Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change to Expand the One-Pot Cross-Margining Program With New York Portfolio Clearing, LLC to Certain “Market Professionals”, 20445-20451 [2012-8042]

Download as PDF Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices basis for the financial statements that would be filed pursuant to section 30 of the Act. Under the requested relief, Applicant will provide to its members: (i) Annual audited financial statements prepared in accordance with generally accepted accounting principles and rule 1–02(d) of Regulation S–X; and (ii) unaudited quarterly financial statements prepared in accordance with generally accepted accounting principles. 5. Applicant contends that the following factors, among others, are appropriate grounds for the requested relief, particularly in view of the provisions of the Act that will apply to Applicant: (i) Sunwest Investors who were eligible to receive interests in Applicant, their counsel, investment bankers and other advisors, as well as the District Court and its appointed mediators, were active participants in designing and determining Applicant’s structure; (ii) Applicant will continue to be subject to the jurisdiction of the District Court; (iii) transferability of Applicant’s securities is severely restricted; 13 (iv) Applicant has a limited life and will liquidate upon the liquidation of Blackstone LLC; and (v) Applicant will not be engaged in the business of investing, reinvesting or trading in securities, and the only securities that Applicant may hold are its interests in Blackstone LLC and Temporary Investments pending distributions to Applicant’s members or disbursements in payment of Applicant’s obligations. 6. Accordingly, Applicant believes that the issuance of the order pursuant to sections 6(c) and 6(e) is appropriate in the public interest, and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. emcdonald on DSK29S0YB1PROD with NOTICES Applicant’s Conditions Applicant agrees that any order of the Commission granting the requested relief will be subject to the following conditions: 1. Applicant will not own or hold securities other than: (a) Interests in Blackstone LLC and (b) Temporary Investments. 2. Applicant will not offer additional securities to its members, except in connection with capital requests from Blackstone LLC or to pay its expenses. 3. If Applicant sells additional securities, such securities would be sold at a price equal to or greater than the net asset value of the securities at the time of the offering. 13 Among other restrictions, Applicant states that it will limit transfers to transfers among members or affiliates of members. VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 4. Applicant’s governing documents will not be amended to permit Applicant’s securities to be freely tradable. 5. Applicant will provide to its members: (a) Quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles and (b) annual audited financial statements prepared in accordance with generally accepted accounting principles and rule 1–02(d) of Regulation S–X. 6. Applicant will be exempt until the earlier of August 5, 2015 or such time as Applicant no longer meets the definition of an investment company under the Act. 7. Applicant will not hold itself out as an investment company. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–8061 Filed 4–3–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] eMax Worldwide, Inc.; Order of Suspension of Trading April 2, 2012. It appears to the Securities and Exchange Commission that the public interest and the protection of investors require a suspension of trading in the securities of eMax Worldwide, Inc. (CIK: 0000830519) because there is a lack of current and accurate information concerning its securities. eMax Worldwide, Inc. has failed to make periodic filings with the Commission and has more than 300 shareholders of record. eMax Worldwide, Inc. is quoted on OTC Markets Group Inc. under the ticker EMXC. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of eMax Worldwide, Inc. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of eMax Worldwide, Inc. is suspended for the period from 9:30 a.m. EDT on April 2, 2012, through 11:59 p.m. EDT on April 16, 2012. By the Commission. Jill M. Peterson, Assistant Secretary. BILLING CODE 8011–01–P PO 00000 Frm 00093 Fmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66679; File No. SR–FICC– 2012–03] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change to Expand the One-Pot Cross-Margining Program With New York Portfolio Clearing, LLC to Certain ‘‘Market Professionals’’ March 29, 2012. 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 March 20, 2012, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed change as described in Items I and II below, which Items have been prepared primarily by FICC. The Commission is publishing this notice to solicit comments on the proposed change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of modifications to certain rules of the Government Securities Division (‘‘GSD’’) of the Fixed Income Clearing Corporation (‘‘FICC’’). II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FICC 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. FICC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.3 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change FICC is proposing to expand its existing one-pot cross-margining program with New York Portfolio 1 15 [FR Doc. 2012–8165 Filed 4–2–12; 11:15 am] Sfmt 4703 20445 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Commission has modified the text of the summaries prepared by FICC. 2 17 E:\FR\FM\04APN1.SGM 04APN1 20446 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices Clearing, LLC (‘‘NYPC’’) 4 (‘‘Proprietary Cross-Margining Program’’) to include eligible positions held by GSD Netting Members and NYPC Clearing Members for certain ‘‘market professionals.’’ 5 emcdonald on DSK29S0YB1PROD with NOTICES Overview In its present form, the Proprietary Cross-Margining Program is limited to cross-margining of proprietary accounts. Specifically, from NYPC’s perspective, only a member’s proprietary or ‘‘house’’ account is eligible for cross-margining; from GSD’s perspective, all accounts maintained by GSD for its Netting Members are deemed proprietary.6 The proposed rule filing expands the Proprietary Cross-Margining Program to non-proprietary accounts carried by participating GSD Netting Members on behalf of ‘‘Market Professionals’’ (‘‘Market Professional Cross-Margining Program’’). The proposed rule change defines ‘‘Market Professional’’ as an 4 See Securities Exchange Act Release No. 34– 63986 (February 28, 2011), 76 FR 12144 (March 4, 2011). 5 The NYPC–FICC ‘‘market professional’’ crossmargining program aims to closely replicate the Options Clearing Corporation (‘‘OCC’’)-Chicago Mercantile Exchange (‘‘CME’’) cross-margining program, which was first approved in 1989 (Securities Exchange Act Release No. 34–27296 (September 26, 1989), 54 FR 41195 (October 5, 1989)) and was expanded in 1991 to include market professionals (Securities Exchange Act Release No. 34–29991 (November 26, 1991), 56 FR 61458 (December 3, 1991)). Since that time, the Commission has approved several similar ‘‘market professional’’ cross-margining programs, including most recently in 2008. They include: OCCIntermarket Clearing Corporation (‘‘ICC’’) Securities Exchange Act Release No. 34–30041 (December 5, 1991), 56 FR 68424 (December 12, 1991); OCC–ICC– CME Securities Exchange Act Release No. 34–32534 (June 28, 1993), 58 FR 36234 (July 6, 1993); OCCBoard of Trade Clearing Corporation Securities Exchange Act Release No. 34–32681 (July 27, 1993), 58 FR 41302 (August 3, 1993) ; OCC-Kansas City Board of Trade Clearing Corporation (‘‘KCBOT’’) Securities Exchange Act Release No. 34–32708 (August 2, 1993), 58 FR 42586 (August 10, 1993); OCC–ICC–Commodity Clearing Corporation (‘‘CCC’’) Securities Exchange Act Release No. 34– 33272 (December 2, 1993), 58 FR 64997 (December 10, 1993); OCC–ICC, OCC–ICC–CME, OCC–KCBOT Securities Exchange Act Release No. 34–36819 (February 7, 1996), 61 FR 5594 (February 13, 1996); OCC–CME–Securities Exchange Act Release No. 34–38584 (May 8, 1997), 62 FR 26602 (May 14, 1997); and OCC–ICE Clear U.S. Securities Exchange Act Release No. 34–57118 (January 9, 2008), 73 FR 2970 (January 16, 2008). 6 The GSD does not have segregated accounts for Netting Members’ customers. In contrast, NYPC currently maintains both proprietary and segregated customer accounts for its Clearing Members in compliance with applicable Commodity Futures Exchange Commission (‘‘CFTC’’) regulations. Only NYPC Clearing Members’ proprietary accounts at NYPC are eligible for participation in the Proprietary Cross-Margining Program. The present proposal would introduce a third type of account at NYPC that NYPC Clearing Members may maintain, i.e., the Market Professional account. The present proposal also introduces a second type of account at GSD, i.e., the Market Professional account. VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 entity, other than a ‘‘non-customer,’’ 7 that is a member of a designated contract market and that actively trades for its own account products that are eligible under the cross-margining agreement between FICC and NYPC (‘‘FICC–NYPC Cross-Margining Agreement’’) 8 for cross-margining (‘‘Eligible Products’’).9 Positions and collateral held for Market Professionals will be maintained in accounts that are distinct from both proprietary crossmargining accounts and non-crossmargining accounts.10 As with the current Proprietary CrossMargining Program, the proposed Market Professional Cross-Margining Program would be available to GSD Netting Members that carry accounts of Market Professionals and that are also clearing members of NYPC (individually a ‘‘Joint Member’’) or that have an affiliate that is a clearing member of NYPC (individually an ‘‘Affiliated Member’’). Members do not have to be participating in the Proprietary CrossMargining Program in order to participate in the proposed Market Professional Cross-Margining Program (or vice versa). The proposed rule change necessitates revisions to the FICC–NYPC CrossMargining Agreement, which are described in detail below. Additional participant agreements have been added as appendices to the FICC–NYPC CrossMargining Agreement for this purpose. 7 Consistent with previously approved market professional cross-margining programs, FICC’s rules define the term ‘‘Non-Customer’’ to mean GSD Netting Members and other persons whose accounts with GSD Netting Members would not be the accounts of ‘‘customers’’ within the meaning of SEC Rules 8c–1 and 15c2–1. 8 The FICC–NYPC Cross-Margining Agreement was approved by the Commission as part of FICC’s Rule Filing No. SR–FICC–2010–09. See note 4, supra. 9 As defined in the FICC–NYPC Cross-Margining Agreement, the term ‘‘Eligible Products’’ includes U.S. Government securities, securities of U.S. federal agencies and U.S. Government-sponsored enterprises, financing products and certain mortgage-backed securities cleared by FICC, and futures contracts and options on futures contracts, including U.S. dollar-denominated interest rate and fixed income futures contracts and options on futures contracts, cleared by NYPC. Formal inclusion of options on futures in the program will be the subject of a separate rule filing with the Commission. 10 As described above, GSD Netting Members who wish to participate in the Market Professional Cross-Margining Program will need to open an additional account for their Market Professionals. Likewise, NYPC Clearing Members wishing to participate in the program will need to open an additional account for their Market Professionals, which will be required to be separate and distinct from both their proprietary and segregated customer accounts. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 Segregation and Liquidation Considerations The proposed Market Professional Cross-Margining Program addresses concerns regarding segregation and liquidation procedures under the Commodity Exchange Act (‘‘CEA’’),11 Title 11 of the United States Code (‘‘Bankruptcy Code’’) 12 and the Securities Investor Protection Act (‘‘SIPA’’).13 The CEA requires that the property of customers must be segregated from the proprietary property of a futures commission merchant. Because Market Professionals are considered ‘‘customers’’ under CFTC regulations, the cross-margined positions of the Market Professionals and all property related thereto must be segregated from the cross-margined positions and property of the GSD Netting Member that carries their accounts. Under the proposed rule filing, each GSD Netting Member electing to participate in the Market Professional Cross-Margining Program must execute a Cross-Margining Participant Agreement for Market Professional Accounts (see Appendix C and Appendix D of the proposed Amended and Restated FICC–NYPC CrossMargining Agreement) and must establish a separate cross-margining account for the benefit of Market Professionals for whom it carries crossmargined positions (‘‘Market Professional Cross-Margining Account’’). GSD Netting Members and NYPC Clearing Members who establish Market Professional Cross-Margining Accounts must also obtain the consent of each Market Professional whose cross-margined positions are carried in such account to the commingling of the Market Professional’s assets with those of other electing Market Professionals of the same GSD Netting Member and NYPC Clearing Member (or permitted margin affiliate at NYPC); provided, however, that consistent with the requirements of CFTC Regulation 39.13(g)(8)(i) (gross margin for customer accounts), the positions of a Market Professional cleared by FICC will only be cross-margined with the derivatives positions of the same Market Professional cleared by NYPC. Moreover, because Section 4d(a)(2) of the CEA prohibits commingling futures and securities in the absence of a CFTC rule, regulation or order to the contrary, it will be necessary for NYPC to obtain from the CFTC an order stating that 11 7 U.S.C. 1–27f as amended. U.S.C. 101–1532 as amended. 13 15 U.S.C. 78aaa–78lll as amended. 12 11 E:\FR\FM\04APN1.SGM 04APN1 emcdonald on DSK29S0YB1PROD with NOTICES Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices Eligible Products that are cleared by FICC and property received by a participating GSD Netting Member to margin, guarantee, or secure trades or positions in or accruing as a result of such Eligible Products may be commingled in a Market Professional Cross-Margining Account with Eligible Products cleared by NYPC and with property received by a participating NYPC Clearing Member to margin, guarantee, or secure trades or positions in or accruing as a result of such Eligible Products that would otherwise be required by the CFTC to be segregated under the CEA. FICC has established procedures to facilitate the segregation of the funds and securities deposited or received by GSD Netting Members regarding their Market Professional cross-margining activity. For example, each GSD Netting Member must establish separate bank accounts for the purpose of making daily funds-only settlement of its proprietary cross-margining activity and for the purpose of making daily fundsonly settlement of its Market Professional cross-margining activity. In addition, FICC and NYPC will establish and use separate bank accounts for paying and collecting cash margin and funds-only settlement amounts resulting from members’ proprietary crossmargining activities and for paying and collecting such amounts resulting from members’ market professional crossmargining activity. FICC will not permit the netting of obligations arising out of a GSD Netting Member’s proprietary cross-margining activity with those arising out of its Market Professional cross-margining activity. FICC has also taken steps to assure the segregation of securities that are deposited with FICC or its agents to satisfy Clearing Fund requirements in Market Professional Cross-Margining Accounts and proprietary crossmargining accounts. For example, FICC and NYPC will establish and use separate custody accounts to hold securities deposited as margin by members for proprietary crossmargining activity and to hold securities deposited as margin by members for Market Professional cross-margining activity. FICC’s proposal also addresses the potential for conflict between SIPA, Subchapter IV of chapter 7 of the Bankruptcy Code,14 and corresponding CFTC bankruptcy regulations,15 in the event of the liquidation and distribution of the property and funds of a GSD Netting Member that is a registered 14 11 15 17 U.S.C. 761–767. CFR part 190. VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 broker-dealer.16 To establish uniform results in the event of the bankruptcy or liquidation of a broker-dealer GSD Netting Member under SIPA, FICC will require each Netting Member that chooses to participate in the Market Professional Cross-Margining Program to require that the GSD Netting Member’s participating Market Professionals agree that in the event of the bankruptcy or liquidation of the GSD Netting Member carrying its crossmargined positions, the Market Professional will subordinate its crossmargining related claims to the claims of the firm’s non-cross-margining customers.17 Similarly, each participating Market Professional must acknowledge that all of the assets carried in a GSD Netting Member’s Market Professional Cross-Margining Account on the Market Professional’s behalf will not be deemed ‘‘customer property’’ for purposes of SIPA or give rise to any claim thereunder. This means that in the event of a GSD Netting Member bankruptcy, all claims to assets in cross-margining accounts will be determined under Subchapter IV of chapter 7 of the Bankruptcy Code and applicable CFTC regulations. FICC believes these measures reduce the possibility that assets in a GSD Netting Member’s Market Professional CrossMargining Account will be subject to two conflicting schemes of distribution. In the event of a default of a member that chooses to participate in the Market Professional Cross-Margining Program, FICC and NYPC will follow the remedies outlined in the FICC–NYPC Cross-Margining Agreement to liquidate or transfer the proprietary and Market Professional Cross-Margining Accounts. Any deficit in the Market Professional Cross-Margining Account would, absent a deficit in any NYPC segregated 16 Some Market Professionals could be deemed to be ‘‘customers’’ under SIPA and Exchange Act Rule 15c3–3. Consistent with previously approved crossmargining programs, however, Market Professionals will be required to agree to subordinate their claims, in the event of the bankruptcy of a GSD Netting Member or an NYPC member, to the claims of other customers. See Securities Exchange Act Release No. 34–29991 (November 26, 1991), 56 FR 61458 (December 3, 1991) n.23. 17 Under SIPA, SIPC satisfies the claims of ‘‘customers’’ against insolvent broker-dealers up to predetermined limits. 15 U.S.C. 78fff–3. Under SIPA, however, the term ‘‘customer’’ does not include any person to the extent that such person has a claim for cash or securities which, by agreement, is subordinated to the claims of any or all creditors of the debtor. 15 U.S.C. 78lll(2)(C)(ii). Because a Market Professional will be required to subordinate its cross-margin related claims against a GSD Netting Member to those of the GSD Netting Member’s non-cross-margining customers, it will not fall within the protections afforded by SIPA. See Securities Exchange Act Release No. 34–29991 (November 26, 1991), 56 FR 61458 (December 3, 1991) n.24. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 20447 customer account of the defaulting member, be offset against any credit in any proprietary cross-margining account of the defaulting member. Non-crossmargining accounts at NYPC would be liquidated or transferred pursuant to NYPC procedures as they exist today. FICC and NYPC will not offset a credit in a Market Professional CrossMargining Account with a deficit in a proprietary cross-margin account or with any other account FICC or NYPC maintains for the defaulting member. Thus, any surplus in the Market Professional Cross-Margining Account will be returned to the member or its representative. In the event of a member bankruptcy, the Bankruptcy Code exempts FICC and NYPC from the automatic stay and permits FICC and NYPC to liquidate any assets held for the insolvent member 18 and offset those assets against the member’s liabilities.19 Assets of the member held in the Market Professional Cross-Margining Account will only be set-off against related Market Professional cross-margining liabilities. Any assets remaining after such a set-off will be transferred to the bankruptcy trustee for administration and distribution.20 If a member becomes insolvent, the Securities Investor Protection Corporation (‘‘SIPC’’) may and probably will file for a protective decree under SIPA.21 SIPC will then appoint a trustee charged with liquidating the bankrupt estate, consistent with SIPA. Under SIPA, the trustee must, to the extent not inconsistent with SIPA, administer the assets of the member held as a commodity broker in accordance with the Bankruptcy Code’s commodity broker liquidation requirements and applicable CFTC regulations.22 Even if SIPC does not exercise its power to seek appointment of a trustee and SIPA does not apply to the liquidation, a Market Professional’s claims to assets in the Market Professional Cross-Margining Account will be determined in accordance with the Bankruptcy Code’s commodity broker liquidation scheme 18 11 19 11 U.S.C. 555, 556, 560, and 561. U.S.C. 362(b)(6), 362(b)(17), 362(b)(27), and 561. 20 In the situation where an Affiliated Member becomes insolvent, assets in the Market Professional Cross-Margin Accounts of FICC and NYPC will be set-off by FICC and NYPC against related liabilities in such accounts. 21 11 U.S.C. § 742. 22 15 U.S.C. 78fff–1(b) states in part: ‘‘To the extent consistent with the provisions of this chapter or as otherwise ordered by the court, a trustee shall be subject to the same duties as a trustee in a case under chapter 7 of Title 11, including, if the debtor is a commodity broker, as defined under section 101 of such title, the duties specified in subchapter IV of such chapter 7’’. E:\FR\FM\04APN1.SGM 04APN1 20448 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices contained in Subchapter IV of chapter 7 and applicable CFTC regulations. Generally, applicable sections of the Bankruptcy Code and CFTC regulations provide for the trustee to distribute ‘‘customer property’’ 23 pro rata among ‘‘customers’’ 24 according to account class and generally give priority to customer claims over all others, except those dealing with the administration of the bankrupt estate.25 Also, assuming the trustee does not transfer customer accounts to another firm and determines to liquidate customer accounts, the trustee will distribute customer property to the claimants.26 If there is a shortfall in the Market Professional CrossMargining Account and there is no shortfall or a lesser shortfall in the noncross-margining customer account, Market Professionals will have a claim against the Market Professional CrossMargining Account and will be able to claim against the non-cross-margining customer account only after all noncross-margining customer claims have been satisfied. If the shortfall in the noncross-margining customer account is equal to or greater than the shortfall in the Market Professional Cross-Margining Account, the two accounts will be combined and Market Professionals and non-cross-margining customers will share on a pro rata basis.27 Proposed Changes to the FICC–NYPC Cross-Margining Agreement In addition to certain technical corrections and conforming changes, the FICC–NYPC Cross-Margining Agreement would be substantively amended as described below in order to incorporate the proposed Market Professional Cross-Margining Program. Capitalized terms used in this section have the meanings given to them in the FICC–NYPC Cross-Margining Agreement. Recitals emcdonald on DSK29S0YB1PROD with NOTICES The Recitals to the FICC–NYPC CrossMargining Agreement would be amended to describe the proposed expansion of the existing FICC–NYPC Cross-Margining Agreement to provide for the cross-margining of the accounts of Market Professionals, and also to reflect the fact that the current FICC– NYPC Cross-Margining Agreement was executed on March 4, 2011, after receipt 23 As defined in 11 U.S.C. 761(10) and 17 CFR 190.01(n). 24 As defined in 11 U.S.C. 761(9). 25 11 U.S.C. 766(h); see 17 CFR 190.08. 26 See generally 11 U.S.C.§ 766 and 17 CFR 190.08. 