Vous êtes sur la page 1sur 4

Federal Register / Vol. 71, No.

3 / Thursday, January 5, 2006 / Notices 629

recommendations are based will have and investor confidence in the SECURITIES AND EXCHANGE
been sent by the Chief Actuary to the recommendations contained in those COMMISSION
Committee before the meeting. reports. Commission estimates that
The meeting will be open to the [Release No. 34–53036; File No. SR–FICC–
Regulation AC would result in a total 2005–18]
public. Persons wishing to submit annual time burden of approximately
written statements or make oral 11,296 hours (10,950 hours to comply Self-Regulatory Organizations; Fixed
presentations should address their with research report requirements + 346 Income Clearing Corporation; Notice of
communications or notices to the RRB hours to comply with public appearance Filing of Proposed Rule Change and
Actuarial Advisory Committee, c/o requirements). Amendment No. 1 Thereto To Enhance
Chief Actuary, U.S. Railroad Retirement The collections of information under the Repo Collateral Substitution
Board, 844 North Rush Street, Chicago, Regulation AC are necessary for covered Process of FICC’s Government
Illinois 60611–2092. persons to obtain certain benefits or to Securities Division
Dated: December 29, 2005. comply with certain requirements. The December 29, 2005.
Beatrice Ezerski, collections of information are necessary Pursuant to Section 19(b)(1) of the
Secretary to the Board. to provide investors with information Securities Exchange Act of 1934
[FR Doc. 06–60 Filed 1–4–06; 8:45 am] with which to determine the value of (‘‘Act’’),1 notice is hereby given that on
BILLING CODE 7905–01–M the research available to them. The September 30, 2005, the Fixed Income
Commission may review this Clearing Corporation (‘‘FICC’’) filed
information during periodic with the Securities and Exchange
SECURITIES AND EXCHANGE examinations or with respect to Commission (‘‘Commission’’) and on
COMMISSION investigations. Covered persons must December 20, 2005, amended the
also promptly provide copies of proposed rule change described in Items
Proposed Collection; Comment statements that the analyst is unable to I, II, and III below, which items have
Request provide the certifications in connection been prepared primarily by FICC. The
with public appearances to its Commission is publishing this notice to
Upon written request, copies available examining authority, designated
from: Securities and Exchange solicit comments on the proposed rule
pursuant to Section 17(d) of the change from interested parties.
Commission, Office of Filings and Exchange Act and Rule 17d–2
Information Services, Washington, DC thereunder. Further, broker-dealers I. Self-Regulatory Organization’s
20549. must keep and maintain these records Statement of the Terms of Substance of
Regulation AC; SEC File No. 270–517; OMB pursuant to Rule 17a–4(b)(4). the Proposed Rule Change
Control No. 3235–0575. The purpose of this proposed rule
An agency may not conduct or
Notice is hereby given that, pursuant sponsor, and a person is not required to change is to enhance the repo collateral
to the Paperwork Reduction Act of 1995 respond to, a collection of information substitution process of FICC’s
(44 U.S.C. 3501 et seq.), the Securities unless the agency displays a valid OMB Government Securities Division
and Exchange Commission control number. (‘‘GSD’’).
(‘‘Commission’’) is soliciting comments
on the collections of information Written comments are invited on: (a) II. Self-Regulatory Organization’s
summarized below. The Commission Whether the proposed collection of Statement of the Purpose of, and
plans to submit a request for approval information is necessary for the proper Statutory Basis for, the Proposed Rule
of the previously approved collection of performance of the functions of the Change
information discussed below. agency, including whether the In its filing with the Commission,
information will have practical utility; FICC included statements concerning
Regulation Analyst Certification (b) the accuracy of the agency’s estimate the purpose of and basis for the
(Regulation AC) of the burden of the collection of proposed rule change and discussed any
Regulation Analyst Certification information; (c) ways to enhance the comments it received on the proposed
requires that any research report quality, utility, and clarity of the rule change. The text of these statements
disseminated by broker, dealer, or information collected; and (d) ways to may be examined at the places specified
person associated with a broker or minimize the burden of the collection of in Item IV below. FICC has prepared
dealer include certifications by the information on respondents, including summaries, set forth in sections (A), (B),
research analyst that the views through the use of automated collection and (C) below, of the most significant
expressed in the research report techniques or other forms of information aspects of these statements.2
accurately reflect the analyst’s personal technology. Consideration will be given
views, and whether the analyst received to comments and suggestions submitted (A) Self-Regulatory Organization’s
compensation in connection with his or in writing within 60 days of this Statement of the Purpose of, and
her specific recommendations or views. publication. Statutory Basis for, the Proposed Rule
A research analyst would also be Change
Please direct your written comments
required to provide certifications and to R. Corey Booth, Director/Chief 1. Initial Substitution Notification
disclosures in connection with public Information Officer, Office of Without Replacement Collateral
appearances. Although research analysts Information Technology, Securities and Information
are often viewed by investors as experts Exchange Commission, 100 F Street, The GSD’s repo collateral substitution
and as important sources of information NE., Washington, DC 20549. process provides a mechanism for a
about the securities and companies they repo dealer to process its right to
cchase on PROD1PC60 with NOTICES

