Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify its Rules To Diversify and Standardize Clearing Fund Collateral Requirements Across the Divisions To Improve Liquidity and Minimize Risk for its Members, 65855-65857 [E6-18948]

Download as PDF Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices sroberts on PROD1PC70 with NOTICES trades from Omgeo’s TradeSuite system in real-time as they are affirmed, participants will still have the ability to process authorizations and exemptions as they do today. Participants will be able to authorize trades as they are received into IMS through the existing options (i.e., globally or on a trade-for-trade basis). Omgeo will continue to produce the Cumulative Eligible Trade report/file at approximately 1 p.m. on T+2. This batch report/file notifies participants of affirmed Matched Institutional Trades (‘‘MITS’’) sent to IMS for the following settlement date. However, IMS will continue the current practice of applying a participant’s authorization profile for MITS after the midday cut-off on T+2 (at approximately 1 p.m.). In addition, some new functionality is also being introduced through the enhanced Omgeo and DTC interface. Omgeo will send ‘‘late affirmed’’ 3 trades to IMS. Late affirmed trades will be stored and identified in IMS as a new transaction type, Late Matched Institutional Trades (‘‘LMIT’’). These trades are currently ineligible for automated settlement at DTC. This new functionality will allow participants to eliminate settling these transactions as DOs at DTC, which experience a higher reclaim rate than affirmed eligible trades, and will provide for the automated settlement of these transactions. For the new LMITs, IMS will default to the ‘‘active’’ authorization mode (i.e., deliveries would not be processed unless they are authorized). Unauthorized ‘‘late affirmed’’ trades will remain in IMS until settlement date + 21 days (the current IMS trade retention time frame). For authorized LMIT items, IMS will apply a participant’s authorization profile as the items are received from Omgeo. LMITs will bypass DTC’s Receiver Authorized Delivery (‘‘RAD’’) processing as do all Omgeo deliveries. Omgeo will continue to update IMS and notify DTC participants using a status message of any Change of Eligibility (‘‘COE’’).4 COE (i.e., DTC3 Late affirmed trades are defined as trades affirmed after the 12:00 p.m. cutoff on T+2 until 12:00 p.m. on settlement date. 4 COE-related messages can be sent for the following reasons: (1) When a DTC eligible trade changes to CNS eligible, the trade is resent to IMS by Omego with an indicator that it is now ineligible (IMS status becomes ineligible). Omego will then send the trade to NSCC for settlement in CNS. A trade can become CNS eligible after being DTC eligible, if the security, ID agent (a prime broker), clearing agent, and clearing broker all are CNS eligible. (2) When a DTC eligible trade subsequently becomes ineligible for settling at DTC, the trade is VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 eligible to DTC-ineligible) messages will be passed to IMS by TradeSuite up until midnight of T+1. IMS will process COErelated messages on a real-time basis for both authorized and yet to be authorized trades. IMS will ‘‘reauthorize’’ a previously authorized DTC-eligible trade in the event the trade becomes DTC-eligible, again. In addition, an appropriate audit trail will be provided by IMS for participants. Ineligible MITS transactions in IMS will be cancelled at end of day on settlement date. DTC will charge the following delivery fees for LMITs: • $0.17 (current ‘‘night DO’’ fee) if authorized by the participant before the night cycle. • $0.45 (current ‘‘day DO’’ fee) if authorized by the participant after the night cycle. • $0.006 per delivery (current IMS delivery fee) for every trade that is processed through the IMS authorization profile. Participants that currently submit machine-readable authorization/ exemption instructions can choose to continue to process their Omgeo deliveries as they do today. The proposed change is scheduled to be implemented in November 2006. III. Discussion Section 19(b) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.5 The Commission finds that DTC’s proposed rule change is consistent with this requirement because it should promote the prompt and accurate clearance and settlement of securities transactions by enhancing the IMS interface with Omgeo to accept eligible affirmed trades from Omgeo’s TradeSuite system in real-time and to accept late affirmed trades into IMS for automated settlement at DTC. In addition, the proposed rule change resent to IMS by Omego with an indicator that it is now Ineligible (IMS status updated to ineligible). A trade may become ineligible for DTC settlement processing if prior to settlement date, the participant, security, or ID agent become ineligible for DTC processing. (3) If a previously sent DTC eligible trade changed to ineligible becomes eligible for settling at DTC, again, the trade is re-sent to IMS by Omego with an indicator that it is now eligible (IMS status is updated to eligible from ineligible). 5 15 U.S.C. 78q–1(b)(3)(F). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 65855 should provide for the equitable allocation of reasonable dues, fees, and other charges among DTC’s members as required by Section 17A(b)(3)(D).6 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– DTC–2006–11) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.7 Nancy M. Morris, Secretary. [FR Doc. E6–18958 Filed 11–8–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54682; File No. SR–FICC– 2006–15] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify its Rules To Diversify and Standardize Clearing Fund Collateral Requirements Across the Divisions To Improve Liquidity and Minimize Risk for its Members November 1, 2006. 