Document ID: SEC-2016-0474-0001
Agency: sec
Document Type: Rule
Title: Securities Investor Protection Corporation
Posted Date: 2016-03-17T04:00Z

[Federal Register Volume 81, Number 52 (Thursday, March 17, 2016)]
[Rules and Regulations]
[Pages 14372-14374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06041]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 300

[Release No. SIPA-175; File No. SIPC-2015-01]

Securities Investor Protection Corporation

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
approving a proposed rule change filed by the Securities Investor 
Protection Corporation (``SIPC''). The rule change adds SIPC Rule 600, 
entitled ``Rules Relating to Supplemental Report of SIPC Membership.'' 
Because SIPC rules have the force and effect as if promulgated by the 
Commission, those rules are published in Title 17 of the Code of 
Federal Regulations, where the rule change will be reflected.

DATES: Effective March 31, 2016.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate 
Director, at (202) 551-5525; Thomas K. McGowan, Associate Director, at 
(202) 551-5521; Randall W. Roy, Deputy Associate Director, at (202) 
551-5522; Timothy C. Fox, Branch Chief, at (202) 551-5687; Rose Russo 
Wells, Senior Counsel, at (202) 551-5527; Office of Financial 
Responsibility, Division of Trading and Markets, Securities and 
Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: The Commission is approving a proposed rule 
change filed by SIPC, adding SIPC Rule 600, 17 CFR 300.600.

I. Background

    On April 17, 2015, SIPC filed a proposed rule change with the 
Commission under section 3(e)(2)(A) of the Securities Investor 
Protection Act of 1970 (``SIPA''),\1\ and subsequently filed amendments 
to the proposed rule change on June 23, 2015, July 24, 2015, and 
September 29, 2015. The proposed rule change would add SIPC Rule 600 
(``Rule 600''), entitled ``Rules Relating to Supplemental Report of 
SIPC Membership.'' Notice requesting comment on the proposed rule 
change, as amended, was published in the Federal Register on November 
4, 2015.\2\ The Commission received one comment on the proposal.\3\ The 
Commission is approving the proposed rule change under section 3(e)(2) 
of SIPA.\4\
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    \1\ 15 U.S.C. 78ccc(e)(2)(A).
    \2\ See Securities Investor Protection Corporation, Release No. 
SIPA-173 (Oct. 28, 2015), 80 FR 68286 (Nov. 4, 2015).
    \3\ See email from Paul W. Lameo to Michael A. Macchiaroli dated 
December 22, 2015. The comment requested clarification regarding a 
number of technical questions concerning the process for filing 
reports with SIPC. SIPC intends to issue Frequently Asked Questions 
to respond to those and other technical questions.
    \4\ Under SIPA, to be final, rules proposed by SIPC must be 
approved by the Commission. See 15 U.S.C. 78ccc(e)(2).
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II. Proposed Rule Change

    Pursuant to SIPA and SIPC Bylaws, broker-dealers that are SIPC 
members pay semi-annual assessments to SIPC at the mid-point and at the 
end of their fiscal year.\5\ The assessment payments are the main 
source of funding for the SIPC Fund. The amount of the assessment a 
broker-dealer must pay is based on the firm's revenues from its 
securities business.\6\ Consequently, in relation to the payment of the 
assessments, a broker-dealer must file with SIPC a Form SIPC-6 (General 
Assessment Payment Form) with the mid-year assessment and a Form SIPC-7 
(General Assessment Reconciliation Form) with the year-end assessment. 
These forms show the broker-dealer's calculation of the assessment 
amount based on its revenues from its securities business.\7\
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    \5\ See 15 U.S.C. 78ddd(c); SIPC Bylaws, Article 6.
    \6\ See 15 U.S.C. 78ddd(c) and (d).
    \7\ Form SIPC-7 provides that the broker-dealer may deduct from 
the end of fiscal year assessment the amount paid mid-year with the 
filing of the Form SIPC-6.
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    Broker-dealers that limit their business to certain specified 
activities or conduct their business outside of the United States are 
exempt from being members of SIPC.\8\ Consequently, these broker-
dealers do not pay a SIPC assessment. However, they must file a

