[Federal Register Volume 83, Number 158 (Wednesday, August 15, 2018)]
[Notices]
[Pages 40611-40617]
[FR Doc No: 2018-17489]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83808; File No. SR-FICC-2018-007]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Correct Certain References,
Provide Transparency to Existing Processes and Amend Existing Practices
in Connection With the Mortgage-Backed Securities Division Electronic
Pool Notification Rules

August 9, 2018.
    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 August 3, 2018, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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
Mortgage-Backed Securities Division (``MBSD'') electronic pool
notification (``EPN'') Rules (the ``EPN Rules'') \3\ as described
below.
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    \3\ Terms not defined herein are defined in the EPN Rules,
available at http://www.dtcc.com/legal/rules-and-procedures.
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    FICC is proposing to correct the EPN Rules by (i) deleting
references to the term ``EPN Procedures,'' (ii) amending the definition
of the term ``Interested Person'' to delete the reference to
``Comparison Only System,'' (iii) deleting the defined term for ``Par
Amount,'' (iv) replacing references to the term ``Vice President'' with
the term ``Executive Director,'' (v) amending Sec. 3 (Agreements of EPN
User) in EPN Rule 1 (Requirements Applicable to EPN Users) of Article
III (EPN Users) to clarify an EPN User's obligation to process Messages
through the EPN system during a system disruption, and (vi) amending
EPN Rule 4 (Admission to Premises of Corporation; Power of Attorney) of
Article III (EPN Users) to replace a reference to ``he'' with ``such
person.''
    FICC is proposing to amend various sections in the EPN Rules to
provide transparency to FICC's existing processes. Specifically, FICC
is proposing to amend EPN Rule 1 (Definitions) of Article I
(Definitions and General Provisions); Section 2 (Limitations) in EPN
Rule 1 (Accounts) and Section 1 (Availability of Reports), Section 2
(Message Detail Report), Section 3 (Message Summary Report), and
Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of
Article II (Messages Processed by the Corporation); and EPN Rule 5 (Use
of EPN Service) of Article III (EPN Users).
    FICC is also proposing to amend its existing practice in connection
with an EPN User's submission of a cancel and correct Message.\4\
Specifically, FICC is proposing to establish one good delivery time
stamp (referred to as the ``T2'' \5\ time stamp) that reflects the same
processing time on the pool seller's and the pool buyer's cancel and
correct Message, respectively. The proposed change would not affect
FICC's guarantee and novation of transactions submitted by Clearing
Members through MBSD's Clearing System.\6\
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    \4\ See Article II, EPN Rule 2, Sec. 5, supra note 3.
    \5\ The reference to ``T2'' does not relate to the two business
days settlement cycle for broker-dealer securities transactions,
known as ``T+2.''
    \6\ MBSD maintains two sets of rulebooks. The EPN Rules govern
MBSD's EPN Service, and the MBSD Clearing Rules (the ``MBSD Rules'')
govern MBSD's clearance and settlement service. The MBSD Rules are
available at http://www.dtcc.com/legal/rules-and-procedures.
Pursuant to the MBSD Rules, the term ``Clearing System'' means the
(i) system of services provided by MBSD to persons that are Clearing
Members thereof, including trade comparison, to-be-announced
netting, pool comparison, pool netting, and settlement, as
applicable, and (ii) operations carried out by MBSD in the course of
providing such services, as provided in the MBSD Rules. See MBSD
Rule 1, Definitions.
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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
    FICC is proposing to correct the EPN Rules by (i) deleting
references to the term ``EPN Procedures'' because FICC does not
maintain EPN Procedures, (ii) amending the definition of the term
``Interested Person'' to delete the reference to ``Comparison Only
System'' because MBSD does not maintain a Comparison Only System, (iii)
deleting the defined term for ``Par Amount'' because this term is not
used in the EPN Rules, (iv) replacing references to the term ``Vice
President'' with the term ``Executive Director'' because FICC no longer
utilizes the Vice President title, (v) amending Sec. 3 (Agreements of
EPN User) in EPN Rule 1 (Requirements Applicable to EPN Users) of
Article III (EPN Users) to clarify an EPN User's obligation to process
Messages through the EPN system during a system disruption because this
change would be an accurate reflection of FICC's existing practice, and
(vi) amending EPN Rule 4 (Admission to Premises of Corporation; Power
of Attorney) of Article III (EPN User) to replace a reference to ``he''
with ``such person'' because the reference to ``such person'' would be
gender neutral.

    FICC is proposing to amend various sections in the EPN Rules to
provide transparency to FICC's existing processes. Specifically, FICC
is proposing to amend EPN Rule 1 (Definitions) of Article 1
(Definitions and General Provisions); Section 2 (Limitations) in EPN
Rule 1 (Accounts) and Section 1 (Availability of Reports), Section 2
(Message Detail Report), Section 3 (Message Summary Report), and
Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of
Article II (Messages Processed by the Corporation); and EPN Rule 5 (Use
of EPN Service) of Article III (EPN Users).
    FICC is also proposing to amend its existing practice in connection
with an EPN User's submission of a cancel and correct Message.\7\
Specifically, FICC is proposing to establish one good delivery T2 time
stamp \8\ that reflects the same processing time on the pool seller's
and the pool buyer's cancel and correct Message, respectively. As a
result of this change, in the event that the T2 time stamp reflects a
time that does not meet the good delivery requirements in accordance
with the Securities Industry and Financial Markets Association's
(``SIFMA'') Uniform Practices Manual for the Clearance and Settlement
of Mortgage-Backed Securities and Other Related Securities (referred to
in the EPN Rules as the ``SIFMA Guidelines''),\9\ the financing of the
mortgage pools associated with the Message, if any, would be the
responsibility of the counterparties to such Message, as determined by
such parties, in accordance with the SIFMA Guidelines. FICC is
proposing this change because it would be consistent with the SIFMA
Guidelines, and FICC believes that the parties to the Message are best
positioned to ensure that a cancel and correct Message meets the good
delivery requirements. The proposed change would not affect FICC's
guarantee and novation of transactions submitted by Clearing Members
through MBSD's Clearing System.
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    \7\ See supra note 4.
    \8\ The good delivery T2 time stamp indicates whether good
delivery has occurred with respect to a Message--meaning, if the T2
time stamp reflects a time that is at or before the established
deadline, then good delivery has been established and the pool buyer
will accept the Message with respect to the allocated securities.
    \9\ The SIFMA Guidelines are available at https://www.sifma.org/resources/general/tba-market-governance/.
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    The proposed changes are described in detail below.

(1) MBSD's EPN Service

    MBSD's electronic pool notification service (referred to in the EPN
Rules as the ``EPN Service'') enables users to reduce risk and
streamline their operations by providing an automated manner for market
participants that have an obligation to deliver pools (``pool
sellers'') to transmit pool information efficiently and reliably to
their counterparties (``pool buyers'') in real time. Market
participants that wish to utilize the EPN Service are required to
submit an application to MBSD. The application process and the use of
the EPN Service are governed by the EPN Rules.\10\ The EPN Rules are
designed to be consistent with the SIFMA Guidelines, which reflect
common industry practices for the trading, clearance and settlement of
mortgage-backed securities transactions. MBSD's Clearing Members are
required to be EPN Users; however, one can be an EPN User and not a
Clearing Member.\11\
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    \10\ See Article III, EPN Rule 1, supra note 3.
    \11\ Pursuant to the MBSD Rules, the term ``Clearing Member''
means any entity admitted into membership pursuant to MBSD Rule 2A.
See MBSD Rule 1, Definitions, supra note 6.
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(2) Proposed Changes To Correct the EPN Rules

    FICC is proposing to amend the EPN Rules in order to correct
various provisions in the EPN Rules. The proposed changes would help
ensure that the EPN Rules are clear and accurate. The proposed changes
reflect MBSD's existing practices and FICC believes that these changes
would help EPN Users better understand their rights and obligations
under the EPN Rules. The proposed changes are described in detail
below.

