Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Expand the Applicability of the Fails Charge to Agency Debt Securities Transactions, 77861-77862 [2011-31997]

Download as PDF Federal Register / Vol. 76, No. 240 / Wednesday, December 14, 2011 / Notices change that are filed with the 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 Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, 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 the Exchange. 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– NYSEArca–2011–92 and should be submitted on or before January 4, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–31968 Filed 12–13–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65910; File No. SR–FICC– 2011–08] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Expand the Applicability of the Fails Charge to Agency Debt Securities Transactions December 8, 2011. mstockstill on DSK4VPTVN1PROD with NOTICES I. Introduction On October 20, 2011, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–FICC–2011– 08 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 The proposed rule change was published for comment in the Federal Register on November 1, 2011.2 No comment letters were received on the 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 34–65632 (October 26, 2011), 76 FR 67519 (November 1, 2011). proposal. This order approves the proposal. II. Description The purpose of this rule change is to expand the applicability of the fails charge to Agency debt securities transactions. The Treasury Markets Practices Group (the ‘‘TMPG’’), a group of market participants active in the Treasury securities market sponsored by the Federal Reserve Bank of New York (the ‘‘FRBNY’’), has been addressing the persistent settlement fails in Agency debt securities transactions that have arisen, in part, due to low interest rates. To encourage market participants to resolve fails promptly, the TMPG recommended expanding the applicability of the fails charge (which currently applies to Treasury securities transactions) to Agency debt with the objective of reducing the incidence of delivery failures and supporting liquidity in this market. The TMPG had previously recommended a charge for fails on Treasury securities, which the Government Securities Division (the ‘‘GSD’’) implemented after Commission approval.3 At that time, the TMPG recommendation did not extend to Agency securities and, therefore, the GSD’s 2009 rule filing did not cover Agency debt. However, the TMPG recently has expanded its recommendation to cover certain Agency securities and, therefore, the GSD is proposing to apply the existing fails charge regime to Agency debt transactions as recommended by the TMPG. Specifically, transactions in debentures issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks now will be subject to this charge. The proposed fails charge for Agencies will be the same as that currently in place for Treasuries and is equal to the greater of: (a) 0 percent or (b) 3 percent per annum minus the federal funds target rate. The charge will accrue each calendar day a fail is outstanding. The following examples illustrate the manner in which the proposed fails charge will apply: Example 1: A settlement obligation fails and the next calendar date is a valid FICC business date. The GSD calculates the TMPG fail charge from the date the fail occurs to the next valid FICC business date. As the next valid business date is the next calendar date, the member’s credit/debit resulting from the TMPG fail charge is assessed for one day. Example 2: A settlement obligation fails and the next calendar date is a holiday 1 15 VerDate Mar<15>2010 15:14 Dec 13, 2011 Jkt 226001 3 See Securities Exchange Act Release No. 34– 59802 (April 20, 2009), 74 FR 19248 (April 28, 2009). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 77861 occurring on a Tuesday, Wednesday or Thursday. The GSD calculates the TMPG fail charge from the date the fail occurs to the next valid FICC business date. The TMPG fail charge is assessed for two days; the day the fail occurs and the date of the holiday. Example 3: A settlement obligation fails on Friday and the following Monday is not a holiday. The GSD calculates the TMPG fail charge from the date the fail occurs to the next valid FICC business date. The TMPG fail charge is assessed for three days; Friday, Saturday and Sunday. FICC’s Board of Directors (or appropriate Committee thereof) will retain the right to revoke application of the proposed charges if industry events or practices warrant such revocation. The expansion of the fails charge trading practice to the Agency debt market requires that Rule 11 (Netting System), Section 14 (Fails Charge) of the GSD rulebook be amended to make such rule applicable to debentures issued by any of Fannie Mae, Freddie Mac or the Federal Home Loan Banks. The current GSD rule states that the fails charge shall be the product of the (i) funds associated with a failed position and (ii) 3 percent per annum minus the target fed funds rate that is effective at 5 p.m. EST on the business day prior to the originally scheduled settlement date, capped at 3 percent per annum. FICC is proposing to restate the formula to make it clearer by amending section (ii) of the formula to read ‘‘the greater of (a) 0 percent or (b) 3 percent per annum minus the fed funds target rate . * * *’’ This change is not meant to affect the result of the formula in any way but rather is a more precise way of stating the formula. The proposed rule change makes clear that FICC will not guaranty fails charge proceeds in the event of a default (i.e., if a defaulting member does not pay its fail charge, members due to receive fails charge proceeds will have those proceeds reduced pro-rata by the defaulting member’s unpaid amount). Timing of Implementation The fails charges will apply to transactions in Agency debentures entered into on or after February 1, 2012, as well as to