9) (definition of covered subsidiary). 
A covered subsidiary of a covered financial company could include a 
broker-dealer.
    \10\ See 12 U.S.C. 5390(a)(1)(e).
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    A company that is the subject of an affirmative section 203(b) or 
section 210(a)(1)(E) determination would be considered a covered 
financial company for purposes of Title II.\11\ As discussed below, a 
covered broker or dealer is a covered financial company that is 
registered with the Commission as a broker or dealer and is a member of 
SIPC.\12\ Irrespective of how the broker-dealer was placed into a Title 
II resolution, section 205 regarding the liquidation of covered broker-
dealers and the proposed rule (if adopted) would always apply to the 
broker-dealer even if section 210 is invoked.\13\
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    \11\ See 12 U.S.C. 5381(a)(8) (definition of covered financial 
company); 12 U.S.C. 5390(a)(1)(E)(ii) (treatment as covered 
financial company).
    \12\ See 12 U.S.C. 5381(a)(7) (definition of covered broker or 
dealer). For convenience, we hereinafter refer to entities that meet 
this definition as covered broker-dealers.
    \13\ See 12 U.S.C. 5390(a)(1)(E).
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    Upon a determination under section 203 or section 210, a covered 
financial

[[Page 10800]]

company would be placed into an orderly liquidation proceeding and the 
FDIC would be appointed receiver.\14\ In the case of a covered broker-
dealer, the FDIC would appoint SIPC as trustee for the covered broker-
dealer.\15\ Although the statute refers to the appointment of SIPC as 
trustee for the ``liquidation of the covered broker-dealer under [the 
Securities Investor Protection Act (``SIPA'')]'',\16\ the proposed rule 
simply refers to SIPC as trustee for the covered broker-dealer since 
the Title II receivership is not a liquidation of the covered broker-
dealer under SIPA, but rather an orderly liquidation of the broker-
dealer under Title II that incorporates the customer protection 
provisions of SIPA. The FDIC could utilize a bridge financial company, 
a bridge broker-dealer,\17\ as a means to liquidate the covered broker-
dealer, transferring customer accounts and associated customer name 
securities and customer property to such bridge financial company.\18\ 
In the event that a bridge broker-dealer were created, SIPC, as trustee 
under SIPA for the covered broker-dealer, would determine claims and 
distribute assets retained in the receivership of the covered broker-
dealer in a manner consistent with SIPA.\19\ The transfer of customer 
property, and advances from SIPC, made to the bridge broker-dealer and 
allocated to a customer's account at the bridge broker-dealer would 
satisfy a customer's net equity claims against the covered broker-
dealer to the extent of the value, as of the appointment date, of such 
allocated property. SIPC would have no powers or duties with respect to 
assets and liabilities of the bridge broker-dealer.\20\ This rulemaking 
clarifies for purposes of section 205(h): \21\ How the customer 
protections of SIPA will be integrated with the other provisions of 
Title II; the roles of the Corporation as receiver and SIPC as trustee 
for a covered broker-dealer; and the administration of claims in an 
orderly liquidation of a covered broker-dealer.
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    \14\ See 12 U.S.C. 5384 (pertaining to orderly liquidation of 
covered financial companies).
    \15\ See 12 U.S.C. 5385(a) (appointment of SIPC as trustee for 
the liquidation).
    \16\ 12 U.S.C. 5385(a)(1).
    \17\ See Section II.A.2 below for a definition of bridge broker 
or dealer. For convenience, we hereinafter refer to entities that 
meet that definition as bridge broker-dealers.
    \18\ See 12 U.S.C. 5390(h)(2)(H) (pertaining to the 
Corporation's authority to organize bridge financial companies). See 
also infra section II.D.2 (describing the process of transferring 
accounts to the bridge broker-dealer).
    \19\ See 12 U.S.C. 5385(a)(2)(B) (pertaining to the 
administration by SIPC of assets of the covered broker-dealer not 
transferred to a bridge broker-dealer).
    \20\ 12 U.S.C. 5385(b)(1).
    \21\ 12 U.S.C. 5385(f).
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II. Proposed Rule

A. Definitions \22\
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    \22\ If adopted, the definitions section would appear in 12 CFR 
380.60 for purposes of the Corporation and 17 CFR 302.100 for 
purposes of the Commission.
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    The proposed definitions section would define certain key terms. 
Consistent with the remainder of the proposed rule, the definitions are 
designed to help ensure that, as the statute requires, net equity 
claims of customers against a covered broker-dealer are determined and 
satisfied in a manner and amount that is at least as beneficial to 
customers as would have been the case had the covered broker-dealer 
been liquidated under SIPA without the appointment of the FDIC as 
receiver and without any transfer of assets or liabilities to a bridge 
financial company, and with a filing date as of the date on which the 
FDIC was appointed as receiver.\23\ To effectuate the statutory 
requirement, the definitions in the proposed rule are very similar or 
identical to the corresponding definitions in SIPA and Title II of the 
Dodd-Frank Act, and where they differ, it is for purposes of clarity 
only and not to change or modify the meaning of the definitions under 
either Act.
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    \23\ See 12 U.S.C. 5385(f)(1) (pertaining to obligations to 
customers) and 12 U.S.C. 5385(d)(1)(A) through (C) (limiting certain 
actions of the Corporation that would adversely affect, diminish or 
otherwise impair certain customer rights).
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1. Definitions Relating to Covered Broker-Dealers
    The term covered broker or dealer would be defined as ``a covered 
financial company that is a qualified broker or dealer.'' \24\ Pursuant 
to section 201(a)(10) of the Dodd-Frank Act, the terms customer, 
customer name securities, customer property, and net equity in the 
context of a covered broker-dealer will have the same meaning as the 
corresponding terms in section 16 of SIPA.\25\
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    \24\ See Sec. Sec.  380.60(d) and 302.100(d), as proposed. See 
also 12 U.S.C. 5381(a)(7).
    \25\ 12 U.S.C. 5381(a)(10). See also 15 U.S.C. 78lll and 
Sec. Sec.  380.60 and 302.100, as proposed.
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    Section 16(2)(A) of SIPA defines customer of a debtor, in pertinent 
part, as any person (including any person with whom the debtor deals as 
principal or agent) who has a claim on account of securities received, 
acquired, or held by the debtor in the ordinary course of its business 
as a broker or dealer from or for the securities accounts of such 
person for safekeeping, with a view to sale, to cover consummated 
sales, pursuant to purchases, as collateral, security, or for purposes 
of effecting transfer.\26\ Section 16(3) of SIPA defines customer name 
securities as securities which were held for the account of a customer 
on the filing date by or on behalf of the debtor and which on the 
filing date were registered in the name of the customer, or were in the 
process of being so registered pursuant to instructions from the 
debtor, but does not include securities registered in the name of the 
customer which, by endorsement or otherwise, were in negotiable 
form.\27\ Section 16(4) of SIPA defines customer property, in pertinent 
part, as cash and securities (except customer name securities delivered 
to the customer) at any time received, acquired, or held by or for the 
account of a debtor from or for the securities accounts of a customer, 
and the proceeds of any such property transferred by the debtor, 
including property unlawfully converted.\28\
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    \26\ 15 U.S.C. 78lll(2)(A). See also Sec. Sec.  380.60(e) and 
302.100(e), as proposed.
    \27\ 15 U.S.C. 78lll(3). See also Sec. Sec.  380.60(f) and 
302.100(f), as proposed.
    \28\ 15 U.S.C. 78lll(4). See also Sec. Sec.  380.60(g) and 
302.100(g), as proposed.
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    Section (16)(11) of SIPA defines net equity as the dollar amount of 
the account or accounts of a customer, to be determined by:
    1. Calculating the sum which would have been owed by the debtor to 
such customer if the debtor had liquidated, by sale or purchase on the 
filing date--
    a. All securities positions of such customer (other than customer 
name securities reclaimed by such customer); and
    b. All positions in futures contracts and options on futures 
contracts held in a portfolio margining account carried as a securities 
account pursuant to a portfolio margining program approved by the 
Commission, including all property collateralizing such positions, to 
the extent that such property is not otherwise included herein; minus
    2. Any indebtedness of such customer to the debtor on the filing 
date; plus
    3. Any payment by such customer of such indebtedness to the debtor 
which is made with the approval of the trustee and within such period 
as the trustee may determine (but in no event more than sixty days 
after the publication of notice under section (8)(a) [of SIPA]).\29\
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    \29\ 15 U.S.C. 78lll(11) (emphasis added). See also Sec. Sec.  
380.60(h) and 302.100(h), as proposed.
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    The proposed definition of appointment date is the date of the 
appointment of the Corporation as receiver for a covered financial 
company that is a covered broker or

[[Page 10801]]

dealer.\30\ The appointment date would constitute the filing date as 
that term is used under SIPA \31\ and, like the filing date under SIPA, 
is the reference date for the computation of net equity.\32\
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    \30\ See Sec. Sec.  380.60(a) and 302.100(a), as proposed.
    \31\ See Sec. Sec.  380.60(a) and 302.100(a), as proposed.
    \32\ See Sec. Sec.  380.60(a) and 302.100(a), as proposed. See 
also 12 U.S.C. 5385(a)(2)(C) and 15 U.S.C. 78lll(7).
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2. Additional Definitions
    In addition to the definitions relating to covered broker-dealers 
under section 201(a)(10) of the Dodd-Frank Act,\33\ the Agencies also 
propose to define the following terms: (1) bridge broker or dealer; 
\34\ (2) Commission; \35\ (3) qualified broker or dealer; \36\ (4) SIPA 
\37\ and (5) SIPC. \38\
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    \33\ See 12 U.S.C. 5381(a)(10).
    \34\ See Sec. Sec.  380.60(b) and 302.100(b), as proposed.
    \35\ See Sec. Sec.  380.60(c) and 302.100(c), as proposed.
    \36\ See Sec. Sec.  380.60(i) and 302.100(i), as proposed.
    \37\ See Sec. Sec.  380.60(j) and 302.100(j), as proposed.
    \38\ See Sec. Sec.  380.60(k) and 302.100(k), as proposed.
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    The term bridge broker or dealer would be defined as a new 
financial company organized by the Corporation in accordance with 
section 210(h) of the Dodd-Frank Act for the purpose of resolving a 
covered broker or dealer.\39\ The term Commission would be defined as 
the Securities and Exchange Commission.\40\ The term qualified broker 
or dealer would refer to a broker or dealer that (A) is registered with 
the Commission under section 15(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o(b)); and (B) is a member of SIPC, but is not itself 
subject to a Title II receivership.\41\ This definition is consistent 
with the statutory definition but is abbreviated for clarity. It is not 
intended to change or modify the statutory definition. The term SIPA 
would refer to the Securities Investor Protection Act of 1970, 15 
U.S.C. 78aaa-lll.\42\ The term SIPC would refer to the Securities 
Investor Protection Corporation.\43\
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    \39\ See Sec. Sec.  380.60(b) and 302.100(b), as proposed. See 
also 15 U.S.C. 5390(h)(2)(H) (setting forth that the FDIC, as 
receiver for a covered broker or dealer, may approve articles of 
association for one or more bridge financial companies with respect 
to such covered broker or dealer).
    \40\ See Sec. Sec.  380.60(c) and 302.100(c), as proposed.
    \41\ See Sec. Sec.  380.60(i) and 302.100(i), as proposed.
    \42\ See Sec. Sec.  380.60(j) and 302.100(j), as proposed.
    \43\ See Sec. Sec.  380.60(k) and 302.100(k), as proposed.
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B. Appointment of Receiver and Trustee for Covered Broker-Dealer \44\
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    \44\ If adopted, the section about the appointment of receiver 
and trustee for covered broker-dealers would appear in 12 CFR 380.61 
for purposes of the Corporation and 17 CFR 302.101 for purposes of 
the Commission. The rule text in both CFRs will be identical.
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    Upon the FDIC's appointment as receiver for a covered broker-
dealer, section 205 of the Dodd-Frank Act specifies that the 
Corporation shall appoint SIPC to act as trustee for the liquidation 
under SIPA of the covered broker-dealer.\45\ The proposed rule deviates 
from the statutory language in some cases to clarify the orderly 
liquidation process. For example, the proposed rule would make it clear 
that SIPC is to be appointed as trustee for the covered broker-dealer 
but deletes the phrase ``for the liquidation under SIPA'' since in 
reality there is no proceeding under SIPA and the covered broker-dealer 
is being liquidated under Title II. Section 205 of the Dodd-Frank Act 
also states that court approval is not required for such 
appointment.\46\ For ease and clarity, the proposed rule would 
incorporate these statutory roles which are further explained in other 
sections of the proposed rule.\47\
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    \45\ See 12 U.S.C. 5385(a)(1).
    \46\ Id.
    \47\ See Sec. Sec.  380.61 and 302.101, as proposed.
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C. Notice and Application for Protective Decree for Covered Broker-
Dealer \48\
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    \48\ If adopted, the notice and application for protective 
decree for the covered broker-dealer section will appear in 12 CFR 
380.62 for purposes of the FDIC and 17 CFR 302.102 for purposes of 
the Commission.
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    Upon the appointment of SIPC as trustee for the covered broker-
dealer, Title II requires SIPC, as trustee, promptly to file an 
application for a protective decree with a federal district court, and 
SIPC and the Corporation, in consultation with the Commission, jointly 
to determine the terms of the protective decree to be filed.\49\ 
Although a SIPA proceeding is conducted under bankruptcy court 
supervision,\50\ a Title II proceeding is conducted entirely outside of 
the bankruptcy courts, through an administrative process, with the FDIC 
acting as receiver.\51\ As a result, a primary purpose of filing a 
notice and application for a protective decree is to give notice to 
interested parties that an orderly liquidation proceeding has been 
initiated. The proposed rule on notice and application for protective 
decree provides additional clarification of the statutory requirement 
by setting forth the venue in which the notice and application for a 
protective decree is to be filed. It states that a notice and 
application for a protective decree is to be filed with the federal 
district court in which a liquidation of the covered broker-dealer 
under SIPA is pending, or if no such SIPA liquidation is pending, the 
federal district court for the district within which the covered 
broker-dealer's principal place of business is located.\52\ This court 
is a federal district court of competent jurisdiction specified in 
section 21 or 27 of the Exchange Act, 15 U.S.C. 78u, 78aa.\53\ It also 
is the court with jurisdiction over suits seeking de novo judicial 
claims determinations under section 210(a)(4)(A) of the Dodd-Frank 
Act.\54\ While the statute grants authority to file the notice and 
application for a protective decree in any federal court of competent 
jurisdiction specified in section 21 or 27 or the Securities Exchange 
Act of 1934, the proposed rule restricts the filing to the courts 
specified above in order to make it easier for interested parties to 
know where the protective decree might be filed. The proposed rule also 
clarifies that if the notice and application for a protective decree is 
filed on a date other than the appointment date, the filing shall be 
deemed to have occurred on the appointment date for purposes of the 
rule.\55\
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    \49\ See 12 U.S.C. 5385(b)(3) (pertaining to the filing of a 
protective decree by SIPC).
    \50\ See 15 U.S.C. 78eee(b).
    \51\ See 15 U.S.C. 5388 (requiring the dismissal of all other 
bankruptcy or insolvency proceedings upon the appointment of the 
Corporation as receiver for a covered financial company).
    \52\ See Sec. Sec.  380.62(a) and 302.102(a), as proposed.
    \53\ See 12 U.S.C. 5385(a)(2)(A) (specifying the federal 
district courts in which the application for a protective decree may 
be filed).
    \54\ See 12 U.S.C. 5390(a)(4)(A) (a claimant may file suit in 
the district or territorial court for the district within which the 
principal place of business of the covered financial company is 
located).
    \55\ See Sec. Sec.  380.62(a) and 302.102(a), as proposed.
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    This proposed section of the rule governing the notice and 
application for a protective decree would also include a non-exclusive 
list of notices drawn from other parts of Title II.\56\ The goal would 
be to inform interested parties that the covered broker-dealer is in 
orderly liquidation, and to highlight the application of certain 
provisions of the orderly liquidation authority particularly with 
respect to applicable stays and other matters that might be addressed 
in a protective decree issued under SIPA. A notice and application for 
a protective decree under Title II may, among other things, provide for 
notice: (1) That any existing case or proceeding under the Bankruptcy 
Code or SIPA would be dismissed, effective as of the appointment date, 
and no such case or proceeding may be commenced with respect to a 
covered broker-dealer at any time while the Corporation is the receiver 
for such covered broker-dealer; \57\ (2) of the revesting of assets,

