Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Include a New Foreign Legal Opinion Fee Applicable to Non-U.S. Membership Applicants, and Delete a Requirement for Direct Non-U.S. Members Relating to Annual Opinion Updates, 72015-72017 [2019-28087]
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87834; File No. SR–FICC–
2019–006]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Include a
New Foreign Legal Opinion Fee
Applicable to Non-U.S. Membership
Applicants, and Delete a Requirement
for Direct Non-U.S. Members Relating
to Annual Opinion Updates
December 20, 2019.
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 December
16, 2019, 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. FICC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and
Rules 19b–4(f)(2) and (f)(4) thereunder.4
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
a proposal to amend the FICC
Government Securities Division
(‘‘GSD’’) Rulebook (‘‘GSD Rules’’) and
the FICC Mortgage-Backed Securities
Division (‘‘MBSD’’) Clearing Rules
(‘‘MBSD Rules’’) 5 to: (i) Include a new
foreign legal opinion fee in the GSD Fee
Structure, and the MBSD Schedule of
Charges Broker Account Group and
MBSD Schedule of Charges Dealer
Account Group (with the GSD Fee
Structure, collectively referred to as the
‘‘FICC Fee Schedules’’) applicable to
non-U.S. Netting Member and non-U.S.
Clearing Member membership
applicants,6 and (ii) delete the
requirement for direct non-U.S.
members to submit, on an annual basis,
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2) and (f)(4).
5 Capitalized terms not defined herein are defined
in the GSD Rules and MBSD Rules, available at
https://www.dtcc.com/legal/rules-and-procedures.
6 The proposed fee would also be applicable to
applicants that are U.S. branches and agencies of
non-U.S. banks because such applicants are also
required to submit a foreign legal opinion as part
of their application.
an updated opinion on home country
law (and if applicable, other nondomestic law), or a letter from their
outside counsel indicating that there
have been no material changes in home
country law (or other applicable nondomestic law) since the date of issuance
of the most recent opinion submitted to
FICC (hereinafter referred to as the
‘‘bring-down opinion’’).7
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
The purpose of the proposed rule
change is to amend the GSD Rules and
the MBSD Rules to: (i) Include a new
foreign legal opinion fee in the FICC Fee
Schedules applicable to non-U.S.
membership applicants,8 and (ii) delete
the requirement for direct non-U.S.
members to submit a bring-down
opinion on an annual basis.
Background
Under FICC’s current process
applicable to both GSD and MBSD, a
non-U.S. foreign applicant, including an
applicant that is a U.S. branch or agency
of a non-U.S. bank, provides an
extensive legal opinion addressing
complex issues such as netting,
bankruptcy, and choice of law issues
under the law of the applicant’s home
jurisdiction (the ‘‘foreign insolvency
and netting opinion’’).9 The foreign
insolvency and netting opinion is
provided by outside counsel hired by
the applicant. The opinion is then
reviewed (and negotiated with the
applicant’s counsel, as needed) by FICC
1 15
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2 17
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7 The annual bring-down opinion requirement
does not apply to non-U.S. members participating
through U.S. branches or agencies.
8 Supra note 6.
9 Section 5 of GSD Rule 2A and Section 3 of
MBSD Rule 2A reference opinions as one of the
possible required documents in the application
submission. See GSD Rule 2A and MBSD Rule 2A,
supra note 5. The application requirements sheet
provided to potential GSD and MBSD members
outlines the types of opinions required.
PO 00000
Frm 00126
Fmt 4703
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72015
and FICC’s outside U.S. counsel. As
such, in this current process, both the
applicant and FICC are incurring
duplicative legal costs.
In addition, GSD and MBSD currently
require direct non-U.S. members (i.e.,
those not participating through a U.S.
branch or agency) to provide bringdown opinions annually. Again, FICC
hires its own outside U.S. counsel to
review the bring-down opinions.
Proposed Process
In order to address the legal costs for
the review of the non-U.S. legal
opinions for non-U.S. membership
applicants, FICC proposes to modify the
current process for obtaining non-U.S.
legal opinions and implement a new
foreign legal opinion fee (‘‘Foreign Legal
Opinion Fee’’). Such fee would be nonrefundable regardless of the outcome of
the application process.
