Document ID: SEC-2018-1278-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2018-08-15T04:00Z

[Federal Register Volume 83, Number 158 (Wednesday, August 15, 2018)]
[Notices]
[Pages 40611-40617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17489]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83808; File No. SR-FICC-2018-007]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Correct Certain References, 
Provide Transparency to Existing Processes and Amend Existing Practices 
in Connection With the Mortgage-Backed Securities Division Electronic 
Pool Notification Rules

August 9, 2018.
    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 August 3, 2018, 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. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the FICC 
Mortgage-Backed Securities Division (``MBSD'') electronic pool 
notification (``EPN'') Rules (the ``EPN Rules'') \3\ as described 
below.
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    \3\ Terms not defined herein are defined in the EPN Rules, 
available at http://www.dtcc.com/legal/rules-and-procedures.
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    FICC is proposing to correct the EPN Rules by (i) deleting 
references to the term ``EPN Procedures,'' (ii) amending the definition 
of the term ``Interested Person'' to delete the reference to 
``Comparison Only System,'' (iii) deleting the defined term for ``Par 
Amount,'' (iv) replacing references to the term ``Vice President'' with 
the term ``Executive Director,'' (v) amending Sec. 3 (Agreements of EPN 
User) in EPN Rule 1 (Requirements Applicable to EPN Users) of Article 
III (EPN Users) to clarify an EPN User's obligation to process Messages 
through the EPN system during a system disruption, and (vi) amending 
EPN Rule 4 (Admission to Premises of Corporation; Power of Attorney) of 
Article III (EPN Users) to replace a reference to ``he'' with ``such 
person.''
    FICC is proposing to amend various sections in the EPN Rules to 
provide transparency to FICC's existing processes. Specifically, FICC 
is proposing to amend EPN Rule 1 (Definitions) of Article I 
(Definitions and General Provisions); Section 2 (Limitations) in EPN 
Rule 1 (Accounts) and Section 1 (Availability of Reports), Section 2 
(Message Detail Report), Section 3 (Message Summary Report), and 
Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of 
Article II (Messages Processed by the Corporation); and EPN Rule 5 (Use 
of EPN Service) of Article III (EPN Users).
    FICC is also proposing to amend its existing practice in connection 
with an EPN User's submission of a cancel and correct Message.\4\ 
Specifically, FICC is proposing to establish one good delivery time 
stamp (referred to as the ``T2'' \5\ time stamp) that reflects the same 
processing time on the pool seller's and the pool buyer's cancel and 
correct Message, respectively. The proposed change would not affect 
FICC's guarantee and novation of transactions submitted by Clearing 
Members through MBSD's Clearing System.\6\
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    \4\ See Article II, EPN Rule 2, Sec. 5, supra note 3.
    \5\ The reference to ``T2'' does not relate to the two business 
days settlement cycle for broker-dealer securities transactions, 
known as ``T+2.''
    \6\ MBSD maintains two sets of rulebooks. The EPN Rules govern 
MBSD's EPN Service, and the MBSD Clearing Rules (the ``MBSD Rules'') 
govern MBSD's clearance and settlement service. The MBSD Rules are 
available at http://www.dtcc.com/legal/rules-and-procedures. 
Pursuant to the MBSD Rules, the term ``Clearing System'' means the 
(i) system of services provided by MBSD to persons that are Clearing 
Members thereof, including trade comparison, to-be-announced 
netting, pool comparison, pool netting, and settlement, as 
applicable, and (ii) operations carried out by MBSD in the course of 
providing such services, as provided in the MBSD Rules. See MBSD 
Rule 1, Definitions.
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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
    FICC is proposing to correct the EPN Rules by (i) deleting 
references to the term ``EPN Procedures'' because FICC does not 
maintain EPN Procedures, (ii) amending the definition of the term 
``Interested Person'' to delete the reference to ``Comparison Only 
System'' because MBSD does not maintain a Comparison Only System, (iii) 
deleting the defined term for ``Par Amount'' because this term is not 
used in the EPN Rules, (iv) replacing references to the term ``Vice 
President'' with the term ``Executive Director'' because FICC no longer 
utilizes the Vice President title, (v) amending Sec. 3 (Agreements of 
EPN User) in EPN Rule 1 (Requirements Applicable to EPN Users) of 
Article III (EPN Users) to clarify an EPN User's obligation to process 
Messages through the EPN system during a system disruption because this 
change would be an accurate reflection of FICC's existing practice, and 
(vi) amending EPN Rule 4 (Admission to Premises of Corporation; Power 
of Attorney) of Article III (EPN User) to replace a reference to ``he'' 
with ``such person'' because the reference to ``such person'' would be 
gender neutral.