a. Article I--Definitions and General Provisions

Proposed Changes to EPN Rule 1--Definitions
    FICC is proposing to delete the term ``EPN Procedures.'' EPN Rule
11 of Article V empowers FICC to adopt EPN Procedures as FICC ``deems
necessary or desirable.'' \12\ It appears that when FICC instituted the
EPN Service and the related EPN Rules, EPN Procedures were not adopted
at that time.\13\ Since FICC does not currently maintain EPN
Procedures, FICC has decided to conform the EPN Rules to its practices
by deleting this definition and the related references throughout the
EPN Rules because this inchoate power is itself not necessary.
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    \12\ See supra note 3.
    \13\ FICC instituted the EPN Service and the related EPN Rules
on a pilot basis in February 1995. The Commission's temporary
approval order notes that Amendment No. 2 to the proposed rule
change clarified that ``the only MBS rules and procedures applicable
to EPN users are the rules and procedures located in Articles VI,
VII, VIII, IX, and X of MBS's rules.'' See Release No. 35009
(November 25, 1994) 59 FR 61913 (December 2, 1994) (SR-MBS-94-02).
The Commission granted permanent approval of the EPN Service and the
related EPN Rules in November 1995. See Release No. 36540 (November
30, 1995) 60 FR 63089 (December 8, 1995) (SR-MBS-95-09). It should
be noted FICC submitted a proposed rule change in June 2017 which,
among other things, renumbered the references of Articles VI, VII,
VIII, IX, and X to refer to Articles I, II, III, IV and V,
respectively. See Release No. 81002 (June 22, 2017) 82 FR 29355
(June 28, 2017) (SR-FICC-2017-015).
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    FICC is proposing to amend the term ``EPN Service'' to delete the
reference to EPN Procedures.
    FICC is proposing to amend the term ``EPN User Profile'' to delete
the reference to EPN Procedures. In connection with this change, FICC
is proposing to make a grammatical correction to this definition by
replacing the word ``in'' with ``by'' so that the definition would
state that ``the EPN User Profile would be on a form specified `by'
FICC.''
    FICC is proposing to amend the term ``Interested Person'' to delete
the reference to Comparison Only System because MBSD does not maintain
a Comparison Only System. FICC believes that the inclusion of this term
in the EPN Rules was an error.
    FICC is proposing to delete the term ``Par Amount'' because this
term is not otherwise referred to in the EPN Rules. FICC believes that
the inclusion of this term in the EPN Rules was an error and that it
has no practical effect because this term is not used in the EPN Rules.
FICC notes that this term was included and not defined in a version of
the EPN Rules that was filed with the Commission on October 20,
1999.\14\
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    \14\ Release No. 42721 (April 25, 2000) 65 FR 25778 (May 3,
2000) (SR-MBSCC-99-8).
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b. Article III--EPN Users

i. Proposed Changes to EPN Rule 1--Requirements Applicable to EPN Users
    Section 3 (Agreements of EPN Users) sets forth a list of terms that
an applicant is required to agree to, as specified in the EPN User
Agreement. This list states, in part, that an applicant shall agree (i)
to abide by and be bound by the EPN Rules and EPN Procedures, (ii) that
the EPN Rules and EPN Procedures are incorporated into every contract
or Message, (iii) that the EPN User shall pay fines that are imposed in
accordance with the EPN Rules and EPN Procedures, and (iv) that it is
bound by any amendment to the EPN Rules and EPN Procedures. FICC is
proposing to delete all references in this section to the EPN
Procedures.
    Section 3 also includes a paragraph that states that in the event
of an EPN

system disruption and an extension of the cut-off times for
communicating pool allocation information pursuant to the SIFMA
Guidelines, EPN Users ``will'' be relieved of their obligation to
process Messages through the EPN Service until the beginning of the
next Business Day after the EPN system has been recovered. FICC is
proposing to amend this provision to state that EPN Users ``may'' be
relieved of their obligation to process Messages through the EPN
Service until ``later in the Business Day or'' the beginning of the
next Business Day after the EPN system has been recovered.
    FICC is proposing this change because the nature of the EPN system
disruption and MBSD's ability to promptly fix such disruption
determines whether the cut-off time would be extended to later in the
Business Day or the next Business Day. In the event that FICC has the
ability to promptly fix the EPN system disruption, EPN Users may be
required to process their Messages in accordance with the applicable
timeframes for the remainder of the Business Day. However, if FICC
cannot promptly fix the EPN system disruption, MBSD would relieve EPN
Users of their obligation to process Messages through the EPN Service
until the beginning of the next Business Day. In all cases, FICC
coordinates with EPN Users and, to the extent necessary, SIFMA to
communicate whether an extension of the cut-off time is necessary.
Though EPN system disruptions are rare, the proposed change is
consistent with MBSD's existing practice of handling system disruptions
that impact the EPN Service.
    Section 5 (EPN Users Bound by EPN Rules, EPN Procedures and
Applicable Laws) states, in part, that the use of FICC's facilities by
an EPN User shall constitute such EPN User's agreement with FICC and
with all other EPN Users to be bound by the provisions of, and by any
action taken or order issued by FICC pursuant to the EPN Rules and any
amendment thereto, and to such EPN Procedures that FICC from time to
time may adopt. FICC is proposing to amend the title of this section
and the paragraph in this section to delete all references to EPN
Procedures.
    Section 6 (EPN Rules and EPN Procedures Incorporated in EPN User
Messages) states that the EPN Rules and the EPN Procedures adopted from
time to time by FICC shall be deemed incorporated in each Message that
occurs through the EPN Service. It also states that if the terms
contained in any other agreement between EPN Users are inconsistent
with the provisions of the EPN Rules or the EPN Procedures, the EPN
Rules and the EPN Procedures shall be controlling. FICC is proposing to
amend the title of this section and the paragraph in this section to
delete all references to EPN Procedures.
ii. Proposed Changes to EPN Rule 3--When the Corporation Declines To
Act for an EPN User
    Section 1 (Ceasing to Act for an EPN User) in EPN Rule 3 states, in
part, that FICC may at any time cease to act for an EPN User if the EPN
User has (i) failed to perform its obligations to FICC or other EPN
Users under the EPN Rules or the EPN Procedures or (ii) materially
violated any of the EPN Rules, EPN Procedures or any agreement with
FICC. FICC is proposing to amend this section to delete all references
to the EPN Procedures.
iii. Proposed Changes to EPN Rule 4--Admission to Premises of
Corporation; Powers of Attorney
    EPN Rule 4 states, in part, that no person shall be permitted to
enter FICC's premises as the representative of any EPN User unless
``he'' has first been approved by FICC. FICC is proposing to delete the
reference to ``he'' and replace it with ``such person'' because FICC
believes that it would be more appropriate to use gender neutral
terminology.

c. Article V--Miscellaneous

i. Proposed Changes to EPN Rule 1--Action by the Corporation
    EPN Rule 1 states that except where action by the Board, or any
committee of the Board, is specifically required by the By-Laws or the
EPN Rules, FICC may act by its President, any Managing Director or any
Vice President or by such person as may be designated from time to time
by the Board. FICC is proposing to amend this sentence to delete the
reference to Vice President and replace it with Executive Director.
FICC is proposing this change because FICC no longer utilizes the Vice
President title. This category of officers is currently referred to as
Executive Directors.
ii. Proposed Changes to EPN Rule 3--Fines and Other Sanctions
    EPN Rule 3 states that FICC may impose a fine on an EPN User for a
violation of the EPN Rules or EPN Procedures. FICC is proposing to
amend this paragraph to delete the reference to EPN Procedures.
iii. Proposed Changes to EPN Rule 4--Communications
    Section 1 (Communications) states, in part, that each EPN User
maintaining an Account shall be required to maintain such data
processing and communications equipment as FICC may specify in the EPN
Procedures. FICC is proposing to delete the reference to EPN Procedures
and amend this sentence to state that each EPN User maintaining an
Account shall be required to maintain such data processing and
communications equipment as FICC may specify from time to time. The
proposed change is consistent with FICC's existing practice of
providing data processing and communications equipment requirements to
all approved applicants during the membership onboarding process. In
the event that FICC changes or updates its data processing and
communications equipment requirements, FICC partners with applicants
and EPN Users to help ensure that their equipment is adequate and that
such EPN Users are operationally ready. EPN Users are made aware of all
changes or updates to FICC's data processing and communications
equipment requirements because FICC communicates such changes through
various forms of communication including but not limited to important
notices, electronic mail and phone.
iv. Proposed Changes to EPN Rule 7--Hearings
    Section 1 (Requests for a Hearing) states, in part, that if an
Interested Person's written statement contests FICC's determination
that such Interested Person has violated an EPN Rule or EPN Procedure,
the statement must specifically admit or deny each violation alleged
and detail the reasons why the EPN Rules or EPN Procedures alleged to
have been violated are being contested. FICC is proposing to amend this
sentence to delete all references to the EPN Procedures.
v. Proposed Changes to EPN Rule 11--EPN Procedures
    FICC is proposing to delete this rule its entirety because FICC
does not maintain EPN Procedures. EPN Rule 11 of Article V empowers
FICC to adopt EPN Procedures as FICC ``deems necessary or desirable.''
\15\ It appears that when FICC instituted the EPN Service and the
related EPN Rules, EPN Procedures were not adopted at that time.\16\
Since FICC does not currently maintain EPN Procedures, FICC has decided
to conform the EPN Rules to its practices by deleting this Rule, the
defined term from EPN Rule 1 of Article

I (as stated above), and related references throughout the EPN Rules
because this inchoate power is itself not necessary. FICC would reserve
this rule for future use and this rule would be entitled ``Reserved for
Future Use.''
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    \15\ See supra note 3.
    \16\ See supra note 13.
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vi. Proposed Changes to EPN Rule 12--Waivers, Etc.
    EPN Rule 12 states, in part, that the time fixed by the EPN Rules,
the EPN Procedures or any regulations issued by FICC for the doing of
any act may be extended, waived or suspended by the Board or by any
officer of FICC having a rank of Vice President or higher whenever such
extension, waiver or suspension is necessary or expedient. FICC is
proposing to amend this sentence to delete all references to EPN
Procedures and delete all references to regulations issued by FICC.
FICC is also proposing to delete the reference to ``Vice President''
and replace it with ``Executive Director'' because FICC no longer
utilizes the Vice President title. This category of officers is
currently referred to as Executive Directors.
vii. Proposed Changes to EPN Rule 17--Forms
    EPN Rule 17 states, in part, that any information required to be
delivered to FICC by use of any such forms may be delivered by the use
of any media, as shall be prescribed in the EPN Procedures or by FICC
from time to time. FICC is proposing to delete the reference to EPN
Procedures. In the event that FICC requires that a particular form
should be delivered by use of any media, it is FICC's existing practice
to provide this information directly to the affected EPN User. To the
extent that such requirement is applicable to a group or category of
EPN Users, such EPN Users are made aware of FICC's requirements because
FICC announces such information through important notices, available at
http://www.dtcc.com/legal/important-notices.

