Notice2025-16577
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Add Basis Risk Haircut Charge to Certain Models
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
August 29, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 166 (Friday, August 29, 2025)</title>
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[Federal Register Volume 90, Number 166 (Friday, August 29, 2025)]
[Notices]
[Pages 42284-42289]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-16577]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103780; File No. SR-FICC-2025-018]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Add Basis Risk Haircut
Charge to Certain Models
August 26, 2025.
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 August 15, 2025, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change of FICC as provided in Exhibit 5 \3\
consists of amendments to the GSD Methodology Document--GSD Initial
Market Risk Margin Model (``QRM Methodology Document'') \4\ in order to
incorporate the mortgage-backed securities (``MBS'') pool/to-be-
announced (``TBA'') basis risk haircut charge into the MBS haircut
model, Minimum Margin Amount (``MMA'') model,\5\ and Margin Proxy
model.\6\ In addition, FICC is proposing clarification and technical
changes to the QRM Methodology Document.
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\3\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the FICC's Government Securities
Division (``GSD'') Rulebook (``Rules''), available at <a href="http://www.dtcc.com/legal/rules-and-procedures">www.dtcc.com/legal/rules-and-procedures</a>.
\4\ The QRM Methodology Document was filed as a confidential
exhibit in the rule filing and advance notice for GSD sensitivity
VaR. See Securities Exchange Act Release Nos. 83362 (June 1, 2018),
83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May 11,
2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801). The QRM
Methodology has been subsequently amended. See Securities Exchange
Act Release Nos. 85944 (May 24, 2019), 84 FR 25315 (May 31, 2019)
(SR-FICC-2019-001); 90182 (Oct. 14, 2020), 85 FR 66630 (Oct. 20,
2020) (SR-FICC-2020-009); 93234 (Oct. 1, 2021), 86 FR 55891 (Oct. 7,
2021) (SR-FICC-2021-007); 95605 (Aug. 25, 2022), 87 FR 53522 (Aug.
31, 2022) (SR-FICC-2022-005); 97342 (Apr. 21, 2023), 88 FR 25721
(Apr. 27, 2023) (SR-FICC-2023-003); 99447 (Jan. 30, 2024), 89 FR
8260 (Feb. 6, 2024) (SR-FICC-2024-001); and 101569 (Nov. 8, 2024),
89 FR 90109 (Nov. 14, 2024) (SR-FICC-2024-003).
\5\ The MMA model calculates MMA, which is designed to
supplement the value-at-risk (``VaR'') model and improve its
responsiveness and resilience to extreme market volatility. See GSD
Margin Component Schedule (definition of ``Minimum Margin Amount''),
supra note 3.
\6\ The Margin Proxy model calculates Margin Proxy, which is
designed as an alternative volatility calculation in the event that
the requisite vendor data used for the VaR model is unavailable for
an extended period of time. See GSD Margin Component Schedule
(definition of ``Margin Proxy''), supra note 3.
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FICC is requesting confidential treatment of the QRM Methodology
Document and has filed it separately with the Secretary of the
Commission.\7\
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\7\ 17 CFR 240.24b-2.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this rule filing is to amend the QRM Methodology
Document in order to incorporate the MBS pool/TBA basis risk haircut
charge into the MBS haircut model, MMA model, and Margin Proxy model.
FICC is also proposing to make certain clarification and technical
changes to the QRM Methodology Document.
Background
FICC, through GSD, serves as a central counterparty and provider of
clearance and settlement services for transactions in U.S. government
securities, as well as repurchase and reverse repurchase transactions
involving U.S. government securities. GSD also clears and settles
certain transactions on securities issued or guaranteed by U.S.
government agencies and government sponsored enterprises. For example,
through its GCF Repo Service,\8\ GSD clears and settles GCF Repo
Transactions \9\ that can be collateralized with mortgage-backed
securities issued or guaranteed by Government National Mortgage
Association (``Ginnie Mae''), Federal National Mortgage Association
(``Fannie Mae'') and Federal Home Loan Mortgage Corporation (``Freddie
Mac''). As part of its market risk management strategy, FICC manages
its credit exposure to Members by determining the appropriate Required
Fund Deposit to the Clearing Fund and monitoring its sufficiency, as
provided for in the GSD Rules.\10\ The Required Fund Deposit serves as
each Member's margin.
