SEC and FDIC proposed rules on the orderly liquidation of certain large broker-dealers

Abstract

Purpose

To alert financial market participants to rules jointly proposed by the US Securities and Exchange Commission (SEC) and US Federal Deposit Insurance Corporation (FDIC) regarding orderly liquidation of certain large broker-dealers as mandated in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).

Design/methodology/approach

Explains how typical broker-dealer liquidations are generally effected, the alternative of determining a broker-dealer to be a “covered broker-dealer” to be liquidated through an orderly liquidation proceeding under Title II of Dodd-Frank, the appointment of the FDIC as receiver and Securities Investor Protection Corporation (SIPC) as trustee, the requirement for the SIPC to file a protective decree with a federal district court, the possible use of “bridge broker-dealers” to facilitate an orderly liquidation, the FDIC’s procedures for settling claims of customers and other creditors against covered broker-dealers, and additional proposed provisions for administrative expenses and unsecured claims.

Findings

Counterparties of broker-dealers that could be subject to an orderly liquidation proceeding should evaluate the proposal and consider whether, if adopted, the rules would require any changes to credit risk or other internal procedures. Large broker-dealers that could be the subject of such an orderly liquidation proceeding should do the same. Although the formal comment period has closed regarding the proposal, market participants that did not submit comments but who still wish to influence final rule making should still consider submitting written comments to the SEC and FDIC or otherwise advocating before them.

Originality/value

Practical guidance from experienced securities and financial services lawyers.

Citation

Blake, A., Robinson, R., Rovira, A. and Sommers, C. (2016), "SEC and FDIC proposed rules on the orderly liquidation of certain large broker-dealers", Journal of Investment Compliance, Vol. 17 No. 3, pp. 42-48. https://doi.org/10.1108/JOIC-07-2016-0029