Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Amend the By-Laws, 12982-12986 [2018-06031]
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12982
Federal Register / Vol. 83, No. 58 / Monday, March 26, 2018 / Notices
The Commission also finds that the
proposed rule change is consistent with
Section 6(b)(8) of the Act,22 which
requires that the rules of an exchange
not impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposal would set forth the
procedures governing how the Exchange
would determine the Official Closing
Price in Exchange-listed securities that
are Derivative Securities Products when
the Exchange does not conduct a
Closing Auction or if a Closing Auction
trade is less than a round lot. The
Commission notes that the primary
listing market’s closing price for a
security is relied upon by market
participants for a variety of reasons,
including, but not limited to,
calculation of index values, calculation
of the net asset value of mutual funds
and exchange-traded products, the price
of derivatives that are based on the
security, and certain types of trading
benchmarks such as volume weighted
average price strategies. As the
Exchange notes, the proposed
calculation for the Official Closing Price
is designed to utilize more recent and
reliable market information to provide a
closing price that more accurately
reflects the true and current value of a
security that may be thinly traded or
generally illiquid and when the Official
Closing Price for such security may
otherwise be based on a potentially stale
last-sale trade.23 The Commission
further notes that this objective
calculation would take into account
more recent firm quotations over less
recent trades, which trades may provide
less information about the value of a
security, and would assign less weight
to the last consolidated last-sale eligible
trade the farther away it occurred from
the end of Core Trading Hours. The
Commission therefore believes that the
Exchange’s proposal is reasonably
designed to achieve the Act’s objectives
to protect investors and the public
interest. Accordingly, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act.
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–NYSEArca–
2018–08) be, and hereby is, approved.
22 15
U.S.C. 78f(b)(8).
Notice, supra note 6, at 5285–86.
24 15 U.S.C. 78s(b)(2).
23 See
16:38 Mar 23, 2018
[FR Doc. 2018–06014 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82917; File No. SR–FICC–
2018–002]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving Proposed Rule Change To
Amend the By-Laws
March 20, 2018.
On February 2, 2018, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2018–002,
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 February 14, 2018.3 The
Commission did not receive any
comment letters on the proposed rule
change. For the reasons discussed
below, the Commission approves the
proposed rule change.
I. Description of the Proposed Rule
Change
The proposed rule change would
amend the FICC By-Laws (‘‘By-Laws’’) 4
to (1) change certain FICC Board of
Directors (‘‘Board’’) titles, officer titles,
and offices (and their respective powers
and duties), (2) update the
compensation section for officers, and
(3) make technical changes and
corrections, each discussed more fully
below. The proposed rule change would
also amend the GSD Rules and the
MBSD Rules to incorporate, by
reference, the By-Laws and the
Certificate of Incorporation. Finally, the
proposed rule change would restate the
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 82672
(February 8, 2018), 83 FR 6654 (February 14, 2018)
(SR–FICC–2018–002) (‘‘Notice’’).
4 As discussed below, FICC’s By-Laws and FICC’s
Certificate of Incorporation (‘‘Certificate of
Incorporation’’) would each be incorporated by
reference into FICC’s Government Securities
Division (‘‘GSD’’) Rulebook (‘‘GSD Rules’’) and
Mortgage-Backed Securities Division (‘‘MBSD’’)
Rulebook (‘‘MBSD Rules’’), available at https://
www.dtcc.com/legal/rules-and-procedures.
1 15
IV. Conclusion
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Eduardo A. Aleman,
Assistant Secretary.
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Certificate of Incorporation to
streamline the document.
A. Changes to Certain Titles, Offices,
and Related Powers and Duties
FICC proposes changes to the titles,
offices, and related powers and duties of
certain Board and officer personnel, as
further described below.
1. Non-Executive Chairman of the Board
FICC proposes to replace the title of
‘‘Chairman of the Board’’ with the title
of ‘‘Non-Executive Chairman of the
Board.’’ 5 FICC proposes to change its
By-Laws to reflect that this position is
held by a non-executive.6 Therefore,
FICC would change relevant references
in the By-Laws from ‘‘Chairman’’ and
‘‘Chairman of the Board’’ to ‘‘NonExecutive Chairman of the Board.’’ 7
FICC also would delete certain
references in the By-Laws to the NonExecutive Chairman of the Board as a
member of FICC management because
the position is no longer in
management.8
In the proposed Section 2.8 (NonExecutive Chairman of the Board), FICC
would identify the powers and duties of
the Non-Executive Chairman of the
Board, including (1) general
responsibility for carrying out the
policies of the Board, (2) general
supervision of the Board and its
activities and general leadership of the
Board, (3) presiding over stockholders’
meetings (when present), and (4) such
other powers and duties as the Board
may designate.9 Proposed Section 2.8
(Non-Executive Chairman of the Board)
also would include a provision stating
that a presiding director (as elected by
the Board) shall preside at all
stockholders and Board meetings when
the Non-Executive Chairman of the
Board is absent.10 Additionally,
5 Notice,
83 FR at 6654.
6 Id.
7 Id.
8 Notice,
83 FR at 6655.
9 Id.
10 Id. This provision is designed to correct an
inaccuracy in current By-Laws Section 3.3 (Powers
and Duties of the President), which gives presiding
authority over stockholder meetings to the
President when the Chairman of the Board is
absent. Proposed Section 2.8 (Non-Executive
Chairman of the Board) would be consistent with
the Mission Statement and Charter of the
Depository Trust Corporation (‘‘DTC’’), FICC,
National Securities Clearing Corporation (‘‘NSCC’’),
and the Depository Trust and Clearing Corporation
(‘‘DTCC’’), which gives presiding authority over
stockholder meetings to a presiding director when
the Non-Executive Chairman of the Board is absent.
DTC, FICC, and NSCC are subsidiaries of DTCC,
each having the same Board of Directors as DTCC.
See Securities Exchange Act Release No. 74142
(January 27, 2015), 80 FR 5188 (January 30, 2015)
(SR–FICC–2014–810, SR–NSCC–2014–811, SR–
DTC–2014–812).