Dated: December 28, 2005.

cover, many factors can create pressure substitute the original collateral it
on their independence and objectivity. Nancy M. Morris,
By requiring these certifications and Secretary. 1 15
U.S.C. 78s(b)(1).
disclosures, Regulation AC should [FR Doc. E5–8284 Filed 1–4–06; 8:45 am] 2 The
Commission has modified the text of the
promote the integrity of research reports BILLING CODE 8010–01–P summaries prepared by FICC.

VerDate Aug<31>2005 17:06 Jan 04, 2006 Jkt 208001 PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 E:\FR\FM\05JAN1.SGM 05JAN1
630 Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices

provided as part of a repo transaction 2. Revised Repo Collateral Substitution which FICC’s margin calculations were
with replacement collateral. With Process Deadline and Fee Schedule based. To address this, FICC is
respect to a brokered transaction,3 The proposed change in repo proposing certain risk management
typically the repo dealer notifies the processing requires a revision to GSD’s measures. Specifically, FICC will: (i)
relevant broker that it wishes to schedule of timeframes. Also, in order increase the clearing fund calculation of
substitute the repo collateral before it to further encourage timely submission the repo dealer and allow margining
specifically identifies what the of collateral requests and the associated with respect to replacement collateral
replacement collateral will be. The required information, FICC is proposing based on applicable generic CUSIP
broker then contacts the reverse repo to add a new late fee to the repo numbers only; 8 and (ii) impose mark-to-
dealer and informs it that a repo substitution process. Currently, there is market consequences on both the repo
a two-tiered deadline and associated dealer and the reverse dealer with
collateral substitution process is being
late fee for a repo party to submit a respect to unknown replacement
initiated, at which time the reverse repo collateral.
dealer sends the original repo collateral substitution notification.5 The proposed
A. Clearing Fund Calculation and
to FICC. However, since under FICC’s rule change would establish: (i) An
Permissible Margin Offsets. With respect
current system the repo dealer’s 11:00 a.m. Eastern Time deadline 6 for a
to the calculation of the repo dealer’s
substitution notification sent to FICC repo party to submit a substitution
clearing fund requirement, FICC will
must contain information about the notification and (ii) a late fee of $100 for
assign a value to a repo transaction
replacement collateral, often the each substitution notification that is
where FICC has not received
received after the deadline. The
substitution notification is not delivered information regarding the replacement
proposed rule change also would
to FICC at the time FICC receives the collateral, which value will be 150
establish a two-tiered deadline and
returned original repo collateral from percent of the contract value of the
associated late fee schedule for a repo
the reverse repo dealer. When the repo original securities collateral.9 FICC will
party to submit replacement collateral
dealer does determine what securities also apply the highest applicable margin
information. The proposed deadlines for
will constitute the replacement factor in its rules in connection with the
submission of replacement collateral
collateral, it often delivers the repo transaction. In GSD’s rules, the
information are: (i) 12:00 p.m. Eastern
replacement collateral to FICC before highest margin factor is the factor for
Time and (ii) 12:30 p.m. Eastern Time.
sending the repo collateral substitution securities with a remaining maturity of
The proposed late fee assessments are:
notification. Thus the parties have fewer than 30 years. Therefore, if the
(i) $100 for each submission of
delivered the respective collateral to generic CUSIP number that is assigned
replacement collateral information that
FICC, but until FICC receives the to the unknown replacement collateral
is received after the first deadline but
is the generic CUSIP number for
substitution notification, it is not able to before the second deadline and (ii) $250
Treasury securities with a remaining
deliver the collateral to the appropriate for each submission of replacement
maturity of under 30 years, FICC will
parties. This leaves FICC in an overdraft collateral information that is received
use the existing margin factor of 1.450
position at the clearing bank(s), which after the second deadline.7
(applicable to category 1 members with
can cause expense and risk to FICC and 3. Risk Management Measures and positions in non-zeros).10
to its members and settlement Technical Changes The proposed risk management
processing delays. measures applicable to non-timely
As part of the proposed rule change,
The proposed rule change will permit FICC believes it is necessary to address allocation of replacement collateral will
the repo dealer or repo broker, as the risk presented to FICC in the repo further affect the clearing fund
appropriate, to submit a substitution collateral substitution process by the calculation of the repo dealer by
notification to FICC without information failure of a party to timely submit limiting permissible offsets. A regular
about the replacement collateral. FICC information regarding the replacement part of the GSD’s margining system is to
will deliver the original collateral to the collateral to FICC. The risk that arises in permit offsets between resulting margin
repo party’s account at its clearing such a situation is that by the time FICC amounts of long and short net
bank(s) upon receipt of the substitution receives the information about the settlement positions. The GSD’s rules
notification so the original collateral replacement collateral, the replacement contain disallowance factor tables that
collateral may have a different market set forth specific limits on these
will no longer linger in FICC’s account.
value than the original collateral on permissible offsets. For example, where
FICC believes this will encourage repo
a short net settlement position in
dealers to allocate replacement Treasury Offset Class A is to be offset
5 The current deadlines are 12:00 p.m. Eastern
collateral more timely since they will be
Time and 12:30 p.m. Eastern Time. The deadlines
financing the original collateral are extended by one hour on days that: (i) FICC 8 Generic CUSIP numbers represent the range of

