[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12982-12986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06031]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82917; File No. SR-FICC-2018-002]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Amend the By-Laws
March 20, 2018.
On February 2, 2018, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-FICC-2018-002, 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 February 14, 2018.\3\ The Commission did not
receive any comment letters on the proposed rule change. For the
reasons discussed below, the Commission approves 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. 82672 (February 8,
2018), 83 FR 6654 (February 14, 2018) (SR-FICC-2018-002)
(``Notice'').
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I. Description of the Proposed Rule Change
The proposed rule change would amend the FICC By-Laws (``By-Laws'')
\4\ to (1) change certain FICC Board of Directors (``Board'') titles,
officer titles, and offices (and their respective powers and duties),
(2) update the compensation section for officers, and (3) make
technical changes and corrections, each discussed more fully below. The
proposed rule change would also amend the GSD Rules and the MBSD Rules
to incorporate, by reference, the By-Laws and the Certificate of
Incorporation. Finally, the proposed rule change would restate the
Certificate of Incorporation to streamline the document.
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\4\ As discussed below, FICC's By-Laws and FICC's Certificate of
Incorporation (``Certificate of Incorporation'') would each be
incorporated by reference into FICC's Government Securities Division
(``GSD'') Rulebook (``GSD Rules'') and Mortgage-Backed Securities
Division (``MBSD'') Rulebook (``MBSD Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.
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A. Changes to Certain Titles, Offices, and Related Powers and Duties
FICC proposes changes to the titles, offices, and related powers
and duties of certain Board and officer personnel, as further described
below.
1. Non-Executive Chairman of the Board
FICC proposes to replace the title of ``Chairman of the Board''
with the title of ``Non-Executive Chairman of the Board.'' \5\ FICC
proposes to change its By-Laws to reflect that this position is held by
a non-executive.\6\ Therefore, FICC would change relevant references in
the By-Laws from ``Chairman'' and ``Chairman of the Board'' to ``Non-
Executive Chairman of the Board.'' \7\ FICC also would delete certain
references in the By-Laws to the Non-Executive Chairman of the Board as
a member of FICC management because the position is no longer in
management.\8\
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\5\ Notice, 83 FR at 6654.
\6\ Id.
\7\ Id.
\8\ Notice, 83 FR at 6655.
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In the proposed Section 2.8 (Non-Executive Chairman of the Board),
FICC would identify the powers and duties of the Non-Executive Chairman
of the Board, including (1) general responsibility for carrying out the
policies of the Board, (2) general supervision of the Board and its
activities and general leadership of the Board, (3) presiding over
stockholders' meetings (when present), and (4) such other powers and
duties as the Board may designate.\9\ Proposed Section 2.8 (Non-
Executive Chairman of the Board) also would include a provision stating
that a presiding director (as elected by the Board) shall preside at
all stockholders and Board meetings when the Non-Executive Chairman of
the Board is absent.\10\ Additionally,
[[Page 12983]]
Proposed Section 2.8 (Non-Executive Chairman of the Board) would
provide that the Non-Executive Chairman of the Board's performance of
any enumerated duty shall be conclusive evidence of his power to
act.\11\
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\9\ Id.
\10\ Id. This provision is designed to correct an inaccuracy in
current By-Laws Section 3.3 (Powers and Duties of the President),
which gives presiding authority over stockholder meetings to the
President when the Chairman of the Board is absent. Proposed Section
2.8 (Non-Executive Chairman of the Board) would be consistent with
the Mission Statement and Charter of the Depository Trust
Corporation (``DTC''), FICC, National Securities Clearing
Corporation (``NSCC''), and the Depository Trust and Clearing
Corporation (``DTCC''), which gives presiding authority over
stockholder meetings to a presiding director when the Non-Executive
Chairman of the Board is absent. DTC, FICC, and NSCC are
subsidiaries of DTCC, each having the same Board of Directors as
DTCC. See Securities Exchange Act Release No. 74142 (January 27,
2015), 80 FR 5188 (January 30, 2015) (SR-FICC-2014-810, SR-NSCC-
2014-811, SR-DTC-2014-812).
\11\ Notice, 83 FR at 6655.
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The proposal also identifies the individuals to whom the Non-
Executive Chairman may assign duties. In proposed Section 3.2 (Powers
and Duties of the President and Chief Executive Officer), the Non-
Executive Chairman of the Board would have the authority to designate
powers and duties to the President and Chief Executive Officer
(``CEO'').\12\ In proposed Section 3.2 (Powers and Duties of Managing
Directors), FICC also would add the Non-Executive Chairman of the Board
to the list of individuals who have the ability to assign powers and
duties to Managing Directors.\13\ Finally, in proposed Section 3.4
(Powers and Duties of the Secretary), the Non-Executive Chairman of the
Board (i.e., not the President and CEO) would have the authority to
assign additional powers and duties to the Secretary.\14\
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\12\ Id.
