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Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Modify the Hearing Procedures Afforded to Members and Applicants for Membership and Harmonize Them With Similar Rules of Its Affiliates

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Information about this document as published in the Federal Register.

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Start Preamble February 29, 2008.

I. Introduction

On April 30, 2007, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”), and on July 24, 2007 amended [1] proposed rule change SR-FICC-2007-06 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).[2] The proposed rule change was published for comment in the Federal Register on December 6, 2007.[3] No comment letters were received on the proposal. This order approves the proposal.

II. Description

The proposed rule change (1) modifies the rules of FICC's Government Securities Division (“GSD”) and Mortgage-Backed Securities Division (“MBSD”) (GSD and MBSD are collectively referred to as the “Divisions”), including the EPN rules of MBSD, regarding hearing procedures afforded to members and applicants for membership and (2) where practicable or beneficial, harmonizes such rules with similar rules of FICC's affiliates, The Depository Trust Company (“DTC”) and the National Securities Clearing Corporation (“NSCC”).[4]

A. Minor Rule Violation Plan

In 1984, the Commission adopted amendments to Rule 19d-1(c) under the Act [5] that allow self-regulatory organizations with Commission approval to adopt plans for the disposition of minor violations of rules.[6]

Currently under each Division's rules, a member or applicant subject to disciplinary action has a right to a hearing before a panel comprised of members of FICC's Board of Directors regardless of the severity of the action for which the member or applicant is being disciplined.[7] Because some rule violations are not sufficiently serious to merit Board review, FICC is adopting a Minor Rule Violation Plan within the meaning of Rule 19d-1(c)(2) under the Act for those rule violations FICC deems minor. Consistent with Rule 19d-1(c)(2) under the Act, FICC is designating as minor rule violations those rule violations for which a fine may be assessed in an amount not to exceed $5,000. If a member disputes a fine imposed by FICC by filing a written request for hearing and a written statement setting forth, among other things, the action or proposed action with respect to which the hearing is being requested and the basis for objection to such action, FICC management would have the authority to waive the fine. FICC management would notify the Board of Directors or a Committee authorized by the Board of Directors of its determination to waive the fine and would provide the reasons for the waiver. The Board or Committee could in its discretion decide to Start Printed Page 12238reinstate any fine waived by FICC management. If FICC management were not to waive the fine, the member could appeal the decision to a panel comprised of FICC officers (“Minor Rule Violation Panel”).

B. Hearings for All Other Violations and Minor Rule Violation Appeals

For matters involving (1) an alleged violation of a GSD or MBSD rule for which a fine in an amount of over $5,000 is assessed, (2) applicants for membership, (3) other disciplinary actions to which the Minor Rule Violation Plan would not apply, or (4) for appeals from a Minor Rule Violation Panel decision adverse to a member or applicant, the member or applicant is entitled to a hearing before a panel comprised of three individuals of the FICC Board of Directors or their designees appointed by the Chairman of the FICC Board. Decisions of the panel are final; however, the full Board of Directors retains the right to modify any sanction or reverse any decision of the panel that is adverse to the member or applicant.

Currently with respect to hearings, a member or applicant is afforded the opportunity to be heard and may be represented by counsel if desired. A record is kept of the hearing, and at the discretion of the panel, the associated cost may be charged in whole or part to the member or applicant in the event that the decision is adverse to the member or applicant. The member or applicant is advised of the panel's decision within ten business days after the conclusion of the hearing. These procedures would also apply with respect to the Minor Rule Violation Plan.

C. Administrative Changes: Uniformity of Time Frames

The rule changes will implement uniform time periods for the Divisions and among FICC, DTC, and NSCC governing actions a member or applicant would be required to take in order to request a hearing.[8] Currently, the deadlines a member or applicant must adhere to in order to request a hearing vary between the Divisions. Under the rule change, a member or applicant has five business days, or two business days in the case of a summary action taken against the member or applicant pursuant to Rule 21 or 22,[9] from the date on which FICC first informs it of a sanction or a denial of membership in which to request a hearing.

Within seven business days, or three business days in the case of a summary action taken against the member or applicant, after filing a request for a hearing with FICC, the member or applicant is required to submit to FICC a clear and concise written statement setting forth the action or proposed action of FICC with respect to which the hearing is requested, the basis for objection to such action, whether the member or applicant intends to attend the hearing, and whether the member or applicant chooses to be represented by counsel at the hearing.

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a registered clearing agency. In particular, the Commission believes the proposal is consistent with the requirements of Section 17A(b)(3)(F),[10] which, among other things, requires that the rules of a clearing agency are designed to remove impediments to and perfect the mechanisms of a national system for the prompt and accurate clearance and settlement of securities transactions and with the requirements of Section 17A(b)(3)(H) [11] which, among other things, requires that the rules of a clearing agency provide a fair procedure with respect to the disciplining of participants and the denial of participation to any person seeking to be a participant. The Commission finds that the proposed rule change, which harmonizes FICC's hearing procedure rules with those of DTC and NSCC and which adopts a Minor Rule Violation Plan, is consistent with those statutory obligations.

IV. Conclusion

On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act [12] and the rules and regulations thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[13] that the proposed rule change (File No. SR-FICC-2007-06) be, and hereby is, approved.[14]

Start Signature

For the Commission by the Division of Trading and Markets, pursuant to delegated authority.[15]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

1.  The amendment corrected a typographical error in the proposed rule text.

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3.  Securities Exchange Act Release No. 56864 (Nov. 29, 2007), 72 FR 68922.

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4.  DTC and NSCC have filed similar proposed rule changes. Securities Exchange Act Release No. 56863 (Nov. 29, 2007), 72 FR 68920, Securities Exchange Act Release No. 57406 (Feb. 29, 2008) [SR-DTC-2007-06]. Securities Exchange Act Release No. 56865 (Nov. 29, 2007), 72 FR 68930, Securities Exchange Act Release No. 57404 (Feb. 29, 2008) [SR-NSCC-2007-06].

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6.  Securities Exchange Act Release No. 21013 (June 1, 1984), 49 FR 23828 (June 8, 1984) [File No. S7-983A].

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7.  MBSD Article V, Rule 7 (“Appeals”); EPN Article X, Rule 7 (“Appeals”); and GSD Rule 37 (“Hearing Procedures”).

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8.  DTC rules do not impose an accelerated deadline for an Interested Person to request a hearing in the case of summary action taken against the Interested Person. A summary action is an action taken prior to a hearing to determine the propriety of the action.

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9.  Examples of a summary action are a suspension of a member or restriction of a member's access to services as described in Rule 21, Section 1 (“Restrictions on Access to Services”).

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10.  15 U.S.C. 78q-1(b)(3)(F).

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11.  15 U.S.C. 78q-1(b)(3)(H).

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14.  In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. E8-4341 Filed 3-5-08; 8:45 am]

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