Document ID: SEC-2017-1093-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2017-06-28T04:00Z

[Federal Register Volume 82, Number 123 (Wednesday, June 28, 2017)]
[Notices]
[Pages 29355-29359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13490]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81002; File No. SR-FICC-2017-015]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Make Clarifications and Corrections to the Government Securities 
Division Rulebook, the Mortgage-Backed Securities Division Clearing 
Rules and the Mortgage-Backed Securities Division EPN Rules

June 22, 2017.
    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 June 16, 2017, 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 the clearing agency. FICC filed the

[[Page 29356]]

proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder \4\ so that the proposal was effective upon filing 
with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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)(4).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would make clarifications and corrections 
(including the addition of certain new definitions, as described in 
more detail below) to FICC's Government Securities Division (``GSD'') 
Rulebook (the ``GSD Rules''), Mortgage-Backed Securities Division 
(``MBSD'') Clearing Rules (the ``MBSD Clearing Rules'') and MBSD EPN 
Rules (the ``EPN Rules,'' and collectively with the GSD Rules and the 
MBSD Clearing Rules, the ``Rules''), as described in greater detail 
below.\5\
---------------------------------------------------------------------------

    \5\ Each capitalized term used herein and not otherwise defined 
shall have the meaning set forth in the GSD Rules, MBSD Clearing 
Rules or the EPN Rules, as applicable, available at http://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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 clearing agency 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
    The purpose of the proposed rule change is to make certain 
clarifications and corrections (including the addition of certain new 
definitions) to the Rules so that the Rules remain consistent and 
clear. The proposed changes consist only of clarifications and 
corrections (including the addition of certain new definitions) and do 
not change any of the rights or obligations of the GSD Members, MBSD 
Members or EPN Users.
(i) Proposed Changes to the GSD Rules
    FICC is proposing to make the following changes to the GSD Rules:
A. Proposed Changes to GSD Rule 1--Definitions
    (1) Delete the incorrect reference to ``Section 1 of Rule 2'' in 
the definition of ``Bank Netting Member'' and replace it with a 
reference to ``Section 2 of Rule 2A.''
    (2) Correct certain definitions relating to brokers and dealers and 
add certain defined terms in conjunction with such corrections, as 
described below (collectively, the changes referred to in this item (2) 
are referred to as the ``Broker/Dealer Changes''):
    (i) FICC has identified that the existing terms ``Registered 
Government Securities Brokers'' and ``Registered Government Securities 
Dealers'' refer to brokers and dealers registered with the Commission 
under either Section 15 or Section 15C of the Act, when such terms 
should only refer to brokers and dealers registered under Section 15C 
of the Act. The proposed rule change would correct these definitions in 
this regard.
    (ii) Two new terms, ``Registered Broker'' and ``Registered 
Dealer,'' would be added to GSD Rule 1 to address brokers and dealers 
that are registered under Section 15 of the Act.
    (iii) The term ``Broker,'' which is defined in part as a 
``Registered Government Securities Broker,'' would be updated to add a 
reference to a ``Registered Broker.'' In addition, ``or'' is being 
added to reflect that a Broker would include a Registered Broker or a 
Registered Government Securities Broker. These corrections would make 
the definition consistent with the manner in which the term ``Broker'' 
is used throughout the GSD Rules and consistent with the corrections 
noted above in clauses (i) and (ii).
    (iv) The term ``Dealer,'' which is defined as a ``Registered 
Government Securities Dealer,'' would be updated to add a reference to 
a ``Registered Dealer.'' In addition, ``or'' is being added to reflect 
that a Dealer would include a Registered Dealer or a Registered 
Government Securities Dealer. These corrections would make the 
definition consistent with the manner in which the term ``Dealer'' is 
used throughout the GSD Rules and consistent with the corrections noted 
above in clauses (i) and (ii).
    (3) Delete references to ``Category 1 Inter-Dealer Broker'' and 
``Category 2 Inter-Dealer Broker'' in the definition of ``Brokered 
Transaction'' and replace them with ``Inter-Dealer Broker,'' make a 
grammatical change, and change the numbering in the definition to 
reflect the replacements. The concept of and all other references to 
Category 1 Inter-Dealer Brokers and Category 2 Inter-Dealer Brokers 
were intended to be removed from the GSD Rules in connection with the 
Commission's approval of rule filing SR-FICC-2010-09,\6\ however, a few 
references inadvertently remain in the current version of the GSD 
Rules.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 63986 (February 28, 
2011); 76 FR 12144 (March 4, 2011) (SR-FICC-2010-09).
---------------------------------------------------------------------------