[[Page 40612]]

    FICC is proposing to amend various sections in the EPN Rules to 
provide transparency to FICC's existing processes. Specifically, FICC 
is proposing to amend EPN Rule 1 (Definitions) of Article 1 
(Definitions and General Provisions); Section 2 (Limitations) in EPN 
Rule 1 (Accounts) and Section 1 (Availability of Reports), Section 2 
(Message Detail Report), Section 3 (Message Summary Report), and 
Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of 
Article II (Messages Processed by the Corporation); and EPN Rule 5 (Use 
of EPN Service) of Article III (EPN Users).
    FICC is also proposing to amend its existing practice in connection 
with an EPN User's submission of a cancel and correct Message.\7\ 
Specifically, FICC is proposing to establish one good delivery T2 time 
stamp \8\ that reflects the same processing time on the pool seller's 
and the pool buyer's cancel and correct Message, respectively. As a 
result of this change, in the event that the T2 time stamp reflects a 
time that does not meet the good delivery requirements in accordance 
with the Securities Industry and Financial Markets Association's 
(``SIFMA'') Uniform Practices Manual for the Clearance and Settlement 
of Mortgage-Backed Securities and Other Related Securities (referred to 
in the EPN Rules as the ``SIFMA Guidelines''),\9\ the financing of the 
mortgage pools associated with the Message, if any, would be the 
responsibility of the counterparties to such Message, as determined by 
such parties, in accordance with the SIFMA Guidelines. FICC is 
proposing this change because it would be consistent with the SIFMA 
Guidelines, and FICC believes that the parties to the Message are best 
positioned to ensure that a cancel and correct Message meets the good 
delivery requirements. The proposed change would not affect FICC's 
guarantee and novation of transactions submitted by Clearing Members 
through MBSD's Clearing System.
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    \7\ See supra note 4.
    \8\ The good delivery T2 time stamp indicates whether good 
delivery has occurred with respect to a Message--meaning, if the T2 
time stamp reflects a time that is at or before the established 
deadline, then good delivery has been established and the pool buyer 
will accept the Message with respect to the allocated securities.
    \9\ The SIFMA Guidelines are available at https://www.sifma.org/resources/general/tba-market-governance/.
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    The proposed changes are described in detail below.

(1) MBSD's EPN Service

    MBSD's electronic pool notification service (referred to in the EPN 
Rules as the ``EPN Service'') enables users to reduce risk and 
streamline their operations by providing an automated manner for market 
participants that have an obligation to deliver pools (``pool 
sellers'') to transmit pool information efficiently and reliably to 
their counterparties (``pool buyers'') in real time. Market 
participants that wish to utilize the EPN Service are required to 
submit an application to MBSD. The application process and the use of 
the EPN Service are governed by the EPN Rules.\10\ The EPN Rules are 
designed to be consistent with the SIFMA Guidelines, which reflect 
common industry practices for the trading, clearance and settlement of 
mortgage-backed securities transactions. MBSD's Clearing Members are 
required to be EPN Users; however, one can be an EPN User and not a 
Clearing Member.\11\
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    \10\ See Article III, EPN Rule 1, supra note 3.
    \11\ Pursuant to the MBSD Rules, the term ``Clearing Member'' 
means any entity admitted into membership pursuant to MBSD Rule 2A. 
See MBSD Rule 1, Definitions, supra note 6.
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(2) Proposed Changes To Correct the EPN Rules

    FICC is proposing to amend the EPN Rules in order to correct 
various provisions in the EPN Rules. The proposed changes would help 
ensure that the EPN Rules are clear and accurate. The proposed changes 
reflect MBSD's existing practices and FICC believes that these changes 
would help EPN Users better understand their rights and obligations 
under the EPN Rules. The proposed changes are described in detail 
below.

