Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.

Federal Register: August 7, 2009 (Volume 74, Number 151)

Notices

Page 39723-39725

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr07au09-111

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-60421; File No. SR-FICC-2009-07

Self-Regulatory Organizations; Fixed Income Clearing Corporation;

Notice of Filing and Immediate Effectiveness of Proposed Rule Change To

Modify Haircuts Applied to Eligible Clearing Fund Securities and

Eligible Participant Fund Securities

August 3, 2009.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on July 13, 2009, the Fixed

Income Clearing Corporation (``FICC'') filed with the Securities and

Exchange Commission (``Commission'') the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by FICC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties.

\1\ 15 U.S.C. 78s(b)(1).

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The purpose of the proposed rule change is to modify the haircuts applied to Eligible Clearing Fund Securities and Eligible Participant

   Fund Securities.

2. Self-Regulatory Organization's Statement of the Purpose of, and

   Statutory Basis for, the Proposed Rule Change

   In its filing with the Commission, FICC 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. FICC has prepared summaries, set forth in sections (A),

   (B), and (C) below, of the most significant aspects of these statements.\2\

   \2\ The Commission has modified the text of the summaries prepared by FICC.

   (A) Self-Regulatory Organization's Statement of the Purpose of, and

   Statutory Basis for, the Proposed Rule Change

   Under the Rules of the Government Securities Division (``GSD'') and the Mortgage-Backed Securities Division (``MBSD'') (``Rules''), GSD

   Members and MBSD Participants are required to deposit to the GSD

   Clearing Fund and MBSD Participants Fund, respectively, the amount of each Member's or Participant's required deposit, which is established by FICC in accordance with formulas specified in the Rules (``Required

   Deposit'').

   A Member or Participant may satisfy its Required Deposit with cash, and FICC may permit a portion of the Member's or Participant's deposit to be evidenced by an open account indebtedness secured by Eligible

   Clearing Fund Securities for the GSD and Eligible Participants Fund

   Securities for the MBSD. Eligible Clearing Fund Securities and Eligible

   Participants Fund Securities consist of certain Treasury, agency, and mortgage-backed securities.

   For reasons set forth in a companion rule filing, FICC's affiliate,

   National Securities Clearing Corporation (``NSCC''), has increased haircuts on Clearing Fund collateral.\3\ Given that the haircuts are applied by FICC and NSCC systemically and on a harmonized basis, these changes are also being applied by FICC.

   \3\ Securities Exchange Act Release No. 60368 (July 22, 2009), 74 FR 37275.

   Therefore, FICC proposes to modify the GSD's Schedule of Haircuts for Eligible Clearing Fund Securities and the MBSD's Schedule of

   Haircuts for Eligible Participants Fund Securities to update the correlating range of haircuts applied to the types of Eligible Clearing

   Fund Securities and Eligible Participants Fund Securities.

   Specifically, FICC proposes to increase the haircut on: (i) Interest bearing Treasuries with terms greater than 10 years but less than 15 years from the current 5 percent to 6 percent and (ii) zero coupon obligations of U.S. Treasury and Agency Securities from the current 2 to 10 percent based on term to 5 to 12 percent based on term.

   A complete listing of the haircut schedule, showing modifications, is as follows (deletions are in brackets and additions are italicized):

   GSD Schedule of Haircuts for Eligible Clearing Fund Securities

   Security type

   Remaining maturity

   Haircut

   1. Treasury

      Bills, Notes, Bonds, TIPS... Zero to 1 year.... 2.0% 1 year to 2 years. 2.0% 2 years to 5 years 3.0% 5 years to 10

      4.0% years. 10 years to 15

      5.0% 6.0% years. 15 years or

      6.0% greater.

      Zero Coupon................. Zero to 1 year.... [2.0%] 5.0%

      Page 39724

      1 year to 2 years. [2.0%] 5.0% 2 years to 5 years [4.0%] 5.0% 5 years to 10

      6.0% 12.0% years. 10 years to 15

      7.0% 12.0% years. 15 years or

      9.0% 12.0% greater. 2. Agency

      Notes, Bonds................ Zero to 1 year.... 2.0% 1 year to 2 years. 3.0% 2 years to 5 years 4.0% 5 years to 10

      5.0% years. 10 years to 15

      6.0% years. 15 years or

      7.0% greater.