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Proposed Section 2.8 (Non-Executive
Chairman of the Board) would provide
that the Non-Executive Chairman of the
Board’s performance of any enumerated
duty shall be conclusive evidence of his
power to act.11
The proposal also identifies the
individuals to whom the Non-Executive
Chairman may assign duties. In
proposed Section 3.2 (Powers and
Duties of the President and Chief
Executive Officer), the Non-Executive
Chairman of the Board would have the
authority to designate powers and
duties to the President and Chief
Executive Officer (‘‘CEO’’).12 In
proposed Section 3.2 (Powers and
Duties of Managing Directors), FICC also
would add the Non-Executive Chairman
of the Board to the list of individuals
who have the ability to assign powers
and duties to Managing Directors.13
Finally, in proposed Section 3.4 (Powers
and Duties of the Secretary), the NonExecutive Chairman of the Board (i.e.,
not the President and CEO) would have
the authority to assign additional
powers and duties to the Secretary.14
2. Office of the CEO
FICC proposes to revise the By-Laws
to reflect that one individual holds the
office of the President and CEO. As
such, the proposal would change the
By-Laws to add the office of the CEO
and combine the office of the President
and the office of the CEO into one office
(President and CEO).15 While current
Section 3.3 (Powers and Duties of the
President) provides that the President
shall be the CEO, current Section 3.1
(General Provisions) does not include
CEO in the list of designated officer
positions, though President is currently
included in this list.16 Therefore, FICC
proposes to revise the relevant
references in the By-Laws from
President to President and CEO.17
Additionally, FICC proposes to make
several By-Laws revisions to reflect the
responsibilities for the consolidated role
of President and CEO.18 First, FICC
would delete and replace current
Section 3.3 (Powers and Duties of the
President) with proposed Section 3.2
(Powers and Duties of the President and
CEO).19 Proposed Section 3.2 (Powers
and Duties of the President and CEO)
would clarify the powers and duties
associated with the role of President and
CEO.20 For example, in proposed
Section 3.2 (Powers and Duties of the
President and CEO) the President and
CEO would have general supervision
over the overall business strategy,
business operations, systems, customer
outreach, as well as risk management,
control, and staff functions, subject to
the direction of the Board and the NonExecutive Chairman of the Board.21 In
addition, because the office of the Chief
Operating Officer (‘‘COO’’) would be
eliminated (as described further below),
the current COO responsibility of
general supervision over FICC’s
operations in current Section 3.4
(Powers and Duties of the Chief
Operating Officer) would be assigned to
the President and CEO.22 Proposed
Section 3.2 (Powers and Duties of the
President and CEO) would also
delineate the authority that the NonExecutive Chairman of the Board has
over the President and CEO by stating
that the latter would have such other
powers and perform such other duties
as the Board or the Non-Executive
Chairman of the Board may designate.23
FICC also proposes to reassign or
reclassify several responsibilities
currently assigned to the President.24
Specifically, the responsibility for
executing the Board’s policies would be
assigned to the Non-Executive Chairman
of the Board rather than to the President
and CEO.25 Additionally, FICC would
remove the statement ‘‘performance of
any such duty by the President shall be
conclusive evidence of his power to act’’
in current Section 3.3 (Powers and
Duties of the President).26
As mentioned above, FICC would
delete language from the By-Laws
stating that, in the absence of the
Chairman of the Board, the President
shall preside at all meetings of
shareholders and all Board meetings
(when present).27 Similarly, FICC would
delete language from the By-Laws
stating that the President and Board
currently have the authority to assign
powers and duties to the Comptroller in
current Section 3.8 (Powers and Duties
of the Comptroller), as discussed
below.28 In proposed Section 3.5
(Powers and Duties of the Chief
Financial Officer) the President and
CEO and Board would have the
authority to assign duties to the Chief
Financial Officer (‘‘CFO’’).29
The proposal also removes certain
responsibilities from the President. In
proposed Section 3.4 (Powers and
Duties of the Secretary), the power to
assign additional powers and duties to
the Secretary would be removed from
the President and granted to the NonExecutive Chairman of the Board.30
3. Office of the CFO; Office of the
Comptroller
The proposal would add the office of
the CFO and assign to the CFO general
supervision of the financial operations
of FICC.31 References in the By-Laws to
the Comptroller would be deleted
because FICC states that it neither has
a Comptroller nor plans to appoint
one.32 In proposed Section 3.5 (Powers
and Duties of the Chief Financial
Officer) the CFO would be granted
overall supervision authority over the
financial operations of FICC, and upon
request, the CFO would counsel and
advise other officers of FICC and
perform other duties as agreed with the
President and CEO (or as determined by
the Board).33 The proposal also provides
that the CFO would report directly to
the President and CEO.34 Furthermore,
because the Treasurer would directly
report to the CFO, proposed Section 3.6
(Powers and Duties of the Treasurer)
would provide that the Treasurer would
have all such powers and duties as
generally are incident to the position of
Treasurer or as the CFO (in addition to
the President and CEO and the Board)
may assign.35
4. Office of the COO
In this proposal, FICC would delete
references in the By-Laws to the COO
because FICC states that it no longer has
a COO and has no plans to appoint
one.36
5. Executive Director; Vice President
In this proposal, FICC would change
the title of Vice President to Executive
Director, and update the Executive
Director position’s related powers and
duties to reflect the position’s seniority
level.37 In FICC’s organizational
structure, Executive Directors report to
Managing Directors.38 Due to this level
20 Id.
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21 Id.
29 Id.
22 Id.
30 Id.
12 Id.
23 Id.
31 Id.
13 Id.
24 Id.
32 Id.
14 Id.
25 Id.
33 Id.
15 Id.
26 Id.
34 Id.
16 Id.
27 Id.
35 Id.
11 Notice,
17 Notice,
83 FR at 6655.
As stated above, that power resides with the
presiding director who is elected annually by the
Board. See supra note 20.
28 Notice, 83 FR at 6656.
83 FR at 6656.
18 Id.
19 Id.
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36 Notice,
83 FR at 6657.
37 Id.
38 Id.
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of seniority, FICC proposes to remove
provisions in the By-Laws that
previously allowed Vice Presidents
(now, Executive Directors) to call
special meetings of shareholders, to sign
share certificates, or to preside over
shareholder meetings unless specifically
designated to do so by the Board.39
6. Other Changes to the Powers and
Duties of the Board and Certain Other
Designated Officers
In proposed Section 3.1 (General
Provisions), FICC proposes to add a
parenthetical phrase to clarify that the
Board’s power to appoint other officers
includes, but is not limited to, the
power to appoint a Vice Chairman of the
Corporation and one or more Executive
Directors.40 Additionally, in current
Section 3.1 (General Provisions), FICC
proposes to clarify that neither the
Secretary nor any Assistant Secretary
can hold the following offices (1) Vice
Chairman of the Corporation or (2)
President and CEO.41
The proposal also enumerates the
responsibilities of FICC’s Managing
Directors.42 In proposed Section 1.8
(Presiding Officer and Secretary),
Managing Directors would be removed
from the list of officers authorized to
preside over a stockholders’ meeting
unless specifically authorized by the
Board.43 Similarly, in proposed Section
2.6 (Meetings), Managing Directors
would be added to the list of officers
authorized to call special meetings of
the Board.44
FICC also proposes to amend the ByLaws to remove specific powers from
the Treasurer and Assistant Treasurer.45
In current Section 5.1 (Certificates of
Shares), FICC proposes to delete the
reference to Treasurer and Assistant
Treasurer from the list of authorized
signatories because FICC expects the
Secretary or Assistant Secretary (who
are each currently listed as authorized
signatories) to sign any share
certificates.46
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B. Compensation of the President and
