[Federal Register Volume 76, Number 2 (Tuesday, January 4, 2011)]
[Notices]
[Page 408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-33163]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63611; File No. SR-FICC-2010-08]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Eliminate Certain Cash
Adjustments Currently Processed by the MBSD
December 28, 2010.
I. Introduction
On October 28, 2010, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-FICC-2010-08 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
The proposed rule change was published for comment in the Federal
Register on November 17, 2010.\2\ No comment letters were received on
the proposal. This order approves the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 63301 (November 17,
2010), 75 FR 70328.
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II. Description
FICC is eliminating the cash adjustments that are currently
processed by the Mortgage-Backed Securities Division (``MBSD'') of FICC
because they have low monetary impact and the clearance event
(``significant variance'') they were originally designed to address no
longer applies.\3\ Variance was originally established when mortgage-
backed securities were physically settled and it was difficult to
organize physical pools into $1 million par amounts for delivery.
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\3\ The specific language of the proposed provision can be found
at http://www.dtcc.com/downloads/legal/rule_filings/2010/ficc/2010-08.pdf.
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As a result of the netting of To Be Announced (``TBA'')
transactions, a participant may have a settlement obligation to another
participant with which it did not trade (``SBON Obligations''). SBON
Obligations are created in multiples of $1 million par amounts and are
assigned a uniform delivery price. Since the delivery price will differ
from the participant's original trade price, an adjustment is
calculated for the difference between the delivery price and the trade
price. This adjustment is referred to as the Settlement Balance Order
Market Differential (``SBOMD'').
Participants notify the MBSD when they have settled their SBON
Obligations with their assigned counterparties through the Notification
of Settlement (``NOS'') process. From the information supplied by both
the delivering and receiving participants in their respective NOS, the
MBSD determines whether the securities delivered were in $1 million par
amounts or in a par amount within acceptable variance (plus or minus
$100 per million). In instances where the delivery was completed in $1
million par amounts, the MBSD takes no additional steps.
Currently, if the delivery was cleared for a par amount within
acceptable variance, the MBSD will calculate a cash adjustment to
reconcile the difference between the original SBOMD (based on a $1
million par amount) and what the SBOMD should have been (based on the
par amount delivered). As mortgage-backed securities migrated from
physical to electronic settlement, acceptable variance has been reduced
from an initial $50,000 per million to the current amount of $100 per
million. MBSD is eliminating this cash adjustment process.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act \4\ and the rules and regulations
thereunder applicable to FICC.\5\ In particular, the Commission
believes that by deleting a rule that covers a process that is no
longer needed, FICC is providing its members with certainty and clarity
of the clearance process to its members. The proposal is therefore
consistent with the requirements of Section 17A(b)(3)(F),\6\ which
requires, among other things, that the rules of a clearing agency are
designed to remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions.
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\4\ 15 U.S.C. 78q-1.
\5\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \7\ and the
rules and regulations thereunder.
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\7\ 15 U.S.C. 78q-1.
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It Is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-FICC-2010-08) be,
and hereby is, approved.
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\8\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-33163 Filed 1-3-11; 8:45 am]
BILLING CODE 8011-01-P