Notice2026-02177
Notice of an Application of the Fixed Income Clearing Corporation and Chicago Mercantile Exchange Inc. for an Exemption Pursuant to Section 36 of the Securities Exchange Act of 1934 in Connection With the Cross-Margining of U.S. Treasury Securities and Related Futures
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Published
February 3, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 22 (Tuesday, February 3, 2026)</title>
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[Federal Register Volume 91, Number 22 (Tuesday, February 3, 2026)]
[Notices]
[Pages 4994-4997]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-02177]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104748; File No. S7-2026-03]
Notice of an Application of the Fixed Income Clearing Corporation
and Chicago Mercantile Exchange Inc. for an Exemption Pursuant to
Section 36 of the Securities Exchange Act of 1934 in Connection With
the Cross-Margining of U.S. Treasury Securities and Related Futures
January 30, 2026.
On December 11, 2025, the Securities and Exchange Commission
(``Commission'') received an application from the Fixed Income Clearing
Corporation (``FICC''), a clearing agency registered with the
Commission, and the Chicago Mercantile Exchange Inc. (``CME'') \1\ to
obtain an exemption pursuant to Section 36 \2\ of the Securities
Exchange Act of 1934 (``Exchange Act''),\3\ in accordance with the
procedures set forth in Exchange Act Rule 0-12.\4\ Specifically, FICC
and CME are requesting exemptive relief, on behalf of certain of their
joint clearing members that are dually-registered as broker-dealers and
futures commission merchants, from Section 15(c)(3) of the Exchange Act
\5\ and Rule 15c3-3 \6\ thereunder in connection with a program to
cross-margin customer positions in U.S. Treasury securities positions
cleared by FICC and related futures cleared by CME in a futures account
from the period of novation through settlement of a trade. The
Commission is publishing this notice to provide interested persons with
an opportunity to comment.
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\1\ The CME is a derivatives clearing organization (``DCO'')
registered with the Commodity Futures Trading Commission (``CFTC'').
\2\ 15 U.S.C. 78mm. Section 36(a)(1) of the Exchange Act gives
the Commission the authority to exempt any person, security or
transaction or any class or classes of persons, securities or
transactions, conditionally or unconditionally, from any Exchange
Act provision by rule, regulation or order, to the extent that the
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors.
\3\ 15 U.S.C. 78a et seq.
\4\ 17 CFR 240.0-12. Exchange Act Rule 0-12 sets forth
procedures for filing applications for orders for exemptive relief
pursuant to Section 36. The application will not appear in the
Federal Register (``Application''). The Application is available on
the Commission's internet website at <a href="http://www.sec.gov">www.sec.gov</a>. Defined terms in
this notice are the same as used in the Application, unless we note
otherwise.
\5\ 15 U.S.C. 78o(c)(3).
\6\ 17 CFR 240.15c3-3.
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I. Background
On December 13, 2023, the Commission adopted rules under the
Exchange Act to amend the standards applicable to certain clearing
agencies to enhance risk management practices for central
counterparties in the U.S. Treasury market and facilitate additional
clearing of U.S. Treasury securities.\7\ As described in the Treasury
Clearing Adopting Release, several commenters discussed facilitating
cross-margining of indirect participants' (i.e., customers' or end
users') transactions in U.S. Treasury securities with those in U.S.
Treasury futures as a method to lower costs of trading and thereby
incentivize additional clearing.\8\ In
[[Page 4995]]
response to these comments, the Commission agreed that cross-margining
can be beneficial to market participants.\9\
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\7\ See Standards for Covered Clearing Agencies for U.S.
Treasury Securities and Application of the Broker-Dealer Customer
Protection Rule With Respect to U.S. Treasury Securities, Exchange
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024)
(``Treasury Clearing Adopting Release'').
\8\ See Treasury Clearing Adopting Release, 89 FR at 2750.
