Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change Relating to Enhancements That the Mortgage-Backed Securities Division Intends To Implement to its Services and Certain Other Clarifications and Corrections to Its Rules, 1278-1280 [2013-00122]
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Federal Register / Vol. 78, No. 5 / Tuesday, January 8, 2013 / Notices
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[FR Doc. 2013–00074 Filed 1–7–13; 8:45 am]
BILLING CODE 7710–12–P
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[Release No. 34–68533; File No. SR–NYSE–
2012–74]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Extending the
Bond Trading License and the Bond
Liquidity Provider Pilot Program
December 21, 2012.
Correction
In notice document 2012–31260,
appearing on pages 77166–77167 in the
issue of Monday, December 31, 2012,
make the following correction:
On page 77166, in the second column,
the Release No. and the File No., are
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[FR Doc. C1–2012–31260 Filed 1–7–13; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68555; File No. SR–FICC–
2012–07]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving Proposed Rule Change
Relating to Enhancements That the
Mortgage-Backed Securities Division
Intends To Implement to its Services
and Certain Other Clarifications and
Corrections to Its Rules
January 2, 2013.
I. Introduction
On November 6, 2012, the Fixed
Income Clearing Corporation (‘‘FICC’’ or
the ‘‘Corporation’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–FICC–2012–07 pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19ba–4
thereunder.2 The proposed rule change
was published for comment in the
Federal Register on November 21,
2012.3 No comments letters were
received on the proposed rule change.
This order approves the proposed rule
change.
II. Description
The proposed rule change relates to
certain enhancements that the MortgageBacked Securities Division (‘‘MBSD’’) of
FICC intends to implement to its
services. In addition, FICC proposes to
make certain corrections and
clarifications to the MBSD Rules. As
noted below, some of the proposed
changes do not require revisions to the
MBSD Rules.
1. Expansion of Pool Netting To Include
Pool Instructs From the Previous
Settlement Months
MBSD proposed to further extend
pool netting benefits to its members by
capturing Pool Instructs 4 submitted for
allocations made after the traded pool’s
settlement month has passed. The
proposed changes allow more activity
into the pool net which results in fewer
settlements.
Currently, MBSD’s pool netting
process only nets Pool Instructs for the
current delivery date if their
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 68245
(November 15, 2012), 77 FR 69913 (November 21,
2012).
4 A Pool Instruct is an input used by a member
to submit pool details directly into the Real-Time
Trade Matching ® (‘‘RTTM®’’) system for bilateral
matching and assignment to a corresponding open
TBA position as a prerequisite to the pool netting
process.
corresponding contractual settlement
dates (‘‘CSD’’) are also in the current
month.5 For example, with respect to a
delivery date of August 14, 2012,
MBSD’s pool netting process would
only net Pool Instructs having a CSD
ranging from August 1, 2012 through
August 14, 2012 and having a delivery
date of August 14, 2012. As such, only
Pool Instructs having a CSD in the
current month will be included in pool
netting.
The proposed new process will net
Pool Instructs from previous settlement
months that are submitted for delivery
dates in the current month. For
example, if we assume that today is
August 13, 2012, and a member submits
multiple Pool Instructs all having a CSD
equal to July 12, 2012 and a delivery
date equal to August 14, 2012, on the
evening of August 13th, these Pool
Instructs would be netted against each
other to arrive at a single pool net
settlement position for the July 12, 2012
CSD and August 14th delivery date.
The proposed changes do not require
revisions to the text of the MBSD Rules.
2. Notification of Settlement for
Specified Pool Trades
A Notification of Settlement (‘‘NOS’’)
is an instruction submitted to the
Corporation by a purchasing or selling
clearing member which reflects the
settlement of a Settlement Balance
Order Trade, Trade-for-Trade
Transaction or Specified Pool Trade
(‘‘SPT’’).6 MBSD is proposing to change
the manner in which NOS processing
occurs for SPTs so that it follows similar
processing rules as those applied to
NOS for Settlement Balance Order
Trades and Trade-for-Trade
Transactions.
