Notice2021-18678
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Remove the Early Unwind Intraday Charge, Change the Treatment of Short-Term Treasuries, and Make Other Changes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 31, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 166 (Tuesday, August 31, 2021)</title>
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[Federal Register Volume 86, Number 166 (Tuesday, August 31, 2021)]
[Notices]
[Pages 48770-48775]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18678]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92756; File No. SR-FICC-2021-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Remove the Early Unwind
Intraday Charge, Change the Treatment of Short-Term Treasuries, and
Make Other Changes
August 25, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 13, 2021, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the clearing agency. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to (i) the FICC
Government Securities Division (``GSD'') Rulebook (``Rules'') \3\ in
order to remove the Early Unwind Intraday Charge (``EUIC''), (ii) the
GSD Methodology Document--GSD Initial Market Risk Margin Model (``QRM
Methodology Document'') \4\ to
[[Page 48771]]
change the treatment of U.S. Treasury (``Treasury'') securities with
remaining time-to-maturities equal to or less than a year (``Short-Term
Treasuries''), and (iii) the Rules and the QRM Methodology Document to
make certain technical changes, as described in greater detail below.
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\3\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the Rules, available at <a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">http://www.dtcc.com/legal/rules-and-procedures.aspx</a>.
\4\ The QRM Methodology Document was filed as a confidential
exhibit in the rule filing and advance notice for GSD sensitivity
VaR. See Securities Exchange Act Release Nos. 83362 (June 1, 2018),
83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May 11,
2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801).
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FICC is requesting confidential treatment of the QRM Methodology
Document and has filed it separately with the Secretary of the
Commission.\5\
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\5\ See 17 CFR 240.24b-2.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
FICC is proposing to amend (i) the Rules in order to eliminate the
EUIC, (ii) the QRM Methodology Document to change the treatment of
Short-Term Treasuries, and (iii) the Rules and the QRM Methodology
Document to make certain technical changes, as described in greater
detail below.
(1) Eliminate the EUIC
In 2014, FICC received Commission approval to add the EUIC \6\ as a
component of the intraday GSD Required Fund Deposit. FICC established
the EUIC to address two situations in the GCF Repo[supreg] Service \7\
at the time, where the substitution of securities with cash (``Cash
Substitution'') created a potential for under-margining.
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\6\ See Securities Exchange Act Release Nos. 73389 (October 17,
2014), 79 FR 63456 (October 23, 2014) (SR-FICC-2014-01) and 73388
(October 17, 2014), 79 FR 63458 (October 23, 2014) (SR-FICC-2014-
801).
\7\ The GCF Repo[supreg] Service enables dealers to trade
general collateral repos, based on rate, term, and underlying
product, throughout the day without requiring intraday, trade-for-
trade settlement on a Deliver-versus-Payment (``DVP'') basis. The
GCF Repo Service is governed primarily by Rule 20.
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The first Cash Substitution situation occurred in certain instances
where, on an intraday basis, a GCF Repo participant substituted cash
for the securities that were used as collateral for a GCF Repo position
the prior day. The second Cash Substitution situation occurred when the
GCF Clearing Agent Bank unwound the cash lending side of a GCF Repo
Transaction that occurred on an inter-clearing bank basis \8\ at
approximately 7:30 a.m.\9\ Both of these Cash Substitution situations
had the potential to result in higher cash balances in the underlying
collateral of GCF Repo positions at noon when FICC was calculating the
intraday GSD Required Fund Deposit requirement. Because there is no VaR
Charge associated with cash collateral, and because the GCF Repo
participant is likely to replace the cash with securities (which would
be subject to the VaR Charge) by end of day, the potential for an
under-margined condition at the noon calculation can occur. As stated
above, the EUIC is meant to address this potential under-margined
situation.
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\8\ At the time of the EUIC approval, the GCF Repo Service was
operating on an inter-clearing bank basis, meaning that GCF Repo
participants who cleared at different GCF Clearing Agent Banks could
enter into GCF Repo Transactions. The GCF Repo Service now operates
on an intra-clearing bank basis. See Securities Exchange Act Release
No. 78206 (June 30, 2016), 81 FR 44388 (July 7, 2016) (SR-FICC-2016-
002).
\9\ All times herein are Eastern Time.
