[Federal Register Volume 69, Number 184 (Thursday, September 23, 2004)]
[Notices]
[Pages 57111-57113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2351]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50402; File No. SR-FICC-2004-01]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend the Government 
Securities Division and the Mortgage-Backed Securities Division 
Membership Rules

September 16, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 9, 2004, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') and on April 28, 2004, amended 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).

---------------------------------------------------------------------------

[[Page 57112]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FICC is seeking to amend the membership rules of its Government 
Securities Division (``GSD'') and its Mortgage-Backed Securities 
Division (``MBSD'') to (1) eliminate the requirement that the 
conversion to U.S. dollars be made by the applicant or member prior to 
submitting financial information to FICC unless such conversion is 
specifically requested by FICC, (2) eliminate the requirement that FICC 
make a determination as to the adequacy of an applicant's personnel, 
physical facilities, books and records, accounting systems, or internal 
procedures, (3) require that a non-U.S. applicant represent to FICC in 
writing that it is regulated in a way that is generally comparable to 
the way in which domestic FICC members are regulated, (4) add a 
requirement to the GSD's rules that a non-U.S. netting applicant 
represent in writing that it is in compliance with the financial 
reporting and responsibility standards of its home country, and (5) 
eliminate the requirement that GSD comparison-only applicants submit 
financial information to FICC.

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\
---------------------------------------------------------------------------

    \2\ 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

1. Amend the Rules of the GSD and MBSD That Require Financial 
Information Submitted by an Applicant To Be in Dollar Equivalents
    When FICC receives financial information from non-U.S. members and 
applicants, FICC's credit risk staff will perform the conversion to 
U.S. dollars whenever it is necessary and is comfortable doing so. The 
credit risk staff performs the conversion as of the date of the 
financial statements. Therefore, FICC is proposing to eliminate the 
current requirement that the conversion to U.S. dollars be made by the 
applicant or member prior to submitting financial information to FICC 
unless such conversion is specifically requested by FICC.
2. Amend the Operational Capability Requirement Contained in the Rules 
of the GSD and the MBSD
    FICC's current operational capability rules are too broad and 
impose upon FICC an obligation to make determinations with respect to 
the operational capability of an applicant or member that FICC staff is 
not equipped or trained to make.\3\ Such determinations are more 
appropriately left to the applicant or member's designated examining 
authority. The operational capability aspect that is relevant to FICC 
and upon which FICC must make a determination is the ability of an 
applicant or member to send input to FICC and to receive output from 
FICC on a timely and accurate basis. Therefore, FICC is seeking to 
eliminate the requirement that it make a determination as to the 
adequacy of an applicant's personnel, physical facilities, books and 
records, accounting systems, or internal procedures.
---------------------------------------------------------------------------

    \3\ For example, the GSD rules currently require that a 
determination be made with respect to whether the membership 
applicant has adequate personnel, physical facilities, and 
accounting systems, among other things, to satisfactorily handle 
transactions.
---------------------------------------------------------------------------

3. Amend the Comparability Requirement of the GSD's Rules for Non-U.S. 
Members
    The GSD rules currently provide that a non-U.S. entity shall be 
eligible to become a netting member if FICC has determined that the 
entity is regulated in its home country in a way that is generally 
comparable to the way in which similar domestic members are regulated. 
The comparability determination has been difficult to make because 
there is no objective set of guidelines that FICC can use to confirm 
the comparability requirement. As a result, comparability 
determinations have necessarily become judgment calls made by FICC 
staff using information provided by the applicant.
    Because the netting service is a guaranteed service and FICC only 
accepts regulated entities as members, FICC should focus on making sure 
that its non-U.S. members (as is the case with its domestic members) 
are regulated by a financial regulatory authority in their home country 
in certain key areas as opposed to being concerned with 
``comparability'' of regulation. These key areas are maintenance of 
relevant books and records, regular inspections and examinations, and 
minimum financial standards. Therefore, FICC is proposing to amend the 
comparability requirement to require that the applicant represent to 
FICC in writing that it is regulated in these key areas.\4\ In 
conjunction with this change, FICC is also proposing to add a 
requirement to the GSD's rules that a non-U.S. netting applicant 
represent in writing that it is in compliance with the financial 
reporting and responsibility standards of its home country.\5\
---------------------------------------------------------------------------

    \4\ This approach is currently used by the Emerging Markets 
Clearing Corporation (``EMCC'').
    \5\ Id.
---------------------------------------------------------------------------

4. Amend the GSD's Rules That Require Comparison-Only Applicants and 
Members to Submit the Same Financial Information as Netting Applicants 
and Members
    The GSD's comparison-only service is not a guaranteed service. 
Comparison-only members do not have minimum financial requirements and 
are not required to make clearing fund deposits. While the GSD's rules 
give FICC the ability to require comparison-only members to submit 
financial information, FICC has not been obtaining this information 
from comparison-only applicants or members, and FICC believes that the 
rules should be amended to reflect actual practice. Therefore, FICC is 
seeking to eliminate the requirement that GSD comparison-only 
applicants submit financial information to FICC.
    In addition to these proposed rule changes, FICC is proposing a 
technical change to the rules of the MBSD to move language relating to 
cross-guaranty agreements to a more appropriate place in the rules.
    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 remove 
impediments to the perfection of a national system for the prompt and 
accurate clearance and settlement of securities transactions and is not 
designed to permit unfair discrimination in the admission of 
participants or among participants in the use of FICC by refining 
FICC's rules and procedures with regard to applicants and members, and 
in general will protect investors and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1.

---------------------------------------------------------------------------

[[Page 57113]]

(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. 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-2004-01 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-2004-01. 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-2004-01 and should be submitted on 
or before October 14, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2351 Filed 9-22-04; 8:45 am]
BILLING CODE 8010-01-P