Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to the Federal Reserve's National Settlement System, 72682-72684 [E5-6888]

Download as PDF 72682 Federal Register / Vol. 70, No. 233 / Tuesday, December 6, 2005 / Notices If you do not have access to ADAMS or if there are problems in accessing the document, you may contact the NRC Public Document Room (PDR) Reference staff at 1–800–397–4209, 301–415–4737, or by e-mail to pdr@nrc.gov. This document may also be viewed electronically on the public computers located at the NRC’s PDR, O 1 F21, One White Flint North, 11555 Rockville Pike, Rockville, MD 20852. The PDR reproduction contractor will copy documents for a fee. Comments and questions on draft NUREG/CR–6886 should be entered in the comment box (see URLs above) or directed to the NRC contact listed below by December 30, 2005. Comments received after this date will be considered if it is practical to do so, but assurance of consideration cannot be given to comments received after this date. Contact: Allen Hansen, Thermal Engineer, Criticality, Shielding and Heat Transfer Section, Spent Fuel Project Office, Office of Nuclear Material Safety and Safeguards, U.S. Nuclear Regulatory Commission, Washington, DC 20005– 0001. Telephone: (301) 415–1390; fax number: (301) 415–8555; e-mail: agh@nrc.gov. Dated at Rockville, Maryland this 30th day of November, 2005. For the Nuclear Regulatory Commission. M. Wayne Hodges, Deputy Director, Technical Review Directorate, Spent Fuel Project Office, Office of Nuclear Material Safety and Safeguards. [FR Doc. E5–6892 Filed 12–5–05; 8:45 am] Based on a review of the application that BS&Co. submitted, the Commission has determined that the application meets the requirements of Appendix E. The Commission also has determined that TBSCI is in compliance with the terms of its undertakings, as provided to the Commission under Appendix E. The Commission, therefore, finds that approval of the application is necessary or appropriate in the public interest or for the protection of investors. Accordingly, It Is Ordered, under paragraph (a)(7) of Rule 15c3–1 (17 CFR 240.15c3–1) to the Exchange Act, that BS&Co. may calculate net capital using the market risk standards of Appendix E to compute a deduction for market risk on some or all of its positions, instead of the provisions of paragraphs (c)(2)(vi) and (c)(2)(vii) of Rule 15c3–1, and using the credit risk standards of Appendix E to compute a deduction for credit risk on certain credit exposures arising from transactions in derivatives instruments, instead of the provision of paragraph (c)(2)(iv) of Rule 15c3–1. By the Commission. Jonathan G. Katz, Secretary. [FR Doc. E5–6858 Filed 12–5–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION BILLING CODE 7590–01–P [Release No. 34–52853; File No. SR–FICC– 2005–14] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to the Federal Reserve’s National Settlement System [Release No. 52857/November 30, 2005] Securities Exchange Act of 1934; Order Regarding Alternative Net Capital Computation for Bear, Stearns & Co. Inc., Which Has Elected To Be Supervised on a Consolidated Basis Bear Stearns & Co., Inc. (‘‘BS&Co.’’), a broker-dealer registered with the Securities and Exchange Commission (‘‘Commission’’), and its ultimate holding company, The Bear Stearns Companies Inc. (‘‘TBSCI’’), have indicated their desire to be supervised by the Commission as a consolidated supervised entity (‘‘CSE’’). BS&Co., therefore, has submitted an application to the Commission for authorization to use the alternative method of computing net capital contained in Appendix E to Rule 15c3–1 (17 CFR 240.15c3–1e) to the Securities Exchange Act of 1934 (‘‘Exchange Act’’). VerDate Aug<31>2005 17:44 Dec 05, 2005 Jkt 205001 November 29, 2005. I. Introduction On September 9, 2005, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–FICC–2005–14 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 Notice of the proposal was published in the Federal Register on October 26, 2005.2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). Exchange Act Release No. 52631, (October 18, 2005), 70 FR 61859. 2 Securities PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 II. Description The proposed rule change amends the rules of FICC’s Government Securities Division (‘‘GSD’’) so that funds-only settlement obligation payment processing occurs through the Federal Reserve’s National Settlement System (‘‘NSS’’).3 GSD’s funds-only settlement process is set forth in GSD Rule 13. On a daily basis, FICC reports a funds-only settlement amount, which is either a debit amount or a credit amount, to each netting member. Each netting member that has a debit is required to satisfy its obligation by the applicable deadline. Netting members with credits are subsequently paid by FICC by the applicable deadline. All payments of funds-only settlement amounts by netting members to FICC and all collections of funds-only settlement amounts by netting members from FICC are done through depository institutions that are