a. Article I--Definitions and General Provisions

Proposed Changes to EPN Rule 1--Definitions
    FICC is proposing to delete the term ``EPN Procedures.'' EPN Rule 
11 of Article V empowers FICC to adopt EPN Procedures as FICC ``deems 
necessary or desirable.'' \12\ It appears that when FICC instituted the 
EPN Service and the related EPN Rules, EPN Procedures were not adopted 
at that time.\13\ Since FICC does not currently maintain EPN 
Procedures, FICC has decided to conform the EPN Rules to its practices 
by deleting this definition and the related references throughout the 
EPN Rules because this inchoate power is itself not necessary.
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    \12\ See supra note 3.
    \13\ FICC instituted the EPN Service and the related EPN Rules 
on a pilot basis in February 1995. The Commission's temporary 
approval order notes that Amendment No. 2 to the proposed rule 
change clarified that ``the only MBS rules and procedures applicable 
to EPN users are the rules and procedures located in Articles VI, 
VII, VIII, IX, and X of MBS's rules.'' See Release No. 35009 
(November 25, 1994) 59 FR 61913 (December 2, 1994) (SR-MBS-94-02). 
The Commission granted permanent approval of the EPN Service and the 
related EPN Rules in November 1995. See Release No. 36540 (November 
30, 1995) 60 FR 63089 (December 8, 1995) (SR-MBS-95-09). It should 
be noted FICC submitted a proposed rule change in June 2017 which, 
among other things, renumbered the references of Articles VI, VII, 
VIII, IX, and X to refer to Articles I, II, III, IV and V, 
respectively. See Release No. 81002 (June 22, 2017) 82 FR 29355 
(June 28, 2017) (SR-FICC-2017-015).
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    FICC is proposing to amend the term ``EPN Service'' to delete the 
reference to EPN Procedures.
    FICC is proposing to amend the term ``EPN User Profile'' to delete 
the reference to EPN Procedures. In connection with this change, FICC 
is proposing to make a grammatical correction to this definition by 
replacing the word ``in'' with ``by'' so that the definition would 
state that ``the EPN User Profile would be on a form specified `by' 
FICC.''
    FICC is proposing to amend the term ``Interested Person'' to delete 
the reference to Comparison Only System because MBSD does not maintain 
a Comparison Only System. FICC believes that the inclusion of this term 
in the EPN Rules was an error.
    FICC is proposing to delete the term ``Par Amount'' because this 
term is not otherwise referred to in the EPN Rules. FICC believes that 
the inclusion of this term in the EPN Rules was an error and that it 
has no practical effect because this term is not used in the EPN Rules. 
FICC notes that this term was included and not defined in a version of 
the EPN Rules that was filed with the Commission on October 20, 
1999.\14\
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    \14\ Release No. 42721 (April 25, 2000) 65 FR 25778 (May 3, 
2000) (SR-MBSCC-99-8).
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b. Article III--EPN Users

i. Proposed Changes to EPN Rule 1--Requirements Applicable to EPN Users
    Section 3 (Agreements of EPN Users) sets forth a list of terms that 
an applicant is required to agree to, as specified in the EPN User 
Agreement. This list states, in part, that an applicant shall agree (i) 
to abide by and be bound by the EPN Rules and EPN Procedures, (ii) that 
the EPN Rules and EPN Procedures are incorporated into every contract 
or Message, (iii) that the EPN User shall pay fines that are imposed in 
accordance with the EPN Rules and EPN Procedures, and (iv) that it is 
bound by any amendment to the EPN Rules and EPN Procedures. FICC is 
proposing to delete all references in this section to the EPN 
Procedures.
    Section 3 also includes a paragraph that states that in the event 
of an EPN

[[Page 40613]]

system disruption and an extension of the cut-off times for 
communicating pool allocation information pursuant to the SIFMA 
Guidelines, EPN Users ``will'' be relieved of their obligation to 
process Messages through the EPN Service until the beginning of the 
next Business Day after the EPN system has been recovered. FICC is 
proposing to amend this provision to state that EPN Users ``may'' be 
relieved of their obligation to process Messages through the EPN 
Service until ``later in the Business Day or'' the beginning of the 
next Business Day after the EPN system has been recovered.
    FICC is proposing this change because the nature of the EPN system 
disruption and MBSD's ability to promptly fix such disruption 
determines whether the cut-off time would be extended to later in the 
Business Day or the next Business Day. In the event that FICC has the 
ability to promptly fix the EPN system disruption, EPN Users may be 
required to process their Messages in accordance with the applicable 
timeframes for the remainder of the Business Day. However, if FICC 
cannot promptly fix the EPN system disruption, MBSD would relieve EPN 
Users of their obligation to process Messages through the EPN Service 
until the beginning of the next Business Day. In all cases, FICC 
coordinates with EPN Users and, to the extent necessary, SIFMA to 
communicate whether an extension of the cut-off time is necessary. 
Though EPN system disruptions are rare, the proposed change is 
consistent with MBSD's existing practice of handling system disruptions 
that impact the EPN Service.
    Section 5 (EPN Users Bound by EPN Rules, EPN Procedures and 
Applicable Laws) states, in part, that the use of FICC's facilities by 
an EPN User shall constitute such EPN User's agreement with FICC and 
with all other EPN Users to be bound by the provisions of, and by any 
action taken or order issued by FICC pursuant to the EPN Rules and any 
amendment thereto, and to such EPN Procedures that FICC from time to 
time may adopt. FICC is proposing to amend the title of this section 
and the paragraph in this section to delete all references to EPN 
Procedures.
    Section 6 (EPN Rules and EPN Procedures Incorporated in EPN User 
Messages) states that the EPN Rules and the EPN Procedures adopted from 
time to time by FICC shall be deemed incorporated in each Message that 
occurs through the EPN Service. It also states that if the terms 
contained in any other agreement between EPN Users are inconsistent 
with the provisions of the EPN Rules or the EPN Procedures, the EPN 
Rules and the EPN Procedures shall be controlling. FICC is proposing to 
amend the title of this section and the paragraph in this section to 
delete all references to EPN Procedures.
ii. Proposed Changes to EPN Rule 3--When the Corporation Declines To 
Act for an EPN User
    Section 1 (Ceasing to Act for an EPN User) in EPN Rule 3 states, in 
part, that FICC may at any time cease to act for an EPN User if the EPN 
User has (i) failed to perform its obligations to FICC or other EPN 
Users under the EPN Rules or the EPN Procedures or (ii) materially 
violated any of the EPN Rules, EPN Procedures or any agreement with 
FICC. FICC is proposing to amend this section to delete all references 
to the EPN Procedures.
iii. Proposed Changes to EPN Rule 4--Admission to Premises of 
Corporation; Powers of Attorney
    EPN Rule 4 states, in part, that no person shall be permitted to 
enter FICC's premises as the representative of any EPN User unless 
``he'' has first been approved by FICC. FICC is proposing to delete the 
reference to ``he'' and replace it with ``such person'' because FICC 
believes that it would be more appropriate to use gender neutral 
terminology.

