Notice2021-18950
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Amendment No. 1 and Notice of No Objection to Advance Notice, as Modified by Amendment No. 1, To Add the Sponsored GC Service 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
September 2, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 168 (Thursday, September 2, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49387-49393]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18950]
[[Page 49387]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92799; File No. SR-FICC-2021-801]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Amendment No. 1 and Notice of No Objection to
Advance Notice, as Modified by Amendment No. 1, To Add the Sponsored GC
Service and Make Other Changes
August 27, 2021.
On May 12, 2021, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') advance
notice SR-FICC-2021-801 pursuant to Section 806(e)(1) of Title VIII of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled
Payment, Clearing and Settlement Supervision Act of 2010 (``Clearing
Supervision Act''),\1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities
Exchange Act of 1934 (``Exchange Act'') \3\ to amend FICC's Government
Securities Division Rulebook \4\ to add a new service that expands
FICC's existing Sponsored Service. The advance notice was published for
public comment in the Federal Register on June 3, 2021.\5\ On June 8,
2021, FICC filed Amendment No. 1 to the advance notice, to correct an
erroneous cross reference in the original filing.\6\ The advance
notice, as modified by Amendment No. 1, is hereinafter referred to as
the ``Advance Notice.'' On June 11, 2021, the Commission, by the
Division of Trading and Markets, pursuant to delegated authority,\7\
requested additional information from FICC pursuant to Section
806(e)(1)(D) of the Act.\8\ The request for information tolled the
Commission's period of review of the Advance Notice until 60 days from
the date of the Commission's receipt of the information requested from
FICC, absent an additional information request.\9\ The Commission
received the information requested from FICC on July 2, 2021.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ 15 U.S.C. 78a et seq.
\4\ FICC's Government Securities Division (``GSD'') Rulebook
(``Rules'') are available at <a href="http://www.dtcc.com/legal/rules-and-procedures">http://www.dtcc.com/legal/rules-and-procedures</a>.
\5\ Securities Exchange Act Release No. 92019 (May 27, 2021), 86
FR 29834 (June 3, 2021) (SR-FICC-2021-801) (``Notice of Filing'').
\6\ Amendment No. 1 made a correction to Exhibit 5 of the
filing. On May 12, 2021, FICC also filed a related proposed rule
change (SR-FICC-2021-003) with the Commission pursuant to Section
19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. 15 U.S.C.
78s(b)(1) and 17 CFR 240.19b-4, respectively. The proposed rule
change was published in the Federal Register on June 1, 2021.
Securities Exchange Act Release No. 92014 (May 25, 2021), 86 FR
29334 (June 1, 2021) (SR-FICC-2020-003). On June 8, 2021, FICC filed
Amendment No. 1 to the proposed rule change to make the same
correction as regarding the Advance Notice. The proposed rule
change, as amended by Amendment No. 1, is hereinafter referred to as
the ``Proposed Rule Change.'' In the Proposed Rule Change, FICC
seeks approval of proposed changes to its rules necessary to
implement the Advance Notice. On June 24, 2021, the Commission
published a notice designating a longer period of time for
Commission action and a longer period for public comment on the
Proposed Rule Change. Securities Exchange Act Release No. 92185
(June 15, 2021), 86 FR 33420 (June 24, 2021) (SR-FICC-2021-003). The
Commission has received one comment in support of the Proposed Rule
Change, available at <a href="https://www.sec.gov/comments/sr-ficc-2021-003/srficc2021003.htm">https://www.sec.gov/comments/sr-ficc-2021-003/srficc2021003.htm</a>. Because the proposals contained in the Advance
Notice and the Proposed Rule Change are the same, the Commission
considered all public comments received on the proposal as
applicable to both filings, regardless of whether the comments were
submitted with respect to the Advance Notice or the Proposed Rule
Change.
\7\ 17 CFR 200.30-3(a)(93).
\8\ 12 U.S.C. 5465(e)(1)(D).
\9\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); see Memorandum
from the Office of Clearance and Settlement, Division of Trading and
Markets, titled ``Commission's Request for Additional Information,''
available at <a href="https://www.sec.gov/rules/sro/ficc-an/2021/34-92019-memo-ficc.pdf">https://www.sec.gov/rules/sro/ficc-an/2021/34-92019-memo-ficc.pdf</a>.
---------------------------------------------------------------------------
The Commission is publishing this notice to solicit comments on
Amendment No. 1 from interested persons and, for the reasons discussed
below, is hereby providing notice of no objection to the Advance
Notice.
I. The Advance Notice
A. Background
1. FICC Services for Repurchase Agreement (``Repo'') Transactions
Repos involve a pair of securities transactions between two
parties. The parties agree to the terms of the trade, including the
securities, principal amount, interest rate, haircut, and tenor (i.e.,
date of maturity). The first transaction (the ``Start Leg'') consists
of the sale of securities, in which one party (the ``cash borrower'')
delivers securities, and in exchange, the other party (the ``cash
lender'') delivers cash. At the Start Leg, the cash borrower typically
delivers an amount of securities equal in value to the amount of cash
received from the cash lender, plus a haircut. Repo durations range
from one day (``overnight'') to a year or more, but are usually less
than three months (``term''). The second transaction (the ``End Leg'')
occurs on a date after that of the Start Leg and consists of the
repurchase of securities, in which the obligations to deliver cash and
securities are the reverse of the Start Leg. At the End Leg, the cash
borrower typically delivers the amount of cash borrowed, plus interest,
and the cash lender returns the securities.
FICC serves as CCP and provides clearance and settlement services
to facilitate both bilateral and tri-party repo transactions. FICC
facilitates bilateral repos \10\ in which all securities delivery
obligations are made against full payment (``delivery-versus-payment''
or ``DVP'') (the ``DVP Service''). FICC generally novates and
guarantees settlement of a trade upon validation of the trade details,
which results in the legally binding and enforceable contract between
FICC and the parties to the trade.\11\ On a daily basis, FICC
aggregates and matches a member's offsetting obligations resulting from
the member's trades, thereby netting the member's total daily
settlement obligations.\12\
---------------------------------------------------------------------------
\10\ A bilateral repo is one in which the cash lender and cash
borrower directly exchange cash and securities. In the bilateral
repo market, the parties specify the securities used as collateral.
