Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of Proposed Rule Change Relating to Membership, Definitions, and the Electronic Pool Notification Service, 44599-44600 [E7-15371]
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Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15434 Filed 8–7–07; 8:45 am]
to make technical corrections where
necessary and to be in harmony with
analogous rules of FICC’s affiliated
clearing agency, the National Securities
Clearing Corporation (‘‘NSCC’’).
1. Membership Types
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56182; File No. SR–FICC–
2006–19]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Granting Approval of Proposed Rule
Change Relating to Membership,
Definitions, and the Electronic Pool
Notification Service
August 1, 2007.
I. Introduction
On December 13, 2006, the Fixed
Income Clearing Corporation (‘‘FICC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change pursuant to
section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder 2 to restructure FICC’s
Government Securities Division’s
(‘‘GSD’’) membership standards and
membership requirements, update
various definitions, and make technical
changes to GSD’s rules and to FICC’s
Mortgage-Backed Securities Division’s
(‘‘MBSD’’) Electronic Pool Notification
(‘‘EPN’’) rules. The proposed rule
change was published for comment in
the Federal Register on March 29,
2007.3 No comment letters were
received on the proposal. This order
approves the proposal.
sroberts on PROD1PC70 with NOTICES
II. Description of the Proposal
A. Membership Rules
FICC is revising its rules concerning
membership types, the membership
application process, and the ongoing
requirements of GSD members into a
format that FICC believes will make
such rules easier to locate and to
understand by applicants and members.
To accomplish this, FICC is amending
current Rule 2 (retitled ‘‘Members’’), is
moving much of the content of current
Rule 2 into a new Rule 2A (‘‘Initial
Membership Requirements’’), and is
revising Rule 3 (retitled ‘‘Ongoing
Membership Requirements’’). Other
rules and provisions are being modified
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 55515
(Mar. 22, 2006), 72 FR 14839.
1 15
VerDate Aug<31>2005
19:14 Aug 07, 2007
Jkt 211001
FICC’s current Rule 2 (‘‘ComparisonOnly and Netting Members’’) sets forth
the types of GSD memberships,
eligibility requirements, application
procedures, and member reporting
requirements. FICC is revising Rule 2 to
establish each GSD membership type:
Comparison-Only Members, Netting
Members, Sponsoring Members,
Sponsored Members, and Funds-Only
Settling Bank Members. Substantially
all other provisions contained in the
current Rule 2 are being moved to either
new Rule 2A or revised Rule 3.
One exception to this is that FICC is
deleting current Rule 2, Section 4
(‘‘Financial Reports by Netting
Applicants). FICC states that the
rationale for such deletion is that FICC
already advises applicants during the
application process of the required
financial reports depending on the
category of membership for which is
being applied and on the applicant
entity type. In addition, FICC is setting
forth in revised Rule 3 the financial
reports that must be submitted by
members to FICC on an ongoing basis.
FICC is also deleting section 1(f) of
Rule 2, which provides that applicants
that have been approved for
membership must execute and deliver
to FICC a membership agreement. This
provision is redundant with existing
Rule 2, Section 3, which will now
appear in new Rule 2A, Section 7.
2. Consolidation of Membership
Standards and Requirements
Prior to this rule change, the
membership qualifications, financial
standards, and operational requirements
for each membership type were set forth
in Rule 2 (‘‘Comparison-Only and
Netting Members’’), Rule 3 (‘‘Financial
Responsibility, Operational Capability
and Other Membership Standards of
Comparison-Only and Netting
Members’’), and Rule 4 (‘‘Clearing Fund,
Watch List and Loss Allocation’’). To
consolidate this information, FICC is
creating a new Rule 2A (‘‘Initial
Membership Requirements’’) that will
establish the initial membership
eligibility requirements for all
membership types and will set forth the
process of membership application and
evaluation. In addition, FICC is
restructuring Rule 3 (‘‘Ongoing
Membership Requirements’’) to contain
all current GSD rule provisions
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
44599
regarding the continuing requirements
of members.
The restructuring will encompass
three substantive changes:
(a) Immediate Placement on the
Watch List. FICC is deleting current
Rule 3, Section 1(d)(iii) that
automatically disqualifies an applicant
from becoming a member if the
applicant is subject to any action or
condition, the existence of which would
require the applicant to be placed on
FICC’s Watch List if it were already a
member. FICC believes that eliminating
such provision will not diminish FICC’s
ability to deny membership to an
unworthy applicant because FICC will
still retain under other sections of its
rules the discretion to deny membership
based on the applicant’s underlying
financial, operational, or character
issues. Moreover, FICC’s credit risk
matrix enables FICC to place such
applicant directly on FICC’s watch list
for closer monitoring.
