Notice2023-11444
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Fees for a New Pair-Off Message That May Be Processed Through the EPN Service
Primary source
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Published
May 31, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 104 (Wednesday, May 31, 2023)</title>
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[Federal Register Volume 88, Number 104 (Wednesday, May 31, 2023)]
[Notices]
[Pages 34908-34910]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-11444]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97559; File No. SR-FICC-2023-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Adopt Fees for a New Pair-Off Message That May Be Processed Through
the EPN Service
May 24, 2023.
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 May 18, 2023, 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
The proposed rule change consists of modifications to the FICC
Mortgage-Backed Securities Division (``MBSD'') EPN Rules (``EPN
Rules'') to adopt fees for a pair-off Message that EPN Users may
process through the EPN Service, as described in greater detail
below.\5\
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\5\ Capitalized terms not defined herein are defined in the EPN
Rules, as applicable, 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. 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
Overview of the Proposed Rule Change
The purpose of this proposed rule change is to adopt fees for a new
Message that EPN Users may process through the EPN Service relating to
the pair-off of trades in their TBA (``to-be-announced'') contracts in
agency mortgage-backed securities. The proposed fees are designed to
recover the cost of providing this service and would be set at a rate
that is lower than the rate charged for other Messages processed
through the EPN Service to incentivize EPN Users to use this voluntary
service.
Background
While some trades in agency mortgage-backed securities submitted to
FICC for processing on a TBA basis are ``specified pool trades''
(transactions
[[Page 34909]]
based on a particular set of underlying mortgages), most are not. For
those trades, a critical step in the trading and settlement of the TBA
contracts is for sellers to inform their buyer counterparties what
pools of mortgages will be delivered to satisfy that trade. The EPN
Service provides EPN Users with an automated way to transmit this
information regarding their TBA contracts through Messages.
The new pair-off Message, which will be announced to EPN Users by
Important Notice, would allow EPN Users that are buyers in a TBA
contract transaction to notify their seller counterparties of which
trades in that transaction should pair-off. Currently messages
regarding pair-offs are transmitted between buyers and sellers by
electronic mail using spreadsheets, which creates some risk that
information sharing is incomplete, incorrect, inconsistent and not
timely. In connection with its ongoing dialogue with mortgage-backed
security industry participants, FICC was asked to develop and offer
pair-off Messages through the EPN Service to minimize these risks. By
automating and standardizing the transmittal of this information, the
pair-off Messages would reduce those risks to the mortgage-backed
securities market. The new pair-off Messages will be designed similarly
to the other Messages transmitted through the EPN Service, where buyers
would receive an acknowledgement message verifying delivery and receipt
of the initial pair-off Message, and sellers would have the ability to
return a ``DK'' message if the trades or the terms of the trades in the
pair-off Message are not known. The use of this Message will be
voluntary and would allow users to eliminate the current manual process
of transmitting information regarding the pair-off of transactions.
The proposed rate for the new pair-off Message was designed to be
consistent with the fees for other Messages currently processed through
the EPN Service. Rates for current Messages are charged per million
because these Messages involve pools to satisfy TBA trades and
specified pool trades, where the proposed rate for the new pair-off
Messages would be charged per Message because these Messages would be
sent at the TBA trade-level.
In this fee structure, fees are generally lower for Messages
submitted earlier in the day to encourage submission of the initial
Message earlier in the day to allow for a response Message to be sent
on the same day. Therefore, the rate increases for initial Messages
submitted later in the day. The fee is lower for Messages submitted
after the 3:00 p.m. cut-off time for response Messages. The fee rates
being proposed are slightly lower than the rates for processing other
Messages through the EPN Service, which both reflects the low cost to
FICC to build these additional Messages and incentivizes EPN Users to
use this new, voluntary service.
Proposed Rule Change
FICC is proposing to adopt fees for the use of the pair-off
Messages that may be processed through the EPN Service. The proposed
fees would be identified in the EPN Service Schedule of Charges in the
EPN Rules, as follows: pair-off send Messages would be $0.10 per
Message if sent from the opening of business to 1:00 p.m., $0.50 per
Message if sent from 1:00 p.m. to 2:00 p.m., $1.00 per Message if sent
from 2:00 p.m. to 3:00 p.m., and $0.75 per Message if sent from 3:00
p.m. to close of business; pair-off receive Messages would be $0.50 per
Message if received from opening of business to 1:00 p.m., $0.25 per
Message if received from 1:00 p.m. to 3:00 p.m., and $0.15 per Message
if received from 3:00 p.m. to close of business.