    (4) Delete the references to ``Registered Government Securities 
Broker'' and ``Registered Government Securities Dealer'' in the 
definition of ``Covered Affiliate'' and replace each reference with 
``Broker'' and ``Dealer,'' respectively. Currently, ``Covered 
Affiliate'' is defined in part to include certain ``Registered 
Government Securities Brokers'' and ``Registered Government Securities 
Dealers,'' however, this definition should also include certain 
``Registered Brokers'' and ``Registered Dealers,'' as such terms are 
proposed to be added in this filing. The revised terms ``Broker'' and 
``Dealer'' as proposed by this filing would also include Registered 
Brokers and Registered Dealers. This correction would make the 
definition consistent with the manner in which the term ``Covered 
Affiliate'' is used throughout the GSD Rules and consistent with the 
Broker/Dealer Changes noted above.
    (5) Change the definition of the term ``Designated Examining 
Authority'' to replace the existing descriptions of brokers and dealers 
with ``Broker or Dealer, as applicable.'' The use of the updated terms 
``Broker'' and ``Dealer'' as proposed above and the addition of ``as 
applicable'' would refer to brokers and dealers registered under 
Section 15 of the Act and under Section 15C of the Act in a more 
succinct manner, would ensure consistency with the manner in which 
``Designated Examining Authority'' is used throughout the GSD Rules and 
would be consistent with the Broker/Dealer Changes noted above.
    (6) Delete the repeated definitions of the terms ``Eligible Letter 
of Credit'' and ``Eligible Netting Security.''
    (7) Delete the reference to ``whole percentage'' and replace it 
with ``two decimal places'' in the definition of the term ``Excess 
Capital Ratio'' to reflect that the quotient is rounded to the nearest 
two decimal places. The proposed change would make the GSD Rules 
consistent with the MBSD Clearing Rules, which would have an equivalent 
definition.
    (8) Delete the reference to ``GSCC'' and replace it with ``the 
Corporation'' in the definition of the ``Full-Sized Trade'' because 
GSCC is not a defined term that is used in the GSD Rules. GSCC refers

[[Page 29357]]

to GSD's predecessor, the Government Securities Clearing 
Corporation.\7\
---------------------------------------------------------------------------

    \7\ FICC resulted from a merger of GSCC and the Mortgage-Backed 
Securities Clearing Corporation on January 1, 2003.
---------------------------------------------------------------------------

