Notice2026-02228
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Remove the Activity Limit From the GSD Rules
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
February 4, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 23 (Wednesday, February 4, 2026)</title>
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[Federal Register Volume 91, Number 23 (Wednesday, February 4, 2026)]
[Notices]
[Pages 5128-5133]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-02228]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104755; File No. SR-FICC-2026-003]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Remove the Activity Limit
From the GSD Rules
January 30, 2026.
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 January 29, 2026, 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 consists of modifications to FICC's
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') \3\
in order to enhance the risk management of indirect participants by (i)
removing the activity limit currently applied to Sponsoring Members
and, in lieu thereof, (ii) modifying the application of the ``higher
of'' calculation methodology that currently applies the higher of
start-of-day (``SOD'') VaR Charge and intraday VaR Charge to all
Sponsoring Member Omnibus Accounts to apply to only those Sponsored
Members and/or Segregated Indirect Participants whose activity level
exceeds a specified liquidity threshold.
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\3\ Terms not defined herein are defined in the GSD Rules,
available at <a href="http://www.dtcc.com/legal/rules-and-procedures">www.dtcc.com/legal/rules-and-procedures</a>.
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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
FICC is proposing to enhance the risk management of indirect
participants by removing the activity limit currently applied to
Sponsoring Members and, in lieu thereof, modifying the application of
the ``higher of'' calculation methodology that currently applies the
higher of SOD VaR Charge and intraday VaR Charge to all Sponsoring
Member Omnibus Accounts, to apply to only those Sponsored Members and/
or Segregated Indirect Participants whose activity level exceeds a
specified liquidity threshold.
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.\4\ 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.\5\ At
GSD, FICC calculates the Required Fund Deposit amount for each Member
twice a day.
[[Page 5129]]
The calculation is based upon each Member's unsettled and pending
transactions.
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\4\ GSD also clears and settles certain transactions on
securities issued or guaranteed by U.S. government agencies and
government sponsored enterprises.
\5\ See GSD Margin Component Schedule, 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 liquidating a Member's
portfolio in the event FICC ceases to act for that Member (hereinafter
referred to as a ``default'').\6\ The aggregate amount of all Members'
Required Fund Deposit 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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\6\ 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), supra note 3.
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Each Member is also responsible for the margin requirements arising
from the activity of the Member's indirect participant customers
submitted to FICC via the Sponsoring Member/Sponsored Member service
(``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.\7\ 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'').\8\ 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'').\9\
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\7\ See GSD Rule 3A (Sponsoring Members and Sponsored Members),
supra note 3.
\8\ See GSD Rule 1 (Definitions) (definition of ``Sponsored
Member Trades''), supra note 3.
\9\ 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 also
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
Participant Accounts),\10\ 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 GSD
Rules.\11\ FICC calculates the Segregated Customer Margin Requirement
amount for each Member twice a day. The calculation is based upon the
unsettled and pending transactions in each Member's (i) Sponsoring
Member Omnibus Accounts designated as Segregated Indirect Participants
Accounts and (ii) Agent Clearing Member Omnibus Accounts designated as
Segregated Indirect Participants Accounts.
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\10\ See GSD Rule 2B (Accounts), supra note 3.
\11\ See GSD Rule 4 (Clearing Fund and Loss Allocation) and GSD
Margin Component Schedule, 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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Pursuant to the GSD Rules, each Member's Required Fund Deposit
amount and/or Segregated Customer Margin Requirement amount, to the
extent applicable, consist of a number of components, each of which is
calculated to address specific risks faced by FICC, as identified
within the GSD Rules.\12\ These components include the VaR Charge,
Blackout Period Exposure Adjustment, Backtesting Charge, Holiday
Charge, Margin Liquidity Adjustment Charge, Excess Capital Premium,
Intraday Supplemental Fund Deposit, special charge, Portfolio
Differential Charge, Volatility Event Charge, and Intraday Mark-to-
Market Charge.\13\ The VaR Charge \14\ generally comprises the largest
portion of a Member's Required Fund Deposit amount/Segregated Customer
Margin Requirement amount.
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\12\ Supra note 3.