(b) Additional Reporting
Requirements. FICC is adding new
language to proposed Rule 3, Section 2
(‘‘Reports by Netting Members’’) that
will require members to provide FICC
with (i) reports from their independent
auditors on internal controls [in revised
Rule 3, Section 2(b)(ii)] and (ii) a copy
of any letter granting an extension of
time by a regulatory authority to a
member with respect to the submission
of a report [in revised Rule 3, Section
2(h), para. 2].
(c) Annual Audited Financial
Statements. FICC is removing the
current requirement in Rule 2, Section
4(a) that audited annual financial
statements submitted by netting
members be ‘‘without qualification.’’
FICC believes that a qualification in an
annual audited financial statement
should not warrant automatic denial of
membership because a qualification
may not always be material. In addition,
the event that triggered a qualification
may have been corrected by the
applicant or member by the time the
applicant or member submits its
financial statement for review by FICC.
Going forward, FICC will analyze
qualifications in GSD netting member
financial statements on a case-by-case
basis.
Other conforming and nonsubstantive changes are being made
within the rules to accommodate this
restructuring and to update crossreferences where applicable.
E:\FR\FM\08AUN1.SGM
08AUN1
44600
Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / Notices
B. Non-Substantive Changes and
Technical Corrections
1. Definition of ‘‘Person’’
FICC is amending the current
definition of Person contained in GSD
Rule 1 (‘‘Definitions’’) to indicate that
the term will be used throughout the
rules to mean a partnership,
corporation, limited liability
corporation, or other organization,
entity, or individual.
2. Definition of ‘‘Eligible Security’’
FICC is amending the definition of
Eligible Security to make clear that any
security of an issuer that is on the Office
of Foreign Assets and Control’s
(‘‘OFAC’’) Specially Designated
Nationals list or a security from a
country that is subject to OFAC
sanctions may not be an eligible security
at GSD. FICC is making the same change
to the definition of Eligible Security in
MBSD’s Clearing and EPN rules.
3. Definition of ‘‘Bond Market
Association’’
The Bond Market Association is now
known as the Securities Industry and
Financial Markets Association. GSD is
removing the definition of and
references to The Bond Market
Association from its rules and is
replacing it with a definition for and
references to The Securities Industry
and Financial Markets Association.
4. Governing Law Provision
FICC is clarifying the Governing Law
provision contained in GSD’s and
MBSD’s Clearing and EPN rules to state
that the Clearing and EPN rules of GSD
and MBSD are subject to New York law
as applicable to contracts executed and
performed in New York.
5. Insurance Company Netting Member
Eligibility Requirements
FICC is removing from GSD’s rules
the eligibility requirements for
Insurance Company Netting Members
because GSD does not currently have
any such members. FICC will, however,
retain the definition of Insurance
Company Netting Member in its rules in
the event that such an entity applies for
membership in the future. Appropriate
eligibility requirements would be
reviewed at that time and proposed as
additions to the rules.
sroberts on PROD1PC70 with NOTICES
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a registered clearing
agency. In particular, the Commission
19:14 Aug 07, 2007
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of section 17A of the Act 5
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–2006–19) be, and hereby is,
approved.7
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.8
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15371 Filed 8–7–07; 8:45 am]
BILLING CODE 8010–01–P
4 15
III. Discussion
VerDate Aug<31>2005
believes the proposal is consistent with
the requirements of section
17A(b)(3)(F),4 which, among other
things, requires the rules of a clearing
agency be designed to assure the
safeguarding of securities and funds that
are in the custody or control of the
clearing agency or for which it is
responsible. In addition to making the
rules more logically structured, more
consistent with the rules of FICC’s
clearing agency affiliate, and less
redundant, the proposal should improve
FICC’s ability to responsibly administer
its membership application process by
providing FICC with a more flexible and
risk-based approach to review
applications for membership. Although
FICC is eliminating certain factors that
would previously have resulted in the
automatic disqualification of an
applicant, FICC has retained explicit
rights to deny membership to an
unworthy applicant based upon FICC’s
qualitative review, based in part on new
required documentation, of an
applicant’s underlying financial,
operational, or character issues.
Accordingly, the proposed rule change
is consistent with FICC’s obligation to
assure ability to safeguard securities and
funds in its possession or control or for
which it is responsible.
Jkt 211001
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1.
6 15 U.S.C. 78s(b)(2).
7 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
8 17 CFR 200.30–3(a)(12).