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 October 4, 2006, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by FICC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change seeks to modify the rules of both of the Government Securities Division (‘‘GSD’’) and the Mortgage-Backed Securities Division (‘‘MBSD’’) 6 15 U.S.C. 78q–1(b)(3)(D). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 7 17 E:\FR\FM\09NON1.SGM 09NON1 65856 Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices (collectively, the ‘‘Divisions’’) of FICC to diversify and standardize Clearing Fund 3 collateral requirements across the Divisions in order to improve liquidity and minimize risk for FICC and its members.4 II. Self-Regulatory Organization’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 these statements.5 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Presently, both GSD and MBSD members may satisfy their Clearing Fund requirement with cash deposits. Members may also satisfy a portion of their deposits with an open account indebtedness fully secured by certain types of securities and/or letters of credit. FICC proposes to modify its rules as detailed below to: (1) expand the types of securities which members may deposit to satisfy their Clearing Fund requirement (‘‘Eligible Clearing Fund Securities’’) to secure their open account indebtedness; (2) establish concentration requirements with regard to members’ use of Eligible Clearing Fund Securities; (3) create a correlating range of haircuts to be applied to the expanded types of Eligible Clearing Fund Securities; and (4) eliminate letters of credit as a generally acceptable form of collateral securing members’ open account Clearing Fund indebtedness. 1. Revised Clearing Fund Components sroberts on PROD1PC70 with NOTICES (a) Cash. Currently the rules of GSD require that the greater of $100,000 or ten percent of a member’s Clearing Fund requirement with a maximum of 3 The GSD Rules refer to member collateral deposits as the ‘‘Clearing Fund’’ while the MBSD rules refer to these deposits as the ‘‘Participants Fund.’’ The term ‘‘Clearing Fund’’ in this rule filing will refer to both. 4 This rule filing also proposes to make a minor technical change to Rule 4 of the GSD rules. Section 2 of Rule 4 has been relettered to accommodate changes made in an earlier FICC rule filing, SR– FICC–2006–12. 5 The Commission has modified the text of the summaries prepared by FICC. VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 $500,000 be made in the form of cash.6 The rules of MBSD currently do not contain a minimum cash requirement. For both Divisions, the proposed new cash collateral component will be the lesser of $500,000 or ten percent of a member’s Clearing Fund requirement with a minimum of $100,000. (b) Securities. Currently each Division of FICC accepts different types of securities as Clearing Fund collateral. For example, GSD accepts Agency securities but not mortgage-backed securities, and MBSD accepts mortgagebacked securities but not Agency securities. In addition, there are currently no concentration requirements placed on the securities deposited at either Division. In an effort to standardize the securities which are eligible as Clearing Fund collateral across the Divisions, FICC proposes to modify the rules of both Divisions by adding a definition to each Division’s rules for ‘‘Eligible Clearing Fund Securities’’ (with respect to GSD) and ‘‘Eligible Participants Fund Securities’’ (with respect to MBSD). As defined, these securities will be unmatured bonds which are either an ‘‘Eligible Clearing Fund Agency Security,’’ an ‘‘Eligible Clearing Fund MortgageBacked Security’’ or an ‘‘Eligible Clearing Fund Treasury Security.’’ 7 ‘‘Eligible Clearing Fund Agency Security’’ would be defined as a direct obligation of those U.S. agencies or government sponsored enterprises as FICC may designate from time to time that satisfies the criteria set forth in notices issued by FICC from time to time. ‘‘Eligible Clearing Fund MortgageBacked Security’’ would be defined as a mortgage-backed pass through obligation issued by those U.S. agencies or government sponsored enterprises as FICC may designate from time to time that satisfies the criteria set forth in notices issued by FICC from time to time. ‘‘Eligible Clearing Fund Treasury Security’’ would be defined as a direct obligation of the U.S. government that satisfies the criteria set forth in notices issued by FICC from time to time. Initial eligibility criteria for each type of Eligible Clearing Fund/Participant Fund Security will be announced to members through an Important Notice prior to the effective date of this proposed rule change. Any future changes to the eligibility criteria will also be announced to members through 6 GSD Rule 4, Section 2(b)(ii). the MBSD Rules, these terms would be as follows: ‘‘Eligible Participants Fund Agency Security,’’ ‘‘Eligible Participants Fund MortgageBacked Security,’’ and ‘‘Eligible Participants Fund Treasury Security.’’ 7 In PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 Important Notices in advance of such changes becoming effective. (c) Security Concentration Provisions. FICC also proposes to establish security concentration provisions for Clearing Fund deposits. As proposed, a minimum of forty percent of a member’s required Clearing Fund deposit would have to be made in cash and Eligible Clearing Fund Treasury Securities. The remainder of a member’s deposit could be secured by cash and the pledge of Eligible Clearing Fund Securities in any combination of Eligible Clearing Fund Treasury Securities, Eligible Clearing Fund Agency Securities, and/or Eligible Clearing Fund Mortgage-Backed Securities. However (1) any deposits of Eligible Clearing Fund Agency Securities or Eligible Clearing Fund Mortgage-Backed Securities, respectively, in excess of twenty-five percent of a member’s required Clearing Fund deposit would be subject to an additional haircut