designated by netting members and FICC to act for them with regard to such payments and collections. All payments are made by fund wires from one depository institution to the other. In 1997, the Commission approved an enhancement to GSCC’s 4 funds-only settlement payment processing (‘‘1997 Filing’’).5 That enhancement gave members the option to participate in an auto-debit arrangement. Under the autodeposit arrangement, GSCC, the netting member, and the netting member’s depository institution would enter into a ‘‘funds-only settlement procedures agreement’’ whereby the depository institution would pay or collect fundsonly settlement amounts on behalf of the netting member and GSCC through accounts of the member at the depository institution. As a result, the need to send fund wires for the satisfaction of funds-only settlement payments would be eliminated.6 The rule change replaces the autodebit process of the 1997 Filing and 3 This is consistent with the manner in which FICC’s affiliates, The Depository Trust Company (‘‘DTC’’) and the National Securities Clearing Corporation (‘‘NSCC’’), handle their funds settlement process. DTC and NSCC currently use NSS for the processing of funds debits and not for funds credits whereas FICC will use NSS both for the funds debits and funds credits of GSD’s fundsonly settlement process. 4 The Government Securities Clearing Corporation (‘‘GSCC’’) was the predecessor to GSD. GSCC became the GSD division of FICC when GSCC and the Mortgage Backed Securities Clearing Corporation were merged to create FICC in 2002. 5 Securities Exchange Act Release No. 39309 (November 7, 1997), 62 FR 61158 (November 14, 1997) [File No. SR–GSCC–97–06]. 6 This voluntary arrangement auto-debit was never implemented because until recently GSCC and then GSD continued to make manual adjustments to the final funds-only settlement amounts of netting members. Recently, these manual adjustments have largely been eliminated. E:\FR\FM\06DEN1.SGM 06DEN1 Federal Register / Vol. 70, No. 233 / Tuesday, December 6, 2005 / Notices provides more enhancements to the current approach to payment processing than was envisioned by the 1997 Filing. Under this proposed rule change, the required payment mechanism for the satisfaction of funds-only settlement amounts will be the NSS. FICC will appoint The Depository Trust Company (‘‘DTC’’) as its settlement agent for purposes of interfacing with the NSS.7 In order to satisfy their funds-only settlement obligations through the NSS process, each netting members must appoint a bank or trust company to act as their ‘‘funds-only settling bank.’’ A netting member that qualifies may act as its own funds-only settling bank. The GSD is establishing a limited membership category for the funds-only settling banks. Banks or trust companies that are DTC settling banks, as defined in DTC’s rules and procedures, or that are GSD netting members with direct access to the Federal Reserve and the NSS will be eligible to become GSD funds-only settling bank members by executing the requisite membership agreement for this purpose. Other banks or trust companies that desire to become funds-only settling bank members will have to apply to FICC. In order to qualify as a funds-only settling bank, they will have to have direct access to a Federal Reserve Bank and the NSS as well as satisfy the financial responsibility standards imposed by FICC from time to time. Initially, these applicants must meet and maintain a Tier 1 capital ratio of 6 percent.8 In addition to the membership agreement, the funds-only settling bank and the netting member must execute an agreement whereby the member will appoint the bank to act on its behalf for funds-only settlement purposes. The bank must also execute any agreements required by the Federal Reserve Bank for participation in the NSS for FICC’s funds-only settlement process. The funds-only settling banks will be required to follow the procedures for funds-only settlement payment processing set forth in FICC’s new rules governing the NSS settlement process. These will include, for example, providing FICC or its settlement agent with the requisite acknowledgement of the bank’s intention to settle the fundsonly settlement amounts of the netting members it represents on a timely basis and participating in the NSS process. Funds-only settling banks will have the 7 DTC currently performs this service for NSCC. is the same financial requirement for NSCC settling bank-only members. Under FICC’s program, FICC will retain the discretion to change this financial criterion by providing advanced notice to the fund-only settling banks and the netting members through Important Notices. 