Notice2026-05562
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Remove the Activity Limit From the GSD Rules
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Published
March 23, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 55 (Monday, March 23, 2026)</title>
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[Federal Register Volume 91, Number 55 (Monday, March 23, 2026)]
[Notices]
[Pages 13890-13893]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-05562]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105046; File No. SR-FICC-2026-003]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Remove the Activity Limit From
the GSD Rules
March 18, 2026.
I. Introduction
On January 29, 2026, the Fixed Income Clearing Corporation
(``FICC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-FICC-2026-003, pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The Proposed Rule Change would amend the
Government Securities Division (``GSD'') Rulebook \3\ (i) to remove the
activity limit currently applied to Sponsoring Members and (ii) to
modify the application of the existing ``higher of'' calculation
methodology to apply only to those Sponsored Members and Segregated
Indirect Participants whose activity level exceeds a specified
liquidity threshold. The Proposed Rule Change was published for comment
in the Federal Register on February 4, 2026.\4\ The Commission has
received no comments on the Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Each capitalized term not otherwise defined herein has its
meaning as set forth in the GSD Rulebook (``Rules''), available at
<a href="https://www.dtcc.com/legal/rules-and-procedures">https://www.dtcc.com/legal/rules-and-procedures</a>.
\4\ See Securities Exchange Act Release No. 104755 (Jan. 30,
2026). 91 FR 5128 (Feb. 4, 2026) (File No. SR-FICC-2026-003)
(``Notice of Filing'').
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For the reasons discussed below, the Commission is approving the
Proposed Rule Change.
II. Background
FICC's GSD provides trade comparison, netting, risk management,
settlement, and central counterparty (``CCP'') services for the U.S.
Government securities market.\5\ As a CCP, FICC interposes itself as
the buyer to every seller and seller to every buyer for the financial
transactions it clears. As such, FICC is exposed to the risk that one
or more of its members may fail to make a payment or to deliver
securities.
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\5\ FICC's Mortgage-Backed Securities Division provides similar
services for mortgage-backed securities. For purposes of this Order,
``FICC'' refers to GSD.
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Market participants who are not members of FICC may access FICC's
services indirectly through the Sponsored Service or Agent Clearing
Service.\6\ The Sponsored Service allows members approved as Sponsoring
Members to sponsor certain firms as ``Sponsored Members.'' \7\
Similarly, the Agent Clearing Service allows members approved as Agent
Clearing Members to submit activities of certain institutional firms,
``Executing Firm Customers,'' for clearing and settlement. FICC
establishes and maintains a Sponsoring Member Omnibus Account, to
record transactions of a Sponsoring Member's Sponsored Members, and an
Agent Clearing Member Omnibus Account, to record transactions of an
Agent Clearing Member's Executing Firm Customers.\8\ Sponsoring Members
and Agent Clearing Members also have the option of segregating
transactions of Sponsored Members and Executing Firm Customers, as
``Segregated Indirect Participants,'' in Segregated Indirect
Participants Accounts.\9\
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\6\ See GSD Rules 3A and 8, supra note 3.
\7\ See Notice of Filing, supra note 4, 91 FR at 5129.
\8\ Id.
\9\ Id.
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A key tool that FICC uses to manage its credit exposures to its
members is the daily collection of the Required Fund Deposit (i.e.,
margin) from each member. A member's margin is designed to mitigate
potential losses associated with liquidation of the member's portfolio
in the event of that member's default. 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 member's
proprietary accounts and its indirect participant accounts not
designated as Segregated Indirect Participants Accounts.\10\ The
aggregated amount of all GSD members' margin constitutes the Clearing
Fund, which FICC would be able to access should a defaulted member's
own margin be insufficient to satisfy losses to FICC caused by the
liquidation of that member's portfolio. Second, the Segregated Customer
Margin Requirement is the sum of the member's Sponsoring Member Omnibus
Accounts and Agent Clearing Member Omnibus Accounts designated as
Segregated Indirect Participants Accounts.\11\ Similarly, FICC would be
able to access Segregated Customer Margin in the event of the default
of the Segregated Indirect Participant for which that margin is held.
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\10\ See GSD Rule 4 (Clearing Fund and Loss Allocation), supra
note 3.
