Notice2022-22656
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify and Update GSD Rules, MBSD Rules and EPN Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 201 (Wednesday, October 19, 2022)</title>
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[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63548-63551]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22656]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96061; File No. SR-FICC-2022-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Clarify and Update GSD Rules, MBSD Rules and EPN Rules
October 13, 2022.
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 October
[[Page 63549]]
7, 2022, 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)(4)
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)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
(a) The proposed rule change of Fixed Income Clearing Corporation
(``FICC'') consists of modifications to the FICC Government Securities
Division (``GSD'') Rulebook (``GSD Rules''), the FICC Mortgage-Backed
Securities Division (``MBSD'') Clearing Rules (``MBSD Rules'') and the
Electronic Pool Notification (``EPN'') Rules of MBSD (``EPN Rules,''
and together with the GSD Rules and the MBSD Rules, the ``Rules'').
Specifically, the proposed rule change would (i) clarify GSD Rules,
MBSD Rules and EPN Rules concerning admission to FICC premises, (ii)
update EPN Rules related to FICC's maintenance of fidelity insurance
bond, (iii) remove outdated EPN Rules related distribution facilities,
and (iv) clarify GSD Rules and MBSD Rules concerning Settling Banks'
ability to refuse to settle. The proposed changes are designed to
clarify and update certain sections of the Rules and enhance the
transparency of those Rules by conforming, as appropriate, provisions
in certain sections of the Rules with similar rules of FICC's
affiliates, as described in greater detail below.\5\
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\5\ Capitalized terms not otherwise defined herein are defined
in the MBSD Rules, GSD Rules, and the EPN Rules, as applicable,
available at <a href="http://www.dtcc.com/legal/rules-and-procedures">http://www.dtcc.com/legal/rules-and-procedures</a>.
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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
FICC is proposing to clarify and update the Rules and enhance the
transparency of those Rules through modifications related to (i)
credentials required to access the premises of FICC, (ii) FICC's
maintenance of a fidelity insurance bond, (iii) existence of
distribution facilities of FICC, and (iv) clarification of Settling
Banks' and Cash Settling Banks' ability to refuse to settle for itself.
First, the proposed changes would enhance the transparency of these
Rules by providing participants of FICC with updated, clear
information. Second, the proposed changes would simplify and update
these Rules by removing information that either (a) describes internal
processing and does not provide participants with important information
regarding any applicable service, or (b) no longer describes FICC's
current operations. Finally, the proposed changes would conform those
Rules with similar rules of FICC affiliates, The Depository Trust
Company (``DTC'') and National Securities Clearing Corporation
(``NSCC,'' and, together with FICC and DTC, the ``Clearing Agencies''),
where appropriate.
The proposed changes are discussed in detail below.
(i) Admission to FICC Premises
First, FICC is proposing to revise GSD Rule 27 (Admissions to
Premises of the Corporation, Powers of Attorney, ETC.), MBSD Rule 20
(Admissions to Premises of the Corporation, Powers of Attorney, ETC.)
and EPN Rule 4 of Article III,\6\ (Admission to Premises of
Corporation; Powers of Attorney), which provide for the approval and
subsequent revocation of access to FICC's premises by a participant's
employee, or a person to whom a power of attorney or other
authorization has been given to act for a participant, in connection
with the work of FICC. The proposed changes to these Rules would add
information regarding the need for any representative of a participant
to prominently display credentials to gain entry and remain on the
premises of FICC. The proposed rule change of EPN Rule 4 of Article III
also clarifies the need to provide FICC with immediate notice of a
change of circumstances resulting in the revocation of such
credentials. The proposed changes further outline FICC's processes for
allowing participants onto FICC's premises and, therefore, enhance the
transparency of these Rules. The proposed change would allow FICC to
continue to monitor and ensure the safety of its employees and guests,
while clarifying expectations for participants and representatives of
participants while on FICC premises.
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\6\ All references to ``Articles'' herein shall refer to
Articles of the EPN Rules, supra note 5.
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In addition, the proposed rule change would conform GSD Rule 27,
MBSD Rule 20 and EPN Rule 4 of Article III with DTC Rule 17 and NSCC
Rule 27.\7\ By conforming the descriptions in similar rules across the
Clearing Agencies where there is no difference in FICC's processes and
therefore no need for differing language, the proposed changes would
improve predictability and transparency for visitors of FICC.
