Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of a Proposed Rule Change to the Government Securities Division Rules in Connection With the Extension of the GCF Repo Service Pilot Program, 29352-29357 [2015-12281]

Download as PDF 29352 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices The Commission invites comments on whether the Postal Service’s filing is consistent with 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than May 22, 2015. The public portions of the filing can be accessed via the Commission’s Web site (https:// www.prc.gov). The Commission appoints Kenneth R. Moeller to serve as Public Representative in this docket. III. Ordering Paragraphs It is ordered: 1. The Commission establishes Docket No. CP2015–69 for consideration of the matters raised by the Postal Service’s Notice. 2. Pursuant to 39 U.S.C. 505, Kenneth R. Moeller is appointed to serve as an officer of the Commission to represent the interests of the general public in this proceeding (Public Representative). 3. Comments are due no later than May 22, 2015. 4. The Secretary shall arrange for publication of this order in the Federal Register. Table of Contents SECURITIES AND EXCHANGE COMMISSION I. Introduction II. Notice of Commission Action III. Ordering Paragraphs [Release No. 34–74973; File No. SR–FICC– 2015–002] I. Introduction On May 14, 2015, the Postal Service filed notice that it has entered into an additional Global Plus 1C negotiated service agreement (Agreement).1 To support its Notice, the Postal Service filed a copy of the Agreement, a copy of the Governors’ Decision authorizing the product, a certification of compliance with 39 U.S.C. 3633(a), and an application for non-public treatment of certain materials. It also filed supporting financial workpapers. II. Notice of Commission Action POSTAL REGULATORY COMMISSION The Commission establishes Docket No. CP2015–68 for consideration of matters raised by the Notice. The Commission invites comments on whether the Postal Service’s filing is consistent with 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than May 22, 2015. The public portions of the filing can be accessed via the Commission’s Web site (https:// www.prc.gov). The Commission appoints Curtis Kidd to serve as Public Representative in this docket. [Docket No. CP2015–68; Order No. 2484] III. Ordering Paragraphs By the Commission. Shoshana M. Grove, Secretary. [FR Doc. 2015–12270 Filed 5–20–15; 8:45 am] BILLING CODE 7710–FW–P New Postal Product Postal Regulatory Commission. Notice. AGENCY: ACTION: The Commission is noticing a recent Postal Service filing concerning an additional Global Plus 1C negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps. DATES: Comments are due: May 22, 2015. SUMMARY: Submit comments electronically via the Commission’s Filing Online system at https:// www.prc.gov. Those who cannot submit comments electronically should contact the person identified in the FOR FURTHER INFORMATION CONTACT section by telephone for advice on filing alternatives. tkelley on DSK3SPTVN1PROD with NOTICES ADDRESSES: FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 It is ordered: 1. The Commission establishes Docket No. CP2015–68 for consideration of the matters raised by the Postal Service’s Notice. 2. Pursuant to 39 U.S.C. 505, Curtis Kidd is appointed to serve as an officer of the Commission to represent the interests of the general public in this proceeding (Public Representative). 3. Comments are due no later than May 22, 2015. 4. The Secretary shall arrange for publication of this order in the Federal Register. By the Commission. Shoshana M. Grove, Secretary. [FR Doc. 2015–12269 Filed 5–20–15; 8:45 am] BILLING CODE 7710–FW–P 1 Notice of the United States Postal Service of Filing a Functionally Equivalent Global Plus 1C Negotiated Service Agreement and Application for Non-Public Treatment of Materials Filed Under Seal, May 14, 2015 (Notice). PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of a Proposed Rule Change to the Government Securities Division Rules in Connection With the Extension of the GCF Repo Service Pilot Program May 15, 2015. 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 May 7, 2015, the Fixed Income Clearing Corporation (‘‘FICC’’ or the ‘‘Corporation’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FICC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule changes consist of modifications to the Rulebook of the Government Securities Division (‘‘GSD’’) in connection with the extension of the GCF Repo® service 3 pilot program. II. Clearing Agency’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 such statements. A. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (i) Purpose of the Proposed Rule Change FICC is seeking the Commission’s approval to extend the current pilot program (the ‘‘2014 Pilot Program’’) that is currently in effect for the GCF Repo® service. FICC is requesting that the 2014 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 GCF Repo is a registered trademark of FICC/ DTCC. 2 17 E:\FR\FM\21MYN1.SGM 21MYN1 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Pilot Program be extended for one year following the Commission’s approval of the present filing.4 By way of background, on July 12, 2011, FICC submitted a rule filing to the Commission (SR–FICC–2011–05) proposing to make certain changes to its GCF Repo service in order to comply with the recommendations that had been made by the Task Force on Triparty Reform (‘‘TPR’’), an industry group formed and sponsored by the Federal Reserve Bank of New York.5 Because the GCF Repo service operates as a triparty mechanism, FICC was requested to incorporate changes to the GCF Repo service to align the service with the other TPR recommended changes for the overall triparty market. The rule change described in SR– FICC–2011–05 was proposed to be run as a pilot program for one year starting from the date on which the filing was approved by the Commission (the ‘‘2011 Pilot Program’’).6 Throughout 2011 and the earlier half of 2012, FICC implemented a portion of the rule changes that were included in SR– FICC–2011–05. As the expiration date of the 2011 Pilot Program approached, FICC elected to have certain aspects of the 2011 Pilot Program continue, however, FICC also proposed to make certain modifications to the 2011 Pilot Program. As a result, on June 8, 2012, FICC submitted a rule filing for the 2012 Pilot Program (SR–FICC–2012–05).7 On June 5, 2013, FICC then submitted a rule filing to extend the Pilot Program for an additional year (SR–FICC–2013–06).8 On May 5, 2014, FICC then submitted a rule filing to extend the Pilot Program for an additional year (SR–FICC–2014– 02).9 Because the latest extension is now approaching its expiry date, FICC is seeking the Commission’s approval to extend the Pilot Program for an 4 If FICC determines to change the parameters of the service during the one-year Pilot Program extension period, it will submit a rule filing to the Commission. If FICC seeks to extend the Pilot Program beyond the one-year period or proposes to make the Pilot Program permanent, it will also submit a rule filing to the Commission. 5 The main purpose of the TPR was to develop recommendations to address the risk presented by triparty repo transactions due to the current morning reversal or ‘‘unwind’’ process and to move to a process by which transactions are collateralized all day. 6 Securities Exchange Act Release No. 34–65213 (August 29, 2011), 76 FR 54824 (September 2, 2011) (SR–FICC–2011–05). 7 Securities Exchange Release No. 34–67621 (August 8, 2012), 77 FR 48572 (August 14, 2012) (SR–FICC–2012–05). 8 Securities Exchange Act Release No. 34–70068 (July 30, 2013), 78 FR 47453 (August 5, 2013) (SR– FICC–2013–06). 9 Securities Exchange Act Release No. 34–72457 (June 24, 2014), 79 FR 36856 (June 30, 2014) (SR– FICC–2014–02). VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 additional year while the final phase of the tri-party reform is put into place.10 Background: Description of the GCF Repo Service and History (1) Creation of the GCF Repo Service The GCF Repo service allows GSD dealer members to trade general collateral repos 11 throughout the day without requiring intra-day[sic], tradefor-trade settlement on a deliveryversus-payment (‘‘DVP’’) basis. The service allows the dealers to trade such general collateral repos, based on rate and term, throughout the day with interdealer broker netting members on a blind basis. Standardized, generic CUSIP numbers have been established exclusively for GCF Repo processing and are used to specify the acceptable type of underlying Fedwire book-entry eligible collateral, which includes Treasuries, Agencies and certain mortgage-backed securities. The GCF Repo service was developed as part of a collaborative effort among GSCC (FICC’s predecessor), its two clearing banks (The Bank of New York Mellon (‘‘BNY’’) and JPMorgan Chase Bank, National Association (‘‘Chase’’), and industry representatives. GSCC introduced the GCF Repo service on an intra-clearing bank basis in 1998.12 Under the intrabank service, dealers could only engage in GCF Repo transactions with other dealers that cleared at the same clearing bank. (2) Creation of the Interbank Version of the GCF Repo Service In 1999, GSCC expanded the GCF Repo service to permit dealer participants to engage in GCF Repo trading on an inter-clearing bank basis, meaning that dealers using different clearing banks could enter into GCF Repo transactions (on a blind brokered basis).13 Because dealer members that participate in the GCF Repo service do not all clear at the same clearing bank, 10 The final phase includes the development interactive messages for the interbank collateral substitution automation. If FICC determines to change the parameters of the service during the oneyear Pilot Program extension period, it will submit a rule filing to the Commission. If FICC seeks to extend the Pilot Program beyond the one-year period or proposes to make the Pilot Program permanent, it will also submit a rule filing to the Commission. 