intraday.4 determines are high-volume days or (ii) The Bond permissible securities that can constitute the
Market Association announces in advance will be replacement collateral. For example, there is a
high-volume days. FICC assesses a late fee of: (i) generic CUSIP number which represents Treasury
3 With respect to a non-brokered repo transaction,
$100 for each substitution notification that is securities with remaining maturity of fewer than
the repo dealer would contact the reverse repo received after the first deadline but before the thirty years.
dealer directly about the repo collateral second deadline and (ii) $250 for each substitution 9 New subsection 3(f) has been proposed to be

substitution. notification that is received after the second added to Rule 18 in order to effect this change. It
4 The changes necessary to reflect this part of the deadline. should be noted that the application of the 150
6 The proposed 11:00 a.m. Eastern Time deadline percent for clearing fund purposes applies to both
rule change are contained in GSD Rule 18, Sections
3(a), (b), (c), and (d) and in the Schedule of will not be extended on high-volume days. the receive/deliver and repo volatility components
7 The proposed allocation of collateral deadlines of the clearing fund calculation.
Required and Accepted Data Submission Items for
will be extended by one hour on days that: (i) FICC 10 The GSD’s margin factor schedules apply
cchase on PROD1PC60 with NOTICES

a Right of Substitution. A new schedule, titled

determines are high-volume days or (ii) The Bond different margin factors to category 1 and category
Schedule of Required and Accepted Data Market Association announces in advance will be 2 dealers. In this example, if the member were a
Submission Items for New Securities Collateral, is high-volume days. The rule changes necessary to category 2 member electing not to receive credit
being proposed to be added to the rules to reflect affect this part of the proposed rule are contained forward mark adjustment payments, the applicable
that information on the replacement collateral will in the Schedule of Timeframes and in the Fee margin factor under the proposed rule change
be contained in a separate submission to FICC. Structure under ‘‘Late Fees.’’ would be 1.5.

