Document ID: SEC-2018-1167-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2018-07-26T04:00Z

[Federal Register Volume 83, Number 144 (Thursday, July 26, 2018)]
[Notices]
[Pages 35513-35516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15943]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83682; File No. SR-FICC-2018-005]

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

July 20, 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 July 13, 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/~/media/Files/Downloads/legal/
rules/ficc_mbsd_epnrules.pdf.
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    FICC is proposing to correct the EPN Rules by amending several 
references in the section of the EPN Rules entitled ``FICC Mortgage-
Backed Securities Division (``MBSD'') EPN Schedule of Charges.'' 
Specifically, FICC is proposing to replace the references to ``FICC'' 
with ``the Corporation.'' FICC is proposing this change because 
``FICC'' is not a term that is defined in the EPN Rules. In addition, 
FICC is proposing to replace the reference to ``The Depository Trust 
Corporation'' with ``The Depository Trust & Clearing Corporation.'' 
FICC is proposing this change because the reference to ``The Depository 
Trust Corporation'' is an error.
    FICC is also proposing to amend Article III (EPN Users) of the EPN 
Rules to set forth MBSD's existing practices. Specifically, FICC is 
proposing to include an EPN User's ongoing obligation to notify FICC if 
such EPN User no longer complies with the requirements for admission to 
membership in the EPN Rules (i.e., as set forth in Secs. 2 (Approval of 
Applicants) and 3 (Agreements of EPN Users) of EPN Rule 1 (Requirements 
Applicable to EPN Users) of Article III (EPN Users)). In addition, FICC 
is proposing to amend Article III (EPN Users) to define specific 
circumstances where FICC would undertake action to determine the status 
of an EPN User and its continued access to the EPN system. The proposed 
change would also state that FICC may request that an EPN User provide 
written assurances if FICC believes such EPN User may fail to comply 
with the EPN Rules. The proposed changes to Article III (EPN Users) 
would necessitate a new defined term in Article I (Definitions and 
General Provisions) of the EPN 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 is proposing to correct the EPN Rules by amending several 
references in the section of the EPN Rules entitled ``FICC Mortgage-
Backed Securities Division (``MBSD'') EPN Schedule of Charges.'' 
Specifically, FICC is proposing to replace the references to ``FICC'' 
with ``the Corporation.'' FICC is proposing this change because 
``FICC'' is not a term that is defined in the EPN Rules. In addition, 
FICC is proposing to replace the reference to ``The Depository Trust 
Corporation'' with ``The Depository Trust & Clearing Corporation.'' 
FICC is proposing this change because the reference to ``The Depository 
Trust Corporation'' is an error.
    FICC is also proposing to amend Article III (EPN Users) of the EPN 
Rules to set forth MBSD's existing practices. Specifically, FICC is 
proposing to include an EPN User's ongoing obligation to notify FICC if 
such EPN User no longer complies with the requirements for admission to 
membership in the EPN Rules (i.e., as set forth in Secs. 2 (Approval of 
Applicants) and 3 (Agreements of EPN Users) of EPN Rule 1 (Requirements 
Applicable to EPN Users) of Article III (EPN Users)). In addition, FICC 
is proposing to amend Article III (EPN Users) to define specific 
circumstances where FICC would undertake action to determine the status 
of an EPN User and its continued access to the EPN system. The proposed 
change would also state that FICC may request that an EPN User provide 
written assurances if FICC believes such EPN User may fail to comply 
with the EPN Rules. The proposed changes to Article III (EPN Users) 
would necessitate a new defined term in Article I (Definitions and 
General Provisions) of the EPN Rules.
    The proposed changes are described 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.\4\ MBSD's Clearing 
Members are required to be EPN Users; however, one can be an EPN User 
and not a Clearing Member.\5\
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    \4\ See EPN Rules Article III (EPN Users), EPN Rule 1 
(Requirements Applicable to EPN Users), supra note 3.
    \5\ 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/~/media/Files/Downloads/legal/
rules/ficc_mbsd_rules.pdf. 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.

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[[Page 35514]]

2. Proposed Changes To Make Corrections to the EPN Rules

    FICC is proposing to correct several references in the EPN Rules 
because the proposed changes would help to ensure that the EPN Rules 
are clear and accurate. Specifically, FICC is proposing to correct the 
section entitled ``FICC Mortgage-Backed Securities Division (``MBSD'') 
EPN Schedule of Charges'' in order to replace the references to 
``FICC'' with ``the Corporation.'' FICC is proposing this change 
because ``FICC'' is not a term that is defined in the EPN Rules. In 
addition, FICC is also proposing to replace the reference to ``The 
Depository Trust Corporation'' with ``The Depository Trust & Clearing 
Corporation.'' FICC is proposing this change because the reference to 
``The Depository Trust Corporation'' is an error.

