74790 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The MBSD Rules define a ‘‘SBO-Destined 

Trade’’ as a to-be-announced (‘‘TBA’’) transaction in 

the clearing system intended for TBA Netting in 

accordance with the provisions of the Rules. MBSD 

Rule 1, Definitions. In a TBA transaction, members 

agree on a sale price, quantity, and the 

characteristics of the securities being sold, but they 

do not specify which particular securities will be 

delivered on the settlement date. 

4 In the case of GSD locked-in trades, comparison 

occurs upon receipt of the trade data submitted to 

FICC from the locked-in trade source. GSD Rule 6C. 

5See GSD Rule 11B and MBSD Rule 5. 

including whether the proposed rule 

change 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 email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2014–117 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2014–117. This 

file number should be included on the 

subject line if email 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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of NASDAQ. 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– 

NASDAQ–2014–117 and should be 

submitted on or before January 6, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29362 Filed 12–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73805; File No. SR–FICC– 

2014–11] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Amend the Government Securities 

Division Rulebook and the Mortgage 

Backed Securities Clearing Rules In 

Order To Move the Time of Novation 

With Respect to Certain Trades, 

Include Rules To Reflect Existing 

Processes, and Clarify Certain Rules 

To Reflect Current Practices 

December 10, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4,2 notice is 

hereby given that on December 2, 2014, 

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 by FICC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

FICC is proposing to (1) move the 

time of novation for netting eligible 

transactions submitted to the 

Government Securities Division 

(‘‘GSD’’) in accordance with the GSD 

Rulebook (‘‘GSD Rules’’) and for SBODestined Trades 3 submitted to the 

Mortgage-Backed Securities Division 

(‘‘MBSD’’) in accordance with the 

MBSD Clearing Rules (‘‘MBSD Rules’’) 

in order to provide members with 

additional legal certainty that FICC will 

be the legal counterparty with respect to 

their guaranteed trades for purposes of 

regulatory capital requirements, (2) 

include rules to reflect existing 

processes, and (3) clarify certain rules to 

reflect current practices. 

II. Clearing Agency’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. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change. 

1. Purpose 

FICC is proposing to move the time of 

novation applicable to certain 

transactions submitted to the GSD and 

MBSD to earlier in the clearing process 

in order to provide members with 

additional legal certainty that FICC will 

be their legal counterparty with respect 

to their guaranteed trades for purposes 

of members’ regulatory capital 

requirements. 

Currently, GSD and MBSD guarantee 

the settlement of a trade upon 

comparison, which generally occurs 

when FICC issues initial ‘‘output’’ to 

GSD netting members or MBSD clearing 

members, as applicable, indicating that 

their trades have compared,4 provided 

that the trade meets the requirements of 

the GSD Rules or the MBSD Rules, as 

applicable.5 This means that FICC is 

responsible for settling the guaranteed 

trades, even if one of the members who 

submitted the trade becomes insolvent. 

Novation, which refers to the 

termination of delivery, receive and 

related payment obligations between the 

original parties to the contract and the 

replacement of such obligations with 

identical obligations between each party 

and FICC, currently does not occur until 

later in the clearing and settlement 

process than comparison. In GSD, 

novation currently occurs when 

subsequent ‘‘netting output’’ is issued to 

netting members (usually the day before 

settlement); in MBSD, novation 

currently occurs when subsequent ‘‘pool 

netting output’’ is issued to clearing 

members (usually the day before 

settlement). 

Because there is a legal distinction 

between the concept of ‘‘guarantee’’ and 

‘‘novation’’, and this legal distinction 

may have a bearing on how members 

calculate their capital requirement, FICC 

proposes to move the time of novation 

(i.e. the point that FICC becomes the 

legal counterparty) so that it occurs at 

the time of the trade guarantee. 

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Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 74791 

6The MBSD conducts two separate netting 

processes to consolidate settlement obligations and 

reduce the number of securities and the amount of 

cash that must be exchanged to settle transactions. 

