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]
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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 (https://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 (https://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
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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
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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.
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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
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Fmt 4703
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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
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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
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]]>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\
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\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.
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(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.
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\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.
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(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\
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\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.
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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.
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\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
