Sec. 2. Securities Investor Protection Act of 1970 amendments

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Section 16(11) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78lll(11) ) is amended to read as follows: The term net equity means the dollar amount of the account or accounts of a customer, to be determined by— calculating the sum which would have been owed by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date— all securities positions of such customer (other than customer name securities reclaimed by such customer); and all positions in futures contracts and options on futures contracts held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission, including all property collateralizing such positions, to the extent that such property is not otherwise included herein; minus any indebtedness of such customer to the debtor on the filing date; plus any payment by such customer of such indebtedness to the debtor which is made with the approval of the trustee and within such period as the trustee may determine (but in no event more than sixty days after the publication of notice under section 8(a)).

A claim for a commodity futures contract received, acquired, or held in a portfolio margining account pursuant to a portfolio margining program approved by the Commission or a claim for a security futures contract, shall be deemed to be a claim with respect to such contract as of the filing date, and such claim shall be treated as a claim for cash. In determining net equity under this paragraph, accounts held by a customer in separate capacities shall be deemed to be accounts of separate customers.

In determining net equity under this paragraph, the positions, options, and contracts of a customer reported to the customer as held by the debtor, and any indebtedness of the customer to the debtor, shall be determined based on— the information contained in the last statement issued by the debtor to the customer before the filing date; and any additional written confirmations of the customer’s positions, options, contracts, or indebtedness received after such last statement but before the filing date.

Notwithstanding clause (i), if the books and records of the debtor indicate that the net value of a customer’s positions, options, and contracts reported to the customer as held by the debtor, and any indebtedness of the customer to the debtor, is greater than the net value of the customer as calculated under clause

(i)using the customer’s last statement, then the determination of the net equity of the customer under this paragraph shall be done using the books and records of the debtor instead of the customer’s last statement. The provisions of this subparagraph shall not apply to any customer that— knew the debtor was involved in fraudulent activity with respect to any customer of the debtor which reasonably indicated a fraud adversely affecting a substantial number of customers; or was a person that— was, or was required to be, registered— as a broker or dealer under the Securities Exchange Act of 1934; or as an investment adviser under the Investment Advisers Act of 1940, or that would have been required to register as an investment adviser under the Investment Advisers Act of 1940 but for section 203(m) of such Act; knew, or, due to the activities of such person causing such person to be described under item (aa), should have known, that the debtor was involved in fraudulent activity with respect to any customer of the debtor; and did not notify SIPC, the Commission, or law enforcement personnel that the debtor was involved in such fraudulent activity. . Section 8(c) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78fff–2(c) ) is amended— in paragraph (1), by amending subparagraph

(B)to read as follows: second, to customers of such debtor, as described under paragraph (4); ; and by adding at the end the following: Allocations of customer property to customers under paragraph (1)(B) shall be made such that customers share in customer property based on a methodology— based on the net equity of a customer, as determined using the last statement issued by the debtor to the customer before the filing date; determined by the trustee, in consultation with the Commission; and approved by the court. If the trustee determines that allocating customer property in accordance with subparagraph

(A)would be unfair and inequitable to a substantial segment of customers and would not fully serve the remedial purposes of this Act, allocations of customer property to customers under paragraph (1)(B) shall be made such that customers share in customer property based on a fair and reasonable methodology, with special consideration for the typical, non-professional investor, that— if the trustee determines that it is necessary in order to reach a fair and reasonable result, is determined without regard to section 16(11)(D); is determined by the trustee, in consultation with the Commission; and is approved by the court. Before approving a proposed methodology under subparagraph (A)(ii) or subparagraph (B)(ii), the court shall— notify customers and other interested parties that the court is considering the proposed methodology; and provide the customers and interested parties an opportunity to provide comments on the proposed methodology. . Section 8 of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78fff–2 ) is amended by adding at the end the following new subsection: Notwithstanding any other provision of this Act, a trustee may not recover any property transferred by the debtor to a customer before the filing date unless, at the time of such transfer, such customer— knew the debtor was involved in fraudulent activity with respect to any customer of the debtor which reasonably indicated a fraud adversely affecting a substantial number of customers; or was a person that— was, or was required to be, registered— as a broker or dealer under the Securities Exchange Act of 1934; or as an investment adviser under the Investment Advisers Act of 1940, or that would have been required to register as an investment adviser under the Investment Advisers Act of 1940 but for section 203(m) of such Act; knew, or, due to the activities of such person causing such person to be described under subparagraph (A), should have known, that the debtor was involved in fraudulent activity with respect to any customer of the debtor; and did not notify SIPC, the Commission, or law enforcement personnel that the debtor was involved in such fraudulent activity. . Nothing in this Act, or the amendments made by this Act, shall be construed as prohibiting a trustee appointed under the Securities Investor Protection Act of 1970 from recovering property transferred by a debtor to a person who is not a customer of the debtor. Section 5(b)(3) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78eee(b)(3) ) is amended to read as follows: If the court issues a protective decree under paragraph (1), such court shall forthwith appoint, as trustee for the liquidation of the business of the debtor and as attorney for the trustee, such persons as the court determines best fit to serve as trustee and as attorney from among the persons selected by the Commission pursuant to subparagraph (B). The persons appointed as trustee and as attorney for the trustee may be associated with the same firm. The Commission shall maintain a list of candidates for the position of trustee and attorney for the trustee for a debtor in a liquidation proceedings, and shall periodically update the list, as appropriate. With respect to a debtor and upon the court issuing a protective decree under paragraph (1), the Commission shall forthwith provide the court with such list. No person may be appointed to serve as trustee or attorney for the trustee if such person is not disinterested within the meaning of paragraph (6), except that for any specified purpose other than to represent a trustee in conducting a liquidation proceeding, the trustee may, with the approval of SIPC and the court, employ an attorney who is not disinterested. A trustee appointed under this paragraph shall qualify by filing a bond in the manner prescribed by section 322 of title 11, United States Code, except that neither SIPC nor any employee of SIPC shall be required to file a bond when appointed as trustee. A trustee may not be appointed under this paragraph if the trustee is currently serving as trustee for the liquidation of the business of another debtor under this Act. . Section 5(b)(5) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78eee(b)(5) ) is amended— in subparagraph (A), by adding at the end the following: The court shall publicly disclose all such allowances that are granted. ; by amending subparagraph

