[Federal Register Volume 74, Number 41 (Wednesday, March 4, 2009)]
[Notices]
[Pages 9455-9456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4603]
[[Page 9455]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59463; File No. SR-FICC-2009-02]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change To Allow for Direct Membership for Non-Domestic Entities
February 26, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that
on February 19, 2009, the Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I and II below, which Items
have been prepared primarily by FICC. The Commission is publishing this
notice and order to solicit comments on the proposed rule change from
interested persons and to approve the proposed rule change on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change allows direct membership for non-U.S.
entities in FICC's Government Securities Division (``GSD'').
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 such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Currently, GSD Rule 2 (``Members'') includes a broad category for
``foreign netting members.'' GSD Rule 2A (``Initial Membership
Requirements'') sets forth membership criteria for these firms and
includes, among other requirements, that the entity be regulated in its
home country by a financial regulatory authority and that it be in
compliance with the financial reporting and responsibility standards
set by its home country regulator.
FICC has designed its rules and various membership agreements to
minimize the risks posed by the admission of non-domestic entities by
availing itself of the benefits and protections of various U.S. state
and federal bankruptcy rules and regulations. With this approach, FICC
has historically accepted only foreign banks with U.S. branches or
agencies into the ``foreign netting member'' category of GSD
membership. While this is not technically a requirement in GSD's
current rules, FICC imposed this limitation because of various state
and federal bankruptcy law ``safe harbors'' that would apply to a U.S.
branch's assets should a non-domestic member become insolvent. These
safe harbors include ``ring fencing'' provisions that would set aside a
U.S. branch's assets for distribution to the branch's creditors \3\ and
procedures designed to protect creditors in the case of a foreign
entity's default, including recognizing security interests and netting
agreements, and rights to access member-posted collateral.\4\
---------------------------------------------------------------------------
\3\ The NY ring-fence law is Section 606, subsection 4, of the
NYBL. Currently, FICC has an Illinois branch of a foreign bank as a
member. FICC represents that the Illinois ring fence law is
identical to New York's ring fence law.
\4\ See Sections 403 and 404 of the Federal Deposit Insurance
Corporation Improvement Act, 12 U.S.C. 4403(a) and 4404(a)
(confirming the enforceability of bilateral netting contracts and
clearing organization netting contracts, notwithstanding other
provisions of federal law, by ensuring that parties can exercise
termination, liquidation, and acceleration rights, as well as
netting rights, under a netting contract).
---------------------------------------------------------------------------
Recently, U.S. bankruptcy laws have expanded the reach of federal
safe harbors to non-U.S. entities without a U.S. branch or agency.\5\
FICC believes that these statutory changes strengthen FICC's ability to
access and secure collateral posted at FICC by an insolvent non-U.S.
member without a domestic branch by providing protection similar to
that which applies to a U.S. member or branch or agency of a non-U.S.
member.\6\
---------------------------------------------------------------------------
\5\ FICC believes that Section 561 of the bankruptcy code makes
it clear that the bankruptcy code's safe harbor provisions now apply
to ``ancillary proceedings.'' Ancillary proceedings, discussed in
Chapter 15 of the bankruptcy code, refer to an attempt by a foreign
liquidator to present itself in a U.S. court to institute
proceedings to attempt to apply adverse foreign law to determine the
disposition of the estate of a non-U.S. entity.
\6\ Historically, FICC's concern centered on ancillary
proceedings that might be brought by a foreign liquidator in a U.S.
bankruptcy court seeking to apply foreign law to the disposition of
an insolvent foreign member's assets. The U.S. Bankruptcy Code has
been amended to provide that the safe harbors are available in such
a proceeding, which was not that case prior to the recent amendments
of the bankruptcy code.
---------------------------------------------------------------------------
This rule filing will remove references in GSD's rules to domestic
branches or agencies with respect to foreign members, thereby
facilitating ``direct'' membership for these entities at GSD.\7\ Non-
U.S. applicants will still be required to meet the minimum financial
requirements set forth in GSD Rule 2A for foreign netting members \8\
and those entities accepted into membership will be required to comply
with all rule provisions applicable to foreign netting members.
---------------------------------------------------------------------------
\7\ The Commission has approved similar rule filings submitted
by The Depository Trust Company and the National Securities Clearing
Corporation. Securities Exchange Act Release Nos. 58345 (Aug. 12,
2008), 73 FR 48411 (Aug. 19, 2008) [File No. SR-DTC-2007-16] and
58344 (Feb. 27, 2008), 73 FR 12485 (Mar. 7, 2008) [File No. SR-NSCC-
2007-15].
\8\ GSD's rules state that if an applicant is a foreign entity
that is applying to become a ``foreign netting member'', it must
satisfy the minimum financial requirements (defined by reference to
regulatory capital as defined by the applicant's home country
regulator) that are applicable to the netting system membership
category that the FICC determines would be applicable to the foreign
firm if it were organized or established under U.S. law.
---------------------------------------------------------------------------
FICC believes that the proposed rule filing is consistent with the
requirements of Section 17A of the Act \9\ and the rules and
regulations thereunder applicable to FICC because it does not adversely
affect the safeguarding of securities or funds in FICC's control or for
which it is responsible.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
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
FICC has not solicited or received written comments relating to the
proposed rule change. FICC will notify the Commission of any written
comments it receives.
III. 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:
[[Page 9456]]
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 No. SR-FICC-2009-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-FICC-2009-02. 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 Room, 450 Fifth Street, NW.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at FICC's principal office and on FICC's Web
site at http://ficc.com/gov/gov.docs.jsp?NS-query=#rf. 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
submission should refer to File No. SR-FICC-2009-02 and should be
submitted on or before March 25, 2009.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to FICC. Specifically, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(A) of the
Act,\10\ which requires, among other things, that FICC, as a registered
clearing agency, be so organized and has the capacity to be able to
safeguard securities and funds in its custody or control or for which
it is responsible. The Commission notes that the proposed rule change
adopts membership standards and safeguards that are substantively
identical to those of the National Securities Clearing Corporation and
The Depository Trust Company, which were published for comment in 2008
and generated no comments.\11\ The Commission does not believe that
this proposal raises new regulatory issues. Moreover, the changes in
U.S. bankruptcy laws cited by FICC appear to have strengthened FICC's
ability to secure the funds and securities pledged as collateral by a
non-U.S. entity to FICC in the event that such entity were to become
insolvent. Therefore, the proposed rule change should enhance FICC's
capacity to safeguard securities and funds in its custody or control or
for which it is responsible.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(A).
\11\ Supra, note 7.
---------------------------------------------------------------------------
At FICC's request, the Commission finds good cause to approve the
proposed rule change prior to the thirtieth day after the date of
publication of notice in the Federal Register, pursuant to Section
19(b)(2) of the Act.\12\ The Commission believes that accelerating
approval of this proposal is appropriate in that the proposed rule
change is substantively identical to rules proposed by FICC-affiliated
clearing agencies and approved by the Commission in 2008,\13\ and that
it will allow prospective non-U.S. entities that wish to avail
themselves of FICC's clearance and settlement, cost-savings, and risk-
management services without undue delay.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b).
\13\ Supra, note 7.
---------------------------------------------------------------------------
V. 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 \14\ and the rules and regulations
thereunder.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-FICC-2009-02) be and hereby
is approved on an accelerated basis.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(2).
\16\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. E9-4603 Filed 3-3-09; 8:45 am]
BILLING CODE 8011-01-P