[Federal Register Volume 82, Number 128 (Thursday, July 6, 2017)]
[Notices]
[Pages 31378-31384]
[FR Doc No: 2017-14142]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81051; File No. SR-FICC-2017-012]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change to the Mortgage-Backed
Securities Division Clearing Rules Regarding Fixed Income Clearing
Corporation's (1) Time of Novation, (2) Treatment of Itself as the
Settlement Counterparty for Certain Transaction Types, and (3) Proposal
to Implement New Processes to Promote Operational Efficiencies for Its
Clearing Members

June 29, 2017.

I. Introduction

    On May 15, 2017, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-FICC-2017-012, pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder
\2\ (hereinafter, ``Proposed Rule Change''). The Proposed Rule Change
was published for comment in the Federal Register on May 24, 2017.\3\
The Commission received no comments to the Proposed Rule Change. This
order approves the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 80716 (May 18, 2017), 82
FR 23852 (May 24, 2017) (SR-FICC-2017-012) (``Notice'').
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II. Description of the Proposed Rule Change

    The Proposed Rule Change consists of modifications to FICC's
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD
Rules'').\4\ Specifically, the Proposed Rule Change would (1) change
the time that FICC treats itself as the settlement counterparty for
SBO-Destined Trades \5\ to the time of trade comparison, which is
earlier in the lifecycle of the trade than the current practice; (2)
change the time that FICC novates \6\ and treats itself as the
settlement counterparty for Trade-for-Trade Transactions \7\ to the
time of trade comparison, which is earlier in the lifecycle of the
trade than the current practice; (3) regarding Specified Pool
Trades,\8\ novate and establish FICC as the settlement counterparty at
the time of trade comparison; and (4) regarding Stipulated Trades \9\
(a new proposed trade type), guarantee, novate, and establish FICC as
the settlement counterparty at the time of trade comparison.
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    \4\ FICC is comprised of two divisions, MBSD and the Government
Securities Division (``GSD''). MBSD provides, among other things,
clearance and settlement for trades in mortgage-backed securities.
GSD provides, among other things, clearance and settlement for
trades in U.S. government debt issues. MBSD and GSD maintain
separate sets of rules, margin models, and clearing funds. The
Proposed Rule Change relates solely to the MBSD Rules. Capitalized
terms used and not otherwise defined shall have the meaning assigned
to such terms in the MBSD Rules or the FICC MBSD EPN Rules, as
applicable, available at http://www.dtcc.com/en/legal/rules-and-procedures.
    \5\ The Proposed Rule Change would add the new defined term
``SBO'' to define the settlement balance orders that constitute the
net positions of a Clearing Member as a result of the TBA Netting
process. Notice, 82 FR at 23860. The term ``SBO-Destined Trade''
means a ``To-Be-Announced'' (``TBA'') transaction intended for TBA
Netting. MBSD Rule 1, supra note 4. TBA transactions are trades for
which the actual identities of and/or the number of pools underlying
each trade are unknown at the time of trade execution. See Notice,
82 FR at 23854. ``TBA Netting'' means the netting service that FICC
provides to Clearing Members in connection with TBA transactions.
MBSD Rule 1, supra note 4. The MBSD settlement balance order
(``SBO'') system nets trades within the same mortgage backed
security (``MBS'') product, coupon rate, maturity, and settlement
date. The SBO system provides netting efficiencies, eliminating the
need for Clearing Members to settle all but the resulting net buy
and sell obligations.
    \6\ Novation terminates the obligations between Clearing Members
to deliver, receive, and make payments to each other, and replaces
those obligations with identical obligations between the Clearing
Members and FICC. MBSD Rule 5 Section 13, supra note 4.
    \7\ The term ``Trade-for-Trade Transaction'' means a TBA
transaction submitted to FICC that is not intended for TBA Netting.
MBSD Rule 1, supra note 4. Entities use Trade-for-Trade Transactions
either by choice or for trades that are not eligible for netting.
    \8\ The term ``Specified Pool Trade'' means a trade in which all
required pool data, including the pool number to be delivered upon
settlement are agreed by the counterparties at the time of trade
execution. MBSD Rule 1, supra note 4.
    \9\ A ``Stipulated Trade'' is a trade in which pools allocated
and delivered against the trade must satisfy certain conditions that
are agreed upon by the parties at the time of trade execution. See
Notice, 82 FR at 23856. Trades carrying stipulations may reflect
terms that include, but are not limited to issuance year, issuance
month, weighted average coupon, weighted average maturity and/or
weighted average loan age, etc.
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    The Proposed Rule Change also includes several changes to the MBSD
Rules regarding the operational processes for clearing MBSD trades.
These changes include (1) eliminating the Notification of Settlement
process regarding trades that currently settle bilaterally, as the
process would become obsolete once FICC novates and directly settles
all SBO-Destined Transactions, Trade-for-Trade Transactions, and
Specified Pool Trades, as proposed; (2) establishing the ``Do Not
Allocate'' (``DNA'') process, which would allow Clearing Members \10\
to offset SBON Trades \11\ and Trade-for-Trade Transactions; (3)
establishing the ``Expanded Pool Netting'' process, which would net
Pool Instructs \12\ stemming from SBON Trades and Trade-for-Trade
Transactions to arrive at a single net position per counterparty in a
particular Pool Number \13\ for next-day delivery; (4) eliminating the
``give-up'' process for Brokered Transactions,\14\ as the process would
become obsolete once FICC novates and settles all such transactions, as
proposed; and (5) amending the components of the Cash Settlement \15\
calculation to reflect the changes above.
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    \10\ The term ``Clearing Member'' means any entity admitted into
MBSD membership pursuant to MBSD Rule 2A. MBSD Rule 1, supra note 4.
    \11\ The proposed MBSD Rules would use the term ``SBON Trades''
to signify obligations that result from the TBA Netting process.
Such obligations would reflect FICC as the settlement counterparty.
    \12\ The term ``Pool Instruct'' is defined in FICC's MBS Pool
Netting User Guide to mean ``[a]n input used by a [M]ember to submit
pool details directly into [FICC's Real-Time Trade Matching System]
pool netting for bilateral matching and assignment to a
corresponding open TBA position as a prerequisite to pool netting.
FICC MBS Pool Netting User Guide, available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.
    \13\ The term ``Pool Number'' is defined in FICC's MBS Pool
Netting User Guide to mean a ``[u]nique number assigned by the
industry to identify the pool (in addition to the pool CUSIP [(i.e.,
the Committee on Uniform Securities Identification Procedures
identifying number for a security)], since the pool CUSIP is not
always known at the time of issuance).'' FICC MBS Pool Netting User
Guide, supra note 12.
    \14\ The term ``Brokered Transaction'' means any ``give-up''
transaction calling for the delivery of a security for which data
has been submitted to FICC by Members, in transactions to which a
Broker is a party. MBSD Rule 1, supra note 4. FICC operates its
brokered business on a ``give-up'' basis, which means that MBSD
discloses (i.e., ``gives-up'') the identity of each Dealer (i.e., a
Member that is in the business of buying and selling Securities as
principal, either directly or through a Broker.) to a Brokered
Transaction after a period of time. MBSD Rule 1; Rule 5 Section 7,
supra note 4.
    \15\ The term ``Cash Settlement'' refers to the payment each
business day by FICC to a Member or by a Member to FICC pursuant to
Rule 11. MBSD Rule 1, supra note 4. Cash Settlement is a daily
process of generating a single net credit or debit cash amount at
the ``Aggregated Account'' level (i.e., either a single account
linked to an aggregate ID or a set of accounts linked to an
aggregate ID for the processing of transactions.) Clearing Members'
Cash Settlement obligations are calculated on a net basis at the
aggregate ID level. MBSD Rule 1, supra note 4.
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    Finally, the Proposed Rule Change would modify FICC's Real-Time
Trade Matching (``RTTM'') system to remove size restrictions on SBO-
Destined Trades. Since trade size submission

requirements are not reflected in the MBSD Rules, this change would not
require changes to the MBSD Rules.

