Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Establish a Guaranty Fund at the Government Securities Division

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<title>Federal Register, Volume 91 Issue 216 (Tuesday, November 10, 2026)</title>
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[Federal Register Volume 91, Number 216 (Tuesday, November 10, 2026)]
[Notices]
[Pages 72592-72595]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22851]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106834; File No. SR-FICC-2026-008]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change, as Modified by Partial Amendment No. 
1, To Establish a Guaranty Fund at the Government Securities Division

November 5, 2026.

I. Introduction

    On July 24, 2026, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-FICC-2026-008 pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
\2\ thereunder to modify FICC's Government Securities Division 
(``GSD'') Rulebook (``GSD Rules'') \3\ to establish a guaranty fund 
designed to cover losses that may arise due to a Member default or non-
default loss event.\4\ On August 4, 2026, FICC filed Partial Amendment 
No. 1 to make clarifications and corrections to the proposed rule 
change (the proposed rule change, as modified by Partial Amendment No. 
1, is hereinafter referred to as the ``Proposed Rule Change'').\5\ The 
Proposed Rule Change was published for public comment in the Federal 
Register on August 11, 2026.\6\ The Commission has received

[[Page 72593]]

comments regarding the substance of the changes proposed in the 
Proposed Rule Change.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Terms not defined herein are defined in the GSD Rules, 
available at www.dtcc.com/~/media/Files/Downloads/legal/rules/
ficc_gov_rules.pdf.
    \4\ See Notice of Filing, infra note 6.
    \5\ Partial Amendment No. 1 made certain changes the description 
of the proposed rule changes that were incorporated, as appropriate, 
into the description of the proposed rule change in the Notice of 
Filing, infra note 6.
    \6\ Securities Exchange Act Release No. 106053 (Aug. 6, 2026), 
91 FR 51762 (Aug. 11, 2026) (File No. SR-FICC-2026-008) (``Notice of 
Filing''). FICC also filed a related advance notice (SR-FICC-2026-
802) with the Commission pursuant to Section 806(e)(1) of Title VIII 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
entitled the Payment, Clearing, and Settlement Supervision Act of 
2010 (``Clearing Supervision Act'') and Rule 19b-4 under the Act, 17 
CFR 240.19b-4. On August 4, 2026, FICC filed Partial Amendment No. 1 
to the advance notice to make the same clarifications and 
corrections to the advance notice as Partial Amendment No. 1 to the 
proposed rule change. The advance notice, as modified by Partial 
Amendment No. 1, was published in the Federal Register on August 11, 
2026. Securities Exchange Act Release No. 106054 (Aug. 6. 2026), 91 
FR 51787 (Aug. 11, 2026) (File No. SR-FICC-2026-802).
    \7\ Comments on the Proposed Rule Change are available at 
<a href="https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2026-008">https://www.sec.gov/rules-regulations/public-comments/sr-ficc-2026-008</a>.
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    On September 15, 2026, pursuant to Section 19(b)(2) of the Exchange 
Act,\8\ 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.\9\ The Commission is 
instituting proceedings, pursuant to Section 19(b)(2)(B) of the 
Exchange Act,\10\ to determine whether to approve or disapprove the 
Proposed Rule Change.
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ Securities Exchange Act Release No. 106318 (Sept. 10, 2026), 
91 FR 58513 (Sept. 15, 2026) (File No. SR-FICC-2026-008).
    \10\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

A. Background

    FICC, through GSD, serves as a central counterparty (``CCP'') and 
provider of clearance and settlement services for transactions in U.S. 
government securities, including repurchase and reverse repurchase 
transactions involving U.S. government securities.\11\ FICC manages its 
credit exposures to its Netting Members through the collection of 
margin to mitigate potential losses from arising from a Member default. 
FICC maintains financial resources in the form of its Clearing Fund, 
which is designed to enable FICC to cover potential losses resulting 
from the failure of the Member or Member family to which FICC has the 
largest credit exposure. FICC collects Clearing Fund deposits (i.e., 
Required Fund Deposits) from its Members using a risk-based margin 
methodology. Required Fund Deposits operate, individually, as each 
Member's initial margin, and the aggregate of all such Members' 
deposits is referred to collectively as the Clearing Fund, which 
currently operates as GSD's default fund. FICC states that this risk-
based methodology enables FICC to identify the risks posed by a 
Member's unsettled portfolio and to quickly adjust and collect 
additional deposits as needed to cover those risks.\12\
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    \11\ GSD also clears and settles certain transactions on 
securities issued or guaranteed by U.S. government agencies and 
government sponsored enterprises.
    \12\ See Notice of Filing at 51763, supra note 6.
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B. Proposed Rule Change

