Federal Register / Vol. 72, No. 14 / Tuesday, January 23, 2007 / Notices 2915 

10104(e). If the panel has received the honorarium 

for considering a contested subpoena request and 

subsequently receives a number of new contested 

subpoena requests, however, the chairperson may 

call a prehearing conference to hear and decide 

these matters, for which the participating 

arbitrator(s) would receive the normal prehearing 

honorarium. See IM–10104(a) and (b). 

9 In situations where more than three different 

arbitrators consider contested subpoena requests, 

NASD will pay the additional honorarium. For 

example, if all three members of a panel have 

decided a contested subpoena request and the 

chairperson is thereafter replaced by another 

arbitrator, NASD would pay the $200 honorarium 

to the replacement chairperson for deciding any 

later contested subpoena requests, because the 

parties already would have incurred $600 in costs 

relating to the requests. Likewise, if there have been 

three different chairpersons in the same proceeding, 

each of whom has considered a contested subpoena 

request, NASD would pay the $200 honorarium 

should a fourth chairperson consider a contested 

subpoena request. NASD does not anticipate that 

either of these situations will occur frequently. 

10 15 U.S.C. 78o–3(b)(5). 

11 15 U.S.C. 78o–3(b)(6). 

12 In approving this proposed rule change, as 

amended, the Commission notes that it has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

13 15 U.S.C. 78f(b)(5). 

14 17 CFR 200.30–3(a)(12). 

1The amendment was not substantive. 

2 15 U.S.C. 78s(b)(1). 

3Securities Exchange Act Release No. 54822 

(November 28, 2006), 71 FR 70820. 

4For example, the reference in Rule 4, Section 1 

to the ‘‘market value’’ of Qualifying Bonds has been 

corrected to accurately reference the ‘‘collateral 

value’’ of Eligible Clearing Fund Securities. 

5Rule 4 (Clearing Fund), Procedure XV (Clearing 

Fund Formula and Other Matters), and Appendix 

1 (Version 2 of Procedure XV—Limited 

Applicability). 

6Mutual Fund/Insurance Service Members are 

not permitted to use Qualifying Bonds or 

irrevocable letters of credit to satisfy their Required 

Deposits. 

7See supra note 6. 

8 ‘‘Qualifying Bonds’’ is currently defined in Rule 

4 as unmatured bonds that are either direct 

obligations of or obligations guaranteed as to 

principal and interest by the United States or its 

agencies. 

maximum amount that would be paid 

by the parties, collectively, for any one 

case would be $600, irrespective of any 

changes to the composition of the 

panel.9 NASD believes that structuring 

the honorarium in this manner will 

limit the arbitration costs for parties 

while at the same time compensating 

arbitrators for the time that they spend 

considering contested subpoena 

requests. 

III. Discussion and Findings 

The Commission finds that the 

proposed rule change is consistent with 

the provisions of Sections 15A(b)(5) 10

and 15A(b)(6) 11 of the Exchange Act, 

which require, among other things, that 

NASD’s rules provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among members and 

issuers and other persons using any 

facility or system that the NASD 

operates or controls, and that NASD’s 

rules be designed to prevent fraudulent 

and manipulative acts and practices, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest. The 

Commission believes that the proposed 

rule change is consistent with the 

provisions of the Exchange Act noted 

above because the rule change provides 

that the panel will have the ability to 

allocate the honorarium for deciding a 

discovery-related motion equitably 

among the parties.12 Moreover, the 

Commission believes the proposed rule 

change will encourage arbitrators to 

decide contested subpoena requests 

without scheduling a prehearing 

conference, thereby expediting the 

arbitration process for parties. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act 13

that the proposed rule change (SR–

NASD–2006–101), as amended, be, and 

hereby is, approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–864 Filed 1–22–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55095; File No. SR–NSCC–

2006–11] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Amend Its 

Rules and Procedures With Respect to 

Clearing Fund Collateral 

January 12, 2007. 

I. Introduction 

On October 3, 2006, the National 

Securities Clearing Corporation 

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

Exchange Commission (‘‘Commission’’) 

and on October 25, 2006, amended 1

proposed rule change SR–NSCC–2006–

11 pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’).2 Notice of the proposal was 

published in the Federal Register on 

December 6, 2006.3 No comment letters 

were received. For the reasons 

discussed below, the Commission is 

approving the proposed rule change as 

amended. 