A. MBSD's Current Trade Comparison and Netting Processes

    MBSD currently processes four types of trades: (1) SBO-Destined
Trades; (2) Trade-for-Trade Transactions; (3) Specified Pool Trades;
and (4) Option Contracts. SBO-Destined Trades and Trade-for-Trade
Transactions are TBA transactions, which are trades for which the
actual identities of and/or the number of pools underlying each trade
are unknown at the time of trade execution. Specified Pool Trades are
trades for which all pool data is agreed upon by the Clearing Members
at the time of trade execution. Option Contracts are not addressed by
the Proposed Rule Change.
    The first step of MBSD's clearance and settlement process is trade
comparison, which consists of the reporting, validating, and matching
by FICC of both sides of a transaction to ensure that the details of
the trades are in agreement between the parties.\16\ Clearing Members
enter trade data into the RTTM system, and once the trade is deemed
compared, FICC guarantees settlement of the trade, provided that the
trade meets the requirements of the MBSD Rules and was entered into in
good faith.\17\
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    \16\ MBSD Rule 5, supra note 4.
    \17\ MBSD Rule 5 Section 8, supra note 4.
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    FICC novates SBO-Destined Trades upon trade comparison.\18\ In
contrast, FICC does not novate Trade-for-Trade Transactions at the time
of trade comparison. However, FICC guarantees the settlement of Trade-
for-Trade Transactions upon trade comparison.\19\ FICC treats
Stipulated Trades as Trade-for-Trade Transactions because Clearing
Members currently do not notify FICC of the stipulations. Similarly,
Specified Pool Trades are not novated upon trade comparison. However,
FICC guarantees the obligations of Specified Pool Trade counterparties
to deliver, receive, and make payment for securities that satisfy the
same generic criteria as the securities underlying Specified Pool
Trades upon trade comparison.\20\
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    \18\ MBSD Rule 5 Section 13, supra note 4.
    \19\ Id.
    \20\ MBSD Rule 5 Section 12, supra note 4.
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    MBSD employs two netting processes to reduce settlement obligations
as well as the number of securities and the amount of cash to be
exchanged at settlement: The TBA Netting system; and the Pool Netting
system.\21\ The TBA Netting system is used to net eligible SBO-Destined
Trades.\22\ Three business days prior to the established settlement
date of the TBA settlement obligations (referred to as ``72-Hour
Day''),\23\ TBA Netting for the applicable class occurs. On 72-Hour
Day, all compared SBO-Destined Trades within the class that have been
designated for the TBA Netting process are netted within and across
counterparties. Even though FICC has become the legal counterparty for
each SBO-Destined Trade upon trade comparison, TBA Netting occurs as
though each SBO-Destined Trade is with the Original Contra-Side
Member.\24\ The net positions created by the TBA Netting process are
referred to as the settlement balance order positions (``SBO
positions''), which constitute settlement obligations against which
Clearing Members will submit Pool Instructs for the Pool Netting
process.\25\
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    \21\ MBSD Rules 6, 7 and 8, supra note 4.
    \22\ Although Trade-for-Trade Transactions are not netted
through the TBA Netting system, they constitute TBA settlement
obligations against which Pool Instructs may be submitted. Specified
Pool Trades are also not netted through the TBA Netting system, nor
do such trades enter the Pool Netting system. MBSD Rules 6 and 8,
supra note 4.
    \23\ MBSD performs the TBA Netting process four times per month,
corresponding to each of the four primary settlement classes and
dates established by the Securities Industry Financial Markets
Association (``SIFMA''). SIFMA publishes a calendar that specifies
one settlement date per month for four different product classes
(known as Classes A, B, C and D) that are used to categorize the
various types of TBA securities. These product classes and the
associated settlement dates are recognized by the industry, and they
provide the foundation for MBSD's TBA Netting process.
    \24\ The term ``Original Contra-Side Member'' means a Member
with whom a Member has entered into a contract for the purchase or
sale of a security. MBSD Rule 1, supra note 4.
    \25\ MBSD Rule 6, supra note 4.
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    Two business days prior to the established settlement date of the
TBA settlement obligations (referred to as ``48-Hour Day''), Clearing
Members that have an obligation to deliver pools (``Pool Sellers'')
must notify their counterparties (``Pool Buyers'') through MBSD's
Electronic Pool Notification Service (``EPN Service'') \26\ of the
relevant Pool Instructs (i.e., pools that such Pool Sellers intend to
allocate in satisfaction of their SBO positions and/or Trade-for-Trade
Transactions).\27\ For Trade-for-Trade Transactions, the relevant
counterparty is the Original Contra-Side Member. For SBO-Destined
Trades, although FICC is the legal counterparty, Clearing Members are
directed to treat a designated SBO Contra-Side Member \28\ as their
counterparty.\29\ Clearing Members are required to submit Pool
Instructs on 48-Hour Day to MBSD through its RTTM system for Pool
Comparison \30\ (which is a prerequisite to Pool Netting).\31\ Trade
counterparties must bilaterally match their respective pools. At this
stage, the Pool Netting System processes the compared pool allocations
(provided that neither Clearing Member has cancelled the submitted
allocation).\32\
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    \26\ MBSD's electronic pool notification service (the ``EPN
Service'') provides Clearing Members with the ability to
electronically communicate pool information to MBSD, as described in
the proposed rule changes. MBSD Rule 1, supra note 4.
    \27\ Pool allocations occur for all TBA Obligations, whether
established on 72-Hour Day through the TBA Netting process or
established upon comparison when the Trade-for-Trade Transaction was
submitted. Pool allocations are not performed for Specified Pool
Trades because the pool that is to be delivered in connection with
such trade is specified upon submission.
    \28\ The term ``SBO Contra-Side Member'' means the Member with
whom a Member is directed by the Corporation to settle an SBO Trade.
The term ``SBO Trade'' means a settlement balance order that offsets
an SBO Net Open Position pursuant to the MBSD Rules. A Member which
has one or more ``Long SBO Trades'' in a particular CUSIP number is
a net purchaser with respect to that CUSIP number, as the case may
be; a Member which has one or more ``Short SBO Trades'' is a net
seller. MBSD Rule 1, supra note 4. An ``SBON Contra-Side Member'' is
an SBO Contra-Side Member that is not an Original Contra-Side Member
with respect to such SBO Trade. An ``SBOO Contra-Side Member'' is an
SBO Contra-Side Member that is also an Original Contra-Side Member
with respect to such SBO Trade. MBSD Rule, supra note 4.
    \29\ A Clearing Member's ``counterparty'' for purposes of
notifications, netting, and processing is the SBO Contra-Side Member
or the Original Contra-Side Member for SBO-Destined Trades and
Trade-for-Trade Transactions, respectively. MBSD Rule 6, supra note
4.
    \30\ The term ``Pool Comparison'' means the service provided to
Clearing Members, as applicable, and the operations carried out by
FICC in the course of providing such service, in accordance with
Rule 7. MBSD Rule 1, supra note 4.
    \31\ As with the EPN Service allocation process described above,
Clearing Members submit Pool Instructs against all of their TBA
Obligations, regardless of whether the TBA Obligation is established
upon trade comparison or stems from the TBA Netting process.
    \32\ MBSD Rule 8, supra note 4.
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    Pool netting takes place one business day prior to the established
settlement date of the TBA settlement obligations (referred to as ``24-
Hour Day''). The Pool Netting system reduces the number of pool
settlements by netting Pool Instructs stemming from SBO Trades and
Trade-for-Trade Transactions to arrive at a single net position per
counterparty in a particular pool number for next-day delivery.
    On each business day, MBSD makes available to each Clearing Member
a report with information to enable such Clearing Member to settle its
Pool Net Settlement Positions \33\ on that business day. At that time,
all deliver, receive and related payment obligations between Clearing
Members resulting

from compared pools that comprise a Pool Net Settlement Position or
Positions are terminated and replaced by the Pool Deliver
Obligations,\34\ Pool Receive Obligations,\35\ and related payment
obligations to and from FICC. Each Clearing Member then provides
appropriate instructions to its clearing bank to deliver to MBSD, and/
or to receive from MBSD, Eligible Securities against payment or receipt
at the appropriate settlement value.
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    \33\ The term ``Pool Net Settlement Position'' means either a
Pool Net Short Position or a Pool Net Long Position, as the context
requires. MBSD Rule 1, supra note 4.
    \34\ The term ``Pool Deliver Obligation'' means a Clearing
Member's obligation to deliver securities to FICC. MBSD Rule 1,
supra note 4.
    \35\ The term ``Pool Receive Obligation'' means a Clearing
Member's obligation to receive securities from FICC. MBSD Rule 1,
supra note 4.
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    Clearing Members are required to settle certain obligations
directly with their applicable settlement counterparties (i.e., outside
of FICC).\36\ These obligations include (1) Pool Instructs that are not
included in Pool Netting (either because they are ineligible or because
they do not meet selection criteria for inclusion); and (2) Specified
Pool Trades, which are not eligible for Pool Netting. Upon settling
such obligations, Clearing Members must notify FICC by submitting a
Notification of Settlement to MBSD for pool settlements relating to all
trade types (excluding Option Contracts).\37\ Notification of
Settlement is required for bilateral settlement because MBSD will not
otherwise know that the subject pools have actually settled directly
between Clearing Members. Upon both Clearing Members' submission of
Notification of Settlement, the relevant obligation is deemed to have
settled and is, therefore, no longer subject to MBSD's risk management.
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    \36\ MBSD Rule 5 Section 12 and MBSD Rule 8 Section 2, supra
note 4.
    \37\ MBSD Rule 10, supra note 4.
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B. Proposed Changes to MBSD's Trade Comparison and Netting Processes

