Subchapter III - Stockbroker Liquidation

741 Definitions for this subchapter
742 Effect of section 362 of this title in this subchapter
743 Notice
744 Executory contracts
745 Treatment of customer claims
746 Extent of customer claims
747 Subordination of certain customer claims
748 Reduction of securities to money
749 Voidable transfers
750 Distribution of securities
Customer name securities
Customer property

§ 741. Definitions for this subchapter

In this subchapter –

“Commission” means Securities and Exchange Commission;
“customer” includes –
1. entity with whom a person deals as principal or agent and that has a claim against| such person on account of a security received, acquired, or held by such person in the ordinary course of such person’s business as a stockbroker, from or for the securities account or accounts of such entity –
  1. for safekeeping;
  2. with a view to sale;
  3. to cover a consummated sale;
  4. pursuant to a purchase;
  5. as a collateral under a security agreement; or
  6. for the purpose of effecting registration of transfer and
2. entity that has a claim against a person arising out of –
  1. a sale or conversion of a security received, acquired, or held as specified in subparagraph (A) of this paragraph; or
  2. a deposit of cash, a security, or other property with such person for the purpose of purchasing or selling a security;
“customer name security” means security –
1. held for the account of a customer on the date of the filing of a petition by or on behalf of the debtor;
2. registered in such customer’s name on such date or in the process of being so registered under instructions from the debtor; and
3. not in a form transferable by delivery on such date;
“customer property” means cash, security, or other property, and proceeds of such cash, security or property, received, acquired, or held by or for the account of the debtor, from or for the securities account of a customer –
1. including –
  1. property that was unlawfully converted from and that is the lawful property of the estate;
  2. a security held as property of the debtor to the extent such security is necessary to meet a net equity claim of a customer based on a security of the same class and series of an issuer;
  3. resources provided through the use or realization of a customer’s debit cash balance or a debit item includible in the Formula for Determination or Reserve Requirement for Brokers and Dealers as promulgated by the Commission under the Securities Exchange Act of 1934; and
  4. other property of the debtor that any applicable law, rule, or regulation requires to be set aside or held for the benefit of a customer, unless including such property as customer property would not significantly increase customer property; but
2. not including –
  1. a customer name security delivered to or reclaimed by a customer under section 751 of this title; or
  2. property to the extent that a customer does not have a claim against the debtor based on such property;
“margin payment” means payment or deposit of cash, a security, or other property, that is commonly known to the securities trade as original margin, initial margin, maintenance margin, or variation margin, or as a mark-to-market payment, or that secured an obligation of a participant in a securities clearing agency;
“net equity” means, with respect to all accounts of a customer that such customer has in the same capacity –
1. 1. aggregate dollar balance that would remain in such accounts after the liquidation, by sale or purchase, at the time of the filing of the petition, of all securities positions in all such accounts, except any customer name securities of such customer; minus

§ 742. Effect of section 362 of this title in this subchapter

Notwithstanding section 362 of this title, SIPC may file an application for a protective decree under the Securities Investor Protection Act of 1970. The filing of such application stays all proceedings in the case under this title unless and until such application is dismissed. If SIPC completed the liquidation of the debtor, then the court shall dismiss the case.

§ 743. Notice

The clerk shall give the notice required by section 342 of this title to SIPC and to the Commission.

§ 744. Executory contracts

Notwithstanding section 365(d)(1) of this title, the trustee shall assume or reject, under section 365 of this title, any executory contract of the debtor for the purchase or sale of a security in the ordinary course of the debtor’s business, within a reasonable time after the date of the order for relief, but not to exceed 30 days. If the trustee does not assume such a contract within such time, such contract is rejected.

§ 745. Treatment of accounts

Accounts held by the debtor for a particulate customer in separate capacities shall be treated as accounts of separate customers.
If a stockbroker or a bank holds a customer net equity claim against the debtor that arose out of a transaction for a customer of such stockbroker or bank, each such customer of such stockbroker or bank shall be treated as a separate customer of the debtor.
Each trustee’s account specified as such on the debtor’s books, and supported by a trust deed filed with, and qualified as such by, the Internal Revenue Service, and under the Internal Revenue Code of 1986, shall be treated as a separate customer account for each beneficiary under such trustee account.

