[Federal Register Volume 78, Number 82 (Monday, April 29, 2013)]
[Notices]
[Pages 25129-25130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10026]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69434; File No. SR-FICC-2013-03]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend Mortgage-Backed
Securities Division Rules Relating to Allocation of an Indemnity Claim
Made in Connection With the Use of the Federal Reserve's National
Settlement Service
April 23, 2013.
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 April 15, 2013, 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 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 the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to correct Rule 11,
Section 5(o), of FICC's Mortgage-Backed Securities Division (``MBSD'')
Clearing Rules in order to accurately reflect the manner in which FICC
should allocate an indemnity claim made in connection with the use of
the Board of Governors of the Federal Reserve System's (``FRB'') \3\
National Settlement Service (``NSS'').\4\
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\3\ The acronym ``FRB'' is a defined in MBSD's Clearing Rule 1
(Definitions) as the Board of Governors of the Federal Reserve
System and each Federal Reserve Bank, as appropriate.
\4\ The text of the proposed rule change is provided as Exhibit
5 to this filing and is available at www.dtcc.com/downloads/legal/rule_filings/2013/ficc/SR_FICC_2013_03.pdf.
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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 section (A),
(B) and (C) below, of the most significant aspects of such
statements.\5\
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\5\ 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
FICC's Government Securities Division (``GSD'') and MBSD each use
the FRB's NSS for Funds-Only Settlement \6\ and Cash Settlement \7\
purposes, respectively. GSD's Rule 13 and MBSD's Rule 11 address the
situation where the FRB makes an indemnity claim in connection with the
use of the NSS service by FICC. Pursuant to the GSD and MBSD rules, if
FICC receives an FRB indemnity claim, FICC will apportion the entire
liability to the GSD netting members or MBSD clearing members, as
applicable, for whom the settling bank was acting at the time.\8\ If
such amounts are not sufficient to fully satisfy the FRB indemnity
claim, each of the GSD and MBSD rules currently provide different
directives as to how FICC should handle the remaining loss. The GSD
rules state that FICC will treat the remaining loss as an ``Other
Loss,'' as defined in GSD Rule 4, and allocate accordingly.\9\ In
contrast, MBSD Rule 11, Section 5(o), states that FICC will allocate
the remaining loss among all MBSD clearing members in proportion to
their relative use of the MBSD services (based on fees).
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\6\ ``Fund-Only Settlement Amount'' is defined under Rule 1 of
GSD's Rulebook as the net dollar amount of a netting member's
obligation, calculated pursuant to GSD's Rule 13, either to make a
funds-only payment to GSD or to receive a funds-only payment from
GSD. See GSD Rule 13 for the rules related to funds-only settlement.
\7\ ``Cash Settlement'' is defined under Rule 1 of MBSD's
Clearing Rules as the payment each business day by MBSD to a member
or by a member to MBSD. See MBSD Rule 11 for the rules related to
cash settlement.
\8\ See GSD's Rule 13 Section 5(o) and MBSD Rule 11, Section
5(o).
\9\ Rule 4(f) of GSD's Rulebook.
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The purpose of the proposed rule change is to correct MBSD's Rule
11 in order to accurately reflect the correct manner in which FICC
should allocate an indemnity claim made in connection with the use of
the FRB's NSS. The MBSD provision in Rule 11 was drafted prior to the
MBSD becoming a central counterparty and adopting a loss mutualization
process similar to the GSD process. When FICC filed its rule change to
provide guaranteed settlement and central counterparty services,\10\
which among other things established the loss mutualization process,
the MBSD NSS indemnity provision requiring the current loss allocation
process was inadvertently overlooked and therefore not updated during
FICC's efforts to harmonize the GSD and MBSD rules. Accordingly, the
rule change proposes to correct this oversight by revising MBSD Rule
11, Section 5(o), to reflect that all remaining losses from a FRB
indemnity claim should be treated as an ``Other Loss'' as defined in
MBSD Rule 4 and allocated accordingly.
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\10\ Exchange Act Release No. 66550 (March 9, 2012), 77 FR 15155
(March 14, 2012) [File No. SR-FICC-2008-01] (order approving amended
proposed rule change to allow MBSD to provide guaranteed settlement
and central counterparty services).
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FICC believes the proposed rule change is consistent with Section
17A of the Act and the rules and regulations thereunder because it
would facilitate the prompt and accurate clearance and settlement of
securities transactions by correcting MBSD's rules to accurately
reflect the loss allocation procedures in
[[Page 25130]]
connection with NSS and to ensure that there is consistent treatments
of such losses between the MBSD and GSD rules.
(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-2013-03 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-2013-03. 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 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 Web site viewing and
printing in the Commission's Public Reference Section, 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 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/2013/ficc/SR_FICC_2013_03.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-2013-03 and should be submitted on
or before May 20, 2013.
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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-10026 Filed 4-26-13; 8:45 am]
BILLING CODE 8011-01-P