TBA Netting is the process used to net SBODestined Trades that have compared in accordance 

to the MBSD Rules. TBA Netting is conducted 

before particular securities (‘‘pools’’) are identified 

to the SBO-Destined Trades. Pool Netting, which 

occurs after MBSD clearing members allocate pools 

to transactions, is the process used to aggregate and 

match offsetting pool delivery obligations submitted 

by MBSD clearing members to satisfy their 

settlement obligations. MBSD Rules 6 and 7. An 

MBSD clearing member may submit a transaction 

to Pool Netting even if such transaction was not 

submitted for TBA Netting. 

7The MBSD Rules define ‘‘Trade-for-Trade 

Transaction’’ as a TBA transaction submitted to 

FICC not intended for TBA Netting in accordance 

with the provisions of the Rules. MBSD Rule 1, 

Definitions. 

8The MBSD Rules define ‘‘Specified Pool 

Trades’’ as a trade in which all required pool data, 

including the pool number to be delivered on the 

contractual settlement date, are agreed upon by the 

clearing member at the time of execution. MBSD 

Rule 1, Definitions. 

9Trade-for-Trade Transactions that are not 

submitted to the Pool Netting process must be 

settled outside of FICC between the submitting 

counterparties. 

10As noted in SR–FICC–2008–01, a clearing 

member that has a trade that was matched with a 

stipulation (‘‘Stip Trade’’) would not submit such 

trade for Pool Netting. Pool Netting creates delivery 

obligations based off the net position of clearing 

members without regard to the original 

counterparty relationship. With a Stip Trade, the 

buyer and seller will want to ensure the receipt or 

delivery, as applicable, is maintained between 

themselves to ensure that the other party adheres 

to the stipulated terms. Securities Exchange Act 

Release No. 34–66550 (March 9, 2012), 77 FR 15155 

(March 14, 2014) (SR–FICC–2008–01). Therefore, as 

with the current process, FICC does not expect to 

novate Stip Trades. 

11MBSD Rule 10. 

Time of Novation—Proposed Changes 

FICC is proposing to revise the GSD 

Rules and MBSD Rules so that novation 

will occur at comparison for netting 

eligible transactions (for GSD) and SBODestined Trades (for MBSD). This 

means that, at the point of trade 

comparison, FICC will guarantee the 

settlement of the transactions (as it does 

today) and novate such transactions, 

becoming the legal counterparty to each 

submitting member with respect to such 

transactions. 

Under the proposal, in the GSD, all 

netting eligible transactions that 

compare in accordance with the GSD 

Rules will novate at the point of 

comparison. 

In the MBSD, only SBO-Destined 

Trades, all of which are included in the 

TBA Netting process and (pursuant to 

proposed Section 7 of Rule 8 which is 

being added to reflect a current 

requirement and current practice) must 

be submitted to the Pool Netting 

process,6 will novate at the point of 

comparison. Other types of transactions, 

including Trade-for-Trade 

Transactions 7 and Specified Pool 

Trades,8 will continue to be guaranteed 

at comparison, as they are today, but 

FICC will not novate such transactions 

at comparison. Instead, such 

transactions will be treated as they are 

today: (1) To the extent Trade-for-Trade 

Transactions are included in the Pool 

Netting process,9 FICC will novate such 

Transactions once the Pool Netting 10

process is completed and (2) Specified 

Pool Trades, which are not included in 

the TBA Netting process nor the Pool 

Netting process, are not novated today 

(they settle outside of FICC between the 

submitting counterparties) and will 

continue to not be novated under the 

proposal.11

In order to effectuate this change in 

the time of novation as described above, 

the proposed rule change adds language 

to the GSD Rules (new Section 8 of Rule 

5) and MBSD Rules (new Section 13 of 

Rule 5) that states that FICC will 

guarantee and now novate applicable 

transactions upon comparison, subject 

to the parameters set forth in the 

proposed rule change. Conforming 

changes are proposed to be made to GSD 

Rule 3A, GSD Rule 6B, GSD Rule 6C, 

GSD Rule 11, GSD Rule 14, GSD Rule 

20, GSD Rule 21A, Rule 22B, MBSD 

Rule 6, MBSD Rule 8, MBSD Rule 10, 

MBSD Rule 11 and MBSD Rule 17A. In 

addition, the definition of ‘‘novation’’ in 

both Divisions’ Rule 1 is clarified to 

reflect that delivery, receive and related 

payment obligations between members 

will be terminated and replaced with 

identical obligations to and from FICC at 

the point in time that the trade is 

compared in accordance with the 

applicable Rules. 