    FICC proposes to novate all transactions (except Option Contracts)
at the time of trade comparison. Upon trade comparison, the deliver,
receive, and related payment obligations between the Clearing Members,
with respect to SBO-Destined Trades and Trade-for-Trade Transactions,
would terminate and be replaced by identical obligations to and from
FICC (i.e., FICC would become the buyer to every seller and the seller
to every buyer). A similar process would occur for Specified Pool
Trades and Stipulated Trades, except that, for those trades, the
existing deliver, receive, and related payment obligations would
terminate and be replaced with obligations to deliver, receive and make
payment for securities that satisfy the same generic criteria (such as
coupon rate, maturity, agency, and product) as the securities
underlying the Specified Pool Trades or Stipulated Trades.\38\ In
addition, FICC proposes to treat itself as the settlement counterparty
throughout the lifecycle of the trade for netting, processing, and
settlement purposes.\39\ These changes are described in detail below.
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    \38\ In other words, FICC would not novate or guarantee the
obligations to deliver the particular securities underlying
Specified Pool Trades or securities that contain the particular
stipulations set forth in Stipulated Trades.
    \39\ Upon trade comparison, Clearing Members would receive a
notification through the RTTM system establishing FICC as each
party's novated and settlement counterparty.
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1. SBO-Destined Trades
    As described above, FICC currently novates SBO-Destined Trades at
the time of trade comparison; however, FICC does not currently treat
itself as the settlement counterparty for netting and processing
purposes until after the Pool Netting process is complete and FICC has
established Pool Receive Obligations or Pool Deliver Obligations. As a
result, Clearing Members are directed to (1) allocate pools through the
EPN Service to designated SBO Contra-Side Members and (2) submit Pool
Instructs through the RTTM system.\40\
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    \40\ MBSD Rule 7, supra note 4.
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    Under the Proposed Rule Change, FICC would treat itself as
settlement counterparty for netting and processing purposes from the
time of trade comparison. SBO-Destined Trades would proceed to the TBA
Netting process as they do currently; however, the SBO positions that
result from the TBA Netting process would reflect FICC as the
settlement counterparty. Thus, Clearing Members would no longer settle
with a designated SBO Contra-Side Member,\41\ but with FICC instead.
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    \41\ FICC would eliminate its calculation for determining the
Settlement Value of ``SBON Trades'' (i.e., SBO Trades which a Member
settles with an SBON Contra-Side Member) and ``SBOO Trades'' (i.e.,
SBO Trades which a Member settles with an SBOO Contra-Side member).
MBSD Rule 1, supra note 4. The MBSD Rules refer to the calculation
as ``CUSIP Average Price'' or ``CAP'' for SBON Trades and ``Firm
CUSIP Average Price'' or ``FCAP'' for SBOO Trades. MBSD Rule 6,
supra note 4.
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    On 48-Hour Day, Clearing Members that are Pool Sellers would notify
MBSD (rather than their designated SBO Contra-Side Member) through the
EPN Service of the allocated pools. FICC would then submit
corresponding notifications to Clearing Members that are Pool Buyers.
Clearing Members would continue to submit Pool Instructs to MBSD on 48-
Hour Day through FICC's RTTM system. If a Clearing Member does not
submit its Pool Instructs by the established deadline, FICC would
determine and apply the Pool Instructs for that Clearing Member. Such
determination would be based on the allocated pools that the Clearing
Member has submitted through the EPN Service. As a result of this
proposed change, all pools would be compared, and FICC would no longer
require Clearing Members to settle uncompared pools directly with their
applicable settlement counterparties (i.e., outside of FICC).
    Additionally, FICC proposes to eliminate the trade size restriction
for SBO-Destined Trades. Currently, SBO-Destined Trades are only
eligible for the TBA Netting process in multiple amounts of one
million, with the minimum set at one million. FICC proposes to remove
this size restriction from the RTTM system so that Clearing Members
would be permitted to submit SBO-Destined Trades in any trade size.
Since trade size restrictions are not reflected in the MBSD Rules, this
proposed change would not necessitate any changes to the MBSD Rules.
For the avoidance of doubt, FICC does not propose to change the trade
size restrictions for Trade-for-Trade Transactions or Specified Pool
Trades.
2. Trade-for-Trade Transactions
    Currently, as described above, FICC does not novate Trade-for-Trade
Transactions or treat itself as settlement counterparty for purposes of
netting, processing, and settlement until, in each case, the Pool
Netting process is complete and each Clearing Member receives their
Pool Receive Obligation or Pool Deliver Obligations, as applicable,
from FICC.\42\ As a result, Clearing Members are required to allocate
pools to their original counterparties through the EPN Service, and
submit Pool Instructs through the RTTM system. Once Pool Netting is
complete, the deliver, receive, and related payment obligations between
Clearing Members that were created by compared pools that comprise a
Pool Net Settlement Position are terminated and replaced by Pool
Deliver Obligations, Pool Receive Obligations, and related payment
obligations to and from FICC.\43\
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    \42\ MBSD Rule 8 Section 4, supra note 4.
    \43\ MBSD Rule 8 Section 6, supra note 4.
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    Under the Proposed Rule Change, FICC would novate Trade-for-Trade
Transactions at trade comparison and treat itself as settlement
counterparty, at that time, for purposes of processing and settlement.
Similar to the process with SBO-Destined Trades, Clearing Members with
an obligation to deliver pools would notify MBSD (rather than

their original counterparty) through the EPN Service, and FICC would
submit corresponding notifications to Clearing Members that are Pool
Buyers. Clearing Members would continue to be required to submit Pool
Instructs. In the event that Pool Instructs are not submitted by the
established deadline, FICC would determine Pool Instructs for that
Clearing Member. Such determinations would be based on the allocated
pools that the Clearing Member has submitted through the EPN Service.
3. Specified Pool Trades
    Currently, as described above, FICC does not novate Specified Pool
Trades during any point of the trade lifecycle (though, upon trade
comparison of Specified Pool Trades, FICC guarantees the obligation to
deliver, receive, and pay for securities that satisfy the same generic
criteria as the underlying securities).\44\ Specified Pool Trades are
currently ineligible for the TBA Netting process and the Pool Netting
process. Specified Pool Trades are currently settled between the
original counterparties directly (i.e., outside of FICC).
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    \44\ MBSD Rule 5, supra note 4.
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    Under the Proposed Rule Change, FICC would novate Specified Pool
Trades upon trade comparison. Such novation would be limited to the
obligations to deliver, receive, and make payment for securities
satisfying the same generic criteria as the securities underlying the
Specified Pool Trades. As a result, upon trade comparison, the existing
deliver, receive, and related payment obligations between Clearing
Members under Specified Pool Trades would be terminated and replaced
with obligations to or from FICC to deliver, receive, and make payment
for securities satisfying the same generic criteria as the securities
underlying the Specified Pool Trades. FICC would not novate the
obligation to deliver the securities for the particular specified pool.
    Additionally, FICC proposes to settle Specified Pool Trades
directly with the Clearing Member party thereto (rather than require
that counterparties to such trades settle directly with one another).
No other changes are being proposed with respect to the processing of
Specified Pool Trades. Such trades would continue to be ineligible for
the TBA Netting and Pool Netting systems.
4. Stipulated Trades
    Currently, as described above, FICC does not treat Stipulated
Trades as a separate type of trading activity because Clearing Members
submit Stipulated Trades to FICC as Trade-for-Trade Transactions,
without notifying FICC of the stipulations. Under the Proposed Rule
Change, FICC would add Stipulated Trades as a new trade type that would
be eligible for processing by MBSD. FICC would guarantee and novate
Stipulated Trades at trade comparison, provided that such trades meet
the requirements of the MBSD Rules and are entered into in good faith.
Such guarantee and novation would be limited to the obligations to
deliver, receive, and make payment for securities satisfying the same
generic criteria as the securities underlying the Stipulated Trade, but
not the obligation to deliver securities that contain the particular
stipulations contained in the Stipulated Trades. At trade comparison,
the deliver, receive, and related payment obligations between Clearing
Members would be terminated and replaced with obligations to or from
FICC to deliver, receive, and make payment for securities satisfying
the same generic criteria as the securities underlying the Stipulated
Trades.
    Because of the narrow nature of FICC's guarantee and novation, in
the event of a Clearing Member's default, FICC would only be required
to deliver, receive, or make payment for securities that have the same
generic terms, such as coupon rate, maturity, agency, and product, as
the securities underlying the Stipulated Transaction.
    Clearing Members would be required to allocate Stipulated Trades to
FICC through the EPN Service. Such allocation would result in the
creation of pool obligations, which would settle with FICC based on the
settlement date agreed to as part of the terms of the trade. Similar to
Specified Pool Trades, Stipulated Trades would not be eligible for the
TBA Netting process and the Pool Netting process.
5. Notification of Settlement Process
    As described above, the Notification of Settlement process
currently requires Clearing Members to notify FICC of obligations that
have settled directly between Clearing Members and their applicable
settlement counterparties.\45\ Once both parties to a transaction
submit a Notification of Settlement to MBSD through the RTTM system,
the obligations are no longer subject to MBSD's margin calculation
process.\46\ Because, under the Proposed Rule Change, FICC would novate
and directly settle all SBO-Destined Transactions, Trade-for-Trade
Transactions, and Specified Pool Trades, the Notification of Settlement
process would become obsolete. Therefore, FICC proposes to delete
Notification of Settlement from the MBSD Rules.
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    \45\ MBSD Rule 10, supra note 4.
    \46\ MBSD Rule 4, supra note 4.
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6. Do Not Allocate (``DNA'') Process
    Under the Proposed Rule Change, FICC would establish a process to
enable Clearing Members to offset Trade-for-Trade Transactions \47\ and
SBON Trades. This process would be referred to as the ``Do Not
Allocate'' or ``DNA'' process. The purpose of this process is to
exclude SBON Trades and Trade-for-Trade Transactions from the pool
allocation process \48\ and securities settlement.
---------------------------------------------------------------------------

