Federal Register / Vol. 72, No. 60 / Thursday, March 29, 2007 / Notices 14839 

11 17 CFR 200.30–3(a)(12). 

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

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Section, 100 F Street, NE., Washington, 

DC 20549–9303. Copies of such filing 

also will be available for inspection and 

copying at the principal office of the 

CBOE. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2007–29 and should 

be submitted on or before April 19, 

2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–5815 Filed 3–28–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55515; File No. SR–FICC–

2006–19] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change 

Relating to Membership, Definitions, 

and the Electronic Pool Notification 

Service 

March 22, 2007. 

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

Securities Exchange Act of 1934 

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

December 13, 2006, the Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared substantially by 

FICC. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of this filing is to 

restructure FICC’s Government 

Securities Division’s (‘‘GSD’’) 

membership standards and membership 

requirements by conforming them to 

current practice and to harmonize them 

with similar rules of FICC’s clearing 

agency affiliate, the National Securities 

Clearing Corporation (‘‘NSCC’’). In 

addition, this rule filing would update 

various definitions and make technical 

changes to GSD and to FICC’s MortgageBacked Securities Divison’s (‘‘MBSD’’) 

Electronic Pool Notification (‘‘EPN’’) 

rules. 

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 such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Membership Rules 

FICC proposes to revise its rules 

concerning membership types, the 

membership application process, and 

the ongoing requirements of GSD 

members into a format that FICC 

believes will make such rules easier to 

locate and understand by applicants and 

members. To accomplish this, FICC 

would amend current Rule 2 (proposed 

to be titled ‘‘Members’’), move much of 

the content of current Rule 2 into a new 

Rule 2A (‘‘Initial Membership 

Requirements’’), and revise Rule 3 

(proposed to be titled ‘‘Ongoing 

Membership Requirements’’). Other 

rules and provisions would be modified 

to make technical corrections where 

necessary and to be harmonized with 

analogous NSCC rules. 

a. Membership Types: FICC’s current 

Rule 2 (‘‘Comparison-Only and Netting 

Members’’) sets forth the types of GSD 

members, eligibility requirements, 

application procedures, and member 

reporting requirements. FICC proposes 

to revise Rule 2 to establish each GSD 

membership type: Comparison-Only 

Members, Netting Members, Sponsoring 

Members, Sponsored Members, and 

Funds-Only Settling Bank Members. 

Substantially all other provisions 

contained in the current Rule 2 will be 

moved to either proposed Rule 2A or 

proposed Rule 3. 

One exception to this is that FICC is 

proposing to delete current Rule 2, 

Section 4 (‘‘Financial Reports by Netting 

Applicants). FICC states that the 

rationale for such proposed deletion is 

that FICC already advises during the 

application process applicants of the 

required financial reports depending on 

the category of membership applied for 

and the applicant entity type. In 

addition, FICC would set forth in 

proposed Rule 3 the financial reports 

that must be submitted by members to 

FICC on an ongoing basis. 

FICC is also proposing to delete 

Section 1(f) of Rule 2, which provides 

that applicants that have been approved 

for membership must execute and 

deliver to FICC a membership 

agreement. This provision is redundant 

with existing Rule 2, Section 3, which 

would appear in proposed Rule 2A, 

Section 7. 

b. Consolidation of Membership 

Standards and Requirements: The 

membership qualifications, financial 

standards, and operational requirements 

for each member type are currently set 

forth in Rule 2 (‘‘Comparison-Only and 

Netting Members’’), Rule 3 (‘‘Financial 

Responsibility, Operational Capability 

and Other Membership Standards of 

Comparison-Only and Netting 

Members’’), and Rule 4 (‘‘Clearing Fund, 

Watch List and Loss Allocation’’). To 

consolidate this information, FICC 

proposes to create a new Rule 2A 

(‘‘Initial Membership Requirements’’) 

that would establish the initial 

membership eligibility requirements for 

all member types and would set forth 

the process of membership application 

and evaluation. In addition, FICC 

proposes to restructure Rule 3 

(‘‘Ongoing Membership Requirements’’) 

to contain all current GSD rule 

provisions regarding the continuing 

requirements of members. 

The restructuring would encompass 

three substantive changes: 

(i) Immediate Placement on the Watch 

List: FICC proposes to delete current 

Rule 3, Section 1(d)(iii) that 

automatically disqualifies an applicant 

from becoming member if the applicant 

is subject to any action or condition, the 

existence of which would require the 

applicant to be placed on FICC’s Watch 

List if it were already a member. FICC 

believes that eliminating such provision 

will not diminish FICC’s ability to deny 

membership to an unworthy applicant 

because FICC would still retain under 

other sections of its rules the discretion 

to deny membership based on the 

applicant’s underlying financial, 

operational, or character issues. 

Moreover, FICC’s credit risk matrix 

enables FICC to place such applicant 

directly on FICC’s watch list for closer 

monitoring. 

