On March 2, the Securities Investor Protection Corporation (“SIPC”), which assists customers of member brokerage firms that fail in recovering those customers’ cash and securities (including providing protection up to $500,000 per customer), announced that it will be increasing member assessments. Starting April 1, 2009, SIPC member assessments will be based on one-quarter of 1% of the net operating revenues of the member firm. From 1996 through 2008, SIPC members only paid the minimum $150 annual assessment. In a letter to SIPC member firm CEOs, the SIPC Chairman indicated that “SIPC has determined that the SIPC fund balance is reasonably likely to aggregate less than $1 billion and will remain less than $1 billion for a period of six months or more.” As of January 27, 2009, the SIPC fund balance totaled $1.7 billion. The Securities Investor Protection Act (“SIPA”), under which SIPC operates, caps member assessments at 1% of net operating revenues. SIPA permits annual assessments in excess of one-half of 1% only if SIPC determines that such a rate of assessment, during any twelve-month period, will not have a material adverse effect on the financial condition of the SIPC member or its customers.
Alert March 10, 2009