
[Federal Register: September 9, 2010 (Volume 75, Number 174)]
[Notices]               
[Page 54929-54930]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09se10-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62828; File No. SR-FICC-2010-02]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Amend the Rules of the 
Government Securities Division and the Mortgage-Backed Securities 
Division To Change the Classification of U.S. Branches or Agencies of 
Non-U.S. Banks From Foreign to U.S. Members

September 2, 2010.

I. Introduction

    On June 24, 2010, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-FICC-2010-02 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ The proposed rule 
change was published for comment in the Federal Register on July 19, 
2010.\2\ No comment letters were received on the proposal. This order 
approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 62478 (July 9, 2010), 75 
FR 41908 (July 19, 2010).
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II. Description

    FICC will amend the Rules of its Government Securities Division 
(``GSD'') and Mortgage Backed Securities Division (``MBSD'') to 
classify as U.S. Members those Members of the GSD and MBSD that are 
U.S. Branches or agencies of non-U.S. Banks (``U.S. Branches''). GSD 
and MBSD Rules currently classify the membership of such U.S. Branches 
as ``Foreign.''
    The classification of U.S. Branches as U.S. Members harmonizes 
FICC's Rules with the other clearing agency subsidiaries of The 
Depository Trust and Clearing Corporation, The Depository Trust Company 
(``DTC'') and the National Securities Clearing Corporation 
(``NSCC'').\3\ FICC also believes the rule change is appropriate 
because it reflects that U.S. Branches are regulated by a U.S. 
regulator or a state regulator. This means that the appropriate 
domestic regulator treats U.S. Branches as U.S. entities for most 
significant matters, and consequently an insolvency of such a member 
would be determined by applicable domestic ``ring-fence'' laws.\4\ 
Under the Rule changes, such members will be treated as domestic 
members for all purposes under FICC's Rules and Procedures unless FICC 
states otherwise in its Rules.\5\
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    \3\ DTC and NSCC already classify U.S. branches or agencies of 
foreign banks as domestic Members. This is reflected in Section 2 of 
DTC's Policy Statements on the Admission of Participants and in 
Addendum O of NSCC's Rules titled ``Admission of Non-U.S. Entities 
as Direct NSCC Members.''
    \4\ In the United States, ``ring-fencing'' refers to the 
procedure for dealing with branches or agencies of insolvent foreign 
banks in the United States pursuant to which the federal or state 
regulator, as applicable, will seize and administer the local assets 
of an insolvent institution, with a preference for local creditors 
in a liquidation that is separate from the liquidation of the parent 
foreign bank as a whole.
    \5\ Such members will no longer be required to submit annual 
updates to their foreign legal opinions as currently required by 
FICC rules for non-U.S. entities unless FICC deems it necessary to 
address legal risk. Applicants in this category will however 
continue to be required to submit an initial foreign legal opinion 
on their home country law with their membership application.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act \6\ and the rules and regulations 
thereunder applicable to FICC. In particular, the Commission believes 
that the amendments FICC is making to its Rules to will provide 
consistent treatment to all its Members that are regulated by a U.S. or 
state regulator and that are subject to a domestic insolvency regime 
are consistent with FICC's obligations under Section 17A(b)(3)(F),\7\ 
which requires, among other things, that the rules of a clearing agency 
are designed to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible.
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the

[[Page 54930]]

requirements of Section 17A of the Act \8\ and the rules and 
regulations thereunder.
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    \8\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-FICC-2010-02) be, 
and hereby is, approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 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.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-22448 Filed 9-8-10; 8:45 am]
BILLING CODE 8010-01-P

