Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Apply the Government Securities Division Corporation Default Rule to Sponsored Members and Make Other Changes, 48890-48893 [2018-21000]

Download as PDF 48890 Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices transactions, consistent with Section 17A(b)(3)(F) of the Act.20 Rule 17Ad–22(e)(23)(i) under the Act requires, in part, that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to provide for publicly disclosing all relevant rules and material procedures.21 As described above, the proposed rule change would improve the Rules by (1) enhancing the transparency of the Rules by adding more information, (2) simplifying the Rules by removing information that either does not provide Members with important information regarding their rights or obligations or that no longer describe current processing, and (3) revising statements to more clearly disclose to Members the operation of the applicable services. By doing so, the proposed changes would allow the Rules to better disclose all relevant and material aspects of the CNS System and the other services described therein. Therefore, NSCC believes the proposed rule changes are consistent with Rule 17Ad–22(e)(23)(i).22 daltland on DSKBBV9HB2PROD with NOTICES (B) Clearing Agency’s Statement on Burden on Competition NSCC does not believe that the proposed rule changes would have any impact, or impose any burden, on competition. The proposed rule changes are designed to improve Members’ understanding of their rights and obligations with respect to the use of the CNS System and the other services described in the Rules that are subject to these proposed changes. These proposed changes would be applicable to all Members that utilize NSCC’s services, and would not alter Members’ rights or obligations. The proposed rule changes to remove descriptions of processing that are no longer accurate would update the Rules to reflect NSCC’s current practice and the longstanding operation of the related services. NSCC does not believe that these changes would alter the respective rights or obligations of NSCC or Members. Therefore, NSCC does not believe that the proposed rule changes would have any impact on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others NSCC has not solicited or received any written comments relating to this proposal. NSCC will notify the Commission of any written comments that it receives. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 23 and paragraph (f) of Rule 19b–4 thereunder.24 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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– NSCC–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–NSCC–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 20 Id. 21 17 CFR 240.17Ad–22(e)(23)(i). 23 15 22 Id. VerDate Sep<11>2014 24 17 17:20 Sep 26, 2018 Jkt 244001 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). Frm 00098 Fmt 4703 Sfmt 4703 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 NSCC 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 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–NSCC– 2018–006 and should be submitted on or before October 18, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–20999 Filed 9–26–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84255; File No. SR–FICC– 2018–008] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Apply the Government Securities Division Corporation Default Rule to Sponsored Members and Make Other Changes September 21, 2018. On August 6, 2018, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the U. S. Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–FICC–2018–008, 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 August 21, 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 modify FICC’s Government Securities Division (‘‘GSD’’) Rulebook (‘‘GSD 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. 83856 (August 15, 2018), 83 FR 42340 (August 21, 2018) (SR–FICC–2018–008) (‘‘Notice’’). 1 15 E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices Rules’’) 4 to amend GSD Rule 3A (Sponsoring Members and Sponsored Members) to apply GSD Rule 22B (Corporation Default) to Sponsored Members. In addition, the proposed rule change would make certain other changes as described below. daltland on DSKBBV9HB2PROD with NOTICES A. GSD Rule 3A (Sponsoring Members and Sponsored Members) FICC proposes to add an introductory paragraph to Section 17 of GSD Rule 3A (Sponsoring Members and Sponsored Members) to make it clear that for purposes of the Rules, Schedules, Interpretations and Statements of Policy referenced in Section 17 of GSD Rule 3A, Sponsoring Members and/or Sponsored Members, in their respective capacities, would be ‘‘Members.’’ FICC states that this change would clarify which Rules, Schedules, Interpretations and Statements of Policy would govern the rights, liabilities and obligations of Sponsoring Members and Sponsored Members in their respective capacities.5 Furthermore, FICC would modify GSD Rule 3A so that GSD Rule 22B (Corporation Default) would apply to Sponsored Members in the same manner as it applies to all other GSD Members. Specifically, FICC would add a new subsection (a) to Section 17 of GSD Rule 3A which would provide that GSD Rule 22B would apply to Sponsored Members. This proposed change would necessitate a technical change to renumber all subsequent subsections in Section 17 of GSD Rule 3A. GSD Rule 22B defines the term ‘‘Corporation Default’’ and sets forth the close out netting process in the event of a Corporation Default. Section (b)(ii) of GSD Rule 22B provides that the following events shall constitute a Corporation Default: (1) The dissolution of FICC (other than pursuant to a consolidation, amalgamation, or merger); 6 (2) the institution by FICC of a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or the presentation of a petition for FICC’s winding-up or liquidation, or the making of a general assignment for the benefit of creditors; 7 (3) the institution of a proceeding against FICC seeking a 4 Capitalized terms not defined herein are defined in the GSD Rules, available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ rules/ficc_gov_rules.pdf. 5 Notice, 83 FR at 42341. 6 See Section (b)(ii)(A) of GSD Rule 22B, supra note 4. 7 See Section (b)(ii)(B) of GSD Rule 22B, supra note 4. VerDate Sep<11>2014 17:20 Sep 26, 2018 Jkt 244001 judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or the presentation of a petition for FICC’s winding-up or liquidation and, in each case, such proceeding or petition resulting in a judgement of insolvency or bankruptcy or the entry of an order for relief or the making of an order for FICC’s winding-up or liquidation; 8 or (4) FICC seeking or becoming subject to the appointment of a receiver, trustee, or other similar official pursuant to the federal securities laws or Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act 9 for FICC or for all or substantially all of FICC’s assets.10 In addition, subject to the limitations set forth therein, Section (b)(i) of GSD Rule 22B provides that a Corporation Default is deemed to have occurred on the eighth day after FICC receives notice from a GSD Member of FICC’s failure to make, when due, an undisputed payment or delivery to such Member that is required to be made by FICC under the GSD Rules; provided that, such failure remains unremedied throughout the seven-day period following FICC’s receipt of the notice.11 FICC states that its provision of clearance and settlement services, including the timely settlement of Transactions in the ordinary course of business, are a part of FICC’s fundamental directive as a registered clearing agency under the Act.12 FICC further states that the seven-day period provided by Section (b)(i) of GSD Rule 22B is intended to address the circumstance where FICC experiences an operational issue that prevents it from completing such clearance and settlement services.13 If FICC is not able to rectify the failure and satisfy its obligations in seven days, GSD Rule 22B requires an immediate termination of Transactions that have been subject to Novation pursuant to the GSD Rules but have not yet settled and any rights and obligations of the parties thereto.14 FICC states that the seven-day period is designed to avoid a systemic disruption in such circumstance.15 In connection with the proposed rule change to apply GSD Rule 22B to 8 See Section (b)(ii)(C) of GSD Rule 22B, supra note 4. 9 12 U.S.C. 5381 et seq. 10 See Section (b)(ii)(D) of GSD Rule 22B, supra note 4. 11 See Section (b)(i) of GSD Rule 22B, supra note 4. 12 Notice, 83 FR at 42342. 13 Id. 14 See Section (a) of GSD Rule 22B, supra note 4. 15 Notice, 83 FR at 42342. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 48891 Sponsored Members, FICC would add language to clarify that (1) the commencement of the seven-day period preceding a potential Corporation Default, as provided by Section (b)(i) of GSD Rule 22B, would not modify FICC’s obligations to satisfy any undisputed payment or delivery obligation to a Sponsored Member under the GSD Rules, including any undisputed interest payment obligation owing to the Sponsored Member on an open Sponsored Member Trade, and (2) the undisputed interest payment obligation would continue to accrue in favor of the Sponsored Member for the duration of the seven-day period. Specifically, FICC would specify in the proposed subsection (a) to Section 17 of GSD Rule 3A that FICC would be responsible for satisfying any undisputed payment or delivery obligation required to be made by FICC to a Sponsored Member under the GSD Rules, including, but not limited to, any undisputed interest payment obligation that accrues in favor of a Sponsored Member on a Sponsored Member Trade that has been subject to Novation pursuant to the GSD Rules but has not yet settled and for which FICC has received notice from such Sponsored Member of FICC’s failure to make, when due, such undisputed interest payment to such Sponsored Member within the meaning of Section (b)(i) of GSD Rule 22B. B. GSD Rule 22B (Corporation Default) FICC proposes to clarify the third sentence of Section (a) of GSD Rule 22B regarding the close out netting process upon a Corporation Default. Specifically, FICC would delete a reference to Section 2(a) of GSD Rule 22A in that sentence and modify the reference to Section 2(b) of GSD Rule 22A to specifically refer to Section 2(b)(i) of GSD Rule 22A. FICC states that the reference to Section 2(a) of GSD Rule 22A is meant to set forth Transactions that would not be subject to the close out netting process in the event of a Corporation Default by referring (by way of analogy) to Transactions that FICC would not close out in the event FICC ceases to act for a GSD Member.16 However, Section (a) of GSD Rule 22B already contains a statement regarding which Transactions are subject to the close out netting process in the event of a Corporation Default: ‘‘all Transactions which have been subject to Novation pursuant to these [GSD] Rules. . . .’’ 17 Accordingly, FICC would delete the reference to Section 2(a) of GSD Rule 22A in the 16 Notice, 17 See E:\FR\FM\27SEN1.SGM 83 FR at 42342. Section (a) of GSD Rule 22B, supra note 4. 27SEN1 daltland on DSKBBV9HB2PROD with NOTICES 48892 Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices third sentence of Section (a) of GSD Rule 22B. In addition, FICC would modify the reference to Section 2(b) of GSD Rule 22A in the third sentence of Section (a) of GSD Rule 22B to specifically refer to Section 2(b)(i) of GSD Rule 22A. Section (a) of GSD Rule 22B provides, in part, that ‘‘the Board shall determine a single net amount owed by or to each Member . . . by applying the close out . . . procedures of Section 2(a) and (b) of [GSD] Rule 22A . . . .’’ 18 FICC states that the reference to the entirety of Section 2(b) of GSD Rule 22A could cause confusion for GSD Members because only subsection (i) of Section 2(b) of GSD Rule 22A, which speaks specifically to final net settlement positions, is relevant in the context of GSD Rule 22B.19 Therefore, FICC would amend the reference to point specifically to Section 2(b)(i) of GSD Rule 22A. FICC also proposes to delete ‘‘, to the extent applicable,’’ and ‘‘and application’’ from the third sentence of Section (a) of GSD Rule 22B. FICC states that it is proposing to delete ‘‘, to the extent applicable,’’ because Section 2(b)(i) of GSD Rule 22A would always be applicable for purposes of the Board determining a single net amount owed by or to each Member under GSD Rule 22B after a Corporation Default has occurred.20 Likewise, FICC would delete ‘‘and application’’ from the third sentence of Section (a) of GSD Rule 22B because, FICC states, it is extraneous wording that is unnecessary and not relevant in the context of Section 2(b)(i) of GSD Rule 22A.21 Lastly, FICC proposes to clarify the third sentence of Section (a) of GSD Rule 22B by stating that, although GSD Rule 22B would apply to Sponsored Members pursuant to this proposal, the loss allocation provisions of GSD Rule 4 (Clearing Fund and Loss Allocation) referenced in GSD Rule 22B would not apply to Sponsored Members. Specifically, FICC would add ‘‘, to the extent such provisions are otherwise applicable to such Member’’ following the reference in that sentence to the loss allocation provisions in GSD Rule 4. FICC states that this proposed change would be consistent with Section 12(a) of GSD Rule 3A, which provides that Sponsored Members are not obligated for allocations, pursuant to GSD Rule 4, of loss or liability incurred by FICC. 