[Federal Register Volume 82, Number 81 (Friday, April 28, 2017)]
[Notices]
[Pages 19771-19775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08578]
[[Page 19771]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80517; File No. SR-FICC-2017-010]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend the Mortgage-Backed
Securities Division Rules Concerning Use of Clearing Fund for Losses,
Liabilities or Temporary Needs for Funds Incident to the Clearance and
Settlement Business and Make Other Related Changes
April 24, 2017.
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 11, 2017, 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. 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. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to the Mortgage-
Backed Securities Division (``MBSD'') Clearing Rules (``MBSD Rules'')
\3\ of FICC. Specifically, FICC proposes to amend Section 5 of MBSD
Rule 4 to (i) delete language that would potentially limit FICC's
access to MBSD Clearing Fund cash and collateral to address losses,
liabilities, or temporary needs for funds incident to its clearance and
settlement business and (ii) make additional changes to correct grammar
errors, delete superfluous words and otherwise align the text of
Section 5 of MBSD Rule 4 to the text of Section 5 of Rule 4 of FICC's
Government Securities Division (``GSD'') Rulebook (``GSD Rules'').\4\
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\3\ Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the MBSD Rules,
available at www.dtcc.com/legal/rules-and-procedures.aspx.
\4\ See Rule 4 in the GSD Rules, available at www.dtcc.com/legal/rules-and-procedures.aspx. Capitalized terms used herein
specifically with respect to GSD and not otherwise defined shall
have the meaning assigned to such terms in the GSD Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency 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. The clearing agency 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
1. Purpose
The proposed rule change would (i) delete language that would
potentially limit FICC's access to MBSD Clearing Fund cash and
collateral to address losses, liabilities or temporary needs for funds
incident to its clearance and settlement business and (ii) make
additional changes to correct grammar errors, delete superfluous words,
and otherwise align the text of Section 5 of MBSD Rule 4 to the text of
Section 5 of GSD Rule 4.
Section 5 of MBSD Rule 4 (the ``Rule'' or the ``MBSD Rule'' as used
herein) describes the purposes for which FICC may use MBSD Clearing
Fund deposits. The Rule is based on the parallel Section 5 of GSD Rule
4. The Rule describes the use of Clearing Fund deposits both to satisfy
``losses or liabilities of the Corporation'' and as collateral.\5\ The
first category is further divided between losses or liabilities
``arising from the failure of a Defaulting Member'' \6\ and those
``otherwise incident to the clearance and settlement business of the
Corporation with respect to losses or liabilities to meet unexpected or
unusual requirements for funds that represent a small percentage of the
Clearing Fund.'' \7\ The second category refers to Clearing Fund
deposits serving as collateral (i) to meet FICC's temporary financing
needs, (ii) to ensure Members' satisfaction of settlement obligations,
and (iii) ``to meet unexpected or unusual requirements for funds that
represent a small percentage of the Clearing Fund.'' \8\
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\5\ MBSD Rule 4, Section 5.
\6\ This category of losses or liabilities also includes those
relating to failures relating to Cross-Guaranty Agreements,
discussion of which is omitted herein for simplicity. Id.
\7\ Id. (Emphasis added.)
\8\ Id. (Emphasis added.)
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Section 5 of GSD Rule 4 reflects the same two-part construction but
does not contain the limiting language relating to ``unexpected or
unusual requirements for funds.'' \9\ This limiting language was
approved and became effective in 2012 when FICC introduced central
counterparty and guaranteed settlement services for MBSD, at which time
the entirety of the MBSD Rules were updated and replaced.\10\ Neither
FICC's proposal nor the Commission's approval order describes the
purpose of the limiting language.\11\
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\9\ GSD Rule 4, Section 5.
\10\ See Securities Exchange Act Release No. 66550 (March 9,
2012), 77 FR 15155 (March 14, 2012) (SR-FICC-2008-01) (the ``FICC
CCP Approval Order'') at 15155.