27 See 17 CFR part 190, Appendix B (Framework 1). VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 of the necessary regulatory approvals by FICC and NYPC. Section 1. Definitions Section 1(f) (Available Assets) and Section 1(tt) (Margin) The ‘‘Available Assets’’ definition would be amended to include as assets available in the event of a default any margin posted to the Defaulting Member’s Proprietary Cross-Margining Account, as well as any margin posted to the Defaulting Member’s Market Professional Cross-Margining Account. The ‘‘Margin’’ definition would be similarly amended to include original margin, option premiums and other margin collateral held by or for the account of FICC or NYPC to secure the obligations of a Cross-Margining Participant’s Proprietary CrossMargining Account and/or its Market Professional Cross-Margining Account. The ‘‘Available Assets’’ definition would be further amended to clarify that, consistent with the distributional convention established in Appendix B to Part 190 of the CFTC’s Regulations, the NYPC Guaranty Fund deposits of a Defaulting Member would first be applied to any deficit in the Customer Funds Account of the Defaulting Member carried by NYPC, and then, after any such deficit has been completely satisfied, to any CrossMargin Loss in the Defaulting Member’s Market Professional Cross-Margining Account carried by NYPC, and then finally to any Cross-Margin Loss in the Defaulting Member’s Proprietary CrossMargining Account carried by NYPC. Section 1(t) (Cross-Margin Gain) and Section 1(u) (Cross-Margin Loss) For ease of reference and to facilitate understanding of the loss allocation mechanism in the event of the liquidation of the cross-margined positions carried for a Defaulting Member by FICC and NYPC, the definitions of Cross-Margin Gain and Cross-Margin Loss would become a new subsection (b) of Section 7 of the FICC– NYPC Cross-Margining Agreement (Suspension and Liquidation of CrossMargining Participant). Section 1(y) (Customer Funds Account) The term ‘‘Segregated Funds Account’’ in the existing FICC–NYPC Cross-Margining Agreement would be replaced by the term ‘‘Customer Funds Account’’ and modified in order to clearly distinguish non-cross-margining ‘‘customer’’ accounts established by NYPC from both Market Professional Cross-Margining Accounts and Proprietary Cross-Margining Accounts. PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 Section 1(ww) (Market Professional) As described above, consistent with previously approved cross-margining programs, the term ‘‘Market Professional’’ would be defined as an entity, other than a ‘‘Non-Customer’’ (described below), that is a member of a designated contract market and that actively trades for its own account Eligible Products that are eligible for cross-margining under the FICC–NYPC Cross-Margining Agreement. Section 1(bbb) (Non-Customer) As described above, ‘‘Non-Customers’’ would be excluded from the definition of a Market Professional. With respect to a GSD Netting Member, the term ‘‘NonCustomer’’ would be defined as such GSD Netting Member or other person whose account with such GSD Netting Member would not be the account of a ‘‘customer’’ within the meaning of SEC Rules 8c–1 and 15c2–1. Section 1(sss) (Securities Custody Account) and 1(uuu) (Settlement Account) For ease of reference, the term ‘‘CrossMargining Securities Account’’ would be replaced with the term ‘‘Securities Custody Account’’ and would be expanded to include a custody account to hold Margin in the form of securities deposited by a Cross-Margining Participant in respect of a Proprietary Cross-Margining Account or a Market Professional Cross-Margining Account. Similarly, the definition of ‘‘Settlement Account’’ would be expanded to include a bank account established to hold cash Margin deposited by a CrossMargining Participant in respect of a Proprietary Cross-Margining Account or a Market Professional Cross-Margining Account. Section 2. Participation Section 2(a) would be amended and Section 2(b) and 2(c) would be added in order to accommodate the additional documentation required to establish a Set of Market Professional CrossMargining Accounts by either a Joint Clearing Member or by a Clearing Member and its Cross-Margining Affiliate. Section 5. Forms of Margin; Holding Margin Section 5(b) would be amended to reflect the fact that separate Settlement Accounts and Securities Custody Accounts would be maintained for proprietary and Market Professional cross-margining activity. Section 5(c) would be amended to allow FICC and NYPC to hold cash and securities posted with respect to cross- E:\FR\FM\04APN1.SGM 04APN1 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices margining activity in either separate accounts or, consistent with previously approved cross-margining programs, joint accounts titled in the names of FICC and NYPC. emcdonald on DSK29S0YB1PROD with NOTICES Section 7. Suspension and Liquidation of Cross-Margining Participant Section 7(a) would be amended to clarify that the positions and Margin of a Defaulting Member may be liquidated or transferred to one or more nondefaulting Clearing Members. A new Section 7(b) would be added to define ‘‘Cross-Margin Gain’’ and ‘‘Cross-Margin Loss,’’ as described above. New Section 7(b) would also make clear that in calculating its Cross-Margin Gain (or Cross-Margin Loss) or Net Gain (or Net Loss) FICC and NYPC would be required to make separate calculations with respect to the Defaulting Member’s Proprietary Cross-Margining Account and its Market Professional CrossMargining Account. Section 7(g) would be amended to provide that to the extent that pursuant to the loss allocation prescribed in Section 7, both FICC and NYPC owe payments to each other, i.e., one clearing organization owes a payment with respect to the Proprietary CrossMargining Account of a Defaulting Member and the other owes a payment with respect to the Defaulting Member’s Market Professional Cross-Margining Account, those two payments may be netted and setoff against each other. Proposed Changes to Clearing Member Agreements The FICC–NYPC Cross-Margining Agreement is solely between FICC and NYPC. Members of FICC and of NYPC that wish to participate in the CrossMargining Program must become party to a Clearing Member Cross-Margining Agreement which, among other things, reflects the Clearing Member’s agreement to be bound by the Rules applicable to cross-margining and to the provisions of the FICC–NYPC CrossMargining Agreement (‘‘Clearing Member Agreements’’). Capitalized terms used in this section have the meanings given to them in the proposed Clearing Member Agreements. The current FICC–NYPC CrossMargining Agreement includes two forms of Clearing Member Agreement— one for joint Clearing Members (i.e., entities that are members of both FICC and NYPC), the other for Clearing Members that are Affiliates of each other (i.e., a Clearing Member of either FICC or NYPC that directly or indirectly controls, is controlled by, or under common control with a Clearing Member of the other Clearing VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 Organization). Those agreements, which are set forth as Appendix A and Appendix B to the FICC–NYPC CrossMargining Agreement, would be renamed as Clearing Member CrossMargining Agreement (Joint Clearing Member—Proprietary Accounts) and Clearing Member Cross-Margining Agreement (Affiliated Clearing Members—Proprietary Accounts), and references in those agreements to a ‘‘Member’’ would be replaced with references to a ‘‘Clearing Member’’ for consistency with the terminology used in the FICC–NYPC Cross-Margining Agreement. The Clearing Member Agreements for Proprietary Accounts are proposed to be further modified to make clear that a Set of Proprietary Cross-Margining Accounts would be combined and treated as a single account for purposes of calculating Margin. This change is reflective of the current practice of the Clearing Organizations pursuant to the Cross-Margining Agreement and is proposed to be set out solely for purposes of clarity. The Clearing Member Agreements would additionally be modified to reflect the practice of the Clearing Organizations regarding the use of Clearing Data (as that term is defined in the Clearing Member Cross-Margining Agreements). Specifically, the Clearing Member Agreements would be modified to provide that Clearing Data may only be disclosed (i) to an Affiliated Clearing Member, where applicable, (ii) in accordance with the provisions of Section 10 of the Cross-Margining Agreement, and (iii) in aggregated form, provided that such aggregated Clearing Data does not identify of the Clearing Member or Affiliated Clearing Members, as applicable, as the source thereof. The termination provisions of the Clearing Member Agreements for Proprietary Accounts would also be modified to make clear that the required acknowledgment of a Clearing Member’s termination of the Agreement will be given by the Clearing Organizations promptly after the two Business Day notice period required by the Clearing Member Agreements. The termination provisions would additionally be modified to make explicit that a Clearing Member’s continuing obligations under the Clearing Member Agreements and the Cross-Margining Agreement survive the termination of the Clearing Member Agreement only to the extent those obligations arose prior to such termination. Finally, the Clearing Member CrossMargining Agreement (Affiliated Clearing Members—Proprietary Accounts) is proposed to be amended to PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 20449 include a waiver of the Clearing Members’ and the Clearing Organizations’ right to jury trial in any dispute arising in connection with that agreement. A comparable provision already is included in the Clearing Member Cross-Margining Agreement (Joint Clearing Member—Proprietary Accounts). The remaining revisions to the Clearing Member Agreements for Proprietary Accounts are nonsubstantive or conforming. While it is anticipated that some Clearing Members will elect to participate in cross-margining for their Proprietary Accounts and also act as Clearing Member for Market Professionals, a Clearing Member could elect to act in only one of those capacities. The Clearing Member Agreements in Appendices A and B to the FICC–NYPC Cross-Margining Agreement, therefore, would be complemented by a Clearing Member Cross-Margining Agreement (Joint Clearing Member—Market Professional Accounts) and Clearing Member CrossMargining Agreement (Affiliated Clearing Members—Market Professional Accounts), respectively, and a Clearing Member that elected to maintain a Set of Proprietary Cross-Margining Accounts and a Set of Market Professional Cross-Margining Accounts would be required to enter into Clearing Member Cross-Margining Agreements for both its Proprietary Accounts and for its Market Professional Accounts. The proposed Clearing Member Agreements for Market Professional Accounts (Appendices C and D to the FICC–NYPC Cross-Margining Agreement) are based upon the Clearing Member Agreements for Proprietary Accounts, but have been modified as appropriate. For example, the Clearing Member Agreements for Market Professional Accounts would make explicit that the Set of Market Professional Cross-Margining Accounts that would be established by the Clearing Organizations for a Clearing Member are to be limited to transactions and positions established by Market Professionals who have signed a Market Professional Agreement for CrossMargining in the form set forth as Exhibit A to Appendices C and D, respectively.28 28 Similar to the Clearing Member Agreements for Proprietary Accounts, the Clearing Member Agreements for Market Professional Accounts would require the Clearing Member to pledge, for itself and for each Market Professional on whose behalf positions are carried in a Set of Market Professional Cross-Margining Accounts, the positions and Margin in the Set of Market Professional Cross-Margining Accounts. Consistent therewith and with the Clearing Member E:\FR\FM\04APN1.SGM Continued 04APN1 20450 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices The Market Professional Agreements are derived from the form of Market Professional’s Agreement for CrossMargining that has previously been approved by the Commission.29 The FICC–NYPC Market Professional Agreements differ from the forms of agreement that have previously been approved in that they would be modified to reference the Eligible Products that are available for crossmargining under the FICC–NYPC CrossMargining Agreement. The FICC–NYPC Market Professional Agreements additionally would be modified to reference the definitions of the term ‘‘Market Professional’’ that would be set forth in the Rules of FICC and NYPC, and to require a Market Professional to represent and warrant that it does, in fact, qualify as such. Moreover, the FICC–NYPC Market Professional Agreements would be amended to provide that, consistent with the requirements of CFTC Regulation 39.13(g)(8)(i) (gross margin for customer accounts), the positions of a Market Professional cleared by FICC will only be cross-margined with the derivatives positions of the same Market Professional cleared by NYPC. The only other substantive change from the form of agreement previously approved by the Commission would be the elimination of a provision that would have conditioned the effectiveness of the Market Professional Agreements on the receipt of all necessary approvals by the Commission and the CFTC. FICC believes that a provision of this nature is unnecessary, given that FICC and NYPC will not permit Clearing Members to enter into Market Professional Agreements until all necessary regulatory approvals have been obtained. Proposed FICC Rule Changes emcdonald on DSK29S0YB1PROD with NOTICES In addition to the proposed changes to the FICC–NYPC Cross-Margining Agreement, FICC is proposing the following GSD rule changes to effectuate the Market Professional Cross-Margining Program. Capitalized terms used in this Agreements for Proprietary Accounts, the Clearing Member Agreements for Market Professional Accounts would include representations and warranties by the Clearing Member to the effect that it has the power to grant the foregoing security interest and that it is the sole owner of or otherwise has the right to transfer collateral to the Clearing Organizations. 