VerDate Aug<31>2005 17:06 Jan 04, 2006 Jkt 208001 PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 E:\FR\FM\05JAN1.SGM 05JAN1
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices 631

against a long net settlement position in C. Technical Changes. Additionally, the repo party in such a repo transaction
Treasury Offset Class B, the applicable FICC proposes changes to its GSD rules must make the required substitution of
disallowance factor table rules provides relating to repo collateral substitutions collateral by the time noted in the rule
that 20 percent of this offset will be and repo transactions generally to make or FICC will remove the transaction
disallowed. For offset purposes under certain technical changes and/or to align from its books. This is because the
the proposed rule change, FICC will the applicable provisions with standard underlying contract terminates if the
define two new offset classes to capture internal or industry practice. These are: collateral is not replaced in time, and
the generic CUSIP numbers that can be 1. Section 3(a) of Rule 18: Delete the therefore, the proposed rule change
assigned to unknown replacement requirement that details regarding the reflects industry practice. The proposed
collateral. These new offset classes will rights of substitution match between rule change further reflects industry
be identified as ‘‘H’’ for Treasury counterparties. Details regarding rights practice by deleting the requirement
securities and ‘‘h’’ for non-mortgage- of substitution are not a required trade that the replacement collateral meet
backed Agency securities. Under the reporting item and thus will not be a certain specific criteria and replacing
proposed rule change, as a further risk required match item in GSD’s system. that requirement with a requirement
management measure, FICC will not References in this respect will be that the replacement collateral be ‘‘in
permit offsets: (i) Between Offset Classes deleted to reflect actual operating accordance with the terms of the
H and h or (ii) between Offset Classes practice; transaction.’’ This change also reflects
H or h on the one hand and other 2. Sections 3(e) and 3(f) of Rule 18: industry practice.
existing GSD Offset Classes on the other. Delete the requirement that upon receipt FICC believes the proposed rule
of either the original or the replacement change is consistent with the
B. Modified Mark-to-Market
collateral, FICC will promptly redeliver requirements of Section 17A of the
Calculation. FICC also believes that a
the securities to the appropriate party. Act 13 and the rules and regulations
prudent risk management measure in
As stated in the narrative above, FICC thereunder applicable to FICC because it
the case where a generic CUSIP number
may receive securities that are the promotes timely processing of
is used for underlying collateral will be
subject of a repo collateral substitution participant transactions. As such, FICC
to calculate a modified mark-to-market
request but may not yet have the believes the proposed rule facilitates the
obligation with respect to the
requisite information for delivery of prompt settlement of transactions and
replacement collateral and to impose
those securities. These provisions assures the safeguarding of securities
this on both the repo dealer and the
should be deleted to reflect actual and funds that are in the custody and
reverse repo dealer. In a typical scenario
operating practice and also to make the control of FICC or for which it is
where the replacement collateral is
rule consistent with the proposed responsible.
identified, FICC reverses any previous
mark-to-market calculation for the old 3. Section 3(h) of Rule 18: Delete the (B) Self-Regulatory Organization’s
collateral and recalculates, collects, and provision regarding implications of repo Statement on Burden on Competition
passes through a mark-to-market collateral substitutions on margin and FICC does not believe that the
associated with the actual replacement mark-to-market requirements. This proposed rule change will have any
collateral. This computation is defined provision is redundant because the impact or impose any burden on
as the Forward Mark Adjustment effects of repo substitutions on such competition.
Payment.11 In the scenario where the requirements are covered in the rules
replacement collateral has not been governing these items and the rules to (C) Self-Regulatory Organization’s
identified, FICC will calculate a be modified by the proposed rule Statement on Comments on the
modified Forward Mark Adjustment change; Proposed Rule Change Received From
Payment to protect FICC against market 4. Section 4 of Rule 18: Make optional Members, Participants, or Others
risk. Specifically, the definition of a requirement that for general collateral, Written comments relating to the
Forward Mark Adjustment Payment will forward-starting repos, the specific proposed rule change have not been
be amended by noting that, with respect CUSIP and par value be submitted prior solicited or received. FICC will notify
to a repo transaction for which a to the repo start date. FICC typically the Commission of any written
substitution request has been made but does not receive such allocations from comments received by FICC.
for which replacement collateral its members prior to the repo start date
information has not been provided to III. Date of Effectiveness of the
and thus the proposed change will align
FICC, a new Forward Unallocated Sub Proposed Rule Change and Timing for
the rule with industry practice. The
Mark will be applied. This new mark Commission Action
proposed change further reflects
will take into account repo interest that operating practice as well as industry Within thirty-five days of the date of
has accrued with respect to the repo expectations that a general collateral, publication of this notice in the Federal
transaction to date, as well as changes forward-starting repo will be removed Register or within such longer period:
in the repo rate (to reflect the difference from the GSD’s books if FICC does not (i) as the Commission may designate up
between the contract rate and the receive the specific CUSIP by the time to ninety days of such date if it finds
market rate for the remaining term of the noted in the rule. Members typically such longer period to be appropriate
repo transaction).12 submit new transactions with the and publishes its reasons for so finding;
specific CUSIPs and expect that the or (ii) as to which the self-regulatory
11 The Forward Mark Adjustment Payment is the
general collateral transaction will be organization consents, the Commission
sum of two components: the Collateral Mark and
the Financing Mark. The Collateral Mark is the removed from the GSD’s books. will:
absolute value of the difference between the trade’s 5. Section 5 of Rule 18: Amend the (A) By order approve such proposed
contract value and market value. The Financing provision that addresses repo rule change or
cchase on PROD1PC60 with NOTICES

