81 FR 71545 - Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Describe the Blackout Period Exposure Charge That May Be Imposed on GCF Repo Participants
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 200 (October 17, 2016)
Federal Register Volume 81, Issue 200 (October 17, 2016)
| Page Range | 71545-71548 | |
| FR Document | 2016-24982 |
[Federal Register Volume 81, Number 200 (Monday, October 17, 2016)] [Notices] [Pages 71545-71548] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-24982] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79077; File No. SR-FICC-2016-003) Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Describe the Blackout Period Exposure Charge That May Be Imposed on GCF Repo Participants October 11, 2016. On July 12, 2016, the Fixed Income Clearing Corporation (``FICC'') filed with the Securities and Exchange Commission (``Commission'') proposed rule change SR-FICC-2016-003 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The proposed rule change was published for comment in the Federal Register on July 21, 2016.\3\ The Commission received no comments on the proposed rule change. On August 30, 2016, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.\4\ For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Securities Exchange Act Release No. 34-78347 (July 15, 2016), 81 FR 47466 (July 21, 2016) (SR-FICC-2016-003) (``Notice''). \4\ Securities Exchange Act Release No. 78720 (August 30, 2016), 81 FR 61271 (September 6, 2016). --------------------------------------------------------------------------- I. Description of the Proposed Rule Change FICC proposes to amend the Government Securities Division (``GSD'') Rulebook (the ``GSD Rules'') \5\ to include a margin charge increase (the ``Blackout Period Exposure Charge'' as further described below) that is imposed on Netting Members that participate in the GCF Repo[supreg] service (``GCF Repo Participants''). Specifically, the proposed rule change would amend GSD Rule 1 (Definitions) to include certain defined terms and would amend Section 1b of GSD Rule 4 (Clearing Fund and Loss Allocations) to include the Blackout Period Exposure Charge and the manner in which FICC determines and imposes such charge, as described in detail below.\6\ --------------------------------------------------------------------------- \5\ Available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to such terms in the GSD Rules. \6\ The description of the proposed rule change herein is based on the statements prepared by FICC in the Notice. Notice, supra note 3, 81 FR 47466-47469. --------------------------------------------------------------------------- A. GCF Repo Service and the Required Fund Deposit FICC states that the GCF Repo service enables GCF Repo Participants to trade general collateral repurchase agreements based on rate, term, and underlying product throughout the day, without requiring intraday, trade-for-trade settlement on a delivery-versus-payment basis. On each trading day, GCF Repo Participants must cover their repurchase obligations by allocating collateral to FICC's account at the GCF Repo Participant's GCF Clearing Agent Bank.\7\ FICC accepts mortgage-backed securities (``MBS'') securities for such collateral allocations.\8\ Additionally, FICC collects Required Fund Deposits from all Netting Members (including GCF Repo Participants) to help protect FICC against losses that could be realized in the event of a Netting Member's default. --------------------------------------------------------------------------- \7\ GSD Rule 20 Section 3. \8\ Id. --------------------------------------------------------------------------- The Required Fund Deposit serves as each Netting Member's margin. FICC states that the objective of the Required Fund Deposit is to mitigate potential losses to FICC associated with liquidation of the Netting Member's portfolio in the event that FICC ceases to act for a Netting Member (hereinafter referred to as a ``default''). FICC determines Required Fund Deposit amounts using a risk-based margin methodology. FICC determines the adequacy of each Netting Member's Required Fund Deposit through daily backtesting. FICC compares each Netting Member's [[Page 71546]] Required Fund Deposit to the simulated liquidation gains and losses based on the positions in the Netting Member's portfolio, including the allocated collateral of GCF Repo Participants, and the historical security returns. FICC investigates the cause(s) of any deficiencies. As a part of this process, FICC pays particular attention to Netting Members with backtesting deficiencies that bring the results for that Netting Member below a 99 percent confidence level (i.e., greater than two deficiency days in a rolling twelve-month period) \9\ to determine if there is an identifiable cause of repeat deficiencies. FICC also evaluates whether multiple Netting Members may experience deficiencies for the same underlying