Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend the Rules of the Government Securities Division and the Mortgage-Backed Securities Division on Insolvency and Ceasing To Act, 73927-73930 [2014-29179]
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Federal Register / Vol. 79, No. 239 / Friday, December 12, 2014 / Notices
uniformly to all Members and the ability
of some Members to meet the tiers
would only benefit other Members by
contributing to increased liquidity and
improve market quality at the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 9 and paragraph (f) of Rule
19b–4 thereunder.10 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EDGA–2014–31 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EDGA–2014–31. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–EDGA–
2014–31, and should be submitted on or
before January 2, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–29107 Filed 12–11–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73787; File No. SR–FICC–
2014–06]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of Proposed Rule Change To
Amend the Rules of the Government
Securities Division and the MortgageBacked Securities Division on
Insolvency and Ceasing To Act
December 8, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on November
25, 2014, Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the clearing agency. The
Commission is publishing this notice to
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f).
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solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to the rules of the
Government Securities Division (‘‘GSD
Rules’’) of FICC and the rules of the
Mortgage-Backed Securities Division
(‘‘MBSD Rules’’) of FICC (each of GSD
and MBSD, a ‘‘Division’’ of FICC) on
insolvency and ceasing to act that
simplify in certain respects FICC’s
process in a cease to act situation and
provide greater legal certainty for FICC
and its members, particularly in an
intra-day cease to act situation.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
FICC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FICC has prepared
summaries, set forth in sections A, B
and C below, of the most significant
aspects of such statements.
A. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The purpose of this filing is to amend
the GSD Rules and the MBSD Rules on
insolvency and ceasing to act in order
to simplify in certain respects FICC’s
process in a cease to act situation and
provide greater legal certainty for FICC
and its members, particularly in an
intra-day cease to act situation.
Background
In connection with lessons learned
from a recent close-out simulation
exercise conducted by The Depository
Trust & Clearing Corporation, FICC’s
parent company, in which FICC
participated, and related review of the
GSD Rules and the MBSD Rules, certain
potential challenges with administering
certain aspects of the GSD Rules and the
MBSD Rules on insolvency and ceasing
to act described below, particularly in
an intra-day cease to act situation, were
identified.
‘‘Time of Insolvency’’ and ‘‘Cut-Off
Time’’
Currently, GSD and MBSD include in
their insolvency rules (GSD Rule 22,
MBSD Rule 16) and cease to act rules
(GSD Rule 22A, MBSD Rule 17) the
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concept of a ‘‘Time of Insolvency’’,
which is defined to mean the time at
which FICC determines to its reasonable
satisfaction that a member is
‘‘insolvent’’ within the meaning of GSD
Rule 22 or MBSD Rule 16, respectively.
This ‘‘Time of Insolvency’’ concept is
separate from the time at which FICC
ceases to act for a member, and such
‘‘Time of Insolvency’’ is currently used
in the GSD Rules and the MBSD Rules
as a line of demarcation when
determining FICC’s obligations with
respect to pending transactions
involving the insolvent member.
Specifically, transactions with the
insolvent member that are not compared
or deemed compared in accordance
with the GSD Rules or the MBSD Rules,
respectively, prior to the ‘‘Time of
Insolvency’’ are not eligible to be part of
the close-out process, unless otherwise
determined by the Board of Directors of
FICC in order to promote orderly
settlement.
For a non-insolvency cease to act
situation, the GSD Rules and the MBSD
Rules on ceasing to act (GSD Rule 22A,
MBSD Rule 17) currently include the
concept of a ‘‘Cut-Off Time’’, which is
defined to mean a time specified in
advance by FICC in a notice to its
membership at which it will cease to act
for a member. Like the ‘‘Time of
Insolvency’’ concept, ‘‘Cut-Off Time’’ is
currently used in the GSD Rules and the
MBSD Rules when determining FICC’s
obligations with respect to pending
transactions involving the defaulted
member.
