Notice2025-18551
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Adopt an Intraday Mark-to-Market Charge at GSD
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
September 25, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 184 (Thursday, September 25, 2025)</title>
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[Federal Register Volume 90, Number 184 (Thursday, September 25, 2025)]
[Notices]
[Pages 46276-46281]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-18551]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104009; File No. SR-FICC-2025-005]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Adopt an Intraday Mark-to-
Market Charge at GSD
September 22, 2025.
I. Introduction
On March 14, 2025, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-FICC-2025-005 (``Proposed Rule Change''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder to modify FICC's Government
Securities Division (``GSD'') Rulebook (``GSD Rules'') to adopt an
Intraday Mark-to-Market Charge. The Proposed Rule Change was published
for comment in the Federal Register on March 27, 2025.\3\
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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. 102705 (Mar. 21,
2025), 90 FR 13965 (Mar. 27, 2025) (File No. SR-FICC-2025-005)
(``Notice of Filing'').
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On May 9, 2025, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the Proposed Rule Change.\5\ On June 26, 2025, the
Commission instituted proceedings to determine whether to approve or
disapprove the Proposed Rule Change.\6\ The Commission has received
comments on the changes proposed.\7\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102986 (May 5,
2025), 90 FR 19755 (May 9, 2025) (File No. SR-FICC-2025-005).
\6\ See Securities Exchange Act Release No. 103299 (June 23,
2025), 90 FR 27354 (June 26, 2025) (SR-FICC-2025-005).
\7\ Comments on the Proposed Rule Change are available at
<a href="https://www.sec.gov/comments/sr-ficc-2025-005/srficc2025005.htm">https://www.sec.gov/comments/sr-ficc-2025-005/srficc2025005.htm</a>.
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[[Page 46277]]
For the reasons discussed below, the Commission is approving the
Proposed Rule Change.
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 GSD provides trade comparison,
netting, risk management, settlement and CCP services for the U.S.
Government securities market.\8\ As such, FICC is exposed to the risk
that one of more of its Members or indirect participants may fail to
make a payment or to deliver securities.
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\8\ The GSD Rules are available at https://www.dtcc.com/~/media/
Files/Downloads/legal/rules/ficc_gov_rules.pdf. Capitalized terms
not otherwise defined herein are defined in the GSD Rules.
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A tool that FICC uses to manage its credit exposure to its Members
is the daily collection of margin. Margin is designed to mitigate
potential losses associated with the liquidation of a Netting Member or
Segregated Indirect Participant's portfolio in the event of their
default. The aggregated amount of all Netting Members' margin
constitutes the Clearing Fund, which FICC would be able to access
should a defaulted Netting Member's own margin be insufficient to
satisfy losses to FICC caused by the liquidation of that Netting
Member's portfolio.\9\
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\9\ See GSD Rule 4 (Clearing Fund and Loss Allocation), supra
note 8.
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FICC's Rules refer to margin in two ways, depending on the types of
Members and accounts involved. First, the Required Fund Deposit is the
sum of each Netting Member's proprietary accounts and all indirect
participant accounts not designated as Segregated Indirect Participant
Accounts.\10\ Second, the Segregated Customer Margin Requirement is the
sum of the Netting Member's Sponsoring Member Omnibus Accounts and
Agent Clearing Member Omnibus Accounts designated as Segregated
Indirect Participant Accounts.\11\ Included within the Required Fund
Deposit and Segregated Customer Margin Requirement is the VaR Charge, a
calculation of the volatility of specified Net Unsettled Positions at
the time of such calculation.\12\
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\10\ Id.
\11\ Id.
\12\ Each member's margin consists of several components, each
of which is calculated to address specific risks faced by FICC
arising out of its members' trading activity. See GSD Rule Book,
Margin Component Schedule, Sections 2 and 5, supra note 8.