\13\ Id.
\14\ Id.
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2. Office of the CEO
FICC proposes to revise the By-Laws to reflect that one individual
holds the office of the President and CEO. As such, the proposal would
change the By-Laws to add the office of the CEO and combine the office
of the President and the office of the CEO into one office (President
and CEO).\15\ While current Section 3.3 (Powers and Duties of the
President) provides that the President shall be the CEO, current
Section 3.1 (General Provisions) does not include CEO in the list of
designated officer positions, though President is currently included in
this list.\16\ Therefore, FICC proposes to revise the relevant
references in the By-Laws from President to President and CEO.\17\
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\15\ Id.
\16\ Id.
\17\ Notice, 83 FR at 6656.
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Additionally, FICC proposes to make several By-Laws revisions to
reflect the responsibilities for the consolidated role of President and
CEO.\18\ First, FICC would delete and replace current Section 3.3
(Powers and Duties of the President) with proposed Section 3.2 (Powers
and Duties of the President and CEO).\19\ Proposed Section 3.2 (Powers
and Duties of the President and CEO) would clarify the powers and
duties associated with the role of President and CEO.\20\ For example,
in proposed Section 3.2 (Powers and Duties of the President and CEO)
the President and CEO would have general supervision over the overall
business strategy, business operations, systems, customer outreach, as
well as risk management, control, and staff functions, subject to the
direction of the Board and the Non-Executive Chairman of the Board.\21\
In addition, because the office of the Chief Operating Officer
(``COO'') would be eliminated (as described further below), the current
COO responsibility of general supervision over FICC's operations in
current Section 3.4 (Powers and Duties of the Chief Operating Officer)
would be assigned to the President and CEO.\22\ Proposed Section 3.2
(Powers and Duties of the President and CEO) would also delineate the
authority that the Non-Executive Chairman of the Board has over the
President and CEO by stating that the latter would have such other
powers and perform such other duties as the Board or the Non-Executive
Chairman of the Board may designate.\23\
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\18\ Id.
\19\ Id.
\20\ Id.
\21\ Id.
\22\ Id.
\23\ Id.
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FICC also proposes to reassign or reclassify several
responsibilities currently assigned to the President.\24\ Specifically,
the responsibility for executing the Board's policies would be assigned
to the Non-Executive Chairman of the Board rather than to the President
and CEO.\25\ Additionally, FICC would remove the statement
``performance of any such duty by the President shall be conclusive
evidence of his power to act'' in current Section 3.3 (Powers and
Duties of the President).\26\
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\24\ Id.
\25\ Id.
\26\ Id.
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As mentioned above, FICC would delete language from the By-Laws
stating that, in the absence of the Chairman of the Board, the
President shall preside at all meetings of shareholders and all Board
meetings (when present).\27\ Similarly, FICC would delete language from
the By-Laws stating that the President and Board currently have the
authority to assign powers and duties to the Comptroller in current
Section 3.8 (Powers and Duties of the Comptroller), as discussed
below.\28\ In proposed Section 3.5 (Powers and Duties of the Chief
Financial Officer) the President and CEO and Board would have the
authority to assign duties to the Chief Financial Officer
(``CFO'').\29\
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\27\ Id. As stated above, that power resides with the presiding
director who is elected annually by the Board. See supra note 20.
\28\ Notice, 83 FR at 6656.
\29\ Id.
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The proposal also removes certain responsibilities from the
President. In proposed Section 3.4 (Powers and Duties of the
Secretary), the power to assign additional powers and duties to the
Secretary would be removed from the President and granted to the Non-
Executive Chairman of the Board.\30\
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\30\ Id.
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3. Office of the CFO; Office of the Comptroller
The proposal would add the office of the CFO and assign to the CFO
general supervision of the financial operations of FICC.\31\ References
in the By-Laws to the Comptroller would be deleted because FICC states
that it neither has a Comptroller nor plans to appoint one.\32\ In
proposed Section 3.5 (Powers and Duties of the Chief Financial Officer)
the CFO would be granted overall supervision authority over the
financial operations of FICC, and upon request, the CFO would counsel
and advise other officers of FICC and perform other duties as agreed
with the President and CEO (or as determined by the Board).\33\ The
proposal also provides that the CFO would report directly to the
President and CEO.\34\ Furthermore, because the Treasurer would
directly report to the CFO, proposed Section 3.6 (Powers and Duties of
the Treasurer) would provide that the Treasurer would have all such
powers and duties as generally are incident to the position of
Treasurer or as the CFO (in addition to the President and CEO and the
Board) may assign.\35\
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\31\ Id.