Identifying an exact time at which a
member has become ‘‘insolvent’’ for
purposes of establishing a ‘‘Time of
Insolvency’’ may pose potential
challenges for FICC in circumstances
where the member is deemed
‘‘insolvent’’ based upon the
determination or action of a third party,
such as the member’s regulator,
supervisory authority or a court of
competent jurisdiction. In an intra-day
cease to act situation where transaction
data is being submitted to FICC in realtime, these potential challenges with
identifying an exact ‘‘Time of
Insolvency’’ may create a lack of legal
certainty for FICC and its members
regarding FICC’s obligations with
respect to pending transactions
involving the insolvent member. In light
of the foregoing, FICC proposes to
remove the ‘‘Time of Insolvency’’
concept from the GSD Rules and the
MBSD Rules and instead simply rely on
the single time it ceases to act for an
insolvent member for purposes of
determining its obligations with respect
to pending transactions involving such
insolvent member.
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In order to also simplify its process in
non-insolvency cease to act situations,
FICC proposes to remove the separate
‘‘Cut-Off Time’’ concept from the GSD
Rules and the MBSD Rules and instead
rely on the single time it ceases to act
for a defaulted member for purposes of
determining its obligations with respect
to pending transactions involving such
defaulted member.3
Transactions Deemed Compared Based
Solely on Non-Defaulting Member Data
Currently, the provisions of the GSD
Rules and the MBSD Rules on ceasing
to act (GSD Rule 22A, MBSD Rule 17),
and the related prongs of the
‘‘Compared Trade’’ definition in Rule 1
of each of the Division’s Rules, provide
that, in the context of FICC ceasing to
act for a member, a transaction
involving such member that would not
otherwise be compared or deemed
compared under the GSD Rules or the
MBSD Rules, respectively, may, in
certain circumstances, be deemed a
compared trade based solely on data
submitted by a non-defaulting member.
The determination of whether such a
transaction should be deemed a
compared trade is currently based on a
multi-pronged facts and circumstancesbased test, including determinations as
to whether the transaction was executed
prior to FICC ceasing to act for the
defaulted member, whether the
transaction was entered into in good
faith and not primarily in order to take
advantage of the defaulted member’s
financial condition and whether the
transaction is an Off-the-Market
Transaction as defined in Rule 1 of each
of the Division’s Rules.
Administering such a multi-pronged
facts and circumstances-based test for
individual transactions in a cease to act
situation, particularly an intra-day cease
to act situation where transaction data is
being submitted to FICC in real-time,
may pose potential challenges to FICC
and create a lack of legal certainty for
FICC and its members regarding FICC’s
obligations with respect to individual
pending transactions involving the
insolvent or otherwise defaulted
member. In order to simplify FICC’s
process in a cease to act situation and
provide FICC and its members with
greater ex ante legal certainty regarding
3 It should be noted that this proposed change
will more closely align the GSD Rules and the
MBSD Rules with the rules of FICC’s affiliate,
National Securities Clearing Corporation (‘‘NSCC’’).
Under its Rule 18 (Procedures for When the
Corporation Declines or Ceases to Act), NSCC relies
on the time it declines or ceases to act for a member
when determining which transactions involving
such member will be excluded from its operations,
rather than on a separate ‘‘Time of Insolvency’’ or
‘‘Cut-Off Time’’, as applicable.
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the rules applicable to pending
transactions involving an insolvent or
otherwise defaulted member, FICC
proposes to remove the multi-pronged
facts and circumstances-based test and
the related provisions of each of the
Division’s Rules and instead simply rely
on the compared trade definitions under
each of the Division’s Rules, subject to
the discretion of the Board of Directors
of FICC to determine otherwise in order
to promote orderly settlement with
respect to transactions the data on
which have been submitted only by
non-defaulting members.
Proposed GSD Rule Changes
FICC is proposing to amend the GSD
Rules as follows:
In Rule 1—‘‘Definitions’’, the
following definitions have been revised:
The term ‘‘Compared Trade’’ is
revised to remove the prong of the
definition which provides that, in the
context of FICC ceasing to act for a
member under GSD Rule 22A, a
transaction involving such member that
would not otherwise be a Compared
Trade under the GSD Rules may, in
certain circumstances, be deemed a
Compared Trade based solely on data
submitted by a non-defaulting member.
