[Federal Register Volume 76, Number 45 (Tuesday, March 8, 2011)]
[Notices]
[Pages 12782-12784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5138]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64004; File No. SR-FICC-2011-02]
Self-Regulatory Organizations; The Fixed Income Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Make a Technical, Clarifying Change to the Corporation
Default Rule of the Government Securities Division
March 2, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 17, 2011, The
Fixed Income Clearing Corporation (``FICC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change
described in Items I and II below, which Items have been prepared
primarily by FICC. FICC filed the proposal pursuant to Section
19(b)(3)(A)(i) of the Act \2\ and Rule 19b-4(f)(1) \3\ thereunder so
that the proposal was effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the rule
change from interested parties.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78s(b)(3)(A)(i).
\3\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will make a technical, clarifying change
to the Corporation Default Rule of the Government Securities Division
(``GSD'').
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
[[Page 12783]]
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 statements.\4\
---------------------------------------------------------------------------
\4\ 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 purpose of this rule change is to make a technical, clarifying
change to GSD Rule 22B, entitled ``Corporation Default'' (``Corporation
Default Rule''). FICC adopted the Corporation Default Rule to make
explicit the close-out netting that would be applied to obligations
between FICC and its members in the event that FICC becomes insolvent
or defaults in its obligations to its members.\5\ By way of background,
FICC had been approached by some of its dealer members that had
requested that FICC add a provision to the rules of the GSD to make
explicit the close-out netting of obligations between FICC and its
members in the unlikely event that FICC becomes insolvent or defaults
on its obligations to its members. The members stated that the adoption
of the Corporation Default Rule would provide clarity in their
application of balance sheet netting to their positions with FICC under
U.S. GAAP in accordance with the criteria specified in the Financial
Accounting Standards Board's Interpretation No. 39, ``Offsetting of
Amounts Related to Certain Contracts'' (FIN 39). The members further
stated that the Corporation Default Rule would allow them to comply
with Basel Accord Standards relating to netting. Specifically, firms
are able to calculate their capital requirements on the basis of their
net credit exposure where they have legally enforceable netting
arrangements with their counterparties, which includes a close-out
netting provision in the event of the default of the counterparty (in
this case, the division of FICC acting as a CCP).
---------------------------------------------------------------------------
\5\ SEC Release No. 34-63038, File No. SR-FICC-2010-04 (October
5, 2010).
---------------------------------------------------------------------------
The proposed technical change adds a sentence to the Corporation
Default Rule that reads as follows: ``For purposes of this Rule 22B and
notwithstanding any other provision to the contrary, Novation is deemed
to occur and Deliver Obligations and Receive Obligations established
with respect to all Transactions at the time at which the data
submitted in respect of such Transactions is compared and constitutes a
Compared Trade.'' For purposes of clarity, this sentence brings into
Rule 22B, existing language of other provisions of the GSD's Rules. For
example, GSD Rule 11B (``Guaranty of Settlement'') provides that FICC
shall guarantee the settlement of a trade at the time at which the
comparison of such trade occurs pursuant to the FICC's comparison rules
and that FICC's guaranty means FICC's obligation to novate the deliver,
receive, and payment obligations that were created by the trade. The
addition of the proposed sentence in the Corporation Default Rule
clarifies that trades that have been compared and therefore guaranteed
by the GSD shall be deemed novated at the time of comparison for
purposes of Rule 22B and therefore included in the close-out netting
calculation that would be performed in the event of an FICC default
pursuant to Rule 22B.
FICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations thereunder applicable to FICC because it provides members
with further clarity with respect to the Corporation Default Rule and
net credit exposure where members have legally enforceable netting
arrangements with their counterparties.
---------------------------------------------------------------------------
\6\ 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 any
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 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 proposed rule change has become effective upon filing
pursuant to Section 19(b)(3)(A)(i) of the Act \7\ and Rule 19b-4(f)(1)
\8\ thereunder because the proposed rule change constitutes a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule. 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.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(3)(A)(i).
\8\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
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 [email protected]. Please include
File Number SR-FICC-2011-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FICC-2011-02. 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 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
a.m. and 3 p.m. 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.dtcc.com/downloads/legal/rule_filings/2011/ficc/2011-02.pdf. All comments received will be posted without change;
the Commission does not edit personal identifying
[[Page 12784]]
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-FICC-2011-02 and should be submitted on or before March
29, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5138 Filed 3-7-11; 8:45 am]
BILLING CODE 8011-01-P