    \47\ Specified Pool Trades and Stipulated Trades would not be
eligible for the proposed DNA process because such trades are not
eligible for the Pool Netting process. MBSD Rule 8, supra note 4.
    \48\ As noted above, the pool allocation process requires
Clearing Members to allocate pools on 48-Hour Day through the EPN
Service. Under the Proposed Rule Change, Clearing Members would not
be required to allocate pools for obligations that have been offset
through the DNA process.
---------------------------------------------------------------------------

    The DNA process would be available to Clearing Members at the start
of the business day on 48-Hour Day through 4:30 p.m.\49\ on 24-Hour
Day. During this time, Clearing Members with two or more open TBA
Obligations \50\ with the same Par Amount,\51\ CUSIP Number, and SIFMA
designated settlement date would be permitted to offset such
obligations. In order to initiate the offset, Clearing Members would be
required to submit a request (``DNA Request'') to MBSD through the RTTM
system. Upon FICC's validation of this request, the obligations would
be reduced, and the Clearing Member would not be required to allocate
pools against such obligations. As a result, a Clearing Member's
overall number of open obligations would be reduced.
---------------------------------------------------------------------------

    \49\ All times referenced herein are Eastern Time.
    \50\ The term ``TBA Obligations'' means SBO-Destined obligations
and, with respect to Trade-for-Trade Transactions, settlement
obligations generated by the Trade Comparison system. MBSD Rule 1,
supra note 4.
    \51\ The term ``Par Amount'' means for Trade-for-Trade and SBO
Transactions, Option Contracts and Pool Deliver and Pool Receive
Obligations, the current face value of a Security to be delivered on
the Contractual Settlement Date. With respect to Specified Pool
Trades, ``Par Amount'' shall mean the original face value of a
Security to be delivered on the Contractual Settlement Date. MBSD
Rule 1, supra note 4.
---------------------------------------------------------------------------

    Clearing Members would be permitted to cancel a DNA Request;
however, such cancellation must be submitted through the RTTM system
prior to the time that the designated offsetting TBA Obligations have
settled. Upon FICC's timely receipt of a cancellation request, the
trades that were previously marked for the DNA process would reopen and
the Clearing Member would be expected

to notify MBSD through the EPN Service of the pools that such Clearing
Member intends to allocate to the open obligations.\52\
---------------------------------------------------------------------------

    \52\ A detailed example of the DNA process is described in the
Notice. Notice, 82 FR at 23857.
---------------------------------------------------------------------------

    The proposed DNA process would generate Cash Settlement credits and
debits from the price differential of the resulting offsetting
obligations. The proposed Cash Settlement obligations are described
more fully below in Item 9.
7. Expanded Pool Netting Process
    As described above, the Pool Netting system reduces the number of
pool settlements by netting Pool Instructs stemming from SBON Trades
and Trade-for-Trade Transactions to arrive at a single net position per
counterparty in a particular pool number for next-day delivery. Prior
to the Pool Netting process, Pool Sellers must notify their Pool Buyers
through MBSD's EPN Service of the pools to be allocated in satisfaction
of a TBA Obligation. In accordance with the SIFMA Guidelines,\53\ such
notifications must occur before 3:00 p.m. on 48-Hour Day.\54\
Notifications that take place after this time are considered late, and
the delivery of such pools to the related Pool Buyers will be delayed
for one additional business day.
---------------------------------------------------------------------------

    \53\ The term ``SIFMA Guidelines'' means the guidelines for good
delivery of Mortgage-Backed Securities as promulgated from time to
time by SIFMA. MBSD Rule 1, supra note 4.
    \54\ All times referenced herein are Eastern Time.
---------------------------------------------------------------------------

    In order to capture notifications submitted after 3:00 p.m. on 48-
Hour Day through 4:30 p.m. on 24-Hour Day, FICC proposes to establish
an additional netting cycle, referred to as ``Expanded Pool Netting.''
Similar to the initial Pool Netting process, Expanded Pool Netting
would result in a reduction in the number of Pool Delivery Obligations.
As with the existing Pool Netting process, the proposed Expanded Pool
Netting process would (1) calculate Pool Net Settlement Positions in a
manner that is consistent with Section 3 of MBSD Rule 8, and (2)
allocate Pool Deliver Obligations and Pool Receive Obligations in a
manner that is consistent with Section 4 of MBSD Rule 8.
    The Expanded Pool Netting process would occur four times per month
in accordance with the SIFMA designated settlement dates. Pool Net
Settlement Positions and the resultant Pool Deliver Obligations and
Pool Receive Obligations would only be provided to Clearing Members
during such times. The proposed Expanded Pool Netting process would
generate Cash Settlement credits and debits, described more fully below
in Item 9.
8. Give-Up Process for Brokered Transactions
    Currently, as described above, FICC operates its brokered business
on a ``give-up'' basis, which means that MBSD discloses (i.e., ``gives-
up'') the identity of each Dealer to a Brokered Transaction after a
period of time.\55\ Under the Proposed Rule Change, FICC would
eliminate the need to disclose Dealers' identities because FICC would
novate all Brokered Transactions and treat itself as the settlement
counterparty upon trade comparison. Thus, the report that FICC issues
after trade comparison of a Brokered Transaction would refer to FICC as
settlement counterparty.
---------------------------------------------------------------------------

    \55\ MBSD Rule 5 Section 7, supra note 4.
---------------------------------------------------------------------------

9. Cash Settlement Calculations
    As described above, Cash Settlement is a daily process of
generating a single net credit or debit cash amount at the Aggregated
Account level and settling those cash amounts between Clearing Members
and MBSD.\56\ FICC's proposal to become the settlement counterparty
upon trade comparison and the proposed DNA process would require
several changes to the Cash Settlement calculation described below.\57\
---------------------------------------------------------------------------

    \56\ MBSD Rule 11, supra note 4.
    \57\ Detailed examples of the proposed changes to the Cash
Settlement calculations are provided in the Notice. Notice, 82 FR at
23858-59.
---------------------------------------------------------------------------

     SBO Market Differential. Under the Proposed Rule Change,
FICC would eliminate the SBO Market Differential \58\ because it
reflects the price difference for SBO positions settled among Clearing
Members. This amount would no longer be required because Clearing
Members would settle all SBO-Destined Trades directly with FICC.
---------------------------------------------------------------------------

    \58\ The term ``SBO Market Differential'' means the amount
computed pursuant to the MBSD Rules, reflecting the difference
between Firm CUSIP Average Prices (i.e., the average purchase or
sale contract price of a Member's SBO-Destined Trades with a
particular Original Contra-Side Member in a particular CUSIP number)
or between the CUSIP Average Price (i.e., the average contract price
of all SBO-Destined Trades in the CUSIP number that have been
netted) and the Firm CUSIP Average Price, as the case may be. MBSD
Rule 1, supra note 4.
---------------------------------------------------------------------------

     TBA Transaction Adjustment Payment. Under the Proposed
Rule Change, FICC would add the TBA Transaction Adjustment Payment to
reflect the cash differential that would result when calculating the
net proceeds of the contractual quantity of an SBO-Destined Trade when
comparing such trade's Settlement Price \59\ and the System Price.\60\
The proposed TBA Transaction Adjustment Payment would be an amount
equal to the difference between the SBO-Destined Trade's Settlement
Price and the System Price, multiplied by the contractual quantity of
such trade, and then divided by 100. To differentiate between the buyer
and seller of the transaction, an indicator of -1 for the buy trade and
+1 for the sell trade is multiplied by the contractual quantity of such
trade.
---------------------------------------------------------------------------

    \59\ The term ``Settlement Price'' means: (a) In the case of a
Trade-for-Trade Transaction, Specified Pool Trade, or SBO-Destined
Trade, the contractual settlement price agreed to by the parties;
(b) in the case of an SBON Trade, the CUSIP Average Price; (c) in
the case of an SBOO Trade, the Firm CUSIP Average Price; and (d) in
the case of a Pool Deliver or Pool Receive Obligation, the Pool Net
Price. MBSD Rule 1, supra note 4.
    \60\ The term ``System Price'' means the price for any trade or
any Pool Deliver Obligations or Pool Receive Obligation not
including accrued interest, established by FICC on each Business
Day, based on current market information, for each security. MBSD
Rule 1, supra note 4.
---------------------------------------------------------------------------

