[Federal Register Volume 79, Number 125 (Monday, June 30, 2014)]
[Notices]
[Pages 36856-36857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15203]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72457; File No. SR-FICC-2014-02]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposal To Extend the Pilot Program for Certain
Government Securities Division Rules Relating to the GCF Repo[supreg]
Service
June 24, 2014.
On May 5, 2014, the Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-FICC-2014-02 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 May 23, 2014.\3\ The Commission received no
comments on the proposed rule change. 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. 72184 (May 19, 2014), 79
FR 29828 (May 23, 2014) (SR-FICC-2014-02).
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I. Description of the Proposed Rule Change
FICC seeks the Commission's approval to extend the pilot program
that is currently in effect for the GCF Repo[supreg] service (``2013
Pilot Program'').\4\ FICC requests that the 2013 Pilot Program be
extended for one year following the Commission's approval of this
filing. FICC represents that, during this extension period, the final
phase of tri-party reform will be implemented.\5\
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\4\ See Securities Exchange Act Release No. 70068 (July 30,
2013), 78 FR 47453 (August 5, 2013) (SR-FICC-2013-06) (order
approving the 2013 Pilot Program).
\5\ The final phase of tri-party reform includes the development
of an interactive messaging system to facilitate the substitution of
collateral between settlement banks. FICC has represented that, if
it determines to change the parameters of the GCF Repo[supreg]
service during the one-year extension period, it will file a
proposed rule change with the Commission. FICC has further warranted
that, if it seeks to extend the 2013 Pilot Program beyond the one-
year extension period or proposes to make the program permanent, it
will also file a proposed rule change with the Commission.
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A. The GCF Repo[supreg] Service
The GCF Repo[supreg] service allows dealer members of FICC's
Government Services Division to trade general collateral finance repos
(``GCF Repos'') \6\ throughout the day without requiring intraday,
trade-for-trade settlement on a delivery-versus-payment (``DVP'') \7\
basis. The service allows dealers to trade GCF Repos, based on rate and
term, with inter-dealer broker netting members on a blind basis.
Standardized, generic CUSIP numbers have been established exclusively
for GCF Repo processing, and are used to specify the type of underlying
security that is eligible to serve as collateral for GCF Repos. Only
Fedwire eligible, book-entry securities may serve as collateral for GCF
Repos. Acceptable collateral for GCF Repos include most U.S. Treasury
securities, non-mortgage-backed federal agency securities, fixed and
adjustable rate mortgage-backed securities, Treasury Inflation-
Protected Securities (``TIPS'') and separate trading of registered
interest and principal securities (``STRIPS'').\8\
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\6\ A GCF Repo is one in which the lender of funds is willing to
accept any of a class of U.S. Treasuries, U.S. government agency
securities, and certain mortgage-backed securities as collateral for
the repurchase obligation. This is in contrast to a specific
collateral repo.
\7\ Delivery-versus-payment is a settlement procedure in which
the buyer's cash payment for the securities it has purchased is due
at the time the securities are delivered.
\8\ See Securities Exchange Act Release No. 58696 (September 30,
2008), 73 FR 58698, 58699 (October 7, 2008) (SR-FICC-2008-04).
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B. Background of the Pilot Program
Because FICC's GCF Repo[supreg] service operates as a tri-party
mechanism, FICC was asked to alter the service to align it with the
recommendations of the Tri-Party Repo Infrastructure Reform Task Force
(``TPR'').\9\ FICC consequently developed a pilot program (``2011 Pilot
Program'') to address the TPR's recommendations,\10\ and sought
Commission approval to institute that program.\11\ The Commission
approved the 2011 Pilot Program on August 29, 2011 for a period of one
year.\12\ When the expiration date for the 2011 Pilot Program
approached, FICC sought Commission approval to implement the 2012 Pilot
Program, which continued the 2011 Pilot Program in some aspects, and
modified it in others.\13\ On August 8, 2012, the Commission approved
the 2012 Pilot Program for a period of one year.\14\
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\9\ The TPR was an industry group formed and sponsored in 2009
by the Federal Reserve Bank of New York to address weaknesses that
emerged in the tri-party repo market during the financial crisis.
The TPR's chief goal was to develop recommendations to address the
risks presented by the reversal of tri-party repo transactions, and
to develop procedures to ensure that tri-party repos would be
collateralized throughout the day, rather than at the end of the
day.
