Notice2024-06446
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, To Modify the GSD Rules To Facilitate Access to Clearance and Settlement Services of All Eligible Secondary Market Transactions in U.S. Treasury Securities
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
March 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 60 (Wednesday, March 27, 2024)</title>
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[Federal Register Volume 89, Number 60 (Wednesday, March 27, 2024)]
[Notices]
[Pages 21362-21378]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06446]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99817; File No. SR-FICC-2024-005]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change, as Modified by Partial
Amendment No. 1, To Modify the GSD Rules To Facilitate Access to
Clearance and Settlement Services of All Eligible Secondary Market
Transactions in U.S. Treasury Securities
March 21, 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 March 11, 2024, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-FICC-2024-005. On March 19, 2024, FICC filed Partial
Amendment No. 1 to make clarifications and corrections to the proposed
rule change.\3\ The proposed rule change, as modified by Partial
Amendment No. 1, is described in Items I, II and III below, which Items
have been prepared primarily by the clearing agency. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Partial Amendment No. 1 made clarifications and corrections
to the description of the proposed rule change and Exhibit 5.
Specifically, as originally filed, the description of the proposed
rule change made a reference to an incorrect section of the GSD
Rules. Partial Amendment No. 1 corrects that reference.
Additionally, as originally filed, the description of the proposed
rule change and Exhibit 5 contained inconsistent references
regarding whether FICC or its Board would be responsible for
approving membership applications and related membership matters.
Partial Amendment No. 1 clarifies and corrects those references.
These clarifications and corrections have been incorporated, as
appropriate, into the description of the proposed rule change in
Item II below and Exhibit 5.
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[[Page 21363]]
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
Government Securities Division (``GSD'') Rulebook (``Rules'') \4\ to
(1) re-name GSD's correspondent clearing/prime broker services as the
Agent Clearing Service and adopt provisions that are common in agent
clearing models; (2) update the qualifications for certain membership
categories and rules governing the operation of GSD's access models;
and (3) improve the transparency and clarity of the Rules in describing
the types of memberships available to legal entities that want to
access GSD's central clearing services and the different ways both
Members and, indirectly, legal entities that are not Members can access
those services, as described below.
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\4\ Terms not defined herein are defined in the Rules, available
at www.dtcc.com/~/media/Files/Downloads/legal/rules/
ficc_gov_rules.pdf.
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These proposed rule changes are primarily designed to ensure that
FICC has appropriate means to facilitate access to clearance and
settlement services of all eligible secondary market transactions in
U.S. Treasury securities in accordance with the requirements of Rule
17Ad-22(e)(18)(iv)(C) under the Act,\5\ as described below.
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\5\ 17 CFR 240.17Ad-22(e)(18)(iv)(C). See Securities Exchange
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024)
(``Adopting Release'', and the rules adopted therein referred to
herein as ``Treasury Clearing Rules''). FICC must implement the new
requirements of Rule 17Ad-22(e)(18)(iv)(C) by March 31, 2025. FICC
will file separate proposed rule changes to address other
requirements applicable to it and adopted as part of the Treasury
Clearing Rules.
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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
Executive Summary
FICC is proposing rule changes designed to facilitate access to
clearance and settlement services of all eligible secondary market
transactions in U.S. Treasury securities in accordance with recent
amendments to the standards for clearing agencies set forth in Rule
17Ad-22(e) under the Act.\6\
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\6\ 17 CFR 240.17Ad-22(e).
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On December 13, 2023, the Commission adopted amendments to the
standards applicable to covered clearing agencies, like FICC, that
require such clearing agencies to have written policies and procedures
reasonably designed to, among other things, ensure that it has
appropriate means to facilitate access to clearance and settlement
services of all eligible secondary market transactions in U.S. Treasury
securities, including those of indirect participants.\7\
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\7\ Supra note 5.
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FICC developed the proposed rule changes following a review of its
existing direct and indirect participation models. That review examined
whether FICC's models provide market participants with access to FICC's
clearance and settlement services in as flexible a means as possible,
consistent with FICC's responsibility to provide sound risk management
and comply with its regulatory risk management obligations under Rule
17Ad-22(e) and other parts of the Act.\8\ Among other things, FICC
considered whether FICC's existing policies and procedures treat
transactions differently based on the identity of the participant
submitting the transaction, the fact that an indirect participant is a
party to the transaction, the method of execution of a transaction, and
other factors, and whether any such variation of treatment was
necessary and appropriate in light of FICC's regulatory risk management
obligations.\9\
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\8\ Such regulatory risk management obligations are generally
set forth in Rule 17Ad-22(e). 17 CFR 240.17Ad-22(e).
\9\ 17 CFR 240.17Ad-22(e).
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As part of this review, FICC consulted with a wide range of
stakeholders, including indirect participants, to ensure that FICC
considered a sufficiently broad set of perspectives.\10\ These
consultations included one-on-one conversations with existing direct
participants and indirect participants, industry associations
representing buy- and sell-side market participants, and market
participants that were considering becoming but had not yet become
participants of FICC. Another aspect of this consultation was a survey
conducted during the first half of 2023.\11\
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\10\ See also page 168 of the Adopting Release, available at
<a href="https://www.sec.gov/files/rules/final/2023/34-99149.pdf">https://www.sec.gov/files/rules/final/2023/34-99149.pdf</a> (``To ensure
that it considers a sufficiently broad set of perspectives, the U.S.
Treasury securities CCA generally should consult with a wide-range
of stakeholders, including indirect participants, as it seeks to
comply with proposed rule 17ad-22(e)(18)(iv)(C).'').
\11\ FICC discussed this survey and the key findings in a paper,
available at <a href="https://www.dtcc.com/-/media/Files/Downloads/WhitePapers/Accessing-Potential-Expansion-US-Treasury-Clearing-White-Paper.pdf">https://www.dtcc.com/-/media/Files/Downloads/WhitePapers/Accessing-Potential-Expansion-US-Treasury-Clearing-White-Paper.pdf</a>.
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One of the key findings of this outreach was that FICC's existing
participation models are not broadly understood among market
participants, and a majority of current Members are unsure which of the
available access models they prefer to use for indirect participant
activity. In addition, FICC identified that certain instances where it
treated transactions differently based on the identity of the
participant submitting the transaction or the identity of the
participant party to the transaction were not necessary to ensure sound
risk management and comply with its regulatory risk management
obligations. Based on the results of its review of its access models,
FICC has concluded that certain changes to the Rules would facilitate
greater access to clearance and settlement of secondary market
transactions in U.S. Treasury transactions, including by indirect
participants.
First, as noted above, FICC's review found that many market
participants are not familiar with the correspondent clearing/prime
broker services. In particular, FICC found that market participants
were not aware of the similarities between the services and other agent
clearing models, such as those through which market participants in the
cleared derivatives markets can execute commodity derivatives with
third parties and then give them up to their futures commission
merchant (``FCM'') for clearing. Market participants also did not
appear to understand the agent clearing services as a workable ``done
away'' model that allows indirect participants to access clearing
through multiple direct participants.
Therefore, FICC is proposing to provide clarity by, among other
things, re-naming its correspondent clearing/prime brokerage services
as a single ``Agent Clearing Service'' and deleting and replacing the
current provisions in Rule 8 with a rule that elaborates on the
functioning and requirements of the agent clearing service. FICC
believes that these changes, described in greater detail below, will
allow Netting Members and their customers to recognize the similarities
between FICC's indirect access model and FCM agent clearing models and
to identify the agent clearing service as a workable ``done away''
model.
[[Page 21364]]
Second, FICC has concluded that certain modifications to its
membership criteria would facilitate open access and ensure that any
variation in the Rules' treatment of transactions or members is indeed
necessary and appropriate to meet the minimum standards regarding
operations, governance, and risk management set forth in the SEC's
regulations and the Act. These proposed rule changes would update
certain qualifications for GSD's membership categories. Currently, FICC
imposes a number of qualification requirements that, based upon its
review, may not be necessary or appropriate to ensure compliance with
applicable requirements under the Act. In particular, banks wishing to
become Sponsoring Members are categorized as Category 1 Sponsoring
Members and must meet certain capitalization requirements, while other
Netting Members wishing to be Sponsoring Members are categorized as
Category 2 Sponsoring Members and are subject to financial requirements
based on FICC's assessment of the Sponsoring Member's anticipated
activity and risk. Additionally, in order to be a Sponsored Member, a
firm must currently be a ``qualified institutional buyer'' as such term
is defined by Rule 144A under the Securities Act of 1933 or satisfy the
financial requirements necessary to be a qualified institution
buyer.\12\ Based upon its review and general experience with the growth
of the sponsored membership service \13\ since the current tiered
membership qualifications were first instituted, FICC has determined
that such requirements are no longer relevant or appropriate for the
purposes of facilitating access to clearance and settlement
transactions of all eligible secondary market transactions in U.S.
Treasury securities, including those of indirect participants.
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\12\ 17 CFR 230.144A.
\13\ See Rule 3A, supra note 4. The service described in Rule 3A
is referred to herein as the ``Sponsored Service''.
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FICC's proposed rule changes would aim to address these issues by
eliminating the two categories of Sponsoring Members, applying the
qualifications applicable to the current Category 2 Sponsoring Members
to all Sponsoring Members, and removing the requirement that Sponsored
Members either be qualified institutional buyers or satisfy the
financial requirements of such definition. FICC believes that these
changes would eliminate differential treatment of categories of
indirect participants and direct participants that are not necessary
for risk management or other regulatory purposes, and otherwise act as
a limitation upon participants' access to GSD's central clearing
services. These changes would thus enable access to FICC's clearing and
settlement services for a variety of direct and indirect participants
who may not currently be able to access those services. These changes
would also facilitate greater understanding of FICC's membership
qualifications and thereby support FICC's continued maintenance of
objective, risk-based and publicly disclosed participation criteria.
Lastly, FICC has determined that providing a public road map of
access models and simplifying certain definitions would allow both buy-
and sell-side market participants to understand those models and
thereby allow them to consider how to offer and price those models so
as to ensure indirect participants can access central clearing. These
proposed rule changes aim to achieve these goals. In particular FICC is
proposing to amend the Rules to (a) provide a public road map of the
different models for accessing the GSD services that are available to
both Members and, indirectly, their customers; and (b) simplify the
definitions of the different types of membership and other related
definitions. FICC believes these clarifications would enhance the
ability of market participants to understand the GSD access models that
are available, thereby allowing them to determine how to offer and
price FICC's currently available models to ensure that indirect
participants can access central clearing.
Background
FICC, through GSD, serves as a central counterparty and provides
real-time trade matching, clearing, risk management and netting for
cash purchases and sales of U.S. Treasury securities as well as
repurchase and reverse repurchase transactions involving U.S. Treasury
securities (``repos'').\14\ GSD's central counterparty services are
available directly to entities that are approved to be Netting Members
and indirectly to other market participants through its indirect access
models--the Sponsored Service \15\ or correspondent clearing/prime
broker services.\16\
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\14\ GSD also clears and settles certain transactions on
securities issued or guaranteed by U.S. government agencies and
government sponsored enterprises.
\15\ See Rule 3A, supra note 4.
\16\ See Rule 2 (Members) (providing that FICC shall make its
services available to entities that are approved to be Members of
GSD); Rule 3A (Sponsoring Members and Sponsored Members) (describing
the Sponsored Service) and Rule 8 (Executing Firm Trades) (currently
describing the correspondent clearing/prime broker services), supra
note 4.
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Currently, there are different Netting Member application
categories based upon the type of legal entity (i.e., Bank Netting
Member, Dealer Netting Member, Inter-Dealer Broker Netting Member) and
whether an entity is incorporated in the United States or not (i.e., a
Foreign Netting Member). Netting Member applicants must meet both
financial and operational minimum eligibility requirements \17\ and, as
Members of GSD, must adhere to ongoing minimum membership
standards.\18\ Furthermore, both the minimum eligibility requirements
and ongoing standards vary depending on the relevant Netting Membership
category. However, in general, all Netting Member categories may access
the services available through GSD's Comparison System \19\ and Netting
System.\20\
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\17\ See Rule 2A, supra note 4.
