
[Federal Register Volume 81, Number 111 (Thursday, June 9, 2016)]
[Notices]
[Pages 37220-37222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77988; File No. SR-FICC-2016-001]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change Relating to the GCF Repo[supreg] 
Service

June 3, 2016.
    On April 19, 2016, the Fixed Income Clearing Corporation (``FICC'' 
or the ``Corporation'') filed with the Securities and Exchange 
Commission (``Commission'') proposed rule change SR-FICC-2016-001 
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 Register on April 27, 2016.\3\ 
The Commission received no comments on the proposed rule change. For 
the

[[Page 37221]]

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. 34-77675 (April 21, 
2016), 81 FR 24922 (April 27, 2016) (SR-FICC-2016-001).
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I. Description of the Proposed Rule Change

    FICC seeks the Commission's approval to amend the Government 
Securities Division (``GSD'') Rulebook \4\ (``GSD Rules'') in order to: 
(1) Permanently adopt the pilot program (the ``2015 Pilot Program'') 
\5\ that is currently in effect for the GCF Repo[supreg] \6\ service 
and that is scheduled to expire on June 22, 2016; (2) add clarifying 
rule changes regarding a process that is currently in effect with 
respect to the GCF Repo service and that FICC refers to as the ``net-
of-net'' settlement process; and (3) make technical changes to the GSD 
Rules. The proposed rule changes consist of changes to GSD Rule 1, GSD 
Rule 20, and the Schedule of GCF Timeframes.
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    \4\ The GSD Rulebook is available at DTCC's Web site, 
www.dtcc.com/legal/rules-and-procedures.aspx.
    \5\ Securities Exchange Act Release No. 34-75258 (June 22, 
2015), 80 FR 36879 (June 26, 2015) (SR-FICC-2015-002).
    \6\ GCF Repo is a registered trademark of FICC/DTCC.
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A. The GCF Repo Service

    The GCF Repo service allows dealer members of FICC's Government 
Services Division to trade general collateral finance repos (``GCF 
Repos'') \7\ throughout the day without requiring intraday, trade-for-
trade settlement on a delivery-versus-payment \8\ 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 and separate trading of registered interest and 
principal securities.\9\
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    \7\ 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.
    \8\ 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.
    \9\ 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 service operates as a tri-party mechanism, 
FICC states that it was asked to alter the service to align it with the 
recommendations of the Tri-Party Repo Infrastructure Reform Task Force 
(``TPR'').\10\ FICC consequently developed a pilot program (``2011 
Pilot Program'') to address the TPR's recommendations,\11\ and sought 
Commission approval to institute that program.\12\ The Commission 
approved the 2011 Pilot Program on August 29, 2011 for a period of one 
year.\13\ 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.\14\ The Commission approved the 2012 Pilot 
Program, as well as subsequent one-year extensions of the pilot program 
in 2013, 2014, and 2015 (respectively, the ``2013 Pilot Program,'' 
``2014 Pilot Program,'' and ``2015 Pilot Program'').\15\ The 2015 Pilot 
Program, as well its predecessors, the 2014, 2013, and 2012 Pilot 
Programs, have been the subject of a number of notices and approval 
orders published by the Commission.\16\ These notices and orders 
provide extensive detail on both the GCF Repo service and the pilot 
program itself.
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    \10\ 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.
    \11\ 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.
    \12\ Securities Exchange Act Release No. 34-64955 (July 25, 
2011), 76 FR 45638 (July 29, 2011) (SR-FICC-2011-05).
    \13\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \14\ 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).
    \15\ Securities Exchange Release No. 34-67621 (August 8, 2012), 
77 FR 48572 (August 14, 2012) (SR-FICC-2012-05); Securities Exchange 
Release No. 34-70068 (July 30, 2013), 78 FR 47453 (August 5, 2013) 
(SR-FICC-2013-06); Securities Exchange Act Release No. 34-72457 
(June 24, 2014), 79 FR 36856 (June 30, 2014) (SR-FICC-2014-02); and 
Securities Exchange Act Release No. 34-75258 (June 22, 2015), 80 FR 
36879 (June 26, 2015) (SR-FICC-2015-002).
    \16\ 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); 34-72184 (May 19, 2014), 79 FR 29828 (May 23, 2014) 
(SR-FICC-2014-02); 34-72457 (June 24, 2014), 79 FR 36856 (June 30, 
2014) (SR-FICC-2014-02); 34-74973 (May 15, 2015), 80 FR 29352 (May 
21, 2015) (SR-FICC-2015-002); and 34-75258 (June 22, 2015), 80 FR 
36879 (June 26, 2015) (SR-FICC-2015-002).
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    In proposed rule change SR-FICC-2016-001, FICC seeks the 
Commission's approval to permanently adopt the GSD Rules associated 
with the 2015 Pilot Program, which expires on June 22, 2016. In 
addition, FICC also seeks to add a clarification to the GSD Rules to 
reflect the net-of-net settlement process in the GCF Repo service. 
According to FICC, the net-of-net settlement clarification is also a 
result of Tri-Party Reform and reflects current practice at the GSD. 
FICC seeks to permanently adopt these changes rather than continually 
file annual extensions of the pilot program. The rule changes 
associated with the pilot have been in place since 2011 with certain 
additional modifications made in 2012, and FICC's members are 
accustomed to them. FICC states that this is also the case regarding 
the net-of-net settlement changes, which came into effect when the 
clearing banks implemented this process in 2014 and 2015. According to 
FICC, changes to the GSD Rules regarding the net-of-net settlement 
process require no operational changes on the part of FICC. However, 
FICC seeks to update the GSD Rules in an effort to ensure that the GSD 
Rules reflect the current net-of-net settlement process. According to 
FICC, any future changes that arise as a result of Tri-Party Reform 
will constitute stand-alone rule changes, and are not expected to 
affect the rule changes covered in this present filing. Finally, in 
addition to the above, FICC seeks to amend the GSD Rules to include 
non-substantive, technical changes for clarity.

[[Page 37222]]

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 finds that the proposed rule change is consistent 
with Section 17A of the Act \19\ and the rules thereunder applicable to 
FICC. The proposal will permanently adopt the rules in the 2015 Pilot 
Program, which were intended to advance the TPR's Tri-Party Reform 
recommendations by moving the morning unwind process to the afternoon 
to ensure that such transactions are collateralized all day and, 
therefore, limiting the amount of intraday credit that is extended by 
clearing banks during the day. Permanently adopting these rules will 
serve to minimize systemic risk and avoid the need for seeking future 
approvals of renewing the 2015 Pilot Program annually, thereby bringing 
certainty to market participants as to FICC's rules implementing the 
Tri-Party Reform recommendations. Accordingly, the permanent adoption 
of the 2015 Pilot Program rules should help to protect investors and 
promote the public interest, consistent with Section 17A(b)(3)(F) of 
the Act.
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    \19\ 15 U.S.C. 78q-1.
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    The proposal also eliminates obsolete language from the GSD Rules 
by codifying the net-of-net settlement process in the GSD Rules, and 
makes non-substantive clarifying corrections to the GSD Rules. 
Accordingly, the changes related to the net-of-net settlement process 
and the clarifying changes to the GSD Rules should provide for a more 
well-founded and transparent legal framework for FICC's activities, 
consistent with Act Rule 17Ad-22(d)(1).\20\
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    \20\ 17 CFR 240.17Ad-22(d)(1).
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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-2016-001) 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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Brent J. Fields,
Secretary.
[FR Doc. 2016-13611 Filed 6-8-16; 8:45 am]
 BILLING CODE 8011-01-P


