19248 Federal Register / Vol. 74, No. 80 / Tuesday, April 28, 2009 / Notices 

14 Id. at 74781. In approving NYSEArca-2006–21, 

the Commission found that the proposed rule 

change was consistent with Section 6(b)(4) of the 

Act, 15 U.S.C. 78f(b)(4). See 73 FR at 74779. The 

Commission also found that the proposal was 

consistent with Section 6(b)(5) of the Act, 15 U.S.C. 

78f(b)(5), Section 6(b)(8) of the Act, 15 U.S.C. 

78f(b)(8), and Rule 603(a) of Regulation NMS, 17 

CFR 242.603(a). See 73 FR at 74779. The 

Commission noted that the presence of competitive 

forces guided its analysis under both Section 6 of 

the Act and Rule 603 of Regulation NMS. Id. 

15 15 U.S.C. 78f(b)(4). 

16 15 U.S.C. 78f(b)(5). 

17 17 CFR 242.603(a)(1). 

18 17 CFR 242.603(a)(2). See 73 FR at 74782. 

19See 73 FR at 74779. 

20 15 U.S.C. 78f(b)(4). 

21 15 U.S.C. 78f(b)(5). 

22 17 CFR 242.603(a). 

23 15 U.S.C. 78s(b)(2). 

24 17 CFR 200.30–3(a)(12). 

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

2Securities Exchange Act Release No. 59569 

(March 12, 2009), 74 FR 11797. 

3Letters from Leslie Rosenthal, Rosenthal Collins 

Group, L.L.C. (March 31, 2009) and Murray 

Pozmanter, Managing Director, FICC (April 3, 

2009). 

4FICC Rules, Section 6 of Rule 12. 

5Supra note 3. 

terms nevertheless fail to meet an 

applicable requirement of the Exchange 

Act or the rules thereunder.’’14

In its order approving NYSEArca2006–21, the Commission also stated 

that the terms of a proposed rule change 

to distribute market data for which the 

exchange is the exclusive processor 

must provide for an equitable allocation 

of fees under Section 6(b)(4) of the 

Act,15 not be designed to permit unfair 

discrimination under Section 6(b)(5) of 

the Act,16 be fair and reasonable under 

Rule 603(a)(1),17 and not be 

unreasonably discriminatory under Rule 

603(a)(2).18 If the proposal involves 

non-core market data, an analysis of 

competitive forces may be used, and 

that analysis will apply to findings 

under Section 6 of the Act, and to 

findings under Rule 603.19

In formulating the terms of the 

proposal, Nasdaq was subject to 

significant competitive forces— 

specifically, the availability to market 

participants of alternatives to 

purchasing Nasdaq market data. 

Because the proposal involves the 

distribution of non-core market data, 

and significant competitive forces are 

present, the proposal is thus consistent 

with both Section 6(b)(4) 20 and Section 

6(b)(5) of the Act,21 and with Rule 

603(a).22 There is not a substantial 

countervailing basis that would render 

the proposal inconsistent with the Act 

or the rules thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,23 that the 

proposed rule change (SR–NASDAQ– 

2006–064) as modified by Amendments 

No. 2 and 3 be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–9555 Filed 4–27–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59802; File No. SR–FICC– 

2009–03] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Granting Approval of a Proposed Rule 

Change To Impose a Charge on 

Members With a Fail-to-Deliver in 

Treasury Securities 

April 20, 2009. 

I. Introduction 

On February 25, 2009, The Fixed 

Income Clearing Corporation (‘‘FICC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–FICC–2009–03 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 March 19, 2009.2

The Commission received two comment 

letters.3 For the reasons discussed 

below, the Commission is granting 

approval of the proposed rule change. 

II. Description 

The Treasury Markets Practices Group 

(‘‘TMPG’’), a group of market 

participants that is active in the treasury 

securities market and is sponsored by 

the Federal Reserve Bank of New York 

(‘‘FRBNY’’), has been devising ways to 

address the persistent settlement fails in 

treasury securities transactions that 

have arisen, according to the TMPG, due 

to the recent market turbulence and low 

short-term interest rates. In order to 

encourage market participants to resolve 

fails promptly, the TMPG has proposed 

for adoption a ‘‘best practice’’ that 

would call for the market-wide 

assessment of a charge on fail-to-deliver 

positions. As part of the implementation 

of this ‘‘best practice,’’ the TMPG has 

asked the Government Securities 

Division (‘‘GSD’’) of FICC to impose a 

charge on failed positions involving 

treasury securities within FICC. 

The charge FICC is adopting will be 

equal to the product of net money due 

on the failed position and three (3) 

percent per annum minus the Target 

Fed funds target rate that is effective at 

5 p.m. Eastern Standard Time on the 

business day prior to the originally 

scheduled settlement date and will be 

capped at three (3) percent per annum. 

The charge will be applied daily and 

will be a debit on a member’s GSD 

monthly bill for a fail-to deliver position 

and a credit on a member’s GSD 

monthly bill for fail-to-receive position. 

The following example illustrates the 

manner in which the proposed fails 

charge would apply. 

Member A fails to deliver today on a 

$50 million position on which he is 

owed $50.1 million. The Target Fed 

funds rate yesterday at 5 p.m. was one 

(1) percent. The fails charge will be the 

product of two (2) percent per annum 

applied to the funds amount of $50.1 

million, thus equaling a charge of 

$2,783.33 for that day. The bill of the 

member failing to deliver will reflect a 

debit of $2,783.33. 