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Apart from collecting margin, FICC currently runs a mark-to-market
calculation twice each business day to reflect the difference between
the contract value of a trade and the current market value of the
security. After these twice daily calculations, each Member is required
to pay (or entitled to collect) a Funds-Only Settlement Amount across
all CUSIPs in which it has outstanding positions. The funds-only
settlement process is a cash pass-through process, meaning that those
Members which are in a debit position submit payments to FICC that are
then used by FICC to pay Members in a credit position. This amount
includes, among other payments, a mark-to-market amount for every net
settlement position (positions to settle on the next business day),
every forward net settlement position (open positions), and every
position that was scheduled to settle and has not yet settled (failed
positions).\13\
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\13\ See GSD Rule 13, Section 1, supra note 8. See also Notice
of Filing, supra note 3, 90 FR at 13966.
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During each trading day, a Member's exposure may change due to the
settlement of existing transactions and new trade activities. In
addition, the value of the Member's portfolio may change due to market
moves. Currently, the mark-to-market component of the Funds-Only
Settlement Amount covers FICC's exposure to a Member due to market
moves and/or trading and settlement activity by bringing the Member's
portfolio of outstanding positions up to the market value at noon and
end of day.\14\
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\14\ FICC currently collects Funds-Only Settlement Amounts at 10
a.m. based on the end-of-day position from the previous business
day, and at 4:30 p.m. based on the Member's noon positions. See
Notice of Filing, supra note 3, 90 FR 13966.
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However, because the start of day and intraday mark-to-market
components of the Funds-Only Settlement Amount are calculated using the
end of prior day and noon of current day positions and prices,
respectively, they do not cover a Member's risk exposure arising out of
changes in position and market value in the Member's portfolio which
occur between the collections. FICC is proposing to adopt an Intraday
Mark-to-Market Charge to mitigate such risk.
III. Description of the Proposed Rule Change
The Proposed Rule Change would add the ``Intraday Mark-to-Market
Charge'' as an additional charge in calculating the Required Fund
Deposit and Segregated Customer Margin Requirement in the Margin
Component Schedule.\15\ Specifically, the Intraday Mark-to-Market
Charge is defined as ``an additional charge that is collected from a
Member or Segregated Indirect Participant (unless waived or decreased .
. .) \16\ to mitigate FICC's exposures that may arise due to intraday
changes in the size, composition and constituent security prices of
such Member's Margin Portfolio or Segregated Indirect Participant's
portfolio, including when certain risk thresholds are breached or when
the products cleared or markets served display elevated volatility.''
\17\ The Intraday Mark-to-Market Charge would equal the difference
between (a) the mark-to-market amount reflected either in the last
Funds-Only Settlement Amount or Intraday Mark-to-Market Charge, as
applicable, for the Margin Portfolio or Segregated Indirect
Participant's portfolio, and (b) such Margin Portfolio's or Segregated
Indirect Participant's portfolio marked to the most recently observed
System Price for such positions and shall be recalculated intraday,
each Business Day, at the times and frequencies established by FICC for
this purpose, which times and frequencies shall be communicated to
Members and Segregated Indirect Participants on FICC's public website.
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\15\ Specifically, the Proposed Rule Change would amend the GSD
Rulebook to add a definition of ``Intraday Mark-to-Market Charge''
to GSD Rule 1 (Definitions) and to define it in the Margin Component
Schedule.
\16\ FICC's proposed waiver procedures are discussed in Section
3, infra.
\17\ See Notice of Filing, supra note 3, 90 FR at 13969.
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The Proposed Rule Change outlines three ``Parameter Breaks,'' i.e.,
risk thresholds, for the imposition of an Intraday Mark-to-Market
Charge. The Intraday Mark-to-Market Charge would apply to a Member that
has breached all three Parameter Breaks (that is, that has met all
three thresholds). FICC states that the objective of these thresholds
is to ensure that FICC is able to limit exposure to intraday mark-to-
market fluctuations that (a) are of a large dollar amount (the ``Dollar
Threshold''), (b) exhausts a significant portion of a Member's last
calculated VaR Charge (the ``Percentage Threshold''), and (c) are
experienced by Members with either (i) a limited trading history (the
``Trading Day Threshold'') or (ii) backtesting deficiencies that bring
backtesting results for the Member below a confidence target (the
``Coverage Target''), indicating that a Member's activity was not
sufficiently covered by margin.\18\
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\18\ See Notice of Filing, supra note 3, 90 FR 13967-8.