\11\ See Securities Exchange Act Release No. 65899 (Dec. 6,
2011), 76 FR 77287 (Dec. 12, 2011) (SR-FICC-2008-01) (proposed rule
change) and FICC CCP Approval Order, id.
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The language appears to have been drawn from the Commission's
publication in 1980 of standards for the Commission's Division of
Market Regulation (the ``Division'') to employ in connection with the
registration of clearing agencies.\12\ In the 1980 Standards Release,
the Division stated, in relevant part, that a clearing agency ``should
have a clearing fund which . . . is limited in the purposes for which
it may be used.'' \13\ The Division further stated that ``the rules of
the clearing agency should limit the purposes for which the clearing
fund may be used to protecting participants and the clearing agency (i)
from the defaults of participants and (ii) from clearing agency losses
(not including day-to-day operating expenses) such as losses of
securities not covered by insurance or other resources of the clearing
agency.'' \14\ The Division observed that some commenters opposed the
limitation contained in clause (ii) on grounds that it could limit a
clearing agency's access to its clearing fund in the event of a
temporary need to cover an operating funds shortfall while a fee
increase was being implemented or a temporary need to cover a delay in
payment by a participant due to circumstances beyond the participant's
control.\15\ The Division noted that the commenter expressed concern
that the clearing agency not be forced into insolvency in such
circumstances.\16\ The Division stated that it ``appreciate[ed] a
clearing agency's possible need for temporary applications of a
clearing fund in limited amounts to meet unexpected or
[[Page 19772]]
unusual requirements for funds,'' but noted that ``regular or
substantial use of a clearing fund for such purposes, however, would be
inappropriate.'' \17\
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\12\ See Securities Exchange Act Release No. 16900 (June 17,
1980), 45 FR 41920 (June 23, 1980) (the ``1980 Standards Release'').
\13\ Id. at 41929.
\14\ Id. (Emphasis added.)
\15\ See id.
\16\ See id.
\17\ Id.
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At the time that the Commission published the 1980 Standards
Release, clearing agencies operated in a very different manner from how
FICC operates today. Clearing agencies were not, for example, subject
to requirements with respect to maintaining any particular amount of
operating capital.\18\ Against this background, it is understandable
that the Division could have deemed the temporary access by a clearing
agency to a limited amount of its clearing fund to cover operating
expense shortfalls to be acceptable.
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\18\ The 1980 Standards Release does not include specific
financial requirements for clearing agencies. The Division stated
that clearing agencies should provide financial statements to their
participants on a periodic basis and that clearing agencies should
plan for contingencies including (in relevant part) loss of funds,
with respect to which the Division advised that clearing agencies
should maintain adequate insurance. See id. at 41926-27 and 41929.
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FICC is now subject to substantially enhanced requirements. On
September 28, 2016, the Commission adopted amendments to Rule 17Ad-22
under the Act, including the addition of new section 17Ad-22(e), which
specifies enhanced standards for covered clearing agencies.\19\ The new
and enhanced standards specified in Rule 17Ad-22(e) require, among
other things, that FICC ``establish, implement, maintain and enforce
written policies and procedures reasonably designed to . . . maintain a
sound risk management framework for comprehensively managing legal,
credit, liquidity, operational, general business, investment, custody,
and other risks that arise in or are borne by'' FICC, including ``plans
for the recovery . . . of [FICC] necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses.'' \20\ Rule 17Ad-22(e) also requires FICC to maintain policies
and procedures reasonably designed to ``[i]dentify, monitor, and manage
[its] general business risk and hold sufficient liquid net assets
funded by equity to cover potential general business losses so that
[it] can continue operations and services as a going concern if those
losses materialize.'' \21\ The above requirement includes the
requirement that FICC maintain ``a viable plan . . . for raising
additional equity should its equity fall below the amount required [to
satisfy its operating capital requirement].'' \22\
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\19\ See Securities Exchange Act Release No. 78961 (September
28, 2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (the ``Covered
Clearing Agency Standards Release''). FICC is a ``covered clearing
agency'' as defined in Rule 17Ad-22(a)(5) and must comply with the
new section (e) of Rule 17Ad-22 by April 11, 2017.