\32\ Id.
\33\ Id.
\34\ Id.
\35\ Id.
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4. Office of the COO
In this proposal, FICC would delete references in the By-Laws to
the COO because FICC states that it no longer has a COO and has no
plans to appoint one.\36\
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\36\ Notice, 83 FR at 6657.
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5. Executive Director; Vice President
In this proposal, FICC would change the title of Vice President to
Executive Director, and update the Executive Director position's
related powers and duties to reflect the position's seniority
level.\37\ In FICC's organizational structure, Executive Directors
report to Managing Directors.\38\ Due to this level
[[Page 12984]]
of seniority, FICC proposes to remove provisions in the By-Laws that
previously allowed Vice Presidents (now, Executive Directors) to call
special meetings of shareholders, to sign share certificates, or to
preside over shareholder meetings unless specifically designated to do
so by the Board.\39\
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\37\ Id.
\38\ Id.
\39\ Id.
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6. Other Changes to the Powers and Duties of the Board and Certain
Other Designated Officers
In proposed Section 3.1 (General Provisions), FICC proposes to add
a parenthetical phrase to clarify that the Board's power to appoint
other officers includes, but is not limited to, the power to appoint a
Vice Chairman of the Corporation and one or more Executive
Directors.\40\ Additionally, in current Section 3.1 (General
Provisions), FICC proposes to clarify that neither the Secretary nor
any Assistant Secretary can hold the following offices (1) Vice
Chairman of the Corporation or (2) President and CEO.\41\
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\40\ Id.
\41\ Id.
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The proposal also enumerates the responsibilities of FICC's
Managing Directors.\42\ In proposed Section 1.8 (Presiding Officer and
Secretary), Managing Directors would be removed from the list of
officers authorized to preside over a stockholders' meeting unless
specifically authorized by the Board.\43\ Similarly, in proposed
Section 2.6 (Meetings), Managing Directors would be added to the list
of officers authorized to call special meetings of the Board.\44\
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\42\ Id.
\43\ Id.
\44\ Id.
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FICC also proposes to amend the By-Laws to remove specific powers
from the Treasurer and Assistant Treasurer.\45\ In current Section 5.1
(Certificates of Shares), FICC proposes to delete the reference to
Treasurer and Assistant Treasurer from the list of authorized
signatories because FICC expects the Secretary or Assistant Secretary
(who are each currently listed as authorized signatories) to sign any
share certificates.\46\
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\45\ Id.
\46\ Id.
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B. Compensation of the President and CEO
Proposed Section 3.10 (Compensation of the President and CEO) would
reflect FICC's current compensation-setting practices. Current Section
3.12 (Compensation of Officers) states that (1) the compensation, if
any, of the Chairman of the Board, and the President shall be fixed by
a majority (which shall not include the Chairman of the Board or the
President) of the entire Board of Directors, and (2) salaries of all
other officers shall be fixed by the President with the approval of the
Board and no officer shall be precluded from receiving a salary because
he is also a director.\47\ FICC proposes to state that the Compensation
Committee of the Corporation will recommend the compensation for the
President and CEO to the Board of Directors for approval.\48\ In
addition, FICC also proposes to delete the language stating that (1)
salaries of all other officers shall be fixed by the President with
approval of the Board, and (2) no officer shall be precluded from
receiving a salary because he is also a director.\49\ FICC proposes to
delete compensation-related references to the Chairman of the Board
because the Non-Executive Chairman of the Board does not receive
compensation.\50\ Finally, FICC proposes to change the title of
proposed Section 3.10 from ``Compensation of Officers'' to
``Compensation of the President and Chief Executive Officer'' because
this section would no longer address the compensation of officers other
than the President and CEO.\51\
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\47\ Id.
\48\ Notice, 83 FR at 6657-58. FICC states that it proposes this
change for consistency with the DTCC/DTC/FICC/NSCC Compensation and
Human Resources Committee Charter. Id. at 6658.
\49\ Notice, 83 FR at 6658.
\50\ Id.
\51\ Id.
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C. Technical Changes and Corrections
FICC proposes technical changes and/or corrections to the By-Laws
for clarity and readability, as described below.\52\
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\52\ Id.