The proposed rule change also 

addresses the fact that in the MBSD 

today certain settlement obligations 

continue to be settled between the 

settlement counterparties and not vis-a`- 

vis FICC; these are the obligations that 

were not included in the Pool Netting 

process pursuant to MBSD Rule 8 (Pool 

Netting). The present proposal does not 

change this existing process. However, 

because the present proposal introduces 

legal novation at comparison for certain 

MBSD transactions, the proposed rule 

changes (in Rule 5, Section 2) make 

clear that the settlement counterparties 

continue to settle with each other but do 

so on behalf of FICC for those 

transactions that are novated to FICC. 

The proposal to move the time of 

novation as noted above does not 

change FICC’s risk. Because FICC 

currently guarantees eligible trades 

upon comparison, FICC already assumes 

responsibility for settling such trades at 

the point of comparison. Adding legal 

novation at the point of comparison 

does not increase FICC’s obligations and 

therefore, does not require any changes 

to FICC’s risk management processes. In 

addition, FICC is not proposing to 

change its operational processes. 

Proposed Formalization of Existing 

Processes 

In addition, the proposed rule 

changes formalize the following existing 

processes: 

• As noted above, Section 7 of MBSD 

Rule 8 is added to state that all SBOO 

Trades and SBON Trades (i.e., SBODestined Trades after such trades have 

gone through TBA Netting) must be 

submitted to Pool Netting. 

• MBSD Rules 15 and 16 are revised 

to clarify that, upon the insolvency of a 

member’s original counterparty to a 

compared trade, such member cannot 

unilaterally modify its obligations with 

respect to transactions originally 

entered with such counterparty. In the 

MBSD Rules, because certain trades are 

not novated and will continue to not be 

novated under this proposal, FICC 

proposes to make clear that upon a 

cease to act with respect to a member by 

FICC, the solvent member to a compared 

trade with the defaulting member may 

not unilaterally act with respect to such 

trade. 

These changes are not intended to 

change FICC’s current operations or 

processes. 

Proposed Clarification To Reflect 

Current Processes 

In addition, the proposed rule 

changes clarify certain Rules to reflect 

actual practices and requirements as 

follows: 

• MBSD Rule 17 is revised to clarify 

that when FICC ceases to act for a 

member, FICC may dispose of such 

member’s Trade-for-Trade Transactions 

based upon their generic terms. These 

changes are not intended to change 

FICC’s current operations or processes. 

Specific Proposed Changes 

With respect to the GSD Rules, the 

proposed changes are as follows: 

• The term ‘‘Interactive Submission 

Method’’ is revised to correct a 

typographical error. 

• For clean-up and clarification 

purposes, the term ‘‘Novation’’ is 

revised to reflect that delivery, receive 

and related payment obligations 

between GSD netting members will be 

terminated and replaced with identical 

obligations to and from FICC at the 

point in time that the trade is compared 

in accordance to the GSD Rules. 

• Rule 3A, Sections 2(i), 7(a), 7(d), 

14(c), and 16(a) are revised to reflect 

mstockstill on DSK4VPTVN1PROD with NOTICES

74792 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

12The term ‘‘Sponsored Member’’ means any 

Person that has been approved by the Corporation 

to be sponsored into membership by a Sponsoring 

member pursuant to Rule 3A. GSD Rule 1, 

Definitions. 

13Pursuant to the GSD Rules, the term ‘‘GCF Repo 

Transaction’’ means a Repo Transaction involving 

generic CUSIP numbers the data on which are 

submitted to FICC on a locked-in-trade basis 

pursuant to the provisions of Rule 6C, for netting 

and settlement by FICC pursuant to the provisions 

of Rule 20. GSD Rule 1, Definitions. 

that trades submitted by Sponsored 

Members 12 will novate to FICC at the 

time that such trades receive FICC’s 

guaranty of settlement. 