CEO
Proposed Section 3.10 (Compensation
of the President and CEO) would reflect
FICC’s current compensation-setting
practices. Current Section 3.12
(Compensation of Officers) states that
(1) the compensation, if any, of the
Chairman of the Board, and the
39 Id.
40 Id.
41 Id.
42 Id.
43 Id.
44 Id.
45 Id.
46 Id.
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President shall be fixed by a majority
(which shall not include the Chairman
of the Board or the President) of the
entire Board of Directors, and (2)
salaries of all other officers shall be
fixed by the President with the approval
of the Board and no officer shall be
precluded from receiving a salary
because he is also a director.47 FICC
proposes to state that the Compensation
Committee of the Corporation will
recommend the compensation for the
President and CEO to the Board of
Directors for approval.48 In addition,
FICC also proposes to delete the
language stating that (1) salaries of all
other officers shall be fixed by the
President with approval of the Board,
and (2) no officer shall be precluded
from receiving a salary because he is
also a director.49 FICC proposes to
delete compensation-related references
to the Chairman of the Board because
the Non-Executive Chairman of the
Board does not receive compensation.50
Finally, FICC proposes to change the
title of proposed Section 3.10 from
‘‘Compensation of Officers’’ to
‘‘Compensation of the President and
Chief Executive Officer’’ because this
section would no longer address the
compensation of officers other than the
President and CEO.51
C. Technical Changes and Corrections
FICC proposes technical changes and/
or corrections to the By-Laws for clarity
and readability, as described below.52
1. Statutory References and
Requirements
FICC would delete direct statutory
references from the By-Laws.53 FICC
states that it would make this change to
have the By-Laws remain consistent and
accurate despite any changes to a
specifically cited statute.54
2. Other Technical Changes and
Corrections
FICC proposes to make additional
technical and grammatical changes to
address (1) typographical errors, (2)
section numbering, (3) grammatical
errors, (4) heading consistency, and (5)
gender references.55
47 Id.
48 Notice, 83 FR at 6657–58. FICC states that it
proposes this change for consistency with the
DTCC/DTC/FICC/NSCC Compensation and Human
Resources Committee Charter. Id. at 6658.
49 Notice, 83 FR at 6658.
50 Id.
51 Id.
52 Id.
53 Id.
54 Id.
55 Id.
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D. Proposed Changes to the Rules
FICC proposes to add a section
entitled ‘‘By-Laws and Restated
Certificate of Incorporation’’ to both the
GSD Rules and the MBSD Rules.56 FICC
proposes that this section would state
that the By-Laws and Restated
Certificate of Incorporation are
incorporated by reference.57
E. Proposed Changes to the Certificate of
Incorporation
FICC proposes to restate the
Certificate of Incorporation into one
document.58 Specifically, FICC
proposes to update the Certificate of
Incorporation by including all of its
amendments into one updated
Certificate of Incorporation.59
II. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and rules
and regulations thereunder applicable to
such organization.60 The Commission
believes the proposal is consistent with
the Act, specifically Section
17A(b)(3)(F) of the Act and Rules 17Ad–
22(e)(1) and, in part, (2) under the Act.61
A. Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of a
clearing agency, such as FICC, be
designed to protect the public interest.62
As discussed above, the proposed rule
change would make a number of
updates to the By-Laws.
First, FICC proposes to revise FICC’s
description of the titles and
responsibilities of its Board and senior
management to match FICC’s current
corporate structure. These changes
would help the Board, as well as FICC’s
management, employees, and members,
understand which officer or office is
responsible for each of FICC’s executivelevel functions.
Second, the proposal would update
the compensation-setting section of the
By-Laws to reflect the Compensation
Committee Charter practice, as well as
to reflect that the Non-Executive
Chairman of the Board would not
receive compensation. The proposal’s
56 Id.
57 Id.
58 Id.
59 Id.
60 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F); 17 CFR 240.17Ad–
22(e)(1) and (2).
62 15 U.S.C. 78q–1(b)(3)(F).
61 15
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increased clarity around compensationsetting would better inform FICC
stakeholders and the general public
about how FICC sets the level of
compensation for its highest-level
executive (the President and CEO) and
that the Non-Executive Chairman does
not draw a salary.
Third, FICC’s proposed technical
changes and corrections to its By-Laws
would enhance the clarity,
transparency, and readability of FICC’s
organizational documents. In this way,
the proposal would better enable the
Board, as well as FICC’s management,
employees, and members, to understand
their respective authorities, rights, and
obligations regarding FICC’s clearance
and settlement of securities
transactions.
Fourth, FICC’s proposed addendum
would incorporate the By-Laws and
Certificate of Incorporation into the
Rules. This change would increase the
clarity and transparency of FICC’s
organizational documents by integrating
the By-Laws and the Certificate of
Incorporation into the Rules, to which
all FICC members are subject and have
access.
Finally, FICC’s proposed restatement
of the Certificate of Incorporation would
revise the Certificate of Incorporation to
include all of its amendments in one
updated document. This change would
increase the clarity and transparency of
FICC’s constitutional document by
consolidating all of its amendment into
a single document, increasing its
accessibility and readability for FICC’s
members.
Governance arrangements are critical
to the sound operation of clearing
agencies.63 Specifically, clear and
transparent governance documents
promote accountability and reliability in
the decisions, rules, and procedures of
a clearing agency.64 Clear and
transparent governance documents also
provide interested parties, including
owners, members, and general members
of the public, with information about
how a clearing agency’s decisions are
made and what the rules and
procedures are designed to
accomplish.65 Further, the decisions,
rules, and procedures of a clearing
agency are important, as they can have
widespread impact, affecting multiple
63 Securities Exchange Act Release No. 71699
(May 21, 2014), 79 FR 29508 (May 22, 2014)
(‘‘Covered Clearing Agency Standards Proposing
Release’’) at 29521.
64 Securities Exchange Act Release No. 64017
(March 3, 2011), 76 FR 14472 (March 16, 2011) at
14488.
65 Id.
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market members, financial institutions,
markets, and jurisdictions.66
As stated above, the proposed rule
change would provide FICC
stakeholders with a better
understanding of how FICC makes
decisions that could ultimately affect
the financial system. Such transparency
helps ensure that FICC reliably makes
decisions and follows clearly articulated
policies and procedures. Accordingly,
the Commission finds that the proposed
rule change is designed to enhance the
clarity and transparency of FICC’s
organizational documents, which would
help protect the public interest,
consistent with Section 17A(b)(3)(F) of
the Act.67
B. Rule 17Ad–22(e)(1) Under the Act
Rule 17Ad–22(e)(1) under the Act
requires a covered clearing agency 68 to
establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to provide for a
well-founded, transparent, and
enforceable legal basis for each aspect of
its activities in all relevant
jurisdictions.69
As discussed above, the proposed rule
change would update the By-Laws by
(1) updating FICC’s description of the
titles and responsibilities of its Board
and senior management to match FICC’s
current corporate structure, (2)
documenting FICC’s current
compensation-setting process, and (3)
enacting technical corrections to
increase readability. The proposed rule
change would also add an addendum to
the Rules to incorporate the By-Laws
and the Certificate of Incorporation by
reference, as well as to restate the
Certificate of Incorporation to include
all of its amendments in one updated
document.
