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89-25 SIPC Reimposes Assessments Based on a Percentage of Gross Revenue

SUGGESTED ROUTING*

Corporate Finance
Internal Audit
Operations

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The Securities Investor Protection Corporation has reimposed assessments based on gross revenues. The assessment rate of three-sixteenths of one percent (.001875) went into effect January 1, 1989.

BACKGROUND

Last summer, the Board of Directors of the Securities Investor Protection Corporation (SIPC) adopted amendments to SIPC's By-laws to resume assessments based on a percentage of the member's gross revenue from the securities business. Since March 1986, a member's assessment has been an annual minimum of $100, and prior thereto the assessment was based on gross revenue from the securities business of one-fourth of one percent.

Beginning January 1, 1989, all SIPC members are subject to assessments of three-sixteenths of one percent (.001875) of gross revenue from the securities business with an annual minimum assessment of $150. However, to lessen the reporting impact that this change may have on its members, SIPC is effecting two changes from the previous reporting requirements in an attempt to simplify and reduce the reporting process.

  • The filing of Form SIPC-6 has been changed from quarterly to semi-annually.
  • The requirements to file a supplemental report with the certified annual audit will be waived for certain members.

SCHEDULE OF FILINGS

Forms SIPC 6 and SIPC 7 are required to be filed, with payments computed thereon to be due, based on the firm's fiscal year-end. Form SIPC 6 will cover the first six months of the firm's fiscal year; Form SIPC 7 will reconcile the cumulative fiscal-year report of SIPC gross revenue and payments.

Please refer to the accompanying Notice issued by SIPC that includes its Filing Guide detailing the filing schedule of payments and forms. Beginning with firms that have fiscal years ending January 1989, all firms will begin to file SIPC 7 Annual General Assessment reconciliation. Assessments are to be computed on gross revenue for the applicable period in 1989 or on a prorated amount, but will not be less than $150. SIPC 6 forms will be filed in 1989 by all SIPC members whose fiscal years ending in September 1989 and later and will cover the applicable period in 1989.

SUPPLEMENTAL REPORT

As to the requirement in Rule 17a-5(e)(4), for the firm's accountant to prepare a Supplemental Report on the firm's SIPC filings in connection with its certified annual report, the attached no-action letter from the Securities and Exchange Commission waives the preparation of the Supplemental Accountant's report for all firms that have gross annual revenue of $500,000 or less.

It should be noted that firms whose business is derived exclusively from the distribution of mutual funds, variable annuities, insurance, or unit investment trusts must file Form SIPC 3 annually. Firms that qualify to file SIPC 3 by reason of their sources of revenue are exempt from the payment of SIPC assessments, but may be required to file the supplemental accountant's reports in connection with the annual audit.

Questions concerning this Notice can be directed to Richard McMahon, Supervisor, Automated Reports at (301) 590-6869 or Adrienne Washington, SIPC Coordinator at (301) 590-6869

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 2O549

DIVISION OF MARKET REGULATION

January 9, 1989

Mr. Theodore H. Focht
President and General Counsel
Securities Investor Protection Corporation
805 Fifteenth Street, N.W., Suite 800
Washington, D.C. 20005-2207

Dear Mr. Focht:

This is in response to your letter of September 21, 1988 in which the Securities Investor Protection Corporation ("SIPC") recommended that SIPC member broker-dealers that report $500,000 or less in total revenues in their statement of income of their annual audited report ("annual audited statement of income") filed pursuant to Rule 17a-5(d) [17 C.F.R. ยง240.17a-5(d)] under the Securities Exchange Act of 1934 be relieved of the responsibility of filing a supplemental report pursuant to Rule 17a-5(e)(4).

From your letter, and subsequent telephone conversations with the staff, we understand the pertinent facts to be as follows:

In the summer of 1988, the SIPC Board of Directors ("SIPC Board") provided for the reimposition, beginning January 1, 1989, of assessments based on its members1 gross revenues from the securities business ("SIPC gross revenues"). In that connection, the SIPC Board directed that the members' reporting burden be simplified and reduced, wherever possible. Two steps that SIPC is taking in that direction are (1) SIPC's planned semi-annual assessment payment frequency and (2) clarification and simplification of the SIPC assessment forms.

You state that another simplification step would be the elimination of the Rule 17a-5(e)(4) supplemental report for SIPC members that incur an expense for that report that is disproportionate to the amount of their annual assessment. You further state that although SIPC has not collected data on the cost to members of the supplemental report, SIPC has reviewed the filing and payment data for members whose fiscal years ended in 1985 (the most recent full year for which assessments based on SIPC gross revenues, at 1/4 of 1%, were collected).

You indicate that at the end of 1985, there were approximately 11,000 members, 3,000 of which were exempt from the audit requirement of Rule 17a-5. The remaining 8,000 were subject to the audit requirement.