• Rule 5 is revised to include a new 

Section 8 entitled ‘‘Novation and 

Guaranty of Compared Trades’’ which 

provides for the following: (1) 

Compared trades that meet the 

requirements of the GSD Rules and were 

entered into in good faith will novate to 

FICC and FICC will guarantee the 

settlement for each such compared 

trade; (2) if a compared trade becomes 

uncompared or cancelled, FICC’s 

guaranty and novation of such trade will 

be reversed and cancelled; (3) if a 

compared trade is modified after 

novation and such modification does 

not cause the trade to become 

uncompared, then the modification will 

cause a corresponding modification to 

the deliver, receive and related payment 

obligations between the GSD netting 

members and FICC; (4) at the time that 

a compared trade becomes novated, 

such trade ceases to be bound by any 

bilateral agreement between the parties 

with respect to the deliver, receive and 

related payment obligations, however, if 

the trade becomes uncompared or is 

cancelled, such trade shall be governed 

by the bilateral agreement that governed 

the trade prior to the novation; and (5) 

if a right of substitution was established 

by the parties to a repurchase 

transaction, such right will continue 

and be recognized by FICC after 

novation. 

• Rule 6B, Section 4 deletes the 

provision which states that an 

uncompared trade will cease to be 

guaranteed by FICC because this 

concept is now covered in Rule 5, 

Section 8. 

• Rule 6C, Section 10 deletes the 

provision which states that a locked-in 

trade that becomes uncompared will 

cease to be guaranteed by FICC because 

this concept is now covered in Rule 5, 

Section 8. 

• Rule 6C, Section 11 deletes the 

provision which states that a netting 

eligible auction purchase that becomes 

uncompared will cease to be guaranteed 

by FICC because this concept is now 

covered in Rule 5, Section 8. 

• Rule 6C, Section 12 deletes the 

provision which states that a GCF Repo 

Transaction 13 that becomes 

uncompared will cease to be guaranteed 

by FICC because this concept is now 

covered in Rule 5, Section 8. 

• Rule 11, Section 6 is revised to 

reflect that (1) novation occurs at 

comparison; and (2) at netting, the 

previously novated deliver, receive and 

related payment obligations between the 

netting members and FICC will be 

terminated and replaced by net deliver, 

receive and related payment obligations 

as listed in the report made available by 

FICC to the netting members. 

• Rule 11B is revised to correct 

typographical errors. 

• Rule 14, Section 3 is revised to 

reflect that (1) novation occurs at 

comparison; and (2) at netting, the 

previously novated deliver, receive and 

related payment obligations between the 

netting members and FICC created by 

Forward Trades will be terminated and 

replaced by net deliver, receive and 

related payment obligations as listed in 

the report made available by FICC to the 

netting members. 

• Rule 20, Section 5 is revised to 

reflect that with respect to GCF Repo®

transactions, novation will occur at 

comparison in accordance with Rule 5, 

Section 8. 

• Rule 21A is revised to incorporate 

the concept of novation. 

• Rule 22B included a sentence 

providing that upon FICC’s default, 

trades that had compared would be 

deemed novated. Because the GSD 

Rules are being revised to reflect that 

novation occurs at comparison, this 

sentence is no longer necessary. As a 

result, it is being deleted in connection 

with this proposal. 

With respect to the MBSD Rules, the 

proposed changes are as follows: 

• For clean-up and clarification 

purposes, the term ‘‘Novation’’ is 

revised to reflect that delivery, receive 

and related payment obligations 

between MBSD clearing members will 

be terminated and replaced with 

identical obligations to and from FICC 

in accordance with the MBSD Rules. 

• The term ‘‘SBO Contra-Side 

Member’’ is revised to correct a 

typographical error. 

• The term ‘‘SBO Net-Out Position’’ is 

revised to clarify that the term is used 

in connection with offsetting purchase 

and sale SBO-Destined Trades that were 

originally between different clearing 

members (but, once novated at 

comparison, are between such members 

and FICC). 