\11\ Id.
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Both the Required Fund Deposit and Segregated Customer Margin
Requirement consist of several components, each of which is calculated
to address specific risks faced by FICC arising out of its members'
trading activity.\12\ For both, the components include, among others, a
VaR charge (``VaR Charge'') designed to capture the potential market
price risk associated with the securities in a member's portfolio.\13\
As a further risk mitigation step, FICC may require additional
financial resources or other adequate assurances (such as limitations
on activities) from members that may present a higher risk exposure to
FICC.\14\
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\12\ See GSD Rules Margin Component Schedule, Sections 2 and 5,
supra note 3.
\13\ Id. The components also include, as applicable, Blackout
Period Exposure Adjustment, Backtesting Charge, Holiday Charge,
Intraday Supplemental Fund Deposit, Margin Liquidity Adjustment
Charge, and Portfolio Differential Charge.
\14\ See Notice of Filing, supra note 4, 91 FR at 5129. See also
GSD Rule 3A (Sponsoring Members and Sponsored Members) and Margin
Component Schedule, supra note 3.
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In particular, to mitigate the market risk associated with the
Sponsored Service, FICC limits the activity that a Sponsoring Member
can submit to FICC in certain circumstances. Specifically, a Sponsoring
Member is not allowed to submit activity into its Sponsoring Member
Omnibus Account when the sum of the VaR Charges for its Sponsoring
Member Omnibus Account(s) and its Dealer Accounts (``Aggregate VaR
Charges'') exceeds its Netting Member Capital.\15\
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\15\ See Notice of Filing, supra note 4, 91 FR at 5129.
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In addition, FICC can assess a higher Required Fund Deposit on its
[[Page 13891]]
Sponsoring Members. FICC currently determines the intraday VaR Charge
on Sponsoring Member Omnibus Accounts by using a ``higher of'' VaR
Charge calculation methodology, meaning that FICC applies as the
intraday VaR Charge the higher of the VaR calculation as of the
beginning of the day and intraday.\16\
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\16\ Id. at 5130. FICC calculates VaR Charge twice daily based
on each Member's noon position and end-of-day position, collecting
the former intraday (i.e., intraday VaR Charge) and the latter at
start-of-day 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.
Id. at n.21.
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III. Description of the Proposed Rule Change
FICC is proposing to amend the Rules to remove the activity limit
currently applied to Sponsoring Members and to modify the application
of the ``higher of'' calculation methodology currently applied for the
intraday VaR Charge to Sponsoring Member Omnibus Accounts.\17\
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\17\ FICC is also proposing to add two new definitions and
conforming changes. FICC proposes to add to Rule 1 definitions for
terms ``Affiliated Family'' and ``Daily Liquidity Need.'' See Notice
of Filing, supra note 4, 91 FR at 5130.
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First, the Proposed Rule Change would remove the restriction on
activity submission from Sponsoring Members currently applied to
Sponsoring Members whose Aggregate VaR Charges exceed their Netting
Member Capital. FICC states that it 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.\18\ FICC also states that the proposed
removal of activity limit would also facilitate access to FICC's
clearance and settlement services in accordance with the requirements
of Rule 17ad-22(e)(18)(iv)(C) under the Act.\19\
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\18\ Id. at 5129.
\19\ Id. at 5130 (citing 17 CFR 240.17ad-22(e)(18)(iv)(C)).
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Second, FICC is proposing to expand the application of the ``higher
of'' calculation methodology currently applied to Sponsoring Member
Omnibus Accounts for the intraday VaR Charge to also apply to
Segregated Indirect Participants Accounts.\20\ FICC states that since
both of these account types are used exclusively to record transactions
submitted to FICC on behalf of indirect participants, they should be
monitored and risk managed in a similar manner.\21\
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\20\ FICC states that it would not apply the ``higher of''
calculation methodology to Agent Clearing Member Omnibus Accounts
that are not designated as segregated because margin requirements
for these accounts are calculated on a net basis across all
Executing Firm Customers whose transactions are recorded within the
same account, unlike Sponsored Members and Segregated Indirect
Participants whose margin requirements are calculated on a gross
basis. See Notice of Filing, supra note 4, 91 FR at 5130 n.22.