The term ‘‘Off-the-Market
Transaction’’ is revised to conform the
text and the numbering of the definition
with the text and numbering of the
parallel ‘‘Off-the-Market Transaction’’
definition in the MBSD Rules.
In Rule 3A—‘‘Sponsoring Members
and Sponsored Members’’, Sections
15(a) and 16(a) are revised to remove
references to Rule 22, current Section 3
(Notification of Insolvency) and related
conforming changes to the text of such
sections are made. Section 15(b) is
revised to remove the reference to the
‘‘Time of Insolvency’’ concept and to
align the text regarding the actions taken
by FICC in connection with the
insolvency of a Sponsored Member with
the parallel text included in Section 16
relating to the actions taken by FICC in
connection with the insolvency of a
Sponsoring Member. Consistent with
the numbering of Section 15, Section
16(a) is revised to make the second
paragraph a new subsection (b). New
Section 16(b) is also revised to align the
text regarding the actions taken by FICC
in connection with the insolvency of a
Sponsoring Member with the parallel
text included in Section 15(b) relating to
the actions taken by FICC in connection
with the insolvency of a Sponsored
Member.
In Rule 22—‘‘Insolvency of a
Member’’, current Section 3, which
provides for FICC to notice its
membership and the Securities and
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Exchange Commission (SEC) regarding
the insolvency of a member, is removed
in order to clarify that the membership
and the SEC will only receive one notice
from FICC at the time it ceases to act for
a member in accordance with the
provisions of Section 1 of Rule 22A
(Procedures for When the Corporation
Ceases to Act), whether FICC ceases to
act for the member for insolvency or
non-insolvency related reasons. Section
4 (Ceasing to Act for the Member) is
renumbered as new Section 3 and
revised to remove the reference to the
‘‘Time of Insolvency’’ concept.
In Rule 22A—‘‘Procedures for When
the Corporation Ceases to Act’’, Section
1 (Notification) is revised to clarify that
FICC will notice the SEC as well as its
membership of every decision to cease
to act for a member. Section 1 is further
revised to remove the requirement that
FICC establish a separate ‘‘Time of
Insolvency’’, in the event it ceases to act
because of a member’s insolvency, or
‘‘Cut-Off Time’’, in the event it ceases to
act for a member for non-insolvency
related reasons.
Sections 2, 2(a) and 2(b) are revised
remove the ‘‘Time of Insolvency’’ and
‘‘Cut-Off Time’’ concepts, and instead
rely on the time FICC ceases to act for
a member for purposes of determining
its obligations with respect to pending
transactions involving such member.
Section 2(a) is further revised to use the
defined term ‘‘Compared Trade’’ for
purposes of clarifying which
transactions are eligible to be part of the
close-out process as of the time FICC
ceases to act for a member, subject to the
discretion of the Board of Directors of
FICC to determine otherwise in order to
promote orderly settlement.
Section 2(c), which provides that, in
the context of FICC ceasing to act for a
member, a transaction involving such
member that would not otherwise be
compared or deemed compared under
the GSD Rules may, in certain
circumstances, be deemed compared
based solely on data submitted by a
non-defaulting member, based on a
multi-pronged facts and circumstancesbased test, is removed. FICC would
instead rely on the ‘‘Compared Trade’’
definition in GSD Rule 1 when
determining its obligations with respect
to pending transactions involving an
insolvent or otherwise defaulted
member, subject to the discretion of the
Board of Directors of FICC to determine
otherwise in order to promote orderly
settlement with respect to transactions
the data on which have been submitted
only by non-defaulting members.
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Proposed MBSD Rule Changes
FICC is proposing to amend the
MBSD Rules as follows:
In Rule 1—‘‘Definitions’’, the
following definitions have been revised:
The term ‘‘Compared Trade’’ is
revised to remove the prong of the
definition which provides that, in the
context of FICC ceasing to act for a
member under MBSD Rule 17, a
transaction involving such member that
would not otherwise be compared or
deemed compared under the MBSD
Rules may, in certain circumstances, be
deemed a Compared Trade based solely
on data submitted by a non-defaulting
member. The ‘‘Compared Trade’’
definition is further clarified to
reference the specific MBSD Rules (Rule
5 and Rule 7) pursuant to which a
transaction would be compared or
deemed compared by MBSD.