• The term ‘‘SBO Net-Out Unit’’ is 

being deleted because this term is not 

used in the MBSD Rules. 

• The term ‘‘SBO Netted Position’’ is 

revised to clarify that the term is used 

in connection with offsetting purchase 

and sale SBO-Destined Trades that were 

originally between the same clearing 

members (but, once novated at 

comparison, are between such members 

and FICC). 

• The term ‘‘SBON Trade’’ is revised 

to correct a typographical error. 

• The term ‘‘SBOO Trade’’ is revised 

to correct a typographical error. 

• Rule 5, Section 1 is revised to 

correct a typographical error. 

• Rule 5, Section 2 is revised to 

reflect that (1) transactions that are not 

novated pursuant to this proposal 

(pursuant to new Section 13 of Rule 5 

discussed below) and not netted and 

novated through the Pool Netting 

system will be settled directly between 

the Members; and (2) transactions 

novated pursuant to new Section 13 of 

Rule 5 and not thereafter netted through 

the Pool Netting system pursuant to 

Rule 8 will settle between Members on 

behalf of FICC. 

• Rule 5, Section 12 is revised to 

correct a typographical error. 

• Rule 5 includes a new Section 13 

entitled ‘‘Novation’’ which states the 

following: (1) FICC will guarantee and 

novate SBO-Destined Trades that meet 

the requirement of the MBSD Rules and 

have been entered into in good faith; (2) 

FICC will not novate SBO-Destined 

Trades that are partially compared; (3) 

to the extent a partially compared SBODestined Trade becomes fully 

compared, FICC will novate such trade; 

(4) if a trade becomes uncompared or 

cancelled, the guaranty and novation of 

such transaction shall be reversed; (5) at 

the time that an SBO-Destined Trade is 

novated to FICC, such trade shall cease 

to be bound by any bilateral agreement 

between the parties to the trade with 

respect to the deliver, receive and 

related payment obligations, however, if 

the trade becomes uncompared or is 

cancelled, such trade shall be governed 

by the bilateral agreement that governs 

such trade prior to the novation. 

• Rule 6, Sections 1(a), (b) and (c) are 

revised to take into account the fact that 

SBO-Destined Trades are novated upon 

comparison and are, therefore, legally 

between MBSD Clearing Members and 

FICC after comparison. 

• Rule 8, Section 6 is revised to take 

into account the fact that SBO-Destined 

Trades are novated upon comparison 

and are, therefore, legally between 

MBSD Clearing Members and FICC after 

comparison. 

• Rule 8 includes a new Section 7 

which is entitled ‘‘Obligations to Submit 

SBOO and SBON Trades to Pool 

Netting’’. This Section reflects a current 

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Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 74793 

14 Including ‘‘stip’’ trades and any other TBA 

transactions not intended for TBA Netting. 

requirement and current practice that 

clearing members are required to submit 

all SBOO trades and SBON trades (i.e., 

SBO-Destined Trades after such trades 

have gone through TBA Netting) for 

inclusion in the Pool Netting system. 

• Rule 10, Section 2 is revised to 

clarify that clearing members are 

required to submit a notification of 

settlement for SBO Trades that are 

novated at comparison and processed 

through the TBA Netting system but that 

are not thereafter submitted to the Pool 

Netting system. 

• Rule 11, Section 1 is revised to take 

into account the fact that SBO Trades 

are novated upon comparison and are, 

therefore, legally between MBSD 

Clearing Members and FICC after 

comparison. 

• Rule 15 is revised to clarify the 

current process with respect to 

transactions submitted to and compared 

by FICC, whereby in the event a 

member’s original counterparty goes 

insolvent, such member cannot 

unilaterally modify its obligations with 

respect to transactions originally 

entered with such counterparty. 

• Rule 16 is revised to clarify the 

current process with respect to 

transactions submitted to and compared 

by FICC, whereby in the event a 

member’s original counterparty goes 

insolvent, such member cannot 

unilaterally modify its obligations with 

respect to transactions originally 

entered with such counterparty. 

