
[Federal Register Volume 80, Number 123 (Friday, June 26, 2015)]
[Notices]
[Pages 36879-36881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15691]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75258; File No. SR-FICC-2015-002]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change to the Government Securities 
Division Rules in Connection With the Extension of the GCF Repo Service 
Pilot Program

June 22, 2015.
    On May 7, 2015, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-FICC-2015-002 pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal

[[Page 36880]]

Register on May 21, 2015.\3\ The Commission received no comments on the 
proposed rule change. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-74973 (May 15, 2015), 
80 FR 29352 (May 21, 2015) (SR-FICC-2015-002).
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I. Description of the Proposed Rule Change

    FICC seeks the Commission's approval to extend the pilot program 
that is currently in effect for the GCF Repo[supreg] service (``2014 
Pilot Program'').\4\ FICC requests that the 2014 Pilot Program be 
extended for one year following the Commission's approval of this 
filing. FICC represents that, during this extension period, the final 
phase of tri-party reform will be implemented.\5\
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    \4\ See Securities Exchange Act Release No. 34-72457 (June 24, 
2014), 79 FR 36856 (June 30, 2014) (SR-FICC-2014-02) (order 
approving the 2014 Pilot Program).
    \5\ The final phase of tri-party reform includes the development 
of an interactive messaging system to facilitate the substitution of 
collateral between settlement banks. FICC has represented that, if 
it determines to change the parameters of the GCF Repo[supreg] 
service during the one-year extension period, it will file a 
proposed rule change with the Commission. FICC has further warranted 
that, if it seeks to extend the 2014 Pilot Program beyond the one-
year extension period or proposes to make the program permanent, it 
will also file a proposed rule change with the Commission.
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A. The GCF Repo[supreg] Service

    The GCF Repo[supreg] service allows dealer members of FICC's 
Government Services Division to trade general collateral finance repos 
(``GCF Repos'') \6\ throughout the day without requiring intraday, 
trade-for-trade settlement on a delivery-versus-payment \7\ basis. The 
service allows dealers to trade GCF Repos, based on rate and term, with 
inter-dealer broker netting members on a blind basis. Standardized, 
generic CUSIP numbers have been established exclusively for GCF Repo 
processing, and are used to specify the type of underlying security 
that is eligible to serve as collateral for GCF Repos. Only Fedwire 
eligible, book-entry securities may serve as collateral for GCF Repos. 
Acceptable collateral for GCF Repos include most U.S. Treasury 
securities, non-mortgage-backed federal agency securities, fixed and 
adjustable rate mortgage-backed securities, Treasury Inflation-
Protected Securities (``TIPS'') and separate trading of registered 
interest and principal securities (``STRIPS'').\8\
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    \6\ A GCF Repo is one in which the lender of funds is willing to 
accept any of a class of U.S. Treasuries, U.S. government agency 
securities, and certain mortgage-backed securities as collateral for 
the repurchase obligation. This is in contrast to a specific 
collateral repo.
    \7\ Delivery-versus-payment is a settlement procedure in which 
the buyer's cash payment for the securities it has purchased is due 
at the time the securities are delivered.
    \8\ See Securities Exchange Act Release No. 34-58696 (September 
30, 2008), 73 FR 58698, 58699 (October 7, 2008) (SR-FICC-2008-04).
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B. Background of the Pilot Program