equal to twice the percentage specified in the haircut schedule. Furthermore, no more than twenty percent of a member’s required Clearing Fund deposit could be secured by pledged Eligible Clearing Fund Agency Securities of a single issuer. Lastly, no member would be permitted to post as Clearing Fund collateral Eligible Clearing Fund Agency Securities for which it is the issuer.8 (d) Letters of Credit and Other Adequate Assurances. The current provisions within FICC’s Rules that pertain to Letter of Credit Issuers will be modified to reflect that letters of credit would no longer be accepted by FICC as a form of Clearing Fund collateral.9 Effective April 1, 2007 (which is the regular expiration date of letters of credit), members that have letters of credit posted as collateral (other than members, if any, that have been required to post letters of credit for legal risk), would be required to replace the portion of the Clearing Fund collateralized by letters of credit with either cash or Eligible Clearing Fund Securities. (e) Implementation Timeframes. The foregoing rule changes would become 8 However, a member would be permitted to pledge Eligible Clearing Fund Mortgage-Backed Securities for which it is the issuer subject to a haircut. The haircut would be fourteen percent as an initial matter. If the member exceeded the twenty-five percent concentration limit, the haircut would be twenty-one percent. 9 FICC has found that in practice letters of credit are not as liquid as cash and securities and therefore pose more risk to FICC and its members when pledged as Clearing Fund collateral. FICC will, however, reserve the right to require letters of credit from members in those instances where a particular member has been found, by FICC in its discretion, to present legal risk. E:\FR\FM\09NON1.SGM 09NON1 Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices effective thirty days after an Important Notice is issued to members informing them that FICC’s systems are ready to accommodate such changes. The corresponding changes to FICC’s rules would be made at that time. (f) Alternative Proportions of Eligible Collateral. As is currently the case under FICC’s rules, FICC will continue to reserve the right to require different proportions of the Clearing Fund collateral components as necessary to address any heightened legal or insolvency risks presented by a member.10 FICC believes the proposed rule change is consistent with the requirements of Section 17A of the Act 11 and the rules and regulations thereunder because it will enable FICC to standardize acceptable forms of collateral across both of its Divisions, which should lead to an increase of liquidity and a decrease of risk to FICC and its members. As such, FICC believes it will better enable FICC to safeguard the securities or funds in its possession or control or for which it is responsible. B. Self-Regulatory Organization’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. C. Self-Regulatory Organization’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. sroberts on PROD1PC70 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five days of the date of publication of this notice in the Federal Register or within such longer period: (i) As the Commission may designate up to ninety days of such date if it finds such longer period 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 such proposed rule change or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 10 GSD Rule 4, Section 2(o), MBSD Rule 2, Section 4 of Article IV. 11 15 U.S.C. 78q–1. VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 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: • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–FICC–2006–15 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FICC–2006–15. This file number should be included on the subject line if e-mail 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 (http://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 inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filings also will be available for inspection and copying at the principal office of FICC and on FICC’s Web site at http:// www.ficc.com/gov/notices/ GOV115.06.htm?NS-query. 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–2006–15 and should be submitted on or before November 30, 2006. Frm 00087 Fmt 4703 For the Commission by the Division of Market Regulation, pursuant to delegated authority.12 Nancy M. Morris, Secretary. [FR Doc. E6–18948 Filed 11–8–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments PO 00000 65857 Sfmt 4703 [Release No. 34–54697; File No. SR–ISE– 2006–61] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Fee Changes November 2, 2006. 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 October 5, 2006, the International Securities Exchange, LLC (‘‘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 the ISE. On October 17, 2006, ISE filed Amendment No. 1 to the proposed rule change.3 The ISE has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the ISE under Section 19(b)(3)(A)(ii) of the Act,4 and Rule 19b–4(f)(2) thereunder,5 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend its Schedule of Fees to establish fees for transactions in options on eight Premium Products.6 The text of the 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, the Exchange revised footnote 10, infra, to clarify that six of the Premium Products that are the subject of this filing constitute Fund Shares under ISE Rule 502(h), while the other two Premium Products are narrow-based index options listed pursuant to the Exchange’s generic listing standards. The Exchange also represented that Amendment No. 1 did not affect the proposed fees covered by this filing. 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b–4(f)(2). 6 ‘‘Premium Products’’ is defined in the Schedule of Fees as the products enumerated therein. 1 15 E:\FR\FM\09NON1.SGM 09NON1

