[Federal Register Volume 70, Number 121 (Friday, June 24, 2005)]
[Notices]
[Pages 36679-36680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3285]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51865; File No. SR-FICC-2005-11]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change to Institute a Netting Process 
for Fail Deliver and Fail Receive Obligations for Netting Members in 
Its Government Securities Division

June 17, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 19, 2005, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') 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

    The purpose of this proposed rule change is to amend the rules of 
FICC's Government Securities Division (``GSD'') to institute a process 
to net netting members' fail deliver and fail receive obligations with 
their current settlement obligations on a daily basis.

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

[[Page 36680]]

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\
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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

    The rules of the GSD provide that FICC may, in its sole discretion, 
net a netting member's fail deliver and fail receive obligations with 
the member's current settlement obligations. FICC is proposing to amend 
the GSD's rules to institute this fail netting process on a daily 
basis.
    Since the implementation of the GSD's netting system (by FICC's 
predecessor, the Government Securities Clearing Corporation), 
outstanding fails have been processed separately from new trading 
activity. Demand by members for the netting of fails was initially low 
due to the fact that many members could not properly account for netted 
fails in their proprietary systems. In addition, demand for netting of 
fails remained low until the summer of 2003 when the market experienced 
significant fails in the Treasury 10-year note due May 2013.
    In recent years, FICC has been integrally involved in assisting the 
industry in addressing significant fail situations. On several 
occasions, FICC intervened by supporting special netting of fails with 
members' current settlement activity. While this procedure helped 
alleviate the number of open fails and associated settlement issues and 
risks, it was only an intermediate step in resolving the need for the 
more regular fail processing proposed herein. Moreover, the industry's 
continued experience with fails has caused a heightened demand on the 
part of members for the GSD to institute such a process.
    Pursuant to the proposed rule change, the GSD would implement a 
methodology whereby outstanding member fail obligations will be netted 
with current settlement activity. This process will provide reduced 
risk exposure to members because it will facilitate settlement by 
allowing members to close open fails on their books on a daily basis, 
as well as reduce the number of outstanding clearance obligations at 
FICC.
    FICC does not anticipate an undue burden on members as a result of 
this proposal. The GSD has issued an Important Notice \3\ to all 
members seeking feedback on the proposed change, and to date, the 
substance of any feedback received has been positive.
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    \3\ Important Notice GOV028.05 (March 10, 2005).
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    FICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \4\ and the rules and 
regulations thereunder applicable to FICC because it allows FICC to 
reduce the risks posed by large numbers of open fail positions. As 
such, the proposed rule facilitates the prompt and accurate clearance 
and settlement of securities transactions and assures the safeguarding 
of securities and funds which are in the custody or control of FICC or 
for which it is responsible.
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    \4\ 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.

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-2005-11 in the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-FICC-2005-11. 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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of FICC 
and on FICC's Web site, 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-2005-11 and should be submitted on 
or before July 15, 2005.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3285 Filed 6-23-05; 8:45 am]
BILLING CODE 8010-01-P