[Federal Register: March 29, 2005 (Volume 70, Number 59)]
[Notices]
[Page 15960-15962]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr05-114]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51413; File No. SR-FICC-2004-17]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of a Proposed Rule Change To Modify the Assessment
Process for Late Submissions of Collateral Made Through the GCF Repo
Service and To Increase the Types of Securities Available To Satisfy
Collateral Allocation Obligations
March 23, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 13, 2004, the Fixed
Income Clearing Corporation (``FICC'') filed with the Securities and
Exchange Commission (``Commission'') and on March 14, 2005, amended the
proposed rule change 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 seeking to amend the rules of the Government Securities
Division (``GSD'') of FICC to modify the assessment process for late
submissions of collateral allocations made through its GCF Repo service
and to increase the types of securities that can be used by a member in
satisfaction of collateral obligations.\2\
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\2\ The proposed rule change also amends GSD's rules to clarify
that where a collateral allocation obligation is satisfied by the
posting of U.S. Treasury Bills, notes, or bonds, such securities
must mature in a time frame no greater than that of the securities
that have been traded except where such traded securities are U.S.
Treasury Bills, such obligations must be satisfied with the posting
of ``comparable securities'' and/or cash only.
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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),
[[Page 15961]]
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
1. Assessment Process for Late Submissions of Collateral Allocations
Made Through the GCF Repo Service
On October 30, 1998, the Commission granted approval to FICC's
predecessor, the Government Securities Clearing Corporation, to
implement its GCF Repo service, which is a significant alternative
financing vehicle to the delivery versus payment and tri-party repo
markets. That approval included a fine schedule for failure to adhere
to relevant timeframes.\4\ The fine schedule was not implemented
because of certain events.\5\ More recently, FICC has shifted the
service from an interbank service to an intrabank service in order to
address certain payment system risk issues that have arisen and that
have resulted in decreased volumes.\6\ FICC believes, given the lower
volumes and likely forthcoming changes to the service to address the
payment system risk issues, that the original fine schedule should be
replaced.
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\4\ Securities Exchange Act Release No. 40623 (October 30,
1998), 63 FR 59831 (November 5, 1998) [File No. SR-GSCC-98-02].
\5\ As a new and complex service, members had difficulty
adhering to the timeframes. In addition, the initial rate of
participation was very poor, and there was a consequent need to
encourage growth in the service.
\6\ Securities Exchange Act Release No. 48006 (June 10, 2003),
68 FR 35745 (June 16, 2003) [SR-FICC-2003-04].
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Specifically, FICC is proposing to implement a late fee schedule to
replace the late fine schedule. FICC believes that late fee schedules
are appropriate in situations where the member's lateness causes an
operational burden but does not result in risk to FICC or its
members.\7\ In addition, in order to encourage members to make their
collateral allocations on a timely basis, there would be one late fee
targeted to the most significant timeframe surrounding the service.
Specifically, if a dealer does not make the required collateral
allocation by the later of 4:30 p.m. (New York time) or 1 hour after
the actual close of Fedwire GCF repo reversals, the dealer will be
subject to a late fee of $500.00. Finally, in order to alleviate the
potential operational and administrative burdens caused by late
collateral allocations, FICC is proposing to amend the GCF Repo rules
to provide that FICC will process collateral allocation obligations
that are received after 6 p.m. on a good faith basis only. This 6 p.m.
deadline will replace the 7 p.m. final cutoff for dealer allocations of
collateral to satisfy obligations.
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\7\ In a GCF Repo transaction, a borrower does not receive the
funds borrowed until it makes the required collateral allocation.
The lender maintains control of the funds until the allocation is
made. The transaction does not produce a risk of loss to FICC, the
lender, or other members.
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2. Types of Collateral Used to Satisfy Collateral Allocation
Obligations
Currently, GSD Rule 20 provides that a collateral allocation
obligation may be satisfied with ``comparable securities,'' Treasury
securities, and/or cash. ``Comparable securities'' are defined to
include any securities that are represented by the same generic CUSIP
number as the securities in question. Therefore, in the event that a
member does not have enough of the collateral securities or the
Comparable Securities, the only collateral that can be used is Treasury
securities and/or cash.
GSD members have approached FICC and asked that the rules be
amended to add additional collateral options as set forth below:
(a) Ginnie Mae adjustable-rate mortgage obligations could be
satisfied with Ginnie Mae fixed-rate mortgage backed securities and
(b) Fannie Mae and Freddie Mac adjustable-rate mortgage obligations
could be satisfied with: (i) Fannie Mae and Freddie Mac fixed-rate
mortgage-backed securities, (ii) Ginnie Mae fixed-rate mortgage-backed
securities, and (iii) Ginnie Mae adjustable-rate mortgage
obligations.\8\
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\8\ The industry recognizes fixed-rate securities as an
acceptable substitute for adjustable-rate securities as collateral
for mortgage-backed repo trades.
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FICC believes that the proposed rule change is consistent with the
requirements of section 17A of the Act \9\ and the rules and
regulations thereunder applicable to FICC because it is designed to
promote the prompt and accurate clearance and settlement of securities
transactions by allowing FICC's members additional collateral options
with which to meet GCF collateral allocation obligations and by
implementing a fee schedule that should incentivize members to allocate
collateral on a timely basis.
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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-2004-17 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609. All submissions should refer to File Number
SR-FICC-2004-17. 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
[[Page 15962]]
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, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing also will be available for inspection and copying at the
principal office of FICC and on FICC's Web site at http://www.ficc.com/gov/gov.docs.jsp?NS-query.
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-2004-17 and
should be submitted on or before April 19, 2005.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1382 Filed 3-28-05; 8:45 am]
BILLING CODE 8010-01-P