Therefore, a cash lender seeking to obtain a particular security
would utilize the bilateral repo market.
\11\ See Rule 5, supra note 4.
\12\ See Rule 11, supra note 4.
---------------------------------------------------------------------------
FICC facilitates tri-party repos \13\ through its General
Collateral Finance (``GCF'') Repo[supreg] Service, which enables
members to trade general collateral finance repos based on rate, term,
and underlying product throughout the day on a blind basis.\14\ The
Bank of New York Mellon operates the tri-party platform that
facilitates trades conducted through the GCF Repo Service. FICC has
established standardized, generic CUSIP Numbers exclusively for GCF
Repo processing and to specify the acceptable types of underlying
Fedwire book-entry eligible collateral, which include U.S. Treasuries,
U.S. government agency securities, and certain mortgage-backed
securities.\15\
---------------------------------------------------------------------------
\13\ A tri-party repo is one in which a clearing bank, acting as
tri-party agent, provides to both the cash lender and the cash
borrower certain operational, custodial, collateral management, and
other services. In tri-party repo trading, both parties maintain
accounts at a clearing bank, which facilitates the payment and
delivery of cash and securities between the parties' accounts. In
contrast to the bilateral repo market and its use of specific
collateral, the tri-party repo market is exclusively for general
collateral repos, meaning that the parties agree to use any
securities from a pre-approved basket of acceptable securities as
collateral. In a general collateral repo, the cash lender is
indifferent to the particular securities it receives as collateral,
provided that the securities come from the pre-approved basket of
acceptable securities.
\14\ See Rule 20, supra note 4.
\15\ See Rule 1 (definitions of ``GCF Repo Transaction'' and
``Generic CUSIP Number'') and Rule 20, Section 2, supra note 4;
Notice of Filing, supra note 5 at 29836.
---------------------------------------------------------------------------
[[Page 49388]]
2. Sponsored Membership
In 2005, FICC established the Sponsored Service, allowing eligible
members to sponsor their clients into a limited form of membership.\16\
A Sponsoring Member is permitted to submit to FICC, for comparison,
novation, and netting, certain eligible securities transactions of its
Sponsored Members. FICC requires each Sponsoring Member to establish an
omnibus account at FICC (separate from its regular netting account) for
Sponsored Member trading activity. Sponsored Members generally have to
meet the definition of a qualified institutional buyer (``QIB''), as
defined in Rule 144A \17\ under the Securities Act of 1933.\18\
---------------------------------------------------------------------------
\16\ Securities Exchange Act Release No. 51896 (June 21, 2005),
70 FR 36981 (June 27, 2005) (SR-FICC-2004-22). See Rule 3A, supra
note 4.
\17\ 17 CFR 230.144A.
\18\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------
For operational and administrative purposes, FICC interacts solely
with the Sponsoring Member as agent for purposes of the day-to-day
satisfaction of its Sponsored Members' obligations to and from FICC,
including their securities and funds-only settlement obligations.\19\
Sponsoring Members are also responsible for providing FICC with a
Sponsoring Member Guaranty, whereby the Sponsoring Member guarantees to
FICC the payment and performance by its Sponsored Members of their
obligations under the Rules.\20\ Although Sponsored Members are
principally liable to FICC for their own settlement obligations under
the Rules, the Sponsoring Member Guaranty requires the Sponsoring
Member to satisfy those settlement obligations on behalf of a Sponsored
Member if the Sponsored Member defaults and fails to perform its
settlement obligations.\21\
---------------------------------------------------------------------------
\19\ See Rule 3A, Section 8, supra note 4.
\20\ See Rule 1 (definition of ``Sponsoring Member Guaranty'')
and Rule 3A, Section 2(c), supra note 4.
\21\ Id.
---------------------------------------------------------------------------
B. Proposed Sponsored GC Service
Currently, the Sponsored Service only facilitates trading in
bilateral DVP repos, not tri-party repos. In the Advance Notice, FICC
proposes to expand the Sponsored Service to accommodate tri-party repo
trading, which it believes would increase term repo activity within the
Sponsored Service. FICC states that several market participants have
indicated that they currently transact tri-party term repos outside of
central clearing because they are not operationally equipped to perform
the collateral management and other functions associated with term DVP
repos.\22\ In particular, money market funds and other mutual funds
generally prefer to use the tri-party repo market because a clearing
bank administers collateral management and other functions, as
described above.\23\
---------------------------------------------------------------------------
\22\ See Notice of Filing, supra note 5 at 29836. A key
difference between the bilateral and tri-party repo markets deals
with the operational aspects of managing term repos. In the tri-
party repo market, a clearing bank typically automatically selects
securities from the cash borrower's account to serve as collateral
that satisfies the credit and liquidity criteria agreed between the
parties. The clearing bank delivers securities against the
simultaneous delivery of cash between the parties' accounts at the
clearing bank. The clearing bank manages the regular revaluation of
collateral, variation margining, income payments on the collateral,
and collateral substitutions. In the bilateral repo market, the
parties themselves perform such collateral management and other
administrative functions.
\23\ See Notice of Filing, supra note 5 at 29836.
---------------------------------------------------------------------------
Therefore, FICC proposes to add the Sponsored GC Service, which
would allow (but not require) Sponsoring Members and their Sponsored
Members to trade general collateral repos with each other on the tri-
party platform of a Sponsored GC Clearing Agent Bank \24\ (each, a
``Sponsored GC Trade''). Such general collateral repos would involve
the same asset classes that are currently available for members using
the GCF Repo Service.\25\ Consistent with the GCF Repo Service, the
Sponsored GC Service would also permit cash borrowers to make
collateral substitutions. Sponsored GC Trades would settle in a manner
similar to the way Sponsoring Members and Sponsored Members currently
settle tri-party repos with each other outside of central clearing.
