Notice2024-10953
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify the GSD Rules and MBSD Rules to Update Certain Member Requirements Under CCLF
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
May 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 98 (Monday, May 20, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43938-43941]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10953]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100137; File No. SR-FICC-2024-008]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Modify the GSD Rules and
MBSD Rules to Update Certain Member Requirements Under CCLF
May 14, 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 May 8, 2024, Fixed Income Clearing Corporation (``FICC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II and III below, which Items have
been prepared by the clearing agency. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The purpose of the proposed rule change is to modify the MBSD Rules
concerning CCLF (also known as the Capped Contingency Liquidity
Facility) to (i) require that each MBSD Clearing Member provide an
annual attestation that its Defined Capped Liquidity Amount has been
incorporated into its liquidity plans; (ii) require Clearing Members to
provide certain acknowledgements to FICC concerning their understanding
of and ability to meet their CCLF obligations; and (iii) provide
additional clarity and transparency in the MBSD Rules concerning the
liquidity funding reports that are made available to Clearing Members
in connection with their CCLF obligations. The proposed rule change
would also modify the GSD Rules to include a similar requirement that
each GSD Netting Member provide certain acknowledgements to FICC
concerning their understanding of and ability to meet their CCLF
obligations and provide further clarity around GSD's regular
attestation requirement in GSD Rule 22A.\3\
---------------------------------------------------------------------------
\3\ Capitalized terms not defined herein are defined in the GSD
Rules and MBSD Rules, as applicable, available at <a href="http://www.dtcc.com/legal/rules-and-procedures">www.dtcc.com/legal/rules-and-procedures</a>.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
Background
CCLF is a rules-based committed liquidity facility designed to help
ensure that FICC maintains sufficient liquid financial resources to
meet its cash settlement obligations in the event of a default of the
member (and its affiliates) to which FICC has the largest exposure in
extreme but plausible market conditions. In the event that FICC has
ceased to act for an MBSD
[[Page 43939]]
Clearing Member pursuant to MBSD Rule 17 or for a GSD Netting Member
pursuant to GSD Rule 22A, FICC may declare a Capped Contingency
Liquidity Facility Event (a ``CCLF Event''), pursuant to which such
members may be required to hold and fund their deliveries to the
insolvent member, up to a predetermined cap, by entering into repo
transactions with FICC until the associated closeout is complete. The
maximum predetermined cap amount that an MBSD Clearing Member would be
required to fund during a CCLF Event is referred to as the ``Defined
Capped Liquidity Amount.'' The maximum predetermined cap amount that a
GSD Netting Member would be required to fund during a CCLF Event is
referred to as the ``Individual Total Amount.'' Each MBSD Clearing
Member's Defined Capped Liquidity Amount or GSD Netting Member's
Individual Total Amount is generally established at set intervals based
on liquidity studies performed by FICC; however, FICC may also reset
such amounts at such other time periods as FICC may determine from time
to time (an ``ad hoc resizing'').\4\
---------------------------------------------------------------------------
\4\ See MBSD Rule17, Section 2a(c) and GSD Rule 22A, Section
2a(b), supra note 3.
---------------------------------------------------------------------------
Proposed Changes
FICC proposes to modify the MBSD Rules to (i) require that each
Clearing Member provide a regular attestation that its Defined Capped
Liquidity Amount has been incorporated into its liquidity plans and
(ii) provide additional clarity and transparency concerning the
liquidity funding reports that are made available to Clearing Members
in connection with their CCLF obligations. Additionally, FICC proposes
to modify both the MBSD Rules and GSD Rules to require MBSD Clearing
Members and GSD Netting Members to provide certain acknowledgements to
FICC concerning their understanding of and ability to meet their CCLF
obligations. FICC also proposes to modify the GSD Rules to provide
further clarity around GSD's regular attestation requirement in GSD
Rule 22A. The proposed changes are discussed in detail below.
