SIPA Reform Effort Must Include Cross-Border Insolvencies

Partially driven by the implosion of Lehman Brothers, the SIPC Modernization Task Force is pursuing legislative recommendations to coordinate cross-border brokerage firm failures as part of overall SIPA reform. Task Force Member Joseph Borg, Director of the Alabama Securities Commission,  is the point person for examining SIPC’s involvement in international relations.  For a number of years, Mr. Borg has represented NASAA at the International Organization of Securities Commissions (IOSCO) and the Council of Securities Regulators of the Americas (COSRA). In reviewing SIPC’s activities, Director Borg found it apparent that SIPC has taken a more active role in international affairs as broker-dealers increasingly have overseas affiliates or subsidiaries, and, as demonstrated by the failure of Lehman Bros., these overseas affiliates and subsidiaries can have world-wide implications.

Work towards development of an international forum has already begun through the efforts of Task Force Member Chen Gongyan, Chairman of the China Securities Investor Protection Fund Corporation.  In light of Chairman Kanjorski’s comments during House Subcommittee on Capital Markets hearings with respect to the difficulties of cross border insolvencies, an international presence was included from SIPC’s counterpart in China, and Chairman Chen Gongyan agreed to serve on the Task Force. Discussions with SIPC to build an international cooperation mechanism were brought about primarily due to the Lehman Bros. case and Chairman Chen Gongyan has indicated his willingness to co-sponsor an international forum together with SIPC and the Canadian Investor Protection Fund. Recently, Chairman Chen Gongyan met with IOSCO officials to promote the international forum of securities investor protection organizations.

SIPC’s records show that it has entered into Memoranda of Understanding with a number of foreign regulators, including the UK Financial Services Compensation Board, the Canadian Investor Protection Fund, and the  China Securities Investor Protection Fund Company. The MOU between US and Chinese securities investor protection authorities represents close cooperation and consultation between the two authorities in a number of areas.