\20\ 17 CFR 240.17Ad-22(e)(3).
\21\ 17 CFR 240.17Ad-22(e)(15). The capital requirement set
forth in Rule 17Ad-22(e)(15) is equal to, at a minimum, six months
of FICC's current operating expenses. 17 CFR 240.17Ad-22(e)(15)(ii).
\22\ 17 CFR 240.17Ad-22(e)(15)(iii).
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FICC proposes to delete the language in Section 5 of MBSD Rule 4
that limits certain uses by FICC of the MBSD Clearing Fund to
``unexpected or unusual'' requirements for funds that represent a
``small percentage'' of the MBSD Clearing Fund because (i) the first
instance of the limiting language could impair FICC's access to the
MBSD Clearing Fund as one tool (among many) that FICC could employ in
order to manage non-default risks, so that it can withstand or recover
from such risks and continue operations and services as a going concern
while implementing its viable plan for raising additional capital, and
(ii) the effect of the second instance of the limiting language is
confusing and unclear.
Although, as noted above, FICC's original objective in including
the limiting language when it revised the MBSD Rules is not clear, the
comments described in the 1980 Standards Release suggests two examples
for which such language could have been intended: (i) Limiting FICC's
use of the MBSD Clearing Fund should an MBSD member experience an
operational problem that caused a temporary delay in payment and (ii)
limiting FICC's use of the MBSD Clearing Fund should FICC suffer an
operating funds shortfall to the point that FICC's viability as a going
concern became temporarily impaired.\23\
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\23\ See 1980 Standards Release, supra note 12, at 41929.
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The first example, however, is inconsistent with FICC's broad and
unlimited access to the MBSD Clearing Fund to satisfy ``losses or
liabilities . . . arising from the failure of a Defaulting Member . .
.'' and to use Clearing Fund deposits as collateral ``to meet its
temporary financing needs'' with respect to securities settlement.\24\
Additionally, FICC believes that both examples would represent a
misreading of the objective of this discussion in the 1980 Standards
Release, in which the Division stated that a clearing agency's rules
should provide that it may access its clearing fund to cover clearing
agency losses, in addition to losses caused by a participant default,
in an unrestricted manner ``but not including day-to-day operating
expenses.'' \25\ In other words, it appears that the Division believed,
at the time when the 1980 Standards Release was published, that a
clearing agency should be permitted to access its clearing fund on a
temporary basis to cover even short-term day-to-day operating losses if
such use was necessary to avoid ``going out of business'' and such use
was neither ``regular'' nor ``substantial.'' \26\ FICC notes that it
would be extraordinarily unlikely for it to access the MBSD Clearing
Fund for such a purpose at the present time, because, as noted above,
FICC is now subject to a requirement that it hold, at a minimum,
capital equal to six months of operating expenses.\27\ To summarize,
the limiting language as currently included in the Rule would not be
effective to limit FICC's use of the MBSD Clearing Fund to address a
temporary operational issue that caused a delay in payment by a
participant, nor does FICC believe such limitation would have been
intended. While the language would be effective to limit to small
amounts FICC's access to MBSD Clearing Fund deposits to cover temporary
shortfalls in funds needed to meet day-to-day operating expenses, the
utility of such a restriction has been eliminated by the new capital
requirements to which FICC is subject.
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\24\ MBSD Rule 4, Section 5.
\25\ See 1980 Standards Release, supra note 12, at 41929.
\26\ Id.