---------------------------------------------------------------------------
\24\ The Bank of New York Mellon operates the tri-party platform
that would facilitate trades conducted through the Sponsored GC
Service.
\25\ FICC would register a new series of Generic CUSIP Numbers
for the Sponsored GC Service as follows: (i) U.S. Treasury
Securities maturing in ten (10) years or less, (ii) U.S. Treasury
Securities maturing in thirty (30) years or less, (iii) Non-
Mortgage-Backed U.S. Agency Securities, (iv) Federal National
Mortgage Association (``Fannie Mae'') and Federal Home Loan Mortgage
Corporation (``Freddie Mac'') Fixed Rate Mortgage-Backed Securities,
(v) Fannie Mae and Freddie Mac Adjustable Rate Mortgage-Backed
Securities, (vi) Government National Mortgage Association (``Ginnie
Mae'') Fixed Rate Mortgage-Backed Securities, (vii) Ginnie Mae
Adjustable Rate Mortgage-Backed Securities, (viii) U.S. Treasury
Inflation-Protected Securities (``TIPS'') and (ix) U.S. Treasury
Separate Trading of Registered Interest and Principal of Securities
(``STRIPS''). The purpose of registering a new series of Generic
CUSIP Numbers specific to the Sponsored GC Service is to avoid any
operational processing errors that could otherwise result if a trade
intended for the Sponsored GC Service was inadvertently processed as
a GCF Repo transaction or vice versa. Notice of Filing, supra note 5
at 29836.
---------------------------------------------------------------------------
Sponsored GC Service Structure
Sponsored GC Trades would only be between a Sponsored Member and
its Sponsoring Member. FICC would novate only the End Legs of Sponsored
GC Trades. Consistent with the current settlement process of such tri-
party repos outside of central clearing, the Start Legs of Sponsored GC
Trades would continue to settle on a trade-for-trade basis on the tri-
party platform of a Sponsored GC Clearing Agent Bank.\26\
---------------------------------------------------------------------------
\26\ FICC does not believe it would be efficient or appropriate
to novate the Start Legs of Sponsored GC Trades, as that novation
would unnecessarily complicate an already efficient process by
requiring the parties to make significant operational and business
changes to include FICC in the transaction chain. Since Sponsored GC
Trades would only be between a Sponsored Member and its Sponsoring
Member on a known (i.e., not blind) basis, all Start Leg obligations
would settle between a single set of counterparties, negating any
efficiency or reduced settlement risk that FICC's novation would
provide. See Notice of Filing, supra note 5 at 29836-37.
---------------------------------------------------------------------------
Accrued repo interest on Sponsored GC Trades would be paid and
collected by FICC on a daily basis. Additionally, if the market value
of the securities collateral decreases from its market value at the
Start Leg, the cash borrower would be required deliver to FICC
additional securities (and/or cash) such that the market value of the
total securities collateral remains at least equal to its market value
at the Start Leg. Conversely, if the market value of the securities
collateral increases from its value at the Start Leg, the cash lender
would be required to deliver to FICC securities (and/or cash) such that
the market value of the remaining securities collateral remains at
least equal to its market value at the Start Leg. Such additional
securities (and/or cash) must be delivered within the timeframe set
forth in a proposed new schedule of Sponsored GC Trade timeframes set
forth in the Rules.
In order to facilitate settlement of securities and cash
obligations, FICC would direct each party to a Sponsored GC Trade to
make any payment or delivery due to FICC in respect of a Sponsored GC
Trade (except for certain funds-only settlement obligations, as
discussed below) directly to the relevant pre-novation counterparty. As
a result, each transfer of securities and daily repo interest would be
made directly between the Sponsored Member and its Sponsoring Member
via the tri-party repo platform of a Sponsored GC Clearing Agent
Bank.\27\
---------------------------------------------------------------------------
\27\ FICC similarly does not believe it would be appropriate for
FICC to be in the transaction chain for each payment and delivery
under a Sponsored GC Trade because inserting FICC in the middle of
the payments and deliveries would require substantial changes in
operational processes for both Sponsored Members and Sponsoring
Members. FICC does not believe such operational changes are
necessary since there can only be two pre-novation counterparties
involved in the settlement of a Sponsored GC Trade (i.e., the
Sponsoring Member and its Sponsored Member client). See id.
---------------------------------------------------------------------------
[[Page 49389]]
Market Risk Management
FICC would manage its market risk with respect to Sponsored GC
Trades similar to the manner in which FICC manages existing trades
within the Sponsored Service. To mitigate market risk, FICC would
calculate the Value at Risk (``VaR'') margin component (``VaR Charge'')
\28\ for each Sponsored Member based on its activity in the Sponsored
Service, including its activity in the proposed Sponsored GC Service.
The VaR Charge for the Sponsoring Member's omnibus account for
Sponsored Member trading activity would continue to be gross-margined
as the sum of the individual VaR Charges for each Sponsored Member
client.\29\
---------------------------------------------------------------------------
\28\ Each member's margin consists of a number of applicable
components. The VaR Charge is typically the largest component of a
member's margin requirement. The VaR Charge is designed to capture
the potential market price risk associated with the securities in a
member's portfolio. The VaR Charge is designed to provide an
estimate of FICC's projected liquidation losses with respect to a
defaulted member's portfolio at a 99 percent confidence level. See
Rule 1 (definition of ``VaR Charge''), supra note 4; Securities
Exchange Act Release No. 83362 (June 1, 2018), 83 FR 26514 (June 7,
2018) (SR-FICC-2018-001).
\29\ See Rule 3A, Section 10, supra note 4.