\13\ These margin components and the relevant defined terms are
located in the GSD Margin Component Schedule, supra note 3.
\14\ See GSD Margin Component Guide (definition of ``VaR
Charge''), supra note 3.
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The Required Fund Deposit amount and the Segregated Customer Margin
Requirement amount are each designed to be directly correlated with the
amount of risk created by a Member's/Segregated Indirect Participant's
trade activity and is calculated based on the Member's/Segregated
Indirect Participant's outstanding positions as well as its intraday
trading and settlement activity. FICC has the ability to require
additional financial resources or other adequate assurances (such as a
limitation on their activity), as a risk mitigant from those Members
that may pose a risk to FICC or its memberships.\15\
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\15\ See GSD Rule 3 (Ongoing Membership Requirements), supra
note 3.
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FICC mitigates the market risk associated with Sponsored Service
and Agent Clearing Service through the twice-daily margin collection
from the Sponsoring Members and Agent Clearing Members.\16\ In
addition, under the GSD Rules, FICC currently has the ability to limit
activities and assess a higher Clearing Fund deposit, as further
described below, both of which are specifically designed to manage risk
exposures from the Sponsored Service.
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\16\ See Rule 3A, Section 10 and Rule 8 (Agent Clearing
Service), Section 7, supra note 3.
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Similar to the Sponsored Service, the Agent Clearing Service also
enables participation by firms that rely on the services provided by
Members in order to have their activity cleared and settled through
FICC's facilities. Accordingly, FICC is looking to align the risk
management and monitoring process for the Agent Clearing Service and
the Sponsored Service, particularly with respect to the management of
risk exposures from Sponsored Members and Segregated Indirect
Participants, with the proposed changes further described below.
1. Removal of Activity Limit
Currently, FICC can manage its risk exposures from the Sponsored
Service by limiting the activities that a Sponsoring Member can submit
to FICC. Specifically, under Section 2(h) of GSD Rule 3A, if the sum of
the VaR Charges of a Sponsoring Member's Sponsoring Member Omnibus
Account(s) and its Dealer Accounts (``Aggregate VaR Charges'') exceeds
its Netting Member Capital,\17\ the Sponsoring Member shall not be
permitted to submit activity into its Sponsoring Member Omnibus
Account(s), unless otherwise determined by FICC in order to promote
orderly settlement.\18\
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\17\ See GSD Rule 1 (definition of ``Netting Member Capital''),
supra note 3.
\18\ See GSD Rule 3A, Section 2(h), supra note 3.
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FICC is proposing to delete this restriction on activity submission
from GSD Rule 3A, and, in lieu thereof, modify the application of the
``higher of'' calculation methodology so that it would apply to only
those Sponsored Members and Segregated Indirect Participants whose
activity level exceeds a specified liquidity threshold. The proposed
removal of activity limit would also facilitate access to FICC's
clearance and settlement services in accordance with the requirements
of
[[Page 5130]]
Rule 17ad-22(e)(18)(iv)(C) under the Act.\19\
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\19\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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2. Modify Application of the ``Higher Of'' Calculation Methodology
In addition to the activity limit described above, FICC can also
manage its risk exposures from the Sponsored Service by assessing a
higher Clearing Fund deposit on the Sponsoring Members. FICC currently
applies the higher of the VaR Charge \20\ calculation as of the
beginning of the current Business Day and intraday on the current
Business Day as the intraday VaR Charge to a Sponsoring Member's
Sponsoring Member Omnibus Account pursuant to Section 4(e) of the GSD
Margin Component Schedule.\21\ FICC believes this calculation
procedure, currently applicable only to Sponsoring Member Omnibus
Accounts, should also apply to Sponsoring Member Omnibus Accounts
designated as Segregated Indirect Participants Accounts as well as
Agent Clearing Member Omnibus Accounts designated as Segregated
Indirect Participants Accounts, as both of these Account types would
also be used exclusively to record transactions submitted to FICC on
behalf of entities other than a Member (i.e., Sponsored Members and
Segregated Indirect Participants) and thus should be monitored and risk
managed in a similar manner.\22\ Accordingly, in addition to Sponsored
Members that are currently subject to the ``higher of'' calculation
methodology, FICC is proposing to expand the application of the
``higher of'' calculation methodology to include Segregated Indirect
Participants. However, instead of applying the ``higher of''
calculation to these Account types at all times, FICC would modify the
application of this methodology as described below.
