SEC offers new liquidation rule for broker-dealers
18 February 2016 Washington DC
Image: Shutterstock
The US Securities and Exchange Commission (SEC) has proposed a new rule to make the liquidation process for large broker-dealers more orderly and efficient.
The rule outlines out how to immediately notify interested parties that a liquidation proceeding has begun by filing a notice and application for protective decree in federal district court.
It also proposes the steps for transferring accounts to a bridge company for determining claims and distributing assets, and the roles of the Securities Investor Protection Corporation (SIPC) and the Federal Deposit Insurance Corporation (FDIC).
According to the SEC, traditionally, the SIPC, a non-profit supported by broker-dealers created in the Investor Protection Act, oversees the liquidation of its bankrupt or troubled members and works to return missing securities and cash to customers.
The better-known FDIC is a federal agency that, among other things, manages bank receiverships and examines banks for safety and consumer protection.
The proposed change was drafted after consultation with the FDIC and SIPC and would implement part of the Dodd-Frank Act, known as Title II, that created an alternative insolvency process for large financial companies.
The SEC said: "[The rule would] help ensure that customers are treated in a manner at least as beneficial as would have been the case in a liquidation under the Securities Investor Protection Act."
"This proposal will help ensure that in the event there is a need for the orderly liquidation of a broker-dealer, the process is handled in a manner that minimises disruption and promotes public confidence," added SEC chair Mary Jo White in a statement.
The rule outlines out how to immediately notify interested parties that a liquidation proceeding has begun by filing a notice and application for protective decree in federal district court.
It also proposes the steps for transferring accounts to a bridge company for determining claims and distributing assets, and the roles of the Securities Investor Protection Corporation (SIPC) and the Federal Deposit Insurance Corporation (FDIC).
According to the SEC, traditionally, the SIPC, a non-profit supported by broker-dealers created in the Investor Protection Act, oversees the liquidation of its bankrupt or troubled members and works to return missing securities and cash to customers.
The better-known FDIC is a federal agency that, among other things, manages bank receiverships and examines banks for safety and consumer protection.
The proposed change was drafted after consultation with the FDIC and SIPC and would implement part of the Dodd-Frank Act, known as Title II, that created an alternative insolvency process for large financial companies.
The SEC said: "[The rule would] help ensure that customers are treated in a manner at least as beneficial as would have been the case in a liquidation under the Securities Investor Protection Act."
"This proposal will help ensure that in the event there is a need for the orderly liquidation of a broker-dealer, the process is handled in a manner that minimises disruption and promotes public confidence," added SEC chair Mary Jo White in a statement.
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