(3) Proposed Changes To Provide Enhanced Transparency to the EPN Rules

    FICC is proposing to amend the EPN Rules to provide transparency to
various provisions in the EPN Rules. The proposed changes would help
ensure that the EPN Rules are clear and accurate. The proposed changes
reflect MBSD's existing practices and FICC believes that these changes
would help EPN Users better understand their rights and obligations
under the EPN Rules. The proposed changes are described in detail
below.

a. Article I--Definitions and General Provisions

Proposed Changes to EPN Rule 1--Definitions
    FICC is proposing to amend the term ``Message'' to delete the
reference to EPN Procedures. FICC would define this term as all
electronic messages sent and received by an EPN User through the EPN
Service.

b. Article II--Messages Processed by the Corporation

i. Proposed Changes to EPN Rule 1--Accounts
    Section 2 (Limitations) states that FICC may specify in the EPN
Procedures that certain Messages between EPN Users are not eligible for
the EPN Service. FICC is proposing to delete the reference to EPN
Procedures and amend this section to state that certain Messages may be
ineligible if FICC determines that such Messages are not submitted in a
manner that is consistent with the communication links, formats,
timeframes, and deadlines established by FICC.
    Currently, an EPN User is informed of the requisite communication
links, formats, timeframes, and deadlines when such EPN User's
application has been approved by MBSD. This information is communicated
to all approved applicants during the membership onboarding process.
The communication links and formats are also available in MBSD's
implementation guidelines at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation. The timeframes and deadlines
are available at http://www.dtcc.com/~/media/Files/Downloads/Clearing-
Services/FICC/MBSD/MBSD-Clearing-Schedules-and-Timeframes.pdf.
ii. Proposed Changes to EPN Rule 2--Reports
    Section 1 (Availability of Reports) states that the Message Detail
Report and the Message Summary Report are available at a time specified
in the EPN Procedures. FICC is proposing to delete the reference to EPN
Procedures and amend this section to state that these reports would be
available at a time specified in the time schedule posted on FICC's
website. This proposed change refers to the timeframes available at
http://www.dtcc.com/~/media/Files/Downloads/Clearing-Services/FICC/
MBSD/MBSD-Clearing-Schedules-and-Timeframes.pdf.
    Section 2 (Message Detail Report) states that the Message Detail
Report shall list the contents of each Message as described in the EPN
Procedures. FICC is proposing to delete the reference to EPN Procedures
and amend this section to state that for each Eligible Security, the
Message Detail Report would include, but would not be limited to, the
pool number, original face value, current face value, maturity date,
pool factor, CUSIP Number, issue date, principal and interest, and
total net money. In connection with this change, FICC is proposing to
amend Article I, EPN Rule 1 (Definitions) to include a defined term for
``CUSIP Number.'' This term would be defined as the Committee on
Uniform Securities Identification Procedures identifying number for an
EPN Eligible Security. The proposed change to this section would be
consistent with the information that is currently included in the
Message Detail Report.
    Section 3 (Message Summary Report) states that the Message Summary
Report shall list the contents of each Message as described in the EPN
Procedures. FICC is proposing to delete the reference to EPN Procedures
and amend this section to state that for each Eligible Security, the
Message Summary Report would include, but would not be limited to, the
total original face value, total net money, CUSIP Number, and summary
of the number and type of Messages. The proposed change to this section
would be consistent with the information that is currently included in
the Message Summary Report.
    Section 5 (Good Delivery; Time Stamps) states that each EPN Message
shall include one or more time stamps, one of which will include a good
delivery time stamp as described in the EPN Procedures. FICC is
proposing to delete the reference to ``EPN'' in the term ``EPN
Message'' because ``EPN Message'' is not a defined term, however,
``Message'' is a defined term. FICC is also proposing to delete the
reference to EPN Procedures. FICC is also proposing to amend this
section to state that the good delivery time stamp would be referred to
as ``T2'' and that the application of this time stamp would determine
good delivery among EPN Users pursuant to the SIFMA Guidelines. The
proposed change would also state that the remainder of the time stamps
would be for the EPN Service's operational, processing, and reporting
purposes.\17\
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    \17\ Each Message reflects additional time stamps (e.g., T1, T3,
T4, and T5) that are solely for FICC's operational, processing and
reporting purposes. T1 represents the time when the Message is
received by the EPN Service for processing; T3 represents the time
when the EPN Service's Message Processor sends the Message to the
Outbound Table; T4 represents the time when the Message Processor
archives the Message; and T5 represents the time when the EPN
Service's Output Formatter writes the Message to the Outbound Table.
The Message Processor, Outbound Table and the Output Formatter are
operational components of the EPN Service.

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    In accordance with the SIFMA Guidelines, pool sellers use the EPN
Service to transmit pool information in real-time to their pool buyer
counterparties. Two Business Days prior to the established settlement
date of to-be-announced settlement obligations (known as ``48-Hour
Day''), pool sellers that have an obligation to deliver pools to pool
buyers must submit pool information that such pool sellers intend to
allocate in satisfaction of their settlement obligation. This
notification must occur by 3:00 p.m. on 48-Hour Day.\18\ The 3:00 p.m.
cut-off time establishes that good delivery has occurred for purposes
of the established settlement date--meaning that, if a pool seller
submits its pool information in a Message by the 3:00 p.m. cut-off time
on 48-Hour Day, then the pool buyer is obligated to accept the mortgage
pools on the settlement date. In the event that the pool seller's
notification does not meet the 3:00 p.m. deadline, the pool buyer will
determine whether it is willing to accept the pools subsequent to the
settlement date, and either the pool seller or the pool buyer will
finance the mortgage pools until the delivery date. The delivery of the
mortgage pools and any financing arrangement occur outside of the EPN
Service.
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    \18\ See MBSD's timeframes, available at http://www.dtcc.com/~/
media/Files/Downloads/Clearing-Services/FICC/MBSD/MBSD-Clearing-
Schedules-and-Timeframes.pdf; and see the SIFMA Guidelines, Chapter
7, supra note 9.
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    Because the timing of each Message is important, the EPN system
applies time stamps to each Message that is processed through the EPN
Service. The time stamp designated as T2 establishes whether the pool
seller has met good delivery--meaning, the 3:00 p.m. cut-off time on
48-Hour Day.\19\
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    \19\ In the event that a pool seller fails to submit its pool
information, such pool seller's obligation to submit the pool
information remains ongoing until the pool information is submitted.
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    In the event that the pool seller decides to substitute a mortgage
pool for which pool information has already been provided, the pool
seller must submit a cancel and correct Message by 12:15 p.m. on any
Business Day prior to the delivery of the mortgage pool.\20\ Upon
receipt of the pool seller's Message, the EPN system transmits the
Message to the pool buyer. The T2 time stamp on the Message received by
the pool buyer establishes whether good delivery has occurred for
purposes of the pool seller's pool substitution. In the event that the
T2 time stamp on the pool buyer's Message is after 12:15 p.m., FICC is
responsible for financing the mortgage pools associated with the
Message until the delivery date so long as the T2 time stamp on the
pool seller's Message reflects a time that is at or before 12:15 p.m.
As set forth in subsection (4) below, FICC is proposing to establish
one good delivery T2 time stamp that reflects the same processing time
on the pool seller's Message and the pool buyer's Message,
respectively. This T2 time stamp would determine whether the pool
seller's cancel and correct Message has met the good delivery
requirement.
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    \20\ Supra note 18.
---------------------------------------------------------------------------

c. Article III--EPN Users

Proposed Changes to EPN Rule 5--Use of EPN Service
    EPN Rule 5 states, in part, that all EPN Users will use the EPN
Service for EPN Eligible Securities in a manner set forth in the EPN
Procedures and that this shall be accomplished by providing (for each
Message that an EPN User sends or receives) the pricing and other
descriptive information, in the manner, and by the cut-off times,
specified in the EPN Procedures. FICC is proposing to delete the
references to EPN Procedures and amend this rule to state that the EPN
User will use the EPN Service in a manner set forth in the EPN Rules
and that this shall be accomplished by providing (for each Message that
an EPN User sends or receives) the pricing and other descriptive
information, in the manner, and by the times, specified on FICC's
website. This information is communicated to all approved applicants
during the membership onboarding process. The information that an EPN
User is required to include in a Message is available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.aspx, and the timeframes are available at http://
www.dtcc.com/~/media/Files/Downloads/Clearing-Services/FICC/MBSD/MBSD-
Clearing-Schedules-and-Timeframes.pdf.