\9\ Id. at 2751. Other organizations also have recommended that
the Commission permit clearinghouse/DCO level cross-margining for
customers for certain U.S. Treasury securities transactions cleared
at a clearing agency and related futures cleared at a DCO, and that
the cross-margining occur in a futures account. See CFTC Global
Markets Advisory Committee Advances Key Recommendations, CFTC
Release No. 8860-24 (Feb. 8, 2024); see also Treasury Market
Practices Group, Consultative White Paper: Non-Centrally Cleared
Bilateral Repo and Indirect Clearing in the U.S. Treasury Market:
Focus on Margining Practices (Feb. 26, 2025).
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FICC and CME currently have in place a proprietary cross-margining
arrangement that allows a broker-dealer that is: (1) registered under
Section 15(b) of the Exchange Act \10\ and also registered as a futures
commission merchant pursuant to Section 4f(a)(1) of the Commodity
Exchange Act \11\ (``CEA'') (a ``BD-FCM''), and (2) a joint clearing
member of both FICC and CME, acting for itself or for certain non-
customer affiliates, to have initial margin requirements for certain
FICC-cleared eligible securities positions and certain CME-cleared
eligible futures positions calculated in a way that recognizes the risk
offsets across those positions. Customers who clear positions at FICC
and CME through a joint clearing member are not eligible to have their
positions cross-margined under the current cross-margining arrangement.
FICC and CME have requested that the Commission permit FICC and CME to
extend this existing cross-margining arrangement to customer
positions.\12\
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\10\ 15 U.S.C. 78o(b).
\11\ 7 U.S.C. 6f(a)(1).
\12\ In connection with the Application, FICC also has submitted
a proposed rule change to the Commission needed to implement the
customer cross-margin program with CME. See FICC, Notice of Filing
of Proposed Rule Change to Amend and Restate the Second Amended and
Restated Cross-Margining Agreement Between FICC and CME and Amend
Related GSD Rules, Exchange Act Release No. 104485 (Dec. 22, 2025),
90 FR 60791 (Dec. 29, 2025) [File No. SR-FICC-2025-025]. CME and
FICC have also submitted a petition for an exemptive order from the
CFTC in connection with the proposal. See CFTC, Proposal to Provide
Exemptive Relief to Facilitate Cross-Margining of Customer Positions
Cleared at Chicago Mercantile Exchange, Inc. and Fixed Income
Clearing Corporation, 90 FR 58525 (Dec. 17, 2025).
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To implement a customer cross-margin program, FICC and CME, on
behalf of their joint BD-FCM members, filed the Application for
exemptive relief from Section 15(c)(3) of the Exchange Act and Rule
15c3-3 \13\ thereunder under Section 36 of the Exchange Act. Rule 15c3-
3 under the Exchange Act,\14\ the broker-dealer customer protection
rule, requires broker-dealers that hold customer cash and securities to
treat these assets in a manner that facilitates their prompt return to
the customers if the broker-dealer fails financially. The goal of Rule
15c3-3 is to place a broker-dealer in a position where it is able to
wind down in an orderly self-liquidation without the need of financial
assistance provided by the Securities Investor Protection Corporation
(``SIPC'') through a formal proceeding under the Securities Investor
Protection Act of 1970 (``SIPA''), or through proceedings under
subchapter III of Chapter 7 of the U.S. Bankruptcy Code (i.e., the
stockbroker liquidation provisions).\15\
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\13\ 17 CFR 240.15c3-3.
\14\ Section 15(c)(3)(A) of the Exchange Act provides, in
pertinent part, that no broker-dealer shall make use of the mails or
any means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (with exceptions for certain securities) in
contravention of such rules and regulations as the Commission shall
prescribe as necessary or appropriate in the public interest or for
the protection of investors to provide safeguards with respect to
the financial responsibility and related practices of broker-dealers
including, but not limited to, the acceptance of custody and use of
customers' securities and the carrying and use of customers'
deposits or credit balances. 15 U.S.C. 78o(c)(3)(A).
