[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Notices]
[Pages 77511-77512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30442]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71091; File No. SR-FICC-2013-09]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Make the U.S. Department of the
Treasury's Floating Rate Notes Eligible for Netting Service and GCF
Repo[supreg] at FICC's Government Securities Division
December 17, 2013.
I. Introduction
On October 28, 2013, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-FICC-2013-09 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 November 14, 2013.\3\ The
Commission received no comment letters. For the reasons discussed
below, the Commission is approving 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. 70831 (Nov. 7, 2013), 78
FR 68496 (Nov. 14, 2013) (SR-FICC-2013-09).
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II. Description
The purpose of this proposed rule change is to make the U.S.
Department of the Treasury (``Treasury Department'') floating rate
notes eligible for the netting service and GCF Repo[supreg] service at
the GSD. Last year, the Treasury Department announced its plan to issue
Treasury notes with a floating rate coupon (``Floating Rate Notes'').
The Floating Rate Notes will be the first new product issued by the
U.S. Treasury since the Treasury Inflation-Protected Securities
(``TIPS'') were introduced in 1997. The Treasury Department anticipates
that the first auction of Floating Rate Notes will occur in January
2014.\4\ FICC's Government Securities Division (``GSD'') is planning to
make Floating Rate Notes eligible for its netting service starting with
the January 2014 auction of the two-year Floating Rate Notes (other
maturities will be issued later).
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\4\ See Press Release, U.S. Department of the Treasury August
2013 Quarterly Refunding Statement of Assistant Secretary Rutherford
(Jul. 31, 2013), available at www.treasury.gov.
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With respect to the GCF Repo[supreg] service, Floating Rate Notes
will be included in GSD's existing Treasury Generic CUSIP Numbers.\5\
However, because of their adjustable coupon, Floating Rate Notes will
not be eligible for collateral allocation obligations or substitutions
with respect to the GCF Repo[supreg] Generic CUSIPs representing TIPS,
separate trading of registered interest and principal securities
(``STRIPS''), or fixed-rate mortgage-backed securities issued by
Federal National Mortgage Association (``Fannie Mae''), Federal Home
Loan Mortgage Corporation (``Freddie Mac'') and Government National
Mortgage Association (``Ginnie Mae''). As a result, GSD Rule 20,
Section 3, has been revised to reflect this change.
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\5\ Pursuant to Rule 1 of the GSD Rulebook, (``Definitions''),
the term ``Generic CUSIP Number'' means a Committee on Uniform
Securities Identification Procedures identifying number established
for a category of securities, as opposed to a specific security.
Rule 1 also requires GSD to use separate Generic CUSIP Numbers for
General Collateral Repo Transactions and GCF Repo Transactions.
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In order for GSD to process Floating Rate Notes, various
enhancements to FICC's systems and member output have been made in the
following areas:
Creation and maintenance of a historical database of
reference indices. This data is necessary for determining coupon, which
is used in valuing positions for settlement purposes and
[[Page 77512]]
for forward margin and clearing fund calculations.
Modification of the security database in order for it to
work in conjunction with the floating rate, reset date, reset rate
basis, and spread.
Modifications to member output formats for both messaging
and end of day machine readable output in order to accommodate the
additional fields.
GSD will test FICC's enhanced systems with its membership before
the launch of the Floating Rate Notes. This will ensure that members
can properly submit and receive transaction data in connection with the
Floating Rate Notes. GSD has issued several Important Notices to
members about GSD's proposed processing of the Floating Rate Notes and
will continue to do so prior to making Floating Rate Notes eligible for
processing.\6\
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\6\ GSD issued Important Notice GOV012.13 on February 23, 2013
and Important Notice GOV056.13 on August 19, 2013. Both Important
Notices provide members with data output guidelines and trade
messaging changes. The notices are available at www.dtcc.com.
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III. Discussion
Section 19(b)(2)(C) of the Act \7\ directs the Commission to
approve a self-regulatory organization's proposed rule change if the
Commission finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(3)(F) of the Act \8\
requires, among other things, that the rules of a clearing agency
registered with the Commission be designed to promote the prompt and
accurate clearance and settlement of securities transactions and
protect investors and the public interest.
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\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds that the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act \9\ because it allows FICC to
provide clearance and settlement services for Floating Rate Notes, as
newly issued government securities, which should in turn reduce the
risks associated with the trading, clearing, and settling of such
securities by FICC members. In so doing, FICC should facilitate the
prompt and accurate clearance and settlement of securities transactions
in Floating Rate Notes. Moreover, FICC's rule change should help
protect investors and the public interest by allowing the market to
benefit from the risk reducing measures provided by clearing and
settling Floating Rate Notes at FICC.
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\9\ Id.
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IV. Conclusion
On the basis of the foregoing, the Commission concludes that the
proposal is consistent with the requirements of the Act, particularly
the requirements of Section 17A of the Act,\10\ and the rules and
regulations thereunder.
\10\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (File No. SR-FICC-2013-09) be
and hereby is approved.\12\
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\11\ 15 U.S.C. 78s(b)(2).
\12\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30442 Filed 12-20-13; 8:45 am]
BILLING CODE 8011-01-P