[Federal Register Volume 75, Number 168 (Tuesday, August 31, 2010)]
[Notices]
[Pages 53368-53369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-21678]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62767; File No. SR-FICC-2010-04]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Provide Clarity With 
Respect to the Close Out Netting of the Government Securities Division 
in the Event of the Fixed Income Clearing Corporation's Default or 
Insolvency

August 26, 2010.
    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 August 12, 2010, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
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 to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \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 purpose of the proposed rule change is to provide clarity with 
respect to the close out netting of the Government Securities Division 
(``GSD'') in the event of FICC's default or insolvency.

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

[[Page 53369]]

summaries, set forth in sections (A), (B), and (C) below, of the most 
significant aspects of these statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by FICC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    FICC is proposing to add a provision to the rules of GSD to make 
explicit the close out netting that would be applied to obligations 
between FICC and its members in the event that FICC becomes insolvent 
or defaults in its obligations to its members.\4\
---------------------------------------------------------------------------

    \4\ The specific language of the proposed provision can be found 
at http://www.dtcc.com/downloads/legal/rule_filings/2010/ficc/2010-04.pdf.
---------------------------------------------------------------------------

    FICC has been approached by some of its dealer members that have 
requested that FICC add a provision to the rules of GSD to make 
explicit the close out netting of obligations between FICC and its 
members in the event that FICC becomes insolvent or defaults in its 
obligations to its members. Such members have stated that the proposed 
rule change will provide clarity in their application of balance sheet 
netting to their positions with FICC under U.S. GAAP in accordance with 
the criteria specified in the Financial Accounting Standards Board's 
Interpretation No. 39, Offsetting of Amounts Related to Certain 
Contracts (FIN 39). The members have stated further that the proposed 
rule change would allow them to comply with Basel Accord Standards 
relating to netting. Specifically, firms are able to calculate their 
capital requirements on the basis of their net credit exposure where 
they have legally enforceable netting arrangements with their 
counterparties, which includes a close out netting provision in the 
event of the default of a counterparty (in this case, the division of 
FICC acting as a CCP).
    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder applicable to FICC because the proposed rule 
change would provide FICC members with clarity in the calculation of 
their capital requirements with respect to their net credit exposure 
where members have legally enforceable netting arrangements with their 
counterparties. Moreover, other clearing agencies have similar 
provisions in their rules for the same purpose.\6\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
    \6\ The Commission has previously approved a similar provision 
for another clearing agency for the same purpose of providing such 
clearing agency's members with the needed clarity. Securities 
Exchange Act Release No. 34-56069 (July 13, 2007), 72 FR 39869 (July 
20, 2007).
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    FICC does not believe that the proposed rule change would 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 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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove the 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-2010-04 on the 
subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FICC-2010-04. 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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10 am and 3 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of FICC and on 
FICC's Web site at http://www.dtcc.com/downloads/legal/rule_filings/2010/ficc/2010-04.pdf. 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-2010-04 and should be submitted on or before September 21, 
2010.
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21678 Filed 8-30-10; 8:45 am]
BILLING CODE 8010-01-P