SIPC states that if a waiver from filing the Rule 17a-5(e)(4) report were given to members reporting $500,000 or less of total revenues on their annual audited statement of income, the maximum SIPC assessment any of them would likely pay at 3/16 of 1% would be $937.50. Based on 1985 data, SIPC estimates that such a waiver would relieve approximately 4,000 members from filing the Rule 17a-5(e)(4) supplemental report.

SIPC believes that SIPC can obtain independent attestation from the examining authority with respect to members that are relieved of the responsibility to file a Rule 17a-5(e)(4) supplemental report. SIPC believes that the attestation procedure would be the desirable alternative in these circumstances for the otherwise required supplemental report.

Based on the foregoing, the Division will not recommend any action to the Commission if a broker-dealer that is a member of SIPC and that reports $500,000 or less in total revenues in its annual audited statement of income filed pursuant to Rule 17a-5(d) does not file the supplemental report required by Rule 17a-5(e)(4).

You should understand that the position expressed herein is a staff position with respect to enforcement only and does not purport to express any legal conclusion on this matter. The Division's position is necessarily confined to the facts as represented herein. Any material change in these conditions must be brought to the Division's attention immediately.

Sincerely,

Michael A. Macchiaroli
Assistant Director

SIPC

SECURITIES INVESTOR PROTECTION CORPORATION
8O5 FIFTEENTH STREET, N.W. SUITE 8OO
WASHINGTON, D.C. 2OOO5-22O7
(2O2) 371-83OO

September 30, 1988

IMPORTANT NOTICE TO ALL SIPC MEMBERS REGARDING SEPC ASSESSMENT FORM FILING REQUIREMENTS COMMENCING JANUARY 1, 1989

Enclosed for your information are working copies of:

SIPC-6 (18-REV-9/88), General Assessment Payment Form (Required to be filed by all SIPC members for the first half of each fiscal year).

SIPC-7 (17-REV-9/88), General Assessment Reconciliation (Required to be filed annually by all SIPC members).

In his letter to SIPC members dated September 9, 1988, Chairman Stearns stated that the SIPC Board of Directors adopted bylaw amendments cleared by the SEC that provide "Effective January 1, 1989, assessments will be resumed at 3/16ths of 1% of gross revenues from the securities business or $150, whichever is greater."

Assessment forms will be mailed to members together with return envelopes sufficiently in advance of their due dates for completion and timely filing with the SIPC collection agents. These forms are required to be filed, with the payments computed thereon to be due, on the basis of each member's fiscal year (for purposes of the audit requirement of SEC Rule 17a-5). Promptly advise SIPC in writing if the month in which your fiscal year ends differs from that shown on your mailing label.

A guide which reflects general assessment form filing requirements effective January 1, 1989, is on the reverse side of this notice. The SIPC Coordinator at your SIPC Collection Agent would be pleased to answer questions about this Notice and the enclosures.

Interest on late payments is at the rate of 20 percent per annum. It is important that you review the enclosures and this notice carefully and retain them for future reference.

Sincerely,

SECURITIES INVESTOR PROTECTION CORPORATION

Enclosures

SIPC GENERAL ASSESSMENT FORM FILING GUIDE

(reflects filing and payment requirements effective January 1, 1989)

Month in which fiscal year ends for purposes of the audit requirement of SEC Rule 17a-5 (Note)

File SIPC-6, General Assessment Payment Form, for the period shown below and for the first six month period of each fiscal year thereafter.

File SIPC-7, General Assessment Reconciliation, for the period shown below and annually thereafter.

 

Beginning

Ended

Beginning

Ended

January

2/01/89

7/31/89

1/01/89

1/31/89

February

3/01/89

8/31/89

1/01/89

2/28/89

March

4/01/89

9/30/89

1/01/89

3/31/89

April

5/01/89

10/31/89

1/01/89

4/30/89

May

6/01/89

11/30/89

1/01/89

5/31/89

June

7/01/89

12/31/89

1/01/89

6/30/89

July

8/01/89

1/31/90

1/01/89

7/31/89

August

9/01/89

2/28/90

1/01/89

8/31/89

September

1/01/89

3/31/89

1/01/89

9/30/89

October

1/01/89

4/30/89

1/01/89

10/31/89

November

1/01/89

5/31/89

1/01/89

11/30/89

December

1/01/89

6/30/89

1/01/89

12/31/89

 

SIPC-6 is due no later than 30 days after end of period together with payment of the assessment determined thereon to be due.

SIPC-7 is due no later than 60 days after end of period together with payment of the assessment balance determined thereon to be due.

Note: If you are exempted from the audit requirement of SEC Rule L7a-5, file SIPC assessment forms on a calendar year basis.


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