Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Impose a Charge on Members With a Fail-to-Deliver in Treasury Securities, 19248-19249 [E9-9557]
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Federal Register / Vol. 74, No. 80 / Tuesday, April 28, 2009 / Notices
terms nevertheless fail to meet an
applicable requirement of the Exchange
Act or the rules thereunder.’’14
In its order approving NYSEArca2006–21, the Commission also stated
that the terms of a proposed rule change
to distribute market data for which the
exchange is the exclusive processor
must provide for an equitable allocation
of fees under Section 6(b)(4) of the
Act,15 not be designed to permit unfair
discrimination under Section 6(b)(5) of
the Act,16 be fair and reasonable under
Rule 603(a)(1),17 and not be
unreasonably discriminatory under Rule
603(a)(2).18 If the proposal involves
non-core market data, an analysis of
competitive forces may be used, and
that analysis will apply to findings
under Section 6 of the Act, and to
findings under Rule 603.19
In formulating the terms of the
proposal, Nasdaq was subject to
significant competitive forces—
specifically, the availability to market
participants of alternatives to
purchasing Nasdaq market data.
Because the proposal involves the
distribution of non-core market data,
and significant competitive forces are
present, the proposal is thus consistent
with both Section 6(b)(4) 20 and Section
6(b)(5) of the Act,21 and with Rule
603(a).22 There is not a substantial
countervailing basis that would render
the proposal inconsistent with the Act
or the rules thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–NASDAQ–
2006–064) as modified by Amendments
No. 2 and 3 be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–9555 Filed 4–27–09; 8:45 am]
erowe on PROD1PC64 with NOTICES
BILLING CODE 8010–01–P
14 Id. at 74781. In approving NYSEArca-2006–21,
the Commission found that the proposed rule
change was consistent with Section 6(b)(4) of the
Act, 15 U.S.C. 78f(b)(4). See 73 FR at 74779. The
Commission also found that the proposal was
consistent with Section 6(b)(5) of the Act, 15 U.S.C.
78f(b)(5), Section 6(b)(8) of the Act, 15 U.S.C.
78f(b)(8), and Rule 603(a) of Regulation NMS, 17
CFR 242.603(a). See 73 FR at 74779. The
Commission noted that the presence of competitive
forces guided its analysis under both Section 6 of
the Act and Rule 603 of Regulation NMS. Id.
15 15 U.S.C. 78f(b)(4).
16 15 U.S.C. 78f(b)(5).
17 17 CFR 242.603(a)(1).
18 17 CFR 242.603(a)(2). See 73 FR at 74782.
19 See 73 FR at 74779.
20 15 U.S.C. 78f(b)(4).
21 15 U.S.C. 78f(b)(5).
22 17 CFR 242.603(a).
23 15 U.S.C. 78s(b)(2).
24 17 CFR 200.30–3(a)(12).
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15:33 Apr 27, 2009
Jkt 217001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59802; File No. SR–FICC–
2009–03]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Granting Approval of a Proposed Rule
Change To Impose a Charge on
Members With a Fail-to-Deliver in
Treasury Securities
April 20, 2009.
I. Introduction
On February 25, 2009, The Fixed
Income Clearing Corporation (‘‘FICC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2009–03 pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’).1 Notice
of the proposal was published in the
Federal Register on March 19, 2009.2
The Commission received two comment
letters.3 For the reasons discussed
below, the Commission is granting
approval of the proposed rule change.
II. Description
The Treasury Markets Practices Group
(‘‘TMPG’’), a group of market
participants that is active in the treasury
securities market and is sponsored by
the Federal Reserve Bank of New York
(‘‘FRBNY’’), has been devising ways to
address the persistent settlement fails in
treasury securities transactions that
have arisen, according to the TMPG, due
to the recent market turbulence and low
short-term interest rates. In order to
encourage market participants to resolve
fails promptly, the TMPG has proposed
for adoption a ‘‘best practice’’ that
would call for the market-wide
assessment of a charge on fail-to-deliver
positions. As part of the implementation
of this ‘‘best practice,’’ the TMPG has
asked the Government Securities
Division (‘‘GSD’’) of FICC to impose a
charge on failed positions involving
treasury securities within FICC.
The charge FICC is adopting will be
equal to the product of net money due
on the failed position and three (3)
percent per annum minus the Target
Fed funds target rate that is effective at
5 p.m. Eastern Standard Time on the
business day prior to the originally
scheduled settlement date and will be
capped at three (3) percent per annum.