---------------------------------------------------------------------------
Additionally, FICC would assign a symbol to each Sponsored Member
to facilitate FICC's ability to surveil the Sponsored Member's activity
across its Sponsored GC Trades as well as its other Sponsored Member
Trades within the existing Sponsored Service (both with the same
Sponsoring Member and across Sponsoring Members, if applicable). In
addition, FICC would apply certain heightened requirements that apply
to certain Sponsoring Members within the Sponsored GC Service as
well.\30\ For example, FICC may impose heightened financial
requirements on these Sponsoring Members based on their anticipated
activity and other factors,\31\ and FICC may limit such a Sponsoring
Member's activity if the sum of the VaR Charges of its omnibus and
netting accounts exceeds its net capital.\32\
---------------------------------------------------------------------------
\30\ Specifically, these restrictions apply to Category 2
Sponsoring Members, which are other members that meet certain
financial requirements as compared to Category 1 Sponsoring Members,
which are bank netting members that are well-capitalized with $5
billion in equity capital. See Rule 3A, Section 2(a), supra note 4.
\31\ See Rule 3A, Section 2(b), supra note 4.
\32\ See Rule 3A, Section 2(h), supra note 4.
---------------------------------------------------------------------------
In addition, FICC would manage the mark-to-market risk associated
with unaccrued repo interest on a Sponsored GC Trade through a proposed
new interest rate mark component of funds-only settlement.\33\ FICC
would also apply an Interest Adjustment Payment to Sponsored GC Trades
to account for overnight use of funds by the Sponsoring Member or
Sponsored Member, as applicable, based on such party's receipt from
FICC of a Forward Mark Adjustment Payment (reflecting a GC Interest
Rate Mark) on the previous business day.\34\
---------------------------------------------------------------------------
\33\ This GC Interest Rate Mark would be calculated in the same
manner as the GCF Interest Rate Mark is for GCF Repo transactions.
For a detailed description of the calculation, see Notice of Filing,
supra note 5 at 29837.
\34\ No other components of funds-only settlement would be
necessary to apply to Sponsored GC Trades because, as described
above, (i) all Sponsored GC Trades would novate after the settlement
of the Start Legs of such trades (i.e., not during the Forward-
Starting Period), (ii) mark-to-market changes in the value of the
securities transferred under Sponsored GC Trades would be managed by
the Sponsored GC Clearing Agent Bank on FICC's behalf (consistent
with the manner in which GCF Repo transactions are currently
processed), and (iii) the accrued repo interest on Sponsored GC
Trades would be passed on a daily basis, as described above.
---------------------------------------------------------------------------
Liquidity Risk Management
Currently, trades between a Sponsoring Member and its Sponsored
Member do not independently create liquidity risk for FICC. Under its
Rules, if a Sponsoring Member defaults, FICC may close out (that is,
cash settle) the Sponsored Member trades of the defaulting Sponsoring
Member.\35\ Similarly, if a Sponsored Member defaults, FICC may offset
its settlement obligations to the Sponsoring Member against the
Sponsoring Member's obligations under the Sponsoring Member Guaranty to
perform on behalf of its defaulting Sponsored Member.\36\ Thus, in both
default scenarios, FICC bears no liquidity risk.
---------------------------------------------------------------------------
\35\ See Rule 3A, Section 14(c), supra note 4. See also Rule
22A, Section 2, supra note 4.
\36\ See Rule 3A, Section 11, supra note 4.
---------------------------------------------------------------------------
As a result, to the extent a Sponsoring Member either (1) runs a
matched book of Sponsored Member trades (i.e., enters into offsetting
trades with its own Sponsored Members), or (2) simply enters into
trades with its Sponsored Member (i.e., without entering into
offsetting transactions), such activities do not increase FICC's
liquidity risk. FICC bears liquidity risk only when a Sponsoring Member
enters into an offsetting trade in which a third-party member is the
pre-novation counterparty. In that scenario, FICC is required to settle
the obligations of a defaulting Sponsoring Member.
Since Sponsored GC Trades would not involve third-party members,
such trades would impact FICC's liquidity risk in a similar manner to
trades between a Sponsoring Member and its Sponsored Member in the
current Sponsored Service. As a result, FICC proposes to manage the
liquidity risk associated with Sponsored GC Trades in the same manner
that it currently manages such risk for other trades between a
Sponsoring Member and its Sponsored Member.
C. Proposed Changes to Allocations Within the Capped Contingency
Liquidity Facility (``CCLF'')
1. CCLF Background
On April 25, 2017, the Commission approved FICC's adoption of the
Clearing Agency Liquidity Risk Management Framework (``Framework''),
which broadly describes FICC's liquidity risk management strategy and
objective to maintain sufficient liquid resources in order to meet the
potential amount of funding required to settle outstanding transactions
of a defaulting member (including affiliates) in a timely manner.\37\
The Framework identifies, among other things, each of the qualifying
liquid resources available to FICC, including the CCLF.\38\ The CCLF is
a rules-based, committed liquidity resource, designed to enable FICC to
meet its cash settlement obligations in the event of a default of the
member (including the member's family of affiliated members) to which
FICC has the largest exposure in extreme but plausible market
conditions.\39\ FICC would activate the CCLF if, upon a member default,
FICC determines that its non-CCLF liquidity resources would not
generate sufficient cash to satisfy FICC's payment obligations to its
non-defaulting members. In simple terms, a CCLF repo is equivalent to a
non-defaulting member financing FICC's payment obligation under the
original trade, thereby providing FICC with time to liquidate the
securities underlying the original trade. More specifically, upon
activating the CCLF, members would be called upon to enter into repo
transactions (as cash lenders) with FICC (as cash borrower) up to a
pre-determined capped dollar amount, thereby providing FICC with
sufficient liquidity to meet its payment
[[Page 49390]]
obligations. For a non-defaulting member to whom FICC has a payment
obligation disrupted by a member default, a CCLF repo would extinguish
and replace the original trade that gave rise to FICC's payment
obligation.
---------------------------------------------------------------------------
\37\ See Securities Exchange Act Release No. 80489 (April 19,
2017), 82 FR 19120 (April 25, 2017) (SR-FICC-2017-008).
\38\ See id.
