[Federal Register Volume 69, Number 202 (Wednesday, October 20, 2004)]
[Notices]
[Pages 61699-61700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2721]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50536; File No. SR-FICC-2004-07]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change To Amend the Fixed Income 
Clearing Corporation's Rules To Eliminate the ``Mortgage Banker'' 
Category of Membership in its Mortgage-Backed Securities Division

October 13, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, notice is hereby given that on March 25, 2004, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') and on June 21, 2004 and October 
14, 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.
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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 amend the rules of its Mortgage-Backed 
Securities Division (``MBSD'') to eliminate the ``mortgage banker'' 
category of membership.

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),

[[Page 61700]]

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

    In accordance with Article III, Rule 1, Section 2, ``Financial 
Requirements for Participants and Limited Purpose Participants,'' of 
MBSD's Rules, mortgage bankers are subject to a minimum net worth 
requirement of $5 million. With the exception of ``brokers,'' all other 
applicants are subject to a minimum net worth or regulatory net capital 
requirement of $10 million.\3\
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    \3\ MBSD's Rules define ``broker'' as a member that is in the 
business of buying and selling securities as agent on behalf of 
dealers. Brokers are currently subject to a minimum net or liquid 
capital requirement of $5 million.
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    Historically, mortgage bankers (which generally act as mortgage 
originators) maintained relatively little capital. FICC considered a 
lower minimum capital standard appropriate to enable and encourage 
these types of firms to participate in FICC. The mortgage banker 
category of membership is now becoming obsolete for two principal 
reasons. First, changes in the mortgage business are causing small 
originators to use Fannie Mae and Freddie Mac making MBSD membership 
less desirable and therefore making the relatively lower minimum 
capital standard less justified. Second, from a membership 
administration perspective there appears to be no precise, uniform 
definition for ``mortgage banker.'' \4\
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    \4\ Mortgage originators are state-regulated entities, and 
definitions of such entities vary with each state. Generally, these 
definitions target entities whose ``primary'' business is the 
issuance of mortgages. MBSD has historically classified entities as 
mortgage bankers based upon an applicant's representations made in 
its membership application and confirmed by management's review of 
the applicant's business.
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    FICC is proposing to eliminate the mortgage banker category from 
the MBSD Rules. If approved by the Commission, entities that would have 
previously qualified as mortgage bankers would be classified under the 
catch-all category of membership in Article III, Rule 1, Section 1, 
``Applicants Eligible to Become Participants or Limited Purpose 
Participants.'' \5\ This classification would increase the minimum net 
worth requirement from $5 million to $10 million for these members. 
FICC does not anticipate that this increase will adversely affect 
existing mortgage banker members because member financial statements 
filed with FICC indicate that each mortgage banker member's 
capitalization currently exceeds the new minimum.
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    \5\ Article III, Rule 1, Section 1(f) provides a catch-all 
category for ``firms in such other categories as [FICC] from time to 
time may determine.''
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    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. By removing the mortgage 
banker category from the MBSD Rules and by providing that entities that 
currently are classified as such meet a higher minimum financial 
requirement, it enhances the ability of FICC to maintain a financially 
sound membership base without an adverse effect on itself or its 
members. As such, the proposed rule change should promote the 
safeguarding of securities and funds that are in the custody or control 
of FICC.
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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. 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-2004-07 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-2004-07. 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-2004-07 and should be submitted on 
or before November 10, 2004.

    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2721 Filed 10-19-04; 8:45 am]
BILLING CODE 8010-01-P