The charge will be applied daily and
1 15
U.S.C. 78s(b)(1).
Exchange Act Release No. 59569
(March 12, 2009), 74 FR 11797.
3 Letters from Leslie Rosenthal, Rosenthal Collins
Group, L.L.C. (March 31, 2009) and Murray
Pozmanter, Managing Director, FICC (April 3,
2009).
2 Securities
PO 00000
Frm 00056
Fmt 4703
Sfmt 4703
will be a debit on a member’s GSD
monthly bill for a fail-to deliver position
and a credit on a member’s GSD
monthly bill for fail-to-receive position.
The following example illustrates the
manner in which the proposed fails
charge would apply.
Member A fails to deliver today on a
$50 million position on which he is
owed $50.1 million. The Target Fed
funds rate yesterday at 5 p.m. was one
(1) percent. The fails charge will be the
product of two (2) percent per annum
applied to the funds amount of $50.1
million, thus equaling a charge of
$2,783.33 for that day. The bill of the
member failing to deliver will reflect a
debit of $2,783.33.
In the event that FICC is the failing
party because, for example, it received
securities too close to the close of the
Fedwire for redelivery, the fail charge
will be distributed pro rata to the
netting members based upon usage of
the GSD’s services, which is the same
methodology that is used when FICC
incurs finance charges.4
The rule change provides that the
Credit and Market Risk Management
Committee of FICC’s Board of Directors
will retain the right to revoke
application of the charge if industry
events or practices warrant such
revocation.
III. Comment Letters
The Commission received two letters,
one from a registered broker-dealer
raising concerns about the ‘‘unintended
consequences’’ of the proposed rule
change and the other from FICC
responding to the commenter’s letter.5
The broker-dealer, a member of FICC,
raised concerns that the pervasive fails
situation that FICC intends to remedy
with the rule change no longer exists
because the market corrected itself
when fails became an issue, and
therefore the instances of fails can be
held to a minimum if the industry
commits to follow best practices.
Further, this broker contends that the
rule may potentially increase
counterparty risk because firms would
shift from clearing through FICC to
clearing through individual
counterparties, where fails are more
easily controlled, in an effort to avoid
the fails penalty. The unintended
consequences of the rule change, the
commenter asserted, may be detrimental
to the global market by reducing market
liquidity caused by the reduction in the
supply of securities, by eroding investor
confidence, by decreasing securities
available for lending, and by
4 FICC
Rules, Section 6 of Rule 12.
note 3.
5 Supra
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Federal Register / Vol. 74, No. 80 / Tuesday, April 28, 2009 / Notices
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introducing the potential to game the
system due to wider spreads between
bid and offer prices, resulting in
allowing someone to take advantage of
those inadvertently caught in a fail
situation.
In response to these concerns, FICC
noted that FICC’s delivery allocation
process, a process that matches buy
obligations to sell obligations and is
applicable to all members, is necessary
to ensure that the clearing corporation
remains flat. Accordingly, FICC
contends, the fails charge would not
have any unique impact on the
commenter’s firm. With regards to the
concern that the fails charge may result
in firms shifting their business away
from FICC in order to avoid a fails
charge, FICC agrees that applying the
fails charge as proposed by the rule
would result in adverse consequences if
the rest of the industry does not adopt
it. However, FICC argues, FICC would
cease applying the charge if the Credit
and Market Risk Management
Committee of FICC’s Board of Directors
determines that industry events or
practices warrant such a revocation.
Finally, FICC rejected the commenters
assertions regarding the proposed rule
change’s effect on market liquidity and
providing new opportunities for firms to
‘‘game’’ the system as ‘‘highly
speculative.’’ Even if these adverse
effects developed, FICC argues that it
would be able to respond by eliminating
the fails charge or taking other
appropriate action.
IV. Discussion
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions, assure the safeguarding of
securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible, to foster
cooperation and coordination with
persons engaged in the clearance and
settlement of securities transactions, to
remove impediments to and perfect the
mechanism of a national system for the
prompt and accurate clearance and
settlement of securities transactions,
and, in general, to protect investors and
the public interest.6 The Commission
believes the rule change is consistent
with Act because the fails-to-deliver
charge should discourage firms from
creating and maintaining persistent
fails-to-deliver in treasury securities,
which if permitted to subsist, may
adversely affect FICC’s ability to
safeguard securities or funds in FICC’s
6 15
U.S.C. 78q(b)(3)(F).