In Rule 16—‘‘Insolvency of a
Member’’, current Section 3, which
provides for FICC to notice its
membership and the Securities and
Exchange Commission (SEC) regarding
the insolvency of a member, is removed
in order to clarify that the membership
and the SEC will only receive one notice
from FICC at the time it ceases to act for
a member in accordance with the
provisions of Section 1 of Rule 17
(Procedures for When the Corporation
Ceases to Act), whether FICC ceases to
act for the member for insolvency or
non-insolvency related reasons. Section
4 (Ceasing to Act for the Member) is
renumbered as new Section 3 and
revised to remove the reference to the
‘‘Time of Insolvency’’ concept.
In Rule 17—‘‘Procedures for When the
Corporation Ceases to Act’’, Section 1
(Notification) is revised to clarify that
FICC will notice the SEC as well as its
membership of every decision to cease
to act for a member. Section 1 is further
revised to remove the requirement that
FICC establish a separate ‘‘Time of
Insolvency’’, in the event it ceases to act
because of a member’s insolvency, or
‘‘Cut-Off Time’’, in the event it ceases to
act for a member for non-insolvency
related reasons.
Sections 2, 2(a), 2(d) and 2(e) are
revised to remove the ‘‘Time of
Insolvency’’ and ‘‘Cut-Off Time’’
concepts, and instead rely on the time
FICC ceases to act for a member for
purposes of determining its obligations
with respect to pending transactions
involving such member.
Section 2(g), which provides that, in
the context of FICC ceasing to act for a
member, a transaction involving such
member that would not otherwise be
compared or deemed compared under
the MBSD Rules may, in certain
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73929
circumstances, be deemed compared
based solely on data submitted by a
non-defaulting member, based on a
multi-pronged facts and circumstancesbased test, is removed. FICC would
instead rely on the compared trade
definitions in the MBSD Rules when
determining its obligations with respect
to pending transactions involving an
insolvent or otherwise defaulted
member, subject to the discretion of the
Board of Directors of FICC to determine
otherwise in order to promote orderly
settlement with respect to transactions
the data on which have been submitted
only by non-defaulting members.
2. Statutory Basis
The proposed rule is consistent with
Section 17A(b)(3)(F) 4 of the Securities
and Exchange Act of 1934, as amended,
and the rules and regulations
promulgated thereunder because it will
promote the prompt and accurate
clearance and settlement of securities
transactions and remove impediments
to and perfect the mechanism of a
national system for the prompt and
accurate clearance and settlement of
securities transactions in that it will
simplify in certain respects FICC’s
process in a cease to act situation and
provide greater legal certainty for FICC
and its members as to FICC’s obligations
with respect to pending transactions
involving an insolvent or otherwise
defaulted member, particularly in an
intra-day cease to act situation.
B. Clearing Agency’s Statement on
Burden on Competition
FICC does not believe that the
proposed rule change will have any
impact, or impose any burden, on
competition because it relates to
changes to FICC’s insolvency and cease
to act rules that would apply equally to
all members of each Division of FICC.
C. Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. FICC will notify
the Commission of any written
comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
4 15
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U.S.C. 78q–1(b)(3)(F).
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to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml), or
• Send an email to rule-comment@
sec.gov. Please include File No. SR–
FICC–2014–06 on the subject line.
16:57 Dec 11, 2014
Jkt 235001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.5
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–29179 Filed 12–11–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73784; File No. SR–BX–
2014–049]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
of Proposed Rule Change Relating to
Directed Market Makers
December 8, 2014.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington DC 20549.
