
[Federal Register: May 14, 2008 (Volume 73, Number 94)]
[Notices]               
[Page 27873-27874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my08-112]                         

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-57802; File No. SR-FICC-2008-02]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Require Demand Processing 
for Blind-Brokered Repo Trades

    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 9, 2008, the 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 
primarily by FICC. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FICC is seeking to amend the rules of the Government Securities 
Division (``GSD'') to mandate Demand Comparison submission and 
processing for blind-brokered repo trades that are submitted by a 
specified cut-off time.

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.\2\
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    \2\ 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

1. Background
    In 2001, the Government Securities Clearing Corporation (``GSCC''), 
the GSD's predecessor, redesigned its comparison rules and procedures 
soon after the introduction of the real-time trade matching system. At 
that time, GSCC also moved the timing of its settlement guaranty from 
the point of netting to the point of comparison, which was much earlier 
in the day. In designing these changes, GSCC's goal was to provide 
straight through processing by providing for easy identification and 
resolution of uncompared trades intraday in order to achieve 100 
percent comparison. These changes reduced risk by ensuring that more 
transactions were compared and guaranteed by the clearing corporation 
earlier in the day so that intraday credit exposure to counterparties 
was minimized.
    As part of the redesign of the GSCC comparison rules, GSCC 
introduced Demand Comparison, which was a new type of comparison that 
was created to provide members with flexibility and control over the 
comparison process for trades executed via intermediaries.\3\ Demand 
Comparison strikes a balance between ``bilateral comparison'' (the 
traditional form of comparison), where each member is required to 
submit trade data to the clearing agency in order for the clearing 
agency to compare the trade, and ``locked-in comparison,'' where the 
trade is submitted as a compared trade to the clearing agency by one 
side or by one intermediary.\4\
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    \3\ Securities Exchange Act Release No. 44946 (October 17, 
2001), 66 FR 53816 [File No. SR-GSCC-2001-01].
    \4\ A Treasury auction take-down trade is a typical example of a 
trade submitted for Locked-In Comparison.
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    Demand Comparison entails submission of trade data by approved 
intermediaries (e.g., brokers) called ``Demand Trade Sources.'' FICC 
deems a trade submitted for Demand Comparison to be compared upon 
FICC's receipt of the trade data from the Demand Trade Source. However, 
if a dealer ``does not know'' a trade submitted on its behalf by a 
Demand Trade Source, the dealer is able to submit a DK (i.e., ``don't 
know'') to the GSD. The receipt of a DK by FICC causes the demand 
comparison trade to no longer be deemed compared. In order to effect 
comparison for a demand comparison trade that has been DKed, the DK 
must be removed. If the member that sent the DK determines that it did 
so erroneously, the member is able to remove the DK so that the trade 
is compared.\5\ Modification of a DKed trade by the Demand Trade Source 
also removes the DK so that the trade is compared.\6\ The removal of 
the DK and modification of a DKed trade are subject to the prescribed 
time frames for Demand DK processing.
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    \5\ Under this proposal to require Demand Comparison processing 
of blind-brokered repo trades, the cut-off time for removing DKs 
will be 8 pm New York time.
    \6\ Under this proposal to require Demand Comparison processing 
of blind-brokered repo trades, the cut-off time for modifications by 
Demand Trade Sources will be 8:00 pm New York time.
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2. Proposal
    FICC's current proposal is to mandate Demand Comparison for all 
blind-brokered repo trades that are submitted by 4 pm New York time. 
The GSD's members acting as inter-dealer brokers for repos will be 
designated as approved Demand Trade Sources. Members on whose behalf 
the brokers submit trades will not need to separately authorize the 
brokers as their Demand Trade Sources for GSD's purposes because GSD's 
rules will do so. After approval of the rule change, counterparties to 
blind-brokered repo trades will still need to submit their trade data 
as they do currently. Dealers will need to monitor the broker 
submissions against them in order to submit DKs where necessary to 
block any further processing of the submission. In order to provide the 
dealer counterparties with adequate time by which to submit their DKs, 
especially for trades submitted close to the 4 p.m. deadline, GSD will 
create a 30 minute DK window following the 4 p.m. Demand Comparison 
submission deadline (until 4:30 p.m.) during which time the dealer 
counterparties can DK previously received demand trades; however, 
dealer counterparties will be able to submit DKs at any time during the 
Demand Comparison submission processing time frame. Under Demand 
Comparison processing, a dealer counterparty that does not submit a DK 
with respect to a blind-brokered repo trade submitted against it will 
be responsible for that trade. Blind-brokered repo trades submitted 
after the 4 pm deadline will be treated as trades submitted for 
``bilateral comparison'' requiring two-sided submission and matching 
for comparison to occur.

[[Page 27874]]

    FICC believes that requiring Demand Comparison for blind-brokered 
repo trades as described above will reduce risk by promoting earlier 
comparison and a higher rate of comparison. Demand Comparison trade 
entry will also encourage members to reconcile differences on a timely 
basis.
    FICC plans to implement the proposed changes four months after 
submission of this filing to the Commission (i.e., early August), 
subject to approval by the Commission, in order to provide members with 
the opportunity to make any necessary system changes.
3. Statutory Basis
    FICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder applicable to FICC because it should support the 
prompt and accurate clearance and settlement of securities transactions 
by enabling earlier comparison and a higher rate of comparison of 
blind-brokered repo transactions.
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    \7\ 17 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 would 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 have not been solicited with respect to the 
proposed rule change, and none have been received. 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 Number SR-FICC-2008-02 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-2008-02. 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, on official business days between the hours 
of 10 a.m. and 3 p.m. 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.dtcc.com/downloads/legal/rule_filings/2008/
ficc/2008-02.pdf. 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-2008-02 and should be submitted on or before June 4, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-10725 Filed 5-13-08; 8:45 am]

BILLING CODE 8010-01-P
