[Federal Register Volume 69, Number 18 (Wednesday, January 28, 2004)]
[Notices]
[Pages 4193-4194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1758]



[[Page 4193]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49113; File No. SR-FICC-2003-08]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change to Add Adjustable-Rate 
Mortgage Pass-Through Securities to the GCF Repo Service Repurchase 
Service

January 22, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 11, 2003, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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.
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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

    FICC is seeking to add adjustable-rate mortgage pass-through 
securities (``ARMS'') to the GCF Repo service.

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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by FICC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Government Securities Division (``GSD'') of FICC currently 
accepts Fannie Mae (``FNMA''), Freddie Mac (``FHLMC''), and Ginnie Mae 
(``GNMA'') fixed-rate mortgage pass-through securities (``FRMs'') as 
repurchase agreement collateral in its GCF Repo service.\3\ The GSD is 
proposing to add ARMS \4\ to the GCF Repo service and to amend the GSD 
Rules to include the appropriate schedules of margin factors, offset 
classes, and disallowances as they pertain to ARMS.\5\
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    \3\ The GSD's GCF Repo service enables dealer members to freely 
and actively trade GCF Repos throughout the day without requiring 
intraday, trade-for-trade settlement on a delivery-versus-payment 
basis.
    \4\ ARMS are mortgage loans in which the contract rates are 
reset periodically at a predetermined spread (or margin) over a 
specified reference index (such as the one-year Constance Maturity 
Treasury or 6 month LIBOR).
    \5\ The GSD is also proposing to make technical corrections to 
the relevant schedules to remove references to ``GSCC'' or to 
replace them with references to the Government Securities Division 
as appropriate.
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    The GSD believes that ARMS make a logical addition to the 
categories of securities currently processed in the GCF Repo service 
for several reasons. ARMS are generally less risky to FICC and 
investors than FRMs due to their rate reset feature and faster 
prepayment rates. Both of these factors contribute to shorter effective 
duration and price fluctuations, resulting in lower margin factors as 
compared to FRMs. In addition, the correlation factors between ARMS and 
Treasuries are generally higher than those between FRMs and Treasuries 
because adjustable rates reflect more of the current rate conditions 
than fixed rates. Thus, the disallowance factors of ARMS versus 
Treasuries are smaller than those of FRMs versus Treasuries.
    FICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder applicable to FICC because it will promote the 
prompt and accurate clearance and settlement of securities transactions 
by enabling the GSD to provide the benefits of its netting, risk 
management, and settlement services to an expanded pool of securities 
for its GCF 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

    Within thirty-five 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 such 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: [email protected]. All comment letters should refer to 
File No. SR-FICC-2003-08. 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 also will be available for inspection and copying 
at the principal office of FICC and on FICC's website at http://www.ficc.com.
    All submissions should refer to File No. SR-FICC-2003-08 and should 
be submitted by February 18, 2004.


[[Page 4194]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1758 Filed 1-27-04; 8:45 am]
BILLING CODE 8010-01-P