Proposed Rule Changes
Pursuant to the proposed rule
changes, FICC would select outside
counsel to provide a foreign insolvency
and netting opinion satisfactory to FICC
regarding the laws of the applicable
non-U.S. jurisdiction. This would
alleviate the burden from membership
applicants of having to hire their own
outside counsel to prepare the opinion.
Also pursuant to this proposal, the FICC
Fee Schedules would be amended to
provide that the initial non-U.S.
membership applicant (including one
participating through a U.S. branch or
agency) from a given jurisdiction would
be advised of a ‘‘Maximum Estimated
Charge’’ based on the estimated amount
provided to FICC by FICC’s outside
counsel with respect to obtaining the
foreign insolvency and netting opinion
for that jurisdiction. The estimate would
be prepared on an as-needed basis and
would not be based on a pre-existing
schedule. FICC would advise the nonU.S. applicant of the Maximum
Estimated Charge in writing.
The amount of the Foreign Legal
Opinion Fee charged to the applicant
would be the lesser of a Maximum
Estimated Charge and the actual costs
charged to FICC by outside counsel
providing a legal opinion in form and
substance satisfactory to FICC regarding
the laws of the non-U.S. jurisdiction. If
within five (5) business days after FICC
advises the non-U.S. membership
applicant of the Maximum Estimated
Charge, as described above, the non-U.S.
applicant notifies FICC in writing that it
will terminate its application, the nonU.S. applicant will not be charged the
Foreign Legal Opinion Fee. If the
application is terminated, the Maximum
Estimated Charge would no longer
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apply and FICC would obtain a new
Maximum Estimated Charge from
FICC’s outside counsel if it receives a
subsequent application from that
jurisdiction. If the initial non-U.S.
membership applicant does not
terminate its application within five (5)
business days of FICC advising it of the
Maximum Estimated Charge, then the
non-U.S. applicant would be billed for
the Foreign Legal Opinion Fee in the
amount that would be determined as
described above. Promptly after FICC’s
outside counsel has provided to FICC a
final invoice stating the actual amount
to be charged to FICC for the foreign
legal opinion, FICC would send an
invoice to the applicant. Payment by the
non-U.S. membership applicant would
be due within ten (10) business days of
the non-U.S. applicant’s receipt of an
invoice, including payment
instructions, from FICC.
The FICC Fee Schedules would not
expressly include an absolute maximum
amount for the Foreign Legal Opinion
Fee because, based on FICC’s experience
in reviewing foreign legal opinions, the
level of review required for FICC to gain
comfort that the law of the applicant’s
jurisdiction does not provide material
impediments to enforcement of the GSD
Rules and MBSD Rules, as applicable,
can vary significantly by jurisdiction,
resulting in significant variance in
counsel costs to FICC. The FICC Fee
Schedules would not include an
absolute minimum amount for the
Foreign Legal Opinion Fee because FICC
would not charge an applicant a Foreign
Legal Opinion Fee that is in an amount
that is higher than the actual amount
billed by FICC’s outside counsel to
provide the applicable foreign
insolvency and netting opinion.
Each subsequent non-U.S.
membership applicant (‘‘Subsequent
Non-U.S. Applicant’’) from the same
jurisdiction would be charged a Foreign
Legal Opinion Fee in an amount equal
to the Foreign Legal Opinion Fee
charged to the first non-U.S.
membership applicant from the same
jurisdiction that was charged a Foreign
Legal Opinion Fee. FICC would notify
each Subsequent Non-U.S. Applicant in
writing of the amount of the Foreign
Legal Opinion Fee that was determined
as described above. If within five (5)
business days after FICC advises the
Subsequent Non-U.S. Participant
Applicant of the applicable Foreign
Legal Opinion Fee, the applicant
notifies FICC in writing that it will
terminate its membership application,
the applicant would not be charged a
Foreign Legal Opinion Fee. If the
Subsequent Non-U.S. Applicant does
not terminate its application within five
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20:00 Dec 27, 2019
Jkt 250001
(5) business days of FICC advising it of
the amount of the Foreign Legal
Opinion Fee, then the applicant would
be billed accordingly. Payment by the
Non-U.S. Participant Applicant of the
full amount of the Foreign Legal
Opinion Fee would be due within ten
(10) business days of the applicant’s
receipt of an invoice, including payment
instructions, from FICC.