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These thresholds are as follows:
(1) The Dollar Threshold: an adverse intraday mark-to-market change
in a portfolio that equals or exceeds a certain
[[Page 46278]]
threshold dollar amount (not less than $1 million) as determined by
FICC from time to time when compared to the mark-to-market amount
reflected in either the last Funds-Only Settlement Amount or Intraday
Mark-to-Market Charge.\19\ The purpose of the Dollar Threshold is to
identify those Members whose mark-to-market exposure equals or exceeds
a set large dollar amount. FICC states that those Members pose an
increased risk of loss to FICC because if such a Member should default
and the Member's Required Fund Deposit was insufficient to satisfy the
losses that accrue from the liquidation of their portfolio, FICC may
have to access the Clearing Fund. However, because the Clearing Fund is
a finite financial resource designed to be available to satisfy
potential losses to FICC that may arise from any Member default, FICC
could be exposed to a significant risk of loss if a Member's mark-to-
market exposures equals or exceeds a set large dollar amount that could
deplete a substantial portion of the Clearing Fund. Therefore, FICC
states that setting the threshold at $1 million would be aligned with
the minimum Clearing Fund requirement at GSD, thus helping to ensure
that the aggregate mark-to-market exposure of a Member would not exceed
its minimum Clearing Fund deposit. FICC states that this threshold
would ensure that the Clearing Fund available to satisfy all other
liquidation losses arising out a Member's default is sufficient to
mitigate the risks posed to FICC by such losses.\20\
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\19\ Id. at 13967.
\20\ Id.
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(2) The Percentage Threshold: an adverse intraday mark-to-market
change in a Member's portfolio that equals or exceeds a certain
threshold percentage (not less than 10 percent) as determined by FICC
from time to time when compared to the last calculated VaR Charge for
the Member's portfolio. The purpose of the Percentage Threshold is to
identify those Members whose mark-to-market exposures deplete a
significant portion of the Member's daily VaR Charge.\21\ FICC states
that such Members pose an increased risk of loss to FICC because the
coverage the VaR Charge provides would be depleted by a significant
mark-to-market exposure that could therefore cause the Member's margin
deposit to be unable to absorb further intraday losses. The Percentage
Threshold is designed to provide FICC with a reasonable risk buffer to
allow the VaR Charge collected to function as expected.\22\ When a
Member's mark-to-market exposure meets or exceeds a certain percentage
as compared to its daily VaR Charge, the value of the Member's
portfolio is trending towards a potential loss. The Percentage
Threshold is calculated to equal a percentage of the daily VaR Charge
that FICC has determined would leave it with a sufficient amount of a
Member's remaining VaR Charge after accounting for potential losses
arising from the Member's mark-to-market Exposure.\23\ Initially, FICC
will set the Percentage Threshold at 30 percent. FICC states that this
level of mark-to-market exposure would likely pose an increased risk to
the sufficiency of the Member's Required Fund Deposit.\24\
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\21\ Id.
\22\ More specifically, the VaR Charge is designed to cover
potential losses over a three-day liquidation period for a Member at
least 99 percent of the time, assuming normal market conditions. Id.
\23\ Id at 13967-8.
\24\ Id.
