Notice2022-28304
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Certain MBSD Fees
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
December 29, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 249 (Thursday, December 29, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 249 (Thursday, December 29, 2022)]
[Notices]
[Pages 80219-80225]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28304]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96575; File No. SR-FICC-2022-009]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Certain MBSD Fees
December 22, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 80220]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 20, 2022, 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. FICC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to FICC's
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD
Rules'') and the MBSD EPN Rules (``EPN Rules'' and together with the
MBSD Rules, the ``Rules'') in order to amend (i) certain Trade Creates
and Trade Processing fees, (ii) the DNA Request fee, (iii) the Matched
Pool Instruct fee, (iv) an Account Maintenance fee, and (v) the Message
Processing fees, as described further below.\5\
---------------------------------------------------------------------------
\5\ Capitalized terms not otherwise defined herein are defined
in the MBSD Rules and the EPN Rules, as applicable, available at
<a href="http://www.dtcc.com/legal/rules-and-procedures">http://www.dtcc.com/legal/rules-and-procedures</a>.
---------------------------------------------------------------------------
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 the MBSD Rules and the EPN Rules in
order to amend (i) certain Trade Creates and Trade Processing fees;
(ii) the DNA Request fee, (iii) the Matched Pool Instruct fee, (iv) an
Account Maintenance fee, and (v) the Message Processing fees, as
described in greater detail below.
FICC operates a cost plus low-margin pricing model and has in place
procedures to control costs and to regularly review pricing levels
against costs of operation. FICC reviews pricing levels against its
costs of operation typically during the annual budget process. The
budget is approved annually by the Board. FICC's fees are cost-based
plus a markup as approved by the Board or management (pursuant to
authority delegated by the Board), as applicable. This markup or ``low
margin'' is applied to recover development costs and operating expenses
and to accumulate capital sufficient to meet regulatory and economic
requirements.
FICC expects the rising interest rate environment to be a long-term
structural change which will continue to negatively impact MBSD
revenue. Specifically, as a result of the rising interest rate
environment, FICC expects the decrease in transaction volumes for MBSD,
and therefore, the decrease in revenues for MBSD, to continue in 2023.
FICC expects inflationary pressures, and technology and infrastructure
investments related to IT risk mitigation and resiliency initiatives to
contribute to costs in 2023. While overall costs in 2023 are expected
to be lower than forecasted for 2022, FICC believes the proposed
increases in fees, as further described below, would enable FICC to
offset the above-described expected decrease in MBSD revenue due to the
expected decrease in transaction volumes for MBSD because of rising
interest rate environment and would enable FICC to generate sufficient
revenues to cover its operating costs plus generate a low net income
margin (i.e., to be consistent with its pricing model). The net income
margin forecasted for 2022 is lower than the net income margin range
that FICC typically aims to achieve. Transaction volumes for MBSD were
lower than expected in 2022 and as such, revenues for MBSD were lower
than expected in 2022 while technology and infrastructure investments
contributed to increased costs in 2022. As described above, FICC
believes that the rising interest rate environment is a long-term
structural change, which will continue to negatively impact revenues
for MBSD in 2023. As such, the proposed increases in fees described in
detail below are necessary to enable FICC to cover operating costs
while generating a low net income margin. Specifically, these proposed
fee increases would enable FICC to generate a low net income margin
that would be in a range that FICC typically aims to achieve. As
described above, this low margin is applied to recover development
costs and operating expenses and to accumulate capital sufficient to
meet regulatory and economic requirements.
(i) Certain Trade Creates and Trade Processing Fees
(a) Trade Creates Fees
A trade create is a type of transaction used to identify the
submission and/or subsequent processing of trades as opposed to cancels
or notifications.
Current Fees
In the MBSD Rules Schedule of Charges Broker Account Group and the
MBSD Rules Schedule of Charges Dealer Account Group, there are fees for
Trade Creates relating to Trade Processing. In the MBSD Rules Schedule
of Charges Dealer Account Group, there are also fees for (i) Trade
Creates relating to Trade-for-Trade Transactions, Specified Pool
Trades, and Stipulated Trades, and (ii) Trade Creates relating to
Options Trades.
The current fee charged to brokers in the MBSD Rules Schedule of
Charges Broker Account Group for Trade Creates relating to Trade
Processing is $0.20/side.
