[Federal Register Volume 70, Number 8 (Wednesday, January 12, 2005)]
[Notices]
[Pages 2201-2202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-68]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50965; File No. SR-FICC-2004-06]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Institute Fines for Late 
Payment of Cash Obligations and Margin and To Institute Informal 
Hearing Procedures for Fine Disputes

January 5, 2005.

I. Introduction

    On March 18, 2004, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') and 
on April 16, 2004, amended proposed rule change SR-FICC-2004-06 
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on November 15, 2004.\2\ No comment letters were received. For 
the reasons discussed below, the Commission is approving the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 50642 (November 5, 
2004), 69 FR 65662.
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II. Description

    The purpose of the proposed rule change is to institute at the MBSD 
(i) fines for the late payment of cash obligation items and margin 
deficits and (ii) informal procedures for disputed MBSD fines.

1. Fines for Late Payments

    The MBSD has for some time imposed fees in order to promote greater 
compliance with its cash obligation and margin payment deadlines.\3\ 
Fees differ from fines in that fines must be reported by FICC to the 
Commission. FICC believes that, consistent with the practice of the 
Government Securities Division (``GSD'') of FICC, assessments for late 
payment of margin and cash obligation items should be categorized as 
fines. FICC believes that this change will provide a greater incentive 
for participant compliance with appropriate payment timeframes which 
will reduce risk to all MBSD participants.
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    \3\ Currently, the MBSD rules state that failure to pay a cash 
settlement obligation will result in the assessment of a fine. 
However, the MBSD Schedule of Charges refers to such charges as 
``fees,'' and they have been processed as fees by MBSD in the past.
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2. Procedures Relating to Disputed Fines

    The rules of the MBSD currently contain procedures whereby a 
participant can dispute any fine

[[Page 2202]]

assessment through a formal appeal process. FICC believes that, 
consistent with the practice of the GSD, the fine process will be more 
effective and equitable and will provide participants with additional 
due process if an initial less formal dispute process is also included 
in MBSD's rules. The initial dispute process will be utilized by 
participants prior to availing themselves of the formal appeal process. 
A participant that becomes subject to a fine will have the opportunity 
within seven calendar days to dispute the fine by explaining in writing 
any mitigating circumstances that contributed to the participant's 
infraction and to request a fine waiver. Based on such written 
documentation provided by the participant, management will have the 
discretion to waive a fine if it believes that sufficient mitigating 
circumstances have been shown by the participant. If management waives 
a fine, it will have to inform the Membership and Risk Management 
Committee (``Committee'') at the next regularly scheduled Committee 
meeting and will have to explain its reasons for doing so. The 
Committee will then have the opportunity to overrule management's 
action with respect to the waiver. If management chooses to not waive a 
fine or if its waiver is overruled by the Committee, the participant 
will have the right to pursue the formal hearing process currently 
provided for in the MBSD's Rules.
    FICC will also make parallel changes with respect to the fine 
dispute process to the MBSD's EPN rules.
    In addition, FICC proposed certain technical changes to the MBSD's 
Schedules of Charges to (i) delete references to ``MBSCC'' and replace 
them with references to ``MBSD'' and (ii) eliminate obsolete fees which 
are no longer being charged by the MBSD.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to remove impediments to the perfection of 
a national system for the prompt and accurate clearance and settlement 
of securities transactions.\4\ The Commission finds that FICC's 
proposed rule change is consistent with this requirement because it is 
designed to perfect the mechanism of a national system for the prompt 
and accurate clearance and settlement of securities transactions by (i) 
encouraging participants to make timely payments of cash obligation 
items and margin to MBSD and (ii) clearly setting forth in MBSD's rules 
the informal procedures for disputing fines which should provide 
members with a more efficient and less burdensome method for the 
possible resolution of disputed fines before a full hearing takes 
place.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-FICC-2004-06) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-68 Filed 1-11-05; 8:45 am]
BILLING CODE 8010-01-P