• Rule 17, Section 2 is revised to 

clarify the current process, whereby 

when FICC ceases to act for a clearing 

member, such member’s Trade-forTrade Transactions 14 may be disposed 

of based upon their generic terms such 

as agency, product, coupon rate and 

maturity. The other changes are 

typographical corrections. 

• Rule 17A is revised to clarify that 

in the event of FICC’s default, novation 

is deemed to have occurred with respect 

to all transactions at the time such 

transactions are compared, whether or 

not such transactions are SBO-Destined 

Trades that would otherwise have been 

novated at comparison. The other 

changes to this provision are 

grammatical corrections. 

2. Statutory Basis 

The proposed rule changes are 

consistent with the requirements of 

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

Exchange Act of 1934, as amended (the 

‘‘Act’’), and the rules and regulations 

thereunder, because by moving novation 

for trades that enter GSD’s Netting 

system and MBSD’s TBA Netting 

system, they clarify FICC’s 

responsibilities to its members and 

remove potential uncertainty that 

previously existed due to a mismatch 

between the time of guaranty and the 

time of novation. Such clarity facilitates 

the prompt and accurate clearance and 

settlement of securities transactions and 

assures the safeguarding of securities 

and funds which are in the custody or 

control of FICC or for which it is 

responsible. 

As noted above, FICC guarantees (and 

is therefore responsible for) the 

settlement of trades upon comparison. 

Nonetheless, currently FICC does not 

become the members’ legal counterparty 

with respect to compared trades until 

the relevant netting output is issued to 

such members (usually the day before 

settlement). FICC understands that as 

members (or their advisors) analyze 

member netting rights with respect to 

transactions cleared through FICC for 

purposes of regulatory capital 

requirements, it is beneficial for 

members that FICC become the legal 

counterparty at the point its guarantee 

attaches. 

B. Clearing Agency’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 that is not necessary or 

appropriate. The proposed changes will 

apply to eligible transactions that are 

submitted to GSD’s Netting system and 

MBSD’s TBA Netting system. 

C. Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments relating to the 

proposed rule changes have not yet been 

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 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate 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 or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

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. 

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 email to rule-comment@

sec.gov. Please include File Number SR– 

FICC–2014–11 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–FICC–2014–11. This file 

number should be included on the 

subject line if email 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 Web site viewing and 

copying in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of FICC and on its Web site at 

http://www.dtcc.com/∼/media/Files/

Downloads/legal/rule-filings/2014/ficc/

SR-FICC-2014-11.pdf. 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–FICC– 

2014–11 and should be submitted on or 

before January 6, 2015. 

mstockstill on DSK4VPTVN1PROD with NOTICES

74794 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

15 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)(ii). 

4 17 CFR 240.19b–4(f)(2). 

5A Member is defined as ‘‘any registered broker 

or dealer that has been admitted to membership in 

the Exchange.’’ See Exchange Rule 1.5(n). 

6 ‘‘Professional’’ applies to any transaction 

identified by a Member as such pursuant to 

Exchange Rule 16.1. 

7 ‘‘Firm’’ applies to any transaction identified by 

a Member for clearing in the Firm range at the OCC. 

8 ‘‘Market Maker’’ applies to any transaction 

identified by a Member for clearing in the Market 

Maker range at the OCC. 

9 ‘‘Penny Pilot Securities’’ are those issues quoted 

pursuant to Exchange Rule 21.5, Interpretation and 

Policy .01. 

10 ‘‘ADV’’ means average daily volume calculated 

as the number of contracts added or removed, 

combined, per day. 

11 ‘‘TCV’’ means total consolidated volume 

calculated as the volume reported by all exchanges 

to the consolidated transaction reporting plan for 

the month for which the fees apply, excluding 

volume on any day that the Exchange experiences 

an Exchange System Disruption and on any day 

with a scheduled early market close. 

12 ‘‘Options Step-Up Add TCV’’ means ADAV as 

a percentage of TCV in June 2014 subtracted from 

current ADAV as a percentage of TCV. 

13See Exchange Act Release No. 72128 (May 8, 

2014), 79 FR 27666 (May 14, 2014) (SR–BATS– 

2014–017). 