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\8\ The GCF Repo Service enables dealers to trade general
collateral repos based on rate, term and underlying products,
throughout the day with Inter-Dealer Broker Netting Members on a
blind basis. See GSD Rule 1 (definition of ``GCF Repo Service''),
supra note 3.
\9\ See GSD Rule 1 (definition of ``GCF Repo Transactions'') and
GSD Rule 20 (Special Provisions for GCF Repo Transactions), supra
note 3.
\10\ See GSD Rule 4 (Clearing Fund and Loss Allocation), supra
note 3. FICC's market risk management strategy is designed to comply
with Rule 17ad-22(e)(4) under the Act, where these risks are
referred to as ``credit risks.'' 17 CFR 240.17ad-22(e)(4).
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The objective of a Member's Required Fund Deposit is to mitigate
potential losses to FICC associated with
[[Page 42285]]
liquidating a Member's portfolio in the event FICC ceases to act for
that Member (hereinafter referred to as a ``default'').\11\ The
aggregate amount of all Members' Required Fund Deposits constitutes the
Clearing Fund. FICC would access the Clearing Fund should a defaulting
Member's own Required Fund Deposit be insufficient to satisfy losses to
FICC caused by the liquidation of that Member's portfolio.
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\11\ The GSD Rules identify when FICC may cease to act for a
Member and the types of actions FICC may take. For example, FICC may
suspend a firm's membership with FICC or prohibit or limit a
Member's access to FICC's services in the event that Member defaults
on a financial or other obligation to FICC. See GSD Rule 21
(Restrictions on Access to Services) of the GSD Rules, supra note 3.
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At GSD, each Member is also responsible for the margin obligations
arising from the activity of the Member's indirect participant
customers submitted to FICC via the Sponsored Service and/or the Agent
Clearing Service. FICC's Sponsored Service permits Members that are
approved to be Sponsoring Members, to sponsor certain institutional
firms, referred to as ``Sponsored Members,'' into GSD membership.\12\
FICC establishes and maintains a ``Sponsoring Member Omnibus Account''
on its books in which it records the transactions of the Sponsoring
Member's Sponsored Members (``Sponsored Member Trades'').\13\
Similarly, FICC's Agent Clearing Service permits Members that are
approved to be Agent Clearing Members to submit activities of certain
institutional firms, referred to as ``Executing Firm Customers,'' into
FICC for clearing and settlement. FICC establishes and maintains an
``Agent Clearing Member Omnibus Account'' on its books in which it
records the transactions of the Agent Clearing Member's Executing Firm
Customers (``Agent Clearing Transactions'').\14\
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\12\ See GSD Rule 3A (Sponsoring Members and Sponsored Members),
supra note 3.
\13\ See GSD Rule 1 (definition of ``Sponsored Member Trades''),
supra note 3.
\14\ See GSD Rule 1 (definition of ``Agent Clearing
Transactions''), supra note 3.
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Both the Sponsoring Members and the Agent Clearing Members have the
option of segregating Sponsored Member Trades of a Sponsored Member and
Agent Clearing Transactions of an Executing Firm Customer, as
applicable, in separate accounts (i.e., Segregated Indirect
Participants Accounts), each such Sponsored Member and Executing Firm
Customer being referred to as a ``Segregated Indirect Participant.''
FICC manages its credit exposure to Segregated Indirect Participants by
determining the appropriate Segregated Customer Margin Requirement and
monitoring its sufficiency, as provided for in the Rules.\15\
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\15\ See GSD Margin Component Schedule, supra note 3.
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Pursuant to the Rules, each Member's Required Fund Deposit amount
(and Segregated Customer Margin Requirement amount, to the extent
applicable) consists of a number of components, each of which is
calculated to address specific risks faced by FICC, as identified
within the Rules.\16\ At GSD, these components include the VaR Charge,
Blackout Period Exposure Adjustment, Backtesting Charge, Excess Capital
Premium, Holiday Charge, Intraday Supplemental Fund Deposit, Margin
Liquidity Adjustment Charge, Portfolio Differential Charge, Volatility
Event Charge, and special charge.\17\ The VaR Charge generally
comprises the largest portion of a Member's Required Fund Deposit and
Segregated Customer Margin Requirement amounts.
