Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Codify the Processing of Conditional Prepayment Rate Claims in the MBSD Rules and Make Other Changes, 39143-39147 [2018-16901]

Download as PDF Federal Register / Vol. 83, No. 153 / Wednesday, August 8, 2018 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. 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: provisions of 5 U.S.C. 552, will be available for website 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2018–55, and should be submitted on or before August 29, 2018. disapprove the proposed rule change.5 On June 13, 2018, the Commission instituted proceedings under Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change.7 The Commission received one comment letter on the proposed rule change.8 On July 26, 2018, the Exchange withdrew the proposed rule change (SR–CHX–2018–001). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Eduardo A. Aleman, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [FR Doc. 2018–16890 Filed 8–7–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION • 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– NYSEArca–2018–55 on the subject line. Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Withdrawal of a Proposed Rule Change To Adopt the Route QCT Cross Routing Option Paper Comments sradovich on DSK3GMQ082PROD with NOTICES Electronic Comments August 2, 2018. • 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–NYSEArca–2018–55. 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 website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the On March 6, 2018, the Chicago Stock Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt the Route QCT Cross routing option. The proposed rule change was published for comment in the Federal Register on March 20, 2018.3 On May 1, 2018, pursuant to Section 19(b)(2) of the Exchange Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to 22:37 Aug 07, 2018 Jkt 244001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–16889 Filed 8–7–18; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–83767; File No. SR–FICC– 2018–006] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Codify the Processing of Conditional Prepayment Rate Claims in the MBSD Rules and Make Other Changes August 2, 2018. [Release No. 34–83763; File No. SR–CHX– 2018–001] VerDate Sep<11>2014 39143 31 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 82870 (March 14, 2018), 83 FR 12214. 4 15 U.S.C. 78s(b)(2). 1 15 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 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 July 26, 2018, Fixed Income Clearing Corporation (‘‘FICC’’) 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 the clearing agency. 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 change consists of amendments to the FICC MortgageBacked Securities Division (‘‘MBSD’’) Clearing Rules (‘‘MBSD Rules’’) in order to (i) add terms governing MBSD’s 5 See Securities Exchange Act Release No. 83143, 83 FR 20123 (May 7, 2018). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 83425, 83 FR 28477 (June 19, 2018). 8 See letter from Tracy Richardson, Tribal Technology Trade Inc., dated June 14, 2018, available at https://www.sec.gov/comments/sr-chx2018-001/chx2018001.htm. 9 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\08AUN1.SGM 08AUN1 39144 Federal Register / Vol. 83, No. 153 / Wednesday, August 8, 2018 / Notices processing of conditional prepayment rate (‘‘CPR’’) claims to the MBSD Rules and (ii) make certain clarifications and corrections in the MBSD Rules, as described in greater detail below.3 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency 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. The clearing agency 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 1. Purpose FICC is proposing to amend the MBSD Rules in order to (i) add terms governing MBSD’s processing of CPR claims to the MBSD Rules and (ii) make certain clarifications and corrections in the MBSD Rules. (i) Background As discussed in more detail below, the submission of CPR claims is an established process that occurs today pursuant to FICC’s procedures. FICC is proposing to add provisions to the MBSD Rules to formalize this process in the MBSD Rules. Mortgage pools 4 are often traded in To-Be-Announced (TBA) trades, which are trades for which the actual identities of and/or the number of pools underlying each trade are unknown at the time of trade execution. MBSD guidelines provide that two business days prior to the established settlement date of the TBA settlement obligations, the Clearing Member that has an obligation to deliver pools for the TBA transaction (i.e., the ‘‘seller’’) must allocate the pools to be delivered.5 Pursuant to the MBSD Rules, Clearing sradovich on DSK3GMQ082PROD with NOTICES 3 Capitalized terms used herein and not otherwise defined shall have the meaning assigned to such terms in the MBSD Rules, available at https:// www.dtcc.com/legal/rules-and-procedures. 4 A pool is a collection of mortgage loans or other collateral assembled by an originator or master services as collateral for a mortgaged-back security. 5 See Section 1 of MBSD Rule 7, supra note 3, which provides that ‘‘[i]n order for the Corporation to process data for Pool Comparison, the Corporation must receive data from the long and short sides of the allocated pool submission in the format and within the timeframes specified in guidelines issued by the Corporation from time to time.’’ VerDate Sep<11>2014 22:37 Aug 07, 2018 Jkt 244001 Members may substitute an underlying pool after it has been allocated with respect to a pool deliver obligation by providing instructions to FICC.6 CPR is the percentage of the outstanding loan balance for a pool that is expected to be repaid over a one year period.7 For instance, a 10% CPR means that 10% of a pool’s outstanding loan balance is expected to be repaid in the next year. A CPR claim arises when an underlying TBA pool is allocated or substituted with a pool that pays down at a faster rate (i.e., has a higher CPR) than the average pay down rate for pools of the same type as the underlying pool being replaced.8 The result is that the buyer is receiving a pool with less value than anticipated based on the TBA terms. The industry currently has a process pursuant to which a buyer may make a CPR claim against the seller as set forth in the SIFMA Guidelines.9 The CPR claim process is intended to compensate the buyer for the excess amount that it is paying for the pool being delivered.10 Pursuant to SIFMA Guidelines, an entity is entitled to make a CPR claim if (i) the allocation or substitution giving rise to the CPR claim occurred after the factor release date 11 following the scheduled contractual settlement date relating to the trade, (ii) the pools involved in the claim meet the criteria for fast paying pools in accordance with SIFMA Guidelines, (iii) the amount of 6 Section 5 of MBSD Rule 8, supra note 3. Section 5 of MBSD Rule 8 provides that substitutions may be made pursuant to the communication links, formats, timeframes and deadlines established by FICC and that a Clearing Member with a pool receive obligation (i.e., the ‘‘buyer’’) must accept the substituted pool in accordance with FICC’s procedures. Id. 7 See definition of ‘‘CPR’’ in Chapter 2 of the SIFMA Guidelines. SIFMA Guidelines refer generally to the guidelines for good delivery of mortgage-backed securities as promulgated from time to time by The Securities Industry and Financial Markets Association (‘‘SIFMA’’), an industry trade group. See definition of ‘‘SIFMA Guidelines’’ in MBSD Rule 1, supra note 3. The SIFMA Guidelines, located at https:// www.sifma.org/resources/general/tba-marketgovernance/ under ‘‘Uniform Practices Manual,’’ are trading, clearing and settlement guidelines prepared by SIFMA intended to reflect common industry practices relating to confirming, comparing and settling mortgage-backed securities. 