Document ID: SEC-2021-0435-0001
Agency: sec
Document Type: Notice
Title: Order: Securities Investor Protection Corp.
Posted Date: 2021-03-30T04:00Z

[Federal Register Volume 86, Number 59 (Tuesday, March 30, 2021)]
[Notices]
[Pages 16651-16652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06493]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-184; File No. SIPC-2021-01]

Securities Investor Protection Corporation; Order Approving the 
Determination of the Board of Directors of the Securities Investor 
Protection Corporation Not to Adjust for Inflation the Standard Maximum 
Cash Advance Amount and Notice of the Standard Maximum Cash Advance 
Amount

March 25, 2021.

I. Background

    On January 5, 2021, the Securities Investor Protection Corporation 
(``SIPC'') filed with the Securities and Exchange Commission 
(``Commission''), under sections 9(e)(1) and 3(e)(2)(A) of the 
Securities Investor Protection Act of 1970 (``SIPA''),\1\ notification 
that SIPC's Board of Directors (the ``SIPC Board'') had determined that 
the standard maximum cash advance amount available to satisfy customer 
claims for cash in a SIPA liquidation proceeding would remain at 
$250,000 beginning January 1, 2022, and for the five-year period 
immediately thereafter. The Commission published for comment notice of 
the SIPC Board's determination in the Federal Register on February 2, 
2021.\2\ The Commission did not receive any comments. The Commission 
today is approving, by order, the SIPC Board's determination. The 
Commission is also publishing notice that the standard maximum cash 
advance amount will remain $250,000 beginning January 1, 2022, and for 
the five-year period immediately thereafter.
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    \1\ 15 U.S.C. 78fff-3(e)(1) and 15 U.S.C. 78ccc(e)(2)(A), 
respectively.
    \2\ See Securities Investor Protection Corporation, Release No. 
SIPA-183 (Jan. 27, 2021), 86 FR 7900 (Feb. 2, 2021) (File No. SIPC-
2021-01). The notice sets forth SIPC's statement of the purpose and 
statutory basis of the determination of the SIPC Board not to adjust 
the standard maximum cash advance amount for inflation, which was 
attached to a letter from SIPC to the Commission, dated January 5, 
2021.
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    The Dodd-Frank Wall Street Reform and Consumer Protection Act (the 
``Dodd-Frank Act'') \3\ amended SIPA to raise the ``standard maximum 
cash advance amount'' from $100,000 to $250,000 per customer.\4\ The 
amendments to SIPA aligned that amount with the maximum insurance 
amount provided by the Federal Deposit Insurance Corporation (``FDIC'') 
to customers of a failed bank. The Dodd-Frank Act also amended SIPA to 
require the SIPC Board of Directors to determine, no later than January 
1, 2011, and every five years thereafter, whether an inflation 
adjustment to the standard maximum cash advance amount available to 
satisfy customer claims in a SIPA liquation proceeding is 
appropriate.\5\ Any adjustment to the standard maximum cash advance 
amount takes effect on January 1 of the year immediately succeeding the 
calendar year in which the adjustment is made.\6\ The SIPC Board's 
determination on whether to make an adjustment is subject to Commission 
approval as provided under section 3(e)(2) of SIPA.\7\ The Commission 
must publish notice of the standard maximum cash advance amount in the 
Federal Register no later than April 5 of any calendar year in which 
SIPC is required to determine whether an inflation adjustment is 
appropriate.\8\
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    \3\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \4\ In a liquidation of a broker-dealer performed under SIPA, a 
fund of customer property is established for priority distribution 
to customers ahead of all other creditors. Each customer is entitled 
to a pro rata share of the customer property to the extent of the 
customer's net equity in the customer's account. If the amount of 
customer property is insufficient to satisfy a customer's net equity 
claim, SIPC advances money to satisfy the claim up to $500,000 per 
customer, of which up to $250,000 (i.e., the standard maximum cash 
advance amount) can be used to satisfy a claim for cash. See 15 
U.S.C. 78fff-3.
    \5\ 15 U.S.C. 78fff-3(e)(1). In 2016, the Board determined to 
maintain the standard maximum cash advance amount at $250,000, which 
was approved by the Commission. See Securities Investor Protection 
Corporation, Release No. SIPA-174 (Feb. 22, 2016), 81 FR 9561 (Feb. 
25, 2016) and Securities Investor Protection Corporation, Release 
No. SIPA-176 (March 30, 2016), 81 FR 19250 (April 4, 2016).
    \6\ 15 U.S.C. 78fff-3(e)(4).
    \7\ See 15 U.S.C. 78ccc(e)(2); 15 U.S.C. 78fff-3(e)(1).
    \8\ 15 U.S.C. 78fff-3(e)(3)(A).
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II. Determination of the SIPC Board Not to Adjust the Standard Maximum 
Cash Advance Amount