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\16\ Supra note 3.
\17\ These margin components and the relevant defined terms are
located in GSD Rule 1 (Definitions) and/or the GSD Margin Component
Schedule, supra note 3. FICC recently proposed changes to the GSD
Rules to adopt an Intraday Mark-to-Market Charge. See Securities
Exchange Release No. 102705 (Mar. 21, 2025), 90 FR 13965 (Mar. 27,
2025) (SR-FICC-2025-005).
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The VaR Charge is based on the potential price volatility of
unsettled positions using a sensitivity-based Value-at-Risk
(``sensitivity VaR'') methodology and is designed to cover FICC's
projected liquidation losses with respect to a defaulted Member's
portfolio at a 99% confidence level. The sensitivity VaR methodology
provides an estimate of the possible losses for a given portfolio based
on: (1) confidence level, (2) a time horizon, and (3) historical market
volatility. FICC uses historical simulation to estimate the impact of
market volatilities on the Member's portfolio. A haircut method is
applied to securities with insufficient requisite data used to employ
the sensitivity VaR approach.
VaR Charges (i.e., the sum of the sensitivity VaR and haircuts
applied in lieu of the sensitivity VaR) are subject to MMA, which is
designed to address the risk that the VaR model calculates a VaR Charge
that is too low when current market conditions significantly deviate
from historical observation. In addition, FICC can utilize Margin Proxy
as a back-up VaR Charge calculation to the sensitivity VaR methodology
in the event that FICC experiences a data disruption with its third-
party vendor.
Incorporating MBS Pool/TBA Basis Risk Haircut Charge
The QRM Methodology Document provides the methodology by which FICC
calculates the VaR Charge, MMA, and Margin Proxy. The QRM Methodology
Document specifies model inputs, parameters and assumptions, among
other information.
Under the sensitivity VaR methodology, each MBS pool position is
mapped to a corresponding TBA, and FICC uses the risk exposure
analytics for the TBA as an estimate for the MBS pool position's risk
exposure analytics. To account for differences in the returns between
an MBS pool position and the corresponding TBA, FICC applies a basis
risk adjustment (i.e., the MBS pool/TBA basis risk haircut charge).
The majority of fixed-rate mortgage (``FRM'') pools can be mapped
to TBAs; however, all adjustable-rate mortgage (``ARM'') pools \18\ and
a small portion of the FRM pools \19\ cannot be mapped to TBAs. For any
MBS pool position that cannot be mapped to a TBA, FICC applies a
haircut to the MBS pool position (i.e., MBS haircut model). Currently,
unlike the sensitivity VaR methodology, the MBS haircut model does not
take into account the differences in returns between an MBS pool
position and the TBA (i.e., it does not reflect the MBS pool/TBA basis
spread risk). In order to strengthen FICC's coverage of market risk
exposure associated with MBS pool positions, FICC is proposing changes
to incorporate the MBS pool/TBA basis risk haircut charge into the MBS
haircut model.
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\18\ The ARM pools cannot be mapped to TBAs due to the lack of
liquidity of ARM TBAs.
\19\ A small portion of FRM pools cannot be mapped to TBAs when
there are no TBAs with matching coupon rates.
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Similarly, the haircut rates being applied to the MBS pool
positions in the MMA and Margin Proxy models are calculated based on
TBA prices and currently do not take into account the differences in
returns between an MBS pool position and the TBA (i.e., it does not
reflect the MBS pool/TBA basis spread risk). Accordingly, in order to
strengthen FICC's coverage of market risk exposure associated with MBS
pool positions, FICC is also proposing changes to incorporate the MBS
pool/TBA basis risk haircut charge into the MMA and Margin Proxy
models.
