[Federal Register Volume 82, Number 148 (Thursday, August 3, 2017)]
[Notices]
[Pages 36165-36168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16297]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81255; File No. SR-FICC-2017-018]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Fees in the Mortgage-Backed Securities Division Clearing 
Rules and the EPN Rules

July 28, 2017.
    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 July 28, 2017, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    On July 31, 2017, FICC will implement proposed rule change SR-FICC-
2017-012 (``Rule Filing 2017-012'').\5\ Rule Filing 2017-012 will amend 
the Mortgage-Backed Securities Division Clearing Rules (the ``MBSD 
Rules'') to (1) move the time that FICC novates and treats itself as 
the settlement counterparty for certain transactions, (2) guarantee and 
novate trades with stipulations (``Stipulated Trades''), and (3) 
establish new processes that promote operational efficiencies for 
Clearing Members.\6\ In connection with Rule Filing 2017-012, FICC is 
proposing with this filing to amend the fees in the MBSD Rules and the 
EPN Rules (the ``EPN Rules'') as further described below.\7\ The 
changes proposed in this filing would become effective on August 1, 
2017, as described below.
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    \5\ Securities Exchange Act Release No. 81051 (June 29, 2017), 
82 FR 31378 (July 6, 2017) (SR-FICC-2017-012) (``Approval Order'').
    \6\ Id. In connection with the changes in Rule Filing 2017-012, 
FICC will implement new processes that promote operational 
efficiencies for Clearing Members. The full text of Rule Filing 
2017-012 may be obtained by visiting DTCC's Web site at http://www.dtcc.com/legal/sec-rule-filings.
    \7\ Capitalized terms not defined herein are defined in the MBSD 
Rules and the EPN Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    On July 31, 2017, FICC will amend the MBSD Rules to (1) move the 
time that FICC novates and treats itself as the settlement counterparty 
for certain transactions, (2) guarantee and novate trades with 
stipulations (``Stipulated Trades''), and (3) establish new processes 
that promote operational efficiencies for Clearing Members.\8\ In 
connection with Rule Filing 2017-012, FICC is proposing with this 
filing to amend the fees in the MBSD Rules and the EPN Rules as further 
described below. The changes proposed in this filing would become 
effective on August 1, 2017, as described below.
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    \8\ See Approval Order, supra note 5.
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I. Proposed Changes to the MBSD Rules
    FICC is proposing to amend the fees in the MBSD Rules' Schedule of 
Charges Broker Account Group as listed below.
    1. The Account Maintenance section would be amended to eliminate 
the ``Option Account'' fee. This change is being proposed because FICC 
will eliminate the Broker ``give-up'' process from the MBSD Rules in 
connection with Rule Filing 2017-012.\9\ Because the submission of 
Broker Give-Up Trades (which includes Option Contracts) will be 
eliminated, the associated account maintenance fee for Option Accounts 
will be eliminated.
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    \9\ See Approval Order, 82 FR at 31382.
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    2. The Trade Processing section would be amended to change the name 
of the ``Give-Up Trade Creates'' fee to the ``Trade Creates'' fee. This 
change is being proposed because FICC will eliminate the Broker ``give-
up'' process from the MBSD Rules in connection with Rule Filing 2017-
012.\10\
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    \10\ Id.
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    3. The Processing Fees section would be amended to increase the 
``Trade Input Non-Compliance'' fee to $1,000 a month per Account from 
$500 a month per Account. This change is being proposed in order to 
encourage Clearing Members to submit transactions into FICC's Real-Time 
Trade Matching (``RTTM'') system in a timely manner. The timely 
submission of transactions is especially important because FICC will 
novate and become the settlement counterparty to all transactions 
(other than Option Contracts) pursuant to Rule Filing 2017-012.\11\
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    \11\ See Approval Order, supra note 5.
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    FICC is proposing to amend the fees in the MBSD Rules' Schedule of 
Charges Dealer Account Group as listed below.