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(3) The Trading Day Threshold/Coverage Target: The purpose of the
Trading Day Threshold is to identify those Members who have a limited
trading history.\25\ As proposed, Members that have limited trading
history, i.e., fewer than 100 trading days in a rolling 12-month
period, would be assessed the proposed Intraday Mark-to-Market Charge
irrespective of their backtesting coverage if they were to breach the
Dollar Threshold and the Percentage Threshold.\26\ One backtesting
deficiency for a Member with fewer than 100 trading days within a
rolling 12-month period would have a disproportionate effect on their
backtesting coverage. Therefore, a Member with fewer than 100 trading
days in a rolling 12-month period who has breached the Dollar and
Percentage Threshold will be assessed the proposed Intraday Mark-to-
Market Charge.\27\
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\25\ See Notice of Filing, supra note 3, 90 FR at 13968.
\26\ A Member's backtesting coverage is determined by
calculating the number of days without backtesting deficiencies per
100 trading days in a rolling 12-month period.
\27\ Id.
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The purpose of the Coverage Target is to identify those Members who
have experienced backtesting deficiencies that bring their backtesting
results as reported in the most current month below a certain threshold
percentage as determined by FICC from time to time, initially to be set
at 100 percent. FICC states that such Members pose an increased risk of
loss to FICC because their backtesting deficiencies demonstrate that
FICC's risk-based margin model did not perform as expected for that
Member. Thus, the Coverage Target is designed to provide coverage to
FICC for risk exposures arising from intraday mark-to-market
fluctuations in the portfolio of a Member for whom the FICC margin
model is not performing as expected.\28\
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\28\ Id at 13968.
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FICC states that it would review and assess the sufficiency of all
three thresholds at least annually.\29\ If FICC determines that an
adjustment to any of the thresholds is necessary to provide reasonable
coverage, FICC's market risk group would document the rationale and
obtain approval for the change.\30\ FICC would notify Members of any
such changes via an Important Notice.\31\
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\29\ Id at 13967-8.
\30\ Id.
\31\ Id at 13969.
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The Proposed Rule Change also states that, if volatile market
conditions occur, FICC may: (1) reduce the Dollar Threshold (but not to
less than $250,000); (2) reduce the Percentage Threshold (but not to
less than five percent); or (3) modify or not consider the 12-month
Coverage Target. Examples of volatile market conditions outlined in the
Proposed Rule Change include, but are not limited to, the occurrence of
sudden swings in U.S. Treasury yields or mortgage-backed security
spreads outside of historically observed market moves and/or conditions
contributing to intraday risk exposures to FICC that, in aggregate,
materially exceed intraday risk exposures observed under normal market
conditions. FICC will provide Members with a minimum of one business
day advance notice of changes to any parameter due to volatile market
conditions via an Important Notice.\32\
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\32\ FICC's Important Notices are posted on The Depository Trust
and Clearing Corporation website at <a href="https://www.dtcc.com/legal/important-notices">https://www.dtcc.com/legal/important-notices</a>.
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Lastly, the Proposed Rule Change states that FICC may waive the
imposition, or decrease the amount, of the Intraday Mark-to-Market
Charge. FICC may determine that the adverse intraday mark-to-market
change in the portfolio of the Netting Member or Segregated Indirect
Participant and/or breaches of the thresholds described above do not
accurately reflect FICC's risk exposure from these intraday mark-to-
market fluctuations. The Proposed Rule Change states that one example,
though not the only, of a circumstance where a waiver or decrease of
the Intraday Mark-to-Market Charge may be appropriate is when there are
large mark-to-market fluctuations arising out of trade errors for which
FICC can confirm the reversal/correction thereto. FICC states that it
is important to retain discretion on the imposition of the Intraday
Mark-to-Market Charge to those
[[Page 46279]]
Members who pose an elevated level of risk to FICC. If FICC determines
that either a waiver or reduction of an Intraday Mark-to-Market Charge
is appropriate, the FICC market risk group would document the rationale
and obtain the requisite approval for the waiver/reduction, in accord
with FICC's internal market risk management policies and procedures.
All waiver and/or reduction of the Intraday Mark-to-Market Charge shall
be approved, documented and reviewed on a regular basis pursuant to
FICC's procedures.\33\
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\33\ See Notice of Filing, supra note 3, 90 FR 13969-13970.