Currently, MBSD Rule 10 Section 2
states that the trade details for a NOS
submitted by both parties of a SPT must
fully match in order for the clearance of
the SPTs to be reflected on the
member’s Purchase and Sale Report 7 or
both parties must submit a cancellation
of the transaction in order for the
transaction to be deleted from each
party’s respective Open Commitment
Report.8
MBSD proposed to enhance the NOS
for SPTs by no longer requiring the
current face value submitted on each
1 15
2 17
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5 See
MBSD Rule 8 Section 3.
MBSD Rule 1, Definitions.
7 ‘‘Purchase and Sale Report’’ is defined as the
report furnished by the Corporation reflecting a
member’s Compared Trades in Eligible Securities.’’
See MBSD Rule 1, Definitions.
8 ‘‘Open Commitment Report’’ is defined as the
report furnished by the Corporation to members
reflecting such member’s open commitments in the
Clearing System. See MBSD Rule 1, Definitions.
6 See
E:\FR\FM\08JAN1.SGM
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Federal Register / Vol. 78, No. 5 / Tuesday, January 8, 2013 / Notices
member’s NOS to exactly match the
current face value of the SPT. Instead,
members will have the ability to submit
and match multiple NOS to reduce the
SPT current face until it is fully settled.
For example, if a SPT has a current face
value of $125MM and the pool number
of the trade has a factor of 0.975, FICC
will accept either (a) one piece of NOS
for $125,000,000 or (b) three pieces of
NOS for $48,750,000, $48,750,000 and
$27,500,000. The current face values
equal an original face settlement value
of $50,000,000, $50,000,000 and
$28,205,128.
In addition to the above, MBSD will
apply a tolerance of +/¥ $1 when
matching buy and sell NOS for SPT
trades to account for differences in
rounding conventions used by members
to convert original face to current face
on their NOS.
The proposed changes will make NOS
for SPTs similar to NOS for Settlement
Balance Order Trades and Trade-forTrade Transactions whereby matching is
permitted within a tolerance and
multiple NOS may be submitted and
matched separately until the trade is
fully settled.
The proposed changes require
revisions to the text of the MBSD Rules.
srobinson on DSK4SPTVN1PROD with
3. Comparison of Dummy Pool Number
to Valid Pool Number
FICC supports the submission of a
defined generic or ‘‘dummy’’ pool
number on NOS instead of a valid pool
number. A dummy pool is a standard
convention used by members when the
actual pool number is not readily
available to some members. Currently,
the pool number is a matching criterion
on NOS. Consequently, if one member
submits a dummy pool number and the
other enters a valid pool number the
NOS will not compare even though all
of the other matching criteria are the
same. In an effort to address this, FICC
is proposing to change its processing in
order to allow matching of NOS when
all mandatory terms compare and one
member submits a dummy pool number
and the other member submits a valid
pool.
The proposed changes do not require
revisions to the text of the MBSD Rules.
4. Automatically Marking Certain Open
TBA Trades as Fully Settled
Mortgage-backed securities trades
settle with an industry-accepted
variance of 0.01% (i.e., $100 per
$1MM). When FICC applies NOS to
open trades, it does so using the upper
limit of the variance to ensure that
trades are not marked as fully settled
until all NOS have been received and
processed by FICC. However, because
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trades may settle using any value within
the variance, FICC’s processing may
leave residual trade amounts open on its
books for trades that have actually been
fully settled. To address this, FICC is
proposing to automatically generate
internal NOS which will mark the
residual trade as fully settled. The FICC
generated NOS will occur on the last
business day of each month, in every
instance where a member has a To-BeAnnounced (‘‘TBA’’) trade with an open
par that falls below an established
threshold. The threshold is initially
contemplated to be $1000 par, however,
this may be modified following member
feedback. All changes to the threshold
will be provided in advance to members
via Important Notice.