[[Page 10802]]

with certain exceptions, in a covered broker-dealer to the extent that 
they have vested in any entity other than the covered broker-dealer as 
a result of any case or proceeding commenced with respect to the 
covered broker-dealer under the Bankruptcy Code, SIPA, or any similar 
provision of state liquidation or insolvency law applicable to the 
covered broker-dealer; \58\ (3) of the request of the Corporation as 
receiver for a stay in any judicial action or proceeding in which the 
covered broker-dealer is or becomes a party for a period of up to 90 
days from the appointment date; \59\ (4) that except with respect to 
qualified financial contracts (``QFCs''),\60\ no person may exercise 
any right or power to terminate, accelerate, or declare a default under 
any contract to which the covered broker-dealer is a party or to obtain 
possession of or exercise control over any property of the covered 
broker-dealer or affect any contractual rights of the covered broker-
dealer without the consent of the FDIC as receiver of the covered 
broker-dealer upon consultation with SIPC during the 90-day period 
beginning from the appointment date \61\; and (5) that the exercise of 
rights and the performance of obligations by parties to QFCs with the 
covered broker-dealer may be affected, stayed, or delayed pursuant to 
the provisions of Title II (including but not limited to 12 U.S.C. 
5390(c)) and the regulations promulgated thereunder.\62\
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    \56\ See Sec. Sec.  380.62(b) and 302.102(b), as proposed.
    \57\ See Sec. Sec.  380.62(b)(2)(i) and 302.102(b)(2)(i), as 
proposed. See also 12 U.S.C. 5388(a) (regarding dismissal of any 
case or proceeding relating to a covered broker-dealer under the 
Bankruptcy Code or SIPA on the appointment of the Corporation as 
receiver and notice to the court and SIPA).
    \58\ See Sec. Sec.  380.62(b)(2)(ii) and 302.102(b)(2)(ii), as 
proposed. See also 12 U.S.C. 5388(b) (providing that the notice and 
application for a protective decree may also specify that any 
revesting of assets in a covered broker or dealer to the extent that 
they have vested in any other entity as a result of any case or 
proceeding commenced with respect to the covered broker or dealer 
under the Bankruptcy Code, SIPA, or any similar provision of State 
liquidation or insolvency law applicable to the covered broker or 
dealer shall not apply to assets of the covered broker or dealer, 
including customer property, transferred pursuant to an order 
entered by a bankruptcy court).
    \59\ See Sec. Sec.  380.62(b)(2)(iii) and 302.102(b)(2)(iii), as 
proposed. See also 12 U.S.C. 5390(a)(8) (providing for the temporary 
suspension of legal actions upon request of the Corporation).
    \60\ See 12 U.S.C. 5390(c)(8)(D) (defining qualified financial 
contract as ``any securities contract, commodity contract, forward 
contract, repurchase agreement, swap agreement, and any similar 
agreement that the Corporation determines by regulation, resolution, 
or order to be a qualified financial contract for purposes of this 
paragraph'').
    \61\ 12 U.S.C. 5390(c)(13)(C)(i).
    \62\ See Sec. Sec.  380.62(b)(2)(iv) and 302.102(b)(2)(iv), as 
proposed. See also 12 U.S.C. 5390(c)(8)(F) (rendering unenforceable 
all QFC walkaway clauses (as defined in 12 U.S.C. 
5390(c)(8)(F)(iii)) including those provisions that suspend, 
condition, or extinguish a payment obligation of a party because of 
the insolvency of a covered financial company or the appointment of 
the FDIC as receiver) and 12 U.S.C. 5390(c)(10)(B)(i) (providing 
that in the case of a QFC, a person who is a party to a QFC with a 
covered financial company may not exercise any right that such 
person has to terminate, liquidate, or net such contract solely by 
reason of or incidental to the appointment of the FDIC as receiver 
(or the insolvency or financial condition of the covered financial 
company for which the FDIC has been appointed as receiver) --until 
5:00 p.m. (eastern time) on the business day following the 
appointment, or after the person has received notice that the 
contract has been transferred pursuant to 12 U.S.C. 5390(c)(9)(A)).
---------------------------------------------------------------------------

    The proposed rule makes clear that the matters listed for inclusion 
in the notice and application for a protective decree are neither 
mandatory nor all-inclusive. The items listed are those that the 
Agencies believe might provide useful guidance to customers and other 
parties who may be less familiar with the Title II process than with a 
SIPA proceeding. It is worth noting that the language relating to QFCs 
is rather general. In certain circumstances it may be worthwhile 
specifically to highlight the one-day stay provisions in section 
210(c)(10) of the Dodd-Frank Act, the provisions relating to the 
enforcement of affiliate contracts under section 210(c)(16) of the 
Dodd-Frank Act, and other specific provisions relating to QFCs or other 
contracts.

D. Bridge Broker-Dealer \63\
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    \63\ If adopted, the bridge broker or dealer section will appear 
in 12 CFR 380.63 for purposes of the Corporation and 17 CFR 302.103 
for purposes of the Commission.
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1. Power To Establish Bridge Broker-Dealer; Transfer of Customer 
Accounts and Other Assets and Liabilities
    Section 210 of the Dodd-Frank Act sets forth the Corporation's 
powers as receiver of a covered financial company.\64\ One such power 
the Corporation has, as receiver, is the power to form bridge financial 
companies.\65\ Paragraph (a) of this section of the proposed rule 
states that the Corporation as receiver for a covered broker-dealer, or 
in anticipation of being appointed receiver for a covered broker-
dealer, may organize one or more bridge broker-dealers with respect to 
a covered broker-dealer.\66\ Paragraph (b) of this section of the 
proposed rule states that if the Corporation were to establish one or 
more bridge broker-dealers with respect to a covered broker-dealer, 
then the Corporation as receiver for such covered broker-dealer shall 
transfer all customer accounts and all associated customer name 
securities and customer property to such bridge broker[s]-dealer[s] 
unless the Corporation, after consultation with the Commission and 
SIPC, determines that: (1) The transfer of such customer accounts, 
customer name securities, and customer property to one or more 
qualified broker-dealers will occur promptly such that the use of the 
bridge broker[s]-dealer[s] would not facilitate such transfer to one or 
more qualified broker-dealers; or (2) the transfer of such customer 
accounts to the bridge broker[s]-dealer[s] would materially interfere 
with the ability of the FDIC to avoid or mitigate serious adverse 
effects on financial stability or economic conditions in the United 
States.\67\ The two conditions in paragraph (b) of the proposed rule 
are contained in Title II and are provided in the proposed rule for 
ease and clarity and to make it clear the transfer to a bridge broker-
dealer will take place unless a transfer to a qualified broker-dealer 
is imminent.\68\ The use of the word ``promptly'' in the proposed rule, 
in this context, is intended to emphasize the urgency of transferring 
customer accounts, customer name securities, and customer property 
either to a qualified broker-dealer or to a bridge broker-dealer as 
soon as practicable to allow customers the earliest possible access to 
their accounts.
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    \64\ 12 U.S.C. 5390.
    \65\ See 12 U.S.C. 5390(h)(1)(A) (granting general power to form 
bridge financial companies). See also 12 U.S.C. 5390(h)(2)(H)(i) 
(granting authority to organize one or more bridge financial 
companies with respect to a covered broker-dealer).
    \66\ See Sec. Sec.  380.63 and 302.103, as proposed. See also 12 
U.S.C. 5390(h)(2)(H) (granting the Corporation as receiver authority 
to organize one or more bridge financial companies with respect to a 
covered broker-dealer).
    \67\ See Sec. Sec.  380.63(b) and 302.103(b), as proposed. See 
also 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II) (listing the specific 
conditions under which customer accounts would not be transferred to 
a bridge financial company if it was organized).
    \68\ 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II).
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    Paragraph (c) of this section of the proposed rule states that the 
Corporation as receiver for the covered broker-dealer also may transfer 
to such bridge broker[s]-dealer[s] any other assets and liabilities of 
the covered broker-dealer (including non-customer accounts and any 
associated property) as the Corporation may, in its discretion, 
determine to be appropriate. Paragraph (c) is based upon the broad 
authority of the Corporation as receiver to transfer any assets or 
liabilities of the covered broker-dealer to a bridge financial company 
in accordance with, and subject to the requirements of, section 
210(h)(5) of the Dodd-Frank Act \69\ and is designed to facilitate the

[[Page 10803]]

receiver's ability to continue the covered broker-dealer's operations, 
minimize systemic risk, and maximize the value of the assets of the 
receivership.\70\ The transfer of assets and liabilities to a bridge 
broker-dealer under the proposed rule would enable the receiver to 
continue the day-to-day operations of the broker-dealer and facilitate 
the maximization of the value of the assets of the receivership by 
making it possible to avoid a forced or other distressed sale of the 
assets of the covered broker-dealer. In addition, the ability to 
continue the operations of the covered broker-dealer may help mitigate 
the impact of the failure of the covered broker-dealer on other market 
participants and financial market utilities and thereby minimize 
systemic risk.
---------------------------------------------------------------------------

    \69\ See 12 U.S.C. 5390(h)(5)(A) (providing that the receiver 
may transfer any assets and liabilities of a covered financial 
company). The statute sets forth certain restrictions and 
limitations that are not affected by this proposed rule. See, e.g., 
12 U.S.C. 5390(h)(1)(B)(ii) (restricting the assumption of 
liabilities that count as regulatory capital by the bridge financial 
company) and 12 U.S.C. 5390(h)(5)(F) (requiring that the aggregate 
liabilities transferred to the bridge financial company may not 
exceed the aggregate amount of assets transferred).
    \70\ See Sec. Sec.  380.63(f) and 302.103(f), as proposed. See 
also 12 U.S.C. 5390(h)(5) (granting authority to the Corporation as 
receiver to transfer assets and liabilities of a covered financial 
company to a bridge financial company). Similarly, under Title II, 
the Corporation, as receiver for a covered broker-dealer, may 
approve articles of association for such bridge broker-dealer. See 
12 U.S.C. 5390(h)(2)(H)(i). The bridge broker-dealer would also be 
subject to the federal securities laws and all requirements with 
respect to being a member of a self-regulatory organization, unless 
exempted from any such requirements by the Commission as is 
necessary or appropriate in the public interest or for the 
protection of investors. See 12 U.S.C. 5390(h)(2)(H)(ii).
---------------------------------------------------------------------------

    Finally, paragraph (c) of this section of the proposed rule 
clarifies that the transfer to a bridge broker-dealer of any account or 
property pursuant to this section does not create any implication that 
the holder of such an account qualifies as a ``customer'' or that the 
property so transferred qualifies as ``customer property'' or 
``customer name securities'' within the meaning of SIPA or within the 
meaning of the rule. Under Title II, the Corporation may transfer all 
the assets of a covered broker-dealer to a bridge broker-dealer.\71\ 
Such a transfer of assets may include, for example, securities that 
were sold to the covered broker-dealer under reverse repurchase 
agreements. Under the terms of a typical reverse repurchase agreement, 
it is common for the broker-dealer to be able to use the purchased 
securities for its own purposes. In contrast, Commission rules 
specifically protect customer funds and securities and essentially 
forbid broker-dealers from using customer assets to finance any part of 
their businesses unrelated to servicing securities customers.\72\ An 
integral component of the broker-dealer customer protection regime is 
that, under SIPA, customers have preferred status relative to general 
creditors with respect to customer property and customer name 
securities.\73\ Given the preferred status of customers, litigation has 
arisen regarding whether, consistent with the above example, claims of 
repo counterparties are ``customer'' claims under SIPA.\74\ In 
implementing section 205 of the Dodd-Frank Act, consistent with the 
statutory directive contained therein,\75\ the Corporation and the 
Commission are seeking to ensure that customers of the covered broker-
dealer under Title II are treated in a manner at least as beneficial as 
would have been the case had the broker-dealer been liquidated under 
SIPA.\76\ Accordingly, the Commission and the Corporation are proposing 
to preserve customer status as would be the case in a SIPA proceeding. 
Thus, the proposed rule clarifies that moving assets to a bridge 
financial company as part of a Title II orderly liquidation is not 
determinative as to whether the holder of such an account qualifies as 
a ``customer'' or if the property so transferred qualifies as 
``customer property'' or ``customer name securities.'' Rather, the 
status of the account holder and the assets in the orderly liquidation 
of a covered broker-dealer would depend upon whether the claimant would 
be a customer under SIPA.\77\
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    \71\ See 12 U.S.C 5390(h)(2)(H) and 12 U.S.C. 5390(h)(5) 
(granting authority to the Corporation as receiver to transfer 
assets and liabilities of a covered broker-dealer).
    \72\ See Net Capital Requirements for Brokers and Dealers, 
Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690 
(Jan. 18, 1985). See also Broker-Dealers; Maintenance of Certain 
Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR 
25224, 25224 (Nov. 29, 1972).
    \73\ See 15 U.S.C. 78fff(a).
    \74\ See, e.g., In re Lehman Brothers Inc., 492 B.R. 379 (Bankr. 
S.D.N.Y. 2013), aff'd, 506 B.R. 346 (S.D.N.Y. 2014).
    \75\ See 12 U.S.C. 5385(f)(1) (pertaining to the statutory 
requirements with respect to the satisfaction of claims).
    \76\ Id.
    \77\ See 15 U.S.C. 78lll(2)(B) (SIPA definition of customer). 
See also 12 U.S.C. 5381(a)(10) (defining customer, customer name 
securities, customer property, and net equity in the context of a 
covered broker-dealer as the same meanings such terms have in 
section 16 of SIPA (15 U.S.C. 78lll)); In re Bernard L. Madoff Inv. 
Sec. LLC, 654 F.3d 229, 236 (2d Cir. 2011).
---------------------------------------------------------------------------

2. Other Provisions With Respect to Bridge Broker-Dealer
    The proposed rule addresses certain matters relating to account 
transfers to the bridge broker-dealer.\78\ The process set forth in 
this part of the proposed rule is designed to put the customer in the 
position the customer would have been in had the broker-dealer been 
liquidated in a SIPA proceeding.\79\ In a SIPA proceeding, the trustee 
would generally handle customer accounts in two ways. First, a trustee 
may sell or otherwise transfer to another SIPC member, without the 
consent of any customer, all or any part of a customer's account, as a 
way to return customer property to the control of the customer.\80\ 
Such account transfers are separate from the customer claim process. 
Customer account transfers are useful insofar as they serve to allow 
customers to resume trading more quickly and minimize disruption in the 
securities markets. If it is not practicable to transfer customer 
accounts, then the second way of returning customer property to the 
control of customers is through the customer claims process. Under 
bankruptcy court supervision, the SIPA trustee will determine each 
customer's net equity and the amount of customer property available for 
customers.\81\ Once the SIPA trustee determines that a claim is a 
customer claim (an ``allowed customer claim''), the customer will be 
entitled to a ratable share of the fund of customer property. As 
discussed above, SIPA defines ``customer property'' to generally 
include all the customer-related property held by the broker-
dealer.\82\ Allowed customer claims are determined on the basis of a 
customer's net equity,\83\ which, as described above, generally is the 
dollar value of a customer's account on the filing date of the SIPA 
proceeding less indebtedness of the customer to the broker-dealer on 
the filing date.\84\ Once the trustee determines the fund of customer 
property and customer net equity claims, the trustee can establish each 
customer's pro rata share of the fund of customer property. Customer 
net equity claims generally are satisfied to the extent possible by 
providing the customer with the identical securities owned by that 
customer as of the day the SIPA proceeding was commenced.\85\
---------------------------------------------------------------------------

    \78\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \79\ See 12 U.S.C. 5385(f) (obligations of a covered broker-
dealer to customers shall be satisfied in the manner and in an 
amount at least as beneficial to the customer as would have been the 
case had the actual proceeds realized from the liquidation of the 
covered broker-dealer been distributed in a proceeding under SIPA).
    \80\ See 15 U.S.C. 78fff-2(f).
    \81\ See generally 15 U.S.C. 78fff.
    \82\ See 15 U.S.C. 78lll(4). See Section II.A.1.
    \83\ See 15 U.S.C. 78lll(11).
    \84\ Id. See Section II.A.1.
    \85\ See 15 U.S.C. 78fff-2(d).
---------------------------------------------------------------------------

    Although a Title II orderly liquidation is under a different 
statutory authority, the process for determining and satisfying 
customer claims would follow a substantially similar process to a SIPA 
proceeding. Upon the commencement of a SIPA liquidation, customers' 
cash and securities held by the broker-dealer are returned to customers 
on a pro rata

[[Page 10804]]

basis.\86\ If sufficient funds are not available at the broker-dealer 
to satisfy customer net equity claims, SIPC advances would be used to 
supplement the distribution, up to a ceiling of $500,000 per customer, 
including a maximum of $250,000 for cash claims.\87\ When applicable, 
SIPC will return securities that are registered in the customer's name 
or are in the process of being registered directly to each 
customer.\88\ As in a SIPA proceeding, in a Title II liquidation of a 
covered broker-dealer, the process of determining net equity would thus 
begin with a calculation of customers' net equity. A customer's net 
equity claim against a covered broker-dealer would be deemed to be 
satisfied and discharged to the extent that customer property of the 
covered broker-dealer, along with property made available through 
advances from SIPC, is transferred and allocated to the customer's 
account at the bridge broker-dealer. The bridge broker-dealer would 
undertake the obligations of the covered broker-dealer only with 
respect to such property. The Corporation, as receiver, in consultation 
with SIPC, as trustee, would allocate customer property and property 
made available through advances from SIPC in a manner consistent with 
SIPA and with SIPC's normal practices thereunder. The calculation of 
net equity would not be affected by the assumption of liability by the 
bridge broker-dealer to each customer in connection with the property 
transferred to the bridge broker-dealer. The use of the bridge broker-
dealer is designed to give customers access to their accounts as 
quickly as practicable, while ensuring that customers receive assets in 
the form and amount that they would receive in a SIPA liquidation.\89\
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    \86\ 15 U.S.C. 8fff-2(b).
    \87\ 15 U.S.C. 8fff-3(a).
    \88\ 15 U.S.C. 8fff-2(b)(2).
    \89\ This outcome would satisfy the requirements of section 
205(f)(1) of the Dodd-Frank Act. See 12 U.S.C. 5385(f)(1) (stating 
that notwithstanding any other provision of this title, all 
obligations of a covered broker or dealer or of any bridge financial 
company established with respect to such covered broker or dealer to 
a customer relating to, or net equity claims based upon, customer 
property or customer name securities shall be promptly discharged by 
SIPC, the Corporation, or the bridge financial company, as 
applicable, by the delivery of securities or the making of payments 
to or for the account of such customer, in a manner and in an amount 
at least as beneficial to the customer as would have been the case 
had the actual proceeds realized from the liquidation of the covered 
broker or dealer under this title been distributed in a proceeding 
under SIPA without the appointment of the Corporation as receiver 
and without any transfer of assets or liabilities to a bridge 
financial company, and with a filing date as of the date on which 
the Corporation is appointed as receiver).
---------------------------------------------------------------------------