transactions that were entered into, but remain unsettled as of, February 1, 2012. For transactions entered into prior to, and unsettled as of, February 1, 2012, the fails charge will begin accruing on the later of February 1, 2012, or the contractual settlement date. E:\FR\FM\14DEN1.SGM 14DEN1 77862 Federal Register / Vol. 76, No. 240 / Wednesday, December 14, 2011 / Notices III. Discussion Section 17A(b)(3)(F) of the Act 4 requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of security transactions and to generally protect investors and the public interest. Because the proposed rule discourages persistent fails in the marketplace by expanding the application of the fails charge to Agency debt securities transactions, the proposed rule change promotes the prompt and accurate clearance and settlement of security transactions and generally protects investors and the public interest and therefore is consistent with the requirements of Section 17A(b)(3)(F) of the Act. IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 5 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,6 that the proposed rule change (File No. SR– FICC–2011–08) be, and hereby is, approved.7 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.8 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–31997 Filed 12–13–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65912; File No. SR–BX– 2011–082] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Pricing for BX Members Using the NASDAQ OMX BX Equities System December 8, 2011. mstockstill on DSK4VPTVN1PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 4 15 U.S.C. 78q–1(b)(3)(F). U.S.C. 78q–1. 6 15 U.S.C. 78s(b)(2). 7 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 8 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 5 15 VerDate Mar<15>2010 15:14 Dec 13, 2011 Jkt 226001 notice is hereby given that on November 29, 2011, NASDAQ OMX BX, Inc. (‘‘BX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. 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 The Exchange proposes to modify pricing for BX Members using the NASDAQ OMX BX Equities System. The Exchange will implement the proposed rule on December 1, 2011. The text of the proposed rule change is available on the Exchange’s Web site at https:// nasdaqomxbx.cchwallstreet.com, at the principal office of the Exchange, 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, the Exchange 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. The Exchange 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 BX is proposing to modify its fees for trades that execute at prices at or above $1. BX has a pricing model under which members are charged for the execution of quotes/orders posted on the BX book (i.e., quotes/orders that provide liquidity), while members receive a rebate for orders that access liquidity. Since BX introduced this pricing model in 2009, several other exchanges have emulated it, including the EDGA Exchange, the BATS–Y Exchange, and the CBOE Stock Exchange (‘‘CBSX’’). Currently, the credit provided for orders that access liquidity is $0.0014 per share executed if the order is entered through a BX Equities System Market Participant Identifier (‘‘MPID’’) through which the PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 member accesses an average daily volume of 3.5 million or more shares of liquidity, or through which it provides an average daily volume of 25,000 or more shares of liquidity during the month. Members receive a credit of $0.0005 per share executed with respect to orders that access liquidity but that do not qualify for the requirements of this pricing tier. Effective December 1, 2011, BX will expand the criteria that enable an order to receive the higher credit to include orders entered through an MPID through which the member routes an average daily volume of 25,000 or more shares. The change reflects the fact that effective November 14, 2011, BX began offering an optional routing service to its members.3 Accordingly, as a means to incentivize members to use the new routing functionality, BX believes that it is appropriate to provide a discount to members that route significant volumes of orders using BX. 2. Statutory Basis BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,4 in general, and with Section 6(b)(4) of the Act,5 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which BX operates or controls. All similarly situated members are subject to the same fee structure, and access to BX is offered on fair and nondiscriminatory terms. The proposed change will increase the credit paid to members that access liquidity at BX in circumstances where such members also route a specified volume of orders using BX. Because members that use the BX router will pay a fee for routed orders, and because routed orders will generally check the BX book before routing and therefore may partially execute at BX, increased use of the BX router has the potential both to increase BX’s revenue and to increase the volume of order flow that checks the BX book. Such an increase in order flow may, in turn, encourage members that seek to post liquidity to post non-marketable orders at BX, thereby increasing the depth of the BX book and encouraging still greater volumes of order flow to be directed to BX. Accordingly, BX believes that it is reasonable to offer a credit to members that make significant use of the BX 3 Securities Exchange Act Release No. 65470 (October 3, 2011), 76 FR 62489 (October 7, 2011) (SR–BX–2011–048). 4 15 U.S.C. 78f. 5 15 U.S.C. 78f(b)(4). E:\FR\FM\14DEN1.SGM 14DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 240 (Wednesday, December 14, 2011)]
[Notices]
[Pages 77861-77862]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31997]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65910; File No. SR-FICC-2011-08]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Expand the Applicability of the 
Fails Charge to Agency Debt Securities Transactions