reason. --------------------------------------------------------------------------- \9\ FICC explains that each deficiency reduces backtesting coverage by 0.4 percent (1 exception/250 observation days). Accordingly, three deficiencies in a 12-month period would decrease backtesting coverage to 98.8 percent. --------------------------------------------------------------------------- B. MBS and the Blackout Period FICC only accepts MBS that are issued and guaranteed by U.S. government-sponsored entities (``GSEs''). Because MBS are composed of pools of mortgages, whose principal balances decrease over time because of scheduled and unscheduled payments by mortgagors, MBS notional values decrease over time. Investors in MBS issued by the GSEs are informed of the amount of this reduction in value on a monthly basis when the GSEs release new ``Pool Factors'' for their MBS at the beginning of every month.\10\ The period between the last business day of the prior month (``Record Date'') and the date on which the GSE releases its new Pool Factors (``Factor Date'') is known as the ``Blackout Period.'' \11\ FICC states that during the Blackout Period, MBS values may be overstated because they do not capture reductions in the principal balances of the MBS as described above. --------------------------------------------------------------------------- \10\ FICC explains that Pool Factors are stated as a percentage amount of the initial aggregate face value of the security that remains unpaid on the underlying mortgage pool. For example, if the face amount of a mortgage-backed security were $100,000 and the stated pool factor were 0.4587, the remaining principal balance in the security to be paid to the investor would be $45,870. \11\ The Factor Date is typically the fourth or fifth business day of each calendar month. --------------------------------------------------------------------------- FICC states that GCF Repo Participants may experience backtesting deficiencies during the Blackout Period if they allocate substantial amounts of MBS collateral to cover their repurchase obligations. Such deficiencies occur because the value of MBS collateral allocated to cover GCF Repo Participants' repurchase obligations may be overstated on the collateral reports delivered to FICC by the GCF Clearing Agent Banks, which rely on the prior month's Pool Factors to value MBS collateral pledged by GCF Repo Participants. FICC states that the Blackout Period Exposure Charge is designed to mitigate the risk posed to FICC by such deficiencies by temporarily increasing such GCF Repo Participants' Required Fund Deposits. C. Calculation of the Blackout Period Exposure Charge FICC states that the objective of the Blackout Period Exposure Charge is to increase Required Fund Deposits by an amount sufficient to maintain backtesting coverage above the 99 percent confidence threshold for GCF Repo Participants that are likely to experience backtesting deficiencies on the basis described above. Because the size of the backtesting deficiencies caused by this issue varies among impacted GCF Repo Participants, FICC must assess a Blackout Period Exposure Charge that is specific to each impacted GCF Repo Participant. FICC examines each impacted GCF Repo Participant's historical backtesting deficiencies to identify the two largest deficiencies that occurred during a rolling 12-month look-back period. FICC then identifies an amount equal to the midpoint between the two largest historical deficiencies for such GCF Repo Participant as the presumptive Blackout Period Exposure Charge amount, subject to adjustment as further described below.\12\ FICC identified the midpoint between the two largest historical deficiencies as an amount that is (i) particular to the GCF Repo Participant and its use of MBS collateral, and (ii) which FICC believes provides a reasonable buffer above the historically observed minimum increase necessary to achieve 99 percent coverage. --------------------------------------------------------------------------- \12\ FICC states that although an increase equal to the third largest historical deficiency would suffice to bring the GCF Repo Participant's historically-observed backtesting coverage above the 99 percent target if deficiencies due to Blackout Period exposures were the only deficiencies experienced, such an approach would fail to take into account potential changes in such GCF Repo Participant's MBS collateral pledges or other factors that could contribute to deficiencies during this period. --------------------------------------------------------------------------- FICC states that the resulting Blackout Period Exposure Charge is added to the VaR Charge for such GCF Repo Participant pursuant to FICC's risk-based margining methodology, but that the charge is only imposed during the Blackout Period (i.e., until the GCF Repo Participant's GCF Clearing Agent Bank updates the Pool Factors it uses to value MBS collateral).