    The proposed rule also provides that allocations to customer 
accounts at the bridge broker-dealer may initially be derived from 
estimates based upon the books and records of the covered broker-dealer 
or other information deemed relevant by the Corporation as receiver, in 
consultation with SIPC as trustee.\90\ This approach is based upon 
experience with SIPA liquidations where, for example, there were 
difficulties reconciling the broker-dealer's records with the records 
of central counterparties or other counterparties or other factors that 
caused delay in verifying customer accounts.\91\ This provision of the 
proposed rule is designed to facilitate access to accounts for the 
customers at the bridge broker-dealer as soon as is practicable under 
the circumstances while facilitating the refinement of the calculation 
of allocations of customer property to customer accounts as additional 
information becomes available. This process will help ensure both that 
customers have access to their customer accounts as quickly as 
practicable and that customer property ultimately will be fairly and 
accurately allocated.
---------------------------------------------------------------------------

    \90\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed. See 
also 12 U.S.C. 5385(h) (granting the Corporation and the Commission 
authority to adopt rules to implement section 205 of the Dodd-Frank 
Act).
    \91\ See, e.g., In re Lehman Brothers Inc., (Bankr. S.D.N.Y. 
2008), Trustee's Preliminary Investigation Report and 
Recommendations, available at http://dm.epiq11.com/LBI/Project#).
---------------------------------------------------------------------------

    The proposed rule also states that the bridge broker-dealer 
undertakes the obligations of a covered broker-dealer with respect to 
each person holding an account transferred to the bridge broker-dealer, 
but only to the extent of the property (and SIPC funds) so transferred 
and held by the bridge broker-dealer with respect to that person's 
account.\92\ This portion of the proposed rule provides customers of 
the bridge broker-dealer with the assurance that the securities laws 
relating to the protection of customer property will apply to customers 
of a bridge broker-dealer in the same manner as they apply to customers 
of a broker-dealer which is being liquidated outside of Title II.\93\ 
The Agencies believe that such assurances would help to reduce 
uncertainty regarding the protections that will be offered to 
customers.
---------------------------------------------------------------------------

    \92\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \93\ See also 12 U.S.C. 5390(h)(2)(H)(ii) (stating that the 
bridge financial company shall be subject to the federal securities 
laws and all requirements with respect to being a member of a self-
regulatory organization, unless exempted from any such requirements 
by the Commission, as is necessary or appropriate in the public 
interest or for the protection of investors).
---------------------------------------------------------------------------

    This portion of the proposed rule also provides that the bridge 
broker-dealer would not have any obligations with respect to any 
customer property or other property that is not transferred from the 
covered broker-dealer to the bridge broker-dealer.\94\ A customer's net 
equity claim remains with the covered broker-dealer and, in most cases, 
would be satisfied, in whole or in part, by transferring the customer's 
account together with customer property, to the bridge broker-
dealer.\95\ In the event that a customer's account and the associated 
account property is not so transferred, the customer's net equity claim 
would be subject to satisfaction by SIPC as the trustee for the covered 
broker-dealer in the same manner and to the same extent as in a SIPA 
proceeding.\96\
---------------------------------------------------------------------------

    \94\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \95\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \96\ See 12 U.S.C. 5385(f)(2).
---------------------------------------------------------------------------

    The bridge broker-dealer section of the proposed rule \97\ also 
provides that the transfer of assets or liabilities of a covered 
broker-dealer, including customer accounts and all associated customer 
name securities and customer property, assets and liabilities held by a 
covered broker-dealer for non-customer creditors, and assets and 
liabilities associated with any trust or custody business, to a bridge 
broker-dealer, would be effective without any consent, authorization, 
or approval of any person or entity, including but not limited to, any 
customer, contract party, governmental authority, or court.\98\ This 
section is based on the Corporation's authority, under three separate 
statutory provisions of Title II.\99\ The broad language of this 
paragraph of the proposed rule is intended to give full effect to the 
statutory provisions of the Dodd-Frank Act regarding transfers of 
assets and liabilities of a covered financial company,\100\ which 
represent an important recognition by Congress that, in order to ensure 
the financial stability of the United States following the failure of a 
covered financial company, the Corporation as receiver must be free to 
determine which

[[Page 10805]]

contracts, assets, and liabilities of the covered financial company are 
to be transferred to a bridge financial company, and to transfer such 
contracts, assets, and liabilities expeditiously and irrespective of 
whether any other person or entity consents to or approves of the 
transfer. The impracticality of requiring the Corporation as receiver 
to obtain the consent or approval of others in order to effectuate a 
transfer of the failed company's contracts, assets, and liabilities 
arises whether the consent or approval otherwise would be required as a 
consequence of laws, regulations, or contractual provisions, including 
as a result of options, rights of first refusal, or similar contractual 
rights, or any other restraints on alienation or transfer. Paragraph 
(e) would apply regardless of the identity of the holder of the 
restraint on alienation or transfer, whether such holder is a local, 
state, federal or foreign government, a governmental department or 
other governmental body of any sort, a court or other tribunal, a 
corporation, partnership, trust, or other type of company or entity, or 
an individual, and regardless of the source of the restraint on 
alienation or transfer, whether a statute, regulation, common law, or 
contract. It is the Corporation's view that the transfer of any 
contract to a bridge financial company would not result in a breach of 
the contract and would not give rise to a claim or liability for 
damages. In addition, under section 210(h)(2)(E) of the Dodd-Frank Act, 
no additional assignment or further assurance is required of any person 
or entity to effectuate such a transfer of assets or liabilities by the 
Corporation as receiver for the covered broker-dealer. Paragraph (e) of 
the proposed rule would facilitate the prompt transfer of assets and 
liabilities of a covered broker-dealer to a bridge broker-dealer and 
enhance the Corporation's ability to maintain critical operations of 
the covered broker-dealer. Rapid action to set-up a bridge broker-
dealer and transfer assets, including customer accounts and customer 
property, may be critical to preserving financial stability and to 
giving customers the promptest possible access to their accounts.
---------------------------------------------------------------------------

    \97\ See Sec. Sec.  380.63(e) and 302.103(e), as proposed.
    \98\ See Sec. Sec.  380.63(e) and 302.103(e), as proposed; see 
also 12 U.S.C. 5390(h)(5)(D).
    \99\ See 12 U.S.C. 5390(h)(5)(D). See also 12 U.S.C. 
5390(a)(1)(G); 12 U.S.C. 5390(a)(1)(O). Notably, the power to 
transfer customer accounts and customer property without customer 
consent is also found in SIPA. See 15 U.S.C. 78fff-2(f).
    \100\ The proposed rule text omits the reference to ``further'' 
approvals found in 12 U.S.C. 5390(h)(5)(D). The reference in the 
statute is to the government approvals needed in connection with 
organizing the bridge financial company, such as the approval of the 
articles of association and by-laws, as established under 12 U.S.C. 
5390(h). These approvals will already have been obtained prior to 
any transfer under the proposed rule, making the reference to 
``further'' approvals unnecessary and superfluous.
---------------------------------------------------------------------------

    Paragraph (f) of the bridge broker-dealer provision of the proposed 
rule provides for the succession of the bridge broker-dealer to the 
rights, powers, authorities, or privileges of the covered broker-
dealer.\101\ This provision of the proposed rule draws directly from 
authority provided in Title II and is designed to facilitate the 
ability of the Corporation as receiver to operate the bridge broker-
dealer.\102\ Pursuant to paragraph (g) of the bridge broker-dealer 
provision,\103\ the bridge broker-dealer would also be subject to the 
federal securities laws and all requirements with respect to being a 
member of a self-regulatory organization, unless exempted from any such 
requirements by the Commission as is necessary or appropriate in the 
public interest or for the protection of investors.\104\ This provision 
of the proposed rule also draws closely upon Title II.\105\
---------------------------------------------------------------------------

    \101\ See Sec. Sec.  380.63(f) and 302.103(f), as proposed.
    \102\ See 12 U.S.C. 5390(h)(2)(H)(i).
    \103\ See Sec. Sec.  380.63(g) and 302.103(g), as proposed.
    \104\ See 12 U.S.C. 5390(h)(2)(H)(ii).
    \105\ Id.
---------------------------------------------------------------------------

    Paragraph (h) of the bridge broker-dealer provision of the proposed 
rule states that at the end of the term of existence of the bridge 
broker-dealer, any proceeds or other assets that remain after payment 
of all administrative expenses of the bridge broker-dealer and all 
other claims against the bridge broker-dealer would be distributed to 
the Corporation as receiver for the related covered broker-dealer.\106\ 
Stated differently, the residual value in the bridge broker-dealer 
after payment of its obligations would benefit the creditors of the 
covered broker-dealer in satisfaction of their claims.
---------------------------------------------------------------------------

    \106\ See Sec. Sec.  380.63(h) and 302.103(h), as proposed. See 
also 12 U.S.C. 5385(d)(2); 12 U.S.C. 5390(h)(15)(B).
---------------------------------------------------------------------------

E. Claims of Customers and Other Creditors of a Covered Broker-Dealer 
\107\
---------------------------------------------------------------------------

    \107\ If adopted, the section of the proposed rule on claims of 
customers and other creditors of a covered broker-dealer will appear 
in 12 CFR 380.64 for purposes of the Corporation and 17 CFR 302.104 
for purposes of the Commission. The rule text in both CFRs will be 
identical.
---------------------------------------------------------------------------

    The proposed section on the claims of the covered broker-dealer's 
customers and other creditors would address the claims process for 
those customers and other creditors as well as the respective roles of 
the trustee and the receiver with respect to those claims.\108\ The 
proposed section would provide SIPC with the authority as trustee for 
the covered broker-dealer to make determinations, allocations, and 
advances in a manner consistent with its customary practices in a 
liquidation under SIPA.\109\ Specifically, the proposed section 
provides that the allocation of customer property, advances from SIPC, 
and delivery of customer name securities to each customer or to its 
customer account at a bridge broker or dealer, in partial or complete 
satisfaction of such customer's net equity claims as of the close of 
business on the appointment date, shall be in a manner, including form 
and timing, and in an amount at least as beneficial to such customer as 
would have been the case had the covered broker or dealer been 
liquidated under SIPA.\110\ Each customer of a covered broker-dealer 
would receive cash and securities at least equal in amount and value, 
as of the appointment date, to what that customer would have received 
in a SIPA proceeding.\111\
---------------------------------------------------------------------------

    \108\ See Sec. Sec.  380.64 and 302.104, as proposed.
    \109\ See Sec. Sec.  380.64(a)(4) and 302.104(a)(4), as 
proposed. See also 15 U.S.C. 78aaa et seq.
    \110\ See Sec. Sec.  380.64(a)(4) and 302.104(a)(4), as 
proposed.
    \111\ See 15 U.S.C. 78aaa et seq.
---------------------------------------------------------------------------

    This proposed section further addresses certain procedural aspects 
of the claims determination process in accordance with the requirements 
set forth in section 210(a)(2) through (5) of the Dodd-Frank Act.\112\ 
The proposed section describes the role of the receiver of a covered 
broker-dealer with respect to claims and provides for the publication 
and mailing of notices to creditors of the covered broker-dealer by the 
receiver in a manner consistent with both SIPA and the notice 
procedures applicable to covered financial companies generally under 
section 210(a)(2) of the Dodd-Frank Act.\113\ The proposed section 
provides that the notice of the Corporation's appointment as receiver 
must be accompanied by notice of SIPC's appointment as trustee.\114\ In 
addition, the Corporation, as receiver, would consult with SIPC, as 
trustee, regarding procedures for filing a claim including the form of 
claim and the filing instructions, to facilitate a process that is 
consistent with SIPC's general practices.\115\ The claim form would 
include a provision permitting a claimant to claim customer status, if 
applicable, but the inclusion of any such claim to customer status on 
the claim form would not be determinative of customer status under 
SIPA.
---------------------------------------------------------------------------

    \112\ 12 U.S.C. 5390(a)(2) through (5).
    \113\ See Sec. Sec.  380.64(b) and 302.104(b), as proposed. See 
also 12 U.S.C. 5390(a)(2).
    \114\ See Sec. Sec.  380.64(b)(1) and 302.104(b)(1), as 
proposed.
    \115\ See Sec. Sec.  380.64(b)(2) and 302.104(b)(2), as 
proposed.
---------------------------------------------------------------------------

    The proposed rule would set the claims bar date as the date 
following the expiration of the six-month period beginning on the date 
that the notice to creditors is first published.\116\ The claims bar 
date in the proposed rule is consistent with section 8(a) of SIPA, 
which provides for the barring of claims after the expiration of the 
six-month period beginning upon publication.\117\ The six-month period 
is also consistent

[[Page 10806]]

with section 210(a)(2)(B)(i) of the Dodd-Frank Act, which requires that 
the claims bar date be no less than ninety days after first 
publication.\118\ As required by section 210(a)(3)(C)(i) of the Dodd-
Frank Act, the proposed rule provides that any claim filed after the 
claims bar date shall be disallowed, and such disallowance shall be 
final, except that a claim filed after the claims bar date would be 
considered by the receiver if (i) the claimant did not receive notice 
of the appointment of the receiver in time to file a claim before the 
claim date, and (ii) the claim is filed in time to permit payment of 
the claim, as provided by section 210(a)(3)(C)(ii) of the Dodd-Frank 
Act.\119\ This exception for late-filed claims due to lack of notice to 
the claimant would serve a similar purpose (i.e., to ensure a 
meaningful opportunity for claimants to participate in the claims 
process) as the ``reasonable, fixed extension of time'' that may be 
granted to the otherwise applicable six-month deadline under SIPA to 
certain specified classes of claimants.\120\
---------------------------------------------------------------------------

    \116\ See Sec. Sec.  380.64(b)(3) and 302.104(b)(3), as proposed 
(discussing claims bar date).
    \117\ See 15 U.S.C. 78fff-2(a).
    \118\ See 12 U.S.C. 5390(a)(2)(B)(i).
    \119\ See Sec. Sec.  380.64(b)(3) and 302.104(b)(3), as 
proposed. See also 12 U.S.C. 5390(a)(3)(C)(i) and (ii).
    \120\ See 15 U.S.C. 78fff-2(a)(3).
---------------------------------------------------------------------------

    Section 8(a)(3) of SIPA provides that a customer who wants to 
assure that its net equity claim is paid out of customer property must 
file its claim with the SIPA trustee within a period of time set by the 
court (not exceeding 60 days after the date of publication of the 
notice provided in section 8(a)(1) of SIPA) notwithstanding that the 
claims bar date is later.\121\ The proposed rule conforms to this 
section of SIPA by providing that any claim for net equity filed more 
than 60 days after the notice to creditors is first published need not 
be paid or satisfied in whole or in part out of customer property and, 
to the extent such claim is paid by funds advanced by SIPC, it would be 
satisfied in cash or securities, or both, as SIPC, the trustee, 
determines is most economical to the receivership estate.\122\
---------------------------------------------------------------------------

    \121\ See 15 U.S.C. 78fff-2(a)(3) and 15 U.S.C. 78fff-2(a)(1).
    \122\ See Sec. Sec.  380.64(b)(3) and 302.104(b)(3), as 
proposed. See also 15 U.S.C. 78fff-2(a)(3).
---------------------------------------------------------------------------

    Under the proposed rule, the Corporation as receiver would be 
required to notify a claimant whether it allows a claim within the 180-
day period \123\ as such time period may be extended by written 
agreement,\124\ or the expedited 90-day period,\125\ whichever would be 
applicable. The process established for the determination of claims by 
customers of a covered broker-dealer for customer property or customer 
name securities would constitute the exclusive process for the 
determination of such claims.\126\ This process corresponds to the SIPA 
provision that requires that customer claims to customer property be 
determined pro rata based on each customer's net equity applied to all 
customer property as a whole.\127\ While the Dodd-Frank Act provides 
for expedited treatment of certain claims within 90 days, given that 
all customers may have preferred status with respect to customer 
property and customer name securities, no one customer's claim, or 
group of customer claims, would be treated in an expedited manner ahead 
of other customers' claims. Consequently, the concept of expedited 
relief would not apply to customer claims.\128\ The receiver's 
determination to allow or disallow a claim in whole or in part would 
utilize the determinations made by SIPC, as trustee, with respect to 
customer status, claims for net equity, claims for customer name 
securities, and whether property held by the covered broker-dealer 
qualifies as customer property.\129\ A claimant may seek a de novo 
judicial review of any claim that is disallowed in whole or in part by 
the receiver, including but not limited to any claim disallowed in 
whole or part based upon any determination made by SIPC.\130\
---------------------------------------------------------------------------

    \123\ See Sec. Sec.  380.64(c) and 302.104(c), as proposed. See 
also 12 U.S.C. 5390(a)(3)(A)(i).
    \124\ See 15 U.S.C. 5390(a)(3)(A).
    \125\ See Sec. Sec.  380.64(c) and 302.104(c), as proposed. See 
also 12 U.S.C. 5390(a)(5)(B).
    \126\ See Sec. Sec.  380.64(c) and 302.104(c), as proposed.
    \127\ See 15 U.S.C. 78fff-2.
    \128\ See Sec. Sec.  380.64(c) and 302.104(c), as proposed.
    \129\ Id.
    \130\ See Sec. Sec.  380.64(d) and 302.104(d), as proposed 
(stating thathe claimant may seek a judicial determination of any 
claim disallowed, in whole or in part, by the Corporation as 
receiver, including any claim disallowed based upon any 
determination(s) made by SIPC as trustee by the appropriate district 
or territorial court of the United States). See also 12 U.S.C. 
5390(a)(4) and (5).
---------------------------------------------------------------------------