c. Article V--Miscellaneous

i. Proposed Changes to EPN Rule 1--Action by the Corporation
    EPN Rule 1 states that except where action by the Board, or any 
committee of the Board, is specifically required by the By-Laws or the 
EPN Rules, FICC may act by its President, any Managing Director or any 
Vice President or by such person as may be designated from time to time 
by the Board. FICC is proposing to amend this sentence to delete the 
reference to Vice President and replace it with Executive Director. 
FICC is proposing this change because FICC no longer utilizes the Vice 
President title. This category of officers is currently referred to as 
Executive Directors.
ii. Proposed Changes to EPN Rule 3--Fines and Other Sanctions
    EPN Rule 3 states that FICC may impose a fine on an EPN User for a 
violation of the EPN Rules or EPN Procedures. FICC is proposing to 
amend this paragraph to delete the reference to EPN Procedures.
iii. Proposed Changes to EPN Rule 4--Communications
    Section 1 (Communications) states, in part, that each EPN User 
maintaining an Account shall be required to maintain such data 
processing and communications equipment as FICC may specify in the EPN 
Procedures. FICC is proposing to delete the reference to EPN Procedures 
and amend this sentence to state that each EPN User maintaining an 
Account shall be required to maintain such data processing and 
communications equipment as FICC may specify from time to time. The 
proposed change is consistent with FICC's existing practice of 
providing data processing and communications equipment requirements to 
all approved applicants during the membership onboarding process. In 
the event that FICC changes or updates its data processing and 
communications equipment requirements, FICC partners with applicants 
and EPN Users to help ensure that their equipment is adequate and that 
such EPN Users are operationally ready. EPN Users are made aware of all 
changes or updates to FICC's data processing and communications 
equipment requirements because FICC communicates such changes through 
various forms of communication including but not limited to important 
notices, electronic mail and phone.
iv. Proposed Changes to EPN Rule 7--Hearings
    Section 1 (Requests for a Hearing) states, in part, that if an 
Interested Person's written statement contests FICC's determination 
that such Interested Person has violated an EPN Rule or EPN Procedure, 
the statement must specifically admit or deny each violation alleged 
and detail the reasons why the EPN Rules or EPN Procedures alleged to 
have been violated are being contested. FICC is proposing to amend this 
sentence to delete all references to the EPN Procedures.
v. Proposed Changes to EPN Rule 11--EPN Procedures
    FICC is proposing to delete this rule its entirety because FICC 
does not maintain EPN Procedures. EPN Rule 11 of Article V empowers 
FICC to adopt EPN Procedures as FICC ``deems necessary or desirable.'' 
\15\ It appears that when FICC instituted the EPN Service and the 
related EPN Rules, EPN Procedures were not adopted at that time.\16\ 
Since FICC does not currently maintain EPN Procedures, FICC has decided 
to conform the EPN Rules to its practices by deleting this Rule, the 
defined term from EPN Rule 1 of Article

[[Page 40614]]