In the event that FICC is the failing 

party because, for example, it received 

securities too close to the close of the 

Fedwire for redelivery, the fail charge 

will be distributed pro rata to the 

netting members based upon usage of 

the GSD’s services, which is the same 

methodology that is used when FICC 

incurs finance charges.4

The rule change provides that the 

Credit and Market Risk Management 

Committee of FICC’s Board of Directors 

will retain the right to revoke 

application of the charge if industry 

events or practices warrant such 

revocation. 

III. Comment Letters 

The Commission received two letters, 

one from a registered broker-dealer 

raising concerns about the ‘‘unintended 

consequences’’ of the proposed rule 

change and the other from FICC 

responding to the commenter’s letter.5

The broker-dealer, a member of FICC, 

raised concerns that the pervasive fails 

situation that FICC intends to remedy 

with the rule change no longer exists 

because the market corrected itself 

when fails became an issue, and 

therefore the instances of fails can be 

held to a minimum if the industry 

commits to follow best practices. 

Further, this broker contends that the 

rule may potentially increase 

counterparty risk because firms would 

shift from clearing through FICC to 

clearing through individual 

counterparties, where fails are more 

easily controlled, in an effort to avoid 

the fails penalty. The unintended 

consequences of the rule change, the 

commenter asserted, may be detrimental 

to the global market by reducing market 

liquidity caused by the reduction in the 

supply of securities, by eroding investor 

confidence, by decreasing securities 

available for lending, and by 


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Federal Register / Vol. 74, No. 80 / Tuesday, April 28, 2009 / Notices 19249 

6 15 U.S.C. 78q(b)(3)(F). 

7Elimination or modification of the fails-todeliver charge would require FICC to file a 

proposed rule change pursuant to Section 19(b) of 

the Act. 

8 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). 

9 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). 

5See Securities Exchange Act Release No. 58903 

(November 5, 2008), 73 FR 67905 (November 17, 

2008) (order approving SR–FINRA–2008–011); and 

Securities Exchange Act Release No. 58903A 

(November 13, 2008), 73 FR 69700 (November 19, 

2008) (correction to order approving SR–FINRA– 

2008–011). SR–FINRA–2008–011 will be 

implemented on August 3, 2009. See FINRA 

Regulatory Notice 09–08 (January 2009). 

introducing the potential to game the 

system due to wider spreads between 

bid and offer prices, resulting in 

allowing someone to take advantage of 

those inadvertently caught in a fail 

situation. 

In response to these concerns, FICC 

noted that FICC’s delivery allocation 

process, a process that matches buy 

obligations to sell obligations and is 

applicable to all members, is necessary 

to ensure that the clearing corporation 

remains flat. Accordingly, FICC 

contends, the fails charge would not 

have any unique impact on the 

commenter’s firm. With regards to the 

concern that the fails charge may result 

in firms shifting their business away 

from FICC in order to avoid a fails 

charge, FICC agrees that applying the 

fails charge as proposed by the rule 

would result in adverse consequences if 

the rest of the industry does not adopt 

it. However, FICC argues, FICC would 

cease applying the charge if the Credit 

and Market Risk Management 

Committee of FICC’s Board of Directors 

determines that industry events or 

practices warrant such a revocation. 

Finally, FICC rejected the commenters 

assertions regarding the proposed rule 

change’s effect on market liquidity and 

providing new opportunities for firms to 

‘‘game’’ the system as ‘‘highly 

speculative.’’ Even if these adverse 

effects developed, FICC argues that it 

would be able to respond by eliminating 

the fails charge or taking other 

appropriate action. 

IV. Discussion 

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

requires, among other things, that the 

rules of a clearing agency be designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible, to foster 

cooperation and coordination with 

persons engaged in the clearance and 

settlement of securities transactions, to 

remove impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions, 

and, in general, to protect investors and 

the public interest.6 The Commission 

believes the rule change is consistent 

with Act because the fails-to-deliver 

charge should discourage firms from 

creating and maintaining persistent 

fails-to-deliver in treasury securities, 

which if permitted to subsist, may 

adversely affect FICC’s ability to 

safeguard securities or funds in FICC’s 

control or for which it is responsible 

and to promptly and accurately clear 

and settle securities transactions. In the 

event that the rule change does not have 

the intended affect or produces other 

undesirable consequences, FICC has the 

ability to eliminate the rule or take other 

appropriate action to address any 

ensuing problems.7

Accordingly, for the reasons stated 

above the Commission believes that the 

rule change is consistent with FICC’s 

obligation under Section 17A of the Act. 

V. 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 with the requirements of 

Section 17A of the Act and the rules and 

regulations thereunder.8

It is therefore ordered, pursuant to 

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

proposed rule change (File No. SR– 

FICC–2008–03) be and hereby is 

approved. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–9557 Filed 4–27–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59805; File No. SR–FINRA– 

2009–027] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Make NonSubstantive, Technical Changes to 

FINRA Trade Reporting Rules Upon 

Implementation of SR–FINRA–2008– 

011 

April 21, 2009. 

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 April 16, 

2009, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II 

and III below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under Section 19(b)(3)(A) of the 

Act3 and paragraph (f)(6) thereunder,4

which renders the proposal effective 

upon receipt of this filing by 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 

FINRA is proposing to (1) replace 

references to ‘‘MMID’’ or ‘‘OEID’’ in 

Rules 6282, 7130, 7230A, 7230B and 

7330 that will be obsolete upon the 

implementation of proposed rule change 

SR–FINRA–2008–011; and (2) update 

rule cross-references in Rules 6380B and 

7230B, as amended pursuant to SR– 

FINRA–2008–011.5

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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. FINRA 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 November 5, 2008, the SEC 

approved amendments to FINRA trade 


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