\18\ See Rule 3, supra note 4.
\19\ See Rule 5, supra note 4. GSD also has a limited membership
that permits Comparison-Only Members to participate only in its
Comparison System. FICC does not act as a central counterparty for
activity processed through its Comparison System and the services
offered through its Comparison System are not guaranteed by FICC.
\20\ See Rule 11, supra note 4.
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Market participants may also access GSD's clearing services
indirectly through a Netting Member. There are currently two indirect
participation models to facilitate this--the Sponsored Service \21\ and
the correspondent clearing/prime broker services.\22\ Each of these
indirect participation models gives market participants different
options to consider in accessing FICC's clearance and settlement
services, and the benefits of its central counterparty guaranty,
multilateral netting and centralized default management. However, the
primary difference between the two models is that an indirect
participant who becomes a Sponsored Member must establish an indirect,
limited purpose membership with FICC, whereas the correspondent
clearing/prime broker services do not require an indirect member to
establish any relationship with FICC.
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\21\ See Rule 3A, supra note 4.
\22\ See Rule 8, supra note 4.
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The Sponsored Service permits Netting Members, approved by FICC as
``Sponsoring Members,'' to sponsor certain institutional firms,
referred to as ``Sponsored Members'', into GSD membership.\23\ The
Sponsoring Member is permitted to submit to FICC for
[[Page 21365]]
comparison, novation and netting certain types of eligible transactions
either between itself and its Sponsored Members (i.e., ``done with''),
or between the Sponsored Members and other third-party Netting Members
(i.e., ``done away''). For operational and administrative purposes, a
Sponsored Member appoints its Sponsoring Member to act as processing
agent with respect to the Sponsored Member's satisfaction of its
securities and funds-only settlement obligations.
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\23\ See Rule 3A, supra note 4. An entity that chooses to become
a Sponsoring Member still retains its status as a Netting Member and
can continue to submit any non-Sponsored Member activity to FICC as
such.
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A Sponsored Member is a GSD member and the legal counterparty to
FICC for any submitted transactions. However, the Sponsoring Member
unconditionally guarantees to FICC the Sponsored Member's performance
under a Sponsoring Member Guaranty, which guarantees to FICC the
payment and performance of a Sponsored Member's obligations to FICC.
Therefore, FICC relies on the financial resources of the Sponsoring
Member in relying upon the Sponsoring Member Guaranty. If a Sponsoring
Member fails to perform under the Sponsoring Member Guaranty, FICC may
cease to act for the Sponsoring Member both as a Sponsoring Member as
well as a Netting Member.
Netting Members may also submit to FICC eligible activity on behalf
of their customers through the correspondent clearing/prime broker
services. Here, the Netting Member is referred to as the ``Submitting
Member'' and the customer is referred to as the ``Executing Firm''.\24\
Unlike the Sponsored Service, FICC has no relationship with the
Executing Firm and all obligations (i.e., margin and settlement) under
the Rules remain with the Submitting Member. Executing Firms may
execute trades with any Netting Member, including their submitting
Netting Member, or a customer of any other Netting Member in clearing.
In addition, Submitting Members have the option of either netting
Executing Firm activity with other activity they submit to FICC (i.e.,
Submitting Member proprietary activity) or segregating Executing Firm
activity in separate accounts. In all cases, however, the Submitting
Member must identify the relevant Executing Firm(s) on the FICC
transaction submission file.
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\24\ See Rule 8, supra note 4. There are no operational
differences between the current correspondent clearing service and
the prime broker service. FICC provides a report to prime brokers
that identifies margin calculation for their customers transactions
and does not provide such report to Members using the correspondent
clearing service. FICC would provide consistent reporting to all
Agent Clearing Members under the proposal.
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Summary of Proposed Rule Changes
First, FICC is proposing to re-name GSD's existing correspondent
clearing/prime broker services as the Agent Clearing Service, which
would continue to allow Netting Members to submit, on behalf of their
customers, transactions to FICC for novation. As such, this proposal
would provide that for a Netting Member to continue to offer its
customers access to GSD's services via the current correspondent
clearing/prime broker services, it must apply to use the Agent Clearing
Service by becoming an Agent Clearing Member.
This proposed change would improve the transparency of the Rules
regarding the availability of this service to both Netting Members and,
indirectly, their customers. This proposed change would enhance the
ability of indirect participants to identify the correspondent
clearing/prime broker services as a workable ``done away'' model that
allows indirect participants to access clearing through multiple direct
participants. Under these proposed rule changes, FICC would require
Netting Members (in their new capacity as Agent Clearing Members) to
process and record their customers' activity in separate ``Agent
Clearing Member Omnibus Accounts'' to facilitate FICC's ability to
monitor and, ultimately, risk manage that activity appropriately. These
proposed changes would also provide that a Netting Member must apply to
use the Agent Clearing Service and, as an Agent Clearing Member, shall
be required, pursuant to the existing ongoing membership requirements
in the Rules, to provide FICC with information regarding the customers
for which it is acting. This information sharing would allow FICC to
better identify and manage the risks posed by these indirect
participants and would support FICC's compliance with the requirements
of Rule 17Ad-22(e)(18)(iii) under the Act to monitor compliance with
its participation requirements on an ongoing basis.\25\
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\25\ 17 CFR 240.17Ad-22(e)(18)(iii).
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Second, the proposed rule changes would update certain
qualifications for GSD's membership categories. These proposed rule
changes would (a) eliminate the two Sponsoring Member categories and
apply to all Sponsoring Members the qualifications applicable to the
current Category 2 Sponsoring Members; (b) remove the requirement that
Sponsored Members either be ``qualified institutional buyers'' as such
term is defined by Rule 144A under the Securities Act of 1933,\26\ or
satisfy the financial requirements of such definition; (c) clarify the
eligibility criteria for non-U.S. Netting Member applicants; and (d)
describe how FICC may consider Netting Member applicants that do not
qualify under an existing Netting Member category. These proposed
changes would support FICC's continued maintenance of objective, risk-
based and publicly disclosed participation criteria and, therefore,
facilitate open access to GSD's clearing services. The proposed rule
changes would also improve the clarity of the Rules regarding the ways
Members can access its services, while updating certain qualifications
for membership.
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\26\ 17 CFR 230.144A.
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Third, FICC is proposing to further disclose to the public, through
the Rules, the criteria and related requirements for how both Members
and, indirectly, legal entities that are not Members, can access GSD's
clearing services. These proposed rule changes would simplify and,
therefore, clarify the criteria and related descriptions of the
different models for accessing GSD's services by (a) providing to both
Members and, indirectly, their customers a public road map of the
different membership types, Netting Member categories and models for
accessing GSD's services; and (b) simplifying the definitions of the
different types of membership and other related definitions, and
clarifying the eligibility criteria for different categories of Netting
Members. These simplifications and clarifications, in turn, should
enhance the ability of market participants, and in particular indirect
participants, to understand and evaluate the comparative tradeoffs of
using GSD's central clearing services depending on the relevant access
model.
Finally, the proposed rule changes would make other technical
corrections and updates to the Rules, as described below.
Description of Proposed Rule Changes
1. Re-Name the Correspondent Clearing/Prime Broker Services as the
Agent Clearing Service
The proposed rule changes would re-name and consolidate the
existing correspondent clearing/prime broker services into a single
Agent Clearing Service and adopt additional provisions governing the
use of this service. The proposed changes would provide market
participants with an understanding of the operation of this service,
the rights and obligations of the
[[Page 21366]]
firms that access the GSD facilities through this participation model,
and how this service otherwise replaces and continues the access and
functions currently available under the correspondent clearing/prime
services. To these ends, the proposed rule changes would primarily
amend Rule 8, which currently describes the correspondent clearing/
prime broker services, to describe the Agent Clearing Service with more
specificity. This new terminology and specificity are intended to
demonstrate how this particular GSD access model operates similarly to
the way market participants in the cleared derivatives markets can
execute derivatives with third parties and then give them up to their
FCM for clearing. Thus, the proposed changes to Rule 8 described herein
are designed to be comparable to the terms of FCM-style agent clearing
models.\27\
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\27\ Many of the provisions that are being proposed to be added
to Rule 8 are similar to provisions recently adopted to Rule 2D
(Agent Clearing Members) of the Rules & Procedures of FICC's
affiliate, National Securities Clearing Corporation (``NSCC''),
available at <a href="https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf">https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf</a>. In developing the agent clearing model, NSCC
solicited input from market participants, including agent lenders,
brokers, institutional firms, and critical third parties, such as
matching service providers and books and records service providers.
See id.
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As described above, the existing correspondent clearing/prime
broker services permit Submitting Members to submit activity to FICC
for clearing on behalf of their customers, the Executing Firms. To do
this, a Submitting Member must establish a relationship with one or
more Executing Firms and provide FICC with notice of each customer
confirming the Executing Firm relationship. However, in contrast with
the Sponsored Service, FICC has no relationship with the Executing
Firms.
Submitting Members are not currently required to, but can,
segregate the Executing Firm activity in their submissions to FICC. In
all instances, Submitting Members are responsible to FICC for all
obligations, financial or otherwise, for that Executing Firm activity.
While both Executing Firm activity and other Submitting Member activity
(i.e., Submitting Member proprietary activity) are generally processed
in the same manner by FICC, Executing Member trade data must include an
executing firm symbol for identification purposes.
While the proposed rule changes would change the terms used and
otherwise enhance FICC's disclosures regarding the operation of the
historical correspondent clearing/prime broker access models, most of
the changes entailed by the shift to a single Agent Clearing Service
would not alter in practice how Netting Members and their customers use
this model to access GSD's services. Like the correspondent clearing/
prime broker models, the Agent Clearing Service would the continue
prior models' facilitation of agent-style trading by allowing Netting
Members, which would be referred to in the Rules as ``Agent Clearing
Members'' for this purpose, to act as processing agent and credit
intermediary for their customers in clearing, to be referred to as
``Executing Firm Customers'' under the proposed changes.
As described below, the proposal also entails changes that would
provide FICC with the ability to monitor activity submitted through
this indirect access model, thereby managing the risks that this
activity could present to FICC and the GSD membership. For example, as
described in greater detail below, FICC would require that Netting
Members (including Netting Members who are Submitting Members today)
submit an application to become Agent Clearing Members and provide
additional information regarding each Executing Firm Customer beyond
what is required for Executing Firms today, such as a Legal Entity
Identifier (``LEI''). Agent Clearing Members would also be required to
submit activity on behalf of their customers through separate Agent
Clearing Member Omnibus Accounts, as opposed to the optional segregated
submission approach provided for today. For both initial and ongoing
membership purposes, the proposal would require Agent Clearing Members
to provide FICC with information related to their use of the Agent
Clearing Service, as may be requested by FICC from time to time, as
described in greater detail below.
a. Rule 8--Agent Clearing Service
Rule 8 currently describes the correspondent clearing/prime broker
services at a high level. The proposed rule changes would delete and
replace Rule 8 with a more detailed description of the correspondent
clearing/prime broker services as a single Agent Clearing Service.
These proposed changes would provide Netting Members and other market
participants with a clearer description of the operation of this
service and a better understanding of the availability of this indirect
access model, as described below.
(i) Section 1--General
The proposed changes to Section 1 of Rule 8 would provide a general
overview of the purpose and availability of the Agent Clearing Service.
The proposed rule changes would update the information currently in
Section 1 of Rule 8 to replace updated defined terms and to correctly
identify the Members and other parties who can participate in this
indirect model (i.e., replace ``Submitting Member'' with ``Agent
Clearing Member'').
(ii) Section 2--Agent Clearing Member Qualifications and Application
Process
Section 2 would provide that a Netting Member, other than an Inter-
Dealer Broker Netting Member, shall be eligible to apply to become an
Agent Clearing Member. Inter-Dealer Broker Netting Members are
currently not permitted to use the existing correspondent clearing/
prime broker services because, pursuant to Section 8(e) of Rule 3,
these firms are required to limit their business to acting exclusively
as a Brokers, and therefore this limitation continues to apply.\28\
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\28\ This limitation that Inter-Dealer Broker Netting Members
are not eligible to use the existing correspondent clearing/prime
broker services is currently in the definition of ``Submitting
Member'' in Rule 1 and would be moved to this Section 2 of Rule 8.