5 15
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56184; File No. SR–NSCC–
2007–10]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Fees Charged
for Its Positions and Valuations
Service
August 2, 2007.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
May 11, 2007, the National Securities
Clearing Corporation (‘‘NSCC’’) 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 NSCC.
NSCC filed the proposed rule change
pursuant to section 19(b)(3)(A)(ii) of the
Act 2 and Rule 19b–4(f)(2) thereunder 3
so that the proposal was effective upon
filing with the Commission. 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 purpose of the proposed rule
change is to reduce the fees that NSCC
charges for its Positions and Valuations
service (‘‘POV’’), which is part of the
Insurance and Retirement Processing
Service (‘‘IPS’’) effective July 1, 2007.4
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NSCC 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. NSCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.5
1 15
U.S.C. 78s(b)(1).
U.S.C. 78s(b)(3)(A)(ii).
3 17 CFR 240.19b–4(f)(2).
4 The Insurance and Retirement Processing
Service was formerly called the Insurance
Processing Service.
5 The Commission has modified the text of the
summaries prepared by NSCC.
2 15
E:\FR\FM\08AUN1.SGM
08AUN1
Agencies
[Federal Register Volume 72, Number 152 (Wednesday, August 8, 2007)]
[Notices]
[Pages 44599-44600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15371]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56182; File No. SR-FICC-2006-19]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Granting Approval of Proposed Rule Change Relating to Membership,
Definitions, and the Electronic Pool Notification Service
August 1, 2007.
I. Introduction
On December 13, 2006, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change pursuant to section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder \2\ to restructure FICC's Government Securities Division's
(``GSD'') membership standards and membership requirements, update
various definitions, and make technical changes to GSD's rules and to
FICC's Mortgage-Backed Securities Division's (``MBSD'') Electronic Pool
Notification (``EPN'') rules. The proposed rule change was published
for comment in the Federal Register on March 29, 2007.\3\ No comment
letters were received on the proposal. This order approves the
proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 55515 (Mar. 22, 2006),
72 FR 14839.
---------------------------------------------------------------------------
II. Description of the Proposal
A. Membership Rules
FICC is revising its rules concerning membership types, the
membership application process, and the ongoing requirements of GSD
members into a format that FICC believes will make such rules easier to
locate and to understand by applicants and members. To accomplish this,
FICC is amending current Rule 2 (retitled ``Members''), is moving much
of the content of current Rule 2 into a new Rule 2A (``Initial
Membership Requirements''), and is revising Rule 3 (retitled ``Ongoing
Membership Requirements''). Other rules and provisions are being
modified to make technical corrections where necessary and to be in
harmony with analogous rules of FICC's affiliated clearing agency, the
National Securities Clearing Corporation (``NSCC'').
1. Membership Types
FICC's current Rule 2 (``Comparison-Only and Netting Members'')
sets forth the types of GSD memberships, eligibility requirements,
application procedures, and member reporting requirements. FICC is
revising Rule 2 to establish each GSD membership type: Comparison-Only
Members, Netting Members, Sponsoring Members, Sponsored Members, and
Funds-Only Settling Bank Members. Substantially all other provisions
contained in the current Rule 2 are being moved to either new Rule 2A
or revised Rule 3.
One exception to this is that FICC is deleting current Rule 2,
Section 4 (``Financial Reports by Netting Applicants). FICC states that
the rationale for such deletion is that FICC already advises applicants
during the application process of the required financial reports
depending on the category of membership for which is being applied and
on the applicant entity type. In addition, FICC is setting forth in
revised Rule 3 the financial reports that must be submitted by members
to FICC on an ongoing basis.
FICC is also deleting section 1(f) of Rule 2, which provides that
applicants that have been approved for membership must execute and
deliver to FICC a membership agreement. This provision is redundant
with existing Rule 2, Section 3, which will now appear in new Rule 2A,
Section 7.
2. Consolidation of Membership Standards and Requirements
Prior to this rule change, the membership qualifications, financial
standards, and operational requirements for each membership type were
set forth in Rule 2 (``Comparison-Only and Netting Members''), Rule 3
(``Financial Responsibility, Operational Capability and Other
Membership Standards of Comparison-Only and Netting Members''), and
Rule 4 (``Clearing Fund, Watch List and Loss Allocation''). To
consolidate this information, FICC is creating a new Rule 2A (``Initial
Membership Requirements'') that will establish the initial membership
eligibility requirements for all membership types and will set forth
the process of membership application and evaluation. In addition, FICC
is restructuring Rule 3 (``Ongoing Membership Requirements'') to
contain all current GSD rule provisions regarding the continuing
requirements of members.