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.22 The Commission believes the proposal is consistent with Act, specifically Section 17A(b)(3)(F) of the Act 23 and Rule 17Ad–22(e)(23)(i) under the Act.24 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 promote the prompt and accurate clearance and settlement of securities transactions.25 As described above, the proposed rule change would apply GSD Rule 22B to Sponsored Members in the same manner as it applies to all other GSD Members. The proposed rule change is designed to ensure that all GSD Members are subject to a common, transparent legal framework in a Corporation Default situation. The Commission believes that having a common, transparent legal framework in a Corporation Default situation would help facilitate an orderly close out netting of obligations between FICC and the GSD Members in the event that a Corporation Default occurs. In turn, an orderly close out netting of obligations between FICC and the GSD Members would help provide clarity and certainty to market participants in a time of distress regarding their rights and obligations, and the rights and obligations of FICC. By providing clarity and certainty of such rights and obligations, the Commission believes the proposed rule change is designed to promote the prompt and accurate clearance and settlement of securities transactions. Therefore, the Commission finds that the proposed rule change to apply GSD Rule 22B to Sponsored Members in the same manner as it applies to all other GSD Members is consistent with Section 17A(b)(3)(F) of the Act. B. Rule 17Ad–22(e)(23)(i) Under the Act Rule 17Ad–22(e)(23)(i) under the Act requires that each covered clearing agency,26 establish, implement, 22 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 24 17 CFR 240.17Ad–22(e)(23)(i). 25 15 U.S.C. 78q–1(b)(3)(F). 26 A ‘‘covered clearing agency’’ means, among other things, a clearing agency registered with the 23 15 18 Id. 19 Notice, 83 FR at 42342. 20 Id. 21 Id. VerDate Sep<11>2014 17:20 Sep 26, 2018 Jkt 244001 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 maintain and enforce written policies and procedures reasonably designed to publicly disclose all relevant rules and material procedures, including key aspects of its default rules and procedures.27 As described above, the proposed rule changes to (i) apply GSD Rule 22B (Corporation Default) to Sponsored Members in the same manner as it applies to all other GSD Members, and (ii) clarify that the loss allocation provisions of GSD Rule 4 (Clearing Fund and Loss Allocation) referenced in GSD Rule 22B would not apply to Sponsored Members, are designed to publicly clarify the application of these specific rules with respect to the rights and obligations of Sponsored Members in the event Corporation Default occurs. In addition, the proposed rule changes to (i) amend the third sentence of Section (a) of GSD Rule 22B by (A) deleting the unnecessary and potentially confusing reference to Section 2(a) of GSD Rule 22A and (B) modifying the reference to Section 2(b) of GSD Rule 22A to specifically refer to Section 2(b)(i) of GSD Rule 22A, and (ii) make clarifying and/or technical changes in GSD Rule 3A and GSD Rule 22B, are designed to enhance the clarity and accuracy of these public rules with respect to the rights and obligations of Sponsored Members in the event Corporation Default. As such, the Commission finds that the proposed rule changes are reasonably designed to publicly disclose relevant rules and material procedures, including key aspects of its default rules and procedures, consistent with Rule 17Ad– 22(e)(23)(i) under the Act. 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 28 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– 008 be, and hereby is, APPROVED.29 Commission under Section 17A of the Exchange Act (15 U.S.C. 78q–1 et seq.) that is designated systemically important by Financial Stability Oversight Council (‘‘FSOC’’) pursuant to the Clearing Supervision Act (12 U.S.C. 5461 et seq.). See 17 CFR 240.17Ad–22(a)(5)–(6). Because FICC is a registered clearing agency with the Commission that has been designated systemically important by FSOC, FICC is a covered clearing agency. 27 17 CFR 240.17Ad–22(e)(23)(i). 28 15 U.S.C. 78q–1. 