11 A general collateral repo is a repo in which the underlying securities collateral is nonspecific, general collateral whose identification is at the option of the seller. This is in contrast to a specific collateral repo. 12 See Securities Exchange Act Release No. 34– 40623 (October 30, 1998) 63 FR 59831 (November 5, 1998) (SR–GSCC–98–02). 13 See Securities Exchange Act Release No. 34– 41303 (April 16, 1999) 64 FR 20346 (April 26, 1999) (SR–GSCC–99–01). PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 29353 introducing the service as an interbank service necessitated the establishment of a mechanism to permit after-hours movements of securities between the two clearing banks to deal with the fact that GSCC would likely have unbalanced net GCF securities and cash positions within each clearing bank (that is, it is likely that at the end of GCF Repo processing each business day, the dealers in one clearing bank will be net funds borrowers, while the dealers at the other clearing bank will be net funds lenders). To address this issue, GSCC and its clearing banks established, and the Commission approved, a legal mechanism by which securities would ‘‘move’’ across the clearing banks without the use of the securities Fedwire.14 (Movements of cash do not present the same issue because the cash Fedwire is open later than the securities Fedwire.) Therefore, at the end of the day, after the GCF net results are produced, securities are pledged via a tri-party-like mechanism and the interbank cash component is moved via Fedwire. In the morning, the pledges are unwound, that is, funds are returned to the net funds lenders and securities are returned to the net funds borrowers. The following simplified example illustrates the manner in which the GCF Repo services works on an interbank basis: Assume that Dealer B clears at BNY and Dealer C clears at Chase. Further assume that: (i) Outside of FICC, Dealer B engages in a triparty repo transaction with Party X to obtain funds and seeks to invest such funds via a GCF Repo transaction, (ii) outside of FICC, Dealer C engages in a DVP repo with Party Y to buy securities and seeks to finance these securities via a GCF Repo transaction, and (iii) Dealer B and Dealer C enter into a GCF Repo transaction (on a blind basis via a GCF Repo broker) and submit the trade details to FICC. At the end of ‘‘Day 1’’, GCF Repo collateral must be allocated, i.e., Dealer B must receive the securities. However, the securities that Dealer B is to receive are at Chase and the securities Fedwire is closed. The after-hours movement mechanism permits the securities to be ‘‘sent’’ to Dealer B as follows: FICC will instruct Chase to allocate to a special FICC clearance account at Chase securities in an amount equal to the net short securities position. FICC has established on its own books and records two ‘‘securities accounts’’ as defined in Article 8 of the New York 14 See id. for a detailed description of the clearing bank and FICC accounts needed to effect the afterhour movement of securities. E:\FR\FM\21MYN1.SGM 21MYN1 29354 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices Uniform Commercial Code, one in the name of Chase (‘‘FICC Account for Chase’’) and one in the name of BNY (‘‘FICC Account for BNY’’). The FICC Account for Chase is comprised of the securities in FICC’s special clearance account maintained by BNY (‘‘FICC Special Clearance Account at BNY for Chase’’), and the FICC Account for BNY is comprised of the securities in FICC’s special clearance account maintained by Chase (‘‘FICC Special Clearance Account at Chase for BNY’’).15 The establishment of these securities accounts by FICC in the name of the clearing banks enables the bank that is in the net long securities position to ‘‘receive’’ securities by pledge after the close of the securities Fedwire. Once the clearing bank has ‘‘received’’ the securities by pledge, it can credit them by book-entry to a FICC GCF Repo account at that clearing bank and then to the dealers that clear at that bank that are net long the securities in connection with GCF Repo trades. In our example, Chase, as agent for FICC, will transmit to BNY a description of the securities in the FICC Special Clearance Account at Chase for BNY. Based on this description, BNY will transfer funds equal to the funds borrowed position to the FICC GCF Repo account at Chase. Upon receipt of the funds by Chase, Chase will release any liens it may have on the FICC Special Clearance Account at Chase for BNY, and FICC will release any liens it may have on FICC Account for BNY (both of these accounts being comprised of the same securities). BNY will credit the securities in the FICC Account for BNY to FICC’s GCF Repo account at BNY, and BNY will further credit these securities to Dealer B, who, as noted, is in a net long securities position. In the morning of ‘‘Day 2,’’ all securities and funds movements occurring on Day 1, are reversed (‘‘unwind’’). tkelley on DSK3SPTVN1PROD with NOTICES (3) Issues With Morning Unwind Process In 2003, FICC shifted the GCF Repo service back to intrabank status only.16 By that time, the service had grown significantly in participation and volume. However, with the increase in use of the interbank service, certain payments systems risk issues arose from the inter-bank[sic] funds settlements 15 FICC has appointed Chase as its agent to maintain FICC’s books and records with respect to the BNY securities account, and FICC has appointed BNY as its agent to maintain FICC’s books and records with respect to the Chase securities account. 16 See Securities Exchange Act Release No. 34– 48006 (June 10, 2003), 66 FR 35745 (June 16, 2003) (SR–FICC–2003–04). VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 related to the service, namely, the large interbank funds movement in the morning. FICC shifted the service back to intrabank status to enable management to study the issues presented and identify a satisfactory solution for bringing the service back to interbank status. (4) The NFE Filing and Restoration of Service to Interbank Status In 2007, FICC submitted a rule filing to address the issues raised by the interbank morning funds movement and return the GCF Repo service to interbank status (the ‘‘2007 NFE Filing’’).17 The 2007 NFE Filing addressed these issues by using a hold against a dealer’s ‘‘net free equity’’ (‘‘NFE’’) at the clearing bank to collateralize its GCF Repo cash obligation to FICC on an intraday basis.18 The 2007 NFE Filing replaced the Day 2 morning unwind process with an alternate process, which is currently in effect. Specifically, in lieu of making funds payments, the interbank dealers grant to FICC a security interest in their NFE-related collateral equal to their prorated share of the total interbank funds amount. FICC, in turn, grants to the other clearing bank (that was due to receive the funds) a security interest in the NFE-related collateral to support the debit in the FICC account at the clearing bank. The debit in the FICC account (‘‘Interbank Cash Amount Debit’’) occurs because the dealers who are due to receive funds in the morning must receive those funds at that time in return for their release of collateral. The debit in the FICC account at the clearing bank gets satisfied during the end of day GCF Repo settlement process. Specifically, that day’s new activity yields a new interbank funds amount that will move at end of day—however, this amount gets netted with the amount that would have been due in the morning, thus further reducing the interbank funds movement. The NFE holds are released when the interbank funds movement is made at end of day. The 2007 NFE Filing did not involve any changes to the after-hours movement of securities occurring at the end of the day on Day 1. Using our simplified example: 17 See Securities Exchange Act Release No. 34– 57652 (April 11, 2008), 73 FR 20999 (April 17, 2008) (SR–FICC–2007–08). 18 NFE is a methodology that clearing banks use to determine whether an account holder (such as a dealer) has sufficient collateral to enter a specific transaction. NFE allows the clearing bank to place a limit on its customer’s activity by calculating a value on the customer’s balances at the bank. Bank customers have the ability to monitor their NFE balance throughout the day. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 On the morning of Day 2, Dealer C who needs to return funds in the unwind, instead of returning the funds in the morning, grants to FICC a security interest in Dealer C’s NFErelated collateral equal to its funds movement (we have assumed only one GCF Repo transaction took place in this simplified example). FICC, in turn, grants BNY (that was due to receive the funds) a security interest in the NFE-related collateral to support the debit in the FICC account at BNY. As noted above, the debit in FICC’s account at BNY arises because, under the current processing, Dealer B must receive its funds during the morning unwind. The FICC debit is then satisfied during the end of day GCF Repo settlement process. As part of the 2007 NFE Filing, FICC imposed certain additional risk management measures with respect to the GCF Repo service. First, FICC imposed a collateral premium (called ‘‘GCF Premium Charge’’) on the GCF Repo portion of the Clearing Fund deposits of all GCF participants to further protect FICC in the event of an intra-day[sic] default of a GCF Repo participant. FICC requires GCF Repo participants to submit a quarterly ‘‘snapshot’’ of their holdings by asset type to enable Risk Management staff to determine the appropriate Clearing Fund premium. Members who do not submit this required information by the deadlines established by FICC are subject to fine and an increased Clearing Fund premium, as with all other instances of late submission of required information. Second, the 2007 NFE Filing addressed the situation where FICC becomes concerned about the volume of interbank GCF Repo activity. Such a