\39\ FICC designed the CCLF to meet the regulatory requirement
for a covered clearing agency to measure, monitor, and manage its
liquidity risk by maintaining sufficient liquid resources to effect
same-day settlement of payment obligations in the event of a default
of the participant family that would generate the largest aggregate
payment obligation for the clearing agency in extreme but plausible
market conditions. 17 CFR 240.17Ad-22(e)(7)(i); see Securities
Exchange Act Release No. 82090 (November 15, 2017), 82 FR 55427,
55430 (November 21, 2017) (SR-FICC-2017-002); Rule 22A, Section 2a,
supra note 4.
---------------------------------------------------------------------------
FICC determines the total size of the CCLF based on FICC's
potential cash settlement obligations that would result from the
default of the member (including affiliates) presenting the largest
liquidity need to FICC over a specified look-back period, plus an
additional liquidity buffer. Under the proposal in the Advance Notice,
FICC would not change the method by which it determines the total size
of the CCLF.
FICC uses a tiered approach to allocate the total size of the CCLF
among its members to arrive at the amount of each member's CCLF
obligation. FICC allocates $15 billion of the total size of the CCLF
among all members.\40\ FICC allocates the remainder of the total size
of the CCLF among members that generate liquidity needs above the $15
billion threshold based on the frequency that such members generate
daily liquidity needs over $15 billion across supplemental liquidity
tiers in $5 billion increments. Specifically, FICC calculates a dollar
amount for the CCLF obligation applicable to each supplemental
liquidity tier. FICC allocates the CCLF obligation for each
supplemental liquidity tier to members on a pro-rata basis
corresponding to the number of times each member generates liquidity
needs within each supplemental liquidity tier.\41\
---------------------------------------------------------------------------
\40\ FICC has determined that $15 billion is an appropriate
amount for allocation to all members because the average member's
liquidity need from 2015-2016 was approximately $7 billion, with a
majority of members (approximately 85 percent) having liquidity
needs less than $15 billion. See Securities Exchange Act Release No.
82090 (November 15, 2017), 82 FR 55427, 55430 (November 21, 2017)
(SR-FICC-2017-002).
\41\ For example, a member that generates daily liquidity needs
in the $15-$20 billion supplemental liquidity tier would incur a
pro-rata share for the $15-$20 billion supplemental liquidity tier
only. Another member that generates daily liquidity needs in the
$20-$25 billion supplemental liquidity tier would incur a pro-rata
share for both the $15-$20 and $20-$25 billion supplemental
liquidity tiers. A third member that generates daily liquidity needs
in the $65-$70 billion supplemental liquidity tier would incur a
pro-rata share for every supplemental liquidity tier. Each member's
pro-rata share is based on the frequency with which the member
generates daily liquidity needs in each supplemental liquidity tier.
See Securities Exchange Act Release No. 80234 (March 14, 2017), 82
FR 14401, 14404-05 (March 20, 2017) (SR-FICC-2017-002).
---------------------------------------------------------------------------
2. Current CCLF Allocation Methodology for the Sponsored Service
Currently, FICC does not impose a CCLF obligation on a Sponsoring
Member to the extent the Sponsoring Member runs a matched book of
Sponsored Member trades. This is because to determine a Sponsoring
Member's CCLF obligation, FICC nets all of the positions recorded in
the Sponsoring Member's omnibus account (regardless of whether they
relate to the same Sponsored Member) and separately nets all of the
positions in the Sponsoring Member's netting account.\42\ As a result,
to the extent a Sponsoring Member enters into perfectly offsetting
Sponsored Member trades (i.e., the matched book scenario), the
settlement obligations of those trades net out in the omnibus account
and the netting account, with no resulting CCLF obligation for the
Sponsoring Member.
---------------------------------------------------------------------------
\42\ See Rule 3A, Section 8(b) and Rule 22A, Section 2a(b),
supra note 4.
---------------------------------------------------------------------------
However, if a Sponsoring Member enters into a Sponsored Member
trade without entering into an offsetting transaction, the Sponsoring
Member is subject to CCLF obligations for the position of its Sponsored
Member recorded in its omnibus account as well as its own position
arising from the Sponsored Member trade recorded in its netting
account. Although the positions in the Sponsoring Member's omnibus
account and netting account offset each other, FICC does not currently
net such positions for CCLF purposes because CCLF allocations are
determined at the participant account level.\43\ FICC believes the
foregoing scenario should not contribute to the Sponsoring Member's
CCLF obligation because, as described above in Section I.B, such
offsetting obligations do not present liquidity risk to FICC.
---------------------------------------------------------------------------
\43\ This limitation on offset is consistent with FICC's
approach of not offsetting the positions of two accounts of the same
member for CCLF purposes. However, FICC notes an important
difference between Sponsored Member trades and other FICC repo
activity. See Notice of Filing, supra note 5 at 29842. Specifically,
as mentioned above in Section I.A.2., the Sponsored Service requires
a Sponsoring Member to maintain an omnibus account that is separate
from its netting account. In contrast, for all other repo activity,
members have the option to collapse all of their activity into a
single participant account in order to achieve a similar netting
benefit. Sponsoring Members do not have that option with respect to
their Sponsored Member trades. Therefore, FICC believes this
proposed change is necessary to ensure that a Sponsoring Member's
CCLF obligations are calculated in a manner that more closely aligns
with the liquidity risk associated with Sponsored Member trades. Id.
---------------------------------------------------------------------------
3. Proposed CCLF Allocation Methodology for the Sponsored Service
As described above, trades between a Sponsoring Member and its
Sponsored Member do not independently create liquidity risk for FICC,
and, therefore, FICC believes that such trades should not affect the
Sponsoring Member's CCLF obligation. To ensure that a Sponsoring
Member's CCLF obligation is calculated to reflect the lack of liquidity
risk to FICC associated with Sponsored Member trades, FICC proposes to
take into account, for CCLF calculation purposes, any offsetting
settlement obligations between a Sponsoring Member's netting account
and its omnibus account. This proposed change would ensure that all
Sponsored Member trades, whether perfectly offset by other Sponsored
Member trades (i.e., the matched book scenario) or not, would be
recognized for CCLF purposes as not affecting FICC's liquidity risk.