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\20\ Section 4(e) of the GSD Margin Component Schedule currently
states that FICC applies the higher of the ``Required Fund Deposit''
calculation as of the current Business Day and intraday on the
current Business Day for the Sponsoring Member Omnibus Account, even
though in practice FICC calculates the Unadjusted GSD Margin
Portfolio Amount applicable to a Sponsoring Member Omnibus Account
based on the higher of the VaR Charge calculation as of the
beginning of the current Business Day and intraday on the current
Business Day. In reviewing the GSD Rules in connection with this
present filing, FICC believes this reference to ``Require Fund
Deposit'' in Section 4(e) of the GSD Margin Component Schedule is
incorrect and should be changed to ``VaR Charge'' to accurately
reflect the current practice.
\21\ FICC calculates VaR Charge twice daily based on each
Member's noon position and end-of-day position. Typically, the VaR
Charge calculated based on the noon slice would be collected
intraday at 2:45 p.m. (i.e., intraday VaR Charge), while the VaR
Charge calculated based on the end-of-day position would be
collected at start-of-day at 9:30 a.m. the next business day (i.e.,
SOD VaR Charge). With the application of the ``higher of''
methodology, FICC would compare the VaR Charge calculated based on
the noon slice against the VaR Charge calculated based on the prior
business day's end-of-day positions and apply the higher of the two
amounts as the intraday VaR Charge. For example, if the VaR Charge
calculated based on the noon slice is lower than the VaR Charge
calculated based on the prior business day's end-of-day position,
then FICC would assess the VaR Charge calculated based on the prior
business day's end-of-day position as the intraday VaR Charge. In
contrast, if the VaR Charge calculated based on the noon slice is
higher than the VaR Charge calculated based on the prior business
day's end-of-day position, then FICC would assess the VaR Charge
calculated based on the noon slice as the intraday VaR Charge.
\22\ As proposed, FICC would not apply the ``higher of''
calculation methodology to Agent Clearing Member Omnibus Accounts
that are not designated as segregated. This is because, unlike
Sponsored Members and Segregated Indirect Participants whose margin
requirements are calculated on a gross basis, margin requirements
for Agent Clearing Member Omnibus Accounts that are not designated
as segregated are calculated on a net basis across all Executing
Firm Customers whose transactions are recorded within the same
account.
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In order to monitor and mitigate risk exposures from Sponsored
Members and Segregated Indirect Participants whose activity level
exceeds a specified liquidity threshold, FICC is proposing that, with
respect to each Sponsored Member and/or Segregated Indirect
Participant, FICC would compare the total liquidity needs arising from
the Sponsored Member's/Segregated Indirect Participant's activities
across all Accounts of its Sponsoring Members/Agent Clearing Members
against FICC's daily liquidity need. If on any Business Day the
aggregate liquidity needs of the Sponsored Member/Segregated Indirect
Participant across all Accounts exceed FICC's daily liquidity need,
then FICC would apply the ``higher of'' calculation methodology to the
Sponsored Member/Segregated Indirect Participant for the following 25
Business Days.\23\ Specifically, the ``higher of'' VaR Charge would be
assessed for each applicable Sponsored Member/Segregated Indirect
Participant via the relevant Sponsoring Member Omnibus Account/Agent
Clearing Member Omnibus Account based on the SOD and intraday VaR
Charges calculated for the Sponsored Member/Segregated Indirect
Participant. For example, if Sponsored Member X submits transactions
through four different Sponsoring Members, generating Receive
Obligations and Funds-Only Settlement Amounts that total $100 billion
on Day 1, and the FICC's daily liquidity need on Day 1 is $80 billion,
then FICC would impose a ``higher of'' calculation methodology on
Sponsored Member X for the next 25 Business Days, (i.e., Day 2 to Day
27), by assessing Sponsored Member X the higher of its SOD VaR Charge
and intraday VaR Charge for both margin cycles. This means that, if
Sponsored Member X's SOD VaR Charge was $300 million and its intraday
VaR Charge was $150 million on Day 2, Sponsored Member X would be
assessed a VaR Charge of $300 million for both the SOD and the intraday
margin cycles on Day 2.