§ 746. Extent of customer claims

If, after the date of the filing of the petition, an entity enters into a transaction with the debtor, in a manner that would have made such entity a customer had such transaction occurred before the date of the filing of the petition, and such transaction was entered into by such entity in good faith and before the qualification under section 322 of this title of a trustee, such entity shall be deemed a customer, and the date of such transaction shall be deemed to be the date of the filing of the petition for the purpose of determination such entity’s net equity;
An entity does not have a claim as a customer to the extent that such entity transferred to the debtor cash or a security that, by contract, agreement, understanding, or operation of law, is –
1. part of the capital of the debtor; or
2. subordinated to the claims of any or all creditors.

§ 747. Subordination of certain customer claims

Except as provided in section 510 of this title, unless all other customer net equity claims have been paid in full, the trustee may not pay in full or in part, directly or indirectly, any net equity claim of a customer that was, on the date the transaction giving rise to such claim occurred –

an insider;
a beneficial owner of at least five percent of any class of equity securities of the debtor, other than –
1. nonconvertible stock having fixed preferential dividend and liquidation rights; or
2. interests of limited partners in a limited partnership;
a limited partner with a participation of at least five percent in the net assets or net profits of the debtor; or
an entity that, directly, or indirectly, through agreement or otherwise, exercised or had the power to exercise control over the management or policies of the debtor.

§ 748. Reduction of securities to money

As soon as practicable after the date of the order for relief, the trustee shall reduce to money, consistent with good market practice, all securities held as property of the estate, except for customer name securities delivered or reclaimed under section 751 of this title.

§ 749. Voidable transfers

Except as otherwise provided in this section, any transfer of property that, but for such transfer, would have been customer property, may be avoided by the trustee, and such property shall be treated as customer property, if and to the extent that the trustee avoids such transfer under section 544, 545, 547, 548, or 549 of this title. For the purpose of such sections, the property so transferred shall be deemed to have been property of the debtor and, if such transfer was made to a customer or for a customer’s benefit such customer shall be deemed, for the purposes of this section, to have been a creditor.
Notwithstanding sections 544, 545, 547, 548, or 549 of this title, the trustee may not avoid a transfer made before five days after the order for relief if such transfer is approved by the Commission by rule or order, either before or after such transfer, and if such transfer is –
1. a transfer of a securities contract entered into or carried by or through the debtor on behalf of a customer, and of any cash, security, or other property margining or securing such securities contract; or
2. the liquidation of a securities contract entered into or carried by or through the debtor on behalf of a customer.

§ 750. Distribution of securities

The trustee may not distribute a security except under section 751 of this title.

§ 751. Customer name securities

The trustee shall deliver any customer name security to or on behalf of the customer entitled to such security, unless such customer has a negative net equity. With the approval of the trustee, a customer may reclaim a customer name security after payment to the trustee, within such period as the trustee allows, of any claim of the debtor against such customer to the extent that such customer will not have a negative net equity after such payment.

§ 752. Customer property

The trustee shall distribute customer property ratably to customers on the basis and to the extent of such customers’ allowed net equity claims and in priority to all other claims, except claims of the kind specified in section 507(a)(1) of this title that are attributable to the administration of such customer property.
1. The trustee shall distribute customer property in excess of that distributed under subsection (a) of this section in accordance with section 726 of this title.
2. Except as provided in section 510 of this title, if a customer is not paid the full amount of such customer’s allowed net equity claim from customer property, the unpaid portion of such claim is a claim entitled to distribution under section 726 of this title.
Any cash or security remaining after the liquidation of a security interest created under a security agreement made by the debtor, excluding property excluded under section 741(4)(B) of this title, shall be apportioned between the general estate and customer property in the same proportion as the general estate of the debtor and customer property were subject to such security interest.

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