[[Page 14373]]

Form SIPC-3, which is a certification by the broker-dealer that it is 
excluded from SIPC membership under SIPA.
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    \8\ See 15 U.S.C. 78ccc(a)(2)(A).
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    In 1972, as a result of significant discrepancies between the 
assessment information reported to SIPC on the Forms SIPC-6 and SIPC-7 
and information supplied in reports filed with the Commission on which 
the calculation of the assessment was based, the Commission amended 
Rule 17a-5 \9\ (the broker-dealer reporting rule).\10\ As amended, the 
rule generally requires broker-dealers to file with the Commission a 
SIPC supplemental report.\11\ The SIPC supplemental report includes a 
schedule of assessment payments or a statement that the broker-dealer 
qualified for exclusion from membership in SIPC. The SIPC supplemental 
report also must include a report of an independent public accountant, 
who must be engaged to perform certain procedures specified in Rule 
17a-5 with respect to the information provided in the report.\12\
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    \9\ 17 CFR 240.17a-5.
    \10\ See Report of Securities Investor Protection Corporation 
Assessments, Exchange Act Release No. 9766 (Sep. 15, 1972), 37 FR 
18909 (Sep. 16, 1972).
    \11\ See 17 CFR 240.17a-5(e)(4).
    \12\ The items that must be included in the report and the 
procedures to be performed by the accountant are listed in 
paragraphs (e)(4)(ii)(A), (B), and (C) of Rule 17a-5.
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    On July 30, 2013, the Commission amended Rule 17a-5.\13\ As part of 
this rulemaking, the Commission determined that because Forms SIPC-3, 
SIPC-6, and SIPC-7 are used solely by SIPC for purposes of levying its 
assessments, the SIPC supplemental report should be filed only with 
SIPC. The Commission also determined that SIPC should prescribe the 
form and content of the SIPC supplemental report. Accordingly, the 
Commission amended paragraph (e)(4) of Rule 17a-5 to provide that a 
broker-dealer must file a SIPC supplemental report with SIPC that 
contains such information and is in such format as determined by SIPC 
by rule and approved by the Commission.\14\
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    \13\ See Broker-Dealer Reports, Exchange Act Release No. 70073 
(Jul. 30, 2013), 78 FR 51910 (Aug. 21, 2013) (``Broker-Dealer 
Reports'').
    \14\ See Broker-Dealer Reports, 78 FR 51926-7, 51991, 17 CFR 
240.17a-5(e)(4)(i).
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    The rule change approved by the Commission adds SIPC Rule 600, 
entitled ``Rules Relating to Supplemental Report of SIPC Membership.'' 
\15\ The purpose of Rule 600 is to replace the requirements currently 
in Rule 17a-5 prescribing the information that must be included in, and 
the format of, the SIPC supplemental report.\16\ The requirements of 
Rule 600 are modeled on the requirements of Rule 17a-5.\17\ For 
example, Rule 600 requires that the SIPC supplemental report include, 
among other things, a copy of the Form SIPC-7 filed or a schedule of 
assessment payments showing any overpayments applied and overpayments 
carried forward, including payment dates and amounts; or, if exclusion 
from membership was claimed, a statement that the broker-dealer 
qualified for exclusion from membership under SIPA and the date the 
Form SIPC-3 was filed with SIPC.\18\ Further, Rule 600 requires that 
the SIPC supplemental report include a report of an independent public 
accountant who is engaged to perform the following agreed-upon 
procedures:
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    \15\ 17 CFR 300.600.
    \16\ See 17 CFR 240.17a-5(e)(4)(ii). Rule 17a-5 provides that 
broker-dealers are required to file the SIPC supplemental reports 
pursuant to the requirements in paragraph (e)(4)(ii) of the rule 
until the earlier of the Commission approving a rule adopted by SIPC 
or two years from the effective date of the amendment (that is, by 
June 14, 2016). See 17 CFR 240.17a-5(e)(4)(ii). Consequently, if, 
after two years from the effective date no such SIPC rule has been 
approved, broker-dealers would no longer be required to file the 
reports.
    \17\ Compare Rule 600, with 17 CFR 240.17a-5(e)(4)(ii).
    \18\ Compare Rule 600(b)(i) and (ii), with 17 CFR 240.17a-
5(e)(4)(ii).
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     Compare assessment payments made in accordance with Form 
SIPC-6 and applied to the general assessment calculation on Form SIPC-7 
with respective cash disbursements record entries;
     For all or any portion of a fiscal year, compare amounts 
reflected in the audited financial statements required by Commission 
rule with amounts reported in Form SIPC-7;
     Compare adjustments reported in Form SIPC-7 with 
supporting schedules and working papers supporting the adjustments;
     Verify the arithmetical accuracy of the calculations 
reflected in Form SIPC-7 and in the schedules and working papers 
supporting any adjustments; and
     Compare the amount of any overpayment applied with the 
Form SIPC-7 on which it was computed; or
     If exclusion from membership is claimed, compare the 
income or loss reported in the audited financial statements required by 
Commission rule with Form SIPC-3.\19\
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    \19\ Compare Rule 600(b)(iii), with 17 CFR 240.17a-5(e)(4)(ii). 
Consistent with requirements in Rule 17a-5 regarding the independent 
public accountant that is engaged to prepare reports covering the 
annual reports of a broker-dealer, Rule 600 provides that the 
independent public accountant who is engaged to perform the 
enumerated agreed-upon procedures must be independent in accordance 
with the provisions of 17 CFR 210.2-01 and that the accountant must 
be engaged to perform the enumerated agreed-upon procedures in 
accordance with standards of the Public Company Accounting Oversight 
Board. See Rule 600(b)(iii); 17 CFR 240.17a-5(f)(1) and (g).
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    Rule 600 also incorporates prior relief by providing that a SIPC 
member broker-dealer is exempt from filing the supplemental report if 
the broker-dealer reports $500,000 or less in total revenue in its 
``annual audited statement of income'' filed with the Commission.\20\
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    \20\ See Rule 600(a)(ii).
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    Finally, Rule 600 provides that a broker-dealer must file the 
supplemental report within 60 days after the end of its fiscal year.