concern might arise, for example, if market events were to cause dealers to turn to the GCF Repo service for increased funding at levels beyond normal processing. The 2007 NFE Filing provides FICC with the discretion to institute risk mitigation and appropriate disincentive measures in order to bring GCF Repo levels to a comfortable level from a risk management perspective.19 19 Specifically, the 2007 NFE Filing introduced the term ‘‘GCF Repo Event’’, which will be declared by FICC if either of the following occurs: (i) The GCF interbank funds amount exceeds five times the average interbank funds amount over the previous ninety days for three consecutive days; or (ii) the GCF interbank funds amount exceeds fifty percent of the amount of GCF Repo collateral pledged for three consecutive days. FICC reviews these figures on a semi-annual basis to determine whether they remain adequate. FICC also has the right to declare a GCF Repo Event in any other circumstances where it is concerned about GCF Repo volumes and believes it is necessary to declare a GCF Repo Event in order to protect itself and its members. FICC will inform its members about the declaration of the GCF Repo Event via important notice. FICC will also inform the Commission about the declaration of the GCF Repo Event. E:\FR\FM\21MYN1.SGM 21MYN1 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices 2011 Pilot Program—Proposed Changes to the GCF Repo Service To Implement the TPR’s Recommendations In SR–FICC–2011–05, FICC proposed the following rule changes with respect to the GCF Repo service to address the TPR’s Recommendations: (1)(a) To move the Day 2 unwind from 7:30 a.m. to 3:30 p.m., (b) to move the NFE process 20 from morning to a time established by the Corporation as announced by notice to all members,21 (c) to move the cut-off time of GCF Repo submissions from 3:35 p.m. to 3:00 p.m., and (d) to move the cut-off time for dealer affirmation or disaffirmation from 3:45 p.m. to 3:00 p.m. (2) To establish rules for intraday GCF Repo collateral substitutions (i.e., SR– FICC–2011–05 stated that with respect to interbank GCF Repo transactions, the substitution process will only permit cash as an initial matter to accommodate current processing systems, however, as noted below, the substitution process will permit cash and/or securities). During the term of the 2011 Pilot Program, FICC implemented the proposed changes referred to in subsections 1(c) and 1(d) above and during the term of the 2012 Pilot Program, FICC implemented the proposed changes referred to in subsections 1(a), 1(b) and 2 above. (1) Proposed Change Regarding the Morning Unwind and Related Rule Changes tkelley on DSK3SPTVN1PROD with NOTICES The TPR recommended that the Day 2 unwind for all triparty transactions be moved from the morning to 3:30 p.m. The TPR made this recommendation in order to achieve the benefit of reducing the clearing banks’ intraday exposure to the dealers. As stated, because the GCF Repo service is essentially a triparty mechanism, the TPR requested that FICC accommodate this time change. For the GSD rules, this necessitated a 20 No other changes are being proposed to the NFE process that was in place by the 2007 NFE Filing; the risk management measures that were put in place by the 2007 NFE Filing remain in place with the present proposal. 21 SR–FICC–2011–05 noted that the possible time range would be 8 a.m. to 1 p.m. to coincide with the collateral substitution mechanism that was being developed between FICC and its clearing banks. In rule filing SR–FICC–2012–05, FICC clarified that the 8:00 a.m. to 1:00 p.m. proposed time range in SR–FICC–2011–05 referred to the clearing bank hold on the FICC interest in the NFE (i.e., as part of the NFE process, FICC grants to the other clearing bank (that was due to receive the funds) a security interest in the NFE—related collateral to support the debit in the FICC account at the clearing bank). At present, given the move of the NFE process (as discussed in more detail below), this proposed time range has now moved from 8:00 a.m. to 3:30 p.m. VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 change to the GSD’s ‘‘Schedule of GCF Timeframes.’’ Specifically, the 7:30 a.m. time in the Schedule was deleted and the language therein was moved to a new time of 3:30 p.m. Because the Day 2 unwind moved from the morning to 3:30 p.m. and because the NFE process established by the 2007 NFE Filing is tied to the moment of the unwind, the NFE process also was required to move. During 2012, when the systems processing for the triparty reform effort continued on the part of the clearing banks, the unwind moved to 3:30 p.m. and the funds continued to move between the two clearing banks at 5:00 p.m.; the NFE hold which applies to dealers moved to between 3:30 p.m. and 5:00 p.m. Because the NFE process is a legal process and not an operational process, it is not reflected on the Schedule of GCF Timeframes and therefore no change to the Schedule was required to accommodate the move of the NFE process. A change was needed in Section 3 of GSD Rule 20 to delete the reference to the ‘‘morning’’ timeframe on Day 2 with respect to the NFE process and to add language referencing ‘‘at the time established by the Corporation.’’ (2) Proposed Change Regarding Intraday GCF Repo Securities Collateral Substitutions As a result of the time change of the unwind (i.e., the reversal on Day 2 of collateral allocations established by FICC for each netting member’s GCF net funds borrower positions and GCF net funds lender positions on Day 1) to 3:30 p.m., the provider of GCF Repo securities collateral in a GCF Repo transaction on Day 1 no longer has possession of such securities at the beginning of Day 2. Therefore, during Day 2 prior to the unwind of the Day 1 collateral allocations, the provider of GCF Repo securities collateral (in our simple example, Dealer C) needs a substitution mechanism for the return of its posted GCF Repo securities collateral in order to make securities deliveries for utilization of such securities in its business activities. (In our example, Dealer C may need to return the securities to Party Y depending upon the terms of their transaction.) In the 2012 Pilot Program, FICC established a substitution process for this purpose in conjunction with its clearing banks. The language for the substitution mechanism was added to Section 3 of GSD Rule 20. It provides that all requests for substitution for the GCF Repo securities collateral must be submitted by the provider of the GCF Repo securities collateral (i.e., Dealer C) by the PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 29355 applicable deadline on Day 2 (the ‘‘substitution deadline’’).22 Substitutions on Intrabank GCF Repos If the GCF Repo transaction is between dealer counterparties effecting the transaction through the same clearing bank (i.e., on an intra-clearing bank basis and in our example Dealer C and other dealers clearing at Chase), on Day 2 such clearing bank will process each substitution request of the provider of GCF Repo securities collateral (i.e., Dealer C) submitted prior to the substitution deadline promptly upon receipt of such request. The return of the GCF Repo securities collateral in exchange for cash and/or eligible securities of equivalent value can be effected by simple debits and credits to the accounts of the GCF Repo dealer counterparties at the clearing agent bank (i.e., in our example, Chase). Eligible securities for this purpose will be the same as what is currently permitted under the GSD rules for collateral allocations, namely, Comparable Securities,23 (ii) Other Acceptable Securities,24 or (iii) U.S. Treasury bills, notes or bonds maturing in a time frame no greater than that of the securities that have been traded (except where such traded securities are U.S. Treasury bills, substitution may be with Comparable Securities and/or cash only). Substitutions on Interbank GCF Repos For a GCF Repo that was processed on an interbank basis and to accommodate a potential substitution request, FICC initiates a debit of the securities in the account of the lender through the FICC GCF Repo accounts at the clearing bank of the lender and the FICC GCF Repo 22 As noted in SR–FICC–2012–05, FICC will establish such deadline prior to the implementation of the changes to this service in conjunction with the clearing banks and the Federal Reserve in light of market circumstances. As noted in Important Notice GOV088.12, once delivery has been made to GSD on the new obligations for that business day, no substitutions will be permitted for the remainder of the day. 23 The GSD rules define ‘‘Comparable Securities’’ as follows: The term ‘‘Comparable Securities’’ means, with respect to a security or securities that are represented by a particular Generic CUSIP Number, any other security or securities that are represented by the same Generic CUSIP Number. 