Mark reflects the financing cost that would be (B) Institute proceedings to determine
incurred by FICC if it replaced the reverse side of
transactions with maturing collateral.
the repo by buying securities and putting them out The proposed rule change provides that whether the proposed rule change
on repo. should be disapproved.
12 The following new definitions have been Interest-to-Date, Repo Interest Rate Differential, and
proposed to effect this change: Accrued Repo Forward Unallocated Sub Mark. 13 15 U.S.C. 78q–1.

VerDate Aug<31>2005 17:06 Jan 04, 2006 Jkt 208001 PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 E:\FR\FM\05JAN1.SGM 05JAN1
632 Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices

IV. Solicitation of Comments For the Commission by the Division of approves the proposed rule change, as
Market Regulation, pursuant to delegated amended.
Interested persons are invited to authority.14
submit written data, views, and II. Description of the Proposed Rule
Nancy M. Morris,
arguments concerning the foregoing, Change
including whether the proposed rule Financial institutions, including
[FR Doc. E5–8299 Filed 1–4–06; 8:45 am]
change is consistent with the Act. broker-dealers, must develop and
Comments may be submitted by any of implement anti-money laundering
the following methods: (‘‘AML’’) programs pursuant to the Bank
Secrecy Act,7 as amended by Section
Electronic Comments SECURITIES AND EXCHANGE 352 of the Uniting and Strengthening
COMMISSION America by Providing Appropriate
• Use the Commission’s Internet Tools Required to Intercept and
comment form (http://www.sec.gov/ [Release No. 34–53030; File No. SR–NASD– Obstruct Terrorism (USA PATRIOT) Act
rules/sro.shtml) or 2005–066] of 2001 (‘‘PATRIOT Act’’).8 Consistent
• Send an e-mail to rule- with Treasury regulation 31 CFR
comments@sec.gov. Please include File Self-Regulatory Organizations; 103.120 under the Bank Secrecy Act,
Number SR–FICC–2005–18 on the National Association of Securities NASD Rule 3011 requires that each
subject line. Dealers, Inc.; Order Approving member develop and implement a
Proposed Rule Change and written AML program and specifies the
Paper Comments Amendment No. 1 Thereto Relating to minimum requirements for those
Amendments to NASD Rule 3011 and programs.
• Send paper comments in triplicate the Adoption of New Related
to Nancy M. Morris, Secretary, Interpretive Material Independent Testing
Securities and Exchange Commission, One of the AML program
100 F Street, NE., Washington, DC December 28, 2005. requirements is that firms
20549–9303. I. Introduction independently test their AML programs.
All submissions should refer to File Testing allows a member to review and
Number SR–FICC–2005–18. This file On May 23, 2005, the National assess the adequacy of the firm’s AML
number should be included on the Association of Securities Dealers, Inc. program and the firm’s degree of
subject line if e-mail is used. To help the (‘‘NASD’’) filed with the Securities and compliance with its written procedures.
Commission process and review your Exchange Commission (‘‘SEC’’ or Test results alert members to any
‘‘Commission’’), pursuant to Section deficiencies in their AML programs,
comments more efficiently, please use
19(b)(1) of the Securities Exchange Act thereby allowing them to take
only one method. The Commission will
of 1934 (‘‘Act’’) 1 and Rule 19b–4 appropriate corrective action or
post all comments on the Commission’s
thereunder,2 a proposed rule change disciplinary action as the situation may
Internet Web site (http://www.sec.gov/ relating to amendments to NASD Rule warrant. The independent test report
