Notice2025-12919
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Amend and Restate the Cross-Margining Agreement Between FICC and CME
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
July 11, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 131 (Friday, July 11, 2025)</title>
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[Federal Register Volume 90, Number 131 (Friday, July 11, 2025)]
[Notices]
[Pages 31043-31048]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-12919]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103399; File No. SR-FICC-2025-014]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Amend and Restate the Cross-
Margining Agreement Between FICC and CME
July 8, 2025.
I. Introduction
On May 9, 2025, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-FICC-2025-014
(``Proposed Rule Change'') to make changes to FICC's cross-margining
arrangement with the Chicago Mercantile Exchange, Inc. (``CME''), which
is incorporated as part of FICC's Government Securities Division
(``GSD'') Rule Book. The Proposed Rule Change was published for comment
in the Federal Register on May 28, 2025.\3\ The Commission has received
no comments on the proposed rule change. For the reasons discussed
below, the Commission is approving the Proposed Rule Change.
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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. 103096 (May 21,
2025), 90 FR 22538 (May 28, 2025) (File No. SR-FICC-2025-014)
(``Notice of Filing'').
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II. Background
FICC is a central counterparty (``CCP''), which means it interposes
itself as the buyer to every seller and seller to every buyer for the
financial transactions it clears. FICC's Government Securities Division
(``GSD'') provides trade comparison, netting, risk management,
settlement, and central counterparty services for the U.S. Government
securities market.\4\ As such, FICC is exposed to the risk that one or
more of its members may fail to make a payment or to deliver
securities.
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\4\ FICC's Mortgage-Backed Securities Division provides similar
services for mortgage-backed securities. For purposes of this Order,
``FICC'' refers to GSD.
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A key tool that FICC uses to manage its credit exposures to its
members is the daily collection of margin from each member. A member's
margin is designed to mitigate potential losses associated with
liquidation of the member's portfolio in the event of that member's
default. The aggregated amount of all GSD members' margin
[[Page 31044]]
constitutes the Clearing Fund, which FICC would be able to access
should a defaulted member's own margin be insufficient to satisfy
losses to FICC caused by the liquidation of that member's portfolio.
Each member's margin consists of a number of applicable components,
including a value-at-risk charge designed to capture the potential
market price risk associated with the securities in a member's
portfolio.
Margin requirements are typically designed, in part, to recognize
the potential relationship between products in a member's portfolio
(e.g., some products may naturally gain value when others lose value).
Members may, however, hold assets or enter into transactions that
reduce risk, but are not visible to the CCP. For example, a market
participant might purchase a debt security, and at the same time,
contract to sell the same security in the future. The risk to the
market participant is a combination of these two offsetting
transactions as opposed to the risk of each added together because it
is unlikely that both positions would lose value at the same time under
normal market conditions.
To recognize potential offsets in the risk presented by related
products, FICC has an ongoing Cross-Margining Arrangement with CME,
which acts as a CCP for futures related to the debt instruments that
FICC clears.\5\ In 2023, FICC and CME entered into the Amended and
Restated Cross-Margining Agreement (the ``Existing Agreement''), that
allows FICC and CME (referred to as ``Clearing Organizations'' in the
Existing Agreement) to consider the net risk of a participant's
eligible positions at each Clearing Organization when setting margin
requirements for such positions, including by defining the methodology
to determine offsets between cleared products that could reduce the
margin requirement of an FICC member.\6\
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\5\ CME provides central counterparty services for futures,
options, and swaps. See Financial Stability Oversight Council
(``FSOC'') 2012 Annual Report, Appendix A, <a href="https://home.treasury.gov/system/files/261/here.pdf">https://home.treasury.gov/system/files/261/here.pdf</a> (last visited July 17,
2023).
\6\ See Securities Exchange Act Release No. 98327 (Sept. 8,
2023), 88 FR 63185 (Sept. 14, 2023) (``FICC-CME 2023 Order''). See
also Section 4, ``Calculation of the Cross-Margin Requirements'' of
the Existing Agreement, available at https://www.dtcc.com/~/media/
Files/Downloads/legal/rules/ficc_cme_crossmargin_agreement.pdf. The
Existing Agreement is incorporated by reference in the FICC
Government Securities Division (``GSD'') Rulebook (``GSD Rules''),
available at <a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">www.dtcc.com/legal/rules-and-procedures.aspx</a>. Unless
otherwise specified, capitalized terms not defined herein shall have
the meanings ascribed to them in the GSD Rules, which includes the
Amended and Restated Cross-Margining Agreement.