 December 8, 2011.

I. Introduction

    On October 20, 2011, the Fixed Income Clearing Corporation 
(``FICC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FICC-2011-08 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ 
The proposed rule change was published for comment in the Federal 
Register on November 1, 2011.\2\ No comment letters were received on 
the proposal. This order approves the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 34-65632 (October 26, 
2011), 76 FR 67519 (November 1, 2011).
---------------------------------------------------------------------------

II. Description

    The purpose of this rule change is to expand the applicability of 
the fails charge to Agency debt securities transactions. The Treasury 
Markets Practices Group (the ``TMPG''), a group of market participants 
active in the Treasury securities market sponsored by the Federal 
Reserve Bank of New York (the ``FRBNY''), has been addressing the 
persistent settlement fails in Agency debt securities transactions that 
have arisen, in part, due to low interest rates.
    To encourage market participants to resolve fails promptly, the 
TMPG recommended expanding the applicability of the fails charge (which 
currently applies to Treasury securities transactions) to Agency debt 
with the objective of reducing the incidence of delivery failures and 
supporting liquidity in this market.
    The TMPG had previously recommended a charge for fails on Treasury 
securities, which the Government Securities Division (the ``GSD'') 
implemented after Commission approval.\3\ At that time, the TMPG 
recommendation did not extend to Agency securities and, therefore, the 
GSD's 2009 rule filing did not cover Agency debt. However, the TMPG 
recently has expanded its recommendation to cover certain Agency 
securities and, therefore, the GSD is proposing to apply the existing 
fails charge regime to Agency debt transactions as recommended by the 
TMPG. Specifically, transactions in debentures issued by Fannie Mae, 
Freddie Mac, and the Federal Home Loan Banks now will be subject to 
this charge. The proposed fails charge for Agencies will be the same as 
that currently in place for Treasuries and is equal to the greater of: 
(a) 0 percent or (b) 3 percent per annum minus the federal funds target 
rate. The charge will accrue each calendar day a fail is outstanding.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 34-59802 (April 20, 
2009), 74 FR 19248 (April 28, 2009).
---------------------------------------------------------------------------

    The following examples illustrate the manner in which the proposed 
fails charge will apply:

    Example 1: A settlement obligation fails and the next calendar 
date is a valid FICC business date. The GSD calculates the TMPG fail 
charge from the date the fail occurs to the next valid FICC business 
date. As the next valid business date is the next calendar date, the 
member's credit/debit resulting from the TMPG fail charge is 
assessed for one day.
    Example 2: A settlement obligation fails and the next calendar 
date is a holiday occurring on a Tuesday, Wednesday or Thursday. The 
GSD calculates the TMPG fail charge from the date the fail occurs to 
the next valid FICC business date. The TMPG fail charge is assessed 
for two days; the day the fail occurs and the date of the holiday.
    Example 3: A settlement obligation fails on Friday and the 
following Monday is not a holiday. The GSD calculates the TMPG fail 
charge from the date the fail occurs to the next valid FICC business 
date. The TMPG fail charge is assessed for three days; Friday, 
Saturday and Sunday.

    FICC's Board of Directors (or appropriate Committee thereof) will 
retain the right to revoke application of the proposed charges if 
industry events or practices warrant such revocation.
    The expansion of the fails charge trading practice to the Agency 
debt market requires that Rule 11 (Netting System), Section 14 (Fails 
Charge) of the GSD rulebook be amended to make such rule applicable to 
debentures issued by any of Fannie Mae, Freddie Mac or the Federal Home 
Loan Banks. The current GSD rule states that the fails charge shall be 
the product of the (i) funds associated with a failed position and (ii) 
3 percent per annum minus the target fed funds rate that is effective 
at 5 p.m. EST on the business day prior to the originally scheduled 
settlement date, capped at 3 percent per annum. FICC is proposing to 
restate the formula to make it clearer by amending section (ii) of the 
formula to read ``the greater of (a) 0 percent or (b) 3 percent per 
annum minus the fed funds target rate . * * *'' This change is not 
meant to affect the result of the formula in any way but rather is a 
more precise way of stating the formula.
    The proposed rule change makes clear that FICC will not guaranty 
fails charge proceeds in the event of a default (i.e., if a defaulting 
member does not pay its fail charge, members due to receive fails 
charge proceeds will have those proceeds reduced pro-rata by the 
defaulting member's unpaid amount).

Timing of Implementation

    The fails charges will apply to transactions in Agency debentures 
entered into on or after February 1, 2012, as well as to transactions 
that were entered into, but remain unsettled as of, February 1, 2012. 
For transactions entered into prior to, and unsettled as of, February 
1, 2012, the fails charge will begin accruing on the later of February 
1, 2012, or the contractual settlement date.

[[Page 77862]]

III. Discussion

    Section 17A(b)(3)(F) of the Act \4\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of security transactions and to 
generally protect investors and the public interest. Because the 
proposed rule discourages persistent fails in the marketplace by 
expanding the application of the fails charge to Agency debt securities 
transactions, the proposed rule change promotes the prompt and accurate 
clearance and settlement of security transactions and generally 
protects investors and the public interest and therefore is consistent 
with the requirements of Section 17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \5\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-FICC-2011-08) be, 
and hereby is, approved.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2).
    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31997 Filed 12-13-11; 8:45 am]
BILLING CODE 8011-01-P

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