[Federal Register Volume 79, Number 237 (Wednesday, December 10, 2014)]
[Notices]
[Pages 73364-73365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73735; File No. SR-FICC-2014-07]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Amend the Clearing Rules of the
Mortgage-Backed Securities Division To Establish a Membership Category
and Minimum Financial Requirements for Insured Credit Unions
December 4, 2014.
I. Introduction
On October 15, 2014, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-FICC-2014-07 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 October 24, 2014.\3\ The
Commission received no comment letters in response to 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. 73391 (October 20,
2014), 79 FR 63657 (October 24, 2014) (SR-FICC-2014-07).
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II. Description
Pursuant to this filing, FICC proposed to amend the clearing rules
of the Mortgage-Backed Securities Division (``MBSD'') of FICC in order
to establish a membership category and minimum financial requirements
for ``insured credit unions,'' as such term is defined in the Federal
Credit Union Act (``FCUA'').\4\ Specifically, FICC proposed to revise
MBSD Rule 2A, Section 1, to create a membership category for insured
credit unions that are in good standing with their primary regulators
(``Insured Credit Union Clearing Member''). For loss allocation
purposes, Insured Credit Union Clearing Members would be designated as
``Tier One Clearing Members'' in accordance with MBSD Rule 4, Section
7. In addition, FICC has proposed to add a provision to MBSD Rule 2A,
Section 2, which would require an applicant applying to become an
Insured Credit Union Clearing Member to have a level of equity capital
as of the end of the month prior to the effective date of their
membership of at least $100 million and achieve the ``well
capitalized'' statutory net worth category classification defined by
the National Credit Union Administration (``NCUA'') under 12 CFR part
702.
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\4\ The FCUA defines ``Insured credit unions'' as ``any credit
union the member accounts of which are insured in accordance with
the provisions of Title II of [FCUA] . . .'' According to FICC, the
term ``insured credit union'' includes all credit unions chartered
by the National Credit Union Administration (``NCUA''), the
independent federal agency that regulates charters and supervises
federal credit unions, because Title II of the FCUA requires all
credit unions that are chartered by the NCUA to have insured
accounts. Furthermore, FICC has stated that the term ``insured
credit unions'' also includes both federally-insured state credit
unions and federally-insured credit unions operating under the
jurisdiction of the Department of Defense because Title II of the
FCUA permits the NCUA Board to insure those types of credit unions.
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Insured credit unions applying for membership under this new
category would be required to meet all other applicable financial,
credit, and operational membership qualifications and standards for
clearing members that are contained in MBSD Rule 2A, Section 2. In
particular, such applicants would have to demonstrate an established
profitable business history of a minimum of 6 months or personnel with
sufficient operational background and business experience for the firm
to conduct its business and to be a member (as is required of all other
membership categories). Insured credit unions seeking membership would
have to demonstrate an ability to communicate with FICC, fulfill
anticipated commitments to and meet the operational requirements of
FICC with necessary promptness and accuracy, and conform to any
condition and requirement that FICC reasonably deems necessary for its
protection or that of its Members.
FICC believes the participation of insured credit unions as
guaranteed service members will contribute to the safety, efficiency,
and transparency of the market by allowing FICC to capture a greater
part of the activity of its existing members and by introducing
activity of current non-members to FICC. FICC also believes that
insured credit unions will benefit from the MBSD clearing service and
the associated operational efficiencies of a central counterparty
service.
III. Discussion
Section 19(b)(2)(C) of the Act \5\ 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 \6\
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions.
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\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds that, as proposed, FICC's rule change to
establish a membership category and minimum financial, credit, and
operational requirements and standards for insured credit unions, as
defined in FICC's proposal, is consistent with Section 17A(b)(3)(F) of
the Act.\7\ The Commissions believes that the proposed rule change
should promote the prompt and accurate clearance and settlement of
securities transactions, because by allowing insured credit unions to
participate as MBSD members, these firms will be able to avail
themselves of the benefits of central counterparty service including,
among other things, trade comparison, to-be-announced netting,
electronic pool notification allocation, pool comparison, pool netting,
settlement, and risk management for eligible securities. Furthermore,
the rule change will also allow existing FICC members to submit
eligible trading activity with qualified insured credit unions directly
to the MBSD of FICC, thereby also extending
[[Page 73365]]
the benefits of the central counterparty services to such trading
activity.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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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,\8\ and the rules and
regulations thereunder.
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\8\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-FICC-2014-07) be and
hereby is approved.\10\
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\9\ 15 U.S.C. 78s(b)(2).
\10\ 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.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28873 Filed 12-9-14; 8:45 am]
BILLING CODE 8011-01-P