All submissions should refer to File
Number SR–FICC–2014–06. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FICC and on its Web site at
https://www.dtcc.com/∼/media/Files/
Downloads/legal/rule-filings/2014/ficc/
SR-FICC-2014-06.pdf. All comments
VerDate Sep<11>2014
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FICC–
2014–06 and should be submitted on or
before January 2, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
25, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to add
definitions of Directed Order and
Directed Market Maker (‘‘DMM’’), as
well as provisions concerning the
designation of an order as a Directed
Order and DMM market making
obligations. The proposal also revises
priority rules to provide for a DMM
participation entitlement. Finally, the
rule makes certain clarifications to the
text of rules governing Lead Market
Makers (‘‘LMMs’’). The proposal seeks
to enable BX to compete with the many
options exchanges that offer directed
orders in their respective markets.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxbx.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to adopt rules to permit BX
Market Makers to act as Designated
Market Makers, or DMMs, in their
appointed options classes, provided the
DMM meets certain obligations and
quoting requirements as provided for in
the new proposed Exchange Rules. The
Exchange proposes to provide DMMs
with certain participation entitlements.
The Exchange believes that these
amendments, described below in greater
detail, will enhance competition by
affording the BX Options market the
opportunity to compete for directed
order flow.
Current Categories of BX Options
Participants
Today on BX there are three types of
Options Participants: Options Order
Entry Firms, Options market makers and
LMMs. Options Order Entry Firms, or
OEFs, are Options Participants who
represent customer orders as agent on
BX Options and non-market maker
Participants conducting proprietary
trading as principal.
Options market makers are Options
Participants registered with the
Exchange as options market makers in
one or more listed options on BX.3 BX
Options market makers are required to
electronically engage in a course of
dealing to enhance liquidity available
on BX and to assist in the maintenance
of fair and orderly markets.4 Among
3 See
BX Options Rules at Chapter VII.
market makers receive certain benefits
for carrying out their duties. For example, a lender
may extend credit to a broker-dealer without regard
5 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00052
Fmt 4703
4 Options
Sfmt 4703
E:\FR\FM\12DEN1.SGM
12DEN1
]]>Agencies
[Federal Register Volume 79, Number 239 (Friday, December 12, 2014)]
[Notices]
[Pages 73927-73930]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29179]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73787; File No. SR-FICC-2014-06]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend the Rules of the
Government Securities Division and the Mortgage-Backed Securities
Division on Insolvency and Ceasing To Act
December 8, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 25, 2014, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the clearing agency. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to the rules of the
Government Securities Division (``GSD Rules'') of FICC and the rules of
the Mortgage-Backed Securities Division (``MBSD Rules'') of FICC (each
of GSD and MBSD, a ``Division'' of FICC) on insolvency and ceasing to
act that simplify in certain respects FICC's process in a cease to act
situation and provide greater legal certainty for FICC and its members,
particularly in an intra-day cease to act situation.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, FICC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FICC has prepared summaries, set forth in sections A, B
and C below, of the most significant aspects of such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the GSD Rules and the MBSD
Rules on insolvency and ceasing to act in order to simplify in certain
respects FICC's process in a cease to act situation and provide greater
legal certainty for FICC and its members, particularly in an intra-day
cease to act situation.
Background
In connection with lessons learned from a recent close-out
simulation exercise conducted by The Depository Trust & Clearing
Corporation, FICC's parent company, in which FICC participated, and
related review of the GSD Rules and the MBSD Rules, certain potential
challenges with administering certain aspects of the GSD Rules and the
MBSD Rules on insolvency and ceasing to act described below,
particularly in an intra-day cease to act situation, were identified.
``Time of Insolvency'' and ``Cut-Off Time''
Currently, GSD and MBSD include in their insolvency rules (GSD Rule
22, MBSD Rule 16) and cease to act rules (GSD Rule 22A, MBSD Rule 17)
the
[[Page 73928]]
concept of a ``Time of Insolvency'', which is defined to mean the time
at which FICC determines to its reasonable satisfaction that a member
is ``insolvent'' within the meaning of GSD Rule 22 or MBSD Rule 16,
respectively.
This ``Time of Insolvency'' concept is separate from the time at
which FICC ceases to act for a member, and such ``Time of Insolvency''
is currently used in the GSD Rules and the MBSD Rules as a line of
demarcation when determining FICC's obligations with respect to pending
transactions involving the insolvent member. Specifically, transactions
with the insolvent member that are not compared or deemed compared in
accordance with the GSD Rules or the MBSD Rules, respectively, prior to
the ``Time of Insolvency'' are not eligible to be part of the close-out
process, unless otherwise determined by the Board of Directors of FICC
in order to promote orderly settlement.