This proposed change would also apply to trades in the new Sponsored GC
Service.\44\
---------------------------------------------------------------------------
\44\ For Sponsored GC Trades, this proposed change would ensure
that FICC applies an appropriate CCLF obligation to a Sponsoring
Member in the event a Sponsored GC Clearing Agent Bank allocates to
a Sponsored GC Trade a different security than the security that
underlies an offsetting Sponsored Member Trade. For example, a
Sponsoring Member may enter into a Sponsored GC Trade on a Generic
CUSIP Number and a separate offsetting Sponsored Member trade in a
specific CUSIP Number. Although the specific CUSIP Number might also
be an eligible security under the Generic CUSIP Number underlying
the Sponsored GC Trade, the Sponsored GC Clearing Agent Bank could
allocate to the Sponsored GC Trade a different eligible CUSIP Number
from the list of eligible securities. FICC's proposed change would
offset these positions across the Sponsoring Member's netting
account and omnibus account to ensure that the CCLF obligation
applicable to the Sponsoring Member accurately reflects the
liquidity risk associated with those positions.
---------------------------------------------------------------------------
Although, as noted above, the proposal in the Advance Notice would
not affect the method by which FICC determines the total CCLF amount,
FICC's proposal to net offsetting trades between a Sponsoring Member
and its Sponsored Member for CCLF calculation purposes would affect the
allocation of CCLF obligations over $15 billion to other members.
Specifically, as described above, under the current Rules, if a
Sponsoring Member enters into a Sponsored Member trade without entering
into an offsetting transaction, the Sponsoring Member is subject to
CCLF obligations for the position of its Sponsored Member recorded in
its omnibus account as well as its own position arising from the
Sponsored Member trade recorded in its netting account. Under the
proposal, the Sponsoring Member would not incur CCLF obligations for
such transactions. Therefore, a Sponsoring Member's peak daily
liquidity is currently higher than it would be under the proposal.
This, in turn, may decrease the frequency with which a Sponsoring
Member's daily peak liquidity reaches into higher supplemental
liquidity tiers. As a result,
[[Page 49391]]
the pro-rata allocation of CCLF obligations among members with daily
peak liquidity in those supplemental liquidity tiers would
increase.\45\ When fewer members generate peak liquidity needs in a
supplemental liquidity tier, the remaining members that generate peak
liquidity in that tier bear a larger pro-rata share of the CCLF
allocations for that tier.
---------------------------------------------------------------------------
\45\ The proposals in the Advance Notice would not change FICC's
current methodology for calculating the total amount of the CCLF.
---------------------------------------------------------------------------
II. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the Advance
Notice is consistent with the Clearing Supervision 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#c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1"><span class="__cf_email__" data-cfemail="97e5e2fbf2baf4f8fafaf2f9e3e4d7e4f2f4b9f0f8e1">[email protected]</span></a>. Please include
File Number SR-FICC-2020-802 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2021-801. 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 advance notice that are filed with the
Commission, and all written communications relating to the advance
notice 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 such filings will also be available for inspection
and copying at the principal office of FICC and FICC's website at
<a href="https://www.dtcc.com/legal">https://www.dtcc.com/legal</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-2021-801 and should be
submitted on or before September 17, 2021.
III. Discussion and Commission Findings
Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, the stated purpose of the Clearing
Supervision Act is instructive: To mitigate systemic risk in the
financial system and promote financial stability by, among other
things, promoting uniform risk management standards for SIFMUs and
strengthening the liquidity of SIFMUs.\46\
---------------------------------------------------------------------------
\46\ See 12 U.S.C. 5461(b).
---------------------------------------------------------------------------
Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe regulations containing risk management
standards for the payment, clearing, and settlement activities of
designated clearing entities engaged in designated activities for which
the Commission is the supervisory agency.\47\ Section 805(b) of the
Clearing Supervision Act provides the following objectives and
principles for the Commission's risk management standards prescribed
under Section 805(a): \48\
---------------------------------------------------------------------------
\47\ 12 U.S.C. 5464(a)(2).
\48\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
<bullet> To promote robust risk management;
<bullet> to promote safety and soundness;
<bullet> to reduce systemic risks; and
<bullet> to support the stability of the broader financial system.
Section 805(c) provides, in addition, that the Commission's risk
management standards may address such areas as risk management and
default policies and procedures, among others areas.\49\
---------------------------------------------------------------------------
\49\ 12 U.S.C. 5464(c).
---------------------------------------------------------------------------
The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and Section 17A of the
Exchange Act (the ``Clearing Agency Rules'').\50\ The Clearing Agency
Rules require, among other things, each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures that are reasonably designed to meet certain minimum
requirements for its operations and risk management practices on an
ongoing basis.\51\ As such, it is appropriate for the Commission to
review advance notices against the Clearing Agency Rules and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act. As
discussed below, the Commission believes the proposal in the Advance
Notice is consistent with the objectives and principles described in
Section 805(b) of the Clearing Supervision Act,\52\ and in the Clearing
Agency Rules, in particular Rules 17Ad-22(e)(7) and (21).\53\
---------------------------------------------------------------------------
\50\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No.
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
See also Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing
Agency Standards''). FICC is a ``covered clearing agency'' as
defined in Rule 17Ad-22(a)(5).
\51\ 17 CFR 240.17Ad-22.
\52\ 12 U.S.C. 5464(b).
\53\ 17 CFR 240.17Ad-22(e)(7) and (21).