III. Discussion and Commission Action

    Section 3(e)(2)(A) of SIPA provides that the SIPC Board of 
Directors must file with the Commission any proposed amendment to a 
SIPC Rule.\21\ 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.\22\ 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.\23\
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    \21\ 15 U.S.C. 78ccc(e)(2)(A).
    \22\ 15 U.S.C. 78ccc(e)(2)(B). SIPC has agreed to two 60-day 
extensions; consequently, the Commission must act no later than 
April 7, 2016. See emails from Hemant Sharma, Associate General 
Counsel, SIPC, to Randall W. Roy, Deputy Associate Director, 
Commission, dated December 3, 2015 and February 1, 2016.
    \23\ 15 U.S.C. 78ccc(e)(2)(D).
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    The Commission finds, pursuant to section 3(e)(2)(D) of SIPA, that 
the proposed rule change is in the public interest and consistent with 
the purposes of SIPA. First, as noted above, paragraph (e)(4) of Rule 
17a-5 provides that the broker-dealer must file with SIPC a report on 
the SIPC annual general assessment reconciliation or exclusion from 
membership forms that contains such information and is in such format 
as determined by SIPC by rule and approved by the Commission. SIPC uses 
broker-dealers' SIPC supplemental reports to evaluate whether broker-
dealers calculate their SIPC assessments correctly. These

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assessments are the main source of funding for the SIPC Fund. The 
Commission determined that because Forms SIPC-3, SIPC-6, and SIPC-7 are 
used solely by SIPC for purposes of levying its assessments, SIPC 
should prescribe by rule the form and content of the SIPC supplemental 
report. Rule 600 prescribes the form and content of the report, in 
accordance with paragraph (e)(4) of Rule 17a-5. Second, Rule 600 is 
modelled on existing requirements in Rule 17a-5 prescribing the 
information that must be included in, and the format of, the SIPC 
supplemental report. Accordingly, the Commission finds that Rule 600 is 
in the public interest and is consistent with the purposes of SIPA.
    It is therefore ordered by the commission, pursuant to section 
3(e)(2) of SIPA, that the above-mentioned proposed rule change is 
approved. In accordance with section 3(e)(2) of SIPA, the approved rule 
change shall be given the force and effect as if promulgated by the 
Commission.

