[Federal Register Volume 69, Number 224 (Monday, November 22, 2004)]
[Notices]
[Pages 67972-67973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50665; File No. SR-FICC-2004-05]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change To Amend Rules Relating to 
the Participants Fund Deposit Requirements of Its Mortgage-Backed 
Securities Division

November 15, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\1, notice is hereby given that on March 3, 2004, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') and on March 11, 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 basic deposit component 
of its Participants Fund deposit requirement for participants that are 
registered with the Commission as registered investment companies 
(``RICs'') pursuant to the Investment Company Act of 1940.\2\
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    \2\ 15 U.S.C. 80a-1.
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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 67973]]

and (C) below, of the most significant aspects of these statements.\3\
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    \3\ 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 purpose of the proposed rule change is to amend the rules of 
FICC's MBSD to eliminate the basic deposit component of the 
Participants Fund deposit requirement for participants that are 
RICs.\4\
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    \4\ FICC will also state in the MBSD's Schedule of Charges that 
the basic deposit does not apply to RICs.
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    In 2003, FICC received a no-action letter \5\ from the Commission's 
Division of Investment Management (``IM'') stating that IM would not 
recommend to the Commission enforcement action under Section 17(f) of 
the Investment Company Act of 1940 against any RIC or its custodian if 
the RIC or its custodian placed the RIC's cash and/or securities in the 
custody of the MBSD for purposes of meeting the Participants Fund 
requirements imposed by the MBSD. IM's no-action letter was based upon 
the fact that the main portions of the MBSD's Participants Fund, the 
``minimum market margin differential deposit'' and the ``market margin 
differential deposit,'' are intended to benefit the non-defaulting 
participants of the MBSD because these portions are intended to provide 
assurances that each participant's contributions to the Participants 
Fund will be adequate to satisfy all open commitments recorded with the 
MBSD. In contrast, the remaining portion of the Participants Fund, the 
``basic deposit,'' is designed to protect the FICC by ensuring that 
each participant's fees owing to the MBSD will be paid if the 
participant is unable to meet such fee obligations.
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    \5\ 5 No-Action Letter under the Investment Company Act of 
1940--Section 17(f) and Rule 17f-4, to Fixed Income Clearing 
Corporation (March 13, 2003).
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    In granting no-action relief to FICC, IM staff relied upon FICC's 
representation that RICs would be exempt from the basic deposit 
requirement. FICC determined that this representation would not subject 
it to undue risk because the basic deposit is a relatively minimal 
amount and this exemption affects very few participants.\6\ The 
management of FICC returned the basic deposits posted by its RIC 
clearing members under perceived authority given to it under Article 
IV, Rule 1, Section 3 of its Rules. FICC nonetheless believes it would 
be prudent to expressly state in its MBSD Rules that RICs are exempt 
from the basic deposit requirement.
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    \6\ Currently, the basic deposit is determined semiannually and 
is the greater of (a) $1,000 or (b) the participant's average 
monthly bill (per account) with a maximum of $10,000. The MBSC 
currently has only two RIC clearing members.
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    FICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder applicable to FICC because by exempting RICs 
from its basic deposit requirement, FICC is enabling RICs to become 
participants and is doing so in a manner that allows FICC to safeguard 
the securities and funds in its custody or control or for which it is 
responsible.
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    \7\ 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-2004-05 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-2004-05. 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, 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-2004-05 and should be submitted on 
or before December 13, 2004.
    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3270 Filed 11-19-04; 8:45 am]
BILLING CODE 8010-01-P