15 USC 78eee - Protection of customers

U.S Code last checked for updates: May 02, 2024

§ 78eee.

Protection of customers

(a)

Determination of need of protection

(1)

Notice to SIPC

(2)

Action by self-regulatory organization

(3)

Action by SIPC

(A)

In general

SIPC may, upon notice to a member of SIPC, file an application for a protective decree with any court of competent jurisdiction specified in section 78u(e) or 78aa of this title, except that no such application shall be filed with respect to a member, the only customers of which are persons whose claims could not be satisfied by SIPC advances pursuant to section 78fff–3 of this title, if SIPC determines that—

(A)

 So in original. Probably should be “(i)”.

the member (including any person who was a member within one hundred eighty days prior to such determination) has failed or is in danger of failing to meet its obligations to customers; and

(B)

 So in original. Probably should be “(ii)”.

one or more of the conditions specified in subsection (b)(1) exist with respect to such member.

(B)

Consent required

(4)

Effect of other pending actions

An application with respect to a member of SIPC filed with a court under paragraph (3)—

(A)

may, with the consent of the Commission, be combined with any action brought by the Commission, including an action by the Commission for a temporary receiver pending an appointment of a trustee under subsection (b)(3); and

(B)

may be filed notwithstanding the pendency in the same or any other court of any bankruptcy, mortgage foreclosure, or equity receivership proceeding or any proceeding to reorganize, conserve, or liquidate such member or its property, or any proceeding to enforce a lien against property of such member.

(b)

Court action

(1)

Issuance of protective decree

Upon receipt of an application by SIPC under subsection (a)(3), the court shall forthwith issue a protective decree if the debtor consents thereto, if the debtor fails to contest such application, or if the court finds that such debtor—

(A)

is insolvent within the meaning of section 101 of title 11, or is unable to meet its obligations as they mature;

(B)

is the subject of a proceeding pending in any court or before any agency of the United States or any State in which a receiver, trustee, or liquidator for such debtor has been appointed;

(C)

is not in compliance with applicable requirements under the 1934 Act [15 U.S.C. 78a et seq.] or rules of the Commission or any self-regulatory organization with respect to financial responsibility or hypothecation of customers’ securities; or

(D)

is unable to make such computations as may be necessary to establish compliance with such financial responsibility or hypothecation rules.

Unless the debtor consents to the issuance of a protective decree, the application shall be heard three business days after the date on which it is filed, or at such other time as the court shall determine, taking into consideration the urgency which the circumstances require.

(2)

Jurisdiction and powers of court

(A)

Exclusive jurisdiction

Upon the filing of an application with a court for a protective decree with respect to a debtor, such court—

(i)

shall have exclusive jurisdiction of such debtor and its property wherever located (including property located outside the territorial limits of such court and property held by any other person as security for a debt or subject to a lien);

(ii)

shall have exclusive jurisdiction of any suit against the trustee with respect to a liquidation proceeding; and

(iii)

except as inconsistent with the provisions of this chapter, shall have the jurisdiction, powers, and duties conferred upon a court of the United States having jurisdiction over cases under title 11, together with such other jurisdiction, powers, and duties as are prescribed by this chapter.

(B)

Stay of pending actions

Pending the issuance of a protective decree under paragraph (1), the court with which an application has been filed—

(i)

shall stay any pending bankruptcy, mortgage foreclosure, equity receivership, or other proceeding to reorganize, conserve, or liquidate the debtor or its property and any other suit against any receiver, conservator, or trustee of the debtor or its property, and shall continue such stay upon appointment of a trustee pursuant to paragraph (3);

(ii)

may stay any proceeding to enforce a lien against property of the debtor or any other suit against the debtor, including a suit by stockholders of the debtor which interferes with prosecution by the trustee of claims against former directors, officers, or employees of the debtor, and may continue such stay upon appointment of a trustee pursuant to paragraph (3);

(iii)

may stay enforcement of, and upon appointment of a trustee pursuant to paragraph (3), may continue the stay for such period of time as may be appropriate, but shall not abrogate any right of setoff, except to the extent such right may be affected under section 553 of title 11, and shall not abrogate the right to enforce a valid, nonpreferential lien or pledge against the property of the debtor; and

(iv)

may appoint a temporary receiver.

(C)

Exception from stay

(i)

Notwithstanding section 362 of title 11, neither the filing of an application under subsection (a)(3) nor any order or decree obtained by SIPC from the court shall operate as a stay of any contractual rights of a creditor to liquidate, terminate, or accelerate a securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, or master netting agreement, as those terms are defined in sections 101, 741, and 761 of title 11, to offset or net termination values, payment amounts, or other transfer obligations arising under or in connection with one or more of such contracts or agreements, or to foreclose on any cash collateral pledged by the debtor, whether or not with respect to one or more of such contracts or agreements.

(ii)

Notwithstanding clause (i), such application, order, or decree may operate as a stay of the foreclosure on, or disposition of, securities collateral pledged by the debtor, whether or not with respect to one or more of such contracts or agreements, securities sold by the debtor under a repurchase agreement, or securities lent under a securities lending agreement.

(iii)

As used in this subparagraph, the term “contractual right” includes a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act [7 U.S.C. 1 et seq.]), a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the Commodity Exchange Act, a derivatives transaction execution facility registered under the Commodity Exchange Act, or a board of trade (as defined in the Commodity Exchange Act), or in a resolution of the governing board thereof, and a right, whether or not in writing, arising under common law, under law merchant, or by reason of normal business practice.

(3)

Appointment of trustee and attorney

(4)

Removal to bankruptcy court

(5)

Compensation for services and reimbursement of expenses

(A)

Allowances in general

(B)

(C)

Recommendations of SIPC and awarding of allowances

(D)

Applicable restrictions

(E)

Charge against estate

(6)

Disinterestedness

(A)

Standards

For purposes of paragraph (3), a person shall not be deemed disinterested if—

(i)

such person is a creditor (including a customer), stockholder, or partner of the debtor;

(ii)

such person is or was an underwriter of any of the outstanding securities of the debtor or within five years prior to the filing date was the underwriter of any securities of the debtor;

(iii)

such person is, or was within two years prior to the filing date, a director, partner, officer, or employee of the debtor or such an underwriter, or an attorney for the debtor or such an underwriter; or

(iv)

it appears that such person has, by reason of any other direct or indirect relationship to, connection with, or interest in the debtor or such an underwriter, or for any other reason, an interest materially adverse to the interests of any class of creditors (including customers) or stockholders,

except that SIPC shall in all cases be deemed disinterested, and an employee of SIPC shall be deemed disinterested if such employee would, except for his association with SIPC, meet the standards set forth in this subparagraph.

(B)

Hearing

(c)

SEC participation in proceedings

(d)

SIPC participation

(Pub. L. 91–598, § 5, Dec. 30, 1970, 84 Stat. 1644; Pub. L. 95–283, § 7, May 21, 1978, 92 Stat. 254; Pub. L. 95–598, title III, § 308(a)–(f), Nov. 6, 1978, 92 Stat. 2674; Pub. L. 109–8, title IX, § 911, Apr. 20, 2005, 119 Stat. 185; Pub. L. 109–390, § 5(c), Dec. 12, 2006, 120 Stat. 2698; Pub. L. 111–203, title IX, § 929H(b), July 21, 2010, 124 Stat. 1857.)

cite as: 15 USC 78eee