I (as stated above), and related references throughout the EPN Rules 
because this inchoate power is itself not necessary. FICC would reserve 
this rule for future use and this rule would be entitled ``Reserved for 
Future Use.''
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    \15\ See supra note 3.
    \16\ See supra note 13.
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vi. Proposed Changes to EPN Rule 12--Waivers, Etc.
    EPN Rule 12 states, in part, that the time fixed by the EPN Rules, 
the EPN Procedures or any regulations issued by FICC for the doing of 
any act may be extended, waived or suspended by the Board or by any 
officer of FICC having a rank of Vice President or higher whenever such 
extension, waiver or suspension is necessary or expedient. FICC is 
proposing to amend this sentence to delete all references to EPN 
Procedures and delete all references to regulations issued by FICC. 
FICC is also proposing to delete the reference to ``Vice President'' 
and replace it with ``Executive Director'' because FICC no longer 
utilizes the Vice President title. This category of officers is 
currently referred to as Executive Directors.
vii. Proposed Changes to EPN Rule 17--Forms
    EPN Rule 17 states, in part, that any information required to be 
delivered to FICC by use of any such forms may be delivered by the use 
of any media, as shall be prescribed in the EPN Procedures or by FICC 
from time to time. FICC is proposing to delete the reference to EPN 
Procedures. In the event that FICC requires that a particular form 
should be delivered by use of any media, it is FICC's existing practice 
to provide this information directly to the affected EPN User. To the 
extent that such requirement is applicable to a group or category of 
EPN Users, such EPN Users are made aware of FICC's requirements because 
FICC announces such information through important notices, available at 
http://www.dtcc.com/legal/important-notices.

(3) Proposed Changes To Provide Enhanced Transparency to the EPN Rules

    FICC is proposing to amend the EPN Rules to provide transparency to 
various provisions in the EPN Rules. The proposed changes would help 
ensure that the EPN Rules are clear and accurate. The proposed changes 
reflect MBSD's existing practices and FICC believes that these changes 
would help EPN Users better understand their rights and obligations 
under the EPN Rules. The proposed changes are described in detail 
below.

a. Article I--Definitions and General Provisions

Proposed Changes to EPN Rule 1--Definitions
    FICC is proposing to amend the term ``Message'' to delete the 
reference to EPN Procedures. FICC would define this term as all 
electronic messages sent and received by an EPN User through the EPN 
Service.

b. Article II--Messages Processed by the Corporation

i. Proposed Changes to EPN Rule 1--Accounts
    Section 2 (Limitations) states that FICC may specify in the EPN 
Procedures that certain Messages between EPN Users are not eligible for 
the EPN Service. FICC is proposing to delete the reference to EPN 
Procedures and amend this section to state that certain Messages may be 
ineligible if FICC determines that such Messages are not submitted in a 
manner that is consistent with the communication links, formats, 
timeframes, and deadlines established by FICC.
    Currently, an EPN User is informed of the requisite communication 
links, formats, timeframes, and deadlines when such EPN User's 
application has been approved by MBSD. This information is communicated 
to all approved applicants during the membership onboarding process. 
The communication links and formats are also available in MBSD's 
implementation guidelines at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation. The timeframes and deadlines 
are available at http://www.dtcc.com/~/media/Files/Downloads/Clearing-
Services/FICC/MBSD/MBSD-Clearing-Schedules-and-Timeframes.pdf.
ii. Proposed Changes to EPN Rule 2--Reports
    Section 1 (Availability of Reports) states that the Message Detail 
Report and the Message Summary Report are available at a time specified 
in the EPN Procedures. FICC is proposing to delete the reference to EPN 
Procedures and amend this section to state that these reports would be 
available at a time specified in the time schedule posted on FICC's 
website. This proposed change refers to the timeframes available at 
http://www.dtcc.com/~/media/Files/Downloads/Clearing-Services/FICC/
MBSD/MBSD-Clearing-Schedules-and-Timeframes.pdf.
    Section 2 (Message Detail Report) states that the Message Detail 
Report shall list the contents of each Message as described in the EPN 
Procedures. FICC is proposing to delete the reference to EPN Procedures 
and amend this section to state that for each Eligible Security, the 
Message Detail Report would include, but would not be limited to, the 
pool number, original face value, current face value, maturity date, 
pool factor, CUSIP Number, issue date, principal and interest, and 
total net money. In connection with this change, FICC is proposing to 
amend Article I, EPN Rule 1 (Definitions) to include a defined term for 
``CUSIP Number.'' This term would be defined as the Committee on 
Uniform Securities Identification Procedures identifying number for an 
EPN Eligible Security. The proposed change to this section would be 
consistent with the information that is currently included in the 
Message Detail Report.
    Section 3 (Message Summary Report) states that the Message Summary 
Report shall list the contents of each Message as described in the EPN 
Procedures. FICC is proposing to delete the reference to EPN Procedures 
and amend this section to state that for each Eligible Security, the 
Message Summary Report would include, but would not be limited to, the 
total original face value, total net money, CUSIP Number, and summary 
of the number and type of Messages. The proposed change to this section 
would be consistent with the information that is currently included in 
the Message Summary Report.
    Section 5 (Good Delivery; Time Stamps) states that each EPN Message 
shall include one or more time stamps, one of which will include a good 
delivery time stamp as described in the EPN Procedures. FICC is 
proposing to delete the reference to ``EPN'' in the term ``EPN 
Message'' because ``EPN Message'' is not a defined term, however, 
``Message'' is a defined term. FICC is also proposing to delete the 
reference to EPN Procedures. FICC is also proposing to amend this 
section to state that the good delivery time stamp would be referred to 
as ``T2'' and that the application of this time stamp would determine 
good delivery among EPN Users pursuant to the SIFMA Guidelines. The 
proposed change would also state that the remainder of the time stamps 
would be for the EPN Service's operational, processing, and reporting 
purposes.\17\
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    \17\ Each Message reflects additional time stamps (e.g., T1, T3, 
T4, and T5) that are solely for FICC's operational, processing and 
reporting purposes. T1 represents the time when the Message is 
received by the EPN Service for processing; T3 represents the time 
when the EPN Service's Message Processor sends the Message to the 
Outbound Table; T4 represents the time when the Message Processor 
archives the Message; and T5 represents the time when the EPN 
Service's Output Formatter writes the Message to the Outbound Table. 
The Message Processor, Outbound Table and the Output Formatter are 
operational components of the EPN Service.