In the MBSD Rules Schedule of Charges Dealer Account Group, the
current fee for Trade Creates relating to Trade Processing are as
follows: \6\
---------------------------------------------------------------------------
\6\ Certain fees are based on the par value per million per
month (``MM'').
------------------------------------------------------------------------
Current fee
Total par amount traded per month (par value
Millions/Mon.)
------------------------------------------------------------------------
01-2,500,000,000........................................ $2.00
2,500,000,001-7,500,000,000............................. 1.58
7,500,000,001-12,500,000,000............................ 1.39
12,500,000,001-300,000,000,000.......................... 1.19
[[Page 80221]]
300,000,000,001 and over................................ 1.16
------------------------------------------------------------------------
In the MBSD Rules Schedule of Charges Dealer Account Group, the
current fees for (i) Trade Creates relating to Trade-for-Trade
Transactions, Specified Pool Trades, and Stipulated Trades is $1.16/MM
and (ii) Trade Creates relating to Option Trades is $1.00/MM.
Proposed Changes
In the MBSD Rules Schedule of Charges Broker Account Group, FICC is
proposing to revise the fee for Trade Creates relating to Trade
Processing from $0.20/side to $.40/side.
In the MSBD Rules Schedule of Charges Dealer Account Group, FICC is
proposing to revise the fee for Trade Creates relating to Trade
Processing as follows:
------------------------------------------------------------------------
Proposed
Current fee changes to
Total par amount traded per month (par value fees (par
Millions/Mon.) value Millions/
Mon.)
------------------------------------------------------------------------
01-2,500,000,000........................ 2.00 2.36
2,500,000,001-7,500,000,000............. 1.58 1.86
7,500,000,001-12,500,000,000............ 1.39 1.64
12,500,000,001-300,000,000,000.......... 1.19 1.40
300,000,000,001 and over................ 1.16 1.37
------------------------------------------------------------------------
In addition, in the MBSD Rules Schedule of Charges Dealer Account
Group, FICC is proposing to revise the fees for (i) Trade Creates
relating to Trade-for-Trade Transactions, Specified Pool Trades, and
Stipulated Trades from $1.16/MM to $1.37/MM, and (ii) Trade Creates
relating to Options Trades from $1.00/MM to $1.18/MM.
FICC believes that the proposed increases to the above-described
fees for Trade Creates would be consistent with FICC's cost plus low-
margin pricing model and would enable FICC to offset the expected
decrease in MBSD revenue. As described above, FICC regularly reviews
pricing levels against its costs of operation typically during the
annual budget process. FICC determined during the 2023 annual budget
process that the proposed increase in the above-described fees for
Trade Creates would help better align costs to revenue and generate
sufficient revenues to cover its operating costs plus generate a low
net income margin (i.e., to be consistent with its cost plus low-margin
pricing model). As described above, due to the rising interest rate
environment, FICC anticipates that transaction volumes will continue to
decrease, and therefore, MBSD revenue will also continue to decrease in
2023. As such, FICC believes the proposed increases to the above-
described fees for Trade Creates would enable FICC to offset the
expected decrease in MBSD revenue, and enable FICC to continue to
generate sufficient revenues to cover its operating costs plus generate
a low net income margin.
(b) TBA Netting Balance Order (SBON)
In the Trade Processing section of the Schedule of Charges Dealer
Account Group in the MBSD Rules, there is also a TBA Netting Balance
Order (SBON) fee of $1.00/MM.\7\ The TBA Netting Balance Order (SBON)
fee is the fee for SBON Trades that are generated from the TBA Netting
System.\8\ Pursuant to MBSD Rule 6, Section 1, each Clearing Member's
SBO-Destined Trades in each Account in the TBA Netting System (other
than SBO-Destined Trades that have been converted to Trade-for-Trade
Transactions as provided in the MBSD Rules) will be netted by CUSIP on
a monthly basis, and the TBA Netting System will generate SBON
Trades.\9\
---------------------------------------------------------------------------
\7\ The term ``TBA'' or ``To-Be-Announced'' means a contract for
the purchase or sale of a mortgage-backed security to be delivered
at an agreed-upon future date because as of the transaction date,
the seller has not yet identified certain terms of the contract,
such as the pool number and number of pools, to the buyer. MBSD Rule
1, supra note 5.
\8\ The term ``SBO'' means the settlement balance orders that
constitute the net positions of a Clearing Member as a result of the
TBA Netting process. The resulting transactions from this TBA
Netting process are identified as SBON Trades. MBSD Rule 1, supra
note 5.