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FICC believes that there is a more accurate approach than the EUIC
that addresses the under-margined situation that can occur in certain
instances with respect to the first Cash Substitution situation
described above. Specifically, FICC can and does calculate and assess
an Intraday Supplemental Fund Deposit amount, if necessary.\10\ In
2018, FICC amended its calculation of the VaR Charge by, among other
things, replacing its full revaluation approach with the sensitivity
approach.\11\ FICC also provided transparency with respect to FICC's
existing authority to calculate and assess Intraday Supplemental Fund
Deposit amounts in the 2018 Filing.\12\ Because of these changes, FICC
now believes that calculating and assessing an Intraday Supplemental
Deposit amount, if necessary, rather than the EUIC is a more accurate
approach to addressing the under-margined situation described above.
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\10\ See Securities Exchange Act Release Nos. 83362 (June 1,
2018), 83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May
11, 2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801) (``2018
Filing'').
\11\ Id.
\12\ Id.
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FICC receives hourly intraday GCF Repo lockup files \13\ from 8:00
a.m. to 3:00 p.m. from The Bank of New York Mellon. These hourly
intraday GCF Repo lockup files provide FICC with information with
respect to the GCF Repo participants' positions throughout the day that
FICC can use to calculate an intraday VaR Charge. As such, throughout
the day, FICC can use the information in these files to assess the
exposure that arises from collateral substitution (in addition to any
other position changes) and can charge an Intraday Supplemental Fund
Deposit amount to the GCF Repo participant, if necessary, to address
this exposure. The current EUIC is only applied based on a Netting
Member's 12:00 p.m. (noon) GCF Repo positions, as the lesser of (i) the
net reduction in the VaR Charge attributable to either cash
substitutions or (ii) the prior end of day VaR Charge minus the
intraday VaR Charge. With the Intraday Supplemental Fund Deposit (which
FICC is able to charge throughout the day) and the hourly information
that it receives from The Bank of New York Mellon, FICC is able to more
accurately address any potential under-margining from collateral
substitutions that occur after 12:00 p.m. Because FICC mitigates any
exposure that occurs from collateral substitutions throughout the day
by charging the Intraday Supplemental Fund Deposit, FICC is proposing
to eliminate the EUIC.
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\13\ Lockup files refers to the collateral that GCF Repo
participants have allocated to satisfy their Collateral Allocation
Obligations.
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Regarding the second Cash Substitution situation described above,
the EUIC is no longer applicable because the morning unwind of cash and
securities has been eliminated. The morning unwind of cash and
securities has been eliminated because the GCF Repo Service now
operates on an intra-clearing bank basis. In 2016, interbank services
were suspended.\14\ As such, because there is no longer any potential
for under-margining due to the unwind of the cash lending side of a GCF
Repo Transaction that occurred on an inter-clearing bank basis at 7:30
a.m., FICC is proposing to eliminate the EUIC.
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\14\ See supra note 8.
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To effectuate this proposed change, FICC would revise Rule 1 to
remove the defined term, Early Unwind Intraday Charge. In addition,
FICC proposes to revise Section 1b of Rule 4 by deleting paragraph
(iii), which references the EUIC. Section 1b describes the calculation
of the Unadjusted GSD Margin Portfolio Amount.
[[Page 48772]]
(2) Change the Treatment of Short-Term Treasuries
The QRM Methodology Document describes the current GSD margin
methodology with respect to Short-Term Treasuries. The current GSD
margin methodology does not have any special treatment for Short-Term
Treasuries. Short-Term Treasuries are margined as part of the entire
portfolio using the sensitivity VaR Charge methodology, and a haircut-
based methodology is used as a backup for Short-Term Treasuries where
sensitivity analytics data \15\ is not available. Specifically, Short-
Term Treasuries that do not have sensitivity analytics data are subject
to a single haircut rate calibrated to the volatility of the Bloomberg/
Barclays Index of Treasury securities with remaining time-to-maturities
equal to or less than a year. Currently, the one-month Treasury bills
and the nine-month Treasury bills would be margined using the same
haircut rate because, as described above, there is one haircut rate
that is calibrated to the volatility of the Bloomberg/Barclays Index of
Treasury securities with remaining time-to-maturities equal to or less
than a year.
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\15\ Sensitivity analytics data refers to data that FICC
receives from its data vendor, such as the duration and convexity of
Treasury securities.
