[Federal Register Volume 79, Number 237 (Wednesday, December 10, 2014)]
[Notices]
[Pages 73364-73365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28873]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73735; File No. SR-FICC-2014-07]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Amend the Clearing Rules of the 
Mortgage-Backed Securities Division To Establish a Membership Category 
and Minimum Financial Requirements for Insured Credit Unions

December 4, 2014.

I. Introduction

    On October 15, 2014, the Fixed Income Clearing Corporation 
(``FICC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-FICC-2014-07 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 October 24, 2014.\3\ The 
Commission received no comment letters in response to the proposed rule 
change. 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. 73391 (October 20, 
2014), 79 FR 63657 (October 24, 2014) (SR-FICC-2014-07).
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II. Description

    Pursuant to this filing, FICC proposed to amend the clearing rules 
of the Mortgage-Backed Securities Division (``MBSD'') of FICC in order 
to establish a membership category and minimum financial requirements 
for ``insured credit unions,'' as such term is defined in the Federal 
Credit Union Act (``FCUA'').\4\ Specifically, FICC proposed to revise 
MBSD Rule 2A, Section 1, to create a membership category for insured 
credit unions that are in good standing with their primary regulators 
(``Insured Credit Union Clearing Member''). For loss allocation 
purposes, Insured Credit Union Clearing Members would be designated as 
``Tier One Clearing Members'' in accordance with MBSD Rule 4, Section 
7. In addition, FICC has proposed to add a provision to MBSD Rule 2A, 
Section 2, which would require an applicant applying to become an 
Insured Credit Union Clearing Member to have a level of equity capital 
as of the end of the month prior to the effective date of their 
membership of at least $100 million and achieve the ``well 
capitalized'' statutory net worth category classification defined by 
the National Credit Union Administration (``NCUA'') under 12 CFR part 
702.
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    \4\ The FCUA defines ``Insured credit unions'' as ``any credit 
union the member accounts of which are insured in accordance with 
the provisions of Title II of [FCUA] . . .'' According to FICC, the 
term ``insured credit union'' includes all credit unions chartered 
by the National Credit Union Administration (``NCUA''), the 
independent federal agency that regulates charters and supervises 
federal credit unions, because Title II of the FCUA requires all 
credit unions that are chartered by the NCUA to have insured 
accounts. Furthermore, FICC has stated that the term ``insured 
credit unions'' also includes both federally-insured state credit 
unions and federally-insured credit unions operating under the 
jurisdiction of the Department of Defense because Title II of the 
FCUA permits the NCUA Board to insure those types of credit unions.
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    Insured credit unions applying for membership under this new 
category would be required to meet all other applicable financial, 
credit, and operational membership qualifications and standards for 
clearing members that are contained in MBSD Rule 2A, Section 2. In 
particular, such applicants would have to demonstrate an established 
profitable business history of a minimum of 6 months or personnel with 
sufficient operational background and business experience for the firm 
to conduct its business and to be a member (as is required of all other 
membership categories). Insured credit unions seeking membership would 
have to demonstrate an ability to communicate with FICC, fulfill 
anticipated commitments to and meet the operational requirements of 
FICC with necessary promptness and accuracy, and conform to any 
condition and requirement that FICC reasonably deems necessary for its 
protection or that of its Members.
    FICC believes the participation of insured credit unions as 
guaranteed service members will contribute to the safety, efficiency, 
and transparency of the market by allowing FICC to capture a greater 
part of the activity of its existing members and by introducing 
activity of current non-members to FICC. FICC also believes that 
insured credit unions will benefit from the MBSD clearing service and 
the associated operational efficiencies of a central counterparty 
service.

III. Discussion

    Section 19(b)(2)(C) of the Act \5\ 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 \6\ 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that, as proposed, FICC's rule change to 
establish a membership category and minimum financial, credit, and 
operational requirements and standards for insured credit unions, as 
defined in FICC's proposal, is consistent with Section 17A(b)(3)(F) of 
the Act.\7\ The Commissions believes that the proposed rule change 
should promote the prompt and accurate clearance and settlement of 
securities transactions, because by allowing insured credit unions to 
participate as MBSD members, these firms will be able to avail 
themselves of the benefits of central counterparty service including, 
among other things, trade comparison, to-be-announced netting, 
electronic pool notification allocation, pool comparison, pool netting, 
settlement, and risk management for eligible securities. Furthermore, 
the rule change will also allow existing FICC members to submit 
eligible trading activity with qualified insured credit unions directly 
to the MBSD of FICC, thereby also extending

[[Page 73365]]

the benefits of the central counterparty services to such trading 
activity.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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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,\8\ and the rules and 
regulations thereunder.
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    \8\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-FICC-2014-07) be and 
hereby is approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 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.\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. 2014-28873 Filed 12-9-14; 8:45 am]
BILLING CODE 8011-01-P