Notice2026-07221
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Partial Amendment No. 2 and Notice of No Objection to Advance Notice, as Modified by Partial Amendment Nos. 1 and 2, To Amend and Restate the Second Amended and Restated Cross-Margining Agreement Between FICC and CME and Amend Related 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
April 14, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 71 (Tuesday, April 14, 2026)</title>
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[Federal Register Volume 91, Number 71 (Tuesday, April 14, 2026)]
[Notices]
[Pages 19221-19231]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07221]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105197; File No. SR-FICC-2025-801]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Partial Amendment No. 2 and Notice of No Objection
to Advance Notice, as Modified by Partial Amendment Nos. 1 and 2, To
Amend and Restate the Second Amended and Restated Cross-Margining
Agreement Between FICC and CME and Amend Related GSD Rules
April 10, 2026.
I. Introduction
On December 12, 2025, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
advance notice SR-FICC-2025-801 pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act,
entitled Payment, Clearing and Settlement Supervision Act of 2010
(``Clearing Supervision Act''),\1\ and Rule 19b-4(n)(1)(i) \2\ under
the Securities Exchange Act of 1934 (``Exchange Act''),\3\ seeking no
objection to enter into a proposed Third Amended and Restated Cross-
Margining Agreement (the ``Third A&R Agreement'') with the Chicago
Mercantile Exchange Inc. (``CME'', and collectively with FICC, the
``Clearing Organizations'' or ``Parties'') and incorporate the Third
A&R Agreement into the FICC Government Securities Division (``GSD'')
Rulebook (``Rules''), along with related changes to the GSD Rules. The
Third A&R Agreement would extend the availability of cross-margining to
positions cleared and carried for customers by a dually registered
broker-dealer and futures commission merchant that is a common member
of FICC and CME (``Eligible BD-FCM''). On December 19, 2025, FICC filed
Partial Amendment No. 1 to the advance notice to make certain changes
to the narrative description of the filing and exhibits provided by
FICC.\4\
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\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ 15 U.S.C. 78a et seq.
\4\ Partial Amendment No. 1 makes clarifications and corrections
to the narrative description of the Advance Notice and Exhibit 5A of
the filing. Specifically, the Amendment corrects the narrative
description of a proposed change to the GSD Rules to accurately
reflect the change, as it appears in Exhibit 5A. The Amendment also
modifies Exhibit 5A to correct a typographical error and mismarked
rule text as compared to the currently effective GSD Rules. See
Notice of Filing, infra note 5, 90 FR at 60767.
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On December 29, 2025, the Commission published the Advance Notice,
as modified by Partial Amendment No. 1, in the Federal Register to
solicit public comment and to extend the review period for the Advance
Notice.\5\ The Commission has received comments regarding the changes
proposed in the Advance Notice.\6\
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\5\ Securities Exchange Act Release No. 104486 (Dec. 22, 2025),
90 FR 60766 (Dec. 29, 2025) (File No. SR-FICC-2025-801) (``Notice of
Filing''). On December 12, 2025, FICC filed the advance notice as a
proposed rule change with the Commission pursuant to Section
19(b)(1) of the Exchange Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4
thereunder, 17 CFR 240.19b-4. Securities Exchange Act Release No.
104485 (Dec. 22, 2025), 90 FR 60791 (Dec. 29, 2025) (File No. SR-
FICC-2025-025) (``Proposed Rule Change''). On January 26, 2026, the
Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve
or disapprove the proposed rule change, pursuant to Section 19(b)(2)
of the Exchange Act, 15 U.S.C. 78s(b)(2)(ii). Securities Exchange
Act Release No. 104690 (Jan. 26, 2026), 91 FR 3944 (Jan. 29, 2026)
(File No. SR-FICC-2025-025). On March 18, 2026, the Commission
instituted proceedings to determine whether to approve or disapprove
the Proposed Rule Change, pursuant to Section 19(b)(2)(B) of the
Exchange Act. Securities Exchange Act Release No. 105041 (Mar. 18,
2026), 91 FR 13912 (Mar. 23, 2026) (File No. SR-FICC-2025-025).
\6\ Comments on the Advance Notice are available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2025-801">https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2025-801</a>.
Comments on the Proposed Rule Change are available at <a href="https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2025-025">https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2025-025</a>.
Because the proposals contained in the Proposed Rule Change and the
Advance Notice are the same, the Commission considers all comments
received on the proposal, regardless of whether the comments are
submitted with respect to the Advance Notice or the Proposed Rule
Change.
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On March 4, 2026, FICC filed Partial Amendment No. 2 to the Advance
Notice.\7\ The advance notice, as modified by Amendment Nos. 1 and 2,
is herein referred to as the ``Advance Notice.'' The Commission is
noticing
[[Page 19222]]
Partial Amendment No. 2 and, for the reasons discussed below, is hereby
providing notice of no objection to the Advance Notice.
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\7\ Partial Amendment No. 2 modifies the proposed changes to the
GSD Rules to include an amendment to GSD Rule 26 (Transfers of
Indirect Participant Activity), for consistency with certain
conditions of the proposed exemptive order published by the
Commodity Futures Trading Commission (the ``CFTC''), to add that
FICC would not interfere with the acceptance by an Eligible BD-FCM
of transfers of Transactions recorded in a Cross-Margining Customer
Account and associated Cross-Margining Customer Margin when (i) the
Eligible BD-FCM is required to effectuate such transfer pursuant to
CFTC Regulation 1.17(a)(4), or (ii) the Eligible BD-FCM is a
``debtor'' as defined in CFTC Regulation 190.01 and the transfer has
been approved by the CFTC. Additionally, Partial Amendment No. 2
modifies the proposed changes to the GSD Rules to include conforming
changes to the description of ``Sponsored GC CIL Omnibus Account
Required Fund Deposit'' in the Margin Component Schedule to add
references to Cross-Margining Customer and Cross-Margining Customer
Account and align the treatment of Segregated Indirect Participants
and Segregated Indirect Participants Accounts, on the one hand, and
Cross-Margining Customers and Cross-Margining Customer Accounts, on
the other.
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II. Background
FICC's GSD provides trade comparison, netting, risk management,
settlement, and central counterparty (``CCP'') services for the U.S.
Government securities market.\8\ As a CCP, FICC novates the
transactions submitted to it by its members, which means it 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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\8\ FICC's Mortgage-Backed Securities Division provides similar
services for mortgage-backed securities. For purposes of this
notice, ``FICC'' refers to GSD.
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A key tool that FICC uses to manage its credit exposures to its
members is the daily collection of 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. 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. Each member's
margin consists of a number of applicable components, including a
value-at-risk charge designed to capture the potential market price
risk associated with the securities in a member's portfolio.
Margin requirements are typically designed, in part, to recognize
the potential relationship between products in a member's portfolio
(e.g., some products may naturally gain value when others lose value).
Members may, however, hold assets or enter into transactions that
reduce risk, but are not visible to the CCP. For example, a market
participant might purchase a debt security, and at the same time,
contract to sell the same security in the future. The risk to the
market participant is a combination of these two offsetting
transactions as opposed to the risk of each added together because it
is unlikely that both positions would lose value at the same time under
normal market conditions.
A. Existing Cross-Margining Agreement Between FICC and CME
To recognize potential offsets in the risk presented by related
products, FICC has a cross-margining arrangement with CME, which acts
as a CCP for futures related to the debt instruments that FICC
clears.\9\ In 2023, FICC and CME entered into the Amended and Restated
Cross-Margining Agreement that allowed FICC and CME to consider the net
risk of a participant's eligible positions at each Clearing
Organization when setting margin requirements for such positions.\10\
In 2025, FICC and CME entered into the Second Amended and Restated
Cross-Margining Agreement (the ``Second A&R Agreement'' or the
``Existing Agreement''), which made certain technical changes to
account for requirements under amended Rule 17ad-22 to hold margin for
transactions in U.S. Treasury securities that a Netting Member submits
to FICC on behalf of an indirect participant separately and
independently from margin for the Netting Member's proprietary
positions.\11\
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\9\ CME provides central counterparty services for futures,
options on futures, and swaps. See Financial Stability Oversight
Council 2024 Annual Report, available at <a href="https://home.treasury.gov/system/files/261">https://home.treasury.gov/system/files/261</a>/FSOC2024AnnualReport.pdf (last visited Mar. 17,
2026).
\10\ See Securities Exchange Act Release No. 98327 (Sept. 8,
2023), 88 FR 63185 (Sept. 14, 2023) (File No. SR-FICC-2023-010)
(``Order Approving Amended and Restated Cross-Margining
Agreement'').
\11\ See Securities Exchange Act Release No. 103399 (July 8,
2025), 90 FR 31043 (July 11, 2025) (File No. SR-FICC-2025-014)
(``Order Approving Existing Agreement''). The Existing Agreement,
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/ficc_cme_crossmargin_agreement.pdf, is incorporated by
reference in the GSD Rules, available at <a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">www.dtcc.com/legal/rules-and-procedures.aspx</a>. Unless otherwise specified, capitalized terms
not defined herein shall have the meanings ascribed to them in the
GSD Rules, which includes the Existing Agreement.