8 See Section A.16 of Chapter 8 of the SIFMA Guidelines, supra note 7. 9 See id. 10 See Section A.16.d of Chapter 8 of the SIFMA Guidelines, supra note 7. 11 The term ‘‘factor release date’’ means, with respect to a pool, the date on which the Federal National Mortgage Association (‘‘Fannie Mae’’), the Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’) or the Government National Mortgage Association (‘‘Ginnie Mae’’), as applicable, release the ‘‘factor’’ that represents the percentage of the agency’s original balance of the pool that remains outstanding as of such date. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 the CPR claim is $10,000 or greater, or, in the case that an entity is submitting a re-transmittal 12 of a CPR claim, the CPR claim is $500 or greater, and (iv) 90% of the buyer’s claimable unit has settled.13 FICC currently processes CPR claims that it receives from Clearing Members in a manner consistent with SIFMA Guidelines, except that (i) FICC currently uses a different definition of ‘‘claimable unit’’ as discussed below and (ii) for re-transmittals, FICC’s current procedures provide a minimum threshold of $5,000 (rather than $500 as set forth in the SIFMA Guidelines). FICC is proposing to codify its existing CPR claims process in the MBSD Rules, including adding a provision providing that a Clearing Member’s cash settlement obligations would include the positive or negative amount of any valid CPR claim. The proposed MBSD CPR claims process would generally follow the CPR claims process set forth in the SIFMA Guidelines and MBSD’s current CPR claims process, with the following exceptions: (A) Definition of Claimable Unit FICC is proposing to add to the MBSD Rules two definitions of ‘‘claimable unit,’’ the use of which would depend on the type of transaction. Pursuant to SIFMA Guidelines and FICC’s current process, CPR claims are based on a ‘‘claimable unit’’ which defines the pool or group of pools that are included in a particular CPR claim.14 Pursuant to SIFMA Guidelines a claimable unit is based on all pools allocated for a trade between factor release dates that have the same underlying TBA characteristics, such as product, coupon, trade date, settlement date and price.15 FICC currently processes CPR claims using a different definition of claimable unit than the SIFMA definition. FICC’s CPR claims process currently uses a definition of claimable unit based on characteristics of pools after MBSD Pool Netting 16 takes place rather than based on underlying TBA characteristics. The 12 A re-transmittal of a CPR claim occurs when a party with the pool deliver obligation passes the CPR claims it received to the entities that sent it the pools it used for delivery. 13 See Section A.16 of Chapter 8 of the SIFMA Guidelines, supra note 7. 14 See Section A.16.b of Chapter 8 of the SIFMA Guidelines, supra note 7. 15 See Section A.16.f(i)(7) of Chapter 8 of the SIFMA Guidelines, supra note 7. 16 Pursuant to the MBSD Rules, the term ‘‘Pool Netting’’ means the service provided to Clearing Members, as applicable, and the operations carried out by FICC in the course of providing such service in accordance with MBSD Rule 8. MBSD Rule 1, supra note 3. E:\FR\FM\08AUN1.SGM 08AUN1 Federal Register / Vol. 83, No. 153 / Wednesday, August 8, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES Pool Netting process generally reduces the number of pool settlements by aggregating and matching offsetting allocated pools submitted by Clearing Members to arrive at a single net position per counterparty in a particular pool number. If a pool obligation is a result of Pool Netting, FICC is unable to track the pool obligation to an original TBA trade or trades and would be unable to group pool obligations for CPR claims based on TBA characteristics as provided in SIFMA Guidelines. FICC is proposing to use the same definition of claimable unit for CPR claims as SIFMA Guidelines if the pool obligations upon which the CPR claims are based have not been through MBSD Pool Netting, as provided in subsection (1) below. FICC is proposing to use a different definition of claimable unit for CPR claims if the pool obligations upon which the CPR claims are based have been through the MBSD Pool Netting process, as described in subsection (2) below. obligations that are a result of Pool Netting because FICC would be unable to track the pool obligation to an original TBA trade and thus unable to group such pool obligation with other pool obligations based on TBA characteristics. This proposed definition would be different than the definition used in the SIFMA Guidelines but would be the same as the definition currently used in FICC’s existing CPR claims process. (B) Re-Transmittal Threshold FICC is proposing to add to the MBSD Rules two minimum thresholds ($500 and $5,000) for re-transmittals 17 of CPR claims, the use of which would depend on the type of transaction. The minimum threshold for a re-transmittal of a CPR claim under SIFMA Guidelines is $500.18 FICC’s current process provides that the minimum threshold for re-transmittals is $5,000. FICC is proposing to use the $500 re-transmittal minimum threshold for allocations (and related substitutions) where the (1) Proposed Definition of Claimable Unit Consistent With SIFMA Guidelines allocations were made after the for CPR Claims That Are Not a Result of applicable factor release date. This $500 proposed minimum threshold would be Pool Netting the same as the minimum threshold in FICC is proposing to use the same the SIFMA Guidelines but different definition of claimable unit used in the from FICC’s existing CPR claims SIFMA Guidelines for CPR claims based process. FICC is proposing to use a on pool obligations that are not a result $5,000 re-transmittal threshold for of Pool Netting. This definition would substitutions relating to allocations that be used for pool allocations or were made prior to the factor release substitutions for pool obligations that date following the contractual have been allocated after the factor settlement date. This $5,000 proposed release date because pool obligations minimum threshold would be different allocated after the factor release date do than the minimum threshold in the not go through the Pool Netting process. SIFMA Guidelines but would be the As a result, FICC would be able to track same as the minimum threshold used in the pool obligation to an original TBA FICC’s existing CPR claims process. trade, which would allow FICC to group FICC is proposing to change its the pool obligation with other pool current practice and add a proposed obligations based on TBA $500 re-transmittal threshold for certain characteristics. This proposed definition allocations described above in the would be the same as the definition MBSD Rules in order to be more used in the SIFMA Guidelines but consistent with SIFMA Guidelines and would be different from the definition established industry practice. FICC is used in FICC’s existing CPR claims proposing to use a higher $5,000 process. threshold, which is consistent with its current process, for re-transmittals for (2) Proposed Definition of Claimable certain substitutions described above to Unit Different From SIFMA Guidelines for CPR Claims That Are a Result of Pool avoid having to process multiple smaller transactions, which FICC Netting believes would likely be FICC is proposing to use a different administratively burdensome. definition of a claimable unit from the SIFMA Guidelines definition for CPR (ii) Proposed MBSD Rule Changes claims based on pool obligations that To codify the CPR claims process as are a result of Pool Netting. FICC is described above, the proposed rule proposing to define a claimable unit for change would add a description of the such pool obligations based on pool CPR claim process in a new Section 10 characteristics after Pool Netting, rather than based on the original TBA pool 17 See supra note 10. characteristics. This definition would be 18 See Section A.16.f(i)(6) of Chapter 8 of the SIFMA Guidelines, supra note 7. used for substitutions for pool VerDate Sep<11>2014 22:37 Aug 07, 2018 Jkt 244001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 39145 of MBSD Rule 9, including a defined term for ‘‘CPR Claim.’’ In addition, the proposed rule change would specify the validation process for CPR claims, which, as described above, would codify existing FICC practices relating to CPR claims and provide that the process for CPR claims is consistent with SIFMA Guidelines, in each case, with the exceptions noted above in Items II(A)1(i)(A) and (B). Specifically, the proposed rule change would specify that CPR claims submitted would be reviewed by FICC to validate the following: (i) The claimable unit with respect to the CPR claim meets the criteria for fast paying pools as set forth in SIFMA Guidelines, (ii) the CPR claim amount is $10,000 or greater, unless the CPR claim is a retransmittal of a CPR claim, in which case, (a) if the CPR claim relates to an allocation of a pool effected after the factor release date following the contractual settlement date and/or substitution of related pools, the amount is $500 or greater or (b) if the CPR claim relates to a substitution of a pool that was allocated prior to the factor release date following the contractual settlement date, the amount is $5,000 or greater and (iii) 90% of the Clearing Member’s claimable unit has settled. Consistent with FICC’s current CPR claims process, the proposed rule change would also specify that (1) FICC maintains the right to process CPR claims with no minimum denomination, (2) CPR claims may be apportioned to more than one participant, (3) CPR claims may be comprised of both debits and credits, (4) FICC would process all CPR claims on the Class ‘‘B’’ settlement date in the month following the transmittal month and (5) FICC would notify the Clearing Member that the CPR claim has been rejected if the CPR claim is determined to be invalid. In addition, the proposed rule change would specify that FICC shall not guaranty CPR claim payments, and any credit to be received with respect to a CPR claim would be reduced to the extent the corresponding debit in connection with a CPR claim is not paid. To ensure that Clearing Members understand the potential credits and debits relating to CPR claims, the proposed rule change would add credits and debits relating to CPR claims in Section 7 of MBSD Rule 11 as items for end of day cash balance computations. To further describe the CPR claims process as set forth above, a crossreference for the defined term ‘‘CPR Claim’’ and new defined terms ‘‘Claimable Unit’’ and ‘‘Factor Release Date’’ would be added to MBSD Rule 1, which are consistent with existing FICC E:\FR\FM\08AUN1.SGM 08AUN1 39146 Federal Register / Vol. 83, No. 153 / Wednesday, August 8, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES practices relating to CPR claims and with SIFMA Guidelines, in each case, with the exceptions noted above in Items II(A)1(i)(A) and (B). The definitions for Fannie Mae, Freddie Mac and Ginnie Mae would be corrected in MBSD Rule 1 to be consistent with industry practice and with their usage throughout the MBSD Rules. In addition, the definition of ‘‘SIFMA Guidelines’’ would be clarified by adding a link identifying the location of the SIFMA Guidelines on the SIFMA website. 2. Statutory Basis Section 17A(b)(3)(F) of the Act 19 requires, in part, that the MBSD Rules be designed to promote the prompt and accurate clearance and settlement of securities transactions. FICC believes that the proposed changes to add the MBSD’s CPR claims process to the MBSD Rules are consistent with Section 17A(b)(3)(F) of the Act.20 The proposed rule changes to add the CPR claims process to the MBSD Rules would provide a standard and efficient mechanism in the MBSD Rules to compensate a buyer that receives faster paying pools that is consistent with accepted industry standards as set forth in the SIFMA Guidelines. While FICC provides a process for CPR claims pursuant to its existing procedures, the proposed changes would codify such procedures in the MBSD Rules and would make MBSD’s CPR claims process more consistent with SIFMA Guidelines, with the exceptions noted above in Items II(A)1(i)(A) and (B). Having the CPR claims process stated in the MBSD Rules would enable Clearing Members to understand how CPR claims would be validated and processed through FICC’s facilities and how FICC’s CPR claims process would differ from SIFMA Guidelines with respect to the definition of claimable unit and the retransmittal minimum threshold as set forth above. Therefore, allowing Clearing Members to make and receive CPR claims through the use of FICC facilities in a manner that is consistent with industry standards and that is clearly stated in the MBSD Rules would promote the prompt and accurate clearance and settlement of securities transactions, consistent with the requirements of Section 17A(b)(3)(F) of the Act.21 FICC believes that the proposed changes correcting the definitions of Fannie Mae, Freddie Mac and Ginnie Mae are consistent with Section 17A(b)(3)(F) of the Act 22 because the corrections would update such terms to reflect usage in the industry and current usage in the MBSD Rules. As such, the proposed changes would enable Clearing Members to have a better understanding of the MBSD Rules and the usage of such terms therein, and thereby assist in promoting the prompt and accurate clearance and settlement of securities transactions, consistent with the requirements of Section 17A(b)(3)(F) of the Act.23 FICC believes that the proposed change clarifying the definition of SIFMA Guidelines by adding a link identifying the location of the SIFMA Guidelines on the SIFMA website is consistent with Section 17A(b)(3)(F) of the Act 24 because the proposed change would enhance clarity of the MBSD Rules by providing Clearing Members with an easier method of finding the SIFMA Guidelines that are referenced in the MBSD Rules. Providing clarity in the location of the SIFMA Guidelines would enable Clearing Members to more quickly locate the SIFMA Guidelines when such Clearing Members are reading MBSD Rules that reference the SIFMA Guidelines, thus making it easier for such Clearing Members to review such MBSD Rules and understand their rights and obligations thereunder. As such, the proposed change would assist in promoting the prompt and accurate clearance and settlement of securities transactions, consistent with the requirements of Section 17A(b)(3)(F) of the Act.25 Rule 17Ad–22(e)(23)(ii) under the Act 26 requires FICC to establish, implement, maintain and enforce written policies and procedures reasonably designed to provide sufficient information to enable participants to identify and evaluate the risks, fees, and other material costs they incur by