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FICC has noted two model performance monitoring concerns with the
approach in the current model used to calculate the VaR Charge when it
is evaluated at a product level and could manifest in VaR Charge
underperformance when the current VaR Charge model is applied to
portfolios with a high concentration of Short-Term Treasuries. One
concern with the current approach is related to the potentially large
impact that market events, such as Federal Reserve policy
announcements, supply/demand imbalances in Short-Term Treasuries,
inflation shocks, and changes in short-term borrowing rates, can have
on the yields of Short-Term Treasuries. The ``short-end'' of the
Treasury yield curve is not usually volatile (i.e., there usually are
not large day-to-day changes in short-term interest rates). However,
these market events may have a large impact on the yields of Short-Term
Treasuries. Using this current approach, the VaR Charge calculated for
portfolios with a high concentration of Short-Term Treasuries may not
adequately cover this above-described potentially large impact on the
``short-end'' of the Treasury yield curve.
Another concern with the current approach when it is applied to
portfolios with a high concentration of Short-Term Treasuries is that
it may not adequately address the volatility of certain portfolios of
Short-Term Treasuries if the composition of those portfolios differs
greatly from the composition of the Bloomberg/Barclays Index of
Treasury securities described above. This is because the volatility of
the yields may differ greatly between different types of Short-Term
Treasuries. For example, the volatility of the yields of a three-month
Treasury bill differs greatly from that of a one-year Treasury bill.
Using one haircut based on the volatility of the Bloomberg/Barclays
index may not adequately cover the risk of securities with longer
duration maturities in the equal to or less than one-year bucket. The
same yield change has a larger impact on those securities with longer
remaining maturities. As such, the composition of the Bloomberg/
Barclays Index of Treasury securities may not be comparable to the
composition of certain portfolios of Short-Term Treasuries. Therefore,
using a single haircut rate calibrated to the volatility of one index
may not adequately address certain portfolios of Short-Term Treasuries
that have a very different composition from the index.
The backtesting results of the current approach, as applied at a
product level, for Short-Term Treasuries does not meet FICC's 99
percent confidence level standard.
As described above, Short-Term Treasuries are margined as part of
the entire portfolio using the sensitivity VaR Charge methodology, and
a haircut-based methodology is used as a backup for Short-Term
Treasuries where sensitivity analytics data is not available.
Specifically, Short-Term Treasuries that do not have sensitivity
analytics data are subject to a single haircut rate calibrated to the
volatility of the Bloomberg/Barclay Index of Treasury securities with
remaining time-to-maturities equal to or less than a year. The current
approach does not have a floor assigned to this single haircut rate. To
mitigate the vulnerabilities described above with respect to the
current approach, FICC is proposing to use the haircut methodology to
margin all Short-Term Treasuries (not just for the Short-Term
Treasuries without sensitivity analytics data, as is the current case).
Furthermore, instead of one haircut bucket for Short-Term Treasuries,
FICC would use two different haircut buckets depending on the time to
maturity of the Short-Term Treasury security. FICC believes that using
two different haircut buckets depending on the time to maturity of the
Short-Term Treasury security would be more targeted and accurate. The
first bucket is Treasury securities with remaining time to maturity
equal to or less than six months with a haircut floor set at 12.5 basis
points. The second bucket is Treasury securities with remaining time to
maturity greater than six months but equal to or less than one year
with a haircut floor set at 25 basis points. The haircut charges will
be applied to the absolute value of the net market value of the
Treasury securities in the respective buckets, with no correlation
offset against all other Treasury maturity buckets.
FICC is proposing to use one haircut rate for the absolute value of
the net market value of Treasury securities with remaining time to
maturity equal to or less than six months (with a floor of 12.5 basis
points), and another haircut rate for the absolute value of the net
market value of Treasury securities with remaining time to maturity
greater than six months but equal to or less than one year (with a
floor of 25 basis points). With respect to the proposed change, the
haircut charges will be applied to the absolute value of the net market
value of the Treasury securities in the respective buckets, which is
consistent with the current haircut methodology. However, in contrast
to the current haircut methodology where correlation offsets are
applied against other Treasury maturity buckets, the correlation offset
will not be applied in the proposed approach for the two buckets for
Short-Term Treasuries.