\27\ On April 6, 2017, FICC submitted a proposed rule change to
adopt a Clearing Agency Policy on Capital Requirements and a
Clearing Agency Capital Replenishment Plan in connection with its
compliance with Rule 17Ad-22(e)(15). See SR-FICC-2017-007 (the
``FICC Capital Plan PRC''), which was filed with the Commission but
has not yet been published in the Federal Register. A copy of the
proposed rule change is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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FICC is concerned, however, that the limiting language could be
interpreted to prevent FICC from accessing MBSD Clearing Fund deposits
as a tool to address an unexpected short-term need for funds that would
allow FICC to continue operations and services as a going concern while
it implements other tools available to it, because such use may be
deemed to be either ``satisfaction of losses or liabilities of FICC,''
even if the use of deposits is temporary, or the use of deposits as
collateral is to meet ``temporary financing needs'' (see discussion
below), both of which are impacted by the limiting language in the
Rule. There are many tools that are available to FICC to address such a
need for funds, which tools are described in the FICC Capital Plan PRC.
The tools directly available to FICC include increasing fees or
decreasing expenses, and FICC's parent company, The
[[Page 19773]]
Depository Trust & Clearing Corporation (``DTCC''),\28\ may also
implement tools available to it to raise capital that may be
contributed to FICC.\29\ While the FICC Capital Plan PRC does not
contemplate recourse to either the GSD Clearing Fund or the MBSD
Clearing Fund as a formal tool for capital replenishment, FICC believes
that it would be imprudent to limit FICC's ability to employ this tool,
particularly on a temporary basis, and it is clear that this was not
the Division's objective when it discussed the underlying concerns in
the 1980 Standards Release. Finally, FICC notes that FICC's access to
GSD Clearing Fund deposits is not so limited. While FICC believes that
its use of either the MBSD Clearing Fund or the GSD Clearing Fund for
such purposes would be extraordinarily unlikely, the distinction
between the two rules creates an appearance of inequity between MBSD
Members and GSD Netting Members.
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\28\ DTCC operates on a shared services model with respect to
FICC and its other subsidiaries. Most corporate functions are
established and managed on an enterprise-wide basis pursuant to
intercompany agreements.
\29\ See FICC Capital Plan PRC, supra note 27, at 8.
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FICC also proposes to delete the second instance of the limiting
language and otherwise amend the ``collateral'' portion of Section 5 of
MBSD Rule 4, for the reasons described above, to the extent that the
second instance of the limiting language that appears in the Rule would
limit FICC's ability to pledge MBSD Clearing Fund deposits that are in
the form of securities in order to meet temporary financing needs for
purposes otherwise permitted by the Rule as FICC proposes to amend it.
Section 5 of MBSD Rule 4 states that the MBSD Clearing Fund also may be
used to provide FICC
a source of collateral both [sic] to meet its temporary financing
needs (through an appropriate financing method determined by the
Corporation in its sole discretion) for any financing that is
obtained by the Corporation to hold securities pending settlement,
to ensure the satisfaction of Members' settlement obligations and to
meet unexpected or unusual requirements for funds that represent a
small percentage of the Clearing Fund.\30\
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\30\ MBSD Rule 4, Section 5.
This section of the Rule identifies that the MBSD Clearing Fund is a
source of collateral for FICC to meet ``temporary financing needs''
(i.e., where FICC may pledge the assets as collateral to a lender to
FICC) and to ensure that Members perform to FICC (i.e., where Members
have pledged collateral to FICC as surety against their own default).
This understanding of the construction of the Rule is clear from
comparison to Section 5 of GSD Rule 4, which also uses the word
``both,'' but where only the temporary financing example and the member
surety example follow.\31\ It is reasonable to believe that the second
instance of the limiting language in the MBSD Rule was simply intended
to make clear that, to the extent FICC was permitted to use the MBSD
Clearing Fund to address a particular loss or liability ``otherwise
incident to the clearance and settlement business,'' FICC was also
permitted to use MBSD Clearing Fund deposits as collateral to address
``temporary financing needs'' for the same purpose. If so, the same
rationale for deleting the limiting language that is described above
would apply.
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\31\ GSD Rule 4, Section 5.
