[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35400-35402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14442]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72396; File No. SR-FICC-2014-04]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Remove References to New York Portfolio Clearing, LLC in the Rules of
the Government Securities Division and in the Cross-Margining Agreement
With the Chicago Mercantile Exchange
June 16, 2014.
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 June 9, 2014, 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
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder \4\ so that the proposal was effective upon filing
with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to the Government
Securities Division (``GSD'') Rulebook (the ``GSD Rules'') to remove
references to New York Portfolio Clearing, LLC (``NYPC'') and the
cross-margining arrangement between NYPC and FICC (the ``NYPC
Arrangement'') from the GSD Rules, as the NYPC Arrangement is no longer
in effect.
II. Clearing Agency'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.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(i) The purpose of this filing is to remove references to NYPC and
the NYPC Arrangement from the GSD Rules, as the NYPC Arrangement is no
longer in effect.
Background
On February 28, 2011, the Commission approved FICC's proposed rule
change SR-FICC-2010-09 in order to allow FICC to offer cross-margining
of certain cash positions cleared at GSD with certain interest rate
futures positions cleared at NYPC and allow margin requirements with
respect to such eligible cash and futures positions to be calculated as
a single portfolio (the ``NYPC Order'').\5\
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\5\ See Securities Exchange Act Release No. 63986 (Feb. 28,
2011), 76 FR 12144 (Mar. 4, 2011) (SR-FICC-2010-09).
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NYPC is jointly owned by NYSE Euronext (``NYSE'') and The
Depository Trust & Clearing Corporation (``DTCC''), the parent company
of FICC. On November 13, 2013, Intercontinental Exchange Group
(``ICE'') completed its acquisition of NYSE.\6\ On November 29, 2013,
ICE and DTCC announced plans to transition the clearing of interest
rate futures contracts listed on NYSE Liffe U.S. to ICE Clear Europe
and to wind down NYPC's operations.\7\
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\6\ See IntercontinentalExchange. (2013).
``IntercontinentalExchange Completes Acquisition of NYSE Euronext''
[Press release]. Retrieved from http://www.nyse.com/press/1385726419589.html.
\7\ See NYSE. (2013). ``IntercontinentalExchange Group and DTCC
Announce Plans for Interest Rate Futures Listed on NYSE Liffe U.S.''
[Press release]. Retrieved from http://www.nyse.com/press/1385726419589.html.
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Now that the migration of open interest in NYSE Liffe U.S. interest
rate futures contracts from NYPC to ICE Clear Europe has been
completed, the cross-margining agreement between FICC and NYPC (the
``NYPC Agreement'') will be terminated and all references to NYPC and
the NYPC Arrangement will be removed from the GSD Rules to reflect this
change. In addition, FICC will no longer be providing the Commission
with the reports enumerated in Section IV.D of the NYPC Order in light
of the termination of the NYPC Arrangement.
Removal of References to NYPC and the NYPC Arrangement
FICC is proposing to amend the GSD Rules as follows:
In Rule 1--``Definitions'', the following definitions have been
revised or deleted:
The term ``Cross-Margining Agreement'' is revised to remove the
provision permitting an eligible GSD Member to elect to have its
Required Fund Deposit in respect of Eligible Positions at FICC and its
(or its Permitted Margin Affiliate's, if applicable) margin
requirements in respect of Eligible Positions at an FCO calculated as
if such positions were in a single portfolio, as such provision relates
only to the NYPC Arrangement.
The term ``FCO'' is revised to remove the reference to NYPC.
The term ``Margin Portfolio'' is revised to remove the reference to
NYPC Accounts.
The term ``Market Professional Agreement for Cross-Margining'' is
revised to replace the reference to NYPC with a reference to the
relevant FCO with whom FICC may, in the future, enter into a cross-
margining arrangement for Market Professional customers.
The term ``NYPC'' is removed.
The term ``NYPC Account'' is removed.
The term ``NYPC Market Professional Account'' is removed.
The term ``NYPC Member'' is removed.
[[Page 35401]]
The term ``NYPC Original Margin'' is removed.
The term ``NYPC Proprietary Account'' is removed.
The term ``NYPC-Submitted Trade'' is removed.
The term ``Permitted Margin Affiliate'' is revised to remove the
provision allowing an affiliate of a GSD Member that is a member of an
FCO, but not itself a GSD Member, to be considered a Permitted Margin
Affiliate for purposing of margining positions between FICC and the FCO
as if such positions were in a single portfolio, as such provision
relates only to the NYPC Arrangement.
The term ``VaR Charge'' is revised to remove language relating to
any positions in a GSD Member's NYPC Accounts being grouped into a
Margin Portfolio.
In Rule 3--``Ongoing Membership Requirements'', the reference to
NYPC acting as a designated Locked-In Trade Source is removed from
Section 11 and related conforming changes to the numbering of Section
11 are made.