FICC believes that having these two haircut buckets with the floors
would ensure coverage of the risk of at least 25 basis points in yield
change for any Short-Term Treasuries that fall within these two buckets
and help mitigate the potential exposure arising from market events
such as Federal Reserve policy announcements, supply/demand imbalances
in Short-Term Treasuries, inflation shocks, and changes in short-term
borrowing rates. FICC also believes having the two haircut buckets with
floors would help FICC achieve its backtesting standards, which is 99
percent coverage target with 3-days of margin period of risk. As
described below, FICC performed an impact study for the period between
January 2020 to December 2020, which indicated that if the proposed
changes to the treatment of Short-Term Treasuries had been in place,
the backtesting coverage ratio for portfolios of Short-Term Treasuries
would have increased from approximately 94.9% to 99.4%.
To effectuate these changes, FICC proposes to revise the QRM
Methodology Document to describe the
[[Page 48773]]
proposed revised GSD margin methodology with respect to Short-Term
Treasuries.
(3) Technical Changes
FICC proposes to make technical changes to the Rules. Specifically,
because paragraph (iii) in Section 1b of Rule 4 would be deleted, as
described above, FICC is proposing to make conforming technical changes
to renumber the subsequent paragraphs.
FICC is also proposing to make technical changes to the QRM
Methodology Document. Specifically, FICC is proposing to make
clarifying and grammatical changes to a sentence that describes the
indices in a haircut used for short TIPS bonds.
Impact Study
FICC performed an impact study on Members' portfolios for the
period beginning January 2, 2020 to December 31, 2020 that showed that
the proposed change to eliminate the EUIC would impact a small number
of Members, and the total impact to the Clearing Fund would be small.
Over the study period, eliminating the EUIC would have affected, on
average, nine Members per day, and the average daily margin decrease to
GSD's Clearing Fund would have been approximately $53.3 million per day
(0.3% of the average daily Required Fund Deposit requirement of $21.3
billion).
FICC performed an impact study on Members' portfolios for the
period beginning January 2020 through December 2020. At the clearing
corporation level, the impact study indicates that if the proposed
changes to the treatment of Short-Term Treasuries had been in place,
the backtesting coverage ratio for portfolios of Short-Term Treasuries
would have increased from approximately 94.9% to 99.4%. Over the study
period, the proposed changes to the treatment of Short-Term Treasuries
would have affected 93 Members per day on average, and the mean daily
margin increases of the VaR Charge for GSD would have been
approximately $160 million per day (0.8% of the average daily VaR
Charge of $19.5 billion).
Implementation Timeframe
Subject to approval by the Commission, FICC would implement the
proposed rule change within 30 days following such approval, and the
implementation date would be announced by an Important Notice posted to
FICC's website.
2. Statutory Basis
FICC believes that this proposal is consistent with the
requirements of the Act, and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, FICC believes
the proposed changes to the Rules and the QRM Methodology Document
described above are consistent with Section 17A(b)(3)(F) of the Act,
for the reasons described below.\16\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
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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 which are in the custody or control of the
clearing agency or for which it is responsible.\17\
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\17\ Id.
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The proposed change to eliminate the EUIC as described in Item
II(A)1(1) above is designed to assure the safeguarding of securities
and funds which are in the custody or control of FICC or for which it
is responsible, consistent with Section 17A(b)(3)(F) of the Act.\18\
The EUIC was established to reduce the risk of potential under-
margining due to the two Cash Substitution situations described above.
With the suspension of interbank services in 2016, the risk of
potential under-margining due to the second Cash Substitution described
above had been eliminated. While the potential for under-margining due
to the first Cash Substitution situation described above still exists,
FICC now addresses the exposure through the calculation and assessment
of an Intraday Supplemental Fund Deposit amount, if necessary, as
described above. FICC believes the Intraday Supplemental Fund Deposit
is a more accurate way to margin the exposure presented, and therefore
FICC believes that the proposed changes described in Item II(A)1(1)
above would help better ensure that FICC calculates and collects
adequate margin from Members and thereby assure the safeguarding of
securities and funds which are in the custody and control of FICC or
for which it is responsible, consistent with Section 17A(b)(3)(F) of
the Act.\19\
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\18\ Id.
\19\ Id.
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The proposed changes to the QRM Methodology Document, described in
Item II(A)1(2) above to revise the current GSD margin methodology with
respect to Short-Term Treasuries, are designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\20\ FICC believes the proposed changes to the
current GSD margin methodology with respect to Short-Term Treasuries
would help mitigate the vulnerabilities of the current approach when
they are applied to portfolios with a high concentration of Short-Term
Treasuries. As such, FICC believes that the proposed changes described
in Item II(A)1(2) above would help better ensure that FICC calculates
and collects adequate margin from Members and thereby assure the
safeguarding of securities and funds which are in the custody and
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\21\
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\20\ Id.