29 See Exhibits 5F and 5G to Release No. 34– 57118 (January 9, 2008) (Options Clearing Corporation—ICE Clear US market professional cross-margining); see also Securities Exchange Act Release No. 34–29991(November 26, 1991), 56 FR 61458 (December 3, 1991) (Options Clearing Corporation—Chicago Mercantile Exchange market professional cross-margining). VerDate Mar<15>2010 15:28 Apr 03, 2012 Jkt 226001 section have the meanings given to them in the GSD Rules. Rule 1 (Definitions) New definitions are being added for the following terms: ‘‘Market Professional,’’ ‘‘Market Professional Agreement for Cross-Margining,’’ ‘‘Market Professional Cross-Margining Account,’’ ‘‘Non-Customer,’’ ‘‘NYPC Market Professional Account,’’ and ‘‘NYPC Proprietary Account’’ (which retains the current definition of ‘‘NYPC Account’’). ‘‘NYPC Account,’’ an existing term, is now proposed to be amended to encompass the two new terms of ‘‘NYPC Market Professional Account’’ and ‘‘NYPC Proprietary Account.’’ In addition, changes are proposed to the following definitions to reference the concepts associated with the Market Professional Cross-Margining Program: ‘‘Account,’’ ‘‘Cross-Margining Affiliate,’’ ‘‘Cross-Margining Agreement’’ and ‘‘Margin Portfolio.’’ A technical change is being proposed to the definition of ‘‘Cross-Margining Payment.’’ Rule 3 (On-Going Membership Requirements) FICC is proposing to amend Section 11 of Rule 3, which covers additional accounts requested by Members, to provide for the opening of market professional accounts and to make clear that such accounts must meet the requirements of the Cross-Margining Agreement and the GSD Rules (as with all other accounts carried by FICC for its Members). Rule 4 (Clearing Fund and Loss Allocation) FICC is proposing to amend Section 1b and Section 2 of Rule 4 to provide that the market professional account will have its own Clearing Fund calculations separate from the main account of the Netting Member, and that the rules applicable to the Clearing Fund calculations and the requirements of the Required Fund Deposit also apply Clearing Fund calculations and Required Fund Deposits associated with the market professional accounts. Rule 13 (Funds-Only Settlement) FICC is proposing to amend Section 1 and Section 5a to provide that fundsonly settlement amounts will be calculated separately for the member’s market professional account and that net-net funds only credits/debits will also apply to the market professional accounts of a Member (or its permitted margin affiliate) across FICC and NYPC, as is the case currently with the proprietary accounts. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 Rule 22A (Procedures for When the Corporation Ceases To Act) FICC is proposing to amend Section 2 of Rule 22A to provide that a liquidation gain in a Netting Member’s proprietary account will be used to offset any resulting liquidation loss in such Member’s Market Professional CrossMargining Account. Rule 29 (Release of Clearing Data) FICC is proposing to amend Rule 29 to make clear that a Member’s Clearing Data will be released to a futures clearing organization (FCO) with which FICC has a Cross-Margining Arrangement and that such data will include data regarding the Member’s market professional customers. Rule 43 (Cross-Margining Arrangements) FICC is proposing to amend Rule 43 to provide for the requirement for Netting Members who wish to participate in the Market Professional Cross-Margining Program to execute the appropriate participation agreements which are appended to the FICC–NYPC Cross-Margining Agreement as discussed above. FICC believes the proposed change is consistent with Section 17A of the Act and the rules and regulations thereunder because it will facilitate the establishment of linked or coordinated facilities for clearance and settlement of transactions in securities and contracts of sale for future delivery by providing for the cross-margining of members’ Market Professionals’ positions held at FICC and NYPC. (B) Self-Regulatory Organization’s Statement on Burden on Competition FICC does not believe that the proposed rule change would impose any burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed rule change have not yet been solicited or received. FICC will notify the Commission of any written comments received by FICC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which E:\FR\FM\04APN1.SGM 04APN1 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Notices the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. Electronic Comments • Use the Commissions Internet comment form (https://www.sec.gov/ rules/sro.shtml) or Send an email to rule-comments@sec.gov. Please include File Number SR–FICC–2012–03 on the subject line. emcdonald on DSK29S0YB1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FICC–2012–03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule 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 Section, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FICC and on FICC’s Web site at https:// www.dtcc.com/downloads/legal/ rule_filings/2012/ficc/ SR_FICC_2012_03.pdf. 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–FICC– 2012–03 and should be submitted on or before April 25, 2012. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.30 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–8042 Filed 4–3–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66680; File Nos. SR–BATS– 2011–038; SR–BYX–2011–025; SR–BX– 2011–068; SR–CBOE–2011–087; SR–C2– 2011–024; SR–CHX–2011–30; SR–EDGA– 2011–31; SR–EDGX–2011–30; SR–FINRA– 2011–054; SR–ISE–2011–61; SR–NASDAQ– 2011–131; SR–NSX–2011–11; SR–NYSE– 2011–48; SR–NYSEAmex–2011–73; SR– NYSEArca–2011–68; SR–Phlx–2011–129] Self-Regulatory Organizations; BATS Exchange, Inc.; BATS Y–Exchange, Inc.; NASDAQ OMX BX, Inc.; Chicago Board Options Exchange, Incorporated; C2 Options Exchange, Incorporated; Chicago Stock Exchange, Inc.; EDGA Exchange, Inc.; EDGX Exchange, Inc.; Financial Industry Regulatory Authority, Inc.; International Securities Exchange LLC; The NASDAQ Stock Market LLC; New York Stock Exchange LLC; NYSE Amex LLC; NYSE Arca, Inc.; National Stock Exchange, Inc.; NASDAX OMX PHLX LLC; Notice of Designation of Longer Period for Commission Action on Proceedings To Determine Whether To Disapprove Proposed Rule Changes Relating to Trading Halts Due to Extraordinary Market Volatility March 29, 2012. On September 27, 2011, each of BATS Exchange, Inc. (‘‘BATS’’), BATS Y– Exchange, Inc. (‘‘BYX’’), NASDAQ OMX BX, Inc. (‘‘BX’’), Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), C2 Options Exchange, Incorporated (‘‘C2’’), Chicago Stock Exchange, Inc. (‘‘CHX’’), EDGA Exchange, Inc. (‘‘EDGA’’), EDGX Exchange, Inc. (‘‘EDGX’’), Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), International Securities Exchange LLC (‘‘ISE’’), The NASDAQ Stock Market LLC (‘‘Nasdaq’’), National Stock Exchange, Inc. (‘‘NSX’’), New York Stock Exchange LLC (‘‘NYSE’’), NYSE Amex LLC (‘‘NYSE Amex’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), and NASDAQ OMX PHLX LLC (‘‘Phlx’’) 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 proposed rule changes (the ‘‘SRO Proposals’’) to 1 15 30 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 15:28 Apr 03, 2012 2 17 Jkt 226001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00099 Fmt 4703 Sfmt 4703 20451 amend certain of their respective rules relating to trading halts due to extraordinary market volatility. The SRO Proposals were published for comment in the Federal Register on October 4, 2011.3 The Commission received seven comment letters on the SRO Proposals.4 On November 17, 2011, the Commission extended the time period in which to either approve the SRO Proposals, disapprove the SRO Proposals, or to institute proceedings to determine whether to disapprove the SRO Proposals, to December 30, 2011.5 On December 28, 2011, the Commission instituted proceedings to determine whether to approve or disapprove the SRO Proposals.6 The Commission thereafter received an additional three comment letters on the SRO Proposals.7 Section 19(b)(2) of the Act 8 provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the 3 See Securities Exchange Act Release Nos. 65437 (September 28, 2011), 76 FR 61466; 65428 (September 28, 2011), 76 FR 61435; 65429 (September 28, 2011), 76 FR 61432; 65433 (September 28, 2011), 76 FR 61453; 65438 (September 28, 2011), 76 FR 61447; 65426 (September 28, 2011), 76 FR 61460; 65431 (September 28, 2011), 76 FR 61425; 65440 (September 28, 2011), 76 FR 61444; 65430 (September 28, 2011), 76 FR 61429; 65425 (September 28, 2011), 76 FR 61438; 65435 (September 28, 2011), 76 FR 61416 ; 65436 (September 28, 2011), 76 FR 61450; 65427 (September 28, 2011), 76 FR 61457; 65432 (September 28, 2011), 76 FR 61422; 65439 (September 28, 2011), 76 FR 61463; 65434 (September 28, 2011), 76 FR 61419 (collectively, the ‘‘Notices’’). 4 See Letter to Elizabeth M. Murphy, Secretary, Commission, from Ann L. Vlcek, Managing Director and Associate General Counsel, the Securities Industry and Financial Markets Association, dated October 27, 2011; Letter to Commission, from James J. Angel, Ph.D., CFA, Associate Professor of Finance, Georgetown University, McDonough School of Business, dated October 25, 2011; Letter to Elizabeth M. Murphy, Secretary, Commission, from Craig S. Donohue, CME Group, Inc., dated October 25, 2011; Letter to Elizabeth M. Murphy, Secretary, Commission, from Commissioner Bart Chilton, Commodity Futures Trading Commission, dated October 25, 2011; Letter to Elizabeth M. Murphy, Secretary, Commission, from Richard H. Baker, President and CEO, Managed Funds Association, dated October 25, 2011; Letter from Suzanne H. Shatto, dated October 20, 2011; Letter from Mark Roszak, dated October 4, 2011. 5 See Securities Exchange Act Release No. 65770 (November 17, 2011), 76 FR 72492 (November 23, 2011). 6 See Securities Exchange Act Release No. 66065 (December 28, 2011), 77 FR 316 (January 4, 2012) (‘‘Order Instituting Proceedings’’). 7 See letters to Elizabeth Murphy, Secretary, Commission, from Timothy Quast, Managing Director, ModernIR, dated January 20, 2012; Craig S. Donohue, Chief Executive Officer, CME Group, Inc., dated January 25, 2012, and Ann L. Vlcek, Managing Director and Associate General Counsel, the Securities Industry and Financial Markets Association, dated February 7, 2012. 8 15 U.S.C. 78s(b)(2). E:\FR\FM\04APN1.SGM 04APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 65 (Wednesday, April 4, 2012)]
[Notices]
[Pages 20445-20451]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66679; File No. SR-FICC-2012-03]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change to Expand the One-Pot Cross-
Margining Program With New York Portfolio Clearing, LLC to Certain 
``Market Professionals''

