[Federal Register Volume 71, Number 46 (Thursday, March 9, 2006)]
[Notices]
[Pages 12224-12226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-3327]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53405; File No. SR-FICC-2005-22]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Provide for the Payment of Interest on Cash Clearing Fund Collateral 
Posted by Members of the Government Securities Division and to Provide 
for the Payment of Interest on the Basic Deposit Portion of the 
Participants' Fund Posted by Members of the Mortgage-Backed Securities 
Division

 March 3, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 23, 2005, the 
Fixed Income Clearing Corporation (``FICC'') filed with the Securities 
and Exchange Commission (``Commission'') and on February 17, 2006, and 
February 27, 2006, amended \2\ the proposed rule change described in 
Items I, II, and III below, which items have been prepared primarily by 
FICC. FICC filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(4) thereunder \4\ 
whereby the proposal became effective upon filing with the Commission. 
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).
    \2\ The amendments clarified the type of securities in which 
cash contained in the participants' fund may be invested.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FICC is amending (i) the rules of its Government Securities 
Division (``GSD'') to provide for payment of interest on cash clearing 
fund collateral posted by members and (ii) the rules of its Mortgage-
Backed Securities Division (``MBSD'') to provide for the payment of 
interest on the Basic Deposit component of participants' fund 
collateral posted by members. FICC is also proposing technical changes 
to the provisions in the GSD's and MBSD's rules regarding the payment 
of interest on members' cash deposits.

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.\5\
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    \5\ 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 proposed rule change provides for the payment of interest on 
cash clearing fund collateral posted by GSD members and payment of 
interest on the Basic Deposit component of participants' fund 
collateral posted by MBSD members.
    The GSD requires that all netting members maintain a portion of 
their clearing fund deposit in cash.\6\ FICC

[[Page 12225]]

currently retains the interest earned on those balances and effectively 
pays the interest income to GSD members through its rebate process.\7\ 
Among all the subsidiary clearing agencies of The Depository Trust and 
Clearing Corporation (DTCC), only FICC's GSD does not pay the interest 
earned on clearing fund cash balances directly to its members.\8\
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    \6\ See GSD Rule 4, Section 4.
    \7\ The GSD's rebate policy is detailed in the GSD Fee Schedule, 
Section XII (``Capital Base, Pricing, and Rebate Policy''). It 
reads, in pertinent part, that FICC ``will rebate excess net income 
to members, pro rata, at periodic intervals deemed appropriate by, 
and at the discretion of, the Corporation based upon their gross 
fees paid to the Corporation within the applicable rebate period.''
    \8\ While FICC's MBSD pays interest on participants' fund cash 
to its participants, it currently retains interest on a small 
portion of the participants' fund. This is discussed further below.
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    In order to more fairly distribute interest earned on the GSD cash 
portion of the clearing fund and to implement a uniform policy across 
DTCC, FICC is proposing to begin crediting interest earned on clearing 
fund cash balances to GSD members on a periodic basis. FICC will begin 
accruing the interest in this regard on January 1, 2006.\9\
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    \9\ FICC will announce by Important Notice the date of the first 
payment of interest to members and the frequency of the payments of 
interest going forward.
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    While the MBSD currently pays interest on participants' fund cash 
directly to its participants, it retains the interest on a small 
portion of the participants' fund called the Basic Deposit.\10\ FICC 
believes that to be consistent with the GSD rule change and the 
practice observed for all other cash deposits, the MBSD rule should be 
amended to also provide for the payment of interest earned on the Basic 
Deposits to be paid to participants. FICC is proposing to begin 
accruing the interest in this regard on January 1, 2006.\11\
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    \10\ The Basic Deposit is a relatively small amount that is 
required to be paid in cash by each clearing participant and is 
meant to protect FICC against a participant's failure to pay its 
MBSD fees.
    \11\ FICC will announce by Important Notice the date of the 
first payment of interest to members and the frequency of the 
payments of interest going forward.
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    FICC is also proposing technical changes to the provision in the 
MBSD's rules regarding the investment of participants' fund cash and to 
the provision in the GSD's rules regarding the investment of clearing 
fund cash to make the rules on investing cash deposits uniform with 
that of its affiliate, The Depository Trust Company. Specifically, FICC 
is clarifying that cash contained in the clearing fund or participants' 
fund may be partially or wholly invested by FICC for its account in 
securities issued or guaranteed as to principal and interest by the 
United States or agencies or instrumentalities of the United States or 
repurchase agreements relating to securities issued or guaranteed as to 
principal and interest by the United States or agencies and 
instrumentalities of the United States.
    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \12\ and the rules and 
regulations thereunder applicable to FICC because it will enable FICC 
to more fairly distribute the payment of interest on cash collateral to 
its members. As such, the proposed rule change effects a change in an 
existing service that does not adversely affect the safeguarding of 
securities or funds in the custody or control of FICC and does not 
significantly affect the respective rights or obligations of FICC or 
persons using its service.
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    \12\ 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 an 
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

    The foregoing proposed rule change has become effective upon filing 
pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-
4(f)(4) \14\ thereunder because the rule effects a change in an 
existing service that: (i) Does not adversely affect the safeguarding 
of securities or funds in the custody or control of the clearing agency 
or for which it is responsible; and (ii) does not significantly affect 
the respective rights or obligations of the clearing agency or persons 
using the service. At any time within sixty days of the filing of the 
proposed rule change,\15\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(4).
    \15\ For purposes of calculating the sixty day period within 
which the Commission may summarily abrogate the proposed rule change 
under Section 19(b)(3)(C) of the Act, the Commission considers the 
period to commence on the date on which the last amendment to the 
proposed rule change was filed with the Commission. 15 U.S.C. 
78s(b)(3)(C).
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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-2005-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-FICC-2005-22. 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 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

[[Page 12226]]

should refer to File Number SR-FICC-2005-22 and should be submitted on 
or before March 30, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-3327 Filed 3-8-06; 8:45 am]
BILLING CODE 8010-01-P