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15:33 Apr 27, 2009
Jkt 217001
control or for which it is responsible
and to promptly and accurately clear
and settle securities transactions. In the
event that the rule change does not have
the intended affect or produces other
undesirable consequences, FICC has the
ability to eliminate the rule or take other
appropriate action to address any
ensuing problems.7
Accordingly, for the reasons stated
above the Commission believes that the
rule change is consistent with FICC’s
obligation under Section 17A of the Act.
V. 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 with the requirements of
Section 17A of the Act and the rules and
regulations thereunder.8
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
FICC–2008–03) be and hereby is
approved.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–9557 Filed 4–27–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59805; File No. SR–FINRA–
2009–027]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Make NonSubstantive, Technical Changes to
FINRA Trade Reporting Rules Upon
Implementation of SR–FINRA–2008–
011
April 21, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’)1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 16,
2009, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) (f/k/a
7 Elimination or modification of the fails-todeliver charge would require FICC to file a
proposed rule change pursuant to Section 19(b) of
the Act.
8 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).
9 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
19249
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under Section 19(b)(3)(A) of the
Act3 and paragraph (f)(6) thereunder,4
which renders the proposal effective
upon receipt of this filing by the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to (1) replace
references to ‘‘MMID’’ or ‘‘OEID’’ in
Rules 6282, 7130, 7230A, 7230B and
7330 that will be obsolete upon the
implementation of proposed rule change
SR–FINRA–2008–011; and (2) update
rule cross-references in Rules 6380B and
7230B, as amended pursuant to SR–
FINRA–2008–011.5
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA 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. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On November 5, 2008, the SEC
approved amendments to FINRA trade
3 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
5 See Securities Exchange Act Release No. 58903
(November 5, 2008), 73 FR 67905 (November 17,
2008) (order approving SR–FINRA–2008–011); and
Securities Exchange Act Release No. 58903A
(November 13, 2008), 73 FR 69700 (November 19,
2008) (correction to order approving SR–FINRA–
2008–011). SR–FINRA–2008–011 will be
implemented on August 3, 2009. See FINRA
Regulatory Notice 09–08 (January 2009).
4 17
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]]>Agencies
[Federal Register Volume 74, Number 80 (Tuesday, April 28, 2009)]
[Notices]
[Pages 19248-19249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9557]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59802; File No. SR-FICC-2009-03]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Granting Approval of a Proposed Rule Change To Impose a Charge on
Members With a Fail-to-Deliver in Treasury Securities
April 20, 2009.
I. Introduction
On February 25, 2009, The Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-FICC-2009-03 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
Notice of the proposal was published in the Federal Register on March
19, 2009.\2\ The Commission received two comment letters.\3\ For the
reasons discussed below, the Commission is granting approval of the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 59569 (March 12, 2009),
74 FR 11797.
\3\ Letters from Leslie Rosenthal, Rosenthal Collins Group,
L.L.C. (March 31, 2009) and Murray Pozmanter, Managing Director,
FICC (April 3, 2009).
---------------------------------------------------------------------------
II. Description
The Treasury Markets Practices Group (``TMPG''), a group of market
participants that is active in the treasury securities market and is
sponsored by the Federal Reserve Bank of New York (``FRBNY''), has been
devising ways to address the persistent settlement fails in treasury
securities transactions that have arisen, according to the TMPG, due to
the recent market turbulence and low short-term interest rates. In
order to encourage market participants to resolve fails promptly, the
TMPG has proposed for adoption a ``best practice'' that would call for
the market-wide assessment of a charge on fail-to-deliver positions. As
part of the implementation of this ``best practice,'' the TMPG has
asked the Government Securities Division (``GSD'') of FICC to impose a
charge on failed positions involving treasury securities within FICC.
The charge FICC is adopting will be equal to the product of net
money due on the failed position and three (3) percent per annum minus
the Target Fed funds target rate that is effective at 5 p.m. Eastern
Standard Time on the business day prior to the originally scheduled
settlement date and will be capped at three (3) percent per annum. The
charge will be applied daily and will be a debit on a member's GSD
monthly bill for a fail-to deliver position and a credit on a member's
GSD monthly bill for fail-to-receive position.
