Document ID: SEC-2018-1926-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2018-12-14T05:00Z

[Federal Register Volume 83, Number 240 (Friday, December 14, 2018)]
[Notices]
[Pages 64415-64417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27079]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84769; File No. SR-FICC-2018-012]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Remove Certain Fees From the Mortgage-Backed Securities Division 
Clearing Rules and Electronic Pool Notification Rules

December 10, 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 November 26, 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. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ 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 consists of modifications to the FICC's 
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules 
(``Clearing Rules'') and the MBSD electronic pool notification 
(``EPN'') Rules (``EPN Rules,'' and together with the Clearing Rules, 
``Rules'') to remove certain fees, as described below.\5\
---------------------------------------------------------------------------

    \5\ Available at http://www.dtcc.com/legal/rules-and-procedures. 
Capitalized terms used herein and not otherwise defined shall have 
the meaning assigned to such terms in the Rules.
---------------------------------------------------------------------------

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 recently completed a strategic review of its revenue and 
pricing strategy. The goal of the review was to enhance pricing for the 
Clearing Members and EPN Users (collectively referred to herein as 
``participants'') of MBSD and participants of FICC's Government 
Securities Division (``GSD'').\6\ This effort was intended to align 
fees for services with the cost of providing those services, reduce the 
complexity of fee structures, and increase the overall transparency of 
the fees charged for services.
---------------------------------------------------------------------------

    \6\ Earlier this year, FICC implemented changes to the fee 
structure of GSD in connection with this initiative. See Securities 
Exchange Act Release No. 83401 (June 8, 2018), 83 FR 27812 (June 14, 
2018) (SR-FICC-2018-003). FICC's affiliates, The Depository Trust 
Company and National Securities Clearing Corporation, are also 
proposing changes to their respective fees.
---------------------------------------------------------------------------

    As a result of this review, FICC is proposing to revise the Rules 
to remove the following fees: (1) MBSD's Surcharge for Submission 
Method (``Surcharge''), which is a percent surcharge on post discount 
trade recording fees as recorded on a Clearing Member's monthly bill 
that is charged to Clearing Members that submit trade data either on a 
single batch or multi-batch method; (2) MBSD's account maintenance fee 
($50 per month for each trade assignment account); and (3) fees for 
late payments of EPN bills.
    As described further below, FICC has determined that the Surcharge 
and the fees for late payment of EPN bills are no longer necessary to 
encourage alternatives to batch processing or prompt payment of bills, 
respectively. As also described below, FICC is proposing to remove 
MBSD's account maintenance fee for trade assignment accounts does not 
offer trade assignment accounts.
    Each of these proposed changes is described below.
(i) Surcharge for Submission Method
    FICC is proposing to remove the Surcharge from the Clearing Rules' 
Schedule of Charges for the Broker Account Group (``Broker Schedule'') 
and the Schedule of Charges for the Dealer Account Group (``Dealer 
Schedule'').\7\
---------------------------------------------------------------------------

    \7\ Supra note 5.
---------------------------------------------------------------------------

    In 2006, FICC implemented the Surcharge to be imposed on Clearing 
Members that are either single batch submitters or multi-batch 
submitters of transaction data.\8\ The surcharge is (1) fifty percent 
(with a minimum of $500) on the post discount trade recording fees, as 
recorded on the monthly bill of single batch submitters, and (2) twenty 
percent (with a minimum of $500) on the post discount trade recording 
fees, as recorded on the monthly bill of multi-batch submitters.\9\ The 
Surcharge was introduced to encourage Clearing Members to submit trades 
using the interactive messaging submission method through FICC's Real-
Time Trade Matching (``RTTM'') Web service, encourage submission of 
transaction data on a timely basis, and cover the costs of batch 
processing.\10\ The rationale for encouraging the use of interactive 
messaging through RTTM Web included mitigating (1) the risk associated 
with the longer time to complete trade comparison and confirmation in 
batch processing; and

[[Page 64416]]

(2) the operational risk introduced when the parties to a trade submit 
trade data through different submission methods.\11\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 53061 (January 5, 
2006), 71 FR 2078 (January 12, 2006) (SR-FICC-2005-20).
    \9\ See Broker Schedule and Dealer Schedule, supra note 5.
    \10\ Where Clearing Members previously submitted trades to FICC 
either once or multiple times during the day in batches (referred to 
as ``batch submission''), interactive messaging through RTTM Web 
involves the submission of trades to FICC on a real-time basis and 
allows Clearing Members to, for example, receive trade status 
messages and cancel or modify trades.
    \11\ See supra note 8.
---------------------------------------------------------------------------