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Pursuant to the terms of the Existing Agreement, a joint clearing
member of the Clearing Organizations (a ``Joint Clearing Member'') that
participates in the Cross-Margining Arrangement may designate any of
its accounts at FICC (except its Sponsoring Member Omnibus Account) to
be cross-margined with a cross-margining account on the books of CME
(each such account, a ``Cross-Margining Account'').\7\ In addition, a
Joint Clearing Member may include in a Cross-Margining Account both its
proprietary positions and those of an affiliate, as long as the
affiliate is not a customer under certain Commission rules and its
account on the records of the Joint Clearing Member is a ``proprietary
account'' within the meaning of 17 CFR 1.3 (an ``Eligible
Affiliate'').\8\
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\7\ See Recital C of the Existing Agreement, supra note 6.
\8\ See Section 1 (defining ``Cross-Margining Account'' and
``Proprietary Account'') of the Existing Agreement, supra note 6.
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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.\9\ 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.\10\
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\9\ See Securities Exchange Act Release No. 99149 (Dec. 13,
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22).
\10\ 17 CFR 240.17ad-22(e)(6)(i).
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On November 21, 2024, the Commission approved amendments to the GSD
Rules that were designed to implement the new requirements of Rule
17ad-22(e)(6)(i),\11\ which went into effect on March 24, 2025.\12\
These amendments establish new account structures to accommodate direct
and indirect participants. Specifically, these amendments would require
a Netting Member to ensure that transactions it submits to FICC for the
benefit of an indirect participant are recorded in an Indirect
Participants Account, such as an Agent Clearing Member Omnibus Account,
rather than in one of the Netting Member's Proprietary Accounts.\13\
However, the regulations promulgated by the Commodity Futures Trading
Commission (``CFTC'') applicable to the positions that a Joint Clearing
Member maintains at CME for an Eligible Affiliate require that such
positions be maintained in the Joint Clearing Member's house account in
which the Joint Clearing Member may also maintain its own proprietary
positions.\14\
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\11\ See Securities Exchange Act Release No. 101695 (Nov. 21,
2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-007); 17 CFR
240.17ad-22(e)(6)(i).
\12\ GSD Important Notice (Feb. 26, 2025), available at
<a href="http://www.dtcc.com/-/media/Files/pdf/2025/2/26/GOV1909-25.pdf">www.dtcc.com/-/media/Files/pdf/2025/2/26/GOV1909-25.pdf</a>.
\13\ See supra note 9.
\14\ See 7 U.S.C. 6d (permitting the commingling of futures
customer property solely with the property of other futures
customers); 17 CFR 1.3 (deeming the holder of a ``proprietary
account'' not to be a customer for purposes of 7 U.S.C. 6d); 17 CFR
1.3 (defining ``proprietary account'' as a ``commodity futures . . .
account carried on the books and records of an individual, a
partnership, corporation or other type of association: . . . (2) Of
which ten percent or more is owned by one of the following persons,
or an aggregate of ten percent or more of which is owned by more
than one of the following persons: . . . (vii) A business affiliate
that directly or indirectly controls such individual, partnership,
corporation or association; or (viii) A business affiliate that,
directly or indirectly is controlled by or is under common control
with, such individual, partnership, corporation or association. . .
.'').
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III. Description of the Proposed Rule Change
The proposed rule change consists of a proposed Second Amended and
Restated Cross-Margining Agreement (the ``Proposed Agreement'') between
FICC and CME.\15\ FICC states that the purpose of the Proposed
Agreement is to make certain technical changes that are designed to
account for this difference in account structure so that an Eligible
Affiliate of a Joint Clearing Member that accesses FICC's clearing
services and the Cross-Margining Arrangement through a Joint Clearing
Member will continue to be able to participate in the Cross-Margining
Arrangement in accordance with Rule 17ad-22 and the GSD Rules.\16\ FICC
further states that such amendments would promote the maintenance of
lower risk and more balanced portfolios and facilitate the access of
indirect participants to central clearing in accordance with Rule 17ad-
22.\17\
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\15\ The proposed Second A&R Agreement, available at <a href="https://www.sec.gov/files/rules/sro/ficc/2025/34-103096-ex5.pdf">https://www.sec.gov/files/rules/sro/ficc/2025/34-103096-ex5.pdf</a>, would
replace the Existing Agreement in its entirety and would be
incorporated into the GSD Rules.