24 The GSD rules define ‘‘Other Acceptable Securities’’ as follows: The term ‘‘Other Acceptable Securities’’ means, with respect to: (an) adjustable-rate mortgagebacked security or securities issued by Ginnie Mae, any fixed-rate mortgage-backed security or securities issued by Ginnie Mae, or (an) adjustablerate mortgage-backed security or securities issued by either Fannie Mae or Freddie Mac: (a) Any fixedrate mortgage-backed security or securities issued by Fannie Mae and Freddie Mac, (b) any fixed-rate mortgage-backed security or securities issued by Ginnie Mae, or (c) any adjustable-rate mortgagebacked security or securities issued by Ginnie Mae. E:\FR\FM\21MYN1.SGM 21MYN1 29356 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices tkelley on DSK3SPTVN1PROD with NOTICES account at the clearing bank of the borrower (‘‘Interbank Movement’’). This Interbank Movement is done so that a borrower who elects to substitute collateral will have access to the collateral for which it is substituting. The Interbank Movement occurs in the morning, though the clearing banks and FICC have the capability to have the Interbank Movement occur at any point during the day up until 2:30 p.m. During the 2012 Pilot Program, FICC and the clearing banks implemented a change to unwind the intrabank GCF Repo transactions at 3:30 p.m. In the example above, the GCF Repo securities collateral will be debited from the securities account of the receiver of the collateral (i.e., Dealer B) at its clearing bank (i.e., BNY), and from the FICC Account for BNY. If a substitution request is received by the clearing bank (i.e., Chase) of the provider of GCF Repo securities collateral, prior to the substitution deadline at a time specified in FICC’s procedures,25 that clearing bank will process the substitution request by releasing the GCF Repo securities collateral from the FICC GCF Repo account at Chase and crediting it to the account of the provider of GCF Repo securities collateral (i.e., Dealer C). All cash and/or securities substituted for the GCF Repo securities collateral being released will be credited to FICC’s GCF Repo account at the clearing bank (i.e., Chase). Simultaneously, with the debit of the GCF Repo securities collateral from the account at the clearing bank (i.e., BNY) of the original receiver of GCF Repo securities collateral (i.e., Dealer B), for purposes of making payment to the original receiver of securities collateral (i.e., Dealer B), such clearing bank will effect a cash debit equal to the value of the securities collateral in FICC’s GCF Repo account at such clearing bank and will credit the account of the original receiver of securities collateral (i.e., Dealer B) at such clearing bank with such cash amount. (This is because when Dealer B is debited the securities, Dealer B must receive the funds.) In order to secure FICC’s obligation to repay the balance in FICC’s GCF Repo account at such clearing bank (i.e., BNY), FICC will grant to such clearing bank a security interest in the cash and/ 25 Rule filing SR–FICC–2012–05 noted that this timeframe would also be established in consultation with the clearing banks and the Federal Reserve. At that time, the parties were considering whether to have the substitution process be accomplished in two batches during the day depending upon the time of submission of the notifications for substitution. The clearing banks, however, developed a real-time substitution mechanism for both tri-party and GCF collateral making batch processing unnecessary. VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 or securities substituted for the GCF securities collateral in FICC’s GCF repo account at the other clearing bank (i.e., Chase). Using the example from above, assume the Dealer C submits a substitution notification—it requires the securities collateral that has been pledged to Dealer B and will substitute cash and/or securities. BNY will debit the securities from Dealer B’s account and the relevant liens will be released so that the securities are in FICC’s account at Chase. Chase will credit the securities to Dealer C’s account and the cash and/or securities that Dealer C uses for its collateral substitution will be credited by Chase to FICC’s account at Chase. From Dealer B’s perspective, when BNY debits the securities from Dealer B’s account, Dealer B is supposed to receive the funds—but as noted, the funds are at Chase. BNY will credit the funds to Dealer B’s account and debit FICC’s account at BNY. At this point in our example, FICC is running a credit at Chase and a debit at BNY. In order to secure FICC’s debit at BNY, FICC will grant a security interest in the funds in the FICC account at Chase. For substitutions that occur with respect to GCF Repo transactions that were processed on an inter-clearing bank basis, FICC and the clearing banks permit cash and/or securities for the substitutions. The proposed rule change provided FICC with flexibility in this regard by referring to FICC’s procedures. As noted above, each of the abovereferenced changes were approved in connection with SR–FICC–2011–05,26 SR–FICC–2012–05 27 and SR–FICC– 2013–06.28 FICC proposes to extend the pilot program reflecting these changes for an additional one year. The changes referenced above are reflected in Exhibit 5. (ii) Statutory Basis for the Proposed Rule Change The proposed rule change is consistent with the Securities and Exchange Act of 1934, as amended (the ‘‘Act’’) and the rules and regulations promulgated thereunder because it will align the GCF Repo service with recommendations being made by the TPR to address risks in the triparty market overall and therefore will serve to further safeguard the securities and funds for which FICC is responsible. 26 Securities Exchange Act Release No. 34–65213 (August 29, 2011) 76 FR 54824 (September 2, 2011). 27 Securities Exchange Act Release No. 34–67277 (June 20, 2012) 77 FR 38108 (June 26, 2012). 28 Securities Exchange Act Release No. 34–70068 (July 30, 2013) 78 FR 47453 (August 5, 2013). PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 B. Clearing Agency’s Statement on Burden on Competition FICC does not believe that the proposed rule change will have any negative impact, or impose any burden, on competition. C. Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed rule changes 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 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s 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–2015–002 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FICC–2015–002. 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 E:\FR\FM\21MYN1.SGM 21MYN1 Federal Register / Vol. 80, No. 98 / Thursday, May 21, 2015 / Notices 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 Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filings 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/legal/sec-rulefilings.aspx. 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–2015–002 and should be submitted on or before June 11, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–12281 Filed 5–20–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74974; File No. SR–ICC– 2015–008] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Related to Settlement Finality May 15, 2015. tkelley on DSK3SPTVN1PROD with NOTICES I. Introduction On April 1, 2015, ICE Clear Credit LLC (‘‘ICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 to provide additional clarity regarding settlement finality with respect to Markto-Market Margin. The proposed rule change was published for comment in 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 20:28 May 20, 2015 Jkt 235001 the Federal Register on April 14, 2015.3 The Commission did not receive comments regarding the proposed change. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description of the Proposed Rule Change ICC proposes revising ICC Clearing Rule 401 (‘‘Rule 401’’) in order to provide additional clarity regarding settlement finality with respect to Markto-Market Margin (as defined in ICC Rule 401). Specifically, the proposed rule change would add new subsections (k) and (l) to Rule 401. ICC states that the new subsections are not intended to change any current ICC practices; rather, such changes are intended to provide additional clarity regarding settlement finality with respect to Mark-to-Market Margin. All capitalized terms not defined herein are defined in the ICC Rules. ICC proposes adding language in Rule 401(k) to clarify that each Transfer of Mark-to-Market Margin shall constitute a settlement (within the meaning of U.S. Commodity Futures Trading Commission Rule 39.14 4) and shall be final as of the time ICC’s accounts are debited or credited with the relevant payment. Further, ICC proposes adding language in Rule 401(l) to state that once settlement of a Transfer of Mark-toMarket Margin in respect of the Margin Requirements for a Mark-to-Market Margin Category is final, the fair value of the outstanding exposures for the relevant Contracts in that Mark-toMarket Margin Category (taking into account the Margin provided in respect of such Margin Requirement) will be reset to zero. ICC states that such additional language is consistent with ICC’s current practices and is intended to provide further clarity regarding ICC’s settlement cycle. III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act 5 directs the Commission to approve a proposed rule change of a self-regulatory organization if the Commission finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such selfregulatory organization. Section 17A(b)(3)(F) of the Act 6 requires, among other things, that the rules of a clearing 3 Securities Exchange Act Release No. 34–74676 (Apr. 8, 2015), 80 FR 20047 (Apr. 14, 2015) (SR– ICC–2015–008). 4 17 CFR 39.14. 5 15 U.S.C. 78s(b)(2)(C). 6 15 U.S.C. 78q–1(b)(3)(F). PO 00000 Frm 00059 Fmt 4703 Sfmt 9990 29357 agency are designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions. The Commission finds that the proposed rule change is consistent with Section 17A of the Act 7 and the rules thereunder applicable to ICC. The proposed rule change would provide additional clarity and transparency regarding ICC’s settlement cycle, specifically with regard to the time at which Transfers of Mark-to-Market Margin are final and the time at which the fair value of the outstanding exposures for relevant Contracts in a Mark-to-Market Margin Category is reset to zero. The Commission therefore finds that the proposed rule change is designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions in accordance with Section 17A(b)(3)(F) of the Act.8 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 9 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,10 that the proposed rule change (File No. SR–ICC– 2015–008) be, and hereby is, approved.11 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–12282 Filed 5–20–15; 8:45 am] BILLING CODE 8011–01–P 7 15 U.S.C. 78q–1. U.S.C. 78q–1(b)(3)(F). 9 15 U.S.C. 78q–1. 10 15 U.S.C. 78s(b)(2). 11 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 17 CFR 200.30–3(a)(12). 8 15 E:\FR\FM\21MYN1.SGM 21MYN1