[[Page 36166]]

    1. The Trade Processing section would be amended to modify the 
tiering levels and the associated fees assigned to each tier for SBO-
Destined Trades.\12\ In connection with Rule Filing 2017-012, MBSD's 
processing cost will not change; however, MBSD's operational cost will 
increase because of MBSD's new allocation department.\13\ As a result, 
these proposed fee changes would offset the loss of revenue attributed 
to the decrease in transaction volumes processed through the Pool 
Netting System and the EPN Service due to the introduction of the DNA 
process and the removal of the Notification of Settlement process.
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    \12\ Pursuant to the MBSD Rules, the term ``SBO-Destined Trade'' 
means a TBA transaction in the Clearing System intended for TBA 
Netting in accordance with the provisions of the MBSD Rules. See 
MBSD Rule 1, supra note 7.
    \13\ The MBSD allocations department will monitor the 
transmission of pool information that is used to satisfy to-be-
announced transactions. The team will also handle any exception 
processing that occurs.

--------------------------------------------------------------------------------------------------------------------------------------------------------
        Current charge                   Total par amount traded per month           Proposed charge           Total par amount traded per month
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$1.93/MM......................  1,000,000-2,500,000,000...........................  $2.00/MM.........  01-2,500,000,000.
$1.77/MM......................  2,501,000,000-5,000,000,000.......................  $1.58/MM.........  2,500,000,001-7,500,000,000.
$1.60/MM......................  5,001,000,000-7,500,000,000.......................  $1.39/MM.........  7,500,000,001-12,500,000,000.
$1.49/MM......................  7,501,000,000-10,000,000,000......................  $1.19/MM.........  12,500,000,001-300,000,000,000.
$1.32/MM......................  10,001,000,000-12,500,000,000.....................  $1.16/MM.........  300,000,000,001 and over.
$1.14/MM......................  12,501 and over...................................
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    2. The Trade Processing section would be amended to increase the 
fee for ``TBA Netting Balance Orders'' to $1.00/MM from $0.75/MM. In 
connection with Rule Filing 2017-012, MBSD's processing cost will not 
change; however, MBSD's operational cost will increase because of 
MBSD's new allocation department. As a result, this proposed fee change 
would offset the loss of revenue attributed to the decrease in 
transaction volumes processed through the Pool Netting System and the 
EPN Service due to the introduction of the DNA process and the removal 
of the Notification of Settlement process. FICC is also proposing to 
amend this section to eliminate the applicability of this fee to SBOO 
Trades because this trade type will be eliminated in connection with 
Rule Filing 2017-012.\14\
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    \14\ See Approval Order, 82 FR at 31380.
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    3. The Trade Processing section would be amended to establish fees 
for Stipulated Trades, which will be a new trade type eligible for 
processing at MBSD pursuant to Rule Filing 2017-012.\15\ The fees for 
Stipulated Trades would be the same fees that are in place for the 
processing of Trade-for-Trade Transactions \16\ and Specified Pool 
Trades.\17\ FICC would amend the heading of this section to clarify 
that the fees would be applicable to Trade-for Trade-Transactions, 
Specified Pool Trades and Stipulated Trades.
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    \15\ See Approval Order, 82 FR at 31381.
    \16\ Pursuant to the MBSD Rules, the term ``Trade-for-Trade 
Transaction'' means a TBA Transaction submitted to MBSD not intended 
for TBA Netting in accordance with the provisions of the MBSD Rules. 
See MBSD Rule 1, supra note 7.
