Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change as Amended To Restructure the Rules of the Government Securities Division and the Mortgage-Backed Securities Division Relating to Fines and To Harmonize Them With Similar Rules of Its Affiliates and To Restructure the Watch List, 42386-42388 [E8-16591]

Download as PDF 42386 Federal Register / Vol. 73, No. 140 / Monday, July 21, 2008 / Notices of Section 15A(b)(5) of the Act,15 which require, among other things, that FINRA rules provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system that FINRA operates or controls. FINRA believes that deleting the references in the Incorporated NYSE Rules to fees that FINRA does not impose pursuant to those rules will reduce confusion and conform the Incorporated NYSE Rules to FINRA’s practice. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. PWALKER on PROD1PC71 with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. 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 Room, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. 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–FINRA– 2008–034 and should be submitted on or before August 11, 2008. IV. Commission’s Findings and Order Granting Accelerated Approval The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder III. Solicitation of Comments applicable to a national securities Interested persons are invited to association and, in particular, the submit written data, views and requirements of Section 15A(b)(5) of the arguments concerning the foregoing, Act 16 and the rules and regulations including whether the proposed rule thereunder.17 The Commission notes that FINRA’s change is consistent with the Act. proposed rule change to eliminate Comments may be submitted by any of references to the NYSE legacy fees in the following methods: FINRA’s Incorporated NYSE Rules is Electronic Comments consistent with NYSE’s elimination of • Use the Commission’s Internet these fees that took effect on January 1, comment form (http://www.sec.gov/ 2008.18 Because these legacy NYSE fees rules/sro.shtml); or are not charged by FINRA, the • Send an e-mail to ruleCommission believes that it is comments@sec.gov. Please include File appropriate for FINRA to remove Number SR–FINRA–2008–034 on the references to these fees from the subject line. Incorporated NYSE Rules.19 The Commission also believes that Paper Comments approving these changes on a retroactive • Send paper comments in triplicate basis to January 1, 2008, is appropriate to Secretary, Securities and Exchange because that is the effective date of Commission, 100 F Street, NE., NYSE’s elimination of these fees.20 Washington, DC 20549–1090. The Commission finds good cause to All submissions should refer to File approve the proposed rule change prior Number SR–FINRA–2008–034. This file to the thirtieth day after the date of number should be included on the publication of notice of filing in the subject line if e-mail is used. To help the Federal Register. Granting accelerated Commission process and review your approval of the proposed rule change comments more efficiently, please use would help reduce any confusion only one method. The Commission will FINRA members may have, because post all comments on the Commission’s these legacy NYSE fees no longer are Internet Web site (http://www.sec.gov/ 16 15 U.S.C. 78o–3(b)(5). rules/sro.shtml). Copies of the 17 In approving this rule change, the Commission submission, all subsequent notes that it has considered the proposed rule’s amendments, all written statements impact on efficiency, competition, and capital with respect to the proposed rule formation. See 15 U.S.C. 78c(f). 18 See Release No. 34–57093, supra note 9. change that are filed with the 19 15 15 15 U.S.C. 78o–3(b)(5). VerDate Aug<31>2005 19:22 Jul 18, 2008 U.S.C. 78o–3(b)(5). Release No. 34–57093, supra note 9. 20 See Jkt 214001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 being charged, and would conform these Incorporated NYSE Rules to FINRA’s current practice. Accordingly, the Commission believes there is good cause, consistent with Sections 15A(b)(5) and 19(b) of the Act,21 to approve the proposed rule change on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,22 that the proposed rule change (File No. SR– FINRA–2008–034) be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Florence E. Harmon, Acting Secretary. [FR Doc. E8–16599 Filed 7–18–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58156; File No. SR–FICC– 2007–05] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change as Amended To Restructure the Rules of the Government Securities Division and the Mortgage-Backed Securities Division Relating to Fines and To Harmonize Them With Similar Rules of Its Affiliates and To Restructure the Watch List July 15, 2008. I. Introduction On April 30, 2007, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on May 18, 2007, December 10, 2007, and January 31, 2008, amended proposed rule change SR–FICC–2007–05 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 On April 22, 2008, the Commission published notice of the proposed rule change to solicit comments from interested parties.2 The Commission received no comment letters in response to the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change, as amended. 