[Federal Register Volume 82, Number 148 (Thursday, August 3, 2017)]
[Notices]
[Pages 36165-36168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16297]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81255; File No. SR-FICC-2017-018]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Fees in the Mortgage-Backed Securities Division Clearing
Rules and the EPN Rules
July 28, 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 July 28, 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. FICC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder.\4\ 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
On July 31, 2017, FICC will implement proposed rule change SR-FICC-
2017-012 (``Rule Filing 2017-012'').\5\ Rule Filing 2017-012 will amend
the Mortgage-Backed Securities Division Clearing Rules (the ``MBSD
Rules'') to (1) move the time that FICC novates and treats itself as
the settlement counterparty for certain transactions, (2) guarantee and
novate trades with stipulations (``Stipulated Trades''), and (3)
establish new processes that promote operational efficiencies for
Clearing Members.\6\ In connection with Rule Filing 2017-012, FICC is
proposing with this filing to amend the fees in the MBSD Rules and the
EPN Rules (the ``EPN Rules'') as further described below.\7\ The
changes proposed in this filing would become effective on August 1,
2017, as described below.
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\5\ Securities Exchange Act Release No. 81051 (June 29, 2017),
82 FR 31378 (July 6, 2017) (SR-FICC-2017-012) (``Approval Order'').
\6\ Id. In connection with the changes in Rule Filing 2017-012,
FICC will implement new processes that promote operational
efficiencies for Clearing Members. The full text of Rule Filing
2017-012 may be obtained by visiting DTCC's Web site at http://www.dtcc.com/legal/sec-rule-filings.
\7\ Capitalized terms not defined herein are defined in the MBSD
Rules and the EPN Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
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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
On July 31, 2017, FICC will amend the MBSD Rules to (1) move the
time that FICC novates and treats itself as the settlement counterparty
for certain transactions, (2) guarantee and novate trades with
stipulations (``Stipulated Trades''), and (3) establish new processes
that promote operational efficiencies for Clearing Members.\8\ In
connection with Rule Filing 2017-012, FICC is proposing with this
filing to amend the fees in the MBSD Rules and the EPN Rules as further
described below. The changes proposed in this filing would become
effective on August 1, 2017, as described below.
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\8\ See Approval Order, supra note 5.
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I. Proposed Changes to the MBSD Rules
FICC is proposing to amend the fees in the MBSD Rules' Schedule of
Charges Broker Account Group as listed below.
1. The Account Maintenance section would be amended to eliminate
the ``Option Account'' fee. This change is being proposed because FICC
will eliminate the Broker ``give-up'' process from the MBSD Rules in
connection with Rule Filing 2017-012.\9\ Because the submission of
Broker Give-Up Trades (which includes Option Contracts) will be
eliminated, the associated account maintenance fee for Option Accounts
will be eliminated.
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\9\ See Approval Order, 82 FR at 31382.
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2. The Trade Processing section would be amended to change the name
of the ``Give-Up Trade Creates'' fee to the ``Trade Creates'' fee. This
change is being proposed because FICC will eliminate the Broker ``give-
up'' process from the MBSD Rules in connection with Rule Filing 2017-
012.\10\
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\10\ Id.
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3. The Processing Fees section would be amended to increase the
``Trade Input Non-Compliance'' fee to $1,000 a month per Account from
$500 a month per Account. This change is being proposed in order to
encourage Clearing Members to submit transactions into FICC's Real-Time
Trade Matching (``RTTM'') system in a timely manner. The timely
submission of transactions is especially important because FICC will
novate and become the settlement counterparty to all transactions
(other than Option Contracts) pursuant to Rule Filing 2017-012.\11\
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\11\ See Approval Order, supra note 5.
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FICC is proposing to amend the fees in the MBSD Rules' Schedule of
Charges Dealer Account Group as listed below.
[[Page 36166]]
1. The Trade Processing section would be amended to modify the
tiering levels and the associated fees assigned to each tier for SBO-
Destined Trades.\12\ In connection with Rule Filing 2017-012, MBSD's
processing cost will not change; however, MBSD's operational cost will
increase because of MBSD's new allocation department.\13\ As a result,
these proposed fee changes would offset the loss of revenue attributed
to the decrease in transaction volumes processed through the Pool
Netting System and the EPN Service due to the introduction of the DNA
process and the removal of the Notification of Settlement process.
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\12\ Pursuant to the MBSD Rules, the term ``SBO-Destined Trade''
means a TBA transaction in the Clearing System intended for TBA
Netting in accordance with the provisions of the MBSD Rules. See
MBSD Rule 1, supra note 7.