The restructuring will encompass three substantive changes:
(a) Immediate Placement on the Watch List. FICC is deleting current
Rule 3, Section 1(d)(iii) that automatically disqualifies an applicant
from becoming a member if the applicant is subject to any action or
condition, the existence of which would require the applicant to be
placed on FICC's Watch List if it were already a member. FICC believes
that eliminating such provision will not diminish FICC's ability to
deny membership to an unworthy applicant because FICC will still retain
under other sections of its rules the discretion to deny membership
based on the applicant's underlying financial, operational, or
character issues. Moreover, FICC's credit risk matrix enables FICC to
place such applicant directly on FICC's watch list for closer
monitoring.
(b) Additional Reporting Requirements. FICC is adding new language
to proposed Rule 3, Section 2 (``Reports by Netting Members'') that
will require members to provide FICC with (i) reports from their
independent auditors on internal controls [in revised Rule 3, Section
2(b)(ii)] and (ii) a copy of any letter granting an extension of time
by a regulatory authority to a member with respect to the submission of
a report [in revised Rule 3, Section 2(h), para. 2].
(c) Annual Audited Financial Statements. FICC is removing the
current requirement in Rule 2, Section 4(a) that audited annual
financial statements submitted by netting members be ``without
qualification.'' FICC believes that a qualification in an annual
audited financial statement should not warrant automatic denial of
membership because a qualification may not always be material. In
addition, the event that triggered a qualification may have been
corrected by the applicant or member by the time the applicant or
member submits its financial statement for review by FICC. Going
forward, FICC will analyze qualifications in GSD netting member
financial statements on a case-by-case basis.
Other conforming and non-substantive changes are being made within
the rules to accommodate this restructuring and to update cross-
references where applicable.
[[Page 44600]]
B. Non-Substantive Changes and Technical Corrections
1. Definition of ``Person''
FICC is amending the current definition of Person contained in GSD
Rule 1 (``Definitions'') to indicate that the term will be used
throughout the rules to mean a partnership, corporation, limited
liability corporation, or other organization, entity, or individual.
2. Definition of ``Eligible Security''
FICC is amending the definition of Eligible Security to make clear
that any security of an issuer that is on the Office of Foreign Assets
and Control's (``OFAC'') Specially Designated Nationals list or a
security from a country that is subject to OFAC sanctions may not be an
eligible security at GSD. FICC is making the same change to the
definition of Eligible Security in MBSD's Clearing and EPN rules.
3. Definition of ``Bond Market Association''
The Bond Market Association is now known as the Securities Industry
and Financial Markets Association. GSD is removing the definition of
and references to The Bond Market Association from its rules and is
replacing it with a definition for and references to The Securities
Industry and Financial Markets Association.
4. Governing Law Provision
FICC is clarifying the Governing Law provision contained in GSD's
and MBSD's Clearing and EPN rules to state that the Clearing and EPN
rules of GSD and MBSD are subject to New York law as applicable to
contracts executed and performed in New York.
5. Insurance Company Netting Member Eligibility Requirements
FICC is removing from GSD's rules the eligibility requirements for
Insurance Company Netting Members because GSD does not currently have
any such members. FICC will, however, retain the definition of
Insurance Company Netting Member in its rules in the event that such an
entity applies for membership in the future. Appropriate eligibility
requirements would be reviewed at that time and proposed as additions
to the rules.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a registered clearing agency. In particular,
the Commission believes the proposal is consistent with the
requirements of section 17A(b)(3)(F),\4\ which, among other things,
requires the rules of a clearing agency be designed to assure the
safeguarding of securities and funds that are in the custody or control
of the clearing agency or for which it is responsible. In addition to
making the rules more logically structured, more consistent with the
rules of FICC's clearing agency affiliate, and less redundant, the
proposal should improve FICC's ability to responsibly administer its
membership application process by providing FICC with a more flexible
and risk-based approach to review applications for membership. Although
FICC is eliminating certain factors that would previously have resulted
in the automatic disqualification of an applicant, FICC has retained
explicit rights to deny membership to an unworthy applicant based upon
FICC's qualitative review, based in part on new required documentation,
of an applicant's underlying financial, operational, or character
issues. Accordingly, the proposed rule change is consistent with FICC's
obligation to assure ability to safeguard securities and funds in its
possession or control or for which it is responsible.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of section 17A of the Act \5\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\6\ that the proposed rule change (File No. SR-FICC-2006-19) be,
and hereby is, approved.\7\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2).
\7\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15371 Filed 8-7-07; 8:45 am]
BILLING CODE 8010-01-P