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]

Download as PDF 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]


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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.
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    \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.
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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.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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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.
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    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\
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    \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\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-15371 Filed 8-7-07; 8:45 am]
BILLING CODE 8010-01-P