\13\ FICC further states that this charge is applicable only to those GCF Repo Participants that have two or more backtesting deficiencies that occurred during the Blackout Period and whose overall 12-month trailing backtesting coverage falls below the 99 percent coverage target. --------------------------------------------------------------------------- \13\ The GCF Clearing Agent Banks typically have a one-day lag in updating their databases with the most recent Pool Factor information. --------------------------------------------------------------------------- Although FICC uses the midpoint between the two largest historical Blackout Period deficiencies for a GCF Repo Participant as the Blackout Period Exposure Charge in most cases, FICC retains discretion to adjust the charge based on other relevant circumstances, such as material differences in the two largest deficiencies, variability in a GCF Repo Participant's use of MBS for collateral allocation, and variability in the magnitude of Pool Factor changes for certain categories of MBS. Based on FICC's assessment of the impact of these circumstances on the likelihood of, and estimated size of, future Blackout Period deficiencies for a GCF Repo Participant, FICC may, in its discretion, adjust the Blackout Period Exposure Charge for such Participant to an amount that FICC determines to be more appropriate for maintaining such GCF Repo Participant's backtesting results above the 99 percent coverage threshold (including a reasonable buffer). D. Communication With GCF Repo Participants and Imposition of the Charge If FICC determines that a Blackout Period Exposure Charge should apply to a GCF Repo Participant who was not assessed a Blackout Period Exposure Charge during the immediately preceding month or that the Blackout Period Exposure Charge applied to a GCF Repo Participant during the previous month should be increased, FICC will notify the Participant on or around the 25th calendar day of the month. FICC states that the Participant may avoid or decrease the charge by notifying FICC in writing of its intent to remove or reduce its use of MBS in collateral allocations, followed by the actual removal or reduction of MBS collateral allocations, during the Blackout Period. If such Participant elects not to adjust its portfolio (or fails to do so despite such notification to FICC), then FICC will impose a Blackout Period Exposure Charge as determined above. FICC imposes the Blackout Period Exposure Charge as of the morning Clearing Fund call on the Record Date through and including the intraday [[Page 71547]] Clearing Fund call on the Factor Date, or until the Pool Factors have been updated to reflect the current month's Pool Factors in the GCF Clearing Agent Bank's collateral reports. Thereafter the charge is removed because updated MBS valuations are incorporated into FICC's risk-based margining methodology for the remainder of the month, alleviating the risk of potentially uncovered credit exposures resulting from overvalued MBS collateral during Blackout Period. FICC repeats this process monthly. If changes in an impacted GCF Repo Participant's MBS collateral pledges over time materially reduce the Blackout Period Exposure Charge calculated pursuant to the procedures described above, FICC may, in its discretion, reduce the Blackout Period Exposure Charge and would so notify the Participant. If an impacted GCF Repo Participant's trailing 12-month backtesting coverage exceeds 99 percent (without taking into account historically-imposed Blackout Period Exposure Charges), the Blackout Period Exposure Charge would be removed. II. Discussion and Commission Findings Section 19(b)(2)(C) of the Act \14\ 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 the rules and regulations thereunder applicable to such organization. The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act \15\ and Rules 17Ad-22(b)(1) and (2) thereunder, as discussed below.\16\ --------------------------------------------------------------------------- \14\ 15 U.S.C. 78s(b)(2)(C). \15\ 15 U.S.C. 78q-1(b)(3)(F). \16\ 17 CFR 240.17Ad-22(b)(1)-(2). --------------------------------------------------------------------------- Section 17A(b)(3)(F) of the Act requires, in part, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds that are within the custody or control of the clearing agency.\17\ As a central counterparty (``CCP''), FICC is exposed to losses that could arise out of the default of one of its Netting Members, such as a GCF Repo Participant. As explained above, FICC attempts to cover such potential losses through the collection of daily Required Fund Deposits (i.e., margin) from its Netting Members, including GCF Repo Participants. Consequently, failure to accurately calculate Required Fund Deposits could expose FICC to losses in excess of the margin collected and, thus, jeopardize the securities and funds in FICC's custody or control. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- As described above, FICC determined that the Required Fund Deposits collected from GCF Repo Participants during monthly Blackout Periods may not accurately reflect decreases in the value of MBS underlying the GCF Repo transactions and, therefore, the Required Fund Deposits collected may be inadequate to cover the losses that could arise if a GCF Repo Participant defaulted. The Blackout Period Exposure Charge is specifically designed to address that risk. The charge is sized based on certain backtesting deficiencies of GCF Repo Participants. Where FICC identifies deficiencies related to the use of MBS underlying GCF Repo transactions, the Blackout Period Exposure Charge may be applied and, in turn, FICC would collect more margin. Therefore, the proposed rule change enhances the safeguarding of securities and funds that are in the custody or control of FICC, consistent with Section 17(b)(3)(F) of the Act. Rule 17Ad-22(b)(1) requires a clearing agency that performs CCP services to establish, implement, maintain and enforce written policies and procedures reasonably designed to measure its credit exposures to its participants at least once a day and limit its exposures to potential losses from defaults by its participants under normal market conditions, so that the operations of the clearing agency would not be disrupted and non-defaulting participants would not be exposed to losses that they cannot anticipate or control.\18\ FICC's Blackout Period Exposure Charge is calculated and imposed to cover potential credit exposures to certain GCF Repo Participants during monthly Blackout Periods, under normal market conditions.\19\ As described above, FICC estimates the Blackout Period Exposure Charge based on a GCF Repo Participant's backtesting results. Specifically, FICC calculates the Blackout Period Exposure Charge as the midpoint between a GCF Participant's two largest deficiencies over the past twelve months, which, as designed, incorporates a buffer to help ensure that FICC maintain margin coverage at or above the 99 percent confidence threshold during monthly Blackout Periods. Therefore, because the proposed rule change will help FICC limit its potential losses from the default of certain GCF Repo Participants during monthly Blackout Periods, under normal market conditions, the proposed rule change is consistent with Rule 17Ad-22(b)(1). --------------------------------------------------------------------------- \18\ 17 CFR 240.17Ad-22(b)(1). \19\ As used in Rule 17Ad-22(b)(1), normal market conditions are conditions in which the expected movement of the price of cleared securities would produce changes in a clearing agency's exposures to its participants that would be expected to breach margin requirements or other risk control mechanisms only one percent of the time (i.e., a 99 percent confidence threshold). 17 CFR 240.17Ad- 22(a)(4). --------------------------------------------------------------------------- Rule 17Ad-22(b)(2) requires a clearing agency that performs CCP services to maintain and enforce written policies and procedures reasonably designed to use margin requirements to limit its credit exposures to participants under normal market conditions and use risk- based models and parameters to set margin requirements.\20\ As described above, FICC limits its exposure to Netting Members, including GCF Participants, by collecting margin (i.e., Required Fund Deposit), which is sized using a risk-based margin methodology. The Blackout Period Exposure Charge is a component of a GCF Repo Participant's daily Required Fund Deposit and is sized based on the GCF Repo Participant's backtesting deficiencies, as described above. The charge is designed to address the potential increased exposure that FICC may face if the MBS collateral underlying a GCF Repo Participant's transactions decreases during a monthly Blackout Period, under normal market conditions. Therefore, because the proposed rule change will help FICC limit its exposure to GCG Repo Participants during monthly Blackout Periods, under normal market conditions, by collecting more margin, as needed, the proposed rule change is consistent with Rule 17Ad-22(b)(2) under the Act. --------------------------------------------------------------------------- \20\ 17 CFR 240.17Ad-22(b)(2). --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, particularly those set forth in Section 17A,\21\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\22\ that the proposed rule change (SR-FICC-2016-003) be, and hereby is, APPROVED.\23\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78s(b)(2). \23\ In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). [[Page 71548]] --------------------------------------------------------------------------- For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-24982 Filed 10-14-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 200 / Monday, October 17, 2016 / Notices 71545
