[Federal Register Volume 69, Number 30 (Friday, February 13, 2004)]
[Notices]
[Pages 7273-7274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3193]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49212; File No. SR-FICC-2003-05]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to Additional
Account Structures
February 9, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 9, 2003, the 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
primarily by FICC. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change would amend the rules of both the
Government Securities Division (``GSD'') and the Mortgage-Backed
Securities Division (``MBSD'') of FICC with respect to their additional
account structures.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FICC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FICC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
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\2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
GSD and MBSD both permit members to open and maintain accounts in
addition to their primary accounts. Additional accounts developed as an
administrative convenience provided to members who wanted to keep
certain activities segregated from their primary accounts. The proposed
rule change would address certain legal risks associated with these
accounts.
Government Securities Division
For each additional account opened for a member, GSD assigns a
unique participant ID number and separately calculates daily clearing
fund requirements, funds-only settlement requirements, and net
settlement positions based solely upon the activity in the additional
account.\3\ Currently, the opening and maintenance of additional
accounts requested by a GSD member is governed by an agreement between
the member and GSD.\4\ Pursuant to the additional account agreement,
the member agrees to be responsible for all of the obligations and
liabilities associated with the additional account; however, GSD's
rules do not address the opening and maintenance of these additional
accounts.\5\
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\3\ The maintenance of such accounts has billing implications as
set forth in GSD's fee structure.
\4\ The additional account structure permitted by GSD should be
contrasted with GSD's executing firm feature, which permits a member
to submit trades of a non-GSD member with which the member has a
correspondent relationship. Executing firm trades are commingled
with the member's own trades in the member's GSD account and are not
separated from the member's other activity (including other
executing firm activity) for any purpose. Therefore, the member's
clearing fund requirement, funds-only settlement requirement, and
net settlement position reflects all executing firm activity in its
GSD account.
\5\ The only exceptions to this are with respect to repo brokers
who are expressly required to open second accounts for their
brokered repo activity and GSD's fee structure which includes
charges associated with the maintenance of additional accounts.
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The proposed rule change would reflect the principles set forth in
the additional account agreement and those that FICC management has
defined to govern these accounts. Specifically, additional accounts
that are opened for someone other than a member itself or for the
member's wholly-owned subsidiary shall require the approval of FICC's
Membership and Risk Management Committee. The proposed rule change
makes clear that GSD members will be responsible for all of the
obligations arising under GSD's rules that are associated with
additional accounts. The additional account entity will not have any
proprietary interest with respect to the additional account, and will
not have any rights or privileges of GSD members. GSD will have the
right to deny the opening of an additional account if it believes that
the additional account entity presents risk to FICC, such as legal risk
from an insolvency regime that is adverse to GSD's rights.
[[Page 7274]]
Mortgage-Backed Securities Division
Currently, MBSD rules expressly permit participants to open
additional accounts upon request for themselves or for any other
entity. FICC has reviewed MBSD's current rules and is proposing to
enhance them by making clear that (i) additional account holders do not
have membership or property rights with respect to additional accounts
and (ii) MBSD may apply collateral associated with one account of a
participant to satisfy obligations among any or all of that
participant's accounts. These provisions will serve to protect MBSD in
the event an additional account holder makes a claim with respect to
the property, proceeds, or collateral associated with the activity of
the account.
FICC believes the proposed rule change is consistent with the
requirements of section 17A of the Act and the rules and regulations
thereunder because it addresses and limits the legal risk to FICC and
its members that arises from the opening and maintenance of additional
accounts.
(B) Self-Regulatory Organization's Statement on Burden on Competition
FICC does not believe that the proposed rule change would have an
impact on or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments relating to the proposed rule change have not yet
been solicited nor received. FICC will notify the Commission of any
written comments received by FICC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date 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 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: [email protected]. All comment letters should refer to
File No. SR-FICC-2003-05. This file number should be included on the
subject line if e-mail is used. To help the Commission process and
review your comments more efficiently, comments should be sent in
hardcopy or by e-mail but not by both methods. 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 inspection and copying in the Commission's
Public Reference Section, 450 Fifth Street NW., Washington, DC 20549.
Copies of such filing will also be available for inspection and copying
at the principal office of FICC and on FICC's Web site at http://www.ficc.com/gov/gov.docs.jsp?NS-query and at http://www.ficc.com/mbs/mbs.docs.jsp/NS-query. All submissions should refer to the File No. SR-
FICC-2003-05 and should be submitted by March 5, 2004.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-3193 Filed 2-12-04; 8:45 am]
BILLING CODE 8010-01-P