Document ID: SEC-2008-0350-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2008-03-06T05:00Z

[Federal Register: March 6, 2008 (Volume 73, Number 45)]
[Notices]               
[Page 12237-12238]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06mr08-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57405; File No. SR-FICC-2007-06]

 
Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving Proposed Rule Change To Modify the Hearing Procedures 
Afforded to Members and Applicants for Membership and Harmonize Them 
With Similar Rules of Its Affiliates

February 29, 2008.

I. Introduction

    On April 30, 2007, the Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission''), and 
on July 24, 2007 amended \1\ proposed rule change SR-FICC-2007-06 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\2\ The proposed rule change was published for comment in the 
Federal Register on December 6, 2007.\3\ No comment letters were 
received on the proposal. This order approves the proposal.
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    \1\ The amendment corrected a typographical error in the 
proposed rule text.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ Securities Exchange Act Release No. 56864 (Nov. 29, 2007), 
72 FR 68922.
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II. Description

    The proposed rule change (1) modifies the rules of FICC's 
Government Securities Division (``GSD'') and Mortgage-Backed Securities 
Division (``MBSD'') (GSD and MBSD are collectively referred to as the 
``Divisions''), including the EPN rules of MBSD, regarding hearing 
procedures afforded to members and applicants for membership and (2) 
where practicable or beneficial, harmonizes such rules with similar 
rules of FICC's affiliates, The Depository Trust Company (``DTC'') and 
the National Securities Clearing Corporation (``NSCC'').\4\
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    \4\ DTC and NSCC have filed similar proposed rule changes. 
Securities Exchange Act Release No. 56863 (Nov. 29, 2007), 72 FR 
68920, Securities Exchange Act Release No. 57406 (Feb. 29, 2008) 
[SR-DTC-2007-06]. Securities Exchange Act Release No. 56865 (Nov. 
29, 2007), 72 FR 68930, Securities Exchange Act Release No. 57404 
(Feb. 29, 2008) [SR-NSCC-2007-06].
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A. Minor Rule Violation Plan

    In 1984, the Commission adopted amendments to Rule 19d-1(c) under 
the Act \5\ that allow self-regulatory organizations with Commission 
approval to adopt plans for the disposition of minor violations of 
rules.\6\
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    \5\ 17 CFR 240.19d-1(c).
    \6\ Securities Exchange Act Release No. 21013 (June 1, 1984), 49 
FR 23828 (June 8, 1984) [File No. S7-983A].
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    Currently under each Division's rules, a member or applicant 
subject to disciplinary action has a right to a hearing before a panel 
comprised of members of FICC's Board of Directors regardless of the 
severity of the action for which the member or applicant is being 
disciplined.\7\ Because some rule violations are not sufficiently 
serious to merit Board review, FICC is adopting a Minor Rule Violation 
Plan within the meaning of Rule 19d-1(c)(2) under the Act for those 
rule violations FICC deems minor. Consistent with Rule 19d-1(c)(2) 
under the Act, FICC is designating as minor rule violations those rule 
violations for which a fine may be assessed in an amount not to exceed 
$5,000. If a member disputes a fine imposed by FICC by filing a written 
request for hearing and a written statement setting forth, among other 
things, the action or proposed action with respect to which the hearing 
is being requested and the basis for objection to such action, FICC 
management would have the authority to waive the fine. FICC management 
would notify the Board of Directors or a Committee authorized by the 
Board of Directors of its determination to waive the fine and would 
provide the reasons for the waiver. The Board or Committee could in its 
discretion decide to

[[Page 12238]]

reinstate any fine waived by FICC management. If FICC management were 
not to waive the fine, the member could appeal the decision to a panel 
comprised of FICC officers (``Minor Rule Violation Panel'').
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    \7\ MBSD Article V, Rule 7 (``Appeals''); EPN Article X, Rule 7 
(``Appeals''); and GSD Rule 37 (``Hearing Procedures'').
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B. Hearings for All Other Violations and Minor Rule Violation Appeals

    For matters involving (1) an alleged violation of a GSD or MBSD 
rule for which a fine in an amount of over $5,000 is assessed, (2) 
applicants for membership, (3) other disciplinary actions to which the 
Minor Rule Violation Plan would not apply, or (4) for appeals from a 
Minor Rule Violation Panel decision adverse to a member or applicant, 
the member or applicant is entitled to a hearing before a panel 
comprised of three individuals of the FICC Board of Directors or their 
designees appointed by the Chairman of the FICC Board. Decisions of the 
panel are final; however, the full Board of Directors retains the right 
to modify any sanction or reverse any decision of the panel that is 
adverse to the member or applicant.
    Currently with respect to hearings, a member or applicant is 
afforded the opportunity to be heard and may be represented by counsel 
if desired. A record is kept of the hearing, and at the discretion of 
the panel, the associated cost may be charged in whole or part to the 
member or applicant in the event that the decision is adverse to the 
member or applicant. The member or applicant is advised of the panel's 
decision within ten business days after the conclusion of the hearing. 
These procedures would also apply with respect to the Minor Rule 
Violation Plan.

C. Administrative Changes: Uniformity of Time Frames

    The rule changes will implement uniform time periods for the 
Divisions and among FICC, DTC, and NSCC governing actions a member or 
applicant would be required to take in order to request a hearing.\8\ 
Currently, the deadlines a member or applicant must adhere to in order 
to request a hearing vary between the Divisions. Under the rule change, 
a member or applicant has five business days, or two business days in 
the case of a summary action taken against the member or applicant 
pursuant to Rule 21 or 22,\9\ from the date on which FICC first informs 
it of a sanction or a denial of membership in which to request a 
hearing.
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    \8\ DTC rules do not impose an accelerated deadline for an 
Interested Person to request a hearing in the case of summary action 
taken against the Interested Person. A summary action is an action 
taken prior to a hearing to determine the propriety of the action.
    \9\ Examples of a summary action are a suspension of a member or 
restriction of a member's access to services as described in Rule 
21, Section 1 (``Restrictions on Access to Services'').
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    Within seven business days, or three business days in the case of a 
summary action taken against the member or applicant, after filing a 
request for a hearing with FICC, the member or applicant is required to 
submit to FICC a clear and concise written statement setting forth the 
action or proposed action of FICC with respect to which the hearing is 
requested, the basis for objection to such action, whether the member 
or applicant intends to attend the hearing, and whether the member or 
applicant chooses to be represented by counsel at the hearing.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a registered clearing agency. In particular, 
the Commission believes the proposal is consistent with the 
requirements of Section 17A(b)(3)(F),\10\ which, among other things, 
requires that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanisms of a national system for the 
prompt and accurate clearance and settlement of securities transactions 
and with the requirements of Section 17A(b)(3)(H) \11\ which, among 
other things, requires that the rules of a clearing agency provide a 
fair procedure with respect to the disciplining of participants and the 
denial of participation to any person seeking to be a participant. The 
Commission finds that the proposed rule change, which harmonizes FICC's 
hearing procedure rules with those of DTC and NSCC and which adopts a 
Minor Rule Violation Plan, is consistent with those statutory 
obligations.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 15 U.S.C. 78q-1(b)(3)(H).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \12\ and the 
rules and regulations thereunder.
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    \12\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (File No. SR-FICC-2007-06) be, 
and hereby is, approved.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4341 Filed 3-5-08; 8:45 am]

BILLING CODE 8011-01-P