participating in the covered clearing agency. The proposed rule changes to add CPR claims and corresponding credits and debits in Section 7 of MBSD Rule 11 as items for end of day cash balance computations are consistent with this provision and would help ensure that the charges relating to CPR claims are clear to Clearing Members. Having clear provisions in this regard would enable Clearing Members to better understand the operation of the pool settlement charges by providing sufficient 22 Id. information for Clearing Members to identify potential debits and credits that may be incurred with respect to CPR claims. As such, FICC believes the proposed rule change is consistent with Rule 17Ad–22(e)(23)(ii) of the Act.27 (B) Clearing Agency’s Statement on Burden on Competition FICC believes that the proposed rule changes to add the CPR claims process in the MBSD Rules as described above could have an impact on competition because the CPR claims process would result in CPR claim charges for Clearing Members against whom CPR claims are processed. Specifically, FICC believes this proposed rule change could burden competition by negatively affecting such Clearing Members’ operating costs. While such Clearing Members may experience increases in their charges as a result of CPR claims processed through FICC, FICC does not believe such change would in and of itself mean that the burden on competition is significant. Regardless of whether the burden on competition is deemed significant, FICC believes any burden on competition that is created by the proposed rule changes to add the proposed CPR claims process would be necessary and appropriate in furtherance of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the Act.28 FICC believes the proposed rule changes to include the MBSD CPR claims process in the MBSD Rules would be necessary in furtherance of the purposes of the Act.29 FICC believes that allocations or substitutions by sellers of TBA pool transactions with a pool that pays down at a faster rate than the average pay down rate for pools of the same type as the underlying pool being replaced can create uncertainty regarding the value of pools being received by the buyer. Persistent delivery of faster paying pools could create market inefficiencies, increase credit risk for market participants and heighten overall systemic risk. The proposed rule changes to add the CPR claims process to the MBSD Rules would mitigate against this systemic risk by (i) describing the types of CPR claims that FICC would process and thereby discouraging allocations or substitutions using faster paying pools that may give rise to CPR claims and (ii) providing a clear process in the MBSD Rules to compensate a buyer that receives such faster paying pools. Therefore, FICC believes the proposed 23 Id. 19 15 U.S.C. 78q–1(b)(3)(F). 24 Id. 20 Id. 21 Id. 26 17 27 Id. 25 Id. VerDate Sep<11>2014 22:37 Aug 07, 2018 Jkt 244001 PO 00000 28 15 CFR 240.17Ad–22(e)(23)(ii). Frm 00106 Fmt 4703 Sfmt 4703 U.S.C. 78q–1(b)(3)(I). 29 Id. E:\FR\FM\08AUN1.SGM 08AUN1 Federal Register / Vol. 83, No. 153 / Wednesday, August 8, 2018 / Notices rule changes to add the MBSD CPR claims process to the MBSD Rules would be necessary in furtherance of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the Act.30 FICC also believes any burden on competition that is created by the proposed rule changes to add the MBSD CPR claims process in the MBSD Rules would be appropriate in furtherance of the purposes of the Act.31 Under the proposal, the MBSD CPR claims process would be consistent, with the exceptions noted above in Items II(A)1(i)(A) and (B), with SIFMA Guidelines, which represent the current accepted industry practice with respect to CPR claims. Therefore, the MBSD CPR claims process would provide a mechanism by which Clearing Members could make and receive CPR claims that would be consistent with accepted industry practice. In addition, CPR claims would be imposed upon Clearing Members that choose to allocate or substitute using faster paying pools and no Clearing Members would be disproportionally impacted. As such, FICC believes the proposed rule changes to add the CPR claims process that is consistent, to the extent practicable and appropriate, with SIFMA Guidelines would be appropriate in furtherance of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the Act.32 FICC does not believe there would be an impact on competition with the proposed rule changes that would update the definitions of Fannie Mae, Freddie Mac, Ginnie Mae and SIFMA Guidelines.33 These changes would provide enhanced clarity to the MBSD Rules and would not affect Clearing Members’ rights and obligations. As such, FICC believes that these proposed rule changes would not have any impact on competition. sradovich on DSK3GMQ082PROD with NOTICES (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others FICC has not received or solicited any written comments relating to this proposal. 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 30 Id. 31 Id. 32 Id. 33 Id. VerDate Sep<11>2014 22:37 Aug 07, 2018 Jkt 244001 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 such 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–2018–006 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE Washington, DC 20549. All submissions should refer to File Number SR–FICC–2018–006. 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 website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website 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 the filing also will be available for inspection and copying at the principal office of FICC and on DTCC’s website (https://dtcc.com/legal/sec-rulefilings.aspx). All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 39147 identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FICC– 2018–006 and should be submitted on or before August 29, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–16901 Filed 8–7–18; 8:45 am] BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION [Docket No. SSA–2018–0036] Notice of Senior Executive Service Performance Review Board Membership Social Security Administration. Notice of Senior Executive Service Performance Review Board Membership. AGENCY: ACTION: Title 5, U.S. Code, 4314 (c)(4), requires that the appointment of Performance Review Board members be published in the Federal Register before service on said Board begins. The following persons will serve on the Performance Review Board which oversees the evaluation of performance appraisals of Senior Executive Service members of the Social Security Administration: Bonnie Doyle Stephen Evangelista * Joanne Gasparini Erik Hansen John Lee Joseph Lytle Dan Parry Van Roland * Patrice Stewart * New Member Marianna LaCanfora, Deputy Commissioner for Human Resources. [FR Doc. 2018–16945 Filed 8–7–18; 8:45 am] BILLING CODE 4191–02–P DEPARTMENT OF STATE [Public Notice: 10492] Notice of Determinations; Culturally Significant Objects Imported for Exhibition—Determinations: Exhibition of Two Roman-Era Objects Notice is hereby given of the following determinations: I hereby determine that two objects to be SUMMARY: 34 17 E:\FR\FM\08AUN1.SGM CFR 200.30–3(a)(12). 08AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 153 (Wednesday, August 8, 2018)]
[Notices]
[Pages 39143-39147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16901]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83767; File No. SR-FICC-2018-006]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Codify the Processing of 
Conditional Prepayment Rate Claims in the MBSD Rules and Make Other 
Changes