The proposed changes are designed to
help ensure that the By-Laws better
reflect FICC’s governance practices, as
well as to organize FICC’s constitutional
documents, in a clear, transparent, and
66 Covered Clearing Agency Standards Proposing
Release, 79 FR at 29521.
67 15 U.S.C. 78q–1(b)(3)(F).
68 A ‘‘covered clearing agency’’ means, among
other things, a clearing agency registered with the
Commission under Section 17A of the Exchange
Act (15 U.S.C. 78q–1 et seq.) that is designated
systemically important by the Financial Stability
Oversight Counsel (‘‘FSOC’’) pursuant to the
Payment, Clearing, and Settlement Supervision Act
of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR
240.17Ad–22(a)(5)–(6). On July 18, 2012, FSOC
designated FICC as systemically important. U.S.
Department of the Treasury, ‘‘FSOC Makes First
Designations in Effort to Protect Against Future
Financial Crises,’’ available at https://
www.treasury.gov/press-center/press-releases/
Pages/tg1645.asp. Therefore, FICC is a covered
clearing agency.
69 17 CFR 240.17Ad–22(e)(1).
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consistent manner. This increased
transparency would help convey to
FICC’s stakeholders, and the public
generally, a key legal basis for the
activities of the highest levels of FICC’s
leadership described in the By-Laws.
Therefore, the Commission finds that
the proposed rule change is designed to
help ensure that FICC’s organizational
documents remain well-founded,
transparent, and legally enforceable in
all relevant jurisdictions, consistent
with Rule 17Ad–22(e)(1) under the
Act.70
C. Rule 17Ad–22(e)(2)(i) and (v) under
the Act
Rule 17Ad–22(e)(2)(i) and (v) under
the Act requires that FICC establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to provide for
governance arrangements that, among
other things, (1) are clear and
transparent and (2) specify clear and
direct lines of responsibility.71
As described above, FICC proposes a
number of changes to its By-Laws that
would provide clarity and transparency.
FICC proposes to revise By-Laws
provisions that were outdated or
incorrect. Specifically, the proposed
changes to the titles and offices (and
their related powers and duties) would
provide clarity and transparency
because they would clearly set forth
FICC’s current organizational structure,
including the lines of responsibility of
various officers and the Board. The
proposed changes relating to
compensation-setting would also give
clarity and transparency by (1)
accurately reflecting the process that is
followed pursuant to the Compensation
Committee Charter, and (2) clarifying
that the Non-Executive Chairman of the
Board does not receive compensation.
Meanwhile, the proposed technical
changes and corrections would raise the
clarity and transparency of the By-Laws
by removing grammatical and
typographical errors. Additionally, FICC
proposes changes to provide clarity and
transparency by including an addendum
to its Rules (to incorporate the By-Laws
and Certificate of Incorporation by
reference), and by restating its
Certificate of Incorporation (to include
all of its amendment in one updated
document). Both proposed changes
would create clarity and transparency
by integrating FICC’s organizational
documents in a manner that is more
accessible to FICC’s members.
For these reasons, the Commission
finds that the proposed rule change is
70 Id.
71 17
E:\FR\FM\26MRN1.SGM
CFR 240.17Ad–22(e)(2)(i) and (v).
26MRN1
12986
Federal Register / Vol. 83, No. 58 / Monday, March 26, 2018 / Notices
designed to enhance clarity and
transparency in FICC’s governance
arrangements, as well as to specify clear
and direct lines of responsibility for
various officer positions and the Board
within FICC’s organizational structure,
consistent with Rule 17Ad–22(e)(2)(i)
and (v) under the Act.72
III. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act, in particular the requirements of
Section 17A of the Act 73 and the rules
and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that
proposed rule change SR–FICC–2018–
002 be, and hereby is, APPROVED.74
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.75
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–06031 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82908; File No. SR–NSCC–
2017–017]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Adopt a Recovery &
Wind-Down Plan and Related Rules
March 20, 2018.
I. Introduction
On December 18, 2017, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
proposed rule change SR–NSCC–2017–
017 to adopt a recovery and wind-down
plan and related rules (‘‘Proposed Rule
Change’’).3 The Proposed Rule Change
72 Id.
73 15
U.S.C. 78q-1.
approving the proposed rule change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
75 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 On December 18, 2017, NSCC filed this proposal
as an advance notice (SR–NSCC–2017–805) with
the Commission pursuant to Section 806(e)(1) of the
Payment, Clearing, and Settlement Supervision Act
of 2010 (‘‘Clearing Supervision Act’’) and Rule 19b–
sradovich on DSK3GMQ082PROD with NOTICES
74 In
VerDate Sep<11>2014
16:38 Mar 23, 2018
Jkt 244001
was published for comment in the
Federal Register on January 8, 2018.4
The Commission did not receive any
comments on the Proposed Rule
Change. On February 8, 2018, pursuant
to Section 19(b)(2)(A)(ii)(I) of the Act,5
the Commission designated a longer
period within which to approve,
disapprove, or institute proceedings to
determine whether to approve or
disapprove the Proposed Rule Change.6
This order institutes proceedings,
pursuant to Section 19(b)(2)(B) of the
Act,7 to determine whether to approve
or disapprove the Proposed Rule
Change.
II. Summary of the Proposed Rule
Change
As described in the Notice,8 NSCC
proposes to adopt a Recovery & Winddown Plan (‘‘R&W Plan’’) and three
proposed rules that would facilitate the
implementation of the R&W Plan: (i)
Proposed Rule 41 (Corporation Default)
(‘‘Corporation Default Rule’’), (ii)
proposed Rule 42 (Wind-down of the
Corporation) (‘‘Wind-down Rule’’), and
(iii) proposed Rule 60 (Market
Disruption and Force Majeure) (‘‘Force
Majeure Rule’’). Additionally, NSCC
proposes to re-number existing Rule 42
(Wind-down of a Member, Fund
Member or Insurance Carrier/Retirement
Services Member) to Rule 40, which is
currently reserved for future use.