(4) Proposed Change to the EPN System's Processing of the Good Delivery
T2 Time Stamp for Pool Substitutions

    As described above in subsection (3)b.ii., if a pool seller decides
to substitute a mortgage pool for which pool information has already
been provided, the pool seller must submit a cancel and correct Message
by 12:15 p.m. on any Business Day prior to the delivery of the mortgage
pool. Upon receipt of the pool seller's Message, the EPN system applies
a T2 time stamp to the pool seller's Message to reflect the time that
the EPN system received the pool seller's Message. The EPN system also
applies a T2 time stamp to the pool buyer's Message to reflect the time
that the pool buyer received the pool seller's Message. The T2 time
stamp on the pool buyer's Message establishes whether good delivery has
occurred for purposes of the pool seller's pool substitution. In the
event that the T2 time stamp on the pool buyer's Message reflects a
time that is after 12:15 p.m., FICC is responsible for financing the
mortgage pools that are associated with the Message until the next
Business Day.\21\
---------------------------------------------------------------------------

    \21\ To date, all Messages have met the established good
delivery requirements, and as a result, FICC has not had to finance
any mortgage pools.
---------------------------------------------------------------------------

    FICC is proposing to establish one good delivery T2 time stamp that
reflects the same processing time on the pool seller's Message and the
pool buyer's Message, respectively. This time stamp would determine
whether the 12:15 p.m. cut-off time has been met for purposes of
establishing good delivery of the pool buyer's pool substitution. As a
result of this change, in the event that the T2 time stamp reflects a
time that does not meet the 12:15 p.m. cut-off time, the financing of
the mortgage pools, if any, would be the responsibility of the
counterparties to the Message as determined by such parties in
accordance with the SIFMA Guidelines. FICC is proposing this change
because it would be consistent with the SIFMA Guidelines and FICC
believes that the parties to the Message are best positioned to ensure
that the Message meets the good delivery requirements.
    The proposed change would be consistent with FICC's proposal to
amend Section 5 (Good Delivery; Time Stamps) in EPN Rule 2 (Reports) of
Article II (Messages Processed by the Corporation) (as referenced above
in subsection (3)b.ii.) to state that the good delivery time stamp
would be referred to as ``T2'' and the application of this time stamp
would determine good delivery among EPN Users pursuant to the SIFMA
Guidelines.
    The proposed change would not affect FICC's guarantee and novation
of transactions submitted by Clearing Members through MBSD's Clearing
System.

(5) Implementation of the Proposed Rule Changes

    The proposed changes to (i) correct the EPN Rules (as described
above in

subsection (2)) and (ii) provide transparency to the EPN Rules (as
described above in subsection (3)) would become operative on the date
of the Commission's approval of this proposed rule change.
    The proposed change to the EPN system's processing of the good
delivery T2 time stamp for pool substitutions (as described above in
subsection (4)) would become operative within 45 Business Days after
the date of the Commission's approval of this proposed rule change.
FICC would add a legend to Article II (Messages Processed by the
Corporation) that identifies the implementation date of the proposed
change to Section 5 of EPN Rule 2.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Securities Exchange Act of 1934
(``Act'') requires, in part, that the EPN Rules be designed to promote
the prompt and accurate clearance and settlement of securities
transactions.\22\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed changes to (i) correct the EPN Rules (as described
above in subsection (2) of Item II.(A)1) and (ii) provide transparency
to the EPN Rules (as described above in subsection (3) of Item II (A)1)
would help to ensure that the EPN Rules are accurate and clear to EPN
Users. When EPN Users better understand their rights and obligations
regarding the EPN Service, such EPN Users are more likely to act in
accordance with the EPN Rules, which FICC believes would promote the
prompt and accurate clearance and settlement of securities
transactions. As such, FICC believes that the proposed changes to
correct and provide transparency to the EPN Rules would be consistent
with Section 17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

    The proposed change to established one good delivery T2 time stamp
(as described above in subsection (4) of Item II (A)1) would be
consistent with the SIFMA Guidelines and would further encourage EPN
Users to adhere to the 12:15 p.m. deadline for substitutions. Because
the proposed change would be consistent with the SIFMA Guidelines,
which reflect industry best practices, FICC believes that the proposed
change would help the seamless processing of transactions through the
EPN Service. As a result, FICC believes the proposed change further
promotes the prompt and accurate clearance and settlement of securities
transactions. As such, FICC believes that the proposed change would be
consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(i) under the Act requires, in part, that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for publicly disclosing all
relevant rules and material procedures.\25\ As described above, the
proposed rule changes to (i) correct the EPN Rules (as described above
in subsection (2) of Item II (A)1), (ii) provide transparency to the
EPN Rules (as described above in subsection (3) Item II (A)1) and (iii)
amend the EPN system's processing of T2 time stamps for pool
substitutions would better disclose all relevant and material aspects
of the EPN Service. Therefore, FICC believes the proposed changes to
correct and provide transparency to the EPN Rules are consistent with
Rule 17Ad-22(e)(23)(i).\26\
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17Ad-22(e)(23)(i).
    \26\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe the proposed rule changes to (i) correct the
EPN Rules (as described above in subsection (2) of Item II(A)1) and
(ii) provide transparency to the EPN Rules (as described above in
subsection (3) of Item II(A)1) would impact competition. The proposed
rule changes would help to ensure that the EPN Rules remain clear and
accurate. In addition, the changes would facilitate EPN Users'
understanding of the EPN Rules and their obligations thereunder. These
changes would apply equally to all EPN Users and would not affect
FICC's operations or the rights and obligations of EPN membership. As
such, FICC believes the proposed rule changes to correct and provide
transparency to the EPN Rules would not have any impact on competition.
    FICC believes that the proposed change to establish one good
delivery T2 time stamp (as described above in subsection (4) of Item
II(A)1) could have an impact on competition among the parties to the
Message because either the pool seller or the pool buyer (as determined
by the parties in accordance with the SIFMA Guidelines) would be
responsible for financing the substituted mortgage pools associated
with a Message that does not meet the good delivery requirements. FICC
does not believe that the burden on competition would be significant
because it would similarly affect both counterparties to a cancel and
correct Message that does not meet the good delivery requirements in
accordance with the SIFMA Guidelines.
    FICC believes that any burden on competition that is created by the
proposed change would be necessary and appropriate in furtherance of
the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the
Act.\27\ FICC believes that the proposed change would be necessary in
furtherance of the Act because it would be consistent with the SIFMA
Guidelines, which reflect best practices. The SIFMA Guidelines require
either the pool seller or the pool buyer to take responsibility of the
mortgage pools in the event that a cancel and correct Message does not
meet good delivery requirements. FICC believes the proposed change
would be appropriate in furtherance of the Act because EPN Users are
parties to each Message, aware of the good delivery requirements and
best positioned to ensure that cancel and correct Messages meet the
good delivery requirements. As a result, FICC believes any burden on
competition that is created by the proposed rule change would be
necessary and appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\28\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1(b)(3)(I).
    \28\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to
this proposal. 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-2018-007 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-2018-007. 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-2018-007 and should be submitted on
or before September 5, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17489 Filed 8-14-18; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9510-9511]
[FR Doc No: 2014-03555]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71524; File No. PCAOB-2013-01]

Public Company Accounting Oversight Board; Order Granting
Approval of Proposed Rules, Standards for Attestation Engagements
Related to Broker and Dealer Compliance or Exemption Reports Required
by the U.S. Securities and Exchange Commission and Related Amendments
to PCAOB Standards

February 12, 2014.