(C)to read as follows: Whenever an application for allowances is filed pursuant to subparagraph (B), the court shall determine the amount of allowances, giving due consideration to the nature, extent, and value of the services rendered. ; and by adding at the end the following: SIPC shall issue quarterly public reports on— all payments made by SIPC to the trustee; all other costs in connection with the liquidation proceeding, including legal and accounting costs; and all additional expenses incurred by SIPC, and the nature of such expenses. . The amendment made this subsection shall take effect with respect to trustees and attorneys appointed after the date of the enactment of this Act. Section 16(2)(B) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78lll(2)(B) ) is amended— in clause (ii), by striking “; and” and inserting a semicolon; in clause (iii), by striking the period at the end and inserting a semicolon; and by adding at the end the following new clauses: any person that had cash or securities that were converted or otherwise misappropriated by the debtor (or any person who controls, is controlled by, or is under common control with the debtor, if such person was operating through the debtor), irrespective of whether the debtor held or otherwise had custody, possession, or control of such cash or securities; and any other person that the Commission, in its discretion and without any need for court approval, deems a customer of the debtor. . Section 5 of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78eee ) is amended— in subsection (a)(3)— by amending the heading for such paragraph by inserting before the Commission or ; sipc in the first subparagraph (A)— by inserting The Commission or before SIPC may ; and by inserting the Commission or before SIPC determines ; and by redesignating the second subparagraph

(A)and the first subparagraph

(B)as clauses

(i)and (ii), respectively, and moving such clauses 2 ems to the right; and in subsection (b)(1), by striking application by SIPC and inserting application by the Commission or SIPC . Section 9 of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78fff–3 ) is amended by adding at the end the following: SIPC advances made to satisfy customer claims pursuant to subsection

(a)shall be made before the end of the 3-month period beginning on the date that is the end of the 6-month period described under section 8(a)(3), plus the amount of any extension granted under such paragraph. If SIPC fails to make advances to the trustee in the period specified in paragraph (1), then for purposes of calculating a customer’s net equity under this Act, interest shall accrue beginning on the date that is the end of the 3-month period specified in paragraph (1). If the trustee determines that enough information has been provided to SIPC to make an advance pursuant to subsection (a), the trustee may petition the court to have the court direct SIPC to make such advance. . Section 8(b) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78fff–2(b) ) is amended— in paragraph (1), by striking and at the end; in paragraph (2), by striking the period at the end and inserting a semicolon; and by inserting after paragraph

(2)the following: upon petition by a customer, order the trustee to carry out the obligations of the trustee under this subsection with respect to such customer; and if the court determines that the trustee has improperly delayed carrying out the obligations of the trustee under this subsection, impose financial sanctions on the trustee. . Section 11(b) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78ggg(b) ) is amended to read as follows: In the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of customers of any member of SIPC, the Commission may require SIPC to discharge its obligations under this Act without court approval. . Section 4(g) of the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78ddd(g) ) is amended by inserting after this Act the following: and the Commission, in consultation with the Secretary of the Treasury, determines that SIPC is unable to borrow in the public debt markets at reasonable terms (both as to yield and maturity) . The Securities Investor Protection Act of 1970 ( 15 U.S.C. 78aaa et seq. ) is amended— in section 11, by adding at the end the following: The Commission shall carry out periodic inspections of SIPC members to ensure that the information such members provide to customers, including information contained in account statements and transaction confirmations, is accurate. ; and in section 13(c)— by redesignating paragraphs

(1)and

(2)as subparagraphs

(A)and (B), respectively, and moving such subparagraphs 2 ems to the right; by striking The self-regulatory organization and inserting the following: The self-regulatory organization ; and by adding at the end the following: Under such regulations as the Commission may prescribe, the self-regulatory organization of which a member of SIPC is a member or in which it is a participant shall inspect or examine such member to— assess the financial stability of such member; and ensure that the information such member provides to customers, including information contained in account statements and transaction confirmations, is accurate. . Not later than the end of the 1-year period beginning on the date of the enactment of this Act, the Securities and Exchange Commission shall issue a report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on the implementation of the amendments made by this subsection.

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