\16\ See Notice of Filing, supra note 3, 90 FR at 22539.
\17\ See Notice of Filing, supra note 3, 90 FR at 22540.
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FICC states that these changes would not otherwise affect the
functioning of the Cross-Margining Arrangement, including the
calculation of margin
[[Page 31045]]
reductions and default management, under the Existing Agreement.\18\
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\18\ See Notice of Filing, supra note 3, 90 FR at 22540. FICC
further states that it will make changes to the Service Level
Agreement between FICC and CME that supplements the Existing
Agreement, to ensure conformance with the Proposed Agreement. Id.
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A. Changes To Address the Requirements of Rule 17ad-22(e)(6)(i) and the
Related GSD Rules
The Proposed Agreement would continue to permit a Joint Clearing
Member to subject eligible positions cleared for an Eligible Affiliate
to the cross-margining arrangement.\19\ However, it would require any
such positions cleared at FICC to be recorded in an Agent Clearing
Member Omnibus Account. More specifically, the Proposed Agreement would
contain a new clause providing that in the event transactions or
positions maintained in a Cross-Margining Account are not the
proprietary transactions or positions of the Cross-Margining
Participant,\20\ then such transactions or positions and margin may
only be maintained in a Cross-Margining Account at FICC if (i) the
transactions, positions and margin are maintained by the Cross-
Margining Participant for an Eligible Affiliate, and (ii) the Account
in which the transactions and positions in FICC Eligible Products are
recorded is an Agent Clearing Member Omnibus Account that contains
exclusively the transactions and positions of the Eligible
Affiliate(s).\21\ The Proposed Agreement would add certain provisions
to the Cross-Margining Agreement (Common Member) attached as Appendix A
to the Proposed Agreement (the ``Common Member Agreement''), which all
Joint Clearing Members would be required to execute with the Clearing
Organizations. Those provisions would consist of representations by the
Joint Clearing Member to the Clearing Organizations that these
conditions regarding Eligible Affiliate transactions are met.\22\
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\19\ See supra note 7.
\20\ A Cross-Margining Participant is a Joint Clearing Member
that has become, or a Clearing Member that is part of a pair of
Cross-Margining Affiliates each of which has become, a participant
in the cross-margining arrangement between FICC and CME. See Section
1 of the Existing Agreement, supra note 6.
\21\ See GSD Rule 8, Section 5, supra note 6. A Joint Clearing
Member and any Eligible Affiliate(s) would need to satisfy FICC's
requirements to be an Agent Clearing Member and an Executing Firm,
respectively, in accordance with the applicable GSD Rule. FICC
offers two different types of Indirect Participant Accounts for use
without margin segregation: the Agent Clearing Member Omnibus
Account and the Sponsoring Member Omnibus Account. The GSD Rules do
not currently permit a Joint Clearing Member to designate a
Sponsoring Member Omnibus Account as a Cross-Margining Account. See
GSD Rule 3A, Section 10(h), supra note 6. FICC is not proposing to
change this limitation. See Notice of Filing, supra note 3, 90 FR at
22540 n. 15.
\22\ See Appendix A, ``Fixed Income Clearing Corporation/Chicago
Mercantile Exchange Inc. Cross-Margining Participant Agreement
(Common Member)'' of the Proposed Agreement, supra note 15.
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FICC states that, because of these changes, in no circumstance
would any proprietary securities positions of the Joint Clearing Member
at FICC (or any proprietary margin securing those positions) be
incorporated into or netted against FICC's calculation of the margin
requirement applicable to the positions the Joint Clearing Member
carries for its Eligible Affiliates.\23\
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\23\ See Notice of Filing, supra note 3, 90 FR at 22540.