F. Additional Proposed Sections

    In addition to the previously discussed proposed sections, the 
Agencies propose to include sections in the proposed rule addressing: 
(1) The priorities for unsecured claims against a covered broker-
dealer;\131\ (2) the administrative expenses of SIPC;\132\ and (3) 
QFCs.\133\ The Dodd-Frank Act sets forth special priorities for the 
payment of claims of general unsecured creditors of a covered broker-
dealer, which would be addressed in the proposed section on priorities 
for unsecured claims against a covered broker-dealer.\134\ The 
priorities for unsecured claims against a covered broker-dealer include 
claims for unsatisfied net equity of a customer and certain 
administrative expenses of the receiver and SIPC.\135\ The priorities 
set forth in the proposed rule express the cumulative statutory 
requirements set forth in Title II.\136\ First, the priorities provide 
that the administrative expenses of SIPC as trustee for a covered 
broker-dealer would be reimbursed pro rata with administrative expenses 
of the receiver for the covered broker-dealer.\137\ Second, the amounts 
paid by the Corporation as receiver to customers or SIPC would be 
reimbursed on a pro rata basis with amounts owed to the United States, 
including amounts borrowed from the U.S. Treasury for the orderly 
liquidation fund.\138\ Third, the amounts advanced by SIPC for the 
satisfaction of customer net equity claims would be reimbursed 
subsequent to amounts owed to the United States, but before all other 
claims.\139\
---------------------------------------------------------------------------

    \131\ If adopted, the priorities for unsecured claims against a 
covered broker-dealer section will appear in 12 CFR 380.65 for 
purposes of the Corporation and 17 CFR 302.105 for purposes of the 
Commission. The rule text in both CFRs will be identical.
    \132\ If adopted, the SIPC administrative expenses section will 
appear in 12 CFR 380.66 for purposes of the Corporation and 17 CFR 
302.106 for purposes of the Commission. The rule text in both CFRs 
will be identical.
    \133\ If adopted, the QFC section will appear in 12 CFR 380.67 
for purposes of the Corporation and 17 CFR 302.107 for purposes of 
the Commission. The rule text in both CFRs will be identical.
    \134\ See 12 U.S.C. 5390(b)(6) (providing the priority of 
expenses and unsecured claims in the orderly liquidation of SIPC 
members).
    \135\ See Sec. Sec.  380.65 and 302.105, as proposed.
    \136\ See 12 U.S.C. 5390(b)(6) (providing the priority of 
expenses and unsecured claims in the orderly liquidation of SIPC 
members). See also Sec. Sec.  380.65 and 302.105, as proposed.
    \137\ See Sec. Sec.  380.65(a) and 302.105(a), as proposed. See 
also 12 U.S.C. 5390(b)(6)(A).
    \138\ See Sec. Sec.  380.65(b) and 302.105(b), as proposed. See 
also 12 U.S.C. 5390(b)(6)(B); 12 U.S.C. 5390(n) (establishing the 
``orderly liquidation fund'' available to the Corporation to carry 
out the authorities granted to it under Title II).
    \139\ See Sec. Sec.  380.65(c) and 302.105(c), as proposed. See 
also 12 U.S.C. 5390(b)(6)(C).
---------------------------------------------------------------------------

    Title II provides that SIPC is entitled to recover administrative 
expenses incurred in performing its responsibilities under section 205 
on an equal basis with the Corporation.\140\ Title II also sets forth a 
description of the administrative expenses of the receiver.\141\ In 
order to provide additional clarity as to the types of administrative 
expenses that SIPC would be entitled to recover in connection with its 
role as trustee for the covered broker-dealer, the proposed rule 
provides that SIPC, in connection

[[Page 10807]]

with its role as trustee for the covered broker-dealer, has the 
authority to ``utilize the services of private persons, including 
private attorneys, accountants, consultants, advisors, outside experts 
and other third party professionals.'' The section further provides 
SIPC with an allowed administrative expense claim with respect to any 
amounts paid by SIPC for services provided by these persons if those 
services are ``practicable, efficient and cost-effective.''\142\ The 
proposed definition of administrative expenses of SIPC conforms to both 
the definition of administrative expenses of the Corporation as 
receiver and the costs and expenses of administration reimbursable to 
SIPC as trustee in the liquidation of a broker-dealer under SIPA.\143\ 
Specifically, the proposed definition includes ``the costs and expenses 
of such attorneys, accountants, consultants, advisors, outside experts 
and other third parties, and other proper expenses that would be 
allowable to a third party trustee under 15 U.S.C. 78eee(b)(5)(A), 
including the costs and expenses of SIPC employees that would be 
allowable pursuant to 15 U.S.C. 78fff(e).''\144\ The proposed 
definition excludes advances from SIPC to satisfy customer claims for 
net equity because the Dodd-Frank Act specifies that those advances are 
treated differently than administrative expenses with respect to the 
priority of payment.\145\
---------------------------------------------------------------------------

    \140\ See 12 U.S.C. 5390(b)(6)(A). The regulation governing the 
Corporation's administrative expenses in its role as receiver under 
Title II is located at 12 CFR 380.22.
    \141\ See 12 U.S.C. 5381(a)(1).
    \142\ See Sec. Sec.  380.66(a) and 302.106(a), as proposed.
    \143\ See Sec. Sec.  380.66(a) and 302.106(a), as proposed. See 
also 12 U.S.C. 5381(a)(1) (defining administrative expenses of the 
receiver); 15 U.S.C. 78eee(5) (providing for compensation for 
services and reimbursement of expenses).
    \144\ See Sec. Sec.  380.66(a) and 302.106(a), as proposed. See 
also 15 U.S.C. 78eee(b)(5)(A); 15 U.S.C. 78fff(e).
    \145\ See Sec. Sec.  380.66(b) and 302.106(b), as proposed 
(defining the term administrative expenses of SIPC). See also 12 
U.S.C. 5390(b)(6)(C) (stating SIPC's entitlement to recover any 
amounts paid out to meet its obligations under section 205 and under 
SIPA).
---------------------------------------------------------------------------

    Lastly, the proposed section on QFCs states that QFCs are governed 
in accordance with Title II.\146\ Paragraph (b)(4) of section 205 of 
the Dodd-Frank Act states in pertinent part that notwithstanding any 
provision of SIPA the rights and obligations of any party to a 
qualified financial contract (as the term is defined in section 
210(c)(8)) to which a covered broker or dealer for which the 
Corporation has been appointed receiver is a party shall be governed 
exclusively by section 210, including the limitations and restrictions 
contained in section 210(c)(10)(B).\147\ Paragraph (c)(8)(A) of section 
210 states that no person shall be stayed or prohibited from 
exercising: (i) Any right that such person has to cause the 
termination, liquidation, or acceleration of any qualified financial 
contract with a covered financial company which arises upon the date of 
appointment of the Corporation as receiver for such covered financial 
company or at any time after such appointment; (ii) any right under any 
security agreement or arrangement or other credit enhancement related 
to one or more qualified financial contracts described in clause (i); 
or (iii) any right to offset or net out any termination value, payment 
amount, or other transfer obligation arising under or in connection 
with one or more contracts or agreements described in clause (i), 
including any master agreement for such contracts or agreements.''\148\ 
Paragraph (c)(10)(B)(i)(I) and (II) of section 210 provides in 
pertinent part that a person who is a party to a QFC with a covered 
financial company may not exercise any right that such person has to 
terminate, liquidate, or net such contract under paragraph (c)(8)(A) of 
section 210 solely by reason of or incidental to the appointment under 
Title II of the Corporation as receiver for the covered financial 
company: (1) Until 5:00 p.m. eastern time on the business day following 
the date of the appointment; or (2) after the person has received 
notice that the contract has been transferred pursuant to paragraph 
(c)(9)(A) of section 210.\149\ The proposed rule reflects these 
statutory directives and states: ``The rights and obligations of any 
party to a qualified financial contract to which a covered broker or 
dealer is a party shall be governed exclusively by 12 U.S.C. 5390, 
including the limitations and restrictions contained in 12 U.S.C. 
5390(c)(10)(B), and any regulations promulgated thereunder.''\150\
---------------------------------------------------------------------------

    \146\ See Sec. Sec.  380.67 and 302.107, as proposed.
    \147\ See 12 U.S.C. 5385(b)(4) (stating that notwithstanding any 
provision of SIPA .the rights and obligations of any party to a 
qualified financial contract to which a covered broker or dealer is 
a party shall be governed exclusively by section 210 of the Dodd-
Frank Act).
    \148\ See 12 U.S.C. 5390(c)(8)(A).
    \149\ See 12 U.S.C. 5390(c)(10)(B).
    \150\ See Sec. Sec.  380.67 and 302.107, as proposed.
---------------------------------------------------------------------------

III. Requests for Comments

A. In General

    The Agencies generally request comment on the proposal to implement 
Title II's orderly liquidation of covered broker-dealers provisions. 
The Agencies invite interested persons to submit written comments on 
any aspect of the proposed rule, in addition to the specific requests 
for comment. Further, the Agencies invite comment on other matters that 
might have an effect on the proposed rule contained in this release, 
including any competitive impact.

B. Requests for Comment on Certain Specific Matters

    In addition to the general request for comments, the Agencies 
request comment with respect to the following specific questions:
    1. In light of section 205(f)(1)'s requirement that customers in a 
section 205 orderly liquidation receive distributions that are at least 
as beneficial as what they would have received in a SIPA liquidation, 
are there any circumstances in which the application of the proposed 
rule would result in delivery or distributions to customers of 
securities or cash, in connection with net equity claims, customer 
property or customer name securities, in a manner and in an amount less 
than such customers would receive if the covered broker-dealer were 
subject to a SIPA liquidation? If yes, what are those circumstances? 
Please be specific.
    2. Would an orderly liquidation of a broker-dealer under the 
approach described in the proposed rule have any unintended or adverse 
impact(s) on customers or other classes of claimants? If yes, what are 
those impacts? Are there other approach(es) that might be consistent 
with the requirements of the Dodd-Frank Act and have fewer such 
impacts? What are the other approach(es) that might eliminate or 
minimize such unintended or adverse impact(s), and how would they do 
so? Please be specific. What would be the costs or benefits associated 
with such alternative approaches?
    3. Would an orderly liquidation of a broker-dealer under the 
approach described in the proposed rule have any unintended or adverse 
impact(s) on market participants generally? If yes, what are those 
impacts? Are there other approach(es) that might be consistent with the 
requirements of the Dodd-Frank Act and have fewer such impacts? What 
are the other approach(es) that might eliminate or minimize such 
unintended or adverse impact(s), and how would they do so? Please be 
specific. What would be the costs or benefits associated with such 
alternative approaches?
    4. Are there any matter(s) with respect to the orderly liquidation 
of a covered broker-dealer under Title II of the Dodd-Frank Act that 
are not currently addressed in the proposed rule, but that should be 
addressed in a rulemaking under section 205(h) of the Dodd-Frank Act, 
12 U.S.C. 5385(h)? If yes, what are

[[Page 10808]]

those matters, why should they be addressed, and how? Please be 
specific.
    5. Does the proposed rule clearly address the roles of the FDIC as 
receiver and SIPC as trustee for the covered broker-dealer in a Title 
II orderly liquidation? If not, how could the proposed rule be made 
clearer?
    6. Does the proposed rule clearly address the treatment of 
customers and other classes of claimants and creditors in a Title II 
orderly liquidation of a covered broker-dealer? Does the proposed rule 
clearly address the claims bar date and the 60-day filing deadline for 
payment of net equity claims out of customer property? If not, in what 
respects could the proposed rule be made clearer and how?
    7. Are the priorities for the allocation of customer property and 
other assets of the covered broker-dealer clearly addressed by the 
proposed rule? If not, in what respects could they be made clearer and 
how?
    8. Are the standards for judicial review of a claim that is 
disallowed, in whole or in part, clearly addressed by the proposed 
rule? If not, in what respects could the proposed rule be made clearer 
and how?
    9. Are the matters listed for inclusion in the protective decree 
appropriate? Are there any other matters not mentioned that should be 
included in the protective decree, and if so, why? Could the provision 
of the protective decree clarifying that, if a protective decree were 
filed on a date other than the appointment date, the protective 
decree's filing date would be deemed be the appointment date, cause 
harm to customers, other claimants, creditors, shareholders, or other 
interested parties? If so, how? Are there alternative approaches that 
would not have such impacts? If yes, please describe in detail and 
provide information about associated costs or benefits.
    10. Would customers be harmed by their inability to seek 
determinations of their claims within the expedited 90-day period (as 
provided by section 210(a)(5)(B) of the Dodd-Frank Act) rather than 
within six-months (as provided by section 210(a)(3)(A)(i) of the Dodd-
Frank Act)? If so, how? If customers were permitted to seek expedited 
determinations of their claims, would that allow them to ``jump ahead'' 
of other similarly-situated claimants? Would that be appropriate?
    11. What are the expected costs to covered broker-dealers as a 
result of this proposed rule?
    12. Are there any costs or benefits of the proposed rule for 
customers or other creditors of covered broker-dealers, or market 
participants generally, that are not described above? Please describe.
    13. What are the proposed rule's implications for systemic risk?
    14. Are there any anticipated consequences of the proposed rule 
that are not otherwise described in this release? Please be specific.

IV. Paperwork Reduction Act

    The proposed rule would clarify the process for the orderly 
liquidation of a covered broker-dealer under Title II of the Dodd-Frank 
Act. The proposed rule addresses only the process to be used in the 
liquidation of the covered broker-dealer and does not create any new, 
or revise any existing, collection of information pursuant to the 
Paperwork Reduction Act.\151\ Consequently, no information has been 
submitted to the Office of Management and Budget for review.
---------------------------------------------------------------------------

    \151\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Agencies request comment on the assertion that the proposed 
rule will not create any new, or revise any existing, collection of 
information pursuant to the Paperwork Reduction Act.

V. Economic Analysis

A. Introduction and General Economic Considerations

    The Commission and the Corporation are jointly proposing this rule 
to implement provisions applicable to the orderly liquidation of 
covered broker-dealers pursuant to section 205(h) of the Dodd-Frank Act 
in manner that protects market participants by clearly establishing 
expectations and equitable treatment for customers and creditors of 
failed broker-dealers, as well as other market participants. The 
Commission and the Corporation are mindful of the costs and benefits of 
their respective rules. The following economic analysis seeks to 
identify and consider the benefits and costs--including the effects on 
efficiency, competition, and capital formation--that would result from 
the proposed rule. Overall, the Commission and the Corporation 
preliminarily believe that the primary benefit of the proposed rule is 
to codify additional details regarding the process for orderly 
liquidation of failed broker-dealers which will provide additional 
structure and enable consistent application of the process. 
Importantly, the proposed rule does not affect the set of options 
available to the Commission and the Corporation, nor does it affect the 
range of possible outcomes. The detailed analysis of costs and benefits 
regarding the proposed rule is discussed below.
    The Dodd-Frank Act specifically provides that the FDIC may be 
appointed receiver for a systemically important broker-dealer for 
purposes of the orderly liquidation of the company using the powers and 
authorities granted to the FDIC under Title II of the Act.\152\ Section 
205 of the Dodd-Frank Act sets forth a process for the orderly 
liquidation of covered broker-dealers that is an alternative to the 
process under SIPA, but that process incorporates many of the customer 
protection features of SIPA into a Title II orderly liquidation. 
Congress recognized that broker-dealers are different from other kinds 
of systemically important financial companies in several ways, not the 
least of which is how customers of a broker-dealer are treated in an 
insolvency proceeding relating to the broker-dealer.\153\ Section 205 
of the Dodd-Frank Act is intended to address situations where the 
failure of a large broker-dealer could have broader impacts on the 
stability of the United States financial system. The financial crisis 
of 2008 and the ensuing economic recession resulted in the failure of 
many financial entities. Liquidity problems that initially began at a 
small set of firms quickly spread as uncertainty about which 
institutions were solvent increased, triggering broader market 
disruptions, including a general loss of liquidity, distressed asset 
sales, and system-wide redemption runs by some participants.\154\ The 
proposed rule seeks to implement the orderly liquidation provisions of 
the Dodd-Frank Act in a manner that is designed to help reduce both the 
likelihood and the severity of financial market disruptions that could 
result from the failure of a covered broker-dealer.
---------------------------------------------------------------------------

    \152\ See 12 U.S.C. 5382, 12 U.S.C. 5383, and 12 U.S.C. 5384.
    \153\ See 12 U.S.C. 5385 (orderly liquidation of covered brokers 
and dealers).
    \154\ See Brunnermeir, M. (2009), Deciphering the Liquidity and 
Credit Crunch 2007-2008, Journal of Economic Perspectives 23, 77-
100.
---------------------------------------------------------------------------

    In the case of a failing broker-dealer, the broker-dealer customer 
protection regime is primarily composed of SIPA and the Exchange Act, 
as administered by SIPC and the Commission. Among other Commission 
financial responsibility rules, Rule 15c3-3 specifically protects 
customer funds and securities held by a broker-dealer and essentially 
forbids broker-dealers from using customer assets to finance any part 
of their businesses unrelated to servicing securities customers.\155\ 
With

