[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Notices]
[Pages 40723-40727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14491]
[[Page 40723]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89193; File No. SR-FICC-2020-006]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Provide for a Passive
Acknowledgement Process and Make Other Changes
June 30, 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 June 19, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') and
the FICC Mortgage-Backed Securities Division (``MBSD'' and together
with GSD, each, a ``Division'') Clearing Rules (``MSBD Rules,'' and
together with the GSD Rules, ``Rules'') \3\ in order to (i) provide for
a passive acknowledgement process whereby any settling bank that does
not timely acknowledge that it will settle its Funds-Only (Cash)
Settlement Figures (as defined below) with FICC (i.e., acknowledge its
intention to pay to or collect from FICC), or notify the Settlement
Agent (as defined below) of its refusal to settle for one or more
members \4\ for which it is the designated Funds-Only Settling Bank or
Cash Settling Bank (collectively, ``FICC Settling Banks'') and has not
otherwise been in contact with the Settlement Agent, would be deemed to
have acknowledged its Funds-Only (Cash) Settlement Figures, (ii) codify
FICC's discretion to exclude a FICC Settling Bank's balance from the
FRB's National Settlement Service (``NSS'') file in certain
circumstances, and (iii) make certain technical and conforming changes.
---------------------------------------------------------------------------
\3\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
\4\ The use of ``members'' here refers to any participant that
is required to appoint a Funds-Only Settling Bank or Cash Settling
Bank, which includes GSD Netting Members, GSD CCIT Members, GSD
Sponsoring Members, and MBSD Clearing Members. References
hereinafter to the term ``members'' shall be used for ease of
reference. See GSD Rule 13, Section 4(a) and MBSD Rule 3A, Section
(a), supra note 3.
---------------------------------------------------------------------------
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 this proposed rule change is to (i) provide for a
passive acknowledgement process whereby any FICC Settling Bank that
does not timely acknowledge that it will settle its Funds-Only (Cash)
Settlement Figures (as defined below) with FICC (i.e., acknowledge its
intention to pay to or collect from FICC), or notify the Settlement
Agent (as defined below) of its refusal to settle for one or more
members for which it is the designated FICC Settling Bank and has not
otherwise been in contact with the Settlement Agent, would be deemed to
have acknowledged its Funds-Only (Cash) Settlement Figures, (ii) codify
FICC's discretion to exclude a FICC Settling Bank's balance from the
NSS file in certain circumstances, and (iii) make certain conforming
technical and conforming changes.
Background
Each Division provides a standardized, automated method for
settling funds-only and cash settlement obligations, respectively,
between each Division and its respective members' FICC Settling Banks.
The funds-only settlement service of GSD and the cash settlement
service of MBSD eliminate manual processing and reduce costs by
aggregating, for GSD, the funds-only settlement payments and, for MSBD,
the cash settlement payments due to or from a member, and then,
automatically debiting or crediting such member's account at its FICC
Settling Bank. Settlement is effected via the NSS.\5\
---------------------------------------------------------------------------
\5\ GSD Rule 13, Section 5(i) and MBSD Rule 11, Section 9(i),
supra note 3.
---------------------------------------------------------------------------
Current Process
Each member must designate a FICC Settling Bank to settle its
funds-only (cash) obligations with FICC. Today, on each business day,
as applicable, GSD and MBSD each calculates either a Funds-Only
Settlement Amount or Cash Balance figure, respectively, for each
member, and reports to its members and their respective FICC Settling
Banks, a Net Funds-Only Settlement Figure \6\ (for GSD) and either a
Total Debit Cash Balance Figure \7\ or a Total Credit Cash Balance
Figure \8\ (for MBSD) (collectively, ``Funds-Only (Cash) Settlement
Figures'').\9\ The Depository Trust Company (``DTC'') acts as
Settlement Agent (``Settlement Agent'') \10\ for FICC's funds-only
(cash) settlement process. Once the FICC Settling Banks receive their
Funds-Only (Cash) Settlement Figures from the Settlement Agent, the
FICC Settling Banks must submit either their (1) acknowledgement that
they will settle their Funds-Only (Cash) Settlement Figures with FICC
or (2) refusal to settle such amounts on behalf of one or more of their
respective members.\11\ This
[[Page 40724]]
acknowledgement or refusal submission occurs through a designated
terminal system.\12\ If all of the FICC Settling Banks submit
acknowledgements of their intent to settle, then the Settlement Agent
will submit the requisite file to the FRB for processing through the
NSS.
