[Federal Register: January 25, 2007 (Volume 72, Number 16)]
[Notices]
[Page 3450]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ja07-85]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55134; File No. SR-FICC-2006-14]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Granting Approval of Proposed Rule Change Relating To Returning
Excess Clearing Fund Collateral
January 19, 2007.
I. Introduction
On September 22, 2006, the Fixed Income Clearing Corporation
(``FICC'') submitted to the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend FICC's Government Securities Division's
(``GSD'') rules to permit GSD members to request the return of their
excess clearing fund collateral held on deposit with FICC on a more
frequent basis than is currently allowed under GSD's rules. The
proposed rule change was published for comment in the Federal Register
on November 27, 2006.\3\ 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\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 54787 (Nov. 20, 2006),
71 FR 68664.
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II. Description of the Proposal
Prior to this rule change, GSD members were permitted to request
the return of excess clearing fund collateral once per month.\4\ In
addition, on any business day, if a GSD member had exceeded its
required clearing fund obligation by $5 million or more, the member
could request the return of the excess deposit provided that, among
other requirements, the return would not result in the member having a
clearing fund deposit amount of less than the greater of (1) 110
percent of the member's clearing fund requirement or (2) $1 million
more than its required clearing fund deposit.
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\4\ Excess clearing fund is the amount of collateral held on
deposit at GSD that is greater than a member's required clearing
fund deposit as set forth in GSD Rule 4 (Clearing Fund, Watch List
and Loss Allocation).
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In an effort to harmonize GSD's process with respect to the return
of excess collateral with the processes of other Depository Trust &
Clearing Corporation (``DTCC'') subsidiary clearing agencies, FICC is
changing GSD's rules to give GSD the discretion to return excess
clearing fund more frequently and without regard to the limitations
noted above.\5\ Although the rule change will enable GSD members to
request the return of excess clearing fund on a daily basis, GSD will
retain the right to deny the return of some or all of a member's excess
collateral if: (i) The member has an outstanding payment obligation to
FICC; (ii) the member's funds-only settlement amounts or net settlement
positions over the upcoming 90 days may reasonably be expected to be
materially different than those of the preceding 90 days; (iii) the
member is on the watch list; or (iv) the return of excess clearing fund
will cause the member to be in violation of another GSD rule. In
addition, excess clearing fund would not be returned to a member if
doing so would reduce a member's cross-guaranty repayment deposit or
cross-margining repayment deposit to the clearing fund below the
required amount.\6\
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\5\ The rules of the National Securities Clearing Corporation
(``NSCC'') and FICC's Mortgage Backed Securities Division (``MBSD'')
permit their respective members to request under normal
circumstances the return of their excess clearing fund.
\6\ Under GSD's rules, a ``cross-guaranty repayment deposit'' is
a deposit to the clearing fund required to be made by a cross-
guaranty beneficiary member pursuant to Rule 41, Section 4 of GSD's
Rules. A ``cross-margining repayment deposit'' is a deposit to the
clearing fund required to be made by a cross-margining beneficiary
participant pursuant to Rule 43, Section 6 of GSD's Rules.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a registered clearing agency. In particular,
the Commission believes the proposal is consistent with the
requirements of Section 17A(b)(3)(F),\7\ which, among other things,
requires the rules of a clearing agency to assure the safeguarding of
securities and funds that are in the custody or control of the clearing
agency or for which it is responsible. Although the rule change will
enable FICC members to request and receive an earlier return of excess
clearing fund collateral, FICC will retain explicit rights to deny such
return requests when doing so would subject FICC to undue risks.
Accordingly, the proposed rule change will assure FICC's ability to
safeguard securities and funds in its possession or control or for
which it is responsible.
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\7\ 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 \8\ and the
rules and regulations thereunder.
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\8\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-FICC-2006-14) be,
and hereby is, approved.\10\
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\9\ 15 U.S.C. 78s(b)(2).
\10\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-1107 Filed 1-24-07; 8:45 am]
BILLING CODE 8011-01-P