August 2, 2018.
    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 July 26, 2018, Fixed Income Clearing Corporation (``FICC'') 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 the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the FICC 
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD 
Rules'') in order to (i) add terms governing MBSD's

[[Page 39144]]

processing of conditional prepayment rate (``CPR'') claims to the MBSD 
Rules and (ii) make certain clarifications and corrections in the MBSD 
Rules, as described in greater detail below.\3\
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    \3\ Capitalized terms used herein and not otherwise defined 
shall have the meaning assigned to such terms in the MBSD Rules, 
available at https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------

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

    In its filing with the Commission, the clearing agency 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. The clearing agency 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

1. Purpose
    FICC is proposing to amend the MBSD Rules in order to (i) add terms 
governing MBSD's processing of CPR claims to the MBSD Rules and (ii) 
make certain clarifications and corrections in the MBSD Rules.
(i) Background
    As discussed in more detail below, the submission of CPR claims is 
an established process that occurs today pursuant to FICC's procedures. 
FICC is proposing to add provisions to the MBSD Rules to formalize this 
process in the MBSD Rules.
    Mortgage pools \4\ are often traded in To-Be-Announced (TBA) 
trades, which are trades for which the actual identities of and/or the 
number of pools underlying each trade are unknown at the time of trade 
execution. MBSD guidelines provide that two business days prior to the 
established settlement date of the TBA settlement obligations, the 
Clearing Member that has an obligation to deliver pools for the TBA 
transaction (i.e., the ``seller'') must allocate the pools to be 
delivered.\5\ Pursuant to the MBSD Rules, Clearing Members may 
substitute an underlying pool after it has been allocated with respect 
to a pool deliver obligation by providing instructions to FICC.\6\
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    \4\ A pool is a collection of mortgage loans or other collateral 
assembled by an originator or master services as collateral for a 
mortgaged-back security.
    \5\ See Section 1 of MBSD Rule 7, supra note 3, which provides 
that ``[i]n order for the Corporation to process data for Pool 
Comparison, the Corporation must receive data from the long and 
short sides of the allocated pool submission in the format and 
within the timeframes specified in guidelines issued by the 
Corporation from time to time.''
    \6\ Section 5 of MBSD Rule 8, supra note 3. Section 5 of MBSD 
Rule 8 provides that substitutions may be made pursuant to the 
communication links, formats, timeframes and deadlines established 
by FICC and that a Clearing Member with a pool receive obligation 
(i.e., the ``buyer'') must accept the substituted pool in accordance 
with FICC's procedures. Id.
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    CPR is the percentage of the outstanding loan balance for a pool 
that is expected to be repaid over a one year period.\7\ For instance, 
a 10% CPR means that 10% of a pool's outstanding loan balance is 
expected to be repaid in the next year. A CPR claim arises when an 
underlying TBA pool is allocated or substituted with a pool that pays 
down at a faster rate (i.e., has a higher CPR) than the average pay 
down rate for pools of the same type as the underlying pool being 
replaced.\8\ The result is that the buyer is receiving a pool with less 
value than anticipated based on the TBA terms.
---------------------------------------------------------------------------

