[Federal Register: January 30, 2004 (Volume 69, Number 20)]
[Notices]
[Page 4547-4548]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja04-100]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49125; File No. SR-FICC-2003-01]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to the
Implementation of Fines
January 26, 2004.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 3, 2003, the Fixed
Income Clearing Corporation (``FICC'') filed with the Securities and
Exchange Commission (``Commission'') and on January 8, 2003, and June
8, 2003, amended the proposed rule change as 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 persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change implements fines for the failure to timely
submit required financial reports and to meet certain additional
reporting requirements. The proposed rule change also eliminates a
provision in FICC's rules allowing foreign members to prepare their
financial statements in accordance with accounting standards other than
U.S. Generally Accepted Accounting Principles (``GAAP'').
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.\2\
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\2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Pursuant to section 5 of Rule 2 of the rules of the Government
Securities Division of FICC and section 10 of Rule 2 of Article III of
the rules of the Mortgage Backed Securities Division of FICC and in
furtherance of FICC's obligation to minimize risk to all members, FICC
requires that on a periodic basis members submit to FICC financial
reports detailing certain information about their financial status.\3\
These reports submitted by members are crucial to FICC surveillance
procedures because they allow FICC credit risk personnel to review and
monitor the financial condition of members. While the majority of FICC
members satisfy their reporting obligations in a timely manner, from
time to time certain FICC members fail to submit their reports to FICC
on time. The lack of timely submissions adversely affects FICC's
financial surveillance processes and ultimately creates risk for FICC
and its members. To remedy this situation, FICC is proposing the
implementation of a fine schedule in order to promote improved
compliance with reporting timeframes.
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\3\ These reports include monthly FOCUS and FOGS reports,
quarterly CALL reports, annual audited financial statements, and
other periodic financial data as outlined in FICC's rules.
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Historically, GSCC and MBSCC, FICC's predecessors, have instituted
fines and late fees in order to enforce various deadlines, rules, and
procedures. Since February 2002, GSCC has been charging members fees
for failure to timely provide repo collateral substitution
notifications. In July 2001, GSCC began imposing fees on those members
who submit trade data on a non-interactive basis. In addition, since
1998 GSCC has had the authority to impose fines in order to promote
greater compliance with its funds settlement debit and clearing fund
deposit deficiency call deadlines. MBSCC likewise charges members
additional fees for late payment of settlement balance order market
differential payments and cash adjustment payments.
As with other fines that are currently in place, members will have
the ability to contest the proposed fines through the process set forth
in Rule 37 of the Government Securities Division's rules and Rule 7 of
Article V of the Mortgage Backed Securities Division's rules.
FICC is also proposing to amend the rules of both the Government
Securities Division and the Mortgage Backed Securities Division to
require members to submit to FICC, concurrently with their submission
to the applicable regulator, copies of such filings as determined by
FICC from time to time, which members are required to file pursuant to
the Sarbanes-Oxley Act of 2002 (and any amendments thereunder). In
addition, FICC is proposing to amend the rules of the Government
Securities Division to require members to submit to FICC, concurrently
with their submission to the applicable regulator, all reports or other
notifications required to be filed when their capital levels fall below
required minimums.\4\
[[Page 4548]]
Section 5 of Rule 2 allows non-U.S. members to submit, among other
things, to FICC audited financial statements and other financial
information that has been prepared in accordance with U.S. GAAP,
International Accounting Standards, or United Kingdom GAAP. In the
filing, FICC is proposing to amend this section to require the
financial information submitted to it to be prepared only in accordance
with U.S. GAAP.
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\4\ Both divisions require broker-dealer participants to submit
copies of supplemental reports filed pursuant to Rule 17a-11 under
the Act to FICC concurrently with their submission to the
Commission. Rule 17a-11 requires registered broker-dealers to notify
the Commission of a decline in net capital below minimum Commission
requirements. However, participants (including broker-dealer
participants) may have other similar regulatory notification
requirements (imposed by the Commission or another regulator or
similar authority) when their capital levels or other financial
requirements fall below required levels. The rules of the Mortgage
Backed Securities Division were recently amended to include the
requirement that participants submit such notifications to FICC
concurrently with their submission to the relevant regulatory
authority. (See amendment 3 to SR-MBSCC-2001-06, Securities Exchange
Act Release No. 45604 (March 20, 2002), 67 FR 14755, which is
currently pending with the Commission). This present rule filing
imposes the same requirement in the rules of the Government
Securities Division.
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FICC believes the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
because it allows FICC to monitor the financial condition of members
more completely and on a timely basis, thereby limiting the risk to
FICC and its members.
(B) Self-Regulatory Organization's Statement on Burden on Competition
FICC does not believe that the proposed rule change would have an
impact on or impose a 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 nor 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to ninety days of such date if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as
to which the self-regulatory organization consents, the Commission
will:
(a) By order approve the proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-FICC-2003-01. 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, comments should be sent in
hardcopy or by e-mail but not by both methods. 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 will also be available for inspection and copying
at the principal office of FICC and on FICC's Web site at http://www.ficc.com.
All submissions should refer to the File No. SR-FICC-
2003-01 and should be submitted by February 20, 2004.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-1955 Filed 1-29-04; 8:45 am]
BILLING CODE 8010-01-P