Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Amend the Rules of the Government Securities Division and the Mortgage-Backed Securities Division Regarding the Default of Fixed Income Clearing Corporation, 12213-12215 [2015-05190]
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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices
with the Commission.1 Based on the
Commission’s experience with
disclosure documents, we estimate that
the burden from compliance with Form
1–E and the offering circular requires
approximately 100 hours per filing. The
annual burden hours for compliance
with Form 1–E and the offering circular
would be 100 hours (1 response x 100
hours per response). Estimates of the
burden hours are made solely for the
purposes of the PRA, and are not
derived from a comprehensive or even
a representative survey or study of the
costs of SEC rules and forms.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE.,
Washington, DC 20549; or send an email
to: PRA_Mailbox@sec.gov.
Dated: March 2, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015–05217 Filed 3–5–15; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of China Infrastructure
Investment Corp., Order of Suspension
of Trading
mstockstill on DSK4VPTVN1PROD with NOTICES
March 4, 2015.
It appears to the Securities and
Exchange Commission (‘‘Commission’’)
that there is a lack of current and
accurate information concerning the
securities of China Infrastructure
Investment Corp. (‘‘CIIC’’) because,
among other things, it: (1) Has not filed
any periodic reports since the Form 10–
1 According to Commission records, one issuer
filed two notifications on Form 1–E, together with
offering circulars, during 2013 and 2014.
18:59 Mar 05, 2015
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–05370 Filed 3–4–15; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74411; File No. SR–FICC–
2014–09]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving Proposed Rule Change To
Amend the Rules of the Government
Securities Division and the MortgageBacked Securities Division Regarding
the Default of Fixed Income Clearing
Corporation
March 2, 2015.
BILLING CODE 8011–01–P
VerDate Sep<11>2014
Q for the period ending September 30,
2011, filed on November 14, 2011; and
(2) filed a Form 8–K on December 16,
2011, stating that the Chief Financial
Officer (‘‘CFO’’) whose signature
appears on Forms 10–K and 10–K/A for
the year ending June 30, 2011, and on
Form 10–Q for the quarter ending
September 30, 2011, had resigned from
CIIC on September 21, 2011, and had
not prepared, reviewed, signed or
authorized these filings.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of CIIC is suspended for the
period from 9:30 a.m. EST on March 4,
2015, through 11:59 p.m. EDT on March
17, 2015.
Jkt 235001
I. Introduction
On November 12, 2014, the Fixed
Income Clearing Corporation (‘‘FICC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2014–09 pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The proposed rule
change was published for comment in
the Federal Register on December 2,
2014.3 On January 9, 2015, pursuant to
Section 19(b)(2)(A)(ii) of the Act,4 FICC
consented to an extension of the time
for Commission action on the proposed
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 73682
(November 25, 2014), 79 FR 71481 (December 2,
2014) (File No. SR–FICC–2014–09).
4 15 U.S.C. 78s(b)(2)(A)(ii).
2 17
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12213
rule change to March 2, 2015. The
Commission received no comment
letters in response to the proposed rule
change. For the reasons discussed
below, the Commission is approving the
proposed rule change.
II. Description
FICC filed the proposed rule change
to amend the clearing rules of the
Government Securities Division
(‘‘GSD’’) and of the Mortgage-Backed
Securities Division (‘‘MBSD’’)
concerning a default by FICC.5 The FICC
Default Rules were added to GSD’s and
MBSD’s rules in 2010 and 2012,
respectively, to make explicit the closeout netting of obligations between FICC
and its clearing members in the event
that FICC becomes insolvent or defaults
on its obligations to its clearing
members.6 FICC represented that the
FICC Default Rules provide clarity to
clearing member firms in their
application of balance sheet netting to
their positions with FICC under U.S.
GAAP.7 FICC further represented that
the FICC Default Rules allow clearing
members to comply with Basel Accord
Standards relating to netting, and
thereby enable clearing members to
calculate their capital requirements on
the basis of their net credit exposure.8
The existing FICC Default Rules cover
three general types of default: Voluntary
proceedings defaults; involuntary
proceedings defaults; and noninsolvency related defaults. Under the
existing FICC Default Rules, FICC states
that it is considered in default with
respect to voluntary proceedings
defaults (i) immediately upon the
dissolution of FICC, (ii) the voluntary
institution of proceedings by FICC
seeking a judgment of insolvency or
bankruptcy or other similar relief, or
(iii) the voluntary presentation by FICC
of a petition for its winding up or
liquidation.