Required Attestation
FICC proposes to adopt new Section 2a(e) of MBSD Rule 17 that would
require each Clearing Member to provide to FICC a regular attestation
that the Clearing Member's Defined Capped Liquidity Amount has been
incorporated into its liquidity plans (``Required Attestation''). The
Required Attestation would be required on at least an annual basis or
upon demand by FICC. The newly proposed rule would require that each
Required Attestation be signed by two authorized officers of the
Clearing Member (or otherwise be satisfactory in form and substance to
FICC) and contain the following certifications: (1) such officers have
read and understand the MBSD Rules; (2) the Clearing Member's Defined
Capped Liquidity Amount has been incorporated into the Clearing
Member's liquidity planning; (3) the Clearing Member acknowledges and
agrees that its Defined Capped Liquidity Amount may be changed pursuant
to Section 2a(c) of MBSD Rule 17 or otherwise upon ten Business Days'
Notice; (4) the Clearing Member will incorporate any changes to its
Defined Capped Liquidity Amount into its liquidity planning; and (5)
the Clearing Member shall, through periodic discussions with its
financing sources and other methods, continually reassess its liquidity
plans and related operational plans, including in the event of any
changes to such Clearing Member's Defined Capped Liquidity Amount, to
ensure such Clearing Member's ability to meet its Defined Capped
Liquidity Amount. FICC would also add a new defined term to the
definitions in MBSD Rule 1 for ``Required Attestation,'' which would
refer readers to newly proposed Section 2a(e) of MBSD Rule 17.
FICC believes that the proposed rule change would strengthen the
CCLF program by requiring each Clearing Member to attest that it
understands its potential obligations under CCLF, has taken appropriate
steps to incorporate such obligations in its liquidity planning, and
continually reassess its liquidity plans and related operational plans
as those obligations change. FICC notes that the proposed rule would
mirror an existing requirement in the GSD Rules that Netting Members
provide a comparable Required Attestation to FICC concerning such
Netting Member's CCLF obligations.\5\
---------------------------------------------------------------------------
\5\ See GSD Rule 22A, Section 2a(d), supra note 3, and proposed
conforming changes to the GSD Rule discussed below.
---------------------------------------------------------------------------
Liquidity Funding Report
FICC also proposes to adopt new Section 2a(d) of MBSD Rule 17 to
provide additional clarity and transparency around the liquidity
funding reports made available to MBSD Clearing Members. Specifically,
Section 2a(d) of MBSD Rule 17 would provide that on each Business Day,
FICC will make a liquidity funding report available to each Clearing
Member, for informational purposes only, that includes (i) the Clearing
Member's Defined Capped Liquidity Amount and (ii) other information
concerning historical CCLF requirements. The proposed rule would
further reiterate that, in the event that FICC declares a CCLF Event,
Clearing Members shall be required to enter into CCLF Transactions up
to their Defined Capped Liquidity Amount as calculated by FICC. FICC
notes that the proposed rule would provide similar clarity and
transparency regarding the information and reporting made available by
FICC to MBSD Clearing Members as is currently provided to GSD Netting
Members under Section 2a(c) of GSD Rule 22A.\6\
---------------------------------------------------------------------------
\6\ See GSD Rule 22A, Section 2a(c), supra note 3.
---------------------------------------------------------------------------
CCLF Acknowledgements
FICC proposes to adopt new Section 2a(f) of MBSD Rule 17 and
Section 2a(e) of GSD Rule 22A to permit FICC to require MBSD Clearing
Members and GSD Netting Members to provide certain acknowledgements to
FICC, in such form and at such times as FICC may determine from time to
time, concerning such member's understanding of and ability to meet its
CCLF obligations. Such written acknowledgements would include, but not
be limited to, an acknowledgement from each member whose CCLF
obligations increase by an amount exceeding certain thresholds
established FICC following any ad hoc resizing of the CCLF confirming
such member's ability to meet the increased obligation.\7\ Proposed
Section 2a(f) of MBSD Rule 17 and Section 2a(e) of GSD Rule 22A would
further provide that FICC will inform members of any such required
acknowledgements, including specific thresholds for any required
acknowledgement, by Important Notice. FICC believes that the proposed
rule change would strengthen the CCLF program by ensuring that each
MBSD Clearing Member and GSD Netting Member is informed of and
understands certain key obligations under CCLF as may be required by
FICC, particularly in the event of an ad hoc resizing of the facility.
---------------------------------------------------------------------------
\7\ FICC would initially establish this threshold to be any
increase of $1 million or more.
---------------------------------------------------------------------------
Other Proposed Clarifying Changes
Finally, FICC would also modify Section 2(a)(d) of GSD Rule 22A
concerning GSD's Required Attestations to clarify that the regular
interval for attestations from GSD Netting Members is ``on at least an
annual basis.'' As a matter of practice, GSD currently requires the
attestations on an at least an annual basis, and the proposed change
[[Page 43940]]
would align the GSD Rules with the proposed MBSD Rules concerning
Required Attestations and provide additional clarity and transparency
to GSD Netting Members concerning the attestation requirement.
2.Statutory Basis
FICC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. section 17A(b)(3)(F) of Act
\8\ requires, in part, that the rules of a clearing agency be designed
to promote the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds, which are in the custody or control of the clearing agency
or for which it is responsible. FICC believes the proposed rule change
would strengthen the CCLF program by requiring each MBSD Clearing
Member to attest to its understanding of its potential obligations
under CCLF, that it has taken appropriate steps to incorporate such
obligations in its liquidity planning, and that it continually
reassesses its liquidity plans and related operational plans as those
obligations change. Furthermore, the proposed rule change would also
clearly state in both the MBSD and GSD Rules that Required Attestations
are completed on at least an annual basis. It would also require MBSD
Clearing Members and GSD Netting Members to acknowledge, among other
things, significant increases in their CCLF obligations following any
ad hoc resizing of the CCLF. CCLF provides additional liquidity to FICC
in the event that its other liquidity resources are insufficient upon
the default of an MBSD Clearing Member or GSD Netting Member, which
would help ensure that FICC has sufficient funds to meet its cash
settlement obligations to its non-defaulting participants. FICC
therefore believes the proposed rule change is designed to promote the
prompt and accurate clearance and settlement of securities transactions
and assure the safeguarding of securities and funds which are in the
custody or control of FICC or for which it is responsible, consistent
with section 17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7) under the Act \9\ requires generally that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to effectively
measure, monitor, and manage the liquidity risk that arises in or is
borne by the covered clearing agency. As described above, the proposed
attestation and acknowledgements are intended to reinforce each
member's understanding of its responsibilities under CCLF.
Specifically, they are designed to ensure that the member understands
its potential obligations under CCLF, that it has taken appropriate
steps to incorporate such obligations in its liquidity planning, and
that it continually reassesses its liquidity plans and related
operational plans as those obligations change. CCLF provides additional
liquidity to FICC in the event that its other liquidity resources are
insufficient upon a member default and helps to ensure that FICC has
sufficient funds to manage its liquidity risk and meet its cash
settlement obligations on an ongoing and timely basis. FICC therefore
believes the proposed rule change is reasonably designed to comply with
the requirements of Rule 17Ad-22(e)(7) under the Act.
---------------------------------------------------------------------------
\9\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of Act \10\ requires that the rules of a
clearing agency do not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. FICC does not
believe that the proposed rule change would impose any burden or have
an impact on competition. The proposed rule change would not impact the
financial obligations of FICC's members under CCLF. The proposed
Required Attestation is intended to ensure that each MBSD Clearing
Member understands its potential obligations under CCLF, has taken
appropriate steps to incorporate such obligations in its liquidity
planning, and continually reassess its liquidity plans and related
operational plans as those obligations change. Pursuant to Section 7 of
Rule 2A, each MBSD Clearing Member agrees to abide by the MBSD Rules
and to be bound by all the provisions thereof. This includes the
requirements and obligations associated with CCLF as provided in
Section 2a of MBSD Rule 17. FICC believes that most of the
responsibilities and activities to which MBSD Clearing Members would be
required to attest (e.g., reading and understanding the MBSD Rules,
understanding its obligations under CCLF, incorporating such
obligations into its liquidity planning, and continually reassessing
such plans, especially as its CCLF obligations change) are, to a large
extent, reasonably and fairly implied in order to abide by and comply
with such Clearing Member's existing obligations under the CCLF rules.
Furthermore, the proposed rule change would not prescribe the specific
ways in which Clearing Members satisfy the attestation requirement but
rather provides flexibility for each Clearing Member to consider
methods to meet its CCLF obligations in the manner that best suits its
specific business, operating, and regulatory model, as well as
applicable balance sheet, liquidity plan, and ownership structure.
Finally, FICC does not believe that requiring a written acknowledgement
from MBSD Clearing Members or GSD Netting Members regarding their
understanding of and ability to meet CCLF obligations, particularly
those following an ad hoc resizing, would impose any burden or
competitive impact on those members. Accordingly, FICC does not believe
that the proposed rule change would impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
(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#7e0a0c1f1a1710191f101a131f0c151b0a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="c9bdbba8ada0a7aea8a7ada4a8bba2acbdba89baacaae7aea6bf">[email protected]</span></a> or 202-551-5777.
FICC reserves the right to not respond to any comments received.
[[Page 43941]]
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f082859c95dd939f9d9d959e8483b0839593de979f86"><span class="__cf_email__" data-cfemail="1d6f687178307e7270707873696e5d6e787e337a726b">[email protected]</span></a>. Please include
file number SR-FICC-2024-008 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-2024-008. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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-2024-008 and
should be submitted on or before June 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10953 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on May 20, 2024.
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.