8 This VerDate Aug<31>2005 17:44 Dec 05, 2005 Jkt 205001 right to refuse to settle for a particular netting member and will also be able to opt out of NSS for one business day if they are experiencing extenuating circumstances.9 Under FICC’s program, the netting member shall be responsible for ensuring that its funds-only debit is wired to the depository institution designated by FICC for this purpose by the payment deadline. The rule change makes clear that the obligation of a netting member to fulfill its funds-only settlement amount remains at all times with the netting member. As FICC’s settlement agent, DTC will submit instructions to have the Federal Reserve Bank accounts of the funds-only settlement members charged for the debit amounts and credited for the credit amounts. Because utilization of NSS will eliminate the need for the initiation of wire transfers to satisfy funds-only settlement amounts, FICC believes that it will reduce the risk that netting members will incur late payment fines due to delays in wiring funds. The proposal will also reduce operational burden for the operations staff of FICC. The NSS is governed by the Federal Reserve’s Operating Circular No. 12 (‘‘Circular’’). Under the Circular, DTC, as FICC’s settlement agent, has certain responsibilities with respect to an indemnity claim made by a relevant Federal Reserve Bank as a result of the NSS process. FICC will apportion the entirety of any such liability to the netting members for whom the fundsonly settling bank to which the indemnity claim relates was acting. This allocation will be done in proportion to the amount of such members’ fundsonly settlement amounts on the business day in question. If for any reason such allocation is not sufficient to fully satisfy the Federal Reserve Bank’s indemnity claim, the remaining loss shall be treated as an ‘‘Other Loss’’ as defined by the GSD’s Rule 4 and allocated accordingly. The proposed rule change will not change the current GSD deadlines regarding the payment and receipt of funds-only settlement amounts, which are set forth in the GSD’s rules. III. Discussion Section 17A(b)(3)(F) of the Act provides that the rules of a clearing agency should be designed to promote the prompt and accurate clearance and settlement of securities transactions.10 Funds-only settlement is the payment made to or by FICC’s netting members 9 These procedures are consistent with the NSCC and DTC procedures in this respect. 10 15 U.S.C. 78q–l(b)(3)(F). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 72683 by or to FICC in settlement of their government securities transactions.11 Accordingly, a rule that is designed to improve the efficiency of funds-only settlement should also promote the prompt and accurate clearance and settlement of securities transactions. The proposed rule change should improve the efficiency of the funds-only settlement process for both FICC and its netting members by establishing a more automated and more centralized payment system for funds-only settlement. The NSS offered by the Federal Reserve System is a reliable and proven service that is used by, among others, other clearing agencies registered with the Commission. Although the proposed rule change will impose new requirements on FICC’s netting members to appoint funds-only settling bank members to act on their behalf and to share in any losses incurred with respect to an indemnity claim made by a Federal Reserve Bank, the proposed rule change should ultimately improve the efficiency of funds-only settlement processing for FICC’s netting members as well as for FICC.12 Each netting member will be required to use the NSS to make funds-only settlement payments in accordance with the procedures set forth in the changes to Rule 13. However, the netting member’s obligation to make its fundsonly settlement payment to FICC on time remains unchanged. If the netting member’s funds-only settlement agent is unable to or chooses not to make a payment through the NSS, the netting member will be required to wire the payment to FICC’s depository institution by the payment deadline. Accordingly, because the proposed rule change is designed to improve the efficiency of funds-only settlement payments without affecting netting members’ ultimate responsibility for their funds-only settlement payments, the Commission finds that the proposed rule change is also consistent with FICC’s obligation under Section 17A(b)(3)(F) to assure the safeguarding of securities and funds in its possession or control or for which it is responsible.13 11 FICC’s Rule 1 (Definitions) defines the term Funds-Only Settlement Amount as the net dollar amount of a netting member’s obligation, calculated pursuant to FICC Rule 13 (Funds-Only Settlement), either to make a funds-only payment to FICC or to receive a funds-only payment from FICC. 12 FICC’s netting members have received notice of the proposed rule change and the related requirements and have not commented on them to the Commission. 13 15 U.S.C. 78q–l(b)(3)(F). E:\FR\FM\06DEN1.SGM 06DEN1 72684 Federal Register / Vol. 70, No. 233 / Tuesday, December 6, 2005 / Notices Rule 303. Approval to Operate Multiple Memberships 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–2005–14) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.14 Jonathan G. Katz, Secretary. [FR Doc. E5–6888 Filed 12–5–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52856; File No. SR–ISE– 2005–46] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Operation of Primary Market Maker Memberships November 30, 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 September 27, 2005, the International Securities Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’) 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 ISE. 