Agencies

[Federal Register Volume 80, Number 98 (Thursday, May 21, 2015)]
[Notices]
[Pages 29352-29357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12281]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74973; File No. SR-FICC-2015-002]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change to the Government Securities 
Division Rules in Connection With the Extension of the GCF Repo Service 
Pilot Program

May 15, 2015.
    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 May 7, 2015, the Fixed Income Clearing Corporation (``FICC'' or the 
``Corporation'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FICC. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule changes consist of modifications to the Rulebook 
of the Government Securities Division (``GSD'') in connection with the 
extension of the GCF Repo[supreg] service \3\ pilot program.
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    \3\ GCF Repo is a registered trademark of FICC/DTCC.
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II. Clearing Agency'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 such statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(i) Purpose of the Proposed Rule Change
    FICC is seeking the Commission's approval to extend the current 
pilot program (the ``2014 Pilot Program'') that is currently in effect 
for the GCF Repo[supreg] service. FICC is requesting that the 2014

[[Page 29353]]

Pilot Program be extended for one year following the Commission's 
approval of the present filing.\4\
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    \4\ If FICC determines to change the parameters of the service 
during the one-year Pilot Program extension period, it will submit a 
rule filing to the Commission. If FICC seeks to extend the Pilot 
Program beyond the one-year period or proposes to make the Pilot 
Program permanent, it will also submit a rule filing to the 
Commission.
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    By way of background, on July 12, 2011, FICC submitted a rule 
filing to the Commission (SR-FICC-2011-05) proposing to make certain 
changes to its GCF Repo service in order to comply with the 
recommendations that had been made by the Task Force on Triparty Reform 
(``TPR''), an industry group formed and sponsored by the Federal 
Reserve Bank of New York.\5\ Because the GCF Repo service operates as a 
triparty mechanism, FICC was requested to incorporate changes to the 
GCF Repo service to align the service with the other TPR recommended 
changes for the overall triparty market.
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    \5\ The main purpose of the TPR was to develop recommendations 
to address the risk presented by triparty repo transactions due to 
the current morning reversal or ``unwind'' process and to move to a 
process by which transactions are collateralized all day.
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    The rule change described in SR-FICC-2011-05 was proposed to be run 
as a pilot program for one year starting from the date on which the 
filing was approved by the Commission (the ``2011 Pilot Program'').\6\ 
Throughout 2011 and the earlier half of 2012, FICC implemented a 
portion of the rule changes that were included in SR-FICC-2011-05. As 
the expiration date of the 2011 Pilot Program approached, FICC elected 
to have certain aspects of the 2011 Pilot Program continue, however, 
FICC also proposed to make certain modifications to the 2011 Pilot 
Program. As a result, on June 8, 2012, FICC submitted a rule filing for 
the 2012 Pilot Program (SR-FICC-2012-05).\7\ On June 5, 2013, FICC then 
submitted a rule filing to extend the Pilot Program for an additional 
year (SR-FICC-2013-06).\8\ On May 5, 2014, FICC then submitted a rule 
filing to extend the Pilot Program for an additional year (SR-FICC-
2014-02).\9\ Because the latest extension is now approaching its expiry 
date, FICC is seeking the Commission's approval to extend the Pilot 
Program for an additional year while the final phase of the tri-party 
reform is put into place.\10\
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    \6\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \7\ Securities Exchange Release No. 34-67621 (August 8, 2012), 
77 FR 48572 (August 14, 2012) (SR-FICC-2012-05).
    \8\ Securities Exchange Act Release No. 34-70068 (July 30, 
2013), 78 FR 47453 (August 5, 2013) (SR-FICC-2013-06).
    \9\ Securities Exchange Act Release No. 34-72457 (June 24, 
2014), 79 FR 36856 (June 30, 2014) (SR-FICC-2014-02).
    \10\ The final phase includes the development interactive 
messages for the interbank collateral substitution automation. If 
FICC determines to change the parameters of the service during the 
one-year Pilot Program extension period, it will submit a rule 
filing to the Commission. If FICC seeks to extend the Pilot Program 
beyond the one-year period or proposes to make the Pilot Program 
permanent, it will also submit a rule filing to the Commission.
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Background: Description of the GCF Repo Service and History
(1) Creation of the GCF Repo Service
    The GCF Repo service allows GSD dealer members to trade general 
collateral repos \11\ throughout the day without requiring intra-
day[sic], trade-for-trade settlement on a delivery-versus-payment 
(``DVP'') basis. The service allows the dealers to trade such general 
collateral repos, based on rate and term, throughout the day with 
inter-dealer broker netting members on a blind basis. Standardized, 
generic CUSIP numbers have been established exclusively for GCF Repo 
processing and are used to specify the acceptable type of underlying 
Fedwire book-entry eligible collateral, which includes Treasuries, 
Agencies and certain mortgage-backed securities.
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    \11\ A general collateral repo is a repo in which the underlying 
securities collateral is nonspecific, general collateral whose 
identification is at the option of the seller. This is in contrast 
to a specific collateral repo.
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    The GCF Repo service was developed as part of a collaborative 
effort among GSCC (FICC's predecessor), its two clearing banks (The 
Bank of New York Mellon (``BNY'') and JPMorgan Chase Bank, National 
Association (``Chase''), and industry representatives. GSCC introduced 
the GCF Repo service on an intra-clearing bank basis in 1998.\12\ Under 
the intrabank service, dealers could only engage in GCF Repo 
transactions with other dealers that cleared at the same clearing bank.
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    \12\ See Securities Exchange Act Release No. 34-40623 (October 
30, 1998) 63 FR 59831 (November 5, 1998) (SR-GSCC-98-02).
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(2) Creation of the Interbank Version of the GCF Repo Service
    In 1999, GSCC expanded the GCF Repo service to permit dealer 
participants to engage in GCF Repo trading on an inter-clearing bank 
basis, meaning that dealers using different clearing banks could enter 
into GCF Repo transactions (on a blind brokered basis).\13\ Because 
dealer members that participate in the GCF Repo service do not all 
clear at the same clearing bank, introducing the service as an 
interbank service necessitated the establishment of a mechanism to 
permit after-hours movements of securities between the two clearing 
banks to deal with the fact that GSCC would likely have unbalanced net 
GCF securities and cash positions within each clearing bank (that is, 
it is likely that at the end of GCF Repo processing each business day, 
the dealers in one clearing bank will be net funds borrowers, while the 
dealers at the other clearing bank will be net funds lenders). To 
address this issue, GSCC and its clearing banks established, and the 
Commission approved, a legal mechanism by which securities would 
``move'' across the clearing banks without the use of the securities 
Fedwire.\14\ (Movements of cash do not present the same issue because 
the cash Fedwire is open later than the securities Fedwire.) Therefore, 
at the end of the day, after the GCF net results are produced, 
securities are pledged via a tri-party-like mechanism and the interbank 
cash component is moved via Fedwire. In the morning, the pledges are 
unwound, that is, funds are returned to the net funds lenders and 
securities are returned to the net funds borrowers.
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    \13\ See Securities Exchange Act Release No. 34-41303 (April 16, 
1999) 64 FR 20346 (April 26, 1999) (SR-GSCC-99-01).
    \14\ See id. for a detailed description of the clearing bank and 
FICC accounts needed to effect the after-hour movement of 
securities.
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    The following simplified example illustrates the manner in which 
the GCF Repo services works on an interbank basis:
    Assume that Dealer B clears at BNY and Dealer C clears at Chase. 
Further assume that: (i) Outside of FICC, Dealer B engages in a 
triparty repo transaction with Party X to obtain funds and seeks to 
invest such funds via a GCF Repo transaction, (ii) outside of FICC, 
Dealer C engages in a DVP repo with Party Y to buy securities and seeks 
to finance these securities via a GCF Repo transaction, and (iii) 
Dealer B and Dealer C enter into a GCF Repo transaction (on a blind 
basis via a GCF Repo broker) and submit the trade details to FICC.
    At the end of ``Day 1'', GCF Repo collateral must be allocated, 
i.e., Dealer B must receive the securities. However, the securities 
that Dealer B is to receive are at Chase and the securities Fedwire is 
closed. The after-hours movement mechanism permits the securities to be 
``sent'' to Dealer B as follows: FICC will instruct Chase to allocate 
to a special FICC clearance account at Chase securities in an amount 
equal to the net short securities position.
    FICC has established on its own books and records two ``securities 
accounts'' as defined in Article 8 of the New York