[[Page 10809]]

respect to SIPA, and as a general matter, in the event that a broker-
dealer enters into a SIPA liquidation, customers' cash and securities 
held by the broker-dealer are returned to customers on a pro-rata 
basis.\156\ If the broker-dealer does not have sufficient funds to 
satisfy customer net equity claims, SIPC advances may be used to 
supplement the distribution, up to a ceiling of $500,000 per customer, 
including a maximum of $250,000 for cash claims.\157\ When applicable, 
SIPC or a SIPA trustee will return securities that are registered in 
the customer's name, or are in the process of being registered, 
directly to each customer.\158\ An integral component of the broker-
dealer customer protection regime is that, under SIPA, customers have 
preferred status relative to general creditors with respect to customer 
property and customer name securities.\159\ SIPC or a SIPA trustee may 
sell or transfer customer accounts to another SIPC member in order for 
the customers to regain access to their accounts in an expedited 
fashion.\160\
---------------------------------------------------------------------------

    \155\ See Net Capital Requirements for Brokers and Dealers, 
Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690 
(Jan. 18, 1985). See also Broker-Dealers; Maintenance of Certain 
Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR 
25224, 25224 (Nov. 29, 1972).
    \156\ See 15 U.S.C. 78fff-2(b).
    \157\ See 15 U.S.C. 78fff-3(a).
    \158\ See 15 U.S.C. 78fff-2(c).
    \159\ See 15 U.S.C. 78fff(a).
    \160\ See 15 U.S.C. 78fff-2(f).
---------------------------------------------------------------------------

    Title II of the Dodd-Frank Act supplemented the customer protection 
regime for broker-dealers. As described above in more detail, in the 
event a covered broker-dealer fails,\161\ Title II provides the FDIC 
with a broader set of tools to help ensure orderly liquidation, 
including the ability to transfer all assets and liabilities held by a 
broker-dealer-- not just customer assets--to another broker-dealer, as 
well as the ability to borrow from the U.S. Treasury.\162\ Upon the 
commencement of an orderly liquidation under Title II, the FDIC is 
appointed the receiver of the broker-dealer and SIPC is appointed as 
the trustee for the liquidation process. The FDIC is given the 
authority to form and fund a bridge broker-dealer,\163\ which would 
facilitate a quick transfer of customer accounts to a solvent broker-
dealer and therefore would accelerate reinstated access to customer 
accounts.\164\ By granting the FDIC the ability to transfer any asset 
or liability to the bridge broker-dealer as it deems necessary, the 
orderly liquidation proceeding allows the Corporation to extend relief 
to certain creditors to reduce the destabilizing effects these 
creditors may cause if they run on a large broker-dealer.\165\ To 
further reduce the run risk the failed broker-dealer may be facing, 
Title II imposes an automatic one-business day stay on certain 
activities by the counterparties to QFCs, so as to provide the FDIC an 
opportunity to inform counterparties that the covered broker-dealer's 
liabilities were transferred to and assumed by the bridge broker-
dealer.\166\
---------------------------------------------------------------------------

    \161\ To facilitate their customer business and to finance their 
proprietary trading activities, broker-dealers often enter into 
short-term borrowing arrangements, including repurchase and 
securities lending agreements. Such financing arrangements can have 
maturities as short as a day, requiring broker-dealers to 
continuously refinance their positions. Broker-dealers are therefore 
subject to liquidity risk in the event that short-term lenders and 
counterparties refuse to finance their positions or seek less 
favorable terms for the broker-dealer, such as higher haircuts on 
collateral. Doubts about a broker-dealer's viability can lead a 
broker-dealer's customers to move their accounts from the broker-
dealer, placing additional strains upon the broker-dealer's 
liquidity position. Such doubts can, in turn, lead to a general 
``run'' against the broker-dealer, both in its secured financing 
activities and withdrawals of customer accounts. The ability of the 
Corporation under Title II to provide financing to the broker-dealer 
and to allow the broker-dealer to continue its operations may help 
to address the liquidity stress at the broker-dealer and reduce the 
potential risk to other market participants.
    \162\ Under a SIPA liquidation, the Commission is authorized to 
make loans to SIPC should SIPC lack sufficient funds. In addition, 
to fund these loans, the Commission is authorized to borrow up to 
$2.5 billion from the U.S. Treasury. See 15 U.S.C. 78ddd(g) and (h).
    \163\ See Sec. Sec.  380.63 and 302.103, as proposed (regarding 
the FDIC's power to ``organize one or more bridge brokers or dealers 
with respect to a covered broker or dealer'').
    \164\ See Section II.D.2 on the FDIC's power to transfer 
accounts to bridge broker-dealer.
    \165\ See Section II.E on the claims of customers and other 
creditors of a covered broker-dealer.
    \166\ See Section II.F on the additional proposed sections that 
relate to qualified financial contracts.
---------------------------------------------------------------------------

    The proposed rule is designed to implement the provisions of 
section 205, so that an orderly liquidation can be carried out for 
certain broker-dealers with efficiency and the intended benefits of 
orderly liquidation, as established by the Dodd-Frank Act, on the 
overall economy can be realized. Specifically, the proposed rule 
implements the framework for the liquidation of covered broker-dealers. 
The framework includes definitions for the key terms such as customer, 
customer property, customer name securities, net equity, and bridge 
broker-dealer. It sets forth three major processes regarding the 
orderly liquidation--the process of initiating the orderly liquidation 
(including the appointment of receiver and trustee and the notice and 
application for protective decree), the process of account transfers to 
the bridge broker-dealer, and the claims process for customers and 
other creditors. While establishing orderly liquidation generally, 
section 205 does not specifically provide the details of such 
processes.
    The proposed rule provides several clarifications to the provisions 
in the statute. For example, under Title II, the FDIC has authority to 
transfer any assets without obtaining any approval, assignment, or 
consents.\167\ The proposed rule further provides that the transfer to 
a bridge broker-dealer of any account, property or asset is not 
determinative of customer status, nor that the property so transferred 
qualifies as customer property or customer name securities.\168\ The 
proposed rule also provides clarifications on terms such as the venue 
for filing the application for a protective decree and the filing 
date.\169\
---------------------------------------------------------------------------

    \167\ See Sec. Sec.  380.63 and 302.103, as proposed.
    \168\ These determinations would be made by SIPC in accordance 
with SIPA. See Sec. Sec.  380.64(a)(1) and 302.104, as proposed
    \169\ See Sec. Sec.  380.62 and 302.102, as proposed.
---------------------------------------------------------------------------

    In addition, the proposed rule clarifies the process for 
transferring assets to the bridge broker-dealer, which should help 
expedite customer access to their respective accounts. For example, the 
proposed rule provides that allocations to customer accounts at the 
bridge broker-dealer may initially be derived from estimates based upon 
the books and records of the covered broker-dealer or other information 
deemed relevant by the Corporation in consultation with SIPC.\170\ This 
means that customers may potentially access their accounts more 
expeditiously, before the time-consuming record reconciliation process 
concludes.
---------------------------------------------------------------------------

    \170\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
---------------------------------------------------------------------------

    Therefore, overall, the Commission and the Corporation 
preliminarily believe that the primary benefit of the proposed rule is 
to codify additional details regarding the process for the orderly 
liquidation of covered broker-dealers, which will provide additional 
structure and enable consistent application of the process. 
Importantly, the proposed rule does not affect the set of options 
available to the Commission and the Corporation upon failure of a 
covered broker-dealer, nor does it affect the range of possible 
outcomes. In the absence of the proposed rule, the Commission, the 
Board and the Secretary \171\ could still determine that an orderly 
liquidation under Title II is appropriate, and the FDIC would still 
have broad authority to establish a bridge broker-dealer and transfer 
all assets and liabilities held by the failed entity. However, in the 
absence of the proposed rule, uncertainty could arise regarding the 
definitions (e.g., the applicable filing date or the nature of the 
application for a protective decree) and the claims process, which 
could

[[Page 10810]]

cause delays in the process and undermine the goals of the statute. By 
establishing a uniform process for the orderly resolution of a broker-
dealer, the proposed rule should improve the orderly liquidation 
process while implementing the statutory requirements, so that orderly 
liquidations can be carried out with efficiency and predictability. 
Such efficiency and predictability should generally ease implementation 
burdens and conserve resources that otherwise would have to be expended 
resolving delays in the claims process or in connection with any 
potential litigation that could arise from delays. The discussion below 
elaborates on the likely costs and benefits of the proposed rule and 
its potential impact on efficiency, competition and capital formation, 
as well as potential alternatives.
---------------------------------------------------------------------------

    \171\ See 12 U.S.C. 5383(a)(1)(B).
---------------------------------------------------------------------------

B. Economic Baseline

    To assess the economic impact of the proposed rule, the Commission 
and the Corporation are using section 205 of the Dodd-Frank Act as the 
economic baseline. Section 205 sets forth provisions specific to the 
orderly liquidation of certain large broker-dealers and paragraph (h) 
directs the Commission and the Corporation, in consultation with SIPC, 
jointly to issue rules to fully implement the section.\172\ Although no 
implementing rules are in place, section 205 of the Dodd-Frank Act was 
self-effectuating, meaning that the statutory requirements are in 
effect. Therefore, the appropriate baseline is the orderly liquidation 
authority in place pursuant to section 205, without any implementation 
rules issued by the Agencies. As outlined in Title II of the Dodd-Frank 
Act, irrespective of how the broker-dealer was placed into a Title II 
resolution, section 205 regarding the liquidation of broker-dealers and 
the proposed rule (if adopted) would always apply to the covered 
broker-dealer even if section 210 is invoked.
---------------------------------------------------------------------------

    \172\ 12 U.S.C. 5385(h).
---------------------------------------------------------------------------

1. SIPC's Role
    Section 205 provides that upon the appointment of the FDIC as 
receiver for a covered broker-dealer, the FDIC shall appoint SIPC as 
trustee for the liquidation of the covered broker-dealer under SIPA 
without need for any approval.\173\ Upon its appointment as trustee, 
SIPC shall promptly file with a federal district court an application 
for protective decree, the terms of which will jointly be determined by 
SIPC and the Corporation, in consultation with the Commission.\174\ 
Section 205 also provides that SIPC shall have all of the powers and 
duties provided by SIPA, except with respect to assets and liabilities 
transferred to the bridge broker-dealer.\175\ The determination of 
claims and the liquidation of assets retained in the receivership of 
the covered broker-dealer and not transferred to the bridge financial 
company shall be administered under SIPA.\176\
---------------------------------------------------------------------------

    \173\ 12 U.S.C. 5385(a).
    \174\ See 12 U.S.C. 5385(a)(2).
    \175\ 12 U.S.C. 5385. See also Sec. Sec.  380.64(a) and 
302.104(a), as proposed (regarding SIPC's role as trustee).
    \176\ Id.
---------------------------------------------------------------------------

2. The Corporation's Power to Establish Bridge Broker-Dealers
    Section 205 of the Dodd-Frank Act does not contain specific 
provisions regarding bridge broker-dealers. However, section 210 of the 
Dodd-Frank Act provides that, in connection with an orderly 
liquidation, the FDIC has the power to form one or more bridge 
financial companies, which includes the power to form bridge broker-
dealers with respect to a covered broker-dealer.\177\ Under Title II, 
the FDIC has the authority to transfer any asset or liability held by 
the covered financial company without obtaining any approval, 
assignment, or consent with respect to such transfer.\178\ It is 
further provided that any customer of a covered broker-dealer whose 
account is transferred to a bridge financial company shall have all 
rights and privileges under section 205(f) of the Dodd-Frank Act and 
SIPA that such customer would have had if the account was not 
transferred.\179\
---------------------------------------------------------------------------

    \177\ See 12 U.S.C. 5390(h)(1)(A). See also 12 U.S.C. 
5390(h)(2)(H).
    \178\ 12 U.S.C. 5390(a)(1)(G).
    \179\ See 12 U.S.C. 5390(h)(2)(H)(iii).
---------------------------------------------------------------------------

3. Satisfaction of Customer Claims
    Section 205(f) of the Dodd-Frank Act requires that all obligations 
of a covered broker-dealer or bridge broker-dealer to a customer 
relating to, or net equity claims based on, customer property or 
customer name securities must be promptly discharged in a manner and in 
an amount at least as beneficial to the customer as would have been the 
case had the broker-dealer been liquidated in a SIPA proceeding.

C. Benefits, Costs and Effects on Efficiency, Competition, and Capital 
Formation

1. Anticipated Benefits
a. Overall Benefits
    The key benefit of the proposed rule is that it creates a more 
structured framework to implement section 205 of the Dodd-Frank Act, so 
that the orderly liquidation of a covered broker-dealer can be carried 
out with efficiency and predictability if the need arises. As discussed 
in the economic baseline, section 205 provides parameters for the 
orderly liquidation of covered broker-dealers, while the proposed rule 
implements these statutory parameters. The proposed rule first provides 
definitions for certain key terms including customer, customer 
property, customer name securities, net equity, and bridge broker-
dealer, among others.\180\ It then sets forth three major processes 
regarding the orderly liquidation: the process of initiating the 
orderly liquidation,\181\ the process of account transfers to the 
bridge broker-dealer,\182\ and the claims process for customers and 
other creditors.\183\
---------------------------------------------------------------------------

    \180\ See Sec. Sec.  380.60 and 302.100, as proposed.
    \181\ See Sec. Sec.  380.61, 380.62, 302.101 and 302.102, as 
proposed.
    \182\ See Sec. Sec.  380.63 and 302.103, as proposed.
    \183\ See Sec. Sec.  380.64 and 302.104, as proposed.
---------------------------------------------------------------------------

    First, besides incorporating the statutory requirement of 
appointing SIPC as the trustee for covered broker-dealers, the proposed 
rule provides a more detailed process for notice and application for 
protective decree. It provides clarification for the venue in which the 
notice and application for a decree is to be filed.\184\ It clarifies 
the definition of the filing date if the notice and application is 
filed on a date other than the appointment date.\185\ And finally, it 
also includes a non-exclusive list of notices drawn from other parts of 
Title II to inform the relevant parties of the initiation of the 
orderly liquidation process and what they should expect.\186\
---------------------------------------------------------------------------

    \184\ See Sec. Sec.  380.62(a) and 302.102, as proposed.
    \185\ Id.
    \186\ See Sec. Sec.  380.62(b) and 302.102(b), as proposed.
---------------------------------------------------------------------------

    Second, the proposed rule sets forth the process to establish one 
or more bridge broker-dealers and to transfer accounts, property, and 
other assets held by a covered broker-dealer to such bridge broker-
dealers, pursuant to Title II of Dodd-Frank Act.\187\ Section 205 of 
the Act does not specifically provide for such a process. The proposed 
rule specifies that the Corporation may transfer any account, property, 
or asset held by a covered broker-dealer

[[Page 10811]]

(including customer and non-customer accounts, property and assets) to 
a bridge broker-dealer as the Corporation deems necessary, based on the 
FDIC's authority under Title II to transfer any assets without 
obtaining any approval, assignment, or consents.\188\ The transfer to a 
bridge broker-dealer of any account, property or asset is not 
determinative of customer status.\189\ The determinations of customer 
status are to be made by SIPC as trustee in accordance with SIPA.\190\ 
As discussed above, given the preferred status of customers, litigation 
has been brought on customer status under SIPA (e.g., repo 
counterparties' claims of customer status under SIPA).\191\ Since the 
Corporation may transfer both customer and non-customer accounts, 
property and assets held by a covered broker-dealer to a bridge broker-
dealer according to the statute, in the absence of the proposed rule, 
some non-customer creditors may mistakenly interpret under the baseline 
scenario that such a transfer confers customer status (especially since 
in a SIPA proceeding only customer assets are transferred). To the 
extent that such mistaken beliefs may arise from the statutory 
provisions, litigation over customer status could arise. The 
clarification in the proposed rule stresses that customer status is 
determined by SIPC separately from the decision to transfer an asset to 
a bridge broker-dealer, and could thus help prevent confusion 
concerning whether other creditors whose assets have also been 
transferred should be treated as customers. This clarification may 
mitigate a potential increase in litigation costs, although the 
economic benefit of such mitigation is likely to be de minimis.
---------------------------------------------------------------------------

    \187\ See Sec. Sec.  380.63 and 302.103, as proposed.
    \188\ See Sec. Sec.  380.63(e) and 302.103(e), as proposed.
    \189\ See Sec. Sec.  380.64(a) and 302.104(a), as proposed.
    \190\ See Sec. Sec.  380.64(a) and 302.104(a) as proposed.
    \191\ See, e.g., In re Lehman Brothers Inc., 492 B.R. 379 
(Bankr. S.D.N.Y. 2013), aff'd, 506 B.R. 346.
---------------------------------------------------------------------------

    Regarding the account transfers to bridge broker-dealers, in 
addition to the provisions on the specifics of a transfer (e.g., the 
calculation of customer net equity, the assumption of the net equity 
claim by the bridge broker-dealer and the allocation of customer 
property), the proposed rule further provides that allocations to 
customer accounts at the bridge broker-dealer may initially be derived 
from estimates based upon the books and records of the covered broker-
dealer or other information deemed relevant by the Corporation in 
consultation with SIPC.\192\ Given that it could be time-consuming to 
reconcile the broker-dealer's records with the records of other 
parties, this provision may speed up the allocation of customer 
property to the customer accounts at the bridge broker-dealer, thus 
providing customers quicker access to their accounts.
---------------------------------------------------------------------------

    \192\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
---------------------------------------------------------------------------

    Third, the proposed rule also addresses the claims process for 
customers and other creditors.\193\ The proposed rule implements the 
statute's requirement that the trustee's allocation shall be in an 
amount and manner, including form and timing, at least as beneficial as 
such customer would have received under a SIPA proceeding, as required 
by section 205(f).\194\ In addition, it further addresses certain 
procedural aspects of the claims determination process, such as the 
publication and mailing of notices to creditors, the notice of the 
appointment of the FDIC and SIPC, the claims bar date, and expedited 
relief.
---------------------------------------------------------------------------