Pursuant to the proposed rule change,
FICC would delete from GSD Rule 3,
Section 2 and MBSD Rule 3, Section 2
the requirement for direct foreign
members to submit the annual bringdown opinions. FICC will instead
periodically monitor to identify any
significant changes in relevant non-U.S.
jurisdictions that may be of interest to
FICC. FICC would not charge members
for this monitoring service.
2. Statutory Basis
Section 17A(b)(3)(D) of the Act
requires that the GSD Rules and MBSD
Rules provide for the equitable
allocation of reasonable dues, fees, and
other charges among its participants.10
FICC believes the proposed Foreign
Legal Opinion Fee would be equitably
allocated because in accordance with
the amendment to the FICC Fee
Schedules as described above, a Foreign
Legal Opinion Fee in the same amount
would be charged to all subsequent
applicants domiciled in the jurisdiction
for which an applicable foreign legal
opinion was obtained. In addition, FICC
believes that the proposed Foreign Legal
Opinion Fee would be reasonable
because (i) it would be capped in the
amount of the Maximum Estimated
Charge, as described above, (ii) the
amount of a Foreign Legal Opinion Fee
charged to an applicant would not be
greater than the costs FICC may incur in
connection with obtaining the
applicable foreign legal opinion, as
described above, and (iii) it would
eliminate the cost to FICC associated
with the review of foreign legal
opinions. Therefore, FICC believes that
the proposed rule change would provide
for the equitable allocation of reasonable
fees among its participants, and is
consistent with Section 17A(b)(3)(D).11
Section 17A(b)(3)(F) of the Act,
requires, inter alia, that the GSD Rules
and MBSD Rules are not designed to
permit unfair discrimination in the
admission of participants in the use of
the clearing agency.12 FICC believes the
proposed rule changes are consistent
with this provision because the proposal
for FICC to obtain a single foreign
10 15
U.S.C. 78q–1(b)(3)(D).
11 Id.
12 15
PO 00000
netting and insolvency opinion from
FICC outside counsel for all new nonU.S. membership applicants domiciled
within a jurisdiction, rather than
requiring each applicant to obtain an
opinion from its own outside counsel in
its jurisdiction, would provide for
enhanced consistency in the review
performed by FICC by eliminating the
need for it to review multiple legal
opinions submitted by each applicant
individually. Similarly, FICC believes
that removing the annual bring-down
opinion requirement would provide for
enhanced consistency in FICC’s review
of material changes in applicable nonU.S. law and would eliminate the
situation whereby multiple direct
foreign members from the same
jurisdiction are each submitting separate
bring-down opinions/letters. Therefore,
FICC believes that the proposed rule
change would not permit unfair
discrimination in the admission of
members in the use of FICC, and is
consistent with the provisions of
Section 17A(b)(3)(F).13
Rule 17Ad–22(e)(18) under the Act
requires that FICC establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
establish objective, risk-based, and
publicly disclosed criteria for
participation, which permit fair and
open access by direct and, where
relevant, indirect participants and other
financial market utilities, require
participants to have sufficient financial
resources and robust operational
capacity to meet obligations arising from
participation in the clearing agency, and
monitor compliance with such
participation requirements on an
ongoing basis.14 FICC believes that the
proposed rule changes regarding the
Foreign Legal Opinion Fee and
elimination of the annual bring-down
requirement have been designed to meet
the applicable provisions of Rule 17Ad–
22(e)(18). This is because the netting
and insolvency opinion requirement for
non-U.S. applicants, which is a riskbased requirement in that it allows FICC
to learn and address any potential legal
risk arising from a non-U.S.
jurisdiction’s laws, would remain under
the proposed rule changes. The
proposed rule change would not
adversely affect fair and open access
because the requirement for such legal
opinion exists today in that non-U.S.
applicants must procure and pay for
their own opinion currently. Moreover,
the Foreign Legal Opinion Fee would
constitute a publicly disclosed
requirement for applying as a non-U.S.
13 Id.
U.S.C. 78q–1(b)(3)(F).