Agencies

[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Notices]
[Pages 65855-65857]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-18948]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54682; File No. SR-FICC-2006-15]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Modify its Rules To 
Diversify and Standardize Clearing Fund Collateral Requirements Across 
the Divisions To Improve Liquidity and Minimize Risk for its Members

November 1, 2006.
    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 October 4, 2006, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
items have been prepared primarily by FICC. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change seeks to modify the rules of both of the 
Government Securities Division (``GSD'') and the Mortgage-Backed 
Securities Division (``MBSD'')

[[Page 65856]]

(collectively, the ``Divisions'') of FICC to diversify and standardize 
Clearing Fund \3\ collateral requirements across the Divisions in order 
to improve liquidity and minimize risk for FICC and its members.\4\
---------------------------------------------------------------------------

    \3\ The GSD Rules refer to member collateral deposits as the 
``Clearing Fund'' while the MBSD rules refer to these deposits as 
the ``Participants Fund.'' The term ``Clearing Fund'' in this rule 
filing will refer to both.
    \4\ This rule filing also proposes to make a minor technical 
change to Rule 4 of the GSD rules. Section 2 of Rule 4 has been 
relettered to accommodate changes made in an earlier FICC rule 
filing, SR-FICC-2006-12.
---------------------------------------------------------------------------