Supra note 4.
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Section 2 would also provide that an applicant to be an Agent
Clearing Member shall complete and deliver to FICC an application and
any other information that FICC may request. FICC currently does not
require a Netting Member to apply, or provide any additional
information, to FICC to use the correspondent clearing/prime broker
services. To strengthen its ability to identify, monitor and manage the
material risks that indirect participants may present through their
access to GSD's clearing services, FICC is proposing to require that
Netting Members apply to be Agent Clearing Members by completing and
submitting an application to FICC. Section 2 of Rule 8 would specify
that the application would require information about the applicant's
customers, past and/or projected volumes of applicant customer
activity, and the applicant's controls for monitoring and mitigating
risks, including customer risks. Section 2 would also state that an
applicant must provide any other information that FICC reasonably
requests for purposes of this initial application process.
In certain instances, FICC may find that a firm seeking to be an
Agent Clearing Member may present risks that require further analysis
and consideration by FICC before granting Agent Clearing Member status.
Therefore, Section 2 of Rule 8 would introduce a new provision
providing that FICC may require a firm to be a
[[Page 21367]]
Netting Member for a period of time prior to applying for Agent
Clearing Member status.
(iii) Section 3--Executing Firm Customer Relationships
Section 3 of Rule 8 would describe how an Agent Clearing Member may
establish a relationship with an Executing Firm Customer under the
Agent Clearing Service.
First, Section 3 would define an Executing Firm Customer as an
entity for which an Agent Clearing Member submits transactions to FICC
pursuant to the requirements of Rule 8.
Second, Section 3 would identify the information that an Agent
Clearing Member must provide to FICC for each of its Executing Firm
Customers. Currently, Section 3 of Rule 8 requires that the Submitting
Member provide FICC with a notice of each customer that the Submitting
Member intends to submit trades on behalf of, and requires that such
notice (1) be provided to FICC not less than 3 Business Days prior to
the commencement of the Member's initial data submission on behalf of
each such Executing Firm, and (2) include ``the types of eligible
transactions that will be submitted for Comparison System and/or
Netting System processing.'' \29\
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\29\ Supra note 4.
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Under the proposed rules, FICC would no longer require that the
customer notice include the types of transactions that would be
submitted because it would accept any Agent Clearing Transactions
submitted on behalf of an Executing Firm Customer, pursuant to Section
4 of Rule 8, described below. Instead, FICC is proposing to require
that Agent Clearing Members provide the following information from each
Executing Firm Customer: (1) the name and executing firm symbol of the
Executing Firm Customer; (2) written authorization from the Executing
Firm Customer to act on its behalf; (3) a LEI for the Executing Firm
Customer; \30\ (4) confirmation that the Executing Firm Customer and
the Agent Clearing Member have entered into an agreement that binds the
Executing Firm Customer to the applicable provisions of the Rules, as
would be required by Section 3, described below; and (v) confirmation
that the Executing Firm Customer understands, acknowledges and agrees
to each of the Executing Firm Customer Acknowledgments set forth in,
and as would be required by Section 6 of Rule 8, described in greater
detail below.
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\30\ Rule 1 defines a Legal Entity Identifier as ``a 20-
character reference code to uniquely identify legally distinct
entities that engage in financial transactions. The Legal Entity
Identifier is based on the ISO 17442 standard developed by the
International Organization for Standardization and satisfies the
standards implemented by the Global Legal Entity Identifier
Foundation.'' Supra note 4.
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The requirement that Agent Clearing Members provide FICC with a
written authorization from its Executing Firm Customers, which FICC
collects today pursuant to Section 3 of Rule 8, enables FICC to confirm
that an agent clearing relationship exists between the Agent Clearing
Member and the Executing Firm Customer. This requirement would be
expanded to permit FICC to collect other information regarding the
Executing Firm Customer and its agent clearing relationship with the
Agent Clearing Members. Consistent with this change, FICC would
therefore no longer accept trade data on behalf of an Executing Firm
customer if it has not yet received the required written
authorization.\31\
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\31\ For this purpose, FICC is also proposing to remove a
statement from Section 4 of Rule 8 that FICC may accept data ``on
behalf of an Executing Firm even though a written notice . . . has
not been received. . . .'' See supra note 4.
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The proposed rules would require that the above-specified
information be provided in a form acceptable to FICC no later than 3
Business Days prior to the commencement of the Agent Clearing Member's
initial data submission on behalf of an Executing Firm Customer. This
timeframe, currently in Rule 8, provides FICC with the ability to
confirm on a timely basis that the information provided is complete and
accurate and to update its systems to reflect the agent clearing
relationship. Additionally, to facilitate the ability of Agent Clearing
Members to submit trades on behalf of their Executing Firm Customers as
quickly as possible, FICC would provide to Agent Clearing Members a
standardized Executing Firm Customer information form. By requiring
each Executing Firm Customer to complete and execute this standardized
form, FICC would be able to ensure that the required information is
provided in a form acceptable to it, while also ensuring that such
information is consistent and comprehensive across all Executing Firm
Customers.
In addition to requiring that it receive a LEI for each Executing
Firm Customer when a relationship is established in the Agent Clearing
Service, Section 3 would also require that each Agent Clearing Member
maintain, on ongoing basis, a current LEIs for each of its Executing
Firm Customers. Each Agent Clearing Member would also be required to
indemnify FICC for any losses, liabilities, expenses and legal actions
that could arise as a result of that Agent Clearing Member's failure to
meet these requirements. The proposed requirement that Agent Clearing
Members both provide and maintain a current LEI on file with FICC for
each of its Executing Firm Customers and provide an indemnification
related to this requirement are identical to existing requirements on
Netting Members and Sponsoring Members, with respect to their Sponsored
Members.\32\
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\32\ Applicants to be Netting Members are also required to (i)
provide FICC with a LEI as part of their application under Section 5
of Rule 2A, (ii) maintain a current LEI on file with FICC at all
times under Section 2 of Rule 3, and (iii) indemnify FICC for any
losses, liabilities, expenses and legal actions incurred as a result
of its failure to maintain a current LEI on file with FICC under
Section 2 of Rule 3. Supra note 4. Under Section 2(d) of Rule 3A,
Sponsoring Members have an identical obligation to (i) provide FICC
with a LEI for each of its Sponsored Members when onboarding those
Sponsored Members, (ii) maintain a current LEI for each of its
Sponsored Members on file with FICC at all times, and (iii)
indemnify FICC from any losses resulting from a failure to adhere to
these requirements. Id.
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As noted above, Section 3 of Rule 8 would require that an agreement
between the Agent Clearing Member and the Executing Firm Customer bind
the latter to the applicable provisions of the Rules. However, beyond
this specific requirement the proposed changes would also acknowledge
such an agreement may otherwise be on any terms and conditions mutually
agreed to by the parties and confirm that the Rules do not prohibit any
reimbursement or other payments sharing arrangements that may be
established between those parties, away from FICC.
Finally, Section 3 would provide that Agent Clearing Members may,
but are not required to, provide to FICC a written notice that it will
no longer submit trades on behalf of an Executing Firm Customer.
Section 3 of Rule currently requires Submitting Members to provide such
notice to FICC. However, FICC does not see a need to mandate such
notice because an Agent Clearing Member that terminates its agent
clearing relationship with a customer may just cease to submit trades
to FICC for processing. In any case, if an Agent Clearing Member
chooses to submit such written notice to FICC, FICC would remove that
relationship from its systems.
(iv) Section 4--Agent Clearing Transactions
Section 4 of Rule 8 would define Agent Clearing Transactions as
transactions that are eligible to be submitted by an Agent Clearing
Member on behalf of its Executing Firm
[[Page 21368]]
Customers. The existing scope of this definition would not change and
would continue to exclude ``Netting Eligible Auction Purchases'',
``Brokered Transactions'', ``GCF Repo Transactions'' and ``CCIT
Transactions'', as such terms are defined in the Rules.\33\
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\33\ GCF Repo Transactions and CCIT Transactions are currently
excluded due to system limitations, and Brokered Transactions are
necessarily excluded because Inter-Dealer Broker Netting Members are
not permitted to act as Agent Clearing Members, as discussed above.
The exclusion of Netting Eligible Auction Purchases is driven by the
specific processing rules applicable to auctions that are external
to FICC. The laws and regulations applicable to U.S. Treasury
auctions are available at <a href="https://treasurydirect.gov/laws-and-regulations/">https://treasurydirect.gov/laws-and-regulations/</a>.
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(v) Section 5--Rights and Obligations of Agent Clearing Members
Section 5 of Rule 8 would specify the rights and obligations of
Agent Clearing Members, expanding on the provisions currently provided
in Section 4 of Rule 8.\34\ These provisions would provide that Agent
Clearing Members have the right to submit Agent Clearing Transactions
to FICC for clearing, subject to the applicable requirements set forth
in the Rules, including, for example, the requirement that all such
activity comply in all material respects with applicable laws. Section
5 would define the role of the Agent Clearing Members as processing
agents of Executing Firm Customers and establish that Agent Clearing
Members are liable to FICC for all obligations arising in connection
with their Agent Clearing Transactions in the same manner as if the
Agent Clearing Member had executed those trades. These proposed changes
would also clarify that where an entity is both an Agent Clearing
Member and a Netting Member, the obligations of that entity to satisfy
all of the applicable obligations under the Rules and any other
relevant arrangements with FICC across both types of membership apply
comprehensively. Therefore, Section 5 would state that Agent Clearing
Members' obligations to FICC in their capacity as Netting Members, both
under the Rules and under any agreements between the Agent Clearing
Member and FICC, also apply to them in their capacity as Agent Clearing
Members, to their Agent Clearing Transactions and to their Agent
Clearing Member Omnibus Accounts. The proposed changes to Section 5
would also explicitly clarify that FICC has no liability or obligations
to any Executing Firm Customer.
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\34\ Section 4 of Rule 8 currently provides, ``A Submitting
Member shall have the same rights, and incur the same
responsibilities, as regards trade data by it to the Corporation on
behalf of an Executing Firm as it does, pursuant to these Rules,
regarding data submitted to the Corporation on its own trades.''
Supra note 4.
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Section 5 of Rule 8 would also provide for FICC's authority to
obtain information from Agent Clearing Members on an ongoing basis. For
example, this section would require Agent Clearing Members to provide
FICC with information or reports that it may request pursuant to the
existing, ongoing membership requirements in Section 2 of Rule 3,
including information or reports related to their Agent Clearing
Transactions.\35\ In addition, FICC would have the right to request
information that is similar to the information requested for Agent
Clearing Member applications, for example, information regarding its
customers, past and/or projected volumes of its customer activity, and
its controls for monitoring and mitigating risks, including risks
presented by those customers. These annual and ad hoc due diligence
requests are key to FICC's ability to identify, monitor and manage the
risks its Members may present to it and the broader GSD membership. The
proposed changes would therefore support FICC's authority to request
information from Agent Clearing Members regarding their Executing Firm
Customers and their use of the Agent Clearing Service. By collecting
this information at both the application process and through its
regular due diligence requests, FICC would be able to identify,
monitor, and, therefore, manage the risks posed by its Members' use of
this service and the indirect participants.
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\35\ Section 2 of Rule 3 currently provides that, ``Each Netting
Member shall submit to the Corporation the reports, financial or
other information set forth [in this Section 2] and such other
reports, financial and other information as the Corporation from
time to time may reasonably require.'' Supra note 4.
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(vi) Section 6--Executing Firm Customer Acknowledgements
Next, Section 6 of Rule 8 would include specific Executing Firm
Customer acknowledgements with respect to their participation in the
Agent Clearing Service. Because Executing Firm Customers would continue
to have no relationship to FICC, the proposed changes to Section 6
would provide that Agent Clearing Members are responsible for affirming
that their Executing Firm Customers understand, acknowledge and agree
to the provisions in this Section of Rule 8. As noted above, the
standardized authorization form that Agent Clearing Members would be
required to provide to FICC would confirm that this requirement has
been satisfied.
