15 U.S.C. § 78ddd — SIPC Fund

(a) In general. SIPC (the Securities Investor Protection Corporation) must set up a "SIPC Fund." Every dollar SIPC collects goes into this fund, except money paid straight to a lender under a pledge that secures a SIPC loan. SIPC pays all its bills out of this fund. The fund's balance at any time equals: (A) cash on hand or on deposit; (B) money invested in U.S. government or agency securities; and (C) confirmed lines of credit SIPC has arranged, other than special extra lines described below. A "confirmed line of credit" is money SIPC has the right to borrow from banks or other institutions under agreements where SIPC doesn't have to repay for at least a year (counting any right to extend or renew the loan). SIPC may also keep other confirmed lines of credit that don't count toward the fund's official balance, but SIPC can still spend money drawn from them as if it were fund money. (b) Initial required balance. Within 120 days of December 30, 1970, the fund had to reach at least $75,000,000, minus anything already spent from it in that period. (c) Assessments. (1) Initial assessments: by the 120th day after December 30, 1970, each SIPC member had to pay an assessment equal to one-eighth of one percent of its 1969 gross revenue from the securities business. The SEC could set a lower percentage (but never below one-sixteenth of one percent) for certain classes of members, based on factors like the type of business they do. No member's initial assessment could be less than $150. (2) General assessment authority: SIPC can, by bylaw, charge members whatever assessments it decides — after talking with self-regulatory organizations — are necessary to build and maintain the fund and repay SIPC's borrowings. These assessments must match any promises SIPC made to lenders. Subject to the limits in paragraph (3) and subsection (d)(1)(A), SIPC can base these assessments on (A) a member's gross securities-business revenue, or (B) other factors: the amount or makeup of that revenue, the number or dollar volume of trades, the number or value of customer accounts, the member's net capital, the riskiness of its activities, or other relevant factors. (3) Limitations: no assessment can be made except under paragraph (1) or (2). Under paragraph (2), SIPC can charge more than one-half of one percent in any 12-month period only if it decides, by bylaw, that doing so won't seriously hurt members or their customers financially — but even then, no member can be charged more than one percent of its gross securities revenue in that period. No assessment under paragraph (2) can be based on a member's activities selling registered open-end investment company or unit investment trust shares, selling variable annuities, doing insurance business, or giving investment advice to registered investment companies or insurance company separate accounts. (d) Requirements for assessments and lines of credit. (1)(A) Half-of-one-percent assessment: SIPC must charge each member at least one-half of one percent per year of its securities-business revenue whenever: (i) the fund is below $150,000,000 (or another amount the SEC sets as being in the public interest); (ii) SIPC has an outstanding loan under subsection (f) or (g); or (iii) the fund (not counting lines of credit) is below $100,000,000 (or another SEC-set amount). (B) Quarter-of-one-percent assessment: whenever (i) the fund (not counting lines of credit) is below $150,000,000 (or the SEC-approved amount), or (ii) SIPC must phase out its lines of credit under paragraph (2)(B), SIPC must try to make sure total member assessments add up to at least one-quarter of one percent per year of members' combined securities-business revenue. (C) Minimum assessment: each member's minimum yearly assessment was $25 through the end of 1979; after that, SIPC's bylaws set the minimum, but it can never exceed 0.02 percent of that member's gross securities-business revenue. (2)(A) $50,000,000 limit after 1973: after December 31, 1973, confirmed lines of credit can make up no more than $50,000,000 of the fund's balance. (B) Phaseout requirement: once the fund reaches $150,000,000 (or another SEC-approved amount), SIPC must remove all confirmed lines of credit from the fund. (e) Prior trusts; overpayments and underpayments. (1) Money held in a trust that a self-regulatory organization set up before January 1, 1970 can be transferred to SIPC. With SEC approval, SIPC can credit that money against future assessments owed by members of that organization — but not while SIPC has an outstanding loan under subsection (g) or an outstanding line-of-credit borrowing. (2) If a member pays more than the maximum rate allowed under subsection (c), the excess can only be credited against that member's future payments, unless SIPC's bylaws say otherwise. (3) If a member doesn't pay an assessment on time, the unpaid part accrues interest at a bylaw-set rate, and SIPC may also charge a penalty — capped at 25 percent of the unpaid amount. SIPC can waive this penalty, in whole or part, if it thinks that's appropriate. (f) Borrowing authority. SIPC can borrow money and issue bonds, notes, or similar debt instruments. The terms are set by SIPC's Board (for ordinary borrowing) or by the SEC (for borrowing from the SEC under subsection (g)). Interest on an SEC loan matches the interest the SEC itself pays the Treasury. To secure repayment, SIPC can pledge its future assessments and its assets. Once made, a pledge of future assessments is valid immediately, and any assessments collected afterward are automatically subject to that pledge — no paperwork or physical handover needed. That pledge overrides any other claim against SIPC, in tort, contract, or otherwise, whether or not the other claimant knew about the pledge. While an SEC loan under subsection (g) is outstanding, a pledge securing any other debt can't reach more than one-fourth of one percent of a member's gross securities revenue per 12-month period. No pledge document needs to be filed or recorded in any state. The SEC may adopt rules requiring such filings, but failing to file, or a defect in a filing, doesn't invalidate the pledge or the borrowing. (g) SEC loans to SIPC. If the fund is, or looks like it may become, insufficient, the SEC can lend SIPC money. To apply, SIPC must tell the SEC how it plans to use the loan. If the SEC decides the loan is necessary to protect customers of brokers or dealers and to keep confidence in U.S. securities markets, and SIPC has submitted as solid a repayment plan as is feasible, the SEC certifies this to the Secretary of the Treasury and issues notes to the Treasury under subsection (h). If the SEC decides SIPC's assessment plan won't repay the loan well enough, the SEC can instead impose, by rule, a transaction fee on people buying equity securities on national exchanges or over-the-counter — up to one-fiftieth of one percent of the purchase price. No fee applies to any purchase under $5,000. In figuring the fee: (1) it's based on the total dollar amount of each purchase; (2) it doesn't apply to a purchase by a registered broker or dealer unless the securities go into that broker's or dealer's own investment account (moving securities from a trading account to an investment account counts as a purchase at fair market value); and (3) the SEC can exempt certain transactions by rule to keep the fee fair across markets. The broker or dealer handling the sale (or another person the SEC designates) collects the fee and pays it to SIPC the same way as regular assessments under subsection (c), but without the assessment limits, or however else the SEC's rules provide. (h) SEC notes issued to Treasury. To fund loans under subsection (g), the SEC can issue notes to the Secretary of the Treasury — up to $2,500,000,000 total — in forms, amounts, and maturities the Secretary sets. The Secretary sets the interest rate based on comparable government securities' yields, and may lower it if that serves the national interest. The Secretary must buy these notes, using proceeds from selling other government securities for that purpose, and may later sell the notes to someone else. All of the Secretary's dealings in these notes count as public debt transactions of the United States. (i) Consolidated group. Unless SIPC's bylaws say otherwise, a member's gross securities-business revenue is calculated by combining the member with all its subsidiaries (except foreign subsidiaries), and a member's operations include those of any business it has taken over.