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\23\ FICC believes the proposed 25 Business Days application
period of the ``higher of'' calculation methodology would provide
FICC higher margin coverage within a given calendar month in order
to mitigate increases in risk exposure levels arising from Members'
indirect participant activities, particularly those spanning over
month-end period, which tend to be when FICC risk management has
observed increases in those activities.
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Proposed GSD Rule Changes
To implement the proposed changes described above, FICC proposes to
make the following amendments to the GSD Rules.
FICC proposes to revise GSD Rule 1 by adding new definitions for
``Affiliated Family'' and ``Daily Liquidity Need.''
``Affiliated Family'' would be defined to mean a group of Members,
excluding from the group any Member that is a securities clearinghouse,
depository, exchange or other market infrastructure, in which each
Member in the group is an Affiliate of at least one other Member in the
group.
``Daily Liquidity Need'' would be defined to mean on any Business
Day, the largest payment obligation of FICC as a central counterparty,
as calculated and determined by FICC, for all projected same day,
intraday and multiday settlement activity (where appropriate), assuming
the default on that day of a Netting Member or, for an Affiliated
Family, the largest payment obligation that FICC would have in the
event of the simultaneous default of all Members of that Affiliated
Family.
In addition, FICC would modify the GSD Rules by deleting Section
2(h) of GSD Rule 3A, the existing activity limit provision. Due to the
deletion of GSD Rule 3A, Section 2(h), subsection 2(i) would be
renumbered 2(h) and subsection 2(j) would be renumbered 2(i).
In lieu thereof, FICC would modify the GSD Rules by revising
Section 4 of the GSD Margin Component Schedule to reflect the
modifications to the application of the ``higher of'' calculation
methodology. Specifically, FICC is proposing to delete the existing
language in Section 4(e) of the GSD Margin Components Schedule and
adding language that would provide that for each Sponsored Member and/
or Segregated Indirect Participant, FICC
[[Page 5131]]
shall compare the sum of Receive Obligations \24\ and Funds-Only
Settlement Amounts \25\ recorded for the Sponsored Member and/or
Segregated Indirect Participant across all Accounts against FICC's
Daily Liquidity Need. If on any Business Day the aggregate sum of
Receive Obligations and Funds-Only Settlement Amounts of the Sponsored
Member and/or Segregated Indirect Participant across all Accounts
exceeds FICC's Daily Liquidity Need, for purposes of calculating the
Unadjusted GSD Margin Portfolio Amount, FICC shall apply the higher of
the VaR Charge calculation as of the beginning of the day and intraday
as the intraday VaR Charge to the Sponsored Member and/or Segregated
Indirect Participant for the following 25 Business Days.
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\24\ See GSD Rule 1 (definition of ``Receive Obligation''),
supra note 3.
\25\ See GSD Rule 1 (definition of ``Funds-Only Settlement
Amounts''), supra note 3.
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In addition, the title of Section 4 of the GSD Margin Component
Schedule would be changed from ``Increased Required Fund Deposits'' to
``Increased Required Fund Deposits/Segregated Customer Margin
Requirements.''
Impact Study
FICC performed an impact study for the period April 1, 2024 to
October 31, 2025 (``Impact Study Period''). The impact study included
696 out of 2,978 Sponsored Members because they had either Receive
Obligations and/or Funds-Only Settlement Amounts.\26\ If the proposed
rule changes had been in place during the Impact Study Period, out of
696 Sponsored Members, 31 Sponsored Members (or approximately 4.5%)
would not be impacted and 665 Sponsored Members (or approximately
95.5%) would be positively impacted.
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\26\ Due to data limitation, the impact study did not include
Funds-Only Settlement Amounts from April 1, 2024 to March 23, 2025.
