Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Clarify Certain Sections of the Loss Allocation Rule of Its Government Securities Division, 12920-12921 [E5-1156]
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Federal Register / Vol. 70, No. 50 / Wednesday, March 16, 2005 / Notices
monitored monthly or quarterly,
depending upon the member’s financial
filing frequency, against basic minimum
financial requirements and other
parameters.
All broker-dealer members included
on the watch list are monitored more
closely. This means that they are also
monitored for various parameter breaks
which may include but are not limited
to such things as a defined decline in
excess net capital over a one month or
three month period, a defined period
loss, a defined aggregate indebtedness/
net capital ratio, a defined net capital/
aggregate debit items ratio, and a
defined net capital/regulatory net
capital ratio. All bank members
included on the watch list are also
monitored more closely for watch list
parameter breaks which may include
but are not limited to such things as a
defined quarter loss, a defined decline
in equity, a defined tier one leverage
ratio, a defined tier one risk-based
capital ratio, and a defined total riskbased capital ratio. FICC wishes to make
clear that monitoring for the above more
stringent parameter breaks is only
applicable to those members placed on
the watch list.
In addition, FICC would like to
address footnote 5 of Amendment I to
rule filing SR–FICC–2003–03. That
footnote stated that credit risk staff
would monitor those members not
included in the Matrix process (this
includes members that are not domestic
banks and broker dealers) using the
same criteria as those used for members
included on the Matrix. FICC wishes to
make clear that credit risk staff will not
be using the same criteria to monitor
these members but will use similar
criteria. As stated in the narrative of SR–
FICC–2003–03, these criteria may
include but are not limited to such
things as failure to meet minimum
financial requirements, experiencing a
significant decrease in equity or net
asset value, or a significant loss. This
class of members may be placed on the
watch list based on credit risk staff’s
analysis of this information.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires that the rules of a clearing
agency be designed to facilitate the
safeguarding of securities and funds
which are in its custody or control or for
which it is responsible.6 The
Commission finds that FICC’s proposed
rule change is consistent with this
requirement because it improves FICC’s
member surveillance process which
should better enable FICC to safeguard
6 15
U.S.C. 78q–1(b)(3)(F).
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16:45 Mar 15, 2005
Jkt 205001
the securities and funds which are in its
custody or control or for which it is
responsible.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular Section 17A of the Act and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
FICC–2004–08) be and hereby is
approved.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.7
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1155 Filed 3–15–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51354; File No. SR–FICC–
2004–18]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Granting Approval of a Proposed Rule
Change To Clarify Certain Sections of
the Loss Allocation Rule of Its
Government Securities Division
March 10, 2005.
I. Introduction
On October 1, 2004, the Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) and on
October 27, 2004, amended proposed
rule change File No. SR–FICC–2004–18
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’).1 Notice of the proposed rule
change was published in the Federal
Register on January 24, 2005. 2 No
comment letters were received. For the
reasons discussed below, the
Commission is now granting approval of
the proposed rule change.
II. Description
The purpose of this proposed rule
change is to clarify certain sections of
the loss allocation rule of the
Government Securities Division
(‘‘GSD’’) of FICC. If the GSD, upon
liquidating a defaulting member’s
positions, incurs a loss due to the failure
CFR 200.30–3(a)(12).
78s(b)(1).
2 Securities Exchange Act Release No. 51037
(January 13, 2005), 70 FR 3410.
PO 00000
7 17
1 U.S.C.
Frm 00085
Fmt 4703
Sfmt 4703
of the defaulting member to fulfill its
obligations to the GSD, the GSD looks to
the margin collateral deposited by that
defaulting member to satisfy the loss. If
the defaulting member’s margin
collateral is insufficient to cover the loss
and if there are no other funds available
from any applicable cross-margining
and/or cross-guaranty arrangements, the
GSD would have a ‘‘Remaining Loss’’ 3
and would institute its loss allocation
process to cover such Remaining Loss.
In doing so, the GSD would determine
the types of transactions from which the
Remaining Loss has arisen (such as
direct transactions and member
brokered transactions) and would
allocate the Remaining Loss as set forth
in Sections 8(d)(i) through (v) of Rule 4
of the GSD Rules.
The allocations in Section 8(d)(ii) of
Rule 4 to cover a Remaining Loss that
is due to member brokered transactions
distributes the loss between the affected
broker, including repo brokers, and nonbroker members that dealt with the
defaulting member, are limited as an
initial matter. Specifically, a broker
netting member will not be subject to an
allocation of loss, for any single lossallocation event in an amount greater
than $5 million, and a non-broker
netting member will not be subject to an
allocation of loss for any single lossallocation event in an amount greater
than the lesser of $5 million or five
percent of the overall loss amount
allocated to non-broker netting
members. If the Remaining Loss from
member brokered transactions is not
covered due to these limitations on
allocations, the uncovered loss will be
reallocated as set forth in Section 8(e) of
Rule 4. This section calls for a pro rata
allocation to the netting membership in
general based on each netting member’s
average daily required clearing fund
deposit over the twelve-month period
immediately prior to the insolvency.