Under the existing FICC Default
Rules, FICC is considered in default
5 In 2010, the Commission approved a proposed
rule change filed by FICC to add Rule 22B to the
GSD rules (‘‘GSD Default Rule’’). See Securities
Exchange Act Release No. 63038 (October 5, 2010),
75 FR 62899 (October 13, 2010) (File No. SR–FICC–
2010–04). In 2012, the Commission approved a
proposed rule change filed by FICC to add Rule 17A
to the MBSD rules (‘‘MBSD Default Rule’’, and
together with the GSD Default Rule, ‘‘FICC Default
Rules’’). See Securities Exchange Act Release No.
66550 (March 9, 2012), 77 FR 15155 (March 14,
2012) (File No. SR–FICC–2008–01).
6 See Securities Exchange Act Release No. 63038
(October 5, 2010), 75 FR 62899 (October 13, 2010)
(File No. SR–FICC–2010–04) and Securities
Exchange Act Release No. 66550 (March 9, 2012),
77 FR 15155 (March 14, 2012) (File No. SR–FICC–
2008–01).
7 See Id.
8 See Id.
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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices
with respect to involuntary proceedings
defaults on the 91st calendar day after
the judgment of insolvency or
bankruptcy or the entry of an order for
relief (or similar order) for FICC’s
winding up or liquidation, or the
appointment of an administrator,
provisional liquidator, conservator,
receiver, trustee, custodian or other
similar official for all or substantially all
of FICC’s assets, where such judgment,
order or appointment, as applicable,
remains unstayed throughout the 90
calendar day grace period. FICC is
considered in default with respect to
non-insolvency related defaults on the
91st calendar day after it receives notice
from a member of its failure to make an
undisputed payment or delivery to such
member that is required under the GSD
Rules or the MBSD Rules, respectively,
where such failure remains unremedied
throughout the 90 calendar day grace
period.
The existing FICC Default Rules
exclude the following from the scope of
what is considered a non-insolvency
related default: (i) The failure on the
part of FICC to satisfy obligations to
members in wind-down, members in
default, or members for whom FICC has
ceased to act pursuant to either GSD
Rule 22A or MBSD Rule 17, as
applicable; (ii) the satisfaction of any
payment or delivery obligation by FICC
through alternate means as provided in
GSD or MBSD rules, as applicable; (iii)
the failure of the other division of FICC
to satisfy a payment or delivery
obligation to a clearing member; and (iv)
the failure to satisfy any payment or
delivery obligation required to be made
to a clearing member that is solely the
result of an operational, technological,
or administrative error or impediment,
provided that FICC possesses sufficient
funds or assets to satisfy the obligation.
Additionally, according to FICC, the
grace period can be extended beyond 90
calendar days under the existing FICC
Default Rules in a non-insolvency
related default situation where a
payment or delivery deadline has been
suspended under GSD Rule 42 or MBSD
Rule 33, as applicable, in which case the
90 calendar day grace period would
commence on the date FICC receives
notice from a clearing member of its
failure to make an undisputed payment
or delivery on the later due date
determined pursuant to the suspension.
Pursuant to this rule change, as
approved, FICC is now amending its
FICC Default Rules in order to more
closely align such rules with those of its
peer central counterparties and to
facilitate the participation of market
participants, including registered
investment companies, in FICC’s
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18:59 Mar 05, 2015
Jkt 235001
services by providing members with
further legal certainty regarding their
rights with respect to a default by FICC.
First, FICC is amending its FICC Default
Rules to add the voluntary making by
FICC of a general assignment for the
benefit of creditors as an additional type
of voluntary proceeding. Second, FICC
is eliminating the 90 calendar day grace
period for involuntary proceeding
defaults. According to FICC, this change
will result in FICC being considered in
default immediately upon the judgment
of insolvency or bankruptcy or the entry
of an order for relief (or similar order)
for FICC’s winding-up or liquidation, or
the appointment of a receiver, trustee or
other similar official for FICC or
substantially all of FICC’s assets,
provided that such receiver, trustee or
other similar official is appointed
pursuant to the federal securities laws,
particularly Section 19(i) of the Act, or
Title II of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
Third, FICC is reducing the grace
period from 90 to 7 calendar days for
non-insolvency related defaults.