3. Proposed Changes To Amend the EPN Rules To Include an EPN User's 
Ongoing Reporting Obligations

    FICC's existing practice is to require EPN Users to report certain 
information to FICC. In addition, if FICC learns of information that 
leads FICC to believe an EPN User is not in compliance with the EPN 
Rules, FICC will assess whether such EPN User is in compliance with the 
EPN Rules and may request that an EPN User provide written assurances 
that such EPN User will not violate the EPN Rules. FICC is proposing to 
amend the EPN Rules to reflect these practices.
    First, FICC is proposing to amend EPN Rule 1 (Requirements 
Applicable to EPN Users) of Article III (EPN Users) to include a 
provision that would be numbered ``Sec. 8. General Continuance 
Standards.'' This section would state that an EPN User shall promptly 
inform FICC, both orally and in writing, if such EPN User no longer 
complies with any of the requirements for admission to membership set 
forth in the EPN Rules (i.e., as set forth in Secs. 2 (Approval of 
Applicants) and 3 (Agreements of EPN Users) of EPN Rule 1 (Requirements 
Applicable to EPN Users) of Article III (EPN Users)). The referenced 
notification must take place within two Business Days from the date on 
which the EPN User first learns of its non-compliance.
    Next, FICC is proposing to amend the EPN Rules to have the new 
``General Continuance Standards'' state that an EPN User shall notify 
FICC within two Business Days of learning of an investigation or 
proceeding to which it is, or is becoming, subject that would cause the 
EPN User to fall out of compliance with any of the requirements for 
membership set forth in the EPN Rules (i.e., as set forth in Secs. 2 
(Approval of Applicants) and 3 (Agreements of EPN Users) of EPN Rule 1 
(Requirements Applicable to EPN Users) of Article III (EPN Users)). 
However, the EPN User would not be required to notify FICC if doing so 
would cause the EPN User to violate an applicable law, rule, or 
regulation.

4. Proposed Changes To Amend the EPN Rules To Define Circumstances 
Under Which FICC May Determine an EPN User's Compliance With the EPN 
Rules

    FICC is also proposing that the new ``General Continuance 
Standards'' state that FICC would undertake action to determine the 
status of an EPN User and its continued access to the EPN system if:
    (a) An EPN User fails to maintain the requirements for admission to 
membership, including but not limited to operational testing and 
related reporting requirements imposed by FICC from time to time;
    (b) an EPN User violates any EPN Rule or other agreement with FICC;
    (c) an EPN User fails to satisfy in a timely manner any obligation 
to FICC;
    (d) there is a Reportable Event (as defined below); or
    (e) FICC otherwise deems it necessary or advisable, in order to 
protect FICC, its other EPN Users, or its creditors or investors, to 
safeguard securities and funds in the custody or control of FICC, or to 
promote the prompt and accurate processing, clearance or settlement of 
securities transactions.
    In connection with clause (d) above, FICC proposes to define a 
reportable event (``Reportable Event'') in EPN Rule 1 (Definitions) of 
Article I (Definitions and General Provisions) as an event that would 
effect a change in control of an EPN User or could have a substantial 
impact on such EPN User's business and/or financial condition, 
including, but not limited to: (i) Material organizational changes 
including mergers, acquisitions, changes in corporate form, name 
changes, changes in the ownership of an EPN User or its affiliates, and 
material changes in management, and (ii) status as a defendant in 
litigation, which could reasonably impact the EPN User's financial 
condition or ability to conduct business. The proposed ``General 
Continuance Standards'' section would also require an EPN User to 
submit written notice to FICC of a Reportable Event at least 90 
calendar days prior to the effective date of such Reportable Event 
unless the EPN User demonstrates that it could not have reasonably done 
so, and provided notice, both orally and in writing, to FICC as soon as 
possible.
    Additionally, FICC is proposing that the proposed ``General 
Continuance Standards'' section state that, if FICC has reason to 
believe that an EPN User may fail to comply with any of the EPN Rules, 
FICC may require the EPN User to provide written assurances. 
Specifically, FICC may require such assurances, within such timeframe, 
in such detail, and pursuant to such manner as FICC shall determine, in 
writing of a credible nature that the EPN User shall not, in fact, 
violate any of the EPN Rules. These assurances could include, but would 
not be limited to, notarized statements, affidavits and/or officers' 
certificates.
    In order to accommodate the proposed ``General Continuance 
Standards'' section as described in this subsection 4 and in subsection 
3 above, FICC is proposing to change the numbering of the existing 
``Confidentiality'' provision in EPN Rule 1 (Requirements Applicable to 
EPN Users) of Article III (EPN Users) from ``Sec. 8'' to ``Sec. 9.''
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that the EPN 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\6\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed change to correct references in the section of the EPN 
Rules entitled ``FICC Mortgage-Backed Securities Division (``MBSD'') 
EPN Schedule of Charges'' (as described above in subsection 2 of Item 
II(A)1) would help to ensure that the EPN Rules are accurate and clear 
to EPN Users. As such, FICC believes that the proposed change would 
allow EPN Users to have a better understanding of the EPN Rules and 
thereby assist in promoting the prompt and accurate clearance and 
settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Act.\7\
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    \7\ Id.
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    The proposed changes to (i) include an EPN User's ongoing 
obligation to notify FICC if such EPN User no longer complies with the 
requirements for admission to membership as set forth in the EPN Rules 
(as described above in subsection 3 of Item II(A)1), (ii) define 
specific circumstances where FICC would undertake action to determine 
the status of an EPN User and its continued access to the EPN system 
(as described above in subsection 4 of Item II(A)1), and (iii) state 
that FICC may request that an EPN User provide