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B. Proposals To Address the Role of Participating Affiliates as
Principal
The Proposed Agreement would include changes to reflect the role of
a Participating Affiliate as principal on the Eligible Positions
recorded in an Agent Clearing Member Omnibus Account.\24\ Under the GSD
Rules, when an Agent Clearing Member clears an Agent Clearing Member
Transaction for an Executing Firm Customer, it ``acts solely as
agent.'' \25\ Accordingly, the Executing Firm Customer which is an
Eligible Affiliate participating in cross-margining (i.e., a
``Participating Affiliate'') is a principal on such transaction. The
proposed Second A&R Agreement would adjust a number of defined terms,
including ``Cross-Margin VM Gain,'' ``Cross-Margin VM Loss,''
``Liquidation Cost,'' ``Margin,'' ``Other VM Gain,'' ``Other VM Loss,''
``Variation Margin,'' as well as the provisions of Section 7 relating
to the termination of a Cross-Margining Participant, to recognize that
payment or delivery obligations may be owed by or to an Eligible
Affiliate), rather than by or to the Joint Clearing Member.
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\24\ See Notice of Filing, supra note 3, 90 FR at 22540.
\25\ See GSD Rules, Rule 8, Section 5(b), supra note 6.
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In addition, the Proposed Agreement would make additions to the
Common Member Agreement to ensure that, as is the case with the
Existing Agreement, FICC and CME would be able to look to the entirety
of a Participating Affiliate's Eligible Positions and all associated
margin to satisfy the obligations arising from the Joint Clearing
Member's Cross-Margining Accounts at FICC and CME.\26\ In particular,
the Proposed Agreement would require each Joint Clearing Member to
agree in the Common Member Agreement, as agent for each of its
Participating Affiliates, that each such Participating Affiliate (i)
unconditionally promises to pay any amounts owing in respect of the
Cross-Margining Accounts established for such Participating Affiliate
(each, an ``Affiliate Account''), (ii) agrees that it is jointly and
severally liable for any payment obligation in respect of any Cross-
Margining Account of the Joint Clearing Member, in an amount up to the
liquidation value of the positions maintained for the Participating
Affiliate in any Affiliate Account and, without duplication, the value
realized on any margin or other collateral held for any such account,
and (iii) agrees it is bound by the GSD Rules and the CME rules as
applicable to a Participating Affiliate and by the provisions of the
Proposed Agreement and Common Member Agreement.
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\26\ See Notice of Filing, supra note 3, 90 FR at 225401.
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In order to ensure the effectiveness of these agreements by a Joint
Clearing Member on behalf of its Participating Affiliates,\27\ each
Joint Clearing Member would represent and warrant in the Common Member
Agreement that it has full power and authority to bind each of its
Participating Affiliates to the foregoing terms and that before
permitting an Eligible Affiliate to be a Participating Affiliate it
will have obtained such Participating Affiliate's written consent to
such terms. The proposed Common Member Agreement would require each
Joint Clearing Member to provide such written consent to the Clearing
Organizations upon their request. The Proposed Agreement would also
include revisions to the security interest language in the Common
Member Agreement so that the obligations secured include those of the
Participating Affiliate, and that the Joint Clearing Member grants the
security interest on behalf of itself and each Participating
Affiliate.\28\
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\27\ See Notice of Filing, supra note 3, 90 FR at 22541.
\28\ See id.
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These proposed changes to the Common Member Agreement would ensure
that, if a Joint Clearing Member defaults and FICC makes payment to CME
pursuant to the cross-guarantee set forth in the proposed Second A&R
Agreement,\29\ FICC would be able to set off and apply to its claim for
reimbursement the positive liquidation value of each Participating
Affiliate's
[[Page 31046]]
positions and the margin securing such positions.\30\
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\29\ The cross-guarantee would remain unchanged. See Section 8,
``Guaranty of FICC to CME'' and Section 9 ``Guaranty of CME to
FICC'' of the Existing Agreement, supra note 6.
\30\ See Notice of Filing, supra note 3, 90 FR at 22540. The
Proposed Agreement also includes certain acknowledgments and
agreements from each Joint Clearing Member, as agent for each
Participating Affiliate, about the treatment of CME-cleared
positions and CME-held margin and the Participating Affiliate's
rights and obligations related thereto. See Appendix A, ``Fixed
Income Clearing Corporation/Chicago Mercantile Exchange Inc. Cross-
Margining Participant Agreement (Common Member)'' of the Proposed
Agreement, supra note 15.