---------------------------------------------------------------------------
\6\ Net Funds-Only Settlement Figure means the net amount of the
Funds-Only Settlement Amounts of the Netting Members for which a
Funds-Only Settling Bank Member is acting. GSD Rule 1, supra note 3.
\7\ Total Debit Cash Balance Figure means the sum of the Cash
Balances which are debits of the Members for which a Cash Settling
Bank Member is acting. MSBD Rule 1, supra note 3.
\8\ Total Credit Cash Balance Figures means the sum of the Cash
Balances which are credits of the Members for which a Cash Settling
Bank Member is acting. MSBD Rule 1, supra note 3.
\9\ For GSD, Funds-Only Settlement Amounts reflect: (i) Changes
in the value of securities when they are marked to market, (ii) cash
adjustments related to securities trades, (iii) the pass-through of
coupon payments for term repos or trade obligations that cross a
coupon date, and (iv) other items, such as billing invoices. GSD
Rule 13, Section 1, supra note 3. For MBSD, Cash Settlement amounts
reflect: (i) the TBA Transaction Adjustment Payment, (ii) Net Pool
Transaction Adjustment Payment, (iii) principal and interest
payments for failing net pool settlement obligations (to the extent
that they are not handled by the FedWire Securities Service
Automated Claims Adjustment Process), and (iv) other items, such as
Factor Update Adjustments and billing invoices. MBSD Rule 11,
Section 7, supra note 3.
\10\ DTC Settlement Operations act as the Settlement Agent for
GSD and MBSD. ``Settlement Agent'' means the bank or trust company
that FICC may, from time to time, designate to act as its agent for
purposes of interfacing with NSS for funds-only settlement pursuant
to GSD Rule 13 (for GSD) and for Cash Settlement pursuant to MBSD
Rule 11. GSD Rule 1 and MBSD Rule 1, supra note 3.
\11\ Currently, a FICC Settling Bank that settles only for
itself may not refuse to settle for itself and, therefore, may opt
out of the requirement to acknowledge its Funds-Only (Cash)
Settlement Figures. GSD Rule 13, Section 5(b) and MBSD Rule 11,
Section 9, supra note 3. The passive acknowledgement proposal,
explained in Item 3(a)(i) below, would not apply to such FICC
Settling Banks that have chosen to opt out, as further explained
below.
\12\ GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b),
supra note 3.
---------------------------------------------------------------------------
If a FICC Settling Bank notifies the Settlement Agent that the FICC
Settling Bank refuses to pay the Funds-Only (Cash) Settlement Figure
for a member, then FICC will exclude that member's amount and the
Settlement Agent will provide the FICC Settling Bank with a new Funds-
Only (Cash) Settlement Figure that no longer includes the excluded
member's amount. The FICC Settling Bank must then immediately send a
message to the Settlement Agent acknowledging the new amount.\13\ The
Settlement Agent will then submit the requisite file to the FRB for
processing through the NSS.
---------------------------------------------------------------------------
\13\ GSD Rule 13, Section 5(c) and MBSD Rule 11, Section 9(c),
supra note 3.
---------------------------------------------------------------------------
The deadline for FICC Settling Banks to acknowledge or refuse is 30
minutes prior to the time at which debits and credits are executed via
the NSS.\14\ If a FICC Settling Bank does not acknowledge or refuse by
this time, the Settlement Agent will use the most recent contact
information available to contact the FICC Settling Bank. If the
Settlement Agent is unable to contact the FICC Settling Bank or does
not receive a response from the FICC Settling Bank as to the
acknowledgement or refusal, FICC needs to determine whether to request
an NSS extension while also determining whether to remove the FICC
Settling Bank's Funds-Only (Cash) Settlement Figure from the NSS file.
---------------------------------------------------------------------------
\14\ For GSD, the NSS execution times are 10:00 a.m. and 3:15
p.m.; for MBSD, these times are 10:00 a.m. and 2:45 p.m. GSD
Schedule of Timeframes, supra note 3, and MBSD Processing Schedule
and Timeframes, available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.
---------------------------------------------------------------------------
Today, failure of a FICC Settling Bank to timely respond to the
Settlement Agent after posting of final settlement figures creates
uncertainty with respect to timely completion of settlement at FICC.