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Finally, with respect to both instances of the limiting language in
the Rule, FICC is concerned that scenarios that previously may have
been fairly described as generating ``unexpected or unusual
requirements for funds'' may no longer be fairly described as
``unexpected'' or ``unusual'' given the expectations described in the
Covered Clearing Agency Standards Release that covered clearing
agencies contemplate and plan for such scenarios.\32\
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\32\ See Covered Clearing Agency Standards Release, supra note
19, at 70810 and 70836.
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Consequently, FICC proposes to delete the limiting language in both
places where it appears in MBSD Rule 4, Section 5, because the original
purpose of the language is unclear, and potential applications of the
limiting language may not have been intended or would not be, as a
prudential matter, appropriate today. FICC also believes that, because
of the uncertain intent of the language and the inherent ambiguity of
terms such as ``unexpected or unusual,'' FICC's use of MBSD Clearing
Fund deposits to address needs that are ``otherwise incident to [its]
clearance and settlement business'' could be subject to legal
challenges. FICC believes that the limiting language could impair
FICC's compliance with Rule 17Ad-22(e)(3)(ii), pursuant to which FICC
is preparing a recovery plan that provides for FICC's management of a
broad range of risks such that it can continue to provide critical
clearance and settlement operations and services even if such risks
materialize.\33\ FICC also believes that, because of its unclear
purpose and the ambiguity of its terms, the limiting language could
also impair FICC's compliance with Rule 17Ad-22(e)(1), pursuant to
which FICC is required to ``establish, implement, maintain and enforce
written policies and procedures reasonably designed to . . . [p]rovide
for a well-founded, clear, transparent and enforceable legal basis for
each of its activities in all relevant jurisdictions.'' \34\
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\33\ The Commission issued a temporary exemption from compliance
with the recovery and wind-down plan requirements of Rule 17Ad-
22(e)(3) and (e)(15) until December 31, 2017. Securities Exchange
Act Release No. 80378 (April 5, 2017) (File No. S7-03-14).
\34\ 17 CFR 240.17Ad-22(e)(1).
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FICC also proposes to amend Section 5 of MBSD Rule 4 to make
additional changes that would align the Rule to Section 5 of GSD Rule 4
(where applicable), remove superfluous words and correct grammar errors
and sentence construction ambiguities in the paragraph of the Rule that
FICC proposes to amend in order to delete the limiting language
discussed above. The first instance of the limiting language modifies
the phrase ``otherwise incident to the clearance and settlement
business'' with the phrase ``with respect to losses and liabilities to
meet unexpected or unusual requirements for funds . . . .'' FICC
proposes that, upon deleting this phrase, ``otherwise incident to the
clearance and settlement business of the Corporation'' would be
followed immediately by ``including losses and liabilities arising
other than from such failure of such Member,'' which would align the
amended MBSD Rule to Section 5 of GSD Rule 4 but would not otherwise
change the extent of FICC's authority if the limiting language was
deleted. FICC also proposes to replace the word ``provide'' with the
word ``providing'' because ``providing'' would be grammatically correct
where the sentence construction is that the use of MBSD Clearing Fund
deposits ``shall be limited to . . . satisfaction of losses or
liabilities . . . and to [providing] the Corporation with a source of
collateral.'' Next, FICC proposes to add to the clause referring to
temporary financing needs the modifier ``including, without
limitation,'' and delete the parenthetical modifier ``(through an
appropriate financing method determined by the Corporation in its sole
discretion) for'' that currently precedes the reference to ``financing
that is obtained by the Corporation to hold securities pending
settlement.'' This change would delete a superfluous parenthetical
clause and align the amended MBSD Rule to Section 5 of GSD Rule 4.