The proposed changes require
revisions to the text of the MBSD Rules.
5. Corrections and Clarification to the
MBSD Rules
The MBSD Rules define the term
‘‘Fully Compared’’ as ‘‘* * * trade
input submitted by a Broker matches
trade input submitted by each Dealer on
whose behalf the Broker is acting the
Net Position Match Mode.’’ 9 The phrase
‘‘in accordance with’’ was inadvertently
deleted from this definition when it was
revised in connection with Amendment
No. 1 to SR–FICC–2008–01.10 FICC
proposes to restore this phrase so that
the definition states the following:
‘‘* * * trade input submitted by a
Broker matches trade input submitted
by each Dealer on whose behalf the
Broker is acting in accordance with the
Net Position Match Mode.’’
In the second to last paragraph of
MBSD Rule 2A Section 1, there is a
sentence which states that the
Corporation will determine whether the
applicants in ‘‘categories (g and i)’’ of
the referenced Section will be
designated as tier one or tier two
members. FICC proposes to correct the
typographical error in the crossreference so that it instead references
‘‘categories (g) and (i).’’
Implementation
FICC proposes to implement the
proposed changes relating to the MBSD
enhancements during the second
quarter of 2013 pending rule filing
approval from the Securities and
Exchange Commission. The proposed
changes relating to the clarifications and
corrections of the referenced rules will
be effective immediately upon receipt of
rule filing approval.
9 See
MBSD Rule 1, Definitions.
Exchange Act Release No. 66550
(March 9, 2012); 77 FR 15155 (March 14, 2012).
10 Securities
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1279
III. Discussion
Section 19(b)(2)(C) of the Act 11
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. Section
17A(b)(3)(F) of the Act 12 requires,
among other things, that the rules of the
clearing agency are designed to promote
the prompt and accurate clearance and
settlement of securities transactions.
The proposed changes to FICC’s Rules
are consistent with promoting the
prompt and accurate clearance and
settlement of securities transactions in
the following ways: (1) The expansion
of the pool netting system extends the
netting benefits to clearing members by
capturing allocations made after the
traded pools current settlement month,
(2) the change in NOS processing for
SPTs creates efficiency through the
standardization of NOS processing for
TBA trades, (3) automatically marking
certain TBA trades as fully settled
improves the monitoring and reporting
of trade settlement status and (4)
allowing the comparison of dummy
Pool number to valid pool number
provides for timelier matching of NOS.
Each of these enhancements creates a
more efficient netting system which
promotes the prompt and accurate
clearance and settlement for securities
transactions. Furthermore, the
clarifications and corrections to the
MBSD Rules ensure that the Rules are
accurate. As a result, the proposed rule
change is consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.13
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 14 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,15 that the
proposed rule change, as amended, (File
No. SR–FICC–2012–07) be, and hereby
is, approved.16
11 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
13 15 U.S.C. 78q–1(b)(3)(F).
14 15 U.S.C. 78q–1.
15 15 U.S.C. 78s(b)(2).
16 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
12 15
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Federal Register / Vol. 78, No. 5 / Tuesday, January 8, 2013 / Notices
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–00122 Filed 1–7–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68560; File No. SR–NYSE–
2012–76]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Extending the
Operation of its Supplemental Liquidity
Providers Pilot (Rule 107B) Until the
Earlier of the Securities and Exchange
Commission’s Approval To Make Such
Pilot Permanent or July 31, 2013
January 2, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
18, 2012, New York Stock Exchange
LLC (the ‘‘Exchange’’ or ‘‘NYSE’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
srobinson on DSK4SPTVN1PROD with
The Exchange proposes to extend the
operation of its Supplemental Liquidity
Providers Pilot (‘‘SLP Pilot’’ or ‘‘Pilot’’)
(See Rule 107B), currently scheduled to
expire on January 31, 2013, until the
earlier of the Securities and Exchange
Commission’s (‘‘Commission’’) approval
to make such Pilot permanent or July
31, 2013. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to extend the
operation of its SLP Pilot,5 currently
scheduled to expire on January 31,
2013, until the earlier of Commission
approval to make such Pilot permanent
or July 31, 2013.