NSCC states that the R&W Plan is
intended to be used by NSCC’s Board of
Directors and management in the event
that NSCC encounters scenarios that
could potentially prevent it from being
able to provide its critical services as a
going concern.9 The R&W Plan would
be structured to provide a roadmap,
define the strategy, and identify the
tools available to NSCC to either (i)
4(n)(1)(i) of the Act (‘‘Advance Notice’’). On January
24, 2018, the Commission extended the review
period of the Advance Notice for an additional 60
days pursuant to Section 806(e)(1)(H) of the
Clearing Supervision Act. See 12 U.S.C. 5465(e)(1);
17 CFR 240.19b–4(n)(1)(i); 12 U.S.C. 5465(e)(1)(H);
and Securities Exchange Act Release No. 82581
(January 24, 2018), 83 FR 4327 (January 30, 2018)
(SR–NSCC–2017–805).
4 Securities Exchange Act Release No. 82430
(January 2, 2018), 83 FR 841 (January 8, 2018) (SR–
NSCC–2017–017) (‘‘Notice’’).
5 15 U.S.C. 78s(b)(2)(A)(ii)(I).
6 Securities Exchange Act Release No. 82669
(February 8, 2018), 83 FR 6653 (February 14, 2018)
(SR–DTC–2017–021; SR–FICC–2017–021; SR–
NSCC–2017–017).
7 15 U.S.C. 78s(b)(2)(B).
8 The description of the Proposed Rule Change is
based on the statements prepared by NSCC in the
Notice. See Notice, supra note 4. Capitalized terms
used herein and not otherwise defined herein are
defined in NSCC’s Rules & Procedures, available at
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
9 See Notice, supra note 4, at 842.
PO 00000
Frm 00049
Fmt 4703
Sfmt 4703
recover in the event it experiences
losses that exceed its prefunded
resources or (ii) wind-down its business
in a manner designed to permit the
continuation of its critical services in
the event that such recovery efforts are
not successful.10 The R&W Plan would
include tools that are provided for in
NSCC’s existing rules, policies,
procedures, and contractual
arrangements,11 as well as the proposed
Corporation Default Rule, the proposed
Wind-down Rule, and the proposed
Force Majeure Rule.12
NSCC states that the proposed
Corporation Default Rule, proposed
Wind-down Rule, and proposed Force
Majeure Rule are designed to (i)
facilitate the implementation of the
R&W Plan when necessary; (ii) provide
Members and Limited Members with
transparency around critical provisions
of the R&W Plan that relate to their
rights, responsibilities and obligations;
and (iii) provide NSCC with the legal
basis to implement the provisions of the
R&W Plan that concern the proposed
Corporation Default Rule, the proposed
Wind-down Rule, and the proposed
Force Majeure Rule, when necessary.13
NSCC states that it is proposing to renumber existing Rule 42 (Wind-down of
a Member, Fund Member or Insurance
Carrier/Retirement Services Member) to
Rule 40 to align the order of NSCC’s
proposed rules with the order of
comparable rules in the rulebooks of
The Depository Trust Company and
Fixed Income Clearing Corporation,14
which, together with NSCC, are
subsidiaries of The Depository Trust &
Clearing Corporation (‘‘DTCC’’), a userowned and user-governed holding
company.15
As an overview, the R&W Plan would
provide, among other matters, (i) an
overview of the business of NSCC and
its parent DTCC; (ii) an analysis of
NSCC’s intercompany arrangements and
critical links to other financial market
infrastructures; (iii) a description of
NSCC’s services, and the criteria used to
determine which services are
considered critical; (iv) a description of
the NSCC and DTCC governance
structure; (v) a description of the
governance around the overall recovery
and wind-down program; (vi) a
discussion of tools available to NSCC to
10 Id.
at 843.
11 Contractual
arrangements include, for example,
NSCC’s existing committed or pre-arranged
liquidity arrangements.
12 See Notice, supra note 4, at 842.
13 Id. at 841.
14 Id. at 851.
15 Id. at 843.
E:\FR\FM\26MRN1.SGM
26MRN1
]]>Agencies
[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12982-12986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06031]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82917; File No. SR-FICC-2018-002]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Amend the By-Laws
March 20, 2018.
On February 2, 2018, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-FICC-2018-002, 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 February 14, 2018.\3\ The Commission did not
receive any comment letters on the proposed rule change. For the
reasons discussed below, the Commission approves the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 82672 (February 8,
2018), 83 FR 6654 (February 14, 2018) (SR-FICC-2018-002)
(``Notice'').
---------------------------------------------------------------------------
I. Description of the Proposed Rule Change
The proposed rule change would amend the FICC By-Laws (``By-Laws'')
\4\ to (1) change certain FICC Board of Directors (``Board'') titles,
officer titles, and offices (and their respective powers and duties),
(2) update the compensation section for officers, and (3) make
technical changes and corrections, each discussed more fully below. The
proposed rule change would also amend the GSD Rules and the MBSD Rules
to incorporate, by reference, the By-Laws and the Certificate of
Incorporation. Finally, the proposed rule change would restate the
Certificate of Incorporation to streamline the document.
---------------------------------------------------------------------------
\4\ As discussed below, FICC's By-Laws and FICC's Certificate of
Incorporation (``Certificate of Incorporation'') would each be
incorporated by reference into FICC's Government Securities Division
(``GSD'') Rulebook (``GSD Rules'') and Mortgage-Backed Securities
Division (``MBSD'') Rulebook (``MBSD Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
A. Changes to Certain Titles, Offices, and Related Powers and Duties
FICC proposes changes to the titles, offices, and related powers
and duties of certain Board and officer personnel, as further described
below.
1. Non-Executive Chairman of the Board
FICC proposes to replace the title of ``Chairman of the Board''
with the title of ``Non-Executive Chairman of the Board.'' \5\ FICC
proposes to change its By-Laws to reflect that this position is held by
a non-executive.\6\ Therefore, FICC would change relevant references in
the By-Laws from ``Chairman'' and ``Chairman of the Board'' to ``Non-
Executive Chairman of the Board.'' \7\ FICC also would delete certain
references in the By-Laws to the Non-Executive Chairman of the Board as
a member of FICC management because the position is no longer in
management.\8\
---------------------------------------------------------------------------
\5\ Notice, 83 FR at 6654.
\6\ Id.
\7\ Id.
\8\ Notice, 83 FR at 6655.
---------------------------------------------------------------------------
In the proposed Section 2.8 (Non-Executive Chairman of the Board),
FICC would identify the powers and duties of the Non-Executive Chairman
of the Board, including (1) general responsibility for carrying out the
policies of the Board, (2) general supervision of the Board and its
activities and general leadership of the Board, (3) presiding over
stockholders' meetings (when present), and (4) such other powers and
duties as the Board may designate.\9\ Proposed Section 2.8 (Non-
Executive Chairman of the Board) also would include a provision stating
that a presiding director (as elected by the Board) shall preside at
all stockholders and Board meetings when the Non-Executive Chairman of
the Board is absent.\10\ Additionally,
[[Page 12983]]
Proposed Section 2.8 (Non-Executive Chairman of the Board) would
provide that the Non-Executive Chairman of the Board's performance of
any enumerated duty shall be conclusive evidence of his power to
act.\11\
---------------------------------------------------------------------------
\9\ Id.