According to FICC, this change will
result in it being in a non-insolvency
related default on the 8th calendar day
after it receives notice from a member of
its failure to make an undisputed
payment or delivery to such member
that is required under the rules of GSD
or MBSD, as applicable, provided that
such failure has not been remedied
during the 7 calendar days, and does not
fall within the category of exclusions
that are enumerated in clause (b)(i), subclauses (A), (B) and (C) of the GSD
Default Rule or the MBSD Default Rule,
as applicable.
Fourth, FICC is removing the
provisions that provide for a potential
extension of the grace period in a noninsolvency default situation where the
deadline for a payment or delivery
obligation of FICC has been suspended
by FICC under either GSD Rule 42 or
MBSD Rule 33, as applicable. As a
result, the grace period will commence
on the date FICC receives notice from a
member of its failure to make an
undisputed payment or delivery on the
later due date determined pursuant to
the suspension.
Fifth, FICC is removing the provisions
that exclude from the scope of what can
be considered a non-insolvency related
default the failure to satisfy any
payment or delivery obligation required
to be made to a clearing member that is
the result of an operational,
technological, or administrative error or
impediment.
Sixth, is adding language to the FICC
Default Rules to clarify that no other
provision within the rules of GSD or
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Frm 00077
Fmt 4703
Sfmt 4703
MBSD, respectively, including FICC’s
authority under GSD Rule 42 and MBSD
Rule 33, as applicable, can override the
definition of what constitutes a default
by FICC.
III. Discussion
Section 19(b)(2)(C) of the Act 9 directs
the Commission to approve a selfregulatory organization’s proposed rule
change if the Commission finds that the
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 10 requires,
among other things, that the rules of a
clearing agency are designed to promote
the prompt and accurate clearance and
settlement of securities transactions.
After careful review, the Commission
finds that FICC’s rule change to amend
the FICC Default Rules is consistent
with Section 17A(b)(3)(F) of the Act 11
because the changes as proposed in
FICC’s filing should provide further
legal certainty to FICC’s clearing
members regarding their close-out
netting rights with respect to a default
by FICC. In addition, FICC’s rule
changes should assist in addressing
certain regulatory concerns of new
market participants, including
registered investment companies, which
FICC believes will facilitate their
participation in FICC’s central
counterparty services and thus facilitate
the prompt and accurate clearance and
settlement of securities transactions
submitted by such market participants.
IV. Conclusion
On the basis of the foregoing, the
Commission concludes that the
proposal is consistent with the
requirements of the Act, particularly the
requirements of Section 17A of the
Act,12 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,13 that the
proposed rule change (File No. SR–
FICC–2014–09) be and hereby is
approved.14
9 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
11 Id.
12 15 U.S.C. 78q–1.
13 15 U.S.C. 78s(b)(2).
14 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).
10 15
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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.15
Brent J. Fields,
Secretary.
[FR Doc. 2015–05190 Filed 3–5–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74387; File No. SR–OCC–
2014–813]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of No Objection to Advance Notice
Filing, as Modified by Amendment No.
1, Concerning a Proposed Capital Plan
for Raising Additional Capital That
Would Support The Options Clearing
Corporation’s Function as a
Systemically Important Financial
Market Utility
February 26, 2015.
On December 29, 2014, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
advance notice File No. SR–OCC–2014–
813 pursuant to Section 806(e)(1)(A) of
the Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Payment,
Clearing and Settlement Supervision
Act’’) 1 and Rule 19b–4(n)(1)(i) under
the Securities Exchange Act of 1934
(‘‘Act’’).2 On January 14, 2015, OCC
filed Amendment No. 1 to the advance
notice.3 The advance notice was
15 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1)(A). The Financial Stability
Oversight Council designated OCC a systemically
important financial market utility on July 18, 2012.