    (9) Add a new defined term for ``Inter-Dealer Broker'' consistent 
with the manner in which the term is currently used in the GSD Rules 
and consistent with the MBSD Clearing Rules, which have the equivalent 
definition.
    (10) Delete the following definitions because they are not used in 
the GSD Rules: ``Member Brokered Transaction,'' ``Non-Member Brokered 
Transaction,'' and ``Offsetting Position.''
B. Proposed Changes to GSD Rule 2A--Initial Membership Requirements
    (1) Delete the references to ``Registered Government Securities 
Dealer'' and replace them with ``Dealer'' in Section 2(a)(ii) to 
reflect the Broker/Dealer Changes noted above.
    (2) Correct two grammatical errors in Section 2(a)(iv).
    (3) Delete the references to ``Duff & Phelps (``D&P'')'' and 
``D&P'' and replace them with ``Fitch Ratings (``Fitch'')'' and 
``Fitch,'' respectively, in Section 4 because Duff & Phelps Credit 
Rating Co. was acquired by Fitch IBCA.
    (4) Delete the incorrect reference to ``Rule 3'' and replace it 
with ``this Rule 2A'' in Section 6.
C. Proposed Changes to GSD Rule 3--Ongoing Membership Requirements
    Add ``Ratio'' after the reference to ``Excess Capital'' to read 
``Excess Capital Ratio'' in Section 14. Section 14 requires a Netting 
Member to make a Clearing Fund deposit if its Excess Capital Ratio 
exceeds 1.0 because of the perceived risk posed by such Netting Member. 
Such deposit is calculated to bring the Clearing Fund to a desired 
level regarding the risk relating to such Netting Member. FICC 
currently calculates and has historically calculated this deposit using 
the Excess Capital Ratio as a multiple. Reference to Excess Capital as 
the multiple in the GSD Rules is incorrect--using Excess Capital as the 
multiple would result in a deposit requirement for a Netting Member 
that far exceeds the amount that FICC has determined is needed to 
increase the Clearing Fund to the desired level. The proposed change 
would make the GSD Rules consistent with the MBSD Clearing Rules, which 
have an equivalent formula in MBSD Clearing Rule 3 Section 12.
D. Proposed Changes to GSD Rule 4--Clearing Fund and Loss Allocation
    (1) Delete the incorrect reference to ``Section 8'' in the first 
paragraph of Section 5 and replace it with ``Section 7.''
    (2) Delete the phrase ``Category 1'' before the words ``Inter-
Dealer Broker Netting Member'' in Section 5 and make a grammatical 
change to reflect the deletion. The concept of and all other references 
to the term Category 1 were intended to be removed from the GSD Rules 
in connection with the Commission's approval of rule filing SR-FICC-
2010-09,\8\ however, this reference inadvertently remains in the 
current version of the GSD Rules.
---------------------------------------------------------------------------

    \8\ See supra note 6.
---------------------------------------------------------------------------

E. Proposed Changes to GSD Rule 5--Comparison System
    Capitalize the word ``trades'' in the phrase ``Full-Sized trades'' 
in Section 4 so that it reflects the defined term ``Full-Sized Trade,'' 
which is currently included in GSD Rule 1.\9\
---------------------------------------------------------------------------

    \9\ ``Full-Sized Trade'' means a trade that is submitted to FICC 
in the full-size dollar amount in which it was executed as opposed 
to being submitted in an equivalent amount of $50 million pieces and 
a single tail. See GSD Rule 1, supra note 5.
---------------------------------------------------------------------------

F. Proposed Changes to GSD Rule 15--Special Provisions for Certain 
Netting Members
    (1) Remove a reserved section heading and renumber section headings 
that currently follow that heading to reflect its removal.
    (2) Delete the phrase ``or an Inter-Dealer Broker Netting Member'' 
in the third sentence in proposed renumbered Section 2 because the term 
Inter-Dealer Broker Netting Member is inadvertently referenced twice.
G. Proposed Changes to GSD Rule 17--Netting and Settlement of Netting-
Eligible Auction Purchases
    Remove a reserved section heading and renumber section headings 
that currently follow that heading to reflect its removal.
(ii) Proposed Changes to the MBSD Clearing Rules
    FICC is proposing to make the following changes to the MBSD 
Clearing Rules:
A. Proposed Changes to MBSD Clearing Rule 1--Definitions
    (1) Add a new defined term for ``Close of Business'' consistent 
with the manner in which the term is currently used in the MBSD 
Clearing Rules and consistent with the GSD Rules which have the 
equivalent definition.
    (2) Delete the word ``whole'' from the phrase ``whole two decimal 
places'' in the definition of ``Excess Capital Ratio'' to reflect the 
standard convention for referencing decimals.
B. Proposed Changes to MBSD Clearing Rule 3--Ongoing Membership 
Requirements
    Delete the phrase ``close of business'' and replace it with ``Close 
of Business'' in Section 2 so that it reflects the proposed new defined 
term ``Close of Business,'' which would be added in MBSD Clearing Rule 
1.
C. Proposed Changes to MBSD Clearing Rule 4--Clearing Fund and Loss 
Allocation
    (1) Delete the references to ``Total Amount'' and replace them with 
``Required Fund Deposit'' in Section 2(d) because Total Amount is not a 
defined term and the correct reference in that section should be to the 
amount a Clearing Member is required to deposit to the Clearing Fund 
pursuant to MBSD Clearing Rule 4, which is the ``Required Fund 
Deposit.\10\
---------------------------------------------------------------------------