\15\ See 15 U.S.C. 78aaa et. seq.; see also Daily Computation of
Customer and Broker-Dealer Reserve Requirements under the Broker-
Dealer Customer Protection Rule, Exchange Act Release No. 102022
(Dec. 20, 2024), 90 FR 2790, 2791 (Jan. 13, 2025).
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II. Summary of the Application and Proposed Conditions
FICC and CME request that, pursuant to Section 36 of the Exchange
Act, the Commission provide exemptive relief to a firm that is a BD-FCM
and a joint clearing member of FICC and CME (``Eligible BD-FCMs'') from
Section 15(c)(3) of the Exchange Act and Rule 15c3-3 thereunder to
permit Eligible BD-FCMs to hold certain securities and customer assets
used to margin, secure, or guarantee such positions in a ``futures
account'' as defined in CFTC Regulation 1.3 and subject to CEA Section
4d(a) and (b) and related CFTC regulations thereunder.\16\ As described
in the Application, the requested relief would not apply to any
transactions that are not novated to FICC and any cash and securities
that have been received upon final settlement of any such
transactions.\17\
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\16\ See Application, at p.1.
\17\ See e.g., notes 1 and 16 in the Application.
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In its Application, FICC and CME state that they currently have in
place a cross-margining arrangement that allows a joint clearing member
to have the initial margin requirements for certain FICC-cleared
Treasury securities and certain CME-cleared Treasury and interest rate
futures contracts (together, ``Eligible Positions'') calculated in a
way that recognizes the risk offsets across these positions
(``Proprietary XM Arrangement'').\18\ The Application requests that
customers of a firm that is an Eligible BD-FCM (``Eligible Customers'')
be permitted to elect to cross-margin for Eligible Positions cleared by
the Eligible BD-FCM at FICC and at CME respectively. As described in
the Application, the participating Eligible Customer (an ``XM
Customer'') would be able to designate Eligible Positions that are
securities (``XM Securities Positions'') and associated margin to be
carried in a futures account that also contains Eligible Positions that
are futures (together with XM Securities Positions, the ``XM Customer
Positions'') and associated margin on the books and records of an
Eligible BD-FCM and generally subject to the requirements and
protections of the CEA and the CFTC regulations, rather than in a
securities account subject to the Exchange Act and the rules
thereunder.\19\ The XM Customer Positions and associated margin would
also, in the event of an Eligible BD-FCM's insolvency proceeding under
SIPA, be subject to subchapter IV of Chapter 7 of the U.S. Bankruptcy
Code (i.e., the commodity broker liquidation provisions) and the CFTC's
Part 190 regulations thereunder rather than SIPA or subchapter III of
Chapter 7 of the U.S. Bankruptcy Code.\20\
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\18\ This arrangement was originally approved by the Commission
and CFTC in 2003 and amended in 2023. See note 3 and accompanying
text in the Application; see also section II. of the Application.
\19\ See section I. of the Application.
\20\ See section IV.c. of the Application. This bankruptcy
treatment would be achieved through the execution of a required non-
conforming subordination agreement between the XM Customer and the
Eligible BD-FCM. See proposed conditions below and section VI. of
the Application (discussing the proposed conditions).
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In the Application, FICC and CME describe the features of the
``Proposed Customer XM Framework,'' \21\ including eligible positions,
eligible participants, margin calculation and collection, account
structure at the clearinghouse and clearing member level, and default
management process.\22\ Further, FICC and CME describe the treatment of
XM Customer Positions and associated margin of an Eligible BD-FCM under
the CEA and CFTC regulations, and the treatment of the XM Customer
Positions
[[Page 4996]]
and associated margin in the event of an Eligible BD-FCM's
insolvency.\23\
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\21\ See section III. of the Application.
\22\ See section III. of the Application.
\23\ See section IV. of the Application.