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 amend its rules to raise from two to three the number of Primary Market Maker (‘‘PMM’’) memberships an ISE member may operate. The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are in [brackets]. * * * * * CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 17:44 Dec 05, 2005 Jkt 205001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its rules to increase the number of PMM memberships that an ISE member may operate from two to three.3 A PMM membership manifests itself as a share of ISE Class B Common Stock, Series B– 1, of which there are 10 shares authorized and outstanding. ISE’s Certificate of Incorporation (‘‘Certificate’’) currently prohibits a member from owning (or voting the shares representing) more than 20 percent of the class of any ISE stock, thus limiting any one person from owning more than two PMM memberships.4 Similarly, ISE’s rules prohibit a member from operating more than 20 percent of a class of market Supplementary Material to Rule 303 maker memberships.5 The result is that .01 When making its determination no one person can own, vote or operate whether good cause has been shown to more than two PMMs. waive the limitations contained in Rule Due to the continued concentration 303(b), the Board will consider whether and specialization in the options market an operational, business or regulatory making community, ISE is proposing to need to exceed the limits has been raise the limit on the number of PMMs demonstrated. In those cases where one firm can operate from two to three. such a need is demonstrated, the Board ISE believes this change is part of the also will consider any operational, natural evolution of the markets. business or regulatory concerns that Specifically, as competition inside and might be raised if such a waiver were between exchanges increases, there granted. The Board only will waive such continues to be consolidation and limitations when, in its judgment, such contraction of market makers. ISE action is in the best interest of the believes that this evolution will result in Exchange. a smaller number of strong, competitive .02 In approving any Primary Market market makers that will provide the Maker to exercise the trading privileges Exchange with excellent market making associated with more than 20% of the capabilities. ISE believes that this is outstanding Primary Market Maker similar to the concentration of specialist Memberships, the Board will not units on the major equity exchanges, approve any arrangement in which such such as the New York Stock Exchange Primary Market Maker would gain (‘‘NYSE’’), where there currently are ownership or voting rights in excess of only seven specialist units, down from those permitted under the Exchange’s over three dozen.6 Certificate of Incorporation or 3 A PMM serves a function similar to that of a Constitution. specialist on other exchanges. Among other things, * * * * * a PMM must provide continuous quotations in all II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ISE included statements concerning the purpose of, and basis for, the proposed 14 17 VerDate Aug<31>2005 (a) An applicant to become a Member or an approved Member may seek approval to exercise trading privileges associated with more than one Membership in the form and manner prescribed by the Exchange. (b) An applicant or approved Member will be denied approval with respect to a particular Membership if (together with any of its affiliates) approval would result in the applicant or approved Member being approved to exercise the trading privileges associated with more than one (1) Primary Market Maker Membership or more than ten (10) Competitive Market Maker Memberships. This requirement may be waived by the Board for good cause shown, but in no event shall the Board waive this requirement if such waiver would result in the applicant or approved Member (together with any of its affiliates) being approved to exercise trading privileges associated with more than 30% [20%] of the outstanding Primary Market Maker Memberships or more than 20% of the outstanding Competitive Market Maker Memberships. 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. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 assigned options classes and must address customer orders when another exchange is displaying a better price. See ISE Rule 803(c). 4 See Sections III(a)(ii) and (b) of ISE’s Certificate. 5 See ISE Rule 303(b). 6 As of December 31, 1992 there were 40 specialist firms on the NYSE; as recently as December 31, 1997 there were 37 specialist firms. See Shawn A. Corwin, Specialist Portfolios, E:\FR\FM\06DEN1.SGM 06DEN1