     Expanded Pool Net Transaction Adjustment Payment. Under
the Proposed Rule Change, FICC would add the Expanded Pool Net
Transaction Adjustment Payment to be applied when a Clearing Member
misses the deadline established by FICC for the Pool Netting process.
Unlike the daily Pool Netting process, the Expanded Pool Netting
process would only run four times per month in accordance with the
SIFMA designated settlement dates. As a result, an Expanded Pool Net
Transaction Adjustment Payment would only occur four times per month.
The Expanded Pool Net Transaction Adjustment Payment would reflect an
amount equal to the difference between the System Price and the SBON
Trade's Settlement Price or Trade-for-Trade Transaction's Settlement
Price, as applicable, multiplied by the total current face value of the
pools used to satisfy such obligation, and then divided by 100. To
differentiate between a buy and sell transaction, an indicator of +1
for a buy trade and -1 for a sell trade would be multiplied by the
total current face value of the pools used to satisfy the obligation.
     Do Not Allocate Transaction Adjustment Payment. Under the
Proposed Rule Change, FICC would add the Do Not Allocate Transaction
Adjustment Payment to reflect the cash differential among TBA
Obligations that have been offset through the DNA process. The proposed
Do Not Allocate Transaction Adjustment Payment would be an amount equal
to the difference between the Settlement Price of the buy and sell TBA
Obligation transactions multiplied by the contractual quantity. To
differentiate between a buy and sell transaction, an indicator of -1
for a buy

trade and +1 for a sell trade is multiplied by the contractual quantity
of such trade.
     TBA Reprice Transaction Adjustment Payment. Under the
Proposed Rule Change, FICC would add the TBA Reprice Transaction
Adjustment Payment to reflect the cash differential between the price
of a TBA Obligation that was not allocated by a Clearing Member before
the deadline established by FICC and the price of the replacement TBA
Obligation that was calculated at the System Price. The TBA Reprice
Transaction Adjustment Payment would be an amount equal to the
difference between the TBA Obligation's Settlement Price and the System
Price, multiplied by the unallocated contractual quantity, and then
divided by 100. To differentiate between a buy and sell transaction, an
indicator of -1 for a sell trade and +1 for a buy trade is multiplied
by the unallocated pool's contractual quantity.
     Variance Transaction Adjustment Payment. Under the
Proposed Rule Change, FICC would add the Variance Transaction
Adjustment Payment to capture the variance (i.e., difference) \61\
between a TBA Obligation and the current face value of the pools
allocated in satisfaction of such obligation. Specifically, this
payment would reflect the cash differential calculated between the SBON
Trade's Settlement Price or the Trade-for-Trade Transaction's
Settlement Price, as applicable, and the System Price using the
variance of the Pool Netting process or the Expanded Pool Netting
process, as applicable, based on the current face value of the pools
used in satisfaction of the trade. The Variance Transaction Adjustment
Payment would be an amount equal to the difference between the SBON
Trade's Settlement Price or the Trade-for-Trade Transaction's
Settlement Price, as applicable, and the System Price, multiplied by
the difference between the TBA Obligation and the allocated pools used
in satisfaction of such trade, and then divided by 100. To
differentiate between a buy and sell transaction, an indicator of -1
for a buy trade and +1 for a sell trade would be multiplied by the
total variance amount.
---------------------------------------------------------------------------

    \61\ Pursuant to the SIFMA Guidelines, TBA trades are allowed to
have a variance equal to plus or minus 0.01 percent of the dollar
amount of the transaction agreed to by the parties. As a result of
this guideline, FICC would capture the variance of TBA Obligations
and the current face value of the pools allocated in satisfaction of
such obligations.
---------------------------------------------------------------------------

     Factor Update Adjustment Payment. Under the Proposed Rule
Change, FICC would add the Factor Update Adjustment Payment, to be
applied when updated pool factor information is released after the
clearing bank's settlement of a pool. This update would create a cash
differential that would require a debit to the seller and a credit to
the buyer.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \62\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the Proposed Rule
Change, the Commission finds that the Proposed Rule Change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FICC. In particular, the
Commission finds that the Proposed Rule Change is consistent with
Section 17A(b)(3)(F) of the Act \63\ and Rule 17Ad-22(e)(21) \64\ under
the Act.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78s(b)(2)(C).
    \63\ 15 U.S.C. 78q-1(b)(3)(F).
    \64\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\65\ As discussed
above, the Proposed Rule Change would result in FICC novating and
treating itself as the settlement counterparty from the time of trade
comparison with respect to SBO-Destined Trades, Trade-for-Trade
Transactions, Specified Pool Trades, and Stipulated Trades. By novating
such trades to FICC and treating FICC as the settlement counterparty to
such trades the Proposed Rule Change would make FICC the only
counterparty to whom the Clearing Members are obligated, as compared to
the current process where Clearing Members may have multiple
counterparties with whom they need to settle multiple obligations
outside of FICC. Additionally, the Proposed Rule Change would also
accelerate the point in time at which FICC becomes that ultimate
counterparty (i.e., at the time of trade comparison), resulting in such
trades being governed by the MBSD Rules from that time. Collectively,
the proposed changes are designed to simplify, streamline, and
centralize trade processing under the MBSD Rules, which would help
promote the prompt and accurate clearance and settlement of these types
of securities transactions. Therefore, the Commission believes that the
Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the
Act.\66\
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78q-1(b)(3)(F).
    \66\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, the Proposed Rule Change would make a number of
operational changes with respect to MBSD trade processing.
Specifically, the Proposed Rule Change would provide that (1) the
submission of Pool Instructs by Clearing Members would become optional
because FICC would be permitted to submit on behalf Clearing Members;
(2) Clearing Members would no longer to be required to fulfill
Notification of Settlement obligations because all of the above-
referenced transactions would settle with FICC; (3) Clearing Members
would have the ability to exclude TBA Obligations from the pool
allocation process, netting, and securities settlement through the DNA
process; (4) Clearing Members would have the ability to net their pools
via the Expanded Pool Netting process in the event that such Clearing
Members miss the established deadline for the initial Pool Netting
process; (5) Dealer Netting Members would remain anonymous with the
elimination of the ``give-up'' process for Brokered Transactions; (6)
Clearing Members would be allowed to submit SBO-Destined Trades in all
trade sizes; and (7) Clearing Members would be allowed to submit
Stipulated Trades as a new trade type. These proposed changes are
designed to eliminate operational steps in the current trade processing
cycle and enable Clearing Members to take advantage of MBSD's trade
processing efficiencies at an earlier point, which would help promote
the prompt and accurate clearance and settlement of these types of
securities transactions. Therefore, Commission believes that the
Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the
Act.\67\
---------------------------------------------------------------------------

    \67\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(21) under the Act requires, in part, that FICC
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to be efficient and effective in meeting
the requirements of its participants and the markets it serves, and
regularly review the efficiency and effectiveness of its (i) clearing
and settlement arrangements; (ii) operating structure; and (iii) scope
of products cleared or settled.\68\ As discussed above, the Proposed
Rule Change would enable FICC to novate MBS trades at an earlier point
the trade lifecycle (i.e., upon trade comparison). Additionally, as
described above, the Proposed Rule Change would add Stipulated Trades
as a new trade type

that could be cleared and settled at MBSD, and it would remove the size
restrictions with respect to SBO-Destined Trades.
---------------------------------------------------------------------------

    \68\ See 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    With these changes, which were developed in consideration of the
feedback received from MBSD Clearing Members,\69\ FICC could provide a
more efficient and effective operational processes in connection with
the clearance and settlement of MBS trades, expand the scope of
products cleared and settled by MBSD, and enable Clearing Members to
submit such trades in any size. Therefore, the Commission believes that
the Proposed Rule Change is designed to help FICC be more efficient and
effective in meeting the requirements of its participants and the
markets it serves, and in providing clearing and settlement
arrangements, operating structure, and scope of products cleared or
settled, which is consistent with Rule 17Ad-22(e)(21).
---------------------------------------------------------------------------

    \69\ FICC describes in Item 7 of its Form 19b-4 responses the
extent to which the proposed changes were informed by feedback from
its Clearing Members and various working groups over numerous years.
Available at http://www.dtcc.com/legal/sec-rule-filings.
Specifically, FICC states that in 2015, 92 Clearing Member
representatives participated in forums held in June, and 157
representatives participated in forums in September and October. Id.
FICC states that in 2016, 139 representatives participated in forums
held in March, 241 representatives participated in forums held in
August, and 121 participated in forums held in December. Id.
Additionally, FICC states that it held a number of conference calls
with individual Clearing Members to address questions and concerns
on the subject. Id. Moreover, FICC explains that the Proposed Rule
Change was even the subject of a prior rule filing with the
Commission to fund the proposed changes. Id. See also Exchange Act
Release No. 74033 (January 12, 2015), 80 FR 2452 (January 16, 2015)
(SR-FICC-2014-12).
---------------------------------------------------------------------------

V. Conclusion

    On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act \70\ and
the rules and regulations promulgated thereunder.
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\71\ that proposed rule change SR-FICC-2017-012 be, and hereby is,
approved.\72\
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78s(b)(2).
    \72\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-14142 Filed 7-5-17; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 75, Number 246 (Thursday, December 23, 2010)]
[Rules and Regulations]
[Pages 80680-80681]
[FR Doc No: 2010-32040]

=======================================================================
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DEPARTMENT OF TRANSPORTATION

14 CFR Part 97

[Docket No. 30759; Amdt. No. 3405]

Standard Instrument Approach Procedures, and Takeoff Minimums and
Obstacle Departure Procedures; Miscellaneous Amendments

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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

SUMMARY: This rule establishes, amends, suspends, or revokes Standard
Instrument Approach Procedures (SIAPs) and associated Takeoff Minimums
and Obstacle Departure Procedures for operations at certain airports.
These regulatory actions are needed because of the adoption of new or
revised criteria, or because of changes occurring in the National
Airspace System, such as the commissioning of new navigational
facilities, adding new obstacles, or changing air traffic requirements.
These changes are designed to provide safe and efficient use of the
navigable airspace and to promote safe flight operations under
instrument flight rules at the affected airports.