This is because today, FICC is not permitted under the Rules to submit
the NSS file (through the Settlement Agent) unless all FICC Settling
Banks in the file have acknowledged. FICC must therefore determine
whether it should remove the Funds-Only (Cash) Settlement Figure of the
unresponsive FICC Settling Bank from the NSS file in order to allow the
processing of the rest of the NSS file for the other FICC Settling
Banks that are part of the NSS file. If FICC does not remove the Funds-
Only (Cash) Settlement Figure of the unresponsive FICC Settling Bank
from the NSS file, then the NSS file cannot be created and the funds-
only (cash) settlement cannot be completed for the other FICC Settling
Banks that are part of the NSS file. As such, today, FICC may need to
remove the Funds-Only (Cash) Settlement Figure of the unresponsive FICC
Settling Bank from the NSS file in order to submit the NSS file and
complete the funds-only (cash) settlement for the other FICC Settling
Banks that are part of the NSS file, thus potentially delaying
settlement of the NSS file. Such potential delay would arise from the
time needed to remove the figure of the unresponsive FICC Settling Bank
and then re-establish the NSS file. Moreover, with respect to the
members who were using the particular FICC Settling Bank, FICC would
need to settle individually with those members via the Fedwire Funds
Service, which also presents the possibility of a delay because of the
time it might take to complete this process individually with each
affected member. To date, FICC has not had to perform the process of
removing a FICC Settling Bank from the NSS file.
The proposed passive acknowledgement process that is discussed in
Item 3(a)(i) below is aimed at addressing the situation discussed above
where a FICC Settling Bank is unresponsive and cannot be reached. This
would allow FICC to submit the NSS file (through the Settlement Agent)
for NSS processing more timely, and thereby allow the funds-only (cash)
settlement to be completed for the other FICC Settling Banks that are
part of the NSS file.
Even with the implementation of the proposed passive
acknowledgement process discussed in Item 3(a)(i) below, FICC must
retain the discretion to remove the Funds-Only (Cash) Settlement Figure
of a FICC Settling Bank from the NSS file.\15\ In other words,
currently, FICC may remove the FICC Settling Bank's figure from the NSS
file in the situation where a FICC Settling Bank is unresponsive and
cannot be reached. Under the proposal, the need for FICC to do so would
arise in the event that a FICC Settling Bank advises the Settlement
Agent that it cannot yet determine whether to acknowledge or refuse. In
such a circumstance, passive acknowledgement would not apply (as
described below); however, as it gets closer to the NSS processing
time, FICC may need to remove the FICC Settling Bank's Funds-Only
(Cash) Settlement Figure from the NSS file in order to allow funds-only
(cash) settlement to be completed for the other FICC Settling Banks
that are part of the NSS file and have affirmatively acknowledged their
figure. FICC is proposing to codify its ability to remove the Funds-
Only (Cash) Settlement Figure of the FICC Settling Bank from the NSS
file. As FICC would be codifying this current practice with this
proposed rule change, this proposed rule change would not change the
current settlement process of FICC Settling Banks that are excluded
from the NSS file. This proposed change is discussed in Item 3(a)(ii)
below.
---------------------------------------------------------------------------
\15\ This practice is currently not codified in the GSD Rules
and MBSD Rules.
---------------------------------------------------------------------------
(i) Proposed Change To Introduce Passive Acknowledgement Process for
FICC Settling Banks
Proposed Passive Acknowledgement Process
FICC proposes to establish an ``Acknowledgement Cutoff Time'' after
which FICC would apply the passive acknowledgement process if it is
unable to reach the FICC Settling Bank.
The Acknowledgement Cutoff Time would be defined as the later of:
(i) 30 Minutes after the FICC Settling Banks have been notified that
such payment is due or (ii) 30 minutes prior to the times established
by FICC \16\ for the execution of funds-only (cash) settlement debits
and credits via NSS.
---------------------------------------------------------------------------
\16\ These times are currently 10:00 a.m. and 3:15 p.m. for GSD,
and 10:00 a.m. and 2:45 p.m. for MBSD.
---------------------------------------------------------------------------
If a FICC Settling Bank does not submit either (1) an
acknowledgement that it will settle the Funds-Only (Cash) Settlement
Figure with FICC or (2) a refusal to pay the Funds-Only (Cash)
Settlement Figure by the ``Acknowledgement Cutoff Time'' and has not
been in contact with the Settlement Agent, then the Settlement Agent
would attempt to contact the FICC Settling Bank. If the Settlement
Agent is able to contact the FICC Settling Bank and it notifies the
Settlement Agent that the FICC Settling Bank cannot, at that time,
submit its acknowledgement or refusal to pay its Funds-Only (Cash)
Settlement Figure and that it needs more time, then the FICC Settling
Bank would not be deemed to have acknowledged that it will settle such
Funds-Only (Cash) Settlement Figure with FICC. However,
[[Page 40725]]
if the FICC Settling Bank cannot be reached, then the FICC Settling
Bank would be deemed to have acknowledged that it will settle such
Funds-Only (Cash) Settlement Figure with FICC.