\10\ Id. This provision is designed to correct an inaccuracy in
current By-Laws Section 3.3 (Powers and Duties of the President),
which gives presiding authority over stockholder meetings to the
President when the Chairman of the Board is absent. Proposed Section
2.8 (Non-Executive Chairman of the Board) would be consistent with
the Mission Statement and Charter of the Depository Trust
Corporation (``DTC''), FICC, National Securities Clearing
Corporation (``NSCC''), and the Depository Trust and Clearing
Corporation (``DTCC''), which gives presiding authority over
stockholder meetings to a presiding director when the Non-Executive
Chairman of the Board is absent. DTC, FICC, and NSCC are
subsidiaries of DTCC, each having the same Board of Directors as
DTCC. See Securities Exchange Act Release No. 74142 (January 27,
2015), 80 FR 5188 (January 30, 2015) (SR-FICC-2014-810, SR-NSCC-
2014-811, SR-DTC-2014-812).
\11\ Notice, 83 FR at 6655.
---------------------------------------------------------------------------
The proposal also identifies the individuals to whom the Non-
Executive Chairman may assign duties. In proposed Section 3.2 (Powers
and Duties of the President and Chief Executive Officer), the Non-
Executive Chairman of the Board would have the authority to designate
powers and duties to the President and Chief Executive Officer
(``CEO'').\12\ In proposed Section 3.2 (Powers and Duties of Managing
Directors), FICC also would add the Non-Executive Chairman of the Board
to the list of individuals who have the ability to assign powers and
duties to Managing Directors.\13\ Finally, in proposed Section 3.4
(Powers and Duties of the Secretary), the Non-Executive Chairman of the
Board (i.e., not the President and CEO) would have the authority to
assign additional powers and duties to the Secretary.\14\
---------------------------------------------------------------------------
\12\ Id.
\13\ Id.
\14\ Id.
---------------------------------------------------------------------------
2. Office of the CEO
FICC proposes to revise the By-Laws to reflect that one individual
holds the office of the President and CEO. As such, the proposal would
change the By-Laws to add the office of the CEO and combine the office
of the President and the office of the CEO into one office (President
and CEO).\15\ While current Section 3.3 (Powers and Duties of the
President) provides that the President shall be the CEO, current
Section 3.1 (General Provisions) does not include CEO in the list of
designated officer positions, though President is currently included in
this list.\16\ Therefore, FICC proposes to revise the relevant
references in the By-Laws from President to President and CEO.\17\
---------------------------------------------------------------------------
\15\ Id.
\16\ Id.
\17\ Notice, 83 FR at 6656.
---------------------------------------------------------------------------
Additionally, FICC proposes to make several By-Laws revisions to
reflect the responsibilities for the consolidated role of President and
CEO.\18\ First, FICC would delete and replace current Section 3.3
(Powers and Duties of the President) with proposed Section 3.2 (Powers
and Duties of the President and CEO).\19\ Proposed Section 3.2 (Powers
and Duties of the President and CEO) would clarify the powers and
duties associated with the role of President and CEO.\20\ For example,
in proposed Section 3.2 (Powers and Duties of the President and CEO)
the President and CEO would have general supervision over the overall
business strategy, business operations, systems, customer outreach, as
well as risk management, control, and staff functions, subject to the
direction of the Board and the Non-Executive Chairman of the Board.\21\
In addition, because the office of the Chief Operating Officer
(``COO'') would be eliminated (as described further below), the current
COO responsibility of general supervision over FICC's operations in
current Section 3.4 (Powers and Duties of the Chief Operating Officer)
would be assigned to the President and CEO.\22\ Proposed Section 3.2
(Powers and Duties of the President and CEO) would also delineate the
authority that the Non-Executive Chairman of the Board has over the
President and CEO by stating that the latter would have such other
powers and perform such other duties as the Board or the Non-Executive
Chairman of the Board may designate.\23\
---------------------------------------------------------------------------
\18\ Id.
\19\ Id.
\20\ Id.
\21\ Id.
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
FICC also proposes to reassign or reclassify several
responsibilities currently assigned to the President.\24\ Specifically,
the responsibility for executing the Board's policies would be assigned
to the Non-Executive Chairman of the Board rather than to the President
and CEO.\25\ Additionally, FICC would remove the statement
``performance of any such duty by the President shall be conclusive
evidence of his power to act'' in current Section 3.3 (Powers and
Duties of the President).\26\
---------------------------------------------------------------------------
\24\ Id.
\25\ Id.
\26\ Id.
---------------------------------------------------------------------------
As mentioned above, FICC would delete language from the By-Laws
stating that, in the absence of the Chairman of the Board, the
President shall preside at all meetings of shareholders and all Board
meetings (when present).\27\ Similarly, FICC would delete language from
the By-Laws stating that the President and Board currently have the
authority to assign powers and duties to the Comptroller in current
Section 3.8 (Powers and Duties of the Comptroller), as discussed
below.\28\ In proposed Section 3.5 (Powers and Duties of the Chief
Financial Officer) the President and CEO and Board would have the
authority to assign duties to the Chief Financial Officer
(``CFO'').\29\
---------------------------------------------------------------------------
\27\ Id. As stated above, that power resides with the presiding
director who is elected annually by the Board. See supra note 20.
\28\ Notice, 83 FR at 6656.
\29\ Id.
---------------------------------------------------------------------------
The proposal also removes certain responsibilities from the
President. In proposed Section 3.4 (Powers and Duties of the
Secretary), the power to assign additional powers and duties to the
Secretary would be removed from the President and granted to the Non-
Executive Chairman of the Board.\30\
---------------------------------------------------------------------------
\30\ Id.
---------------------------------------------------------------------------
3. Office of the CFO; Office of the Comptroller
The proposal would add the office of the CFO and assign to the CFO
general supervision of the financial operations of FICC.\31\ References
in the By-Laws to the Comptroller would be deleted because FICC states
that it neither has a Comptroller nor plans to appoint one.\32\ In
proposed Section 3.5 (Powers and Duties of the Chief Financial Officer)
the CFO would be granted overall supervision authority over the
financial operations of FICC, and upon request, the CFO would counsel
and advise other officers of FICC and perform other duties as agreed
with the President and CEO (or as determined by the Board).\33\ The
proposal also provides that the CFO would report directly to the
President and CEO.\34\ Furthermore, because the Treasurer would
directly report to the CFO, proposed Section 3.6 (Powers and Duties of
the Treasurer) would provide that the Treasurer would have all such
powers and duties as generally are incident to the position of
Treasurer or as the CFO (in addition to the President and CEO and the
Board) may assign.\35\
---------------------------------------------------------------------------
\31\ Id.
\32\ Id.