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Pursuant to the terms of the Existing Agreement (i.e., the
``Proprietary Cross-Margining Arrangement''), a joint clearing member
of both Clearing Organizations (a ``Joint Clearing Member'') may
designate any of its accounts at FICC (except its Sponsoring Member
Omnibus Account) to be cross-margined with a cross-margining account on
the books of CME (each such account, a ``Cross-Margining
Account'').\12\ In addition, a Joint Clearing Member may include in a
Cross-Margining Account both its proprietary positions and those of an
affiliate, as long as the affiliate is not a customer under certain
Commission rules and its account on the records of the Joint Clearing
Member is a ``proprietary account'' within the meaning of 17 CFR 1.3
(an ``Eligible Affiliate'').\13\ The Existing Agreement identifies,
among other things, the methodology to determine offsets between
cleared products and how the Clearing Organizations would handle a
defaulting Joint Clearing Member.\14\ FICC states that any resulting
margin reductions create capital efficiencies for the Cross-Margining
Participants and their Eligible Affiliates and incentivize them to
maintain or carry portfolios that present lower overall risk.\15\
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\12\ See Recital C of the Existing Agreement, supra note 11.
\13\ See Section 1 (defining ``Cross-Margining Account'' and
``Proprietary Account'') of the Existing Agreement, supra note 11.
\14\ See Sections 4 and 7 of the Existing Agreement, supra note
11.
\15\ See Notice of Filing, supra note 5, 90 FR at 60767.
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Under the Existing Agreement, both FICC and CME provide a guaranty
to each other to make prompt payment when due (whether at maturity, by
declaration, by demand or otherwise), and at any and all times
thereafter, of all indebtedness and other obligations of every find and
nature of each Cross-Margining Participant or its affiliate, arising
from or related to the Eligible Positions or the liquidation, transfer,
or management of the Eligible Positions, including but limited to, the
amounts determined under any suspension or liquidation under Section 7
of the Existing Agreement (as discussed further below in II.4).
B. Proposed Third Amended and Restated Cross-Margining Agreement
FICC is proposing to replace the Second A&R Agreement with the
proposed Third A&R Agreement, to extend the availability of cross-
margining to positions cleared and carried for customers other than an
Eligible Affiliate (``Cross-Margining Customers'') by certain Joint
Clearing Members, as discussed further below. FICC states that such
amendments would promote the maintenance of more balanced portfolios
that present lower risk and facilitate the access of indirect
participants to central clearing, in accordance with Rule 17ad-22 under
the Exchange Act.\16\
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\16\ Id. at 60768.
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In addition to this Advance Notice and Proposed Rule Change, FICC
and CME have also submitted to the Commission and the CFTC petitions
for exemptive relief from certain provisions of the Commodity exchange
Act and Exchange Act that would enable FICC and CME to make cross-
margining available to Cross-Margining Customers.\17\ The Commission
and
[[Page 19223]]
CFTC published these applications with requests for comment.\18\
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\17\ See Securities Exchange Act Release No. 104748 (Jan. 30,
2026), 91 FR 4994 (Feb. 3, 2026) (File No. S7-2026-03) (the ``SEC
Notice of Application for Exemptive Relief''); 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) (the ``CFTC
Notice,'' and together with the SEC Notice of Application for
Exemptive Relief, the ``Notices regarding Proposed Exemptive
Relief,'' and the proposed Commission and CFTC orders as described
in the Petitions, the ``Proposed Orders''). As stated in the SEC
Petition, the Clearing Organizations request that the Commission
provide exemptive relief to Eligible BD-FCMs from Section 15(c)(3)
of the Exchange Act and Rule 15c3-3 thereunder to permit Eligible
BD-FCMs to hold U.S. Treasury securities transactions that have been
novated to FICC and associated margin in a ``futures account,'' as
defined in CFTC Regulation 1.3, that also contains futures positions
and associated margin and subject to the CEA and related CFTC
Regulations, rather than in a securities account subject to the
Exchange Act and the rules thereunder. As stated in the CFTC
Petition, the Clearing Organizations seek exemptive relief from
Section 4d of CEA, which requires futures customer funds to be
segregated and prohibits the commingling of futures customer funds
and futures customer positions with any other positions and funds.
The exemptive relief would allow Eligible BD-FCMs to hold securities
positions and associated funds together with the futures customer
positions and funds held by the Eligible BD-FCM in their futures
customer accounts, and allow Eligible BD-FCMs to deposit at FICC,
and permit FICC to hold, customer funds and margin associated with
futures positions. The exemptive relief sought by the Petitions
would allow for the implementation of the customer cross-margining
as proposed in this Advance Notice.
\18\ See id.
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The amendments to the Existing Agreement would address certain
areas, as described further below.\19\
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\19\ For a more detailed description of the changes, see Notice
of Filing, supra note 5, 90 FR at 60768-74, and the revised Third
A&R Agreement, filed as Exhibit 5b, available at <a href="https://www.sec.gov/files/rules/sro/ficc/2025/34-104486-ex5b.pdf">https://www.sec.gov/files/rules/sro/ficc/2025/34-104486-ex5b.pdf</a>.
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1. Eligibility Criteria and Participation Requirements
The Third A&R Agreement would identify the eligibility criteria and
participation requirements for a Joint Clearing Member and its Cross-
Margining Customer to participate in customer cross-margining. FICC
states that these criteria and participation requirements are designed
to ensure that each participating Cross-Margining Customer and its
Joint Clearing Member satisfy certain conditions in the Proposed
Orders.\20\
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\20\ See Notice of Filing, supra note 5, 90 FR at 60767.
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The Third A&R Agreement would require that a Joint Clearing Member
be an Eligible BD-FCM. It would also require that each Cross-Margining
Customer be a ``futures customer'' within the meaning of CFTC
Regulation 1.3 \21\ and a ``Sponsored Member'' or ``Eligible Firm
Customer'' as defined under the GSD Rules. In addition, it would
require that the Eligible BD-FCM hold the Cross-Margining Customer's
Customer Positions (as defined below) at FICC and hold the associated
money, securities and property, together with such customer's Customer
Positions at CME and the associated ``futures customer funds'' in a
``futures account,'' such terms as defined in CFTC Regulation 1.3, in
accordance with any conditions set forth in the Orders and applicable
law.
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\21\ 17 CFR 1.3.
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As discussed further below, a Joint Clearing Member would be
required to enter into a participant agreement with the Clearing
Organizations, with such agreement included as an Appendix to the Third
A&R Agreement.\22\ In addition, a Joint Clearing Member would be
required to enter into an agreement with each Cross-Margining Customer
containing certain terms, including that the Cross-Margining Customer
agrees to subordinate its claims under the Securities Investor
Protection Act of 1970 (``SIPA'') and subchapter III of Chapter 7 of
the U.S. Bankruptcy Code in relation to its cross-margined positions
and associated margin (the ``Subordination Agreement'').\23\ The
customer agreement would also be set forth in the Third A&R Agreement
as an Appendix.
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\22\ See infra section II.B.5.
\23\ See infra section II.B.6.
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The Third A&R Agreement would define ``Customer'' as an indirect
clearing participant that meets the definition of futures customer set
out in CFTC Regulation 1.3 and is a ``Sponsored Member'' or ``Executing
Firm Customer'' as defined under the GSD Rules. The Third A&R Agreement
would also redefine ``Non-Customer'' and provide that Eligible
Affiliates would continue to be able to access cross-margining under
the Proprietary Cross-Margining Arrangement so long as they constitute
``Non-Customers.''
A Cross-Margining Customer's participation in the Customer Cross-
Margining Arrangement would be intermediated through the Eligible BD-
FCM, and Section 2(a) of the Third A&R Agreement would specify that the
Clearing Organizations would have no obligation to deal directly with a
Cross-Margining Customer, and that a Cross-Margining Customer would
have no right to assert a claim against a Clearing Organization with
respect to, nor would a Clearing Organization be liable to a Cross-
Margining Customer for, any obligations of a Clearing Organization in
connection with the Cross-Margining Customer's participation in the
Customer Cross-Margining Arrangement pursuant to the Third A&R
Agreement. FICC states that these terms are consistent with those
applicable to Eligible Firm Customers under the GSD Rules, as well as
those applicable to customers under CME's rules.\24\
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\24\ See Notice of Filing, supra note 5, 90 FR at 60769 (citing
GSD Rules, Rule 2, Section 4; Rule 8, Section 6(c) through (e); CME
Rulebook, Rule 803).