The passive acknowledgement process described herein would also
apply in situations where a FICC Settling Bank is provided with a new
Funds-Only (Cash) Settlement Figure after such FICC Settling Bank's
refusal to pay the Funds-Only (Cash) Settlement Figure for one or more
members.
FICC would also revise the Rules to state that each FICC Settling
Bank must ensure that it maintains accurate contact details with the
Settlement Agent so that the Settlement Agent may contact the FICC
Settling Bank regarding this settlement process and any settlement
issues.
Proposed Changes to GSD Rule 13, Section 5 and MBSD Rule 11, Section 9
The proposed passive acknowledgement process will require changes
to Section 5 of GSD Rule 13 and Section 9 of MBSD Rule 11.
Specifically, FICC proposes to amend Section 5(b) of GSD Rule 13 to
replace ``by the applicable deadline'' with ``By the Acknowledgement
Cutoff Time,'' and move this phrase to the start of the first sentence.
Section 5(b) would be further amended to add a sentence stating what
the Acknowledgement Cutoff Time would be, that is the later of (i) 30
minutes after the Funds-Only Settling Bank has been notified that such
payment is due, or (ii) 30 minutes prior to the payment deadlines
established by FICC. FICC also proposes to add a phrase at the end of
Section 5(b) that would apply to Funds-Only Settling Banks that settle
solely for their own accounts to state that if they choose to opt out
of having to acknowledge their Funds-Only Settlement Amounts, new
subsections (k) and (l) (described below) would not apply to them.\17\
The same changes would be made to Section 9(b) of MBSD Rule 11.
---------------------------------------------------------------------------
\17\ Proposed subsections (k) and (l) describe the proposed
passive acknowledgement process. As described above, if a FICC
Settling Bank that settles solely for its own account opts to not to
acknowledge its own Funds-Only Settlement Figure, the passive
acknowledgement process would not apply to such FICC Settling Banks
because such FICC Settling Banks cannot refuse to settle for their
own accounts. For operational convenience, FICC Settling Banks may
choose to not acknowledge their own Funds-Only Settlement Figure
because they cannot refuse to settle for their own accounts.
Therefore, proposed subsections (k) and (l) would not apply to such
FICC Settling Banks.
---------------------------------------------------------------------------
FICC proposes to amend Section 5(c) of GSD Rule 13 to delete the
word ``immediately'' and to state that new subsection (k) would apply
with respect to the new Net Funds-Only Settlement Figures of the Funds-
Only Settling Bank that sent refusal messages. Similar changes would be
made to Section 9(c) of MBSD Rule 11.
FICC proposes to amend Section 5 of GSD Rule 13 to add new
subsection (i). Proposed subsection (i) would provide that the
Settlement Agent uses the most recent contact information provided by
the Funds-Only Settling Bank to the Settlement Agent. Proposed
subsection (i) would also include a requirement that each Funds-Only
Settling Bank maintains up-to-date and accurate contact details with
the Settlement Agent on an ongoing basis. A similar subsection (i)
would be added to Section 9 of MBSD Rule 11.
FICC proposes to amend Section 5 of GSD Rule 13 to add new
subsection (l). Proposed subsection (l) would provide that the
Settlement Agent would attempt to contact the Funds-Only Settling Bank
if no acknowledgement or notice of refusal to settle on behalf of one
or more Netting Members for which it is designated as the Funds-Only
Settling Bank is received by the Acknowledgement Cutoff Time. If (i)
the Settlement Agent is able to contact the Funds-Only Settling Bank
and (ii) the Funds-Only Settling Bank notifies the Settlement Agent
that it cannot, at that time, acknowledge or refuse their Net Funds-
Only Settlement Figure, then the Funds-Only Settling Bank will not be
deemed to have acknowledged its Net Funds-Only Settlement Figure. If
the Funds-Only Settling Bank cannot be reached, the Funds-Only Settling
Bank will be deemed to have acknowledged its Net Funds-Only Settlement
Figure. FICC would also state that this proposed subsection (l) would
not apply to a Funds-Only Settling Bank that settles solely for its own
account and opts not to acknowledge its Net Funds-Only Settlement
Figure. A similar subsection (l) would be added to Section 9 of MBSD
Rule 11.
