Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5623

4 15 U.S.C. 78q–1(b)(3)(F).

5 15 U.S.C. 78q–1.

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 45656 

(March 27, 2002), 67 FR 15646 (April 2, 2002) [File 

No. SR–GSCC–2002–01].

3Securities Exchange Act Release No. 45335 

(January 25, 2002), 67 FR 4768 (January 31, 2001) 

[File No. SR–GSCC–2001–03]. FICC entered into the 

cross-margining agreement with the Board of Trade 

Clearing Corporation, predecessor to The Clearing 

Corporation.

4The Commission has modified the text of the 

summaries prepared by FICC.

5TCC recently announced that it will become the 

clearing corporation for another exchange and has 

approached FICC regarding establishing a new 

cross-margining arrangement. Upon the parties’

agreement on the details of the new arrangement, 

FICC will submit a proposed rule change to the 

Commission covering the proposed arrangement.

6 15 U.S.C. 78q–1(a)(2)(A)(ii).

30 calendar days after it is placed on 

inactive status. A participant that 

requests that it be placed on inactive 

status will no longer be assessable 

pursuant to Rule 4 for losses due to 

other members. 

While in inactive status, the 

participant must continue to provide the 

same financial reports that are required 

of active members and also must 

comply with all other reporting 

obligations. A participant that fails to do 

so will be subject to the same terms and 

conditions as active members (e.g. fines, 

disciplinary action, termination, etc.). 

An inactive member will also be 

responsible for a reduced monthly 

account maintenance fee of $200. 

If the participant determines to 

reactivate its membership status, an 

initial clearing fund deposit will be 

determined in the same manner as for 

a new applicant, and active membership 

status must be approved by the 

Membership and Risk Management 

Committee. Inactive members will not 

be required to reexecute membership 

agreements or provide other 

documentation to the extent EMCC 

determines that it already has the 

required documentation or information 

(e.g. financials) necessary to make a 

determination on the reactivation 

request. If the participant is inactive for 

longer than 18 months, EMCC will 

require an opinion of the participant’s 

counsel in a form satisfactory to EMCC 

that affirms that there is no substantive 

change in the opinion(s) previously 

given as part of the member’s original 

application for membership. 

II. Discussion 

Section 17A(b)(3)(F) of the Act 4

requires that the rules of a clearing 

agency assure the safeguarding of 

securities and funds that are in the 

custody or control of the clearing agency 

for which it is responsible. The 

Commission finds that the proposed 

rule change is consistent with EMCC’s 

obligations under section 17A(b)(3)(F) 

because creating a new inactive 

membership category should provide 

efficiencies and cost reductions to 

certain low-volume EMCC members 

without compromising EMCC’s risk 

management safeguards.

III. 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 5

and the rules and regulations 

thereunder.

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act, that the 

proposed rule change (File No. SR–

EMCC–2003–04) be, and hereby is, 

approved.

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.6

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2331 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49142; File No. SR–FICC–

2004–02] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Remove 

From FICC’s Rules the CrossMargining Agreement With BrokerTec 

Clearing Company and the CrossMargining Agreement With The 

Clearing Corporation 

January 28, 2004. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

January 12, 2004, the Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change described in Items 

I, II, and III below, which items have 

been prepared primarily by FICC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested parties.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of the proposed rule 

change is to remove from FICC’s Rules 

the cross-margining agreement with 

BrokerTec Clearing Company (‘‘BCC’’) 2

and to remove from FICC’s Rules the 

cross-margining agreement with The 

Clearing Corporation (‘‘TCC’’).3

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 these statements.4

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

The purpose of the proposed rule 

change is to remove from FICC’s Rules 

the cross-margining agreement with 

BCC and the cross-margining agreement 

with TCC. Termination of the crossmargining agreement with BCC was 

necessitated by the fact that BCC ceased 

clearing operations on November 26, 

2003, as a result of the suspension of 

business by the exchange for which BCC 

was the clearing corporation, BrokerTec 

Futures Exchange. Termination of the 

cross-margining agreement with TCC 

was necessitated by the fact that on 

January 2, 2004, TCC ceased clearing the 

Chicago Board of Trade products that 

were the subject of the cross-margining 

arrangement.5

The proposed rule change is 

consistent with section 17A(a)(2)(A)(ii) 

of the Act 6 and the rules and 

regulations thereunder because it 

facilitates the establishment of linked or 

coordinated facilities for clearance and 

settlement of transactions in securities.

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

FICC does not believe that the 

proposed rule change will have any 

impact on 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 

No written comments relating to the 

proposed rule change have been 

5624 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

7 15 U.S.C. 78s(b)(3)(A)(iii).

8 17 CFR 240.19b–4(f)(4).

9 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 48689 

(October 24, 2003), 68 FR 61844.

3The following categories of GSD members will 

receive ratings: Category 1 and 2 Dealer Netting 

Members, Category 1 and 2 Inter-Dealer Broker 

Netting Members, and Bank Netting Members. At 

MBSD, Comparison and Clearing System 

Participants that are either banks or broker-dealers 

will be rated. Domestic broker-dealers and domestic 

banks are the only member types to which the 

Matrix will be applicable because (i) they represent 

the majority of the members of FICC and (ii) their 

financial reports contain information that lends 

them to the Matrix approach.