See Financial Stability Oversight Council 2012
Annual Report, Appendix A, https://
www.treasury.gov/initiatives/fsoc/Documents/
2012%20Annual%20Report.pdf. Therefore, OCC is
required to comply with the Payment, Clearing and
Settlement Supervision Act and file advance
notices with the Commission.
2 17 CFR 240.19b–4(n)(1)(i). As the Commission
noted in the notice of filing of the advance notice,
as modified by Amendment No. 1, OCC stated that
the purpose of this proposal is, in part, to facilitate
compliance with proposed Commission rules and
address Principle 15 of the Principles for Financial
Market Infrastructures (‘‘PMFIs’’). The proposed
Commission rules are pending. See Securities
Exchange Act Release No. 71699 (March 12, 2014),
79 FR 29508 (May 22, 2014) (S7–03–14). Therefore,
the Commission has evaluated this advance notice
under the Payment, Clearing and Settlement
Supervision Act and the rules currently in force
thereunder. See Securities Exchange Act Release
No. 74202 (February 4, 2015), 80 FR 7056 (February
9, 2015) (SR–OCC–2014–813) at note 3.
3 According to OCC, OCC filed Amendment No.
1 to: (i) Update OCC’s plan for raising additional
capital (‘‘Capital Plan’’) in connection with
negotiations between OCC and the options
exchanges that own equity in OCC (‘‘Stockholder
Exchanges’’ or ‘‘stockholders’’) and that would
contribute additional capital under the Capital Plan,
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1 12
VerDate Sep<11>2014
18:59 Mar 05, 2015
Jkt 235001
published for comment in the Federal
Register on February 9, 2015.4 The
Commission received eight comment
letters on OCC’s proposal.5 This
publication serves as a notice of no
objection to proposal discussed in the
advance notice.
I. Description of the Advance Notice
Pursuant to this advance notice, OCC
is implementing a Capital Plan under
which the Stockholder Exchanges will
make an additional capital contribution
and commit to replenishment capital
(‘‘Replenishment Capital’’) in
circumstances discussed below, and
will receive, among other things, the
right to receive dividends from OCC. In
addition to the additional capital
contribution and Replenishment
Capital, the main features of the Capital
Plan include: (i) A policy establishing
OCC’s clearing fees at a level that would
be sufficient to cover OCC’s estimated
(ii) correct typographical errors, and (iii) update the
Term Sheet included as an exhibit, which
summarizes material features of the Capital Plan.
4 Securities Exchange Act Release No. 74202
(February 4, 2015), 80 FR 7056 (February 9, 2015)
(SR–OCC–2014–813). In conjunction with this
advance notice, OCC filed a corresponding
proposed rule change seeking approval of changes
to its By-Laws, Certificate of Incorporation and
relevant agreements, including its Stockholders
Agreement, necessary to implement the Capital
Plan. This proposed rule change was published in
the Federal Register on January 30, 2015. Securities
Exchange Act Release No. 74136 (January 26, 2015),
80 FR 5171 (January 30, 2015) (SR–OCC–2015–02).
5 See Letter from Eric Swanson, General Counsel
& Secretary, BATS Global Markets, Inc., (February
19, 2015) (‘‘BATS Letter’’); Letter from Tony
McCormick, Chief Executive Officer, BOX Options
Exchange, (February 19, 2015) (‘‘BOX Letter’’);
Letter from Howard L. Kramer on behalf of
Belvedere Trading, CTC Trading Group, IMC
Financial Markets, Integral Derivatives,
Susquehanna Investment Group, and Wolverine
Trading, (February 20, 2015) (‘‘MM Letter’’); Letter
from Ellen Greene, Managing Director, Financial
Services Operations, SIFMA, (February 20, 2015)
(‘‘SIFMA Letter’’); Letter from James E. Brown,
General Counsel, OCC, (February 23, 2015)
(responding to BATS Letter and BOX Letter) (‘‘OCC
Letter I’’); Letter from James E. Brown, General
Counsel, OCC, (February 23, 2015) (responding to
MM Letter) (‘‘OCC Letter II’’); Letter from Barbara
J. Comly, Executive Vice President, General Counsel
& Corporate Secretary, Miami International
Securities Exchange, LLC (February 24, 2015)
(‘‘MIAX Letter’’); Letter from James E. Brown,
General Counsel, OCC, (February 24, 2015)
(responding to SIFMA Letter) (‘‘OCC Letter III’’).