\33\ Id.
\34\ Id.
\35\ Id.
---------------------------------------------------------------------------
4. Office of the COO
In this proposal, FICC would delete references in the By-Laws to
the COO because FICC states that it no longer has a COO and has no
plans to appoint one.\36\
---------------------------------------------------------------------------
\36\ Notice, 83 FR at 6657.
---------------------------------------------------------------------------
5. Executive Director; Vice President
In this proposal, FICC would change the title of Vice President to
Executive Director, and update the Executive Director position's
related powers and duties to reflect the position's seniority
level.\37\ In FICC's organizational structure, Executive Directors
report to Managing Directors.\38\ Due to this level
[[Page 12984]]
of seniority, FICC proposes to remove provisions in the By-Laws that
previously allowed Vice Presidents (now, Executive Directors) to call
special meetings of shareholders, to sign share certificates, or to
preside over shareholder meetings unless specifically designated to do
so by the Board.\39\
---------------------------------------------------------------------------
\37\ Id.
\38\ Id.
\39\ Id.
---------------------------------------------------------------------------
6. Other Changes to the Powers and Duties of the Board and Certain
Other Designated Officers
In proposed Section 3.1 (General Provisions), FICC proposes to add
a parenthetical phrase to clarify that the Board's power to appoint
other officers includes, but is not limited to, the power to appoint a
Vice Chairman of the Corporation and one or more Executive
Directors.\40\ Additionally, in current Section 3.1 (General
Provisions), FICC proposes to clarify that neither the Secretary nor
any Assistant Secretary can hold the following offices (1) Vice
Chairman of the Corporation or (2) President and CEO.\41\
---------------------------------------------------------------------------
\40\ Id.
\41\ Id.
---------------------------------------------------------------------------
The proposal also enumerates the responsibilities of FICC's
Managing Directors.\42\ In proposed Section 1.8 (Presiding Officer and
Secretary), Managing Directors would be removed from the list of
officers authorized to preside over a stockholders' meeting unless
specifically authorized by the Board.\43\ Similarly, in proposed
Section 2.6 (Meetings), Managing Directors would be added to the list
of officers authorized to call special meetings of the Board.\44\
---------------------------------------------------------------------------
\42\ Id.
\43\ Id.
\44\ Id.
---------------------------------------------------------------------------
FICC also proposes to amend the By-Laws to remove specific powers
from the Treasurer and Assistant Treasurer.\45\ In current Section 5.1
(Certificates of Shares), FICC proposes to delete the reference to
Treasurer and Assistant Treasurer from the list of authorized
signatories because FICC expects the Secretary or Assistant Secretary
(who are each currently listed as authorized signatories) to sign any
share certificates.\46\
---------------------------------------------------------------------------
\45\ Id.
\46\ Id.
---------------------------------------------------------------------------
B. Compensation of the President and CEO
Proposed Section 3.10 (Compensation of the President and CEO) would
reflect FICC's current compensation-setting practices. Current Section
3.12 (Compensation of Officers) states that (1) the compensation, if
any, of the Chairman of the Board, and the President shall be fixed by
a majority (which shall not include the Chairman of the Board or the
President) of the entire Board of Directors, and (2) salaries of all
other officers shall be fixed by the President with the approval of the
Board and no officer shall be precluded from receiving a salary because
he is also a director.\47\ FICC proposes to state that the Compensation
Committee of the Corporation will recommend the compensation for the
President and CEO to the Board of Directors for approval.\48\ In
addition, FICC also proposes to delete the language stating that (1)
salaries of all other officers shall be fixed by the President with
approval of the Board, and (2) no officer shall be precluded from
receiving a salary because he is also a director.\49\ FICC proposes to
delete compensation-related references to the Chairman of the Board
because the Non-Executive Chairman of the Board does not receive
compensation.\50\ Finally, FICC proposes to change the title of
proposed Section 3.10 from ``Compensation of Officers'' to
``Compensation of the President and Chief Executive Officer'' because
this section would no longer address the compensation of officers other
than the President and CEO.\51\
---------------------------------------------------------------------------
\47\ Id.
\48\ Notice, 83 FR at 6657-58. FICC states that it proposes this
change for consistency with the DTCC/DTC/FICC/NSCC Compensation and
Human Resources Committee Charter. Id. at 6658.
\49\ Notice, 83 FR at 6658.
\50\ Id.
\51\ Id.
---------------------------------------------------------------------------
C. Technical Changes and Corrections
FICC proposes technical changes and/or corrections to the By-Laws
for clarity and readability, as described below.\52\
---------------------------------------------------------------------------
\52\ Id.
---------------------------------------------------------------------------
1. Statutory References and Requirements
FICC would delete direct statutory references from the By-Laws.\53\
FICC states that it would make this change to have the By-Laws remain
consistent and accurate despite any changes to a specifically cited
statute.\54\
---------------------------------------------------------------------------
\53\ Id.
\54\ Id.
---------------------------------------------------------------------------
2. Other Technical Changes and Corrections
FICC proposes to make additional technical and grammatical changes
to address (1) typographical errors, (2) section numbering, (3)
grammatical errors, (4) heading consistency, and (5) gender
references.\55\
---------------------------------------------------------------------------
\55\ Id.
---------------------------------------------------------------------------
D. Proposed Changes to the Rules
FICC proposes to add a section entitled ``By-Laws and Restated
Certificate of Incorporation'' to both the GSD Rules and the MBSD
Rules.\56\ FICC proposes that this section would state that the By-Laws
and Restated Certificate of Incorporation are incorporated by
reference.\57\
---------------------------------------------------------------------------
\56\ Id.
\57\ Id.
---------------------------------------------------------------------------
E. Proposed Changes to the Certificate of Incorporation
FICC proposes to restate the Certificate of Incorporation into one
document.\58\ Specifically, FICC proposes to update the Certificate of
Incorporation by including all of its amendments into one updated
Certificate of Incorporation.\59\
---------------------------------------------------------------------------
\58\ Id.
\59\ Id.
---------------------------------------------------------------------------
II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and rules and regulations thereunder applicable to such
organization.\60\ The Commission believes the proposal is consistent
with the Act, specifically Section 17A(b)(3)(F) of the Act and Rules
17Ad-22(e)(1) and, in part, (2) under the Act.\61\
---------------------------------------------------------------------------
\60\ 15 U.S.C. 78s(b)(2)(C).
\61\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(1) and (2).
---------------------------------------------------------------------------
A. Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency, such as FICC, be designed to protect the public
interest.\62\ As discussed above, the proposed rule change would make a
number of updates to the By-Laws.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
First, FICC proposes to revise FICC's description of the titles and
responsibilities of its Board and senior management to match FICC's
current corporate structure. These changes would help the Board, as
well as FICC's management, employees, and members, understand which
officer or office is responsible for each of FICC's executive-level
functions.