(ii) Additional Reporting 

Requirements: FICC proposes to add 

new language to proposed Rule 3, 

Section 2 (‘‘Reports by Netting 


jlentini on PROD1PC65 with NOTICES
14840 Federal Register / Vol. 72, No. 60 / Thursday, March 29, 2007 / Notices 

Members’’) that would require members 

to provide FICC with: (a) Reports from 

their independent auditors on internal 

controls (proposed Rule 3, Section 

2(b)(ii)) and (b) a copy of the letter 

granting an extension of time by a 

regulatory authority to a member with 

respect to the submission of a report 

(proposed Rule 3, Section 2(h), para. 2). 

(iii) Annual Audited Financial 

Statements: FICC proposes to remove 

the current requirement in Rule 2, 

Section 4(a) that audited annual 

financial statements submitted by 

netting members be ‘‘without 

qualification.’’ FICC believes that a 

qualification in an annual audited 

financial statement should not warrant 

automatic denial of membership 

because a qualification may not always 

be material. In addition, the event that 

triggered a qualification may have been 

corrected by the applicant or member by 

the time the applicant or member 

submits its financial statement for 

review by FICC. Going forward, FICC 

would analyze qualifications in GSD 

netting member financial statements on 

a case-by-case basis. 

Other conforming and nonsubstantive changes have been made 

within the rules to accommodate this 

restructuring and to update cross 

references where applicable. 

2. Non-Substantive Changes and 

Technical Corrections 

(i) Definition of ‘‘Person’’: FICC 

proposes to amend the current 

definition of Person contained in GSD 

Rule 1 (‘‘Definitions’’) to indicate that 

the term will be used throughout the 

rules to mean a partnership, 

corporation, limited liability 

corporation, or other organization, 

entity, or individual. 

(ii) Definition of ‘‘Eligible Security’’: 

FICC proposes to amend the definition 

of Eligible Security to make clear that 

any security of an issuer that is on the 

Office of Foreign Assets and Control’s 

(‘‘OFAC’’) Specially Designated 

Nationals list or a security from a 

country that is subject to OFAC 

sanctions may not be an eligible security 

at GSD. 

In addition, FICC is proposing to 

make the same change to the definition 

of Eligible Security in MBSD’s Clearing 

and EPN rules. 

(iii) Definition of ‘‘Bond Market 

Association’’: The Bond Market 

Association is now known as the 

Securities Industry and Financial 

Markets Association. GSD proposes to 

remove the definition of and references 

to The Bond Market Association from its 

rules and replace it with a definition for 

and references to The Securities 

Industry and Financial Markets 

Association. 

(iv) Governing Law Provision: FICC is 

proposing to clarify the Governing Law 

provision contained in GSD’s and 

MBSD’s Clearing and EPN rules to state 

that the respective rules of GSD and 

MBSD Clearing and EPN are subject to 

New York law as applicable to contracts 

executed and performed in New York. 

(v) Insurance Company Netting 

Member Eligibility Requirements: FICC 

proposes to remove from GSD’s rules 

the eligibility requirements for 

Insurance Company Netting Members 

because GSD does not currently have 

any such members. FICC will, however, 

retain the definition of Insurance 

Company Netting Member in its rules in 

the event that such an entity applies for 

membership in the future. Appropriate 

eligibility requirements would be 

reviewed at that time and added to the 

rules. 

FICC believes that the proposed rule 

change is consistent with the 

requirements of the Act and the rules 

and regulations promulgated thereunder 

applicable to FICC. FICC states that its 

rules are intended to protect FICC and 

its members from undue risk while 

providing access to FICC services and 

that the proposed rule change will assist 

FICC and its members in interpreting 

and understanding the rules with regard 

to applicant and ongoing membership 

standards and requirements. In 

addition, FICC believes that conforming 

the rules to actual practice will assist 

FICC in assuring the safeguarding of 

funds and securities in FICC’s control or 

for which FICC is responsible. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FICC does not believe that the 

proposed rule change will have any 

impact 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 

FICC has not solicited or received 

written comments relating to the 

proposed rule change. FICC will notify 

the Commission of any written 

comments it receives. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within thirty-five days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

ninety days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve such proposed 

rule change or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

No. SR–FICC–2006–19 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File No. 

SR–FICC–2006–19. 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, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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, 100 F Street, NE., Washington, 

DC 20549. Copies of such filing also will 

be available for inspection and copying 

at FICC’s principal office and on FICC’s 

Web site at http://ficc.com/gov/ 

gov.docs.jsp?NS-query=#rf. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 72, No. 60 / Thursday, March 29, 2007 / Notices 14841 

2 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5The underlying rule text used in this proposed 

rule change is based on NASD Rule 2520, as 

amended by SR–NASD–2007–013, which will be 

implemented on April 2, 2007. See Exchange Act 

Release No. 55471 (March 14, 2007), 72 FR 13149 

(March 20, 2007) (Notice of filing and immediate 

effectiveness of File No. SR–NASD–2007–013). 

