[Federal Register: November 24, 2006 (Volume 71, Number 226)]
[Notices]
[Page 67946-67948]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no06-128]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54769; File No. SR-FICC-2006-10]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend the Rules of Its
Mortgage-Backed Securities Division Regarding Membership Requirements
for Unregistered Investment Pools
November 16, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 9, 2006, the Fixed
Income Clearing Corporation (``FICC'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change that is
described in Items I, II, and III 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 parties.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FICC is proposing to amend the rules of the Mortgage-Backed
Securities Division (``MBSD'') regarding the membership requirements of
``Unregistered Investment Pools.'' \2\
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\2\ As noted below, the term ``Unregistered Investment Pool''
would be a newly-defined term in the MBSD's Rules.
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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 summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\3\
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\3\ The Commission has modified the text of the summaries
prepared by FICC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
FICC is proposing to amend the rules of the MBSD regarding the
membership requirements of ``unregistered investment pools.''
Currently, unregistered investment pools have essentially the same
membership standards as other non-broker MBSD clearing members.\4\ The
size of the unregistered investment pool industry has grown, and
unregistered investment pools and their advisers have become
significant participants in the industry. FICC believes it is necessary
to reexamine its treatment of participants that are unregistered
investment pools and to enhance the clearing membership standards
applicable to these entities.
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\4\ Currently, a clearing applicant or participant that is an
unregistered investment pool and whose financial statements are
prepared in accordance with U.S. generally accepted accounting
principles (``GAAP'') must satisfy a minimum financial requirement
of $10 million in net assets. In this filing, FICC is making a
technical change to replace the term ``net asset value'' with the
term ``net assets'' to more accurately state the financial
requirement.
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FICC is proposing to adopt a definition for Unregistered Investment
Pool, which will identify the entities that would become subject to the
proposed enhanced membership requirements for such entities. Under the
proposed rule, an Unregistered Investment Pool is an entity that holds
a pool of securities and/or other assets
[[Page 67947]]
that meets the following criteria: (i) It is not registered as an
investment company under the Investment Company Act of 1940, (ii) it
does not register its securities offerings under the Securities Act of
1933, and (iii) it has an investment advisor that is registered with
the Commission under the Investment Advisers Act of 1940, or if the
investment adviser is not registered, the entity has as lock-up period
of two (2) years or greater.
Under the proposed rule change, entities that meet the definition
of Unregistered Investment Pool will be eligible to apply to become
MBSD clearing participants only if they meet the new membership
criteria set forth below.\5\ The MBSD's current participants that meet
the definition of Unregistered Investment Pool will have one year from
the date of approval of this rule filing in which to conform to the new
minimum financial and qualitative rating requirements.
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\5\ It is important to note that entities that meet the MBSD's
definition of Unregistered Investment Pool will be treated as such
by the MBSD regardless of whether the entity considers itself to be
an unregistered investment pool.
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The new membership requirements for Unregistered Investment Pools
are as follows:
(1) SEC Registration: As stated above, the investment advisor of
the Unregistered Investment Pool must: (i) Be registered with the
Commission under the Investment Advisers Act of 1940 or (ii) if it is
not registered with the Commission, the Unregistered Investment Pool
that the investment adviser advises must have an initial lock-up period
of two (2) years or greater.
(2) Minimum Net Assets: The Unregistered Investment Pool will be
required to have and maintain net assets of $250 million or greater.\6\
If the Unregistered Investment Pool does not meet the $250 million net
asset requirement, but the Unregistered Investment Pool has net assets
of at least $50 million \7\ or greater, then the Unregistered
Investment Pool will be eligible for MBSD clearing membership if its
investment advisor has assets under management of at least $1.5 billion
and advises an existing MBSD clearing participant.
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\6\ The $250 million net asset requirement is the requirement
that will be applicable to Unregistered Investment Pools whose
financial statements are prepared in accordance with U.S. GAAP.
Those Unregistered Investment Pools whose financial statements are
prepared using other types of GAAP will be subject to the higher
minimum requirements as determined by Article III, Rule 1, Section 2
of the MBSD's Rules.
\7\ The $50 million net asset requirement is the requirement
that will be applicable to Unregistered Investment Pools whose
financial statements are prepared in accordance with U.S. GAAP.
Those Unregistered Investment Pools whose financial statements are
prepared using other types of GAAP will be subject to the higher
minimum requirements as determined by Article III, Rule 1, Section 2
of the MBSD's Rules.
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(3) Qualitative Rating: The MBSD will require an Unregistered
Investment Pool to obtain a minimum required rating of ``above
average'' as a result of an FICC internal qualitative assessment. FICC
believes it is important to consider qualitative factors in order to
assess both Unregistered Investment Pool applicants and members.
Specifically, staff in the MBSD's Risk Division will determine a
qualitative rating for each Unregistered Investment Pool applicant.
Risk staff will review qualitative ratings of Unregistered Investment
Pool members on an annual basis. The assessment will include
consideration of factors deemed relevant by the Risk Division,
including management, capital, strategy and risk profile, and internal
controls.\8\ The assessment will assess the strengths and weaknesses of
these factors and will assign a qualitative rating to the Unregistered
Investment Pool. In order to qualify for membership, Unregistered
Investment Pools must meet a qualitative rating of at least ``above
average'' as determined by the Risk Division's staff.
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\8\ Because responsibility for these factors with respect to a
particular Unregistered Investment Pool may fall at the level of the
Unregistered Investment Pool or at the level of the investment
advisor or other third party service provider, or in some
combination of these, Risk staff will perform the assessment for
each factor at the level or levels deemed appropriate.
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FICC believes that the proposed change is consistent with Section
17A of the Act \9\ and the rules and regulations thereunder applicable
to FICC because it enhances certain membership requirements and as
such, assures the safeguarding of securities and funds which are in the
custody or control of FICC or for which it is responsible.
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\9\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
FICC does not believe that the proposed rule change will have any
impact or 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 yet
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 thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period: (i) As the
Commission may designate up to ninety days of such date 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 such 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 rule-comments@sec.gov. Please include
File Number SR-FICC-2006-10 in the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FICC-2006-10. 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 inspection and
copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filings also
[[Page 67948]]
will be available for inspection and copying at the principal office of
FICC and on FICC's Web site, http://www.ficc.com. 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-2006-10 and should be submitted on
or before December 15, 2006.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-19850 Filed 11-22-06; 8:45 am]
BILLING CODE 8011-01-P