
[Federal Register: October 13, 2010 (Volume 75, Number 197)]
[Notices]               
[Page 62899]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc10-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63038; File No. SR-FICC-2010-04]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change to Provide Clarity With Respect to 
the Close Out Netting of the Government Securities Division in the 
Event of the Fixed Income Clearing Corporation's Default or Insolvency

October 5, 2010.

I. Introduction

    On August 12, 2010, the Fixed Income Clearing Corporation 
(``FICC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FICC-2010-04 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 August 31, 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. 62767 (August 26, 2010), 
75 FR 53368.
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II. Description

    FICC is proposing to add a provision to the rules of the Government 
Securities Division (``GSD'') to make explicit the close out netting 
that would be applied to obligations between FICC and its members in 
the event that FICC becomes insolvent or defaults in its obligations to 
its members.\3\
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    \3\ The specific language of the proposed provision is available 
at http://www.dtcc.com/downloads/legal/rule_filings/2010/ficc/2010-
04.pdf.
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    FICC has been asked by some of its dealer members to add a 
provision to the rules of GSD to make explicit the close out netting of 
obligations between FICC and its members in the event that FICC becomes 
insolvent or defaults in its obligations to its members. Such members 
have stated that such a provision would provide clarity in their 
application of balance sheet netting to their transactions at FICC 
under U.S. GAAP in accordance with the criteria specified in the 
Financial Accounting Standards Board's Interpretation No. 39, 
Offsetting of Amounts Related to Certain Contracts (FIN 39). The 
members have stated further that a close out provision would allow them 
to comply with Basel Accord Standards relating to netting. 
Specifically, firms are able to calculate their capital requirements on 
the basis of their net credit exposure where they have legally 
enforceable netting arrangements with their counterparties, which 
includes a close out netting provision in the event of the default of a 
counterparty (in this case, the division of FICC acting as a CCP).

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act \4\ and the rules and regulations 
thereunder applicable to FICC.\5\ In particular, the Commission 
believes that by adding a close out provision to its rules, FICC is 
providing its members with clarity with respect to close out netting 
that would be applied to obligations of FICC and its members in the 
event of an FICC insolvency or default and in the calculation of their 
capital requirements with respect to their net credit exposure where 
members have legally enforceable netting arrangements with their 
counterparties. The proposal is therefore consistent with the 
requirements of Section 17A(b)(3)(F),\6\ which requires, among other 
things, that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanism of a national system for the 
prompt and accurate clearance and settlement of securities 
transactions.
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    \4\ 15 U.S.C. 78q-1.
    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 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 requirements of Section 17A of the Act \7\ and the 
rules and regulations thereunder.
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    \7\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-FICC-2010-04) be, 
and hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25620 Filed 10-12-10; 8:45 am]
BILLING CODE 8011-01-P