II. Self-Regulatory Organization'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 these 
statements.\5\
---------------------------------------------------------------------------

    \5\ The Commission has modified the text of the summaries 
prepared by FICC.
---------------------------------------------------------------------------

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Presently, both GSD and MBSD members may satisfy their Clearing 
Fund requirement with cash deposits. Members may also satisfy a portion 
of their deposits with an open account indebtedness fully secured by 
certain types of securities and/or letters of credit. FICC proposes to 
modify its rules as detailed below to: (1) expand the types of 
securities which members may deposit to satisfy their Clearing Fund 
requirement (``Eligible Clearing Fund Securities'') to secure their 
open account indebtedness; (2) establish concentration requirements 
with regard to members' use of Eligible Clearing Fund Securities; (3) 
create a correlating range of haircuts to be applied to the expanded 
types of Eligible Clearing Fund Securities; and (4) eliminate letters 
of credit as a generally acceptable form of collateral securing 
members' open account Clearing Fund indebtedness.
1. Revised Clearing Fund Components
    (a) Cash. Currently the rules of GSD require that the greater of 
$100,000 or ten percent of a member's Clearing Fund requirement with a 
maximum of $500,000 be made in the form of cash.\6\ The rules of MBSD 
currently do not contain a minimum cash requirement. For both 
Divisions, the proposed new cash collateral component will be the 
lesser of $500,000 or ten percent of a member's Clearing Fund 
requirement with a minimum of $100,000.
---------------------------------------------------------------------------

    \6\ GSD Rule 4, Section 2(b)(ii).
---------------------------------------------------------------------------

    (b) Securities. Currently each Division of FICC accepts different 
types of securities as Clearing Fund collateral. For example, GSD 
accepts Agency securities but not mortgage-backed securities, and MBSD 
accepts mortgage-backed securities but not Agency securities. In 
addition, there are currently no concentration requirements placed on 
the securities deposited at either Division. In an effort to 
standardize the securities which are eligible as Clearing Fund 
collateral across the Divisions, FICC proposes to modify the rules of 
both Divisions by adding a definition to each Division's rules for 
``Eligible Clearing Fund Securities'' (with respect to GSD) and 
``Eligible Participants Fund Securities'' (with respect to MBSD). As 
defined, these securities will be unmatured bonds which are either an 
``Eligible Clearing Fund Agency Security,'' an ``Eligible Clearing Fund 
Mortgage-Backed Security'' or an ``Eligible Clearing Fund Treasury 
Security.'' \7\ ``Eligible Clearing Fund Agency Security'' would be 
defined as a direct obligation of those U.S. agencies or government 
sponsored enterprises as FICC may designate from time to time that 
satisfies the criteria set forth in notices issued by FICC from time to 
time. ``Eligible Clearing Fund Mortgage-Backed Security'' would be 
defined as a mortgage-backed pass through obligation issued by those 
U.S. agencies or government sponsored enterprises as FICC may designate 
from time to time that satisfies the criteria set forth in notices 
issued by FICC from time to time. ``Eligible Clearing Fund Treasury 
Security'' would be defined as a direct obligation of the U.S. 
government that satisfies the criteria set forth in notices issued by 
FICC from time to time.
---------------------------------------------------------------------------

    \7\ In the MBSD Rules, these terms would be as follows: 
``Eligible Participants Fund Agency Security,'' ``Eligible 
Participants Fund Mortgage-Backed Security,'' and ``Eligible 
Participants Fund Treasury Security.''
---------------------------------------------------------------------------