    Since the introduction of the Surcharge, the use of the interactive 
trade submission method through RTTM Web has expanded. As of May 2005, 
thirty-five percent of Clearing Members used interactive messaging 
through RTTM Web, representing approximately eighty percent of total 
par and seventy-four percent of total sides of transactions 
processed.\12\ As of June 2018, all Clearing Members were using 
interactive messaging through RTTM Web for transaction data submission 
and, while some Clearing Members submit certain files by batch method 
from time to time, approximately ninety-seven percent of MBSD's total 
par and total sides of transactions processed were submitted using 
interactive messaging through RTTM Web. Given that all Clearing Members 
have now adopted the technology necessary to submit transaction data 
using the interactive messaging submission method through RTTM Web, 
FICC does not anticipate that Clearing Members will revert to using 
solely a batch submission method.
---------------------------------------------------------------------------

    \12\ Id. at FN 3.
---------------------------------------------------------------------------

    Therefore, FICC believes the Surcharge is no longer necessary and 
is proposing to remove it from the Clearing Rules. In order to 
implement this proposed change, FICC would remove the Surcharge from 
(1) MBSD Clearing Rules, Brokers Schedule, ``I. Fees,'' and (2) MBSD 
Clearing Rules, Dealers Schedule, ``I. Fees.''
(ii) Account Maintenance Fee for Trade Assignment Accounts \13\
---------------------------------------------------------------------------

    \13\ Per email instruction from FICC's legal staff on December 
7, 2018, Commission staff revised this subsection to correct a 
typographical error, changing the number of this subsection from 
``(i)'' to ``(ii).''
---------------------------------------------------------------------------

    FICC is proposing to remove the account maintenance fee for ``Trade 
Assignment Accounts'' from the Dealer Schedule.
    While the Dealer Schedule includes an account maintenance fee for 
trade assignment accounts, FICC does not offer trade assignment 
accounts, and has not been able to identify any records relating to the 
establishment, maintenance, or termination of this service. Therefore, 
the proposed change to remove the related account maintenance fee would 
merely update the Dealer Schedule to reflect current services available 
to Clearing Members.
    In order to implement this proposed change, FICC would remove the 
``Trade Assignment Account'' fee from MBSD Clearing Rules, Dealer 
Schedule, ``I. Fees, Account Maintenance.''
(iii) Fees for Late Payment of EPN Bills \14\
---------------------------------------------------------------------------

    \14\ Per email instruction from FICC's legal staff on December 
7, 2018, Commission staff revised this subsection to correct a 
typographical error, changing the number of this subsection from 
``(ii)'' to ``(iii).''
---------------------------------------------------------------------------

    FICC is proposing to remove the ``Additional Fees for Late Payment 
of EPN Bills'' from the EPN Schedule of Fees in the EPN Rules.
    In 1998, FICC implemented a schedule of fees for late payment of 
financial obligations to FICC in order to motivate participants to pay 
their obligations to FICC before the applicable deadlines and 
compensate MBSD for the costs associated with monitoring such late 
payments.\15\ When these fees were implemented, they were added to the 
Broker Schedule and Dealer Schedule in the Clearing Rules, and to the 
EPN Schedule of Charges in the EPN Rules. Within the EPN Rules, these 
fees range from $50 to $500, and are scaled based on whether the late 
payment is a first, second, third, or fourth occurrence.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 39849 (April 10, 
1998), 63 FR 19546 (April 20, 1998) (SR-MBSCC-97-09).
---------------------------------------------------------------------------

    In 2004, FICC revised the Broker Schedule and the Dealer Schedule 
of the Clearing Rules to characterize these fees as fines.\16\ While 
late payment of financial obligations under the Clearing Rules could 
represent late payment of margin charges, which create risk to FICC, 
late payments of EPN bills do not present FICC with the same risk. 
Therefore, similar changes were not made to the EPN Rules in 2004 and 
these fees remained unchanged. In connection with its recent review of 
fees, FICC has determined that late payment of EPN bills are rarely 
applied.\17\ In general, EPN users promptly pay their EPN bills. FICC 
has determined that it is no longer necessary to retain this fee 
because, as stated above, such late payments do not present FICC with 
the same risk as late payment of bills under the Clearing Rules. 
Therefore, FICC is proposing to remove this fee from the EPN Rules.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 50965 (January 5, 
2005), 70 FR 2201 (January 12, 2005) (SR-FICC-2004-06).
    \17\ FICC has not charged these fees to any EPN Users for at 
least four years as of the date of this filing.
---------------------------------------------------------------------------