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Specifically, out of the 31 Sponsored Members that would not be
impacted, five Sponsored Members were already subject to the ``higher
of'' calculation methodology under the current GSD Rules and would
remain subject to the ``higher of'' calculation methodology under the
proposal. For the other 26 Sponsored Members, their VaR Charges
calculated based on the noon slice are higher than their VaR Charges
calculated based on the prior business day end-of-day positions.
Therefore, these 26 Sponsored Members were already being assessed the
VaR Charge calculated based on their noon slice as their intraday VaR
Charges and would continue to be assessed that way under the proposal.
For the 665 Sponsored Members that would be positively impacted, they
would have a reduction in their VaR Charges as a result of proposed
modifications to the application of the ``higher of'' calculation
methodology.
On average, the five Sponsored Members would be subject to the
``higher of'' calculation methodology for approximately 159 out of the
398 Business Days (or approximately 40%) during the Impact Study
Period, with one Sponsored Member being subject to the ``higher of''
calculation methodology for 381 days out of the 398-day Impact Study
Period (or approximately 96%).
The average daily increase in VaR Charge in dollars for the five
Sponsored Members would be approximately $144.6 million (or
approximately 19% of the average daily VaR Charge that would otherwise
be assessed on the five Sponsored Members).
The five largest daily increases in VaR Charge in dollars for the
five Sponsored Members would be approximately $826.1 million (or
approximately 51.7%), $697.1 million (or approximately 47.3%), $692.5
million (or approximately 41.8%), $689.6 million (or approximately
46.9%), and $682.6 million (or approximately 40.7%).
The five largest daily increases in VaR Charge for the five
Sponsored Members as percentages of the relevant Sponsored Member's
daily VaR Charge that would otherwise be assessed on the Sponsored
Members would be approximately 59.7% (or $312.8 million), 55.8% (or
$361.2 million), 52.8% (or $209.9 million), 52.6% (or $208.3 million),
and 52.5% (or $203.8 million).
As proposed, FICC would no longer automatically apply the ``higher
of'' calculation methodology to a Sponsoring Member's Sponsoring Member
Omnibus Account. Accordingly, the 665 Sponsored Members that would have
been assessed a higher VaR Charge under the current GSD Rules would
each have, on average, a daily reduction in their VaR Charges of
approximately $20.2 million (or approximately 32% of the average daily
VaR Charge that would otherwise be assessed on the Sponsored Member).
Implementation Timeframe
FICC would implement the proposed rule change 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 the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, FICC
believes the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act,\27\ and Rules 17ad-22(e)(4), (e)(6)(i), and
(e)(19) each promulgated under the Act,\28\ for the reasons described
below.
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\27\ 15 U.S.C. 78d-2(b)(3)(F).
\28\ 17 CFR 240.17ad-22(e)(4), (e)(6)(i), and (e)(19).
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Section 17A(b)(3)(F) of the Act requires that the GSD Rules be
designed to, among other things, assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible and be designed to promote the prompt and
accurate clearance and settlement of securities transactions.\29\ FICC
believes the proposed changes to enhance the risk management of
indirect participants are designed to assure the safeguarding of
securities and funds which are in its custody or control or for which
it is responsible because these changes are designed to mitigate risks
to FICC arising out of a Member's indirect participant activities.
Specifically, the proposed changes would enable FICC to assess a higher
margin on those Sponsored Members and Segregated Indirect Participants
whose activity level exceeds a specified liquidity threshold. Doing so
would enable FICC to more accurately assess the margin required to
cover risks arising from the activities of indirect participants such
that, in the event of a Member default, FICC would be able to mitigate
potential losses associated with liquidating the defaulting Member's
portfolio so that FICC's operations would not be disrupted, and non-
defaulting Members would not be exposed to losses they cannot
anticipate or control. In this way, these proposed changes are designed
to enhance FICC's risk management and its ability to assure the safe
return of funds and securities by ensuring that the margin requirements
take due and appropriate account of the risk arising from indirect
participants' activities and thus reducing the potential risk to FICC
arising from indirect participant transactions. Accordingly, these
changes would support FICC's compliance with Section 17A(b)(3)(F) by
further assuring FICC's safeguarding of securities and funds in its
control and for which it is responsible.\30\
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\29\ 15 U.S.C. 78d-2(b)(3)(F).
