[Federal Register: December 3, 2003 (Volume 68, Number 232)]
[Notices]
[Page 67709-67711]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03de03-103]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48848; File No. SR-FICC-2003-07]
Self-Regulatory Organization; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Rebates to Members
November 26, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 67710]]
(``Act''),\1\ notice is hereby given that on August 5, 2003, Fixed
Income Clearing Corporation (``FICC''),\2\ filed with the Securities
and Exchange Commission (``Commission'') 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 parties.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ The Government Security Clearing Corporation (``GSCC'') and
the MBS Clearing Corporation (``MBSCC'') merged into the Fixed
Income Clearing Corporation (``FICC'') effective January 1, 2003.
FICC operates through two divisions, the Government Securities
Division (the ``GSD,'' formerly GSCC) and the Mortgage-Backed
Securities Division (``MBSD,'' formerly MBSCC). Each division has
retained its own set of rules. This rule filing will address changes
to the rules of GSD.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substances
of the Proposed Rule Change
The purpose of the proposed rule change is to allow FICC to modify
how rebates are calculated and distributed under Section IX of the
Government Securities Division (``GSD'') fee structure.
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 these
statements.\3\
---------------------------------------------------------------------------
\3\ 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 GSD's rules currently provide for FICC's periodic disbursement
of rebates of excess net income back to GSD members (``Rebate
Policy'').\4\ At the time the Rebate Policy was established by GSCC,
management and the board of directors determined that $30 million in
shareholders' equity was sufficient to provide GSCC adequate risk
protection and also to provide a monetary ``cushion'' for temporary
losses and decreases in volumes. Pursuant to the Rebate Policy,
shareholders' equity over and above the $30 million threshold would be
rebated, pro rata, to members.
---------------------------------------------------------------------------
\4\ GSCC established the Rebate Policy in 2001, Securities
Exchange Act Release No. 44502 (July 2, 2001), 66 FR 36351 (July 11,
2001) [SR-GSCC-2001-05].
---------------------------------------------------------------------------
Subsequent to implementing the Rebate Policy, several events
occurred which adversely impacted GSCC's, and later FICC's, ability to
issue the rebates as planned. Due to the terrorist attacks on the World
Trade Center on September 11, 2001, GSCC experienced a inordinate
number of operational problems that resulted in increased interest
payment obligations and liability issues. These matters were not fully
resolved until the fourth quarter of 2002 and ultimately resulted in a
reduction of GSCC's capital to $29.2 million, below the threshold
provided for in GSCC's rules pertaining to the Rebate Policy. The
events of 9/11 also made the need for dramatically improved business
continuity planning of paramount importance. Industry consensus as to
how to best achieve improvements in this area were being developed on
an ongoing basis which makes it difficult for GSCC to anticipate future
expenses. Finally, following the merger of GSCC and MBSCC to create
FICC, the Fixed Income Operations and Planning Committee approved an
increase in the amount of the GSD's shareholders' equity required
before a rebate from the $30 million minimum to $35 million.
FICC is now in a position in this calendar year (2003) to
distribute rebates to GSD members due to an adequate level of
shareholder equity and higher-than-anticipated income levels at the
GSD. In an effort to make the process of distributing these rebates as
fair as possible to all GSD members and also to allow FICC sufficient
flexibility to address adverse business and risk conditions, FICC is
proposing to modify the GSD's Rebate Policy.
Going forward, when calculating rebate amounts, the GSD will take
into account each member's payment of comparison, netting, and
clearance fees paid to the GSD. While previously only comparison and
netting fees were considered, FICC has reconsidered this formula and
believes that the inclusion of clearance fees in the rebate calculation
will result in a fairer distribution of rebates to all members. When
rebates are calculated, GSD members who paid the highest gross amount
in all of these fees combined will receive the largest rebates.\5\ In
addition, in order to adequately take into account unexpected expenses
in a rapidly changing business environment and allow for flexibility in
rebate calculation in instances of a member's consolidation or merger,
FICC will alter the GSD's Rebate Policy to allow the GSD needed
flexibility in determining when rebates should be distributed and the
amount of each rebate allotted members. FICC believes that these
changes will result in a Rebate Policy that is equitable to the GSD
members while also allowing FICC to protect its members by maintaining
sufficient shareholders' equity for business and risk management
purposes.
---------------------------------------------------------------------------
\5\ Rebate amounts will be adjusted for miscellaneous charges as
the rule currently provides today.
---------------------------------------------------------------------------
FICC anticipates distributing rebates using the revised formula in
August of 2003 (subject to Board consideration and approval). The
August rebates will take into account fees paid by members from January
1 through June 30, 2003.
The proposed rule change is consistent with Section 17A(b)(3)(F) of
the Act \6\ and the rules and regulations thereunder because it will
allow FICC to fulfill its mission of operating in a not-for-profit
manner consistent with maintaining the integrity of FICC's capital
base, financial structure, and risk management process.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 77(q-1)(b)(3)(F).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
FICC does not believe that the proposed rule change will 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 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 rule change will take effect upon filing pursuant to
Section 19(b)(3)(A)(ii) of the Act \7\ and Rule 19b-4(f)(2) \8\
thereunder because the proposed rule constitutes a due, fee, or other
charge. At any time within sixty days of the filing of such rule
change, the Commission could have summarily abrogated 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)(ii).
\8\ 17 CFR 240.19b-4(f)(2)
---------------------------------------------------------------------------
[[Page 67711]]
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-2003-07. This file number should be included on the
subject line if e-mail is used. To help us process and review 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 20549-0609.
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/gov/gov.other.docs.jsp?NS-query=.com.
All submissions
should refer to File No. SR-FICC-2003-07 and should be submitted by
December 24, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30051 Filed 12-2-03; 8:45 am]
BILLING CODE 8010-01-M