Like other proposed changes to Rule 8, these additions to Section 6
are common in other agent clearing models and, therefore, would be
familiar to market participants looking to use the Agent Clearing
Service.\36\ These acknowledgements would include, for example,
confirmation that the Agent Clearing Service is governed by the Rules,
that FICC may deal exclusively with Agent Clearing Members and is not
obligated to deal directly with Executing Firm Customers. The
acknowledgements would also clarify that FICC does not have any
obligations or liability to Executing Firm Customers.
---------------------------------------------------------------------------
\36\ See supra note 27.
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(vii) Section 7--Agent Clearing Transactions Processing Rules
Finally, Section 7 of Rule 8 would describe certain rules regarding
the processing of Agent Clearing Transactions.
First, Section 7 would provide that Agent Clearing Transactions
would be recorded in accounts maintained by FICC on behalf of the Agent
Clearing Member, defined as ``Agent Clearing Member Omnibus Accounts''.
This proposed requirement would facilitate FICC's ability to identify,
monitor and manage the risks that this activity may present. Currently,
the existing correspondent clearing/prime broker services gives Netting
Members discretion in choosing whether to record their customer
activity in an account that is separate from their Netting Member
account. Under this aspect of the proposal, that discretion would be
removed by the new requirement under Section 7 that all Agent Clearing
Transactions include an executing firm symbol that identifies the
Executing Firm Customer. Section 7 would relatedly provide that Agent
Clearing Transactions that do not contain an executing firm symbol be
rejected by FICC.\37\ Therefore, the proposed rule change would remove
language currently in Section 2 of Rule 8 that states, if the Executing
Firm is not
[[Page 21369]]
included on the trade data submitted to FICC, then FICC would process
the trades as if it was not a customer trade. While this new mandatory
approach would enable FICC to track and monitor distinct Executing Firm
Customer activity, for risk management purposes Agent Clearing Members
would have the option to net all of that activity in the same Agent
Clearing Member Omnibus Account.\38\
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\37\ FICC is proposing to remove a statement currently in
Section 5 of Rule 8 that says, ``The Corporation, in its sole
discretion, may decline to accept trade data involving one or more
Executing Firms, either generally for all trade data submitted to
the Corporation or by Submitting Member.'' This statement addresses
FICC's right to reject a trade if it does not meet trade submission
criteria. The proposed changes to Rule 8 would address this right,
making this statement no longer necessary. For example, as noted
above, Section 2 would provide that FICC shall not act upon an
instruction regarding an Executing Firm Customer until it obtains an
authorization from that Executing Firm Customer and, as noted here,
Section 7 would provide that FICC would reject any trade that does
not include an executing firm symbol.
\38\ Contemporaneously with this proposed rule change, FICC will
propose additional rule changes to address how Agent Clearing
Members and Sponsoring Members may elect to maintain separate
accounts for clearing activity that satisfy the requirements
described in Note H to Rule 15c3-3a, as it has been amended. See 15
U.S.C. 78s(b)(1). Such proposed rule changes would support FICC's
compliance with the requirements of Rule 17Ad-22(c)(6)(i), as
adopted by the Treasury Clearing Rules. Supra note 5. See also 17
CFR 240.15c3-3a.
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Second, Section 7 would state that Agent Clearing Transactions
would continue to be processed in the same way that FICC processes
other transactions through the GSD netting, clearing and settlement
systems, unless exceptions to that processing are specifically
identified in Rule 8.
Third, Section 7 would include a description of how Agent Clearing
Transactions are processed when the optional field identifying the
contra-party is either omitted or does not match on the transaction
file. Specifically, the Agent Clearing Transaction would be compared
based on the executing firm symbol. This information is currently
applicable to activity processed through the correspondent clearing/
prime broker services and would be moved from Rule 10 to Rule 8.
Fourth, the proposed rule changes would move into Section 7
provisions from Section 2 of Rule 11, which describes the Netting
System, and Section 11 of Rule 12, which describes processing of Same-
Day Settling Trades.\39\ These provisions are currently applicable to
transactions processed through the correspondent clearing/prime broker
services and would continue to be applicable to Agent Clearing
Transactions. Specifically, both provisions permit an Agent Clearing
Member to notify FICC if it does not want Agent Clearing Transactions
of a particular Executing Firm Customer to be netted and settled, in
which case the transaction would only be compared through the
Comparison System.
---------------------------------------------------------------------------
\39\ See definition of ``Same-Day Settling Trades'' in Rule 1,
supra note 4. Same-Day Settling Trades are not netted prior to
settlement so are settled through the Comparison System, as
described in this provision.
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Fifth, Section 7 would state that if a loss is allocated to Members
pursuant to Section 7 of Rule 4, the Agent Clearing Member, as
principal, would be responsible for satisfying the loss allocation
obligations that are calculated for its Executing Firm Customers.
Section 7 would also provide that the Clearing Fund obligations
applicable to an Agent Clearing Members' Agent Clearing Transactions
would be calculated separately from the obligations calculated with
respect to other activity of the Agent Clearing Member. However, FICC
would have the right to apply any Clearing Fund deposits of an Agent
Clearing Member to any obligations of that Member (including in their
capacity as a Netting Member). As a substantive matter, the above two
changes do not vary from how FICC calculates and applies loss
allocation or Clearing Fund requirements under the correspondent
clearing and prime broker services today. Therefore, these changes
function more as conforming and clarifying disclosures with respect to
these matters for Netting Members in their new capacity as Agent
Clearing Members.\40\
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\40\ As noted above, FICC will propose changes to this section
under a separate proposal to address the calculation, collection and
application of Clearing Fund requirements under the Rules for
certain, designated accounts. Supra note 38.
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Sixth and finally, Section 7 would include and clarify a provision
that is currently in Section 6 of Rule 8 notifying Agent Clearing
Members that the comparison output provided by FICC would identify the
Executing Firm Customer for any Agent Clearing Transactions.
(viii) Other Rule Changes To Address Agent Clearing Service
The proposed changes would also amend Rule 1 to replace several
definitions: ``Submitting Member'' with ``Agent Clearing Member'' and
``Executing Firm'' with ``Executing Firm Customer''. The Rule 1 changes
would also add new definitions for ``Agent Clearing Member Omnibus
Account'' and ``Agent Clearing Transactions''. The proposed changes
would also correct the definition of ``GCF Counterparty'' to remove a
reference to a Submitting Member acting for an Executing Firm because,
as noted above, Agent Clearing Transactions do not include GCF Repo
Transactions, and, as such, Agent Clearing Members cannot be GCF
Counterparties.
The proposed rule changes would amend other Rules to reflect these
updated defined terms or remove descriptions of how this service
operates where those descriptions have been moved and restated in Rule
8. Revisions to other Rules include (i) Rule 2, to include Agent
Clearing Members as an additional type of membership available to
Netting Members, as described in greater detail below; (ii) Rules 5,
6A, 11 and 18, to replace references to ``Executing Firms'' with
``Executing Firm Customers'' and replace references to ``Submitting
Member'' with ``Agent Clearing Member''; (iii) Rule 6C, to correct an
incorrect statement in this Rule by removing a parenthetical that
indicates GCF Counterparties could be Submitting Members for Executing
Firms, because the definition of Agent Clearing Transactions excludes
GCF Repo Transactions, as such term is defined in the Rules; (iv)
Section 2 of Rule 11 and Section 11 of Rule 12 to remove statements
that would be moved into Section 7 of Rule 8, as described above; (v)
Rule 15, to remove Section 1, which would be addressed in Section 5 of
Rule 8; (vi) Rule 24, to address the responsibility of Agent Clearing
Members to pay all fees that are related to the Agent Clearing Member
activity that is submitted pursuant to Rule 8, including any expenses
that are incurred directly or indirectly by such Member; (vii) the
Schedule of Required Data Submissions, to correct statements in this
Schedule and clarify that Agent Clearing Members are required to
include an executing firm symbol on the submission of all Agent
Clearing Transactions; and (viii) the Fee Structure, to remove an
incorrect statement from Section I(G) that indicates GCF Counterparties
could be Members submitting trades for non-Members, because the
definition of Agent Clearing Transactions excludes GCF Repo
Transactions, as such term is defined in the Rules and to revise
Section VI to address fees applicable to Agent Clearing Members to use
the revised defined terms.
2. Update Certain Membership Qualifications To Facilitate Access to
GSD's Services
FICC is proposing changes to certain membership qualifications that
would improve FICC's ability to service a wide variety of market
participants for both direct and indirect membership. These proposed
changes are designed to facilitate open access to the clearance and
settlement services offered by GSD and, therefore, would support FICC's
compliance with the Treasury Clearing Rules.
a. Eliminate the Separate Categories of Sponsoring Members
FICC is proposing to eliminate the separate categories of
Sponsoring Members and apply the standards
[[Page 21370]]
applicable to Category 2 Sponsoring Members to all Sponsoring Members.
When FICC established the Sponsored Service in 2005, it limited
Sponsoring Member eligibility to only Bank Netting Members that met the
criteria set out in Rule 3A.\41\ In 2019, FICC expanded Sponsoring
Member eligibility to also include Tier One Netting Members, other than
Inter-Dealer Broker Netting Members, or Non-IDB Repo Brokers with
respect to activity in its Segregated Repo Account.\42\ At that time,
FICC established two categories of Sponsoring Members--Category 1
Sponsoring Members are Bank Netting Members that meet the eligibility
criteria described in Section 2(a) of Rule 3A, and Category 2
Sponsoring Members are all other eligible Netting Members.\43\
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\41\ Securities Exchange Act Release No. 51896 (June 21, 2005),
70 FR 36981 (June 27, 2005) (SR-FICC-2004-22).
\42\ See Securities Exchange Act Release No. 85470 (Mar. 29,
2019) 84 FR 13328 (Apr. 4, 2019) (SR-FICC-2018-013) (creating two
categories of Netting Members to be eligible to be Sponsoring
Members, expanding the eligibility of the service to other types of
Netting Members in addition to Bank Netting Members).
\43\ See id. See also Rule 3A, Section 2, supra note 4.
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While Bank Netting Members are subject to certain capitalization
requirements as Sponsoring Member applicants,\44\ Category 2 Sponsoring
Member applicants are instead subject to financial requirements that
are greater than the financial requirements applicable in their
capacity as Netting Members.\45\ Moreover, these increased financial
requirements do not solely relate to an applicant's capitalization, but
instead are based on the applicant's anticipated use of the Sponsoring
Service in relation to their financial condition. Thus, this tiered
category structure created differing applicant criteria based on the
type of entity seeking Sponsoring Member status.
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\44\ Under Section 2(a) of Rule 3A, Bank Netting Members
applying to be a Sponsoring Member must (i) have equity capital of
at least $5 billion, (ii) be ``Well-Capitalized'', as such term is
defined in the Rules, and (iii) have a bank holding company that is
registered under the Bank Holding Company Act of 1954, as amended
and that such bank holding company also be ``Well Capitalized''.
``Well Capitalized'' is defined in Rule 1 to have the meaning given
that term in the capital adequacy rules and regulations of the
Federal Deposit Insurance Corporation. Supra note 4.
\45\ See Section 2(b)(ii) of Rule 3A, supra note 4.
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This differentiated approach continues for ongoing Sponsoring
Member requirements. For example, a Category 1 Sponsoring Member may be
subject to an increase in its Required Fund Deposit, as calculated
pursuant to Section 2(h) of Rule 3A, if it fails to meet the applicable
capitalization requirements.\46\ Alternatively, Section 2(h) of Rule 3A
provides that Category 2 Sponsoring Members may be subject to a limit
on the activity that they can submit through the Sponsoring Service if
their VaR Charges, as calculated and collected pursuant to Rule 4,
exceed their Netting Member Capital.\47\
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\46\ Supra note 4.
\47\ A ``VaR Charge'' is a component of the Required Fund
Deposit and defined in Rule 1, and ``Netting Member Capital'' is
defined in Rule 1 to mean ``Net Capital, net assets or equity
capital as applicable, to a Netting Member based on its type of
regulation''. Supra note 4.
