[Federal Register Volume 69, Number 30 (Friday, February 13, 2004)]
[Notices]
[Pages 7273-7274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49212; File No. SR-FICC-2003-05]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Additional 
Account Structures

February 9, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 9, 2003, the Fixed 
Income Clearing Corporation (``FICC'') 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 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 would amend the rules of both the 
Government Securities Division (``GSD'') and the Mortgage-Backed 
Securities Division (``MBSD'') of FICC with respect to their additional 
account structures.

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

    GSD and MBSD both permit members to open and maintain accounts in 
addition to their primary accounts. Additional accounts developed as an 
administrative convenience provided to members who wanted to keep 
certain activities segregated from their primary accounts. The proposed 
rule change would address certain legal risks associated with these 
accounts.
Government Securities Division
    For each additional account opened for a member, GSD assigns a 
unique participant ID number and separately calculates daily clearing 
fund requirements, funds-only settlement requirements, and net 
settlement positions based solely upon the activity in the additional 
account.\3\ Currently, the opening and maintenance of additional 
accounts requested by a GSD member is governed by an agreement between 
the member and GSD.\4\ Pursuant to the additional account agreement, 
the member agrees to be responsible for all of the obligations and 
liabilities associated with the additional account; however, GSD's 
rules do not address the opening and maintenance of these additional 
accounts.\5\
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    \3\ The maintenance of such accounts has billing implications as 
set forth in GSD's fee structure.
    \4\ The additional account structure permitted by GSD should be 
contrasted with GSD's executing firm feature, which permits a member 
to submit trades of a non-GSD member with which the member has a 
correspondent relationship. Executing firm trades are commingled 
with the member's own trades in the member's GSD account and are not 
separated from the member's other activity (including other 
executing firm activity) for any purpose. Therefore, the member's 
clearing fund requirement, funds-only settlement requirement, and 
net settlement position reflects all executing firm activity in its 
GSD account.
    \5\ The only exceptions to this are with respect to repo brokers 
who are expressly required to open second accounts for their 
brokered repo activity and GSD's fee structure which includes 
charges associated with the maintenance of additional accounts.
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    The proposed rule change would reflect the principles set forth in 
the additional account agreement and those that FICC management has 
defined to govern these accounts. Specifically, additional accounts 
that are opened for someone other than a member itself or for the 
member's wholly-owned subsidiary shall require the approval of FICC's 
Membership and Risk Management Committee. The proposed rule change 
makes clear that GSD members will be responsible for all of the 
obligations arising under GSD's rules that are associated with 
additional accounts. The additional account entity will not have any 
proprietary interest with respect to the additional account, and will 
not have any rights or privileges of GSD members. GSD will have the 
right to deny the opening of an additional account if it believes that 
the additional account entity presents risk to FICC, such as legal risk 
from an insolvency regime that is adverse to GSD's rights.

[[Page 7274]]

Mortgage-Backed Securities Division
    Currently, MBSD rules expressly permit participants to open 
additional accounts upon request for themselves or for any other 
entity. FICC has reviewed MBSD's current rules and is proposing to 
enhance them by making clear that (i) additional account holders do not 
have membership or property rights with respect to additional accounts 
and (ii) MBSD may apply collateral associated with one account of a 
participant to satisfy obligations among any or all of that 
participant's accounts. These provisions will serve to protect MBSD in 
the event an additional account holder makes a claim with respect to 
the property, proceeds, or collateral associated with the activity of 
the account.
    FICC believes the proposed rule change is consistent with the 
requirements of section 17A of the Act and the rules and regulations 
thereunder because it addresses and limits the legal risk to FICC and 
its members that arises from the opening and maintenance of additional 
accounts.

(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 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 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: [email protected]. All comment letters should refer to 
File No. SR-FICC-2003-05. 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/gov/gov.docs.jsp?NS-query and at http://www.ficc.com/mbs/mbs.docs.jsp/NS-query. All submissions should refer to the File No. SR-
FICC-2003-05 and should be submitted by March 5, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-3193 Filed 2-12-04; 8:45 am]
BILLING CODE 8010-01-P