FICC is proposing to add new language and make changes to a table
as well as a formula in the QRM Methodology Document in order to
reflect the addition of the MBS pool/TBA basis risk haircut charge to
the MBS haircut model, MMA model, and Margin Proxy model. Specifically,
in the subsection of the QRM Methodology Document that describes basis
risk
[[Page 42286]]
between MBS pools and TBA, FICC would add two paragraphs to reflect
that basis risk charge would be included in haircut charges calculated
for (1) MBS haircut model with respect to MBS pools that cannot be
mapped to a TBA and (2) Margin Proxy model with respect to all MBS
pools. In addition, in the subsection of the QRM Methodology Document
that describes the program of money-ness of a pool, FICC is proposing
to add a new paragraph regarding the applicable basis haircut rate,
which is used to calculate basis risk charge, for ARM pools. Moreover,
in the subsection of the QRM Methodology Document that describes basis
risk calculation in Margin Proxy, FICC is proposing to enhance the
description by adding a new paragraph to note certain similarities and
potential differences between the basis risk charge calculation for
Margin Proxy model as compared to the other models. FICC is also
proposing to update a table in the MMA section of the QRM Methodology
Document to reflect the addition of the MBS pool/TBA basis risk haircut
charge in the MMA calculation with respect to MBS pool positions.
Lastly, FICC is proposing to update a formula in the Margin Proxy
section of the QRM Methodology Document to incorporate the MBS pool/TBA
basis risk haircut charge.
Certain Clarification and Technical Changes to the QRM Methodology
FICC is proposing to make certain clarification and technical
changes to the QRM Methodology Document.
Specifically, in the subsection of the QRM Methodology Document
that describes market risks associated with products cleared by GSD,
FICC would clarify that the application of the MBS pool/TBA basis risk
haircut charge would not be limited to mapped MBS pool positions.
Similarly, in the subsection of the QRM Methodology Document that
describes the program and money-ness of a pool, FICC is proposing
changes to make it clear that the applicability of the money-ness
formula in that subsection would not be limited to mapped MBS pool
positions.
FICC is proposing a technical change in the list of key parameters
section in the QRM Methodology Document to replace an outdated section
reference. FICC is also proposing a technical change in the haircut
methodology section to correct a typographical error in the haircut
formula for unmapped MBS pools.
Impact Study
FICC performed an impact study for the period beginning April 1,
2024 through March 31, 2025 (``Impact Study Period''). If the proposed
rule change had been in place during the Impact Study Period compared
to the existing GSD Rules, the aggregated average daily start-of-day
(``SOD'') VaR Charges would have increased by approximately $56.31
million or 0.12%. The impact study indicated that if the proposed rule
change had been in place, the VaR model backtesting coverage would have
remained unchanged at approximately 99.72% during the Impact Study
Period. Specifically, if the proposed rule change had been in place
during the Impact Study Period, the number of VaR model backtesting
deficiencies would have remained unchanged at 115.
Margin Proxy was not deployed during the Impact Study Period;
however, if the proposed rule change had been in place and the Margin
Proxy were deployed during the Impact Study period, the aggregated
average daily SOD VaR Charges would have increased by approximately
$2.13 billion or 4.94%. The impact study also indicated that if the
proposed rule change had been in place and the Margin Proxy were
deployed, the VaR model backtesting coverage would have increased from
approximately 99.68% to 99.71% during the Impact Study Period.
Specifically, if the proposed rule change had been in place and the
Margin Proxy were deployed during the Impact Study Period, the number
of the VaR model backtesting deficiencies would have been reduced by 11
(from 130 to119, or approximately 8.5%).
Impact to Members Over the Impact Study Period
If the proposed rule change had been in place during the Impact
Study Period compared to the existing GSD Rules, on average, at the
Member Margin Portfolio level, the proposed rule change would have
increased the SOD VaR Charge by approximately $0.27 million, or 0.31%,
over the Impact Study Period. The largest average percentage increase
in SOD VaR Charge for any Member Margin Portfolio would have been
approximately 35.15%, or $0.34 million. The largest average dollar
increase in SOD VaR Charge for any Member Margin Portfolio would have
been approximately $8.33 million, or 0.19%.