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[[Page 40615]]

    In accordance with the SIFMA Guidelines, pool sellers use the EPN 
Service to transmit pool information in real-time to their pool buyer 
counterparties. Two Business Days prior to the established settlement 
date of to-be-announced settlement obligations (known as ``48-Hour 
Day''), pool sellers that have an obligation to deliver pools to pool 
buyers must submit pool information that such pool sellers intend to 
allocate in satisfaction of their settlement obligation. This 
notification must occur by 3:00 p.m. on 48-Hour Day.\18\ The 3:00 p.m. 
cut-off time establishes that good delivery has occurred for purposes 
of the established settlement date--meaning that, if a pool seller 
submits its pool information in a Message by the 3:00 p.m. cut-off time 
on 48-Hour Day, then the pool buyer is obligated to accept the mortgage 
pools on the settlement date. In the event that the pool seller's 
notification does not meet the 3:00 p.m. deadline, the pool buyer will 
determine whether it is willing to accept the pools subsequent to the 
settlement date, and either the pool seller or the pool buyer will 
finance the mortgage pools until the delivery date. The delivery of the 
mortgage pools and any financing arrangement occur outside of the EPN 
Service.
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    \18\ See MBSD's timeframes, available at http://www.dtcc.com/~/
media/Files/Downloads/Clearing-Services/FICC/MBSD/MBSD-Clearing-
Schedules-and-Timeframes.pdf; and see the SIFMA Guidelines, Chapter 
7, supra note 9.
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    Because the timing of each Message is important, the EPN system 
applies time stamps to each Message that is processed through the EPN 
Service. The time stamp designated as T2 establishes whether the pool 
seller has met good delivery--meaning, the 3:00 p.m. cut-off time on 
48-Hour Day.\19\
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    \19\ In the event that a pool seller fails to submit its pool 
information, such pool seller's obligation to submit the pool 
information remains ongoing until the pool information is submitted.
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    In the event that the pool seller decides to substitute a mortgage 
pool for which pool information has already been provided, the pool 
seller must submit a cancel and correct Message by 12:15 p.m. on any 
Business Day prior to the delivery of the mortgage pool.\20\ Upon 
receipt of the pool seller's Message, the EPN system transmits the 
Message to the pool buyer. The T2 time stamp on the Message received by 
the pool buyer establishes whether good delivery has occurred for 
purposes of the pool seller's pool substitution. In the event that the 
T2 time stamp on the pool buyer's Message is after 12:15 p.m., FICC is 
responsible for financing the mortgage pools associated with the 
Message until the delivery date so long as the T2 time stamp on the 
pool seller's Message reflects a time that is at or before 12:15 p.m. 
As set forth in subsection (4) below, FICC is proposing to establish 
one good delivery T2 time stamp that reflects the same processing time 
on the pool seller's Message and the pool buyer's Message, 
respectively. This T2 time stamp would determine whether the pool 
seller's cancel and correct Message has met the good delivery 
requirement.
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    \20\ Supra note 18.
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c. Article III--EPN Users