In Rule 4--``Clearing Fund and Loss Allocation'', Sections 1a and
1b are revised to remove language related to designated NYPC Accounts
being considered part of a GSD Member's Margin Portfolio. Sections 2, 3
and 3b are revised to remove language related to NYPC Original Margin
in connection with provisions pertaining to the required form of a GSD
Member's Required Fund Deposit. The provision of Section 7(a)
pertaining to loss allocation if a Margin Portfolio of a Defaulting
Member contains NYPC Accounts is removed and related conforming changes
to the numbering of Section 7(a) are made.
In Rule 6C--``Locked-In Comparison'', Sections 2, 2a, 4 and 8 are
revised to remove references to NYPC acting as a designated Locked-In
Trade Source, as well as references to NYPC-Submitted Trades.
In Rule 13--``Funds-Only Settlement'', Section 5a pertaining to
Funds-Only Settlement Bank arrangements for GSD Members that are also
NYPC Members or that have Permitted Margin Affiliates that are NYPC
Members is removed.
In Rule 22--``Insolvency of a Member'', the reference in Section
2(d) to a Permitted Margin Affiliate defaulting on its obligations to
an FCO with which FICC has a Cross-Margining Agreement is removed, as
such provision of the Permitted Margin Affiliate definition relates
only to the NYPC Arrangement as described above. Similarly, the
reference in Section 2(e) to a Cross-Margining Affiliate defaulting on
its obligations to FICC is removed.
In Rule 22A--``Procedures for When the Corporation Ceases to Act'',
language in Section 2(b) is removed that relates to close-out
procedures for a GSD Member that has NYPC Accounts included within a
Margin Portfolio.
In Rule 43--``Cross-Margining Arrangements'', the first paragraph
of Section 1 is revised to remove the provision permitting an eligible
GSD Member to elect to have its Required Fund Deposit in respect of
Eligible Positions at FICC and its (or its Permitted Margin
Affiliate's, if applicable) margin requirements in respect of Eligible
Positions at an FCO calculated as if such positions were in a single
portfolio, as such provision relates only to the NYPC Arrangement. The
third paragraph of Section 1 is removed, as it relates to the right of
first offset between NYPC and FICC vis a vis Cross-Margining
Arrangements with other FCOs. In Section 2(b), the provision permitting
an affiliate of an eligible GSD Member to become a Permitted Margin
Affiliate for purposes of participating in a Cross-Margining
Arrangement is removed, as such language relates only to the NYPC
Arrangement. Similarly, in Section 4, the provision permitting, in
certain circumstances, an eligible GSD Member that is a Cross-Margining
Participant in a Cross-Margining Arrangement between FICC and one or
more FCOs to be treated as insolvent by FICC in the event that its
Permitted Margin Affiliate is deemed insolvent by an FCO is removed, as
such language relates only to the NYPC Arrangement.
In the ``Schedule of Timeframes'', references to computation of
NYPC margin and reports related to NYPC margin requirements are
removed.
In the ``Designated Locked-In Trade Sources'' schedule, NYPC is
removed as a designated Locked-In Trade Source.
In the ``Cross-Margining Agreements'' schedule, the NYPC Agreement
is removed.
Removal of the NYPC Agreement
FICC is proposing to remove the NYPC Agreement from the GSD Rules,
as the NYPC Agreement is no longer in effect.
Amendment of CME Agreement
Removal of the references to NYPC and the NYPC Arrangement from the
GSD Rules will necessitate certain amendments to the agreement between
the Chicago Mercantile Exchange (``CME'') and FICC (the ``CME
Agreement'') regarding the cross-margining arrangement currently
conducted between CME and FICC (the ``CME Arrangement''). Specifically,
the CME Agreement will be amended to delete references to the NYPC
Arrangement and the priority it held over the CME Arrangement when
determining residual FICC positions that are available for cross-
margining with the CME, as well as the right of first offset between
NYPC and FICC when calculating and presenting liquidation results under
the CME Agreement. The CME Agreement showing the proposed changes is
attached hereto as part of Exhibit 5.
(ii) The proposed rule is consistent with Section 17A(b)(3)(F) \8\
of the Securities and Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder because it will make certain
rule corrections that will support the prompt and accurate clearance
and settlement of securities transactions in that such rule corrections
will remove references in the GSD Rules to a cross-margining
arrangement that is no longer in effect.
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency'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 because it relates to the
removal of references in the GSD Rules to a cross-margining arrangement
that is no longer in effect.
(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 change have not yet
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 and paragraph (f) of Rule 19b-4 thereunder. 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
[[Page 35402]]
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-2014-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FICC-2014-04. 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 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 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. 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-2014-04 and should be
submitted on or before July 11, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14442 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P