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Notice

Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to the Implementation of Fines

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Information about this document as published in the Federal Register.

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This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble January 26, 2004.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] notice is hereby given that on January 3, 2003, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) and on January 8, 2003, and June 8, 2003, amended the proposed rule change as 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 persons.

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

The proposed rule change implements fines for the failure to timely submit required financial reports and to meet certain additional reporting requirements. The proposed rule change also eliminates a provision in FICC's rules allowing foreign members to prepare their financial statements in accordance with accounting standards other than U.S. Generally Accepted Accounting Principles (“GAAP”).

II. 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 such statements.[2]

(A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

Pursuant to section 5 of Rule 2 of the rules of the Government Securities Division of FICC and section 10 of Rule 2 of Article III of the rules of the Mortgage Backed Securities Division of FICC and in furtherance of FICC's obligation to minimize risk to all members, FICC requires that on a periodic basis members submit to FICC financial reports detailing certain information about their financial status.[3] These reports submitted by members are crucial to FICC surveillance procedures because they allow FICC credit risk personnel to review and monitor the financial condition of members. While the majority of FICC members satisfy their reporting obligations in a timely manner, from time to time certain FICC members fail to submit their reports to FICC on time. The lack of timely submissions adversely affects FICC's financial surveillance processes and ultimately creates risk for FICC and its members. To remedy this situation, FICC is proposing the implementation of a fine schedule in order to promote improved compliance with reporting timeframes.

Historically, GSCC and MBSCC, FICC's predecessors, have instituted fines and late fees in order to enforce various deadlines, rules, and procedures. Since February 2002, GSCC has been charging members fees for failure to timely provide repo collateral substitution notifications. In July 2001, GSCC began imposing fees on those members who submit trade data on a non-interactive basis. In addition, since 1998 GSCC has had the authority to impose fines in order to promote greater compliance with its funds settlement debit and clearing fund deposit deficiency call deadlines. MBSCC likewise charges members additional fees for late payment of settlement balance order market differential payments and cash adjustment payments.

As with other fines that are currently in place, members will have the ability to contest the proposed fines through the process set forth in Rule 37 of the Government Securities Division's rules and Rule 7 of Article V of the Mortgage Backed Securities Division's rules.

FICC is also proposing to amend the rules of both the Government Securities Division and the Mortgage Backed Securities Division to require members to submit to FICC, concurrently with their submission to the applicable regulator, copies of such filings as determined by FICC from time to time, which members are required to file pursuant to the Sarbanes-Oxley Act of 2002 (and any amendments thereunder). In addition, FICC is proposing to amend the rules of the Government Securities Division to require members to submit to FICC, concurrently with their submission to the applicable regulator, all reports or other notifications required to be filed when their capital levels fall below required minimums.[4] Start Printed Page 4548

Section 5 of Rule 2 allows non-U.S. members to submit, among other things, to FICC audited financial statements and other financial information that has been prepared in accordance with U.S. GAAP, International Accounting Standards, or United Kingdom GAAP. In the filing, FICC is proposing to amend this section to require the financial information submitted to it to be prepared only in accordance with U.S. GAAP.

FICC believes the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder because it allows FICC to monitor the financial condition of members more completely and on a timely basis, thereby limiting the risk to FICC and its members.

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

FICC does not believe that the proposed rule change would have an impact on or impose a burden on competition.

(C) Self-Regulatory Organization'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 yet been solicited nor 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 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to ninety days of such date 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 the 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-FICC-2003-01. 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, comments should be sent in hardcopy or by e-mail but not by both methods. 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of FICC and on FICC's Web site at http://www.ficc.com. All submissions should refer to the File No. SR-FICC-2003-01 and should be submitted by February 20, 2004.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[5]

Jill M. Peterson,

Assistant Secretary.

End Signature End Preamble

Footnotes

2.  The Commission has modified parts of these statements.

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3.  These reports include monthly FOCUS and FOGS reports, quarterly CALL reports, annual audited financial statements, and other periodic financial data as outlined in FICC's rules.

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4.  Both divisions require broker-dealer participants to submit copies of supplemental reports filed pursuant to Rule 17a-11 under the Act to FICC concurrently with their submission to the Commission. Rule 17a-11 requires registered broker-dealers to notify the Commission of a decline in net capital below minimum Commission requirements. However, participants (including broker-dealer participants) may have other similar regulatory notification requirements (imposed by the Commission or another regulator or similar authority) when their capital levels or other financial requirements fall below required levels. The rules of the Mortgage Backed Securities Division were recently amended to include the requirement that participants submit such notifications to FICC concurrently with their submission to the relevant regulatory authority. (See amendment 3 to SR-MBSCC-2001-06, Securities Exchange Act Release No. 45604 (March 20, 2002), 67 FR 14755, which is currently pending with the Commission). This present rule filing imposes the same requirement in the rules of the Government Securities Division.

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[FR Doc. 04-1955 Filed 1-29-04; 8:45 am]

BILLING CODE 8010-01-P