    \7\ See definition of ``CPR'' in Chapter 2 of the SIFMA 
Guidelines. SIFMA Guidelines refer generally to the guidelines for 
good delivery of mortgage-backed securities as promulgated from time 
to time by The Securities Industry and Financial Markets Association 
(``SIFMA''), an industry trade group. See definition of ``SIFMA 
Guidelines'' in MBSD Rule 1, supra note 3. The SIFMA Guidelines, 
located at https://www.sifma.org/resources/general/tba-market-governance/ under ``Uniform Practices Manual,'' are trading, 
clearing and settlement guidelines prepared by SIFMA intended to 
reflect common industry practices relating to confirming, comparing 
and settling mortgage-backed securities.
    \8\ See Section A.16 of Chapter 8 of the SIFMA Guidelines, supra 
note 7.
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    The industry currently has a process pursuant to which a buyer may 
make a CPR claim against the seller as set forth in the SIFMA 
Guidelines.\9\ The CPR claim process is intended to compensate the 
buyer for the excess amount that it is paying for the pool being 
delivered.\10\ Pursuant to SIFMA Guidelines, an entity is entitled to 
make a CPR claim if (i) the allocation or substitution giving rise to 
the CPR claim occurred after the factor release date \11\ following the 
scheduled contractual settlement date relating to the trade, (ii) the 
pools involved in the claim meet the criteria for fast paying pools in 
accordance with SIFMA Guidelines, (iii) the amount of the CPR claim is 
$10,000 or greater, or, in the case that an entity is submitting a re-
transmittal \12\ of a CPR claim, the CPR claim is $500 or greater, and 
(iv) 90% of the buyer's claimable unit has settled.\13\
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    \9\ See id.
    \10\ See Section A.16.d of Chapter 8 of the SIFMA Guidelines, 
supra note 7.
    \11\ The term ``factor release date'' means, with respect to a 
pool, the date on which the Federal National Mortgage Association 
(``Fannie Mae''), the Federal Home Loan Mortgage Corporation 
(``Freddie Mac'') or the Government National Mortgage Association 
(``Ginnie Mae''), as applicable, release the ``factor'' that 
represents the percentage of the agency's original balance of the 
pool that remains outstanding as of such date.
    \12\ A re-transmittal of a CPR claim occurs when a party with 
the pool deliver obligation passes the CPR claims it received to the 
entities that sent it the pools it used for delivery.
    \13\ See Section A.16 of Chapter 8 of the SIFMA Guidelines, 
supra note 7.
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    FICC currently processes CPR claims that it receives from Clearing 
Members in a manner consistent with SIFMA Guidelines, except that (i) 
FICC currently uses a different definition of ``claimable unit'' as 
discussed below and (ii) for re-transmittals, FICC's current procedures 
provide a minimum threshold of $5,000 (rather than $500 as set forth in 
the SIFMA Guidelines). FICC is proposing to codify its existing CPR 
claims process in the MBSD Rules, including adding a provision 
providing that a Clearing Member's cash settlement obligations would 
include the positive or negative amount of any valid CPR claim. The 
proposed MBSD CPR claims process would generally follow the CPR claims 
process set forth in the SIFMA Guidelines and MBSD's current CPR claims 
process, with the following exceptions:
(A) Definition of Claimable Unit
    FICC is proposing to add to the MBSD Rules two definitions of 
``claimable unit,'' the use of which would depend on the type of 
transaction. Pursuant to SIFMA Guidelines and FICC's current process, 
CPR claims are based on a ``claimable unit'' which defines the pool or 
group of pools that are included in a particular CPR claim.\14\ 
Pursuant to SIFMA Guidelines a claimable unit is based on all pools 
allocated for a trade between factor release dates that have the same 
underlying TBA characteristics, such as product, coupon, trade date, 
settlement date and price.\15\
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    \14\ See Section A.16.b of Chapter 8 of the SIFMA Guidelines, 
supra note 7.
    \15\ See Section A.16.f(i)(7) of Chapter 8 of the SIFMA 
Guidelines, supra note 7.
---------------------------------------------------------------------------

    FICC currently processes CPR claims using a different definition of 
claimable unit than the SIFMA definition. FICC's CPR claims process 
currently uses a definition of claimable unit based on characteristics 
of pools after MBSD Pool Netting \16\ takes place rather than based on 
underlying TBA characteristics. The

[[Page 39145]]

Pool Netting process generally reduces the number of pool settlements 
by aggregating and matching offsetting allocated pools submitted by 
Clearing Members to arrive at a single net position per counterparty in 
a particular pool number. If a pool obligation is a result of Pool 
Netting, FICC is unable to track the pool obligation to an original TBA 
trade or trades and would be unable to group pool obligations for CPR 
claims based on TBA characteristics as provided in SIFMA Guidelines.
---------------------------------------------------------------------------

    \16\ Pursuant to the MBSD Rules, the term ``Pool Netting'' means 
the service provided to Clearing Members, as applicable, and the 
operations carried out by FICC in the course of providing such 
service in accordance with MBSD Rule 8. MBSD Rule 1, supra note 3.
---------------------------------------------------------------------------

    FICC is proposing to use the same definition of claimable unit for 
CPR claims as SIFMA Guidelines if the pool obligations upon which the 
CPR claims are based have not been through MBSD Pool Netting, as 
provided in subsection (1) below. FICC is proposing to use a different 
definition of claimable unit for CPR claims if the pool obligations 
upon which the CPR claims are based have been through the MBSD Pool 
Netting process, as described in subsection (2) below.
(1) Proposed Definition of Claimable Unit Consistent With SIFMA 
Guidelines for CPR Claims That Are Not a Result of Pool Netting
    FICC is proposing to use the same definition of claimable unit used 
in the SIFMA Guidelines for CPR claims based on pool obligations that 
are not a result of Pool Netting. This definition would be used for 
pool allocations or substitutions for pool obligations that have been 
allocated after the factor release date because pool obligations 
allocated after the factor release date do not go through the Pool 
Netting process. As a result, FICC would be able to track the pool 
obligation to an original TBA trade, which would allow FICC to group 
the pool obligation with other pool obligations based on TBA 
characteristics. This proposed definition would be the same as the 
definition used in the SIFMA Guidelines but would be different from the 
definition used in FICC's existing CPR claims process.
(2) Proposed Definition of Claimable Unit Different From SIFMA 
Guidelines for CPR Claims That Are a Result of Pool Netting
    FICC is proposing to use a different definition of a claimable unit 
from the SIFMA Guidelines definition for CPR claims based on pool 
obligations that are a result of Pool Netting. FICC is proposing to 
define a claimable unit for such pool obligations based on pool 
characteristics after Pool Netting, rather than based on the original 
TBA pool characteristics. This definition would be used for 
substitutions for pool obligations that are a result of Pool Netting 
because FICC would be unable to track the pool obligation to an 
original TBA trade and thus unable to group such pool obligation with 
other pool obligations based on TBA characteristics. This proposed 
definition would be different than the definition used in the SIFMA 
Guidelines but would be the same as the definition currently used in 
FICC's existing CPR claims process.
(B) Re-Transmittal Threshold
    FICC is proposing to add to the MBSD Rules two minimum thresholds 
($500 and $5,000) for re-transmittals \17\ of CPR claims, the use of 
which would depend on the type of transaction. The minimum threshold 
for a re-transmittal of a CPR claim under SIFMA Guidelines is $500.\18\ 
FICC's current process provides that the minimum threshold for re-
transmittals is $5,000. FICC is proposing to use the $500 re-
transmittal minimum threshold for allocations (and related 
substitutions) where the allocations were made after the applicable 
factor release date. This $500 proposed minimum threshold would be the 
same as the minimum threshold in the SIFMA Guidelines but different 
from FICC's existing CPR claims process. FICC is proposing to use a 
$5,000 re-transmittal threshold for substitutions relating to 
allocations that were made prior to the factor release date following 
the contractual settlement date. This $5,000 proposed minimum threshold 
would be different than the minimum threshold in the SIFMA Guidelines 
but would be the same as the minimum threshold used in FICC's existing 
CPR claims process.
---------------------------------------------------------------------------