\13\ The MBSD allocations department will monitor the
transmission of pool information that is used to satisfy to-be-
announced transactions. The team will also handle any exception
processing that occurs.
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Current charge Total par amount traded per month Proposed charge Total par amount traded per month
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$1.93/MM...................... 1,000,000-2,500,000,000........................... $2.00/MM......... 01-2,500,000,000.
$1.77/MM...................... 2,501,000,000-5,000,000,000....................... $1.58/MM......... 2,500,000,001-7,500,000,000.
$1.60/MM...................... 5,001,000,000-7,500,000,000....................... $1.39/MM......... 7,500,000,001-12,500,000,000.
$1.49/MM...................... 7,501,000,000-10,000,000,000...................... $1.19/MM......... 12,500,000,001-300,000,000,000.
$1.32/MM...................... 10,001,000,000-12,500,000,000..................... $1.16/MM......... 300,000,000,001 and over.
$1.14/MM...................... 12,501 and over...................................
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2. The Trade Processing section would be amended to increase the
fee for ``TBA Netting Balance Orders'' to $1.00/MM from $0.75/MM. In
connection with Rule Filing 2017-012, MBSD's processing cost will not
change; however, MBSD's operational cost will increase because of
MBSD's new allocation department. As a result, this proposed fee change
would offset the loss of revenue attributed to the decrease in
transaction volumes processed through the Pool Netting System and the
EPN Service due to the introduction of the DNA process and the removal
of the Notification of Settlement process. FICC is also proposing to
amend this section to eliminate the applicability of this fee to SBOO
Trades because this trade type will be eliminated in connection with
Rule Filing 2017-012.\14\
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\14\ See Approval Order, 82 FR at 31380.
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3. The Trade Processing section would be amended to establish fees
for Stipulated Trades, which will be a new trade type eligible for
processing at MBSD pursuant to Rule Filing 2017-012.\15\ The fees for
Stipulated Trades would be the same fees that are in place for the
processing of Trade-for-Trade Transactions \16\ and Specified Pool
Trades.\17\ FICC would amend the heading of this section to clarify
that the fees would be applicable to Trade-for Trade-Transactions,
Specified Pool Trades and Stipulated Trades.
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\15\ See Approval Order, 82 FR at 31381.
\16\ Pursuant to the MBSD Rules, the term ``Trade-for-Trade
Transaction'' means a TBA Transaction submitted to MBSD not intended
for TBA Netting in accordance with the provisions of the MBSD Rules.
See MBSD Rule 1, supra note 7.
\17\ Pursuant to the MBSD Rules, the term ``Specified Pool
Trade'' means a trade in which all required pool data, including the
pool number to be delivered on the Contractual Settlement Date, are
agreed upon by Members at the time of execution. See MBSD Rule 1,
supra note 7.
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4. The Trade Processing section would be amended to increase the
``Trade Creates'' fee for Trade-for-Trade Transactions and Specified
Pool Trades to $1.16/MM from $1.00/MM. This increased fee would also
apply to Stipulated Trades. In connection with Rule Filing 2017-012,
MBSD's processing cost will not change; however, MBSD's operational
cost will increase because of MBSD's new allocation department. As a
result, this proposed fee change would offset the loss of revenue
attributed to the decrease in transaction volumes processed through the
Pool Netting System and the EPN Service due to the introduction of the
DNA process and the removal of the Notification of Settlement process.
5. FICC is proposing to include two new fees in connection with the
proposed Do Not Allocate (``DNA'') process.\18\ One fee would be in the
amount of $1.25/MM per transaction in connection with a Clearing
Member's request to include eligible trades in the DNA process (such
request would be referred to as a ``DNA Request''). The second fee
would be in the amount of $4.00 per transaction in connection with a
Clearing Member's request to cancel its DNA Request (such cancellation
would be referred to as a ``DNA Request Cancel'').
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\18\ As described in Rule Filing 2017-012, the DNA process will
permit offsets among SBON Trades and Trade-for-Trade Transactions.
See Approval Order, 82 FR at 31381.
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6. The Pool Netting Fees section would be amended to increase the
fee for ``Matched Pool Instructs'' to $1.00 per side from $0.60 per
side. In connection with Rule Filing 2017-012, MBSD's processing cost
will not change; however, MBSD's operational cost will increase because
of MBSD's new allocation department. As a result, this proposed fee
change would offset the loss of revenue attributed to the decrease in
transaction volumes processed through the Pool Netting System and the
EPN Service due to the introduction of the DNA process and the removal
of the Notification of Settlement process.