the status of meetings, contact Denise PRBs. The PRB shall review and I. Description of the Proposed Rule
McGovern at 301–415–0681 or via email evaluate the initial appraisal of a senior Change
at Denise.McGovern@nrc.gov. executive’s performance by the FICC proposes to amend the
* * * * * supervisor, along with any response by Government Securities Division
The NRC Commission Meeting the senior executive, and make (‘‘GSD’’) Rulebook (the ‘‘GSD Rules’’) 5
Schedule can be found on the Internet recommendations to the final rating to include a margin charge increase (the
at: http://www.nrc.gov/public-involve/ authority relative to the performance of ‘‘Blackout Period Exposure Charge’’ as
public-meetings/schedule.html. the senior executive. further described below) that is imposed
* * * * * The following individuals have been on Netting Members that participate in
The NRC provides reasonable selected to serve on the OSC’s PRB: the GCF Repo® service (‘‘GCF Repo
accommodation to individuals with Bruce Fong, Associate Special Counsel; Participants’’). Specifically, the
disabilities where appropriate. If you Bruce Gipe, Chief Operating Officer; proposed rule change would amend
need a reasonable accommodation to Louis Lopez, Associate Special Counsel; GSD Rule 1 (Definitions) to include
participate in these public meetings, or Anne Wagner, Associate Special certain defined terms and would amend
need this meeting notice or the Counsel. Section 1b of GSD Rule 4 (Clearing
transcript or other information from the Fund and Loss Allocations) to include
Dated: October 11, 2016
public meetings in another format (e.g. the Blackout Period Exposure Charge
Bruce Gipe, and the manner in which FICC
braille, large print), please notify
Chief Operating Officer. determines and imposes such charge, as
Kimberly Meyer, NRC Disability
Program Manager, at 301–287–0739, by [FR Doc. 2016–24976 Filed 10–14–16; 8:45 am] described in detail below.6
videophone at 240–428–3217, or by BILLING CODE 7405–01–P
A. GCF Repo Service and the Required
email at Kimberly.Meyer-Chambers@ Fund Deposit
nrc.gov. Determinations on requests for
reasonable accommodation will be FICC states that the GCF Repo service
made on a case-by-case basis. SECURITIES AND EXCHANGE enables GCF Repo Participants to trade
COMMISSION general collateral repurchase agreements
* * * * * based on rate, term, and underlying
Members of the public may request to product throughout the day, without
receive this information electronically. [Release No. 34–79077; File No. SR–FICC–
2016–003) requiring intraday, trade-for-trade
If you would like to be added to the settlement on a delivery-versus-payment
distribution, please contact the Nuclear basis. On each trading day, GCF Repo
Regulatory Commission, Office of the Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order Participants must cover their repurchase
Secretary, Washington, DC 20555 (301– obligations by allocating collateral to
415–1969), or email Approving Proposed Rule Change To
Describe the Blackout Period FICC’s account at the GCF Repo
Brenda.Akstulewicz@nrc.gov or Participant’s GCF Clearing Agent Bank.7
Patricia.Jimenez@nrc.gov. Exposure Charge That May Be
Imposed on GCF Repo Participants FICC accepts mortgage-backed securities
Dated: October 12, 2016. (‘‘MBS’’) securities for such collateral
Denise L. McGovern, October 11, 2016. allocations.8 Additionally, FICC collects
Policy Coordinator, Office of the Secretary. On July 12, 2016, the Fixed Income Required Fund Deposits from all Netting
[FR Doc. 2016–25106 Filed 10–13–16; 11:15 am] Clearing Corporation (‘‘FICC’’) filed Members (including GCF Repo
BILLING CODE 7590–01–P with the Securities and Exchange Participants) to help protect FICC
Commission (‘‘Commission’’) proposed against losses that could be realized in
rule change SR–FICC–2016–003 the event of a Netting Member’s default.
pursuant to Section 19(b)(1) of the The Required Fund Deposit serves as
OFFICE OF SPECIAL COUNSEL
Securities Exchange Act of 1934 each Netting Member’s margin. FICC
Senior Executive Service Performance (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 states that the objective of the Required
Board The proposed rule change was Fund Deposit is to mitigate potential
published for comment in the Federal losses to FICC associated with
AGENCY: Office of Special Counsel liquidation of the Netting Member’s
Register on July 21, 2016.3 The
ACTION: Notice. Commission received no comments on portfolio in the event that FICC ceases
the proposed rule change. On August to act for a Netting Member (hereinafter
SUMMARY: The Office of Special Counsel referred to as a ‘‘default’’). FICC
(OSC) publishes the names of the 30, 2016, the Commission designated a
longer period within which to approve determines Required Fund Deposit
persons selected to serve on its SES amounts using a risk-based margin
Performance Review Board (PRB). This the proposed rule change, disapprove
the proposed rule change, or institute methodology.
