[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Notices]
[Pages 77511-77512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71091; File No. SR-FICC-2013-09]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Make the U.S. Department of the 
Treasury's Floating Rate Notes Eligible for Netting Service and GCF 
Repo[supreg] at FICC's Government Securities Division

December 17, 2013.

I. Introduction

    On October 28, 2013, the Fixed Income Clearing Corporation 
(``FICC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-FICC-2013-09 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 November 14, 2013.\3\ The 
Commission received no comment letters. For the reasons discussed 
below, the Commission is approving 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. 70831 (Nov. 7, 2013), 78 
FR 68496 (Nov. 14, 2013) (SR-FICC-2013-09).
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II. Description

    The purpose of this proposed rule change is to make the U.S. 
Department of the Treasury (``Treasury Department'') floating rate 
notes eligible for the netting service and GCF Repo[supreg] service at 
the GSD. Last year, the Treasury Department announced its plan to issue 
Treasury notes with a floating rate coupon (``Floating Rate Notes''). 
The Floating Rate Notes will be the first new product issued by the 
U.S. Treasury since the Treasury Inflation-Protected Securities 
(``TIPS'') were introduced in 1997. The Treasury Department anticipates 
that the first auction of Floating Rate Notes will occur in January 
2014.\4\ FICC's Government Securities Division (``GSD'') is planning to 
make Floating Rate Notes eligible for its netting service starting with 
the January 2014 auction of the two-year Floating Rate Notes (other 
maturities will be issued later).
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    \4\ See Press Release, U.S. Department of the Treasury August 
2013 Quarterly Refunding Statement of Assistant Secretary Rutherford 
(Jul. 31, 2013), available at www.treasury.gov.
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    With respect to the GCF Repo[supreg] service, Floating Rate Notes 
will be included in GSD's existing Treasury Generic CUSIP Numbers.\5\ 
However, because of their adjustable coupon, Floating Rate Notes will 
not be eligible for collateral allocation obligations or substitutions 
with respect to the GCF Repo[supreg] Generic CUSIPs representing TIPS, 
separate trading of registered interest and principal securities 
(``STRIPS''), or fixed-rate mortgage-backed securities issued by 
Federal National Mortgage Association (``Fannie Mae''), Federal Home 
Loan Mortgage Corporation (``Freddie Mac'') and Government National 
Mortgage Association (``Ginnie Mae''). As a result, GSD Rule 20, 
Section 3, has been revised to reflect this change.
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    \5\ Pursuant to Rule 1 of the GSD Rulebook, (``Definitions''), 
the term ``Generic CUSIP Number'' means a Committee on Uniform 
Securities Identification Procedures identifying number established 
for a category of securities, as opposed to a specific security. 
Rule 1 also requires GSD to use separate Generic CUSIP Numbers for 
General Collateral Repo Transactions and GCF Repo Transactions.
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    In order for GSD to process Floating Rate Notes, various 
enhancements to FICC's systems and member output have been made in the 
following areas:
     Creation and maintenance of a historical database of 
reference indices. This data is necessary for determining coupon, which 
is used in valuing positions for settlement purposes and

[[Page 77512]]

for forward margin and clearing fund calculations.
     Modification of the security database in order for it to 
work in conjunction with the floating rate, reset date, reset rate 
basis, and spread.
     Modifications to member output formats for both messaging 
and end of day machine readable output in order to accommodate the 
additional fields.
    GSD will test FICC's enhanced systems with its membership before 
the launch of the Floating Rate Notes. This will ensure that members 
can properly submit and receive transaction data in connection with the 
Floating Rate Notes. GSD has issued several Important Notices to 
members about GSD's proposed processing of the Floating Rate Notes and 
will continue to do so prior to making Floating Rate Notes eligible for 
processing.\6\
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    \6\ GSD issued Important Notice GOV012.13 on February 23, 2013 
and Important Notice GOV056.13 on August 19, 2013. Both Important 
Notices provide members with data output guidelines and trade 
messaging changes. The notices are available at www.dtcc.com.
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III. Discussion

    Section 19(b)(2)(C) of the Act \7\ directs the Commission to 
approve a self-regulatory organization's proposed rule change if the 
Commission 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 \8\ 
requires, among other things, that the rules of a clearing agency 
registered with the Commission be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and 
protect investors and the public interest.
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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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    The Commission finds that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act \9\ because it allows FICC to 
provide clearance and settlement services for Floating Rate Notes, as 
newly issued government securities, which should in turn reduce the 
risks associated with the trading, clearing, and settling of such 
securities by FICC members. In so doing, FICC should facilitate the 
prompt and accurate clearance and settlement of securities transactions 
in Floating Rate Notes. Moreover, FICC's rule change should help 
protect investors and the public interest by allowing the market to 
benefit from the risk reducing measures provided by clearing and 
settling Floating Rate Notes at FICC.
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    \9\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission concludes that the 
proposal is consistent with the requirements of the Act, particularly 
the requirements of Section 17A of the Act,\10\ and the rules and 
regulations thereunder.

    \10\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-FICC-2013-09) be 
and hereby is approved.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 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.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30442 Filed 12-20-13; 8:45 am]
BILLING CODE 8011-01-P