Notice2024-02520
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Clarify How FICC Applies the Minimum Charge
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
February 8, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 27 (Thursday, February 8, 2024)</title>
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[Federal Register Volume 89, Number 27 (Thursday, February 8, 2024)]
[Notices]
[Pages 8730-8732]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-02520]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99462; File No. SR-FICC-2024-002]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Clarify How FICC Applies the Minimum Charge
February 2, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 25, 2024, 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)(4) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to the FICC
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD
Rules'') to clarify how FICC applies the Minimum Charge (as defined
below) at MBSD, as well as make certain technical changes, as described
in greater detail below.\5\
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\5\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the MBSD Rules, available at
<a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">www.dtcc.com/legal/rules-and-procedures.aspx</a>.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
FICC is proposing changes that would clarify the disclosures in the
MBSD Rules related to FICC's application of Minimum Charge at MBSD.
Background
As part of its market risk management strategy, FICC manages its
credit exposure to Clearing Members by determining the appropriate
Required Fund Deposit to the Clearing Fund and monitoring its
sufficiency, as provided for in the MBSD Rules.\6\ The Required Fund
Deposit serves as each Clearing Member's margin. The objective of a
Clearing Member's Required Fund Deposit is to mitigate potential losses
to FICC associated with liquidation of a Clearing Member's portfolio in
the event FICC ceases to act for that Clearing Member (hereinafter
referred to as a ``default'').\7\ The aggregate of all Clearing
Member's Required Fund Deposits, together with certain other deposits
required under the MBSD Rules, constitutes the Clearing Fund, which
FICC would access, among other instances, should a defaulting Clearing
Member's own Clearing Fund deposit be insufficient to satisfy losses to
FICC caused by the liquidation of that Clearing Member's portfolio.
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\6\ See MBSD Rule 4 (Clearing Fund and Loss Allocation), supra
note 5. FICC's market risk management strategy is designed to comply
with Rule 17Ad-22(e)(4) under the Act, where these risks are
referred to as ``credit risks.'' 17 CFR 240.17Ad-22(e)(4).
\7\ See MBSD Rule 17 (Procedures for When the Corporation Ceases
to Act), supra note 5.
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Pursuant to the MBSD Rules, each Clearing Member's Required Fund
Deposit amount consists of a number of
[[Page 8731]]
applicable components, each of which is designed to address specific
risks faced by FICC, as identified within MBSD Rule 4.\8\ Specifically,
MBSD Rule 4, Section 2(b) currently states that each Clearing Member's
Required Fund Deposit amount consists of the greater of (i) the Minimum
Charge \9\ or (ii) the sum of the following components: the VaR Charge,
the six days' interest for Fails item, a special charge (to the extent
determined by FICC to be appropriate),\10\ and, if applicable, the
Backtesting Charge, Holiday Charge, Intraday Mark-to-Market Charge,
Intraday VaR Charge, and the Margin Liquidity Adjustment Charge.
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\8\ MBSD Rule 4. Supra note 5.
\9\ Section 2(b) of MBSD Rule 4 provides the Minimum Charge for
each margin portfolio of a Clearing Member shall be no less than
$100,000, and the Minimum Charge for each margin portfolio of an
Unregistered Investment Pool Clearing Member shall be no less than
$1 million.
\10\ In order to mitigate exposure from certain market
conditions and other financial and operational capabilities of a
Clearing Member, FICC may impose a special charge.
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Some of these components are calculated at the margin portfolio
level while other components are calculated at the member level. In
particular, the Minimum Charge, the VaR Charge and the six days'
interest for Fails item are calculated for each margin portfolio of a
Clearing Member, while the special charge and, if applicable, the
Backtesting Charge, Holiday Charge, Intraday Mark-to-Market Charge,
Intraday VaR Charge, and the Margin Liquidity Adjustment Charge are
assessed with respect to each Clearing Member.
Given that these components are calculated at varying levels, i.e.,
margin portfolio level vs. member level, FICC currently follows a two-
step process when determining the Required Fund Deposit amount for a
Clearing Member. Specifically, when calculating the Required Fund
Deposit amount for a Clearing Member, FICC first assesses the
applicable charge with respect to each and every margin portfolio of
the Clearing Member. FICC determines whether or not to apply the
Minimum Charge to the margin portfolio by comparing (i) the relevant
Minimum Charge for the margin portfolio with (ii) the sum of the VaR
Charge and the six days' interest for Fails item of the margin
portfolio. FICC only applies the Minimum Charge as the applicable
charge for a margin portfolio when the Minimum Charge for the margin
portfolio exceeds the sum of the VaR Charge and the six days' interest
for Fails item of the margin portfolio, otherwise FICC uses the sum of
the VaR Charge and the six days' interest for Fails item of the margin
portfolio as the applicable charge for the margin portfolio.