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\7\ The DTC Rules and NSCC Rules are available on DTCC's public
website, available at <a href="https://www.dtcc.com/legal/rules-and-procedures">https://www.dtcc.com/legal/rules-and-procedures</a>.
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(ii) Maintenance of Fidelity Bond
Next, FICC is proposing to revise EPN Rule 6, Section 3 of Article
V (Fidelity Bond) which currently provides for FICC's maintenance of
fidelity bond coverage in an amount of not less than $10,000,000. FICC
is proposing to amend this rule to replace the existing language with a
more general description of FICC's obligation to maintain appropriate
insurance, including fidelity bonds, related to its business, to
provide access to such insurance policies or contracts to EPN Users and
to notify each EPN User and the Commission of any material reduction in
such insurance coverage. FICC is proposing to replace the current
language of this rule with a more general description because FICC does
not believe the current rule provides EPN Users with important
information regarding their rights and obligations, or FICC's rights
and obligations, in connection with this obligation to maintain
insurance coverage. In general, FICC maintains a significantly higher
amount of fidelity bond coverage than that required in this rule.
In addition, the proposed changes would conform the language of EPN
Rule 6, Section 3 of Article V with those of MBSD Rule 25, DTC Rule 14,
and NSCC Rule 34 and GSD Rules 34.\8\ By conforming the descriptions in
similar rules across the Clearing Agencies where there is no difference
in FICC's processes and therefore no need for differing language, the
proposed changes would improve predictability and transparency for
firms that are
[[Page 63550]]
participants with multiple Clearing Agencies.
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\8\ Id.
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(iii) Distribution Facilities
FICC is also proposing to change the EPN Rules by deleting EPN Rule
20 of Article V (Distribution Facilities) because it does not currently
maintain such facilities and has no plans to do so. Therefore, this
proposed change would reflect FICC's current processes and improve the
clarity the EPN Rules.
EPN Rule 20 of Article V currently states that FICC may, if it
deems necessary, establish distribution facilities ``for the
distribution of papers, documents and other material incidental to the
ordinary course of business'' to be used by EPN Users. To FICC's
knowledge, FICC has not utilized such option and based on current FICC
processes and procedures, FICC does not believe it would be necessary
to establish such facilities in the future. As such, the proposed
change would not impede any EPN Users from engaging in the services or
have an adverse impact on such firms.
(iv) Settlement by Settling Banks and Cash Settling Banks
Lastly, FICC is proposing to revise GSD Rule 13, Section 5(b)
(Funds-Only Settlement Amount Payment Process) and MBSD Rule 11,
Section 9(b) (Cash Settlement) to clarify that a Settling Bank and a
Cash Settling Bank, respectively, may not refuse to settle for itself.
GSD Rule 13, Section 5(b) currently provides that Funds-Only
Settling Banks must acknowledge to FICC by a certain time their
intention to either settle their Net Funds-Only Settlement Figures or
their refusal to settle for one or more Netting Members. MBSD Rule 11,
Section 9(b) currently provides that Cash Settling Banks must
acknowledge to FICC by a certain time their intention to either settle
their Total Debit Cash Balance Figures and Total Credit Cash Balance
Figures or their refusal to settle for one or more particular Member.
The proposed change to these rules, would clarify that a Settling
Bank and a Cash Settling Bank cannot refuse to settle for itself. The
proposed change would codify a longstanding practice and understanding
among participants of the Clearing Agencies. As Netting Members and
Members have an ongoing responsibility to settle their own obligations,
a Netting Member or Member who serves as a Settling Bank or Cash
Settling Bank, respectively, would carry the same responsibility on its
own behalf. More specifically, GSD Rule 13, Section 5(e) states that if
the Funds-Only Settling Bank does not acknowledge, or sends a refusal
regarding, the Netting Member's Funds-Only Settlement Amount that is a
debit or if the Funds-Only Settling Bank acknowledges the amount but
then does not settle the payment, the Netting Member shall remain
obligated, pursuant to the Rules, to pay such Amount by the payment
deadline.\9\ MBSD Rule 11, Section 9(e) states that if the Cash
Settling Bank does not acknowledge, or sends a refusal regarding, the
Member's Cash Settlement amount that is a debit or if the Cash Settling
Bank acknowledges the amount but then does not settle the payment, the
Member shall remain obligated, pursuant to the Rules, to pay such Cash
Settlement amount by the payment deadline.\10\ Therefore, if Settling
Bank or a Cash Settling Bank is a Netting Member or a Member,
respectively, it would be subject, as a Netting Member or Member, to
the obligation to settle on its own behalf pursuant to the obligations
of Netting Members and Member under the Rules cited above. While a
Settling Bank and Cash Settling Bank may refuse to settle for another
participant that has engaged it as a settling bank, in which case, the
participant's obligation to settle on its own behalf would be
triggered, it cannot refuse to settle for itself.