\21\ Id.
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FICC believes that the proposed technical changes to the QRM
Methodology Document described in Item II(A)1(3) above would enhance
the clarity of the document for FICC. As the QRM Methodology Document
is used by FICC's risk management personnel (``Risk Management'')
regarding the calculation of margin requirements, it is important for
the accurate and smooth functioning of the margining process that Risk
Management has a clear description of the calculation of the GSD margin
methodology. The proposed changes would promote such understanding by
enhancing the clarity of the description. As such, FICC believes that
enhancing the clarity of the QRM Methodology Document would assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\22\
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\22\ Id.
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Rule 17Ad-22(e)(4)(i) under the Act \23\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those exposures arising from its payment, clearing, and settlement
processes by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence. FICC believes that the proposed changes in Items II(A)1(1)
and II(A)1(2) above are consistent with the requirements of Rule 17Ad-
22(e)(4)(i) under the Act.\24\
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\23\ 17 CFR 240.17Ad-22(e)(4)(i).
\24\ Id.
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FICC believes the proposed changes described in Item II(A)1(1)
above to eliminate the EUIC are consistent with the requirements of
Rule 17Ad-
[[Page 48774]]
22(e)(4)(i) under the Act.\25\ This is because FICC believes assessing
and charging an Intraday Supplemental Fund Deposit amount, if
necessary, is a better and more accurate way to address the potential
under-margining due to the first Cash Substitution situation described
above than charging the EUIC. The EUIC is charged once a day at 12
p.m., while FICC may charge an Intraday Supplemental Fund Deposit
amount, if necessary, throughout the day, based on the hourly
information that FICC receives regarding GCF Repo participants'
positions. As such, because FICC can continuously assess its exposure
and charge additional margin throughout the day with the Intraday
Supplemental Fund Deposit rather than at one point in time, the
proposed changes described in Item II(A)1(1) would help FICC better
measure and monitor its credit exposures to participants. Therefore,
FICC believes that the proposed changes described in Item II(A)1(1)
above are consistent with the requirements of Rule 17Ad-22(e)(4)(i)
under the Act.\26\
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\25\ Id.
\26\ Id.
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The proposed changes described in Item II(A)1(2) above would allow
FICC to use the haircut methodology to margin all Short-Term Treasuries
(not just for the Short-Term Treasuries without sensitivity analytics
data, as is the current case). As described above, FICC would have two
haircuts depending on the time to maturity of the Short-Term
Treasuries. This proposed approach would address the two
vulnerabilities with the current approach when it is applied to
portfolios with a high concentration of Short-Term Treasuries as
described above and thereby better enable FICC to limit its credit
exposures to Members. Therefore, FICC believes the proposed changes
described in Item II(A)1(2) above are consistent with the requirements
of Rule 17Ad-22(e)(4)(i) under the Act.\27\
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\27\ Id.
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Rule 17Ad-22(e)(6)(i) under the Act \28\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to cover, if the covered
clearing agency provides central counterparty services, its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market. FICC believes that the proposed changes
in Items II(A)1(1) and II(A)1(2) above are consistent with the
requirements of Rule 17Ad-22(e)(6)(i) under the Act.\29\
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\28\ 17 CFR 240.17Ad-22(e)(6)(i).
\29\ Id.
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Specifically, FICC believes that the proposed changes described in
Item II(A)1(1) above to eliminate the EUIC and rely instead on the
assessment of an Intraday Supplemental Fund Deposit amount, if
necessary, are reasonably designed to cover FICC's credit exposures to
its participants because they would better enable FICC to consider and
produce margin levels commensurate with the risk and particular
attributes of a GCF Repo participant's portfolio. This is because the
Intraday Supplemental Fund Deposit amount could be charged throughout
the day and would be based on hourly information about such GCF Repo
participant's portfolio that FICC receives from The Bank of New York
Mellon (unlike the EUIC, which is charged at 12 p.m.). Therefore, FICC
believes the proposed changes would allow FICC to continue to produce
margin levels commensurate with the risks and particular attributes of
each relevant product, portfolio, and market and are consistent with
the requirements of Rule 17Ad-22(e)(6)(i) under the Act.\30\
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\30\ Id.
