[Federal Register Volume 77, Number 225 (Wednesday, November 21, 2012)]
[Notices]
[Pages 69913-69915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28263]
[[Page 69913]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68245; File No. SR-FICC-2012-07]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to Enhancements That
the Mortgage-Backed Securities Division Intends To Implement to Its
Services and Certain Other Clarifications and Corrections to Its Rules
November 15, 2012.
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 November 6, 2012, the Fixed Income Clearing Corporation (``FICC'' or
the ``Corporation'') 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 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).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of Terms of Substance of
the Proposed Rule Change
The proposed rule changes to the Rules of the Mortgage-Backed
Securities Division (``MBSD'') of FICC relate to enhancements that MBSD
intends to implement to its services and certain other clarifications
and corrections to its Rules. As noted below, some of the proposed
changes do not require revisions to the MBSD Rules.
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.\3\
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\3\ The Commission has modified the text of the summaries
prepared by FICC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule changes relate to certain enhancements that MBSD
intends to implement to its services. In addition, FICC proposes to
make certain corrections and clarifications to the MBSD Rules. The
proposed changes are described below.
1. Expansion of Pool Netting To Include Pool Instructs From the
Previous Settlement Months
MBSD proposes to further extend pool netting benefits to its
members by capturing Pool Instructs \4\ submitted for allocations made
after the traded pool's settlement month has passed. The proposed
changes allow more activity into the pool net which results in fewer
settlements.
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\4\ A Pool Instruct is an input used by a member to submit pool
details directly into the Real-Time Trade Matching [supreg]
(``RTTM[supreg]'') system for bilateral matching and assignment to a
corresponding open TBA position as a prerequisite to the pool
netting process.
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Currently, MBSD's pool netting process only nets Pool Instructs for
the current delivery date if their corresponding contractual settlement
dates (``CSD'') are also in the current month.\5\ For example, with
respect to a delivery date of August 14, 2012, MBSD's pool netting
process would only net Pool Instructs having a CSD ranging from August
1, 2012 through August 14, 2012 and having a delivery date of August
14, 2012. As such, only Pool Instructs having a CSD in the current
month will be included in pool netting.
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\5\ See MBSD Rule 8 Section 3.
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The proposed new process will net Pool Instructs from previous
settlement months that are submitted for delivery dates in the current
month. For example, if we assume that today is August 13, 2012, and a
member submits multiple Pool Instructs all having a CSD equal to July
12, 2012 and a delivery date equal to August 14, 2012, on the evening
of August 13th, these Pool Instructs would be netted against each other
to arrive at a single pool net settlement position for the July 12,
2012 CSD and August 14th delivery date.
The proposed changes do not require revisions to the text of the
MBSD Rules.
2. Notification of Settlement for Specified Pool Trades
A Notification of Settlement (``NOS'') is an instruction submitted
to the Corporation by a purchasing or selling clearing member which
reflects the settlement of a Settlement Balance Order Trade, Trade-for-
Trade Transaction or Specified Pool Trade (``SPT'').\6\ MBSD is
proposing to change the manner in which NOS processing occurs for SPTs
so that it follows similar processing rules as those applied to NOS for
Settlement Balance Order Trades and Trade-for-Trade Transactions.
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\6\ See MBSD Rule 1, Definitions.
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Currently, MBSD Rule 10 Section 2 states that the trade details for
a NOS submitted by both parties of a SPT must fully match in order for
the clearance of the SPTs to be reflected on the member's Purchase and
Sale Report \7\ or both parties must submit a cancellation of the
transaction in order for the transaction to be deleted from each
party's respective Open Commitment Report.\8\
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\7\ ``Purchase and Sale Report'' is defined as the report
furnished by the Corporation reflecting a member's Compared Trades
in Eligible Securities.'' See MBSD Rule 1, Definitions.
\8\ ``Open Commitment Report'' is defined as the report
furnished by the Corporation to members reflecting such member's
open commitments in the Clearing System. See MBSD Rule 1,
Definitions.
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MBSD proposes to enhance the NOS for SPTs by no longer requiring
the current face value submitted on each member's NOS to exactly match
the current face value of the SPT. Instead, members will have the
ability to submit and match multiple NOS to reduce the SPT current face
until it is fully settled. For example, if a SPT has a current face
value of $125MM and the pool number of the trade has a factor of 0.975,
FICC will accept either (a) one piece of NOS for $125,000,000 or (b)
three pieces of NOS for $48,750,000, $48,750,000 and $27,500,000. The
current face values equal an original face settlement value of
$50,000,000, $50,000,000 and $28,205,128.
In addition to the above, MBSD will apply a tolerance of $1 when matching buy and sell NOS for SPT trades to account for
differences in rounding conventions used by members to convert original
face to current face on their NOS.
