[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43476-43478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3987]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52085; File No. SR-FICC-2005-13]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Procedure for Fine Waivers and To Make Other Technical and 
Administrative Amendments

July 20, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 15, 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 the proposed rule change is to amend the: (1) 
Government Securities Division (``GSD'') and Mortgage-Backed Securities 
Division (``MBSD'') rules to allow the Membership and Risk Management 
Committee (``Committee'') to delegate fine waiver decisions to 
management while retaining the ability to override management's 
decision; (2) GSD and MBSD rules to eliminate the automatic placement 
on the Watch List of FICC members who fail to notify FICC within two 
business days of first learning of their non-compliance with FICC's 
membership standards; (3) MBSD rules to broaden the reference to ``net 
worth;'' (4) MBSD rules by adding a confidentiality clause; and (5) GSD 
rules to make a technical change by moving an incorrectly placed 
``and.''

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), 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

1. Management Waiver of Fines
    Currently, pursuant to GSD Rule 37 (``Hearing Procedures''), 
Section 1 (``General'') and MBSD Article V (``Miscellaneous''), Rule 3 
(``Fines and Other Sanctions''), each time a member requests that an 
assessed fine be waived, FICC management makes a determination to 
accept or reject the waiver request based on a review of the 
circumstances leading to the disputed fine. FICC management then 
presents its determination to the Committee for ratification at its 
next regularly scheduled meeting. Final determinations by the Committee 
may be appealed according to the GSD and MBSD rules.
    The need for Committee approval of management decisions with 
respect to fine assessments delays final decisions for members because 
the Committee only meets approximately every two months. The Committee 
has routinely agreed with management's decisions regarding fine 
waivers. For these reasons, the Committee at this time feels 
comfortable delegating decisions on fine waiver requests to management.

[[Page 43477]]

Management will continue to inform the Committee at each regularly 
scheduled meeting of those waivers approved or denied by management. 
The Committee will retain the ability to override management's decision 
on any waiver granted. Each member will continue to have the 
opportunity to avail themselves of the formal hearing process contained 
in the GSD and MBSD rules.
2. Failure To Notify of Non-Compliance With Membership Standards
    Members that have fallen out of compliance with a stated membership 
standard are required to notify FICC within two business days of first 
learning of their non-compliance pursuant to GSD Rule 3 (``Financial 
Responsibility, Operational Capability, and Other Membership Standards 
of Comparison-Only Members and Netting Members''), Section 5 (``General 
Continuance Standards'') and MBSD Article III (``Participants''), Rule 
1 (``Requirements Applicable to Participants and Limited Purpose 
Participants''), Section 17 (``Additional Assurances''). Failure to 
timely notify FICC results in a $1,000 fine and in the member firm 
being placed on FICC's internal Watch List.
    FICC's Watch List was created to isolate firms that may present an 
increased credit risk to FICC. FICC believes it is unnecessary to 
automatically put all non-compliant firms that fail to timely notify 
FICC on the Watch List because many of these firms are highly 
creditworthy and do not warrant monitoring from a credit risk 
perspective. However, FICC will continue to assess a fine against those 
members that fail to timely notify FICC of their non-compliance with 
membership standards.
3. MBSD Minimum Financial Requirements
    MBSD Article III (``Participants''), Rule 1 (``Requirements 
Applicable to Participants and Limited Purpose Participants''), Section 
2 states that FICC may use various financial indicia to determine if 
clearing members meet minimum financial requirements. However, the 
rules also state that for all members other than brokers, the minimum 
financial requirement is $10 million in ``net worth.'' The reference to 
``net worth'' needs to be broadened because the ``net worth'' criterion 
is not always applicable to the various types of MBSD applicants and 
members. For example, FICC looks at net asset value for mutual fund 
members. FICC proposes to modify the MBSD rules to take into account 
these different criteria.
    In addition FICC is making a technical change to Article III, Rule 
1, Section 2. The rule states that financial indicia considered by FICC 
would include but is not limited to both ``net capital'' and 
``regulatory net capital.'' Because these terms refer to the same 
criterion, references to ``net capital'' will be changed to ``liquid 
capital.'' The reference to ``regulatory net capital'' will be 
retained.
4. MBSD Confidentiality Provision
    The MBSD is adding a confidentiality provision, new Section 8 
(``Confidentiality''), to Article VIII (``EPN Users''), Rule 1 
(``Requirements Applicable to EPN Users'') of the EPN rules. While the 
MBSD has always kept EPN user information confidential, FICC believes 
it is appropriate to amend the rules to reflect current practice. Both 
the GSD and the MBSD have a confidentiality provision in their 
respective rules, and FICC will mirror these provisions for purposes of 
the EPN rules.
5. Technical Change to GSD Rules
    GSD is making a technical change to Rule 11 (``Netting System''), 
Section 2 (``Eligibility for Netting'') to correct a grammatical error 
caused by an incorrectly placed ``and.''
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \3\ and the rules and regulations thereunder 
applicable to FICC because it assures the safeguarding of securities 
and funds in its custody or control or for which it is responsible by 
clarifying rules for applicants and members. As a result, FICC's 
ability to maintain a financially and operationally sound participant 
base should be enhanced.
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    \3\ 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 on 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

    No written comments relating to the proposed rule change have 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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(4) \5\ 
thereunder because the proposed rule change effects a change in an 
existing service of FICC that (i) does not adversely affect the 
safeguarding of securities or funds in the custody or control of FICC 
or for which it is responsible and (ii) does not significantly affect 
the respective rights of the clearing agency or persons using the 
service. At any time within sixty days of the filing of such rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 17 CFR 240.19b-4(f)(4).
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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-2005-13 on 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-2005-13. 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 43478]]

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 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-2005-13 
and should be submitted on or before August 17, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3987 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P