Frm 00127
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14 17
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Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
applicant to GSD and MBSD. Finally,
while the proposal would eliminate the
bring-down opinion requirement, FICC
would continue to periodically monitor
in order to identify any significant
changes in relevant non-U.S.
jurisdictions that may be of interest to
FICC.
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(B) Clearing Agency’s Statement on
Burden on Competition
FICC believes that the proposed
changes to the FICC Fee Schedules to
impose the Foreign Legal Opinion Fee
could impose a burden on competition
because it would implement a new fee
payable by a non-U.S. applicant in
connection with a membership
application to FICC, which currently
does not exist in the FICC Fee
Schedules. FICC does not believe that
any burden on competition imposed by
the changes to the FICC Fee Schedules
would be significant because the
Foreign Legal Opinion Fee is unlikely to
cause a material impact to a non-U.S.
membership applicant’s overall cost of
applying for FICC membership due to
the fact that, absent the proposal, these
applicants would have incurred the cost
of obtaining the foreign legal opinion
themselves. FICC believes that any
burden on competition that is created by
the proposed changes to the FICC Fee
Schedules would be necessary in
furtherance of the purposes of the Act 15
in order to cover costs to FICC
associated with obtaining the foreign
legal opinion that is necessary for FICC
to determine whether it would face legal
risks in connection with admitting a
foreign membership applicant. FICC
also believes that any burden that is
created by the Foreign Legal Opinion
Fee would be appropriate in furtherance
of the Act 16 because it would be capped
at the Maximum Estimated Charge and
would not be greater than the costs FICC
may incur in connection with obtaining
the applicable foreign legal opinion.
FICC believes that the elimination of
the annual bring-down requirement
could promote competition because it
would eliminate the cost of obtaining
the bring-down opinion/letter currently
incurred by direct foreign members,
potentially lowering their operating
costs.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule changes have not been
solicited or received. FICC will notify
the Commission of any written
comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 17 and paragraph (f) of Rule
19b–4 thereunder.18 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–
FICC–2019–006 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–2019–006. 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
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–
2019–006 and should be submitted on
or before January 21, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28087 Filed 12–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87811; File No. SR–Phlx–
2019–56]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rules 1000,
1014, 1034, 1068, 1080, 1087, 1090, and
1093
December 20, 2019.
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 December
19, 2019, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 1000, ‘‘Applicability, Definitions
and References,’’ Rule 1014,
‘‘Obligations of Market Makers,’’ Rule
1034, ‘‘Minimum Increments,’’ Rule
1068, ‘‘Directed Orders,’’ Rule 1080,
‘‘Electronic Acceptance of Quotes and
19 17
15 15
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f).
16 Id.
VerDate Sep<11>2014
21:34 Dec 27, 2019
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17 15
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]]>Agencies
[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72015-72017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28087]
[[Page 72015]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87834; File No. SR-FICC-2019-006]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Include a New Foreign Legal Opinion Fee Applicable to Non-U.S.
Membership Applicants, and Delete a Requirement for Direct Non-U.S.
Members Relating to Annual Opinion Updates
December 20, 2019.
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 December 16, 2019, 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. FICC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rules 19b-4(f)(2) and (f)(4) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2) and (f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of a proposal to amend the FICC
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') and
the FICC Mortgage-Backed Securities Division (``MBSD'') Clearing Rules
(``MBSD Rules'') \5\ to: (i) Include a new foreign legal opinion fee in
the GSD Fee Structure, and the MBSD Schedule of Charges Broker Account
Group and MBSD Schedule of Charges Dealer Account Group (with the GSD
Fee Structure, collectively referred to as the ``FICC Fee Schedules'')
applicable to non-U.S. Netting Member and non-U.S. Clearing Member
membership applicants,\6\ and (ii) delete the requirement for direct
non-U.S. members to submit, on an annual basis, an updated opinion on
home country law (and if applicable, other non-domestic law), or a
letter from their outside counsel indicating that there have been no
material changes in home country law (or other applicable non-domestic
law) since the date of issuance of the most recent opinion submitted to
FICC (hereinafter referred to as the ``bring-down opinion'').\7\
---------------------------------------------------------------------------
\5\ Capitalized terms not defined herein are defined in the GSD
Rules and MBSD Rules, available at https://www.dtcc.com/legal/rules-and-procedures.