For a non-insolvency cease to act situation, the GSD Rules and the
MBSD Rules on ceasing to act (GSD Rule 22A, MBSD Rule 17) currently
include the concept of a ``Cut-Off Time'', which is defined to mean a
time specified in advance by FICC in a notice to its membership at
which it will cease to act for a member. Like the ``Time of
Insolvency'' concept, ``Cut-Off Time'' is currently used in the GSD
Rules and the MBSD Rules when determining FICC's obligations with
respect to pending transactions involving the defaulted member.
Identifying an exact time at which a member has become
``insolvent'' for purposes of establishing a ``Time of Insolvency'' may
pose potential challenges for FICC in circumstances where the member is
deemed ``insolvent'' based upon the determination or action of a third
party, such as the member's regulator, supervisory authority or a court
of competent jurisdiction. In an intra-day cease to act situation where
transaction data is being submitted to FICC in real-time, these
potential challenges with identifying an exact ``Time of Insolvency''
may create a lack of legal certainty for FICC and its members regarding
FICC's obligations with respect to pending transactions involving the
insolvent member. In light of the foregoing, FICC proposes to remove
the ``Time of Insolvency'' concept from the GSD Rules and the MBSD
Rules and instead simply rely on the single time it ceases to act for
an insolvent member for purposes of determining its obligations with
respect to pending transactions involving such insolvent member.
In order to also simplify its process in non-insolvency cease to
act situations, FICC proposes to remove the separate ``Cut-Off Time''
concept from the GSD Rules and the MBSD Rules and instead rely on the
single time it ceases to act for a defaulted member for purposes of
determining its obligations with respect to pending transactions
involving such defaulted member.\3\
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\3\ It should be noted that this proposed change will more
closely align the GSD Rules and the MBSD Rules with the rules of
FICC's affiliate, National Securities Clearing Corporation
(``NSCC''). Under its Rule 18 (Procedures for When the Corporation
Declines or Ceases to Act), NSCC relies on the time it declines or
ceases to act for a member when determining which transactions
involving such member will be excluded from its operations, rather
than on a separate ``Time of Insolvency'' or ``Cut-Off Time'', as
applicable.
---------------------------------------------------------------------------
Transactions Deemed Compared Based Solely on Non-Defaulting Member Data
Currently, the provisions of the GSD Rules and the MBSD Rules on
ceasing to act (GSD Rule 22A, MBSD Rule 17), and the related prongs of
the ``Compared Trade'' definition in Rule 1 of each of the Division's
Rules, provide that, in the context of FICC ceasing to act for a
member, a transaction involving such member that would not otherwise be
compared or deemed compared under the GSD Rules or the MBSD Rules,
respectively, may, in certain circumstances, be deemed a compared trade
based solely on data submitted by a non-defaulting member. The
determination of whether such a transaction should be deemed a compared
trade is currently based on a multi-pronged facts and circumstances-
based test, including determinations as to whether the transaction was
executed prior to FICC ceasing to act for the defaulted member, whether
the transaction was entered into in good faith and not primarily in
order to take advantage of the defaulted member's financial condition
and whether the transaction is an Off-the-Market Transaction as defined
in Rule 1 of each of the Division's Rules.
Administering such a multi-pronged facts and circumstances-based
test for individual transactions in a cease to act situation,
particularly an intra-day cease to act situation where transaction data
is being submitted to FICC in real-time, may pose potential challenges
to FICC and create a lack of legal certainty for FICC and its members
regarding FICC's obligations with respect to individual pending
transactions involving the insolvent or otherwise defaulted member. In
order to simplify FICC's process in a cease to act situation and
provide FICC and its members with greater ex ante legal certainty
regarding the rules applicable to pending transactions involving an
insolvent or otherwise defaulted member, FICC proposes to remove the
multi-pronged facts and circumstances-based test and the related
provisions of each of the Division's Rules and instead simply rely on
the compared trade definitions under each of the Division's Rules,
subject to the discretion of the Board of Directors of FICC to
determine otherwise in order to promote orderly settlement with respect
to transactions the data on which have been submitted only by non-
defaulting members.