Proposed Changes to EPN Rule 5--Use of EPN Service
    EPN Rule 5 states, in part, that all EPN Users will use the EPN 
Service for EPN Eligible Securities in a manner set forth in the EPN 
Procedures and that this shall be accomplished by providing (for each 
Message that an EPN User sends or receives) the pricing and other 
descriptive information, in the manner, and by the cut-off times, 
specified in the EPN Procedures. FICC is proposing to delete the 
references to EPN Procedures and amend this rule to state that the EPN 
User will use the EPN Service in a manner set forth in the EPN Rules 
and that this shall be accomplished by providing (for each Message that 
an EPN User sends or receives) the pricing and other descriptive 
information, in the manner, and by the times, specified on FICC's 
website. This information is communicated to all approved applicants 
during the membership onboarding process. The information that an EPN 
User is required to include in a Message is available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.aspx, and the timeframes are available at http://
www.dtcc.com/~/media/Files/Downloads/Clearing-Services/FICC/MBSD/MBSD-
Clearing-Schedules-and-Timeframes.pdf.

(4) Proposed Change to the EPN System's Processing of the Good Delivery 
T2 Time Stamp for Pool Substitutions

    As described above in subsection (3)b.ii., if a pool seller decides 
to substitute a mortgage pool for which pool information has already 
been provided, the pool seller must submit a cancel and correct Message 
by 12:15 p.m. on any Business Day prior to the delivery of the mortgage 
pool. Upon receipt of the pool seller's Message, the EPN system applies 
a T2 time stamp to the pool seller's Message to reflect the time that 
the EPN system received the pool seller's Message. The EPN system also 
applies a T2 time stamp to the pool buyer's Message to reflect the time 
that the pool buyer received the pool seller's Message. The T2 time 
stamp on the pool buyer's Message establishes whether good delivery has 
occurred for purposes of the pool seller's pool substitution. In the 
event that the T2 time stamp on the pool buyer's Message reflects a 
time that is after 12:15 p.m., FICC is responsible for financing the 
mortgage pools that are associated with the Message until the next 
Business Day.\21\
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    \21\ To date, all Messages have met the established good 
delivery requirements, and as a result, FICC has not had to finance 
any mortgage pools.
---------------------------------------------------------------------------

    FICC is proposing to establish one good delivery T2 time stamp that 
reflects the same processing time on the pool seller's Message and the 
pool buyer's Message, respectively. This time stamp would determine 
whether the 12:15 p.m. cut-off time has been met for purposes of 
establishing good delivery of the pool buyer's pool substitution. As a 
result of this change, in the event that the T2 time stamp reflects a 
time that does not meet the 12:15 p.m. cut-off time, the financing of 
the mortgage pools, if any, would be the responsibility of the 
counterparties to the Message as determined by such parties in 
accordance with the SIFMA Guidelines. FICC is proposing this change 
because it would be consistent with the SIFMA Guidelines and FICC 
believes that the parties to the Message are best positioned to ensure 
that the Message meets the good delivery requirements.
    The proposed change would be consistent with FICC's proposal to 
amend Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of 
Article II (Messages Processed by the Corporation) (as referenced above 
in subsection (3)b.ii.) to state that the good delivery time stamp 
would be referred to as ``T2'' and the application of this time stamp 
would determine good delivery among EPN Users pursuant to the SIFMA 
Guidelines.
    The proposed change would not affect FICC's guarantee and novation 
of transactions submitted by Clearing Members through MBSD's Clearing 
System.

(5) Implementation of the Proposed Rule Changes

    The proposed changes to (i) correct the EPN Rules (as described 
above in

[[Page 40616]]