    \10\ ``Required Fund Deposit'' means the amount a Clearing 
Member is required to deposit to the Clearing Fund pursuant to MBSD 
Clearing Rule 4. See MBSD Clearing Rule 1, supra note 5.
---------------------------------------------------------------------------

    (2) Delete the reference to ``deposit'' and replace it with 
``Required Fund Deposit'' in Section 3 because the correct reference in 
that section should be to the amount a Clearing Member is required to 
deposit to the Clearing Fund pursuant to MBSD Clearing Rule 4, which is 
the ``Required Fund Deposit.''
    (3) Clarify that the minimum amount of cash a Clearing Member must 
deposit into its Required Fund Deposit is $100,000 in Section 3. 
Section 2(d) refers to the same minimum Required Fund Deposit amount 
and the proposed change would make Section 3 consistent with Section 
2(d).
    (4) Delete the references to ``close of business'' and replace them 
with ``Close of Business'' in Section 5 and Section 8 so that they 
reflect the proposed new defined term ``Close of Business,'' which 
would be added in MBSD Clearing Rule 1.
(iii) Proposed Changes to the EPN Rules
    FICC is proposing to make the following changes to the EPN Rules:
A. Proposed Changes to Article 1 EPN Rule 1--Definitions
    (1) Add a period after ``Rule 1'' to conform the punctuation in EPN 
Rule 1 with other EPN Rules.
    (2) Delete the incorrect cross-reference to ``Article VII'' and 
replace it with ``Article II'' in the definition of ``Account.''
    (3) Delete the incorrect cross-reference to ``Article VI'' and 
replace it with

[[Page 29358]]

``Article I'' in the definition of ``EPN Eligible Security.''
    (4) Delete the incorrect cross-reference to ``Article X'' and 
replace it with ``Article V'' in the definition of ``EPN Procedures.''
    (5) Delete the incorrect cross-references to ``Articles VI, VII, 
VIII, IX and X of the Rules,'' in the definition of ``EPN Rules.'' Such 
references to the Articles are unnecessary.
    (6) Move the definition of ``EPN Service'' so that it is in correct 
alphabetical order.
    (7) Delete the incorrect cross-reference to ``Article VIII'' and 
replace it with ``Article III'' in the definition of ``EPN User 
Agreement.''
    (8) Delete the definition of ``Membership and Risk Management 
Committee'' because this term is not used in the EPN Rules.
    (9) Move the definition of ``Messages'' so that it is in correct 
alphabetical order.
    (10) Delete the incorrect cross-reference to ``Article VII'' and 
replace it with ``Article II'' in the definition of ``Message Detail 
Report.''
    (11) Delete the incorrect reference to ``Article VII'' and replace 
it with ``Article II'' in the definition of ``Message Summary Report.''
    (12) Delete the definition of ``Operations and Planning Committee'' 
because this term is not used in the EPN Rules.
B. Proposed Changes to Article I EPN Rule 2--EPN Eligible Securities
    Correct a grammatical error and delete the incorrect cross-
reference to ``Article X'' and replace it with ``Article V.''
C. Proposed Changes to Article II--Messages Processed by the 
Corporation
    (1) Add the following language to EPN Rule 1 Section 1: ``The 
Corporation shall maintain one or more Accounts for each EPN User'' 
because this language appears to have been inadvertently deleted from 
previous versions of the EPN Rules.
    (2) Delete the term ``Reports'' and replace it with lowercased 
``reports'' in EPN Rule 2 Section 1 because Reports is not a defined 
term in the EPN Rules.
D. Proposed Changes to Article III--EPN Users
    (1) Delete the incorrect cross-reference to ``Article X'' and 
replace it with ``Article V'' and correct a grammatical error in EPN 
Rule 1 Section 5.
    (2) Delete the incorrect cross-reference to ``Article X'' and 
replace it with ``Article V'' in EPN Rule 1 Section 7.
    (3) Correct two grammatical errors in EPN Rule 2 Section 1.
    (4) Delete the incorrect cross-reference to ``Article VIII'' and 
replace it with ``Article III'' in EPN Rule 3 Section 1.
E. Proposed Changes to Article V--Miscellaneous
    (1) Add ``EPN'' before each reference to ``Rules'' because ``EPN 
Rules'' is the correct defined term.
    (2) Remove extra spaces between ``Interested'' and ``Person'' in 
the first paragraph of Rule 7 Section 1 and replace ``a'' with ``an'' 
before the proposed addition of ``EPN'' in the second paragraph of Rule 
7 Section 1 for grammatical correctness.
    (3) Add ``EPN'' before each reference to ``Procedures'' because 
``EPN Procedures'' is the correct defined term.
    (4) Add a tab space before certain paragraphs throughout Article V 
to conform the spacing in Article V to the other Articles in the EPN 
Rules.
    (5) Delete the reference to ``minor rule violation'' and replace it 
with ``Minor Rule Violation'' in EPN Rule 7 Section 3 so that it 
reflects the defined term, ``Minor Rule Violation,'' which is currently 
included in EPN Rule 7 Section 2, and correct the cross-reference in 
that Section to reflect that the term ``Minor Rule Violation'' is 
defined in Section 2 of EPN Rule 7 rather than Section 3.\11\
---------------------------------------------------------------------------