(ii) Proposed Change To Allow FICC To Exclude FICC Settling Bank
Balance From NSS File
The proposed rule change would provide that if (1) passive
acknowledgement does not apply because the FICC Settling Bank has
notified the Settlement Agent that it cannot yet acknowledge or refuse
its Funds-Only (Cash) Settlement Figure and (2) the payment deadline
established by FICC is approaching, then FICC would have the ability to
exclude the FICC Settling Bank's Funds-Only (Cash) Settlement Figure
from the NSS file. This would allow funds-only (cash) settlement to be
completed for the other FICC Settling Banks that are part of the NSS
file. As described above, as it gets closer to the payment deadline,
FICC may need to remove the FICC Settling Bank's Funds-Only (Cash)
Settlement Figure from the NSS file in order to allow funds-only (cash)
settlement to be completed for the other FICC Settling Banks that are
part of the NSS file. As FICC would be codifying its current practice
with this proposed rule change, this proposed change would not change
the current settlement process of FICC Settling Banks that are excluded
from the NSS file.
This proposed change is reflected in the second paragraph of new
subsections (l) of Section 5 of GSD Rule 13 and Section 9 of MBSD Rule
11.
(iii) Proposed Technical and Conforming Changes
FICC proposes to make certain technical changes. Specifically, to
enhance clarity, FICC proposes to move current subsection (d) in GSD
Rule 13, Section 5 to become proposed subsection (h) of GSD Rule 13,
Section 5. In addition, FICC proposes to move current subsection (d) in
MBSD Rule 11, Section 9 to become proposed subsection (h) of MBSD Rule
11, Section 9.
FICC also proposes to make certain conforming changes. For example,
FICC proposes to revise the subsection numbers in GSD Rule 13, Section
5 and MSBD Rule 11, Section 9 because subsections were either proposed
to be moved (as described in the preceding paragraph) or added. As
another conforming change, FICC proposes to revise GSD Rule 1 and MBSD
Rule 1 to add a new defined term (``Acknowledgement Cutoff Time'').
FICC proposes to replace the first two references to Corporation
with Settlement Agent in GSD Rule 13, Section 5(c). Similarly, FICC
proposes to replace the reference to Corporation with Settlement Agent
in MBSD Rule 11, Section 9(c). FICC believes these proposed changes
would enhance accuracy and clarity when describing who the FICC
Settling Banks must sent a message to. In addition, in current
subsection (j) (which is proposed to become subsection (m)) of Section
5 of GSD Rule 13, FICC would replace language regarding the
``Corporation's Operations area'' with the ``Settlement Agent'' and
would use the newly defined term ``Acknowledgement Cutoff Time.''
Similar changes would be made to current subsection (j) (which is
proposed to become subsection (m)) of Section 9 of MBSD Rule 11.
[[Page 40726]]
FICC also proposes to change the reference from ``DTC'' to ``the
Settlement Agent'' in GSD Rule 13, proposed Section 5(n) and MBSD Rule
11, proposed Section 9(n) for consistency and clarity.
2. Statutory Basis
FICC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, FICC believes this proposal
is consistent with Section 17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\19\ By way of background, the funds-only
(cash) settlement process at FICC reflects debits and credits of
payments (such as mark-to-market) that are associated with securities
transactions that will ultimately be subject to securities settlement.
FICC believes that failure by a FICC Settling Bank to timely
acknowledge that it will settle its Funds-Only (Cash) Settlement Figure
with FICC or to refuse to pay its Funds-Only (Cash) Settlement Figure
creates uncertainty with respect to the timely completion of funds-only
(cash) settlement at FICC. FICC believes that the introduction of the
proposed passive acknowledgement process described in Item 3(a)(i)
above would help promote the prompt and accurate clearance and
settlement of securities transactions in circumstances where a FICC
Settling Bank has not responded by the Acknowledgement Cutoff Time and
cannot be reached by the Settlement Agent. In such circumstances, as
described above, FICC would deem that such FICC Settling Bank has
acknowledged that it will settle its Funds-Only (Cash) Settlement
Figures. This would enable FICC to submit the NSS file (through the
Settlement Agent) as is for processing in a timely manner, and thereby
enhance certainty with respect to the timely completion of settlement.
Timely completion of such settlement at FICC for as many members as
possible promotes the prompt and accurate clearance and settlement of
securities transactions as a general matter, because the funds-only
(cash) settlement process at FICC involves debits and credits, such as
the mark-to-market on securities transactions that will ultimately be
subject to securities settlement. As such, FICC believes the proposed
change to introduce the passive acknowledgement process described in
Item 3(a)(i) above is designed to promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\20\
---------------------------------------------------------------------------
\19\ Id.