\9\ Supra note 5.
---------------------------------------------------------------------------
FICC is proposing to revise this trade processing fee from $1.00/MM
to $1.20/MM.
FICC believes that this proposed increase in the TBA Netting
Balance Order (SBON) fee would be consistent with FICC's cost plus low-
margin pricing model and enable FICC to offset the expected decrease in
MBSD revenue. As described above, FICC regularly reviews pricing levels
against its costs of operation typically during the annual budget
process. FICC determined during the 2023 annual budget process that the
proposed increase in the TBA Netting Balance Order (SBON) fee would
help better align costs to revenue and generate sufficient revenues to
cover its operating costs plus generate a low net income margin (i.e.,
to be consistent with its cost plus low-margin pricing model). As
described above, due to the rising interest rate environment, FICC
anticipates that transaction volumes for MBSD will continue to
decrease, and therefore, MBSD revenue will also continue to decrease in
2023. As such, FICC believes the proposed increase in the TBA Netting
Balance Order (SBON) fee would enable FICC to offset the expected
decrease in MBSD revenue, and enable FICC to continue to generate
sufficient revenues to cover its operating costs plus generate a low
net income margin.
(ii) DNA Request Fee
The Do Not Allocate (``DNA'') process is the process by which
Clearing Members that have two or more TBA Obligations with the same
Par Amount, CUSIP Number and established date in the settlement cycle,
may offset such transactions against one another.\10\ In order to
initiate the offset, Clearing Members are required to submit a request
(``DNA Request'') to MBSD. Upon FICC's receipt and verification of this
request, the Clearing Member's designated TBA Obligations will be
[[Page 80222]]
offset, and as a result, a Clearing Member's overall number of open TBA
Obligations will be reduced.\11\
---------------------------------------------------------------------------
\10\ MBSD Rule 7, Section 3, supra note 5.
\11\ Id.
---------------------------------------------------------------------------
FICC charges a fee in connection with a Clearing Member's request
to include eligible trades in the above-described DNA process (such
request is referred to as a ``DNA Request''). Currently, in the MBSD
Rules Schedule of Charges Dealer Account Group, the DNA Request fee is
listed as $1.25/MM.
FICC is proposing to revise this DNA Request fee from $1.25/MM to
$1.50/MM.
FICC believes that this proposed increase in the DNA Request fee
would be consistent with FICC's cost plus low-margin pricing model and
enable FICC to offset the expected decrease in MBSD revenues. As
described above, FICC regularly reviews pricing levels against its
costs of operation typically during the annual budget process. FICC
determined during the 2023 annual budget process that the proposed
increase in the DNA Request fee would help better align costs to
revenue and enable FICC to generate sufficient revenue to cover its
operating costs plus generate a low net income margin (i.e., to be
consistent with its cost plus low-margin pricing model). As described
above, due to the rising interest rate environment, FICC anticipates
that transaction volumes for MBSD will continue to decrease, and
therefore, MBSD revenue will also continue to decrease in 2023. As
such, FICC believes the proposed increase in the DNA Request fee would
enable FICC to offset the expected decrease in MBSD revenue, and enable
FICC to continue to generate sufficient revenues to cover its operating
costs plus generate a low net income margin.
(iii) Matched Pool Instruct Fee
Pursuant to MBSD Rule 8, Section 1, Pool Netting is a system for
aggregating and matching offsetting allocated pools submitted by
Clearing Members to satisfy: (i) settlement obligations associated with
Trade-for-Trade Transactions and (ii) settlement obligations resulting
from the TBA Netting system. Each Business Day, FICC will calculate and
report to each Clearing Member each Pool Net Settlement Position of
such Member. With respect to each such Pool Net Settlement Position,
FICC will report to the Member the extent to which the Member is
obligated to deliver Eligible Securities to FICC and/or to receive
Eligible Securities from FICC in accordance with each such Pool Net
Settlement Position.\12\
---------------------------------------------------------------------------
\12\ MBSD Rule 8, supra note 5.
---------------------------------------------------------------------------
In the Pool Netting fees section of the MBSD Rules Schedule of
Charges Dealer Account Group, there is a fee for Matched Pool Instructs
of $1.00 per side. The fee for Matched Pool Instructs is the fee for
pools that are submitted into Pool Netting.
FICC is proposing to increase this fee for Matched Pool Instructs
from $1.00 per side to $1.20 per side.