Proposed GSD Rule Changes
FICC is proposing to amend the GSD Rules as follows:
In Rule 1--``Definitions'', the following definitions have been
revised:
The term ``Compared Trade'' is revised to remove the prong of the
definition which provides that, in the context of FICC ceasing to act
for a member under GSD Rule 22A, a transaction involving such member
that would not otherwise be a Compared Trade under the GSD Rules may,
in certain circumstances, be deemed a Compared Trade based solely on
data submitted by a non-defaulting member.
The term ``Off-the-Market Transaction'' is revised to conform the
text and the numbering of the definition with the text and numbering of
the parallel ``Off-the-Market Transaction'' definition in the MBSD
Rules.
In Rule 3A--``Sponsoring Members and Sponsored Members'', Sections
15(a) and 16(a) are revised to remove references to Rule 22, current
Section 3 (Notification of Insolvency) and related conforming changes
to the text of such sections are made. Section 15(b) is revised to
remove the reference to the ``Time of Insolvency'' concept and to align
the text regarding the actions taken by FICC in connection with the
insolvency of a Sponsored Member with the parallel text included in
Section 16 relating to the actions taken by FICC in connection with the
insolvency of a Sponsoring Member. Consistent with the numbering of
Section 15, Section 16(a) is revised to make the second paragraph a new
subsection (b). New Section 16(b) is also revised to align the text
regarding the actions taken by FICC in connection with the insolvency
of a Sponsoring Member with the parallel text included in Section 15(b)
relating to the actions taken by FICC in connection with the insolvency
of a Sponsored Member.
In Rule 22--``Insolvency of a Member'', current Section 3, which
provides for FICC to notice its membership and the Securities and
[[Page 73929]]
Exchange Commission (SEC) regarding the insolvency of a member, is
removed in order to clarify that the membership and the SEC will only
receive one notice from FICC at the time it ceases to act for a member
in accordance with the provisions of Section 1 of Rule 22A (Procedures
for When the Corporation Ceases to Act), whether FICC ceases to act for
the member for insolvency or non-insolvency related reasons. Section 4
(Ceasing to Act for the Member) is renumbered as new Section 3 and
revised to remove the reference to the ``Time of Insolvency'' concept.
In Rule 22A--``Procedures for When the Corporation Ceases to Act'',
Section 1 (Notification) is revised to clarify that FICC will notice
the SEC as well as its membership of every decision to cease to act for
a member. Section 1 is further revised to remove the requirement that
FICC establish a separate ``Time of Insolvency'', in the event it
ceases to act because of a member's insolvency, or ``Cut-Off Time'', in
the event it ceases to act for a member for non-insolvency related
reasons.
Sections 2, 2(a) and 2(b) are revised remove the ``Time of
Insolvency'' and ``Cut-Off Time'' concepts, and instead rely on the
time FICC ceases to act for a member for purposes of determining its
obligations with respect to pending transactions involving such member.
Section 2(a) is further revised to use the defined term ``Compared
Trade'' for purposes of clarifying which transactions are eligible to
be part of the close-out process as of the time FICC ceases to act for
a member, subject to the discretion of the Board of Directors of FICC
to determine otherwise in order to promote orderly settlement.
Section 2(c), which provides that, in the context of FICC ceasing
to act for a member, a transaction involving such member that would not
otherwise be compared or deemed compared under the GSD Rules may, in
certain circumstances, be deemed compared based solely on data
submitted by a non-defaulting member, based on a multi-pronged facts
and circumstances-based test, is removed. FICC would instead rely on
the ``Compared Trade'' definition in GSD Rule 1 when determining its
obligations with respect to pending transactions involving an insolvent
or otherwise defaulted member, subject to the discretion of the Board
of Directors of FICC to determine otherwise in order to promote orderly
settlement with respect to transactions the data on which have been
submitted only by non-defaulting members.