The rule change makes clear that the
amounts allocated pursuant to Section
8(e) will be assessed to a netting
member in addition to any loss amount
allocated pursuant to Section 8(d)(ii).
Therefore, a netting member may be
subject to an aggregate allocation of loss
that may exceed the applicable
limitation set forth in Section 8(d)(ii).
Even with the allocation pursuant to
Section 8(e) of Rule 4, a broker netting
member would not be subject to an
aggregate loss allocation for any single
loss allocation event in an amount
greater than $5 million. In addition,
what has been intended, but is not clear
in the current rules, is that a non-broker
netting member can terminate its GSD
3 GSD
E:\FR\FM\16MRN1.SGM
Rules, Rule 4, Section 8(d).
16MRN1
Federal Register / Vol. 70, No. 50 / Wednesday, March 16, 2005 / Notices
membership and thus cap any
additional loss allocation obligation due
to the application of Section 8(e) at the
amount of its required clearing fund
deposit. Therefore, FICC is making its
GSD rules clear that any allocations to
members resulting from the application
of Section 8(e) of Rule 4 or another
firm’s failure to pay its assessed share
are limited to the extent of a member’s
required clearing fund deposit if such
member chooses to terminate its GSD
membership.4
In addition, FICC is making it clear
that the ability to terminate and cap a
loss allocation obligation at the amount
of the clearing fund deposit is also
applicable to a netting member (aside
from the defaulting party) where an
auction purchase is the reason for any
Remaining Loss. In these instances, as
in the instances described above, the
netting member assessed a loss
allocation obligation will have had no
participation in the transaction which
led to the Remaining Loss and therefore
will be allowed to cap its total losses at
the amount of the clearing fund deposit.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires among other things that the
rules of a clearing agency be designed to
assure the safeguarding of securities and
funds in its custody or control or for
which it is responsible.5 The
Commission finds that FICC’s proposed
rule change is consistent with this
requirement because clarifying the
GSD’s rules and procedures with regard
to loss allocation assessments to netting
members in the event of a default
provides enhanced protections to FICC
and its members.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular Section 17A of the Act and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,6 that the
proposed rule change (File No. SR–
FICC–2004–18) be and hereby is
approved.
4 If a member elects to terminate its membership
in FICC, its liability for a loss allocation obligation
is limited to the amount of its required clearing
fund for the business day on which the notification
of such loss allocation is provided to the member.
5 15 U.S.C. 78q–1(b)(3)(F).
6 15 U.S.C. 78s(b)(2).
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16:45 Mar 15, 2005
Jkt 205001
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.7
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1156 Filed 3–15–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51336; File No. SR–NASD–
2005–026]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change Relating to
TRACE Market Data Fees
March 9, 2005.
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 February
11, 2005, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) 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 NASD. 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
NASD is proposing to amend NASD
Rule 7010(k) relating to Transaction
Reporting and Compliance Engine
(‘‘TRACE’’) transaction data to: (i)
Terminate the Bond Trade
Dissemination Service (‘‘BTDS’’)
Internal Usage Authorization Fee and
the BTDS External Usage Authorization
Fee and, in lieu of both fees, establish
a Vendor Real-Time Data Feed Fee; (ii)
define the term ‘‘Tax Exempt
Organization,’’ and amend the defined
term ‘‘Non-Professional’’ for purposes of
NASD Rule 7010(k)(3); and (iii) make
other minor, technical amendments.
The text of the proposed rule change is
available on NASD’s Web site (https://
www.nasd.com), at NASD’s principal
office, and at the Commission’s Public
Reference Room.
PO 00000
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Frm 00086
Fmt 4703
Sfmt 4703
12921
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it had received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below.
NASD 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASD seeks to amend NASD Rule
7010(k) to streamline market data
services and fees for TRACE transaction
data. Specifically, NASD proposes to
replace two fees currently charged to
receive delayed-time and real-time
TRACE transaction data—the BTDS
Internal Usage Authorization Fee of
$500 per month per application and the
BTDS External Usage Authorization Fee
of $1,000 per month per application—
with the Vendor Real-Time Data Feed
Fee, a single monthly fee of $1,500
(subject to certain exceptions) for a feed
of real-time TRACE transaction data that
the recipient may use in multiple
applications. In addition, NASD
proposes to amend NASD Rule 7010(k)
to define the term ‘‘Tax-Exempt
Organization’’ for purposes of
identifying the tax-exempt organizations
that would qualify to receive a real-time
TRACE transaction data feed for a
reduced fee of $400 per month. Also,
NASD proposes to amend the defined
term ‘‘Non-Professional’’ in NASD Rule
7010(k) to make explicit NASD’s current
interpretation that a natural person who
is a financial professional, or an
employee of a financial services entity
as specified in the rule, is considered a
Non-Professional in those instances
where the person accesses the TRACE
transaction data to use it solely for
personal, non-commercial uses (e.g., a
registered associated person of a brokerdealer accesses the free TRACE data at
home to obtain information about bonds
held in his personal account). Finally,
NASD is proposing other minor,
technical amendments to NASD Rule
7010(k).
