SIPC raises assessment fees on brokerage firms

The Securities Investor Protection Corp. will raise member brokerage firm assessments to 0.25% of net operating revenue. The new rate, up from the current flat $150 per year, is effective April 1.

“We are authorized under our charter from Congress to take steps necessary to ensure that we have sufficient reserves to allow us to carry out our mission and to ensure investor confidence in our operations. It is our intention to ensure that assessments keep pace with demands on our reserve,” said Stephen Harbeck, SIPC president and chief executive.

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,” SIPC Chairman Armando Bucelo Jr. wrote in a letter sent to the chief executives of member firms yesterday.

SIPC said that under its rules, any change in assessment begins on the first day of the month following the date of SIPC’s published determination.

Mr. Harbeck told InvestmentNews that he could not provide an industry average for how much brokerage firms will owe. “There are some very, very large brokerage firms who would owe multi-million dollar sums, others who would owe couple thousand. Averaging those gives us a meaningless statistic.”

Mr. Harbeck also said he couldn’t give an exact figure on how much the revenue the higher fees will raise. “We’ve turned the spigot on. When we have sufficient funds we will discuss with the industry whether to lower it [the new assessment] or turn it off.”

How long the new assessment will be in place is also uncertain. “This is a very unstable environment for brokerage firms,” Mr. Harbeck said. A lot will also depend on “how fast and how much we must spend funds for Madoff and perhaps Lehman Brothers, and how large revenues are,” he said.

“In an excess of caution and to make sure investors feel we have sufficient funds, the [SIPC] board felt we needed to raise funds in anticipation of the Madoff case,” he said.

The SIPC has not yet made any substantial advances to customers in the Madoff fraud case, but it hopes to do so soon, Mr. Harbeck said.