      Zero Coupon................. Zero to 1 year.... [2.0%] 5.0% 1 year to 2 years. [3.0%] 5.0% 2 years to 5 years 5.0% 5 years to 10

      7.0% 12.0% years. 10 years to 15

      8.0% 12.0% years. 15 years or

      10.0% 12.0% greater. 3. MBS Pass-throughs............ Ginnie Mae........ 6.0%

      Fannie Mae/Freddie 7.0%

      Mac. 4. Self-issued MBS.............. .................. 14% (or 21% if 25% concentration limit is exceeded).

      MBSD Schedule of Haircuts for Eligible Participants Fund Securities

      Security type

      Remaining maturity

      Haircut

   1. Treasury

      Bills, Notes, Bonds, TIPS... Zero to 1 year.... 2.0% 1 year to 2 years. 2.0% 2 years to 5 years 3.0% 5 years to 10

      4.0% years. 10 years to 15

      5.0% 6.0% years. 15 years or

      6.0% greater.

      Zero Coupon................. Zero to 1 year.... [2.0%] 5.0% 1 year to 2 years. [2.0%] 5.0% 2 years to 5 years [4.0%] 5.0% 5 years to 10

      6.0% 12.0% years. 10 years to 15

      7.0% 12.0% years. 15 years or

      9.0% 12.0% greater. 2. Agency

      Notes, Bonds................ Zero to 1 year.... 2.0% 1 year to 2 years. 3.0% 2 years to 5 years 4.0% 5 years to 10

      5.0% years. 10 years to 15

      6.0% years. 15 years or

      7.0% greater.

      Zero Coupon................. Zero to 1 year.... [2.0%] 5.0% 1 year to 2 years. [3.0%] 5.0% 2 years to 5 years 5.0% 5 years to 10

      7.0% 12.0% years. 10 years to 15

      8.0% 12.0% years. 15 years or

      10.0% 12.0% greater. 3. MBS Pass-Throughs............ Ginnie Mae........ 6.0%

      Fannie Mae/Freddie 7.0%

      Mac. 4. Self-issued MBS.............. .................. 14% (or 21% if 25% concentration limit is exceeded).

      These changes will become effective as of August 3, 2009.

      FICC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act \4\ and the rules and regulations thereunder applicable to FICC because the proposed rule change should facilitate the prompt and accurate clearance and settlement of securities transactions by adjusting FICC's haircut levels on Eligible Clearing Fund Securities and Eligible Participant

      Fund Securities and facilitating FICC's ability to ensure adequate collateral levels are maintained to facilitate settlement in the event of a Member or Participant default.

      \4\ 15 U.S.C. 78q-1.

      (B) Self-Regulatory Organization's Statement on Burden on Competition

      FICC does not believe that the proposed rule change will have any impact on or impose any burden on competition.

      Page 39725

      (C) Self-Regulatory Organization's Statement on Comments on the

      Proposed Rule Change Received From Members, Participants, or Others

      No written comments relating to the proposed rule change have been solicited or received. FICC will notify the Commission of any written comments received by FICC.

3. Date of Effectiveness of the Proposed Rule Change and Timing for

   Commission Action

   The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii) of the Act \5\ and Rule 19b-4(f)(4) \6\ thereunder because the proposed rule change effects a change in an existing service of FICC that (i) does not adversely affect the safeguarding of securities or funds in the custody or control of FICC or for which it is responsible and (ii) does not significantly affect the respective rights of the clearing agency or persons using the service. At any time within sixty days of the filing of such rule change, the Commission may summarily abrogate 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.

   \5\ 15 U.S.C. 78s(b)(3)(A)(iii).

   \6\ 17 CFR 240.19b-4(f)(4).

4. 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 e-mail to rule-comments@sec.gov. Please include

   File Number SR-FICC-2009-07 on the subject line.

   Paper Comments

   Send paper comments in triplicate to Elizabeth M. Murphy,

   Secretary, Securities and Exchange Commission, 100 F Street, NE.,

   Washington, DC 20549-1090.

   All submissions should refer to File Number SR-FICC-2009-07. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/ sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street,

   NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filings also will be available for inspection and copying at the principal office of FICC and on FICC's

   Web site at http://www.dtcc.com/legal/rule_filings/FICC/2009.php. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FICC-2009-07 and should be submitted on or before August 28, 2009.

   For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\7\

   \7\ 17 CFR 200.30-3(a)(12).

   Florence E. Harmon,

   Deputy Secretary.

   FR Doc. E9-18977 Filed 8-6-09; 8:45 am

   BILLING CODE 8010-01-P