\6\ The proposed fee would also be applicable to applicants that
are U.S. branches and agencies of non-U.S. banks because such
applicants are also required to submit a foreign legal opinion as
part of their application.
\7\ The annual bring-down opinion requirement does not apply to
non-U.S. members participating through U.S. branches or agencies.
---------------------------------------------------------------------------
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
The purpose of the proposed rule change is to amend the GSD Rules
and the MBSD Rules to: (i) Include a new foreign legal opinion fee in
the FICC Fee Schedules applicable to non-U.S. membership applicants,\8\
and (ii) delete the requirement for direct non-U.S. members to submit a
bring-down opinion on an annual basis.
---------------------------------------------------------------------------
\8\ Supra note 6.
---------------------------------------------------------------------------
Background
Under FICC's current process applicable to both GSD and MBSD, a
non-U.S. foreign applicant, including an applicant that is a U.S.
branch or agency of a non-U.S. bank, provides an extensive legal
opinion addressing complex issues such as netting, bankruptcy, and
choice of law issues under the law of the applicant's home jurisdiction
(the ``foreign insolvency and netting opinion'').\9\ The foreign
insolvency and netting opinion is provided by outside counsel hired by
the applicant. The opinion is then reviewed (and negotiated with the
applicant's counsel, as needed) by FICC and FICC's outside U.S.
counsel. As such, in this current process, both the applicant and FICC
are incurring duplicative legal costs.
---------------------------------------------------------------------------
\9\ Section 5 of GSD Rule 2A and Section 3 of MBSD Rule 2A
reference opinions as one of the possible required documents in the
application submission. See GSD Rule 2A and MBSD Rule 2A, supra note
5. The application requirements sheet provided to potential GSD and
MBSD members outlines the types of opinions required.
---------------------------------------------------------------------------
In addition, GSD and MBSD currently require direct non-U.S. members
(i.e., those not participating through a U.S. branch or agency) to
provide bring-down opinions annually. Again, FICC hires its own outside
U.S. counsel to review the bring-down opinions.
Proposed Process
In order to address the legal costs for the review of the non-U.S.
legal opinions for non-U.S. membership applicants, FICC proposes to
modify the current process for obtaining non-U.S. legal opinions and
implement a new foreign legal opinion fee (``Foreign Legal Opinion
Fee''). Such fee would be non-refundable regardless of the outcome of
the application process.
Proposed Rule Changes
Pursuant to the proposed rule changes, FICC would select outside
counsel to provide a foreign insolvency and netting opinion
satisfactory to FICC regarding the laws of the applicable non-U.S.
jurisdiction. This would alleviate the burden from membership
applicants of having to hire their own outside counsel to prepare the
opinion. Also pursuant to this proposal, the FICC Fee Schedules would
be amended to provide that the initial non-U.S. membership applicant
(including one participating through a U.S. branch or agency) from a
given jurisdiction would be advised of a ``Maximum Estimated Charge''
based on the estimated amount provided to FICC by FICC's outside
counsel with respect to obtaining the foreign insolvency and netting
opinion for that jurisdiction. The estimate would be prepared on an as-
needed basis and would not be based on a pre-existing schedule. FICC
would advise the non-U.S. applicant of the Maximum Estimated Charge in
writing.
The amount of the Foreign Legal Opinion Fee charged to the
applicant would be the lesser of a Maximum Estimated Charge and the
actual costs charged to FICC by outside counsel providing a legal
opinion in form and substance satisfactory to FICC regarding the laws
of the non-U.S. jurisdiction. If within five (5) business days after
FICC advises the non-U.S. membership applicant of the Maximum Estimated
Charge, as described above, the non-U.S. applicant notifies FICC in
writing that it will terminate its application, the non-U.S. applicant
will not be charged the Foreign Legal Opinion Fee. If the application
is terminated, the Maximum Estimated Charge would no longer
[[Page 72016]]
apply and FICC would obtain a new Maximum Estimated Charge from FICC's
outside counsel if it receives a subsequent application from that
jurisdiction. If the initial non-U.S. membership applicant does not
terminate its application within five (5) business days of FICC
advising it of the Maximum Estimated Charge, then the non-U.S.
applicant would be billed for the Foreign Legal Opinion Fee in the
amount that would be determined as described above. Promptly after
FICC's outside counsel has provided to FICC a final invoice stating the
actual amount to be charged to FICC for the foreign legal opinion, FICC
would send an invoice to the applicant. Payment by the non-U.S.
membership applicant would be due within ten (10) business days of the
non-U.S. applicant's receipt of an invoice, including payment
instructions, from FICC.