I. Introduction

    On October 30, 2013, the Public Company Accounting Oversight Board
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange
Commission (the ``Commission''), pursuant to Section 107(b) \1\ of the
Sarbanes-Oxley Act of 2002 (the ``Sarbanes-Oxley Act'') and Section
19(b) \2\ of the Securities Exchange Act of 1934 (the ``Exchange
Act''), proposed rules to adopt standards for attestation engagements
related to broker and dealer compliance or exemption reports required
by the U.S. Securities and Exchange Commission and related amendments
to PCAOB standards (collectively, the ``Proposed Rules''). The Proposed
Rules were published for comment in the Federal Register on November
15, 2013.\3\ At the time the notice was issued, the Commission
designated a longer period to act on the Proposed Rules, until February
13, 2014.\4\ The Commission received two comment letters in response to
the notice.\5\ This order approves the Proposed Rules.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 7217(b).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Release No. 34-70842 (November 8, 2013), 78 FR 68911
(November 15, 2013).
    \4\ Ibid.
    \5\ See letters to the Commission from Deloitte & Touche LLP,
dated December 5, 2013 (``Deloitte Letter'') and Suzanne H. Shatto,
dated December 17, 2013 (``Shatto Letter'').
---------------------------------------------------------------------------

II. Description of the Proposed Rules

    Attestation Standard No. 1, Examination Engagements Regarding
Compliance Reports of Brokers and Dealers, establishes requirements for
the auditor with respect to the auditor's examination regarding a
broker's or dealer's compliance report and establishes requirements
that are designed specifically for the examination required by Exchange
Act Rule 17a-5 (``Rule 17a-5'').\6\ Consistent with Rule 17a-5,
Attestation Standard No. 1 requires auditors to obtain sufficient
appropriate evidence to opine on a broker's or dealer's statements in
its compliance report as to whether:
---------------------------------------------------------------------------

    \6\ 17 CFR 240.17a-5.
---------------------------------------------------------------------------

     The Internal Control Over Compliance of the broker or
dealer was effective during the most recent fiscal year;
     The Internal Control Over Compliance of the broker or
dealer was effective as of the end of the most recent fiscal year;
     The broker or dealer was in compliance with Exchange Act
Rule 15c3-1 \7\ (the ``net capital rule'') and Exchange Act Rule 15c3-
3(e) \8\ (the ``reserve requirements rule'') as of the end of the most
recent fiscal year; and
---------------------------------------------------------------------------

    \7\ 17 CFR 240.15c3-1.
    \8\ 17 CFR 240.15c3-3(e).
---------------------------------------------------------------------------

     The information the broker or dealer used to state whether
it was in compliance with the net capital rule and reserve requirements
rule was derived from the books and records of the broker or dealer.\9\
---------------------------------------------------------------------------

    \9\ See paragraphs (d)(3)(i)(A)(2)-(5) of SEC Rule 17a-5.
---------------------------------------------------------------------------

    Attestation Standard No. 1 provides requirements for auditors that:
     Focus the auditor on the matters that are most important
to the auditor's conclusions regarding the broker's or dealer's
assertions;
     Incorporate consideration of fraud risks, including the
risk of misappropriation of customer assets;
     Are designed to be scalable based on the broker's or
dealer's size and complexity;
     Coordinate the examination engagement with the audit of
the financial statements and the audit procedures performed on
supplemental information; and
     Describe how to report on an examination engagement in
connection with the requirements of Rule 17a-5.
    Attestation Standard No. 1 reflects the requirement in Rule 17a-5
that the auditor must obtain reasonable assurance to support the
auditor's opinion. In particular, Attestation Standard No. 1 requires
the auditor to obtain reasonable assurance in order to opine on whether
the broker's or dealer's assertions are fairly stated, in all material
respects.
    Attestation Standard No. 2 establishes requirements for the auditor
with respect to the auditor's review regarding the broker's or dealer's
exemption report and establishes requirements that are designed
specifically for the review required by Rule 17a-5.\10\ Attestation
Standard No. 2 establishes requirements for making inquiries and
performing other procedures that are commensurate with the auditor's
responsibility to obtain moderate assurance regarding whether one or
more conditions exist that would cause one or more of the broker's or
dealer's assertions not to be fairly stated, in all material respects.
The broker's or dealer's exemption report includes the following
assertions:
---------------------------------------------------------------------------

    \10\ See 17 CFR 240.17a-5(g)(2)(ii).
---------------------------------------------------------------------------

     A statement that identifies the provisions in paragraph
(k) of Exchange Act Rule 15c3-3 (the ``exemption provisions'') under
which the broker or dealer claimed an exemption from Exchange Act Rule
15c3-3 (the ``identified exemption provisions'');
     A statement that the broker or dealer (1) met the
identified exemption provisions throughout the most recent fiscal year
without exception or (2) met the identified exemption provisions
throughout the most recent fiscal year except as described in the
exemption report; and
     If applicable, a statement that identifies each exception
during the most recent fiscal year in meeting the identified exemption
provisions (an ``exception'') and that briefly describes the nature of
each exception and the approximate date(s) on which the exceptions
existed.\11\
---------------------------------------------------------------------------

    \11\ See SEC Rule 17a-5(d)(4).
---------------------------------------------------------------------------

    The procedures required by Attestation Standard No. 2 include
evaluating relevant evidence obtained from the audit of the financial
statements and the audit procedures performed on supplemental
information and are designed to enable the auditor to scale the review
engagement based on the broker's or dealer's size and complexity.
Attestation Standard No. 2 also establishes requirements for the
content of the review report.
    As part of the Proposed Rules, the Board adopted conforming
amendments to several PCAOB auditing and attestation standards,
including Auditing Standard No. 3, Audit Documentation, Auditing
Standard No. 7, Engagement Quality Review, and interim attestation
standards AT sec. 101 and AT sec. 601.
    The Proposed Rules would be effective for examination engagements
and review engagements for fiscal years ending on or after June 1,
2014.

III. Comment Letters

    As noted above, the Commission received two comment letters
concerning the Proposed Rules. The commenters expressed support for the

Proposed Rules, with one commenter noting that they are consistent with
the Commission's amended Rule 17a-5 and are necessary to enable
auditors of brokers and dealers to comply with the requirements
therein.\12\
---------------------------------------------------------------------------

    \12\ See Deloitte Letter.
---------------------------------------------------------------------------

IV. Conclusion

    The Commission has carefully reviewed and considered the Proposed
Rules and the information submitted therewith by the PCAOB, including
the comment letters received. In connection with the PCAOB's filing and
the Commission's review, the Commission finds that the Proposed Rules
are consistent with the requirements of the Sarbanes-Oxley Act and the
securities laws and are necessary or appropriate in the public interest
or for the protection of investors.\13\
---------------------------------------------------------------------------

    \13\ Because these proposed rules apply solely in connection
with the obligations of registered brokers and dealers pursuant to
17 CFR 240.17a-5, no separate determination is necessary under 15
U.S.C. 7213(a)(3)(C).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 107 of the Act and
Section 19(b)(2) of the Exchange Act, that the Proposed Rules (File No.
PCAOB-2013-01) be and hereby are approved.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03555 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Notices]
[Pages 27506-27507]
[FR Doc No: 2020-09898]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. 2020-0409]

Agency Information Collection Activities: Requests for Comments;
Clearance of a Renewed Approval of Information Collection: Commercial
Air Tour Operator Reports

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice and request for comments.

-----------------------------------------------------------------------

SUMMARY: In accordance with the Paperwork Reduction Act of 1995, FAA
invites public comments about our intention to request the Office of
Management and Budget (OMB) approval to renew an information
collection. The collection involves information from commercial air
tour operators on the numbers and types of air tours over national park
units. The information to be collected will be used by the FAA and the
National Park Service to track air tour operations over national parks
and as background information in the development of air tour management
plans and voluntary agreements for purposes of addressing any potential
significant impacts from commercial air tour operations on the natural
or cultural resources or visitor experience at the parks.

DATES: Written comments should be submitted by July 7, 2020.

ADDRESSES: Please send written comments:
    By Electronic Docket: www.regulations.gov (Enter docket number into
search field).
    By mail: Keith Lusk, AWP-1SP, FAA Western-Pacific Region, 777 S
Aviation Boulevard, Suite 150, El Segundo, CA 90245.
    By fax:<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Keith Lusk by email at:
<EMAIL_ADDRESS>phone:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:
    Public Comments Invited: You are asked to comment on any aspect of
this information collection, including (a) Whether the proposed
collection of information is necessary for FAA's performance; (b) the
accuracy of the estimated burden; (c) ways for FAA to enhance the
quality, utility and clarity of the information collection; and (d)
ways that the burden could be minimized without reducing the quality of
the collected information. The agency will summarize and/or include
your comments in the request for OMB's clearance of this information
collection.
    OMB Control Number: 2120-0750.
    Title: Commercial Air Tour Operator Reports.
    Form Numbers: There are no FAA forms associated with this
collection of information.
    Type of Review: Renewal of an information collection.
    Background: The FAA Modernization and Reform Act of 2012 included
amendments to the National Parks Air Tour Management Act (NPATMA) of
2000, which applies to commercial air tour operators who conduct tours
over or within a half mile of a national park unit. One of these
amendments requires commercial air tour operators conducting tours over
national park units to provide the FAA and National Park Service with
certain information on these operations. The information collected
includes the date and time of day of the tour operation, the make and
model of aircraft the tour was taken in, and the name of tour route
flown. The information allows the agencies to track air tour activity
over national park units and provides background information that the
agencies can utilize when developing an air tour management plan or
voluntary agreement for a national park unit. Respondents are the
commercial air tour operators currently

authorized to conduct tours over national parks. Operators provide the
information on a reporting template and either email it or mail it in
to the agencies.
    Respondents: 48 commercial air tour operators nationwide.
    Frequency: Information is collected semi-annually (twice a year),
or annually for park units with 50 or fewer tours per year.
    Estimated Average Burden per Response: 11.83 hours.
    Estimated Total Annual Burden: 1,136 hours.

