[Federal Register Volume 85, Number 69 (Thursday, April 9, 2020)]
[Notices]
[Pages 19979-19982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07437]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88557; File No. SR-FICC-2020-002]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend the Government
Securities Division Rulebook Relating to the Legal Entity Identifier
Requirement
April 3, 2020.
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 March 25, 2020, 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 a proposal to amend the FICC
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') \3\
to require: (i) Each applicant to become a Netting Member and CCIT
Member to obtain and provide a ``Legal Entity Identifier'' \4\ to FICC
as part of its membership application, (ii) each Netting Member and
CCIT Member to have a current Legal Entity Identifier on file with FICC
at all times and to indemnify FICC for any losses and Legal Actions \5\
that arise due to the failure of a Netting Member or CCIT Member to do
so, as further described below, and (iii) each Sponsoring Member to
provide FICC with a Legal Entity Identifier for each of their current
Sponsored Members and for each newly added Sponsored Member going
forward and to indemnify FICC for any losses and Legal Actions that
arise due to the failure of a Sponsoring Member to do so, as further
described below.
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\3\ Capitalized terms not defined herein are defined in the GSD
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
\4\ A ``Legal Entity Identifier'' is a 20-character reference
code to uniquely identify legally distinct entities that engage in
financial transactions. The Legal Entity Identifier is based on the
ISO 17442 standard developed by the International Organization for
Standardization and satisfies the standards implemented by the
Global Legal Entity Identifier Foundation. See https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei. FICC is proposing to add a new definition for the term ``Legal
Entity Identifier'' in the GSD Rules, as further discussed below.
\5\ ``Legal Action'' (as defined below and in the proposed rule
change) means and includes any claim, counterclaim, demand, action,
suit, countersuit, arbitration, inquiry, proceeding or investigation
before any federal, state or foreign court or other tribunal, or any
investigative or regulatory agency or self-regulatory organization.
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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
The purpose of the proposed rule change is to amend the GSD Rules
to require: (i) Each applicant to become a Netting Member and CCIT
Member to obtain and provide a Legal Entity Identifier to FICC as part
of its membership application, (ii) each Netting Member and CCIT Member
to have a current Legal Entity Identifier on file with FICC at all
times and to indemnify FICC for any losses and Legal Actions that arise
due to the failure of a Netting Member or CCIT Member to do so, as
further described below, and (iii) each Sponsoring Member to provide
FICC with a Legal Entity Identifier for each of their current Sponsored
Members and for each newly added Sponsored Member going forward and to
indemnify FICC for any losses and Legal Actions that arise due to the
failure of a Sponsoring Member to do so, as further described below.
Background
The Office of Financial Research (``OFR'') of the U.S. Department
of the Treasury has adopted a rule (``OFR Regulation'') establishing a
data collection requirement covering centrally cleared transactions in
the U.S. repurchase agreement (``repo'') market.\6\ This collection
requires daily reporting to the OFR by ``covered reporters,'' which is
defined to include central counterparties meeting certain criteria
(i.e., clearing repurchase agreement transactions), such as FICC.
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\6\ 84 FR 4975 (February 20, 2019) (hereinafter the ``OFR
Release''). The OFR Regulation is codified at 12 CFR part 1610.
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The OFR Regulation requires covered reporters, such as FICC, to
submit the Legal Entity Identifier of each clearing member involved in
a reportable repo transaction. A Legal Entity Identifier is a 20-
character, alpha-numeric code based on the ISO 17442 standard developed
by the International Organization for Standardization.\7\ Each Legal
Entity Identifier contains information about an entity's ownership
structure.\8\
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\7\ See supra note 4.
\8\ See id.
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In the OFR Release, the OFR stated that the submission of Legal
Entity Identifiers by covered reporters would enhance the ability of
the Financial Stability Oversight Council (``Council''),\9\ Council
member
[[Page 19980]]
agencies \10\ and the OFR to identify potential risks to U.S. financial
stability by facilitating an understanding of repo market participants'
exposures, concentrations and network structures.\11\ The OFR stated
that it expects that covered reporters (such as FICC) will take all
feasible steps to require that their platform participants obtain Legal
Entity Identifiers so that covered reporters are in compliance with the
Legal Entity Identifier requirements of the OFR's final rule.\12\
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\9\ The Council was established by the Dodd-Frank Wall Street
Reform and Consumer Protection Act. The Council is charged with
identifying risks to the financial stability of the United States,
among other things. See https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/fsoc.
\10\ The Council member agencies are the Board of Governors of
the Federal Reserve System, Commodity Futures Trading Commission,
Federal Deposit Insurance Corporation, Federal Housing Finance
Agency, National Credit Union Administration, Office of the
Comptroller of the Currency, Securities and Exchange Commission,
Treasury Department and Consumer Financial Protection Bureau. See
https://www.treasury.gov/initiatives/fsoc/about/Pages/FSOC-Member-Agencies.aspx.
\11\ See OFR Release, supra note 6, at 4980.
\12\ Id.