Finally, FICC proposes to delete a comma and add the word ``and''
before the phrase ``to ensure the satisfaction of Members' settlement
obligations,'' because these changes would be grammatically
[[Page 19774]]
necessary upon deletion of the second instance of the limiting
language. FICC also believes it is reasonable and appropriate to align
the language of Section 5 of MBSD Rule 4 to Section 5 of GSD Rule 4,
because it would avoid any question whether Section 5 of MBSD Rule 4
should be interpreted differently from Section 5 of GSD Rule 4. FICC
does not believe that these sections should be interpreted differently,
except as necessary with respect to differences that are specific to
the services and defined terminology of each division.
2. Statutory Basis
FICC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to FICC. In particular, FICC believes that the proposed
rule change is consistent with Section 17A(b)(3)(F) \35\ of the Act and
Rule 17Ad-22(e) under the Act,\36\ for the reasons described below.
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\35\ 15 U.S.C. 78q-1(b)(3)(F).
\36\ 17 CFR 240.17Ad-22(e).
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\37\ The proposed
rule change would enhance FICC's prompt and accurate clearance and
settlement of securities transactions because it would enhance FICC's
ability to ensure that it can continue its operations and services as a
going concern in the unlikely event that it would be necessary or
appropriate for FICC to access MBSD Clearing Fund deposits to address
losses, liabilities or temporary financing needs incident to its
clearance and settlement business. Additionally, the more technical
aspects of the proposed rule change would promote the prompt and
accurate clearance and settlement of securities transactions by
removing potentially ambiguous language, correcting grammar errors, and
deleting superfluous text in Section 5 of MBSD Rule 4, which changes
would enhance the clarity of the Rule. The proposed rule change would
also promote the prompt and accurate clearance and settlement of
securities transactions by aligning Section 5 of MBSD Rule 4 to Section
5 of GSD Rule 4, which would reduce the risk of legal challenges to
FICC's use of MBSD Clearing Fund deposits based upon the argument that
differences between the two rules indicate that Section 5 of MBSD Rule
4 should be interpreted differently from Section 5 of GSD Rule 4.
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\37\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC also believes that the proposed rule change is consistent Rule
17Ad-22(e)(1) and (3). Rule 17Ad-22(e)(1) requires FICC to ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to . . . [p]rovide for a well-founded, clear,
transparent and enforceable legal basis for each of its activities in
all relevant jurisdictions.'' \38\ As described above, FICC believes
that the proposed rule change to eliminate the limiting language
described above would reduce the risk of legal challenges to FICC's
ability to access MBSD Clearing Fund deposits under scenarios in which
FICC believes that such limitation was not intended or in which such
limitation would not be appropriate, as a prudential matter, in light
of the enhanced standards to which FICC is now subject. The more
technical aspects of the proposed rule change would also reduce the
risk of legal challenges to FICC's actions that could be based upon
grammar errors or differences between Section 5 of MBSD Rule 4 and
Section 5 of GSD Rule 4. Rule 17Ad-22(e)(3) requires FICC to
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . maintain a sound risk
management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by'' FICC, including ``plans for
the recovery . . . of [FICC] necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.''
\39\ The proposed rule change would enhance FICC's compliance with Rule
17Ad-22(e)(3) by enhancing and clarifying FICC's ability to access MBSD
Clearing Fund deposits as one tool that it may employ in order to
address losses, liabilities or temporary needs for funds incident to
its clearance and settlement business. In particular, FICC believes
that enhancing and clarifying FICC's ability to access MBSD Clearing
Fund deposits in this manner and making the related more technical
changes to Section 5 of MBSD Rule 4 would enhance FICC's comprehensive
management of legal and operational risks, consistent with Rule 17Ad-
22(e)(3)(i).\40\ FICC also believes that enhancing and clarifying
FICC's ability to access MBSD Clearing Fund deposits to address such
risks would enhance FICC's ability to establish and maintain
appropriate recovery and orderly wind-down plans, as required by Rule
17Ad-22(e)(3)(ii),\41\ by enhancing and clarifying one tool that FICC
may employ in order to address such risks.
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\38\ 17 CFR 240.17Ad-22(e)(1).