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1. Statutory References and Requirements
FICC would delete direct statutory references from the By-Laws.\53\
FICC states that it would make this change to have the By-Laws remain
consistent and accurate despite any changes to a specifically cited
statute.\54\
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\53\ Id.
\54\ Id.
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2. Other Technical Changes and Corrections
FICC proposes to make additional technical and grammatical changes
to address (1) typographical errors, (2) section numbering, (3)
grammatical errors, (4) heading consistency, and (5) gender
references.\55\
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\55\ Id.
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D. Proposed Changes to the Rules
FICC proposes to add a section entitled ``By-Laws and Restated
Certificate of Incorporation'' to both the GSD Rules and the MBSD
Rules.\56\ FICC proposes that this section would state that the By-Laws
and Restated Certificate of Incorporation are incorporated by
reference.\57\
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\56\ Id.
\57\ Id.
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E. Proposed Changes to the Certificate of Incorporation
FICC proposes to restate the Certificate of Incorporation into one
document.\58\ Specifically, FICC proposes to update the Certificate of
Incorporation by including all of its amendments into one updated
Certificate of Incorporation.\59\
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\58\ Id.
\59\ Id.
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II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and rules and regulations thereunder applicable to such
organization.\60\ The Commission believes the proposal is consistent
with the Act, specifically Section 17A(b)(3)(F) of the Act and Rules
17Ad-22(e)(1) and, in part, (2) under the Act.\61\
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\60\ 15 U.S.C. 78s(b)(2)(C).
\61\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(1) and (2).
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A. Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency, such as FICC, be designed to protect the public
interest.\62\ As discussed above, the proposed rule change would make a
number of updates to the By-Laws.
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\62\ 15 U.S.C. 78q-1(b)(3)(F).
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First, FICC proposes to revise FICC's description of the titles and
responsibilities of its Board and senior management to match FICC's
current corporate structure. These changes would help the Board, as
well as FICC's management, employees, and members, understand which
officer or office is responsible for each of FICC's executive-level
functions.
Second, the proposal would update the compensation-setting section
of the By-Laws to reflect the Compensation Committee Charter practice,
as well as to reflect that the Non-Executive Chairman of the Board
would not receive compensation. The proposal's
[[Page 12985]]
increased clarity around compensation-setting would better inform FICC
stakeholders and the general public about how FICC sets the level of
compensation for its highest-level executive (the President and CEO)
and that the Non-Executive Chairman does not draw a salary.
Third, FICC's proposed technical changes and corrections to its By-
Laws would enhance the clarity, transparency, and readability of FICC's
organizational documents. In this way, the proposal would better enable
the Board, as well as FICC's management, employees, and members, to
understand their respective authorities, rights, and obligations
regarding FICC's clearance and settlement of securities transactions.
Fourth, FICC's proposed addendum would incorporate the By-Laws and
Certificate of Incorporation into the Rules. This change would increase
the clarity and transparency of FICC's organizational documents by
integrating the By-Laws and the Certificate of Incorporation into the
Rules, to which all FICC members are subject and have access.
Finally, FICC's proposed restatement of the Certificate of
Incorporation would revise the Certificate of Incorporation to include
all of its amendments in one updated document. This change would
increase the clarity and transparency of FICC's constitutional document
by consolidating all of its amendment into a single document,
increasing its accessibility and readability for FICC's members.
Governance arrangements are critical to the sound operation of
clearing agencies.\63\ Specifically, clear and transparent governance
documents promote accountability and reliability in the decisions,
rules, and procedures of a clearing agency.\64\ Clear and transparent
governance documents also provide interested parties, including owners,
members, and general members of the public, with information about how
a clearing agency's decisions are made and what the rules and
procedures are designed to accomplish.\65\ Further, the decisions,
rules, and procedures of a clearing agency are important, as they can
have widespread impact, affecting multiple market members, financial
institutions, markets, and jurisdictions.\66\
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\63\ Securities Exchange Act Release No. 71699 (May 21, 2014),
79 FR 29508 (May 22, 2014) (``Covered Clearing Agency Standards
Proposing Release'') at 29521.
\64\ Securities Exchange Act Release No. 64017 (March 3, 2011),
76 FR 14472 (March 16, 2011) at 14488.
\65\ Id.
\66\ Covered Clearing Agency Standards Proposing Release, 79 FR
at 29521.
