SEC and FDIC Propose Dodd-Frank Broker-Dealer Resolution Rules

April 07, 2016

Troubled financial institutions, some with substantial broker-dealer operations, played a prominent role in the 2008 financial crisis. In an effort to protect the financial system from serious threats posed by significant nonbank financial companies in financial distress, U.S. Congress enacted Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to provide for an orderly liquidation of such entities under the supervision of federal authorities. Federal regulators have proposed rules that would implement the provisions of Title II in regard to the resolution of a large broker-dealer. Most notably, the proposed rules address how a “bridge broker or dealer” could be used in connection with the liquidation of a “covered broker or dealer.”

On February 17, 2016, the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC, and together with the FDIC, the Agencies) proposed rules (Proposed Rules) to implement provisions of the Dodd-Frank Act that would permit the FDIC and the Securities Investor Protection Corporation (SIPC) to manage the orderly liquidation of certain large brokers and dealers under Title II. Comments may be submitted until May 2, 2016.

Previous rules adopted by the FDIC under Title II have addressed the orderly liquidation of most types of large nonbank financial companies, particularly bank holding companies and systemically important financial institutions (SIFIs). The Proposed Rules would clarify the manner of operation of the liquidation regime specifically established for certain broker-dealers under Title II (which supplants, in certain respects, the existing provisions of the Securities Investor Protection Act of 1970, or SIPA).

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