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FICC believes the proposed changes described in Item II(A)1(2)
above to allow FICC to use the haircut methodology to margin all Short-
Term Treasuries are consistent with the requirements of Rule 17Ad-
22(e)(6)(i) cited above. FICC believes these proposed changes are
reasonably designed to cover FICC's credit exposures to its
participants, especially those participants who have a high
concentration of Short-Term Treasuries in their portfolios because, as
described above, this proposed approach would address two
vulnerabilities associated with the current approach when it is applied
to portfolios with a high concentration of Short-Term Treasuries.
Therefore, FICC believes the proposed changes would better ensure that
FICC produces margin levels commensurate with the risk and particular
attributes of each relevant product, portfolio, and market, and are
consistent with the requirements of Rule 17Ad-22(e)(6)(i) under the
Act.\31\
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\31\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed changes described in Item II(A)1(1)
above would not have an impact on competition. This is because Members
are currently being assessed an Intraday Supplemental Fund Deposit
regardless of the EUIC. The assessment of the Intraday Supplemental
Fund Deposit is independent of the EUIC. As such, FICC believes the
proposed change to eliminate the EUIC would result in a margin
reduction; FICC believes the amount of the margin reduction would be
nominal.
FICC believes that the proposed changes described in Item II(A)1(2)
above may have an impact on competition because these changes could
result in certain Members being assessed a higher margin than they
would have been assessed with the current GSD margin methodology for
Short-Term Treasuries. Specifically, Members that have a high
concentration of directional Short-Term Treasuries in their portfolios
would be assessed a higher margin than they would have been assessed
with the current GSD margin methodology for Short-Term Treasuries. FICC
believes the proposed change could burden competition by potentially
increasing these Members' operating costs. Regardless of whether such
burden on competition could be deemed significant, FICC believes that
any related burden on competition would be necessary and appropriate,
as permitted by Section 17A(b)(3)(I) of the Act, for the reasons
described below.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(I).
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FICC believes any burden on competition that may be created would
be necessary in furtherance of the purposes of the Act \33\ because the
proposed changes would mitigate vulnerabilities that have been
identified with respect to the current GSD margin methodology for
Short-Term Treasuries. In addition, FICC believes that with these
proposed changes, the margining would better reflect the risk presented
by the Members' specific portfolios. FICC believes any burden on
competition that may be created would be appropriate in furtherance of
the purposes of the Act \34\ because they have been designed to assure
the safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\35\ As described above, these proposed changes
would help ensure that FICC calculates and collects adequate margin
from Members, and all Short-Term Treasuries would continue
[[Page 48775]]
to be subject to the GSD margin methodology.
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\33\ Id.
\34\ Id.
\35\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC does not believe that the proposed changes described in Item
II(A)1(3) above to make technical changes to the Rules would have any
impact on competition because these proposed changes would better
ensure that the Rules remain clear and accurate, and would facilitate
Members' understanding of the Rules and their obligations thereunder.
Having transparent, accessible, clear, and accurate provisions in the
Rules would improve the readability and clarity of the Rules regarding
fees that Members would incur by participating in GSD. These proposed
changes would apply equally to all Members and would not affect
Members' rights and obligations.
In addition, FICC does not believe that the proposed changes
described in Item II(A)1(3) above to make technical changes to the QRM
Methodology Document would have any impact on competition because these
proposed changes would enhance the clarity and accuracy of the QRM
Methodology Document and would not affect the substantive rights of
Members.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto. Persons submitting comments are
cautioned that, according to Section IV (Solicitation of Comments) of
the Exhibit 1A in the General Instructions to Form 19b-4, the
Commission does not edit personal identifying information from comment
submissions. Commenters should submit only information that they wish
to make available publicly, including their name, email address, and
any other identifying information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="https://www.sec.gov/regulatory-actions/how-to-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</a>. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<a href="/cdn-cgi/l/email-protection#cfbbbdaeaba6a1a8aea1aba2aebda4aabbbc8fbcaaace1a8a0b9"><span class="__cf_email__" data-cfemail="ec989e8d8885828b8d8288818d9e8789989fac9f898fc28b839a">[email protected]</span></a> or 202-551-5777. FICC reserves the right to
not respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form
(<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
File Number SR-FICC-2021-007 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2021-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(<a href="http://dtcc.com/legal/sec-rule-filings.aspx">http://dtcc.com/legal/sec-rule-filings.aspx</a>). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2021-007 and should be submitted on
or before September 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18678 Filed 8-30-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 31, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.