The following example illustrates the manner in which the proposed
fails charge would apply.
Member A fails to deliver today on a $50 million position on which
he is owed $50.1 million. The Target Fed funds rate yesterday at 5 p.m.
was one (1) percent. The fails charge will be the product of two (2)
percent per annum applied to the funds amount of $50.1 million, thus
equaling a charge of $2,783.33 for that day. The bill of the member
failing to deliver will reflect a debit of $2,783.33.
In the event that FICC is the failing party because, for example,
it received securities too close to the close of the Fedwire for
redelivery, the fail charge will be distributed pro rata to the netting
members based upon usage of the GSD's services, which is the same
methodology that is used when FICC incurs finance charges.\4\
---------------------------------------------------------------------------
\4\ FICC Rules, Section 6 of Rule 12.
---------------------------------------------------------------------------
The rule change provides that the Credit and Market Risk Management
Committee of FICC's Board of Directors will retain the right to revoke
application of the charge if industry events or practices warrant such
revocation.
III. Comment Letters
The Commission received two letters, one from a registered broker-
dealer raising concerns about the ``unintended consequences'' of the
proposed rule change and the other from FICC responding to the
commenter's letter.\5\ The broker-dealer, a member of FICC, raised
concerns that the pervasive fails situation that FICC intends to remedy
with the rule change no longer exists because the market corrected
itself when fails became an issue, and therefore the instances of fails
can be held to a minimum if the industry commits to follow best
practices. Further, this broker contends that the rule may potentially
increase counterparty risk because firms would shift from clearing
through FICC to clearing through individual counterparties, where fails
are more easily controlled, in an effort to avoid the fails penalty.
The unintended consequences of the rule change, the commenter asserted,
may be detrimental to the global market by reducing market liquidity
caused by the reduction in the supply of securities, by eroding
investor confidence, by decreasing securities available for lending,
and by
[[Page 19249]]
introducing the potential to game the system due to wider spreads
between bid and offer prices, resulting in allowing someone to take
advantage of those inadvertently caught in a fail situation.
---------------------------------------------------------------------------
\5\ Supra note 3.
---------------------------------------------------------------------------
In response to these concerns, FICC noted that FICC's delivery
allocation process, a process that matches buy obligations to sell
obligations and is applicable to all members, is necessary to ensure
that the clearing corporation remains flat. Accordingly, FICC contends,
the fails charge would not have any unique impact on the commenter's
firm. With regards to the concern that the fails charge may result in
firms shifting their business away from FICC in order to avoid a fails
charge, FICC agrees that applying the fails charge as proposed by the
rule would result in adverse consequences if the rest of the industry
does not adopt it. However, FICC argues, FICC would cease applying the
charge if the Credit and Market Risk Management Committee of FICC's
Board of Directors determines that industry events or practices warrant
such a revocation. Finally, FICC rejected the commenters assertions
regarding the proposed rule change's effect on market liquidity and
providing new opportunities for firms to ``game'' the system as
``highly speculative.'' Even if these adverse effects developed, FICC
argues that it would be able to respond by eliminating the fails charge
or taking other appropriate action.
IV. Discussion
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions, to remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of securities
transactions, and, in general, to protect investors and the public
interest.\6\ The Commission believes the rule change is consistent with
Act because the fails-to-deliver charge should discourage firms from
creating and maintaining persistent fails-to-deliver in treasury
securities, which if permitted to subsist, may adversely affect FICC's
ability to safeguard securities or funds in FICC's control or for which
it is responsible and to promptly and accurately clear and settle
securities transactions. In the event that the rule change does not
have the intended affect or produces other undesirable consequences,
FICC has the ability to eliminate the rule or take other appropriate
action to address any ensuing problems.\7\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q(b)(3)(F).
\7\ Elimination or modification of the fails-to-deliver charge
would require FICC to file a proposed rule change pursuant to
Section 19(b) of the Act.
---------------------------------------------------------------------------
Accordingly, for the reasons stated above the Commission believes
that the rule change is consistent with FICC's obligation under Section
17A of the Act.
V. 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 with the requirements of Section 17A of the Act and the
rules and regulations thereunder.\8\
---------------------------------------------------------------------------
\8\ 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).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-FICC-2008-03) be and hereby
is approved.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9557 Filed 4-27-09; 8:45 am]
BILLING CODE 8010-01-P