    \17\ Pursuant to the MBSD Rules, the term ``Specified Pool 
Trade'' means a trade in which all required pool data, including the 
pool number to be delivered on the Contractual Settlement Date, are 
agreed upon by Members at the time of execution. See MBSD Rule 1, 
supra note 7.
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    4. The Trade Processing section would be amended to increase the 
``Trade Creates'' fee for Trade-for-Trade Transactions and Specified 
Pool Trades to $1.16/MM from $1.00/MM. This increased fee would also 
apply to Stipulated Trades. In connection with Rule Filing 2017-012, 
MBSD's processing cost will not change; however, MBSD's operational 
cost will increase because of MBSD's new allocation department. As a 
result, this proposed fee change would offset the loss of revenue 
attributed to the decrease in transaction volumes processed through the 
Pool Netting System and the EPN Service due to the introduction of the 
DNA process and the removal of the Notification of Settlement process.
    5. FICC is proposing to include two new fees in connection with the 
proposed Do Not Allocate (``DNA'') process.\18\ One fee would be in the 
amount of $1.25/MM per transaction in connection with a Clearing 
Member's request to include eligible trades in the DNA process (such 
request would be referred to as a ``DNA Request''). The second fee 
would be in the amount of $4.00 per transaction in connection with a 
Clearing Member's request to cancel its DNA Request (such cancellation 
would be referred to as a ``DNA Request Cancel'').
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    \18\ As described in Rule Filing 2017-012, the DNA process will 
permit offsets among SBON Trades and Trade-for-Trade Transactions. 
See Approval Order, 82 FR at 31381.
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    6. The Pool Netting Fees section would be amended to increase the 
fee for ``Matched Pool Instructs'' to $1.00 per side from $0.60 per 
side. In connection with Rule Filing 2017-012, MBSD's processing cost 
will not change; however, MBSD's operational cost will increase because 
of MBSD's new allocation department. As a result, this proposed fee 
change would offset the loss of revenue attributed to the decrease in 
transaction volumes processed through the Pool Netting System and the 
EPN Service due to the introduction of the DNA process and the removal 
of the Notification of Settlement process.
    7. The Processing Fees section would be amended to increase the 
``Trade Input Non-Compliance'' fee to $1,000 a month per Account from 
$500 a month per Account. This change is being proposed in order to 
encourage Clearing Members to submit transactions into FICC's RTTM 
system in a timely manner. The timely submission of transactions is 
especially important because FICC will novate and become the settlement 
counterparty to all transactions (other than Option Contracts) pursuant 
to Rule Filing 2017-012.\19\
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    \19\ See Approval Order, supra note 5.
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    8. The Notification of Settlement fees would be eliminated because 
FICC will eliminate the Notification of Settlement process from the 
MBSD Rules in connection with Rule Filing 2017-012.\20\
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    \20\ See Approval Order, 82 FR at 31381.
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II. Proposed Changes to the EPN Rules
    FICC is proposing to amend the ``Message Processing Fees'' in the 
EPN Schedule of Charges as listed below. In connection with Rule Filing 
2017-012, MBSD's processing cost will not change; however, MBSD's 
operational cost will increase because of MBSD's new allocation 
department. As a result, these proposed fee changes would offset the 
loss of revenue attributed to the decrease in transaction volumes 
processed through the Pool Netting System and the EPN Service due to 
the introduction of the DNA process and the removal of the Notification 
of Settlement process.

[[Page 36167]]