    In order to implement this proposed change, FICC would remove the 
``ADDITIONAL FEES FOR LATE PAYMENT OF EPN BILLS'' from the EPN Rules, 
EPN Schedule of Charges.
Member Outreach
    Beginning in June 2018, FICC has conducted ongoing outreach to 
participants in order to provide them with notice of the proposed 
changes. As of the date of this filing, no written comments relating to 
the proposed changes have been received in response to this outreach. 
The Commission will be notified of any written comments received.
Implementation Timeframe
    FICC would implement this proposal on January 1, 2019. As proposed, 
a legend would be added to the Broker Schedule and the Dealer Schedule 
in the Clearing Rules and to the EPN Schedule of Charges in the EPN 
Rules, as appropriate, stating there are changes that became effective 
upon filing with the Commission but have not yet been implemented. The 
proposed legend also would include the date on which such changes would 
be implemented and the file number of this proposal, and would state 
that, once this proposal is implemented, the legend would automatically 
be removed from each of the Broker Schedule, the Dealer Schedule, and 
the EPN Schedule of Charges.
2. Statutory Basis
    FICC believes the proposed changes are consistent with the Section 
17A(b)(3)(D) of the Act, which requires, in part, that the Rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among participants.\18\ The proposed change to remove the 
Surcharge from the Broker Schedule and the Dealer Schedule would 
provide for the equitable allocation of fees among participants because 
the proposal would apply to all participants, such that no Clearing 
Members would be subject to this fee following the implementation of 
the proposed change. The proposed change to remove the fee for late EPN 
bills from the EPN Schedule of Fees would also provide for the 
equitable allocation of fees among participants because this proposal 
would apply to all participants, such that no EPN Users would be 
subject to this fee following the implementation of the proposed 
change. Further, FICC believes these two proposed changes are 
reasonable because they would eliminate two fees that are no longer 
necessary, for the reasons described above. Therefore, these proposed 
changes are consistent with Section 17A(b)(3)(D).\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(D).
    \19\ Id.

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

[[Page 64417]]

    The proposed change to remove the account maintenance fee for trade 
assignment accounts from the Dealer Schedule would provide for the 
equitable allocation of fees among participants because removing this 
fee, which does not relate to a service provided by FICC, would improve 
the accuracy of the Dealer Schedule for all Clearing Members. FICC 
believes this proposed change is reasonable because, following 
implementation of the proposed change, the Dealer Schedule would only 
include fees that relate to existing services provided by FICC. 
Therefore, this proposed change is also consistent with Section 
17A(b)(3)(D).\20\
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(21) under the Act requires, in part, that FICC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to be efficient and effective in meeting 
the requirements of its participants and the markets it serves.\21\ The 
proposed change to eliminate the Surcharge would eliminate a fee that 
is no longer necessary to discourage batch submission of trades, for 
the reasons described above. The proposed change to eliminate the late 
payment for EPN bills would also eliminate a fee that is no longer 
necessary to discourage late payment of such bills, for the reasons 
described above. Finally, the proposed change to remove the account 
maintenance fee for trade assignment accounts from the Dealer Schedule 
would remove a fee from the Dealer Schedule that does not relate to a 
service offered by FICC. Each of these proposed changes would simplify 
and update the Rules, thereby improving the clarity of the Rules and 
enhancing their transparency to participants. By removing fees that are 
no longer necessary or do not relate to FICC's services, and improving 
the clarity of the Rules, the proposed changes would allow FICC to more 
efficiently and effectively meet the requirements of its participants. 
Therefore, FICC believes this proposed rule change is also consistent 
with Rule 17Ad-22(e)(21).\22\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17Ad-22(e)(21).
    \22\ Id.
---------------------------------------------------------------------------

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

    FICC does not believe that the proposed rule changes would have any 
impact, or impose any burden, on competition. The proposed changes 
would eliminate fees that are no longer necessary, for the reasons 
described above, and would remove a fee from the Clearing Rules that 
does not relate to a service provided by FICC. Each of the proposed 
changes would apply equally to all participants such that no 
participants would be subject to the eliminated fees following the 
implementation of the proposed changes, and the Clearing Rules would no 
longer identify a fee that does not relate to an FICC service. 
Therefore, FICC does not believe these proposed changes would not have 
any impact on competition.

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

    FICC has not solicited or received any written comments relating to 
this proposal. FICC will notify the Commission of any written comments 
that it receives.

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) of the Act \23\ and paragraph (f) of Rule 19b-4 
thereunder.\24\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-comments@sec.gov. Please include 
File Number SR-FICC-2018-012 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-2018-012. 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-2018-012 and should be submitted on 
or before January 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27079 Filed 12-13-18; 8:45 am]
 BILLING CODE 8011-01-P