29 In approving the proposed rule change, the Commission considered the proposals’ impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–21000 Filed 9–26–18; 8:45 am] BILLING CODE 8011–01–P Dated: September 24, 2018. Eduardo A. Aleman, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 daltland on DSKBBV9HB2PROD with NOTICES Extension: Form SE, SEC File No. 270–289, OMB Control No. 3235–0327 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Form SE (17 CFR 239.64) is used by registrants to file paper copies of exhibits, reports or other documents that would be difficult or impossible to submit electronically, as provided in Rule 311 of Regulation S–T (17 CFR 232.311). The information contained in Form SE is used by the Commission to identify paper copies of exhibits. Form SE is a public document and is filed on occasion. Form SE is filed by individuals, companies or other entities that are required to file documents electronically. Approximately 19 registrants file Form SE and it takes an estimated 0.10 hours per response for a total annual burden of 2 hours (010 hours per response × 19 responses). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following website, www.reginfo.gov . Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Pamela CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:20 Sep 26, 2018 Jkt 244001 DEPARTMENT OF TRANSPORTATION Federal Aviation Administration [Docket No.: FAA–2018–0877] FAA Order 2150.3C, Compliance and Enforcement Program Federal Aviation Administration (FAA), DOT. AGENCY: [FR Doc. 2018–21043 Filed 9–26–18; 8:45 am] Submission for OMB Review Comment Request 30 17 Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Candace Kenner, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_Mailbox@ sec.gov. Comments must be submitted to OMB within 30 days of this notice. 48893 Notice of availability of revised agency order. BILLING CODE 8011–01–P ACTION: SMALL BUSINESS ADMINISTRATION SUMMARY: [Disaster Declaration #15680 and #15681; MONTANA Disaster Number MT–00116] Presidential Declaration Amendment of a Major Disaster for Public Assistance Only for the State of MONTANA U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of MONTANA (FEMA–4388– DR), dated 08/30/2018. Incident: Flooding. Incident Period: 04/12/2018 through 05/06/2018. DATES: Issued on 09/18/2018. Physical Loan Application Deadline Date: 10/29/2018. Economic Injury (EIDL) Loan Application Deadline Date: 05/30/2019. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for Private Non-Profit organizations in the State of MONTANA, dated 08/30/2018, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Petroleum. All other information in the original declaration remains unchanged. SUMMARY: (Catalog of Federal Domestic Assistance Number 59008) This notice announces the availability of FAA Order 2150.3C, Compliance and Enforcement Program. The order contains the policies and procedures relevant to the Federal Aviation Administration’s compliance and enforcement program. The order applies to the compliance and enforcement programs and activities of all FAA offices that have statutory and regulatory compliance and enforcement responsibilities. It includes policies and procedures the FAA has developed since the last comprehensive revision of the order in 2007. Expired and out-ofdate policies and procedures have been removed. FAA Order 2150.3C provides a written statement of the Administrator’s policy guidance for imposing sanctions for violations of statutory and regulatory requirements. The new policies and procedures in FAA Order 2150.3C became effective on September 18, 2018. DATES: FOR FURTHER INFORMATION CONTACT: James Barry, Office of the Chief Counsel, Enforcement Division, AGC–300, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; 202–267–8198, james.barry@ faa.gov. The sanction guidance in FAA Order 2150.3C applies to violations occurring on or after September 18, 2018. For violations occurring before September 18, 2018, FAA enforcement personnel apply the sanction policy guidance in FAA Order 2150.3B. FAA Order 2150.3C may be found at https:// www.faa.gov/regulations_policies/ orders_notices/index.cfm/go/ document.information/documentID/ 1034329. SUPPLEMENTARY INFORMATION: James Rivera, Associate Administrator for Disaster Assistance. Issued in Washington, DC, on September 20, 2018. Naomi Tsuda, Assistant Chief Counsel for Enforcement. [FR Doc. 2018–21004 Filed 9–26–18; 8:45 am] [FR Doc. 2018–20987 Filed 9–26–18; 8:45 am] BILLING CODE 8025–01–P BILLING CODE 4910–13–P PO 00000 Frm 00101 Fmt 4703 Sfmt 9990 E:\FR\FM\27SEN1.SGM 27SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 188 (Thursday, September 27, 2018)]
[Notices]
[Pages 48890-48893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21000]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84255; File No. SR-FICC-2018-008]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Apply the Government Securities 
Division Corporation Default Rule to Sponsored Members and Make Other 
Changes