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2. Customer Cross-Margining Accounts
The Third A&R Agreement would include provisions to enable Eligible
BD-FCMs to establish ``Customer Cross-Margining Accounts'' for purposes
of recording Eligible Positions at the Clearing Organizations (such
Eligible Positions in a Customer Cross-Margining Account, ``Customer
Positions''), separate from the accounts established by Eligible BD-
FCMs at the Clearing Organizations for the purposes of recording
positions subject to the Proprietary Cross-Margining Arrangement
(``Proprietary Positions'' in ``Proprietary Cross-Margining Accounts''
\25\). A Customer Cross-Margining Account would be defined as, for
FICC, an Indirect Participants Account (as defined in the GSD Rules) at
FICC maintained for Cross-Margining Customers and identified in FICC's
books and records as being subject to the Third A&R Agreement (which,
as discussed below, would be the ``Cross-Margining Customer Account''
under the GSD Rules) and, for CME, as an account carried on the books
and records of CME for an Eligible BD-FCM, which contains only the
positions, transactions, and margin of that Eligible BD-FCM's Cross-
Margining Customers. An Eligible BD-FCM would be required to designate
each Cross-Margining Account it opens at the Clearing Organizations as
either a Customer Cross-Margining Account or a Proprietary Cross-
Margining Account.
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\25\ A Proprietary Cross-Margining Account would be defined as,
with respect to FICC, a Proprietary Account at FICC (as defined in
the GSD Rules) or an Indirect Participants Account at FICC that is
maintained for Non-Customers and identified in FICC's books and
records as being subject to the Third A&R Agreement, and, with
respect to CME, an account carried on the books and records of CME
for an Eligible BD-FCM, which contains only the positions,
transactions, and margin of the ``proprietary accounts'' (as defined
in CFTC Regulation 1.3) of the Eligible BD-FCM.
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3. Margin Methodology
The Third A&R Agreement would describe the methodology for
calculating potential reductions to the margin requirements for
Customer Positions. FICC states that it would apply the same margin
reduction methodology to Customer Positions as it applies to
Proprietary Positions, with margin reductions calculated on a customer-
by-customer basis for each
[[Page 19224]]
cross- margining customer.\26\ FICC states that it would collect and
hold Cross-Margining Customer Margin in a substantially similar manner
to how it collects and holds ``Segregated Customer Margin'' (as defined
under the GSD Rules), with certain adjustments to ensure consistency
with the requirements of the [Orders] and the general requirements and
conventions applicable to futures.\27\ Specifically, FICC and CME would
calculate the margin savings that would result from viewing the
``Combined Portfolio'' of CME-cleared Customer Positions and FICC-
cleared Customer Positions as a single portfolio rather than as
separate standalone portfolios. The Clearing Organizations would then
compare the respective margin reduction percentages, and each would
then reduce the margin required for the Combined Portfolio by the lower
percentage (subject to a cap of 80%). For Customer Positions, this
process would occur on a Cross-Margining Customer-by-Cross-Margining
Customer basis. FICC states that this customer-by-customer approach is
consistent both with how futures contracts are required to be margined
under the CFTC rules and how FICC margins Segregated Indirect
Participant Positions.\28\
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\26\ See Notice of Filing, supra note 5, 90 FR at 60770.
\27\ Id. See also GSD Rule 4, Section 1a (describing the
treatment of Segregated Customer Margin), supra note 11.
\28\ See Notice of Filing, supra note 5, 90 FR at 60770 (citing
17 CFR 39.13(g)(8)(i); GSD Rules, Rule 4, Section 1b(b)).
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4. Default Management
The Third A&R Agreement would address how the Clearing
Organizations would manage a default of a Joint-Clearing Member
carrying Customer Positions for Cross-Margining Customers. FICC states
the Third A&R Agreement would follow substantially the same approach to
handling Customer Positions carried by a Defaulting Member as applies
to Proprietary Positions.\29\ Specifically, the Clearing Organizations
would attempt in good faith to jointly transfer, liquidate, or close-
out the Proprietary Positions or Customer Positions, which may include
a joint liquidating auction so that hedged positions can be closed-out
simultaneously or, in the case of a transfer of Customer Positions, so
that the positions of each Cross-Margining Customer in a Combined
Portfolio can, if feasible, be transferred to the same clearing firm.
In addition, if one Clearing Organization determines that such joint
action is not feasible or advisable for any Liquidation Portfolio, then
either Clearing Organization could buy-out the Proprietary Positions or
Customer Positions in such Liquidation Portfolio at the other Clearing
Organization in accordance with the existing terms of the Third A&R
agreement related to buy-outs. Lastly, if one Clearing Organization
determines that neither the joint transfer, liquidation, or close-out
option nor the buy-out option is legally permissible or possible as to
a particular Liquidation Portfolio, or if such methods would result in
substantially greater losses to each Clearing Organization than in the
case of a separate liquidation by each Clearing Organization, the
Clearing Organizations could conduct separate liquidations in
accordance with the existing terms related to such separate
liquidations.\30\
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\29\ Id. at 60770.
\30\ FICC states that the Clearing Organizations do not foresee
particular circumstances that could lead to separate liquidations
being applicable, and that, to the contrary, the Clearing
Organizations believe it is highly unlikely that they would engage
in separate liquidations. FICC further states that the Clearing
Organizations believe it is prudent to have a separate liquidation
option so that there is a clear methodology in the very unlikely
event that some unforeseen circumstance causes it not to be possible
or legally permissible to conduct a joint liquidation or buy-out or
for such methods to result in substantially greater costs. Id. at
60771.
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Under the Third A&R Agreement, Customer Positions and Proprietary
Positions and associated margin would form part of separate
``Liquidation Portfolios'' and therefore would not be netted against
one another in calculating Net Gain or Net Loss (or VM Net Gain or VM
Net Loss). FICC states that, by virtue of these changes, the Clearing
Organizations would not be able to apply Customer Positions or
associated margin to the obligations arising under a Defaulting
Member's Proprietary Positions.\31\ The Third A&R Agreement would also
clarify that the Clearing Organizations may ``port'' Customer Positions
to another clearing member in a default scenario.
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\31\ Id. at 60771.
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5. Customer Cross-Margining Clearing Member Agreement
The Third A&R Agreement would require Eligible BD-FCMs to enter
into the Customer Cross-Margining Clearing Member Agreement in order to
participate in the Cross-Margining Arrangement, as set forth in
Appendix C to the Third A&R Agreement, which would clarify the rights
and obligations of the Clearing Organizations, the Eligible BD-FCM, and
the Cross-Margining Customers.\32\
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\32\ Id. at 60772; see also Appendix C ``Customer Cross-
Margining Program'' of the revised Third A&R Agreement, supra note
19.
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FICC states that the Customer Cross-Margining Clearing Member
Agreement is modeled on the Proprietary Clearing Member Agreement in
Appendix A of the Existing Agreement, with the three first paragraphs
being substantially identical.\33\ Additionally, several other
provisions align with the Proprietary Clearing Member Agreement,
including those regarding the disclosure of Clearing Data, calculation
of margin reduction, transfer of rights in Net Gains, governing law,
choice-of-jurisdiction, execution, and representations (except those
concerning the proprietary nature of the positions and Eligible
Affiliates).
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\33\ See Notice of Filing, supra note 5, 90 FR at 60772.
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The Customer Cross-Margining Clearing Member Agreement would
further provide that: \34\
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\34\ Id. at 60772-73.
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<bullet> The Eligible BD-FCM makes application to establish in its
name Customer Cross-Margining Accounts at CME and FICC, in addition to
any Proprietary Cross-Margining Account, for transactions and positions
carried by the Eligible BD-FCM for Cross-Margining Customers who have
signed a Customer Agreement (as defined below) and not commence
clearing transactions until such has been executed.
<bullet> The Eligible BD-FCM indemnifies and holds harmless the
Clearing Organizations from any claim resulting from the carrying of
positions in a Customer Cross-Margining Account that belong to any
person other than a Cross-Margining Customer.
<bullet> The Eligible BD-FCM unconditionally promises immediate
payment of any obligations to a Clearing Organization in respect of a
Cross-Margining Customer's positions, agrees that each Cross-Margining
Customer is bound by the GSD Rules and CME's rules and by the
provisions of the Customer Cross-Margining Clearing Member Agreement
and the Third A&R Agreement, and represents and warrants that it has
full power and authority to bind each of its Cross-Margining Customers
to these terms.
<bullet> The Eligible BD-FCM pledges and grants to each Clearing
Organization a first priority continuing security interest in all of
the positions or other property held by either Clearing Organization,
as security for its and its Cross-Margining Customers' obligations to
the Clearing Organizations arising from its Customer Cross-Margining
Accounts, with certain additional assurances aligning with those in the
Proprietary Clearing Member Agreement (along with the
[[Page 19225]]
addition of a clause for facilitating the perfection of CME's security
interest in the Cross-Margining Customer Margin and ensuring it is
treated as ``customer property'' under Part 190 of the CFTC's
regulations).