21 15 U.S.C. 78o–3(b)(5) and 78s(b). U.S.C. 78s(b)(2). 23 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 57666 (April 15, 2008), 73 FR 21675. 22 15 E:\FR\FM\21JYN1.SGM 21JYN1 Federal Register / Vol. 73, No. 140 / Monday, July 21, 2008 / Notices II. Description FICC is seeking to (i) restructure the Government Securities Division (‘‘GSD’’) and the Mortgage-Backed Securities Division (‘‘MBSD’’) rules related to fines, clearing fund consequences imposed on members for rule violations, and certain aspects of the watch list and (ii) harmonize its rules with similar rules of FICC’s clearing agency affiliates, The Depository Trust Company (‘‘DTC’’) and the National Securities Clearing Corporation (‘‘NSCC’’). DTC and NSCC have filed similar proposed rule changes.3 FICC’s proposed revisions to its fine schedule are set forth in Exhibit 5 to its proposed rule change. 1. Fines PWALKER on PROD1PC71 with NOTICES (a) Fines Scheduled for Failure to Submit Financial and Other Information Members of the GSD and MBSD are assessed fines for failure to submit required financial, regulatory, and other information within the time frames set forth in FICC’s rules. Often a member that is fined is a common member of FICC and DTC, FICC and NSCC, or FICC, DTC, and NSCC, (collectively, the ‘‘Clearing Agencies’’) which would cause the member to incur multiple penalties for the same offense.4 FICC is proposing that when a common member of the Clearing Agencies is late in providing the same information to more than one Clearing Agency, the fine amount will be divided equally among the Clearing Agencies.5 In addition, FICC proposes changes to the notes to this section of the fine schedule to make clear that (i) the method by which the reporting requirements will be published and (ii) the determination of the fine amount 3 Securities Exchange Act Release No. 57665 (April 15, 2008) [SR–DTC–2007–05]. Securities Exchange Act Release No. 57667 (April 15, 2008) [SR–NSCC–2007–07]. 4 The Clearing Agencies do not view the proposed rule changes as fee reductions because they never intended to charge a common member two or three times for a single violation that trips another clearing agency’s rules on the same matter. DTC does not currently maintain a fine in this regard. However, DTC has filed a proposal to adopt a fine schedule similar to the one used by FICC. Supra note 3. 5 For example, if a firm that is a member of FICC and NSCC, did not submit its annual audited financial statements within the required time frame, and this was the firm’s first failure to meet the deadline, the $200 fine will be split equally between FICC and NSCC. Where the member is a participant of DTC and also a member of one or more of the other Clearing Agencies, the fine would be collected by DTC and allocated equally among the other Clearing Agencies, as appropriate. If the member is not a DTC participant, but is a common member of NSCC and FICC, NSCC will collect the fine and allocate the appropriate portion to FICC. VerDate Aug<31>2005 19:22 Jul 18, 2008 Jkt 214001 after the fourth or more occasion of an offense within a twelve-month rolling period will be made by FICC management with the concurrence of the Board or the Credit and Market Risk Management Committee.6 (b) General Continuance Standards Both GSD and MBSD currently impose a fine of $1,000 on a member that fails to notify FICC within two business days of the member’s learning of its non-compliance with the general continuance standards for membership or of its becoming subject to a statutory disqualification. Both GSD and MBSD currently impose a $5,000 fine if a member fails to notify FICC of a ‘‘material change’’ to its business. A material change currently includes events such as a merger or acquisition involving the member, a change in corporate form, a name change, a material change in ownership, control, or management, and participation as a defendant in litigation which could reasonably be anticipated to have a direct negative impact on the member’s financial condition or ability to conduct its business. With respect to both GSD and MBSD, FICC is proposing to amend its rules to reflect that when a common member of the Clearing Agencies is late in providing the same information to more than one Clearing Agency, the fine amount will be divided equally among the Clearing Agencies.7 (c) Fine Schedule for Late Clearing/ Participants Fund Deficiency Payments GSD and MBSD Netting and Clearing members are also subject to fines for late payments of clearing fund and participants fund deficiency calls. In order to harmonize its fine schedule with NSCC, FICC is proposing to adopt the fine amounts utilized by NSCC for this purpose and to adopt other provisions set forth in the notes to NSCC’s fine schedule. As proposed, the first occasion lateness will generate a warning letter to the firm for all 6 Under the rules of GSD and MBSD, the terms ‘‘Board’’ or ‘‘Board of Directors’’ mean the Board of Directors of FICC or a committee thereof acting under delegated authority (‘‘Board’’). In this situation, the Board would have to concur with the fine. 7 DTC does not currently maintain a fine in this regard. However, DTC has filed a proposal to adopt a fine schedule similar to the one NSCC is proposing to adopt. Supra note 3. Where the member is a participant of DTC and also a member of one or more of the other Clearing Agencies, the fine will be collected by DTC and allocated equally among the other Clearing Agencies, as appropriate. If the member is not a DTC participant, but is a common member of NSCC and FICC, NSCC will collect the fine and allocate the appropriate portion to FICC. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 42387 deficiency amounts.8 If the number of occasions of late Clearing Fund deficiency call payments within a threemonth rolling period exceeds four, FICC will obtain the Board’s concurrence for the fine amount. Furthermore, a late payment of more than one hour will result in a fine equal to the amount applicable to the next highest occasion for the specific deficiency amount.9 If a member is late for more than one hour and it is the member’s fourth occasion in the rolling period, FICC will obtain the Board’s concurrence for the fine amount. (d) Fine Schedule for Late Settlement Payments The GSD and MBSD currently fine members for late payment of settlement obligations. FICC is proposing the following to harmonize its fine schedule with those of NSCC. The GSD and MBSD will adopt the deficiency and fine amounts of the NSCC fine schedules. As a result, the first occasion will result in a fine rather than a warning letter as under FICC’s current fine schedule. Also, FICC will use a rolling three-month period to determine the number of occasions rather than the current 30-day rolling period. In addition, the fine schedules of GSD and MBSD will be amended to provide that (i) if the number of occasions within the rolling three-month period exceeds four, management will obtain the Board’s concurrence of the fine amount and (ii) a payment late by more than one hour will result in a fine equal to the amount applicable for the next highest occasion for the specific deficiency amount. If a member is late for more than one hour and it is the member’s fourth occasion in the rolling period, management will obtain the Board’s concurrence of the fine amount. 2. Placement on the Watch List and Prohibition Against Return of Excess Clearing Fund as Consequences for Rules Violations The rules of both GSD and MBSD contain provisions requiring a member to be placed on the watch list and, in certain instances, prohibiting the return of excess clearing fund collateral as consequences for certain rules violations or certain member actions. 8 GSD and MBSD currently impose a fine for a first occasion lateness for its highest deficiency amount. 9 For example, if a firm’s deficiency amount is under $1,000,000, it is the firm’s second occurrence of late satisfaction of a deficiency call in the rolling three-month period, and the firm is late by more than one hour, the firm will be fined $200 (i.e., the fine for a third occasion) instead of $100 (i.e., the fine for a second occasion) pursuant to the proposed fine schedule. E:\FR\FM\21JYN1.SGM 21JYN1 42388 Federal Register / Vol. 73, No. 140 / Monday, July 21, 2008 / Notices For example, the FICC rules require that a member be placed on the watch list and prohibited from receiving the return of excess clearing fund collateral for failure to timely submit a required financial report or other information to FICC. FICC is proposing the deletion of all these provisions because the placement of a member on the watch list and the prohibiting of the return of a member’s excess of clearing fund collateral should result from management’s monitoring of the member and should not automatically occur because of rules violations.10 3. Consequences for Being on the Watch List Currently, the GSD rules contain a very specific amount by which the clearing fund requirement of a netting member that is placed on the watch list may be increased.11 The MBSD and NSCC rules contain provisions that are more general in this regard.12 FICC believes the GSD rules are unnecessarily specific in this regard and should be amended to more closely reflect the MBSD and NSCC rules. PWALKER on PROD1PC71 with NOTICES 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),13 which, among other things, requires that the rules of a clearing agency are designed to remove impediments to and perfect the mechanisms of a national system for the prompt and accurate clearance and settlement of securities transactions and with the requirements of section 17A(b)(3)(H) 14 which, among other things, requires that the rules of a 10 FICC currently has and would retain the right to deny the return of excess clearing fund collateral in instances where it is concerned about a particular member’s financial or operational capability. 