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FICC states that the proposed Intraday Mark-to-Market Charge would
work in conjunction with the Intraday Supplemental Fund Deposit \34\ to
help FICC mitigate intraday risk exposures. Whereas the Intraday
Supplemental Fund Deposit is designed to mitigate intraday risk
exposure to FICC that results from large fluctuations in a Member's
portfolio due to new and unsettled trade activities, the proposed
Intraday Mark-to-Market Charge is designed to mitigate intraday risk
exposure to FICC that results from large fluctuations in a Member's
portfolio due to changes in position and market value.\35\
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\34\ See GSD Rule 4, Section 2a, supra note 8.
\35\ See Notice of Filing, supra note 3, 90 FR 13967.
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IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \36\ 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
Change, the Commission finds that the Proposed Rule Change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FICC. In particular, the
Commission finds that the Proposed Rule Change is consistent with
Sections 17A(b)(3)(F) and 17A(b)(3)(I) \37\ of the Act and Rules 17ad-
22(e)(4)(i), (e)(6)(i) and (e)(6)(ii), each promulgated under the
Act.\38\
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\36\ 15 U.S.C. 78s(b)(2)(C).
\37\ 15 U.S.C. 78q-1(b)(3)(F) and (b)(3)(I).
\38\ 17 CFR 240.17ad-22(e)(4)(i), (e)(6)(i) and (e)(6)(ii).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a registered clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, and
assure the safeguarding of securities and funds which are in their
custody or control or for which they are responsible.\39\ The Proposed
Rule Change is consistent with Section 17A(b)(3)(F) of the Act for the
reasons discussed below.
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\39\ 15 U.S.C. 78q-1(b)(3)(F).
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As described in Section III above, FICC proposes to introduce the
Intraday Mark-to-Market Charge as an additional charge when calculating
the Required Fund Deposit and Segregated Customer Margin Requirement in
the Margin Component Schedule. Adding the Intraday Mark-to-Market
Charge to FICC's Margin Component Schedule should produce margin levels
that better reflect the risks of Member portfolios associated with
intraday changes in the size, composition and constituent security
prices of each Member's Margin Portfolio or Segregated Indirect
Participant's portfolio.
From July 1, 2022 through June 30, 2024, FICC performed an Impact
Study \40\ to assess the amount of Intraday Mark-to-Market Charges that
would be assessed on Members, and the effect such Intraday Mark-to-
Market Charges would have on backtesting deficiencies as compared to
the existing GSD Rules. The Commission has reviewed and analyzed the
Impact Study. Based on the Commission's review of the Impact Study, had
the Intraday Mark-to-Market Charge been in place during this period,
the aggregate average daily Intraday Mark-to-Market Charges would have
been approximately $28.8 million, assessed to those Members twice a
day, on average. The periods from July 1, 2022 through June 30, 2023
showed higher market volatility than the period from July 1, 2023
through June 30, 2024, resulting in higher aggregate average daily
Intraday Mark-to-Market Charges, assessed more often than during the
subsequent Study period.\41\ Based on the Commission's review of the
Impact Study, had the Intraday Mark-to-Market Charge been in place,
backtesting deficiencies would have been reduced by six percent over
the time period covered by the Impact Study.
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\40\ As part of the Proposed Rule Change, FICC filed Exhibit 3--
GSD Mark-to-Market Charge Impact Study. Pursuant to 17 CFR 240.24b-
2, FICC requested confidential treatment of Exhibit 3.
\41\ See Notice of Filing, supra note 3, 90 FR at 13970.