March 29, 2012.
    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 March 20, 2012, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed change as described in Items I and II below, which Items have 
been prepared primarily by FICC. The Commission is publishing this 
notice to solicit comments on the proposed change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of modifications to certain rules 
of the Government Securities Division (``GSD'') of the Fixed Income 
Clearing Corporation (``FICC'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FICC 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. FICC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by FICC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    FICC is proposing to expand its existing one-pot cross-margining 
program with New York Portfolio

[[Page 20446]]

Clearing, LLC (``NYPC'') \4\ (``Proprietary Cross-Margining Program'') 
to include eligible positions held by GSD Netting Members and NYPC 
Clearing Members for certain ``market professionals.'' \5\
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    \4\ See Securities Exchange Act Release No. 34-63986 (February 
28, 2011), 76 FR 12144 (March 4, 2011).
    \5\ The NYPC-FICC ``market professional'' cross-margining 
program aims to closely replicate the Options Clearing Corporation 
(``OCC'')-Chicago Mercantile Exchange (``CME'') cross-margining 
program, which was first approved in 1989 (Securities Exchange Act 
Release No. 34-27296 (September 26, 1989), 54 FR 41195 (October 5, 
1989)) and was expanded in 1991 to include market professionals 
(Securities Exchange Act Release No. 34-29991 (November 26, 1991), 
56 FR 61458 (December 3, 1991)). Since that time, the Commission has 
approved several similar ``market professional'' cross-margining 
programs, including most recently in 2008. They include: OCC-
Intermarket Clearing Corporation (``ICC'') Securities Exchange Act 
Release No. 34-30041 (December 5, 1991), 56 FR 68424 (December 12, 
1991); OCC-ICC-CME Securities Exchange Act Release No. 34-32534 
(June 28, 1993), 58 FR 36234 (July 6, 1993); OCC-Board of Trade 
Clearing Corporation Securities Exchange Act Release No. 34-32681 
(July 27, 1993), 58 FR 41302 (August 3, 1993) ; OCC-Kansas City 
Board of Trade Clearing Corporation (``KCBOT'') Securities Exchange 
Act Release No. 34-32708 (August 2, 1993), 58 FR 42586 (August 10, 
1993); OCC-ICC-Commodity Clearing Corporation (``CCC'') Securities 
Exchange Act Release No. 34-33272 (December 2, 1993), 58 FR 64997 
(December 10, 1993); OCC-ICC, OCC-ICC-CME, OCC-KCBOT Securities 
Exchange Act Release No. 34-36819 (February 7, 1996), 61 FR 5594 
(February 13, 1996); OCC-CME-Securities Exchange Act Release No. 34-
38584 (May 8, 1997), 62 FR 26602 (May 14, 1997); and OCC-ICE Clear 
U.S. Securities Exchange Act Release No. 34-57118 (January 9, 2008), 
73 FR 2970 (January 16, 2008).
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Overview
    In its present form, the Proprietary Cross-Margining Program is 
limited to cross-margining of proprietary accounts. Specifically, from 
NYPC's perspective, only a member's proprietary or ``house'' account is 
eligible for cross-margining; from GSD's perspective, all accounts 
maintained by GSD for its Netting Members are deemed proprietary.\6\ 
The proposed rule filing expands the Proprietary Cross-Margining 
Program to non-proprietary accounts carried by participating GSD 
Netting Members on behalf of ``Market Professionals'' (``Market 
Professional Cross-Margining Program''). The proposed rule change 
defines ``Market Professional'' as an entity, other than a ``non-
customer,'' \7\ that is a member of a designated contract market and 
that actively trades for its own account products that are eligible 
under the cross-margining agreement between FICC and NYPC (``FICC-NYPC 
Cross-Margining Agreement'') \8\ for cross-margining (``Eligible 
Products'').\9\ Positions and collateral held for Market Professionals 
will be maintained in accounts that are distinct from both proprietary 
cross-margining accounts and non-cross-margining accounts.\10\
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    \6\ The GSD does not have segregated accounts for Netting 
Members' customers. In contrast, NYPC currently maintains both 
proprietary and segregated customer accounts for its Clearing 
Members in compliance with applicable Commodity Futures Exchange 
Commission (``CFTC'') regulations. Only NYPC Clearing Members' 
proprietary accounts at NYPC are eligible for participation in the 
Proprietary Cross-Margining Program. The present proposal would 
introduce a third type of account at NYPC that NYPC Clearing Members 
may maintain, i.e., the Market Professional account. The present 
proposal also introduces a second type of account at GSD, i.e., the 
Market Professional account.
    \7\ Consistent with previously approved market professional 
cross-margining programs, FICC's rules define the term ``Non-
Customer'' to mean GSD Netting Members and other persons whose 
accounts with GSD Netting Members would not be the accounts of 
``customers'' within the meaning of SEC Rules 8c-1 and 15c2-1.
    \8\ The FICC-NYPC Cross-Margining Agreement was approved by the 
Commission as part of FICC's Rule Filing No. SR-FICC-2010-09. See 
note 4, supra.
    \9\ As defined in the FICC-NYPC Cross-Margining Agreement, the 
term ``Eligible Products'' includes U.S. Government securities, 
securities of U.S. federal agencies and U.S. Government-sponsored 
enterprises, financing products and certain mortgage-backed 
securities cleared by FICC, and futures contracts and options on 
futures contracts, including U.S. dollar-denominated interest rate 
and fixed income futures contracts and options on futures contracts, 
cleared by NYPC. Formal inclusion of options on futures in the 
program will be the subject of a separate rule filing with the 
Commission.
    \10\ As described above, GSD Netting Members who wish to 
participate in the Market Professional Cross-Margining Program will 
need to open an additional account for their Market Professionals. 
Likewise, NYPC Clearing Members wishing to participate in the 
program will need to open an additional account for their Market 
Professionals, which will be required to be separate and distinct 
from both their proprietary and segregated customer accounts.
---------------------------------------------------------------------------