    Issued in El Segundo, CA, on April 24, 2020.
Keith Lusk,
Program Manager, Special Programs Office, FAA Western-Pacific Region.
[FR Doc. 2020-09898 Filed 5-7-20; 8:45 am]
 BILLING CODE 4910-13-P


[Federal Register Volume 76, Number 210 (Monday, October 31, 2011)]
[Notices]
[Pages 67239-67243]
[FR Doc No: 2011-28046]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65615; File No. SR-CHX-2011-17]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice and Order Granting Accelerated Approval to Proposed Rule Change,
as Modified by Amendment No. 1, Regarding the Submission of Clearing-
Related Information for Trades Executed Otherwise Than on the Exchange

October 24, 2011.

I. Introduction

    On July 7, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change regarding the submission of clearing-related
information for trades executed otherwise than on the CHX. The proposed
rule change was published for comment in the Federal Register on July
26, 2011.\3\ The Commission received one comment in support of the
proposal.\4\ CHX filed Amendment No. 1 to the proposed rule change on
October 24, 2011.\5\ This order approves the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 64937 (July 20,
2011), 76 FR 44638 (``Notice'').
    \4\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Christopher Meyer, Chief Compliance Officer, E*Trade Capital
Markets, LLC dated August 16, 2011.
    \5\ See Amendment No. 1, dated October 24, 2011.
---------------------------------------------------------------------------

II. Description of the Proposal

    The text of the proposed rule change, as modified, is reproduced
below. Additions are italicized, deletions are [lsqbb]bracketed[rsqbb].

Rules of Chicago Stock Exchange, Inc.

* * * * *

Article 1.

Definitions and General Information

Rule 1. Definitions

    Whenever and wherever used in these Rules, unless the context
requires otherwise, the following terms shall have the respective
meanings ascribed to them below:
    (a)--(dd) Unchanged
    (ee) ``Clearing Participant'' means a Participant which has been
admitted to membership in a Qualified Clearing Agency pursuant to
the provisions of the Rules of the Qualified Clearing Agency.

    (ff) ``Qualified Clearing Agency'' means a clearing agency as
defined in Section 3(a)(23) of the Exchange Act which is registered
with the Commission pursuant to the provisions of Section 17A(b)(2)
of the Exchange Act or has obtained from the Commission an exemption
from registration granted specifically to allow the clearing agency
to provide confirmation and affirmation services.
* * * * *

Article 21.

Clearance and Settlement

Rule 1. Trade Recording with a Qualified Clearing Agency

    (a)--(d) Unchanged
    [lsqbb]   Interpretations and Policies:
    .01 Definition of Registered Clearing Agency
    The term ``Registered Clearing Agency'' shall mean a clearing
agency as defined in Section 3(a)(23) of the Exchange Act which is
registered with the Commission pursuant to the provisions of the
Section 17A(b)(2) of the Exchange Act or has obtained from the
Commission an exemption from registration granted specifically to
allow the clearing agency to provide confirmation and affirmation
services..
    .02 Definition of Fully-Interfaced Clearing Agency
    The term ``Fully-Interfaced Clearing Agency'' shall mean a
Registered Clearing Agency which, in conjunction with the Registered
Clearing Agency selected by the contra-party to the contract, has
established systems for the clearance and settlement of securities
contracts in a manner which does not require each party to a
contract to be a participant in the same Registered Clearing Agency.
    .03 Definition of a Qualified Clearing Agency
    For purposes of this Rule, the term ``Qualified Clearing
Agency'' shall mean a Fully Interfaced Clearing Agency which has
entered into an agreement with the Exchange pursuant to which it
will (i) Provide such services to the Exchange and its Participants
as the Exchange, and such Qualified Clearing Agency shall from time
to time agree, (ii) maintain facilities through which Exchange
Contracts may be recorded, cleared and settled, and (iii) supply the
Exchange with data reasonably necessary and requested in order to
permit the Exchange to enforce compliance by its Participants with
the provisions of the Exchange Act, the rules and regulations
thereunder and the Rules of the Exchange.[rsqbb]
* * * * *
Rule 6. Submission of Clearing Information for Transactions Executed
Off-Exchange
    The Exchange shall make clearing submissions for non-Exchange
trades only in the following manner:
    (a) Substitution of Participants in Off-Exchange Transactions.
    (1) An Institutional Broker registered with the Exchange and
acting as an authorized agent of a Clearing Participant may enter a
non-tape, clearing-only submission into the Exchange's systems for
trades executed otherwise than on the Exchange for the purpose of
transferring securities from one Clearing Participant to another,
provided that the transfer does not constitute a transaction in
securities that is otherwise subject to trade reporting that has
not, in fact, been previously and separately reported as a
transaction. The Exchange shall make such submissions to a Qualified
Clearing Agency. Each such Institutional Broker must be party to an
agreement with the Clearing Participant in which name the
submissions are made under which the Institutional Broker has
received authorization from the Clearing Participant to act on its
behalf. Copies of these agreements shall be filed by the
Institutional Broker with the Exchange.
    (2) A Participant can only use a non-tape, clearing-only
submission for a trade that has been reported in the market in which
it was effected.
    (3) An Institutional Broker must enter all non-tape, clearing-
only submissions into the Exchange's systems pursuant to this
subparagraph (a) for a given non-Exchange transaction within three
(3) hours of the execution of such transaction.
    (b) Non-Tape, Clearing-Only Riskless Principal Submissions
    (1) An Institutional Broker registered with the Exchange may
make non-tape, clearing-only submissions into the Exchange's systems
for submission to clearing to facilitate riskless principal
transactions as defined in Article 9, Rule 14 (``riskless principal
transactions'') taking place on another national securities
exchange, or over-the-counter, only as follows. For riskless
principal transactions in which an Institutional Broker, after
having received an order to buy a security, purchases the security
at the same price to satisfy the order to buy or, after having
received an order to sell, sells the security at the same price to
satisfy the order to sell, the Institutional Broker shall make, for
the offsetting ``riskless principal'' portion of the transaction, a
clearing-only submission. If the order is executed in multiple
transactions, the Institutional Broker may enter a non-tape,
clearing-only submission at the volume-weighted average price
(``average price'') of those transactions. The Institutional Broker
shall provide to the Exchange records sufficient to identify such
transactions as ``riskless principal.''
    (2) A Participant can only use a non-tape, clearing-only
submission for a trade that has been reported in the market in which
it was effected.
    (3) An Institutional Broker must enter all non-tape, clearing-
only submissions into the Exchange's systems pursuant to this
subparagraph (b) for a given non-Exchange transaction within twenty
(20) minutes of the execution of such transaction. For clearing
submissions reported at the average price of multiple trade
executions, the Institutional Broker shall enter the non-tape,
clearing-only submission into the Exchange's systems within twenty
(20) minutes of the last component trade execution.
    (c) Each Clearing Participant which is a party to a non-tape,
clearing-only submission under this rule will pay a Trade Processing
Fee in the amount specified in the Exchange's Fee Schedule.

Interpretation and Policies:
    .01 An Institutional Broker making a submission pursuant to this
rule must obtain documentary evidence of a non-Exchange trade
execution no later than the close of business on the day of the
trade and submit such evidence to the Exchange in a format
acceptable to it and within such timeframe that the Exchange shall
designate, but in no event later than T+1.
    .02 An Institutional Broker entering a non-tape, clearing-only
submission shall be responsible for ensuring that all clearing
information is accurate and complete prior to its submission.
    .03 Post-trade cancellations and corrections: price, volume and
security changes. No later than T+1, Exchange operations personnel
may cancel a clearing submission and enter a new corrective
submission if the Institutional Broker which entered the original
submission provides documentary evidence that the original trade
execution was cancelled and re-entered at the same price, quantity
and/or security of the corrective clearing submission. Exchange
operations personnel may also correct a clearing submission if it
was erroneously entered on terms which differed from the reported
trade execution, if provided with documentary evidence of the
original trade execution. Exchange operations personnel may also
enter a clearing submission which the Institutional Broker failed to
enter or which was not processed due to systems error, if provided
with documentary evidence of the original trade execution. In all
cases, the documentary evidence must be provided to the Exchange
Operations personnel prior to entry of the corrective submission. In
extraordinary circumstances, corrective submissions can be made
after T+1 subject to the approval of an officer of the Exchange.
    .04 Post-trade cancellations and corrections: Clearing
Participant changes. Either Exchange Operations personnel or
Institutional Brokers may cancel a clearing submission and enter a
new corrective submission to correct a misidentification of the
Clearing Participant, by no later than T+1. Before the corrective
submission is made, the Institutional Broker must obtain documentary
evidence of the misidentification of the Clearing Participant, and
provide it to the Exchange Operations personnel if the latter are
making the corrective submission. In extraordinary circumstances,
corrective submissions can be made after T+1 subject to the approval
of an officer of the Exchange.
* * * * *
    The Exchange is proposing to adopt Rule 6 to Article 21 to set
forth the terms upon which the Exchange will submit information for
clearance and settlement to the National Securities Clearing
Corporation, (``NSCC'') and to amend Article 1, Rule 1 to add updated
definitions and Article 21, Rule 1 to delete definitions. Rule 6
provides for the submission of clearing related information to a
Qualified Clearing Agency i.e., NSCC. The CHX submits clearing
information to NSCC through

the Regional Interface Operation (``RIO'') system.\6\
---------------------------------------------------------------------------

