Notice2024-25429
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Partial Amendment No. 1 to Proposed Rule Change To Modify the GSD Rules (i) Regarding the Separate Calculation, Collection and Holding of Margin for Proprietary Transactions and That for Indirect Participant Transactions, and (ii) To Address the Conditions of Note H to Rule 15c3-3a
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Published
November 1, 2024
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 89 Issue 212 (Friday, November 1, 2024)</title>
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[Federal Register Volume 89, Number 212 (Friday, November 1, 2024)]
[Notices]
[Pages 87441-87444]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25429]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101454; File No. SR-FICC-2024-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Partial Amendment No. 1 to Proposed Rule Change To
Modify the GSD Rules (i) Regarding the Separate Calculation, Collection
and Holding of Margin for Proprietary Transactions and That for
Indirect Participant Transactions, and (ii) To Address the Conditions
of Note H to Rule 15c3-3a
October 28, 2024.
On March 14, 2024, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange
[[Page 87442]]
Commission (``Commission'') the proposed rule change SR-FICC-2024-007
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to modify FICC's
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') to
calculate, collect, and hold margin for proprietary transactions of a
direct participant separately from margin submitted to FICC by a direct
participant on behalf of indirect participants and to address
conditions of Note H to Rule 15c3-3a under the Exchange Act (the
``Proposed Rule Change'').\3\ The Proposed Rule Change was published
for public comment in the Federal Register on March 28, 2024.\4\ The
Commission has received comments regarding the substance of the
Proposed Rule Change.\5\ The Commission also received a letter from
FICC responding to the comments.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 99149 (Dec. 13,
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22) (``Adopting Release,''
and the rules adopted therein as ``Treasury Clearing Rules''). See
also 17 CFR 240.15c3-3a.
\4\ Securities Exchange Act Release No. 99844 (March 22, 2024),
89 FR 21603 (Mar. 28, 2024) (File No. SR-FICC-2024-007) (``Notice of
Filing''). FICC also filed a related Advance Notice with the
Commission pursuant to Section 806(e)(1) of Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, entitled the
Payment, Clearing, and Settlement Supervision Act of 2010 and Rule
19b-4(n)(1)(i) under the Exchange Act. 12 U.S.C. 5465(e)(1). 15
U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, respectively. The Advance
Notice was published in the Federal Register on March 28, 2024.
Securities Exchange Act Release No. 99845 (Mar. 22, 2024), 89 FR
21586 (Mar. 28, 2024) (File No. SR-FICC-2024-802).
\5\ Comments on the Proposed Rule Change are available at
<a href="https://www.sec.gov/comments/sr-ficc-2024-007/srficc2024007.htm">https://www.sec.gov/comments/sr-ficc-2024-007/srficc2024007.htm</a>.
Comments on the Advance Notice are available at <a href="https://www.sec.gov/comments/sr-ficc-2024-802/srficc2024802.htm">https://www.sec.gov/comments/sr-ficc-2024-802/srficc2024802.htm</a>. Because the proposals
contained in the Proposed Rule Change and the Advance Notice are the
same, the Commission considers all comments received on the
proposal, regardless of whether the comments are submitted with
respect to the Advance Notice or the Proposed Rule Change.
\6\ See Letter from Laura Klimpel, Managing Director, Head of
Fixed Income and Financing Solutions, Depository Trust & Clearing
Corporation, (Aug. 1, 2024) (``FICC Letter'').
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On April 24, 2024, pursuant to Section 19(b)(2) of the Exchange
Act,\7\ the Commission designated a longer period within which to
approve, disapprove, or institute proceedings to determine whether to
approve or disapprove the Proposed Rule Change.\8\ On June 21, 2024,
pursuant to Section 19(b)(2)(B) of the Exchange Act,\9\ the Commission
instituted proceedings to determine whether to approve or disapprove
the Proposed Rule Change.\10\ On September 18, 2024, the Commission
extended the time period for Commission action on the proceedings to
determine whether to disapprove the Proposed Rule Change.\11\
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\7\ 15 U.S.C. 78s(b)(2).
\8\ Securities Exchange Act Release No. 100022 (Apr. 24, 2024),
89 FR 34289 (Apr. 30, 2024) (File No. SR-FICC-2024-007).
\9\ 15 U.S.C. 78s(b)(2)(B).
\10\ Securities Exchange Act Release No. 100401 (Jun. 21, 2024),
89 FR 53690 (Jun. 27, 2024) (File No. SR-FICC-2024-007).
\11\ Securities Exchange Act Release No. 101082 (Sep. 18, 2024),
89 FR 77949 (Sep. 24, 2024) (File No. SR-FICC-2024-007).
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On October 25, 2024, FICC filed Partial Amendment No. 1 to the
Proposed Rule Change.\12\ Pursuant to Section 19(b)(1) of the Act \13\
and Rule 19b-4 thereunder,\14\ the Commission is publishing notice of
this Partial Amendment No.1 to the Proposed Rule Change as described in
Item I below. The Commission is publishing this notice to solicit
comments on Partial Amendment No. 1 from interested persons.
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\12\ Text of the proposed changes made by the Partial Amendment
No. 1 to the Proposed Rule Change is available at <a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>. The GSD Rules are available at https://www.dtcc.com/~/
media/Files/Downloads/legal/rules/ficc_gov_rules.pdf. Terms not
otherwise defined herein are defined in the GSD Rules or in the
Proposed Rule Change.
\13\ 15 U.S.C. 78s(b)(1).
\14\ 17 CFR 240.19b-4.
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I. Summary of the Terms of Substance of Partial Amendment No. 1 to the
Proposed Rule Change
FICC filed Partial Amendment No. 1 to its previously submitted
Proposed Rule Change, which would make several changes to FICC's GSD
Rules to (1) provide for FICC to calculate, collect, and hold margin
for the proprietary transactions of a Netting Member separately and
independently from the margin for transactions that the Netting Member
submits to FICC on behalf of indirect participants; (2) simplify and
revise the account types through which Members may record transactions
at FICC and adopt a new Rule 2B to provide clearer public disclosures
through the Rules regarding the GSD account structure; (3) allow
Netting Members to elect for margin for indirect participant
transactions to be calculated on a gross basis (i.e., an indirect
participant-by-indirect participant basis) and legally segregated from
the margin for the Netting Member's proprietary transactions (as well
as those of other indirect participants); (4) align FICC's margin
calculation methodology with the expanded account types and enhance
public disclosure through the Rules of that calculation methodology;
and (5) simplify the requirements for brokered transactions so that
they only apply to transactions executed by an Inter-Dealer Broker
Netting Member on the trading platform offered by that Inter-Dealer
Broker Netting Member.
Regarding the changes described in (3) above, Partial Amendment No.
1 makes several changes to the requirements regarding Segregated
Customer Margin. First, as originally proposed, the Proposed Rule
Change requires FICC to establish and maintain on its books and records
a Segregated Customer Margin Custody Account corresponding to each
Segregated Indirect Participants Account.\15\ Partial Amendment No. 1
deletes and replaces language in Rule 4, Section 1a, requiring
Segregated Customer Margin credited to a Segregated Customer Margin
Custody Account to be used exclusively to settle and margin
Transactions in U.S. Treasury securities recorded in the corresponding
Segregated Indirect Participants Account, with language requiring
Segregated Customer Margin credited to a Segregated Customer Margin
Custody Account to secure Transactions recorded in the corresponding
Segregated Indirect Participants Account and satisfy payment and
delivery obligations owning to the Corporation (including liquidating
or otherwise using such Segregated Customer Margin to obtain relevant
cash or securities) in connection with a default in respect of such
Transactions.
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\15\ Notice of Filing supra note 4.
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Similarly, Partial Amendment No. 1 deletes and replaces language in
Rule 4, Section 5 regarding the use of Clearing Fund and Segregated
Customer Margin requiring FICC to only use the portion of Segregated
Customer Margin that supports each Segregated Indirect Participant's
Transactions. The Proposed Rule Change stated that FICC could use that
portion to secure or settle the obligations of that Segregated Indirect
Participant, and of the Sponsoring Member or Agent Clearing Member with
respect to the obligations of that Segregated Indirect Participant,
whereas Partial Amendment No. 1 replaces this language to state that
FICC may only use that portion of Segregated Customer Margin to secure
the Transactions of that Segregated Indirect Participant recorded in
the corresponding Segregated Indirect Participants Account and satisfy
payment and delivery obligations owing to FICC (including liquidating
or otherwise using such Segregated Customer Margin to obtain relevant
cash or securities) in connection with a default in respect of such
Transactions.
[[Page 87443]]
Additionally, Partial Amendment No 1. clarifies language in that
portion of Rule 4 regarding FICC's prohibition on using Segregated
Customer Margin from one Segregated Indirect Participant's Transactions
to secure or settle another Segregated Indirect Participant's
Transaction by deleting reference to the term ``settle'' and replacing
with satisfying payment or delivery obligations in connection with
another Segregated Indirect Participant's Transaction.
Second, as originally proposed, the Proposed Rule Change requires
FICC to hold all Segregated Customer Margin in an account at a bank
within the meaning of the Exchange Act that is insured by the Federal
Deposit Insurance Corporation or at the Federal Reserve Bank of New
York, which account shall be segregated from any other account of the
Corporation and used exclusively to hold Segregated Customer
Margin.\16\ Additionally, the Proposed Rule Change requires Segregated
Customer Margin to be subject to a written notice of the bank or
Federal Reserve Bank provided to and retained by the Corporation that
the Segregated Customer Margin in the account is being held by the bank
or Federal Reserve Bank pursuant to SEC Rule 15c3-3 and is being kept
separate from any other accounts maintained by the Corporation or any
other person at the bank or Federal Reserve Bank.\17\ Partial Amendment
No. 1 revises the Proposed Rule Change to insert text that clarifies
that FICC shall not only hold Segregated Customer Margin in an account
of FICC at a bank within the meaning of the Exchange Act that is
insured by the Federal Deposit Insurance Corporation, but shall also
hold Segregated Customer Margin in an account at a bank that is also a
qualified custodian under the Investment Company Act of 1940,\18\ as
amended.\19\ Additionally, the Proposed Rule Change inserts text that
clarifies that not only is each account holding Segregated Customer
Margin being held by a bank or Federal Reserve Bank pursuant to SEC
Rule 15c3-3 is being kept separate from any other accounts maintained
by FICC or any other person at the bank or Federal Reserve Bank, but
also requires these accounts to not be commingled with any other
accounts maintained by FICC or any other persona at the bank or Federal
Reserve Bank.
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\16\ Id.
\17\ Id.
\18\ 15 U.S.C. 80a-1 et seq.
\19\ Notice of Filing, supra note 4.
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Third, as originally proposed, the Proposed Rule Change requires
any interest earned on Segregated Customer Margin to be paid by FICC to
the Netting Member.\20\ Partial Amendment No. 1 inserts language to
clarify that any interest earned on Segregated Customer Margin
consisting of cash shall be paid to the Netting Member for the benefit
of, and as agent for, its Segregated Indirect Participants.
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\20\ Id.
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Fourth, as originally proposed, the Proposed Rule Change would
apply three requirements to each Segregated Customer Margin Requirement
for a particular Segregated Indirect Participants Account: (1) A
minimum of 40 percent of the Segregated Customer Margin Requirement for
such Account shall be satisfied with cash and/or Eligible Clearing Fund
Treasury Securities; (2) the lesser of $5,000,000 or 10 percent of the
Segregated Customer Margin Requirement for the Account must be made and
maintained in cash; and (3) a minimum of the product of $1 million and
the number of Segregated Indirect Participants whose Transactions are
recorded in such Segregated Indirect Participants Account must be made
and maintained in cash.\21\ Partial Amendment No. 1 would revise the
Proposed Rule Change by deleting the second requirement regarding the
lesser of $5,000,000 or 10 percent of the Segregated Customer Margin
Requirement for the Account must be made and maintained in cash.
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\21\ Id.
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Fifth, as originally proposed, FICC had the discretion to retain
some or all of the Excess Segregated Customer Margin if the Member had
an outstanding payment or margin obligation to FICC with respect to the
Transactions of any Segregated Indirect Participant.\22\ Partial
Amendment No. 1 would revise the Proposed Rule Change by adding text
that clarifies the FICC shall not retain the Excess Segregated Customer
Margin with respect to the Transactions of a Segregated Indirect
Participant when they have determined, in their sole discretion, that
such outstanding payment or margin obligation is unrelated to the
Transactions of that Segregated Indirect Participant.
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\22\ Id.
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Sixth, Partial Amendment No. 1 would make the following change to
the Margin Component Schedule in the Proposed Rule Change regarding
Segregated Customer Margin Requirement Calculations.\23\ As originally
proposed, each Segregated Indirect Participant would be required to
deposit in the Segregated Indirect Participants Account Required Fund
Deposit the greater of the (i) the sum of the Unadjusted GSD Margin
Portfolio Amount and all applicable additional charges; and (ii) a
minimum charge of $1 million. Partial Amendment No. 1 would revise the
Proposed Rule Change by inserting text to clarify that FICC may, in its
sole discretion, adjust the minimum charge of $1 million in the
Segregated Indirect Participants Account Required Fund Deposit if FICC
determines that a different minimum charge would be appropriate and
consistent with achieving its backtesting coverage target and that
Members would be notified of any such adjustment by an Important
Notice.
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\23\ Id.
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Seventh, Partial Amendment No. 1 would add text to Rule 3A, Section
3, as proposed to be amended by SR-FICC-2024-005,\24\ to state that a
Sponsored Member may be a series of a limited liability company,
statutory trust, or other legal entity.
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\24\ Securities Exchange Act Release No. 99817 (March 21, 2024),
89 FR 21362 (March 27, 2024) (File No. SR-FICC-2024-005).
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Regarding the changes described in (4) above, Partial Amendment No.
1 would add language to clarify how the definition of Current Net
Settlement Position relates to Sponsored GC Trades and that the
definition does not refer to calculating the Net Settlement Position
under Rule 11. As originally proposed, the definition stated that, if a
Current Net Settlement Position recorded in a Sponsoring Member Omnibus
Account or Segregated Indirect Participants Account is not clearly
allocable to an individual Sponsored Member or Segregated Indirect
Participant, including because one or more transactions recorded in the
Account did not settle on its original Scheduled Settlement Date, then,
for purposes of calculating the relevant Netting Member's Sponsoring
Member Omnibus Account Required Fund Deposit or Segregated Customer
Margin Requirement for such Account, FICC shall allocate the positions
in the manner specified. In Partial Amendment No. 1, the definition
states if a Current Net Settlement Position recorded in a Sponsoring
Member Omnibus Account or Segregated Indirect Participants Account is
not clearly allocable to an individual Sponsored Member or Segregated
Indirect Participant, including because one or more transactions (other
than Sponsored GC Trades) recorded in the Account did not settle on its
original Scheduled Settlement Date (such failure to settle would not
occur with respect to Sponsored GC Trades), then, for purposes of
calculating the relevant
[[Page 87444]]
Netting Member's Sponsoring Member Omnibus Account Required Fund
Deposit or Segregated Customer Margin Requirement for such Account and
not for purposes of calculating the Net Settlement Position under Rule
11, FICC shall allocate the positions in the manner specified.\25\
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\25\ Partial Amendment No. 1 would also amend the definition of
Netting Member Capital to use the defined terms Net Assets and
Equity Capital.
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Regarding the changes described in (5) above, Partial Amendment No.
1 makes several changes to the Proposed Rule Change and existing rules
regarding the use of the term Brokered Transactions, including changes
to its definition. Specifically, Partial Amendment No. 1 would delete
and add text to the definition of Brokered Transaction to clarify that
a Brokered Transaction means the side of a transaction, including a
Repo Transaction, that is submitted to the Corporation for Novation by
an Inter-Dealer Broker Netting Member calling for the delivery of an
Eligible Netting Security, or the posting of cash or an Eligible
Netting Security as collateral, that such Inter-Dealer Broker Netting
Member enters into with another Netting Member or a Sponsored Member or
Executing Firm Customer through the Inter-Dealer Broker Netting
Member's own trading platform. As initially proposed, the definition of
Brokered Transaction referred only to any transaction, including a Repo
Transaction, calling for the delivery of an Eligible Netting Security,
or the posting of cash or an Eligible Netting Security as collateral.
Partial Amendment No. 1 also revises text proposed in SR-FICC-2024-
005 regarding the treatment of Agent Clearing Transactions and deletes
reference to the term Brokered Transactions, such that Brokered
Transactions would not be excluded from being an Agent Clearing
Transaction.
Additionally, Partial Amendment No. 1 makes the following changes
to delete references to the term Brokered Transactions: (i) amends text
from the Proposed Rule Change regarding Rule 1, to remove the term
Brokered Transactions from the definition of Dealer Account; (ii)
revises Rule 4, Section 7 regarding loss allocation for Inter-Dealer
Broker Netting Members, to replace a reference to a Segregated Repo
Account, with a reference to a Broker Account, and to remove a
reference to a Non-IDB Repo Broker, as the Proposed Rule Change deletes
the use of that term from the Rules; and (iii) amends existing Rule 3A
Section 5 regarding Sponsored Member Trades and deletes reference to
the term Brokered Transactions, such that the text now states that
Sponsored Member Trades (other than Sponsored GC Trades) may be any
type of transaction eligible for submission to FICC for netting with
the exception of Netting Eligible Auction Purchases and GCF Repo
Transactions.
Finally, Partial Amendment No. 1 makes several technical and
conforming changes throughout the Proposed Rule Change, such as
renumbering section numbers to reflect the addition of new sections.
Partial Amendment No. 1 would not change the purpose of, or
statutory basis for the proposed rule change. All other representations
in the Proposed Rule Change remain as stated therein and no other
changes are being made.
II. 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f785829b92da94989a9a92998384b7849294d9909881"><span class="__cf_email__" data-cfemail="d8aaadb4bdf5bbb7b5b5bdb6acab98abbdbbf6bfb7ae">[email protected]</span></a>. Please include
file number SR-FICC-2024-007 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-2024-007. 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</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 such filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website at
(<a href="https://dtcc.com/legal/sec-rule-filings.aspx">https://dtcc.com/legal/sec-rule-filings.aspx</a>). Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-FICC-2024-007 and should be submitted on or
before November 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(31).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25429 Filed 10-31-24; 8:45 am]
BILLING CODE 8011-01-P
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