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The Sponsored Service has continued to grow since its
implementation. As discussed above, FICC has conducted a review of its
access models to consider whether (i) its existing policies and
procedures treat transactions differently based on the identity of the
participant submitting the transaction, the fact that an indirect
participant is a party to the transaction, the method of execution, and
other factors, and (ii) this variation of treatment continues to be
necessary and appropriate in furtherance of the requirements under Rule
17Ad-22(e) and other parts of the Act applicable to FICC.\48\ In light
of this review and the general experience FICC has acquired in
overseeing the expansion of the Sponsored Service membership, FICC
believes that now is the appropriate time to make further enhancements
so that this service can facilitate broader access to clearance and
settlement services for eligible secondary market transactions in U.S.
Treasury securities, including those of indirect participants who may
seek to use the Sponsored Service as Sponsored Members. Therefore, FICC
believes it is appropriate to eliminate the two categories of
Sponsoring Members and make all Sponsoring Members subject to the same
eligibility and ongoing requirements that are currently applicable to
Category 2 Sponsoring Members. In practice, this proposed rule change
would therefore affect only Bank Netting Members that are or will apply
to be Sponsoring Members by removing the above-mentioned capitalization
requirements and instead applying to such Members (and therefore all
Sponsoring Members) the activity limits and financial condition factors
used today for Category 2 Sponsoring Members. More broadly, the
proposal would create applicant and ongoing Sponsoring Membership
parity among all Sponsoring Members and applicants, which in turn
should give indirect participants a wider range of Sponsoring Members
to consider should they choose to access GSD's central clearing
services via this particular indirect access model. At the same time,
the preservation and broader application of activity limits and
financial condition monitoring will allow FICC to continue to manage
the risks that could be presented by any activity cleared through the
Sponsored Service.
---------------------------------------------------------------------------
\48\ See 17 CFR 240.17Ad-22(e). See supra note 11.
---------------------------------------------------------------------------
First, the proposed changes would eliminate the capitalization
requirements that Bank Netting Members must meet to be eligible
Sponsoring Members applicants. This proposed change would therefore put
Bank Netting Member applicants on equal footing with other types of
Sponsoring Member applicants and would expand the availability of the
Sponsored Service to additional Bank Netting Members. However, FICC
does not believe this proposed change would increase the risks
presented to it by Bank Netting Members' participation in the Sponsored
Service as Sponsoring Members because FICC would continue to manage
those risks through other existing risk management tools. For example,
rather than apply capitalization requirements to every Bank Netting
Member applicant, FICC would continue to have the authority, as it does
today for other types of applicants, to impose greater and additional
financial requirements on a Bank Netting Member applicant based on
information available through the Sponsoring Member application and
ongoing surveillance of the applicant as a Netting Member.\49\ FICC is
also able to use the Excess Capital Premium to manage instances where a
Sponsoring Member presents heightened default risk because of lower
capital levels.\50\ Finally, as described more below, the proposal
would impose upon Bank Netting Members the same activity limit used for
other types of Sponsoring Members today, thereby giving FICC an
additional risk management tool to address any risks that may arise
because of a Bank Netting Member's capital levels.
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\49\ See Rule 3A, Section 2(b)(ii) (describing the factors that
FICC may consider when determining whether to impose additional
financial requirements on a Sponsoring Member), supra note 4. For
the purposes of illustration only, such financial requirements could
include, without limitation, additional reporting requirements,
including reporting of parent company financials, or a higher
minimum deposit to the Clearing Fund.
\50\ See Rule 3, Section 14 (the Excess Capital Premium is an
additional Clearing Fund deposit that may be required if a Member's
capital levels drop below a threshold relative to its other margin
requirements), supra note 4.
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Second, the proposed changes would eliminate FICC's right to
increase the Required Fund Deposit of a Category 1 Sponsoring Member if
it fails to meet the capitalization requirements, instead relying upon
an activity limit under the
[[Page 21371]]
circumstances described in Section 2(h) of Rule 3A on all Sponsoring
Members (including, as discussed above, those that are Bank Netting
Members).\51\ The activity limit, which currently only applies to
Category 2 Sponsoring Members, restricts a Sponsoring Member from
submitting additional activity into its Sponsoring Member Omnibus
Account(s) if its capital levels exceed the sum of its VaR Charge
component of the Clearing Fund.\52\ Based upon its experience with the
activity limit tool since it was first applied in 2019, FICC believes
the activity limit has been an appropriate and effective risk
management measure for its Sponsoring Members, and will continue to
operate as such with the expanded application to Bank Netting Members.
As noted earlier, Sponsoring Members are unconditionally liable to FICC
for the obligations of its Sponsored Members under the Sponsoring
Member Guaranty, and FICC relies on the financial resources of the
Sponsoring Members to ensure that their funds and securities settlement
obligations will still be met if the Sponsored Members default.
Therefore, the activity limit aligns more neatly with this risk by
giving FICC the proactive ability to mitigate Sponsoring Member
exposures in prohibiting concerning participants from continuing to
submit activity that they may not be able to cover. Like the changes to
the eligibility requirements discussed above, this proposed change
would also harmonize the conditions of membership across all types of
Sponsoring Members, thereby increasing the potential pool of Sponsoring
Member applicants to the benefit of both direct and indirect
participants seeking expanded access to GSD's central clearing
services.
---------------------------------------------------------------------------
\51\ See Rule 3A, Section 2(h), supra note 4.
\52\ See id. See supra note 42.
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To implement these proposed changes, FICC would make the following
changes to the Rules: (1) delete the definitions of ``Category 1
Sponsoring Member'' and ``Category 2 Sponsoring Member'' from Rule 1;
(2) revise the definition of ``Sponsoring Member'' in Rule 1 to remove
reference to the two categories; and (3) amend Section 2(a), (b) and
(h) of Rule 3A to remove the capitalization eligibility requirements
currently applicable to Category 1 Sponsoring Members and clarify that
the Category 2 Sponsoring Member eligibility requirements apply to all
applicants to be a Sponsoring Member.
b. Remove the QIB Requirement Applicable to Sponsored Members
FICC is proposing to remove the eligibility requirement that
Sponsored Members either be ``qualified institutional buyers'' as such
term is defined by Rule 144A under the Securities Act of 1933, or
otherwise satisfy the financial requirements of such definition.\53\ As
noted above, FICC has progressively expanded the eligibility of both
Sponsoring Members and Sponsored Members to facilitate greater access
to this indirect participation model and based on its experience over
time with the Sponsored Service believes this change is now
appropriate.\54\ Upon implementation of this proposal, the only
qualification for a Person (as such term is defined in Rule 1) \55\
applying to be a Sponsored Member would be that it is sponsored by at
least one Sponsoring Member. Therefore, this proposed change would make
the Sponsored Service available to additional market participants,
thereby facilitating those firms with access to GSD's clearing
services. Expanding eligibility to become a Sponsored Member supports
the goals of the Treasury Clearing Rules to facilitate increased
central clearing of transactions involving U.S. Treasury
securities.\56\
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\53\ 17 CFR 230.144A. See Rule 3A, Section 3(a), supra note 4.
\54\ See Securities Exchange Act Release No. 80563 (May 1,
2017), 82 FR 21284 (May 5, 2017) (SR-FICC-2017-003) (removing a
requirement that a Sponsored Member be a registered investment
company, as such term is defined in Rules). See also supra note 42.
\55\ Supra note 4.
\56\ See page 12 of the Adopting Release (referring to the
revisions to Rule 17Ad-22(e)(18) as being designed to ``bring the
benefits of central clearing to more transactions involving U.S.
Treasury securities, thereby reducing the overall systemic risk in
the market''). Supra note 5.
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FICC believes that making this change is appropriate because, as
described above, FICC risk manages the Sponsored Service primarily at
the Sponsoring Member level, not the Sponsored Member level. For
example, a Sponsoring Member is responsible under Section 10 of Rule 3A
for posting to FICC the Required Fund Deposit for its sponsored
activity and, while Sponsored Members are principally liable to FICC
for their settlement obligations, the Sponsoring Member is also
required under Section 2 of Rule 3A to provide a guaranty to FICC for
such obligations.\57\ This means that, in the event one or more
Sponsored Members does not satisfy its settlement obligations, FICC is
able to invoke the Sponsoring Member Guaranty. Finally, pursuant to
Section 2(d) of Rule 3A and Section 2 of Rule 3, Sponsoring Members may
be required to provide to FICC reports or other information that FICC
may require, including, for example, responses to annual or ad hoc due
diligence requests.\58\ As described above, FICC utilizes these due
diligence requests to identify, monitor and manage the risks Sponsoring
Members and their Sponsored Members may present to it. Where FICC
identifies risks, whether via the due diligence process or otherwise,
as discussed previously FICC will be able to impose on a Sponsoring
Member supplemental financial requirements, an Excess Capital Premium
charge (where applicable), and activity limits. Therefore, FICC
believes that its existing risk management practices with respect to
the Sponsored Service, which do not directly rely on the QIB
requirement, continue to facilitate effective risk management of
exposures created through the Sponsored Service.
---------------------------------------------------------------------------
\57\ See supra note 4.
\58\ See supra note 4.
---------------------------------------------------------------------------
To implement this proposed change, FICC would amend Section 3(a) of
Rule 3A to remove the requirement that a Sponsored Member be either a
``qualified institutional buyer'' as defined by Rule 144A under the
Securities Act of 1933 as amended, or otherwise satisfy the financial
requirements of that definition.\59\
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\59\ 17 CFR 230.144A.
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c. Clarify the Eligibility Criteria for Non-U.S. and Other Applicants
To Be Netting Members
FICC is proposing to revise the Rules addressing Netting Member
eligibility criteria for applicants that are either (1) not
incorporated or formed in the United States, currently referred to in
the Rules as ``Foreign Persons,'' \60\ and (2) applicants, including
Foreign Persons, that do not meet the eligibility criteria of one of
the categories of Netting Member.
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\60\ ``Foreign Person'' is currently defined in Rule 1 to mean
``a Person that is organized or established under the laws of a
country other than the United States and does not include a foreign
Bank Netting Member which is not deemed to be a Foreign Member
pursuant to the definition of that term.'' Supra note 4. Proposed
revisions to simplify this defined term would not change it
substantively.
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(i) Foreign Person Applicants. FICC is proposing to improve the
transparency of the Rules regarding the eligibility of Foreign Persons
to become Netting Members. In connection with these proposed changes,
the proposal would eliminate the category for ``Foreign Netting
Member'' and simplify the related defined terms.
[[Page 21372]]
Currently, a Foreign Person applying to be a Netting Member must
meet the eligibility criteria for a distinct Netting Member category,
``Foreign Netting Members.'' In contrast with the eligibility approach
used for other Netting Member categories, the eligibility criteria for
Foreign Netting Members in Section 3(a)(v) of Rule 2A do not specify or
reference eligible types of legal entities. However, Section
4(b)(ii)(E) of Rule 2A does provide for minimum financial requirements
and includes specific criteria for brokers, dealers and banks. This
Section also provides FICC with the authority to set minimum financial
requirements for other types of legal entities applying to be a Foreign
Netting Member.
Section 3(b) of Rule 2A currently states that an entity can only be
one category of Netting Member at a time.\61\ A Foreign Person that,
for example, is the foreign equivalent to a Registered Investment
Company \62\ would apply to be a Foreign Netting Member, and would be
subject to the eligibility criteria, other membership qualifications,
and ongoing minimum membership standards that are applicable to Foreign
Netting Members. However, the Rules also contain specific eligibility
criteria, other membership qualifications, and ongoing minimum
membership standards for Registered Investment Company Netting Members.
Thus, in this example it is unclear whether the applicant entity would
only be subject to the Foreign Netting Member standards or would also
have to satisfy the Registered Investment Company Netting Member
standards. This ambiguity can have meaningful implications. For
example, Registered Investment Company Netting Members are excluded
from the requirement that Netting Members purchase common shares of The
Depository Trust & Clearing Corporation, pursuant to Rule 49.\63\ If a
Registered Investment Company that is a Foreign Person applied, and was
approved, to be a Foreign Netting Member, it would not be clear if this
exclusion from Rule 49 should be applicable to this Foreign Netting
Member applicant.
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\61\ Supra note 4.