---------------------------------------------------------------------------
A. Consistency With Section 805(b) of the Clearing Supervision Act
1. Reducing Systemic Risks and Supporting the Stability of the Broader
Financial System
The Commission believes that the Advance Notice is consistent with
the stated objectives and principles of Section 805(b) of the Clearing
Supervision Act because the changes proposed in the Advance Notice are
consistent with reducing systemic risks, supporting the stability of
the broader financial system, promoting robust risk management, and
promoting safety and soundness.\54\
---------------------------------------------------------------------------
\54\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
The Commission believes that FICC's proposal to add the Sponsored
GC Service to the existing Sponsored Service is consistent with the
principles of reducing systemic risk and supporting the stability of
the broader financial system. As described above in Section I.B., FICC
proposes to add the Sponsored GC Service to facilitate centrally
cleared tri-party repo trading between a Sponsored Member and its
Sponsoring Member within FICC's Sponsored Service. The Sponsored GC
Service is designed to enable a greater number of tri-party repo
transactions to be eligible for FICC's netting services and subject to
FICC's guaranteed settlement, novation, and risk management, which
should help decrease the settlement and operational risk of such
transactions relative to those made outside of central clearing. This
risk reduction should, in turn, enhance the stability of the tri-party
repo market.\55\ Furthermore, by enabling
[[Page 49392]]
FICC to provide CCP services covering a greater number of tri-party
repo transactions, the Sponsored GC Service would enable FICC to
control the liquidation of a greater number of positions in a member
default scenario, which in turn, should help protect against the risk
of a large-scale exit by institutional firms from the U.S. financial
market in a stress scenario.\56\ Accordingly, the Commission believes
that an increase in centrally cleared tri-party repo activity via the
Sponsored GC Service would help reduce systemic risks and support the
stability of the broader financial system, consistent with Section
805(b) of the Act.\57\
---------------------------------------------------------------------------
\55\ FICC notes that the centrally cleared repo market has
functioned well during periods of extreme market volatility, as
evidenced during the unprecedented market volatility in March-April
2020. See Notice of Filing, supra note 5 at 29835.
\56\ See Letter from Robert Toomey, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association (June 18, 2021) at 2 (commenting that the proposed
Sponsored GC Service should incentivize more central clearing of
tri-party repos, thereby contributing to enhancing the capacity and
resiliency of the repo market and mitigating the risk of a large-
scale exit by institutional firms from the market in a stress
scenario). The U.S. financial market experienced such a liquidity
drain from the repo market in the 2007-2008 financial crisis when
the bankruptcy of Lehman Brothers gave rise to concerns among cash
provider institutional firms about the creditworthiness of their
borrower counterparties. See Ben S. Bernanke, The Courage to Act: A
Memoir of a Crisis and its Aftermath 397 (2017) (discussing ``the
paralyzing uncertainty [on the part of repo lenders] about banks'
financial health'' in 2007 and 2008).
\57\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
The Commission also believes that FICC's proposal to change the
CCLF allocation methodology is consistent with the principles of
reducing systemic risks and supporting the stability of the broader
financial system. As discussed above in Section I.C., trades between a
Sponsoring Member and its Sponsored Member do not independently create
liquidity risk for FICC. However, under the current Rules, if a
Sponsoring Member enters into a Sponsored Member trade without entering
into an offsetting transaction, the Sponsoring Member is subject to
CCLF obligations for the Sponsored Member's position in the Sponsoring
Member's omnibus account as well as its own position arising from the
Sponsored Member trade recorded in its netting account. Although the
positions in the Sponsoring Member's omnibus account and netting
account offset each other, FICC does not currently net such positions
for CCLF purposes because CCLF allocations are determined at the
participant account level. FICC proposes to change the Rules to allow
netting, for CCLF allocation purposes, of offsetting positions in a
Sponsoring Member's omnibus account and netting account. FICC designed
this proposal to ensure that a Sponsoring Member's CCLF obligation
aligns more closely with the actual liquidity risk its trading activity
presents to FICC. This, in turn, may decrease the frequency with which
a Sponsoring Member's daily peak liquidity needs reach into higher CCLF
supplemental liquidity tiers, resulting in a larger pro-rata allocation
of CCLF obligations among other members whose daily peak liquidity
needs reach into those supplemental liquidity tiers.
Based on the foregoing, FICC's current CCLF allocation methodology
subjects Sponsoring Members to CCLF obligations beyond the level of
risk presented by their trading activity, essentially requiring those
Sponsoring Members to partially subsidize the CCLF obligations of other
members who would otherwise bear larger CCLF obligations under the
proposal.\58\ As a result, Sponsoring Members must currently direct
capital towards CCLF obligations that could otherwise be used to
support the trading activity of their clients.
---------------------------------------------------------------------------
\58\ In reaching this conclusion, the Commission reviewed and
analyzed an impact analysis filed by FICC, comparing the changes in
CCLF allocations under the current Rules and under the proposal. As
part of the Advance Notice, FICC filed Exhibit 3--FICC/GSD CCLF
Allocations Impact Study. (Pursuant to 17 CFR 240.24b-2, FICC
requested confidential treatment of Exhibit 3.
---------------------------------------------------------------------------
FICC's proposal to change the CCLF allocation methodology would
result in a distribution of CCLF obligations that better aligns with
the liquidity risk each member's trading activity presents to FICC.
Market stability is enhanced when market participants are incentivized
to manage the actual risks presented by their trading activity.
Accordingly, the Commission believes that FICC's proposal to change the
CCLF allocation methodology would help reduce systemic risk and support
the stability of the broader financial system, consistent with Section
805(b) of the Act.\59\
---------------------------------------------------------------------------
\59\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
2. Promoting Robust Risk Management and Safety and Soundness
The Commission believes that FICC's proposals in the Advance Notice
are consistent with the objectives of promoting robust risk management
and promoting safety and soundness at FICC. With respect to the
proposed Sponsored GC Service, FICC would leverage its existing risk
management tools to manage the risks associated with repos transacted.
For example, FICC would manage its market risk with respect to
Sponsored GC Trades similar to the manner in which FICC manages
existing trades within the Sponsored Service. Specifically, FICC would
calculate the VaR Charge for each Sponsored Member based on its
activity in the Sponsored Service, including its activity in the
proposed Sponsored GC Service. The VaR Charge for the Sponsoring
Member's omnibus account would continue to be the sum of the individual
VaR Charges for each Sponsored Member client (i.e., gross-margined).
Additionally, FICC would risk manage the mark-to-market risk associated
with unaccrued repo interest on a Sponsored GC Trade through a proposed
new interest rate mark, calculated in the same manner that FICC
currently calculates the interest rate mark for GCF Repo transactions.