Agencies

[Federal Register Volume 70, Number 233 (Tuesday, December 6, 2005)]
[Notices]
[Pages 72682-72684]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6888]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52853; File No. SR-FICC-2005-14]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to the 
Federal Reserve's National Settlement System

November 29, 2005.

I. Introduction

    On September 9, 2005, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-FICC-2005-14 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the 
proposal was published in the Federal Register on October 26, 2005.\2\ 
No comment letters were received. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 52631, (October 18, 
2005), 70 FR 61859.
---------------------------------------------------------------------------

II. Description

    The proposed rule change amends the rules of FICC's Government 
Securities Division (``GSD'') so that funds-only settlement obligation 
payment processing occurs through the Federal Reserve's National 
Settlement System (``NSS'').\3\ GSD's funds-only settlement process is 
set forth in GSD Rule 13. On a daily basis, FICC reports a funds-only 
settlement amount, which is either a debit amount or a credit amount, 
to each netting member. Each netting member that has a debit is 
required to satisfy its obligation by the applicable deadline. Netting 
members with credits are subsequently paid by FICC by the applicable 
deadline. All payments of funds-only settlement amounts by netting 
members to FICC and all collections of funds-only settlement amounts by 
netting members from FICC are done through depository institutions that 
are designated by netting members and FICC to act for them with regard 
to such payments and collections. All payments are made by fund wires 
from one depository institution to the other.
---------------------------------------------------------------------------

    \3\ This is consistent with the manner in which FICC's 
affiliates, The Depository Trust Company (``DTC'') and the National 
Securities Clearing Corporation (``NSCC''), handle their funds 
settlement process. DTC and NSCC currently use NSS for the 
processing of funds debits and not for funds credits whereas FICC 
will use NSS both for the funds debits and funds credits of GSD's 
funds-only settlement process.
---------------------------------------------------------------------------

    In 1997, the Commission approved an enhancement to GSCC's \4\ 
funds-only settlement payment processing (``1997 Filing'').\5\ That 
enhancement gave members the option to participate in an auto-debit 
arrangement. Under the auto-deposit arrangement, GSCC, the netting 
member, and the netting member's depository institution would enter 
into a ``funds-only settlement procedures agreement'' whereby the 
depository institution would pay or collect funds-only settlement 
amounts on behalf of the netting member and GSCC through accounts of 
the member at the depository institution. As a result, the need to send 
fund wires for the satisfaction of funds-only settlement payments would 
be eliminated.\6\
---------------------------------------------------------------------------