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C. Proposals Relating to Customer Protection
The Proposed Agreement would include provisions to ensure that,
consistent with the Existing Agreement, the use of the Cross-Margining
Arrangement by Participating Affiliates would not affect the customer
protections available to any non-participating customers of the Joint
Clearing Member under the Securities Investor Protection Act
(``SIPA''), the stockbroker liquidation provisions of Subchapter III of
Chapter 7 of the Bankruptcy Code, the commodity broker liquidation
provisions of Subchapter IV of Chapter 7 of the Bankruptcy Code, or the
Commodity Futures Trading Commission's Part 190 regulations thereunder
(collectively, the ``Customer Protection Regimes'').\31\ Specifically,
the Proposed Agreement would limit the scope of Eligible Affiliates to
entities that are Non-Customers, which the Proposed Agreement would
define as ``any Affiliate of the Clearing Member (i) that is not a
`customer' of the Clearing Member within the meaning of Securities
Investor Protection Act, Subchapter III of Chapter 7 of the U.S.
Bankruptcy Code, or Rule 15c3-3 as promulgated under the Act,\32\ and
(ii) whose Eligible Positions in CME Eligible Products are carried in a
Proprietary Account of the Clearing Member.'' \33\
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\31\ See Notice of Filing, supra note 3, 90 FR at 22541.
\32\ In order for an Affiliate to constitute a non-customer for
purposes of SIPA, the Affiliate would generally need to enter into a
subordination agreement with the Joint Clearing Member pursuant to
which the Affiliate agrees and acknowledges that its FICC-cleared
positions and margin maintained in a Cross-Margining Account will
not receive customer treatment under the Exchange Act or SIPA or be
treated as ``customer property'' as defined in 11 U.S.C. 741 in a
liquidation of the Joint Clearing Member.
\33\ See Notice of Filing, supra note 3, 90 FR at 22541.
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In addition, the Proposed Agreement would require that each
Affiliate Account be limited to the positions of Non-Customers (or in
the case of an Affiliate Account at CME, the Joint Clearing Member's
proprietary positions) and any margin posted to FICC in relation to
such an account would not be subject to segregation. Specifically, it
would require a Joint Clearing Member to represent in the Common Member
Agreement that any Participating Affiliate is a Non-Customer, that any
Cross-Margining Account (whether at CME or FICC) includes exclusively
the positions of Non-Customers or the Joint Clearing Member, and that
any margin posted to FICC in relation to an Eligible Affiliate account
is not subject to segregation under the Rules. These proposed changes
are designed to ensure that no Participating Affiliate would have a
claim under any Customer Protection Regime in relation to its Affiliate
Account or Eligible Positions that could disrupt the priority rights of
any customers of a Joint Clearing Member under those regimes to
segregated pools of property.\34\
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\34\ See Notice of Filing, supra note 3, 90 FR at 22541.
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D. Proposal To Extend the Termination Notification Period
The Proposed Agreement would extend the prior written notification
period for either party to terminate the Cross-Margining Arrangement
from 30 days to 180 days.\35\ FICC states that, while this proposed
change is not required to facilitate the principal purpose of the
Proposed Agreement, which is to allow Eligible Affiliates to
participate in the Cross-Margining Arrangement consistently with the
Separate Margining Requirement and Separate Margining Amendments, it
would provide for a more effective timeframe for the Parties to unwind
the Cross-Margining Arrangement, which would benefit FICC as well as
all Cross-Margining Participants, including any Eligible Affiliates,
where applicable.\36\
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\35\ Pursuant to the Existing Agreement, either Party may
terminate the Agreement without cause by delivering written notice
of termination to the other Party specifying a termination date not
less than 30 days following the date on which such notice is sent.
See Sections 15(a) and (b), ``Termination'' of the Existing
Agreement, supra note 6.
\36\ See Notice of Filing, supra note 3, 90 FR at 22541-42.