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By helping to ensure that FICC collects margin amounts sufficient
to manage intraday risk associated with its Members' portfolios, the
proposed Intraday Mark-to-Market Charge would help limit FICC's
exposure in a member default scenario. The Proposed Rule Change would
generally provide FICC with additional resources to manage potential
losses arising out of a Member default. Such additional resources would
decrease the likelihood that losses arising out of a Member default
would exceed FICC's prefunded resources, i.e., the Clearing Fund,
resulting in a disruption of FICC's operation of its critical clearance
and settlement services. Accordingly, the Proposed Rule Change should
help FICC to continue providing prompt and accurate clearance and
settlement of securities transactions, consistent with 17A(b)(3)(F) of
the Act.\42\
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\42\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, as described in Section II above, FICC would access
the mutualized Clearing Fund should a defaulted Member's own margin be
insufficient to satisfy losses to FICC caused by the liquidation of
that Member's portfolio. The implementation of a Mark-to-Market Charge
should help to ensure that FICC has collected sufficient margin from
Members and indirect participants and minimize the likelihood that FICC
would have to access the Clearing Fund, thereby limiting non-defaulting
Members' exposure to mutualized losses. By helping to limit the
exposure of FICC's non-defaulting Members to mutualized losses, the
Proposed Rule Change should help FICC assure the safeguarding of
securities and funds which are in its custody or control, consistent
with Section 17A(b)(3)(F) of the Act.\43\
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\43\ Id.
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B. Consistency With Section 17A(b)(3)(I)
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency, such as FICC, do not impose any burden on competition
not necessary or appropriate in furtherance of the Act.\44\ Section
17A(b)(3)(I) does not require the Commission to make a finding that
FICC chose the option that imposes the least possible burden on
competition. Rather, the Act requires that the Commission find that the
Proposed Rule Change does not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act,
which involves balancing the competitive effects of the Proposed Rule
Change against all other relevant considerations under the Act.\45\
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\44\ 15 U.S.C. 78q-1(b)(3)(I).
\45\ See Bradford National Clearing Corp., 590 F.2d 1085, 1105
(D.C. Cir. 1978).
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One commenter states that, although it appreciates and respects
FICC's
[[Page 46280]]
market risk management strategy and its responsibilities under Section
17A of the Act and Rule 17ad-22 thereunder, the Proposed Rule Change's
requirement for a Segregated Indirect Participant, like a registered
fund (including money market funds), to pay an Intraday Mark-to-Market
Charge within one hour of demand will create significant operational
disruptions, further disincentivize funds to participate in FICC's
registered fund margin framework, and potentially harm fund
shareholders by reducing the fund's ability to earn returns on its
investments.\46\
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\46\ See Letter from Paul Cellupica, General Counsel, and
Kimberly Thomasson, Assistant General Counsel, Investment Company
Institute (Apr. 17, 2025), (``ICI Letter''). To address this
concern, the commenter states that FICC should seek confirmation
from the Commission staff that the ability of a Sponsoring Member to
pre-fund its customer's Segregated Customer Margin Requirements in
accordance with Section (b)(1)(iii) of Note H to Rule 15c3-3a (17
CFR 240.15c3-3a) under the Act is consistent with the Commission's
time-limited no-action position relating to Sponsoring Members
holding registered fund-posted margin. ICI Letter at 2. See also
Securities Exchange Act Release No. 99149 (Dec. 13, 2023), 89 FR
2714, 2728 (Jan. 16, 2024) (S7-23-22). The commenter further
explains that, without further guidance, the commenter is concerned
that the conditions of the time-limited no-action relief relating to
Sponsoring Members could be read not to contemplate the possibility
of pre-funding and reimbursement by a registered fund to its
Sponsoring Member, notably that the margin provided by the
registered fund is not commingled with, and kept separate from, the
Sponsoring Member's assets and that the Sponsoring Member segregates
on its books and records the margin provided by the registered fund.
ICI Letter at 5. This aspect of the comment is outside the scope of
the Proposed Rule Change, as it relates to interpretation of
Commission no-action relief and does not relate to the Commission's
consideration of the Proposed Rule Change's consistency with the
Exchange Act and the rules and regulations thereunder.