                                                EPN Fee Schedule
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                                                    Message submission                      Message submission
        Fee descriptions         Current charge           times             New charge             times
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                                            Messaging Processing Fees
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ON Send........................           $0.17  Per MM Current Face               $0.19  Per MM Current Face
                                                  (opening of business                     (opening of business
                                                  to 1:00 p.m.).                           to 1:00 p.m.).
                                           0.86  Per MM Current Face                0.95  Per MM Current Face
                                                  (1:00 p.m. to 2:00                       (1:00 p.m. to 2:00
                                                  p.m.).                                   p.m.).
                                           1.73  Per MM Current Face                1.90  Per MM Current Face
                                                  (2:00 p.m. to 3:00                       (2:00 p.m. to 3:00
                                                  p.m.).                                   p.m.).
                                           1.44  Per MM Current Face                1.58  Per MM Current Face
                                                  (3:00 p.m. to close of                   (3:00 p.m. to close
                                                  business).                               of business).
ON Receive.....................            0.46  Per MM Current Face                0.51  Per MM Current Face
                                                  (opening of business                     (opening of business
                                                  to 1:00 p.m.).                           to 1:00 p.m.).
                                           0.23  Per MM Current Face                0.26  Per MM Current Face
                                                  (1:00 p.m. to 2:00                       (1:00 p.m. to 2:00
                                                  p.m.).                                   p.m.).
                                           0.23  Per MM Current Face                0.26  Per MM Current Face
                                                  (2:00 p.m. to 3:00                       (2:00 p.m. to 3:00
                                                  p.m.).                                   p.m.).
Cancel/Correct Send............            0.17  Per MM Current Face                0.19  Per MM Current Face
                                                  (opening of business                     (opening of business
                                                  to 11:00 a.m.).                          to 11:00 a.m.).
                                           0.86  Per MM Current Face                0.95  Per MM Current Face
                                                  (11:00 a.m. to 12:00                     (11:00 a.m. to 12:00
                                                  p.m.).                                   p.m.).
                                           1.73  Per MM Current Face                1.90  Per MM Current Face
                                                  (12:00 p.m. to 12:15                     (12:00 p.m. to 12:15
                                                  p.m.).                                   p.m.).
                                           0.17  Per MM Current Face                0.19  Per MM Current Face
                                                  (12:15 p.m. to end of                    (12:15 p.m. to end of
                                                  day).                                    day).
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III. Delayed Implementation of the Proposed Rule Change
    The proposed changes would become effective on August 1, 2017.\21\ 
Upon FICC's submission of this proposed rule change to the Commission, 
FICC would add a legend to the MBSD Rules and the EPN Rules, as 
applicable, to state that the specified changes have been filed with 
the Commission for immediate effectiveness, however, such changes are 
not yet implemented and to provide the date such changes would become 
implemented. The legend would also include the file number of the 
proposed rule change and would state that once implemented, the legend 
would automatically be removed from the MBSD Rules and EPN Rules as 
applicable.
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    \21\ FICC will implement Rule Filing 2017-012 on July 31, 2017, 
however, the proposed fee changes would be implemented on August 1, 
2017 because the billing cycle begins on the first day of each 
month.
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2. Statutory Basis