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IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \37\ 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 Exchange Act and the rules and regulations
thereunder applicable to such organization. After carefully considering
the Proposed Rule Change, the Commission finds that the proposal is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to FICC. More specifically, the
Commission finds that the proposal is consistent with
Section17A(b)(3)(F) of the Act,\38\ and Rules 17Ad-22(e)(6)(ii),
(e)(4)(i), and (e)(18)(iv)(C) \39\ thereunder, as described in detail
below.
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\37\ 15 U.S.C. 78s(b)(2)(C).
\38\ 15 U.S.C. 78q-1(b)(3)(E) and 15 U.S.C. 78q-1(b)(3)(F).
\39\ 17 CFR 240.17ad-22(e)(4)(i); 17 CFR 240.17ad-22(e)(6)(i);
17 CFR 240.17ad-22(e)(18)(iv)(C).
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A. Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act, requires, in part, that the rules
of a clearing agency be designed to, among other things, assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible; to
remove impediments to and help perfect the mechanism of a national
system for the prompt and accurate clearance and settlement of
securities transactions; and to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions.\40\
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\40\ 15 U.S.C. 78q-1(b)(3)(F).
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First, as described in section III.A above, the proposed rule
change would amend the Existing Agreement to continue to permit a Joint
Clearing Member to subject eligible positions cleared for an Eligible
Affiliate to be cross-margined, but would require that such positions
cleared at FICC be recorded in an Agent Clearing Member Omnibus
Account. By doing so, the proposed rule change should continue to allow
Joint Clearing Members and Participating Affiliates to access cross-
margining in the same manner as they currently do while addressing the
differences between the new Commission rule and the CFTC rule. This
change is therefore consistent with removing impediments to and helping
perfect the mechanism of a national system for the prompt and accurate
clearance and settlement of securities transactions.\41\
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\41\ Id.
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Second, as described in Section III.B above, the proposed rule
change would amend the Existing Agreement to allow FICC and CME to
continue to look to the entirety of a Participating Affiliate's cross-
margined positions and all associated margin to satisfy the obligations
arising from the Joint Clearing Member's Cross-Margining Accounts at
FICC and CME. The Existing Agreement currently allows FICC and CME to
apply to a Joint
[[Page 31047]]
Clearing Member's obligations arising from its Cross-Margining
Accounts, any of the positions forming part of the Joint Clearing
Member's Cross-Margining Accounts, and any associated margin, including
positions carried by the Joint Clearing Member for an affiliate. By
retaining the ability of FICC and CME to look to a Participating
Affiliate's positions and associated margin to satisfy a Joint Clearing
Member's obligations, the proposed rule change should ensure that the
Participating Affiliates' use of cross-margining under the new FICC
account structure does not increase FICC's or CME's risk exposure in
relation to the Cross-Margining Arrangement. Accordingly, the proposed
rule change would serve to limit FICC's risk related to a default of a
Joint Clearing Member or its Participating Affiliate and thereby
enhance FICC's ability to safeguard funds and securities in its custody
or control.
Third, as described in section III.C above, the proposed rule
change would include provisions to ensure that the participation of
Participating Affiliates would not disrupt the claims of any non-
participating customers of a Joint Clearing Member under the Customer
Protection Regimes for the return of their funds or securities held at
FICC. More specifically, the proposed rule change would require that
when an Affiliate Account contains positions carried for Participating
Affiliates, such positions must be positions of Non-Customers that have
not elected margin segregation. By doing so, the proposed rule change
would ensure that neither Participating Affiliates nor others whose
positions are carried in Affiliate Accounts are eligible to make claims
under the Customer Protection Regimes that could reduce the property
available to satisfy any veritable customer claims against a Joint
Clearing Member. Accordingly, the proposed rule changes would help
ensure that funds and securities in FICC's control or custody that are
held for customers remain safeguarded for those customers to the same
extent as would be the case in the absence of the Cross-Margining
Arrangement.
Fourth, as described in section III.D above, the proposed rule
change would extend the prior written notification period for either
party to terminate the Cross-Margining Arrangement from 30 days to 180
days. This expanded timeframe should facilitate FICC's and CME's
ability to unwind the cross-margining arrangement in an effective and
efficient manner for both FICC and CME, as well as the Cross-Margining
Participants. By providing an effective timeframe for unwinding the
arrangement, the proposed rule change is consistent with fostering
cooperation and coordination of persons engaged in clearance and
settlement of securities transactions.