\20\ Id.
---------------------------------------------------------------------------
FICC also believes that the proposal to codify FICC's ability to
exclude a FICC Settling Bank's balance from the NSS file described in
Item 3(a)(ii) above is designed the promote the prompt and accurate
clearance and settlement of securities transactions.\21\ If a FICC
Settling Bank notifies the Settlement Agent that it cannot yet
acknowledge or refuse, FICC would not be able to submit the NSS file
(through the Settlement Agent) with that FICC Settling Bank's Funds-
Only (Cash) Settlement Figure included. If the FICC Settling Bank does
not ultimately respond with either an acknowledgement or refusal, then
FICC must have the ability to exclude such FICC Settling Bank's Funds-
Only (Cash) Settlement Figure from the NSS file. In this way, funds-
only (cash) settlement can be completed for all other members.
Therefore, FICC believes the proposed changes described in Item
3(a)(ii) above is designed to promote the prompt and accurate clearance
and settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------
\21\ Id.
\22\ Id.
---------------------------------------------------------------------------
FICC also believes that the proposed rule changes to make the
technical and conforming changes, as described in Item 3(a)(iii) above,
are designed to promote the prompt and accurate clearance and
settlement of securities transactions by ensuring that the Rules remain
clear and accurate to members and that members understand the funds-
only settlement service and cash settlement service. Having clear and
accurate Rules would facilitate members' understanding of those rules
and provide members with increased predictability and certainty
regarding their obligations. As such, FICC believes these proposed
changes would promote the prompt and accurate clearance and settlement
of securities, consistent with Section 17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe that the proposed rule changes described in
Item 3(a)(i) above to introduce the passive acknowledgement process for
FICC Settling Banks would have any impact on competition,\24\ because
the proposed passive acknowledgement process would not have an impact
on the FICC Settling Banks' current ability to timely acknowledge their
Funds-Only (Cash) Settlement Figures, as it is intended to address
situations where a FICC Settling Bank is not responding and cannot be
reached. Moreover, as described above, FICC would continue to maintain
flexibility and allow a FICC Settling Bank to request extra time if the
FICC Settling Bank cannot affirmatively submit its (1) acknowledgement
that it will settle its Funds-Only (Cash) Settlement Figure with FICC
or (2) refusal to pay its Funds-Only (Cash) Settlement Figure, as long
as the Settlement Agent is notified at or before the Acknowledgement
Cutoff Time. If a FICC Settling Bank notifies the Settlement Agent that
the FICC Settling Bank cannot, at that time, submit its acknowledgement
that it will settle its Funds-Only (Cash) Settlement Figures with FICC
or its refusal to pay its Funds-Only (Cash) Settlement Figures, then
the FICC Settling Bank would not be deemed to have acknowledged that it
will settle such Funds-Only (Cash) Settlement Figures with FICC.
Therefore, FICC believes that the proposed passive acknowledgement
process described in Item 3(a)(i) above would not have any impact on
competition.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
FICC also does not believe that the proposed changes to exclude a
FICC Settling Bank's balance from the NSS file, as described in Item
3(a)(ii) above, would have any impact on competition \25\ because this
proposal, if invoked, would require the affected FICC Settling Bank to
send payment to FICC by wire, which is an alternate form of payment
already available to the FICC Settling Banks. FICC believes that ready
availability of a reasonable payment alternative would result in the
rights and obligations of the FICC Settling Banks not being adversely
affected. As such, FICC does not believe that the proposed changes to
exclude a FICC Settling Bank's balance from the NSS file, as described
in Item 3(a)(ii) above, would have any impact on competition.
---------------------------------------------------------------------------
\25\ Id.
---------------------------------------------------------------------------
FICC also does not believe that the proposed rule changes to make
the technical and conforming changes described in Item 3(a)(iii) above
would have an impact on competition.\26\ These changes would simply
provide additional clarity within the Rules and not affect members'
rights and obligations.
---------------------------------------------------------------------------
\26\ Id.
---------------------------------------------------------------------------
[[Page 40727]]
(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 change 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-2020-006 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-2020-006. 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-2020-006 and should be submitted on
or before July 28, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
---------------------------------------------------------------------------
\27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14491 Filed 7-6-20; 8:45 am]
BILLING CODE 8011-01-P