\30\ Id.
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The proposed rule changes to enhance the risk management of
indirect participants have also been designed to be consistent with
Rules 17ad-22(e)(4),
[[Page 5132]]
(e)(6)(i), and (e)(19) under the Act.\31\ Rule 17ad-22(e)(4) requires
FICC 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.\32\ The proposed changes to enhance the risk management of
indirect participants address the identification, measurement,
monitoring and management of credit exposures that may arise from
indirect participant activities. Specifically, by modifying the
application of the ``higher of'' calculation methodology to include
each Sponsored Member and/or Segregated Indirect Participant whose
activity level exceeds a specified liquidity threshold, the proposed
changes would enable FICC to have rule provisions that are reasonably
designed to effectively identify, measure, monitor, and manage its
credit exposures to indirect participants and those exposures arising
from its payment, clearing, and settlement processes, which FICC
believes is consistent with Rule 17ad-22(e)(4).
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\31\ 17 CFR 240.17ad-22(e)(4), (e)(6)(i), and (e)(19).
\32\ 17 CFR 240.17ad-22(e)(4).
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Rule 17ad-22(e)(6)(i) requires FICC 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 considers, and produces
margin levels commensurate with, the risks and particular attributes of
each relevant product, portfolio, and market.\33\ FICC believes that
the proposed changes to enhance the risk management of indirect
participants as described herein are consistent with the requirements
of Rule 17ad-22(e)(6)(i) cited above. The proposed changes to modify
the application of the ``higher of'' calculation methodology to include
each Sponsored Member and/or Segregated Indirect Participant whose
activity level exceeds a specified liquidity threshold would help to
ensure that margin levels are commensurate with the risk exposure
presented by the indirect participant activities submitted to FICC by
the Members. These proposed changes would help ensure that the margin
that FICC collects from Members is sufficient to mitigate the credit
exposure presented by the activities that Members submit to FICC on
behalf of indirect participants. Overall, the proposed changes would
allow FICC to more effectively address the risks presented by Members
and indirect participants. In this way, the proposed changes 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 the proposed changes are
consistent with the requirements of Rule 17ad-22(e)(6)(i) under the
Act.\34\
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\33\ 17 CFR 240.17ad-22(e)(6)(i).
\34\ Id.
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Rule 17ad-22(e)(19) requires FICC to identify, monitor, and manage
the material risks to FICC arising from arrangements in which firms
that are indirect participants in FICC rely on the services provided by
direct participants to access FICC's clearance and settlement
facilities.\35\ FICC believes that the proposed changes to enhance the
risk management of indirect participants as described herein are
consistent with the requirements of Rule 17ad-22(e)(19) cited above.
The proposed changes to modify the application of the ``higher of''
calculation methodology to include each Sponsored Member and/or
Segregated Indirect Participant whose activity level exceeds a
specified liquidity threshold is appropriate to manage the potential
risk to FICC arising from indirect participant transactions. These
proposed changes would ensure that the margin FICC collects from
Members is sufficient to mitigate the credit exposure presented by the
activities that Members submit to FICC on behalf of indirect
participants. Overall, the proposed changes would allow FICC to more
effectively address the risks presented by indirect participants. In
this way, the proposed changes enhance the ability of FICC to identify,
monitor, and manage the material risks to FICC arising from
arrangements in which firms that are indirect participants in FICC rely
on the services provided by direct participants to access FICC's
clearance and settlement facilities. As such, FICC believes that the
proposed changes are consistent with the requirements of Rule 17ad-
22(e)(19) under the Act.\36\
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\35\ 17 CFR 240.17ad-22(e)(19).
\36\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes the proposed rule changes to enhance the risk
management of indirect participants could impose a burden on
competition. As a result of the proposed rule changes, 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. 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, as
permitted by Section 17A(b)(3)(I) of the Act.\37\
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\37\ 15 U.S.C. 78d-2(b)(3)(I).