FICC believes that this proposed increase in the Matched Pool
Instruct fee would be consistent with FICC's cost plus low-margin
pricing model and enable FICC to offset the expected decrease in MBSD
revenue. As described above, FICC regularly reviews pricing levels
against its costs of operation typically during the annual budget
process. FICC determined during the 2023 annual budget process that the
proposed increase in the Matched Pool Instruct fee would help better
align costs to revenue and enable FICC to generate sufficient revenue
to cover its operating costs plus generate a low net income margin
(i.e., to be consistent with its cost plus low-margin pricing model).
As described above, due to the rising interest rate environment, FICC
anticipates that transaction volumes for MBSD will continue to
decrease, and therefore, MBSD revenue will also continue to decrease in
2023. As such, FICC believes the proposed increase in the Matched Pool
Instruct fee would enable FICC to offset the expected decrease in MBSD
revenue, and enable FICC to continue to generate sufficient revenues to
cover its operating costs plus generate a low net income margin.
(iv) Account Maintenance Fee
In the Account Maintenance fees section of the EPN Service Schedule
of Charges in the EPN Rules, the current fee for Direct Accounts is
$1,000.00 per month (per account). FICC is proposing to revise this
Account Maintenance fee for Direct Accounts from $1,000.00 per month
(per account) to $1,200.00 per month (per account). FICC has not
increased the Account Maintenance fee for Direct Accounts since
2014.\13\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 72305 (June 4,
2014), 79 FR 33244 (June 10, 2014) (SR-FICC-2014-03).
---------------------------------------------------------------------------
FICC believes that this proposed increase in the Account
Maintenance fee for Direct Accounts would be consistent with FICC's
cost plus low-margin pricing model and enable FICC to offset the
expected decrease in MBSD revenue. As described above, FICC regularly
reviews pricing levels against its costs of operation typically during
the annual budget process. FICC determined during the 2023 annual
budget process that the proposed increase in the Account Maintenance
fee would help better align costs to revenue and enable FICC to
generate sufficient revenue to cover its operating costs plus generate
a low net income margin (i.e., to be consistent with its cost plus low-
margin pricing model). As described above, FICC has not increased the
Account Maintenance fee for Direct Accounts since 2014, and this
proposed increase would enable FICC to offset the expected decrease in
MBSD revenue, and enable FICC to continue to generate sufficient
revenues to cover its operating costs plus generate a low net income
margin.\14\
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
(v) Message Processing Fees
FICC's electronic pool notification service (the ``EPN Service'')
provides Clearing Members and EPN Users with the ability to
electronically communicate pool information to other EPN Users or FICC.
In connection with the EPN Service, certain message processing fees
are charged. Specifically, there are fees for the following EPN message
types: (i) Notification Send, (ii) Notification Receive, (iii) Pool
Substitution Cancel/Correct. The Notification Send fee is a fee for
sending an EPN message type that provides MBS pool information and the
Notification Receive fee is the fee for receiving an EPN message type
that contains MBS pool information. Pool Substitution Cancel/Correct is
an EPN message type that supports the simultaneous ``cancel'' of
previously allocated pools and the ``correct'' notification of
substituted pools; this EPN message type provides Clearing Members and
EPN Users with a method of transmitting pool substitutions to their
allocation counterparties. FICC charges a fee for this EPN message
type.
FICC is also proposing to amend the ``Message Processing Fees'' in
the EPN Service Schedule of Charges in the EPN Rules as described
below:
[[Page 80223]]
------------------------------------------------------------------------
Proposed changes to
Message processing fees Current fees fees
------------------------------------------------------------------------
ON Send:
Opening of Business to $.19/million Current $.20/million Current
1:00 p.m. Face. Face.
1:00 p.m. to 2:00 p.m... $.95/million Current $1.00/million
Face. Current Face.
2:00 p.m. to 3:00 p.m... $1.90/million $2.00/million
Current Face. Current Face.
3:00 p.m. to Close of $1.58/million $1.67/million
Business. Current Face. Current Face.
ON Receive:
Opening of Business to $.51/million Current $.54/million Current
1:00 p.m. Face. Face.
1:00 p.m. to 2:00 p.m... $.26/million Current $.28/million Current
Face. Face.
2:00 p.m. to 3:00 p.m... $.26/million Current $.28/million Current
Face. Face.