September 21, 2018.
    On August 6, 2018, Fixed Income Clearing Corporation (``FICC'') 
filed with the U. S. Securities and Exchange Commission 
(``Commission'') proposed rule change SR-FICC-2018-008, 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 August 21, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 83856 (August 15, 2018), 
83 FR 42340 (August 21, 2018) (SR-FICC-2018-008) (``Notice'').
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I. Description of the Proposed Rule Change

    The proposed rule change would modify FICC's Government Securities 
Division (``GSD'') Rulebook (``GSD

[[Page 48891]]

Rules'') \4\ to amend GSD Rule 3A (Sponsoring Members and Sponsored 
Members) to apply GSD Rule 22B (Corporation Default) to Sponsored 
Members. In addition, the proposed rule change would make certain other 
changes as described below.
---------------------------------------------------------------------------

    \4\ Capitalized terms not defined herein are defined in the GSD 
Rules, available at https://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_gov_rules.pdf.
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A. GSD Rule 3A (Sponsoring Members and Sponsored Members)

    FICC proposes to add an introductory paragraph to Section 17 of GSD 
Rule 3A (Sponsoring Members and Sponsored Members) to make it clear 
that for purposes of the Rules, Schedules, Interpretations and 
Statements of Policy referenced in Section 17 of GSD Rule 3A, 
Sponsoring Members and/or Sponsored Members, in their respective 
capacities, would be ``Members.'' FICC states that this change would 
clarify which Rules, Schedules, Interpretations and Statements of 
Policy would govern the rights, liabilities and obligations of 
Sponsoring Members and Sponsored Members in their respective 
capacities.\5\
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    \5\ Notice, 83 FR at 42341.
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    Furthermore, FICC would modify GSD Rule 3A so that GSD Rule 22B 
(Corporation Default) would apply to Sponsored Members in the same 
manner as it applies to all other GSD Members. Specifically, FICC would 
add a new subsection (a) to Section 17 of GSD Rule 3A which would 
provide that GSD Rule 22B would apply to Sponsored Members. This 
proposed change would necessitate a technical change to renumber all 
subsequent subsections in Section 17 of GSD Rule 3A.
    GSD Rule 22B defines the term ``Corporation Default'' and sets 
forth the close out netting process in the event of a Corporation 
Default. Section (b)(ii) of GSD Rule 22B provides that the following 
events shall constitute a Corporation Default: (1) The dissolution of 
FICC (other than pursuant to a consolidation, amalgamation, or merger); 
\6\ (2) the institution by FICC of a proceeding seeking a judgment of 
insolvency or bankruptcy or any other relief under any bankruptcy or 
insolvency law or other similar law affecting creditors' rights, or the 
presentation of a petition for FICC's winding-up or liquidation, or the 
making of a general assignment for the benefit of creditors; \7\ (3) 
the institution of a proceeding against FICC seeking a judgment of 
insolvency or bankruptcy or any other relief under any bankruptcy or 
insolvency law or other similar law affecting creditors' rights, or the 
presentation of a petition for FICC's winding-up or liquidation and, in 
each case, such proceeding or petition resulting in a judgement of 
insolvency or bankruptcy or the entry of an order for relief or the 
making of an order for FICC's winding-up or liquidation; \8\ or (4) 
FICC seeking or becoming subject to the appointment of a receiver, 
trustee, or other similar official pursuant to the federal securities 
laws or Title II of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act \9\ for FICC or for all or substantially all of FICC's 
assets.\10\
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    \6\ See Section (b)(ii)(A) of GSD Rule 22B, supra note 4.
    \7\ See Section (b)(ii)(B) of GSD Rule 22B, supra note 4.
    \8\ See Section (b)(ii)(C) of GSD Rule 22B, supra note 4.
    \9\ 12 U.S.C. 5381 et seq.
    \10\ See Section (b)(ii)(D) of GSD Rule 22B, supra note 4.
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    In addition, subject to the limitations set forth therein, Section 
(b)(i) of GSD Rule 22B provides that a Corporation Default is deemed to 
have occurred on the eighth day after FICC receives notice from a GSD 
Member of FICC's failure to make, when due, an undisputed payment or 
delivery to such Member that is required to be made by FICC under the 
GSD Rules; provided that, such failure remains unremedied throughout 
the seven-day period following FICC's receipt of the notice.\11\
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    \11\ See Section (b)(i) of GSD Rule 22B, supra note 4.
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    FICC states that its provision of clearance and settlement 
services, including the timely settlement of Transactions in the 
ordinary course of business, are a part of FICC's fundamental directive 
as a registered clearing agency under the Act.\12\ FICC further states 
that the seven-day period provided by Section (b)(i) of GSD Rule 22B is 
intended to address the circumstance where FICC experiences an 
operational issue that prevents it from completing such clearance and 
settlement services.\13\ If FICC is not able to rectify the failure and 
satisfy its obligations in seven days, GSD Rule 22B requires an 
immediate termination of Transactions that have been subject to 
Novation pursuant to the GSD Rules but have not yet settled and any 
rights and obligations of the parties thereto.\14\ FICC states that the 
seven-day period is designed to avoid a systemic disruption in such 
circumstance.\15\
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    \12\ Notice, 83 FR at 42342.
    \13\ Id.
    \14\ See Section (a) of GSD Rule 22B, supra note 4.
    \15\ Notice, 83 FR at 42342.
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    In connection with the proposed rule change to apply GSD Rule 22B 
to Sponsored Members, FICC would add language to clarify that (1) the 
commencement of the seven-day period preceding a potential Corporation 
Default, as provided by Section (b)(i) of GSD Rule 22B, would not 
modify FICC's obligations to satisfy any undisputed payment or delivery 
obligation to a Sponsored Member under the GSD Rules, including any 
undisputed interest payment obligation owing to the Sponsored Member on 
an open Sponsored Member Trade, and (2) the undisputed interest payment 
obligation would continue to accrue in favor of the Sponsored Member 
for the duration of the seven-day period. Specifically, FICC would 
specify in the proposed subsection (a) to Section 17 of GSD Rule 3A 
that FICC would be responsible for satisfying any undisputed payment or 
delivery obligation required to be made by FICC to a Sponsored Member 
under the GSD Rules, including, but not limited to, any undisputed 
interest payment obligation that accrues in favor of a Sponsored Member 
on a Sponsored Member Trade that has been subject to Novation pursuant 
to the GSD Rules but has not yet settled and for which FICC has 
received notice from such Sponsored Member of FICC's failure to make, 
when due, such undisputed interest payment to such Sponsored Member 
within the meaning of Section (b)(i) of GSD Rule 22B.