notice supersedes all previous notices of FICC determines the adequacy of each
the PRB membership. proceedings to determine whether to
Netting Member’s Required Fund
approve or disapprove the proposed
DATES: October 17, 2016. Deposit through daily backtesting. FICC
rule change.4 For the reasons discussed
FOR FURTHER INFORMATION CONTACT: compares each Netting Member’s
below, the Commission is approving the
Kenneth Hendricks, Acting General proposed rule change. 5 Available at http://www.dtcc.com/legal/rules-
Counsel, U.S. Office of Special Counsel,
jstallworth on DSK7TPTVN1PROD with NOTICES
and-procedures. Capitalized terms used herein and
1730 M Street NW., Suite 218, 1 15 U.S.C. 78s(b)(1). not otherwise defined shall have the meaning
Washington, DC 20036, (202) 254–3600 2 17 CFR 240.19b–4. assigned to such terms in the GSD Rules.
6 The description of the proposed rule change
SUPPLEMENTARY INFORMATION: Section 3 Securities Exchange Act Release No. 34–78347
(July 15, 2016), 81 FR 47466 (July 21, 2016) (SR– herein is based on the statements prepared by FICC
4314(c) of Title 5, U.S.C. requires each in the Notice. Notice, supra note 3, 81 FR 47466–
FICC–2016–003) (‘‘Notice’’).
agency to establish, in accordance with 4 Securities Exchange Act Release No. 78720 47469.
regulations prescribed by the Office of (August 30, 2016), 81 FR 61271 (September 6, 7 GSD Rule 20 Section 3.
Personnel Management, one or more 2016). 8 Id.
VerDate Sep<11>2014 14:22 Oct 14, 2016 Jkt 241001 PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1](https://thefederalregister.org/doc/81_FR_71745/page/1.svg)
![71548 Federal Register / Vol. 81, No. 200 / Monday, October 17, 2016 / Notices
For the Commission, by the Division of concerning the purpose of and basis for least 250,000 shares; (c) the most
Trading and Markets, pursuant to delegated the proposed rule change and discussed heavily weighted component cannot
authority.24 any comments it received on the exceed 30% of the weight of the index,
Robert W. Errett, proposed rule change. The text of these and the five most heavily weighted
Deputy Secretary. statements may be examined at the stocks cannot exceed 65%; (d) there
[FR Doc. 2016–24982 Filed 10–14–16; 8:45 am] places specified in Item IV below. The must be at least 13 stocks in the index;
BILLING CODE 8011–01–P Exchange has prepared summaries, set and (e) all securities in the index must
forth in sections A, B, and C below, of be listed in the U.S. There are similar
the most significant aspects of such criteria for international indexes, fixed-
SECURITIES AND EXCHANGE statements. income indexes and indexes with a
COMMISSION combination of components.
A. Self-Regulatory Organization’s If an Exchange Rule Filing is made to
[Release No. 34–79081; File No. SR– Statement of the Purpose of, and list a specific ETP, the proposed rule
NASDAQ–2016–135] Statutory Basis for, the Proposed Rule change requires that the issuer of the
Change security comply on a continuing basis
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of 1. Purpose with any statements or representations
Filing of Proposed Rule Change To contained in the applicable rule
The Exchange proposes to amend the proposal, including: (a) The description
Amend the Continued Listing listing rules for ETPs in the Nasdaq Rule
Requirements for Exchange-Traded of the portfolio; (b) limitations on
5700 Series (Other Securities) to add portfolio holdings or reference assets;
Products additional continued listing standards and (c) the applicability of Nasdaq rules
October 11, 2016 as well as a related amendment to and surveillance procedures.
Pursuant to Section 19(b)(1) of the Nasdaq Rule 5810 (Notification of The Nasdaq listing rules will also be
Securities Exchange Act of 1934 Deficiency by the Listing Qualifications modified to require that issuers of
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 Department). The Exchange is also securities listed under the Nasdaq Rule
notice is hereby given that on making housekeeping changes 5700 Series must notify the Exchange
September 30, 2016, The Nasdaq Stock throughout the Nasdaq Rule 5700 Series regarding instances of non-compliance.