7. The Processing Fees section would be amended to increase the
``Trade Input Non-Compliance'' fee to $1,000 a month per Account from
$500 a month per Account. This change is being proposed in order to
encourage Clearing Members to submit transactions into FICC's RTTM
system in a timely manner. The timely submission of transactions is
especially important because FICC will novate and become the settlement
counterparty to all transactions (other than Option Contracts) pursuant
to Rule Filing 2017-012.\19\
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\19\ See Approval Order, supra note 5.
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8. The Notification of Settlement fees would be eliminated because
FICC will eliminate the Notification of Settlement process from the
MBSD Rules in connection with Rule Filing 2017-012.\20\
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\20\ See Approval Order, 82 FR at 31381.
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II. Proposed Changes to the EPN Rules
FICC is proposing to amend the ``Message Processing Fees'' in the
EPN Schedule of Charges as listed below. In connection with Rule Filing
2017-012, MBSD's processing cost will not change; however, MBSD's
operational cost will increase because of MBSD's new allocation
department. As a result, these proposed fee changes would offset the
loss of revenue attributed to the decrease in transaction volumes
processed through the Pool Netting System and the EPN Service due to
the introduction of the DNA process and the removal of the Notification
of Settlement process.
[[Page 36167]]
EPN Fee Schedule
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Message submission Message submission
Fee descriptions Current charge times New charge times
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Messaging Processing Fees
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ON Send........................ $0.17 Per MM Current Face $0.19 Per MM Current Face
(opening of business (opening of business
to 1:00 p.m.). to 1:00 p.m.).
0.86 Per MM Current Face 0.95 Per MM Current Face
(1:00 p.m. to 2:00 (1:00 p.m. to 2:00
p.m.). p.m.).
1.73 Per MM Current Face 1.90 Per MM Current Face
(2:00 p.m. to 3:00 (2:00 p.m. to 3:00
p.m.). p.m.).
1.44 Per MM Current Face 1.58 Per MM Current Face
(3:00 p.m. to close of (3:00 p.m. to close
business). of business).
ON Receive..................... 0.46 Per MM Current Face 0.51 Per MM Current Face
(opening of business (opening of business
to 1:00 p.m.). to 1:00 p.m.).
0.23 Per MM Current Face 0.26 Per MM Current Face
(1:00 p.m. to 2:00 (1:00 p.m. to 2:00
p.m.). p.m.).
0.23 Per MM Current Face 0.26 Per MM Current Face
(2:00 p.m. to 3:00 (2:00 p.m. to 3:00
p.m.). p.m.).
Cancel/Correct Send............ 0.17 Per MM Current Face 0.19 Per MM Current Face
(opening of business (opening of business
to 11:00 a.m.). to 11:00 a.m.).
0.86 Per MM Current Face 0.95 Per MM Current Face
(11:00 a.m. to 12:00 (11:00 a.m. to 12:00
p.m.). p.m.).
1.73 Per MM Current Face 1.90 Per MM Current Face
(12:00 p.m. to 12:15 (12:00 p.m. to 12:15
p.m.). p.m.).
0.17 Per MM Current Face 0.19 Per MM Current Face
(12:15 p.m. to end of (12:15 p.m. to end of
day). day).
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III. Delayed Implementation of the Proposed Rule Change
The proposed changes would become effective on August 1, 2017.\21\
Upon FICC's submission of this proposed rule change to the Commission,
FICC would add a legend to the MBSD Rules and the EPN Rules, as
applicable, to state that the specified changes have been filed with
the Commission for immediate effectiveness, however, such changes are
not yet implemented and to provide the date such changes would become
implemented. The legend would also include the file number of the
proposed rule change and would state that once implemented, the legend
would automatically be removed from the MBSD Rules and EPN Rules as
applicable.
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\21\ FICC will implement Rule Filing 2017-012 on July 31, 2017,
however, the proposed fee changes would be implemented on August 1,
2017 because the billing cycle begins on the first day of each
month.
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2. Statutory Basis
Section 17A(b)(3)(D) of the Act requires that the MBSD Rules and
the EPN Rules provide for the equitable allocation of reasonable dues,
fees, and other charges among its participants.\22\ FICC believes that
the proposed (1) changes to the MBSD Trade Processing fees, MBSD Pool
Netting fees and the EPN Message Processing fees (collectively, the
``Processing Fees''), and (2) new fees for Stipulated Trades
submissions and the DNA process (collectively, the ``New Fees'') are
equitably allocated among Clearing Members and EPN Users, as
applicable, because the fees would continue to be based on each
Clearing Member's utilization of MBSD's services. Specifically, each
Clearing Member or EPN User would be charged based on the volume of
transactions and/or messages submitted to MBSD.