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\9\ See supra note 5.
\10\ Id.
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The proposed change would clarify and increase transparency of
these Rules. In addition, the proposed change would conform GSD Rule
13, Section 5(b) and MBSD Rule 11, Section 9(b) with DTC Rule 9D and
NSCC Rule 55, which state in clearer terms that settling banks cannot
refuse to settle on its own behalf.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions and to protect investors and the public
interest.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC believes the proposed rule change would promote the prompt and
accurate clearance and settlement of securities transactions by FICC,
consistent with the requirements of the Act, in particular Section
17A(b)(3)(F), cited above.\12\ Specifically, the proposed rule changes
concerning Admission to FICC's Premises and Settlement by Settling
Banks and Cash Settling Banks would update and clarify these Rules by
codifying settled processes and provide transparency thereby allowing
participants to conduct their business more efficiently and effectively
in accordance with the Rules, which FICC believes would promote the
prompt and accurate clearance and settlement of securities
transactions. The proposed rule change regarding Distribution
Facilities would remove an outdated rule related to inactive services
in reference to distribution facilities. This proposed change is
designed to improve the accuracy, clarity, and transparency of the
Rules and thereby allow participants to conduct their business more
efficiently and effectively in accordance with the Rules, which FICC
believes would promote the prompt and accurate clearance and settlement
of securities transactions. The proposed rule change related to FICC's
Maintenance of Fidelity Bond is designed to simplify and update this
rule by removing information that describes internal processes and does
not provide participants with important information regarding FICC's
maintenance of appropriate insurance coverage.
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\12\ Id.
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By updating, clarifying and improving the transparency of the
Rules, the proposed changes would allow participants to better
understand their rights and obligations under the Rules. As such, FICC
believes the proposed rule changes would promote the prompt and
accurate clearance and settlement of securities transactions and assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible,
consistent with the requirements of Section 17A(b)(3)(F).\13\
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\13\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe that the proposed rule changes would have any
impact on competition, because the proposed changes to (1) enhance
transparency of the Rules, (2) change language that does not provide
participants with important information regarding any service, (3)
update the Rules to reflect current practice, and (4) conform the Rules
across FICC's divisions and the Clearing Agencies, where appropriate,
would not materially alter the respective rights or obligations of FICC
or its participants. These proposed changes would allow participants to
better understand FICC's internal processes by adding information to
the Rules, update the Rules by removing services that are not provided
and establish conformity across FICC's divisions and Clearing Agencies,
where applicable. As such,
[[Page 63551]]
the proposed changes would not impede participants from engaging in the
services or have an adverse impact on any participants. Therefore, FICC
believes the proposed rule changes would not have any impact on
competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="https://www.sec.gov/regulatory-actions/how-to-submitcomments">https://www.sec.gov/regulatory-actions/how-to-submitcomments</a>. General questions
regarding the rule filing process or logistical questions regarding
this filing should be directed to the Main Office of the Commission's
Division of Trading and Markets at <a href="/cdn-cgi/l/email-protection#6b1f190a0f02050c0a050f060a19000e1f182b180e08450c041d"><span class="__cf_email__" data-cfemail="6115130005080f06000f050c00130a041512211204024f060e17">[email protected]</span></a> or 202-
551-5777.
FICC reserves the right not to respond to any comments received.
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) \14\ of the Act and paragraph (f) \15\ of Rule 19b-4
thereunder. 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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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0"><span class="__cf_email__" data-cfemail="5b292e373e76383436363e352f281b283e38753c342d">[email protected]</span></a>. Please include
File Number SR-FICC-2022-007 on the subject line.
Paper Comments
<bullet> 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-2022-007. 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website 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 website
(<a href="http://dtcc.com/legal/sec-rule-filings.aspx">http://dtcc.com/legal/sec-rule-filings.aspx</a>). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2022-007 and should be submitted on
or before November 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22656 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P
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