    As described above, SIPC filed with the Commission notification 
that the SIPC Board had determined not to raise the standard maximum 
cash advance amount above $250,000, and thereby maintain it at that 
level beginning January 1, 2022, and for the five-year period 
immediately thereafter. In its filing, SIPC stated that applying the 
formula prescribed by SIPA in this instance would have increased the 
standard maximum cash advance amount by $40,000 and that the SIPC Board 
weighed the factors it considered in making its determination against 
an increase of that amount. For the reasons discussed below, the SIPC 
Board determined not to make the inflation adjustment.
    The SIPC Board is required to consider the following criteria under 
SIPA: (1) The overall state of the fund and the economic conditions 
affecting members of SIPC; (2) the potential problems affecting members 
of SIPC; and (3) such other factors as the SIPC Board may determine 
appropriate.\9\ In its filing, SIPC stated that the SIPC Board 
considered the projected growth of the SIPC Fund,\10\ including the 
target amount for the SIPC Fund of $5 billion, the assessment rate 
imposed on SIPC members, and the potential impact of an inflation 
adjustment on the SIPC Fund. According to the filing, the Board also 
considered SIPC's experience with respect to: (1) SIPC advances in past 
and present; (2) amounts generated from assessments on member broker-
dealers; and (3) projected returns on SIPC investments. According to 
the filing, based on these factors, the SIPC Board concluded that the 
SIPC fund is positioned to remain on a steady growth path for the 
foreseeable future, barring any unforeseen catastrophic event, and that 
any increase in the cash limit of SIPA protection would not appreciably 
benefit customers.
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    \9\ 15 U.S.C. 78fff-3(e)(5).
    \10\ SIPC is required to establish and administer a broker-
dealer liquidation fund (the ``SIPC Fund'') from which all 
expenditures by SIPC are to be made, including funds used to 
facilitate the liquidation of broker-dealers. See 15 U.S.C. 78ddd.
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    The filing states that the SIPC Board also considered the 
relationship between the amount of the SIPC standard maximum cash 
advance amount and the standard maximum amount of protection afforded 
by the FDIC to customers of a failed bank, noting both the current 
equivalency between SIPA's maximum cash advance amount and the 
``standard maximum deposit insurance amount'' that fixes the limit on 
bank deposit insurance under the Federal Deposit Insurance Act (both at 
$250,000), and that increases to the limit of protection for cash 
claims under SIPA historically have moved in lockstep with increases in 
FDIC deposit insurance. According to the filing, the SIPC Board 
concluded that an inflation adjustment to the SIPA maximum cash advance 
amount without a corresponding adjustment to the FDIC standard maximum 
deposit insurance amount would result in an

[[Page 16652]]

unprecedented divergence between the two.
    Further, the filing avers that the SIPC Board also considered that, 
of the more than 770,000 allowed claims in completed or substantially 
completed liquidation proceedings as of year-end 2019, the unsatisfied 
portion of cash claims amounted to $25 million. More than half of that 
amount involved only three claims. In the seven SIPA proceedings 
initiated since 2010, only one cash claim remains unsatisfied.
    Finally, the filing notes that the SIPC Board also considered that 
customer free credit balances at brokerage firms have not increased 
over the last five years in line with inflation, as firms have 
increasingly utilized sweep programs \11\ to move customer free credit 
balances from broker-dealers to banks. The filing also states that the 
SIPC Board considered views of the staffs of the Commission, the FDIC, 
and the Financial Industry Regulatory Authority, as reported to the 
SIPC staff and as further reported by the SIPC staff to the SIPC Board.
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    \11\ A ``sweep program'' is a service proved by a broker-dealer 
where it offers to its customer the option to automatically transfer 
free credit balances of cash in the securities account of the 
customer to either a money market fund product as described in Rule 
2a-7 under the Investment Company Act of 1940 or an account at a 
bank whose deposits are insured by the FDIC. See 17 CFR 240.15c3-
3(a)(17).
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    According to the filing, after considering these factors, the SIPC 
Board concluded that, on balance, an adjustment to the standard maximum 
cash advance amount was not appropriate, and determined that the 
standard maximum cash advance amount should remain at $250,000 per 
customer.