    \17\ See supra note 10.
    \18\ See Section A.16.f(i)(6) of Chapter 8 of the SIFMA 
Guidelines, supra note 7.
---------------------------------------------------------------------------

    FICC is proposing to change its current practice and add a proposed 
$500 re-transmittal threshold for certain allocations described above 
in the MBSD Rules in order to be more consistent with SIFMA Guidelines 
and established industry practice. FICC is proposing to use a higher 
$5,000 threshold, which is consistent with its current process, for re-
transmittals for certain substitutions described above to avoid having 
to process multiple smaller transactions, which FICC believes would 
likely be administratively burdensome.
(ii) Proposed MBSD Rule Changes
    To codify the CPR claims process as described above, the proposed 
rule change would add a description of the CPR claim process in a new 
Section 10 of MBSD Rule 9, including a defined term for ``CPR Claim.'' 
In addition, the proposed rule change would specify the validation 
process for CPR claims, which, as described above, would codify 
existing FICC practices relating to CPR claims and provide that the 
process for CPR claims is consistent with SIFMA Guidelines, in each 
case, with the exceptions noted above in Items II(A)1(i)(A) and (B).
    Specifically, the proposed rule change would specify that CPR 
claims submitted would be reviewed by FICC to validate the following: 
(i) The claimable unit with respect to the CPR claim meets the criteria 
for fast paying pools as set forth in SIFMA Guidelines, (ii) the CPR 
claim amount is $10,000 or greater, unless the CPR claim is a re-
transmittal of a CPR claim, in which case, (a) if the CPR claim relates 
to an allocation of a pool effected after the factor release date 
following the contractual settlement date and/or substitution of 
related pools, the amount is $500 or greater or (b) if the CPR claim 
relates to a substitution of a pool that was allocated prior to the 
factor release date following the contractual settlement date, the 
amount is $5,000 or greater and (iii) 90% of the Clearing Member's 
claimable unit has settled. Consistent with FICC's current CPR claims 
process, the proposed rule change would also specify that (1) FICC 
maintains the right to process CPR claims with no minimum denomination, 
(2) CPR claims may be apportioned to more than one participant, (3) CPR 
claims may be comprised of both debits and credits, (4) FICC would 
process all CPR claims on the Class ``B'' settlement date in the month 
following the transmittal month and (5) FICC would notify the Clearing 
Member that the CPR claim has been rejected if the CPR claim is 
determined to be invalid. In addition, the proposed rule change would 
specify that FICC shall not guaranty CPR claim payments, and any credit 
to be received with respect to a CPR claim would be reduced to the 
extent the corresponding debit in connection with a CPR claim is not 
paid.
    To ensure that Clearing Members understand the potential credits 
and debits relating to CPR claims, the proposed rule change would add 
credits and debits relating to CPR claims in Section 7 of MBSD Rule 11 
as items for end of day cash balance computations.
    To further describe the CPR claims process as set forth above, a 
cross-reference for the defined term ``CPR Claim'' and new defined 
terms ``Claimable Unit'' and ``Factor Release Date'' would be added to 
MBSD Rule 1, which are consistent with existing FICC

[[Page 39146]]

practices relating to CPR claims and with SIFMA Guidelines, in each 
case, with the exceptions noted above in Items II(A)1(i)(A) and (B).
    The definitions for Fannie Mae, Freddie Mac and Ginnie Mae would be 
corrected in MBSD Rule 1 to be consistent with industry practice and 
with their usage throughout the MBSD Rules. In addition, the definition 
of ``SIFMA Guidelines'' would be clarified by adding a link identifying 
the location of the SIFMA Guidelines on the SIFMA website.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \19\ requires, in part, that the 
MBSD Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    FICC believes that the proposed changes to add the MBSD's CPR 
claims process to the MBSD Rules are consistent with Section 
17A(b)(3)(F) of the Act.\20\ The proposed rule changes to add the CPR 
claims process to the MBSD Rules would provide a standard and efficient 
mechanism in the MBSD Rules to compensate a buyer that receives faster 
paying pools that is consistent with accepted industry standards as set 
forth in the SIFMA Guidelines. While FICC provides a process for CPR 
claims pursuant to its existing procedures, the proposed changes would 
codify such procedures in the MBSD Rules and would make MBSD's CPR 
claims process more consistent with SIFMA Guidelines, with the 
exceptions noted above in Items II(A)1(i)(A) and (B). Having the CPR 
claims process stated in the MBSD Rules would enable Clearing Members 
to understand how CPR claims would be validated and processed through 
FICC's facilities and how FICC's CPR claims process would differ from 
SIFMA Guidelines with respect to the definition of claimable unit and 
the re-transmittal minimum threshold as set forth above. Therefore, 
allowing Clearing Members to make and receive CPR claims through the 
use of FICC facilities in a manner that is consistent with industry 
standards and that is clearly stated in the MBSD Rules would promote 
the prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\21\
---------------------------------------------------------------------------