11 The GSD rules currently state that GSD ‘‘may require a Netting Member that has been placed on the Watch List, to make and maintain a deposit to the Clearing Fund over and above the amount determined in accordance with section 2 of Rule 4 (which additional deposit shall constitute a portion of the Netting Member’s Required Fund Deposit) of up to 200 percent of its highest single Business Day’s Required Fund Deposit during the most recent 20 Business Days, or such higher amount as the Board may deem necessary * * *.’’ 12 For example, MBSD rules state that MBSD ‘‘may require a Participant that has been placed on the Watch List to make and maintain a deposit to the Participants Fund over and above the amount determined * * *.’’ 13 15 U.S.C. 78q–1(b)(3)(F). 14 15 U.S.C. 78q–1(b)(3)(H). VerDate Aug<31>2005 19:22 Jul 18, 2008 Jkt 214001 clearing agency provide a fair procedure with respect to the disciplining of participants and the denial of participation to any person seeking to be a participant. The Commission finds that the proposed rule change, which restructures and harmonizes FICC’s fines with those of DTC and NSCC, is consistent with those statutory obligations. 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. In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition and capital formation.15 It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR– FICC–2007–05), as amended, be and hereby is approved. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.16 Florence E. Harmon, Acting Secretary. [FR Doc. E8–16591 Filed 7–18–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58154; File No. SR–MSRB– 2008–03] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1, Relating to Rule G– 11, on New Issue Syndicate Practices, and Rule G–12, on Uniform Practice July 15, 2008. On March 18, 2008, the Municipal Securities Rulemaking Board (‘‘MSRB’’), filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change consisting of amendments to Rule-11, on new issue syndicate practices, and Rule G–12, on uniform practice. The proposed rule change was published for comment in the Federal PO 00000 15 15 U.S.C. 78c(f). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 16 17 Frm 00076 Fmt 4703 Sfmt 4703 Register on April 18, 2008.3 The Commission received no comment letters about the proposed rule change. On June 26, 2008, the MSRB filed Amendment No. 1 to the proposed rule change.4 This order approves the proposed rule change as modified by Amendment No. 1. The proposed rule change consists of amendments to Rule G–11 and Rule G– 12 that (a) delete Rule G–12(i); (b) consolidate the remaining syndicate practice provisions of Rule G–12 into Rule G–11; (c) delete the syndicaterelated sections of Rule G–12; and (d) make minor technical corrections to Rule G–11. A full description of the proposal is contained in the Commission’s Notice. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the MSRB 5 and, in particular, the requirements of Section 15B(b)(2)(C) of the Act 6 and the rules and regulations thereunder. Section 15B(b)(2)(C) of the Act requires, among other things, that the MSRB’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest.7 In particular, the Commission finds that the proposed rule change is consistent with the Act because it will facilitate transactions in municipal securities and protect investors and the public interest by creating a consolidated rule that seeks to avoid inadvertent rule violations and clarifies and modernizes its rules to bring them into line with the realities of current market practice without compromising investor protection. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,8 that the 3 See Securities Exchange Act Release No. 57659 (April 14, 2008), 73 FR 21166 (April 18, 2008) (‘‘Commission’s Notice’’). 4 Amendment No. 1 clarifies a broker, dealer or municipal securities dealer’s existing obligations and does not add any new requirements. This is a technical amendment and is not subject to notice and comment. 5 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 6 15 U.S.C. 78o–4(b)(2)(C). 7 Id. 8 15 U.S.C. 78s(b)(2). E:\FR\FM\21JYN1.SGM 21JYN1