DATES: This rule is effective December 23, 2010. The compliance date
for each SIAP, associated Takeoff Minimums, and ODP is specified in the
amendatory provisions.
    The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of December 23, 2010.

ADDRESSES: Availability of matter incorporated by reference in the
amendment is as follows:
    For Examination--
    1. FAA Rules Docket, FAA Headquarters Building, 800 Independence
Avenue, SW., Washington, DC 20591;
    2. The FAA Regional Office of the region in which the affected
airport is located;
    3. The National Flight Procedures Office, 6500 South MacArthur
Blvd., Oklahoma City, OK 73169 or,
    4. The National Archives and Records Administration (NARA). For
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    Availability_All SIAPs are available online free of charge. Visit
nfdc.faa.gov to register. Additionally, individual SIAP and Takeoff
Minimums and ODP copies may be obtained from:
    1. FAA Public Inquiry Center (APA-200), FAA Headquarters Building,
800 Independence Avenue, SW., Washington, DC 20591; or
    2. The FAA Regional Office of the region in which the affected
airport is located.

FOR FURTHER INFORMATION CONTACT: Harry J. Hodges, Flight Procedure
Standards Branch (AFS-420) Flight Technologies and Programs Division,
Flight Standards Service, Federal Aviation Administration, Mike
Monroney Aeronautical Center, 6500 South MacArthur Blvd., Oklahoma
City, OK 73169 (Mail Address: P.O. Box 25082, Oklahoma City, OK 73125)
telephone:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: This rule amends Title 14, Code of Federal
Regulations, Part 97 (14 CFR part 97) by amending the referenced SIAPs.
The complete regulatory description of each SIAP is listed on the
appropriate FAA Form 8260, as modified by the National Flight Data
Center (FDC)/Permanent Notice to Airmen (P-NOTAM), and is incorporated
by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and
Sec.  97.20 of Title 14 of the Code of Federal Regulations.
    The large number of SIAPs, their complex nature, and the need for a
special format make their verbatim publication in the Federal Register
expensive and impractical. Further, airmen do not use the regulatory
text of the SIAPs, but refer to their graphic depiction on charts
printed by publishers of aeronautical materials. Thus, the advantages
of incorporation by reference are realized and publication of the
complete description of each SIAP contained in FAA form documents is
unnecessary. This amendment provides the affected CFR sections and
specifies the types of SIAP and the corresponding effective dates. This
amendment also identifies the airport and its location, the procedure
and the amendment number.

The Rule

    This amendment to 14 CFR part 97 is effective upon publication of
each separate SIAP as amended in the transmittal. For safety and
timeliness of change considerations, this amendment incorporates only
specific changes contained for each SIAP as modified by FDC/P-NOTAMs.
    The SIAPs, as modified by FDC P-NOTAM, and contained in this
amendment are based on the criteria contained in the U.S. Standard for
Terminal Instrument Procedures (TERPS). In developing these changes to
SIAPs, the TERPS criteria were applied only to specific conditions
existing at the affected airports. All SIAP amendments in this rule
have been previously issued by the FAA in a FDC NOTAM as an emergency
action of immediate flight safety relating directly to published
aeronautical charts. The circumstances which created the need for all
these SIAP amendments requires making them effective in less than 30
days.
    Because of the close and immediate relationship between these SIAPs
and safety in air commerce, I find that notice and public procedure
before adopting these SIAPs are impracticable and contrary to the
public interest and, where applicable, that good cause exists for
making these SIAPs effective in less than 30 days.

Conclusion

    The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
It, therefore--(1) is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under DOT
regulatory Policies and Procedures (44 FR 11034; February 26, 1979);
and (3) does not warrant preparation of a regulatory evaluation as the
anticipated impact is so minimal. For the same reason, the FAA
certifies that this amendment will not have a significant economic
impact on a substantial number of small entities under the criteria of
the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 97

    Air Traffic Control, Airports, Incorporation by reference, and
Navigation (Air).

    Issued in Washington, DC on December 10, 2010.
Ray Towles,
Deputy Director, Flight Standards Service.

Adoption of the Amendment

0
Accordingly, pursuant to the authority delegated to me, title 14, Code
of Federal regulations, part 97, 14 CFR part 97, is amended by amending
Standard Instrument Approach Procedures, effective at 0901 UTC on the
dates specified, as follows:

PART 97--STANDARD INSTRUMENT APPROACH PROCEDURES

0
1. The authority citation for part 97 continues to read as follows:

    Authority:  49 U.S.C. 106(g), 40103, 40106, 40113, 40114, 40120,
44502, 44514, 44701, 44719, 44721-44722.

0
2. Part 97 is amended to read as follows:

Sec. Sec.  97.23, 97.25, 97.27, 97.29, 97.31, 97.33, and
97.35  [Amended]

    By amending: Sec.  97.23 VOR, VOR/DME, VOR or TACAN, and VOR/DME or
TACAN; Sec.  97.25 LOC, LOC/DME, LDA, LDA/DME, SDF, SDF/DME; Sec.
97.27 NDB, NDB/DME; Sec.  97.29 ILS, ILS/DME, MLS, MLS/DME, MLS/RNAV;
Sec.  97.31 RADAR SIAPs; Sec.  97.33 RNAV SIAPs; and Sec.  97.35 COPTER
SIAPs, Identified as follows:

*** EFFECTIVE UPON PUBLICATION

--------------------------------------------------------------------------------------------------------------------------------------------------------
     Airac Date             State               City               Airport          FDC No.      FDC Date                      Subject
--------------------------------------------------------------------------------------------------------------------------------------------------------
13 Jan-11...........  IN                La Porte...........  La Porte Muni......       0/7781     11/22/10  VOR A, Amdt 7A.
13 Jan-11...........  IN                La Porte...........  La Porte Muni......       0/7782     11/22/10  RNAV (GPS) RWY 2, Orig-A.
13 Jan-11...........  IN                La Porte...........  La Porte Muni......       0/7783     11/22/10  LOC/NDB RWY 2, Amdt 1A.
13 Jan-11...........  WI                Rhinelander........  Rhinelander-Oneida        0/7784     11/22/10  VOR RWY 9, Amdt 4D.
                                                              County.
13 Jan-11...........  WI                Rhinelander........  Rhinelander-Oneida        0/7789     11/22/10  VOR/DME RWY 27, Orig-E.
                                                              County.
13 Jan-11...........  IA                Cedar Rapids.......  The Eastern Iowa...       0/7827     11/22/10  RNAV (GPS) RWY 9, Amdt 2.
13 Jan-11...........  IA                Cedar Rapids.......  The Eastern Iowa...       0/7828     11/22/10  ILS OR LOC RWY 9, Amdt 18.
13 Jan-11...........  IA                Cedar Rapids.......  The Eastern Iowa...       0/7829     11/22/10  VOR/DME RWY 9, Amdt 17.
13 Jan-11...........  IA                Cedar Rapids.......  The Eastern Iowa...       0/7838     11/22/10  RNAV (GPS) RWY 31, Amdt 1.
13 Jan-11...........  IA                Cedar Rapids.......  The Eastern Iowa...       0/7839     11/22/10  RNAV (GPS) RWY 13, Amdt 1B.
13 Jan-11...........  OH                Toledo.............  Toledo Express.....       0/7858     11/23/10  ILS OR LOC RWY 25, Amdt 7.
13 Jan-11...........  MA                Westfield/           Barnes Muni........       0/8053     11/22/10  VOR RWY 20, Amdt 20B.
                                         Springfield.
13 Jan-11...........  GA                Gainesville........  Gilmer Memorial....       0/8308     11/22/10  NDB RWY 5, Amdt 5.
13 Jan-11...........  GA                Atlanta............  Dekalb-Peachtree...       0/8310     11/22/10  VOR/DME RWY 27, Amdt 1D.
13 Jan-11...........  NH                Concord............  Concord Muni.......       0/8327     11/22/10  VOR A, Orig-A.
13 Jan-11...........  NH                Concord............  Concord Muni.......       0/8344     11/22/10  ILS RWY 35, Amdt 1A.
13 Jan-11...........  TX                Corsicana..........  C David Campbell          0/8376     11/23/10  VOR/DME B, Amdt 1.
                                                              Field-Corsicana
                                                              Muni.
13 Jan-11...........  TX                Corsicana..........  C David Campbell          0/8806     11/23/10  NDB RWY 32, Amdt 3.
                                                              Field-Corsicana
                                                              Muni.
13 Jan-11...........  TX                Corsicana..........  C David Campbell          0/8807     11/23/10  VOR/DME A, Amdt 1.
                                                              Field-Corsicana
                                                              Muni.
13 Jan-11...........  TX                Corsicana..........  C David Campbell          0/8810     11/23/10  NDB RWY 14, Amdt 4.
                                                              Field-Corsicana
                                                              Muni.
13 Jan-11...........  NM                Roswell............  Roswell Intl Air          0/8879     11/23/10  RADAR 1, Orig.
                                                              Center.
13 Jan-11...........  NM                Roswell............  Roswell Intl Air          0/8880     11/23/10  LOC BC RWY 3, Amdt 9B.
                                                              Center.
13 Jan-11...........  IA                Milford............  Fuller.............       0/8884     11/23/10  VOR/DME OR GPS A, Orig-A.
13 Jan-11...........  GA                Atlanta............  Dekalb-Peachtree...       0/8958     11/22/10  VOR/DME RWY 20L, Amdt 1E.
13 Jan-11...........  WI                Appleton...........  Outagamie County          0/8998     11/24/10  VOR/DME RWY 21, Amdt 1.
                                                              Rgnl.
13 Jan-11...........  WI                Appleton...........  Outagamie County          0/8999     11/24/10  VOR/DME RWY 3, Amdt 8E.
                                                              Rgnl.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 2010-32040 Filed 12-22-10; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 81, Number 55 (Tuesday, March 22, 2016)]
[Notices]
[Pages 15360-15363]
[FR Doc No: 2016-06411]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32030; File No. 812-14586]

