[Federal Register Volume 70, Number 79 (Tuesday, April 26, 2005)]
[Pages 21480-21481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1974]



[Release No. 34-51579; File No. SR-FICC-2005-08]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Expand the Types of Securities Eligible for FICC's GCF Repo Service to 
Include Treasury-Inflation Protected Securities

April 20, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 8, 2005, The Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I, II, and III below, which items have been prepared primarily 
by FICC. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested parties.

    \1\ 15 U.S.C. 78s(b)(1).

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FICC is seeking to amend the rules of its Government Securities 
Division (``GSD'') to expand the types of securities eligible for the 
GCF Repo service to include Treasury Inflation-Protected Securities 
(``TIPS''), a Treasury security whose principal amount is adjusted for 

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FICC 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. FICC has prepared summaries, set forth in Sections (A), 
(B), and (C) below, of the most significant aspects of these 

    \2\ The Commission has modified the text of the summaries 
prepared by FICC.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The GCF Repo service is a significant alternative financing vehicle 
to the delivery versus payment and tri-party repo markets. Currently, 
most Treasury securities, non-mortgage-backed agency securities, and 
fixed and adjustable rate mortgage-backed securities are eligible for 
this service.\3\ FICC is expanding its rules to also make eligible 

    \3\ Securities Exchange Act Release Nos. 40623 (October 30, 
1998), 63 FR 59831 (November 5, 1998) [File No. SR-GSCC-98-02] and 
42996 (June 30, 2000), 65 FR 42740 [File No. SR-GSCC-00-04].

    When the GCF Repo service was implemented, TIPS were not generally 
accepted as collateral in tri-party repo arrangements and therefore 
were not included in the service. Since then, TIPS have gained 
considerable acceptance in the marketplace for tri-party and other 
trading practices. TIPS are currently netting eligible for the GSD's 
delivery versus payment service, and FICC has received requests from 
members to make TIPS eligible for the GCF Repo service. FICC has 
received an endorsement from the Funding Practices Committee of The 
Bond Market Association with respect to this proposal.\4\

    \4\ FICC has obtained the Generic CUSIP Number necessary for the 
inclusion of TIPS as a ``GCF Repo Security'' on its master file of 
eligible securities. Upon effectiveness of this proposal, FICC will 
effectuate the proposed change by listing this Generic CUSIP Number 
on the master file. The date of such listing will be announced to 
members by Important Notice.

    TIPS, which are issued in terms of 5, 10, and 20 years, have the 
same basic characteristics of other Treasury securities and are 
generally considered to be of the same low risk level.\5\ FICC has 
determined that with respect to its risk management processes, TIPS 
would be subject to the same maturity ranges, offset classes, margin 
rates, and disallowance factors as are other Treasury securities.\6\

    \5\ TIPS are issued through the auction process, are direct 
obligations of the U.S. government, and are backed by its full faith 
and credit.
    \6\ As such, references to ``GCF Treasury Securities'' or ``GCF 
Treasuries'' in the Margin Factor and Offset Class Schedules and 
Disallowance Percentage Schedules that are annexed to the GSD Rules 
will include TIPS upon effectiveness of this filing.

    For purposes of GSD Rule 20 (Special Provisions for GCF Repo 
Transactions), general references to U.S. Treasury bills, notes, or 
bonds do not include TIPS.\7\ Therefore, TIPS could not be used within 
the GCF Repo service to satisfy obligations to post or return any other 
type of collateral.\8\

    \7\ The proposed rule change also amends GSD's Rule 20 to make 
clear that reference to ``U.S. Treasury bills, notes or bonds'' 
therein shall not include Treasury Inflation-Protected Securities.
    \8\ However, as is consistent with the existing GCF Repo 
provisions, U.S. Treasury bills, notes, or bonds (or cash) may 
generally be used to satisfy obligations to post or return other 
collateral types and therefore could be used to satisfy any such 
obligations involving TIPS.

    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \9\ and the rules and 
regulations thereunder applicable to FICC because it allows FICC to 
expand an important service that provides members with a continuing 
ability to engage in general collateral trading activity in a safe and 
efficient manner. As such, the proposed rule facilitates the prompt and 
accurate clearance and settlement of securities transactions and 
assures the safeguarding of securities and funds which are in the 
custody or control of FICC or for which it is responsible.

    \9\ 15 U.S.C. 78q-1.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    FICC does not believe that the proposed rule change will have an 
impact or impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were not 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 upon filing pursuant 
to Section 19(b)(3)(A) of the Act\10\ and Rule 19b-4(f)(4) \11\ 
thereunder because the proposed rule does not significantly affect the 
respective rights or obligations of the clearing agency or persons 
using the service and does not adversely affect the safeguarding of 
securities or funds in the custody or control of FICC or for which it 
is responsible. The rule change will be implemented on the date FICC 
lists the Generic CUSIP number for TIPS as a ``GCF Repo Security'' on 
its master file of eligible securities, which date will be announced to 
members by

[[Page 21481]]

Important Notice. At any time within sixty days of the filing of the 
proposed rule change, the Commission may summarily abrogate the 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.

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(4).

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FICC-2005-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-FICC-2005-08. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of FICC 
and on FICC's Web site at http://www.ficc.com. 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-2005-08 and should be submitted on 
or before May 17, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1974 Filed 4-25-05; 8:45 am]