Since the proposal was filed as both an advance
notice and proposed rule change, the Commission
considered all comments received on the proposal,
regardless of whether the comments were submitted
to the proposed rule change or advance notice. In
its assessment of the advance notice, the
Commission assessed whether the issues raised by
the commenters relate to the level or nature of risks
presented to OCC by the Capital Plan. See
comments on the advance notice (File No. SR–
OCC–2014–813), https://www.sec.gov/comments/srocc-2014-813/occ2014813.shtml and comments on
the proposed rule change (File No. SR–OCC–2015–
02), https://www.sec.gov/comments/sr-occ-2015-02/
occ201502.shtml.
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Fmt 4703
Sfmt 4703
12215
operating expenses plus a ‘‘business risk
buffer’’ as described below (‘‘Fee
Policy’’), (ii) a policy establishing the
amount of the annual refund to clearing
members of OCC’s fees (‘‘Refund
Policy’’), and (iii) a policy for
calculating the amount of dividends to
be paid to the options exchanges
owning equity in OCC (‘‘Dividend
Policy’’). OCC stated that it intends to
implement the Capital Plan on or about
February 27, 2015, subject to all
necessary regulatory approvals.6
OCC states in its proposal that it is
implementing this Capital Plan, in part,
to increase significantly OCC’s capital in
connection with its increased
responsibilities as a systemically
important financial market utility.
OCC’s proposal includes an infusion of
substantial additional equity capital by
the Stockholder Exchanges to be made
prior to February 27, 2015, subject to
regulatory approval, that when added to
retained earnings accumulated by OCC
in 2014 will significantly increase
OCC’s capital levels as compared to
historical levels. Additionally, the
proposed change includes the
Replenishment Capital commitment,
which will provide OCC with access to
additional equity contributed by the
Stockholder Exchanges should OCC’s
equity fall close to or below the amount
that OCC determines to be appropriate
to support its business and manage
business risk.
A. Background
OCC is a clearing agency registered
with the Commission and is also a
derivatives clearing organization
(‘‘DCO’’) regulated in its capacity as
such by the Commodity Futures Trading
Commission (‘‘CFTC’’). OCC is a
Delaware business corporation and is
owned equally by the Stockholder
Exchanges, five national securities
exchanges for which OCC provides
clearing services.7 In addition, OCC
provides clearing services for seven
other national securities exchanges that
trade options (‘‘Non-Stockholder
Exchanges’’). In its capacity as a DCO,
OCC provides clearing services to four
futures exchanges. OCC also has been
designated systemically important by
the Financial Stability Oversight
Council pursuant to the Payment,
Clearing and Settlement Supervision
6 OCC filed a proposed rule change seeking
approval of changes to its By-Laws, Certificate of
Incorporation and relevant agreements, including
its Stockholders Agreement, necessary to
implement the Capital Plan. See supra note 4.
7 The Stockholder Exchanges are: Chicago Board
Options Exchange, Incorporated; International
Securities Exchange, LLC; NASDAQ OMX PHLX
LLC; NYSE MKT LLC; and NYSE Arca, Inc.
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]]>Agencies
[Federal Register Volume 80, Number 44 (Friday, March 6, 2015)]
[Notices]
[Pages 12213-12215]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05190]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74411; File No. SR-FICC-2014-09]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Amend the Rules of the
Government Securities Division and the Mortgage-Backed Securities
Division Regarding the Default of Fixed Income Clearing Corporation
March 2, 2015.
I. Introduction
On November 12, 2014, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-FICC-2014-09 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The proposed rule change was published
for comment in the Federal Register on December 2, 2014.\3\ On January
9, 2015, pursuant to Section 19(b)(2)(A)(ii) of the Act,\4\ FICC
consented to an extension of the time for Commission action on the
proposed rule change to March 2, 2015. The Commission received no
comment letters in response to the proposed rule change. For the
reasons discussed below, the Commission is approving the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 73682 (November 25,
2014), 79 FR 71481 (December 2, 2014) (File No. SR-FICC-2014-09).