Principal Life Insurance Company, et al., Notice of Application

March 17, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order approving the substitution
of certain securities pursuant to Section 26(c) of the Investment
Company Act of 1940 (the ``Act'').

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    Applicants: Principal Life Insurance Company (``PLIC''), Principal
National Life Insurance Company (``PNL'') (PLIC and PNL are each an
``Insurance Company'' and together, the ``Insurance Companies''),
Principal Life Insurance Company Variable Life Separate Account (``PLIC
Variable Life Separate Account''), and Principal National Life
Insurance Company Variable Life Separate Account (``PNL Variable Life
Separate Account'') (PLIC Variable Life Separate Account and PNL
Variable Life Separate Account are each a ``Separate Account'' and
together, the ``Separate Accounts'').
    Summary of Application: Applicants seek an order pursuant to
Section 26(c) of the Act approving the substitution of shares of
Fidelity Variable Insurance Products Fund V Government Money Market
Portfolio (the ``Replacement Fund'') for shares of Principal Variable
Contracts Funds, Inc. Money Market Account (the ``Existing Fund'') held
by the Separate Accounts to support variable life insurance contracts
(each, a ``Contract'' and collectively, the ``Contracts'') issued by
the Insurance Companies.
    Filing Dates: The application was filed on December 9, 2015, and
amended on February 29, 2016, March 8, 2016, and March 14, 2016.

    Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on April 7, 2016, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to Rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES: Brent J. Fields, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants:
Britney Schnathorst, Principal Life Insurance Company, The Principal
Financial Group, Des Moines, Iowa 50392-0300.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-6873, or Mary Kay Frech, Branch Chief at<PHONE_NUMBER>
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.
    Applicants' Representations:
    1. PLIC is a stock life insurance company incorporated under the
laws of the state of Iowa. PLIC is authorized to transact life
insurance business in all states of the United States and the District
of Columbia. PLIC is a wholly-owned indirect subsidiary of Principal
Financial Group, Inc. (``PFGI''). PLIC is the depositor and sponsor, as
those terms have been interpreted by the Commission with respect to
variable life insurance separate accounts, of PLIC Variable Life
Separate Account. PLIC established PLIC Variable Life Separate Account
as a separate account under Iowa law on November 2, 1987.
    2. PNL is a stock life insurance company organized under the laws
of the state of Ohio. PNL is authorized to transact life insurance
business in the District of Columbia and in all states in the United
States except New York. PNL is a wholly-owned indirect subsidiary of
PFGI. PNL is the depositor and sponsor of PNL Variable Life Separate
Account. PNL established PNL Variable Life Separate Account as a
separate account under Iowa law on November 28, 2007.
    3. Each Separate Account is a ``separate account'' as defined in
Rule 0-1(e) under the Act and is registered as a unit investment trust
under the Act. Under Iowa law, the applicable Insurance Company owns
the assets of the Separate Account attributable to the Contracts
through which interests in the Separate Account are issued, but those
assets are held separately from all other assets of the applicable
Insurance Company for the benefit of the owners of the Contracts (each,
a ``Contract Owner'') and the persons entitled to payment under the
Contracts. Consequently, the assets in each Separate Account are not
chargeable with liabilities arising out of any other business that the
applicable Insurance Company may conduct.
    4. Each Separate Account is divided into subaccounts. Each
subaccount invests exclusively in shares of a corresponding underlying
registered open-end management investment company. The applicable
Separate Account supports the respective Contracts, and interests in
the Separate Account offered through such Contracts have been
registered under the Securities Act of 1933 on Form N-6. The
application sets forth the registration file numbers for the respective
Contracts under the applicable Separate Account.
    5. The Contracts are individual flexible premium variable insurance
policies. Applicants state that, as disclosed in the prospectuses for
the Contracts, the Insurance Companies reserve the right, subject to
Commission approval and compliance with applicable law, to substitute
shares of one registered open-end management investment company for
shares of another registered open-end management investment company
held by a subaccount of a Separate Account.
    6. Principal Variable Contracts Funds, Inc. (``PVC'') is organized
as a Maryland corporation and is registered as an open-end management
investment company under the Act. PVC currently offers 37 series,
including the Existing Fund. Principal Management Corporation
(``PMC''), an investment adviser registered under the Investment
Advisers Act of 1940 (the ``Advisers Act''), provides investment
advisory services and certain corporate administrative services to PVC
and the Existing Fund. Principal Global Investors, an affiliate of PMC,
is the sub-adviser for the Existing Fund and has day-to-day
responsibility for selecting investments for the Existing Fund. The
Existing Fund served as the only underlying money market investment
option for all of the Contracts until the addition of the Replacement
Fund effective on February 6, 2016.
    7. Fidelity Variable Insurance Products Fund V (``Fidelity VIP Fund
V'') was created under a declaration of trust under Massachusetts law
and is registered as an open-end management investment company under
the Act. Fidelity VIP Fund V currently offers 32 series, including the
Replacement Fund. Fidelity Management & Research Company (``FMR''), an
investment adviser registered under the Advisers Act, serves as the
investment adviser of the Replacement Fund, with overall responsibility
for directing portfolio investments and handling Fidelity VIP Fund V's
business affairs. Fidelity Investments Money Management, Inc.
(``FIMM'') and other affiliates of FMR serve as sub-advisers to the
Replacement Fund, with FIMM having day-to-day responsibility of
choosing investments for the Replacement Fund. Effective December 1,
2015, the fundamental concentration policy of the Replacement Fund was
modified in such a manner as to enable it to operate as a government
money market fund. None of Fidelity VIP Fund V, FMR, FIMM, and other
affiliates of FMR are affiliated persons (or affiliated persons of
affiliated persons) of applicants or PVC.
    8. Applicants propose to substitute Service Class Shares of the
Replacement Fund for Class 1 Shares of the Existing Fund (the
``Substitution'') to support the Contracts. Applicants represent that
the Replacement Fund is an appropriate alternative for Contract Owners.
Applicants state that the Replacement Fund and the Existing Fund each
has an investment objective to seek current income as is consistent
with preservation of capital and liquidity. In addition, while the
principal investment strategies of the Replacement Fund may differ from
those of the Existing Fund, the goal of each fund is to maintain a net
asset value of $1.00 per share. Applicants note that although the risk
profiles of the Replacement Fund and the Existing Fund differ,
applicants believe that the Replacement Fund entails less investment
risk than the Existing Fund. Additional information about the Existing
Fund and the Replacement Fund, including investment objectives,
principal investment strategies, principal risks and performance
history can be found in the application.