\39\ 17 CFR 240.17Ad-22(e)(3).
\40\ 17 CFR 240.17Ad-22(e)(3)(i). See also Covered Clearing
Agency Standards Release, supra note 19, at 70810 (discussing
guidelines that a covered clearing agency should consider with
respect to its comprehensive risk management framework).
\41\ 17 CFR 240.17Ad-22(e)(3)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed rule change to delete the limiting
language in Section 5 of MBSD Rule 4 could have an impact upon
competition. Specifically, as a result of the proposed rule change
FICC's ability to access MBSD Clearing Fund deposits with respect to
certain non-default losses would be expanded and clarified. Although
FICC believes it is extraordinarily unlikely that FICC would find it
necessary or appropriate to employ this tool in lieu of other tools
that are available to FICC, if FICC were to access MBSD Clearing Fund
deposits for this purpose, and such use became a loss or liability that
was allocated to MBSD Members pursuant to Section 5 and Section 7 of
MBSD Rule 4, such allocation could have a different financial impact
upon MBSD Members than would be imposed by use of another tool that
FICC could employ to address the underlying loss, liability, or
temporary needs for funds incident to its clearance and settlement
business. Accordingly, FICC believes that the proposed rule change to
delete the limiting language in Section 5 of MBSD Rule 4 could burden
competition. However, FICC does not believe that this aspect of the
proposed rule changes would impose a significant burden on competition,
both because it is extraordinarily unlikely that FICC would employ this
tool and because FICC's access to MBSD Clearing Fund deposits for these
purposes would, if employed, likely replace (possibly temporarily)
alternative tools such as fee increases or capital-raising tools
available to DTCC that would also have a financial impact on MBSD
Members.
FICC believes that the above described potential burden on
competition would be necessary and appropriate in furtherance of the
Act, specifically Section 17A(b)(3)(F) of the Act,\42\ because, as
described above, the proposed rule change would enhance FICC's prompt
and accurate clearance and settlement of securities transactions by
enhancing FICC's ability to ensure that it can continue its operations
and services as a going concern, in the
[[Page 19775]]
unlikely event that it would be necessary or appropriate for FICC to
access MBSD Clearing Fund deposits to address losses, liabilities or
temporary financing needs incident to its clearance and settlement
business. FICC also believes that the proposed rule change to delete
the limiting language in Section 5 of MBSD Rule 4 is necessary and
appropriate in furtherance of the Act because it would (i) reduce the
risk of legal challenges to FICC's ability to access MBSD Clearing Fund
deposits under scenarios in which FICC believes that such limitation
was not intended or in which, FICC believes, such limitation would not
be appropriate, thereby supporting FICC's compliance with Rule 17Ad-
22(e)(1),\43\ (ii) enhance FICC's comprehensive management of legal and
operational risks, thereby supporting FICC's compliance with Rule 17Ad-
22(e)(3)(i),\44\ and (iii) enhance FICC's ability to establish and
maintain appropriate recovery and orderly wind-down plans, thereby
supporting FICC's compliance with Rule 17Ad-22(e)(3)(ii).\45\
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\42\ 15 U.S.C. 78q-1(b)(3)(F).
\43\ 17 CFR 240.17Ad-22(e)(1).
\44\ 17 CFR 240.17Ad-22(e)(3)(i).
\45\ 17 CFR 240.17Ad-22(e)(3)(ii).
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FICC does not believe the additional changes to correct grammar
errors, delete superfluous words and otherwise align the text of
Section 5 of MBSD Rule 4 to the text of Section 5 of GSD Rule 4 would
have any impact upon competition, because these proposed rule changes
would enhance the clarity and grammatical accuracy of the Rule and
therefore would not have an impact on MBSD members or impose any other
potential burden on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. 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 such 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-2017-010 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-2017-010. 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 and on
DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-2017-010 and should be
submitted on or before May 19, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08578 Filed 4-27-17; 8:45 am]
BILLING CODE 8011-01-P