Second, the proposal would update the compensation-setting section
of the By-Laws to reflect the Compensation Committee Charter practice,
as well as to reflect that the Non-Executive Chairman of the Board
would not receive compensation. The proposal's
[[Page 12985]]
increased clarity around compensation-setting would better inform FICC
stakeholders and the general public about how FICC sets the level of
compensation for its highest-level executive (the President and CEO)
and that the Non-Executive Chairman does not draw a salary.
Third, FICC's proposed technical changes and corrections to its By-
Laws would enhance the clarity, transparency, and readability of FICC's
organizational documents. In this way, the proposal would better enable
the Board, as well as FICC's management, employees, and members, to
understand their respective authorities, rights, and obligations
regarding FICC's clearance and settlement of securities transactions.
Fourth, FICC's proposed addendum would incorporate the By-Laws and
Certificate of Incorporation into the Rules. This change would increase
the clarity and transparency of FICC's organizational documents by
integrating the By-Laws and the Certificate of Incorporation into the
Rules, to which all FICC members are subject and have access.
Finally, FICC's proposed restatement of the Certificate of
Incorporation would revise the Certificate of Incorporation to include
all of its amendments in one updated document. This change would
increase the clarity and transparency of FICC's constitutional document
by consolidating all of its amendment into a single document,
increasing its accessibility and readability for FICC's members.
Governance arrangements are critical to the sound operation of
clearing agencies.\63\ Specifically, clear and transparent governance
documents promote accountability and reliability in the decisions,
rules, and procedures of a clearing agency.\64\ Clear and transparent
governance documents also provide interested parties, including owners,
members, and general members of the public, with information about how
a clearing agency's decisions are made and what the rules and
procedures are designed to accomplish.\65\ Further, the decisions,
rules, and procedures of a clearing agency are important, as they can
have widespread impact, affecting multiple market members, financial
institutions, markets, and jurisdictions.\66\
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\63\ Securities Exchange Act Release No. 71699 (May 21, 2014),
79 FR 29508 (May 22, 2014) (``Covered Clearing Agency Standards
Proposing Release'') at 29521.
\64\ Securities Exchange Act Release No. 64017 (March 3, 2011),
76 FR 14472 (March 16, 2011) at 14488.
\65\ Id.
\66\ Covered Clearing Agency Standards Proposing Release, 79 FR
at 29521.
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As stated above, the proposed rule change would provide FICC
stakeholders with a better understanding of how FICC makes decisions
that could ultimately affect the financial system. Such transparency
helps ensure that FICC reliably makes decisions and follows clearly
articulated policies and procedures. Accordingly, the Commission finds
that the proposed rule change is designed to enhance the clarity and
transparency of FICC's organizational documents, which would help
protect the public interest, consistent with Section 17A(b)(3)(F) of
the Act.\67\
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\67\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Rule 17Ad-22(e)(1) Under the Act
Rule 17Ad-22(e)(1) under the Act requires a covered clearing agency
\68\ to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for a well-founded,
transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.\69\
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\68\ A ``covered clearing agency'' means, among other things, a
clearing agency registered with the Commission under Section 17A of
the Exchange Act (15 U.S.C. 78q-1 et seq.) that is designated
systemically important by the Financial Stability Oversight Counsel
(``FSOC'') pursuant to the Payment, Clearing, and Settlement
Supervision Act of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR
240.17Ad-22(a)(5)-(6). On July 18, 2012, FSOC designated FICC as
systemically important. U.S. Department of the Treasury, ``FSOC
Makes First Designations in Effort to Protect Against Future
Financial Crises,'' available at https://www.treasury.gov/press-center/press-releases/Pages/tg1645.asp. Therefore, FICC is a covered
clearing agency.
\69\ 17 CFR 240.17Ad-22(e)(1).
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As discussed above, the proposed rule change would update the By-
Laws by (1) updating FICC's description of the titles and
responsibilities of its Board and senior management to match FICC's
current corporate structure, (2) documenting FICC's current
compensation-setting process, and (3) enacting technical corrections to
increase readability. The proposed rule change would also add an
addendum to the Rules to incorporate the By-Laws and the Certificate of
Incorporation by reference, as well as to restate the Certificate of
Incorporation to include all of its amendments in one updated document.
The proposed changes are designed to help ensure that the By-Laws
better reflect FICC's governance practices, as well as to organize
FICC's constitutional documents, in a clear, transparent, and
consistent manner. This increased transparency would help convey to
FICC's stakeholders, and the public generally, a key legal basis for
the activities of the highest levels of FICC's leadership described in
the By-Laws. Therefore, the Commission finds that the proposed rule
change is designed to help ensure that FICC's organizational documents
remain well-founded, transparent, and legally enforceable in all
relevant jurisdictions, consistent with Rule 17Ad-22(e)(1) under the
Act.\70\
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\70\ Id.
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C. Rule 17Ad-22(e)(2)(i) and (v) under the Act
Rule 17Ad-22(e)(2)(i) and (v) under the Act requires that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that, among other things, (1) are clear and transparent and (2) specify
clear and direct lines of responsibility.\71\
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\71\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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As described above, FICC proposes a number of changes to its By-
Laws that would provide clarity and transparency. FICC proposes to
revise By-Laws provisions that were outdated or incorrect.
Specifically, the proposed changes to the titles and offices (and their
related powers and duties) would provide clarity and transparency
because they would clearly set forth FICC's current organizational
structure, including the lines of responsibility of various officers
and the Board. The proposed changes relating to compensation-setting
would also give clarity and transparency by (1) accurately reflecting
the process that is followed pursuant to the Compensation Committee
Charter, and (2) clarifying that the Non-Executive Chairman of the
Board does not receive compensation. Meanwhile, the proposed technical
changes and corrections would raise the clarity and transparency of the
By-Laws by removing grammatical and typographical errors. Additionally,
FICC proposes changes to provide clarity and transparency by including
an addendum to its Rules (to incorporate the By-Laws and Certificate of
Incorporation by reference), and by restating its Certificate of
Incorporation (to include all of its amendment in one updated
document). Both proposed changes would create clarity and transparency
by integrating FICC's organizational documents in a manner that is more
accessible to FICC's members.
For these reasons, the Commission finds that the proposed rule
change is
[[Page 12986]]
designed to enhance clarity and transparency in FICC's governance
arrangements, as well as to specify clear and direct lines of
responsibility for various officer positions and the Board within
FICC's organizational structure, consistent with Rule 17Ad-22(e)(2)(i)
and (v) under the Act.\72\
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\72\ Id.
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, in particular
the requirements of Section 17A of the Act \73\ and the rules and
regulations thereunder.
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\73\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule change SR-FICC-2018-002 be, and hereby is,
APPROVED.\74\
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\74\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\75\
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\75\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06031 Filed 3-23-18; 8:45 am]
BILLING CODE 8011-01-P