FICC is also proposing to clarify the descriptions of other fees
for the EPN Service to use consistent language in describing fees in
the EPN Service Schedule of Charges. For example, these proposed
changes would refer to the beginning of the business day as ``Opening
of Business'' and refer to end of the business day as ``Close of
Business'' consistently in the Schedule of Charges. These
clarifications would avoid any confusion in the descriptions of these
fees in the EPN Service Schedule of Charges, making them clearer to EPN
Users.
Member Impact
The proposed fees would impact all EPN Users who voluntarily elect
to use the new pair-off Messages. As described above, the proposed fee
rates are designed to be comparable to the current fee rates charged
for Messages processed through the EPN Service and would be set at a
rate that is lower than the rates for processing other Messages in
order to incentivize EPN Users to use this voluntary service.
Implementation Timeframe
FICC would implement the proposed rule change on August 31, 2023.
2. Statutory Basis
FICC believes this proposal is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, FICC believes this proposal
is consistent with sections 17A(b)(3)(D) and (b)(3)(F) of the Act \6\
and Rule 17Ad-22(e)(23)(ii), as promulgated under the Act,\7\ for the
reasons described below.
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\6\ 15 U.S.C. 78q-1(b)(3)(D) and (b)(3)(F).
\7\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants.\8\ FICC believes
the proposed fees would be allocated equitably among EPN Users that use
the new pair-off Message. FICC believes that the proposed fees are
reasonable because they are based on the expected investment costs to
develop pair-off Messages and such fee changes are expected to recover
such investment and operating costs in an appropriate timeframe. As
noted above, FICC has set these fees at a rate that is lower than the
rate charged for other Messages processed through the EPN Service to
incentivize EPN Users to use this voluntary service. FICC notes that
once the proposed pair-off Message fees are implemented, the fees would
be periodically reviewed under FICC's procedures to determine whether
FICC is continuing to appropriately control its costs and to regularly
review pricing levels against costs of operation.
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\8\ 15 U.S.C. 78q-1(b)(3)(D).
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\9\ FICC believes
the proposed rule change is consistent with section 17A(b)(3)(F) of the
Act because the new pair-off Message would automate and standardize the
transmittal of information related to transaction pair-offs, minimizing
the risks presented by the current process of transmitting this
information through electronic mail and spreadsheets. By reducing the
risks that information sharing is incomplete, incorrect, inconsistent
and not timely, the new pair-off Messages would promote the prompt and
accurate clearance and settlement of securities transactions and,
therefore, are consistent with the requirements of the Act, in
particular section 17A(b)(3)(F) of the Act.\10\
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act requires a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to provide sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs they
[[Page 34910]]
incur by participating in the covered clearing agency.\11\ The proposed
fees would be clearly and transparently published in the EPN Service
Schedule of Charges in the EPN Rules, which are available on a public
website,\12\ thereby enabling EPN Users to identify the fees associated
with using the new pair-off Messages. Additionally, the proposed
changes to clarify the descriptions of other fees for the EPN Service
would make those descriptions consistent throughout the EPN Service
Schedule of Charges, reducing the risk of any confusion in the
descriptions of these fees and making them clearer to EPN Users. As
such, FICC believes the proposed rule change is consistent with Rule
17Ad-22(e)(23)(ii) under the Act.\13\
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\11\ 17 CFR 240.17Ad-22(e)(23)(ii).
\12\ See supra note 5.
\13\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe the proposed rule changes would impact
competition. The proposed rule changes would adopt fees for the use of
a voluntary service. Because EPN Users would not be obligated to use
the new pair-off Messages, FICC believes the proposed rule change 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-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</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#790d0b181d10171e18171d14180b121c0d0a390a1c1a571e160f"><span class="__cf_email__" data-cfemail="f88c8a999c91969f99969c95998a939d8c8bb88b9d9bd69f978e">[email protected]</span></a> or 202-551-5777.
FICC reserves the right to not 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) of the Act \14\ and paragraph (f) of Rule 19b-4
thereunder.\15\ 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#fc8e899099d19f9391919992888fbc8f999fd29b938a"><span class="__cf_email__" data-cfemail="c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3">[email protected]</span></a>. Please include
File Number SR-FICC-2023-007 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-2023-007. 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>). Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-FICC-2023-007 and should be submitted on or
before June 21, 2023.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11444 Filed 5-30-23; 8:45 am]
BILLING CODE 8011-01-P
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