\10\ The TPR issued preliminary and final reports setting forth
its recommendations for the reform of the tri-party repo market. See
Tri-Party Repo Infrastructure Reform Task Force Report of May 17,
2000, available at http://www.newyorkfed.org/prc/files/report_100517.pdf; see also Tri-Party Repo Infrastructure Reform Task Force
Final Report (February 15, 2012), available at http://www.newyorkfed.org/tripartyrepo/pdf/report_120215.pdf.
\11\ Securities Exchange Act Release No. 64955 (July 25, 2011),
76 FR 45638 (July 29, 2011) (SR-FICC-2011-05).
\12\ Securities Exchange Act Release No. 65213 (August 29,
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
\13\ The 2012 Pilot Program implemented several changes which,
although described in the rule filing that accompanied the 2011
Pilot Program, were not implemented during the 2011 Pilot Program's
period of effectiveness. They include: (i) Moving the time for
unwinding repos from 7:30 a.m. to 3:30 p.m.; (ii) moving the net-
free-equity process from morning to the evening; and (iii)
establishing rules for intraday GCF Repo collateral substitutions.
See Securities Exchange Act Release No. 67227 (June 20, 2012), 77 FR
38108, 38111-12 (June 26, 2012) (SR-FICC-2012-05).
\14\ Securities Exchange Release No. 67621 (August 8, 2012), 77
FR 48572 (August 14, 2012) (SR-FICC-2012-05).
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C. The 2013 Pilot Program
The 2013 Pilot Program and its predecessor, the 2012 Pilot Program,
have been the subject of a number of notices and approval orders
published by the Commission.\15\ These notices and orders provide
extensive detail on both the GCF Repo[supreg] service and the pilot
program itself. Under this proposed rule change, FICC is not proposing
to alter the current pilot program in any way; rather, it proposes only
to extend that program, as approved in 2012 and in 2013, for one
additional year.\16\
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\15\ See Securities Exchange Act Release Nos. 67227 (June 20,
2012), 77 FR 38108, 38109-12 (June 26, 2012) (SR-FICC-2012-05);
67621 (August 8, 2012), 77 FR 48572, 48572-76 (August 14, 2012) (SR-
FICC-2012-05); 69774 (June 17, 2013), 78 FR 37631, 37632-35 (June
21, 2013) (SR-FICC-2013-06); and 70068 (July 30, 2013), 78 FR 47453,
47453-54 (August 5, 2013) (SR-FICC-2013-06).
\16\ FICC would be required to file a proposed rule change with
the Commission pursuant to Section 19(b) of the Act if were to do
any of the following: (i) Change the parameters of the GCF
Repo[supreg] service during the one-year extension period, (ii)
extend the Pilot Program beyond the one-year period extension
period, or (iii) establish the 2013 Pilot Program as a permanent
program.
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II. Discussion
Section 19(b)(2)(C) of the Act \17\ directs the Commission to
approve a proposed rule change of a self-
[[Page 36857]]
regulatory organization if it 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 \18\ requires, among other things, that the
rules of a clearing agency be designed to achieve several goals,
including (i) promoting the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions, (ii) assuring the
safeguarding of securities and funds that are in the custody or control
of the clearing agency or for which it is responsible, and (iii)
protecting investors and the public interest.
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\17\ 15 U.S.C. 78s(b)(2)(C).
\18\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission concludes that extending the 2013 Pilot Program for
one additional year is consistent with the requirements of the Act and
the rules and regulations thereunder. The 2013 Pilot Program furthers
the Act's goals because it helps attenuate the substantial risks
confronting the tri-party repo market, particularly those risks
associated with the provision of intraday credit to market
participants.\19\ The Commission believes that extending the 2013 Pilot
Program will ensure that these risks remain subject to more stringent
controls and that this, in turn, will help promote the prompt and
accurate clearance and settlement of securities transactions. The
Commission further believes that, by requiring tri-party repos to
remain collateralized for a longer period each day, the 2013 Pilot
Program helps to assure the safety of the securities and funds within
FICC's control, or for which it is responsible.\20\
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\19\ The TPR characterized the ``practical elimination'' of this
intraday credit as its ``first and most significant . . .
recommendation.'' Tri-Party Repo Infrastructure Reform Task Force
Final Report, 4 (February 15, 2012), available at http://www.newyorkfed.org/tripartyrepo/pdf/report_120215.pdf.
\20\ See 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
particularly those set forth in Section 17A,\21\ and the rules and
regulations thereunder.
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\21\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-FICC-2014-02) be, and hereby
is, approved.\23\
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\22\ 15 U.S.C. 78s(b)(2).
\23\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15203 Filed 6-27-14; 8:45 am]
BILLING CODE 8011-01-P