Agencies

[Federal Register Volume 73, Number 140 (Monday, July 21, 2008)]
[Notices]
[Pages 42386-42388]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-16591]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58156; File No. SR-FICC-2007-05]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change as Amended To Restructure the 
Rules of the Government Securities Division and the Mortgage-Backed 
Securities Division Relating to Fines and To Harmonize Them With 
Similar Rules of Its Affiliates and To Restructure the Watch List

July 15, 2008.

I. Introduction

    On April 30, 2007, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') and 
on May 18, 2007, December 10, 2007, and January 31, 2008, amended 
proposed rule change SR-FICC-2007-05 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ On April 22, 2008, 
the Commission published notice of the proposed rule change to solicit 
comments from interested parties.\2\ The Commission received no comment 
letters in response to the proposed rule change. For the reasons 
discussed below, the Commission is approving the proposed rule change, 
as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 57666 (April 15, 2008), 
73 FR 21675.

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

[[Page 42387]]

II. Description

    FICC is seeking to (i) restructure the Government Securities 
Division (``GSD'') and the Mortgage-Backed Securities Division 
(``MBSD'') rules related to fines, clearing fund consequences imposed 
on members for rule violations, and certain aspects of the watch list 
and (ii) harmonize its rules with similar rules of FICC's clearing 
agency affiliates, The Depository Trust Company (``DTC'') and the 
National Securities Clearing Corporation (``NSCC''). DTC and NSCC have 
filed similar proposed rule changes.\3\ FICC's proposed revisions to 
its fine schedule are set forth in Exhibit 5 to its proposed rule 
change.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 57665 (April 15, 2008) 
[SR-DTC-2007-05]. Securities Exchange Act Release No. 57667 (April 
15, 2008) [SR-NSCC-2007-07].
---------------------------------------------------------------------------

1. Fines

(a) Fines Scheduled for Failure to Submit Financial and Other 
Information
    Members of the GSD and MBSD are assessed fines for failure to 
submit required financial, regulatory, and other information within the 
time frames set forth in FICC's rules. Often a member that is fined is 
a common member of FICC and DTC, FICC and NSCC, or FICC, DTC, and NSCC, 
(collectively, the ``Clearing Agencies'') which would cause the member 
to incur multiple penalties for the same offense.\4\ FICC is proposing 
that when a common member of the Clearing Agencies is late in providing 
the same information to more than one Clearing Agency, the fine amount 
will be divided equally among the Clearing Agencies.\5\
---------------------------------------------------------------------------

    \4\ The Clearing Agencies do not view the proposed rule changes 
as fee reductions because they never intended to charge a common 
member two or three times for a single violation that trips another 
clearing agency's rules on the same matter.
    DTC does not currently maintain a fine in this regard. However, 
DTC has filed a proposal to adopt a fine schedule similar to the one 
used by FICC. Supra note 3.
    \5\ For example, if a firm that is a member of FICC and NSCC, 
did not submit its annual audited financial statements within the 
required time frame, and this was the firm's first failure to meet 
the deadline, the $200 fine will be split equally between FICC and 
NSCC.
    Where the member is a participant of DTC and also a member of 
one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
---------------------------------------------------------------------------

    In addition, FICC proposes changes to the notes to this section of 
the fine schedule to make clear that (i) the method by which the 
reporting requirements will be published and (ii) the determination of 
the fine amount after the fourth or more occasion of an offense within 
a twelve-month rolling period will be made by FICC management with the 
concurrence of the Board or the Credit and Market Risk Management 
Committee.\6\
---------------------------------------------------------------------------

    \6\ Under the rules of GSD and MBSD, the terms ``Board'' or 
``Board of Directors'' mean the Board of Directors of FICC or a 
committee thereof acting under delegated authority (``Board''). In 
this situation, the Board would have to concur with the fine.
---------------------------------------------------------------------------

(b) General Continuance Standards
    Both GSD and MBSD currently impose a fine of $1,000 on a member 
that fails to notify FICC within two business days of the member's 
learning of its non-compliance with the general continuance standards 
for membership or of its becoming subject to a statutory 
disqualification. Both GSD and MBSD currently impose a $5,000 fine if a 
member fails to notify FICC of a ``material change'' to its business. A 
material change currently includes events such as a merger or 
acquisition involving the member, a change in corporate form, a name 
change, a material change in ownership, control, or management, and 
participation as a defendant in litigation which could reasonably be 
anticipated to have a direct negative impact on the member's financial 
condition or ability to conduct its business.
    With respect to both GSD and MBSD, FICC is proposing to amend its 
rules to reflect that when a common member of the Clearing Agencies is 
late in providing the same information to more than one Clearing 
Agency, the fine amount will be divided equally among the Clearing 
Agencies.\7\
---------------------------------------------------------------------------

    \7\ DTC does not currently maintain a fine in this regard. 
However, DTC has filed a proposal to adopt a fine schedule similar 
to the one NSCC is proposing to adopt. Supra note 3.
    Where the member is a participant of DTC and also a member of 
one or more of the other Clearing Agencies, the fine will be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
---------------------------------------------------------------------------

(c) Fine Schedule for Late Clearing/Participants Fund Deficiency 
Payments
    GSD and MBSD Netting and Clearing members are also subject to fines 
for late payments of clearing fund and participants fund deficiency 
calls. In order to harmonize its fine schedule with NSCC, FICC is 
proposing to adopt the fine amounts utilized by NSCC for this purpose 
and to adopt other provisions set forth in the notes to NSCC's fine 
schedule. As proposed, the first occasion lateness will generate a 
warning letter to the firm for all deficiency amounts.\8\ If the number 
of occasions of late Clearing Fund deficiency call payments within a 
three-month rolling period exceeds four, FICC will obtain the Board's 
concurrence for the fine amount. Furthermore, a late payment of more 
than one hour will result in a fine equal to the amount applicable to 
the next highest occasion for the specific deficiency amount.\9\ If a 
member is late for more than one hour and it is the member's fourth 
occasion in the rolling period, FICC will obtain the Board's 
concurrence for the fine amount.
---------------------------------------------------------------------------