    Because FICC's GCF Repo[supreg] service operates as a tri-party 
mechanism, FICC was asked to alter the service to align it with the 
recommendations of the Tri-Party Repo Infrastructure Reform Task Force 
(``TPR'').\9\ FICC consequently developed a pilot program (``2011 Pilot 
Program'') to address the TPR's recommendations,\10\ and sought 
Commission approval to institute that program.\11\ The Commission 
approved the 2011 Pilot Program on August 29, 2011 for a period of one 
year.\12\ When the expiration date for the 2011 Pilot Program 
approached, FICC sought Commission approval to implement the 2012 Pilot 
Program, which continued the 2011 Pilot Program in some aspects, and 
modified it in others.\13\ On August 8, 2012, the Commission approved 
the 2012 Pilot Program for a period of one year.\14\
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    \9\ The TPR was an industry group formed and sponsored in 2009 
by the Federal Reserve Bank of New York to address weaknesses that 
emerged in the tri-party repo market during the financial crisis. 
The TPR's chief goal was to develop recommendations to address the 
risks presented by the reversal of tri-party repo transactions, and 
to develop procedures to ensure that tri-party repos would be 
collateralized throughout the day, rather than at the end of the 
day.
    \10\ The TPR issued preliminary and final reports setting forth 
its recommendations for the reform of the tri-party repo market. See 
Tri-Party Repo Infrastructure Reform Task Force Report of May 17, 
2000, available at http://www.newyorkfed.org/prc/files/report_100517.pdf; see also Tri-Party Repo Infrastructure Reform 
Task Force Final Report (February 15, 2012), available at http://www.newyorkfed.org/tripartyrepo/pdf/report_120215.pdf.
    \11\ Securities Exchange Act Release No. 34-64955 (July 25, 
2011), 76 FR 45638 (July 29, 2011) (SR-FICC-2011-05).
    \12\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \13\ The 2012 Pilot Program implemented several changes which, 
although described in the rule filing that accompanied the 2011 
Pilot Program, were not implemented during the 2011 Pilot Program's 
period of effectiveness. They include: (i) Moving the time for 
unwinding repos from 7:30 a.m. to 3:30 p.m.; (ii) moving the net-
free-equity process from morning to the evening; and (iii) 
establishing rules for intraday GCF Repo collateral substitutions. 
See Securities Exchange Act Release No. 34-67227 (June 20, 2012), 77 
FR 38108 (June 26, 2012) (SR-FICC-2012-05).
    \14\ Securities Exchange Release No. 34-67621 (August 8, 2012), 
77 FR 48572 (August 14, 2012) (SR-FICC-2012-05).
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C. The 2014 Pilot Program

    The 2014 Pilot Program, as well its predecessors, the 2013 and 2012 
Pilot Programs, have been the subject of a number of notices and 
approval orders published by the Commission.\15\ These notices and 
orders provide extensive detail on both the GCF Repo[supreg] service 
and the pilot program itself. Under this proposed rule change, FICC is 
not proposing to alter the current pilot program in any way; rather, it 
proposes only to extend that program, as approved in 2012, 2013, and 
2014 for one additional year.\16\
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    \15\ See Securities Exchange Act Release Nos. 34-67227 (June 20, 
2012), 77 FR 38108 (June 26, 2012) (SR-FICC-2012-05); 34-67621 
(August 8, 2012), 77 FR 48572 (August 14, 2012) (SR-FICC-2012-05); 
34-69774 (June 17, 2013), 78 FR 37631 (June 21, 2013) (SR-FICC-2013-
06); 34-70068 (July 30, 2013), 78 FR 47453 (August 5, 2013) (SR-
FICC-2013-06); and 34-72457 (June 24, 2014), 79 FR 36856 (June 30, 
2014) (SR-FICC-2014-02).
    \16\ FICC would be required to file a proposed rule change with 
the Commission pursuant to section 19(b) of the Act if were to do 
any of the following: (i) Change the parameters of the GCF 
Repo[supreg] service during the one-year extension period, (ii) 
extend the Pilot Program beyond the one-year period extension 
period, or (iii) establish the Pilot Program as a permanent program.
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II. Discussion

    Section 19(b)(2)(C) of the Act \17\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \18\ 
requires, among other things, that the rules of a clearing agency be 
designed to achieve several goals, including (i) promoting the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts, and 
transactions, (ii) assuring the safeguarding of securities and funds 
that are in the custody or control of the clearing agency or for which 
it is responsible, and (iii) protecting investors and the public 
interest.
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    \17\ 15 U.S.C. 78s(b)(2)(C).
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission concludes that extending the 2014 Pilot Program for 
one additional year is consistent with the requirements of the Act and 
the rules and regulations thereunder. The 2014 Pilot Program furthers 
the Act's goals because it helps attenuate the substantial risks 
confronting the tri-party repo market, particularly those risks 
associated with the provision of intraday credit to market 
participants.\19\

[[Page 36881]]

The Commission believes that extending the 2014 Pilot Program will 
ensure that these risks remain subject to more stringent controls and 
that this, in turn, will help promote the prompt and accurate clearance 
and settlement of securities transactions. The Commission further 
believes that, by requiring tri-party repos to remain collateralized 
for a longer period each day, the 2014 Pilot Program helps to assure 
the safety of the securities and funds within FICC's control, or for 
which it is responsible.\20\
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    \19\ The TPR characterized the ``practical elimination'' of this 
intraday credit as its ``first and most significant . . . 
recommendation.'' Tri-Party Repo Infrastructure Reform Task Force 
Final Report, 4 (February 15, 2012), available at http://www.newyorkfed.org/tripartyrepo/pdf/report_120215.pdf.
    \20\ See 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
particularly those set forth in section 17A,\21\ and the rules and 
regulations thereunder.
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    \21\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-FICC-2015-002) be, and 
hereby is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-15691 Filed 6-25-15; 8:45 am]
 BILLING CODE 8011-01-P