<bullet> The Eligible BD-FCM may terminate the Customer Cross-
Margining Clearing Member Agreement upon two business day's written
notice to FICC and CME, with such termination being effective upon
written acknowledgement by both FICC and CME and provided that all
positions have been closed-out or transferred and all Stand-alone
Margin Requirement in respect of any such transferred positions \35\
and all obligations of the Eligible BD-FCM to the Clearing
Organizations in respect of the Customer Cross-Margining Accounts have
been fully satisfied.
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\35\ Stand-Alone Margin Requirement is defined as the Margin
requirement that each Clearing Organization would calculate with
respect to a particular cross-margining account without regard to
the cross-margining arrangement (and, for FICC, without regard to
any netting across positions of multiple Executing Firm Customers in
the same Agent Clearing Member Omnibus Account).
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<bullet> Either Clearing Organization may terminate the Eligible
BD-FCM's participation at any time upon written notice to the other
Clearing Organization and Eligible BD-FCM, and in connection to
termination, may require the Eligible BD-FCM to close-out or transfer
all positions in the affected Customer Cross-Margining Accounts, with
termination being effective provided that all obligations of the
Eligible BD-FCM in respect of the affected Customer Cross-Margining
Accounts have been fully satisfied.
<bullet> The Customer Cross-Margining Clearing Member Agreement
would become effective upon the later of execution of the agreement, or
all necessary regulatory approvals from the Commission and the CFTC.
6. Customer Agreement
The Third A&R Agreement would require that, in order to participate
in the Cross-Margining Arrangement, Cross-Margining Customers enter
into an agreement with the Eligible BD-FCM (``Customer Agreement'')
that includes certain terms as set forth in Appendix C to the Third A&R
Agreement.\36\ FICC states that the Customer Agreement would include
the terms of the Subordination Agreement, under which the Cross-
Margining Customer agrees to certain treatment of its customer
positions and property in a liquidation of the Clearing Member.\37\
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\36\ Id. at 60773; see also Appendix C Exhibit I ``Customer
Required Terms Annex or Agreement'' of the revised Third A&R
Agreement, supra note 19.
\37\ Specifically, the Customer would have to agree to the terms
of the Subordination Agreement, under which the Cross-Margining
Customer agrees that all of its Customer Positions and Customer
Property (including any margin at FICC) (i) 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 Clearing Member, and (ii) will be subject to any applicable
protections under Subchapter IV of Chapter 7 of the U.S. Bankruptcy
Code and rules and regulations thereunder including Part 190 of the
CFTC's Regulations (``Part 190''), and that the Cross-Margining
Customer's claims to ``customer property'' as defined in SIPA or 11
U.S.C. 741 against the Eligible BD-FCM with respect to its Customer
Positions and Customer Property (including any margin held at FICC)
will be subordinated to the claims of all other customers, as the
term ``customer'' is defined in 11 U.S.C. 741 or SIPA. See Notice of
Filing, supra note 5, 90 FR at 60773.
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The Customer Agreement would also require Cross-Margining Customers
to acknowledge and agree that:
<bullet> All money, securities, and property that the Cross-
Margining Customer deposits with the Eligible BD-FCM to margin,
guarantee, or secure Customer Positions will be held in a ``futures
account'' as defined in CFTC Regulation 1.3 and subject to CEA Section
4d(a) and (b).
<bullet> Customer Positions and associated margin may be commingled
with the positions and property of other customers of the Eligible BD-
FCM and may be used by the Eligible BD-FCM to carry positions on behalf
of the Cross-Margining Customer or other futures customers of the
Eligible BD-FCM.
<bullet> Property held in connection with Customer Positions will
be treated in a manner consistent with the CFTC Order and Section 4d of
the CEA.
<bullet> In the event that a Clearing Organization suspends or
ceases to act for a Clearing Member, it would be the Clearing
Organizations' sole discretion to determine whether to transfer,
liquidate, or settle Customer Positions in the relevant Customer Cross-
Margining Account.
<bullet> Participation in the Customer Cross-Margining Arrangement
is subject to the terms of (i) the Third A&R Agreement, (ii) the
Customer Cross-Margining Clearing Member Agreement, and (iii) the GSD
Rules and the rules of CME.
<bullet> If CME determines at any time that any Eligible Positions
of the Cross-Margining Customer cleared through the Customer Cross-
Margining Account at CME are non-risk reducing, CME may either restrict
the Cross-Margining Customer from adding positions or require the
Cross-Margining Customer to move or liquidate Eligible Positions in the
Customer Cross-Margining Account at CME.
The Customer Agreement would also require the Cross-Margining
Customer to pledge and grant as security for its obligations in respect
of its Customer Positions, a continuing security interest to the
Eligible BD-FCM against all positions in each Customer Cross-Margining
Account and associated margin and proceeds. The Customer Agreement
would also require the Cross-Margining Customer to agree that the
Eligible BD-FCM may enter into agreements with the Clearing
Organizations on the Cross-Margining Customer's behalf as set forth in
the Customer Cross-Margining Clearing Member Agreement.
7. Conforming Changes and Clarifying Edits
The Third A&R Agreement would make changes, including new recitals
to describe the purpose of the Third A&R Agreement and redefine the
prior versions of the agreement, and non-substantive revisions and
movements of defined terms, to conform to the addition of the Customer
Cross-Margining Arrangement and related provisions. The Third A&R
Agreement would revise Section 3(b) to provide that it does not apply
to Proprietary Positions of a Joint Clearing Member or to Customer
Positions, and Section 7(i) to clarify that the requirement for a
Defaulting Member to reimburse a Clearing Organization in the event
that the Clearing Organization is obligated to make a guaranty payment
to the other Clearing Organization in respect of an obligation of such
Defaulting Member applies in respect of the obligations of any Cross-
Margining Customer.
The Third A&R Agreement would also include clarifying edits not
specifically related to the Customer Cross-Margining Arrangement,
including the provision stating FICC's and CME's right to terminate
participation of a Cross-Margining Participant, a new provision
regarding acceptable collateral to satisfy the Cross-Margin
Requirement, and the titles of Appendices to specify that they are for
use in connection with the Proprietary Cross-Margining Arrangement.
C. Proposed Changes to the GSD Rules
Along with the Third A&R Agreement, FICC is also proposing related
changes to the GSD Rules to effectuate and conform with the Customer
Cross-Margining Arrangement, as well as the adoption of new defined
terms to effectuate these changes. The proposed rule changes include:
(i) a new type of account for customer cross-margining and (ii)
[[Page 19226]]
margin methodology and treatment for customer cross-margining.
1. Cross-Margining Customer Account
FICC would create a new position Account type, the ``Cross-
Margining Customer Account,'' in which Customer Positions would be
recorded. The Cross-Margining Customer Account would constitute an
``Indirect Participants Account.'' A Netting Member that is an Eligible
BD-FCM and approved participant in the Customer Cross-Margining
Arrangement would be permitted to designate an Indirect Participants
Account (other than a Segregated Indirect Participants Account) as a
Cross-Margining Customer Account. Any such designation would constitute
a representation to FICC by the Netting Member that the Netting Member
has complied with all regulatory requirements applicable to it in
connection with its participation in the Customer Cross-Margining
Arrangement, including the conditions in the Proposed Orders, and this
representation would be deemed repeated each time the Netting Member
deposits Cross-Margining Customer Margin.
2. Margin Methodology and Treatment for Customer Cross-Margining
FICC would also adopt rule changes to set forth how it would
calculate, collect, and hold Cross-Margining Customer Margin. Such
changes would include:
<bullet> FICC would credit all Cross-Margining Customer Margin
collected from an Eligible BD-FCM to a securities account on its books
and records in the name of the Eligible BD-FCM for the benefit of its
customers (a ``Cross-Margining Customer Margin Custody Account''). FICC
would also agree to treat all assets credited to the Cross-Margining
Customer Margin Custody Account as ``financial assets'' credited to a
``securities account'' for which FICC is the ``securities
intermediary,'' as such terms are used in Article 8 of the Uniform
Commercial Code as in effect in the State of New York (``NYUCC''). FICC
states that these provisions are designed to ensure that the Cross-
Margining Customer Margin would not form part of FICC's estate in the
event FICC became subject to insolvency proceedings and allow CME to
perfect its security interest in the Cross-Margining Customer Margin to
protect CME in the event of a Cross-Margining Participant default.\38\
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\38\ See Notice of Filing, supra note 5, 90 FR at 60774.
---------------------------------------------------------------------------
<bullet> FICC would hold Cross-Margining Customer Margin in (i) an
account of FICC at a FDIC insured bank that is segregated from any
other account of FICC and used exclusively to hold Cross-Margining
Customer Margin, and (ii) an account at the FRBNY that is segregated
from any other FICC account and used exclusively to hold Segregated
Customer Margin and Cross-Margining Customer Margin. In accordance with
the [Orders], any such account (other than one at the FRBNY) would need
to be subject to a written notice consistent with the Orders.