E:\FR\FM\16MRN1.SGM
16MRN1
]]>Agencies
[Federal Register Volume 70, Number 50 (Wednesday, March 16, 2005)]
[Notices]
[Pages 12920-12921]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1156]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51354; File No. SR-FICC-2004-18]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Granting Approval of a Proposed Rule Change To Clarify Certain
Sections of the Loss Allocation Rule of Its Government Securities
Division
March 10, 2005.
I. Introduction
On October 1, 2004, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') and on October 27, 2004, amended proposed rule change
File No. SR-FICC-2004-18 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'').\1\ Notice of the proposed rule change
was published in the Federal Register on January 24, 2005. \2\ No
comment letters were received. For the reasons discussed below, the
Commission is now granting approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 51037 (January 13,
2005), 70 FR 3410.
---------------------------------------------------------------------------
II. Description
The purpose of this proposed rule change is to clarify certain
sections of the loss allocation rule of the Government Securities
Division (``GSD'') of FICC. If the GSD, upon liquidating a defaulting
member's positions, incurs a loss due to the failure of the defaulting
member to fulfill its obligations to the GSD, the GSD looks to the
margin collateral deposited by that defaulting member to satisfy the
loss. If the defaulting member's margin collateral is insufficient to
cover the loss and if there are no other funds available from any
applicable cross-margining and/or cross-guaranty arrangements, the GSD
would have a ``Remaining Loss'' \3\ and would institute its loss
allocation process to cover such Remaining Loss. In doing so, the GSD
would determine the types of transactions from which the Remaining Loss
has arisen (such as direct transactions and member brokered
transactions) and would allocate the Remaining Loss as set forth in
Sections 8(d)(i) through (v) of Rule 4 of the GSD Rules.
---------------------------------------------------------------------------
\3\ GSD Rules, Rule 4, Section 8(d).
---------------------------------------------------------------------------
The allocations in Section 8(d)(ii) of Rule 4 to cover a Remaining
Loss that is due to member brokered transactions distributes the loss
between the affected broker, including repo brokers, and non-broker
members that dealt with the defaulting member, are limited as an
initial matter. Specifically, a broker netting member will not be
subject to an allocation of loss, for any single loss-allocation event
in an amount greater than $5 million, and a non-broker netting member
will not be subject to an allocation of loss for any single loss-
allocation event in an amount greater than the lesser of $5 million or
five percent of the overall loss amount allocated to non-broker netting
members. If the Remaining Loss from member brokered transactions is not
covered due to these limitations on allocations, the uncovered loss
will be reallocated as set forth in Section 8(e) of Rule 4. This
section calls for a pro rata allocation to the netting membership in
general based on each netting member's average daily required clearing
fund deposit over the twelve-month period immediately prior to the
insolvency. The rule change makes clear that the amounts allocated
pursuant to Section 8(e) will be assessed to a netting member in
addition to any loss amount allocated pursuant to Section 8(d)(ii).
Therefore, a netting member may be subject to an aggregate allocation
of loss that may exceed the applicable limitation set forth in Section
8(d)(ii).
Even with the allocation pursuant to Section 8(e) of Rule 4, a
broker netting member would not be subject to an aggregate loss
allocation for any single loss allocation event in an amount greater
than $5 million. In addition, what has been intended, but is not clear
in the current rules, is that a non-broker netting member can terminate
its GSD
[[Page 12921]]
membership and thus cap any additional loss allocation obligation due
to the application of Section 8(e) at the amount of its required
clearing fund deposit. Therefore, FICC is making its GSD rules clear
that any allocations to members resulting from the application of
Section 8(e) of Rule 4 or another firm's failure to pay its assessed
share are limited to the extent of a member's required clearing fund
deposit if such member chooses to terminate its GSD membership.\4\
---------------------------------------------------------------------------
\4\ If a member elects to terminate its membership in FICC, its
liability for a loss allocation obligation is limited to the amount
of its required clearing fund for the business day on which the
notification of such loss allocation is provided to the member.
---------------------------------------------------------------------------
In addition, FICC is making it clear that the ability to terminate
and cap a loss allocation obligation at the amount of the clearing fund
deposit is also applicable to a netting member (aside from the
defaulting party) where an auction purchase is the reason for any
Remaining Loss. In these instances, as in the instances described
above, the netting member assessed a loss allocation obligation will
have had no participation in the transaction which led to the Remaining
Loss and therefore will be allowed to cap its total losses at the
amount of the clearing fund deposit.
III. Discussion
Section 17A(b)(3)(F) of the Act requires among other things that
the rules of a clearing agency be designed to assure the safeguarding
of securities and funds in its custody or control or for which it is
responsible.\5\ The Commission finds that FICC's proposed rule change
is consistent with this requirement because clarifying the GSD's rules
and procedures with regard to loss allocation assessments to netting
members in the event of a default provides enhanced protections to FICC
and its members.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 17A of the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\6\ that the proposed rule change (File No. SR-FICC-2004-18) be and
hereby is approved.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
---------------------------------------------------------------------------
\7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1156 Filed 3-15-05; 8:45 am]
BILLING CODE 8010-01-P