    \193\ See Sec. Sec.  380.64 and 302.104, as proposed.
    \194\ See Sec. Sec.  380.64(a)(4) and 302.104(a)(4), as 
proposed.
---------------------------------------------------------------------------

    In summary, the proposed rule would provide interested parties with 
details on the implementation of the orderly liquidation process. By 
providing for a uniform process, the proposed rule could improve the 
orderly liquidation process, so that the orderly liquidation can be 
carried out with efficiency and predictability. Under the baseline 
scenario, in absence of the proposed rule, uncertainty may arise 
because various parties may interpret the statutory requirements 
differently. For example, under the baseline, the repo counterparties 
of the broker-dealer may not understand that the transfer of the rights 
and obligations under their contracts to the bridge broker-dealer is 
not determinative of customer status, because such a transfer to 
another broker-dealer is only available for customers under a SIPA 
proceeding. That is, repo counterparties of the broker-dealer may 
mistakenly believe that the transfer of rights and obligations implies 
customer status. Accordingly, the proposed rule provides that the 
transfer of accounts to a bridge broker-dealer is not determinative of 
customer status, and that such status is determined by SIPC in 
accordance with SIPA. Uncertainty regarding such matters could result 
in litigation and delays in the claims process if orderly liquidation 
were to be commenced with respect to a covered broker-dealer; 
therefore, the structure provided by the proposed rule could conserve 
resources that otherwise would have to be expended in settling such 
litigation and resolving delays that may arise, and create a more 
efficient process for enabling orderly liquidation. Moreover, under the 
baseline scenario, uncertainties about process and how customer and 
creditor claims would be handled could continue to encourage these 
claimants to reduce exposure if doubts about a broker-dealer's 
viability arise--for customers, by withdrawing free credit balances; 
for creditors, by reducing repo and derivatives exposure. Such 
uncertainties, if they were to persist, could undermine the broader 
benefits that orderly liquidation could provide to financial stability. 
In this sense, the processes set forth by the proposed rule could help 
realize the economic benefits of section 205.
b. Benefits to Affected Parties
    The Commission and the Corporation believe that the proposed rule 
provides benefits comparable to those under the baseline scenario to 
relevant parties such as customers, creditors, and counterparties. To 
the extent that it provides additional guidance on procedural matters, 
the proposed rule may reduce potential uncertainty, thereby providing 
for an efficient and predictable orderly liquidation process. 
Therefore, the Commission and the Corporation preliminarily believe the 
proposed rule will improve the orderly liquidation process and provide 
benefits beyond the statute, although such benefits are likely to be 
incremental.
    The Commission and the Corporation preliminarily believe that the 
proposed rule will be beneficial to customers.\195\ The proposed rule 
states that the bridge broker-dealer will undertake the obligations of 
a covered broker-dealer with respect to each person holding an account 
transferred to the bridge broker-dealer, providing customers with 
transferred accounts assurance that they will receive the same legal 
protection and status as a customer of a broker-dealer that is subject 
to a liquidation outside of Title II.\196\ Further, under the proposed 
rule, the transfer of non-customer assets to a bridge broker-dealer 
would not imply customer status for these assets, which could thereby 
reduce any incentive to not move assets based upon fears of prejudging 
customer status. Finally, the proposed rule would provide that 
allocations to customer accounts at the bridge broker-dealer may 
initially be derived from estimates based on the books and records of 
the covered broker-dealer.\197\ This provision could

[[Page 10812]]

help facilitate expedited customer access to their respective accounts, 
as customers would not have to wait for a final reconciliation of the 
broker-dealer's records with other parties' records.\198\
---------------------------------------------------------------------------

    \195\ See Section II.D.1 discussing the preferred status of 
customer claims. See also Sec. Sec.  380.65(a)(1) and 302.105(a)(1), 
as proposed (explaining that ``SIPC . . . shall determine customer 
status . . .'').
    \196\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \197\ See Sec. Sec.  380.63(d) and 302.103(d), as proposed.
    \198\ See Sec. Sec.  380.63(e) and 302.103(e), as proposed. See 
also 15 U.S.C. 78eee(b)(2)(C)(i) and (ii).
---------------------------------------------------------------------------

    The Commission preliminarily believes the proposed rule will yield 
benefits to both secured and unsecured creditors, as it clarifies the 
manner in which creditor claims could be transferred to a bridge 
broker-dealer. Creditors thus could potentially receive benefits from 
financing provided by the Corporation to the bridge broker-dealer.
2. Anticipated Costs
    While the proposed rule is designed to ensure that an orderly 
liquidation under Title II would be at least as beneficial to customers 
as would be the case in a SIPA liquidation, orderly liquidation does 
entail different treatment of QFC counterparties. Under SIPA, certain 
QFC counterparties may exercise specified contractual rights regardless 
of an automatic stay.\199\ In contrast, Title II imposes an automatic 
one-day stay on certain activities by QFC counterparties,\200\ which 
may limit the ability of these counterparties to terminate contracts or 
exercise any rights against collateral. As proposed, the stay would 
remain in effect if the QFC contracts are transferred to a bridge 
broker-dealer. While these provisions may impose costs, they are a 
consequence of the statute and are already in effect.
---------------------------------------------------------------------------

    \199\ See 15 U.S.C. 78eee(b)(2)(C)(i) through (ii). See also 
Letter from Michael E. Don, Deputy General Counsel of SIPC to Robert 
A. Portnoy, Deputy Executive Director and General Counsel of the 
Public Securities Association, dated February 4, 1986 (repurchase 
agreements); Letter from Michael E. Don to J. Eugene Marans, Cleary, 
Gottlieb, Steen & Hamilton, dated August 29, 1988 (securities 
lending transactions); Letter from Michael E. Don to James D. 
McLaughlin, Director of the American Bankers Association, dated 
October 30, 1990 (securities lending transactions secured by cash 
collateral or supported by letters of credit); Letter from Michael 
E. Don to John G. Macfarlane, III, Chairman, Repo Committee, Public 
Securities Association, dated February 19, 1991 (securities lending 
transactions secured by cash collateral or supported by letters of 
credit); Letter from Michael E. Don, President of SIPC to Seth 
Grosshandler, Cleary, Gottlieb, Steen & Hamilton, dated February 14, 
1996 (repurchase agreements falling outside the Code definition of 
``repurchase agreement''); and Letter from Michael E. Don to Omer 
Oztan, Vice President and Assistant General Counsel of the Bond 
Market Association, dated June 25, 2002 (repurchase agreements).
    \200\ See Sec. Sec.  380.67 and 302.107, as proposed.
---------------------------------------------------------------------------

    In addition, as discussed above, the proposed rule could benefit 
customers by allowing the allocations to customer accounts at the 
bridge broker-dealer to be derived from estimates based on the books 
and records of the covered broker-dealer. Such a process may accelerate 
customers' access to their accounts, as they would not have to wait for 
a final account reconciliation to access their accounts. As provided 
for in the proposed rule, the calculation of allocations of customer 
property to customer accounts would be refined as additional 
information becomes available. The Commission and the Corporation 
preliminarily believe that initial allocations will be made 
conservatively, which with the backstop of the availability of SIPC 
advances to customers in accordance with the requirements of SIPA, 
should minimize the possibility of an over-allocation to any customer. 
To the extent that initial estimates are excessive, it is possible that 
customer funds may need to be reallocated after customers initially 
gain access to their accounts, which could result in costs for 
customers. Essentially, the proposed rule trades off expedited access 
to customer funds with the possibility of subsequent reallocation. We 
currently lack data concerning the impact or costs that might be 
associated with this possibility. The costs associated with all of 
these factors may vary significantly depending on broker-dealer systems 
and the specific events. For these reasons, we are unable to quantify 
the costs associated with these factors at this time. However, as noted 
above, the Commission and the Corporation preliminarily believe initial 
allocations will be made conservatively, which would minimize the 
possibility of an over-allocation to any customer and mitigate 
potential costs and uncertainty associated with allocation refinements.
3. Effects on Efficiency, Competition, and Capital Formation
    The Commission and the Corporation have preliminarily assessed the 
effects arising from the proposed rule on efficiency, competition, and 
capital formation. As discussed above, the Agencies preliminarily 
believe the primary economic benefit of the proposed rule will be that 
it provides details to implement section 205 of the Dodd-Frank Act, so 
that the orderly liquidation of a covered broker-dealer can be carried 
out with greater efficiency and predictability if the need arises. This 
structure could reduce uncertainty about treatment of customer and 
creditor claims in an orderly liquidation, conserving resources and 
creating a more efficient process relative to orderly liquidation under 
the baseline. In addition, uncertainty about treatment of claims could 
encourage customers and creditors to reduce exposure to a broker-dealer 
facing financial distress, exacerbating liquidity problems. By reducing 
uncertainty, the proposed rule may reduce incentives for claimants to 
rush to reduce exposures. In such a scenario, broker-dealers may find 
it easier to recover from moderate financial distress and to sustain a 
sufficient capital position to provide financial intermediation 
services. Furthermore, for sufficiently large broker-dealers with many 
creditor and counterparty relationships throughout the financial 
system, positive perceptions about the ability of those broker-dealers 
to recover from moderate financial distress may stave off aggregate 
financial sector runs, and thus preserve financial sector capital and 
the availability of financial intermediation services.
    Beyond these identified potential effects, the Commission and the 
Corporation preliminarily believe that the additional effects of the 
proposed rule on efficiency, competition, and capital formation will be 
linked to the existence of an orderly liquidation process itself, which 
is part of the baseline, and is an option available to regulatory 
authorities today. Our analysis of the effects of an orderly 
liquidation process on efficiency, competition, and capital formation 
focuses on those effects that derive from the process and structure 
created by the proposed rule, but not those that are due to the 
underlying statute, which is part of the economic baseline. By 
establishing a structured framework, the proposed rule sets clearer 
expectations for relevant parties, and therefore could help reduce 
potential uncertainty and contribute to market efficiency and liquidity 
as described above. Relative to the baseline scenario, where orderly 
liquidation exists as an option for regulatory authorities but without 
the framework provided in the proposed rule, having a structured 
process in place as a response to a potential crisis could also allow 
broker-dealers to more readily attract funding, thus facilitating 
capital formation.

D. Alternatives Considered

    As described above, Title II of the Dodd-Frank Act establishes a 
process by which a covered broker-dealer would be placed into orderly 
liquidation. Furthermore, orderly liquidation is available as an option 
to regulators today, and the proposed rule does not affect the set of 
options available to the Commission and the Corporation, nor does it 
affect the range of possible outcomes. As an alternative to this 
proposed rule, the Commission and the Corporation could rely on 
statutory

[[Page 10813]]

provisions alone to achieve similar outcomes. However, the Commission 
and the Corporation preliminarily believe that relying on the statute 
alone, without a rule implementing section 205 of the Dodd-Frank Act, 
would result in orderly liquidations, if any, that are less efficient 
and less predictable, and that would fail to achieve the benefits of 
the proposed rule described above. In particular, the absence of the 
provisions of the proposed rule outlining the process for notice and 
application for a protective decree, the process for establishing a 
bridge broker-dealer, and the process governing the transfer of 
accounts, property, and other assets held by the covered broker-dealer 
to the bridge broker-dealer, could lead to inconsistent application of 
the statutory provisions. Such inconsistency could cause delays in the 
liquidation process and increase the likelihood of litigation over 
issues such as customer status, increasing costs for customers and 
creditors without corresponding benefits.

E. Request for Comment

    In addition to the general requests for comment, the Commission and 
the Corporation request comment with respect to the following specific 
questions:
    1. As an alternative to the proposed rule, should the Commission 
and the Corporation instead rely on the statute alone to implement 
orderly liquidations of covered broker-dealers? Why?
    2. Are there additional alternative processes to implement section 
205 of the Dodd-Frank Act that the Commission and the Corporation 
should consider? If so, what are they and what would be the associated 
costs or benefits of these alternative approaches?

VI. Regulatory Analysis and Procedures

A. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') \201\ requires an agency 
publishing a notice of proposed rulemaking to prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the impact of the proposed rule on small entities.\202\ The 
RFA provides that an agency is not required to prepare and publish a 
regulatory flexibility analysis if the agency certifies that the 
proposed rule will not have a significant economic impact on a 
substantial number of small entities.\203\
---------------------------------------------------------------------------

    \201\ 5 U.S.C. 601 et seq.
    \202\ 5 U.S.C. 603(a).
    \203\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Pursuant to section 605(b) of the RFA, the Agencies certify that 
the proposed rule, if adopted, will not have a significant economic 
impact on a substantial number of small entities. Under Small Business 
Administration size standards defining small entities, broker-dealers 
are generally considered small entities if their annual receipts do not 
exceed $38.5 million.\204\ If adopted, the proposed rule will clarify 
rules and procedures for the orderly liquidation of a covered broker-
dealer under Title II of the Dodd-Frank Act. A covered broker-dealer is 
a broker-dealer that is subject to a systemic risk determination by the 
Secretary pursuant to section 203 of the Dodd-Frank Act, 12 U.S.C. 
5383, and thereafter is to be liquidated under Title II of the Dodd-
Frank Act. The Agencies do not believe that a broker-dealer that would 
be considered a small entity for purposes of the RFA would ever be the 
subject of a systemic risk determination by the Secretary. Therefore, 
the Agencies are not aware of any small entities that would be affected 
by the proposed rule. As such, the proposed rule, if adopted, would not 
affect, and would impose no burdens on, small entities.
---------------------------------------------------------------------------

    \204\ 13 CFR 121.201.
---------------------------------------------------------------------------

B. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 
1999.\205\
---------------------------------------------------------------------------

    \205\ Public Law 105-277, 112 Stat. 2681.
---------------------------------------------------------------------------

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \206\ requires federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The FDIC has sought to present the 
proposed rule in a simple and straightforward manner but nevertheless 
invites comment on whether the proposal is clearly stated and 
effectively organized, and how the Agencies might make the proposed 
text easier to understand.
---------------------------------------------------------------------------

    \206\ Public Law 106-102, 113 Stat. 1338, 1471.
---------------------------------------------------------------------------

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''), the Commission and the Corporation request 
comment on the potential effect of the proposed rule on the United 
States economy on an annual basis. The Commission and the Corporation 
also request comment on any potential increases in costs or prices for 
consumers or individual industries, and any potential effect on 
competition, investment, or innovation based on the proposed rule. 
Commenters are requested to provide empirical data and other factual 
support for their views to the extent possible.

VIII. Statutory Authority

    The proposed rule is being promulgated pursuant to section 205(h) 
of the Dodd-Frank Act. Section 205(h) of the Act requires the 
Corporation and the Commission, in consultation with SIPC, jointly to 
issue rules to implement section 205 of the Act concerning the orderly 
liquidation of covered broker-dealers.

List of Subjects

12 CFR Part 380

    Bankruptcy, Brokers, Claims, Customers, Dealers, Financial 
companies, Orderly liquidation.

17 CFR Part 302

    Brokers, Claims, Customers, Dealers, Financial companies, Orderly 
liquidation.

Federal Deposit Insurance Corporation

12 CFR Part 380

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend 12 CFR part 380 as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

0
1. The authority citation for part 380 is revised to read as follows:

    Authority: 12 U.S.C. 5385(h); 12 U.S.C. 5389; 12 U.S.C. 
5390(s)(3); 12 U.S.C. 5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 
U.S.C. 5381(b), 12 U.S.C. 5390(r).

0
2. Add subpart D to read as follows:

Subpart D--Orderly Liquidation of Covered Brokers or Dealers

Sec.
380.60 Definitions.
380.61 Appointment of receiver and trustee for covered broker or 
dealer.
380.62 Notice and application for protective decree for covered 
broker or dealer.
380.63 Bridge broker or dealer.
380.64 Claims of customers and other creditors of a covered broker 
or dealer.
380.65 Priorities for unsecured claims against a covered broker or 
dealer.
380.66 Administrative expenses of SIPC.
380.67 Qualified financial contracts.

[[Page 10814]]

Sec.  380.60  Definitions.

    For purposes of this subpart D, the following terms shall have the 
following meanings:
    (a) Appointment date. The term appointment date means the date of 
the appointment of the Corporation as receiver for a covered financial 
company that is a covered broker or dealer. This date shall constitute 
the filing date as that term is used in SIPA.
    (b) Bridge broker or dealer. The term bridge broker or dealer means 
a new financial company organized by the Corporation in accordance with 
12 U.S.C. 5390(h) for the purpose of resolving a covered broker or 
dealer.
    (c) Commission. The term Commission means the Securities and 
Exchange Commission.
    (d) Covered broker or dealer. The term covered broker or dealer 
means a covered financial company that is a qualified broker or dealer.
    (e) Customer. The term customer of a covered broker or dealer shall 
have the same meaning as in 15 U.S.C. 78lll(2) provided that the 
references therein to debtor shall mean the covered broker or dealer.
    (f) Customer name securities. The term customer name securities 
shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the 
references therein to debtor shall mean the covered broker or dealer 
and the references therein to filing date shall mean the appointment 
date.
    (g) Customer property. The term customer property shall have the 
same meaning as in 15 U.S.C. 78lll(4) provided that the references 
therein to debtor shall mean the covered broker or dealer.
    (h) Net equity. The term net equity shall have the same meaning as 
in 15 U.S.C. 78lll(11) provided that the references therein to debtor 
shall mean the covered broker or dealer and the references therein to 
filing date shall mean the appointment date.
    (i) Qualified broker or dealer. The term qualified broker or dealer 
means a broker or dealer that:
    (1) Is registered with the Commission under section 15(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and
    (2) Is a member of SIPC.
    (j) SIPA. The term SIPA means the Securities Investor Protection 
Act of 1970, 15 U.S.C. 78aaa-lll.
    (k) SIPC. The term SIPC means the Securities Investor Protection 
Corporation.