    \4\ The Government Securities Clearing Corporation (``GSCC'') 
was the predecessor to GSD. GSCC became the GSD division of FICC 
when GSCC and the Mortgage Backed Securities Clearing Corporation 
were merged to create FICC in 2002.
    \5\ Securities Exchange Act Release No. 39309 (November 7, 
1997), 62 FR 61158 (November 14, 1997) [File No. SR-GSCC-97-06].5
    \6\ This voluntary arrangement auto-debit was never implemented 
because until recently GSCC and then GSD continued to make manual 
adjustments to the final funds-only settlement amounts of netting 
members. Recently, these manual adjustments have largely been 
eliminated.
---------------------------------------------------------------------------

    The rule change replaces the auto-debit process of the 1997 Filing 
and

[[Page 72683]]

provides more enhancements to the current approach to payment 
processing than was envisioned by the 1997 Filing. Under this proposed 
rule change, the required payment mechanism for the satisfaction of 
funds-only settlement amounts will be the NSS. FICC will appoint The 
Depository Trust Company (``DTC'') as its settlement agent for purposes 
of interfacing with the NSS.\7\
---------------------------------------------------------------------------

    \7\ DTC currently performs this service for NSCC.
---------------------------------------------------------------------------

    In order to satisfy their funds-only settlement obligations through 
the NSS process, each netting members must appoint a bank or trust 
company to act as their ``funds-only settling bank.'' A netting member 
that qualifies may act as its own funds-only settling bank.
    The GSD is establishing a limited membership category for the 
funds-only settling banks. Banks or trust companies that are DTC 
settling banks, as defined in DTC's rules and procedures, or that are 
GSD netting members with direct access to the Federal Reserve and the 
NSS will be eligible to become GSD funds-only settling bank members by 
executing the requisite membership agreement for this purpose. Other 
banks or trust companies that desire to become funds-only settling bank 
members will have to apply to FICC. In order to qualify as a funds-only 
settling bank, they will have to have direct access to a Federal 
Reserve Bank and the NSS as well as satisfy the financial 
responsibility standards imposed by FICC from time to time. Initially, 
these applicants must meet and maintain a Tier 1 capital ratio of 6 
percent.\8\
---------------------------------------------------------------------------

    \8\ This is the same financial requirement for NSCC settling 
bank-only members. Under FICC's program, FICC will retain the 
discretion to change this financial criterion by providing advanced 
notice to the fund-only settling banks and the netting members 
through Important Notices.
---------------------------------------------------------------------------

    In addition to the membership agreement, the funds-only settling 
bank and the netting member must execute an agreement whereby the 
member will appoint the bank to act on its behalf for funds-only 
settlement purposes. The bank must also execute any agreements required 
by the Federal Reserve Bank for participation in the NSS for FICC's 
funds-only settlement process.
    The funds-only settling banks will be required to follow the 
procedures for funds-only settlement payment processing set forth in 
FICC's new rules governing the NSS settlement process. These will 
include, for example, providing FICC or its settlement agent with the 
requisite acknowledgement of the bank's intention to settle the funds-
only settlement amounts of the netting members it represents on a 
timely basis and participating in the NSS process. Funds-only settling 
banks will have the right to refuse to settle for a particular netting 
member and will also be able to opt out of NSS for one business day if 
they are experiencing extenuating circumstances.\9\ Under FICC's 
program, the netting member shall be responsible for ensuring that its 
funds-only debit is wired to the depository institution designated by 
FICC for this purpose by the payment deadline. The rule change makes 
clear that the obligation of a netting member to fulfill its funds-only 
settlement amount remains at all times with the netting member.
---------------------------------------------------------------------------

    \9\ These procedures are consistent with the NSCC and DTC 
procedures in this respect.
---------------------------------------------------------------------------