If the proposed rule change had been in place and the Margin Proxy
were deployed during the Impact Study period, on average, at the Member
Margin Portfolio level, the proposed rule change would have increased
the SOD VaR Charge by approximately $10.32 million, or 4.04% over the
Impact Study Period. The largest average percentage increase in SOD VaR
Charge for any Member Margin Portfolio would have been approximately
110.5%, or $175.30 million. The largest average dollar increase in SOD
VaR Charge for any Member Margin Portfolio would have been
approximately $187.17 million, or 14.97%.
Implementation Timeframe
FICC would implement the proposed rule changes by no later than 60
Business Days after the approval of the proposed rule change by the
Commission. FICC would announce the effective date of the proposed
changes by an Important Notice posted to its website.
2. Statutory Basis
FICC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, FICC believes that the
proposed change is consistent with Section 17A(b)(3)(F) of the Act \20\
and Rules 17ad-22(e)(4)(i) and (e)(6)(i) promulgated thereunder \21\
for the reasons described below.
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17ad-22(e)(4)(i) and (e)(6)(i).
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Section 17A(b)(3)(F) of the Act requires 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.\22\ FICC believes the proposed change
to incorporate the MBS pool/TBA basis risk haircut charge into the MBS
haircut model, MMA model, and Margin Proxy model is designed to assure
the safeguarding of securities and funds which are in its custody or
control because it is designed to mitigate FICC's risk exposure from
the MBS pool positions held in Members' portfolios. Specifically, the
proposed enhancement would allow FICC to collect financial resources to
mitigate MBS pool/TBA basis spread risk resulting from MBS pool
positions held in Members' portfolios.
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
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The Clearing Fund/Segregated Customer Margin is a key tool that
FICC uses to mitigate potential losses to FICC associated with
liquidating a Member's portfolio in the event of Member default.
Therefore, the proposed change to incorporate the MBS pool/TBA basis
risk haircut charge into the MBS haircut model, MMA model, and Margin
Proxy model would enable FICC to better address MBS pool/TBA basis
spread risk resulting from MBS pool positions held in Members'
portfolios such that, in the event of Member default, FICC's
[[Page 42287]]
operations would not be disrupted, and non-defaulting Members would not
be exposed to losses they cannot anticipate or control. In this way,
the proposed change to incorporate the MBS pool/TBA basis risk haircut
charge into the MBS haircut model, MMA model, and Margin Proxy model
would assure the safeguarding of securities and funds which are in the
custody or control of FICC, consistent with Section 17A(b)(3)(F) of the
Act.\23\
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\23\ Id.
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FICC believes the proposed change to make clarification and
technical changes to the QRM Methodology Document would enhance the
clarity and accuracy of the QRM Methodology Document for FICC. The QRM
Methodology Document is used by FICC risk management personnel
regarding the calculation of margin requirements. Having a clear and
accurate QRM Methodology Document would help facilitate the accurate
and smooth functioning of the margining process at FICC. The changes
referenced in this paragraph would promote such clarity and accuracy.
This would in turn allow FICC risk management to charge Members an
appropriate level of margin. As such, FICC believes that the proposed
clarification and technical changes to the QRM Methodology Document
would assure the safeguarding of securities and funds which are in the
custody or control of FICC, consistent with Section 17A(b)(3)(F) of the
Act.\24\
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\24\ Id.
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The proposed change to incorporate the MBS pool/TBA basis risk
haircut charge into the MBS haircut model, MMA model, and Margin Proxy
model has also been designed to be consistent with Rules 17ad-
22(e)(4)(i) and (e)(6)(i) under the Act.\25\ Rule 17ad-22(e)(4)(i)
under the Act requires a covered clearing agency to 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 exposures 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.\26\ As described
above, the proposed change to the MBS haircut, MMA, and Margin Proxy
models would help address the identification, measurement, monitoring
and management of credit exposures that may arise from MBS pool
positions held in Members' portfolios. By incorporating the MBS pool/
TBA basis risk haircut charge into the MBS haircut, MMA, and Margin
Proxy models, the proposed change would enable FICC to have rule
provisions that are reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to Members and those
exposures arising from its payment, clearing, and settlement processes,
which FICC believes is consistent with Rule 17ad-22(e)(4)(i). Moreover,
the proposed change would enable FICC to better identify, measure,
monitor, and, through the collection of Members' Required Fund Deposits
and Segregated Customer Margin Requirements, manage its credit
exposures to Members by maintaining sufficient resources to cover those
credit exposures fully with a high degree of confidence. Proposed
change to the MBS haircut, MMA, and Margin Proxy models as described
above would help to ensure that the risk exposure from MBS pool
positions held in Members' portfolios is adequately identified,
measured and monitored. It would help ensure that the margin that FICC
collects from Members is sufficient to mitigate the credit exposure
presented by the Members. As a result, FICC believes that the proposal
would enhance FICC's ability to effectively identify, measure, and
monitor its credit exposures and would enhance its ability to maintain
sufficient financial resources to cover its credit exposure to each
participant fully with a high degree of confidence, consistent with the
requirements of Rule 17ad-22(e)(4)(i) under the Act.\27\
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\25\ 17 CFR 240.17ad-22(e)(4)(i) and (e)(6)(i).