Proposed MBSD Rule Changes
FICC is proposing to amend the MBSD Rules as follows:
In Rule 1--``Definitions'', the following definitions have been
revised:
The term ``Compared Trade'' is revised to remove the prong of the
definition which provides that, in the context of FICC ceasing to act
for a member under MBSD Rule 17, a transaction involving such member
that would not otherwise be compared or deemed compared under the MBSD
Rules may, in certain circumstances, be deemed a Compared Trade based
solely on data submitted by a non-defaulting member. The ``Compared
Trade'' definition is further clarified to reference the specific MBSD
Rules (Rule 5 and Rule 7) pursuant to which a transaction would be
compared or deemed compared by MBSD.
In Rule 16--``Insolvency of a Member'', current Section 3, which
provides for FICC to notice its membership and the Securities and
Exchange Commission (SEC) regarding the insolvency of a member, is
removed in order to clarify that the membership and the SEC will only
receive one notice from FICC at the time it ceases to act for a member
in accordance with the provisions of Section 1 of Rule 17 (Procedures
for When the Corporation Ceases to Act), whether FICC ceases to act for
the member for insolvency or non-insolvency related reasons. Section 4
(Ceasing to Act for the Member) is renumbered as new Section 3 and
revised to remove the reference to the ``Time of Insolvency'' concept.
In Rule 17--``Procedures for When the Corporation Ceases to Act'',
Section 1 (Notification) is revised to clarify that FICC will notice
the SEC as well as its membership of every decision to cease to act for
a member. Section 1 is further revised to remove the requirement that
FICC establish a separate ``Time of Insolvency'', in the event it
ceases to act because of a member's insolvency, or ``Cut-Off Time'', in
the event it ceases to act for a member for non-insolvency related
reasons.
Sections 2, 2(a), 2(d) and 2(e) are revised to remove the ``Time of
Insolvency'' and ``Cut-Off Time'' concepts, and instead rely on the
time FICC ceases to act for a member for purposes of determining its
obligations with respect to pending transactions involving such member.
Section 2(g), which provides that, in the context of FICC ceasing
to act for a member, a transaction involving such member that would not
otherwise be compared or deemed compared under the MBSD Rules may, in
certain circumstances, be deemed compared based solely on data
submitted by a non-defaulting member, based on a multi-pronged facts
and circumstances-based test, is removed. FICC would instead rely on
the compared trade definitions in the MBSD Rules when determining its
obligations with respect to pending transactions involving an insolvent
or otherwise defaulted member, subject to the discretion of the Board
of Directors of FICC to determine otherwise in order to promote orderly
settlement with respect to transactions the data on which have been
submitted only by non-defaulting members.
2. Statutory Basis
The proposed rule is consistent with Section 17A(b)(3)(F) \4\ of
the Securities and Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder because it will promote the prompt
and accurate clearance and settlement of securities transactions and
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions in that it will simplify in certain respects FICC's
process in a cease to act situation and provide greater legal certainty
for FICC and its members as to FICC's obligations with respect to
pending transactions involving an insolvent or otherwise defaulted
member, particularly in an intra-day cease to act situation.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Clearing Agency's Statement on Burden on Competition
FICC does not believe that the proposed rule change will have any
impact, or impose any burden, on competition because it relates to
changes to FICC's insolvency and cease to act rules that would apply
equally to all members of each Division of FICC.
C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to the proposed rule change have not yet
been solicited or received. FICC will notify the Commission of any
written comments received by FICC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period
[[Page 73930]]
to be appropriate and publishes its reasons for so finding or (ii) as
to which the self-regulatory organization consents, the Commission
will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml), or
Send an email to rule-comment@sec.gov. Please include File
No. SR-FICC-2014-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington DC 20549.
All submissions should refer to File Number SR-FICC-2014-06. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of FICC and on its
Web site at https://www.dtcc.com/~/media/Files/Downloads/legal/rule-
filings/2014/ficc/SR-FICC-2014-06.pdf. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2014-06 and should be submitted on
or before January 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\5\
---------------------------------------------------------------------------
\5\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29179 Filed 12-11-14; 8:45 am]
BILLING CODE 8011-01-P
