

[Federal Register: May 30, 2006 (Volume 71, Number 103)]
[Notices]               
[Page 30701-30703]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30my06-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53852; File No. SR-FICC-2006-04]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify Provisions in the Rules of the Government Securities Division 
Relating to the GCF Forward Mark Component of the Funds-Only Settlement 
Process

May 23, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 24, 2006, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I, II, and III below, which items have been prepared primarily 
by FICC. FICC filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) thereunder \3\ so 
that the proposal was effective upon filing with the Commission. 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).
    \2\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).

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[[Page 30702]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change clarifies provisions in the rules of the 
Government Securities Division (``GSD'') of FICC relating to the GCF 
forward mark component of the funds-only settlement process.

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.\4\
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    \4\ 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's GCF Repo Service enables dealer members of the GSD to freely 
and actively trade general collateral repos throughout the day without 
requiring intraday, trade-for-trade settlement on a delivery-versus 
payment basis. The GSD's funds-only settlement process is the mechanism 
by which cash adjustments are passed through from one member to 
another. One component of GSD's funds-only settlement process is the 
GCF forward mark. The GCF forward mark is a cash mark-to-market 
adjustment that brings members' GCF net settlement positions from 
contract value to current market value.\5\
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    \5\ A mark-to-market is essentially a repricing of forward 
settling activity on a daily basis.
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    As the novation of forward-settling trades occurs one or more days 
prior to the settlement of such trades, FICC incurs multiday settlement 
exposure on such trades. To mitigate this risk, FICC collects and 
passes through on a daily basis, as a part of the morning funds-only 
settlement process, a mark-to-market amount equivalent to its ongoing 
exposure on each forward net settlement position. This mark-to-market 
on forward-settling trades is determined in FICC's forward mark 
calculation.
    Rule 13 of the GSD rules governs its funds-only settlement process. 
A review of this rule has revealed the need for clarification in the 
rule's language that describes the GSD's forward mark calculation. Two 
defined terms in the current GSD rules that were intended to represent 
the entire mark-to-market attributable to forward-settling GCF Repo 
activity, namely Credit GCF Interest Rate Mark and Debit GCF Interest 
Rate Mark, are defined in a way that causes them to reflect only 
tentative or interim amounts.
    As currently defined in the Rules, the determination of a Credit 
GCF Interest Rate Mark or a Debit GCF Interest Rate Mark is based 
solely on the calculation of an amount defined in the GSD rules as the 
GCF Interest Rate Mark; however, the definition of GCF Interest Rate 
Mark omits a required reference to the calculation of interest accrued 
on the financing aspect of the applicable transaction.\6\ A definition 
that would better reflect the actual mark-to-market for a particular 
forward-settling GCF Repo transaction should also take into account 
both the GCF Interest Rate Mark and the interest accrued on the 
financing component of the transaction. Therefore, as currently defined 
these terms do not fully reflect the actual calculations that are both 
required and currently used by FICC to mitigate risk exposure on 
forward settling GCF Repo trades.
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    \6\ The definition of ``GCF Interest Rate Mark'' is included for 
reference purposes in Exhibit 5 to the proposed rule filing.
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    In order to conform the GSD Rules to actual and correct practice in 
this regard, FICC is proposing to revise the rules to: (i) Add a new 
term called GCF Forward Mark, (ii) replace the above-mentioned terms 
Credit GCF Interest Rate Mark and Debit GCF Interest Rate Mark with 
newly defined terms to be called Credit GCF Forward Mark and Debit GCF 
Forward Mark,\7\and (iii) utilize the term Accrued Repo Interest-to-
Date contained in a recently approved rule filing by the Commission.\8\
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    \7\ The deletion of the terms Credit GCF Interest Rate Mark and 
Debit GCF Interest Rate Mark and the addition of the terms Credit 
GCF Forward Mark and Debit GCF Forward Mark necessitates a 
conforming change to provisions of Section 1 of Rule 13 of the GSD 
rules.
    \8\ Securities Exchange Act Release No. 53534 (March 21, 2006), 
71 FR 15781 (March 28, 2006) [File No. SR-FICC-2005-18].
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    The term GCF Forward Mark will properly reflect the calculation of 
the outstanding GCF Repo transaction as the sum of the Accrued Repo-
Interest-to-Date and the GCF Interest Rate Mark. To the extent that the 
mark-to-market for a particular member is positive, it shall be deemed 
a Credit GCF Forward Mark and to the extent that the mark-to-market for 
a particular member is negative, it shall be deemed to be a Debit GCF 
Forward Mark. Whether reflecting a credit or a debit, the newly-defined 
GCF Forward Mark will represent a calculation which accurately 
describes the portion of a member's forward mark adjustment payment 
attributable to a particular GCF Repo transaction.
    In addition to the above, a technical adjustment has been made to 
correct a typographical error in subsections (f) and (g) of Section 1 
of Rule 13 which transposed the usage of terms involving debits and 
credits in connection with a description of certain situations where a 
member would be required to make a payment to or could collect a 
payment from FICC as part of the funds-only settlement process.
    The proposed change is consistent with section 17A of the Act \9\ 
and the rules and regulations thereunder applicable to FICC because it 
makes technical changes that clarify FICC's rules in a manner 
consistent with 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

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A)(iii) of the Act \10\. and Rule 19b 4(f)(4)\11\ 
thereunder because it effects a change in an existing service of FICC 
that (i) does not adversely affect the safeguarding of securities or 
funds in the custody or control of FICC or for which it is responsible 
and (ii) does not significantly affect the respective rights or 
obligations of FICC or persons using the service. At any time within 
sixty days of the filing of the proposed rule change, the Commission 
may summarily abrogate 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,

[[Page 30703]]

or otherwise in furtherance of the purposes of the Act.
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    \10\15 U.S.C. 78s(b)(3)(A)(iii).
    \11\17 CFR 240.196b-4(f)(4).
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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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-FICC-2006-04 on 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-2006-04. 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 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. 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-2006-04 and should be submitted on 
or before June 20, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-8237 Filed 5-26-06; 8:45 am]

BILLING CODE 8010-01-P