The FICC Fee Schedules would not expressly include an absolute
maximum amount for the Foreign Legal Opinion Fee because, based on
FICC's experience in reviewing foreign legal opinions, the level of
review required for FICC to gain comfort that the law of the
applicant's jurisdiction does not provide material impediments to
enforcement of the GSD Rules and MBSD Rules, as applicable, can vary
significantly by jurisdiction, resulting in significant variance in
counsel costs to FICC. The FICC Fee Schedules would not include an
absolute minimum amount for the Foreign Legal Opinion Fee because FICC
would not charge an applicant a Foreign Legal Opinion Fee that is in an
amount that is higher than the actual amount billed by FICC's outside
counsel to provide the applicable foreign insolvency and netting
opinion.
Each subsequent non-U.S. membership applicant (``Subsequent Non-
U.S. Applicant'') from the same jurisdiction would be charged a Foreign
Legal Opinion Fee in an amount equal to the Foreign Legal Opinion Fee
charged to the first non-U.S. membership applicant from the same
jurisdiction that was charged a Foreign Legal Opinion Fee. FICC would
notify each Subsequent Non-U.S. Applicant in writing of the amount of
the Foreign Legal Opinion Fee that was determined as described above.
If within five (5) business days after FICC advises the Subsequent Non-
U.S. Participant Applicant of the applicable Foreign Legal Opinion Fee,
the applicant notifies FICC in writing that it will terminate its
membership application, the applicant would not be charged a Foreign
Legal Opinion Fee. If the Subsequent Non-U.S. Applicant does not
terminate its application within five (5) business days of FICC
advising it of the amount of the Foreign Legal Opinion Fee, then the
applicant would be billed accordingly. Payment by the Non-U.S.
Participant Applicant of the full amount of the Foreign Legal Opinion
Fee would be due within ten (10) business days of the applicant's
receipt of an invoice, including payment instructions, from FICC.
Pursuant to the proposed rule change, FICC would delete from GSD
Rule 3, Section 2 and MBSD Rule 3, Section 2 the requirement for direct
foreign members to submit the annual bring-down opinions. FICC will
instead periodically monitor to identify any significant changes in
relevant non-U.S. jurisdictions that may be of interest to FICC. FICC
would not charge members for this monitoring service.
2. Statutory Basis
Section 17A(b)(3)(D) of the Act requires that the GSD Rules and
MBSD Rules provide for the equitable allocation of reasonable dues,
fees, and other charges among its participants.\10\ FICC believes the
proposed Foreign Legal Opinion Fee would be equitably allocated because
in accordance with the amendment to the FICC Fee Schedules as described
above, a Foreign Legal Opinion Fee in the same amount would be charged
to all subsequent applicants domiciled in the jurisdiction for which an
applicable foreign legal opinion was obtained. In addition, FICC
believes that the proposed Foreign Legal Opinion Fee would be
reasonable because (i) it would be capped in the amount of the Maximum
Estimated Charge, as described above, (ii) the amount of a Foreign
Legal Opinion Fee charged to an applicant would not be greater than the
costs FICC may incur in connection with obtaining the applicable
foreign legal opinion, as described above, and (iii) it would eliminate
the cost to FICC associated with the review of foreign legal opinions.
Therefore, FICC believes that the proposed rule change would provide
for the equitable allocation of reasonable fees among its participants,
and is consistent with Section 17A(b)(3)(D).\11\
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\10\ 15 U.S.C. 78q-1(b)(3)(D).
\11\ Id.