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The implementation timeframe for the OFR Regulation is as follows:
Subject to the third bullet point below, covered reporters
were required to begin reporting all required data elements associated
with specific security trades 180 days after April 22, 2019.\13\
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\13\ 12 CFR 1610.10(e)(1)(i).
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Subject to the bullet immediately below, covered reporters
were required to begin reporting all required data elements associated
with general collateral trades within 240 days after April 22,
2019.\14\
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\14\ 12 CFR 1610.10(e)(1)(ii).
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If a covered reporter is able to effectuate a rulemaking
through the Securities and Exchange Commission requiring each direct
clearing member, counterparty and broker associated with a repurchase
agreement transaction to obtain a Legal Entity Identifier and provide
it to the covered reporter, the covered reporter shall begin reporting
all data elements requiring a Legal Entity Identifier by the later date
of its rulemaking, or 420 days after April 22, 2019.\15\
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\15\ 12 CFR 1610.10(e)(1)(iii).
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Proposed Rule Changes
In order to comply with the Legal Entity Identifier submission
requirement in the OFR Regulation, FICC is proposing to require: (i)
Each applicant to become a Netting Member and CCIT Member to obtain and
provide a Legal Entity Identifier to FICC as part of its membership
application, (ii) each Netting Member and CCIT Member to have a current
Legal Entity Identifier on file with FICC at all times and to indemnify
FICC for any losses and Legal Actions that arise due to the failure of
a Netting Member or CCIT Member to do so, as further described below,
and (iii) each Sponsoring Member to provide FICC with a Legal Entity
Identifier for each of their current Sponsored Members and for each
newly added Sponsored Member going forward and to indemnify FICC for
any losses and Legal Actions that arise due to the failure of a
Sponsoring Member to do so, as further described below.
FICC proposes to add a new defined term, Legal Entity Identifier,
to GSD Rule 1. FICC proposes to use the terminology of the Global Legal
Entity Identifier Foundation for the definition.\16\
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\16\ See supra note 4. The Global Legal Entity Identifier
Foundation was established by the Financial Stability Board in June
2014 to support the implementation and use of Legal Entity
Identifiers. The Financial Stability Board is an international body
that monitors and makes recommendations about the global financial
system. www.fsb.org
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(i) Netting Member and CCIT Member Applicants
FICC is proposing to amend Section 5 of GSD Rule 2A to require each
Netting Member applicant to obtain and provide a Legal Entity
Identifier to FICC as part of its membership application. The same
change would be made regarding CCIT Member applicants in Section 3 of
GSD Rule 3B. The proposed change would entail a re-lettering of
subsections (d) and (e) of Section 3 of GSD Rule 3B. FICC is proposing
to implement the changes discussed in this paragraph upon approval of
this filing from the Commission.
(ii) Netting Members and CCIT Members
FICC is proposing to amend Section 2 of GSD Rule 3 to add language
that would require each Netting Member to have a current Legal Entity
Identifier on file with FICC at all times. The same change would be
made to Section 5 of GSD Rule 3B for CCIT Members. For existing Netting
Members and CCIT Members, FICC is proposing to add a footnote in each
case that states such members shall have 60 calendar days from the date
of the Commission's approval of this filing to submit their Legal
Entity Identifiers to FICC.\17\
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\17\ The proposed footnote in each case would also state that
the footnote will sunset at the end of the 60-calendar day period.
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FICC is also proposing to add language to Section 2 of GSD Rule 3
and Section 5 of GSD Rule 3B to provide that a Netting Member/CCIT
Member shall indemnify FICC, and its employees, officers, directors,
shareholders, agents, and Members (collectively, the ``LEI Indemnified
Parties''), for any and all losses, liabilities, expenses and Legal
Actions suffered or incurred by the LEI Indemnified Parties arising
from a Netting Member's or CCIT Member's failure to have its current
Legal Entity Identifier on file with FICC. ``Legal Action'' would mean
and include any claim, counterclaim, demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation before any federal,
state or foreign court or other tribunal, or any investigative or
regulatory agency or self-regulatory organization. FICC is proposing
this indemnity because in fulfilling its regulatory obligations under
the OFR Regulation, FICC would be relying upon Netting Members and CCIT
Members to keep their Legal Entity Identifiers on file with FICC
current.
(iii) Sponsoring Members and Sponsored Members
FICC is proposing to amend Section 2 of GSD Rule 3A to require that
each Sponsoring Member submit the Legal Entity Identifiers of its
Sponsored Member applicants. FICC would implement this change regarding
applicants upon the Commission's approval of this filing. The proposed
rule change would also add language to Section 2 of GSD Rule 3A to
require that each Sponsoring Member provide FICC with a Legal Entity
Identifier for each of its existing Sponsored Members such that FICC
has a current Legal Entity Identifier for each such Sponsored Member at
all times. For existing Sponsored Members, FICC is proposing to add a
footnote that states the Sponsoring Members shall have 60 calendar days
from the date of the Commission's approval of this filing to submit the
Legal Entity Identifiers of their Sponsored Members to FICC.\18\ In
order to cover new Sponsored Members, FICC is proposing to amend
Section 3 of GSD Rule 3A to add that the Sponsoring Member must provide
the Legal Entity Identifier of each entity it wishes to sponsor into
membership as a Sponsored Member. FICC is proposing to implement the
change to Section 3 of GSD Rule 3A upon the Commission's approval of
this filing.