II. Description 

NSCC is modifying its rules regarding 

Clearing Fund collateral requirements in 

order to improve liquidity and minimize 

risk for NSCC and its members. NSCC 

is also making certain technical 

corrections to the text of Rule 4 to 

conform the rule to actual practice.4

Under NSCC’s Rules,5 members are 

required to make deposits to the 

Clearing Fund. The amount of each 

member’s required deposit (‘‘Required 

Deposit’’) is fixed by NSCC in 

accordance with one or more formulas. 

Presently, a member’s Required Deposit 

may be satisfied with a cash deposit, 

and a portion of a member’s Required 

Deposit may be evidenced by an open 

account indebtedness secured by 

Qualifying Bonds and/or one or more 

irrevocable letters of credit issued under 

certain guidelines established within 

NSCC’s Rules.6 Currently, NSCC 

haircuts the value that Qualifying Bonds 

receive when used to meet a member’s 

Clearing Fund requirement and will not 

allow a letter of credit to be used if by 

doing so more than twenty percent of 

NSCC’s total Clearing Fund would 

consist of letters of credit issued by that 

approved letter of credit issuing bank. 

Each member is entitled to any Clearing 

Fund interest earned or paid on 

Qualifying Bonds and cash deposits. 

NSCC is modifying its rules to: (1) 

Expand the types of instruments which 

NSCC may accept as Qualifying Bonds 

(‘‘Eligible Clearing Fund Securities’’) 

securing a member’s open account 

Clearing Fund indebtedness and 

establish concentration requirements 

with regard to their use; (2) create a 

correlating range of haircuts to be 

applied to these expanded types of 

Eligible Clearing Fund Securities; and 

(3) eliminate letters of credit as a 

generally acceptable form of collateral 

securing the member’s open account 

Clearing Fund indebtedness. 

A. Revised Clearing Fund Components 

(1) Cash 

The current Clearing Fund minimum 

cash deposit requirement will remain 

unchanged: Each member must 

contribute a minimum of $10,000 with 

the first forty percent but no less than 

$10,000 of a member’s Required Deposit 

being in cash.7

(2) Securities 

NSCC is replacing the term Qualifying 

Bonds 8 with a new set of definitions for 

mstockstill on PROD1PC70 with NOTICES

2916 Federal Register / Vol. 72, No. 14 / Tuesday, January 23, 2007 / Notices 

9 Initial eligibility criteria for each type of Eligible 

Clearing Fund Security will be announced to 

members in an Important Notice prior to the 

effective date of these proposed rule changes. Any 

future changes to the eligibility criteria will also be 

announced to members in Important Notices in 

advance of such changes becoming effective. 

10See supra note 6. 

11No member may post as collateral Eligible 

Clearing Fund Agency Securities for which it is the 

issuer. However, a member may pledge Eligible 

Clearing Fund Mortgage-Backed Securities for 

which it is the issuer subject to a premium haircut. 

That haircut shall be fourteen percent as an initial 

matter, and if the member also exceeds the twentyfive percent concentration limit, the haircut shall be 

twenty-one percent. 

12NSCC has found that in practice letters of credit 

are not as liquid as cash and securities, and 

therefore potentially pose more risk to NSCC and 

its members when accepted by NSCC as Clearing 

Fund collateral. NSCC will, however, reserve the 

right to require letters of credit from members in 

those instances where a particular member has been 

found, by NSCC in its discretion, to present legal 

risk. 

13 15 U.S.C. 78s(b). 

14 15 U.S.C. 78q–1(b)(3)(F). 

15 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

16 15 U.S.C. 78s(b)(2). 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 2 clarified that Amendment 

No. 1 replaced the original filing in its entirety and 

Eligible Clearing Fund Securities. These 

securities will be unmatured bonds 

which are either an Eligible Clearing 

Fund Agency Security, Eligible Clearing 

Fund Mortgage-Backed Security, or 

Eligible Clearing Fund Treasury 

Security.9 An Eligible Clearing Fund 

Agency Security will be defined as a 

direct obligation of those U.S. agencies 

or government sponsored enterprises as 

NSCC may designate from time to time 

that satisfies such criteria set forth in 

notices issued by NSCC from time to 

time. An Eligible Clearing Fund 

Mortgage-Backed Security will be 

defined as a mortgage-backed pass 

through obligation issued by those U.S. 

agencies or government sponsored 

enterprises as NSCC may designate from 

time to time that satisfies such criteria 

set forth in notices issued by NSCC from 

time to time. An Eligible Clearing Fund 

Treasury Security will be defined as a 

direct obligation of the U.S. government 

that satisfies the criteria set forth in 

notices issued by NSCC from time to 

time. 