[[Page 29354]]

Uniform Commercial Code, one in the name of Chase (``FICC Account for 
Chase'') and one in the name of BNY (``FICC Account for BNY''). The 
FICC Account for Chase is comprised of the securities in FICC's special 
clearance account maintained by BNY (``FICC Special Clearance Account 
at BNY for Chase''), and the FICC Account for BNY is comprised of the 
securities in FICC's special clearance account maintained by Chase 
(``FICC Special Clearance Account at Chase for BNY'').\15\ The 
establishment of these securities accounts by FICC in the name of the 
clearing banks enables the bank that is in the net long securities 
position to ``receive'' securities by pledge after the close of the 
securities Fedwire. Once the clearing bank has ``received'' the 
securities by pledge, it can credit them by book-entry to a FICC GCF 
Repo account at that clearing bank and then to the dealers that clear 
at that bank that are net long the securities in connection with GCF 
Repo trades.
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    \15\ FICC has appointed Chase as its agent to maintain FICC's 
books and records with respect to the BNY securities account, and 
FICC has appointed BNY as its agent to maintain FICC's books and 
records with respect to the Chase securities account.
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    In our example, Chase, as agent for FICC, will transmit to BNY a 
description of the securities in the FICC Special Clearance Account at 
Chase for BNY. Based on this description, BNY will transfer funds equal 
to the funds borrowed position to the FICC GCF Repo account at Chase. 
Upon receipt of the funds by Chase, Chase will release any liens it may 
have on the FICC Special Clearance Account at Chase for BNY, and FICC 
will release any liens it may have on FICC Account for BNY (both of 
these accounts being comprised of the same securities). BNY will credit 
the securities in the FICC Account for BNY to FICC's GCF Repo account 
at BNY, and BNY will further credit these securities to Dealer B, who, 
as noted, is in a net long securities position. In the morning of ``Day 
2,'' all securities and funds movements occurring on Day 1, are 
reversed (``unwind'').
(3) Issues With Morning Unwind Process
    In 2003, FICC shifted the GCF Repo service back to intrabank status 
only.\16\ By that time, the service had grown significantly in 
participation and volume. However, with the increase in use of the 
interbank service, certain payments systems risk issues arose from the 
inter-bank[sic] funds settlements related to the service, namely, the 
large interbank funds movement in the morning. FICC shifted the service 
back to intrabank status to enable management to study the issues 
presented and identify a satisfactory solution for bringing the service 
back to interbank status.
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    \16\ See Securities Exchange Act Release No. 34-48006 (June 10, 
2003), 66 FR 35745 (June 16, 2003) (SR-FICC-2003-04).
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(4) The NFE Filing and Restoration of Service to Interbank Status
    In 2007, FICC submitted a rule filing to address the issues raised 
by the interbank morning funds movement and return the GCF Repo service 
to interbank status (the ``2007 NFE Filing'').\17\ The 2007 NFE Filing 
addressed these issues by using a hold against a dealer's ``net free 
equity'' (``NFE'') at the clearing bank to collateralize its GCF Repo 
cash obligation to FICC on an intraday basis.\18\
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    \17\ See Securities Exchange Act Release No. 34-57652 (April 11, 
2008), 73 FR 20999 (April 17, 2008) (SR-FICC-2007-08).
    \18\ NFE is a methodology that clearing banks use to determine 
whether an account holder (such as a dealer) has sufficient 
collateral to enter a specific transaction. NFE allows the clearing 
bank to place a limit on its customer's activity by calculating a 
value on the customer's balances at the bank. Bank customers have 
the ability to monitor their NFE balance throughout the day.
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    The 2007 NFE Filing replaced the Day 2 morning unwind process with 
an alternate process, which is currently in effect. Specifically, in 
lieu of making funds payments, the interbank dealers grant to FICC a 
security interest in their NFE-related collateral equal to their 
prorated share of the total interbank funds amount. FICC, in turn, 
grants to the other clearing bank (that was due to receive the funds) a 
security interest in the NFE-related collateral to support the debit in 
the FICC account at the clearing bank. The debit in the FICC account 
(``Interbank Cash Amount Debit'') occurs because the dealers who are 
due to receive funds in the morning must receive those funds at that 
time in return for their release of collateral. The debit in the FICC 
account at the clearing bank gets satisfied during the end of day GCF 
Repo settlement process. Specifically, that day's new activity yields a 
new interbank funds amount that will move at end of day--however, this 
amount gets netted with the amount that would have been due in the 
morning, thus further reducing the interbank funds movement. The NFE 
holds are released when the interbank funds movement is made at end of 
day. The 2007 NFE Filing did not involve any changes to the after-hours 
movement of securities occurring at the end of the day on Day 1. Using 
our simplified example:

    On the morning of Day 2, Dealer C who needs to return funds in 
the unwind, instead of returning the funds in the morning, grants to 
FICC a security interest in Dealer C's NFE-related collateral equal 
to its funds movement (we have assumed only one GCF Repo transaction 
took place in this simplified example). FICC, in turn, grants BNY 
(that was due to receive the funds) a security interest in the NFE-
related collateral to support the debit in the FICC account at BNY. 
As noted above, the debit in FICC's account at BNY arises because, 
under the current processing, Dealer B must receive its funds during 
the morning unwind. The FICC debit is then satisfied during the end 
of day GCF Repo settlement process.