[[Page 35515]]

written assurances if FICC believes such EPN User may fail to comply 
with the EPN Rules (as described above in subsection 4 of Item II(A)1) 
would provide clarity to EPN Users by setting forth in the EPN Rules 
FICC's existing practice. FICC believes this clarity would help to 
ensure that EPN Users are fully aware of their rights and obligations. 
The proposed changes would also help to ensure that FICC is promptly 
made aware in the event that an EPN User's access to the EPN Service 
should be reassessed due to an EPN User's possible violation of the EPN 
Rules. Because the proposed rule changes are designed to help ensure 
that EPN Users remain compliant with the EPN Rules, FICC believes that 
the proposed changes would help FICC protect the EPN Service. As the 
EPN Service is an important aspect of MBSD's clearance and settlement 
services, these proposed changes would promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.\8\
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    \8\ Id.
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    Rule 17Ad-22(e)(18) under the Act requires, in part, that FICC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to monitor compliance with participation 
requirements on an ongoing basis.\9\ As described above, the proposed 
rule changes to amend the EPN Rules to (i) include an EPN User's 
ongoing reporting obligations (as described above in subsection 3 of 
Item II(A)1) and (ii) define circumstances under which FICC may 
determine an EPN User's compliance with the EPN Rules (as described 
above in subsection 4 of Item II(A)1) would help to ensure that FICC is 
promptly made aware in the event that an EPN User's access to the EPN 
Service should be reassessed due to an EPN User's possible violation of 
EPN Rules. Because the proposed changes give FICC the ability to 
monitor an EPN User's compliance with the EPN Rules, FICC believes the 
proposed changes to (i) include an EPN User's ongoing reporting 
obligations and (ii) define circumstances under which FICC may 
determine an EPN User's compliance with the EPN Rules are consistent 
with Rule 17Ad-22(e)(18).\10\
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    \9\ 17 CFR 240.17Ad-22(e)(18).
    \10\ 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.\11\ As described above, the 
proposed rule changes to amend the EPN Rules to (i) make corrections 
(as described above in subsection 2 of Item II(A)1), (ii) include an 
EPN User's ongoing reporting obligations (as described above in 
subsection 3 of Item II(A)1), and (iii) define circumstances under 
which FICC may determine an EPN User's compliance with the EPN Rules 
(as described above in subsection 4 of Item II(A)1) would better 
publicly disclose all relevant and material procedures regarding the 
EPN Service. Therefore, FICC believes the proposed changes to correct 
and codify FICC's existing practices in the EPN Rules are consistent 
with Rule 17Ad-22(e)(23)(i).\12\
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    \11\ 17 CFR 240.17Ad-22(e)(23)(i).
    \12\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed changes to correct 
references in the section of the EPN Rules entitled ``FICC Mortgage-
Backed Securities Division (``MBSD'') EPN Schedule of Charges'' (as 
described above in subsection 2 of Item II(A)1) would impact 
competition because the proposed changes correct errors in the EPN 
Rules and do not affect FICC's operations or the rights and obligations 
of EPN Users.
    FICC does not believe that the proposed changes to (i) include an 
EPN User's ongoing obligation to notify FICC if such EPN User no longer 
complies with the requirements for admission to membership in the EPN 
Rules (as described above in subsection 3 of Item II(A)1), (ii) define 
specific circumstances where FICC would undertake action to determine 
the status of an EPN User and its continued access to the EPN system 
(as described above in subsection 4 of Item II(A)1), and (iii) state 
that FICC may request that an EPN User provide written assurances if 
FICC believes such EPN User may fail to comply with the EPN Rules (as 
described above in subsection 4 of Item II(A)1) would impact 
competition because the proposed changes would codify FICC's existing 
practices in the EPN Rules. The proposed changes would apply equally to 
all EPN Users and would not affect FICC's operations. As a result, FICC 
believes the proposed rule change 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 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 
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-2018-005 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-2018-005. 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

[[Page 35516]]

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-2018-005 and should be 
submitted on or before August 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-15943 Filed 7-25-18; 8:45 am]
BILLING CODE 8011-01-P