III. Discussion and Commission Order

    Section 3(e)(2)(A) of SIPA provides that the SIPC Board must file 
with the Commission any proposed amendment to a SIPC Rule.\12\ Section 
3(e)(2)(B) of SIPA provides that within thirty-five days of the date of 
publication of the notice of filing of a proposed rule change in the 
Federal Register, or within such longer period (1) as the Commission 
may designate of not more than ninety days after such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding, or (2) as to which SIPC consents, the Commission shall: (i) By 
order approve such proposed rule change, or (ii) institute proceedings 
to determine whether such proposed rule change should be disapproved. 
Further, section 3(e)(2)(D) of SIPA provides that the Commission shall 
approve a proposed rule change if it finds that the proposed rule 
change is in the public interest and is consistent with the purposes of 
SIPA.\13\ The SIPC Board's determination to not adjust the standard 
maximum cash advance amount is subject to the approval of the 
Commission as provided under section 3(e)(2) of SIPA.\14\
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    \12\ 15 U.S.C. 78ccc(e)(2)(A).
    \13\ 15 U.S.C. 78ccc(e)(2)(D).
    \14\ See 15 U.S.C. 78fff-3(e)(1).
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    The Commission finds, pursuant to section 3(e)(2)(D) of SIPA, that 
the determination of the SIPC Board not to adjust for inflation the 
standard maximum cash advance amount of $250,000 beginning January 1, 
2022, and for the five-year period immediately thereafter is in the 
public interest and consistent with the purposes of SIPA. The 
Commission believes that maintaining the amount at $250,000 at this 
time, which keeps it aligned with the maximum amount of insurance 
provided by the FDIC, is in the public interest and consistent with the 
purposes of SIPA. Specifically, there could be unintended consequences 
resulting from raising the amount to a level that is higher than the 
maximum FDIC insurance amount, such as incentivizing investors to move 
additional funds to their brokerage accounts from bank accounts. 
Providing a higher level of SIPA coverage for cash deposits of broker-
dealer customers could incentivize customers to deposit cash at broker-
dealers for the purpose of holding cash at the broker-dealer, as 
opposed depositing the cash there for an investment purpose. This 
practice could raise questions about whether such deposits would be 
covered under SIPA, which provides ``customer'' status to those cash 
depositors who have made the deposit with a SIPC member broker-dealer 
for the purpose of purchasing securities.\15\ By maintaining the 
standard maximum cash advance amount at $250,000 and in line with the 
maximum FDIC insurance amount, the Commission believes that the 
incentive for a customer to use the broker-dealer account for the 
purpose of holding cash, as opposed to for the purpose of purchasing 
securities, will be less likely to arise, thereby minimizing the 
instances of such deposits not being covered under SIPA, which the 
Commission believes is in the public interest and consistent with the 
purposes of SIPA.
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    \15\ See 15 U.S.C. 78lll(2)(B)(i) (Defining ``customer'' under 
SIPA).
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    In addition, the Commission believes that the SIPC Board's 
consideration of its historical experience with advances and 
assessments and of the potential effect of any inflation adjustment on 
the SIPC Fund was a reasonable method for the SIPC Board to project 
potential future obligations owed to customers with claims for cash 
recognized under SIPA when the SIPC Board considered whether to raise 
the standard maximum cash advance amount. The Commission believes that 
this approach does not materially affect the customers of SIPC members 
and should minimize the potential for unnecessary increases to 
assessments on members and therefore is consistent with the public 
interest and consistent with the purposes of SIPA. Specifically, the 
Commission believes that maintaining the standard maximum cash advance 
amount at $250,000 is consistent with the public interest and with the 
purposes of SIPA in light of the statistics considered by the SIPC 
Board that indicated that customer claims for cash have been 
historically satisfied in full and the trend that customer credit 
balances at broker-dealers have not increased in recent years.
    It is therefore ordered, pursuant to section 3(e)(2) of SIPA, that 
the determination by the SIPC Board that the standard maximum cash 
advance amount will remain at $250,000 beginning January 1, 2022, and 
for the five-year period immediately thereafter, be and hereby is 
approved.

IV. Notice of the Standard Maximum Cash Advance Amount

    Section 9(e)(3)(A) of SIPA requires that the Commission publish the 
standard maximum cash advance amount in the Federal Register no later 
than April 5 of any calendar year in which SIPC is required to 
determine whether an inflation adjustment is appropriate.\16\ 
Accordingly, pursuant to section 9(e)(3)(A) of SIPA, the Commission is 
hereby providing notice that the standard maximum cash advance amount 
is $250,000 beginning January 1, 2022, and for the five-year period 
immediately thereafter.
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    \16\ 15 U.S.C. 78fff-3(e)(3)(A).

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06493 Filed 3-29-21; 8:45 am]
BILLING CODE 8011-01-P