Sub Chapter III Stockbroker Liquidation
Sec. 741. Definitions for this subchapter
In this subchapter--
(1) ``Commission'' means Securities and Exchange Commission;
(2) ``customer'' includes--
(A) 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--
(i) for safekeeping;
(ii) with a view to sale;
(iii) to cover a consummated sale;
(iv) pursuant to a purchase;
(v) as collateral under a security agreement; or
(vi) for the purpose of effecting registration of
(B) entity that has a claim against a person arising out
(i) a sale or conversion of a security received,
acquired, or held as specified in subparagraph (A) of this
(ii) a deposit of cash, a security, or other property
with such person for the purpose of purchasing or selling a
(3) ``customer name security'' means security--
(A) held for the account of a customer on the date of the
filing of the petition by or on behalf of the debtor;
(B) registered in such customer's name on such date or in
the process of being so registered under instructions from the
(C) not in a form transferable by delivery on such date;
(4) ``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--
(i) property that was unlawfully converted from and that
is the lawful property of the estate;
(ii) 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;
(iii) resources provided through the use or realization
of a customer's debit cash balance or a debit item
includible in the Formula for Determination of Reserve
Requirement for Brokers and Dealers as promulgated by the
Commission under the Securities Exchange Act of 1934; and
(iv) 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
(B) not including--
(i) a customer name security delivered to or reclaimed
by a customer under section 751 of this title; or
(ii) property to the extent that a customer does not
have a claim against the debtor based on such property;
(5) ``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
secures an obligation of a participant in a securities clearing
(6) ``net equity'' means, with respect to all accounts of a
customer that such customer has in the same capacity--
(A)(i) 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
(ii) any claim of the debtor against such customer in such
capacity that would have been owing immediately after such
(B) any payment by such customer to the trustee, within 60
days after notice under section 342 of this title, of any
business related claim of the debtor against such customer in
(7) ``securities contract'' means contract for the purchase,
sale, or loan of a security, including an option for the purchase or
sale of a security, certificate of deposit, or group or index of
securities (including any interest therein or based on the value
thereof), or any option entered into on a national securities
exchange relating to foreign currencies, or the guarantee of any
settlement of cash or securities by or to a securities clearing
(8) ``settlement payment'' means a preliminary settlement
payment, a partial settlement payment, an interim settlement
payment, a settlement payment on account, a final settlement
payment, or any other similar payment commonly used in the
securities trade; and
(9) ``SIPC'' means Securities Investor Protection Corporation.
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2611; Pub. L. 97-222, Sec. 8,
July 27, 1982, 96 Stat. 237; Pub. L. 98-353, title III, Sec. 482, July
10, 1984, 98 Stat. 382; Pub. L. 103-394, title V, Sec. 501(d)(25), Oct.
22, 1994, 108 Stat. 4146.)
Historical and Revision Notes
Section 741(6) of the House bill and Senate amendment is deleted by
the House amendment since the defined term is used only in section
741(4)(A)(iii). A corresponding change is made in that section.
senate report no. 95-989
Section 741 sets forth definitions for subchapter III of chapter 7.
Paragraph (1) defines ``Commission'' to mean the Securities and
Paragraph (2) defines ``customer'' to include anybody that interacts
with the debtor in a capacity that concerns securities transactions. The
term embraces cash or margin customers of a broker or dealer in the
Paragraph (3) defines ``customer name security'' in a restrictive
fashion to include only non-transferable securities that are registered,
or in the process of being registered in a customer's own name. The
securities must not be endorsed by the customer and the stockbroker must
not be able to legally transfer the securities by delivery, by a power
of attorney, or otherwise.
Paragraph (4) defines ``customer property'' to include all property
of the debtor that has been segregated for customers or property that
should have been segregated but was unlawfully converted. Clause (i)
refers to customer property not properly segregated by the debtor or
customer property converted and then recovered so as to become property
of the estate. Unlawfully converted property that has been transferred
to a third party is excluded until it is recovered as property of the
estate by virtue of the avoiding powers. The concept excludes customer
name securities that have been delivered to or reclaimed by a customer
and any property properly belonging to the stockholder, such as money
deposited by a customer to pay for securities that the stockholder has
distributed to such customer.
Paragraph (5) [enacted as (6)] defines ``net equity'' to establish
the extent to which a customer will be entitled to share in the single
and separate fund. Accounts of a customer are aggregated and offset only
to the extent the accounts are held by the customer in the same
capacity. Thus, a personal account is separate from an account held as
trustee. In a community property state an account held for the community
is distinct from an account held as separate property.