Background 6
In October 2008, the NYSE
implemented significant changes to its
market rules, execution technology and
the rights and obligations of its market
participants all of which were designed
to improve execution quality on the
Exchange. These changes are all
elements of the Exchange’s enhanced
market model referred to as the ‘‘New
5 See
Securities Exchange Act Release No. 58877
(October 29, 2008), 73 FR 65904 (November 5, 2008)
(SR–NYSE–2008–108) (establishing the SLP Pilot).
See also Securities Exchange Act Release Nos.
59869 (May 6, 2009), 74 FR 22796 (May 14, 2009)
(SR–NYSE–2009–46) (extending the operation of
the SLP Pilot to October 1, 2009); 60756 (October
1, 2009), 74 FR 51628 (October 7, 2009) (SR–NYSE–
2009–100) (extending the operation of the NMM
and the SLP Pilots to November 30, 2009); 61075
(November 30, 2009), 74 FR 64112 (December 7,
2009) (SR–NYSE–2009–119) (extending the
operation of the SLP Pilot to March 30, 2010);
61840 (April 5, 2010), 75 FR 18563 (April 12, 2010)
(SR–NYSE–2010–28) (extending the operation of
the SLP Pilot to September 30, 2010); 62813
(September 1, 2010), 75 FR 54686 (September 8,
2010) (SR–NYSE–2010–62) (extending the
operation of the SLP Pilot to January 31, 2011);
63616 (December 29, 2010), 76 FR 612 (January 5,
2011) (SR–NYSE–2010–86) (extending the
operation of the SLP Pilot to August 1, 2011); 64762
(June 28, 2011), 76 FR 39145 (July 5, 2011) (SR–
NYSE–2011–30) (extending the operation of the
SLP Pilot to January 31, 2012); 66045 (December 23,
2011), 76 FR 82342 (December 30, 2011) (SR–
NYSE–2011–66) (extending the operation of the
SLP Pilot to July 31, 2012); and 67493 (July 25,
2012), 77 FR 45388 (July 31, 2012) (SR–NYSE–
2012–27) (extending the operation of the SLP Pilot
to January 31, 2013).
6 The information contained herein is a summary
of the NMM Pilot and the SLP Pilot. See supra note
5 for a fuller description of those pilots.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
Market Model’’ (‘‘NMM Pilot’’).7 The
SLP Pilot was launched in coordination
with the NMM Pilot (see Rule 107B).
As part of the NMM Pilot, NYSE
eliminated the function of specialists on
the Exchange creating a new category of
market participant, the Designated
Market Maker or DMM.8 Separately, the
NYSE established the SLP Pilot, which
established SLPs as a new class of
market participants to supplement the
liquidity provided by DMMs.9
The SLP Pilot is scheduled to end
operation on January 31, 2013 or such
earlier time as the Commission may
determine to make the rules permanent.
The Exchange is currently preparing a
rule filing seeking permission to make
the SLP Pilot permanent, but does not
expect that filing to be completed and
approved by the Commission before
January 31, 2013.10
Proposal To Extend the Operation of the
SLP Pilot
The NYSE established the SLP Pilot to
provide incentives for quoting, to
enhance competition among the existing
group of liquidity providers, including
the DMMs, and add new competitive
market participants. The Exchange
believes that the SLP Pilot, in
coordination with the NMM Pilot,
allows the Exchange to provide its
market participants with a trading
venue that utilizes an enhanced market
structure to encourage the addition of
liquidity, facilitate the trading of larger
orders more efficiently and operates to
7 See Securities Exchange Act Release No. 58845
(October 24, 2008), 73 FR 64379 (October 29, 2008)
(SR–NYSE–2008–46).