\4\ 15 U.S.C. 78s(b)(2)(A)(ii).
---------------------------------------------------------------------------
II. Description
FICC filed the proposed rule change to amend the clearing rules of
the Government Securities Division (``GSD'') and of the Mortgage-Backed
Securities Division (``MBSD'') concerning a default by FICC.\5\ The
FICC Default Rules were added to GSD's and MBSD's rules in 2010 and
2012, respectively, to make explicit the close-out netting of
obligations between FICC and its clearing members in the event that
FICC becomes insolvent or defaults on its obligations to its clearing
members.\6\ FICC represented that the FICC Default Rules provide
clarity to clearing member firms in their application of balance sheet
netting to their positions with FICC under U.S. GAAP.\7\ FICC further
represented that the FICC Default Rules allow clearing members to
comply with Basel Accord Standards relating to netting, and thereby
enable clearing members to calculate their capital requirements on the
basis of their net credit exposure.\8\
---------------------------------------------------------------------------
\5\ In 2010, the Commission approved a proposed rule change
filed by FICC to add Rule 22B to the GSD rules (``GSD Default
Rule''). See Securities Exchange Act Release No. 63038 (October 5,
2010), 75 FR 62899 (October 13, 2010) (File No. SR-FICC-2010-04). In
2012, the Commission approved a proposed rule change filed by FICC
to add Rule 17A to the MBSD rules (``MBSD Default Rule'', and
together with the GSD Default Rule, ``FICC Default Rules''). See
Securities Exchange Act Release No. 66550 (March 9, 2012), 77 FR
15155 (March 14, 2012) (File No. SR-FICC-2008-01).
\6\ See Securities Exchange Act Release No. 63038 (October 5,
2010), 75 FR 62899 (October 13, 2010) (File No. SR-FICC-2010-04) and
Securities Exchange Act Release No. 66550 (March 9, 2012), 77 FR
15155 (March 14, 2012) (File No. SR-FICC-2008-01).
\7\ See Id.
\8\ See Id.
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The existing FICC Default Rules cover three general types of
default: Voluntary proceedings defaults; involuntary proceedings
defaults; and non-insolvency related defaults. Under the existing FICC
Default Rules, FICC states that it is considered in default with
respect to voluntary proceedings defaults (i) immediately upon the
dissolution of FICC, (ii) the voluntary institution of proceedings by
FICC seeking a judgment of insolvency or bankruptcy or other similar
relief, or (iii) the voluntary presentation by FICC of a petition for
its winding up or liquidation.
Under the existing FICC Default Rules, FICC is considered in
default
[[Page 12214]]
with respect to involuntary proceedings defaults on the 91st calendar
day after the judgment of insolvency or bankruptcy or the entry of an
order for relief (or similar order) for FICC's winding up or
liquidation, or the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other similar
official for all or substantially all of FICC's assets, where such
judgment, order or appointment, as applicable, remains unstayed
throughout the 90 calendar day grace period. FICC is considered in
default with respect to non-insolvency related defaults on the 91st
calendar day after it receives notice from a member of its failure to
make an undisputed payment or delivery to such member that is required
under the GSD Rules or the MBSD Rules, respectively, where such failure
remains unremedied throughout the 90 calendar day grace period.
The existing FICC Default Rules exclude the following from the
scope of what is considered a non-insolvency related default: (i) The
failure on the part of FICC to satisfy obligations to members in wind-
down, members in default, or members for whom FICC has ceased to act
pursuant to either GSD Rule 22A or MBSD Rule 17, as applicable; (ii)
the satisfaction of any payment or delivery obligation by FICC through
alternate means as provided in GSD or MBSD rules, as applicable; (iii)
the failure of the other division of FICC to satisfy a payment or
delivery obligation to a clearing member; and (iv) the failure to
satisfy any payment or delivery obligation required to be made to a
clearing member that is solely the result of an operational,
technological, or administrative error or impediment, provided that
FICC possesses sufficient funds or assets to satisfy the obligation.
