[Federal Register: December 14, 2006 (Volume 71, Number 240)]
[Notices]
[Page 75283-75284]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14de06-112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54879; File No. SR-FICC-2006-12]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change Relating to Financial
Responsibility, Operational Capability, Insolvency, and Ceasing To Act
December 6, 2006.
On June 15, 2006 the Fixed Income Clearing Corporation (``FICC'')
filed a proposed rule change with the Securities and Exchange
Commission (``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and on September 22,
2006, amended the proposed rule change. Notice of the proposal was
published in the Federal Register on October 4, 2006.\2\ No comment
letters were received. For the reasons discussed below, the Commission
is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 54570 (Oct. 4, 2006), 71
FR 60591.
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I. Description
The rule change will amend FICC's Government Securities Division's
(``GSD'') and Mortgage Backed Securities Division's (``MBSD'') rules
relating to members' or applicants' financial responsibility,
operational capability, and insolvency and to FICC ceasing to act for
members.
A. Cease To Act and Insolvency Rules
FICC will amend GSD's rules governing when FICC will cease to act
for a member in a noninsolvency situation, GSD Rule 21, and in an
insolvency situation, GSD Rule 22. Such changes will conform GSD's
rules to the rules of FICC's clearing agency affiliate, the National
Securities Clearing Corporation (``NSCC'').
GSD Rule 21, which addressed noninsolvency situations, will be
renamed ``Restriction on Access to Services'' and will be similar to
NSCC Rule 46. While revised Rule 21 is triggered by essentially the
same criteria that are contained in the old GSD rule,\3\ the revised
rule expands the remedies that FICC could exercise beyond only
``ceasing to act'' or ``ceasing to accept data'' on behalf of the
member. Specifically, FICC, after notifying and providing an
opportunity to request a hearing to the member, will be able to
suspend, prohibit, or limit a member's access to one or more of FICC's
services.
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\3\ Such triggers include the member failing to perform its
obligations to FICC and FICC's determination that the member is in
or is approaching financial difficulty.
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GSD Rule 22, which addresses insolvency situations, remains
essentially in its old form except that its close-out provisions are
amended and are being moved to new Rule 22A.
New Rule 22A sets forth the procedures that FICC will follow when
it ceases to act for a member pursuant to either Rule 21 or Rule 22.
Under new Rule 22A, FICC will initiate the close-out process with
respect to a member for which it has ceased to act for any reason
permitted by its rules.\4\ In addition, the term Cut-Off Time for
noninsolvency situations will be added to Rule 22A.\5\ Although this
term is similar to the Time of Insolvency term used in old Rule 22, a
key difference between the terms is that members will be notified in
advance of the Cut-Off Time.
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\4\ Currently, the close-out process applies only when FICC
deems a member insolvent.
\5\ As used in Rule 22A, the term Cut Off Time means the time
that is specified in advance by FICC in a notice to members to be
the time when FICC is deemed to have ceased to act for a member.
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The rule change also makes technical changes to conform existing
references to Rules 21 and 22 throughout GSD's rules to these
revisions.\6\
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\6\ Technical, conforming changes are being made to Rules 1, 3A,
4, 6A, 14 and new Rule 22A.
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B. General Continuance Standards
FICC will add new language to Section 5 of GSD Rule 3 and a new
Section 18, Article III, Rule 1 to MBSD's rules, which will be similar
to NSCC Rule 15, that enables FICC when it deems necessary or advisable
to assure itself of a member's or an applicant's financial
responsibility and operational capability. To assure itself, FICC may,
but is not limited to: restrict or modify the member's use of any or
all of FICC's services; require additional reporting by the member of
its financial or operational condition; increase the member's clearing
fund collateral; alter the proportions of cash, eligible netting
[[Page 75284]]
securities, and letters of credit contributing to the member's required
clearing fund deposits; and prohibit the member from withdrawing excess
clearing fund deposits.\7\
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\7\ These proposed actions are similar to those that FICC has
proposed to undertake with respect to a member undergoing a wind-
down in a rule filing pending with the Commission. SR-FICC-2006-05.
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Because the proposed rule change gives FICC the general authority
to require additional clearing fund collateral when FICC is seeking
additional assurances from a member or applicant, the provisions in
GSD's Rule 4 that require the posting of additional collateral for
specific circumstances are being deleted.
C. Technical Amendments
FICC will make several technical amendments to GSD's and MBSD's
rules. The terms ``Board'' and ``Board of Directors'' will be redefined
to include a committee of FICC's Board of Directors that is acting
under delegated authority of the Board. Accordingly, references to
specific board committees throughout both divisions' rules will be
replaced simply by the term ``Board,'' which will include any such
board committees.
II. Discussion
Section 17A(b)(3)(F) of the Act \8\ requires that the rules of a
clearing agency assure the safeguarding of securities and funds that
are in the custody or control of the clearing agency or for which it is
responsible. The Commission finds that the proposed rule change is
consistent with this obligation because it should enhance FICC's
ability to identify members that present greater financial and
operational risk and expands the remedies available to FICC to protect
itself when dealing with such members. As a result, the proposed rule
change should improve FICC's capacity to safeguard securities and funds
in its custody or control or for which it is responsible.
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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III. 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 \9\ and the
rules and regulations thereunder.
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\9\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-FICC-2006-12) be, and hereby
is, approved.\10\
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\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. E6-21234 Filed 12-13-06; 8:45 am]
BILLING CODE 8011-01-P