<bullet> The same requirements applicable to Segregated Customer
Margin with respect to the form and composition of eligible collateral,
the minimum amounts of cash and Eligible Clearing Fund Treasury
Securities, substitution and withdrawal, and treatment of excess margin
would be applicable to Cross-Margining Customer Margin, except that (i)
a Netting Member's rights or FICC's obligation with respect to any
excess Cross-Margining Customer Margin would be subject to the Third
A&R Agreement and the Customer Cross-Margining Clearing Member
Agreement, and (ii) FICC would be permitted to retain the excess Cross-
Margining Customer Margin deposited by a Netting Member with respect to
a Cross-Margining Customer when the Netting Member has any outstanding
payment or margin obligation arising from any Customer Positions,
including those of another Cross-Margining Customer.
<bullet> FICC would calculate the margin requirement in respect of
each Cross-Margining Customer Account (the ``Cross-Margining Customer
Margin Requirement'') on a gross (i.e., Cross-Margining Customer-by-
Cross-Margining Customer) basis, as though each Cross-Margining
Customer were a separate Netting Member. However, such margin
requirement would be subject to any margin reduction pursuant to the
Third A&R Agreement (which, as discussed above, would be determined
using the same margin reduction methodology under Proprietary Cross-
Margining Arrangement).
FICC is also proposing to provide that Cross-Margining Customer
Margin would be pledged to FICC to secure all obligations of the
Netting Member and its Cross-Margining Customers arising under Customer
Positions. FICC proposes to remove the existing Section 10(e) of Rule
3A, which currently prohibits Sponsored Members from participating in
the Cross-Margining Arrangement.
3. Additional Changes
The Third A&R Agreement would make clarifying and conforming edits
to the GSD Rules, including (i) adding references to Cross-Margining
Customer, Cross-Margining Customer Margin, Cross-Margining Customer
Account, and Cross-Margining Customer Margin Requirements to relevant
provisions that refer to indirect participants, initial margin
collected by FICC, position accounts maintained by FICC, and FICC's
initial margin requirements; (ii) removing the existing prohibition
under Section 10(e) of Rule 3A on Sponsored Members from participating
in the Cross-Margining Arrangement; (iii) expanding Rule 43, which sets
forth certain terms related to the Proprietary Cross-Margining
Arrangement, to encompass the Customer Cross-Margining Arrangement; and
(iv) removing references to the Market Professionals cross-margining
arrangement, which is no longer offered by FICC.
III. Discussion and Notice of No Objection
Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, the stated purpose of the Clearing
Supervision Act is instructive: to mitigate systemic risk in the
financial system and promote financial stability by, among other
things, promoting uniform risk management standards for systemically
important financial market utilities (``SIFMUs'') and strengthening the
liquidity of SIFMUs.\39\
---------------------------------------------------------------------------
\39\ See 12 U.S.C. 5461(b).
---------------------------------------------------------------------------
Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe regulations containing risk management
standards for the payment, clearing, and settlement activities of
designated clearing entities engaged in designated activities for which
the Commission is the supervisory agency.\40\ Section 805(b) of the
Clearing Supervision Act provides the following objectives and
principles for the Commission's risk management standards prescribed
under Section 805(a): \41\
---------------------------------------------------------------------------
\40\ 12 U.S.C. 5464(a)(2).
\41\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
<bullet> To promote robust risk management;
<bullet> To promote safety and soundness;
<bullet> To reduce systemic risks; and
<bullet> To support the stability of the broader financial system.
Section 805(c) provides that the Commission's risk management
standards may address such areas as
[[Page 19227]]
risk management and default policies and procedures, among other
areas.\42\
---------------------------------------------------------------------------
\42\ 12 U.S.C. 5464(c).
---------------------------------------------------------------------------
The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and Section 17A of the
Exchange Act (the ``Clearing Agency Rules'').\43\ The Clearing Agency
Rules require, among other things, each covered clearing agency
(``CCA'') to establish, implement, maintain, and enforce written
policies and procedures that are reasonably designed to meet certain
minimum requirements for its operations and risk management practices
on an ongoing basis.\44\ As such, it is appropriate for the Commission
to review advance notices against the Clearing Agency Rules and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act. As
discussed below, the proposals in the Advance Notice are consistent
with the objectives and principles described in Section 805(b) of the
Clearing Supervision Act,\45\ and in the Clearing Agency Rules, in
particular Rules 17ad-22(e)(4)(i), (e)(6)(i), and (e)(18)(iv)(C).\46\
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\43\ 17 CFR 240.17ad-22. See Securities Exchange Act Release No.
68080 (Oct. 22, 2012), 77 FR 66220 (Nov. 2, 2012) (S7-08-11). See
also Securities Exchange Act Release No. 78961 (Sept. 28, 2016), 81
FR 70786, 70806 (Oct. 13, 2016) (S7-03-14) (``Covered Clearing
Agency Standards''). FICC is a ``covered clearing agency'' as
defined in Rule 17ad-22(a) because it is a CCP.
\44\ 17 CFR 240.17ad-22.
\45\ 12 U.S.C. 5464(b).
\46\ 17 CFR 240.17ad-22(e)(4)(i), (e)(6)(i), and (e)(18)(iv)(C).
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A. Consistency With Section 805(b) of the Clearing Supervision Act
The proposed changes contained in the Advance Notice are consistent
with the stated objectives and principles of Section 805(b) of the
Clearing Supervision Act. Specifically, as discussed below, the changes
proposed in the Advance Notice are consistent with promoting robust
risk management, promoting safety and soundness, reducing systemic
risks, and supporting the stability of the broader financial
system.\47\
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\47\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
FICC's proposal is consistent with robust risk management and the
promotion of safety and soundness. Specifically, the Advance Notice
would provide that, for customer cross margining, FICC would calculate
the margin requirement applicable to Customer Positions on a gross
customer-by-customer basis, with margin reductions for Eligible
Positions at CME that present offsetting risk. FICC would use the same
margin methodology as it uses for Segregated Indirect Participant
Positions and then determine potential margin reductions using the same
methodology as is used for proprietary cross-margining,\48\ with each
customer treated separately. As the Commission previously stated when
considering the margin methodology used for Segregated Indirect
Participants, this approach should ``better isolate the risk profiles
of individual indirect participants from Netting Members, which should
help FICC better understand and monitor each individual participant's
risk exposures.'' \49\ For these reasons, the proposal in the Advance
Notice should ensure that margin requirements are calibrated based on
the risk of each Cross-Margining Customer's portfolio, which, in turn,
would promote robust risk management by Cross-Margining Customers.
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\48\ See Order Approving Amended and Restated Cross-Margining
Agreement, supra note 10 (approving proposed rule change that, among
other things, replaced the methodology for calculating the margin
reductions available to FICC's members).
\49\ See Securities Exchange Act Release No. 101695 (Nov. 21,
2024), 89 FR 93763, 93776 (Nov. 27, 2024) (SR-FICC-2024-007).
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The Third A&R Agreement also would require an Eligible BD-FCM to
enter into a Customer Cross-Margining Clearing Member Agreement with
FICC and CME, under which the Eligible BD-FCM would pledge to FICC, on
behalf of itself and each Cross-Margining Customer, the positions and
margin subject to the Customer Cross-Margining Arrangement at both FICC
and CME. This pledge, coupled with the cross-guaranty between FICC and
CME set forth in the Third A&R Agreement,\50\ would help to ensure that
FICC is able to look to the full portfolio of Customer Positions and
associated margin at FICC and CME to satisfy any obligations arising
under the Customer Positions, thereby promoting robust risk management.
---------------------------------------------------------------------------
\50\ See Section 8 (Guaranty of FICC to CME) and Section 9
(Guaranty of CME to FICC) of the revised Third A&R Agreement, supra
note 19.
---------------------------------------------------------------------------
Further, FICC's proposal is consistent with promoting safety and
soundness and reducing systemic risks. The Advance Notice identifies
how FICC and CME would address the default of a Joint Clearing Member.
Specifically, the Third A&R Agreement would favor joint liquidation by
the Clearing Organizations and also contemplates alternative default
management scenarios in which a joint liquidation is not feasible,
allowing for the most efficient risk management and closeout of
positions.
Finally, the Advance Notice is consistent with supporting the
stability of the broader financial system. The Advance Notice would
allow FICC to use the same margin methodology for Customer Positions as
it does for Proprietary Positions, thereby continuing to recognize risk
offsets with products cleared at CME. This approach should ensure that
margin requirements are based on the particular risks that the
portfolio presents to FICC and CME, providing an incentive for
customers to maintain profiles that present lower risk. By expanding
the Existing Agreement to Customers, FICC should enable and incentivize
additional central clearing with respect to Eligible Positions. The
ability to cross-margin customer positions should improve the ability
of FICC members to provide clearing services because allowing for more
efficient determination of margin that takes into account risk offsets
between products should free up intermediary capacity to support
additional central clearing. In this regard, the ability to cross-
margin at the customer level could incentivize additional customers to
post their own margin to FICC, when margin requirements are calibrated
to overall risk exposure, and, if that were to occur, not having to
post margin for customers could also, in turn, free up intermediary
capacity.