Additionally, according to FICC, the grace period can be extended
beyond 90 calendar days under the existing FICC Default Rules in a non-
insolvency related default situation where a payment or delivery
deadline has been suspended under GSD Rule 42 or MBSD Rule 33, as
applicable, in which case the 90 calendar day grace period would
commence on the date FICC receives notice from a clearing member of its
failure to make an undisputed payment or delivery on the later due date
determined pursuant to the suspension.
Pursuant to this rule change, as approved, FICC is now amending its
FICC Default Rules in order to more closely align such rules with those
of its peer central counterparties and to facilitate the participation
of market participants, including registered investment companies, in
FICC's services by providing members with further legal certainty
regarding their rights with respect to a default by FICC. First, FICC
is amending its FICC Default Rules to add the voluntary making by FICC
of a general assignment for the benefit of creditors as an additional
type of voluntary proceeding. Second, FICC is eliminating the 90
calendar day grace period for involuntary proceeding defaults.
According to FICC, this change will result in FICC being considered in
default immediately upon the judgment of insolvency or bankruptcy or
the entry of an order for relief (or similar order) for FICC's winding-
up or liquidation, or the appointment of a receiver, trustee or other
similar official for FICC or substantially all of FICC's assets,
provided that such receiver, trustee or other similar official is
appointed pursuant to the federal securities laws, particularly Section
19(i) of the Act, or Title II of the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
Third, FICC is reducing the grace period from 90 to 7 calendar days
for non-insolvency related defaults. According to FICC, this change
will result in it being in a non-insolvency related default on the 8th
calendar day after it receives notice from a member of its failure to
make an undisputed payment or delivery to such member that is required
under the rules of GSD or MBSD, as applicable, provided that such
failure has not been remedied during the 7 calendar days, and does not
fall within the category of exclusions that are enumerated in clause
(b)(i), sub-clauses (A), (B) and (C) of the GSD Default Rule or the
MBSD Default Rule, as applicable.
Fourth, FICC is removing the provisions that provide for a
potential extension of the grace period in a non-insolvency default
situation where the deadline for a payment or delivery obligation of
FICC has been suspended by FICC under either GSD Rule 42 or MBSD Rule
33, as applicable. As a result, the grace period will commence on the
date FICC receives notice from a member of its failure to make an
undisputed payment or delivery on the later due date determined
pursuant to the suspension.
Fifth, FICC is removing the provisions that exclude from the scope
of what can be considered a non-insolvency related default the failure
to satisfy any payment or delivery obligation required to be made to a
clearing member that is the result of an operational, technological, or
administrative error or impediment.
Sixth, is adding language to the FICC Default Rules to clarify that
no other provision within the rules of GSD or MBSD, respectively,
including FICC's authority under GSD Rule 42 and MBSD Rule 33, as
applicable, can override the definition of what constitutes a default
by FICC.
III. Discussion
Section 19(b)(2)(C) of the Act \9\ directs the Commission to
approve a self-regulatory organization's proposed rule change if the
Commission finds that the 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 \10\
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions.
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\9\ 15 U.S.C. 78s(b)(2)(C).
\10\ 15 U.S.C. 78q-1(b)(3)(F).
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After careful review, the Commission finds that FICC's rule change
to amend the FICC Default Rules is consistent with Section 17A(b)(3)(F)
of the Act \11\ because the changes as proposed in FICC's filing should
provide further legal certainty to FICC's clearing members regarding
their close-out netting rights with respect to a default by FICC. In
addition, FICC's rule changes should assist in addressing certain
regulatory concerns of new market participants, including registered
investment companies, which FICC believes will facilitate their
participation in FICC's central counterparty services and thus
facilitate the prompt and accurate clearance and settlement of
securities transactions submitted by such market participants.
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\11\ Id.
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IV. Conclusion
On the basis of the foregoing, the Commission concludes that the
proposal is consistent with the requirements of the Act, particularly
the requirements of Section 17A of the Act,\12\ and the rules and
regulations thereunder.
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\12\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (File No. SR-FICC-2014-09) be
and hereby is approved.\14\
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\13\ 15 U.S.C. 78s(b)(2).
\14\ 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 12215]]
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For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-05190 Filed 3-5-15; 8:45 am]
BILLING CODE 8011-01-P