    \11\ ``Minor Rule Violation'' means a violation of the EPN Rules 
for which a fine may be assessed against the Interested Person in an 
amount not to exceed $5,000. See Article V, EPN Rule 7, Section 2, 
supra note 5.
---------------------------------------------------------------------------

    (6) Delete the heading ``SEC. 6. FINALITY OF CORPORATION ACTION'' 
because it is misplaced, and reorder the numbering for each EPN Rule 
that currently follows that heading so that each such EPN Rule 
continues as part of Article V.
    (7) Correct a grammatical error in proposed renumbered EPN Rule 
14(b)(ii).
    (8) Correct a grammatical error, and delete the incorrect cross-
reference to ``Article X'' and replace it with ``Article V'' in 
proposed renumbered EPN Rule 14(c).
2. Statutory Basis
    Section 17A(b)(3)(F) \12\ of the Act requires, in part, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions. FICC believes that the proposed 
rule change has been designed to promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F).\13\ Specifically, the proposed rule change would 
clarify the meaning of certain provisions of the Rules, correct 
grammatical errors, correct cross-references and similar technical 
changes, which ensure that the Rules are consistent and clear. As such, 
FICC believes the proposed rule change would allow GSD Members, MBSD 
Members and EPN Users governed by the applicable Rules to have a better 
understanding of the Rules and thereby assist in promoting the prompt 
and accurate clearance and settlement of securities transactions.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule change will have any 
impact on competition because the proposed changes to the Rules are 
clarifications and corrections (including the addition of certain new 
definitions), which would not change FICC's current practices or the 
rights or obligations of the GSD Members, MBSD Members or EPN Users 
bound by the applicable Rules. Therefore, the proposed changes should 
have no effect on the GSD Members, MBSD Members or EPN Users that are 
bound by the applicable Rules other than to foster a better 
understanding of the applicable Rules by such GSD Members, MBSD Members 
and EPN Users.

(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 change have not 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \14\ of the Act and subparagraph (f)(4) of Rule 19b-4 \15\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 29359]]

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-FICC-2017-015 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-FICC-2017-015. 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 FICC and on 
DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-2017-015 and should be 
submitted on or before July 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13490 Filed 6-27-17; 8:45 am]
 BILLING CODE 8011-01-P