Daily Rules, Proposed Rules, and Notices of the Federal Government
The proposed rule changes serve to clarify FICC's stated policy with regard to existing provisions of the Rules of the Government Securities Division ("GSD") and the Mortgage-Backed Securities Division ("MBSD") (each, a "Division") concerning loss allocation. The proposed rule changes will similarly clarify FICC's stated policy regarding MBSD's Rules governing indemnification.
In its filing with the Commission, FICC included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments it received on the proposed rule changes. 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 these statements.
The proposed rule changes will clarify FICC's stated policy with regard to existing provisions of GSD's and MBSD's Rules concerning loss allocation. The proposed rule changes will similarly clarify FICC's stated policy with regard to MBSD's existing indemnification rules. The policies described below are consistent with the responses that FICC has provided to firms that have raised questions about the Divisions' loss-allocation and indemnification provisions.
The question has arisen as to whether a Tier One Member
FICC's loss-allocation provisions are contained in Rule 4, Section 7 of the respective Rules of each Division. Section 7 provides that any loss or liability incurred by FICC as a result of a default by a Member or the failure of a Member to fulfill its obligations to FICC under the applicable Rules of each Division is satisfied pursuant to the payments and allocation methods described in that Section. There are two potential losses that FICC may allocate to its Members: Remaining Losses and Other Losses. Section 7(g)(ii) provides that a Member of either Division may withdraw from FICC and have its liability from an allocation based on any
FICC wishes to make clear its stated policy that a Member may withdraw from either Division and cap its liability from Remaining Losses with respect to that Division. FICC recognizes that it cannot impose unlimited liability on its Members. Many of its Members are depository institutions that are barred by federal law from being exposed to unlimited third-party liabilities.
Therefore, FICC is clarifying its stated policy that, under its loss-allocation provisions, FICC will permit a Tier One Member of either Division to withdraw its membership pursuant to the procedure outlined in the Division's Rules, and thereby cap the Member's liability with respect to Remaining Losses and Other Losses at the amount of its Required Fund Deposit, as measured in accordance with the applicable Division's Rules (the cap would apply after allocation of the $50,000 described in Section 7(c) of GSD Rule 4 and Section 7(d) of MBSD Rule 4). This limitation applies with respect to a single event of insolvency or default.
An additional question has arisen as to whether the indemnification obligation contained in the last sentence of MBSD Rule 3, Section 15 is also subject to the cap on liability discussed above with respect to Remaining Losses and Other Losses. FICC wishes to make clear that the answer to this question is also yes; the assessment authority in the
FICC believes the proposed rule changes are consistent with Section 17A of the Act
FICC does not believe the proposed rule changes would have any impact, or impose any burden, on competition.
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.
The foregoing proposed rule changes have become effective pursuant to Section 19(b)(3)(A)(i) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule changes are consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FICC-2012-08 and should be submitted on or before November 28, 2012.