After FICC assesses the applicable charge with respect to each and
every margin portfolio of the Clearing Member, FICC aggregates these
charges and add the components that are calculated at the member level,
i.e., special charge, if any, and, if applicable, the Backtesting
Charge, Holiday Charge, Intraday Mark-to-Market Charge, Intraday VaR
Charge, and the Margin Liquidity Adjustment Charge, to determine the
Required Fund Deposit amount of the Clearing Member.
Proposed Rule Changes
In order to better reflect FICC's current process in determining
the Required Fund Deposit amount of a Clearing Member, particularly
with respect to FICC's application of Minimum Charge, FICC is proposing
the following clarifying rule changes.
Specifically, FICC is proposing to revise the Minimum Margin
definition in the MBSD Rule 1 (Definitions) to state the term ``Minimum
Charge'' means the minimum amount of required deposit to the Clearing
Fund with respect to each margin portfolio of a Clearing Member. FICC
is proposing this change to make it clearer that the Minimum Margin is
determined with respect to each and every margin portfolio of a
Clearing Member.
FICC is also proposing to modify the definition of the Required
Fund Deposit in MBSD Rule 1 to make it clearer that Required Fund
Deposit means the amount of each Clearing Member's required deposit to
the Clearing Fund as determined by the FICC pursuant to Section 2 of
Rule 4 and other applicable Rules.
In addition, FICC is proposing to revise Section 2 of MBSD Rule 4
(Clearing Fund and Loss Allocation) to more clearly delineate
components that are calculated at the margin portfolio level versus
those that are calculated at the member level when determining the
Required Fund Deposit amount of each Clearing Member. Furthermore, FICC
is proposing language to clarify that, when determining the amount of
Required Fund Deposit with respect to each margin portfolio of a
Clearing Member, FICC would use an amount equal to the greater of (i)
the Minimum Charge and (ii) the sum of the VaR Charge and the six days'
interest for Fails item of the margin portfolio.
To further enhance the clarity of MBSD Rules, FICC is also
proposing a number of technical changes and one conforming change.
These proposed rule changes are intended to better reflect FICC's
current process in determining the Required Fund Deposit amount of a
Clearing Member but would not change the Required Fund Deposit amount
of the Clearing Member or the methodology used to calculate the
Required Fund Deposit.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the MBSD
Rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions.\11\ FICC believes the proposed
clarifying and technical changes to the MBSD Rules would allow FICC to
help promote prompt and accurate clearance and settlement of securities
transactions. This is because the proposed changes to the MBSD Rules
would clarify and improve the transparency of the MBSD Rules. Enhancing
the clarity and transparency of the MBSD Rules would help Clearing
Members to better understand their rights and obligations regarding
FICC's clearance and settlement services. FICC believes that when
Clearing Members better understand their rights and obligations
regarding FICC's clearance and settlement services, they can act in
accordance with the MBSD Rules. FICC believes that better enabling
Clearing Members to comply with the MBSD Rules would promote the prompt
and accurate clearance and settlement of securities transactions by
FICC. As such, FICC believes the proposed clarifying and technical
changes are consistent with Section 17A(b)(3)(F) of the Act.\12\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe the proposed rule changes would have any
impact on competition. The proposed rule changes would enhance the MBSD
Rules by providing additional clarity and transparency, particularly
regarding disclosures related to FICC's application of Minimum Charge
at MBSD. The proposed rule changes would not advantage or disadvantage
any particular Clearing Member of FICC or unfairly inhibit access to
FICC's services. FICC therefore does not believe these proposed changes
would have any impact, or impose any burden, on competition.
[[Page 8732]]
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any 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="http://www.sec.gov/regulatory-actions/how-to-submit-comments">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#087c7a696c61666f69666c65697a636d7c7b487b6d6b266f677e"><span class="__cf_email__" data-cfemail="c6b2b4a7a2afa8a1a7a8a2aba7b4ada3b2b586b5a3a5e8a1a9b0">[email protected]</span></a> or 202-551-5777.
FICC reserves the right not to respond to any comments received.
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) \13\ of the Act and paragraph (f) \14\ 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.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f).
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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">www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2c5e594049014f4341414942585f6c5f494f024b435a"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include
File Number SR-FICC-2024-002 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-2024-002. 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">www.sec.gov/rules/sro.shtml</a>). Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(<a href="http://www.dtcc.com/legal/sec-rule-filings.aspx">www.dtcc.com/legal/sec-rule-filings.aspx</a>). Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-FICC-2024-002 and should be submitted on or
before February 29, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02520 Filed 2-7-24; 8:45 am]
BILLING CODE 8011-01-P
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