Fixed Income Clearing Corporation – s. 6.1 of NI 24-102 Clearing Agency Requirements
Headnote
Section 6.1 of NI 24-102 Clearing Agency Requirements (NI 24-102) -- exemption granted from the requirement in paragraph 5.1 (2)(a) of NI 24-102 that would require FICC to retain its books and records maintained under paragraph 5.1 of NI 24-102 for a period of seven years from the date the record was made or received, whichever is later provided that FICC continues to comply with U.S. Requirements for the retention of books, records and other documents.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED (the Act) AND IN THE MATTER OF NATIONAL INSTRUMENT 24-102 CLEARING AGENCY REQUIREMENTS (NI 24-102) AND IN THE MATTER OF FIXED INCOME CLEARING CORPORATION (the Filer)
DECISION (Section 6.1 of NI 24-102)
Background
The Ontario Securities Commission (the OSC) has received an application (Application) from the Filer for a decision by the Director, pursuant to section 6.1 of NI 24-102, exempting the Filer from the requirement of paragraph 5.1(2)(a) of NI 24-102 that the Filer retain its books and records maintained under section 5.1 of NI 24-102 for a period of seven years from the date the record was made or received, whichever is later (the Record Retention Requirement).
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a business corporation organized under New York law providing clearing, settlement, risk management, and central counterparty (CCP) services for fixed income securities in the United States, including treasury securities and mortgage-backed securities.
2. As a registered clearing agency in the United States, the Filer is subject to the requirements of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and the regulations and rules of the U.S. Securities and Exchange Commission thereunder (U.S. Requirements). The Filer complies with the U.S. Requirements for the retention of books, records and other documents.
3. The Filer is applying to the OSC for an order exempting it from recognition as a clearing agency under section 21.2 of the Act in order to provide its CCP services to Ontario market participants (the Recognition Exemption Order).
4. Rule 17a-1 under the Exchange Act requires every registered clearing agency to keep and preserve at least one copy of all documents, including all correspondence, memoranda, papers, books, notices, accounts and other such records that it makes or receives in the course of business for a period of not less than five years. Accordingly, the Filer's extensive operating systems have been set up to retain books, records and other documents for five years.
5. Compliance with the retention period of seven years mandated by paragraph 5.1(2)(a) of NI 24-102 would require significant changes to the Filer's operating systems, which would be unduly time-consuming and expensive in the context of the Recognition Exemption Order. FICC data records are comprised of historical reports, which are mandated to reside on immutable storage to ensure updates cannot be performed to historical data according to a Write Once, Read Many (WORM) paradigm, and also data records residing within a relational database archive for online historical data inquiry. Data purge processes are systemically implemented in FICC to leverage common data selection criteria utilizing current settlement date values in order to maintain a rolling and consistent five year history across both data sources. Implementing custom retention within the systems would introduce significant complexity to the FICC purge and retention processing as counterparty, reference and other data would become inconsistent if settlement date criteria varied across data records and reports. Such customization would require programmatic reconciliation and logic review to ensure accuracy as the current paradigm takes a holistic and integrated, systemic view across data sources.
Decision
UPON considering the Application and representations made by the Filer;
IT IS ORDERED by the Director pursuant to section 6.1 of NI 24-102 that the Filer is exempted from the Record Retention Requirement;
PROVIDED THAT the Filer continues to comply with the U.S Requirements for the retention of books, records and other documents.
DATED this 13th day of March, 2019, effective on the date the OSC issues the Recognition Exemption Order.