    As part of the 2007 NFE Filing, FICC imposed certain additional 
risk management measures with respect to the GCF Repo service. First, 
FICC imposed a collateral premium (called ``GCF Premium Charge'') on 
the GCF Repo portion of the Clearing Fund deposits of all GCF 
participants to further protect FICC in the event of an intra-day[sic] 
default of a GCF Repo participant. FICC requires GCF Repo participants 
to submit a quarterly ``snapshot'' of their holdings by asset type to 
enable Risk Management staff to determine the appropriate Clearing Fund 
premium. Members who do not submit this required information by the 
deadlines established by FICC are subject to fine and an increased 
Clearing Fund premium, as with all other instances of late submission 
of required information.
    Second, the 2007 NFE Filing addressed the situation where FICC 
becomes concerned about the volume of interbank GCF Repo activity. Such 
a concern might arise, for example, if market events were to cause 
dealers to turn to the GCF Repo service for increased funding at levels 
beyond normal processing. The 2007 NFE Filing provides FICC with the 
discretion to institute risk mitigation and appropriate disincentive 
measures in order to bring GCF Repo levels to a comfortable level from 
a risk management perspective.\19\
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    \19\ Specifically, the 2007 NFE Filing introduced the term ``GCF 
Repo Event'', which will be declared by FICC if either of the 
following occurs: (i) The GCF interbank funds amount exceeds five 
times the average interbank funds amount over the previous ninety 
days for three consecutive days; or (ii) the GCF interbank funds 
amount exceeds fifty percent of the amount of GCF Repo collateral 
pledged for three consecutive days. FICC reviews these figures on a 
semi-annual basis to determine whether they remain adequate. FICC 
also has the right to declare a GCF Repo Event in any other 
circumstances where it is concerned about GCF Repo volumes and 
believes it is necessary to declare a GCF Repo Event in order to 
protect itself and its members. FICC will inform its members about 
the declaration of the GCF Repo Event via important notice. FICC 
will also inform the Commission about the declaration of the GCF 
Repo Event.

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[[Page 29355]]

2011 Pilot Program--Proposed Changes to the GCF Repo Service To 
Implement the TPR's Recommendations
    In SR-FICC-2011-05, FICC proposed the following rule changes with 
respect to the GCF Repo service to address the TPR's Recommendations:
    (1)(a) To move the Day 2 unwind from 7:30 a.m. to 3:30 p.m., (b) to 
move the NFE process \20\ from morning to a time established by the 
Corporation as announced by notice to all members,\21\ (c) to move the 
cut-off time of GCF Repo submissions from 3:35 p.m. to 3:00 p.m., and 
(d) to move the cut-off time for dealer affirmation or disaffirmation 
from 3:45 p.m. to 3:00 p.m.
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    \20\ No other changes are being proposed to the NFE process that 
was in place by the 2007 NFE Filing; the risk management measures 
that were put in place by the 2007 NFE Filing remain in place with 
the present proposal.
    \21\ SR-FICC-2011-05 noted that the possible time range would be 
8 a.m. to 1 p.m. to coincide with the collateral substitution 
mechanism that was being developed between FICC and its clearing 
banks. In rule filing SR-FICC-2012-05, FICC clarified that the 8:00 
a.m. to 1:00 p.m. proposed time range in SR-FICC-2011-05 referred to 
the clearing bank hold on the FICC interest in the NFE (i.e., as 
part of the NFE process, FICC grants to the other clearing bank 
(that was due to receive the funds) a security interest in the NFE--
related collateral to support the debit in the FICC account at the 
clearing bank). At present, given the move of the NFE process (as 
discussed in more detail below), this proposed time range has now 
moved from 8:00 a.m. to 3:30 p.m.
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    (2) To establish rules for intraday GCF Repo collateral 
substitutions (i.e., SR-FICC-2011-05 stated that with respect to 
interbank GCF Repo transactions, the substitution process will only 
permit cash as an initial matter to accommodate current processing 
systems, however, as noted below, the substitution process will permit 
cash and/or securities).
    During the term of the 2011 Pilot Program, FICC implemented the 
proposed changes referred to in subsections 1(c) and 1(d) above and 
during the term of the 2012 Pilot Program, FICC implemented the 
proposed changes referred to in subsections 1(a), 1(b) and 2 above.
(1) Proposed Change Regarding the Morning Unwind and Related Rule 
Changes
    The TPR recommended that the Day 2 unwind for all triparty 
transactions be moved from the morning to 3:30 p.m. The TPR made this 
recommendation in order to achieve the benefit of reducing the clearing 
banks' intraday exposure to the dealers. As stated, because the GCF 
Repo service is essentially a triparty mechanism, the TPR requested 
that FICC accommodate this time change. For the GSD rules, this 
necessitated a change to the GSD's ``Schedule of GCF Timeframes.'' 
Specifically, the 7:30 a.m. time in the Schedule was deleted and the 
language therein was moved to a new time of 3:30 p.m.
    Because the Day 2 unwind moved from the morning to 3:30 p.m. and 
because the NFE process established by the 2007 NFE Filing is tied to 
the moment of the unwind, the NFE process also was required to move. 
During 2012, when the systems processing for the tri-party reform 
effort continued on the part of the clearing banks, the unwind moved to 
3:30 p.m. and the funds continued to move between the two clearing 
banks at 5:00 p.m.; the NFE hold which applies to dealers moved to 
between 3:30 p.m. and 5:00 p.m. Because the NFE process is a legal 
process and not an operational process, it is not reflected on the 
Schedule of GCF Timeframes and therefore no change to the Schedule was 
required to accommodate the move of the NFE process. A change was 
needed in Section 3 of GSD Rule 20 to delete the reference to the 
``morning'' timeframe on Day 2 with respect to the NFE process and to 
add language referencing ``at the time established by the 
Corporation.''
(2) Proposed Change Regarding Intraday GCF Repo Securities Collateral 
Substitutions
    As a result of the time change of the unwind (i.e., the reversal on 
Day 2 of collateral allocations established by FICC for each netting 
member's GCF net funds borrower positions and GCF net funds lender 
positions on Day 1) to 3:30 p.m., the provider of GCF Repo securities 
collateral in a GCF Repo transaction on Day 1 no longer has possession 
of such securities at the beginning of Day 2. Therefore, during Day 2 
prior to the unwind of the Day 1 collateral allocations, the provider 
of GCF Repo securities collateral (in our simple example, Dealer C) 
needs a substitution mechanism for the return of its posted GCF Repo 
securities collateral in order to make securities deliveries for 
utilization of such securities in its business activities. (In our 
example, Dealer C may need to return the securities to Party Y 
depending upon the terms of their transaction.) In the 2012 Pilot 
Program, FICC established a substitution process for this purpose in 
conjunction with its clearing banks. The language for the substitution 
mechanism was added to Section 3 of GSD Rule 20. It provides that all 
requests for substitution for the GCF Repo securities collateral must 
be submitted by the provider of the GCF Repo securities collateral 
(i.e., Dealer C) by the applicable deadline on Day 2 (the 
``substitution deadline'').\22\
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    \22\ As noted in SR-FICC-2012-05, FICC will establish such 
deadline prior to the implementation of the changes to this service 
in conjunction with the clearing banks and the Federal Reserve in 
light of market circumstances. As noted in Important Notice 
GOV088.12, once delivery has been made to GSD on the new obligations 
for that business day, no substitutions will be permitted for the 
remainder of the day.
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Substitutions on Intrabank GCF Repos
    If the GCF Repo transaction is between dealer counterparties 
effecting the transaction through the same clearing bank (i.e., on an 
intra-clearing bank basis and in our example Dealer C and other dealers 
clearing at Chase), on Day 2 such clearing bank will process each 
substitution request of the provider of GCF Repo securities collateral 
(i.e., Dealer C) submitted prior to the substitution deadline promptly 
upon receipt of such request. The return of the GCF Repo securities 
collateral in exchange for cash and/or eligible securities of 
equivalent value can be effected by simple debits and credits to the 
accounts of the GCF Repo dealer counterparties at the clearing agent 
bank (i.e., in our example, Chase). Eligible securities for this 
purpose will be the same as what is currently permitted under the GSD 
rules for collateral allocations, namely, Comparable Securities,\23\ 
(ii) Other Acceptable Securities,\24\ or (iii) U.S. Treasury bills, 
notes or bonds maturing in a time frame no greater than that of the 
securities that have been traded (except where such traded securities 
are U.S. Treasury bills, substitution may be with Comparable Securities 
and/or cash only).
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    \23\ The GSD rules define ``Comparable Securities'' as follows: 
The term ``Comparable Securities'' means, with respect to a security 
or securities that are represented by a particular Generic CUSIP 
Number, any other security or securities that are represented by the 
same Generic CUSIP Number.
    \24\ The GSD rules define ``Other Acceptable Securities'' as 
follows:
    The term ``Other Acceptable Securities'' means, with respect to: 
(an) adjustable-rate mortgage-backed security or securities issued 
by Ginnie Mae, any fixed-rate mortgage-backed security or securities 
issued by Ginnie Mae, or (an) adjustable-rate mortgage-backed 
security or securities issued by either Fannie Mae or Freddie Mac: 
(a) Any fixed-rate mortgage-backed security or securities issued by 
Fannie Mae and Freddie Mac, (b) any fixed-rate mortgage-backed 
security or securities issued by Ginnie Mae, or (c) any adjustable-
rate mortgage-backed security or securities issued by Ginnie Mae.
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Substitutions on Interbank GCF Repos
    For a GCF Repo that was processed on an interbank basis and to 
accommodate a potential substitution request, FICC initiates a debit of 
the securities in the account of the lender through the FICC GCF Repo 
accounts at the clearing bank of the lender and the FICC GCF Repo