    As FICC's settlement agent, DTC will submit instructions to have 
the Federal Reserve Bank accounts of the funds-only settlement members 
charged for the debit amounts and credited for the credit amounts. 
Because utilization of NSS will eliminate the need for the initiation 
of wire transfers to satisfy funds-only settlement amounts, FICC 
believes that it will reduce the risk that netting members will incur 
late payment fines due to delays in wiring funds. The proposal will 
also reduce operational burden for the operations staff of FICC.
    The NSS is governed by the Federal Reserve's Operating Circular No. 
12 (``Circular''). Under the Circular, DTC, as FICC's settlement agent, 
has certain responsibilities with respect to an indemnity claim made by 
a relevant Federal Reserve Bank as a result of the NSS process. FICC 
will apportion the entirety of any such liability to the netting 
members for whom the funds-only settling bank to which the indemnity 
claim relates was acting. This allocation will be done in proportion to 
the amount of such members' funds-only settlement amounts on the 
business day in question. If for any reason such allocation is not 
sufficient to fully satisfy the Federal Reserve Bank's indemnity claim, 
the remaining loss shall be treated as an ``Other Loss'' as defined by 
the GSD's Rule 4 and allocated accordingly.
    The proposed rule change will not change the current GSD deadlines 
regarding the payment and receipt of funds-only settlement amounts, 
which are set forth in the GSD's rules.

III. Discussion

    Section 17A(b)(3)(F) of the Act provides that the rules of a 
clearing agency should be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\10\ Funds-only 
settlement is the payment made to or by FICC's netting members by or to 
FICC in settlement of their government securities transactions.\11\ 
Accordingly, a rule that is designed to improve the efficiency of 
funds-only settlement should also promote the prompt and accurate 
clearance and settlement of securities transactions.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-l(b)(3)(F).
    \11\ FICC's Rule 1 (Definitions) defines the term Funds-Only 
Settlement Amount as the net dollar amount of a netting member's 
obligation, calculated pursuant to FICC Rule 13 (Funds-Only 
Settlement), either to make a funds-only payment to FICC or to 
receive a funds-only payment from FICC.
---------------------------------------------------------------------------

    The proposed rule change should improve the efficiency of the 
funds-only settlement process for both FICC and its netting members by 
establishing a more automated and more centralized payment system for 
funds-only settlement. The NSS offered by the Federal Reserve System is 
a reliable and proven service that is used by, among others, other 
clearing agencies registered with the Commission. Although the proposed 
rule change will impose new requirements on FICC's netting members to 
appoint funds-only settling bank members to act on their behalf and to 
share in any losses incurred with respect to an indemnity claim made by 
a Federal Reserve Bank, the proposed rule change should ultimately 
improve the efficiency of funds-only settlement processing for FICC's 
netting members as well as for FICC.\12\
---------------------------------------------------------------------------

    \12\ FICC's netting members have received notice of the proposed 
rule change and the related requirements and have not commented on 
them to the Commission.
---------------------------------------------------------------------------

    Each netting member will be required to use the NSS to make funds-
only settlement payments in accordance with the procedures set forth in 
the changes to Rule 13. However, the netting member's obligation to 
make its funds-only settlement payment to FICC on time remains 
unchanged. If the netting member's funds-only settlement agent is 
unable to or chooses not to make a payment through the NSS, the netting 
member will be required to wire the payment to FICC's depository 
institution by the payment deadline. Accordingly, because the proposed 
rule change is designed to improve the efficiency of funds-only 
settlement payments without affecting netting members' ultimate 
responsibility for their funds-only settlement payments, the Commission 
finds that the proposed rule change is also consistent with FICC's 
obligation under Section 17A(b)(3)(F) to assure the safeguarding of 
securities and funds in its possession or control or for which it is 
responsible.\13\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-l(b)(3)(F).

---------------------------------------------------------------------------

[[Page 72684]]

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-2005-14) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Jonathan G. Katz,
Secretary.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E5-6888 Filed 12-5-05; 8:45 am]
BILLING CODE 8010-01-P
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