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\18\ The proposed footnote would also state that the footnote
will sunset at the end of the 60-calendar day period.
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FICC is also proposing to amend Section 2 of GSD Rule 3A to include
an indemnity, described above, with respect to Sponsoring Members
because,
[[Page 19981]]
akin to the Netting Members and CCIT Members, FICC would be relying on
the Sponsoring Members to keep the Legal Entity Identifiers of their
Sponsored Members on file with FICC current.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, inter alia, that the GSD
Rules be designed to foster cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions.\19\
FICC understands that the Council and its member agencies have a
significant interest in the clearance and settlement of the securities
transactions cleared by FICC. As explained in the OFR Release, these
parties wish to identify risks to U.S. financial stability; \20\
monitoring of the repo market is important for financial stability
monitoring because the repo market plays a crucial role in providing
short-term funding and performing other functions for U.S. markets.\21\
The OFR Regulation (which includes the Legal Entity Identifier
requirement) is expected to help fulfill the Council's purposes and
duties in the monitoring of the repo market.\22\ FICC believes that the
proposed rule changes (which would add the defined term ``Legal Entity
Identifier'' to the GSD Rules and would further amend the GSD Rules to
require: (i) Each applicant to become a Netting Member and CCIT Member
to obtain and provide a Legal Entity Identifier to FICC as part of its
membership application, (ii) each Netting Member and CCIT Member to
have a current Legal Entity Identifier on file with FICC at all times
and to provide the indemnity described in Item II(A)1(ii) above, and
(iii) each Sponsoring Member to provide FICC with a Legal Entity
Identifier for each of their current Sponsored Members and for each
newly added Sponsored Member going forward and to indemnify FICC as
described in Item II(A)1(iii) above) would facilitate FICC's compliance
with the OFR Regulation. Therefore, given the purposes of the OFR
Regulation described here, FICC believes that the proposed rule changes
would foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions.\23\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ See OFR Release, supra note 6, at 4975.
\21\ Id.
\22\ Id.
\23\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, Section 17A(b)(3)(F) of the Act requires, inter alia,
that the GSD Rules be designed to protect the public interest.\24\ The
purpose of the OFR Regulation is to assist the Council and its member
agencies to monitor the stability of the repo market. The stability of
the repo market serves the public interest because the repo market
plays a crucial role in the U.S. markets. Because the proposed rule
changes would facilitate FICC's compliance with the OFR Regulation,
which, in turn, serves the public interest, FICC believes that the
proposed rule changes would serve to protect the public interest.\25\
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\24\ Id.
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed changes to add the defined term
``Legal Entity Identifier'' to the GSD Rules and to further amend the
GSD Rules to require: (i) Each applicant to become a Netting Member and
CCIT Member to obtain and provide a Legal Entity Identifier to FICC as
part of its membership application, (ii) each Netting Member and CCIT
Member to have a current Legal Entity Identifier on file with FICC at
all times and to provide the indemnity described above in Item
II(A)1(ii), and (iii) each Sponsoring Member to provide FICC with a
Legal Entity Identifier for each of their current Sponsored Members and
for each newly added Sponsored Member going forward and to indemnify
FICC as described above in Item II(A)1(iii) could impose a burden on
competition because these changes would impose a cost on firms that
currently do not have Legal Entity Identifiers to obtain and maintain
them. FICC does not believe that any burden on competition imposed by
the proposed rule change would be significant because the cost to
obtain and maintain a Legal Entity Identifier is relatively small,\26\
and FICC understands that many of its members already maintain Legal
Entity Identifiers for other purposes. Regardless of whether the
potential burden on competition is deemed significant, FICC believes
the proposed rule change is both necessary and appropriate in
furtherance of the purposes of the Act. Specifically, FICC believes
that any burden on competition that is created by the proposed changes
would be necessary in furtherance of the purposes of the Act \27\
because the proposed rule change would permit FICC to comply with the
OFR Regulation, which ultimately would foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions by allowing the OFR to identify risks to U.S.
financial stability. FICC also believes that any burden that is created
by the proposed rule change would be appropriate in furtherance of the
purposes of the Act \28\ because the proposed changes would be limited
to information that FICC is required to provide pursuant to the OFR
Regulation.
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\26\ For example, the cost to obtain a Legal Entity Identifier
is $100 from Business Entity Data BV, and the cost to renew (which
is required annually) is $80. See www.gmeiutility.org.
\27\ 15 U.S.C. 78q-1(b)(3)(I).
\28\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to the proposed rule changes have not
been solicited or received. 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-2020-002 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-2020-002. This file
number should be included on the
[[Page 19982]]
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-2020-002
and should be submitted on or before April 30, 2020.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07437 Filed 4-8-20; 8:45 am]
BILLING CODE 8011-01-P