    As with the current Proprietary Cross-Margining Program, the 
proposed Market Professional Cross-Margining Program would be available 
to GSD Netting Members that carry accounts of Market Professionals and 
that are also clearing members of NYPC (individually a ``Joint 
Member'') or that have an affiliate that is a clearing member of NYPC 
(individually an ``Affiliated Member''). Members do not have to be 
participating in the Proprietary Cross-Margining Program in order to 
participate in the proposed Market Professional Cross-Margining Program 
(or vice versa).
    The proposed rule change necessitates revisions to the FICC-NYPC 
Cross-Margining Agreement, which are described in detail below. 
Additional participant agreements have been added as appendices to the 
FICC-NYPC Cross-Margining Agreement for this purpose.
Segregation and Liquidation Considerations
    The proposed Market Professional Cross-Margining Program addresses 
concerns regarding segregation and liquidation procedures under the 
Commodity Exchange Act (``CEA''),\11\ Title 11 of the United States 
Code (``Bankruptcy Code'') \12\ and the Securities Investor Protection 
Act (``SIPA'').\13\ The CEA requires that the property of customers 
must be segregated from the proprietary property of a futures 
commission merchant. Because Market Professionals are considered 
``customers'' under CFTC regulations, the cross-margined positions of 
the Market Professionals and all property related thereto must be 
segregated from the cross-margined positions and property of the GSD 
Netting Member that carries their accounts.
---------------------------------------------------------------------------

    \11\ 7 U.S.C. 1-27f as amended.
    \12\ 11 U.S.C. 101-1532 as amended.
    \13\ 15 U.S.C. 78aaa-78lll as amended.
---------------------------------------------------------------------------

    Under the proposed rule filing, each GSD Netting Member electing to 
participate in the Market Professional Cross-Margining Program must 
execute a Cross-Margining Participant Agreement for Market Professional 
Accounts (see Appendix C and Appendix D of the proposed Amended and 
Restated FICC-NYPC Cross-Margining Agreement) and must establish a 
separate cross-margining account for the benefit of Market 
Professionals for whom it carries cross-margined positions (``Market 
Professional Cross-Margining Account''). GSD Netting Members and NYPC 
Clearing Members who establish Market Professional Cross-Margining 
Accounts must also obtain the consent of each Market Professional whose 
cross-margined positions are carried in such account to the commingling 
of the Market Professional's assets with those of other electing Market 
Professionals of the same GSD Netting Member and NYPC Clearing Member 
(or permitted margin affiliate at NYPC); provided, however, that 
consistent with the requirements of CFTC Regulation 39.13(g)(8)(i) 
(gross margin for customer accounts), the positions of a Market 
Professional cleared by FICC will only be cross-margined with the 
derivatives positions of the same Market Professional cleared by NYPC. 
Moreover, because Section 4d(a)(2) of the CEA prohibits commingling 
futures and securities in the absence of a CFTC rule, regulation or 
order to the contrary, it will be necessary for NYPC to obtain from the 
CFTC an order stating that

[[Page 20447]]

Eligible Products that are cleared by FICC and property received by a 
participating GSD Netting Member to margin, guarantee, or secure trades 
or positions in or accruing as a result of such Eligible Products may 
be commingled in a Market Professional Cross-Margining Account with 
Eligible Products cleared by NYPC and with property received by a 
participating NYPC Clearing Member to margin, guarantee, or secure 
trades or positions in or accruing as a result of such Eligible 
Products that would otherwise be required by the CFTC to be segregated 
under the CEA.
    FICC has established procedures to facilitate the segregation of 
the funds and securities deposited or received by GSD Netting Members 
regarding their Market Professional cross-margining activity. For 
example, each GSD Netting Member must establish separate bank accounts 
for the purpose of making daily funds-only settlement of its 
proprietary cross-margining activity and for the purpose of making 
daily funds-only settlement of its Market Professional cross-margining 
activity. In addition, FICC and NYPC will establish and use separate 
bank accounts for paying and collecting cash margin and funds-only 
settlement amounts resulting from members' proprietary cross-margining 
activities and for paying and collecting such amounts resulting from 
members' market professional cross-margining activity. FICC will not 
permit the netting of obligations arising out of a GSD Netting Member's 
proprietary cross-margining activity with those arising out of its 
Market Professional cross-margining activity.
    FICC has also taken steps to assure the segregation of securities 
that are deposited with FICC or its agents to satisfy Clearing Fund 
requirements in Market Professional Cross-Margining Accounts and 
proprietary cross-margining accounts. For example, FICC and NYPC will 
establish and use separate custody accounts to hold securities 
deposited as margin by members for proprietary cross-margining activity 
and to hold securities deposited as margin by members for Market 
Professional cross-margining activity.
    FICC's proposal also addresses the potential for conflict between 
SIPA, Subchapter IV of chapter 7 of the Bankruptcy Code,\14\ and 
corresponding CFTC bankruptcy regulations,\15\ in the event of the 
liquidation and distribution of the property and funds of a GSD Netting 
Member that is a registered broker-dealer.\16\ To establish uniform 
results in the event of the bankruptcy or liquidation of a broker-
dealer GSD Netting Member under SIPA, FICC will require each Netting 
Member that chooses to participate in the Market Professional Cross-
Margining Program to require that the GSD Netting Member's 
participating Market Professionals agree that in the event of the 
bankruptcy or liquidation of the GSD Netting Member carrying its cross-
margined positions, the Market Professional will subordinate its cross-
margining related claims to the claims of the firm's non-cross-
margining customers.\17\ Similarly, each participating Market 
Professional must acknowledge that all of the assets carried in a GSD 
Netting Member's Market Professional Cross-Margining Account on the 
Market Professional's behalf will not be deemed ``customer property'' 
for purposes of SIPA or give rise to any claim thereunder. This means 
that in the event of a GSD Netting Member bankruptcy, all claims to 
assets in cross-margining accounts will be determined under Subchapter 
IV of chapter 7 of the Bankruptcy Code and applicable CFTC regulations. 
FICC believes these measures reduce the possibility that assets in a 
GSD Netting Member's Market Professional Cross-Margining Account will 
be subject to two conflicting schemes of distribution.
---------------------------------------------------------------------------

    \14\ 11 U.S.C. 761-767.
    \15\ 17 CFR part 190.
    \16\ Some Market Professionals could be deemed to be 
``customers'' under SIPA and Exchange Act Rule 15c3-3. Consistent 
with previously approved cross-margining programs, however, Market 
Professionals will be required to agree to subordinate their claims, 
in the event of the bankruptcy of a GSD Netting Member or an NYPC 
member, to the claims of other customers. See Securities Exchange 
Act Release No. 34-29991 (November 26, 1991), 56 FR 61458 (December 
3, 1991) n.23.
    \17\ Under SIPA, SIPC satisfies the claims of ``customers'' 
against insolvent broker-dealers up to predetermined limits. 15 
U.S.C. 78fff-3. Under SIPA, however, the term ``customer'' does not 
include any person to the extent that such person has a claim for 
cash or securities which, by agreement, is subordinated to the 
claims of any or all creditors of the debtor. 15 U.S.C. 
78lll(2)(C)(ii). Because a Market Professional will be required to 
subordinate its cross-margin related claims against a GSD Netting 
Member to those of the GSD Netting Member's non-cross-margining 
customers, it will not fall within the protections afforded by SIPA. 
See Securities Exchange Act Release No. 34-29991 (November 26, 
1991), 56 FR 61458 (December 3, 1991) n.24.
---------------------------------------------------------------------------

    In the event of a default of a member that chooses to participate 
in the Market Professional Cross-Margining Program, FICC and NYPC will 
follow the remedies outlined in the FICC-NYPC Cross-Margining Agreement 
to liquidate or transfer the proprietary and Market Professional Cross-
Margining Accounts. Any deficit in the Market Professional Cross-
Margining Account would, absent a deficit in any NYPC segregated 
customer account of the defaulting member, be offset against any credit 
in any proprietary cross-margining account of the defaulting member. 
Non-cross-margining accounts at NYPC would be liquidated or transferred 
pursuant to NYPC procedures as they exist today. FICC and NYPC will not 
offset a credit in a Market Professional Cross-Margining Account with a 
deficit in a proprietary cross-margin account or with any other account 
FICC or NYPC maintains for the defaulting member. Thus, any surplus in 
the Market Professional Cross-Margining Account will be returned to the 
member or its representative.
    In the event of a member bankruptcy, the Bankruptcy Code exempts 
FICC and NYPC from the automatic stay and permits FICC and NYPC to 
liquidate any assets held for the insolvent member \18\ and offset 
those assets against the member's liabilities.\19\ Assets of the member 
held in the Market Professional Cross-Margining Account will only be 
set-off against related Market Professional cross-margining 
liabilities. Any assets remaining after such a set-off will be 
transferred to the bankruptcy trustee for administration and 
distribution.\20\
---------------------------------------------------------------------------

    \18\ 11 U.S.C. 555, 556, 560, and 561.
    \19\ 11 U.S.C. 362(b)(6), 362(b)(17), 362(b)(27), and 561.
    \20\ In the situation where an Affiliated Member becomes 
insolvent, assets in the Market Professional Cross-Margin Accounts 
of FICC and NYPC will be set-off by FICC and NYPC against related 
liabilities in such accounts.
---------------------------------------------------------------------------

    If a member becomes insolvent, the Securities Investor Protection 
Corporation (``SIPC'') may and probably will file for a protective 
decree under SIPA.\21\ SIPC will then appoint a trustee charged with 
liquidating the bankrupt estate, consistent with SIPA. Under SIPA, the 
trustee must, to the extent not inconsistent with SIPA, administer the 
assets of the member held as a commodity broker in accordance with the 
Bankruptcy Code's commodity broker liquidation requirements and 
applicable CFTC regulations.\22\ Even if SIPC does not exercise its 
power to seek appointment of a trustee and SIPA does not apply to the 
liquidation, a Market Professional's claims to assets in the Market 
Professional Cross-Margining Account will be determined in accordance 
with the Bankruptcy Code's commodity broker liquidation scheme

[[Page 20448]]

contained in Subchapter IV of chapter 7 and applicable CFTC 
regulations.
---------------------------------------------------------------------------

