[Federal Register: July 15, 2004 (Volume 69, Number 135)]
[Notices]
[Page 42488-42489]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy04-111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49989; File No. SR-FICC-2004-12]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Amend the Fee Structure of the Government Securities Division Regarding
Late Notifications of Repo Collateral Substitutions and to Designate an
Additional High Volume Repo Substitution Day Trigger
July 8, 2004.
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 June 15, 2004, 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 proposed rule
change pursuant to Section 19(b)(3)(A) under the Act \3\ and Rule 19b-
4(f)(6) thereunder \4\ whereby the proposal is effective upon filing
with the Commission. 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)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to amend the fee
structure of FICC's Government Securities Division (``GSD'') regarding
late notifications of repo collateral substitutions and to designate an
additional high volume repo substitution day trigger.
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 such statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Proposed Fee Structure Amendment
The GSD's Rules contain two deadlines for the submission of
required repo collateral substitution notifications to FICC: (i) A
deadline of noon, after which the dealer member that initiated the
substitution is subject to a late fee of $500 per substitution
notification and (ii) an absolute deadline of 12:30 p.m., after which
the rules require that the GSD reject the substitution notification.
FICC extends the noon and 12:30 p.m. submission deadlines by one hour
on those days that The Bond Market Association (``TBMA'') announces in
advance will be high volume days. FICC also can trigger the designation
of a day as a high volume day.
The proposed rule filing: (i) Lowers the $500 late fee to $100 for
notifications received after the noon deadline, (ii) removes the
absolute deadline of 12:30 p.m. after which time notifications are to
be rejected, (iii) provides that notifications received after the 12:30
p.m. deadline will be processed by FICC on a good faith basis only, and
(iv) imposes a fee of $250 for notifications received and processed
after the 12:30 p.m. deadline. These changes are being done in
consideration of the manual process currently involved in submitting
the required notifications. Specifically, FICC provides a substitution
notification screen that participants use to submit collateral
substitution requests to FICC. However, the process required to
complete the notification screen is labor intensive and subject to the
typical inefficiencies and errors associated with manual processing.
Furthermore, regarding repos done on a blind-brokered basis, which is
how the vast majority of repos are executed, the repo dealer must
contact the repo broker to arrange for the substitution since the repo
dealer does not know its original counterparty. The repo broker then
contacts the reverse repo dealer to notify it of the substitution. The
interaction between repo brokers and counterparty dealers further
lengthens the time required to effect a substitution notification. In
certain instances, the assessments of fees against the initiating-
dealer counterparty have resulted in painstaking efforts to
``identify'' the FICC member that caused the late notification. These
efforts may at times strain the critical relationships between repo
brokers and dealers.
FICC believes that until it provides a more comprehensive automated
service for facilitating the timely and efficient processing of
collateral substitution notifications to members, it is inappropriate
to impose an absolute deadline after which it rejects a substitution
notification. FICC proposes that any notification received after 12:30
p.m. be processed on a good faith basis only and subject to a late fee
of $250 if processed by FICC. Also for this reason, FICC believes that
the fee associated with the late submission of such notifications
should be lowered to $100 for notifications received after 12 p.m. The
12 p.m. and 12:30 p.m. deadlines will continue to be extended by an
hour on those days indicated by TBMA as high volume repo substitution
days as well as those days which FICC designates as high volume days.
2. Designation of an Additional High Volume Repo Substitution Day
Trigger
As stated above, FICC extends the noon and 12:30 p.m. submission
deadlines by one hour on those days that TBMA announces in advance will
be high volume days. The rules currently provide FICC with the
authority to trigger a designation of a high volume day as well.\5\ Up
until this point, the event used by FICC to trigger a high volume day
has been the receipt of more than 150 collateral substitution
notifications in the aggregate by the GSD's repo broker members.
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\5\ This authority was given to the Government Securities
Clearing Corporation (``GSCC''), FICC's predecessor. Securities
Exchange Act Release No. 46855 (November 20, 2002), 67 FR 70987.
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FICC, after consultation with TBMA and its members, now seeks to
designate the receipt by any one repo broker of 40 or more collateral
substitution notifications as another high volume day trigger. FICC has
experienced days where the number of notifications did
[[Page 42489]]
not exceed 150 across all of the repo brokers, but one or more repo
brokers have each received 40 or more requests. Such a large number of
requests was and continues to be extremely burdensome on repo brokers,
and with such large numbers, they are not able to timely submit the
information to FICC. Therefore, FICC believes the receipt of 40 or more
notifications by any one repo broker should also be a trigger for a
high volume day.
The proposed rule change is consistent with Section 17A of the Act
\6\ and the rules and regulations thereunder because it is designed to
promote the prompt and accurate clearance and settlement of securities
transactions by setting forth more practical and less burdensome
operating standards for the repo service.
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\6\ 15 U.S.C. 78q-1.
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(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 yet
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
FICC has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\8\ Because the foregoing proposed rule change (1) does not
significantly affect the protection of investors or the public
interest, (2) does not impose any significant burden on competition,
and (3) does not become operative for 30 days from the date of filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
and Rule 19b-4(f)(6) thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
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Rule 19b-4(f)(6)(iii) also requires a self-regulatory organization
to provide the Commission with written notice of its intent to file a
proposed rule change pursuant to Rule 19b-4(f)(6) along with a brief
description and text of the proposed rule change at least five business
days prior to filing the proposed rule change, or such shorter time as
the Commission designates. FICC complied with this requirement.
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Commission is waiving the 30-day
operative delay to allow FICC and its members to immediately benefit
from the rule change. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest.\9\
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\9\ For purposes only of accelerating the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate 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.
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-2004-12 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-2004-12. 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 filing 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-2004-12 and should be submitted on
or before August 5, 2004.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16050 Filed 7-14-04; 8:45 am]
BILLING CODE 8010-01-P