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\22\ 15 U.S.C. 78q-1(b)(3)(D).
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FICC believes that the proposed changes to the Processing Fees and
the New Fees are reasonable because the proposed fee changes would
offset the loss of revenue attributed to the decrease in transaction
volumes processed through the Pool Netting System and the EPN Service
due to the introduction of the DNA process and the removal of the
Notification of Settlement process. Additionally, MBSD's new allocation
department will increase MBSD's operational cost. FICC believes that
the proposed fee changes are reasonable because the fees would align
with the cost of providing the benefits associated with the
implementation of Rule Filing 2017-012.\23\
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\23\ These benefits include the following: (1) The submission of
Pool Instructs by Clearing Members will become optional because FICC
would be permitted to submit on behalf Clearing Members; (2)
Clearing Members will no longer be required to fulfill Notification
of Settlement obligations because transactions (except Option
Contracts) would settle with FICC; (3) Clearing Members will have
the ability to exclude TBA Obligations from the pool allocation
process, netting, and securities settlement through the DNA process;
(4) Clearing Members will have the ability to net their pools via
the Expanded Pool Netting process in the event that such Clearing
Members miss the established deadline for the initial Pool Netting
process; (5) Dealer Netting Members will remain anonymous with the
elimination of the ``give-up'' process for Brokered Transactions;
(6) Clearing Members will be allowed to submit SBO-Destined Trades
in all trade sizes; and (7) Clearing Members will be allowed to
submit Stipulated Trades as a new trade type. See Approval Order, 82
FR at 31378.
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FICC believes that its proposal to increase the Trade Input Non-
Compliance fee for Brokers and Dealers are reasonable because doubling
the existing fee would be sufficient to encourage Clearing Members to
submit transactions in a timely manner. This is especially important
because FICC will novate and become the settlement counterparty to all
transactions (except Option Contracts) at trade comparison pursuant to
Rule Filing 2017-012.
FICC believes that the proposal to increase the Trade Input Non-
Compliance fee for Brokers and Dealers are equitably allocated because
the same fee would be applicable to the Accounts of all Clearing
Members who do not submit transactions on a timely basis.
Therefore, FICC believes the proposed fees are consistent with the
requirements of Section 17A(b)(3)(D) of the Act.
(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed (1) changes to the Processing Fees
and (2) new fee for Stipulated Trades may impose a burden on
competition. However, FICC believes any burden on competition that may
result from the proposed fees increases would be
[[Page 36168]]
necessary and appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\24\
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\24\ 15 U.S.C. 78q-1(b)(3)(I).
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Specifically, FICC believes that the proposed (1) changes to the
Processing Fees and (2) new fee for Stipulated Trades are necessary
because the fees would provide FICC with the ability to achieve and
maintain its operating margin. FICC believes that the proposed fee
increases and the new fee for Stipulated Trades are appropriate because
the fees would provide FICC with the ability to recover the cost of
providing the services described in Rule Filing 2017-012. As discussed
above, in connection with Rule Filing 2017-012, MBSD's processing cost
will not change; however, MBSD's operational cost will increase because
of MBSD's new allocation department. As a result, these proposed fee
changes would offset the loss of revenue attributed to the decrease in
transaction volumes processed through the Pool Netting System and the
EPN Service due to the introduction of the DNA process and the removal
of the Notification of Settlement process.
FICC believes that the proposed changes to increase the Trade Input
Non-Compliance fee for Brokers and Dealers will not impact competition
because Clearing Members could avoid these fees by submitting their
transactions on a timely basis in accordance with the MBSD Rules.
FICC believes that the proposed change to eliminate the Option
Account fees for Brokers and the Notification of Settlement fees will
not impact competition because these fees are associated with processes
that will be eliminated pursuant to Rule Filing 2017-012.
FICC believes that the proposed new fee for the DNA process will
not impact competition because the DNA process is voluntary and
Clearing Members could elect not to submit their transactions through
the DNA process.
(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 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 \25\ and paragraph (f) of Rule 19b-4
thereunder.\26\ 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.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f).
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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-2017-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2017-018. 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-2017-018 and should be
submitted on or before August 24, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-16297 Filed 8-2-17; 8:45 am]
BILLING CODE 8011-01-P