    Initial eligibility criteria for each type of Eligible Clearing 
Fund/Participant Fund Security will be announced to members through an 
Important Notice prior to the effective date of this proposed rule 
change. Any future changes to the eligibility criteria will also be 
announced to members through Important Notices in advance of such 
changes becoming effective.
    (c) Security Concentration Provisions. FICC also proposes to 
establish security concentration provisions for Clearing Fund deposits. 
As proposed, a minimum of forty percent of a member's required Clearing 
Fund deposit would have to be made in cash and Eligible Clearing Fund 
Treasury Securities. The remainder of a member's deposit could be 
secured by cash and the pledge of Eligible Clearing Fund Securities in 
any combination of Eligible Clearing Fund Treasury Securities, Eligible 
Clearing Fund Agency Securities, and/or Eligible Clearing Fund 
Mortgage-Backed Securities. However (1) any deposits of Eligible 
Clearing Fund Agency Securities or Eligible Clearing Fund Mortgage-
Backed Securities, respectively, in excess of twenty-five percent of a 
member's required Clearing Fund deposit would be subject to an 
additional haircut equal to twice the percentage specified in the 
haircut schedule. Furthermore, no more than twenty percent of a 
member's required Clearing Fund deposit could be secured by pledged 
Eligible Clearing Fund Agency Securities of a single issuer. Lastly, no 
member would be permitted to post as Clearing Fund collateral Eligible 
Clearing Fund Agency Securities for which it is the issuer.\8\
---------------------------------------------------------------------------

    \8\ However, a member would be permitted to pledge Eligible 
Clearing Fund Mortgage-Backed Securities for which it is the issuer 
subject to a haircut. The haircut would be fourteen percent as an 
initial matter. If the member exceeded the twenty-five percent 
concentration limit, the haircut would be twenty-one percent.
---------------------------------------------------------------------------

    (d) Letters of Credit and Other Adequate Assurances. The current 
provisions within FICC's Rules that pertain to Letter of Credit Issuers 
will be modified to reflect that letters of credit would no longer be 
accepted by FICC as a form of Clearing Fund collateral.\9\ Effective 
April 1, 2007 (which is the regular expiration date of letters of 
credit), members that have letters of credit posted as collateral 
(other than members, if any, that have been required to post letters of 
credit for legal risk), would be required to replace the portion of the 
Clearing Fund collateralized by letters of credit with either cash or 
Eligible Clearing Fund Securities.
---------------------------------------------------------------------------

    \9\ FICC has found that in practice letters of credit are not as 
liquid as cash and securities and therefore pose more risk to FICC 
and its members when pledged as Clearing Fund collateral. FICC will, 
however, reserve the right to require letters of credit from members 
in those instances where a particular member has been found, by FICC 
in its discretion, to present legal risk.
---------------------------------------------------------------------------

    (e) Implementation Timeframes. The foregoing rule changes would 
become

[[Page 65857]]

effective thirty days after an Important Notice is issued to members 
informing them that FICC's systems are ready to accommodate such 
changes. The corresponding changes to FICC's rules would be made at 
that time.
    (f) Alternative Proportions of Eligible Collateral. As is currently 
the case under FICC's rules, FICC will continue to reserve the right to 
require different proportions of the Clearing Fund collateral 
components as necessary to address any heightened legal or insolvency 
risks presented by a member.\10\
---------------------------------------------------------------------------

    \10\ GSD Rule 4, Section 2(o), MBSD Rule 2, Section 4 of Article 
IV.
---------------------------------------------------------------------------

    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \11\ and the rules and 
regulations thereunder because it will enable FICC to standardize 
acceptable forms of collateral across both of its Divisions, which 
should lead to an increase of liquidity and a decrease of risk to FICC 
and its members. As such, FICC believes it will better enable FICC to 
safeguard the securities or funds in its possession or control or for 
which it is responsible.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

B. Self-Regulatory Organization'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.

C. Self-Regulatory Organization'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 thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period: (i) As the 
Commission may designate up to ninety days of such date if it finds 
such longer period 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 such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 (http://
www.sec.gov/rules/sro.shtml) or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FICC-2006-15 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FICC-2006-15. This 
file number should be included on the subject line if e-mail 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 (http://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 inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of FICC 
and on FICC's Web site at http://www.ficc.com/gov/notices/
GOV115.06.htm?NS-query. 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-2006-15 and should be submitted on or before November 30, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Nancy M. Morris,
Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-18948 Filed 11-8-06; 8:45 am]
BILLING CODE 8011-01-P