For the foregoing reasons, the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act.
B. Rule 17ad-22(e)(6)(i)
Rule 17ad-22(e)(6)(i) under the Act requires that a covered
clearing agency, like FICC, establish a risk-based margin system that,
at a minimum, considers, and produces margin levels commensurate with,
the risks and particular attributes of each relevant product,
portfolio, and market and, if the covered clearing agency provides
central counterparty services for U.S. Treasury securities, calculates,
collects, and holds margin amounts from a direct participant for its
proprietary positions in Treasury securities separately and
independently from margin calculated and collected from that direct
participant in connection with U.S. Treasury securities transactions by
an indirect participant that relies on the services provided by the
direct participant to access the covered clearing agency's payment,
clearing, or settlement facilities.\42\ As described in section III.A,
the proposed rule change would require that the FICC-cleared eligible
positions of a Participating Affiliate be carried in an Agent Clearing
Member Omnibus Account. Accordingly, the proposed rule change should
ensure that the FICC-cleared positions of a Participating Affiliate are
never netted against any FICC-cleared positions of its Joint Clearing
Member in FICC's calculation of margin requirements, consistent with
the requirements of Rule 17ad-22(e)(6)(i).\43\
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\42\ 17 CFR 240.17ad-22(e)(6)(i).
\43\ 17 CFR 240.17ad-22(e)(6)(i).
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C. Rule 17Ad-22(e)(4)(i)
Rule 17ad-22(e)(4)(i) under the Act requires that a covered
clearing agency, like FICC, establish, implement, maintain, and enforce
written policies and procedures reasonably designed to effectively
identify, measure, monitor, and manage its credit exposures to
participants and those arising from its payment, clearing, and
settlement processes by maintaining sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence.\44\ As discussed in section III.B above, the proposed
rule change would include changes to the Common Member Agreement to
ensure that FICC can continue to look to all of the positions a Joint
Clearing Member carries in a Cross-Margining Account at FICC or CME,
and all associated margin, to satisfy that Joint Clearing Member's
obligations in relation to a Cross-Margining Account, even when those
positions are carried for a Participating Affiliate. By doing so, the
proposed rule change should ensure that the Separate Margining
Requirement and FICC's implementing rules thereof do not reduce the
scope of resources that FICC can rely upon to satisfy cross-margining
exposures, which should, in turn, help ensure that FICC continues to
maintain sufficient financial resources to cover its credit exposures
to each participant fully with a high degree of confidence, consistent
with Rule 17ad-22(e)(4)(i).\45\
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\44\ 17 CFR 240.17ad-22(e)(4)(i).
\45\ 17 CFR 240.17ad-22(e)(4)(i).
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D. Rule 17ad-22(e)(18)(iv)(C)
Rule 17ad-22(e)(18)(iv)(C) under the Act requires, among other
things, that a covered clearing agency that provides central
counterparty services for transactions in U.S. Treasury securities,
like FICC, establish, implement, maintain and enforce written policies
and procedures reasonably designed to 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.\46\ As described in section
III.A above, the proposed rule change should ensure that Eligible
Affiliates would continue to be able to participate in the Cross-
Margining Arrangement consistent with the new Commission and FICC
rules. As the Commission previously has recognized, the ability to
participate in cross-margining has benefits for market participants,
including capital and margin efficiencies.\47\ These benefits could
incentivize market participants, including indirect participants that
are Eligible Affiliates, to submit more eligible secondary market
transactions in U.S. Treasury securities for clearing under the Cross-
Margining Arrangement because of these margin efficiencies. Therefore,
the proposed rule change is consistent with facilitating access to
clearance and settlement services of all eligible secondary market
transactions in U.S. Treasury securities, including those of indirect
participants.\48\
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\46\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
\47\ See, e.g., FICC-CME 2023 Order, supra note 6, 88 FR at
63187.
\48\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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[[Page 31048]]
V. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act \49\ and
the rules and regulations promulgated thereunder.
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\49\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\50\ that proposed rule change SR-FICC-2025-014, be, and hereby is,
APPROVED.\51\
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\50\ 15 U.S.C. 78s(b)(2).
\51\ In approving the Proposed Rule Changes, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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\52\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-12919 Filed 7-10-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 11, 2025.
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