\21\ See Notice of Filing, supra note 4, 91 FR at 5130.
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In addition, to monitor and mitigate risk exposures from Sponsored
Members and Segregated Indirect Participants, FICC is proposing to
apply the ``higher of'' calculation methodology only when the aggregate
liquidity needs of a particular Sponsored Member/Segregated Indirect
Participant across all accounts exceed FICC's daily liquidity need.\22\
To determine when to apply the ``higher of'' calculation methodology,
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 the indirect participant's liquidity
needs exceed FICC's daily liquidity need on any Business Day, FICC
would then apply the ``higher of'' the VaR Charge calculation as the
intraday VaR Charge to the Sponsored Member/Segregated Indirect
Participant for the following 25 Business Days.\23\ FICC states that
this proposed change would help monitor and mitigate risk exposures
from Sponsored Members and Segregated Indirect Participants whose
activity level exceeds the specified liquidity threshold of FICC's
daily liquidity need.\24\
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\22\ Id.
\23\ Id.
\24\ Id.
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FICC conducted an impact study for the period from April 1, 2024 to
October 31, 2025 (``Impact Study'').\25\ Overall, the Impact Study
shows that if modifications to the application of the ``higher of''
calculation methodology had been in place, of the Sponsored Members
included in the study, 95.5% of the Sponsored Members would have had a
reduction in their VaR Charges, each having, 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). The Impact Study also shows that
4.5% of the Sponsored Members included would not have been impacted
because they were either already subject to the ``higher of''
calculation methodology and remain so under the proposed modification,
or they were already being assessed the VaR Charge calculated intraday
as the intraday VaR Charge and would remain so under the proposed
modification.
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\25\ As part of the Proposed Rule Change, FICC filed, as Exhibit
3, the Impact Study. Pursuant to 17 CFR 240.24b-2, FICC requested
confidential treatment of Exhibit 3.
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IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \26\ 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 careful review of 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 Section 17A(b)(3)(F) of the Act
\27\ and Rule 17ad-22(e)(4), (e)(6)(i), and (e)(19) thereunder.\28\
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\26\ 15 U.S.C. 78s(b)(2)(C).
\27\ 15 U.S.C. 78q-1(b)(3)(F).
\28\ 17 CFR 240.17Ad-22(e)(4), (e)(6)(i), and (e)(19).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to, among other things, promote the prompt
and accurate clearance and settlement of securities transactions, and
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible.\29\ The Commission believes that the Proposed Rule Change
is consistent with Section 17A(b)(3)(F) of the Act for the reasons
stated below.
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\29\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed in Part II, FICC determines and monitors the
appropriate margin to collect from members to mitigate potential losses
from liquidation of a member's portfolio in the event of that member's
default. As discussed in Part III, the Proposed Rule Change would
remove the activity limit on Sponsored Members with VaR Charges that
exceed their capital, and it would revise FICC's rules such that FICC
would assess a higher margin on Sponsored Members and Segregated
Indirect Participants whose activity
[[Page 13892]]
level exceeds FICC's daily liquidity need and thus pose a higher risk
to FICC. The Proposed Rule Change should continue to allow FICC to
assess the margin required to cover risks arising from the activity of
Sponsored Members and Segregated Indirect Participants, thus helping to
better mitigate potential losses arising out of a member default that
would exceed FICC's prefunded resources and result in a disruption of
FICC's operation of its critical clearance and settlement services.
Because the modifications to margin calculation methodology would
generally provide a more accurate assessment of margin sufficient to
manage potential losses arising out of a member default, the Commission
finds that the Proposed Rule Change should support FICC's ability to
provide prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\30\
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\30\ Id.
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Additionally, the Proposed Rule Change should help limit non-
defaulting members' exposure to mutualized losses since 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. By allowing FICC to assess
additional margin on Sponsored Members and Segregated Indirect
Participants whose activity poses a higher risk to FICC and 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.\31\
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\31\ Id.
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B. Consistency With Rule 17Ad-22(e)(4)
Rule 17Ad-22(e)(4)(i) requires that 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.\32\
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\32\ 17 CFR 240.17ad-22(e)(4).