The proposed changes will make NOS for SPTs similar to NOS for
Settlement Balance Order Trades and Trade-for-Trade Transactions
whereby matching is permitted within a tolerance and multiple NOS may
be submitted and matched separately until the trade is fully settled.
The proposed changes require revisions to the text of the MBSD
Rules.
3. Comparison of Dummy Pool Number to Valid Pool Number
FICC supports the submission of a defined generic or ``dummy'' pool
[[Page 69914]]
number on NOS instead of a valid pool number. A dummy pool is a
standard convention used by members when the actual pool number is not
readily available to some members. Currently, the pool number is a
matching criterion on NOS. Consequently, if one member submits a dummy
pool number and the other enters a valid pool number the NOS will not
compare even though all of the other matching criteria are the same. In
an effort to address this, FICC is proposing to change its processing
in order to allow matching of NOS when all mandatory terms compare and
one member submits a dummy pool number and the other member submits a
valid pool.
The proposed changes do not require revisions to the text of the
MBSD Rules.
4. Automatically Marking Certain Open TBA Trades as Fully Settled
Mortgage-backed securities trades settle with an industry-accepted
variance of 0.01% (i.e., $100 per $1MM). When FICC applies NOS to open
trades, it does so using the upper limit of the variance to ensure that
trades are not marked as fully settled until all NOS have been received
and processed by FICC. However, because trades may settle using any
value within the variance, FICC's processing may leave residual trade
amounts open on its books for trades that have actually been fully
settled. To address this, FICC is proposing to automatically generate
internal NOS which will mark the residual trade as fully settled. The
FICC generated NOS will occur on the last business day of each month,
in every instance where a member has a To-Be-Announced (``TBA'') trade
with an open par that falls below an established threshold. The
threshold is initially contemplated to be $1000 par, however, this may
be modified following member feedback. All changes to the threshold
will be provided in advance to members via Important Notice.
The proposed changes require revisions to the text of the MBSD
Rules.
5. Corrections and Clarification to the MBSD Rules
The MBSD Rules define the term ``Fully Compared'' as ``* * *trade
input submitted by a Broker matches trade input submitted by each
Dealer on whose behalf the Broker is acting the Net Position Match
Mode.'' \9\ The phrase ``in accordance with'' was inadvertently deleted
from this definition when it was revised in connection with Amendment
No. 1 to SR-FICC-2008-01.\10\ FICC proposes to restore this phrase so
that the definition states the following: ``* * * trade input submitted
by a Broker matches trade input submitted by each Dealer on whose
behalf the Broker is acting in accordance with the Net Position Match
Mode.''
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\9\ See MBSD Rule 1, Definitions.
\10\ Securities Exchange Act Release No. 34-66550 (March 9,
2012); 77 FR 15155 (March 14, 2012).
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In the second to last paragraph of MBSD Rule 2A Section 1, there is
a sentence which states that the Corporation will determine whether the
applicants in ``categories (g and i)'' of the referenced Section will
be designated as tier one or tier two members. FICC proposes to correct
the typographical error in the cross-reference so that it instead
references ``categories (g) and (i).''
Implementation
FICC proposes to implement the proposed changes relating to the
MBSD enhancements during the first quarter of 2013 pending rule filing
approval from the Securities and Exchange Commission (the
``Commission''). The proposed changes relating to the clarifications
and corrections of the referenced rules will be effective immediately
upon receipt of rule filing approval.
FICC believes that the proposed rule changes are consistent with
Section 17A of the Act, and the rules and regulations thereunder,
because (1) the expansion of the pool netting system extends the
netting benefits to clearing members by capturing allocations made
after the traded pools current settlement month, (2) the change in NOS
processing for SPTs creates efficiency through the standardization of
NOS processing for TBA trades, (3) automatically marking certain TBA
trades as fully settled improves the monitoring and reporting of trade
settlement status and (4) allowing the comparison of dummy Pool number
to valid pool number provides for timelier matching of NOS. Each of
these enhancements creates a more efficient netting system which
promotes the prompt and accurate clearance and settlement for
securities transactions. Furthermore, the clarifications and
corrections to the MBSD Rules ensure that the Rules are accurate.
(B) Self-Regulatory Organization's Statement on Burden on Competition
FICC does not believe that the proposed rule change will have any
impact or impose any 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 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FICC-2012-07 on the subject line.
Paper Comments:
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FICC-2012-07. 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 Web site (http://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
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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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. 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.dtcc.com/downloads/legal/rule_filings/2012/ficc/SR_FICC_2012_07.pdf. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2012-07 in the caption above and
should be submitted on or before December 12, 2012.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-28263 Filed 11-20-12; 8:45 am]
BILLING CODE 8011-01-P