Pool Substitution Cancel/
Correct
Cancel/Correct Send:
Open of Business up to $0.19/million $0.20/million
11:00 a.m. Current Face. Current Face.
11:00 a.m. up to 12:00 $0.95/million $1.00/million
p.m. Current Face. Current Face.
12:00 p.m. up to 12:15 $1.90/million $2.00/million
p.m. Current Face. Current Face.
12:15 p.m. to End of Day $0.19/million $0.20/million
Current Face. Current Face.
------------------------------------------------------------------------
FICC believes that the proposed increases in the above-described
Message Processing fees would be consistent with FICC's cost plus low-
margin pricing model and enable FICC to offset the expected decrease in
MBSD revenue. As described above, FICC regularly reviews pricing levels
against its costs of operation typically during the annual budget
process. FICC determined during the 2023 annual budget process that the
proposed increases in the Message Processing fees would help better
align costs to revenue and enable FICC to generate sufficient revenue
to cover its operating costs plus generate a low net income margin
(i.e., to be consistent with its cost plus low-margin pricing model).
As described above, due to the rising interest rate environment, FICC
anticipates that transaction volumes for MBSD will continue to
decrease, and therefore, MBSD revenue will also continue to decrease in
2023. As such, FICC believes the proposed increases in the Message
Processing fees would enable FICC to offset the expected decrease in
MBSD revenue, and enable FICC to continue to generate sufficient
revenues to cover its operating costs plus generate a low net income
margin.
(vi) Expected Member Impact
The proposed rule change is expected to increase FICC's annual
revenue by approximately $16.5 million.
In general, FICC anticipates that the proposal would result in fee
increases for all MBSD Clearing Members and EPN Users. FICC anticipates
that the proposal would result in a fee increase of (i) less than
$10,000 per year for approximately 53% of impacted affiliated MBSD
Clearing Members and EPN Users, (ii) between $10,000 and $100,000 for
approximately 30% of impacted affiliated MSBD Clearing Members and EPN
Users, and (iii) more than $100,000 for approximately 17% of impacted
affiliated MBSD Clearing Members and EPN Users.
(vii) Member Outreach
FICC has conducted ongoing outreach to each Clearing Member and EPN
User in order to provide them with notice of the proposed changes and
the anticipated impact for the Clearing Members and EPN Users. As of
the date of this filing, no written comments relating to the proposed
changes have been received in response to this outreach. The Commission
will be notified of any written comments received.
Implementation Timeframe
FICC would implement this proposal on January 1, 2023. As proposed,
a legend would be added to the Schedule of Charges Broker Account Group
in the MBSD Rules, the Schedule of Charges Dealer Account Group in the
MBSD Rules, and the EPN Service Schedule of Charges in the EPN Rules,
as appropriate, stating there are changes that became effective upon
filing with the Commission but have not yet been implemented. The
proposed legend would include the date on which such changes would be
implemented and the file number of this proposal, and state that once
this proposal is implemented, the legend would automatically be
removed.
2. Statutory Basis
Section 17A(b)(3)(D) of the Act requires that the rules of a
clearing agency, such as FICC, provide for the equitable allocation of
reasonable dues, fees, and other charges among its participants.\15\
FICC believes that the proposed changes to increase (i) certain Trade
Creates and Trade Processing fees, (ii) the DNA Request fee, (iii) the
Matched Pool Instruct fee, (iv) an Account Maintenance fee, and (v) the
Message Processing fees are consistent with this provision of the
Act.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78q-1(b)(3)(D).
\16\ Id.
---------------------------------------------------------------------------
FICC believes the proposed changes to increase (i) certain Trade
Creates and Trade Processing fees, (ii) the DNA Request fee, (iii) the
Matched Pool Instruct Fee, and (iv) the Message Processing fees, as
described above, are consistent with Section 17A(b)(3)(D).\17\ The
proposal would provide for the equitable allocation of fees among
participants because the proposal would apply to all participants, such
that all Clearing Members and EPN Users, as applicable, would be
subject to these proposed increases in these fees following the
implementation of the proposed changes. The above-described fees are
and would continue to be charged to all Clearing Members and EPN Users,
as applicable, and are and would continue to be based on each Clearing
Member's and each EPN User's utilization of MBSD's services.
