

[Federal Register: October 13, 2006 (Volume 71, Number 198)]
[Notices]               
[Page 60591-60592]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc06-113]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54570); File No. SR-FICC-2006-12]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Financial 
Responsibility, Operational Capability, Insolvency, and Ceasing To Act

October 4, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 15, 2006, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') and on September 22, 2006, amended 
the proposed rule change as 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 persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    The proposed rule change would amend FICC's Government Securities 
Division's (``GSD'') and Mortgage Backed Securities Division's 
(``MBSD'') rules relating to members'' or applicants' financial 
responsibility, operational capability, and insolvency and FICC ceasing 
to act for members.

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 such statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by FICC.
---------------------------------------------------------------------------

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Cease To Act and Insolvency Rules
    In order to achieve greater legal and administrative consistency 
and efficiency, FICC proposes to harmonize GSD's rules governing when 
FICC will cease to act for a member in a noninsolvency situation \3\ 
and in an insolvency situation \4\ with the rules of FICC's affiliate, 
the National Securities Clearing Corporation (``NSCC'').\5\
---------------------------------------------------------------------------

    \3\ GSD Rule 21.
    \4\ GSD Rule 22.
    \5\ The text of the proposed rules can be found on FICC's Web 
site at < http://ficc.com[fxsp0]/gov/gov.[fxsp0]docs.jsp?NS-

query=#rf.
---------------------------------------------------------------------------

    Under the proposed rule change, GSD Rule 21 would be renamed 
``Restriction on Access to Services,'' would address noninsolvency 
situations, and would be structured similar to NSCC Rule 46. While new 
Rule 21 would be triggered by essentially the same criteria that are 
contained in the current GSD rule,\6\ the new rule would expand the 
remedies that FICC could exercise beyond only ``ceasing to act'' or 
``ceasing to accept data'' on behalf of the member. Specifically, FICC, 
after notifying and providing an opportunity to request a hearing to 
the member, would be able to suspend, prohibit, or limit a member's 
access to one or more of FICC's services.
---------------------------------------------------------------------------

    \6\ Such triggers include the member failing to perform its 
obligations to FICC and FICC's determination that the member is in 
or is approaching financial difficulty.
---------------------------------------------------------------------------

    GSD Rule 22, which covers situations when a member becomes 
insolvent, would remain in its current form except that its close-out 
provisions would be amended and would be moved to a new Rule 22A. Rule 
22A would set forth the procedures that FICC would follow when it 
ceases to act for a member

[[Page 60592]]

pursuant to Rules 21 and 22. Under new Rule 22A, FICC would initiate 
the close-out process with respect to a member for which it has ceased 
to act for any reason permitted by its rules.\7\ In addition, the term 
``Cut-Off Time'' for noninsolvency situations would be added to Rule 
22A. Although this term is similar to the ``Time of Insolvency'' term 
currently used in Rule 22, a key difference between the terms is that 
members will be notified in advance of the ``Cut-Off Time.''
---------------------------------------------------------------------------

    \7\ Currently, the close-out process applies only when FICC 
deems a member insolvent.
---------------------------------------------------------------------------

    The proposed rule change also makes technical changes to conform 
existing references to Rules 21 and 22 throughout FICC's rules to the 
proposed rule changes described above.\8\
---------------------------------------------------------------------------

    \8\ See Rules 1, 3A, 4, 6A, 14 and pending Rule 22A.
---------------------------------------------------------------------------

2. General Continuance Standards
    FICC proposes to add new Rule 3, Section 5 to GSD's rules and new 
Article III, Rule 1, Section 18 to MBSD's rules, similar to NSCC Rule 
15, that would enable FICC, when it deems necessary or advisable, to 
assure itself of a member's or an applicant's financial responsibility 
and operational capability. To assure itself, FICC could, but would not 
be limited to: Restricting or modifying the member's use of any or all 
of FICC's services; requiring additional reporting by the member of its 
financial or operational condition; increasing the member's clearing 
fund collateral; altering the proportions of cash, eligible netting 
securities, and letters of credit contributing to the member's required 
clearing fund deposits; and prohibiting the member from withdrawing 
excess clearing fund deposits.\9\
---------------------------------------------------------------------------

    \9\ These proposed actions are similar to those that FICC has 
proposed to undertake with respect to a member undergoing a wind-
down in a rule filing pending with the Commission. SR-FICC-2006-06.
---------------------------------------------------------------------------

    Because the proposed rule change would give FICC the general 
authority to require additional clearing fund collateral when FICC is 
seeking additional assurances from a member or applicant, the 
provisions in GSD's current Rule 4 that require the posting of 
additional collateral for specific circumstances would be deleted.
3. Technical Amendments
    FICC proposes to make several technical amendments to GSD's and 
MBSD's rules. The terms ``Board'' and ``Board of Directors'' would be 
redefined to include a committee of FICC's Board of Directors that is 
acting under delegated authority of the Board. Accordingly, references 
to specific board committees throughout both divisions' rules would be 
replaced simply by the term ``Board,'' which would include any such 
board committees.
    FICC believes that the proposed rule change is consistent with the 
requirements of the Section 17A of the Act \10\ and the rules and 
regulations thereunder because it would enhance FICC's rules governing 
cease-to-act and insolvency situations and would strengthen FICC's 
ability to seek additional assurances from its members and as a result 
should help FICC safeguard funds and securities in its custody or 
control.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

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

    FICC has not solicited or received written comments relating to the 
proposed rule change. FICC will notify the Commission of any written 
comments it receives.

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, as amended, 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 No. SR-FICC-2006-12 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 No. SR-FICC-2006-12. 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 FICC's principal office and on FICC's Web 
site at <http://ficc.com/gov/gov.docs.jsp?NS-query=#rf. 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 
submission should refer to File No. SR-FICC-2006-12 and should be 
submitted on or before November 3, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-16950 Filed 10-12-06; 8:45 am]

BILLING CODE 8011-01-P