6The portfolio margin pilot program is 

substantially similar to recent margin rule 

amendments by the New York Stock Exchange 

(‘‘NYSE’’) and the Chicago Board Options Exchange 

(‘‘CBOE’’), which were approved by the 

Commission. See Exchange Act Release No. 54918 

(December 12, 2006), 71 FR 75790 (December 18, 

2006) (SR–NYSE–2006–13, relating to further 

amendments to the NYSE’s portfolio margin pilot 

program); Exchange Act Release No. 54125 (July 11, 

2006), 71 FR 40766 (July 18, 2006) (SR–NYSE–

2005–93, relating to amendments to the NYSE’s 

portfolio margin pilot program); Exchange Act 

Release No. 52031 (July 14, 2005) 70 FR 42130 (July 

21, 2005) (SR–NYSE–2002–19, relating to the 

NYSE’s original portfolio margin pilot). See also 

Exchange Act Release No. 54919 (December 12, 

2006), 71 FR 75781 (December 18, 2006) (SR–

CBOE–2006–014, relating to amendments to the 

CBOE’s portfolio margin pilot); Exchange Act 

Release No. 52032 (July 14, 2005) 70 FR 42118 (July 

21, 2005) (SR–CBOE–2002–03, relating to the 

CBOE’s original portfolio margin pilot). 

7See Exchange Act Release No. 55471 (March 14, 

2007), 72 FR 13149 (March 20, 2007) (Notice of 

filing and immediate effectiveness of File No. SR–

NASD–2007–013). 

submission should refer to File No. SR–

FICC–2006–19 and should be submitted 

on or before April 19, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.2

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–5752 Filed 3–28–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55518; File No. SR–NASD–

2007–024] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Portfolio 

Margin 

March 23, 2007. 

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

Securities Exchange Act of 1934 (‘‘Act’’

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on March 20, 2007, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by NASD. NASD 

has filed the proposed rule as a ‘‘noncontroversial’’ rule change pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f)(6) thereunder,4 which renders 

it effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD is proposing to correct a 

typographical error in NASD Rule 2520 

(Margin Requirements). In particular, 

the proposed rule change would amend 

NASD Rule 2520 to re-label a 

subparagraph that was incorrectly 

identified as part of a recent rule filing. 

Below is the text of the proposed rule 

change.5 Proposed new language is in 

italics; proposed deletions are in 

[brackets]. 

* * * * * 

2520. Margin Requirements 

(a) through (f) No Change. 

(g) Portfolio Margin. 

As an alternative to the ‘‘strategybased’’ margin requirements set forth in 

paragraphs (a) through (f) of this Rule, 

members may elect to apply the 

portfolio margin requirements set forth 

in this paragraph (g) to all margin equity 

securities,1 listed options, security 

futures products (as defined in Section 

3(a)(56) of the Exchange Act), unlisted 

derivatives, warrants, index warrants 

and related instruments, provided that 

the requirements of paragraph 

(g)(6)(B)(i) of this Rule are met. 

In addition, a member, provided that 

it is a Futures Commission Merchant 

(‘‘FCM’’) and is either a clearing 

member of a futures clearing 

organization or has an affiliate that is a 

clearing member of a futures clearing 

organization, is permitted under this 

paragraph (g) to combine an eligible 

participant’s related instruments as 

defined in paragraph (g)(2)(D), with 

listed index options, unlisted 

derivatives, options on exchange traded 

funds (‘‘ETF’’), index warrants and 

underlying instruments and compute a 

margin requirement for such combined 

products on a portfolio margin basis. 

The portfolio margin provisions of 

this Rule shall not apply to Individual 

Retirement Accounts (‘‘IRAs’’). 

(1) through (5) No Change. 

(6) Establishing Account and Eligible 

Positions.l 

(A) No Change. 

(B) Eligible Products. 

(i) For eligible participants as 

described in paragraphs (g)(4)(A) 

through (g)(4)(C), a transaction in, or 

transfer of, an eligible product may be 

effected in the portfolio margin account. 

Eligible products under this paragraph 

(g) consist of: 

(a) through (e) No Change. 

[(d)](f) a related instrument as defined 

in paragraph (g)(2)(D). 

(7) through (15) No Change. 

1For purposes of this paragraph (g) of the 

Rule, the term ‘‘margin equity security’’

utilizes the definition at Section 220.2 of 

Regulation T of the Board of Governors of the 

Federal Reserve System. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NASD 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. NASD has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On February 12, 2007, NASD filed 

with the Commission for immediate 

effectiveness a proposed rule change to 

amend Rule 2520 (Margin 

Requirements) to establish a portfolio 

margin pilot program.6 The Commission 

published notice of the proposed rule 

change in the Federal Register on 

March 20, 2007.7 The proposed rule 

change, among other things, added a 

new paragraph (g)(6)(B)(i) that specifies 

in separate subparagraphs a list of the 

eligible products for the portfolio 

margin pilot program. This list of 

eligible products in paragraph 

(g)(6)(B)(i) inadvertently identifies two 

provisions as subparagraph (d). NASD is 

filing this proposed rule change to relabel the last subparagraph (d) as 

subparagraph (f). 

NASD has filed the proposed rule 

change for immediate effectiveness. As 

noted above, the proposed rule change 

is part of a pilot program that would 


jlentini on PROD1PC65 with NOTICES