[[Page 29356]]

account at the clearing bank of the borrower (``Interbank Movement''). 
This Interbank Movement is done so that a borrower who elects to 
substitute collateral will have access to the collateral for which it 
is substituting. The Interbank Movement occurs in the morning, though 
the clearing banks and FICC have the capability to have the Interbank 
Movement occur at any point during the day up until 2:30 p.m. During 
the 2012 Pilot Program, FICC and the clearing banks implemented a 
change to unwind the intrabank GCF Repo transactions at 3:30 p.m.
    In the example above, the GCF Repo securities collateral will be 
debited from the securities account of the receiver of the collateral 
(i.e., Dealer B) at its clearing bank (i.e., BNY), and from the FICC 
Account for BNY. If a substitution request is received by the clearing 
bank (i.e., Chase) of the provider of GCF Repo securities collateral, 
prior to the substitution deadline at a time specified in FICC's 
procedures,\25\ that clearing bank will process the substitution 
request by releasing the GCF Repo securities collateral from the FICC 
GCF Repo account at Chase and crediting it to the account of the 
provider of GCF Repo securities collateral (i.e., Dealer C). All cash 
and/or securities substituted for the GCF Repo securities collateral 
being released will be credited to FICC's GCF Repo account at the 
clearing bank (i.e., Chase).
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    \25\ Rule filing SR-FICC-2012-05 noted that this timeframe would 
also be established in consultation with the clearing banks and the 
Federal Reserve. At that time, the parties were considering whether 
to have the substitution process be accomplished in two batches 
during the day depending upon the time of submission of the 
notifications for substitution. The clearing banks, however, 
developed a real-time substitution mechanism for both tri-party and 
GCF collateral making batch processing unnecessary.
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    Simultaneously, with the debit of the GCF Repo securities 
collateral from the account at the clearing bank (i.e., BNY) of the 
original receiver of GCF Repo securities collateral (i.e., Dealer B), 
for purposes of making payment to the original receiver of securities 
collateral (i.e., Dealer B), such clearing bank will effect a cash 
debit equal to the value of the securities collateral in FICC's GCF 
Repo account at such clearing bank and will credit the account of the 
original receiver of securities collateral (i.e., Dealer B) at such 
clearing bank with such cash amount. (This is because when Dealer B is 
debited the securities, Dealer B must receive the funds.) In order to 
secure FICC's obligation to repay the balance in FICC's GCF Repo 
account at such clearing bank (i.e., BNY), FICC will grant to such 
clearing bank a security interest in the cash and/or securities 
substituted for the GCF securities collateral in FICC's GCF repo 
account at the other clearing bank (i.e., Chase).
    Using the example from above, assume the Dealer C submits a 
substitution notification--it requires the securities collateral that 
has been pledged to Dealer B and will substitute cash and/or 
securities. BNY will debit the securities from Dealer B's account and 
the relevant liens will be released so that the securities are in 
FICC's account at Chase. Chase will credit the securities to Dealer C's 
account and the cash and/or securities that Dealer C uses for its 
collateral substitution will be credited by Chase to FICC's account at 
Chase. From Dealer B's perspective, when BNY debits the securities from 
Dealer B's account, Dealer B is supposed to receive the funds--but as 
noted, the funds are at Chase. BNY will credit the funds to Dealer B's 
account and debit FICC's account at BNY.
    At this point in our example, FICC is running a credit at Chase and 
a debit at BNY. In order to secure FICC's debit at BNY, FICC will grant 
a security interest in the funds in the FICC account at Chase.
    For substitutions that occur with respect to GCF Repo transactions 
that were processed on an inter-clearing bank basis, FICC and the 
clearing banks permit cash and/or securities for the substitutions. The 
proposed rule change provided FICC with flexibility in this regard by 
referring to FICC's procedures.
    As noted above, each of the above-referenced changes were approved 
in connection with SR-FICC-2011-05,\26\ SR-FICC-2012-05 \27\ and SR-
FICC-2013-06.\28\ FICC proposes to extend the pilot program reflecting 
these changes for an additional one year. The changes referenced above 
are reflected in Exhibit 5.
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    \26\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011) 76 FR 54824 (September 2, 2011).
    \27\ Securities Exchange Act Release No. 34-67277 (June 20, 
2012) 77 FR 38108 (June 26, 2012).
    \28\ Securities Exchange Act Release No. 34-70068 (July 30, 
2013) 78 FR 47453 (August 5, 2013).
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(ii) Statutory Basis for the Proposed Rule Change
    The proposed rule change is consistent with the Securities and 
Exchange Act of 1934, as amended (the ``Act'') and the rules and 
regulations promulgated thereunder because it will align the GCF Repo 
service with recommendations being made by the TPR to address risks in 
the triparty market overall and therefore will serve to further 
safeguard the securities and funds for which FICC is responsible.

B. Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule change will have any 
negative impact, or impose any burden, on competition.

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed rule changes 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 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's 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-2015-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FICC-2015-002. 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

[[Page 29357]]

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 Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings 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/legal/sec-rule-filings.aspx.
    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-2015-002 
and should be submitted on or before June 11, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12281 Filed 5-20-15; 8:45 am]
BILLING CODE 8011-01-P
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