Sec.  380.61  Appointment of receiver and trustee for covered broker or 
dealer.

    Upon the appointment of the Corporation as receiver for a covered 
broker or dealer, the Corporation shall appoint SIPC to act as trustee 
for the covered broker or dealer.

Sec.  380.62  Notice and application for protective decree for covered 
broker or dealer.

    (a) SIPC and the Corporation, upon consultation with the 
Commission, shall jointly determine the terms of a notice and 
application for a protective decree that will be filed promptly with 
the Federal district court for the district within which the principal 
place of business of the covered broker or dealer is located; provided 
that if a case or proceeding under SIPA with respect to such covered 
broker or dealer is then pending, then such notice and application for 
a protective decree will be filed promptly with the Federal district 
court in which such case or proceeding under SIPA is pending. If such 
notice and application for a protective decree is filed on a date other 
than the appointment date, such filing shall be deemed to have occurred 
on the appointment date for the purposes of this subpart D.
    (b) A notice and application for a protective decree may, among 
other things, provide for notice--
    (1) Of the appointment of the Corporation as receiver and the 
appointment of SIPC as trustee for the covered broker or dealer; and
    (2) That the provisions of Title II of the Dodd-Frank Act and any 
regulations promulgated thereunder may apply, including without 
limitation the following:
    (i) Any existing case or proceeding with respect to a covered 
broker or dealer under the Bankruptcy Code or SIPA shall be dismissed 
effective as of the appointment date and no such case or proceeding may 
be commenced with respect to a covered broker or dealer at any time 
while the Corporation is receiver for such covered broker or dealer;
    (ii) The revesting of assets in a covered broker or dealer to the 
extent that they have vested in any entity other than the covered 
broker or dealer as a result of any case or proceeding commenced with 
respect to the covered broker or dealer under the Bankruptcy Code, 
SIPA, or any similar provision of State liquidation or insolvency law 
applicable to the covered broker or dealer; provided that any such 
revesting shall not apply to assets held by the covered broker or 
dealer, including customer property, transferred prior to the 
appointment date pursuant to an order entered by the bankruptcy court 
presiding over the case or proceeding with respect to the covered 
broker or dealer;
    (iii) The request of the Corporation as receiver for a stay in any 
judicial action or proceeding (other than actions dismissed in 
accordance with paragraph (b)(2)(i) of this section) in which the 
covered broker or dealer is or becomes a party for a period of up to 90 
days from the appointment date;
    (iv) Except as provided in paragraph (b)(2)(v) of this section with 
respect to qualified financial contracts, no person may exercise any 
right or power to terminate, accelerate or declare a default under any 
contract to which the covered broker or dealer is a party (and no 
provision in any such contract providing for such default, termination 
or acceleration shall be enforceable), or to obtain possession of or 
exercise control over any property of the covered broker or dealer or 
affect any contractual rights of the covered broker or dealer without 
the consent of the Corporation as receiver of the covered broker or 
dealer upon consultation with SIPC during the 90-day period beginning 
from the appointment date; and
    (v) The exercise of rights and the performance of obligations by 
parties to qualified financial contracts with the covered broker or 
dealer may be affected, stayed, or delayed pursuant to the provisions 
of Title II of the Dodd-Frank Act (including 12 U.S.C. 5390(c)) and the 
regulations promulgated thereunder.

Sec.  380.63  Bridge broker or dealer.

    (a) The Corporation, as receiver for one or more covered brokers or 
dealers or in anticipation of being appointed receiver for one or more 
covered broker or dealers, may organize one or more bridge brokers or 
dealers with respect to a covered broker or dealer.
    (b) If the Corporation establishes one or more bridge brokers or 
dealers with respect to a covered broker or dealer, then, subject to 
paragraph (d) of this section, the Corporation as receiver for such 
covered broker or dealer shall transfer all customer accounts and all 
associated customer name securities and customer property to such 
bridge brokers or dealers unless the Corporation determines, after 
consultation with the Commission and SIPC, that:
    (1) The customer accounts, customer name securities, and customer 
property are likely to be promptly transferred to one or more qualified 
brokers or dealers such that the use of a bridge broker or dealer would 
not facilitate such transfer to one or more qualified brokers or 
dealers; or

[[Page 10815]]

    (2) The transfer of such customer accounts to a bridge broker or 
dealer would materially interfere with the ability of the Corporation 
to avoid or mitigate serious adverse effects on financial stability or 
economic conditions in the United States.
    (c) The Corporation, as receiver for such covered broker or dealer, 
also may transfer any other assets and liabilities of the covered 
broker or dealer (including non-customer accounts and any associated 
property and any assets and liabilities associated with any trust or 
custody business) to such bridge brokers or dealers as the Corporation 
may, in its discretion, determine to be appropriate in accordance with, 
and subject to the requirements of, 12 U.S.C. 5390(h), including 12 
U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated 
thereunder.
    (d) In connection with customer accounts transferred to the bridge 
broker or dealer pursuant to paragraph (b) of this section, claims for 
net equity shall not be transferred but shall remain with the covered 
broker or dealer. Customer property transferred from the covered broker 
or dealer, along with advances from SIPC, shall be allocated to 
customer accounts at the bridge broker or dealer in accordance with 
Sec.  380.64(a)(3). Such allocations initially may be based upon 
estimates, and such estimates may be based upon the books and records 
of the covered broker or dealer or any other information deemed 
relevant in the discretion of the Corporation as receiver, in 
consultation with SIPC, as trustee. Such estimates may be adjusted from 
time to time as additional information becomes available. With respect 
to each account transferred to the bridge broker or dealer pursuant to 
paragraph (b) or (c) of this section, the bridge broker or dealer shall 
undertake the obligations of a broker or dealer only with respect to 
property transferred to and held by the bridge broker or dealer, and 
allocated to the account as provided in Sec.  380.64(a)(3), including 
any customer property and any advances from SIPC. The bridge broker or 
dealer shall have no obligations with respect to any customer property 
or other property that is not transferred from the covered broker or 
dealer to the bridge broker or dealer. The transfer of customer 
property to such an account shall have no effect on calculation of the 
amount of the affected account holder's net equity, but the value, as 
of the appointment date, of the customer property and advances from 
SIPC so transferred shall be deemed to satisfy any such claim, in whole 
or in part.
    (e) The transfer of assets or liabilities held by a covered broker 
or dealer, including customer accounts and all associated customer name 
securities and customer property, assets and liabilities held by a 
covered broker or dealer for any non-customer creditor, and assets and 
liabilities associated with any trust or custody business, to a bridge 
broker or dealer, shall be effective without any consent, 
authorization, or approval of any person or entity, including but not 
limited to, any customer, contract party, governmental authority, or 
court.
    (f) Any succession to or assumption by a bridge broker or dealer of 
rights, powers, authorities, or privileges of a covered broker or 
dealer shall be effective without any consent, authorization, or 
approval of any person or entity, including but not limited to, any 
customer, contract party, governmental authority, or court, and any 
such bridge broker or dealer shall upon its organization by the 
Corporation immediately and by operation of law--
    (1) Be established and deemed registered with the Commission under 
the Securities Exchange Act of 1934;
    (2) Be deemed to be a member of SIPC; and
    (3) Succeed to any and all registrations and memberships of the 
covered broker or dealer with or in any self-regulatory organizations.
    (g) Except as provided in paragraph (f) of this section, the bridge 
broker or dealer shall be subject to applicable Federal securities laws 
and all requirements with respect to being a member of a self-
regulatory organization and shall operate in accordance with all such 
laws and requirements and in accordance with its articles of 
association; provided, however, that the Commission may, in its 
discretion, exempt the bridge broker or dealer from any such 
requirements if the Commission deems such exemption to be necessary or 
appropriate in the public interest or for the protection of investors.
    (h) At the end of the term of existence of a bridge broker or 
dealer, any proceeds that remain after payment of all administrative 
expenses of such bridge broker or dealer and all other claims against 
such bridge broker or dealer shall be distributed to the receiver for 
the related covered broker or dealer.

Sec.  380.64  Claims of customers and other creditors of a covered 
broker or dealer.

    (a) Trustee's role. (1) SIPC, as trustee for a covered broker or 
dealer, shall determine customer status, claims for net equity, claims 
for customer name securities, and whether property of the covered 
broker or dealer qualifies as customer property. SIPC, as trustee for a 
covered broker or dealer, shall make claims determinations in 
accordance with SIPA and with paragraph (a)(3) of this section, but 
such determinations, and any claims related thereto, shall be governed 
by the procedures set forth in paragraph (b) of this section.
    (2) SIPC shall make advances in accordance with, and subject to the 
limitations imposed by, 15 U.S.C. 78fff-3. Where appropriate, SIPC 
shall make such advances by delivering cash or securities to the 
customer accounts established at the bridge broker or dealer.
    (3) Customer property held by a covered broker or dealer shall be 
allocated as follows:
    (i) First, to SIPC in repayment of advances made by SIPC pursuant 
to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff-3(c)(1), to the extent such 
advances effected the release of securities which then were apportioned 
to customer property pursuant to 15 U.S.C. 78fff(d);
    (ii) Second, to customers of such covered broker or dealer, or in 
the case that customer accounts are transferred to a bridge broker or 
dealer, then to such customer accounts at a bridge broker or dealer, 
who shall share ratably in such customer property on the basis and to 
the extent of their respective net equities;
    (iii) Third, to SIPC as subrogee for the claims of customers; and
    (iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant 
to 15 U.S.C. 78fff-3(c)(2).
    (4) The determinations and advances made by SIPC as trustee for a 
covered broker or dealer under this subpart D shall be made in a manner 
consistent with SIPC's customary practices under SIPA. The allocation 
of customer property, advances from SIPC, and delivery of customer name 
securities to each customer or to its customer account at a bridge 
broker or dealer, in partial or complete satisfaction of such 
customer's net equity claims as of the close of business on the 
appointment date, shall be in a manner, including form and timing, and 
in an amount at least as beneficial to such customer as would have been 
the case had the covered broker or dealer been liquidated under SIPA. 
Any claims related to determinations made by SIPC as trustee for a 
covered broker or dealer shall be governed by the procedures set forth 
in paragraph (b) of this section.
    (b) Receiver's role. Any claim shall be determined in accordance 
with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and 
the

[[Page 10816]]

regulations promulgated by the Corporation thereunder, provided 
however, that--
    (1) Notice requirements. The notice of the appointment of the 
Corporation as receiver for a covered broker or dealer shall also 
include notice of the appointment of SIPC as trustee. The Corporation 
as receiver shall coordinate with SIPC as trustee to post the notice on 
SIPC's public Web site in addition to the publication procedures set 
forth in Sec.  380.33.
    (2) Procedures for filing a claim. The Corporation as receiver 
shall consult with SIPC, as trustee, regarding a claim form and filing 
instructions with respect to claims against the Corporation as receiver 
for a covered broker or dealer, and such information shall be provided 
on SIPC's public Web site in addition to the Corporation's public Web 
site. Any such claim form shall contain a provision permitting a 
claimant to claim status as a customer of the broker or dealer, if 
applicable.
    (3) Claims bar date. The Corporation as receiver shall establish a 
claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any 
regulations promulgated thereunder by which date creditors of a covered 
broker or dealer, including all customers of the covered broker or 
dealer, shall present their claims, together with proof. The claims bar 
date for a covered broker or dealer shall be the date following the 
expiration of the six-month period beginning on the date a notice to 
creditors to file their claims is first published in accordance with 12 
U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any 
claim filed after the claims bar date shall be disallowed, and such 
disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i) 
and any regulations promulgated thereunder, except that a claim filed 
after the claims bar date shall be considered by the receiver as 
provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated 
thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C. 
78fff-2(a)(3), any claim for net equity filed more than sixty days 
after the date the notice to creditors to file claims is first 
published need not be paid or satisfied in whole or in part out of 
customer property and, to the extent such claim is paid by funds 
advanced by SIPC, it shall be satisfied in cash or securities, or both, 
as SIPC, as trustee, determines is most economical to the receivership 
estate.
    (c) Decision period. The Corporation as receiver of a covered 
broker or dealer shall notify a claimant whether it allows or disallows 
the claim, or any portion of a claim or any claim of a security, 
preference, set-off, or priority, within the 180-day period set forth 
in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder 
(as such 180-day period may be extended by written agreement as 
provided therein) or within the 90-day period set forth in 12 U.S.C. 
5390(a)(5)(B) and any regulations promulgated thereunder, whichever is 
applicable. In accordance with paragraph (a) of this section, the 
Corporation, as receiver, shall issue the notice required by this 
paragraph (c), which shall utilize the determination made by SIPC, as 
trustee, in a manner consistent with SIPC's customary practices in a 
liquidation under SIPA, with respect to any claim for net equity or 
customer name securities. The process established herein for the 
determination, within the 180-day period set forth in 12 U.S.C. 
5390(a)(3)(A) and any regulations promulgated thereunder (as such 180-
day period may be extended by written agreement as provided therein), 
of claims by customers of a covered broker or dealer for customer 
property or customer name securities shall constitute the exclusive 
process for the determination of such claims, and any procedure for 
expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any 
regulations promulgated thereunder shall be inapplicable to such 
claims.
    (d) Judicial review. The claimant may seek a judicial determination 
of any claim disallowed, in whole or in part, by the Corporation as 
receiver, including any claim disallowed based upon any 
determination(s) of SIPC as trustee made pursuant to Sec.  380.64(a), 
by the appropriate district or territorial court of the United States 
in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is 
applicable, and any regulations promulgated thereunder.

Sec.  380.65  Priorities for unsecured claims against a covered broker 
or dealer.

    Allowed claims not satisfied pursuant to Sec.  380.63(d), including 
allowed claims for net equity to the extent not satisfied after final 
allocation of customer property in accordance with Sec.  380.64(a)(3), 
shall be paid in accordance with the order of priority set forth in 
Sec.  380.21 subject to the following adjustments:
    (a) Administrative expenses of SIPC incurred in performing its 
responsibilities as trustee for a covered broker or dealer shall be 
included as administrative expenses of the receiver as defined in Sec.  
380.22 and shall be paid pro rata with such expenses in accordance with 
Sec.  380.21(c).
    (b) Amounts paid by the Corporation to customers or SIPC shall be 
included as amounts owed to the United States as defined in Sec.  
380.23 and shall be paid pro rata with such amounts in accordance with 
Sec.  380.21(c).
    (c) Amounts advanced by SIPC for the purpose of satisfying customer 
claims for net equity shall be paid following the payment of all 
amounts owed to the United States pursuant to Sec.  380.21(a)(3) but 
prior to the payment of any other class or priority of claims described 
in Sec.  380.21(a)(4) through (11).

Sec.  380.66  Administrative expenses of SIPC.

    (a) In carrying out its responsibilities, SIPC, as trustee for a 
covered broker or dealer, may utilize the services of third parties, 
including private attorneys, accountants, consultants, advisors, 
outside experts, and other third party professionals. SIPC shall have 
an allowed claim for administrative expenses for any amounts paid by 
SIPC for such services to the extent that such services are available 
in the private sector, and utilization of such services is practicable, 
efficient, and cost effective. The term administrative expenses of SIPC 
includes the costs and expenses of such attorneys, accountants, 
consultants, advisors, outside experts, and other third party 
professionals, and other expenses that would be allowable to a third 
party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and 
expenses of SIPC employees that would be allowable pursuant to 15 
U.S.C. 78fff(e).
    (b) The term administrative expenses of SIPC shall not include 
advances from SIPC to satisfy customer claims for net equity.

Sec.  380.67  Qualified financial contracts.

    The rights and obligations of any party to a qualified financial 
contract to which a covered broker or dealer is a party shall be 
governed exclusively by 12 U.S.C. 5390, including the limitations and 
restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations 
promulgated thereunder.

Securities and Exchange Commission

17 CFR Part 302

Authority and Issuance

    For the reasons stated in the proposing release, the Securities and 
Exchange Commission proposes to amend 17 CFR 302 as follows:
0
3. Add part 302 to read as follows:

PART 302--ORDERLY LIQUIDATION OF COVERED BROKERS OR DEALERS

Sec.

[[Page 10817]]

302.100 Definitions.
302.101 Appointment of receiver and trustee for covered broker or 
dealer.
302.102 Notice and application for protective decree for covered 
broker or dealer.
302.103 Bridge broker or dealer.
302.104 Claims of customers and other creditors of a covered broker 
or dealer.
302.105 Priorities for unsecured claims against a covered broker or 
dealer.
302.106 Administrative expenses of SIPC.
302.107 Qualified financial contracts.

    Authority: 12 U.S.C. 5385(h).

Sec.  302.100  Definitions.