    \21\ 11 U.S.C. Sec.  742.
    \22\ 15 U.S.C. 78fff-1(b) states in part: ``To the extent 
consistent with the provisions of this chapter or as otherwise 
ordered by the court, a trustee shall be subject to the same duties 
as a trustee in a case under chapter 7 of Title 11, including, if 
the debtor is a commodity broker, as defined under section 101 of 
such title, the duties specified in subchapter IV of such chapter 
7''.
---------------------------------------------------------------------------

    Generally, applicable sections of the Bankruptcy Code and CFTC 
regulations provide for the trustee to distribute ``customer property'' 
\23\ pro rata among ``customers'' \24\ according to account class and 
generally give priority to customer claims over all others, except 
those dealing with the administration of the bankrupt estate.\25\ Also, 
assuming the trustee does not transfer customer accounts to another 
firm and determines to liquidate customer accounts, the trustee will 
distribute customer property to the claimants.\26\ If there is a 
shortfall in the Market Professional Cross-Margining Account and there 
is no shortfall or a lesser shortfall in the non-cross-margining 
customer account, Market Professionals will have a claim against the 
Market Professional Cross-Margining Account and will be able to claim 
against the non-cross-margining customer account only after all non-
cross-margining customer claims have been satisfied. If the shortfall 
in the non-cross-margining customer account is equal to or greater than 
the shortfall in the Market Professional Cross-Margining Account, the 
two accounts will be combined and Market Professionals and non-cross-
margining customers will share on a pro rata basis.\27\
---------------------------------------------------------------------------

    \23\ As defined in 11 U.S.C. 761(10) and 17 CFR 190.01(n).
    \24\ As defined in 11 U.S.C. 761(9).
    \25\ 11 U.S.C. 766(h); see 17 CFR 190.08.
    \26\ See generally 11 U.S.C.Sec.  766 and 17 CFR 190.08.
    \27\ See 17 CFR part 190, Appendix B (Framework 1).
---------------------------------------------------------------------------

Proposed Changes to the FICC-NYPC Cross-Margining Agreement
    In addition to certain technical corrections and conforming 
changes, the FICC-NYPC Cross-Margining Agreement would be substantively 
amended as described below in order to incorporate the proposed Market 
Professional Cross-Margining Program. Capitalized terms used in this 
section have the meanings given to them in the FICC-NYPC Cross-
Margining Agreement.

Recitals

    The Recitals to the FICC-NYPC Cross-Margining Agreement would be 
amended to describe the proposed expansion of the existing FICC-NYPC 
Cross-Margining Agreement to provide for the cross-margining of the 
accounts of Market Professionals, and also to reflect the fact that the 
current FICC-NYPC Cross-Margining Agreement was executed on March 4, 
2011, after receipt of the necessary regulatory approvals by FICC and 
NYPC.
Section 1. Definitions

Section 1(f) (Available Assets) and Section 1(tt) (Margin)

    The ``Available Assets'' definition would be amended to include as 
assets available in the event of a default any margin posted to the 
Defaulting Member's Proprietary Cross-Margining Account, as well as any 
margin posted to the Defaulting Member's Market Professional Cross-
Margining Account. The ``Margin'' definition would be similarly amended 
to include original margin, option premiums and other margin collateral 
held by or for the account of FICC or NYPC to secure the obligations of 
a Cross-Margining Participant's Proprietary Cross-Margining Account 
and/or its Market Professional Cross-Margining Account.
    The ``Available Assets'' definition would be further amended to 
clarify that, consistent with the distributional convention established 
in Appendix B to Part 190 of the CFTC's Regulations, the NYPC Guaranty 
Fund deposits of a Defaulting Member would first be applied to any 
deficit in the Customer Funds Account of the Defaulting Member carried 
by NYPC, and then, after any such deficit has been completely 
satisfied, to any Cross-Margin Loss in the Defaulting Member's Market 
Professional Cross-Margining Account carried by NYPC, and then finally 
to any Cross-Margin Loss in the Defaulting Member's Proprietary Cross-
Margining Account carried by NYPC.

Section 1(t) (Cross-Margin Gain) and Section 1(u) (Cross-Margin Loss)

    For ease of reference and to facilitate understanding of the loss 
allocation mechanism in the event of the liquidation of the cross-
margined positions carried for a Defaulting Member by FICC and NYPC, 
the definitions of Cross-Margin Gain and Cross-Margin Loss would become 
a new subsection (b) of Section 7 of the FICC-NYPC Cross-Margining 
Agreement (Suspension and Liquidation of Cross-Margining Participant).

Section 1(y) (Customer Funds Account)

    The term ``Segregated Funds Account'' in the existing FICC-NYPC 
Cross-Margining Agreement would be replaced by the term ``Customer 
Funds Account'' and modified in order to clearly distinguish non-cross-
margining ``customer'' accounts established by NYPC from both Market 
Professional Cross-Margining Accounts and Proprietary Cross-Margining 
Accounts.

Section 1(ww) (Market Professional)

    As described above, consistent with previously approved cross-
margining programs, the term ``Market Professional'' would be defined 
as an entity, other than a ``Non-Customer'' (described below), that is 
a member of a designated contract market and that actively trades for 
its own account Eligible Products that are eligible for cross-margining 
under the FICC-NYPC Cross-Margining Agreement.

Section 1(bbb) (Non-Customer)

    As described above, ``Non-Customers'' would be excluded from the 
definition of a Market Professional. With respect to a GSD Netting 
Member, the term ``Non-Customer'' would be defined as such GSD Netting 
Member or other person whose account with such GSD Netting Member would 
not be the account of a ``customer'' within the meaning of SEC Rules 
8c-1 and 15c2-1.

Section 1(sss) (Securities Custody Account) and 1(uuu) (Settlement 
Account)

    For ease of reference, the term ``Cross-Margining Securities 
Account'' would be replaced with the term ``Securities Custody 
Account'' and would be expanded to include a custody account to hold 
Margin in the form of securities deposited by a Cross-Margining 
Participant in respect of a Proprietary Cross-Margining Account or a 
Market Professional Cross-Margining Account. Similarly, the definition 
of ``Settlement Account'' would be expanded to include a bank account 
established to hold cash Margin deposited by a Cross-Margining 
Participant in respect of a Proprietary Cross-Margining Account or a 
Market Professional Cross-Margining Account.
Section 2. Participation
    Section 2(a) would be amended and Section 2(b) and 2(c) would be 
added in order to accommodate the additional documentation required to 
establish a Set of Market Professional Cross-Margining Accounts by 
either a Joint Clearing Member or by a Clearing Member and its Cross-
Margining Affiliate.
Section 5. Forms of Margin; Holding Margin
    Section 5(b) would be amended to reflect the fact that separate 
Settlement Accounts and Securities Custody Accounts would be maintained 
for proprietary and Market Professional cross-margining activity.
    Section 5(c) would be amended to allow FICC and NYPC to hold cash 
and securities posted with respect to cross-

[[Page 20449]]