\26\ 17 CFR 240.17ad-22(e)(4)(i).
\27\ Id.
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Rule 17ad-22(e)(6)(i) under the Act requires a covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to cover its credit exposures to its
participants by establishing 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.\28\ FICC believes that the proposed change to incorporate
the MBS pool/TBA basis risk haircut charge into the MBS haircut model,
MMA model, and Margin Proxy model is consistent with the requirements
of Rule 17ad-22(e)(6)(i) cited above. The Required Fund Deposits and
Segregated Customer Margin Requirements are comprised of risk-based
components (as margin) that are calculated and assessed daily to limit
FICC's credit exposures to Members. FICC is proposing a change that is
designed to make the MBS haircut, MMA, and Margin Proxy models more
effective in measuring and addressing MBS pool/TBA basis spread risk.
The proposed change to the MBS haircut, MMA, and Margin Proxy models
would help to ensure that margin levels are commensurate with the risk
exposure arise from MBS pool positions held in each Member portfolio.
It would help ensure that the margin that FICC collects from Members is
sufficient to mitigate the credit exposure presented by the Members.
Overall, this proposed change would allow FICC to more effectively
address the risks presented by Members. In this way, the proposed
change to incorporate the MBS pool/TBA basis risk haircut charge into
the MBS haircut model, MMA model, and Margin Proxy model would enhance
the ability of FICC to produce margin levels commensurate with the
risks and particular attributes of each relevant product, portfolio,
and market. As such, FICC believes that this proposed change is
consistent with the requirements of Rule 17ad-22(e)(6)(i) under the
Act.\29\
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\28\ 17 CFR 240.17ad-22(e)(6)(i).
\29\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes the proposed change to incorporate the MBS pool/TBA
basis risk haircut charge into the MBS haircut model, MMA model, and
Margin Proxy model could impose a burden on competition. As a result of
this proposed change, participants may experience increases in their
Required Fund Deposits and/or Segregated Customer Margin Requirements.
Such increases could burden participants that have lower operating
margins or higher costs of capital than other participants. It is not
clear whether the burden on competition would necessarily be
significant because it would depend on whether the affected
participants were similarly situated in terms of business type and
size; however, based on the impact study conducted by FICC (as
described above), if Margin Proxy were deployed, the burden on
competition could be significant. Regardless of whether the burden on
competition is significant, FICC believes that any burden on
competition would be necessary and appropriate in furtherance of the
purposes of the Act.
Specifically, FICC believes that this proposed change would be
necessary in furtherance of the Act, as described in this filing and
further below. FICC believes that the above-described burden on
competition that may be created by this proposed change is
[[Page 42288]]
necessary. This is because the rules of a clearing agency must be
designed to assure the safeguarding of securities and funds that are in
FICC's custody or control, consistent with Section 17A(b)(3)(F).\30\ As
described above, FICC believes that the proposed change to the MBS
haircut, MMA, and Margin Proxy models as described above would enable
FICC to further improve margin resilience with respect to MBS pool
positions held in Members' portfolios such that, in the event of Member
default, FICC's operations would not be disrupted and non-defaulting
Members would not be exposed to losses they cannot anticipate or
control. As such, this proposed change is designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC, consistent with Section 17A(b)(3)(F) of the Act.