4FICC’s approach to the analysis of members is 

based on a thorough quantitative analysis. A brokerdealer member’s rating on the Matrix will be based 

on factors including size (i.e., total excess net 

capital), capital, leverage, liquidity, and 

profitability. Banks will be reviewed based on size, 

capital, asset quality, earnings, and liquidity.

5Members will also be evaluated based on their 

compliance with certain ‘‘parameter breaks’’ which 

will be determined based on applicable monthly 

and/or quarterly exception reports generated by 

credit risk staff. A member may be placed on the 

‘‘watch list’’ for parameter breaks in areas such as 

excess net capital, excess liquid capital, aggregate 

indebtedness, leverage ratio, or other financial 

requirements.

6The MBSD’s rules do not currently provide for 

surveillance status, but the MBSD has the right 

under certain circumstances to require additional 

financial reports and increased participants fund 

contribution.

7Credit risk staff will monitor these members by 

reviewing similar criteria as the criteria used for 

members included in the Matrix. FICC will file a 

proposed rule change should it decide to use a more 

applicable Matrix process to evaluate these 

members.

solicited or received. FICC will notify 

the Commission of any written 

comments received by FICC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective upon filing pursuant to section 

19(b)(3)(A)(iii) of the Act 7 and Rule 

19b–4(f)(4) 8 thereunder because the 

proposed rule does not significantly 

affect the respective rights or obligations 

of the clearing agency or persons using 

the service and does not adversely affect 

the safeguarding of securities or funds 

in the custody or control of the clearing 

agency or for which it is responsible. At 

any time within sixty days of the filing 

of such rule change, the Commission 

may summarily abrogate such rule 

change if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act.

IV. 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. 

Persons making written submissions 

should file six copies thereof with the 

Secretary, Securities and Exchange 

Commission, 450 Fifth Street, NW., 

Washington, DC 20549–0609. 

Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–FICC–2004–02. 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, comments 

should be sent in hardcopy or by e-mail 

but not by both methods. 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 

Section, 450 Fifth Street, NW., 

Washington, DC 20549–0609. Copies of 

such filing also will be available for 

inspection and copying at the principal 

office of FICC and on FICC’s Web site 

at www.ficc.com.

All submissions should refer to File 

No. SR–FICC–2004–02 and should be 

submitted by February 26, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

J. Lynn Taylor, 

Assistant Secretary.

[FR Doc. 04–2360 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49158; File No. SR–FICC–

2003–03] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Approving Proposed Rule Change To 

Amend the Criteria Used To Place 

Members on Surveillance Status 

January 30, 2004. 

I. Introduction 

On March 20, 2003, the Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) and on 

June 3 and 18, 2003, amended the 

proposed rule change SR–FICC–2003–

03 pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’).1 Notice of the proposal was 

published in the Federal Register on 

October 30, 2003.2 No comment letters 

were received. For the reasons 

discussed below, the Commission is 

approving the proposed rule change.

II. Description 

Under the current rules of both the 

Government Securities Division 

(‘‘GSD’’) and the Mortgage-Backed 

Securities Division (‘‘MBSD’’) of FICC, 

management has the ability to place a 

member in a surveillance status class 

depending on whether the member 

satisfies one or more of the enumerated 

financial and operational criteria in the 

specific class. Once placed on 

surveillance status, FICC closely 

monitors the member’s condition. The 

current criteria for placing members on 

surveillance status are broadly written 

and capture many FICC members that 

pose minimal financial or operational 

risk to FICC. This creates administrative 

burdens for FICC staff, who must more 

closely monitor these members that 

pose minimal risk, that is not necessary 

to protect FICC. 

To remedy this problem, FICC has 

developed new criteria for placing 

members on surveillance. Specifically, 

all domestic broker-dealers and banks 3

that are GSD netting members and/or 

MBSD clearing members will be 

assigned a rating that is generated by 

entering financial data of the member 

into a matrix (‘‘Matrix’’) developed by 

credit risk staff.4 Those members with a 

‘‘weak’’ rating (deemed to pose a 

relatively higher degree of risk to FICC) 

will be placed on an internal ‘‘watch 

list’’ and will be monitored more closely 

by credit risk staff.5 The consequences 

of being put on the ‘‘watch list’’ will be 

the same as is currently the case with 

surveillance status in the GSD’s rules 

and will include possibly requiring the 

member on ‘‘watch list’’ status to submit 

additional financial reports and data 

and/or make additional clearing or 

participants fund deposits.6

All other categories of netting and 

clearing members, including non-U.S. 

netting members and comparison-only 

members, will not be included in the 

Matrix process because these members 

possess characteristics that prevent use 

of the Matrix to effectively evaluate 

their risk to FICC. However, these 

members will be monitored by credit 

risk staff using financial criteria deemed 

relevant by FICC.7 Based on this