Moreover, the Advance Notice includes a proposal for a new risk
management feature for the Sponsored Service. Specifically, FICC would
assign a symbol to each Sponsored Member to facilitate FICC's ability
to surveil the Sponsored Member's activity across its Sponsored GC
Trades as well as its other Sponsored Member Trades within the existing
Sponsored Service. In addition, the new Sponsored GC Service would
continue to apply certain heightened requirements on particular types
of Sponsoring Members. The foregoing risk management measures would
help FICC prevent and otherwise manage the risks presented by the
potential default of a member within Sponsored GC Service. Accordingly,
the Commission believes that the proposed Sponsored GC Service would
promote robust risk management and safety and soundness at FICC,
consistent with Section 805(b) of the Act.\60\
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
The Commission also believes that FICC's proposals in the Advance
Notice are consistent with the objective of promoting safety and
soundness in the tri-party repo market. As discussed above, the
Sponsored GC Service would make the risk-reducing benefits of central
clearing available to a greater portion of trades in the tri-party repo
market. Also, as described above in Section III.A.1., FICC's proposed
CCLF allocation methodology would reduce CCLF obligations for
Sponsoring Members with respect to Sponsored Member trades entered into
without offsetting (i.e., matched book) trades. As a result, the
proposed CCLF allocation methodology would reduce costs for Sponsoring
Members and thereby provide an additional incentive for eligible market
participants to join the Sponsored Service and offer the Sponsored GC
Service to a potentially broader segment of the tri-party market. By
bringing a greater portion of tri-party
[[Page 49393]]
repo trades into central clearing, the proposals in the Advance Notice
would help to decrease the settlement and operational risk present when
such trades are conducted outside of central clearing. The Sponsored GC
Service would thereby contribute to the stability of the tri-party repo
market. Furthermore, the Sponsored GC Service would enable FICC to
centralize and control the liquidation of a greater number of tri-party
repo transactions in the event of a member default, which in turn,
would help protect the tri-party repo market against the destabilizing
risk of a large-scale exit by institutional firms from the U.S.
financial market in a stress scenario. Accordingly, the Commission
believes that the proposed Sponsored GC Service would promote safety
and soundness in the tri-party repo market, consistent with Section
805(b) of the Act.\61\
---------------------------------------------------------------------------
\61\ Id.
---------------------------------------------------------------------------
Additionally, the Commission also believes that FICC's proposal to
change the CCLF allocation methodology is consistent with the principle
of promoting robust risk management. As described above in Section
II.C., FICC's proposal to change the CCLF allocation methodology would
not impact FICC's current methodology for determining the total amount
of the CCLF. As a result, FICC would retain its current level of liquid
resources. FICC's proposal would only change the allocation of CCLF
obligations among FICC's members. As described above in this Section
III.A.1., FICC's proposed CCLF allocation methodology would result in a
CCLF obligation for each member that better corresponds to the actual
liquidity risk each member's trading activity presents to FICC.
Accordingly, the Commission believes FICC's proposed CCLF allocation
methodology would promote robust risk management because it would
better align the costs for a member to participate in FICC with the
level of risk the member's trading activity presents to FICC, while
still maintaining the same overall level of liquidity resources at
FICC.
B. Consistency With Rule 17Ad-22(e)(7)
Rule 17Ad-22(e)(7) under the Exchange Act requires a covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to effectively measure,
monitor, and manage the liquidity risk that arises in or is borne by
the covered clearing agency.\62\ As described above in Section I.C.3.,
FICC proposes to change the Rules to allow netting, for CCLF allocation
purposes, of offsetting positions in a Sponsoring Member's omnibus
account and netting account.
---------------------------------------------------------------------------
\62\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------
FICC's proposal would not impact FICC's current methodology for
determining the total amount of the CCLF as a liquidity resource. As
discussed above in Section III.A.1., FICC proposes to change the Rules
regarding CCLF allocation to ensure that a Sponsoring Member's CCLF
obligation aligns more closely with the actual liquidity risk its
trading activity presents to FICC. As a result, FICC's proposed CCLF
allocation methodology represents more efficient liquidity risk
management than the current methodology. Accordingly, the Commission
believes that FICC's proposed CCLF allocation methodology is consistent
with Rule 17Ad-22(e)(7).\63\
---------------------------------------------------------------------------
\63\ Id.
---------------------------------------------------------------------------
C. Consistency With Rule 17Ad-22(e)(21)
Rule 17Ad-22(e)(21) under the Exchange Act requires a covered
clearing agency to 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, including the clearing agency's clearing and
settlement arrangements and the scope of products cleared or
settled.\64\ As described above in Section I.B., FICC's current
Sponsored Service does not accommodate the trading of tri-party repos.
FICC proposes to expand the Sponsored Service to allow tri-party repo
trading to meet the needs of market participants that currently
transact tri-party term repos outside of central clearing because they
are not operationally equipped to perform the collateral management and
other functions associated with term DVP repos. By expanding the
Sponsored Service to facilitate tri-party repo trading, FICC seeks to
provide a viable option for its members to transact term tri-party
repos in central clearing. Sponsored GC Trades would settle in a manner
similar to the way Sponsoring Members and Sponsored Members currently
settle tri-party repos with each other outside of central clearing,
thereby making it more operationally efficient for the parties to
transact term repos with each other using FICC as the CCP. The
Commission believes that the proposed Sponsored GC Service is
consistent with Rule 17Ad-22(e)(21) \65\ because it is responsive to
the requests from FICC's members for the ability to trade centrally
cleared term tri-party repos in a manner that is efficient and
effective in meeting the operational requirements of FICC's members.
---------------------------------------------------------------------------
\64\ 17 CFR 240.17Ad-22(e)(21).
\65\ Id.
---------------------------------------------------------------------------
IV. Conclusion
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to
Advance Notice (SR-FICC-2021-801) and that FICC is authorized to
implement the proposed change as of the date of this notice or the date
of an order by the Commission approving Proposed Rule Change SR-FICC-
2021-003, whichever is later.
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-18950 Filed 9-1-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on September 2, 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.