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) and in Nasdaq Rule 5810 (e.g., In addition, while listed ETPs are
filed with the Securities and Exchange punctuation, formatting, capitalization currently subject to the delisting process
Commission (‘‘SEC’’ or ‘‘Commission’’) and renumbering) for improved clarity. in the Rule 5800 Series, the rules will
the proposed rule change as described The proposed rule changes are being be clarified to make this explicit.4 The
in Items I and II below, which Items made in concert with discussions with Rule 5800 Series will also be clarified to
have been prepared by the Exchange. the SEC. Citing their concern for make explicit that in cases where
The Commission is publishing this potential manipulation of ETPs, staff Listing Qualifications staff has notified
notice to solicit comments on the (‘‘Staff’’) of the SEC’s Office of Trading an ETP that it is deficient under one or
proposed rule change from interested and Markets (‘‘T&M’’) requested that the more listing standards, the ETP may
persons. Exchange adopt certain additional submit a plan to regain compliance as
continued listing standards for ETPs. set forth under the Listing Rules. In this
I. Self-Regulatory Organization’s As a result, the proposed amended regard, consistent with deficiencies
Statement of the Terms of Substance of rules reflect the guidance provided by from most other rules that allow issuers
the Proposed Rule Change T&M Staff to clarify that most initial to submit a plan to regain compliance,5
The Exchange proposes to amend the listing standards, as well as certain Nasdaq proposes to allow issuers of
continued listing requirements for representations included in Exchange ETPs 45 calendar days to submit such
exchange-traded products (‘‘ETPs’’) in rule filings under SEC Rule 19b–4 3 to a plan. Nasdaq staff will review the plan
the Nasdaq Rule 5700 Series, as well as list an ETP (‘‘Exchange Rule Filings’’), and may grant a limited period of time
a related amendment to Nasdaq Rule are also considered continued listing for the ETP to regain compliance as
5810 (Notification of Deficiency by the standards. The Exchange Rule Filing permitted under the Listing Rules. If
Listing Qualifications Department). The representations that will also be Nasdaq staff does not accept the plan,
Exchange is also making housekeeping required to be maintained on a Nasdaq staff would issue a Delisting
changes throughout the Nasdaq Rule continuous basis include: (a) The Determination, which the company
5700 Series and in Nasdaq Rule 5810 for description of the fund; (b) the fund’s could appeal to a Hearings Panel
improved clarity. investment restrictions; and (c) the pursuant to Rule 5815.
The text of the proposed rule change applicability of Nasdaq rules and
surveillance procedures. 2. Statutory Basis
is available on the Exchange’s Web site
at http://nasdaq.cchwallstreet.com, at The proposed rule changes require The Exchange believes that its
the principal office of the Exchange, and that ETPs listed by the Exchange proposal is consistent with Section 6(b)
at the Commission’s Public Reference without an Exchange Rule Filing must
4 ETPs are also subject to Nasdaq Rule 4120,
Room. maintain the initial index or reference
which governs trading halts.
asset criteria on a continued basis. For 5 Pursuant to Rule 5810(c)(2)(A), a company is
II. Self-Regulatory Organization’s example, in the case of a domestic provided 45 days to submit a plan to regain
Statement of the Purpose of, and equity index, these criteria generally compliance with Rules 5620(c) (Quorum), 5630
Statutory Basis for, the Proposed Rule include: (a) Stocks with 90% of the (Review of Related Party Transactions), 5635
jstallworth on DSK7TPTVN1PROD with NOTICES
Change (Shareholder Approval), 5250(c)(3) (Auditor
weight of the index must have a Registration), 5255(a) (Direct Registration Program),
In its filing with the Commission, the minimum market value of at least $75 5610 (Code of Conduct), 5615(a)(4)(E) (Quorum of
Exchange included statements million; (b) stocks with 70% of the Limited Partnerships), 5615(a)(4)(G) (Related Party
weight of the index must have a Transactions of Limited Partnerships), and 5640
(Voting Rights). A company is generally provided
24 17 CFR 200.30–3(a)(12). minimum monthly trading volume of at 60 days to submit a plan to regain compliance with
1 15 U.S.C. 78s(b)(1). the requirement to timely file periodic reports
2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4. contained in Rule 5250(c)(1).
VerDate Sep<11>2014 14:22 Oct 14, 2016 Jkt 241001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1](https://thefederalregister.org/doc/81_FR_71745/page/4.svg)
Document Created: 2016-10-15 01:51:41
Document Modified: 2016-10-15 01:51:41
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 71545 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR