Notice2025-01931
Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Amend the Clearing Agency Investment Policy
Primary source
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Published
January 30, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 19 (Thursday, January 30, 2025)</title>
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[Federal Register Volume 90, Number 19 (Thursday, January 30, 2025)]
[Notices]
[Pages 8555-8557]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-01931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102280; File Nos. SR-DTC-2024-011; SR-FICC-2024-011;
SR-NSCC-2024-010]
Self-Regulatory Organizations; The Depository Trust Company;
Fixed Income Clearing Corporation; National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Amend the Clearing
Agency Investment Policy
January 24, 2025.
I. Introduction
On December 3, 2024, The Depository Trust Company (``DTC''), Fixed
Income Clearing Corporation (``FICC''), and National Securities
Clearing Corporation (``NSCC,'' each a subsidiary of The Depository
Trust & Clearing Corporation (``DTCC'') and each a ``Clearing Agency,''
and collectively, the ``Clearing Agencies''), filed with the Securities
and Exchange Commission (``Commission'') proposed rule changes SR-DTC-
2024-011, SR-FICC-2024-011, and SR-NSCC-2024-010, respectively,
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder (``Proposed Rule Changes'').\2\
The Proposed Rule Changes would amend the Clearing Agency Investment
Policy (``Investment Policy'', or ``Policy'') of the Clearing Agencies
to conform the Policy to the changes made to the FICC Government
Securities Division Rulebook (``GSD Rules'') by SR-FICC-2024-007.\3\
The Proposed Rule Changes were published for comment in the Federal
Register on December 17, 2024.\4\ The Commission has received no
comments on the Proposed Rule Changes. For the reasons discussed below,
the Commission is approving the Proposed Rule Changes.
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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. 101695 (Nov. 21,
2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-007) (``Account
Segregation Filing''). The changes proposed in the Account
Segregation Filing are expected to be implemented by no later than
March 31, 2025. Terms not defined herein are defined in the GSD
Rules, available at www.dtcc.com/~/media/Files/Downloads/legal/
rules/ficc_gov_rules.pdf.
\4\ See Securities Exchange Act Release No. 101883 (Dec. 11,
2024), 89 FR 102195 (Dec. 17, 2024) (File No. SR-DTC-2024-011)
(``DTC Notice of Filing''); Securities Exchange Act Release No.
101882 (Dec. 11, 2024), 89 FR 102234 (Dec. 17, 2024) (File No. SR-
FICC2024-011) (``FICC Notice of Filing''); Securities Exchange Act
Release No. 101885 (Dec. 11, 2024), 89 FR 102211 (Dec. 17, 2024)
(File No. SR-NSCC-2024-010) (``NSCC Notice of Filing'').
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II. Background
Each Clearing Agency established the Clearing Agency Investment
Policy,\5\ which governs the management, custody, and investment of
cash deposited to the DTC Participants Fund and the respective NSCC and
FICC Clearing Funds,\6\ the proprietary liquid net assets (cash and
cash equivalents) of the Clearing Agencies, and other funds held by the
Clearing Agencies pursuant to their respective rules. The Investment
Policy states that it establishes a conservative investment philosophy
that places the highest priority on maximizing the liquidity and
avoiding risk to the funds in the custody of the Clearing Agencies.\7\
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\5\ See Securities Exchange Act Release No. 79528 (December 12,
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007; SR-FICC-
2016-005; SR-NSCC-2016-003) (``2016 Framework Order'').
\6\ The DTC Participants Fund and the respective Clearing Funds
of NSCC and FICC are described further in DTC Rules, NSCC Rules,
MBSD Rules, GSD Rules, respectively. See DTC Rules, Rule 4
(Participants Fund and Participants Investment); NSCC Rules, Rule 4
(Clearing Fund); GSD Rules Rule 4 (Clearing Fund and Loss
Allocation); MBSD Rules, Rule 4 (Clearing Fund and Loss Allocation).
\7\ See 2016 Framework Order, 81 FR at 91233.
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The Investment Policy includes, generally, a glossary of key terms,
the roles and responsibilities of DTCC staff in administering the
Investment Policy, guiding principles for investments, sources of
investable funds, allowable investments of those funds, limitations on
such investments, authority required for those investments, and
authority required to exceed established investment limits.\8\ In
particular, the Investment Policy provides that allowable investments
include bank deposits, reverse repurchase agreements, direct
obligations of the U.S. government, money market mutual funds, high
grade corporate debt, hedge transactions, and further specifies which
particular allowable investment is permitted for different portions of
the Clearing Agencies' resources.\9\
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\8\ See 2016 Framework Order, 81 FR at 91232-33.
\9\ See Securities Exchange Act Release Nos. 91291 (March 10,
2021), 86 FR 14500, 14501 (March 16, 2021) (SR-DTC-2021-002);
Securities Exchange Act Release Nos. 91292 (March 10, 2021), 86 FR
14503, 14504 (March 16, 2021) (SR-FICC-2021-001); and Securities
Exchange Act Release Nos. 91293 (March 10, 2021), 86 FR 14506, 14507
(March 16, 2021) (SR-NSCC-2021-003).
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On December 13, 2023, the Commission adopted amendments to the
standards applicable to covered clearing agencies that clear
transactions in U.S. Treasury securities (``Treasury CCAs''), such as
FICC.\10\ These amendments require Treasury CCAs to establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to, among other things, calculate, collect, and
hold margin for direct participants' proprietary positions separately
and independently from margin calculated, collected, and held for
indirect participants that rely on the services provided by the direct
participant to access the Treasury CCA's payment, clearing, or
settlement facilities.\11\ The Commission also amended its broker-
dealer customer protection rule (``Rule 15c3-3'') \12\ and the customer
and proprietary accounts of broker-dealer (``PAB'' reserve formulas
thereunder (``Rule 15c3-3a'') \13\ to permit margin required and on
deposit with Treasury CCAs to be included under certain conditions as a
debit in the reserve formulas.\14\
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\10\ 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.
\11\ 17 CFR 240.17ad-22(e)(6)(i).
\12\ 17 CFR 240.15c3-3.
\13\ 17 CFR 240.15c3-3a.
\14\ See supra note 10.
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On November 21, 2024, the Commission issued an order approving a
proposed rule change filed by FICC to modify the GSD Rules to
calculate, collect, and hold margin for transactions that a direct GSD
participant enters into for its own benefit (``proprietary
transactions'') separately from margin a direct participant submits to
FICC on behalf of indirect participants and to address conditions of
Note H to Rule 15c3-3a under the Exchange Act.\15\ Such changes are
expected to be implemented by FICC in the GSD Rules by no later than
March 31, 2025.
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\15\ See supra note 3.
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The proposed changes to the Investment Policy would conform the
Policy to the changes made to the GSD Rules pursuant to the Account
Segregation Filing.
III. Description of the Proposed Rule Change
The Clearing Agencies propose to modify the Investment Policy to
(i) conform the Policy to the changes made to GSD Rules to calculate,
collect, and hold margin for proprietary transactions of GSD Netting
Members separately from transactions submitted on behalf of individual
participants; (ii) implement changes to comply with SEC rules
(specifically Rule 15c3-3 and 15c3-3a)
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regarding legal segregation of designated funds and restricting how
they are held and invested; and (iii) update terms and make conforming
changes.
A. Separating and Holding Indirect Participant Margin
The Clearing Agencies propose to modify the Investment Policy to
conform the Policy to the changes made to GSD Rules to calculate,
collect, and hold margin for proprietary transactions of GSD Netting
Members separately from transactions submitted on behalf of individual
participants. First, the Clearing Agencies propose to add a definition
in Section 2 (Glossary of Terms) of the Investment Policy for the term
Indirect Participants Clearing Fund Deposits which shall mean ``the
total amount deposited in the GSD Clearing Fund to support activity in
Agency Clearing Member Omnibus Accounts and Sponsoring Member Omnibus
Accounts, other than Segregated Indirect Participants Accounts, as such
terms are defined in the FICC Government Securities Division (`GSD')
Rulebook (`GSD Rules').'' \16\
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\16\ See DTC Notice of Filing, supra note 4, at 102212; FICC
Notice of Filing, supra note 4, at 102235; and NSCC Notice of
Filing, supra note 4, at 102197.
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Second, the Clearing Agencies propose to amend Section 3.2 (Guiding
Principles) to specify that Indirect Participants Clearing Fund
Deposits will be held by separately and independently on FICC's books
and records from all other deposits to the GSD Clearing Fund.
Third, the Clearing Agencies propose to amend Section 5 (Investable
Funds) to specify that Indirect Participants Clearing Fund Deposits are
included in the GSD Clearing Fund.
B. Legally Segregating and Limiting Investments of Segregated Customer
Margin
The Clearing Agencies propose to modify the Investment Policy to
implement changes to comply with SEC rules (specifically Rule 15c3-3
and 15c3-3a) regarding legal segregation of designated funds and
restricting how they are held and invested. First, the Clearing
Agencies propose to amend Section 2 (Glossary of Terms) to include a
definition of the term Segregated Customer Margin which shall have the
meaning given such term in the GSD Rules.
Second, the Clearing Agencies propose to amend Section 3.2
(Separation/Segregation of Funds) to include a statement that that
Segregated Customer Margin will be segregated and held separately and
independently from any other funds as described in the GSD Rules,
specifically, Section 1a of GSD Rule 4. The Clearing Agencies state
that the proposed changes to this section address how FICC would comply
with the conditions set forth in Rule 15c3-3 and Rule 15c3-3a regarding
segregating and holding Segregated Customer Margin.\17\
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\17\ See DTC Notice of Filing, supra note 4, at 102213; FICC
Notice of Filing, supra note 4, at 102236; NSCC Notice of Filing,
supra note 4, at 102197.
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Third, the Clearing Agencies propose to amend Section 5 (Investable
Funds) to include Segregated Customer Margin as a source of investable
funds as described in the GSD Rules, specifically, Section1a of GSD
Rule 4. The Clearing Agencies also propose to add a description of the
recipient of investment income for Segregated Customer Margin which
shall be GSD Netting Members for the benefit of the respective Indirect
Participants.\18\ Additionally, the Clearing Agencies would clarify in
the description of Participants Fund and Clearing Funds that Segregated
Customer Margin is not treated as general FICC Clearing Fund.
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\18\ GSD Rules also state that any interest earned on Segregated
Customer Margin consisting of cash must be paid to the Netting
Member on behalf of, and as agent for, its Segregated Indirect
Participant. See Securities Exchange Act Release No. 101454 (Oct.
28, 2024), 89 FR 87441, 87443 (Nov. 1, 2024) (File No. SR-FICC-2024-
007).
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Fourth, the Clearing Agencies propose to amend Section 6.1
(Allowable Investments) by including Segregated Customer Margin as a
separate category of Allowable Investments and specifying these funds
may only be invested in bank deposits, including the Federal Reserve
Bank of New York.
Fifth, the Clearing Agencies propose to amend Section 6.2
(Investment Limits) to clarify that Segregated Customer Margin shall
only be held in an account of FICC at a bank within the meaning of the
Act that is insured by the Federal Deposit Insurance Corporation
(``FDIC''), or at the Federal Reserve Bank of New York, as described in
GSD Rule 4.\19\ Additionally, the Clearing Agencies propose to include
language that higher investments limits may apply to investments of
Segregated Customer Margin.
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\19\ In addition to FICC requirements to hold Segregated
Customer Margin in accounts at a bank within the meaning of the Act
that is insured by the FDIC, GSD Rules require those accounts to be
held at a bank that is a qualified custodian under the Investment
Company Act of 1940 Act. See id.
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C. Update Terms and Conforming Changes
The Clearing Agencies propose to update terms in the Investment
Policy and make conforming changes. The Clearing Agencies would replace
references to the ``Management Committee'' with the term ``senior most
management committee,'' which the Clearing Agencies state would more
accurately describe the internal governing body without referring to
its formal name.\20\ The Clearing Agencies state the change to replace
the formal name of the internal governing committee will ensure this
body is accurately described in the Investment Policy in the event of
any future changes to its formal name.\21\ The Clearing Agencies would
also include a new defined term for ``senior most management
committee'' in Section 2 to make clear it references the highest-level
committee of DTCC.
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\20\ See DTC Notice of Filing, supra note 4, at 102213; FICC
Notice of Filing, supra note 4, at 102236; NSCC Notice of Filing,
supra note 4, at 102197.
\21\ See id. For example, the Notices of Filing state that the
Management Committee has recently changed its name to the Executive
Committee.
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Additionally, the Clearing Agencies would make several conforming
changes to Section 4.3 (regarding authorization to establish new
investment relationships), Section 6.2.3 (regarding authorization of
investment transactions in U.S. Treasury securities), Section 6.2.5
(regarding authorization of investment transactions in high-grade
corporate debt) and Section 7.2 (regarding authorization to exceed
investment limits).
IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \22\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the Proposed Rule
Changes, the Commission finds that the Proposed Rule Changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to the Clearing Agencies. In
particular, the Commission finds that the Proposed Rule Changes are
consistent with Section 17A(b)(3)(F) of the Act.\23\
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\22\ 15 U.S.C. 78s(b)(2)(C).
\23\ 15 U.S.C. 78q-1(b)(3)(F).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency, such as the Clearing Agencies, be designed to, among
other things, promote the prompt and accurate
[[Page 8557]]
clearance and settlement of securities transactions and assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\24\
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\24\ 15 U.S.C. 78q-1(b)(3)(F).
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As described above, the Clearing Agencies propose to amend the
Investment Policy to support changes made to GSD Rules pursuant to the
Account Segregation Filing. The proposed changes to the Investment
Policy in Section 3.2 to state that Segregated Customer Margin shall be
segregated and held separately and independently from any other funds
in compliance with applicable conditions set out in Rule 15c3-3 and
Rule 15c3-3a should enhance the Clearing Agencies' ability to meet
their settlement obligations in the event of a Netting Member or
indirect participant default. By doing so, the Proposed Rule Changes
should better ensure that, in the event of a default, the Clearing
Agencies' operation of its critical clearance and settlement services
would not be disrupted because of insufficient financial resources and,
therefore, that the Clearing Agencies would be able to continue
providing prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F).\25\
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\25\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, the investment guidelines and governance procedures
set forth in the Investment Policy are designed to safeguard the
securities and funds that are in the custody or control of the Clearing
Agencies on behalf of thier members. Specifically, the Proposed Rule
Changes amend Section 6.1 of the Investment Policy to specify
Segregated Customer Margin as an Allowable Investment and those funds
shall only be held in an account of FICC at a bank that is insured by
the FDIC, or at the Federal Reserve Bank of New York consistent with
GSD Rules. In addition, the Proposed Rule Changes would align the
terminology used in the Investment Policy with the terminology used in
the GSD Rules to clarify the investable funds that are subject to the
Investment Policy. By eliminating inconsistent use of terminology, the
proposed changes should help to improve the effectiveness of the
Investment Policy. Therefore, the Proposed Rule Changes would implement
changes to the Investment Policy that are consistent with changes made
to the GSD Rules pursuant the Account Segregation Filing, and also
should safeguard the securities and funds in custody or control of the
Clearing Agencies on behalf of its members, consistent with Section
17A(b)(3)(F).\26\
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\26\ 15 U.S.C. 78q-1(b)(3)(F).
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For these reasons, the Proposed Rule Changes are 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 the clearing agency or for which it is
responsible, consistent with Section 17A(b)(3)(F) of the Act.\27\
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\27\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Changes are consistent with the requirements of the Act
and in particular with the requirements of Section 17A of the Act \28\
and the rules and regulations promulgated thereunder.
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\28\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\29\ that proposed rule changes SR-DTC-2024-011, SR-FICC-2024-011, and
SR-NSCC-2024-010, be, and hereby are, approved.\30\
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\29\ 15 U.S.C. 78s(b)(2).
\30\ In approving the Proposed Rule Changes, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\31\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01931 Filed 1-29-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on January 30, 2025.
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