rules/sro.shtml). Copies of the 3011 and the adoption of new related also is an important tool for regulators
submission, all subsequent interpretive material. The Commission during their examinations of firms for
amendments, all written statements published the proposed rule change for AML compliance to, among other
with respect to the proposed rule comment in the Federal Register on July things, ensure that the firms are
change that are filed with the 6, 2005.3 The Commission received following up with corrective action
Commission, and all written three comments on the proposal.4 On when such tests discover AML program
communications relating to the December 15, 2005, NASD filed a deficiencies.
proposed rule change between the response to the comment letters,5 as Frequency of Testing
Commission and any person, other than well as Amendment No. 1 to the
those that may be withheld from the proposed rule change.6 This order Neither the Bank Secrecy Act nor
public in accordance with the NASD Rule 3011 currently specifies the
provisions of 5 U.S.C. 552, will be 14 17 CFR 200.30–3(a)(12).
frequency of independent testing, and
available for inspection and copying in 1 15 U.S.C. 78s(b)(1). members have asked NASD for guidance
2 17 CFR 240.19b–4. on this issue. Given the important role
the Commission’s Public Reference
3 See Securities Exchange Act Release No. 51935 that testing plays in a firm ensuring that
Section, 100 F Street, NE., Washington, (June 29, 2005), 70 FR 38990 (July 6, 2005) (the its AML program is effective in
DC 20549. Copies of such filings also ‘‘Notice’’). preventing money laundering activities
will be available for inspection and 4 See letters from Marianne Czernin, Senior VP,
from occurring at or through the firm
copying at the principal office of FICC Director, Broker/Dealer Client Services, National
Regulatory Services to Jonathan G. Katz, Secretary, and, in order to assure that member
and on FICC’s Web site at http:// SEC, dated June 9, 2005 (the ‘‘NRS Letter’’), from AML programs are serving their
www.ficc.com. All comments received John J. Lynch, Jr., Executive Vice President, regulatory purposes, the proposed rule
will be posted without change; the Hartfield, Titus & Donnelly, LLC, to Barbara Z.
change would require in most instances
Sweeney, Senior Vice President and Corporate
Commission does not edit personal Secretary, NASD, dated July 20, 2005 (the ‘‘HTD that firms test their AML programs at
identifying information from Letter’’) and from Alan E. Sorcher, Vice President least annually (on a calendar-year basis).
submissions. You should submit only and Associate General Counsel, Securities Industry Certain firms, however, because of their
information that you wish to make Association (‘‘SIA’’), to Jonathan B. Katz, Secretary,
SEC, dated July 27, 2005 (the ‘‘SIA Letter’’).
business models and activities may be
available publicly. All submissions 5 See letter from Brant K. Brown, Counsel, NASD, able to test on a less frequent basis.
cchase on PROD1PC60 with NOTICES

should refer to File Number SR–FICC– to Lourdes Gonzalez, Assistant Chief Counsel,
2005–18 and should be submitted on or Division of Market Regulation, dated December 15, 7 Currency and Foreign Transactions Reporting

2005 (the ‘‘NASD Response’’). Act of 1970 (commonly referred to as the Bank
before January 20, 2005. 6 Amendment No. 1 clarified the conditions set Secrecy Act), 12 U.S.C. 1829b, 12 U.S.C. 1951–
forth in proposed IM–3011–1(c)(3). See footnote 9 1959, and 31 U.S.C. 5311–5330.
and accompanying text. 8 Pub. L. 107–56, 115 Stat. 272 (2001).

VerDate Aug<31>2005 17:06 Jan 04, 2006 Jkt 208001 PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 E:\FR\FM\05JAN1.SGM 05JAN1