IV. Statutory Authority

    Pursuant to SIPA, 15 U.S.C. 78aaa et seq., and particularly, 
section 3(e)(15 U.S.C. 78ccc(e), SIPC is adding section 300.600 of 
Title 17 of the Code of Federal Regulations in the manner set forth 
below.

List of Subjects in 17 CFR Part 300

    Brokers, Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 300--RULES OF THE SECURITIES INVESTOR PROTECTION CORPORATION

0
1. The authority citation for part 300 continues to read as follows:

    Authority:  15 U.S.C. 78ccc.

0
2. Add an undesignated center heading and Sec.  300.600 to read as 
follows:

Rules Relating to Supplemental Report on SIPC Membership

Sec.  300.600  Rules relating to supplemental report on SIPC 
membership.

    (a)(1) Who must file the supplemental report. Except as provided in 
paragraph (a)(2) of this section, a broker or dealer must file with 
SIPC, within 60 days after the end of its fiscal year, a supplemental 
report on the status of its membership in SIPC (commonly referred to as 
the ``Independent Accountants' Report on Applying Agreed-Upon 
Procedures'') if a rule of the Securities and Exchange Commission (SEC) 
requires the broker or dealer to file audited financial statements 
annually.
    (2) If the broker or dealer is a member of SIPC, the broker or 
dealer is not required to file the supplemental report for any year in 
which it reports $500,000 or less in total revenues in its annual 
audited statement of income filed with the SEC.
    (b) Requirements of the supplemental report. The supplemental 
report must cover the SIPC Annual General Assessment Reconciliation 
Form (Form SIPC-7) or the Certification of Exclusion From Membership 
Form (Form SIPC-3) for each year for which an SEC Rule requires audited 
financial statements to be filed. The supplemental report must include 
the following:
    (1) A copy of the form filed or a schedule of assessment payments 
showing any overpayments applied and overpayments carried forward, 
including payment dates, amounts, and name of SIPC collection agent to 
whom mailed; or
    (2) If exclusion from membership was claimed, a statement that the 
broker or dealer qualified for exclusion from membership under the 
Securities Investor Protection Act of 1970, as amended, and the date 
the Form SIPC-3 was filed with SIPC; and
    (3) An independent public accountant's report. The independent 
public accountant, who must be independent in accordance with the 
provisions of 17 CFR 210.2-01, must be engaged to perform the following 
agreed-upon procedures in accordance with standards of the Public 
Company Accounting Oversight Board (PCAOB):
    (i) Compare assessment payments made in accordance with the General 
Assessment Payment Form (Form SIPC-6) and applied to the General 
Assessment calculation on the Form SIPC-7 with respective cash 
disbursements record entries;
    (ii) For all or any portion of a fiscal year, compare amounts 
reflected in the audited financial statements required by an SEC rule 
with amounts reported in the Form SIPC-7;
    (iii) Compare adjustments reported in the Form SIPC-7 with 
supporting schedules and working papers supporting the adjustments;
    (iv) Verify the arithmetical accuracy of the calculations reflected 
in the Form SIPC-7 and in the schedules and working papers supporting 
any adjustments; and
    (v) Compare the amount of any overpayment applied with the Form 
SIPC-7 on which it was computed; or
    (vi) If exclusion from membership is claimed, compare the income or 
loss reported in the audited financial statements required by an SEC 
rule with the Form SIPC-3.

    By the Commission.

    Dated: March 14, 2016.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06041 Filed 3-16-16; 8:45 am]
 BILLING CODE 8011-01-P