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As stated above, the proposed rule change would provide FICC
stakeholders with a better understanding of how FICC makes decisions
that could ultimately affect the financial system. Such transparency
helps ensure that FICC reliably makes decisions and follows clearly
articulated policies and procedures. Accordingly, the Commission finds
that the proposed rule change is designed to enhance the clarity and
transparency of FICC's organizational documents, which would help
protect the public interest, consistent with Section 17A(b)(3)(F) of
the Act.\67\
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\67\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Rule 17Ad-22(e)(1) Under the Act
Rule 17Ad-22(e)(1) under the Act requires a covered clearing agency
\68\ to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for a well-founded,
transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.\69\
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\68\ A ``covered clearing agency'' means, among other things, a
clearing agency registered with the Commission under Section 17A of
the Exchange Act (15 U.S.C. 78q-1 et seq.) that is designated
systemically important by the Financial Stability Oversight Counsel
(``FSOC'') pursuant to the Payment, Clearing, and Settlement
Supervision Act of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR
240.17Ad-22(a)(5)-(6). On July 18, 2012, FSOC designated FICC as
systemically important. U.S. Department of the Treasury, ``FSOC
Makes First Designations in Effort to Protect Against Future
Financial Crises,'' available at https://www.treasury.gov/press-center/press-releases/Pages/tg1645.asp. Therefore, FICC is a covered
clearing agency.
\69\ 17 CFR 240.17Ad-22(e)(1).
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As discussed above, the proposed rule change would update the By-
Laws by (1) updating FICC's description of the titles and
responsibilities of its Board and senior management to match FICC's
current corporate structure, (2) documenting FICC's current
compensation-setting process, and (3) enacting technical corrections to
increase readability. The proposed rule change would also add an
addendum to the Rules to incorporate the By-Laws and the Certificate of
Incorporation by reference, as well as to restate the Certificate of
Incorporation to include all of its amendments in one updated document.
The proposed changes are designed to help ensure that the By-Laws
better reflect FICC's governance practices, as well as to organize
FICC's constitutional documents, in a clear, transparent, and
consistent manner. This increased transparency would help convey to
FICC's stakeholders, and the public generally, a key legal basis for
the activities of the highest levels of FICC's leadership described in
the By-Laws. Therefore, the Commission finds that the proposed rule
change is designed to help ensure that FICC's organizational documents
remain well-founded, transparent, and legally enforceable in all
relevant jurisdictions, consistent with Rule 17Ad-22(e)(1) under the
Act.\70\
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\70\ Id.
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C. Rule 17Ad-22(e)(2)(i) and (v) under the Act
Rule 17Ad-22(e)(2)(i) and (v) under the Act requires that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that, among other things, (1) are clear and transparent and (2) specify
clear and direct lines of responsibility.\71\
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\71\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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As described above, FICC proposes a number of changes to its By-
Laws that would provide clarity and transparency. FICC proposes to
revise By-Laws provisions that were outdated or incorrect.
Specifically, the proposed changes to the titles and offices (and their
related powers and duties) would provide clarity and transparency
because they would clearly set forth FICC's current organizational
structure, including the lines of responsibility of various officers
and the Board. The proposed changes relating to compensation-setting
would also give clarity and transparency by (1) accurately reflecting
the process that is followed pursuant to the Compensation Committee
Charter, and (2) clarifying that the Non-Executive Chairman of the
Board does not receive compensation. Meanwhile, the proposed technical
changes and corrections would raise the clarity and transparency of the
By-Laws by removing grammatical and typographical errors. Additionally,
FICC proposes changes to provide clarity and transparency by including
an addendum to its Rules (to incorporate the By-Laws and Certificate of
Incorporation by reference), and by restating its Certificate of
Incorporation (to include all of its amendment in one updated
document). Both proposed changes would create clarity and transparency
by integrating FICC's organizational documents in a manner that is more
accessible to FICC's members.
For these reasons, the Commission finds that the proposed rule
change is
[[Page 12986]]
designed to enhance clarity and transparency in FICC's governance
arrangements, as well as to specify clear and direct lines of
responsibility for various officer positions and the Board within
FICC's organizational structure, consistent with Rule 17Ad-22(e)(2)(i)
and (v) under the Act.\72\
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\72\ Id.
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, in particular
the requirements of Section 17A of the Act \73\ and the rules and
regulations thereunder.
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\73\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule change SR-FICC-2018-002 be, and hereby is,
APPROVED.\74\
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\74\ In approving the proposed rule change, the Commission
considered the proposals' 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.\75\
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\75\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06031 Filed 3-23-18; 8:45 am]
BILLING CODE 8011-01-P