14 ‘‘ADAV’’ means average daily added volume 

calculated as the number of contracts added. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29361 Filed 12–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73809; File No. SR–BATS– 

2014–064] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Related to Fees for Use 

of BATS Exchange, Inc. 

December 10, 2014. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on December 

1, 2014, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 

by the Exchange. The Exchange has 

designated the proposed rule change as 

one establishing or changing a member 

due, fee, or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act 3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change 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 

The Exchange filed a proposal to 

amend the fee schedule applicable to 

Members 5 and non-members of the 

Exchange pursuant to BATS Rules 

15.1(a) and (c). Changes to the fee 

schedule pursuant to this proposal are 

effective upon filing. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com/, at the 

principal office of the Exchange, 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, the 

Exchange 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. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to modify the 

‘‘Options Pricing’’ section of its fee 

schedule effective immediately, in order 

to modify pricing charged by the 

Exchange’s options platform (‘‘BATS 

Options’’) including a new September 

Options Step-Up Add TCV tier that will 

apply to certain orders executed on the 

Exchange, as further described below. 

Currently, the Exchange charges $0.48 

per contract for a Professional,6 Firm,7

or Market Maker 8 order in a Penny Pilot 

Security 9 that removes liquidity from 

BATS Options generally, or, where the 

Member has an ADV 10 equal to or 

greater than 1.00% of average TCV,11

$0.47 per contract for a Professional, 

Firm, or Market Maker order in a Penny 

Pilot Security that removes liquidity 

from BATS Options. The Exchange 

offers rebates of $0.40 per share for 

Market Maker orders in Penny Pilot 

Securities that add liquidity to BATS 

Options and, as further discussed 

below, such orders are also eligible for 

additional rebates via the Quoting 

Incentive Program (‘‘QIP’’). The 

Exchange offers rebates of $0.40 to 

Professional and Firm orders in Penny 

Pilot Securities that add liquidity to 

BATS Options and offers an enhanced 

$0.44 rebate for Professional and Firm 

orders that add liquidity to BATS 

Options in Penny Pilot Securities where 

the Member has an Options Step-Up 

Add TCV 12 of equal to or greater than 

0.50%.13 The Exchange also offers 

NBBO setter liquidity rebates in all 

securities such that: (i) A Member will 

receive an additional $0.02 per contract 

for a Professional, Firm, or Market 

Maker order that adds liquidity to the 

BATS Options order book that sets a 

new national best bid or offer where the 

Member has an ADV equal to or greater 

than 0.30% of average TCV but less than 

1.00% of average TCV; and (ii) a 

Member will receive an additional $0.04 

per contract for a Professional, Firm, or 

Market Maker order that adds liquidity 

to the BATS Options order book that 

sets a new national best bid or offer 

where the Member has an ADV equal to 

or greater than 1.00% of average TCV. 

The Exchange is proposing to add the 

definition of ‘‘September Options StepUp Add TCV’’ to its fee schedule along 

with three new fees and rebates 

associated with this new defined term. 

Specifically, the Exchange is proposing 

to define September Options Step-Up 

Add TCV as a Member’s ADAV 14 as a 

percentage of TCV in September 2014 

subtracted from current ADAV as a 

percentage of TCV. Based on this 

definition, the Exchange is proposing to 

add an additional tier to fees charged to 

Professional, Firm, and Market Maker 

orders in Penny Pilot Securities such 

that the Exchange will charge $0.47 per 

contract for a Professional, Firm, or 

Market Maker order that removes 

liquidity from the BATS Options order 

book where the Member has a 

September Options Step-Up Add TCV 

equal to or greater than 0.30% and an 

ADV equal to or greater than 0.40% of 

average TCV. Similarly, the Exchange is 

proposing to add an additional tier to 

liquidity rebates for Professional and 

Firm orders in Penny Pilot Securities 

such that the Exchange will provide a 

$0.44 rebate per contract for a 

Professional or Firm order that adds 

liquidity to the BATS Options order 

book where the Member has a 

September Options Step-Up Add TCV 

equal to or greater than 0.30% and an 

mstockstill on DSK4VPTVN1PROD with NOTICES