    9. Applicants represent that the proposed Substitution will result
in a decrease in overall expenses, which benefits the Contract Owners.
The application sets forth the fees and expenses of the appropriate
class of the Existing Fund with the corresponding class of the
Replacement Fund in greater detail.
    10. Applicants state the board of directors of PVC voted to
terminate the Existing Fund and liquidate its assets effective April 8,
2016. In light of the impending liquidation and the importance of
offering a money market fund investment option for the Contracts, the
applicants determined that the Substitution is necessary and in the
best interest of Contract Owners.
    11. Applicants represent that the Substitution and the selection of
the Replacement Fund were not motivated by any financial consideration
paid or to be paid to the Insurance Companies or their affiliates by
the Replacement Fund, its adviser or underwriter, or their affiliates.
    12. Applicants state that as of the effective date of the
Substitution, April 8, 2016 (``Substitution Date''), shares of the
Existing Fund will be redeemed for cash. The Insurance Companies, on
behalf of the Existing Fund subaccount of the relevant Separate
Account, will simultaneously place a redemption request with the
Existing Fund and a purchase order with the Replacement Fund so that
the purchase of Replacement Fund shares will be for the exact amount of
the redemption proceeds. Thus, Contract values will remain fully
invested at all times. The proceeds of such redemptions will then be
used to purchase the appropriate number of shares of the Replacement
Fund.
    13. The Substitution will take place at relative net asset value
(in accordance with Rule 22c-1 under the Act) with no change in the
amount of the Contract value, cash value, accumulation value, account
value or death benefit or in dollar value of the investment in the
applicable Separate Account. The Insurance Companies or their
affiliates will pay all expenses and transaction costs of the
Substitution, including legal and accounting expenses, any applicable
brokerage expenses and other fees and expenses.
    14. The rights or obligations of the Insurance Companies under the
Contracts of those Contract Owners with interests in the subaccount of
the Existing Fund (``Affected Contract Owners'') will not be altered in
any way. The Substitution will in no way alter the tax treatment of
Affected Contract Owners in connection with their Contracts, and no tax
liability will arise for Affected Contract Owners as a result of the
Substitution. The Substitution also will not adversely affect any
riders under the Contracts. To the extent a Contract offers living
benefits, death benefits, or other guarantees, the value of any such
guarantee will not materially decrease directly or indirectly as a
result of the Substitution.
    15. Affected Contract Owners will be permitted to make at least one
transfer of Contract value from the subaccount investing in the
Existing Fund (before the Substitution Date) or the Replacement Fund
(after the Substitution Date) to any other available investment option
under the Contract without charge for a period beginning at least 30
days before the Substitution Date through at least 30 days following
the Substitution Date. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Insurance
Companies will not exercise any right they may have under the Contracts
to impose restrictions on transfers between the subaccounts under the
Contracts, including limitations on the future number of transfers, for
a period beginning at least 30 days before the Substitution Date
through at least 30 days following the Substitution Date.
    16. All Contract Owners were notified of this application by means
of a supplement to the Contract prospectuses dated December 9, 2015.
Among other information regarding the Substitution, the supplement
informed Affected Contract Owners of the right to transfer Contract
value from the subaccount investing in the Existing Fund (before the
Substitution Date) or the Replacement Fund (after the Substitution
Date) to any other available investment option under the Contract
without charge. Additionally, a prospectus for the Replacement Fund was
included with the supplement.
    17. On March 9, 2016 (30 days before the Substitution Date),
Affected Contract Owners were provided a ``Pre-Substitution Notice,''
setting forth: (a) the intended substitution of the Existing Fund with
the Replacement Fund; (b) the intended Substitution Date (subject to
approval and order by the Commission); and (c) information with respect
to transfers. In addition, the Insurance Companies delivered a
prospectus for the Replacement Fund with the Pre-Substitution Notice.
    18. The Insurance Companies will deliver to each Affected Contract
Owner within five (5) business days of the Substitution Date, a written
confirmation, which will include confirmation that the Substitution was
carried out as previously notified, a restatement of the information
set forth in the Pre-Substitution Notice, and before and after account
values.
    19. Applicants will not receive, for three years from the
Substitution Date, any direct or indirect benefits from the Replacement
Fund, its adviser or underwriter (or their affiliates), in connection
with assets attributable to Contracts affected by the Substitution, at
a higher rate than they had received from the Existing Fund, its
adviser or underwriter (or their affiliates), including, without
limitation, 12b-1 fees, shareholder service, administrative or other
service fees, revenue sharing, or other arrangements.
Legal Analysis
    1. Applicants request that the Commission issue an order pursuant
to Section 26(c) of the Act approving the proposed Substitution.
Section 26(c) of the Act requires the depositor of a registered unit
investment trust holding securities of a single issuer to receive
Commission approval before substituting the securities held by the
trust. Section 26(c) provides that such approval shall be granted by
order of the Commission if the evidence establishes that the
substitution is consistent with the protection of investors and the
purposes of the Act.
    2. Applicants submit that the proposed Substitution meets the
standards set forth in Section 26(c) and that, if implemented, the
Substitution would not raise any of the concerns underlying that
provision. Applicants represent that the Substitution will provide
Contract Owners with a comparable investment vehicle which will not
circumvent Contract Owner-initiated decisions and the Insurance
Companies' obligations under the Contracts, and will enable Contract
Owners to continue to use the full range of applicable Contract
features as they use today. Applicants further state that the
Replacement Fund and the Existing Fund have essentially the same
investment objectives, the Replacement Fund entails less investment
risk than the Existing Fund, and the proposed Substitution will result
in a decrease in overall expenses, thereby benefiting Contract Owners.
    3. Applicants state that, as disclosed in the prospectuses for the
Contracts, the Insurance Companies reserve the right, subject to
Commission approval, to substitute shares of a registered open-end
management investment company for shares of another registered open-end
held by a subaccount of a Separate Account. Applicants determined that

the Substitution is necessary and in the best interests of Contract
Owners in light of the impending liquidation of the Existing Fund and
the importance of offering a money market fund investment option for
the Contracts. Applicants state that the board of directors of PVC
concluded that converting the Existing Fund to a government money
market fund would not be a feasible option and voted to terminate the
Existing Fund and liquidate its assets effective April 8, 2016. The
Insurance Companies submit that the Replacement Fund should substituted
for the Existing Fund to serve as the money market investment option
for all of the Contracts, as well as for the Contract-related purposes
for which the Existing Fund is currently used, so that Contract Owner-
initiated decisions and the Insurance Companies' obligations under the
Contracts are less likely to be prevented.
    4. Applicants also assert that the Substitution does not entail any
of the abuses that Section 26(c) was designed to prevent. Each Affected
Contract Owner has been advised of his right, any time prior to the
Substitution Date, and for at least 30 days after the Substitution
Date, to reallocate account value under the affected Contract without
any cost or limitation, or otherwise withdraw or terminate his interest
in accordance with the terms and conditions of his Contract.
Furthermore, Contract Owners will not incur any additional tax
liability or any additional fees or expenses as a result of the
Substitution.
Applicants' Conditions:
    Applicants agree that any order granting the requested relief will
be subject to the following conditions:
    1. The Substitution will not be effected unless the Insurance
Companies determine that: (a) The Contracts allow the substitution of
shares of registered open-end investment companies in the manner
contemplated by the application; (b) the Substitution can be
consummated as described in the application under applicable insurance
laws; and (c) any regulatory requirements in each jurisdiction where
the Contracts are qualified for sale have been complied with to the
extent necessary to complete the Substitution.
    2. The Insurance Companies or their affiliates will pay all
expenses and transaction costs of the Substitution, including legal and
accounting expenses, any applicable brokerage expenses and other fees
and expenses. No fees or charges will be assessed to the Affected
Contract Owners to effect the Substitution.
    3. The Substitution will be effected at the relative net asset
values of the respective shares in conformity with Section 22(c) of the
Act and Rule 22c-1 thereunder without the imposition of any transfer or
similar charges by applicants. The Substitution will be effected
without change in the amount or value of any Contracts held by Affected
Contract Owners.
    4. The Substitution will in no way alter the tax treatment of
Affected Contract Owners in connection with their Contracts, and no tax
liability will arise for Affected Contract Owners as a result of the
Substitution.
    5. The rights or obligations of the Insurance Companies under the
Contracts of Affected Contract Owners will not be altered in any way.
The Substitution will not adversely affect any riders under the
Contracts.
    6. Affected Contract Owners will be permitted to make at least one
transfer of Contract value from the subaccount investing in the
Existing Fund (before the Substitution Date) or the Replacement Fund
(after the Substitution Date) to any other available investment option
under the Contract without charge for a period beginning at least 30
days before the Substitution Date through at least 30 days following
the Substitution Date. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Insurance
Companies will not exercise any right they may have under the Contracts
to impose restrictions on transfers between the subaccounts under the
Contracts, including limitations on the future number of transfers, for
a period beginning at least 30 days before the Substitution Date
through at least 30 days following the Substitution Date.
    7. All Affected Contract Owners will be notified, at least 30 days
before the Substitution Date about: (a) The intended substitution of
the Existing Fund with the Replacement Fund; (b) the intended
Substitution Date; and (c) information with respect to transfers as set
forth in Condition 6 above. In addition, the Insurance Companies will
deliver to all Affected Contract Owners, at least thirty (30) days
before the Substitution Date, a prospectus for the Replacement Fund.
    8. The Insurance Companies will deliver to each Affected Contract
Owner within five (5) business days of the Substitution Date a written
confirmation which will include: (a) A confirmation that the
Substitution was carried out as previously notified; (b) a restatement
of the information set forth in the Pre-Substitution Notice; and (c)
before and after account values.
    9. Applicants will not receive, for three years from the
Substitution Date, any direct or indirect benefits from the Replacement
Fund, its adviser or underwriter (or their affiliates), in connection
with assets attributable to Contracts affected by the Substitution, at
a higher rate than they had received from the Existing Fund, its
adviser or underwriter (or their affiliates), including without
limitation 12b-1 fees, shareholder service, administrative or other
service fees, revenue sharing, or other arrangements.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06411 Filed 3-21-16; 8:45 am]
 BILLING CODE 8011-01-P