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FICC and CME also describe the reasons that they believe support
the Commission finding that the requested exemptive relief is
consistent with Section 36 of the Exchange Act.\24\ These reasons
described in detail in the Application include: (1) aligning initial
margin requirements more closely with the risk profile of the
portfolio; (2) incentivizing XM Customers to post initial margin for XM
Securities Positions, rather than rely on their clearing member to do
so; (3) incentivizing Eligible Customers to use the same Eligible BD-
FCMs for securities and futures clearing and therefore facilitate the
development of done-away clearing; and (4) ensure robust protection of
customer assets for participating XM Customers.\25\
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\24\ See section V. of the Application.
\25\ See section V. of the Application.
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Finally, in the Application, FICC and CME also propose certain
conditions in support of their request for exemptive relief from
Section 15(c)(3) of the Exchange Act and Rule 15c3-3 thereunder for the
``Proposed Customer XM Framework.'' \26\ Specifically, in the
Application, FICC and CME propose that:
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\26\ See section VI. of the Application; see also section III.
of the Application for a description of the features of the Proposed
Customer Framework.
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<bullet> All money, securities, or property received by an Eligible
BD-FCM to margin, guarantee, or secure XM Customer Positions or
accruing as a result of such trades or contracts, and held subject to
the terms of a Commission order shall be carried in a futures account
for or on behalf of the XM Customers and shall be deemed to have been
received by the Eligible BD-FCM and be accounted for and treated and
dealt with as belonging to the XM Customers of the Eligible BD-FCM
consistent with CEA Section 4d(a)(2).
<bullet> Each Eligible BD-FCM shall enter into a non-conforming
subordination agreement with each XM Customer prior to the XM
Customer's participation in cross-margining under the Proposed Customer
XM Framework, pursuant to which the XM Customer shall specifically
agree and acknowledge that (i) its XM Securities Positions and
associated FICC-held margin 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 Eligible BD-FCM; (ii)
its XM Securities Positions and associated FICC-held margin will be
subject to any applicable protections under Subchapter IV of Chapter 7
of Title 11 of the United States Code and rules and regulations
thereunder; and (iii) claims to ``customer property'' as defined in
SIPA or 11 U.S.C. 741 against the Eligible BD-FCM with respect to its
XM Securities Positions and associated FICC-held margin will be
subordinated to the claims of all other customers, as the term
``customer'' is defined in 11 U.S.C. 741 or SIPA.\27\
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\27\ See section VI. of the Application.
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<bullet> Cross-margining shall be applied to XM Customer Positions
only if both the Eligible Customer and its Eligible BD-FCM agree to
participate.
<bullet> Positions of an Eligible Customer shall be eligible for
cross-margining if such positions are otherwise Eligible Positions
under the Proprietary XM Arrangement, as the same may be amended from
time to time.
<bullet> Each of FICC and CME shall calculate initial margin
requirements for XM Customer Positions on a gross basis (i.e.,
customer-by-customer) using the same margin reduction methodology as
used in the Proprietary XM Arrangement.
<bullet> FICC and CME shall amend their rulebooks as may be
necessary to effect the Proposed Customer XM Framework and the terms of
any Commission order.
<bullet> Each Eligible BD-FCM shall require each of its XM
Customers to deposit, at a minimum, the aggregate amount of initial
margin required by each clearinghouse in respect of the XM Customer's
XM Customer Positions.
<bullet> Each Eligible BD-FCM must be in compliance with applicable
laws and regulations relating to risk management, capital, and
liquidity, and must be in compliance with applicable FICC and CME rules
and CFTC requirements (including segregation and related books and
records provisions) for the futures accounts in connection with the
Proposed Customer XM Framework.
<bullet> Before receiving any money, securities, or property of an
Eligible Customer to margin, guarantee, or secure XM Customer Positions
in connection with the Proposed Customer XM Framework, the Eligible BD-
FCM must furnish to the Eligible Customer a disclosure document
containing (i) a statement indicating that such money, securities, or
property will be held in an futures account, and that the Eligible
Customer has elected to seek protections under Subchapter IV of Chapter
7 of Title 11 of the United States Code and the rules and regulations
thereunder with respect to such property; and (ii) a statement that the
broker-dealer segregation requirements of Section 15(c)(3) of the
Exchange Act and the rules thereunder, and any customer protections
under SIPA and the stockbroker liquidation provisions, will not apply
to such money, securities, or property of the Eligible Customer.\28\
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\28\ See section VI. of the Application.