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The Proposed Rule Change would modify the application of the
``higher of'' calculation methodology so that Sponsored Members and
Segregated Indirect Participants that present a higher risk exposure to
FICC have a higher margin assessment. This modification should help
FICC calculate and collect sufficient margin that more accurately
covers the risk exposure from activities that members submit to FICC on
behalf of indirect participants. By enabling FICC to calculate and
collect sufficient margin to manage and mitigate FICC's credit exposure
to its members, 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).\33\
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\33\ Id.
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C. Consistency With Rule 17Ad-22(e)(6)(i)
Rule 17Ad-22(e)(6)(i) requires that, among other things, that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market.\34\
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\34\ 17 CFR 240.17ad-22(e)(6)(i).
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By assessing higher margin on indirect participants with higher
risk exposures to FICC, the modification to the application of the
``higher of'' calculation methodology would help ensure that margin
levels are commensurate with the risk exposure presented by the
activities of indirect participants submitted to FICC by Sponsoring
Members and Agent Clearing Members. Therefore, the Proposed Rule Change
should allow FICC to more accurately address the risks presented by
members and indirect participants, thus producing margin levels
commensurate with the risks and particular attributes of each as with
each relevant product, portfolio, and market, and overall better cover
FICC's credit exposures to its participants, consistent with the
requirements of Rule 17ad-22(e)(6)(i).\35\
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\35\ Id.
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D. Consistency With Rule 17Ad-22(e)(19)
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.\36\
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\36\ 17 CFR 240.17ad-22(e)(19).
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As discussed in Part III, FICC is removing the activity limit
currently applicable to Sponsoring Members, which restricts their
activity when their Aggregate VaR Charges exceed their Netting Member
Capital. However, FICC would continue to have additional tools
available to monitor its Sponsoring Members' exposures to Sponsored
Member activity. For example, FICC performs intraday monitoring and
collects Intraday Supplemental Fund Deposits and/or Intraday Mark-to-
Market Charges as appropriate on its indirect participant accounts and
would be able to collect additional margin should a particular
portfolio present that risk.\37\ FICC would still be able to monitor
its Sponsoring Members' Excess Capital Ratio, which compares (a) the
amount of a Netting Member's VaR Charge, other than the VaR Charges
calculated for such Netting Member's Segregated Indirect Participants
Accounts, against (b) the amount of Netting Member Capital that the
Netting Member maintains, and, if that ECR is greater than 1.0, FICC
assesses the Excess Capital Premium.\38\ FICC therefore would continue
to have the ability to monitor and manage the potential exposures
arising from Sponsored Member Activity.
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\37\ See, e.g., Margin Component Schedule, GSD Rules (Section
2(b) for Required Fund Deposit calculations and Section 3(b) for
Segregated Indirect Customer Margin Requirements), supra note 3. See
also id. (Section 2(c) identifying the inclusion of the Intraday
Supplemental Fund Deposit for Sponsored GC CIL Omnibus Account
Required Fund Deposits).
\38\ See id. (Section 2(b) regarding Required Fund Deposit
Calculations and Section 5 defining Excess Capital Ratio and Excess
Capital Premium).
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In addition, FICC is modifying the application of the ``higher of''
calculation methodology which would also include Segregated Indirect
Participants. In doing so, the Proposed Rule Change should enable FICC
to more accurately address the risk that the activities of all types of
indirect participants present to FICC. This change should further
mitigate risk exposure from indirect participant transactions for both
Sponsored Members and Segregated Indirect Participants by ensuring that
the margin collected is sufficient to cover the risk from these
indirect participant arrangements accessing FICC's services.
For these reasons, the Proposed Rule Change should continue to
allow FICC to identify, monitor, and manage the material risks to FICC
arising from the activities of Sponsored Members and Segregated
Indirect Participants, consistent with the requirements of Rule 17ad-
22(e)(19).\39\
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\39\ Id.
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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
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particular, with the requirements of Section 17A of the Act \40\ and
the rules and regulations promulgated thereunder.
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\40\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\41\ that proposed rule change SR-FICC-2026-003, be, and hereby is,
approved.\42\
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\41\ 15 U.S.C. 78s(b)(2).
\42\ 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.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2026-05562 Filed 3-20-26; 8:45 am]
BILLING CODE 8011-01-P
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