    \20\ Id.
    \21\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed changes correcting the definitions 
of Fannie Mae, Freddie Mac and Ginnie Mae are consistent with Section 
17A(b)(3)(F) of the Act \22\ because the corrections would update such 
terms to reflect usage in the industry and current usage in the MBSD 
Rules. As such, the proposed changes would enable Clearing Members to 
have a better understanding of the MBSD Rules and the usage of such 
terms therein, and thereby assist in promoting the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
the requirements of Section 17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------

    \22\ Id.
    \23\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed change clarifying the definition of 
SIFMA Guidelines by adding a link identifying the location of the SIFMA 
Guidelines on the SIFMA website is consistent with Section 17A(b)(3)(F) 
of the Act \24\ because the proposed change would enhance clarity of 
the MBSD Rules by providing Clearing Members with an easier method of 
finding the SIFMA Guidelines that are referenced in the MBSD Rules. 
Providing clarity in the location of the SIFMA Guidelines would enable 
Clearing Members to more quickly locate the SIFMA Guidelines when such 
Clearing Members are reading MBSD Rules that reference the SIFMA 
Guidelines, thus making it easier for such Clearing Members to review 
such MBSD Rules and understand their rights and obligations thereunder. 
As such, the proposed change would assist in promoting the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\25\
---------------------------------------------------------------------------

    \24\ Id.
    \25\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(ii) under the Act \26\ requires FICC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed rule changes to add CPR claims and corresponding 
credits and debits in Section 7 of MBSD Rule 11 as items for end of day 
cash balance computations are consistent with this provision and would 
help ensure that the charges relating to CPR claims are clear to 
Clearing Members. Having clear provisions in this regard would enable 
Clearing Members to better understand the operation of the pool 
settlement charges by providing sufficient information for Clearing 
Members to identify potential debits and credits that may be incurred 
with respect to CPR claims. As such, FICC believes the proposed rule 
change is consistent with Rule 17Ad-22(e)(23)(ii) of the Act.\27\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \27\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that the proposed rule changes to add the CPR claims 
process in the MBSD Rules as described above could have an impact on 
competition because the CPR claims process would result in CPR claim 
charges for Clearing Members against whom CPR claims are processed. 
Specifically, FICC believes this proposed rule change could burden 
competition by negatively affecting such Clearing Members' operating 
costs. While such Clearing Members may experience increases in their 
charges as a result of CPR claims processed through FICC, FICC does not 
believe such change would in and of itself mean that the burden on 
competition is significant. Regardless of whether the burden on 
competition is deemed significant, FICC believes any burden on 
competition that is created by the proposed rule changes to add the 
proposed CPR claims process would be necessary and appropriate in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act.\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC believes the proposed rule changes to include the MBSD CPR 
claims process in the MBSD Rules would be necessary in furtherance of 
the purposes of the Act.\29\ FICC believes that allocations or 
substitutions by sellers of TBA pool transactions with a pool that pays 
down at a faster rate than the average pay down rate for pools of the 
same type as the underlying pool being replaced can create uncertainty 
regarding the value of pools being received by the buyer. Persistent 
delivery of faster paying pools could create market inefficiencies, 
increase credit risk for market participants and heighten overall 
systemic risk. The proposed rule changes to add the CPR claims process 
to the MBSD Rules would mitigate against this systemic risk by (i) 
describing the types of CPR claims that FICC would process and thereby 
discouraging allocations or substitutions using faster paying pools 
that may give rise to CPR claims and (ii) providing a clear process in 
the MBSD Rules to compensate a buyer that receives such faster paying 
pools. Therefore, FICC believes the proposed

[[Page 39147]]

rule changes to add the MBSD CPR claims process to the MBSD Rules would 
be necessary in furtherance of the purposes of the Act, as permitted by 
Section 17A(b)(3)(I) of the Act.\30\
---------------------------------------------------------------------------

    \29\ Id.
    \30\ Id.
---------------------------------------------------------------------------

    FICC also believes any burden on competition that is created by the 
proposed rule changes to add the MBSD CPR claims process in the MBSD 
Rules would be appropriate in furtherance of the purposes of the 
Act.\31\ Under the proposal, the MBSD CPR claims process would be 
consistent, with the exceptions noted above in Items II(A)1(i)(A) and 
(B), with SIFMA Guidelines, which represent the current accepted 
industry practice with respect to CPR claims. Therefore, the MBSD CPR 
claims process would provide a mechanism by which Clearing Members 
could make and receive CPR claims that would be consistent with 
accepted industry practice. In addition, CPR claims would be imposed 
upon Clearing Members that choose to allocate or substitute using 
faster paying pools and no Clearing Members would be disproportionally 
impacted. As such, FICC believes the proposed rule changes to add the 
CPR claims process that is consistent, to the extent practicable and 
appropriate, with SIFMA Guidelines would be appropriate in furtherance 
of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\32\
---------------------------------------------------------------------------

    \31\ Id.
    \32\ Id.
---------------------------------------------------------------------------

    FICC does not believe there would be an impact on competition with 
the proposed rule changes that would update the definitions of Fannie 
Mae, Freddie Mac, Ginnie Mae and SIFMA Guidelines.\33\ These changes 
would provide enhanced clarity to the MBSD Rules and would not affect 
Clearing Members' rights and obligations. As such, FICC believes that 
these proposed rule changes would not have any impact on competition.
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

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

    FICC has not received or solicited any written comments relating to 
this proposal. 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 such 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 [email protected]. Please include 
File Number SR-FICC-2018-006 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2018-006. 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 website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website 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 the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2018-006 and should be submitted on 
or before August 29, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-16901 Filed 8-7-18; 8:45 am]
 BILLING CODE 8011-01-P

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