The net equity is computed by liquidating all securities positions
in the accounts and crediting the account with any amount due to the
customer. Regardless of the actual dates, if any, of liquidation, the
customer is only entitled to the liquidation value at the time of the
filing of the petition. To avoid double counting, the liquidation value
of customer name securities belonging to a customer is excluded from net
equity. Thus, clause (ii) includes claims against a customer resulting
from the liquidation of a security under clause (i). The value of a
security on which trading has been suspended at the time of the filing
of the petition will be estimated. Once the net liquidation value is
computed, any amount that the customer owes to the stockbroker is
subtracted including any amount that would be owing after the
hypothetical liquidation, such as brokerage fees. Debts owed by the
customer to the debtor, other than in a securities related transaction,
will not reduce the net equity of the customer. Finally, net equity is
increased by any payment by the customer to the debtor actually paid
within 60 days after notice. The principal reason a customer would make
such a payment is to reclaim customer name securities under Sec. 751.
Paragraph (6) defines ``1934 Act'' to mean the Securities Exchange
Act of 1934 [15 U.S.C. 78a et seq.].
Paragraph (7) [enacted as (9)] defines ``SIPC'' to mean the
Securities Investor Protection Corporation.
References in Text
The Securities Exchange Act of 1934, referred to in par.
(4)(A)(iii), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended,
which is classified principally to chapter 2B (Sec. 78a et seq.) of
Title 15, Commerce and Trade. For complete classification of this Act to
the Code, see section 78a of Title 15 and Tables.
1994--Par. (4)(A)(iii). Pub. L. 103-394 struck out ``(15 U.S.C. 78a
et seq.)'' after ``Act of 1934''.
1984--Par. (2)(A). Pub. L. 98-353, Sec. 482(1), substituted ``with
whom a person deals'' for ``with whom the debtor deals'', ``that has a
claim'' for ``that holds a claim'', ``against such person'' for
``against the debtor'', ``held by such person'' for ``held by the
debtor'', and ``such person's business as a stockbroker,'' for
``business as a stockbroker''.
Par. (2)(B). Pub. L. 98-353, Sec. 482(2)(A), (B), substituted ``has
a claim'' for ``holds a claim'' and ``against a person'' for ``against
the debtor'' in provisions preceding cl. (i).
Par. (2)(B)(ii). Pub. L. 98-353, Sec. 482(2)(C), substituted ``such
person'' for ``the debtor''.
Par. (4)(A)(i). Pub. L. 98-353, Sec. 482(3), substituted ``from and
that is the lawful'' for ``and that is''.
Par. (6)(A)(i). Pub. L. 98-353, Sec. 482(4), inserted a comma after
``petition'' and ``any'' after ``except''.
Par. (7). Pub. L. 98-353, Sec. 482(5), amended par. (7) generally,
inserting provisions relating to options for the purchase or sale of
certificates of deposit, or a group or index of securities (including
any interest therein or based on the value thereof), or any option
entered into on a national securities exchange relating to foreign
Par. (8). Pub. L. 98-353, Sec. 482(6), inserted ``a final settlement
1982--Par. (4). Pub. L. 97-222, Sec. 8(1), struck out ``at any
time'' after ``security, or property,'' in provisions preceding subpar.
(A), and inserted ``of a customer'' after ``claim'' in subpar. (A)(ii).
Par. (5). Pub. L. 97-222, Sec. 8(3), added par. (5). Former par. (5)
Par. (6). Pub. L. 97-222, Sec. 8(2), (4), redesignated former par.
(5) as (6), in provisions preceding subpar. (A), substituted ``all
accounts of a customer that such customer has'' for ``the aggregate of
all of a customer's accounts that such customer holds'', in subpar.
(A)(2) inserted ``in such capacity'', and in subpar. (B) inserted ``in
such capacity''. Former par. (6) redesignated (9).
Pars. (7), (8). Pub. L. 97-222, Sec. 8(5), added pars. (7) and (8).
Par. (9). Pub. L. 97-222, Sec. 8(2), (6), redesignated former par.
(6) as (9) and substituted ``Securities'' for ``Security''.
Effective Date of 1994 Amendment
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before Oct.
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under
section 101 of this title.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98-353 effective with respect to cases filed 90
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out
as a note under section 101 of this title.
Section Referred to in Other Sections
This section is referred to in sections 101, 362, 546, 548, 555, 752
of this title; title 12 sections 1787, 1821.