margining activity in either separate accounts or, consistent with 
previously approved cross-margining programs, joint accounts titled in 
the names of FICC and NYPC.
Section 7. Suspension and Liquidation of Cross-Margining Participant
    Section 7(a) would be amended to clarify that the positions and 
Margin of a Defaulting Member may be liquidated or transferred to one 
or more non-defaulting Clearing Members. A new Section 7(b) would be 
added to define ``Cross-Margin Gain'' and ``Cross-Margin Loss,'' as 
described above. New Section 7(b) would also make clear that in 
calculating its Cross-Margin Gain (or Cross-Margin Loss) or Net Gain 
(or Net Loss) FICC and NYPC would be required to make separate 
calculations with respect to the Defaulting Member's Proprietary Cross-
Margining Account and its Market Professional Cross-Margining Account.
    Section 7(g) would be amended to provide that to the extent that 
pursuant to the loss allocation prescribed in Section 7, both FICC and 
NYPC owe payments to each other, i.e., one clearing organization owes a 
payment with respect to the Proprietary Cross-Margining Account of a 
Defaulting Member and the other owes a payment with respect to the 
Defaulting Member's Market Professional Cross-Margining Account, those 
two payments may be netted and setoff against each other.
Proposed Changes to Clearing Member Agreements
    The FICC-NYPC Cross-Margining Agreement is solely between FICC and 
NYPC. Members of FICC and of NYPC that wish to participate in the 
Cross-Margining Program must become party to a Clearing Member Cross-
Margining Agreement which, among other things, reflects the Clearing 
Member's agreement to be bound by the Rules applicable to cross-
margining and to the provisions of the FICC-NYPC Cross-Margining 
Agreement (``Clearing Member Agreements''). Capitalized terms used in 
this section have the meanings given to them in the proposed Clearing 
Member Agreements.
    The current FICC-NYPC Cross-Margining Agreement includes two forms 
of Clearing Member Agreement--one for joint Clearing Members (i.e., 
entities that are members of both FICC and NYPC), the other for 
Clearing Members that are Affiliates of each other (i.e., a Clearing 
Member of either FICC or NYPC that directly or indirectly controls, is 
controlled by, or under common control with a Clearing Member of the 
other Clearing Organization). Those agreements, which are set forth as 
Appendix A and Appendix B to the FICC-NYPC Cross-Margining Agreement, 
would be renamed as Clearing Member Cross-Margining Agreement (Joint 
Clearing Member--Proprietary Accounts) and Clearing Member Cross-
Margining Agreement (Affiliated Clearing Members--Proprietary 
Accounts), and references in those agreements to a ``Member'' would be 
replaced with references to a ``Clearing Member'' for consistency with 
the terminology used in the FICC-NYPC Cross-Margining Agreement.
    The Clearing Member Agreements for Proprietary Accounts are 
proposed to be further modified to make clear that a Set of Proprietary 
Cross-Margining Accounts would be combined and treated as a single 
account for purposes of calculating Margin. This change is reflective 
of the current practice of the Clearing Organizations pursuant to the 
Cross-Margining Agreement and is proposed to be set out solely for 
purposes of clarity.
    The Clearing Member Agreements would additionally be modified to 
reflect the practice of the Clearing Organizations regarding the use of 
Clearing Data (as that term is defined in the Clearing Member Cross-
Margining Agreements). Specifically, the Clearing Member Agreements 
would be modified to provide that Clearing Data may only be disclosed 
(i) to an Affiliated Clearing Member, where applicable, (ii) in 
accordance with the provisions of Section 10 of the Cross-Margining 
Agreement, and (iii) in aggregated form, provided that such aggregated 
Clearing Data does not identify of the Clearing Member or Affiliated 
Clearing Members, as applicable, as the source thereof.
    The termination provisions of the Clearing Member Agreements for 
Proprietary Accounts would also be modified to make clear that the 
required acknowledgment of a Clearing Member's termination of the 
Agreement will be given by the Clearing Organizations promptly after 
the two Business Day notice period required by the Clearing Member 
Agreements. The termination provisions would additionally be modified 
to make explicit that a Clearing Member's continuing obligations under 
the Clearing Member Agreements and the Cross-Margining Agreement 
survive the termination of the Clearing Member Agreement only to the 
extent those obligations arose prior to such termination.
    Finally, the Clearing Member Cross-Margining Agreement (Affiliated 
Clearing Members--Proprietary Accounts) is proposed to be amended to 
include a waiver of the Clearing Members' and the Clearing 
Organizations' right to jury trial in any dispute arising in connection 
with that agreement. A comparable provision already is included in the 
Clearing Member Cross-Margining Agreement (Joint Clearing Member--
Proprietary Accounts). The remaining revisions to the Clearing Member 
Agreements for Proprietary Accounts are non-substantive or conforming.
    While it is anticipated that some Clearing Members will elect to 
participate in cross-margining for their Proprietary Accounts and also 
act as Clearing Member for Market Professionals, a Clearing Member 
could elect to act in only one of those capacities. The Clearing Member 
Agreements in Appendices A and B to the FICC-NYPC Cross-Margining 
Agreement, therefore, would be complemented by a Clearing Member Cross-
Margining Agreement (Joint Clearing Member--Market Professional 
Accounts) and Clearing Member Cross-Margining Agreement (Affiliated 
Clearing Members--Market Professional Accounts), respectively, and a 
Clearing Member that elected to maintain a Set of Proprietary Cross-
Margining Accounts and a Set of Market Professional Cross-Margining 
Accounts would be required to enter into Clearing Member Cross-
Margining Agreements for both its Proprietary Accounts and for its 
Market Professional Accounts.
    The proposed Clearing Member Agreements for Market Professional 
Accounts (Appendices C and D to the FICC-NYPC Cross-Margining 
Agreement) are based upon the Clearing Member Agreements for 
Proprietary Accounts, but have been modified as appropriate. For 
example, the Clearing Member Agreements for Market Professional 
Accounts would make explicit that the Set of Market Professional Cross-
Margining Accounts that would be established by the Clearing 
Organizations for a Clearing Member are to be limited to transactions 
and positions established by Market Professionals who have signed a 
Market Professional Agreement for Cross-Margining in the form set forth 
as Exhibit A to Appendices C and D, respectively.\28\
---------------------------------------------------------------------------

    \28\ Similar to the Clearing Member Agreements for Proprietary 
Accounts, the Clearing Member Agreements for Market Professional 
Accounts would require the Clearing Member to pledge, for itself and 
for each Market Professional on whose behalf positions are carried 
in a Set of Market Professional Cross-Margining Accounts, the 
positions and Margin in the Set of Market Professional Cross-
Margining Accounts. Consistent therewith and with the Clearing 
Member Agreements for Proprietary Accounts, the Clearing Member 
Agreements for Market Professional Accounts would include 
representations and warranties by the Clearing Member to the effect 
that it has the power to grant the foregoing security interest and 
that it is the sole owner of or otherwise has the right to transfer 
collateral to the Clearing Organizations.

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

[[Page 20450]]

    The Market Professional Agreements are derived from the form of 
Market Professional's Agreement for Cross-Margining that has previously 
been approved by the Commission.\29\ The FICC-NYPC Market Professional 
Agreements differ from the forms of agreement that have previously been 
approved in that they would be modified to reference the Eligible 
Products that are available for cross-margining under the FICC-NYPC 
Cross-Margining Agreement. The FICC-NYPC Market Professional Agreements 
additionally would be modified to reference the definitions of the term 
``Market Professional'' that would be set forth in the Rules of FICC 
and NYPC, and to require a Market Professional to represent and warrant 
that it does, in fact, qualify as such. Moreover, the FICC-NYPC Market 
Professional Agreements would be amended to provide that, consistent 
with the requirements of CFTC Regulation 39.13(g)(8)(i) (gross margin 
for customer accounts), the positions of a Market Professional cleared 
by FICC will only be cross-margined with the derivatives positions of 
the same Market Professional cleared by NYPC. The only other 
substantive change from the form of agreement previously approved by 
the Commission would be the elimination of a provision that would have 
conditioned the effectiveness of the Market Professional Agreements on 
the receipt of all necessary approvals by the Commission and the CFTC. 
FICC believes that a provision of this nature is unnecessary, given 
that FICC and NYPC will not permit Clearing Members to enter into 
Market Professional Agreements until all necessary regulatory approvals 
have been obtained.
---------------------------------------------------------------------------

    \29\ See Exhibits 5F and 5G to Release No. 34-57118 (January 9, 
2008) (Options Clearing Corporation--ICE Clear US market 
professional cross-margining); see also Securities Exchange Act 
Release No. 34-29991(November 26, 1991), 56 FR 61458 (December 3, 
1991) (Options Clearing Corporation--Chicago Mercantile Exchange 
market professional cross-margining).
---------------------------------------------------------------------------

Proposed FICC Rule Changes
    In addition to the proposed changes to the FICC-NYPC Cross-
Margining Agreement, FICC is proposing the following GSD rule changes 
to effectuate the Market Professional Cross-Margining Program. 
Capitalized terms used in this section have the meanings given to them 
in the GSD Rules.
Rule 1 (Definitions)
    New definitions are being added for the following terms: ``Market 
Professional,'' ``Market Professional Agreement for Cross-Margining,'' 
``Market Professional Cross-Margining Account,'' ``Non-Customer,'' 
``NYPC Market Professional Account,'' and ``NYPC Proprietary Account'' 
(which retains the current definition of ``NYPC Account''). ``NYPC 
Account,'' an existing term, is now proposed to be amended to encompass 
the two new terms of ``NYPC Market Professional Account'' and ``NYPC 
Proprietary Account.'' In addition, changes are proposed to the 
following definitions to reference the concepts associated with the 
Market Professional Cross-Margining Program: ``Account,'' ``Cross-
Margining Affiliate,'' ``Cross-Margining Agreement'' and ``Margin 
Portfolio.'' A technical change is being proposed to the definition of 
``Cross-Margining Payment.''
Rule 3 (On-Going Membership Requirements)
    FICC is proposing to amend Section 11 of Rule 3, which covers 
additional accounts requested by Members, to provide for the opening of 
market professional accounts and to make clear that such accounts must 
meet the requirements of the Cross-Margining Agreement and the GSD 
Rules (as with all other accounts carried by FICC for its Members).
Rule 4 (Clearing Fund and Loss Allocation)
    FICC is proposing to amend Section 1b and Section 2 of Rule 4 to 
provide that the market professional account will have its own Clearing 
Fund calculations separate from the main account of the Netting Member, 
and that the rules applicable to the Clearing Fund calculations and the 
requirements of the Required Fund Deposit also apply Clearing Fund 
calculations and Required Fund Deposits associated with the market 
professional accounts.
Rule 13 (Funds-Only Settlement)
    FICC is proposing to amend Section 1 and Section 5a to provide that 
funds-only settlement amounts will be calculated separately for the 
member's market professional account and that net-net funds only 
credits/debits will also apply to the market professional accounts of a 
Member (or its permitted margin affiliate) across FICC and NYPC, as is 
the case currently with the proprietary accounts.
Rule 22A (Procedures for When the Corporation Ceases To Act)
    FICC is proposing to amend Section 2 of Rule 22A to provide that a 
liquidation gain in a Netting Member's proprietary account will be used 
to offset any resulting liquidation loss in such Member's Market 
Professional Cross-Margining Account.
Rule 29 (Release of Clearing Data)
    FICC is proposing to amend Rule 29 to make clear that a Member's 
Clearing Data will be released to a futures clearing organization (FCO) 
with which FICC has a Cross-Margining Arrangement and that such data 
will include data regarding the Member's market professional customers.
Rule 43 (Cross-Margining Arrangements)
    FICC is proposing to amend Rule 43 to provide for the requirement 
for Netting Members who wish to participate in the Market Professional 
Cross-Margining Program to execute the appropriate participation 
agreements which are appended to the FICC-NYPC Cross-Margining 
Agreement as discussed above.
    FICC believes the proposed change is consistent with Section 17A of 
the Act and the rules and regulations thereunder because it will 
facilitate the establishment of linked or coordinated facilities for 
clearance and settlement of transactions in securities and contracts of 
sale for future delivery by providing for the cross-margining of 
members' Market Professionals' positions held at FICC and NYPC.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    FICC does not believe that the proposed rule change would impose 
any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not yet 
been solicited or received. FICC will notify the Commission of any 
written comments received by FICC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which

[[Page 20451]]

the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

Electronic Comments

     Use the Commissions Internet comment form (https://www.sec.gov/rules/sro.shtml) or Send an email to rule-comments@sec.gov. 
Please include File Number SR-FICC-2012-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FICC-2012-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule 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 Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FICC and on FICC's 
Web site at https://www.dtcc.com/downloads/legal/rule_filings/2012/ficc/SR_FICC_2012_03.pdf. 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-FICC-2012-03 and should be submitted on or before April 
25, 2012.
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8042 Filed 4-3-12; 8:45 am]
BILLING CODE 8011-01-P

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