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Section 17A(b)(3)(F) of the Act, requires, inter alia, that the GSD
Rules and MBSD Rules are not designed to permit unfair discrimination
in the admission of participants in the use of the clearing agency.\12\
FICC believes the proposed rule changes are consistent with this
provision because the proposal for FICC to obtain a single foreign
netting and insolvency opinion from FICC outside counsel for all new
non-U.S. membership applicants domiciled within a jurisdiction, rather
than requiring each applicant to obtain an opinion from its own outside
counsel in its jurisdiction, would provide for enhanced consistency in
the review performed by FICC by eliminating the need for it to review
multiple legal opinions submitted by each applicant individually.
Similarly, FICC believes that removing the annual bring-down opinion
requirement would provide for enhanced consistency in FICC's review of
material changes in applicable non-U.S. law and would eliminate the
situation whereby multiple direct foreign members from the same
jurisdiction are each submitting separate bring-down opinions/letters.
Therefore, FICC believes that the proposed rule change would not permit
unfair discrimination in the admission of members in the use of FICC,
and is consistent with the provisions of Section 17A(b)(3)(F).\13\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ Id.
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Rule 17Ad-22(e)(18) under the Act requires that FICC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to establish objective, risk-based, and publicly
disclosed criteria for participation, which permit fair and open access
by direct and, where relevant, indirect participants and other
financial market utilities, require participants to have sufficient
financial resources and robust operational capacity to meet obligations
arising from participation in the clearing agency, and monitor
compliance with such participation requirements on an ongoing
basis.\14\ FICC believes that the proposed rule changes regarding the
Foreign Legal Opinion Fee and elimination of the annual bring-down
requirement have been designed to meet the applicable provisions of
Rule 17Ad-22(e)(18). This is because the netting and insolvency opinion
requirement for non-U.S. applicants, which is a risk-based requirement
in that it allows FICC to learn and address any potential legal risk
arising from a non-U.S. jurisdiction's laws, would remain under the
proposed rule changes. The proposed rule change would not adversely
affect fair and open access because the requirement for such legal
opinion exists today in that non-U.S. applicants must procure and pay
for their own opinion currently. Moreover, the Foreign Legal Opinion
Fee would constitute a publicly disclosed requirement for applying as a
non-U.S.
[[Page 72017]]
applicant to GSD and MBSD. Finally, while the proposal would eliminate
the bring-down opinion requirement, FICC would continue to periodically
monitor in order to identify any significant changes in relevant non-
U.S. jurisdictions that may be of interest to FICC.
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\14\ 17 CFR 240.17Ad-22(e)(18).
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed changes to the FICC Fee Schedules
to impose the Foreign Legal Opinion Fee could impose a burden on
competition because it would implement a new fee payable by a non-U.S.
applicant in connection with a membership application to FICC, which
currently does not exist in the FICC Fee Schedules. FICC does not
believe that any burden on competition imposed by the changes to the
FICC Fee Schedules would be significant because the Foreign Legal
Opinion Fee is unlikely to cause a material impact to a non-U.S.
membership applicant's overall cost of applying for FICC membership due
to the fact that, absent the proposal, these applicants would have
incurred the cost of obtaining the foreign legal opinion themselves.
FICC believes that any burden on competition that is created by the
proposed changes to the FICC Fee Schedules would be necessary in
furtherance of the purposes of the Act \15\ in order to cover costs to
FICC associated with obtaining the foreign legal opinion that is
necessary for FICC to determine whether it would face legal risks in
connection with admitting a foreign membership applicant. FICC also
believes that any burden that is created by the Foreign Legal Opinion
Fee would be appropriate in furtherance of the Act \16\ because it
would be capped at the Maximum Estimated Charge and would not be
greater than the costs FICC may incur in connection with obtaining the
applicable foreign legal opinion.
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\15\ 15 U.S.C. 78q-1(b)(3)(I).
\16\ Id.
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FICC believes that the elimination of the annual bring-down
requirement could promote competition because it would eliminate the
cost of obtaining the bring-down opinion/letter currently incurred by
direct foreign members, potentially lowering their operating costs.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to the proposed rule changes have not
been solicited or received. FICC will notify the Commission of any
written comments received by FICC.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f).
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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-2019-006 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-2019-006. 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-2019-006 and should be submitted on
or before January 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28087 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P