B. GSD Rule 22B (Corporation Default)

    FICC proposes to clarify the third sentence of Section (a) of GSD 
Rule 22B regarding the close out netting process upon a Corporation 
Default. Specifically, FICC would delete a reference to Section 2(a) of 
GSD Rule 22A in that sentence and modify the reference to Section 2(b) 
of GSD Rule 22A to specifically refer to Section 2(b)(i) of GSD Rule 
22A.
    FICC states that the reference to Section 2(a) of GSD Rule 22A is 
meant to set forth Transactions that would not be subject to the close 
out netting process in the event of a Corporation Default by referring 
(by way of analogy) to Transactions that FICC would not close out in 
the event FICC ceases to act for a GSD Member.\16\ However, Section (a) 
of GSD Rule 22B already contains a statement regarding which 
Transactions are subject to the close out netting process in the event 
of a Corporation Default: ``all Transactions which have been subject to 
Novation pursuant to these [GSD] Rules. . . .'' \17\ Accordingly, FICC 
would delete the reference to Section 2(a) of GSD Rule 22A in the

[[Page 48892]]

third sentence of Section (a) of GSD Rule 22B.
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    \16\ Notice, 83 FR at 42342.
    \17\ See Section (a) of GSD Rule 22B, supra note 4.
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    In addition, FICC would modify the reference to Section 2(b) of GSD 
Rule 22A in the third sentence of Section (a) of GSD Rule 22B to 
specifically refer to Section 2(b)(i) of GSD Rule 22A. Section (a) of 
GSD Rule 22B provides, in part, that ``the Board shall determine a 
single net amount owed by or to each Member . . . by applying the close 
out . . . procedures of Section 2(a) and (b) of [GSD] Rule 22A . . . 
.'' \18\ FICC states that the reference to the entirety of Section 2(b) 
of GSD Rule 22A could cause confusion for GSD Members because only 
subsection (i) of Section 2(b) of GSD Rule 22A, which speaks 
specifically to final net settlement positions, is relevant in the 
context of GSD Rule 22B.\19\ Therefore, FICC would amend the reference 
to point specifically to Section 2(b)(i) of GSD Rule 22A.
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    \18\ Id.
    \19\ Notice, 83 FR at 42342.
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    FICC also proposes to delete ``, to the extent applicable,'' and 
``and application'' from the third sentence of Section (a) of GSD Rule 
22B. FICC states that it is proposing to delete ``, to the extent 
applicable,'' because Section 2(b)(i) of GSD Rule 22A would always be 
applicable for purposes of the Board determining a single net amount 
owed by or to each Member under GSD Rule 22B after a Corporation 
Default has occurred.\20\ Likewise, FICC would delete ``and 
application'' from the third sentence of Section (a) of GSD Rule 22B 
because, FICC states, it is extraneous wording that is unnecessary and 
not relevant in the context of Section 2(b)(i) of GSD Rule 22A.\21\
---------------------------------------------------------------------------

    \20\ Id.
    \21\ Id.
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    Lastly, FICC proposes to clarify the third sentence of Section (a) 
of GSD Rule 22B by stating that, although GSD Rule 22B would apply to 
Sponsored Members pursuant to this proposal, the loss allocation 
provisions of GSD Rule 4 (Clearing Fund and Loss Allocation) referenced 
in GSD Rule 22B would not apply to Sponsored Members. Specifically, 
FICC would add ``, to the extent such provisions are otherwise 
applicable to such Member'' following the reference in that sentence to 
the loss allocation provisions in GSD Rule 4. FICC states that this 
proposed change would be consistent with Section 12(a) of GSD Rule 3A, 
which provides that Sponsored Members are not obligated for 
allocations, pursuant to GSD Rule 4, of loss or liability incurred by 
FICC.