subsection (2)) and (ii) provide transparency to the EPN Rules (as 
described above in subsection (3)) would become operative on the date 
of the Commission's approval of this proposed rule change.
    The proposed change to the EPN system's processing of the good 
delivery T2 time stamp for pool substitutions (as described above in 
subsection (4)) would become operative within 45 Business Days after 
the date of the Commission's approval of this proposed rule change. 
FICC would add a legend to Article II (Messages Processed by the 
Corporation) that identifies the implementation date of the proposed 
change to Section 5 of EPN Rule 2.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Securities Exchange Act of 1934 
(``Act'') requires, in part, that the EPN Rules be designed to promote 
the prompt and accurate clearance and settlement of securities 
transactions.\22\
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed changes to (i) correct the EPN Rules (as described 
above in subsection (2) of Item II.(A)1) and (ii) provide transparency 
to the EPN Rules (as described above in subsection (3) of Item II (A)1) 
would help to ensure that the EPN Rules are accurate and clear to EPN 
Users. When EPN Users better understand their rights and obligations 
regarding the EPN Service, such EPN Users are more likely to act in 
accordance with the EPN Rules, which FICC believes would promote the 
prompt and accurate clearance and settlement of securities 
transactions. As such, FICC believes that the proposed changes to 
correct and provide transparency to the EPN Rules would be consistent 
with Section 17A(b)(3)(F) of the Act.\23\
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    \23\ Id.
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    The proposed change to established one good delivery T2 time stamp 
(as described above in subsection (4) of Item II (A)1) would be 
consistent with the SIFMA Guidelines and would further encourage EPN 
Users to adhere to the 12:15 p.m. deadline for substitutions. Because 
the proposed change would be consistent with the SIFMA Guidelines, 
which reflect industry best practices, FICC believes that the proposed 
change would help the seamless processing of transactions through the 
EPN Service. As a result, FICC believes the proposed change further 
promotes the prompt and accurate clearance and settlement of securities 
transactions. As such, FICC believes that the proposed change would be 
consistent with Section 17A(b)(3)(F) of the Act.\24\
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    \24\ Id.
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    Rule 17Ad-22(e)(23)(i) under the Act requires, in part, that FICC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for publicly disclosing all 
relevant rules and material procedures.\25\ As described above, the 
proposed rule changes to (i) correct the EPN Rules (as described above 
in subsection (2) of Item II (A)1), (ii) provide transparency to the 
EPN Rules (as described above in subsection (3) Item II (A)1) and (iii) 
amend the EPN system's processing of T2 time stamps for pool 
substitutions would better disclose all relevant and material aspects 
of the EPN Service. Therefore, FICC believes the proposed changes to 
correct and provide transparency to the EPN Rules are consistent with 
Rule 17Ad-22(e)(23)(i).\26\
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    \25\ 17 CFR 240.17Ad-22(e)(23)(i).
    \26\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe the proposed rule changes to (i) correct the 
EPN Rules (as described above in subsection (2) of Item II(A)1) and 
(ii) provide transparency to the EPN Rules (as described above in 
subsection (3) of Item II(A)1) would impact competition. The proposed 
rule changes would help to ensure that the EPN Rules remain clear and 
accurate. In addition, the changes would facilitate EPN Users' 
understanding of the EPN Rules and their obligations thereunder. These 
changes would apply equally to all EPN Users and would not affect 
FICC's operations or the rights and obligations of EPN membership. As 
such, FICC believes the proposed rule changes to correct and provide 
transparency to the EPN Rules would not have any impact on competition.
    FICC believes that the proposed change to establish one good 
delivery T2 time stamp (as described above in subsection (4) of Item 
II(A)1) could have an impact on competition among the parties to the 
Message because either the pool seller or the pool buyer (as determined 
by the parties in accordance with the SIFMA Guidelines) would be 
responsible for financing the substituted mortgage pools associated 
with a Message that does not meet the good delivery requirements. FICC 
does not believe that the burden on competition would be significant 
because it would similarly affect both counterparties to a cancel and 
correct Message that does not meet the good delivery requirements in 
accordance with the SIFMA Guidelines.
    FICC believes that any burden on competition that is created by the 
proposed change would be necessary and appropriate in furtherance of 
the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\27\ FICC believes that the proposed change would be necessary in 
furtherance of the Act because it would be consistent with the SIFMA 
Guidelines, which reflect best practices. The SIFMA Guidelines require 
either the pool seller or the pool buyer to take responsibility of the 
mortgage pools in the event that a cancel and correct Message does not 
meet good delivery requirements. FICC believes the proposed change 
would be appropriate in furtherance of the Act because EPN Users are 
parties to each Message, aware of the good delivery requirements and 
best positioned to ensure that cancel and correct Messages meet the 
good delivery requirements. As a result, FICC believes any burden on 
competition that is created by the proposed rule change would be 
necessary and appropriate in furtherance of the purposes of the Act, as 
permitted by Section 17A(b)(3)(I) of the Act.\28\
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    \27\ 15 U.S.C. 78q-1(b)(3)(I).
    \28\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to 
this proposal. 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 40617]]

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 [email protected]. Please include 
File Number SR-FICC-2018-007 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-2018-007. 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 website (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 website 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 website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2018-007 and should be submitted on 
or before September 5, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17489 Filed 8-14-18; 8:45 am]
BILLING CODE 8011-01-P