8 See NYSE Rule 103.
9 See NYSE Rule 107B. The Exchange amended
the monthly volume requirements to an ADV that
is a specified percentage of NYSE CADV. See
Securities Exchange Act Release No. 67759 (August
20, 2012), 77 FR 54939 (September 6, 2012) (SR–
NYSEMKT–2012–38).
10 The NMM Pilot was scheduled to expire on
January 31, 2013. On December 18, 2012 the
Exchange filed to extend the NMM Pilot until July
31, 2013. See (SR–NYSE–2012–75). See also
Securities Exchange Act Release Nos. 67494 (July
25, 2012), 77 FR 45408 (July 31, 2012) (SR–NYSE–
2012–26) (extending the operation of the NMM
Pilot to January 31, 2013); 66046 (December 23,
2011), 76 FR 82340 (December 30, 2011) (SR–
NYSE–2011–65) (extending the operation of the
NMM Pilot to July 31, 2012); 64761 (June 28, 2011)
76 FR 39147 (July 5, 2011) (SR–NYSE–2011–29)
(extending the operation of the NMM Pilot to
January 31, 2012); 63618 (December 29, 2010) 76 FR
617 (January 5, 2011) (SR–NYSE–2010–85)
(extending the operation of the NMM Pilot to
August 1, 2011); 62819 (September 1, 2010), 75 FR
54937 (September 9, 2010) (SR–NYSE–2010–61)
(extending the operation of the NMM Pilot to
January 31, 2011); 61724 (March 17, 2010), 75 FR
14221 (SR–NYSE–2010–25) (extending the
operation of the NMM Pilot to September 30, 2010);
and 61031 (November 19, 2009), 74 FR 62368 (SR–
NYSE–2009–113) (extending the operation of the
NMM Pilot to March 30, 2010).
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]]>Agencies
[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1278-1280]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00122]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68555; File No. SR-FICC-2012-07]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change Relating to Enhancements That the
Mortgage-Backed Securities Division Intends To Implement to its
Services and Certain Other Clarifications and Corrections to Its Rules
January 2, 2013.
I. Introduction
On November 6, 2012, the Fixed Income Clearing Corporation
(``FICC'' or the ``Corporation'') filed with the Securities and
Exchange Commission (``Commission'') proposed rule change SR-FICC-2012-
07 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19ba-4 thereunder.\2\ The proposed rule change
was published for comment in the Federal Register on November 21,
2012.\3\ No comments letters were received on the proposed rule change.
This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 68245 (November 15,
2012), 77 FR 69913 (November 21, 2012).
---------------------------------------------------------------------------
II. Description
The proposed rule change relates to certain enhancements that the
Mortgage-Backed Securities Division (``MBSD'') of FICC intends to
implement to its services. In addition, FICC proposes to make certain
corrections and clarifications to the MBSD Rules. As noted below, some
of the proposed changes do not require revisions to the MBSD Rules.
1. Expansion of Pool Netting To Include Pool Instructs From the
Previous Settlement Months
MBSD proposed to further extend pool netting benefits to its
members by capturing Pool Instructs \4\ submitted for allocations made
after the traded pool's settlement month has passed. The proposed
changes allow more activity into the pool net which results in fewer
settlements.
---------------------------------------------------------------------------
\4\ A Pool Instruct is an input used by a member to submit pool
details directly into the Real-Time Trade Matching [supreg]
(``RTTM[supreg]'') system for bilateral matching and assignment to a
corresponding open TBA position as a prerequisite to the pool
netting process.
---------------------------------------------------------------------------
Currently, MBSD's pool netting process only nets Pool Instructs for
the current delivery date if their corresponding contractual settlement
dates (``CSD'') are also in the current month.\5\ For example, with
respect to a delivery date of August 14, 2012, MBSD's pool netting
process would only net Pool Instructs having a CSD ranging from August
1, 2012 through August 14, 2012 and having a delivery date of August
14, 2012. As such, only Pool Instructs having a CSD in the current
month will be included in pool netting.
