[Federal Register Volume 70, Number 59 (Tuesday, March 29, 2005)]
[Notices]
[Pages 15960-15962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1382]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51413; File No. SR-FICC-2004-17]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change To Modify the Assessment 
Process for Late Submissions of Collateral Made Through the GCF Repo 
Service and To Increase the Types of Securities Available To Satisfy 
Collateral Allocation Obligations

March 23, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 13, 2004, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') and on March 14, 2005, 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 the Government Securities 
Division (``GSD'') of FICC to modify the assessment process for late 
submissions of collateral allocations made through its GCF Repo service 
and to increase the types of securities that can be used by a member in 
satisfaction of collateral obligations.\2\
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    \2\ The proposed rule change also amends GSD's rules to clarify 
that where a collateral allocation obligation is satisfied by the 
posting of U.S. Treasury Bills, notes, or bonds, such securities 
must mature in a time frame no greater than that of the securities 
that have been traded except where such traded securities are U.S. 
Treasury Bills, such obligations must be satisfied with the posting 
of ``comparable securities'' and/or cash only.
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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 15961]]

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

1. Assessment Process for Late Submissions of Collateral Allocations 
Made Through the GCF Repo Service
    On October 30, 1998, the Commission granted approval to FICC's 
predecessor, the Government Securities Clearing Corporation, to 
implement its GCF Repo service, which is a significant alternative 
financing vehicle to the delivery versus payment and tri-party repo 
markets. That approval included a fine schedule for failure to adhere 
to relevant timeframes.\4\ The fine schedule was not implemented 
because of certain events.\5\ More recently, FICC has shifted the 
service from an interbank service to an intrabank service in order to 
address certain payment system risk issues that have arisen and that 
have resulted in decreased volumes.\6\ FICC believes, given the lower 
volumes and likely forthcoming changes to the service to address the 
payment system risk issues, that the original fine schedule should be 
replaced.
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    \4\ Securities Exchange Act Release No. 40623 (October 30, 
1998), 63 FR 59831 (November 5, 1998) [File No. SR-GSCC-98-02].
    \5\ As a new and complex service, members had difficulty 
adhering to the timeframes. In addition, the initial rate of 
participation was very poor, and there was a consequent need to 
encourage growth in the service.
    \6\ Securities Exchange Act Release No. 48006 (June 10, 2003), 
68 FR 35745 (June 16, 2003) [SR-FICC-2003-04].
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    Specifically, FICC is proposing to implement a late fee schedule to 
replace the late fine schedule. FICC believes that late fee schedules 
are appropriate in situations where the member's lateness causes an 
operational burden but does not result in risk to FICC or its 
members.\7\ In addition, in order to encourage members to make their 
collateral allocations on a timely basis, there would be one late fee 
targeted to the most significant timeframe surrounding the service. 
Specifically, if a dealer does not make the required collateral 
allocation by the later of 4:30 p.m. (New York time) or 1 hour after 
the actual close of Fedwire GCF repo reversals, the dealer will be 
subject to a late fee of $500.00. Finally, in order to alleviate the 
potential operational and administrative burdens caused by late 
collateral allocations, FICC is proposing to amend the GCF Repo rules 
to provide that FICC will process collateral allocation obligations 
that are received after 6 p.m. on a good faith basis only. This 6 p.m. 
deadline will replace the 7 p.m. final cutoff for dealer allocations of 
collateral to satisfy obligations.
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    \7\ In a GCF Repo transaction, a borrower does not receive the 
funds borrowed until it makes the required collateral allocation. 
The lender maintains control of the funds until the allocation is 
made. The transaction does not produce a risk of loss to FICC, the 
lender, or other members.
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2. Types of Collateral Used to Satisfy Collateral Allocation 
Obligations
    Currently, GSD Rule 20 provides that a collateral allocation 
obligation may be satisfied with ``comparable securities,'' Treasury 
securities, and/or cash. ``Comparable securities'' are defined to 
include any securities that are represented by the same generic CUSIP 
number as the securities in question. Therefore, in the event that a 
member does not have enough of the collateral securities or the 
Comparable Securities, the only collateral that can be used is Treasury 
securities and/or cash.
    GSD members have approached FICC and asked that the rules be 
amended to add additional collateral options as set forth below:
    (a) Ginnie Mae adjustable-rate mortgage obligations could be 
satisfied with Ginnie Mae fixed-rate mortgage backed securities and
    (b) Fannie Mae and Freddie Mac adjustable-rate mortgage obligations 
could be satisfied with: (i) Fannie Mae and Freddie Mac fixed-rate 
mortgage-backed securities, (ii) Ginnie Mae fixed-rate mortgage-backed 
securities, and (iii) Ginnie Mae adjustable-rate mortgage 
obligations.\8\
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    \8\ The industry recognizes fixed-rate securities as an 
acceptable substitute for adjustable-rate securities as collateral 
for mortgage-backed repo trades.
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    FICC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \9\ and the rules and 
regulations thereunder applicable to FICC because it is designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions by allowing FICC's members additional collateral options 
with which to meet GCF collateral allocation obligations and by 
implementing a fee schedule that should incentivize members to allocate 
collateral on a timely basis.
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    \9\ 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-2004-17 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-2004-17. 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

[[Page 15962]]

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/gov/gov.docs.jsp?NS-query. 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-2004-17 and 
should be submitted on or before April 19, 2005.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1382 Filed 3-28-05; 8:45 am]
BILLING CODE 8010-01-P