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The Commission acknowledges the requirement to pay an Intraday
Mark-to-Market Charge within one hour of demand could present potential
competitive challenges for a registered fund that chooses to be a
Segregated Indirect Participant. However, no market participant is
required to join FICC as a Segregated Indirect Participant.
Moreover, the inability of a potential market participant, such as
a registered fund, to pay an Intraday Mark-to-Market Charge and,
potentially, to participate in FICC as a Segregated Indirect
Participant, does not preclude such market participant from accessing
FICC. Specifically, an indirect participant may utilize FICC's Agent
Clearing Service or Sponsored Service in a manner that does not require
the indirect participant to post margin itself (that is, to be a
Segregated Indirect Participant).\47\ Under such arrangements, the
Sponsoring Member or Agent Clearing Member would be responsible for any
Intraday Mark-to-Market Charges arising from the indirect participant's
activity, as part of their Required Fund Deposit, as specified in the
proposed changes to Section 2 of the Margin Component Schedule in the
Proposed Rule Change.
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\47\ See GSD Rulebook, Rule 2B, Sections 2 and 3, note 8, supra.
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Moreover, this margin requirement does not present an undue burden
on competition if it is necessary or appropriate in furtherance of the
Act. As discussed in section IV.A above, the Commission has reviewed
FICC's Impact Study and agrees that had the Intraday Mark-to-Market
Margin Charge been in place during the Impact Study period, it would
have generated margin levels that better reflect the intraday risks of
the Member portfolios and help FICC achieve backtesting coverage above
FICC's targeted confidence level.
Accordingly, for the reasons discussed above, the Proposed Rule
Change does not present a burden on competition that is not necessary
or appropriate in furtherance of the Act.
C. Consistency With Rule 17ad-22(e)(4)(i)
Rule 17ad-22(e)(4)(i) under the Act requires that each CCA, such as
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, including
by maintaining sufficient resources to cover its credit exposure to
each participant fully with a high degree of confidence.\48\ The
Proposed Rule Change is consistent with Rule 17ad-22(e)(4)(i) under the
Act for the reasons stated below.
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\48\ 17 CFR 240.17ad-22(e)(4)(i).
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As described in Section IV.A, FICC conducted an Impact Study from
July 1, 2022 to June 30, 2024. The Commission has reviewed and analyzed
the Impact Study, which demonstrates that the Intraday Mark-to-Market
charge would be responsive to intraday market conditions which should
better enable FICC to calculate and collect margin amounts that are
sufficient to mitigate FICC's credit exposure to its Members'
portfolios during intraday periods of market volatility. Over the
course of the two years of the Impact Study, the Intraday Mark-to-
Market Charge as proposed would have reduced the number of backtesting
deficiencies and thereby better enabled FICC to collect margin
sufficient to meet its coverage requirements. Therefore, the Proposed
Rule Change should help ensure FICC's ability to manage its credit
exposures to Members by maintaining sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence.
Accordingly, for the reasons discussed above, the Proposed Rule
Change is reasonably designed to enable FICC to effectively identify,
measure, monitor, and manage its credit exposure to participants,
consistent with Rule 17ad-22(e)(4)(i).\49\
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\49\ 17 CFR 240.17ad-22(e)(4)(i).
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D. Consistency With Rule 17ad-22(e)(6)(i)
Rule 17ad-22(e)(6)(i) under the Act requires that each CCA, such as
FICC, establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposure 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.\50\
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\50\ 17 CFR 240.17ad-22(e)(6)(i).
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The Proposed Rule Change is consistent with Rule 17ad-22(e)(6)(i).
