
[Federal Register: March 4, 2009 (Volume 74, Number 41)]
[Notices]               
[Page 9455-9456]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr09-97]                         


[[Page 9455]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59463; File No. SR-FICC-2009-02]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change To Allow for Direct Membership for Non-Domestic Entities

February 26, 2009.
    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 February 19, 2009, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II below, which Items 
have been prepared primarily by FICC. The Commission is publishing this 
notice and order to solicit comments on the proposed rule change from 
interested persons and to approve the proposed rule change on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change allows direct membership for non-U.S. 
entities in FICC's Government Securities Division (``GSD'').

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.

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

    Currently, GSD Rule 2 (``Members'') includes a broad category for 
``foreign netting members.'' GSD Rule 2A (``Initial Membership 
Requirements'') sets forth membership criteria for these firms and 
includes, among other requirements, that the entity be regulated in its 
home country by a financial regulatory authority and that it be in 
compliance with the financial reporting and responsibility standards 
set by its home country regulator.
    FICC has designed its rules and various membership agreements to 
minimize the risks posed by the admission of non-domestic entities by 
availing itself of the benefits and protections of various U.S. state 
and federal bankruptcy rules and regulations. With this approach, FICC 
has historically accepted only foreign banks with U.S. branches or 
agencies into the ``foreign netting member'' category of GSD 
membership. While this is not technically a requirement in GSD's 
current rules, FICC imposed this limitation because of various state 
and federal bankruptcy law ``safe harbors'' that would apply to a U.S. 
branch's assets should a non-domestic member become insolvent. These 
safe harbors include ``ring fencing'' provisions that would set aside a 
U.S. branch's assets for distribution to the branch's creditors \3\ and 
procedures designed to protect creditors in the case of a foreign 
entity's default, including recognizing security interests and netting 
agreements, and rights to access member-posted collateral.\4\
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    \3\ The NY ring-fence law is Section 606, subsection 4, of the 
NYBL. Currently, FICC has an Illinois branch of a foreign bank as a 
member. FICC represents that the Illinois ring fence law is 
identical to New York's ring fence law.
    \4\ See Sections 403 and 404 of the Federal Deposit Insurance 
Corporation Improvement Act, 12 U.S.C. 4403(a) and 4404(a) 
(confirming the enforceability of bilateral netting contracts and 
clearing organization netting contracts, notwithstanding other 
provisions of federal law, by ensuring that parties can exercise 
termination, liquidation, and acceleration rights, as well as 
netting rights, under a netting contract).
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    Recently, U.S. bankruptcy laws have expanded the reach of federal 
safe harbors to non-U.S. entities without a U.S. branch or agency.\5\ 
FICC believes that these statutory changes strengthen FICC's ability to 
access and secure collateral posted at FICC by an insolvent non-U.S. 
member without a domestic branch by providing protection similar to 
that which applies to a U.S. member or branch or agency of a non-U.S. 
member.\6\
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    \5\ FICC believes that Section 561 of the bankruptcy code makes 
it clear that the bankruptcy code's safe harbor provisions now apply 
to ``ancillary proceedings.'' Ancillary proceedings, discussed in 
Chapter 15 of the bankruptcy code, refer to an attempt by a foreign 
liquidator to present itself in a U.S. court to institute 
proceedings to attempt to apply adverse foreign law to determine the 
disposition of the estate of a non-U.S. entity.
    \6\ Historically, FICC's concern centered on ancillary 
proceedings that might be brought by a foreign liquidator in a U.S. 
bankruptcy court seeking to apply foreign law to the disposition of 
an insolvent foreign member's assets. The U.S. Bankruptcy Code has 
been amended to provide that the safe harbors are available in such 
a proceeding, which was not that case prior to the recent amendments 
of the bankruptcy code.
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    This rule filing will remove references in GSD's rules to domestic 
branches or agencies with respect to foreign members, thereby 
facilitating ``direct'' membership for these entities at GSD.\7\ Non-
U.S. applicants will still be required to meet the minimum financial 
requirements set forth in GSD Rule 2A for foreign netting members \8\ 
and those entities accepted into membership will be required to comply 
with all rule provisions applicable to foreign netting members.
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    \7\ The Commission has approved similar rule filings submitted 
by The Depository Trust Company and the National Securities Clearing 
Corporation. Securities Exchange Act Release Nos. 58345 (Aug. 12, 
2008), 73 FR 48411 (Aug. 19, 2008) [File No. SR-DTC-2007-16] and 
58344 (Feb. 27, 2008), 73 FR 12485 (Mar. 7, 2008) [File No. SR-NSCC-
2007-15].
    \8\ GSD's rules state that if an applicant is a foreign entity 
that is applying to become a ``foreign netting member'', it must 
satisfy the minimum financial requirements (defined by reference to 
regulatory capital as defined by the applicant's home country 
regulator) that are applicable to the netting system membership 
category that the FICC determines would be applicable to the foreign 
firm if it were organized or established under U.S. law.
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    FICC believes that the proposed rule filing is consistent with the 
requirements of Section 17A of the Act \9\ and the rules and 
regulations thereunder applicable to FICC because it does not adversely 
affect the safeguarding of securities or funds in FICC's control 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

    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. 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:

[[Page 9456]]

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-2009-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-FICC-2009-02. 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 Room, 450 Fifth Street, NW., 
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 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-2009-02 and should be 
submitted on or before March 25, 2009.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to FICC. Specifically, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(A) of the 
Act,\10\ which requires, among other things, that FICC, as a registered 
clearing agency, be so organized and has the capacity to be able to 
safeguard securities and funds in its custody or control or for which 
it is responsible. The Commission notes that the proposed rule change 
adopts membership standards and safeguards that are substantively 
identical to those of the National Securities Clearing Corporation and 
The Depository Trust Company, which were published for comment in 2008 
and generated no comments.\11\ The Commission does not believe that 
this proposal raises new regulatory issues. Moreover, the changes in 
U.S. bankruptcy laws cited by FICC appear to have strengthened FICC's 
ability to secure the funds and securities pledged as collateral by a 
non-U.S. entity to FICC in the event that such entity were to become 
insolvent. Therefore, the proposed rule change should enhance FICC's 
capacity to safeguard securities and funds in its custody or control or 
for which it is responsible.
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    \10\ 15 U.S.C. 78q-1(b)(3)(A).
    \11\ Supra, note 7.
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    At FICC's request, the Commission finds good cause to approve the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice in the Federal Register, pursuant to Section 
19(b)(2) of the Act.\12\ The Commission believes that accelerating 
approval of this proposal is appropriate in that the proposed rule 
change is substantively identical to rules proposed by FICC-affiliated 
clearing agencies and approved by the Commission in 2008,\13\ and that 
it will allow prospective non-U.S. entities that wish to avail 
themselves of FICC's clearance and settlement, cost-savings, and risk-
management services without undue delay.
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    \12\ 15 U.S.C. 78s(b).
    \13\ Supra, note 7.
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V. 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 \14\ and the rules and regulations 
thereunder.
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    \14\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-FICC-2009-02) be and hereby 
is approved on an accelerated basis.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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).

    For the Commission by the Division of Trading and Markets 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-4603 Filed 3-3-09; 8:45 am]

BILLING CODE 8011-01-P