\62\ ``Registered Investment Company'' is currently defined in
Rule 1 to mean ``an Investment Company that is registered as such
with the SEC'', where an ``Investment Company is currently defined
in Rule 1 to have ``the meaning given that term in Section 3 of the
Investment Company Act of 1940, as amended.'' Supra note 4. Proposed
revisions to simplify this defined term would not change it
substantively.
\63\ Supra note 4.
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To address these instances of ambiguity, the proposed rule changes
would eliminate the category of ``Foreign Netting Member'' and would
expand the qualifications for each category of Netting Member to
include the foreign equivalent of the same legal entity types, as
determined by FICC in its sole discretion. For example, the
qualifications to be an Insurance Company Netting Member would continue
to include an insurance company, as such term is defined in Section
2(a)(17) of the Investment Company Act of 1940, as amended,\64\ and
would now also include an equivalent of such an entity in a non-U.S.
jurisdiction, as determined by FICC in its sole discretion and meets
the qualifications applicable to a Foreign Person in Rule 2A. In making
the determination of whether a Foreign Person is an equivalent legal
entity to the domestic legal entities that qualify for a category of
Netting Member, FICC would consider, for example, the applicant's
business model and its regulatory framework and designated examining
authority.
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\64\ 15 U.S.C. 80a-2(a)(17).
---------------------------------------------------------------------------
Thus, the proposal would then provide that a Foreign Person shall
be eligible to apply to become a Netting Member if either (1) it
qualifies for one of the existing categories of Netting Member, or (2)
FICC determines that the applicant may apply in the same way as an
applicant that does not qualify under an existing category of Netting
Member, as described in greater detail below.
Foreign Persons that are eligible to apply to be a Netting Member
would be subject to both the minimum membership standards of the
applicable Netting Member category as well as the eligibility criteria
currently applicable to Foreign Netting Members, currently set forth in
Section 3(a)(v) of Rule 2A.\65\ The proposed changes would also provide
that, where an applicable Netting Member category is subject to
membership qualifications that are inconsistent with the qualifications
applicable to a Foreign Person, then the standards applicable to a
Foreign Person shall apply. In some cases, this approach may lead to an
outcome where a Foreign Person applicant remains subject to home
jurisdiction requirements that are different from the requirements
applicable to other Netting Members. FICC believes that this outcome is
nevertheless acceptable because, as discussed further below in the
section about Other Applicants, the Rules would still provide that FICC
will continue to apply the membership standards that were designed
specifically to address the risks that may be presented when an
applicant is not domiciled in the U.S. and whose primary regulator is
not U.S.-based.
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\65\ See Rule 2A, Section 3(a)(v) (providing that a person may
be eligible to apply to be a Foreign Netting Member if it ``(i) has
a home country regulator that has entered into a memorandum of
understanding with the SEC regarding the sharing or exchange of
information, and (ii) maintains a presence in the United States,
either directly or through a suitable agent, that both has available
individuals fluent in English who are knowledgeable in the Foreign
Person's business and can assist the Corporation's representatives
as necessary, and ensures that the Foreign Person will be able to
meet its data submission, settlement, and other obligations to the
Corporation as a Member in a timely manner.'') and Section
4(b)(ii)(E) (specifying the minimum financial requirements for an
applicant to be a Foreign Netting Member).
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In this way, the proposed changes would clarify that Foreign
Persons may be eligible to be direct participants of FICC under any of
the existing categories of Netting Members and, therefore, would
facilitate access to GSD's clearance and settlement services through
direct membership with FICC to these market participants.
To implement these proposed changes, FICC would amend the
qualifications of each Netting Member category listed in Section 3(a)
to include a foreign equivalent of the currently eligible legal entity
types. The proposed changes would also move the eligibility criteria
for Foreign Netting Members from Section 3(a)(v) of Rule 2A to a
revised Section 3(b)(i) of Rule 2A. The proposed changes would remove
the definitions of ``Foreign Member'' and ``Foreign Netting Member''
and revise the definition of ``Foreign Person'' in Rule 1. References
to Foreign Netting Member would also be removed or replaced, as
appropriate, in Section 4(b)(ii)(E) of Rule 2A and in Sections 2(f),
8(g) and 12(b)(i)(C) of Rule 3.
Because the defined term ``Foreign Member'' is currently only used
in two places in the Rules, the proposed change to remove this term
would simplify the Rules. Reference to ``Foreign Member'' would be
removed from the definition of ``Foreign Person'' in the revisions to
this definition described below. The other reference to ``Foreign
Member'' in Section 7(g) of Rule 2A would be replaced with ``a Member
that is a Foreign Person''.
In connection with these proposed changes, FICC is also proposing
to move requirements that Foreign Persons applying to be a Netting
Member and other applicants that are referred to as ``FFI Members''
\66\ make certain financial representations and
[[Page 21373]]
certifications. These requirements would be moved from Section 3(a)(v)
of Rule 2A to Section 5(c) of Rule 2A, which currently describes
membership application documents, where such certifications would be
included. This proposed change would improve the clarity of the Rules
by including this membership requirement in the same place as similar
membership requirements.
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\66\ ``FFI Members'' are defined as ``any Person that is treated
as a non-U.S. entity for U.S. federal income tax purposes. For the
avoidance of doubt, FFI Member includes any Member that is a U.S.
branch of an entity that is treated as a non-U.S. entity for U.S.
federal income tax purposes.'' Supra note 4.
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Finally, FICC is proposing to remove the requirement that an entity
can only be one category of Netting Member at a time, but would retain
the statement that, if an applicant qualified for multiple Netting
Member categories, FICC would determine the category of Netting Member
for which that applicant would be considered. This statement would be
included in Section 3(a) of Rule 2A, just prior to the list of
qualifications for each category of Netting Member.
(ii) Other Applicants. The proposed rule changes would provide a
framework for FICC to consider an applicant, including a Foreign
Person, to be a Netting Member if that applicant does not meet the
eligibility criteria of one of the existing Netting Member categories.
The intent behind these proposed changes is to facilitate FICC's
ability to provide access to GSD's clearing services to a broader and
more diverse range of market participants in a timely and efficient
manner and, therefore, would support FICC's compliance with its
requirement to facilitate access to its clearance and settlement
services.\67\
---------------------------------------------------------------------------
\67\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
---------------------------------------------------------------------------
Section 3(a) of Rule 2A lists each category of Netting Member,
which are defined by different types of eligible legal entities, for
example, Bank Netting Members, Dealer Netting Members and Futures
Commission Merchant Netting Members. FICC does not have the authority
to consider applicants to be a Netting Member if the applicant does not
meet the eligibility criteria of one of these Netting Member
categories. Therefore, FICC is proposing to expand its authority to
consider any applicant, including Foreign Persons, to be a Netting
Member. FICC believes it is both appropriate and consistent with its
requirements to facilitate access to its services to allow other legal
entity types to apply to be a Netting Member.
The proposed rule change would first require that an applicant
demonstrate to FICC that its business and capabilities are such that it
could reasonably expect material benefit from direct access to FICC's
services.\68\ An applicant would demonstrate this through its responses
to the application questionnaire and other initial application
materials. Next, the proposed rule would provide that FICC would apply
minimum membership standards to an applicant that it deems reasonable
and appropriate. Such minimum standards would be developed by FICC
based on information provided by or concerning the applicant and the
applicant's risk profile. Such information would include, for example,
(i) the applicant's business model, (ii) its regulatory framework and
designated examining authority, (iii) its organizational structure and
risk management framework, and (iv) its anticipated use of the
Corporation's services. By describing the factors and information that
FICC would consider in developing the applicant minimum standards, the
proposed changes would require that FICC develop and apply minimum
membership standards that are both objective and risk-based.
---------------------------------------------------------------------------
\68\ This proposed change would harmonize the Rules with the
rules of NSCC, which includes the same language. See Addendum B,
Section 1(A)(vi) of NSCC's Rules and Procedures, which provides
that, if an applicant does not qualify as one of the legal entity
types specified in that rule, it may qualify if it ``has
demonstrated to the Board of Directors that its business and
capabilities are such that it could reasonably expect material
benefit from direct access to [NSCC's] services.'' Supra note 27.
---------------------------------------------------------------------------
These rule changes would be added to new Section 3(b)(ii) of Rule
2A, following the proposed changes regarding applicants that are
Foreign Persons, described above. In connection with these changes, the
proposal would move a statement that any additional categories of
Netting Member, including the applicable eligibility criteria and
minimum membership standards, would be subject to approval of the
Commission from Section 3(a)(x) to a new Section 3(c).
As noted above, these proposed changes would support FICC's
compliance with its requirement to facilitate access to its clearance
and settlement services. Following the adoption of the Treasury
Clearing Rules, additional market participants will need to access FICC
clearance and settlement services, either as direct Netting Members or
as indirect participants. FICC cannot reliably predict which types of
legal entities will apply for direct membership or predict the risk
profiles of those entities in order to preemptively develop applicable
qualifications and membership standards. Therefore, the proposed rule
change would provide FICC with the necessary flexibility to consider
any potential applicants, including legal entities that do not fit into
its current Netting Member categories, through a framework that is
consistent with the rules of its affiliate, NSCC.
On an annual basis, FICC will review and conduct an assessment of
GSD's access models, in compliance with the requirements of Rule 17Ad-
22(e)(18)(iv)(C) under the Act.\69\ In connection with this annual
assessment, FICC would review the types and number of legal entities
that have applied to be a Netting Member under the proposed provision
over the prior 12 months. Based on that review, FICC would determine
whether it would be appropriate to adopt, through a proposed rule
change, a new category of Netting Member and the applicable
qualifications and membership standards. FICC would address this annual
review in its proposed amendments to the Clearing Agency Risk
Management Framework, where the annual review of GSD access models
would also be addressed.\70\
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\69\ 17 CFR 240.17Ad-22(e)(18)(iv)(C). Contemporaneously with
this proposed rule change, FICC and its affiliates, NSCC and The
Depository Trust Company, are proposing changes to the Clearing
Agency Risk Management Framework to provide for the annual
assessment and subsequent review of GSD's access models by the
Board, as required by Rule 17Ad-22(e)(18)(iv)(C). See supra note 5.
\70\ Id.
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3. Improve Clarity of Public Disclosures Regarding Access Models and
Membership Categories
The proposed revisions to the Rules would also simplify and,
therefore, improve the transparency and clarity of how FICC discloses
to the public its criteria and other requirements for GSD's different
participation models and membership categories. Collectively, these
proposed changes would improve market participants' understanding
regarding the availability and the comparative tradeoffs across these
services and, therefore, facilitate increased access to those services.
a. Create a Public Road Map for Access Models and Membership Types in
Rule 2
First, the proposed changes would revise Rule 2 to provide a public
road map for the types of available memberships and the different
participation models. Rule 2 currently describes how FICC makes its
services available to entities that are approved for membership, lists
the different membership types (i.e., Comparison-Only Members, Netting
Members, Sponsoring Members) and identifies the different categories of
Netting Member
[[Page 21374]]
(i.e., Dealer Netting Member, Bank Netting Member, Inter-Dealer Broker
Netting Member). This Rule also references some of the other Rules that
govern certain memberships and addresses the liability of Members for
activity they process through FICC on behalf of entities that are not
Members.
The proposed changes would expand Rule 2 significantly to outline
the various participation models available to market participants that
allow for both direct and indirect access to GSD's clearance and
settlement services. This outline would include descriptions of the
services available to each membership type and provide a public road
map for where those services are described in other Rules. These
proposed changes are designed to address one of the key findings from
FICC's outreach to market participants, that its various participation
models are not well understood.\71\
---------------------------------------------------------------------------
\71\ See supra note 11.
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Section 1 of Rule 2 would be revised to include a statement that
GSD's services may be available directly or indirectly through either
the Sponsored Service or a relationship with an Agent Clearing Member.