Commenters generally supported the proposal set forth in the
Advance Notice.\51\ For example, one commenter stated that the rules
described in the Advance Notice ``will appropriately tailor margin
requirements with actual portfolio risk[,]'' with ``[t]he resulting
[[Page 19228]]
reduction in duplicative margin [making] clearing more efficient and
offset[ing] some of the additional financial resource requirements that
the industry will face upon implementation of the'' requirements of
Rule 17ad-22(e)(18), adopted in 2023.\52\ Another commenter also stated
that it was critical that the Commission ``issue a non-objection so
that FICC can implement the rule changes expeditiously, and well in
advance of the Treasury clearing mandate implementation deadlines,''
adding that timely implementation is essential so that clearing
organizations and market participants can complete account setup,
documentation, legal arrangements, end-to-end testing, and
operationalize client cross-margining before mandatory clearing
requirements take effect.'' \53\
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\51\ See, e.g., Letter from Allison Lurton, General Counsel and
Chief Legal Officer, Futures Industry Association (Jan. 20, 2026)
(``strongly support[ing] the [customer cross-margining arrangement]
and urging the [Commission] to approve it'') (``FIA Letter'');
Letter from Katherine Tew Darras, General Counsel, International
Swaps and Derivatives Association (Jan. 20, 2026) (``strongly
support[ing] the proposed expansion of cross-margining to customer
accounts'') (``ISDA Letter''). Commenters also discussed the bank
capital requirements that apply to cross-product netting and
potential changes that would better facilitate cross-margining,
although they both supported approval of the Advance Notice despite
these comments. See FIA Letter at 3 and generally at 3-4 (stating
that the current bank capital requirements make the customer cross-
margining arrangement ``largely impractical for BD-FCMs that are
part of a banking organization . . . because [they] do not
appropriately recognize the risk-reducing effects of cross-product
netting arrangements''); see also ISDA Letter, at 2 (referencing
``adjustments to bank capital regulation to recognize corresponding
cross-product netting''). The Commission understands that the
efficiencies gained through the Cross-Margining Arrangement may be
affected by existing rules and regulations, as these commenters have
explained. However, bank capital requirements are outside the
Commission's jurisdiction and the scope of the Advance Notice.
\52\ ISDA Letter, at 1-2.
\53\ ISDA Letter at 2.
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One commenter further stated that the Commission, FICC, and CME
should actively review the appropriateness of margin levels and maximum
offsets to ensure that margin is at all times sufficient.\54\ The
commenter stated that it is critical that FICC and CME have in place
plans to avoid market shocks from urgent changes to margin levels.\55\
The commenter identified this comment as ``encourage[ing] CME and FICC
to monitor and amend margin methodology as appropriate,'' but
``reiterated its strong support for the'' proposal.\56\
---------------------------------------------------------------------------
\54\ FIA Letter at 4.
\55\ Id.
\56\ Id.
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The Commission agrees that a CCA should monitor the performance of
its margin methodology. Under Rule 17ad-22(e)(6), a CCA is required to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover, if the CCA provides CCP
services, its credit exposures to its participants by establishing a
risk-based margin system that, at a minimum, among other things, is
monitored by management on an ongoing basis and is regularly reviewed,
tested, and verified by conducting backtests of its margin model at
least once each day using standard predetermined parameters and
assumptions and conducting a sensitivity analysis of its margin model
and a review of its parameters and assumptions for backtesting on at
least a monthly basis, and more frequently than monthly during periods
of time when the products cleared or markets served display high
volatility or become less liquid, or when the size or concentration of
positions held by the CCA's participants increases or decreases
significantly.\57\ These requirements would apply to the margin
methodology used for the cross-margining arrangement, and, therefore,
should ensure that FICC monitors the performance of the margin
methodology.
---------------------------------------------------------------------------
\57\ 17 CFR 240.17ad-22(e)(6)(iv)(A-C).
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Some commenters supported the proposal, but identified certain
issues to be addressed.\58\ First, these commenters advocated for
further transparency around margin methodologies at both FICC and
CME.\59\ As the Commission has discussed previously, the Commission
agrees that transparency is important with respect to a CCA's margin
methodology,\60\ which would include with respect to cross-margining. A
CCA is a self-regulatory organization (``SRO'') under the Exchange Act,
subject to the provisions of Section 19(b) of the Exchange Act which
requires public comment on any rule changes that an SRO seeks to
adopt,\61\ and CCAs are subject to certain rules that impose
requirements related to transparency and disclosure to participants.
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\58\ Letter from Jennifer W. Han, Chief Legal Officer and Head
of Global Regulatory Affairs, Managed Funds Association (``MFA'')
(Jan. 27, 2026) (supporting the proposal, subject to certain
comments) (``MFA Letter''); Letter from Ji[rcaron]i Krol, Deputy
CEO, Global Head of Government Affairs, Alternative Investment
Management Association (``AIMA'') (Jan. 20, 2026) (generally
supporting the proposal, while identifying two issues that should be
addressed) (``AIMA Letter'').
\59\ Specifically, MFA encouraged FICC and CME to provide
``comprehensive transparency regarding margin practices, including
detailed breakdowns of calculations, netting arrangements, and the
availability of excess collateral,'' and it stated that this
transparency is critical for the smooth operation of the cross-
margining arrangement. MFA also stated that transparency will help
ensure that the clearing member and its customer can calculate and
anticipate margin needs effectively, including intraday margin
obligations, and set aside the appropriate amount of margin. See MFA
Letter at 2-3. Similarly, AIMA noted the importance of
``transparent, repeatable and well-governed margin methodologies . .
. particularly in a market as large, liquid and important as the
U.S. Treasury market and for those customers that avail themselves
of this new cross-margining opportunity.'' AIMA stressed that
customers and BD-FCMS must have ``clear visibility into the drivers
of initial margin outcomes and the conditions under which cross-
margining benefits may expand or contract.'' AIMA supported publicly
available documentation of: (i) the risk factors and correlation
assumptions underlying cross-product offsets; (ii) the stress
scenarios and lookback windows used in determining margin
requirements; (iii) the processes for model calibration, back-
testing and performance monitoring; and (iv) the governance
framework for changes to margin models or offset parameters.'' AIMA
Letter at 2.
\60\ Covered Clearing Agency Resilience and Recovery and Orderly
Wind-down Plans, Securities Exchange Act Release No. 101446 (Oct.
25, 2024), 89 FR 91000, 91006-08 (Nov. 18, 2024) (``Resilience and
Recovery Adopting Release'').
\61\ Id. at 91006.
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A CCA's margin methodology constitutes a material aspect of its
operations, meaning that it is part of a CCA's stated policies,
practices, or interpretations under Exchange Act Rule 19b-4.\62\ As
such, a CCA's margin methodology is subject to the filing obligations
applicable to SROs under Section 19(b) of the Exchange Act regarding
any proposed rule or proposed change to its rules.\63\ The proposed
rule filing process provides transparency into an SRO's proposed
changes, through notice and comment. An SRO is obligated to file its
proposed rule changes in a manner consistent with the requirements in
Form 19b-4, which is intended to elicit information necessary for the
public to provide meaningful comment on the proposed rule change and
for the Commission to determine whether the proposed rule change is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder.\64\ The Commission then publishes all proposed
rule changes for comment.
---------------------------------------------------------------------------
\62\ Id.
\63\ Id.
\64\ Id. at 91007.
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In this way, the rule filing process promotes transparency to
market participants and the public by ensuring notice is provided
regarding a CCA's new initiatives or changes to governance, operations,
and risk management.\65\ With respect to a CCA's margin methodology,
the rule filing process should provide transparency about how and when
a CCA would calculate margin, including on an intraday basis, which is
consistent with the requirements sought by the commenter.
---------------------------------------------------------------------------
\65\ Id.
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Moreover, a CCA is obligated to establish, implement, maintain and
enforce written policies and procedures reasonably designed to provide
for publicly disclosing all relevant rules and material procedures,
including key aspects of its default rules and procedures.\66\ As the
Commission previously has stated, such public disclosures generally
should include a discussion of a CCA's margin methodology, and they
should, in turn, allow a market participant to understand how a CCA
calculates margin, including any margin add-ons and cross-margin
arrangements with other clearing agencies.\67\ The Commission's rules
regarding margin do not prescribe particular items to be
[[Page 19229]]
made public, such as the specific items identified by the
commenters.\68\ Finally, the Commission understands that FICC makes
available a public calculator that provides market participants with
the ability to calculate potential margin obligations on a simulated
portfolio, for given positions and market value, using its Value at
Risk methodology.\69\ The Commission further understands that this
calculator reflects positions subject to cross-margining.\70\ Although
not a substitute for a market participant's ability to understand a
CCA's margin methodology on its own, such a public calculator is a
helpful tool for determining how a CCA's margin methodology operates,
particularly if the calculator is able to provide information related
to applicable cross-margin arrangements.\71\
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\66\ Id.
\67\ Id. at 91007-08.