    Section 17A(b)(3)(D) of the Act requires that the MBSD Rules and 
the EPN Rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among its participants.\22\ FICC believes that 
the proposed (1) changes to the MBSD Trade Processing fees, MBSD Pool 
Netting fees and the EPN Message Processing fees (collectively, the 
``Processing Fees''), and (2) new fees for Stipulated Trades 
submissions and the DNA process (collectively, the ``New Fees'') are 
equitably allocated among Clearing Members and EPN Users, as 
applicable, because the fees would continue to be based on each 
Clearing Member's utilization of MBSD's services. Specifically, each 
Clearing Member or EPN User would be charged based on the volume of 
transactions and/or messages submitted to MBSD.
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    \22\ 15 U.S.C. 78q-1(b)(3)(D).
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    FICC believes that the proposed changes to the Processing Fees and 
the New Fees are reasonable because the proposed fee changes would 
offset the loss of revenue attributed to the decrease in transaction 
volumes processed through the Pool Netting System and the EPN Service 
due to the introduction of the DNA process and the removal of the 
Notification of Settlement process. Additionally, MBSD's new allocation 
department will increase MBSD's operational cost. FICC believes that 
the proposed fee changes are reasonable because the fees would align 
with the cost of providing the benefits associated with the 
implementation of Rule Filing 2017-012.\23\
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    \23\ These benefits include the following: (1) The submission of 
Pool Instructs by Clearing Members will become optional because FICC 
would be permitted to submit on behalf Clearing Members; (2) 
Clearing Members will no longer be required to fulfill Notification 
of Settlement obligations because transactions (except Option 
Contracts) would settle with FICC; (3) Clearing Members will have 
the ability to exclude TBA Obligations from the pool allocation 
process, netting, and securities settlement through the DNA process; 
(4) Clearing Members will have the ability to net their pools via 
the Expanded Pool Netting process in the event that such Clearing 
Members miss the established deadline for the initial Pool Netting 
process; (5) Dealer Netting Members will remain anonymous with the 
elimination of the ``give-up'' process for Brokered Transactions; 
(6) Clearing Members will be allowed to submit SBO-Destined Trades 
in all trade sizes; and (7) Clearing Members will be allowed to 
submit Stipulated Trades as a new trade type. See Approval Order, 82 
FR at 31378.
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    FICC believes that its proposal to increase the Trade Input Non-
Compliance fee for Brokers and Dealers are reasonable because doubling 
the existing fee would be sufficient to encourage Clearing Members to 
submit transactions in a timely manner. This is especially important 
because FICC will novate and become the settlement counterparty to all 
transactions (except Option Contracts) at trade comparison pursuant to 
Rule Filing 2017-012.
    FICC believes that the proposal to increase the Trade Input Non-
Compliance fee for Brokers and Dealers are equitably allocated because 
the same fee would be applicable to the Accounts of all Clearing 
Members who do not submit transactions on a timely basis.
    Therefore, FICC believes the proposed fees are consistent with the 
requirements of Section 17A(b)(3)(D) of the Act.

(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that the proposed (1) changes to the Processing Fees 
and (2) new fee for Stipulated Trades may impose a burden on 
competition. However, FICC believes any burden on competition that may 
result from the proposed fees increases would be

[[Page 36168]]

necessary and appropriate in furtherance of the purposes of the Act, as 
permitted by Section 17A(b)(3)(I) of the Act.\24\
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    \24\ 15 U.S.C. 78q-1(b)(3)(I).
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    Specifically, FICC believes that the proposed (1) changes to the 
Processing Fees and (2) new fee for Stipulated Trades are necessary 
because the fees would provide FICC with the ability to achieve and 
maintain its operating margin. FICC believes that the proposed fee 
increases and the new fee for Stipulated Trades are appropriate because 
the fees would provide FICC with the ability to recover the cost of 
providing the services described in Rule Filing 2017-012. As discussed 
above, in connection with Rule Filing 2017-012, MBSD's processing cost 
will not change; however, MBSD's operational cost will increase because 
of MBSD's new allocation department. As a result, these proposed fee 
changes would offset the loss of revenue attributed to the decrease in 
transaction volumes processed through the Pool Netting System and the 
EPN Service due to the introduction of the DNA process and the removal 
of the Notification of Settlement process.
    FICC believes that the proposed changes to increase the Trade Input 
Non-Compliance fee for Brokers and Dealers will not impact competition 
because Clearing Members could avoid these fees by submitting their 
transactions on a timely basis in accordance with the MBSD Rules.
    FICC believes that the proposed change to eliminate the Option 
Account fees for Brokers and the Notification of Settlement fees will 
not impact competition because these fees are associated with processes 
that will be eliminated pursuant to Rule Filing 2017-012.
    FICC believes that the proposed new fee for the DNA process will 
not impact competition because the DNA process is voluntary and 
Clearing Members could elect not to submit their transactions through 
the DNA process.

(C) Clearing Agency'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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \25\ and paragraph (f) of Rule 19b-4 
thereunder.\26\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f).
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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 email to [email protected]. Please include 
File Number SR-FICC-2017-018 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2017-018. This file 
number should be included on the subject line if email 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 Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FICC and on 
DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-2017-018 and should be 
submitted on or before August 24, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-16297 Filed 8-2-17; 8:45 am]
BILLING CODE 8011-01-P