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\30\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC also believes the proposed change to incorporate the MBS pool/
TBA basis risk haircut charge into the MBS haircut model, MMA model,
and Margin Proxy model is necessary to support FICC's compliance with
Rules 17ad-22(e)(4)(i) and (e)(6)(i) under the Act,\31\ which require
FICC to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to (x) effectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes and
(y) cover its credit exposures to its participants by establishing 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.
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\31\ 17 CFR 240.17ad-22(e)(4)(i) and (e)(6)(i).
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As described above, FICC believes that the proposed change to the
MBS haircut, MMA, and Margin Proxy models would allow FICC to better
mitigate risk exposure resulting from MBS pool positions held in
Members' portfolios by incorporating the MBS pool/TBA basis spread
risk. Accordingly, FICC believes that this proposed change would allow
FICC to effectively identify, measure, monitor, and manage its credit
exposures to participants and better limit FICC's credit exposures to
participants and cover its credit exposures to its participants by
producing margin levels commensurate with the risks and particular
attributes of each relevant product and portfolio, consistent with the
requirements of Rules 17ad-22(e)(4)(i) and (e)(6)(i) under the Act.\32\
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\32\ Id.
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FICC also believes that the above-described burden on competition
that could be created by the proposed change to the MBS haircut, MMA,
and Margin Proxy models would be appropriate in furtherance of the Act
because such change has been appropriately designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC, as described in detail above. The proposed change to
the MBS haircut, MMA, and Margin Proxy models is specifically designed
to cover risk exposures from MBS pool positions held in Members'
portfolios. Any increase in Required Fund Deposit and/or Segregated
Customer Margin Requirement as a result of such proposed change for a
particular participant would be in direct relation to the specific
risks presented by such participant's portfolio, and each participant's
Required Fund Deposit and/or Segregated Customer Margin Requirement
would continue to be calculated with the same parameters and at the
same confidence level. Therefore, participants with portfolios that
present similar risks, regardless of the type of participant, would
have similar impacts on their Required Fund Deposit and/or Segregated
Customer Margin Requirement amounts. In addition, the proposed change
to the MBS haircut, MMA, and Margin Proxy models would improve the
risk-based margining methodology that FICC employs to set margin
requirements and better limit FICC's credit exposures to its
participants. Therefore, because the proposed change is designed to
provide FICC with a more appropriate and complete measure of the risks
presented by participants' portfolios, FICC believes this proposed
change is appropriately designed to meet its risk management goals and
its regulatory obligations.
Accordingly, FICC does not believe that the proposed change to the
MBS haircut, MMA, and Margin Proxy models would impose any burden on
competition that is not necessary or appropriate in furtherance of the
Act.\33\
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\33\ 15 U.S.C. 78q-1(b)(3)(I).
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FICC does not believe the proposed clarification and technical
changes to the QRM Methodology Document would have any impact on
competition. These proposed changes would enhance the QRM Methodology
Document by providing additional clarity and accuracy. The proposed
changes referenced above would not advantage or disadvantage any
particular Member of FICC or unfairly inhibit access to FICC's
services. FICC therefore does not believe these proposed changes would
have any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="http://www.sec.gov/rules-regulations/how-submit-comments">www.sec.gov/rules-regulations/how-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 Commission's Division of Trading and
Markets at <a href="/cdn-cgi/l/email-protection#d7a3a5b6b3beb9b0b6b9b3bab6a5bcb2a3a497a4b2b4f9b0b8a1"><span class="__cf_email__" data-cfemail="4135332025282f26202f252c20332a243532013224226f262e37">[email protected]</span></a> or 202-551-5777.
FICC reserves the right not to respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 42289]]
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#90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6"><span class="__cf_email__" data-cfemail="99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef">[email protected]</span></a>. Please include
File Number SR-FICC-2025-018 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-2025-018. 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
filing will be available for inspection and copying at the principal
office of FICC and on DTCC's website (<a href="http://www.dtcc.com/legal/sec-rule-filings">www.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-2025-
018 and should be submitted on or before September 19, 2025.
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\34\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-16577 Filed 8-28-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 29, 2025.
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.