\68\ However, as part of the SRO rule filing process, most of
the specific areas identified by the commenters have been addressed
in FICC proposed rule changes because of their role in FICC's margin
methodology. See, e.g., Securities Exchange Act Release No. 81485
(Aug. 25, 2017), 82 FR 41433 (Aug. 31, 2017) (SR-FICC-2017-014)
(approving FICC's Model Risk Management Framework that, among other
things, describes procedures for model validation, approval, and
performance monitoring, including reviews of risk-based models used
to calculate margin requirements and relevant parameters/threshold
indicators, sensitivity analysis, and backtesting results, and
governance for model changs); Securities Exchange Act Release No.
97342 (Apr. 21, 2023), 88 FR 25721 (Apr. 27, 2023) (SR-FICC-2023-
003) (approving modification of the description of the stressed
period used to calculate the VaR Charge, i.e., the lookback period,
describing what the stressed period would be in addition to a 10
year period, and describing the information that FICC would use when
determining whether to modify that period pursuant to FICC's Model
Risk Management Framework).
\69\ Resilience and Recovery Adopting Release, supra note 60, 89
FR at 91008.
\70\ CME-FICC Cross-Margining Arrangement, Question 8 (June
2025), available at <a href="https://www.dtcc.com/ustclearing/https/-/media/Files/Downloads/Microsites/Treasury-Clearing/CME-FICC-Cross-Margining-FAQs.pdf">https://www.dtcc.com/ustclearing/https/-/media/Files/Downloads/Microsites/Treasury-Clearing/CME-FICC-Cross-Margining-FAQs.pdf</a>.
\71\ Resilience and Recovery Adopting Release, supra note 60, 89
FR at 91008.
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Notwithstanding the commenters' advocating for transparency, the
Advance Notice is consistent with the objectives and principles
described in Section 805(b) of the Clearing Supervision Act.\72\ The
existing obligations of FICC as a CCA and the availability of
information and a public calculator to better understand FICC's margin
methodology should help address the commenter's concern and should
provide transparency regarding FICC's margin methodology and the cross-
margining arrangement, which is consistent with promoting robust risk
management. In addition, these commenters commented on suspension or
termination of customers under the cross-margining arrangement. One
such commenter encouraged FICC and CME to provide clarity regarding
what conditions under which a customer's ability to cross-margin would
be suspended, or its cross-margining arrangement terminated, such as
upon the occurrence of an operational error or some other unexpected
event, whether on the part of FICC/CME or the customer.\73\ The
commenter stated that it would be extremely disruptive if FICC and CME
were to revert back to independent margin calculations with little
notice to the customer because it could lead to large margin calls that
bear little to no relation to the actual risk of the combined customer
positions.\74\ The commenter therefore recommended that the customer
cross-margining arrangements should not be suspended or terminated
without sufficient notice.\75\ Similarly, another commenter stated that
there needed to be adequate protections in place that prohibit either
FICC, CME, or an Eligible BD-FCM from unilaterally suspending or
terminating a customer's cross-margining access.\76\ The commenter
stated that the Commission should require FICC, CME, and Eligible BD-
FCMs to provide customers with clear, objective, and transparent
criteria that govern when cross-margining access may be suspended or
terminated, including prohibiting discriminatory or commercially
motivated suspensions or terminations that are unrelated to bona fide
risk concerns, and that prior written notice should also be required
before suspension or termination.\77\
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\72\ 12 U.S.C. 5464(b).
\73\ MFA Letter at 3.
\74\ Id.
\75\ Id.
\76\ AIMA Letter at 2.
\77\ Id.
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With respect to the BD-FCM, the contractual arrangements between an
Eligible BD-FCM and its customer would govern the relationship,
separate from the provisions of FICC's Rules.\78\ Market participants
should generally have the flexibility to determine the negotiable
aspects of their relationships in their bilateral agreements, including
with respect to termination and suspension.\79\ The proposed changes
contained in this Advance Notice, including with these types of
bilateral arrangements, are consistent with the stated objectives and
principles of Section 805(b) of the Clearing Supervision Act in
promoting robust risk management.
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\78\ Indeed, in certain types of access to customer cross-
margining, the customer may not have any contractual relationship
with FICC (i.e., if the Cross-Margining Participant is an Agent
Clearing Member for the customer, as an Executing Firm Customer).
See, e.g., GSD Rule 2, section 3(b) (defining ``Executing Firm
Customer''), supra note 11.
\79\ In addition, under the Customer Cross-Margining Clearing
Member Agreement, which, as discussed above, is a required document
to participate and is an appendix to the Third A&R Agreement, a
Cross-Margining Participant must provide two Business Days' written
notice to FICC and CME in order to terminate the Customer Cross-
Margining Clearing Member Agreement, and any such termination shall
be effective upon written acknowledgement by both FICC and CME
provided that (i) all positions in the Customer Cross-Margining
Accounts have been closed or transferred to other accounts in
accordance with the Rules, and (ii) all Stand-alone Margin
Requirements in respect of any such transferred positions and all
obligations of Member to the Clearing Organizations in respect of
the Customer Cross-Margining Accounts have been fully satisfied. See
supra Section II.B.5; see also Appendix C ``Customer Cross-Margining
Program'' of the revised Third A&R Agreement, supra note 19.
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With respect to FICC and CME, Section 7 of the Third A&R Agreement
describes the actions that FICC or CME may take with respect to
suspension and liquidation of a Cross-Margining Participant, and FICC's
Rules address when it may terminate, suspend, or otherwise cease to act
for or limit the activities of a Cross-Margining Participant.\80\ These
criteria are publicly disclosed to market participants and available
for consideration when determining whether to enter into a Customer
Cross-Margining Agreement.\81\
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\80\ See GSD Rule 21, Section 1 (setting out the bases for
restricting or suspending access to services), Section 4
(identifying the action that may be taken by GSD) and Section 22A
(describing the procedures when FICC determines to cease to act for
a member), supra note 11.
\81\ See generally, GSD Rule 43 and the Existing Agreement,
supra note 11.
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Section 2 of the Third A&R Agreement provides that, in addition to
Section 7's provisions on suspension and liquidation, either FICC or
CME may terminate the participation of a particular Cross-Margining
Participant, with respect to some or all Cross-Margining Accounts of
the Cross-Margining Participant, upon two business days prior written
notice to the other Clearing Organization, but that no such termination
shall be effective with respect to (i) any Reimbursement Obligation or
Guaranty with respect to that Cross-Margining Participant or its Cross-
Margining Affiliate that is incurred prior to the effectiveness of any
such termination, or (ii) Section 7 of the Third A&R Agreement until
the Stand-Alone Margin Requirement with respect to each Cross-Margining
Account subject to such termination has been fully satisfied.\82\
Further, the Clearing Organizations may require Member to close or
transfer all positions in the Affected Customer Cross-Margining
Accounts in accordance with the Rules,
[[Page 19230]]
and the Agreement shall then terminate with respect to Affected
Customer Cross-Margining Accounts provided that the Stand-alone Margin
Requirement in respect of the transferred positions and all obligations
of Member to the Clearing Organizations in respect of Affected Customer
Cross-Margining Accounts have been fully satisfied.\83\ These
provisions should provide clarity as to how Eligible Positions would be
handled in the event of a termination.
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\82\ See Section 2(f) of the revised Third A&R Agreement, supra
note 19.
\83\ Id.
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Notwithstanding the lack of the particular termination provisions
sought by the commenters, the Advance Notice is consistent with the
objectives and principles described in Section 805(b) of the Clearing
Supervision Act.\84\ The agreement identifies the circumstances in
which the agreement may be terminated, what notice would be required to
the Cross-Margining Participant, and how the positions would be
treated, including the ability to port a customer's positions to
another Cross-Margining Participant. These provisions provide clarity
about the termination process for FICC and CME, and each provision is
consistent with the objectives of Section 805(b) of the Clearing
Supervision Act because each provision promotes robust risk management
and safety and soundness.
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\84\ 12 U.S.C. 5464(b).
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The commenter also stated that FICC and CME should establish a
fall-back mechanism short of a complete termination of the arrangement
for circumstances in which margin is not able to be calculated pursuant
to the cross-margining arrangement.\85\ FICC and CME have stated that
they maintain reasonable processes to address circumstances in which
there are systems delays or disruptions in the cross-margining
calculation process, such as those arising from position or pricing
file timelines.\86\ Further, FICC and CME have stated that they do not
guaranty that a margin reduction will be applied in all circumstances,
but that, depending on the circumstances, there are alternative
measures that would be taken to work to address the issue so that
cross-margining benefits can be received.\87\ As a general matter,
FICC, as a CCA, is required to establish, implement, maintain, and
enforce written policies and procedures reasonably designed to cover,
if the CCA provides central counterparty services, its credit exposures
to its participants by establishing a risk-based margin system that, at
a minimum, uses procedures (and, with respect to price data, sound
valuation models) for addressing circumstances in which price data or
other substantive inputs are not readily available or reliable, to
ensure that the CCA can continue to meet its regulatory
obligations.\88\
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\85\ MFA Letter at 3.