The Members' Required Fund Deposits are made up of risk-based
components (as margin) that are calculated and assessed daily to limit
FICC's credit exposures to Members. The Proposed Rule Change is
designed to more effectively measure and address intraday risk
exposures due to Members' mark-to-market exposure arising between the
collection of the Funds-Only Settlement Amount. As described above in
Sections IV.A and IV.B, the Impact Study demonstrates that the current
margin model generated margin deficiencies which were exacerbated
during times of high market volatility, whereas implementing the
proposed Intraday Mark-to-Market Charge would result in margin
collection that better reflects the risks of Member portfolios during
periods with or without high volatility better than the current GSD
margin models. Specifically, the Impact Study shows that if the
Intraday Mark-to-Market Charge had been in place between July 1, 2022,
and June 30, 2024, the number of backtesting deficiencies would have
been reduced by 21 (from 350 to 329, or approximately 6 percent).
Adding the Intraday Mark-to-Market Charge should enable FICC to more
effectively mitigate the risks attributable to intraday adverse mark-
to-market changes to a Member's or indirect participant's portfolio. As
a result, implementing the Proposed Rule
[[Page 46281]]
Change should better enable FICC to collect margin amounts at levels
commensurate with the risks and particular attributes of its Members.
Accordingly, for the reasons discussed above, the Proposed Rule
Change is designed to assist FICC in maintaining a risk-based margin
system that considers, and produces margin levels commensurate with the
risks associated with intraday risk exposures due to adverse mark-to-
market changes arising between the collections of the Funds-Only
Settlement Amount, and is consistent with Rule 17ad-22(e)(6)(i) under
the Act.
E. Consistency With Rule 17ad-22(e)(6)(ii)
Rule 17ad-22(e)(6)(ii) under the Act requires each CCA, such as
FICC, to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to cover its credit exposure to its
participants by establishing a risk-based margin system that, at a
minimum, among other things: includes the authority and operational
capacity to make intraday margin calls as frequently as circumstances
warrant, including (1) when risk thresholds specified by the CCA are
breached, or (2) when the products cleared or markets served display
elevated volatility; and documents when the CCA determines not to make
an intraday call pursuant to its written policies and procedures.\51\
The Proposed Rule Change is consistent with Rule 17ad-22(e)(6)(ii) for
the reasons stated below.
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\51\ 17 CFR 240.17ad-22(e)(6)(ii).
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The Proposed Rule Change identifies the three risk thresholds which
must each be met to trigger FICC's Intraday Mark-to-Market Charge, and
also states that FICC would make such charges when the products cleared
or markets served display elevated volatility, including an
illustrative example of a volatile market condition, as described in
Section III above. By outlining the circumstances which would warrant
the collection of an intraday mark-to-market charge, as well as
describing a scenario which would constitute elevated volatility, the
Proposed Rule Change grants FICC the authority and operational capacity
to make intraday margin calls as frequently as circumstances warrant.
Finally, the Proposed Rule Change outlines the circumstances
whereby FICC may waive the imposition of the Intraday Mark-to-Market
Charge or decrease its amount. The Proposed Rule Change also states
that all waiver and/or reduction of the Intraday Mark-to-Market Charge
shall be approved, documented and reviewed on a regular basis. As such,
the Proposed Rule Change requires the prescribed documentation
underlying the decision not to make an intraday call, consistent with
Rule 17ad-22(e)(6)(ii).
Accordingly, for the reasons discussed above, the Proposed Rule
Change is consistent with Rule 17ad-22(e)(6)(ii).
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, Sections 17A(b)(3)(F) and 17A(b)(3)(I) of the Act \52\
and Rules 17ad-22(e)(4)(i), 17ad-22(e)(6)(i) and 17ad-22(e)(6)(ii)
thereunder.\53\
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\52\ 15 U.S.C. 78q-1(b)(3)(F) and 15 U.S.C. 78q-1(b)(3)(I).
\53\ 17 CFR 240.17ad-22(e)(4)(i), 17 CFR 240.17ad-22(e)(6)(i)
and 17 CFR 240.17ad-22(e)(6)(ii).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\54\ that proposed rule change SR-FICC-2025-005 be, and hereby is,
approved.\55\
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\54\ 15 U.S.C. 78s(b)(2).
\55\ In approving the Proposed Rule Change, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-18551 Filed 9-24-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 25, 2025.
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