Section 1 of Rule 2 would be revised to remove a reference to
FICC's Board of Directors approving membership applications. As
provided in Rule 44, action by the Corporation may include action by
the Board or by another authorized person as may be designated by the
Board from time to time. This proposed change would permit the Board to
either retain the authority to approve these applications or authorize
management to do so, consistent with Rule 44 and the Board's authority
under the FICC By-laws. Specifically, the Board's authority to empower
management with certain responsibilities originates in the FICC By-
laws, which have been filed as a rule of FICC.\72\ The FICC By-laws
document the responsibilities of the Board in electing and appointing
officers of FICC and prescribing and assigning to those officers their
respective powers, authority and duties.\73\ This revision would
simplify the statement in Rule 2, consistent with Rule 44. Section 2
would list the different memberships that have direct access to GSD's
services, which include Netting Members, CCIT Members, Funds-Only
Settling Bank Members and Comparison-Only Members. Separate subsections
would describe each of these membership types, including a general
description of the types of firms that would qualify for these
membership types and where those qualifications are described with more
specificity in the Rules. These subsections would also generally
describe which of GSD's services are available to each membership type
and would identify the Rules where those available services are
described in more detail. The subsection describing Netting Members
would also include a description of the additional ways Netting Members
may use GSD's services, as Agent Clearing Members in connection with
the use of the Agent Clearing Service and Sponsoring Members in
connection with the participation in the Sponsored Service.\74\
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\72\ See Securities Exchange Act Release Nos. 54173 (July 19,
2006), 71 FR 42890 (July 28, 2006) (SR-DTC-2006-10, SR-FICC-2006-09,
and SR-NSCC-2006-08); 82917 (Mar. 20, 2018), 83 FR 12982 (Mar. 26,
2018) (SR-FICC-2018-002).
\73\ See Sections 3.2 through 3.9 of the FICC By-laws, available
at www.dtcc.com/~/media/Files/Downloads/legal/rules/FICC-By-
Laws.pdf.
\74\ See Rule 8 and Rule 3A, respectively, supra note 4.
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In connection with these changes, the proposal would also move a
statement regarding the designation of different categories of Netting
Members as either Tier One Netting Member or Tier Two Member from Rule
2A and move it to Rule 2.\75\ Rule 2A describes eligibility criteria
for different membership types and these designations are not
eligibility criteria, but relate to how FICC's loss allocation
provisions, described in Rule 4, apply to a Netting Member.\76\ This
proposed change would make these designations easy to locate by Netting
Members or market participants considering a direct membership by
including them in the Rule where the different membership types are
described.
---------------------------------------------------------------------------
\75\ ``Tier One Netting Member'' and ``Tier Two Member'' are
defined in Rule 1, supra note 4.
\76\ Supra note 4.
---------------------------------------------------------------------------
Section 3 of Rule 2 would be revised to describe FICC's two
indirect participation models that are available to Sponsored Members
utilizing the Sponsored Service and Executing Firm Customers utilizing
the Agent Clearing Service. Like the other sections of the revised Rule
2, this Section 3 would clarify how a market participant may utilize
one of these models to access FICC's clearance and settlement services
as an indirect participant and would include a reference to the Rules
that describe these indirect access models with more specificity.
The proposed changes would revise the existing statements in Rule 2
that describe the liability of Members who submit activity to FICC on
behalf of entities that are not Members. These proposed changes would
not alter that liability, but would improve the clarity of these
statements, specifically by replacing reference to Members as being
``liable in principal'' to ``fully liable for the performance of all
obligations, financial or otherwise . . . .'' This change would
restate, without changing, the responsibility of Members with respect
to activity submitted to FICC on behalf of other entities. By better
explaining the Member's obligations and replacing the reference to
principal liability, the proposed change would address any confusion
regarding the Member's responsibility for a transaction away from FICC.
b. Simplify Definitions of Membership Categories and Other Related
Definitions
The proposed rule changes would simplify the definitions of the
different types of GSD membership, including the categories of Netting
Members, and enhance the disclosures regarding eligibility
qualifications for membership categories. By improving these statements
and public disclosures in the Rules, the proposed changes would clarify
the availability of different membership types and, therefore, improve
the understanding of market participants regarding the availability of
a direct clearing membership and of indirect participants in
determining which of GSD's indirect, intermediated access models they
prefer to use.
Simplify Definitions of Netting Member Categories. Currently, the
definitions of each category of Netting Member in Rule 1 refer to
Section 3 of Rule 2A, where the qualifications for each category of
Netting Member are described. Each subsection of Section 2 of Rule 2A
includes a statement that defines each category of Netting Member as an
entity that is admitted to membership in the Netting System as that
category of Netting Member pursuant to the applicable qualifications
and whose membership has not been terminated. The proposed rule changes
would move these definitions of each category of Netting Member from
Rule 2A to the defined terms in Rule 1. By moving the terms into Rule
1, the proposed change would simplify the descriptions of eligibility
criteria in Section 3 of Rule 2A.
These proposed rule changes would also remove defined terms that
are used only once in the Rules and replace the uses of those defined
terms with the actual definitions. Some of these defined terms are used
in the criteria for different categories of Netting Member. For
example, the Rules include a definition of ``Inter-Dealer Broker'', and
[[Page 21375]]
this defined term is only used once in the Rules, in the qualifications
to be an Inter-Dealer Broker Netting Member in Section 3 of Rule 2A.
Therefore, the proposed changes would remove this defined term from the
Rules and use the definition of an Inter-Dealer Broker in the
eligibility criteria for that category of Netting Member, in Section
3(a)(iii) of Rule 2A. Similar changes would be made in connection with
the relevant defined terms and eligibility criteria for Government
Securities Issuer Netting Member and Insurance Company Netting Member.
These proposed changes would provide clearer descriptions of the
qualifications for different categories of Netting Member in Rule 2A,
and would not require a reader to refer back to the definitions in Rule
1 to understand those qualifications.
Other examples of these proposed changes include deleting the
defined terms for ``Registered Broker'' and ``Registered Government
Securities Broker'', which are both only used in the definition of
``Broker'', and instead use the definitions of these terms in the
definition of Broker. FICC is proposing to make similar changes to the
definition of ``Dealer'' which currently includes the only uses of the
defined terms for ``Registered Dealer'' and ``Registered Government
Securities Dealer''.
The proposed changes would update the eligibility criteria for
Futures Commission Merchant Netting Members to clarify that an
applicant for this category of Netting Member must be a member, and
subject to the regulatory supervision, of the National Futures
Association. The Rules currently require that an applicant to this
Netting Member category be a Futures Commission Merchant, as such term
is defined in the Commodity Exchange Act and that it be registered with
the Commodity Futures Trading Commission (``CFTC'').\77\ Because any
Futures Commission Merchant that is registered with the CFTC is also
required to be a member of the National Futures Association,\78\ the
proposed rule change would just clarify, but would not add to, the
qualifications for this category of membership.
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\77\ 7 U.S.C. 1(a)(28).
\78\ 17 CFR 170.15(a).
---------------------------------------------------------------------------
Finally, the proposed rule changes would state in the introduction
of Section 3(a) of Rule 2A that applicants can only be one category of
Netting Member and that FICC would determine the appropriate category
for applicants that meet the eligibility criteria for multiple
categories. This limitation is currently in Section 3(b) of Rule 2A, at
the end of the list of categories of Netting Member. The proposed
change would move this requirement more prominently to the top of this
Section.
Simplify Other Defined Terms. In connection with, and related to,
the proposed changes described above to simplify the definitions of the
different categories of Netting Member, the proposed rule changes would
also revise other defined terms to improve the clarity and transparency
of the Rules.
The proposed changes would revise the defined term for ``CCIT
Member'' and move a statement in this definition that Registered
Investment Companies are not eligible to be CCIT Members to Section 2
of Rule 3B, where the rest of the eligibility and qualifications for
CCIT Members are described. Similarly, the proposed changes would move
a statement from the definition of ``Funds-Only Settling Bank Member'',
describing a requirement that these members be party to certain
agreements, to Section 4 of Rule 13, where the requirements applicable
to these members are described. These proposed changes would improve
the transparency of the Rules by including all of the qualifications
applicable to these different membership types in the same places in
the Rules.
4. Other Corrections and Clarifications to the Rules
The proposed rule changes would make other revisions to correct,
clarify and conform provisions of the Rules to improve their accuracy
in describing GSD's services and improve the transparency of the Rules.
First, the proposed rule changes would revise the definition of
``Person'' to clarify that this term was not intended to include
individuals (i.e., natural persons). The proposed changes would also
remove the defined term for ``Non-Member'' and replace this term in the
Rules to use more descriptive terms appropriate to the context where
the term is used. For example, Rule 15 would be revised to replace
reference to ``Non-Member'' with the term ``customer'' in describing
activity submitted to FICC by Repo Brokers. The proposed changes would
also make immaterial, technical changes to simplify the definition of
``Member'' in Rule 1.
Finally, the proposed rule changes would amend the definition of
``Sponsoring Member'' in Rule 1, the first sentence of Section 4 of
Rule 2A and Section 2 of Rule 3A to replace reference to the Board as
being responsible for approving membership applications and related
membership matters with reference to the Corporation, consistent with
Rule 44. These changes would conform to the proposed changes being made
to Rule 2, described above, to permit the Board to either retain the
authority to approve these applications or authorize management to do
so, consistent with Rule 44 and the FICC By-laws.
Implementation Timeframe
Subject to approval by the Commission, FICC expects to implement
the proposal by no later than March 31, 2025, and would announce the
effective date of the proposed change by an Important Notice posted to
FICC's website.
2. Statutory Basis
FICC believes the proposed changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, FICC
believes the proposed rule changes are consistent with Section
17A(b)(3)(F) of the Act,\79\ and Rules 17Ad-22(e)(18)(iii),
(e)(18)(iv)(C), (e)(19) and (e)(23)(ii), each promulgated under the
Act,\80\ for the reasons described below.
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\79\ 15 U.S.C. 78q-1(b)(3)(F).
\80\ 17 CFR 240.17Ad-22(e)(18)(iii), (e)(18)(iv)(C), (e)(19),
and (e)(23)(ii).
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Section 17A(b)(3)(F) of the Act requires that the rules of FICC be
designed, among other things, to promote the prompt and accurate
clearance and settlement of securities transactions, as well as to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions.\81\ As described
in greater detail below, the proposed changes to redefine the
correspondent clearing/prime broker services as the Agent Clearing
Service and the other proposed changes to the disclosures in the Rules
regarding membership types and access models would clarify and improve
public understanding of the ways a market participant may access FICC's
clearance and settlement systems, thereby facilitating increased access
to those systems. The proposed changes to eliminate the two categories
of Sponsoring Members, remove the QIB requirement for Sponsored
Members, and clarify the framework for both Foreign Persons and other
applicants to be Netting Members would facilitate broader access to
FICC's clearance and settlement systems.
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\81\ 15 U.S.C. 78q-1(b)(3)(F).
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The collective impact of these proposed changes would be to permit
an increase in diversity and scope of
[[Page 21376]]
market participants able to utilize FICC's central counterparty
services, which can reduce the costs of securities transactions through
FICC's multilateral netting, its trade guaranty and centralized default
management, and mitigate and manage counterparty risks. Therefore, the
proposed changes would support FICC's compliance with Section
17A(b)(3)(F) of the Act by promoting the prompt and accurate clearance
and settlement of securities through expanded access to its clearance
and settlement systems.\82\ In making changes that clarify, simplify,
and potentially expand the universe of intermediaries and access models
that are available to market participants, including indirect
participants, the proposed changes also would foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions.
---------------------------------------------------------------------------
\82\ Id.
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Rule 17Ad-22(e)(18)(iii) under the Act requires that FICC monitor
compliance with its participant requirements on an ongoing basis.\83\
The proposed rule changes would allow FICC to assess the risk profiles
of its Netting Members, in their capacity as Agent Clearing Members,
through the information Netting Members would provide when they apply
to use the Agent Clearing Service and through the subsequent due
diligence requests. The collection of this information, which would
include, for example, information regarding the controls the Agent
Clearing Member has in place to monitor and mitigate its risks, would
allow FICC to monitor its Members' compliance with the requirements of
participating in the Agent Clearing Service. The proposed rule changes
to eliminate the two categories of Sponsoring Member would expand
FICC's ability to set appropriate activity limits to all Sponsoring
Members. The activity limits allow FICC to monitor the activity and,
therefore, the risks that this activity may present to FICC. Therefore,
these proposed rule changes support FICC's compliance with the
requirements of Rule 17Ad-22(e)(18)(iii).\84\
---------------------------------------------------------------------------
\83\ 17 CFR 240.17Ad-22(e)(18)(iii).
\84\ Id.
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Rule 17Ad-22(e)(18)(iv)(C) under the Act requires, among other
things, that FICC, as a covered clearing agency that provides central
counterparty services for transactions in U.S. Treasury securities,
ensure that it has appropriate means to facilitate access to clearance
and settlement services of all eligible secondary market transactions
in U.S. Treasury securities, including those of indirect
participants.\85\
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\85\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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FICC has conducted a review of its existing access models that, as
described above, included consideration of whether FICC's existing
policies and procedures treat transactions differently based on the
identity of the participant submitting the transaction, the fact that
an indirect participant is a party to the transaction, the method of
execution, and other factors and that included a survey of market
participants.\86\ Following this review, FICC believes that its
existing direct and indirect participation models provide market
participants with appropriate means to access its clearance and
settlement services, including indirect participants. As described
below, the proposed rule changes would clarify and, therefore, improve
market participants' understanding of these participation models.
Certain proposed changes would expand the availability of participation
to more, and a wider variety of, market participants. Collectively, the
proposed changes are designed to support FICC's continued compliance
with the requirements of Rule 17Ad-22(e)(18)(iv)(C) under the Act by
enhancing the Rules in describing various means for accessing its
clearance and settlement services, including those of indirect
participants.
---------------------------------------------------------------------------
\86\ Supra note 11.
---------------------------------------------------------------------------
The proposed changes to re-name the correspondent clearing/prime
broker services to a single Agent Clearing Service would better
disclose to the public, through the Rules, the operation and
availability of this indirect participation model, and the rights and
obligations of both Netting Members that use this service and their
customers, who use this service to indirectly access central clearing
at FICC. As described above, the proposed changes to Rule 8 would more
clearly define the service through a number of additional disclosures.
Among other things, the proposed changes would describe how a Netting
Member can apply to use this service as an Agent Clearing Member,
specify the rights and obligations of Agent Clearing Members in their
use of this service and define the transactions that are eligible to be
cleared and settled through this service, in addition to addressing
other key aspects of the service.
In this way, the proposed changes would provide a framework for
Agent Clearing Members, their customers, and other market participants
regarding how to access FICC's clearance and settlement services. By
making these public disclosures clearer and more detailed, the proposed
changes would improve market participants' understanding of the
operation, availability, and comparative tradeoffs of this service,
thereby facilitating access to FICC's clearance and settlement services
for Executing Firm Customers as indirect participants.
The proposed rule changes to update the eligibility criteria for
both direct and indirect membership are also designed to improve the
availability of GSD membership to more, and a wider variety of, market
participants. By eliminating the two categories of Sponsoring Members,
FICC would apply the same eligibility criteria and conditions for
continued membership to all Sponsoring Members, without applying
different standards based on the identity of the participant. This
proposed rule change would also make more Bank Netting Members eligible
to apply to be a Sponsoring Member, improving access to this indirect
participation model by expanding the potential universe of Sponsoring
Member intermediaries. The proposal to eliminate the QIB requirement
for Sponsored Members would permit market participants that did not
meet this eligibility criteria to participate in FICC's Sponsored
Service and, therefore, access its clearance and settlement systems as
indirect participants. The proposed changes to provide a framework for
how additional Netting Member applicants, including Foreign Persons,
may be eligible to apply to be Netting Members would allow additional
market participants to be considered for direct membership. These rule
changes clarify the process FICC would follow in considering an
applicant for direct membership and, therefore, facilitate broader
access to clearance and settlement services.
Finally, by revising the Rules to include a roadmap for the
different categories of membership and various participation models,
and to clarify and simplify the descriptions of membership types, these
proposed rule changes, like the changes described above, would improve
market participants' understanding of the available means for accessing
FICC's clearance and settlement services.
As described above, while FICC is not proposing to materially
change its existing access models, it is proposing to further disclose
to the public, through the Rules, the criteria and related requirements
for how both Members and, indirectly, legal entities that are not
Members, can access GSD's services through these participation models.
By doing so, the proposed changes would
[[Page 21377]]
lead to better understanding of the available methods for accessing
FICC's clearance and settlement systems, including by indirect
participants in support of its compliance with Rule 17Ad-
22(e)(18)(iv)(C).\87\
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\87\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(19) under the Act requires that FICC identify,
monitor, and manage the material risks to the covered clearing agency
arising from arrangements in which firms that are indirect participants
in the covered clearing agency rely on the services provided by direct
participants to access the covered clearing agency's payment, clearing,
or settlement facilities.\88\
---------------------------------------------------------------------------
\88\ 17 CFR 240.17Ad-22(e)(19).
---------------------------------------------------------------------------
The proposed rule changes would describe the various ways FICC
would identify, monitor and manage the risks that may be presented to
it through the Agent Clearing Service. When a Netting Member applies to
use this service as an Agent Clearing Member, FICC would first collect
information through an application, which would include information
regarding its customers, past and/or projected volumes of its customer
activity, and its controls for monitoring and mitigating risks,
including risks presented by those customers. FICC would also continue
to require Agent Clearing Members to identify their Executing Firm
Customers, provide FICC with a current LEI for any customers, and
confirm such customers' agent clearing relationship with the Agent
Clearing Member before submitting trades on their behalf. The proposed
rule changes to Rule 8 would also affirm FICC's existing authority to
request reports and other information from Netting Members, in their
capacity as Agent Clearing Member, through annual and ongoing due
diligence requests. As described above, these information requests are,
and would continue to be, an important tool for FICC to identify and
monitor the risks that arise from these indirect participation
arrangements. As described above, FICC uses these risk profiles to
determine when to take further risk management measures available under
its Rules to manage any risks a Member may pose to it.
In this way, these proposed changes would support FICC's compliance
with Rule 17Ad-22(e)(19) and the requirement that it identify, monitor,
and manage the material risks that may arise from the Agent Clearing
Service.\89\
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\89\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act requires that FICC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for providing sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in FICC.\90\ As described in
detail above, the proposed rule changes are collectively designed to
improve the public disclosures, in the Rules, describing the different
types of membership, different categories of Netting Member and
different participation models available to market participants.
---------------------------------------------------------------------------
\90\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------
By revising Rule 8 to describe the Agent Clearing Service with
greater clarity and specificity, the proposed rule changes would
provide both Agent Clearing Members and their Executing Firm Customers
with sufficient information regarding the rights and obligations of all
parties using this service. By defining the process by which a Netting
Member may apply to use the Agent Clearing Service, the operation of
that service, and the rights and obligations of Agent Clearing Members,
these additional disclosures would provide market participants with
sufficient information to evaluate the risks, fees, and other costs
they may incur through participation in this service.
For example, the proposed rule changes would specify in Section 5
of Rule 8 that the Agent Clearing Member is fully liable for the
performance of all obligations, financial or otherwise, to FICC arising
in connection with Agent Clearing Transactions. The proposed rule
changes would also provide, in Section 3 of Rule 8, that nothing in the
Rules prohibit an Agent Clearing Member from seeking reimbursement from
an Executing Firm Customer for payments made by the Agent Clearing
Member under the Rules, or as otherwise may be agreed between the Agent
Clearing Member and the Executing Firm Customer.
The proposed rule changes to clarify the descriptions of the
criteria and related requirements for how both Members and, indirectly,
legal entities that are not Members, can access GSD's services also
would support FICC's compliance with the requirements of Rule 17Ad-
22(e)(23). These proposed rule changes would simplify and, therefore,
clarify the criteria and related descriptions of the different models
for accessing GSD's services. As described above, the proposed changes
include adding a public road map for the different models for accessing
GSD's services, simplifying the definitions of the different types of
membership, and clarifying the eligibility criteria for different
categories of Netting Members. These proposed changes are designed to
enhance the ability of market participants to understand GSD's access
models that are available, thereby allowing them to determine, whether
as direct or indirect participants, how to access, offer, and price
those models to obtain access to central clearing. In this way, the
proposed rule changes would support FICC's continued compliance with
the requirements of Rule 17Ad-22(e)(23).
(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed rule changes described in this
filing would promote competition by improving market participants'
understanding of the different membership categories and various models
for accessing its clearance and settlement services.
As stated above, while some of the proposed changes include
enhancements to membership qualifications and use of indirect access
models, in general, the proposed rule changes would not materially
change how market participants can access GSD's services today. The
proposed application process and ongoing due diligence requests that
would be applicable to Agent Clearing Members are not currently
required for use of the existing correspondent clearing/prime broker
services. The proposed application process could prohibit a Netting
Member from using the Agent Clearing Service if FICC determines, based
on the information provided in the application, that the applicant does
not, for example, have the proper risk management controls in place to
submit trades to FICC on behalf of its customers. This could create a
competitive disadvantage between such applicant and other Netting
Members that are approved to use the Agent Clearing Service. The
proposed due diligence requests could result in additional risk
management measures, such as increased reporting obligations or
Clearing Fund deposits, if FICC deems such measures appropriate to
mitigate risks that are identified through the course of such due
diligence. Such risk management measures could also create a
competitive disadvantage between the Agent Clearing Members that are
subject to those measures and those that are not.
However, FICC believes the application process and the due
diligence information requests are important tools for FICC to identify
and monitor the risks that arise from these indirect participation
arrangements. FICC believes these proposed changes
[[Page 21378]]
are appropriate in allowing FICC to assess the risk profiles of its
Netting Members either as applicants or in their capacity as Agent
Clearing Members through the information they would provide when they
elect to use the Agent Clearing Service and the subsequent due
diligence requests. FICC also believes these proposed measures are
necessary for it to comply with its requirements under Rule 17Ad-
22(e)(19) under the Act, as described above.\91\
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\91\ 17 CFR 240.17Ad-22(e)(19).
---------------------------------------------------------------------------
By providing Members and other market participants with more
information regarding these different access models, the proposed
changes would collectively promote competition by facilitating greater
access to FICC's services by contemplating a more diverse and wider
scope of market participants who could serve as intermediaries, thereby
increasing the potential range of avenues by which indirect
participants can seek to access GSD's clearing services. The proposed
rule changes to eliminate the two categories of Sponsoring Members
would also promote competition by applying the same eligibility
criteria and ongoing risk management conditions to all Sponsoring
Members. This proposed change and the proposal to eliminate the QIB
requirement for Sponsored Members would promote competition further by
permitting additional firms to participate in the Sponsored Service as
either Sponsoring Members or Sponsored Members, respectively. The
proposed rule changes to provide a clear framework for how Foreign
Persons can apply to be Netting Members and for how FICC may consider
applicants, including Foreign Persons, that do not meet the eligibility
criteria for an existing category of Netting Member. As such, these
proposed rule changes would facilitate greater access to FICC's
clearance and settlement systems and promote competition in the
relevant markets.
FICC does not believe the proposal to make technical corrections
and other clarification changes to the Rules would impact competition.
These changes are being proposed to ensure the clarity and accuracy of
the Rules. They would not change FICC's current practices or affect
Members' rights and obligations. As such, FICC believes the proposal to
make technical, clarifying and conforming changes would not have any
impact on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="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#26525447424f48414748424b47544d4352556655434508414950"><span class="__cf_email__" data-cfemail="91e5e3f0f5f8fff6f0fff5fcf0e3faf4e5e2d1e2f4f2bff6fee7">[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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d0a2a5bcb5fdb3bfbdbdb5bea4a390a3b5b3feb7bfa6"><span class="__cf_email__" data-cfemail="eb999e878ec6888486868e859f98ab988e88c58c849d">[email protected]</span></a>. Please include
File Number SR-FICC-2024-005 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-2024-005. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(<a href="http://dtcc.com/legal/sec-rule-filings">dtcc.com/legal/sec-rule-filings</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-2024-005 and should be submitted on or before April 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\92\
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\92\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06446 Filed 3-26-24; 8:45 am]
BILLING CODE 8011-01-P
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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.