    \8\ GSD and MBSD currently impose a fine for a first occasion 
lateness for its highest deficiency amount.
    \9\ For example, if a firm's deficiency amount is under 
$1,000,000, it is the firm's second occurrence of late satisfaction 
of a deficiency call in the rolling three-month period, and the firm 
is late by more than one hour, the firm will be fined $200 (i.e., 
the fine for a third occasion) instead of $100 (i.e., the fine for a 
second occasion) pursuant to the proposed fine schedule.
---------------------------------------------------------------------------

(d) Fine Schedule for Late Settlement Payments
    The GSD and MBSD currently fine members for late payment of 
settlement obligations. FICC is proposing the following to harmonize 
its fine schedule with those of NSCC. The GSD and MBSD will adopt the 
deficiency and fine amounts of the NSCC fine schedules. As a result, 
the first occasion will result in a fine rather than a warning letter 
as under FICC's current fine schedule. Also, FICC will use a rolling 
three-month period to determine the number of occasions rather than the 
current 30-day rolling period. In addition, the fine schedules of GSD 
and MBSD will be amended to provide that (i) if the number of occasions 
within the rolling three-month period exceeds four, management will 
obtain the Board's concurrence of the fine amount and (ii) a payment 
late by more than one hour will result in a fine equal to the amount 
applicable for the next highest occasion for the specific deficiency 
amount. If a member is late for more than one hour and it is the 
member's fourth occasion in the rolling period, management will obtain 
the Board's concurrence of the fine amount.

2. Placement on the Watch List and Prohibition Against Return of Excess 
Clearing Fund as Consequences for Rules Violations

    The rules of both GSD and MBSD contain provisions requiring a 
member to be placed on the watch list and, in certain instances, 
prohibiting the return of excess clearing fund collateral as 
consequences for certain rules violations or certain member actions.

[[Page 42388]]

For example, the FICC rules require that a member be placed on the 
watch list and prohibited from receiving the return of excess clearing 
fund collateral for failure to timely submit a required financial 
report or other information to FICC. FICC is proposing the deletion of 
all these provisions because the placement of a member on the watch 
list and the prohibiting of the return of a member's excess of clearing 
fund collateral should result from management's monitoring of the 
member and should not automatically occur because of rules 
violations.\10\
---------------------------------------------------------------------------

    \10\ FICC currently has and would retain the right to deny the 
return of excess clearing fund collateral in instances where it is 
concerned about a particular member's financial or operational 
capability.
---------------------------------------------------------------------------

3. Consequences for Being on the Watch List

    Currently, the GSD rules contain a very specific amount by which 
the clearing fund requirement of a netting member that is placed on the 
watch list may be increased.\11\ The MBSD and NSCC rules contain 
provisions that are more general in this regard.\12\ FICC believes the 
GSD rules are unnecessarily specific in this regard and should be 
amended to more closely reflect the MBSD and NSCC rules.
---------------------------------------------------------------------------

    \11\ The GSD rules currently state that GSD ``may require a 
Netting Member that has been placed on the Watch List, to make and 
maintain a deposit to the Clearing Fund over and above the amount 
determined in accordance with section 2 of Rule 4 (which additional 
deposit shall constitute a portion of the Netting Member's Required 
Fund Deposit) of up to 200 percent of its highest single Business 
Day's Required Fund Deposit during the most recent 20 Business Days, 
or such higher amount as the Board may deem necessary * * *.''
    \12\ For example, MBSD rules state that MBSD ``may require a 
Participant that has been placed on the Watch List to make and 
maintain a deposit to the Participants Fund over and above the 
amount determined * * *.''
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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),\13\ which, among other things, 
requires that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanisms of a national system for the 
prompt and accurate clearance and settlement of securities transactions 
and with the requirements of section 17A(b)(3)(H) \14\ which, among 
other things, requires that the rules of a clearing agency provide a 
fair procedure with respect to the disciplining of participants and the 
denial of participation to any person seeking to be a participant. The 
Commission finds that the proposed rule change, which restructures and 
harmonizes FICC's fines with those of DTC and NSCC, is consistent with 
those statutory obligations.
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 15 U.S.C. 78q-1(b)(3)(H).
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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. In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and capital 
formation.\15\
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    \15\ 15 U.S.C. 78c(f).
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-FICC-2007-05), as amended, 
be and hereby is approved.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16591 Filed 7-18-08; 8:45 am]
BILLING CODE 8010-01-P