\86\ CME-FICC Cross-Margining Arrangement, Question 9 (June
2025), available at <a href="https://www.dtcc.com/ustclearing/https/-/media/Files/Downloads/Microsites/Treasury-Clearing/CME-FICC-Cross-Margining-FAQs.pdf">https://www.dtcc.com/ustclearing/https/-/media/Files/Downloads/Microsites/Treasury-Clearing/CME-FICC-Cross-Margining-FAQs.pdf</a> .
\87\ Id. Such alternatives might include applying the prior
day's margin calculation, or a previous cross-margin reduction
percentage of the offsetting risk exposure when position files are
not available.
\88\ 17 CFR 240.17ad-22(e)(6)(iv)(B).
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Accordingly, and for the reasons stated above, the changes proposed
in the Advance Notice are consistent with Section 805(b) of the
Clearing Supervision Act.\89\
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\89\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17ad-22(e)(4)(i) Under the Exchange Act
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, including by maintaining sufficient
financial resources to cover its credit exposure to each participant
fully with a high degree of confidence.\90\
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\90\ 17 CFR 240.17ad-22(e)(4)(i).
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The proposed changes should ensure that FICC continues to
effectively measure and manage its credit exposure to participants by
maintaining sufficient financial resources to cover its exposure
thereto with a high degree of confidence. This is because, under the
Customer Cross-Margining Arrangement, FICC would calculate the margin
requirement applicable to Customer Positions on a gross (i.e., Cross-
Margining Customer-by-Cross-Margining Customer) basis, with margin
reductions for offsetting positions calculated using a methodology that
the Commission recently approved.\91\ Examining the similar customer-
by-customer gross margining arrangements adopted by FICC for Segregated
Indirect Participants, the Commission found that such arrangements
would ``better isolate the risk profiles of individual indirect
participants from Netting Members, which should help FICC better
understand and monitor each individual participant's risk exposures.''
\92\
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\91\ See supra note 49, 89 FR at 93763.
\92\ Id. at 93776.
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In addition, the proposed rule change would require each Eligible
BD-FCM for whom FICC maintains one or more Cross-Margining Customer
Account(s) to deposit to FICC cash or eligible securities to meet the
Cross-Margining Customer Margin Requirement that is calibrated to the
risks of each Cross-Margining Customer's portfolio. Such Eligible BD-
FCM would also be required to enter into a Customer Cross-Margining
Clearing Member Agreement with FICC and CME, pursuant to which the
Eligible BD-FCM would pledge to FICC, on behalf of itself and each
Cross-Margining Customer, the positions and margin subject to the
Customer Cross-Margining Arrangement at both FICC and CME. This pledge,
coupled with the payment guarantees between FICC and CME set forth in
the Third A&R Agreement, would ensure that FICC and CME are able to
look to the full portfolio of Customer Positions and associated margin
at FICC and CME in order to satisfy any obligations arising under
customer positions.
Accordingly, the changes proposed in the Advance Notice are
consistent with Rule 17ad-22(e)(4)(i) under the Exchange Act.\93\
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\93\ 17 CFR 240.17ad-22(e)(4)(i).
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C. Consistency With Rule 17ad-22(e)(6)(i) Under the Exchange Act
Rule 17a-22(e)(6)(i) requires 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, and, if the
CCA provides central counterparty services for U.S. Treasury
securities, calculates, collects, and holds margin amounts from a
direct participant for its proprietary positions in Treasury securities
separately and independently from margin calculated and collected from
that direct participant in connection with U.S. Treasury securities
transactions by an indirect participant that relies on the services
provided by the direct participant to access the CCA's payment,
clearing, or settlement facilities.\94\
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\94\ 17 CFR 240.17ad-22(e)(6)(i).
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As discussion in Parts II.B.3, above, FICC and CME would utilize
their existing margin methodologies, consistent with how the Clearing
Organizations calculate margin under the existing Proprietary Cross-
Margining Arrangement. The Commission approved this methodology and
overall approach in 2023, including with respect to Rule 17ad-
22(e)(6)(i),\95\ and it
[[Page 19231]]
remains appropriate and consistent with Rule 17ad-22(e)(6)(i) for
customer cross-margining as it would produce margin levels commensurate
with the risks and particular attributes of the Eligible Positions.
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\95\ See Order Approving Amended and Restated Cross-Margining
Agreement, supra note 10.
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In addition, as discussed in Part II.C.2 above, FICC-cleared
Customer Positions of a Cross-Margining Customer would be recorded in a
Cross-Margining Customer Account, which account would be a separate
Type of Account for purposes of the GSD Rules. Because of this, under
the GSD Rules,\96\ the margin applicable to Customer Positions would be
calculated separately and independently of the margin for any positions
recorded in a different Type of Account, including any Proprietary
Account of the Cross-Margining Participant. The Third A&R Agreement
would also provide for Customer Cross-Margining Margin to be collected
and held in substantially a similar manner to Segregated Customer
Margin. The Commission recently approved FICC's arrangements for
Segregated Customer Margin, finding in particular that they ``should
ensure that a Netting Member's proprietary transactions are not netted
with indirect participant transactions for margin calculations and that
margin for indirect participant transactions is collected and held
separately and independently from margin for a Netting Member's
proprietary transactions.'' \97\
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\96\ The GSD Rules provide for certain Types of Accounts (e.g.,
Segregated Indirect Participants Account or a Dealer Account), and a
Netting Member's margin requirement is the sum of the margin amounts
calculated for each Type of Account. See GSD Rule 1 (defining ``Type
of Account'') and Rule 4, Section 2 (stating that a Netting Member's
Required Fund is the sum of amounts calculated for each type of
Account, other than Segregated Indirect Participants Accounts),
supra note 11.
\97\ See supra note 49, 89 FR at 93776.
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Accordingly, the changes proposed in the Advance Notice are
consistent with Rule 17ad-22(e)(6)(i) under the Exchange Act.\98\
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\98\ 17 CFR 240.17ad-22(e)(6)(i).
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D. Consistency With Rule 17ad-22(e)(18)(iv)(C) under the Exchange Act
Rule 17ad-22(e)(18)(iv)(C) requires that FICC establish, implement,
maintain and enforce written policies and procedures reasonably
designed to establish objective, risk-based, and publicly disclosed
criteria for participation, which, when the CCA provides central
counterparty services for transactions in U.S. Treasury securities,
ensure that it has appropriate means to facilitate access to clearance
and settlement services of all eligible secondary market transactions
in U.S. Treasury securities, including those of indirect participants,
which policies and procedures the board of directors of such CCA
reviews annually.\99\
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\99\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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Expansion of the current cross-margining arrangement between FICC
and CME to the customer level should facilitate access to clearance and
settlement in the U.S. Treasury market by better aligning the margin
requirements applicable to such indirect participants' positions with
the risk those positions present. The Commission agrees that the
reduced margin requirements resulting from allowing the cross-margining
of Customer Positions should incentivize Cross-Margining Customers to
post their own margin, reducing costs and freeing up capacity for
Eligible BD-FCMs to provide clearing services, which could provide the
opportunity to increase the volume of transactions they clear or to
reduce the prices at which they provide services.
One commenter stated that, to fully benefit from cross-margining,
customers must be able to consolidate the clearing of their portfolios
in one or a small number of clearing members, which requires a ``viable
done-away clearing model.'' \100\ The commenter stated that FICC's
rules currently do not require a direct participant offering customer
clearing to accept transactions executed by the customer with third-
party executing firms (i.e., done-away transactions), and stated that
the Commission and FICC should ``do more'' to ensure that customers may
centralize the clearing of their in-scope portfolio in one or a small
number of direct clearing members.\101\ Although it recognizes the
importance of done-away clearing, the Commission has not prescribed any
particular cross-margining arrangement or access model,\102\ nor has it
required that customers be able to consolidate their clearing with a
limited number of direct clearing members through some specified
manner. Rule 17ad-22(e)(18)(iv)(C) does not require FICC and CME to
provide a particular done-away clearing model, and FICC has not
proposed such a model in this Advance Notice. The proposed changes
contained in this Advance Notice, without such additional requirements,
are consistent with Rule 17ad-22(e)(18)(iv)(C).
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\100\ MFA Letter at 4.
\101\ Id.
\102\ 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, Securities Exchange
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714, 2757 (Jan. 16,
2024).
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Accordingly, the changes proposed in the Advance Notice are
consistent with Rule 17ad-22(e)(18)(iv)(C) under the Exchange Act.\103\
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\103\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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IV. Conclusion
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to the
Advance Notice (SR-FICC-2025-801) as modified by Partial Amendment Nos.
1 and 2 and that FICC is authorized to implement the proposed changes
as of the date of this notice or the date of an order by the Commission
approving proposed rule change SR-FICC-2025-025, whichever is later.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-07221 Filed 4-13-26; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on April 14, 2026.
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