[Federal Register Volume 69, Number 135 (Thursday, July 15, 2004)]
[Notices]
[Pages 42488-42489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16050]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49989; File No. SR-FICC-2004-12]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend the Fee Structure of the Government Securities Division Regarding 
Late Notifications of Repo Collateral Substitutions and to Designate an 
Additional High Volume Repo Substitution Day Trigger

July 8, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on June 15, 2004, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I and II below, which Items 
have been prepared primarily by FICC. FICC filed the proposed rule 
change pursuant to Section 19(b)(3)(A) under the Act \3\ and Rule 19b-
4(f)(6) thereunder \4\ whereby the proposal is effective upon filing 
with the Commission. 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).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to amend the fee 
structure of FICC's Government Securities Division (``GSD'') regarding 
late notifications of repo collateral substitutions and to designate an 
additional high volume repo substitution day trigger.

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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Proposed Fee Structure Amendment
    The GSD's Rules contain two deadlines for the submission of 
required repo collateral substitution notifications to FICC: (i) A 
deadline of noon, after which the dealer member that initiated the 
substitution is subject to a late fee of $500 per substitution 
notification and (ii) an absolute deadline of 12:30 p.m., after which 
the rules require that the GSD reject the substitution notification. 
FICC extends the noon and 12:30 p.m. submission deadlines by one hour 
on those days that The Bond Market Association (``TBMA'') announces in 
advance will be high volume days. FICC also can trigger the designation 
of a day as a high volume day.
    The proposed rule filing: (i) Lowers the $500 late fee to $100 for 
notifications received after the noon deadline, (ii) removes the 
absolute deadline of 12:30 p.m. after which time notifications are to 
be rejected, (iii) provides that notifications received after the 12:30 
p.m. deadline will be processed by FICC on a good faith basis only, and 
(iv) imposes a fee of $250 for notifications received and processed 
after the 12:30 p.m. deadline. These changes are being done in 
consideration of the manual process currently involved in submitting 
the required notifications. Specifically, FICC provides a substitution 
notification screen that participants use to submit collateral 
substitution requests to FICC. However, the process required to 
complete the notification screen is labor intensive and subject to the 
typical inefficiencies and errors associated with manual processing. 
Furthermore, regarding repos done on a blind-brokered basis, which is 
how the vast majority of repos are executed, the repo dealer must 
contact the repo broker to arrange for the substitution since the repo 
dealer does not know its original counterparty. The repo broker then 
contacts the reverse repo dealer to notify it of the substitution. The 
interaction between repo brokers and counterparty dealers further 
lengthens the time required to effect a substitution notification. In 
certain instances, the assessments of fees against the initiating-
dealer counterparty have resulted in painstaking efforts to 
``identify'' the FICC member that caused the late notification. These 
efforts may at times strain the critical relationships between repo 
brokers and dealers.
    FICC believes that until it provides a more comprehensive automated 
service for facilitating the timely and efficient processing of 
collateral substitution notifications to members, it is inappropriate 
to impose an absolute deadline after which it rejects a substitution 
notification. FICC proposes that any notification received after 12:30 
p.m. be processed on a good faith basis only and subject to a late fee 
of $250 if processed by FICC. Also for this reason, FICC believes that 
the fee associated with the late submission of such notifications 
should be lowered to $100 for notifications received after 12 p.m. The 
12 p.m. and 12:30 p.m. deadlines will continue to be extended by an 
hour on those days indicated by TBMA as high volume repo substitution 
days as well as those days which FICC designates as high volume days.
2. Designation of an Additional High Volume Repo Substitution Day 
Trigger
    As stated above, FICC extends the noon and 12:30 p.m. submission 
deadlines by one hour on those days that TBMA announces in advance will 
be high volume days. The rules currently provide FICC with the 
authority to trigger a designation of a high volume day as well.\5\ Up 
until this point, the event used by FICC to trigger a high volume day 
has been the receipt of more than 150 collateral substitution 
notifications in the aggregate by the GSD's repo broker members.
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    \5\ This authority was given to the Government Securities 
Clearing Corporation (``GSCC''), FICC's predecessor. Securities 
Exchange Act Release No. 46855 (November 20, 2002), 67 FR 70987.
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    FICC, after consultation with TBMA and its members, now seeks to 
designate the receipt by any one repo broker of 40 or more collateral 
substitution notifications as another high volume day trigger. FICC has 
experienced days where the number of notifications did

[[Page 42489]]

not exceed 150 across all of the repo brokers, but one or more repo 
brokers have each received 40 or more requests. Such a large number of 
requests was and continues to be extremely burdensome on repo brokers, 
and with such large numbers, they are not able to timely submit the 
information to FICC. Therefore, FICC believes the receipt of 40 or more 
notifications by any one repo broker should also be a trigger for a 
high volume day.
    The proposed rule change is consistent with Section 17A of the Act 
\6\ and the rules and regulations thereunder because it is designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions by setting forth more practical and less burdensome 
operating standards for the 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

    FICC has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\8\ Because the foregoing proposed rule change (1) does not 
significantly affect the protection of investors or the public 
interest, (2) does not impose any significant burden on competition, 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    Rule 19b-4(f)(6)(iii) also requires a self-regulatory organization 
to provide the Commission with written notice of its intent to file a 
proposed rule change pursuant to Rule 19b-4(f)(6) along with a brief 
description and text of the proposed rule change at least five business 
days prior to filing the proposed rule change, or such shorter time as 
the Commission designates. FICC complied with this requirement.
    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Commission is waiving the 30-day 
operative delay to allow FICC and its members to immediately benefit 
from the rule change. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest.\9\
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    \9\ For purposes only of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate 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.

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. Comments may be submitted by any of 
the following methods:

Electronic comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-FICC-2004-12 on the subject line.

Paper comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-FICC-2004-12. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site at http://www.ficc.com. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2004-12 and should be submitted on 
or before August 5, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16050 Filed 7-14-04; 8:45 am]
BILLING CODE 8010-01-P