

[Federal Register: March 8, 2007 (Volume 72, Number 45)]
[Notices]               
[Page 10580-10581]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr07-117]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55364; File No. SR-FICC-2006-05]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to the Wind-
Down of a Participant

February 27, 2007.

I. Introduction

    On March 28, 2006, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') and 
on September 28, 2006 and October 13, 2006, amended proposed rule 
change SR-FICC-2006-15 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published 
in the Federal Register on December 20, 2006.\2\ No comment letters 
were received. For the reasons discussed below, the Commission is 
granting approval of the proposed rule change as modified by Amendment 
Nos. 1 and 2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54929, (December 13, 
2006), 71 FR 76398.
---------------------------------------------------------------------------

II. Description

    The rule change adds new Rule 21A, Wind-Down of a Netting Member, 
to the Rules of FICC's Government Securities Division (``GSD'') and new 
Rule 2A, Wind-Down of a Participant, to the Rules of FICC's Mortgage-
Backed Securities Division (``MBSD'') to address a situation where a 
member or participant notifies FICC that it intends to wind down its 
activities, and FICC determines, in its discretion, that it must take 
special action in order to protect itself and its members and 
participants.\3\
---------------------------------------------------------------------------

    \3\ Similar proposed rule changes have been filed by The 
Depository Trust Company [File No. SR-DTC-2006-07] and the National 
Securities Clearing Corporation [File No. SR-NSCC-2006-05].
---------------------------------------------------------------------------

    The new rules allow FICC to determine that a participant is a wind-
down member or wind-down participant and sets forth the conditions FICC 
using its discretion may place on a wind-down member or participant and 
the actions FICC using its discretion may take with respect to a wind-
down member or participant to protect itself and its members or 
participants. Such actions may include restricting or modifying the 
wind-down member or participant's use of any or all of FICC's services 
and may include requiring the wind-down member or participant to post 
increased clearing fund deposits. FICC will retain all of its other 
rights set forth in its rules and membership and participant 
agreements, including the right to declare the wind-down member or 
participant insolvent, if applicable, and to cease to act for it.
    The rules are designed to ensure that FICC has the needed 
flexibility to appropriately manage the risks presented by an entity in 
crisis that remains a participant of FICC. This is particularly 
important to preserve orderly settlement in the marketplace and to 
minimize the risk of loss to FICC and its members and participants. 
Each rule sets forth in a single rule FICC's rights and the actions it 
may take in such a situation. Currently, these rights and actions are 
either permitted elsewhere in FICC's rules or are permitted pursuant to 
FICC's emergency authority. By placing FICC's rights in a single rule 
for each division, however, the rule change should provide clarity and 
a clear legal basis for FICC's rights or actions taken with respect to 
a wind-down member or participant. FICC also believes that the rules 
are designed to minimize the need for rule waivers.

III. Discussion

    Section 17A(b)(3)(F) of the Act provides that the rules of a 
clearing agency should be designed to safeguard securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible.\4\ The sudden or unanticipated financial or 
operational difficulties of a clearing member or participant or the 
termination of its trading activities may create uncertainty among 
industry participants about FICC's ability to meet its settlement 
obligations on time and concern about the risk to the assets of the 
clearing agency or of its members or participants. The proposed rule 
change clarifies that FICC has discretionary power in a wind-down 
situation to take certain actions to assure the ongoing operations of 
itself and to protect the securities and funds of FICC and of its 
members and participants. By making clear in a single rule of each of 
its divisions the authority FICC has under its rules to facilitate the 
orderly wind down of a member or participant's

[[Page 10581]]

activities, the proposed rule change is designed to assure the 
safeguarding of securities or funds which are in FICC's control or for 
which it is responsible.\5\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\6\
---------------------------------------------------------------------------

    \6\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-FICC-2006-05), as modified 
by Amendment Nos. 1 and 2, be, and hereby is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4055 Filed 3-7-07; 8:45 am]

BILLING CODE 8010-01-P