---------------------------------------------------------------------------
\5\ See MBSD Rule 8 Section 3.
---------------------------------------------------------------------------
The proposed new process will net Pool Instructs from previous
settlement months that are submitted for delivery dates in the current
month. For example, if we assume that today is August 13, 2012, and a
member submits multiple Pool Instructs all having a CSD equal to July
12, 2012 and a delivery date equal to August 14, 2012, on the evening
of August 13th, these Pool Instructs would be netted against each other
to arrive at a single pool net settlement position for the July 12,
2012 CSD and August 14th delivery date.
The proposed changes do not require revisions to the text of the
MBSD Rules.
2. Notification of Settlement for Specified Pool Trades
A Notification of Settlement (``NOS'') is an instruction submitted
to the Corporation by a purchasing or selling clearing member which
reflects the settlement of a Settlement Balance Order Trade, Trade-for-
Trade Transaction or Specified Pool Trade (``SPT'').\6\ MBSD is
proposing to change the manner in which NOS processing occurs for SPTs
so that it follows similar processing rules as those applied to NOS for
Settlement Balance Order Trades and Trade-for-Trade Transactions.
---------------------------------------------------------------------------
\6\ See MBSD Rule 1, Definitions.
---------------------------------------------------------------------------
Currently, MBSD Rule 10 Section 2 states that the trade details for
a NOS submitted by both parties of a SPT must fully match in order for
the clearance of the SPTs to be reflected on the member's Purchase and
Sale Report \7\ or both parties must submit a cancellation of the
transaction in order for the transaction to be deleted from each
party's respective Open Commitment Report.\8\
---------------------------------------------------------------------------
\7\ ``Purchase and Sale Report'' is defined as the report
furnished by the Corporation reflecting a member's Compared Trades
in Eligible Securities.'' See MBSD Rule 1, Definitions.
\8\ ``Open Commitment Report'' is defined as the report
furnished by the Corporation to members reflecting such member's
open commitments in the Clearing System. See MBSD Rule 1,
Definitions.
---------------------------------------------------------------------------
MBSD proposed to enhance the NOS for SPTs by no longer requiring
the current face value submitted on each
[[Page 1279]]
member's NOS to exactly match the current face value of the SPT.
Instead, members will have the ability to submit and match multiple NOS
to reduce the SPT current face until it is fully settled. For example,
if a SPT has a current face value of $125MM and the pool number of the
trade has a factor of 0.975, FICC will accept either (a) one piece of
NOS for $125,000,000 or (b) three pieces of NOS for $48,750,000,
$48,750,000 and $27,500,000. The current face values equal an original
face settlement value of $50,000,000, $50,000,000 and $28,205,128.
In addition to the above, MBSD will apply a tolerance of +/- $1
when matching buy and sell NOS for SPT trades to account for
differences in rounding conventions used by members to convert original
face to current face on their NOS.
The proposed changes will make NOS for SPTs similar to NOS for
Settlement Balance Order Trades and Trade-for-Trade Transactions
whereby matching is permitted within a tolerance and multiple NOS may
be submitted and matched separately until the trade is fully settled.
The proposed changes require revisions to the text of the MBSD
Rules.
3. Comparison of Dummy Pool Number to Valid Pool Number
FICC supports the submission of a defined generic or ``dummy'' pool
number on NOS instead of a valid pool number. A dummy pool is a
standard convention used by members when the actual pool number is not
readily available to some members. Currently, the pool number is a
matching criterion on NOS. Consequently, if one member submits a dummy
pool number and the other enters a valid pool number the NOS will not
compare even though all of the other matching criteria are the same. In
an effort to address this, FICC is proposing to change its processing
in order to allow matching of NOS when all mandatory terms compare and
one member submits a dummy pool number and the other member submits a
valid pool.