    \6\ RIO is a service offered by NSCC to regional exchanges to
make clearing submissions.
---------------------------------------------------------------------------

    Proposed Rule 6(a) addresses clearing submissions made via CHX
systems, i.e., Brokerplex,\7\ for transactions executed on another
exchange or in the over-the-counter (``OTC'') market. These submissions
will be made by the Exchange only on behalf of an Institutional Broker
acting as an authorized agent of a Clearing Participant.\8\ The
Institutional Broker may submit a clearing-only entry to Brokerplex for
the purpose of transferring securities from one Clearing Participant to
another, as long as the trade has been properly reported for
transaction reporting purposes.
---------------------------------------------------------------------------

    \7\ The Brokerplex[supreg] system is an order entry, management
and recordation system provided by the Exchange for use by
Institutional Brokers. See Article 17, Interpretations and Policies
.03.
    \8\ Institutional Brokers are an elective sub-category of
Exchange Participants who register with the Exchange and are subject
to the obligations of Article 17 of the CHX rules, in addition to
the other provisions of Exchange rules.
---------------------------------------------------------------------------

    Proposed Section (a)(3) of Rule 6 would require an Institutional
Broker to enter all non-tape, clearing-only entries into the Exchange's
systems for a given non-Exchange transaction within three hours of the
execution of the transaction. According to the CHX, the complex nature
of these transactions, which frequently involve multiple contraparties,
and are often of large size such that the Clearing Participant
separately confirms the terms of the transaction with the Institutional
Broker to ensure the creditworthiness of the counter-party,
necessitates an extended period of time for submission of clearing
information to NSCC. Once all of the final clearing allocations have
been entered in Brokerplex for submission to NSCC, the CHX deems them
to be ``locked in'' for purposes of comparison and settlement.\9\
---------------------------------------------------------------------------

    \9\ The Exchange will identify non-CHX trades as distinct from
transactions executed in the CHX's Matching System in submissions to
NSCC.
---------------------------------------------------------------------------

    CHX provided three scenarios wherein Institutional Brokers would
make clearing entries under paragraph (a) of Rule 6. First, an
Institutional Broker may buy or sell securities on another trading
center as a correspondent of a clearing member of that trading center.
Any resulting execution report would be ``flipped'' from the executing
clearing member via entries in Brokerplex to the trading account of the
Institutional Broker or the CHX Clearing Participant on whose behalf
the Institutional Broker is acting.\10\
---------------------------------------------------------------------------

    \10\ See Notice, supra note 3.
---------------------------------------------------------------------------

    Second, an Institutional Broker may execute or instruct a third
party broker-dealer to execute a cross-transaction in the OTC market
and report the transaction to a Trade Reporting Facility (``TRF'')
using the Institutional Broker's trading symbol or the symbol of the
Institutional Broker's clearing firm when reporting the trade to the
Consolidated Tape.\11\ The Institutional Broker may then enter the
transaction information in Brokerplex and transfer the positions from
its own trading account (or the account of its clearing firm) to the
accounts of the ultimate beneficiaries of the trade. Once all
components of the transaction are properly allocated, the information
in Brokerplex is forwarded to the NSCC via RIO for clearance and
settlement.
---------------------------------------------------------------------------

    \11\ The ability of an Institutional Broker to directly execute
a transaction in the OTC market is predicated on the Commission's
approval of a separate proposal which would establish that
Institutional Brokers are not operating directly on the Exchange.
(SR-CHX-2011-29). See Securities Exchange Act Release No. 65354
(September 19, 2011), 76 FR 59476 (September 26, 2011).
Institutional Brokers who execute transactions in the OTC market
must be members of FINRA. See Section 15(b)(8) of the Act.
---------------------------------------------------------------------------

    Third, transactions may be executed on another trading center by a
third party broker-dealer, which then utilizes an Institutional Broker
as its agent for handling the allocation of the clearing information.
These third party transactions may include both cross-transactions
executed OTC and reported to a TRF by the third party broker-dealer, as
well as purchases or sales of securities by the third party broker-
dealer on another exchange or OTC.\12\ The third party broker-dealer
instructs the Institutional Broker how to handle any substitution of
Clearing Participants and allocate the trade. In either the second or
third scenario, the trade may have been executed with broker-dealer A
as the selling firm and broker-dealer B as the buyer. After the trade
has been executed, broker-dealer B may step out of the transaction in
favor of broker-dealer C.\13\ The Institutional Broker making the
clearing submission would be responsible for substituting the various
parties based upon instructions of those parties or their agents.
Clearing information for third-party cross-trades and single-sided
purchases or sales is then recorded in Brokerplex and submitted to NSCC
in the same manner as if the trades had been executed by the
Institutional Broker.
---------------------------------------------------------------------------

    \12\ The Institutional Broker may be instructed to allocate the
trades at an average price of the transactions executed by the third
party broker-dealer.
    \13\ There may be multiple broker-dealers (e.g., broker-dealers
D, E, and F) who ``step in'' to one or both sides of the transaction
because many of the transactions handled by Institutional Brokers
arise out of transactions on a derivatives exchange, either as a
hedge or part of a combination stock-options order (such as a buy-
write trade).
---------------------------------------------------------------------------

    Rule 6(a) requires Institutional Brokers that make these
submissions to have an agreement with the Clearing Participant in whose
name the entries are submitted. The agreement must authorize the
Institutional Broker to act on behalf of the Clearing Participant.\14\
The Institutional Broker must file copies of these agreements with the
Exchange. The Exchange has developed functionality within the
Brokerplex application to validate that such agreements are in place
before an Institutional Broker is able to submit clearing entries to
Brokerplex.\15\ The Exchange will monitor clearing submissions to
ensure that the Institutional Brokers involved in these transactions
have the appropriate agreements in place and will take disciplinary
action to enforce this requirement.
---------------------------------------------------------------------------

    \14\ In addition, the Exchange requires Clearing Participants to
sign a clearing agreement by which the latter accept responsibility
for non-Exchange transactions submitted to NSCC through the auspices
of an authorized Institutional Broker. See Amendment 1 at note 11.
    \15\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------

    CHX's system for making clearing submissions does not provide a
fully-automated comparison feature.\16\ CHX states that its rules
provide procedural safeguards to ensure that the manual comparison is
valid. Furthermore, a Participant is prohibited from using a non-tape,
clearing-only submission for the purpose of effecting a transaction
required to be trade reported which has not been trade reported or for
reporting a trade for regulatory purposes.\17\ Proposed Interpretation
and Policy .01 to Rule 6 will require that an Institutional Broker
submitting an entry for a transaction executed otherwise than on the
Exchange obtain documentary evidence of the non-Exchange trade
execution no later than the close of trading and submit such evidence
to the Exchange in a format acceptable to it and within such

timeframe that the Exchange shall designate, but in no event later than
T+1. CHX believes this requirement will strengthen the safeguards
associated with submitting trades for comparison and provide CHX with
the necessary data to perform surveillance of the transactions.\18\
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    \16\ The Commission understands that Nasdaq's ACT system
provides a fully automated comparison process. CHX has committed to
develop such a system by December 2011. See Amendment No. 1 at notes
5 and 13.
    \17\ As detailed in a letter to Kathy England, Assistant
Director, Division of Trading and Markets, Commission, and Mark
Donohue, Assistant Director, Office of Compliance, Inspections and
Examinations, Commission dated October 24, 2011, the Exchange plans
to monitor the activity of Participants that make clearing-only
submissions for compliance with applicable trade reporting rules. In
addition, the Exchange has made arrangements to share data regarding
its clearing submissions for non-Exchange trades with FINRA in order
to assist in its efforts to oversee trading activity in the over-
the-counter marketplace.
    \18\ For transactions which originated with the Institutional
Broker and were handled in the Brokerplex system, the execution
report provided either directly from the away trading center or a
drop copy thereof will constitute the written evidence of the non-
Exchange trade execution. If the trade was executed by a third-party
broker-dealer, the Institutional Broker must provide a record which
evidences the away market trade execution (such as a confirmation or
other record from the executing trading center) to the Exchange in a
specified format to be communicated by the Exchange. See Amendment
No. 1 at notes 14 and 18.
---------------------------------------------------------------------------