    For purposes of Sec. Sec.  302.100 through 302.107, the following 
terms shall have the following meanings:
    (a) Appointment date. The term appointment date means the date of 
the appointment of the Corporation as receiver for a covered financial 
company that is a covered broker or dealer. This date shall constitute 
the filing date as that term is used in SIPA.
    (b) Bridge broker or dealer. The term bridge broker or dealer means 
a new financial company organized by the Corporation in accordance with 
12 U.S.C. 5390(h) for the purpose of resolving a covered broker or 
dealer.
    (c) Commission. The term Commission means the Securities and 
Exchange Commission.
    (d) Covered broker or dealer. The term covered broker or dealer 
means a covered financial company that is a qualified broker or dealer.
    (e) Customer. The term customer of a covered broker or dealer shall 
have the same meaning as in 15 U.S.C. 78lll(2) provided that the 
references therein to debtor shall mean the covered broker or dealer.
    (f) Customer name securities. The term customer name securities 
shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the 
references therein to debtor shall mean the covered broker or dealer 
and the references therein to filing date shall mean the appointment 
date.
    (g) Customer property. The term customer property shall have the 
same meaning as in 15 U.S.C. 78lll(4) provided that the references 
therein to debtor shall mean the covered broker or dealer.
    (h) Net equity. The term net equity shall have the same meaning as 
in 15 U.S.C. 78lll(11) provided that the references therein to debtor 
shall mean the covered broker or dealer and the references therein to 
filing date shall mean the appointment date.
    (i) Qualified broker or dealer. The term qualified broker or dealer 
means a broker or dealer that:
    (1) Is registered with the Commission under section 15(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and
    (2) Is a member of SIPC.
    (j) SIPA. The term SIPA means the Securities Investor Protection 
Act of 1970, 15 U.S.C. 78aaa-lll.
    (k) SIPC. The term SIPC means the Securities Investor Protection 
Corporation.
    (l) Corporation. The term Corporation means the Federal Deposit 
Insurance Corporation.
    (m) Dodd-Frank Act. The term Dodd-Frank Act means the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 
Stat. 1376, enacted July 21, 2010.

Sec.  302.101  Appointment of receiver and trustee for covered broker 
or dealer.

    Upon the appointment of the Corporation as receiver for a covered 
broker or dealer, the Corporation shall appoint SIPC to act as trustee 
for the covered broker or dealer.

Sec.  302.102  Notice and application for protective decree for covered 
broker or dealer.

    (a) SIPC and the Corporation, upon consultation with the 
Commission, shall jointly determine the terms of a notice and 
application for a protective decree that will be filed promptly with 
the Federal district court for the district within which the principal 
place of business of the covered broker or dealer is located; provided 
that if a case or proceeding under SIPA with respect to such covered 
broker or dealer is then pending, then such notice and application for 
a protective decree will be filed promptly with the Federal district 
court in which such case or proceeding under SIPA is pending. If such 
notice and application for a protective decree is filed on a date other 
than the appointment date, such filing shall be deemed to have occurred 
on the appointment date for the purposes of Sec. Sec.  302.100 through 
302.107.
    (b) A notice and application for a protective decree may, among 
other things, provide for notice--
    (1) Of the appointment of the Corporation as receiver and the 
appointment of SIPC as trustee for the covered broker or dealer; and
    (2) That the provisions of Title II of the Dodd-Frank Act and any 
regulations promulgated thereunder may apply, including without 
limitation the following:
    (i) Any existing case or proceeding with respect to a covered 
broker or dealer under the Bankruptcy Code or SIPA shall be dismissed 
effective as of the appointment date and no such case or proceeding may 
be commenced with respect to a covered broker or dealer at any time 
while the Corporation is receiver for such covered broker or dealer;
    (ii) The revesting of assets in a covered broker or dealer to the 
extent that they have vested in any entity other than the covered 
broker or dealer as a result of any case or proceeding commenced with 
respect to the covered broker or dealer under the Bankruptcy Code, 
SIPA, or any similar provision of State liquidation or insolvency law 
applicable to the covered broker or dealer; provided that any such 
revesting shall not apply to assets held by the covered broker or 
dealer, including customer property, transferred prior to the 
appointment date pursuant to an order entered by the bankruptcy court 
presiding over the case or proceeding with respect to the covered 
broker or dealer;
    (iii) The request of the Corporation as receiver for a stay in any 
judicial action or proceeding (other than actions dismissed in 
accordance with paragraph (b)(2)(i) of this section) in which the 
covered broker or dealer is or becomes a party for a period of up to 90 
days from the appointment date;
    (iv) Except as provided in paragraph (b)(2)(v) of this section with 
respect to qualified financial contracts, no person may exercise any 
right or power to terminate, accelerate or declare a default under any 
contract to which the covered broker or dealer is a party (and no 
provision in any such contract providing for such default, termination 
or acceleration shall be enforceable), or to obtain possession of or 
exercise control over any property of the covered broker or dealer or 
affect any contractual rights of the covered broker or dealer without 
the consent of the Corporation as receiver of the covered broker or 
dealer upon consultation with SIPC during the 90-day period beginning 
from the appointment date; and
    (v) The exercise of rights and the performance of obligations by 
parties to qualified financial contracts with the covered broker or 
dealer may be affected, stayed, or delayed pursuant to the provisions 
of Title II of the Dodd-Frank Act (including 12 U.S.C. 5390(c)) and the 
regulations promulgated thereunder.

Sec.  302.103  Bridge broker or dealer.

    (a) The Corporation, as receiver for one or more covered brokers or 
dealers or in anticipation of being appointed receiver for one or more 
covered broker or dealers, may organize one or more bridge brokers or 
dealers with respect to a covered broker or dealer.

[[Page 10818]]

    (b) If the Corporation establishes one or more bridge brokers or 
dealers with respect to a covered broker or dealer, then, subject to 
paragraph (d) of this section, the Corporation as receiver for such 
covered broker or dealer shall transfer all customer accounts and all 
associated customer name securities and customer property to such 
bridge brokers or dealers unless the Corporation determines, after 
consultation with the Commission and SIPC, that:
    (1) The customer accounts, customer name securities, and customer 
property are likely to be promptly transferred to one or more qualified 
brokers or dealers such that the use of a bridge broker or dealer would 
not facilitate such transfer to one or more qualified brokers or 
dealers; or
    (2) The transfer of such customer accounts to a bridge broker or 
dealer would materially interfere with the ability of the Corporation 
to avoid or mitigate serious adverse effects on financial stability or 
economic conditions in the United States.
    (c) The Corporation, as receiver for such covered broker or dealer, 
also may transfer any other assets and liabilities of the covered 
broker or dealer (including non-customer accounts and any associated 
property and any assets and liabilities associated with any trust or 
custody business) to such bridge brokers or dealers as the Corporation 
may, in its discretion, determine to be appropriate in accordance with, 
and subject to the requirements of, 12 U.S.C. 5390(h), including 12 
U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated 
thereunder.
    (d) In connection with customer accounts transferred to the bridge 
broker or dealer pursuant to paragraph (b) of this section, claims for 
net equity shall not be transferred but shall remain with the covered 
broker or dealer. Customer property transferred from the covered broker 
or dealer, along with advances from SIPC, shall be allocated to 
customer accounts at the bridge broker or dealer in accordance with 
Sec.  302.104(a)(3). Such allocations initially may be based upon 
estimates, and such estimates may be based upon the books and records 
of the covered broker or dealer or any other information deemed 
relevant in the discretion of the Corporation as receiver, in 
consultation with SIPC, as trustee. Such estimates may be adjusted from 
time to time as additional information becomes available. With respect 
to each account transferred to the bridge broker or dealer pursuant to 
paragraph (b) or (c) of this section, the bridge broker or dealer shall 
undertake the obligations of a broker or dealer only with respect to 
property transferred to and held by the bridge broker or dealer, and 
allocated to the account as provided in Sec.  302.104(a)(3), including 
any customer property and any advances from SIPC. The bridge broker or 
dealer shall have no obligations with respect to any customer property 
or other property that is not transferred from the covered broker or 
dealer to the bridge broker or dealer. The transfer of customer 
property to such an account shall have no effect on calculation of the 
amount of the affected accountholder's net equity, but the value, as of 
the appointment date, of the customer property and advances from SIPC 
so transferred shall be deemed to satisfy any such claim, in whole or 
in part.
    (e) The transfer of assets or liabilities held by a covered broker 
or dealer, including customer accounts and all associated customer name 
securities and customer property, assets and liabilities held by a 
covered broker or dealer for any non-customer creditor, and assets and 
liabilities associated with any trust or custody business, to a bridge 
broker or dealer, shall be effective without any consent, 
authorization, or approval of any person or entity, including but not 
limited to, any customer, contract party, governmental authority, or 
court.
    (f) Any succession to or assumption by a bridge broker or dealer of 
rights, powers, authorities, or privileges of a covered broker or 
dealer shall be effective without any consent, authorization, or 
approval of any person or entity, including but not limited to, any 
customer, contract party, governmental authority, or court, and any 
such bridge broker or dealer shall upon its organization by the 
Corporation immediately and by operation of law--
    (1) Be established and deemed registered with the Commission under 
the Securities Exchange Act of 1934;
    (2) Be deemed to be a member of SIPC; and
    (3) Succeed to any and all registrations and memberships of the 
covered broker or dealer with or in any self-regulatory organizations.
    (g) Except as provided in paragraph (f) of this section, the bridge 
broker or dealer shall be subject to applicable Federal securities laws 
and all requirements with respect to being a member of a self-
regulatory organization and shall operate in accordance with all such 
laws and requirements and in accordance with its articles of 
association; provided, however, that the Commission may, in its 
discretion, exempt the bridge broker or dealer from any such 
requirements if the Commission deems such exemption to be necessary or 
appropriate in the public interest or for the protection of investors.
    (h) At the end of the term of existence of a bridge broker or 
dealer, any proceeds that remain after payment of all administrative 
expenses of such bridge broker or dealer and all other claims against 
such bridge broker or dealer shall be distributed to the receiver for 
the related covered broker or dealer.

Sec.  302.104  Claims of customers and other creditors of a covered 
broker or dealer.

    (a) Trustee's role. (1) SIPC, as trustee for a covered broker or 
dealer, shall determine customer status, claims for net equity, claims 
for customer name securities, and whether property of the covered 
broker or dealer qualifies as customer property. SIPC, as trustee for a 
covered broker or dealer, shall make claims determinations in 
accordance with SIPA and with paragraph (a)(3) of this section, but 
such determinations, and any claims related thereto, shall be governed 
by the procedures set forth in paragraph (b) of this section.
    (2) SIPC shall make advances in accordance with, and subject to the 
limitations imposed by, 15 U.S.C. 78fff-3. Where appropriate, SIPC 
shall make such advances by delivering cash or securities to the 
customer accounts established at the bridge broker or dealer.
    (3) Customer property held by a covered broker or dealer shall be 
allocated as follows:
    (i) First, to SIPC in repayment of advances made by SIPC pursuant 
to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff-3(c)(1), to the extent such 
advances effected the release of securities which then were apportioned 
to customer property pursuant to 15 U.S.C. 78fff(d);
    (ii) Second, to customers of such covered broker or dealer, or in 
the case that customer accounts are transferred to a bridge broker or 
dealer, then to such customer accounts at a bridge broker or dealer, 
who shall share ratably in such customer property on the basis and to 
the extent of their respective net equities;
    (iii) Third, to SIPC as subrogee for the claims of customers; and
    (iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant 
to 15 U.S.C. 78fff-3(c)(2).
    (4) The determinations and advances made by SIPC as trustee for a 
covered broker or dealer under Sec. Sec.  302.100 through 302.107 shall 
be made in a manner consistent with SIPC's customary practices under 
SIPA. The allocation of customer property, advances from SIPC, and 
delivery of

[[Page 10819]]

customer name securities to each customer or to its customer account at 
a bridge broker or dealer, in partial or complete satisfaction of such 
customer's net equity claims as of the close of business on the 
appointment date, shall be in a manner, including form and timing, and 
in an amount at least as beneficial to such customer as would have been 
the case had the covered broker or dealer been liquidated under SIPA. 
Any claims related to determinations made by SIPC as trustee for a 
covered broker or dealer shall be governed by the procedures set forth 
in paragraph (b) of this section.
    (b) Receiver's role. Any claim shall be determined in accordance 
with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and 
the regulations promulgated by the Corporation thereunder, provided 
however, that--
    (1) Notice requirements. The notice of the appointment of the 
Corporation as receiver for a covered broker or dealer shall also 
include notice of the appointment of SIPC as trustee. The Corporation 
as receiver shall coordinate with SIPC as trustee to post the notice on 
SIPC's public Web site in addition to the publication procedures set 
forth in 12 CFR 380.33.
    (2) Procedures for filing a claim. The Corporation as receiver 
shall consult with SIPC, as trustee, regarding a claim form and filing 
instructions with respect to claims against the Corporation as receiver 
for a covered broker or dealer, and such information shall be provided 
on SIPC's public Web site in addition to the Corporation's public Web 
site. Any such claim form shall contain a provision permitting a 
claimant to claim status as a customer of the broker or dealer, if 
applicable.
    (3) Claims bar date. The Corporation as receiver shall establish a 
claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any 
regulations promulgated thereunder by which date creditors of a covered 
broker or dealer, including all customers of the covered broker or 
dealer, shall present their claims, together with proof. The claims bar 
date for a covered broker or dealer shall be the date following the 
expiration of the six-month period beginning on the date a notice to 
creditors to file their claims is first published in accordance with 12 
U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any 
claim filed after the claims bar date shall be disallowed, and such 
disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i) 
and any regulations promulgated thereunder, except that a claim filed 
after the claims bar date shall be considered by the receiver as 
provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated 
thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C. 
78fff-2(a)(3), any claim for net equity filed more than sixty days 
after the date the notice to creditors to file claims is first 
published need not be paid or satisfied in whole or in part out of 
customer property and, to the extent such claim is paid by funds 
advanced by SIPC, it shall be satisfied in cash or securities, or both, 
as SIPC, as trustee, determines is most economical to the receivership 
estate.
    (c) Decision period. The Corporation as receiver of a covered 
broker or dealer shall notify a claimant whether it allows or disallows 
the claim, or any portion of a claim or any claim of a security, 
preference, set-off, or priority, within the 180-day period set forth 
in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder 
(as such 180-day period may be extended by written agreement as 
provided therein) or within the 90-day period set forth in 12 U.S.C. 
5390(a)(5)(B) and any regulations promulgated thereunder, whichever is 
applicable. In accordance with paragraph (a) of this section, the 
Corporation, as receiver, shall issue the notice required by this 
paragraph (c), which shall utilize the determination made by SIPC, as 
trustee, in a manner consistent with SIPC's customary practices in a 
liquidation under SIPA, with respect to any claim for net equity or 
customer name securities. The process established herein for the 
determination, within the 180-day period set forth in 12 U.S.C. 
5390(a)(3)(A) and any regulations promulgated thereunder (as such 180-
day period may be extended by written agreement as provided therein), 
of claims by customers of a covered broker or dealer for customer 
property or customer name securities shall constitute the exclusive 
process for the determination of such claims, and any procedure for 
expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any 
regulations promulgated thereunder shall be inapplicable to such 
claims.
    (d) Judicial review. The claimant may seek a judicial determination 
of any claim disallowed, in whole or in part, by the Corporation as 
receiver, including any claim disallowed based upon any 
determination(s) of SIPC as trustee made pursuant to Sec.  302.104(a), 
by the appropriate district or territorial court of the United States 
in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is 
applicable, and any regulations promulgated thereunder.

Sec.  302.105  Priorities for unsecured claims against a covered broker 
or dealer.

    Allowed claims not satisfied pursuant to Sec.  302.103(d), 
including allowed claims for net equity to the extent not satisfied 
after final allocation of customer property in accordance with Sec.  
302.104(a)(3), shall be paid in accordance with the order of priority 
set forth in 12 CFR 380.21 subject to the following adjustments:
    (a) Administrative expenses of SIPC incurred in performing its 
responsibilities as trustee for a covered broker or dealer shall be 
included as administrative expenses of the receiver as defined in 12 
CFR 380.22 and shall be paid pro rata with such expenses in accordance 
with 12 CFR 380.21(c).
    (b) Amounts paid by the Corporation to customers or SIPC shall be 
included as amounts owed to the United States as defined in 12 CFR 
380.23 and shall be paid pro rata with such amounts in accordance with 
12 CFR 380.21(c).
    (c) Amounts advanced by SIPC for the purpose of satisfying customer 
claims for net equity shall be paid following the payment of all 
amounts owed to the United States pursuant to 12 CFR 380.21(a)(3) but 
prior to the payment of any other class or priority of claims described 
in 12 CFR 380.21(a)(4) through (11).

Sec.  302.106  Administrative expenses of SIPC.

    (a) In carrying out its responsibilities, SIPC, as trustee for a 
covered broker or dealer, may utilize the services of third parties, 
including private attorneys, accountants, consultants, advisors, 
outside experts, and other third party professionals. SIPC shall have 
an allowed claim for administrative expenses for any amounts paid by 
SIPC for such services to the extent that such services are available 
in the private sector, and utilization of such services is practicable, 
efficient, and cost effective. The term administrative expenses of SIPC 
includes the costs and expenses of such attorneys, accountants, 
consultants, advisors, outside experts, and other third party 
professionals, and other expenses that would be allowable to a third 
party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and 
expenses of SIPC employees that would be allowable pursuant to 15 
U.S.C. 78fff(e).
    (b) The term administrative expenses of SIPC shall not include 
advances from SIPC to satisfy customer claims for net equity.

Sec.  302.107  Qualified financial contracts.

    The rights and obligations of any party to a qualified financial 
contract to

[[Page 10820]]

which a covered broker or dealer is a party shall be governed 
exclusively by 12 U.S.C. 5390, including the limitations and 
restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations 
promulgated thereunder.

    Dated: February 17, 2016.

    By the Securities and Exchange Commission.
Brent J. Fields,
Secretary.
    Dated this 17th day of February, 2016.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-03874 Filed 3-1-16; 8:45 am]
 BILLING CODE 8011-01-P; 6714-01-P