The proposed changes do not require revisions to the text of the
MBSD Rules.
4. Automatically Marking Certain Open TBA Trades as Fully Settled
Mortgage-backed securities trades settle with an industry-accepted
variance of 0.01% (i.e., $100 per $1MM). When FICC applies NOS to open
trades, it does so using the upper limit of the variance to ensure that
trades are not marked as fully settled until all NOS have been received
and processed by FICC. However, because trades may settle using any
value within the variance, FICC's processing may leave residual trade
amounts open on its books for trades that have actually been fully
settled. To address this, FICC is proposing to automatically generate
internal NOS which will mark the residual trade as fully settled. The
FICC generated NOS will occur on the last business day of each month,
in every instance where a member has a To-Be-Announced (``TBA'') trade
with an open par that falls below an established threshold. The
threshold is initially contemplated to be $1000 par, however, this may
be modified following member feedback. All changes to the threshold
will be provided in advance to members via Important Notice.
The proposed changes require revisions to the text of the MBSD
Rules.
5. Corrections and Clarification to the MBSD Rules
The MBSD Rules define the term ``Fully Compared'' as ``* * * trade
input submitted by a Broker matches trade input submitted by each
Dealer on whose behalf the Broker is acting the Net Position Match
Mode.'' \9\ The phrase ``in accordance with'' was inadvertently deleted
from this definition when it was revised in connection with Amendment
No. 1 to SR-FICC-2008-01.\10\ FICC proposes to restore this phrase so
that the definition states the following: ``* * * trade input submitted
by a Broker matches trade input submitted by each Dealer on whose
behalf the Broker is acting in accordance with the Net Position Match
Mode.''
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\9\ See MBSD Rule 1, Definitions.
\10\ Securities Exchange Act Release No. 66550 (March 9, 2012);
77 FR 15155 (March 14, 2012).
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In the second to last paragraph of MBSD Rule 2A Section 1, there is
a sentence which states that the Corporation will determine whether the
applicants in ``categories (g and i)'' of the referenced Section will
be designated as tier one or tier two members. FICC proposes to correct
the typographical error in the cross-reference so that it instead
references ``categories (g) and (i).''
Implementation
FICC proposes to implement the proposed changes relating to the
MBSD enhancements during the second quarter of 2013 pending rule filing
approval from the Securities and Exchange Commission. The proposed
changes relating to the clarifications and corrections of the
referenced rules will be effective immediately upon receipt of rule
filing approval.
III. Discussion
Section 19(b)(2)(C) of the Act \11\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(3)(F) of the Act \12\
requires, among other things, that the rules of the clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions.
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed changes to FICC's Rules are consistent with promoting
the prompt and accurate clearance and settlement of securities
transactions in the following ways: (1) The expansion of the pool
netting system extends the netting benefits to clearing members by
capturing allocations made after the traded pools current settlement
month, (2) the change in NOS processing for SPTs creates efficiency
through the standardization of NOS processing for TBA trades, (3)
automatically marking certain TBA trades as fully settled improves the
monitoring and reporting of trade settlement status and (4) allowing
the comparison of dummy Pool number to valid pool number provides for
timelier matching of NOS. Each of these enhancements creates a more
efficient netting system which promotes the prompt and accurate
clearance and settlement for securities transactions. Furthermore, the
clarifications and corrections to the MBSD Rules ensure that the Rules
are accurate. As a result, the proposed rule change is consistent with
the requirements of Section 17A(b)(3)(F) of the Act.\13\
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \14\ and the
rules and regulations thereunder.
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\14\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change, as amended, (File No. SR-FICC-
2012-07) be, and hereby is, approved.\16\
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\15\ 15 U.S.C. 78s(b)(2).
\16\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
[[Page 1280]]
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For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00122 Filed 1-7-13; 8:45 am]
BILLING CODE 8011-01-P