    Proposed Interpretation and Policy .02 states that an Institutional
Broker that enters a non-tape, clearing-only record is responsible for
ensuring that all clearing information is accurate and complete before
the clearing information is submitted to NSCC. Section (b) of Rule 6
governs non-tape riskless principal submissions.\19\ It permits an
Institutional Broker to enter non-tape submissions in Brokerplex which
are submitted to clearing to facilitate riskless principal transactions
that occurred otherwise than on the Exchange. For riskless principal
transactions in which an Institutional Broker, after having received an
order to buy a security, purchases the security at the same price to
satisfy the order to buy, or, after having received an order to sell,
sells the security at the same price to satisfy the order to sell, the
Institutional Broker will submit a clearing-only report for the
offsetting riskless portion of the transaction. If the order is
executed in multiple transactions, the Institutional Broker may submit
a non-tape, clearing-only report at the volume-weighted average price
(``average price'') of those transactions. Entries in Brokerplex must
be made within twenty minutes of the execution, or for multiple trade
executions reported at an average price, within twenty minutes of the
last component trade execution. The Institutional Broker must provide
CHX records sufficient to identify the transactions as riskless
principal transactions.\20\
---------------------------------------------------------------------------

    \19\ Article 9, Rule 14 (Reporting Riskless Principal
Transactions) describes the manner in which Exchange Participants
are required to report riskless principal transactions for trade
reporting purposes.
    \20\ The information necessary to identify riskless principal
transactions is normally provided to the Exchange either directly
via Brokerplex in the form of the execution report from the other
trading center or a ``drop copy'' of the execution report (which can
be systematically linked to the original order and the clearing
submission), which must be provided by the Institutional Broker
pursuant to Article 11, Rule 4. The Exchange plans to add a riskless
principal identifier to these records.
---------------------------------------------------------------------------

    Proposed Interpretation and Policy .03 governs post-trade
cancellations and corrections of clearing-related information entered
pursuant to proposed Rule 6.\21\ It would permit Exchange personnel,
generally no later than T+1, to cancel a clearing submission and enter
a corrected submission if the Institutional Broker that entered the
original submission provides documentary evidence that the trade was
cancelled in the marketplace in which it was originally executed and
re-entered at the price, quantity, and/or security of the corrected
clearing submission. Exchange operations personnel may also enter a
clearing submission which an Institutional Broker failed to enter \22\
or which was not processed due to a systems error, if operations
personnel have been provided documentary evidence of the original trade
execution. Proposed Interpretation and Policy .04 would permit either
Exchange Operations personnel or Institutional Brokers to cancel a
clearing submission and enter a new corrective submission to correct a
misidentification of the Clearing Participant, generally, by no later
than T+1. Before the corrective submission is made, the Institutional
Broker must obtain documentary evidence of the misidentification of the
Clearing Participant, and provide it to the Exchange Operations
personnel if the latter are making the corrective submission.
Authorizing Exchange personnel to make these cancellations and
corrections should prevent unnecessary and unwanted failures to clear
and should help ensure transactions settle in an accurate manner.
---------------------------------------------------------------------------

    \21\ CHX states that the need to correct a clearing record is
typically identified by an order-sending firm or Institutional
Broker where there is a clearing break and the parties are looking
for a position which does not show up or they have a position they
did not expect to have. See Amendment No. 1 at 17.
    \22\ If an Institutional Broker fails to enter the clearing
submission within the timeframes specified in the Rule 6, it will be
in violation of the rule.
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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_ADDRESS>Please include
File No. SR-CHX-2011-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File No. SR-CHX-2011-17. 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 Web site (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 changes 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 Room on official business
days between the hours of 10 a.m. and 3 p.m. Copies of such filing will
also be available for inspection and copying at the principal office of
the CHX. 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 No. SR-CHX-
2011-17 and should be submitted on or before November 21, 2011.

IV. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange,\23\ and, in particular, Section 6(b)(5) of the Act,\24\
which, among other things, requires that

the rules of a national securities exchange be designed to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest. The Commission believes that
the Exchange's proposal will facilitate the clearance and settlement of
complex transactions that occur otherwise than on the CHX.
---------------------------------------------------------------------------

    \23\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Rule 6 sets forth the requirements for Institutional Brokers who
utilize CHX's systems to provide a clearance service for transactions
executed otherwise than on the Exchange.\25\ The filing permits
Institutional Brokers to provide a clearing service by entering
information with respect to trades that have occurred in multiple
venues in Brokerplex for submission to NSCC. Proposed Rule 6(a)
requires Institutional Brokers to have an agreement with the Clearing
Participant in whose name the entries are made and to file a copy of
the agreement with the Exchange, which should ensure Institutional
Brokers have the appropriate authorization to act on behalf of a
particular Clearing Participant. The Exchange will provide a
functionality within Brokerplex to validate that an agreement is in
place before an Institutional Broker may submit clearing entries in
Brokerplex. CHX requires Clearing Participants to sign a clearing
agreement accepting responsibility for non-Exchange transactions
submitted to NSCC through an Institutional Broker.\26\ CHX will
distinguish non-CHX trades from CHX-trades in its submissions to
NSCC.\27\ These requirements should increase transparency regarding the
clearing service that Institutional Brokers provide for non-exchange
trades and should enable the Exchange and other regulators to surveil
the clearing activity to ensure that Institutional Brokers and Clearing
Participants are acting consistent with the provisions of the rule.
---------------------------------------------------------------------------

    \25\ NASDAQ Rule 7038 permits the use of step-outs by member
firms for trades effected otherwise than on NASDAQ. Rule 7042
governs clearing entries for riskless principal transactions. FINRA
also permits the use of non-tape, clearing only entries for riskless
principal transactions. See e.g., Rule 6282.
    \26\ See Article 21, Rule 4. The Commission expects that CHX
will maintain copies of these agreements.
    \27\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------

    In addition, CHX has represented that it will develop an automated
system for the submission of clearing information such that trades for
which clearing information has been submitted are locked-in before the
clearing information is submitted to NSCC. Locked-in trades eliminate
the risk to NSCC that after a clearing entry has been submitted to it,
one of the parties to the transaction will disavow the transaction.
Further, for submissions pursuant to proposed Rule 6(a), the
Institutional Broker must make clearing entries involving substitution
of parties within three hours of the execution of the transaction, and
provide documentation to the Exchange of a non-Exchange execution no
later than the close of business on the day of the trade. These aspects
of the rule should assist the Exchange as well as other regulators to
more effectively monitor this clearing activity. The Commission urges
CHX to continue to review the amount of time Institutional Brokers have
to provide clearing information to CHX.
    Rule 6(b) will permit Institutional Brokers to submit non-tape,
clearing only entries for riskless principal transactions.
Institutional Brokers must provide the Exchange records to demonstrate
that the transactions were riskless principal transactions. The
Institutional Broker must make all clearing entries within twenty
minutes of the execution of the transaction, or, in the case of
multiple transactions, of the last component trade execution, and
provide to the Exchange documentation of a non-Exchange trade execution
no later than the close of business on the day of the trade. These
aspects of the rule should assist the Exchange as well as other
regulators in more effectively monitoring clearing activity.
    Furthermore, the Commission notes that, with respect to either
category of submissions of clearing information for trades executed
other than on the Exchange, CHX's proposed rule forbids Participants
from using CHX's clearing submission services to avoid any regulatory
trade reporting obligations.\28\ The Commission understands that CHX
will share data regarding its clearing submissions for non-Exchange
trades with FINRA in order to assist FINRA in supervising the over-the-
counter component of this activity.\29\ The rule should provide CHX
with additional information and documentation regarding the clearing
activities of Institutional Brokers and thus enhance CHX's ability to
surveil non-tape, clearing-only entries related to transactions
executed otherwise than on the Exchange.
---------------------------------------------------------------------------

    \28\ See proposed Rule 6(a)(2) and 6(b)(2).
    \29\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------

    Finally, the rule permits Exchange personnel, under prescribed
circumstances, to cancel and/or correct clearing submissions and
codifies that Institutional Brokers are responsible for ensuring that
all clearing information is complete and accurate for non-tape,
clearing-only submissions. The Commission believes that the limitations
regarding changes to clearing entries are appropriate, however, the
Commission expects CHX to monitor the changes made by Exchange
personnel to ensure that they are only making changes that are
permitted by the rule and only when they have the appropriate
documentation indicating the need for the change to the clearing
records. The limitations in the rule should help avoid abuse of the
process by Institutional Brokers.
    The Commission finds good cause to approve the filing, as modified
by Amendment No. 1, before the 30th day after the date of publication
in the Federal Register, because the changes made in Amendment No. 1
clarify the activity that will be permitted under the rule and add
limitations to make the rule more effective. As discussed, NASDAQ
provides a similar service for its members.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\30\ that the proposed rule change (SR-CHX-2011-17), as amended,
be, and hereby is, approved, on an accelerated basis.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(2).
    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28046 Filed 10-28-11; 8:45 am]
BILLING CODE 8011-01-P