(3) Security Concentration Provisions 

NSCC is also establishing security 

concentration provisions for Clearing 

Fund deposits. As is currently required, 

each member must contribute a 

minimum of $10,000 with the first forty 

percent but no less than $10,000 of a 

member’s Required Deposit being in 

cash.10 The remainder of a member’s 

deposit may be secured by the pledge of 

Eligible Clearing Fund Securities in any 

combination of Eligible Clearing Fund 

Treasury Securities, Eligible Clearing 

Fund Agency Securities, and/or Eligible 

Clearing Fund Mortgage-Backed 

Securities, subject to the following two 

limitations. First, any deposits of 

Eligible Clearing Fund Agency 

Securities or Eligible Clearing Fund 

Mortgage-Backed Securities in excess of 

twenty-five percent of the member’s 

Required Deposit will be subject to an 

additional haircut equal to twice the 

percentage noted in the haircut 

schedule. Second, no more than twenty 

percent of a member’s Required Deposit 

secured by pledged Eligible Clearing 

Fund Agency Securities may be of a 

single issuer.11

(4) Letters of Credit and Other Adequate 

Assurances 

The provisions in NSCC’s Rules that 

pertain to Letter of Credit Issuers are 

being modified to reflect that letters of 

credit are no longer a generally accepted 

form of Clearing Fund collateral.12

Effective April 1, 2007 (the regular 

expiration date of letters of credit), 

members that have letters of credit 

posted as collateral (other than 

members, if any, that have been 

required to post letters of credit for legal 

risk) will be required to replace the 

portion of the Clearing Fund 

collateralized by letters of credit with 

either cash or Eligible Clearing Fund 

Securities. 

(5) Implementation Timeframes 

The foregoing rule changes will 

become effective thirty days after an 

Important Notice is issued to members 

informing them that NSCC’s systems are 

ready to accommodate such changes. 

The corresponding changes to NSCC’s 

rules will be made at that time. On April 

1, 2007, changes pertaining to letters of 

credit will be made to NSCC’s rules. 

III. Discussion 

Section 19(b) of the Act 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.13 Section 

17A(b)(3)(F) of the Act requires that the 

rules of a clearing agency be designed to 

assure the safeguarding of securities and 

funds which are in the custody or 

control of the clearing agency or for 

which it is responsible.14 The 

Commission finds that NSCC’s rule 

change is consistent with this 

requirement because by revising its 

rules governing the acceptable forms of 

Clearing Fund collateral deposits to 

increase the liquidity of its Clearing 

Fund and to minimize risk to NSCC and 

its members, the proposed rule change 

should better enable NSCC to assure the 

safeguarding of securities and funds in 

its custody or control or for which it is 

responsible.15

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 17A of the Act and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,16 that the 

proposed rule change (File No. SR–

NSCC–2006–11) be and hereby is 

approved. 

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.17

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–865 Filed 1–22–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55102; File No. SR–

NYSEArca–2006–63] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and Order 

Granting Accelerated Approval of 

Proposed Rule Change and 

Amendment Nos. 1 and 2 Thereto to 

Trade iShares Lehman Bond Funds 

Pursuant to Unlisted Trading 

Privileges 

January 12, 2007. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 20, 2006, the NYSE Arca, 

Inc. (the ‘‘Exchange’’), through its 

wholly owned subsidiary, NYSE Arca 

Equities, Inc. (‘‘NYSE Arca Equities’’), 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been substantially prepared by the 

Exchange. The Exchange submitted 

Amendment No. 1 to the proposed rule 

change on January 8, 2007, which 

replaces the original filing in its 

entirety. On January 12, 2007, the 

Exchange submitted Amendment No. 2 

to the proposed rule change.3 The 

mstockstill on PROD1PC70 with NOTICES