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Specifically, FICC believes that the proposed rule changes to
enhance the risk management of indirect participants 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 the proposed changes is necessary. This is
because the GSD Rules must be designed to assure the safeguarding of
securities and funds that are in FICC's custody or control or for which
it is responsible, consistent with Section 17A(b)(3)(F) of the Act.\38\
As described above, FICC believes that the proposed rule changes to
enhance the risk management of indirect participants would enable FICC
to better address risk exposure arising from the indirect participant
activities. As such, the proposed changes to enhance the risk
management of indirect participants are designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\39\
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\38\ 15 U.S.C. 78d-2(b)(3)(F).
\39\ Id.
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FICC also believes these proposed changes to enhance the risk
management of indirect participants are necessary to support FICC's
compliance with Rules 17ad-22(e)(4), (e)(6)(i), and (e)(19) under the
Act,\40\ 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, (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,
[[Page 5133]]
and (z) identify, monitor, and manage the material risks to FICC
arising from arrangements in which firms that are indirect participants
in FICC rely on the services provided by direct participants to access
FICC's clearance and settlement facilities. As described above, FICC
believes that these proposed changes to enhance the risk management of
indirect participants would allow FICC to more effectively mitigate
risk exposure arising out of indirect participant activities and
therefore would allow FICC to effectively identify, measure, monitor,
and manage its credit exposures to participants; better limit FICC's
credit exposures to participants and producing margin levels
commensurate with the risks and particular attributes of each relevant
product and portfolio; and more effectively address the risks presented
by indirect participants, consistent with the requirements of Rules
17ad-22(e)(4), (e)(6)(i), and (e)(19) under the Act.\41\
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\40\ 17 CFR 240.17ad-22(e)(4), (e)(6)(i), (e)(19).
\41\ Id.
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FICC also believes that the above-described burden on competition
that could be created by the proposed changes would be appropriate in
furtherance of the Act because such changes have been appropriately
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible, as
described in detail above. The proposed changes to enhance the risk
management of indirect participants are specifically designed to cover
excessive risk exposures posed by a Sponsored Member and/or a
Segregated Indirect Participant whose activity level exceeds a
specified liquidity threshold (i.e., when the total liquidity needs
arise from the Sponsored Member's/Segregated Indirect Participant's
activities across all Accounts exceed FICC's daily liquidity need). The
``higher of'' calculation methodology that would be applied by FICC as
a result of such proposed changes for a particular Sponsored Member
and/or Segregated Indirect Participant would be necessary and in direct
relation to the specific risks presented by such indirect participant's
activities. Any increase in Required Fund Deposit and/or proposed
Segregated Customer Margin Requirement as a result of such proposed
changes for a particular Sponsored Member and/or Segregated Indirect
Participant would be in direct relation to the specific risks presented
by such indirect participant's activities. Accordingly, 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. Therefore,
because the proposed changes are designed to provide FICC with a more
appropriate and complete measure of the risks presented by indirect
participants' activities, FICC believes the proposals are appropriately
designed to meet its risk management goals and its regulatory
obligations.
Accordingly, FICC does not believe that the proposed changes to
enhance the risk management of indirect participants would impose any
burden on competition that is not necessary or appropriate in
furtherance of the Act.\42\
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\42\ 15.U.S.C. 78d-2(b)(3)(I).
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(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-comment">www.sec.gov/rules-regulations/how-submit-comment</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#96e2e4f7f2fff8f1f7f8f2fbf7e4fdf3e2e5d6e5f3f5b8f1f9e0"><span class="__cf_email__" data-cfemail="44303625202d2a23252a202925362f213037043721276a232b32">[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:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3644435a531b55595b5b535842457645535518515940"><span class="__cf_email__" data-cfemail="2250574e470f414d4f4f474c5651625147410c454d54">[email protected]</span></a>. Please include
file number SR-FICC-2026-003 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-2026-003. 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/sro.shtml">https://www.sec.gov/rules/sro.shtml</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-2026-003 and should be submitted on or
before February 25, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-02228 Filed 2-3-26; 8:45 am]
BILLING CODE 8011-01-P
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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.