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.\22\ The Commission believes the proposal is consistent 
with Act, specifically Section 17A(b)(3)(F) of the Act \23\ and Rule 
17Ad-22(e)(23)(i) under the Act.\24\
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    \22\ 15 U.S.C. 78s(b)(2)(C).
    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ 17 CFR 240.17Ad-22(e)(23)(i).
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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 promote the prompt 
and accurate clearance and settlement of securities transactions.\25\
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    \25\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, the proposed rule change would apply GSD Rule 
22B to Sponsored Members in the same manner as it applies to all other 
GSD Members. The proposed rule change is designed to ensure that all 
GSD Members are subject to a common, transparent legal framework in a 
Corporation Default situation. The Commission believes that having a 
common, transparent legal framework in a Corporation Default situation 
would help facilitate an orderly close out netting of obligations 
between FICC and the GSD Members in the event that a Corporation 
Default occurs. In turn, an orderly close out netting of obligations 
between FICC and the GSD Members would help provide clarity and 
certainty to market participants in a time of distress regarding their 
rights and obligations, and the rights and obligations of FICC. By 
providing clarity and certainty of such rights and obligations, the 
Commission believes the proposed rule change is designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions. Therefore, the Commission finds that the proposed rule 
change to apply GSD Rule 22B to Sponsored Members in the same manner as 
it applies to all other GSD Members is consistent with Section 
17A(b)(3)(F) of the Act.

B. Rule 17Ad-22(e)(23)(i) Under the Act

    Rule 17Ad-22(e)(23)(i) under the Act requires that each covered 
clearing agency,\26\ establish, implement, maintain and enforce written 
policies and procedures reasonably designed to publicly disclose all 
relevant rules and material procedures, including key aspects of its 
default rules and procedures.\27\
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    \26\ 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 Financial Stability Oversight Council 
(``FSOC'') pursuant to the Clearing Supervision Act (12 U.S.C. 5461 
et seq.). See 17 CFR 240.17Ad-22(a)(5)-(6). Because FICC is a 
registered clearing agency with the Commission that has been 
designated systemically important by FSOC, FICC is a covered 
clearing agency.
    \27\ 17 CFR 240.17Ad-22(e)(23)(i).
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    As described above, the proposed rule changes to (i) apply GSD Rule 
22B (Corporation Default) to Sponsored Members in the same manner as it 
applies to all other GSD Members, and (ii) clarify that the loss 
allocation provisions of GSD Rule 4 (Clearing Fund and Loss Allocation) 
referenced in GSD Rule 22B would not apply to Sponsored Members, are 
designed to publicly clarify the application of these specific rules 
with respect to the rights and obligations of Sponsored Members in the 
event Corporation Default occurs. In addition, the proposed rule 
changes to (i) amend the third sentence of Section (a) of GSD Rule 22B 
by (A) deleting the unnecessary and potentially confusing reference to 
Section 2(a) of GSD Rule 22A and (B) modifying the reference to Section 
2(b) of GSD Rule 22A to specifically refer to Section 2(b)(i) of GSD 
Rule 22A, and (ii) make clarifying and/or technical changes in GSD Rule 
3A and GSD Rule 22B, are designed to enhance the clarity and accuracy 
of these public rules with respect to the rights and obligations of 
Sponsored Members in the event Corporation Default. As such, the 
Commission finds that the proposed rule changes are reasonably designed 
to publicly disclose relevant rules and material procedures, including 
key aspects of its default rules and procedures, consistent with Rule 
17Ad-22(e)(23)(i) under the Act.

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 \28\ and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-FICC-2018-008 be, and hereby is, 
APPROVED.\29\
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    \29\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).


[[Page 48893]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21000 Filed 9-26-18; 8:45 am]
BILLING CODE 8011-01-P

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