Specifically, each Clearing Member and EPN User would be charged based
on the volume of transactions and/or messages submitted to MBSD.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
Similarly, FICC believes the above-described (i) Trade Create and
Trade Processing fees, (ii) DNA Request fee, (iii) Matched Pool
Instruct Fee, and (iv) Message Processing fees would continue to be
reasonable fees under the proposed changes described above. The
proposed changes to increase (i) certain Trade Creates and Trade
Processing fees, (ii) the DNA Request fee, (iii) the Matched Pool
Instruct Fee, and (iv) the Message Processing fees, as described above,
would be consistent with FICC's cost plus low-margin pricing model.
With the proposed changes to these fees, FICC believes it would still
be able to continue to generate sufficient revenues to cover its
operating costs plus generate a low net income margin. Furthermore, the
proposed changes to these fees
[[Page 80224]]
would enable FICC to offset the expected decrease in MBSD revenue
attributed to the long-term structural change due to the rising
interest rate environment. As described above, FICC expects the rising
interest rate environment to be a long-term structural change which
will continue to negatively impact MBSD revenue. Specifically, as a
result of the rising interest rate market, FICC expects the decrease in
transaction volumes for MBSD, and therefore, the decrease in revenues
for MBSD, to continue in 2023. As such, FICC believes the proposed
changes to increase (i) certain Trade Creates and Trade Processing
fees, (ii) the DNA Request fee, (iii) the Matched Pool Instruct Fee,
and (iv) the Message Processing fees would enable FICC to offset the
above-described expected decrease in MBSD revenue due to the expected
decrease in transaction volumes for MBSD because of rising interest
rate environment.
FICC also believes the proposed change to increase the Account
Maintenance fee for Direct Accounts is consistent with Section
17A(b)(3)(D) of the Act.\18\ The proposal would provide for the
equitable allocation of fees among participants because the proposal
would apply to all participants, such that all Clearing Members and EPN
Users with Direct Accounts would be subject to the proposed increase in
the Account Maintenance fee for Direct Accounts.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
In addition, FICC believes the Account Maintenance fee for Direct
Accounts would continue to be a reasonable fee under the proposed
change described above. The proposed change to increase the Account
Maintenance fee for Direct Accounts would be consistent with FICC's
cost plus low-margin pricing model, and as described above, FICC has
not increased this fee since 2014. With the proposed change to this
fee, FICC believes it would still be able to continue to generate
sufficient revenues to cover its operating costs plus generate a low
net income margin. FICC believes the proposed increase in the Account
Maintenance fee for Direct Accounts would enable FICC to offset the
expected decrease in MBSD revenue due to the expected decrease in
transaction volumes for MBSD because of the rising interest rate
environment.
Based on the foregoing, FICC believes the proposed rule change is
consistent with Section 17A(b)(3)(D) of the Act.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed changes to increase (i) certain
Trade Creates and Trade Processing fees, (ii) the DNA Request fee,
(iii) the Matched Pool Instruct fee, (iv) an Account Maintenance fee,
and (v) the Message Processing fees may impose a burden on competition.
However, FICC believes any burden on competition that may result from
the proposed fee increases would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\20\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
FICC believes the proposed changes to increase (i) certain Trade
Creates and Trade Processing fees, (ii) the DNA Request fee, (iii) the
Matched Pool Instruct fee, (iv) an Account Maintenance fee, and (v) the
Message Processing fees are necessary because these proposed fee
increases would provide FICC with the ability to achieve and maintain
its net income margin. In addition, FICC believes these proposed fee
increases are appropriate because these proposed fee increases would
enable FICC to offset the expected decrease in revenue in MBSD due to
the expected decrease in transaction volumes for MBSD because of the
rising interest rate environment (which FICC believes is a long-term
structural change).
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC reviewed the proposed rule change with Clearing Members and
EPN Users. FICC has not received any written comments relating to this
proposal. If any additional 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
SEC's Division of Trading and Markets at <a href="/cdn-cgi/l/email-protection#186c6a797c71767f79767c75796a737d6c6b586b7d7b367f776e"><span class="__cf_email__" data-cfemail="26525447424f48414748424b47544d4352556655434508414950">[email protected]</span></a> or
202-551-5777.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \21\ of the Act and paragraph (f) \22\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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#2b595e474e06484446464e455f586b584e48054c445d"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
File Number SR-FICC-2022-009 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-2022-009. 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
[[Page 80225]]
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-2022-009 and should be
submitted on or before January 19, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28304 Filed 12-28-22; 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 December 29, 2022.
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.