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III. Request for Comment
We request and encourage any interested person to submit comments
regarding the Application, including whether the Commission should
grant the request. In particular, we solicit comment on the following
questions:
1. Do commenters agree with FICC's and CME's reasons described in
the Application \29\ in support of the Commission finding that the
exemptive relief is consistent with Section 36 of the Exchange Act? If
so, why or why not.
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\29\ See, e.g., section V. of the Application; see also supra
note 25 and accompanying text in this Notice.
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2. Are there other or alternative conditions not outlined in the
Application that the Commission should consider? If so, please describe
those conditions.
3. Does the proposed language required in the non-conforming
subordination agreement \30\ achieve the objectives of: (1) removing
customers participating in cross-margining under the Proposed Customer
XM Framework from the definition of ``customer'' under Rule 15c3-3,
SIPA, and the stockbroker liquidation provisions with respect to
securities or cash held in CFTC futures accounts; (2) not undermining
the protections afforded to customers participating in cross-margining
under the Proposed Customer XM Framework under the rules of the CFTC,
the CEA, and commodity broker liquidation provisions; and (3) not
requiring customers participating in cross-margining under the Proposed
Customer XM Framework to subordinate their claims, in the event that
their customer claims are not fully satisfied by the distribution of
assets held in their CFTC futures accounts, to assets that may be
included in the debtor's general estate? Is there alternative language
that would be better to achieve these objectives?
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\30\ See note 27 and accompanying text in this Notice.
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4. Should the Commission consider requiring FICC or CME to provide
Eligible BD-FCMs and their Eligible Customers with the ability to
select a securities account as an alternative to a CFTC futures account
as a condition to granting exemptive relief?
5. Should there be any limitations on the type of customers that
may participate in cross-margining under the
[[Page 4997]]
Proposed Customer XM Framework as a condition to granting exemptive
relief? If so, what type of limitation(s)? If not, why not?
6. Would the exemption requested in the Application have a
competitive impact--either positive or negative--on broker-dealers and
their customers in the context of clearing for U.S. Treasury
securities? What would be the potential benefits and costs of the
exemption? Would the exemption and conditions impact investor
protection? If so, what would those impacts be?
7. Should the Commission consider broadening the exemptive relief
requested by FICC and CME to be available to any clearing agency and
DCO and their joint clearing members with a cross-margining program
that meets the conditions of an exemptive order? Why or why not?
8. If the exemptive relief was broadened, how would the conditions
proposed by FICC and CME in the Application be modified?
Comments should be received on or before March 5, 2026. Comments
may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/other.shtml">http://www.sec.gov/rules/other.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ef9d9a838ac28c8082828a819b9caf9c8a8cc1888099"><span class="__cf_email__" data-cfemail="c3b1b6afa6eea0acaeaea6adb7b083b0a6a0eda4acb5">[email protected]</span></a>. Please include
File Number S7-2026-03 on the subject line.
Paper Comments
<bullet> Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-2026-03. 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 of submission. The Commission will post all
comments on the Commission's internet website (<a href="http://www.sec.gov/rules/other.shtml">http://www.sec.gov/rules/other.shtml</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.
For further information, you may contact Michael A. Macchiaroli,
Associate Director; Raymond A. Lombardo, Assistant Director; Sheila
Dombal Swartz, Senior Special Counsel; or Nina Kostyukovsky, Special
Counsel at (202) 551-5500, Office of Broker-Dealer Finances, Division
of Trading and Markets, Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-7010.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-02177 Filed 2-2-26; 8:45 am]
BILLING CODE 8011-01-P
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