[Federal Register Volume 78, Number 113 (Wednesday, June 12, 2013)]
[Notices]
[Pages 35333-35334]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-13888]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69708; File No. SR-FICC-2013-01]


Self-Regulatory Organizations; The Fixed Income Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change To Amend 
the Mortgage-Backed Securities Division Rule To Reflect Recommendations 
of the Treasury Market Practice Group

June 6, 2013.

I. Introduction

    On April 15, 2013, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-FICC-2013-01 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on April 29, 2013.\3\ The Commission received no 
comment letters. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 69424 (April 22, 2013), 
78 FR 25115 (April 29, 2013).
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II. Description

    To address the persistent settlement fails in agency debt and 
mortgage-backed securities (``MBS'') transactions and to encourage 
market participants to resolve such fails promptly, the Treasury Market 
Practices Group (``TMPG'') recommended in February 2012 that the MBS 
market impose a fails charge.\4\ FICC's Mortgage-Backed Securities 
Division (``MBSD'') amended Rule 12 (Fails Charges) of MBSD's

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Clearing Rules in March 2012 to reflect TMPG's recommendations.\5\ The 
fails charge for MBS transactions applies to certain trades settled in 
the MBSD central counterparty (``CCP'') (i.e., settlement of pools 
versus FICC involving failing agency MBS issued or guaranteed by Fannie 
Mae, Freddie Mac, and Ginnie Mae.) Consistent with the TMPG's initial 
recommendation, MBSD's Rule 12 did not impose a fails charge if 
delivery occurred on either of the two business days following the 
contractual settlement date. The two business days are sometimes 
referred to as the ``resolution period.''
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    \4\ The TMPG is a group of market participants active in the 
treasury securities market sponsored by the Federal Reserve Bank of 
New York.
    \5\ See Securities Exchange Act Release No. 66550 (March 9, 
2012), 77 FR 15155 (March 14, 2012) (File No. SR-FICC-2008-01).
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    However, on March 1, 2013, the TMPG issued a new recommendation to 
remove the two-day resolution period from the current practice.\6\ The 
TMPG has advised that the revised recommendation should apply to 
transactions in agency MBS transactions entered into on or after July 
1, 2013, as well as to transactions that were entered into prior to but 
remain unsettled as of July 1, 2013. This rule change amends the 
existing fails charge rule to reflect TMPG's most recent recommendation 
by removing the two-day resolution period provision from the rule. 
Consequently, an agency MBS settlement fail will be subject to a fails 
charge for each calendar day that the fail is outstanding, even if the 
delivery occurs on either of the first two business days following the 
contractual settlement date. FICC is making the rule change effective 
as of July 1, 2013, in accordance with the TPMG's recommendation. All 
other provisions of the agency MBS fails charge rule, including the 
fails charge rate and trading practices, remain unchanged.
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    \6\ Press Release, Federal Reserve Bank of New York, TMPG 
Revises Agency MBS Fails Charge Trading Practice (March 1, 2013) 
(available at www.newyorkfed.org/tmpg/03_01_2013_Fails_charges_press_release.pdf).
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III. Discussion

    Section 19(b)(2)(C) of the Act \7\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act 
requires, among other things, that the rules of a clearing agency be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions.\8\ The Commission finds that 
FICC's rule change should facilitate the prompt and accurate clearance 
and settlement of securities transactions because the rule change will 
discourage persistent settlement fails in agency debt and MBS 
transactions and encourage market participants to resolve such fails 
promptly.
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
particularly with the requirements of Section 17A of the Act, and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-FICC-2013-01) be and 
hereby is approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ In approving this proposal, the Commission has considered 
its 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.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-13888 Filed 6-11-13; 8:45 am]
BILLING CODE 8011-01-P