    FICC proposes to establish a Guaranty Fund for GSD, designed to 
cover losses that may arise due to a Member default or a non-default 
loss event and enable FICC to support bankruptcy remote treatment for 
its Clearing Fund deposits. The Proposed Rule Change includes, among 
other things:
    <bullet> Adopting new GSD Rule 4A (Guaranty Fund) to set forth 
requirements for the Guaranty Fund, including, among other things, 
that: (i) FICC performs daily stress testing using historical and 
hypothetical scenarios for purposes of sizing the Guaranty Fund; (ii) 
FICC sizes the Guaranty Fund at an amount sufficient to cover the 
stress test deficiency (i.e., losses observed in daily stress testing 
over required Clearing Fund deposits) that may arise as a result of the 
default of the two Netting Member Affiliated Families \13\ that would 
potentially cause the largest aggregate credit exposure for FICC in 
extreme but plausible market conditions (a ``Cover 2 Standard'' or 
``Cover 2 Requirement''); (iii) all deposits to the Guaranty Fund must 
be made in cash; and (iv) FICC has the authority to resize the Guaranty 
Fund on an intramonth basis if stress test deficiencies breach certain 
thresholds.
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    \13\ ``Affiliated Family'' is defined in the GSD Rules as a 
group of Members, excluding from the group any Member that is a 
securities clearinghouse, depository, exchange or other market 
infrastructure, in which each Member in the group is an Affiliate of 
at least one other Member in the group. See Section 1 of GSD Rule 1 
(Definitions), supra note 3.
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    <bullet> Modifying GSD Rule 4 and the Margin Component Schedule to: 
(i) support bankruptcy remote treatment for Clearing Fund deposits; 
(ii) exclude the Clearing Fund from loss mutualization; (iii) provide 
FICC with the authority to require additional margin deposits from 
Netting Members if their stress test deficiencies exceed predetermined 
thresholds in relation to the total Required Fund Deposits of all other 
Members (excluding such Member or Affiliated Family) or would cause the 
Guaranty Fund to exceed upper bound parameters established for limiting 
the resizing of the Guaranty Fund; (iv) clarify that FICC would no 
longer have the authority to ``borrow'' Clearing Fund deposits of non-
defaulting Members to provide liquidity to FICC to meet its settlement 
obligations; (v) provide FICC with the authority to exchange a Netting 
Member's Clearing Fund deposit in the form of cash for U.S. Treasury 
securities to provide liquidity to FICC to meet its settlement 
obligations; and (vi) eliminate fixed minimum Required Fund Deposit 
amounts and adjust the associated minimum cash composition requirements 
accordingly.
    <bullet> Relocating the loss allocation rules in Section 7 of GSD 
Rule 4 to a new GSD Rule 4C (Loss Allocation) and modifying the rules 
to: (i) incorporate the proposed Guaranty Fund into the loss allocation 
rules and exclude the Clearing Fund from loss mutualization; (ii) 
eliminate the concept of Tier One Netting Members and Tier Two Members 
and exclude CCIT Members and Registered Investment Company Netting 
Members from loss allocation; (iii) adopt a new five-day ``cooling off 
period'' for Defaulting Member Events and Declared Non-Default Loss 
Events (also referred to as an ``Event Period''); and (iv) impose an 
assessment cap on loss allocation during each cooling-off period equal 
to two times (or 200 percent of) the Member's Guaranty Fund requirement 
for each Event Period in lieu of the existing loss allocation rounds 
system.
    <bullet> Make other conforming changes throughout the GSD Rules to 
reflect the adoption of the Guaranty Fund, as described more fully in 
the Notice of Filing.\14\
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    \14\ See Notice of Filing at 51765-79, supra note 6.
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III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the Proposed Rule 
Change should be approved or disapproved.\15\ Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the Proposed Rule Change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
which would provide the Commission with arguments to support the 
Commission's analysis as to whether to approve or disapprove the 
Proposed Rule Change.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\16\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings

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to allow for additional analysis of, and input from commenters with 
respect to, the Proposed Rule Change's consistency with Section 17A of 
the Exchange Act \17\ and the rules thereunder, including the following 
provisions:
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    \16\ Id.
    \17\ 15 U.S.C. 78q-1.
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    <bullet> Section 17A(b)(3)(F) of the Exchange Act,\18\ which 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions; to assure the safeguarding of securities and 
funds which are in the custody or control of the clearing agency or for 
which it is responsible; and, in general, to protect investors and the 
public interest;
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    <bullet> Section 17A(b)(3)(I) of the Exchange Act,\19\ which 
requires that the rules of a clearing agency do not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act;
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    \19\ 15 U.S.C. 78q-1(b)(3)(I).
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    <bullet> Rule 17ad-22(e)(4) under the Exchange Act,\20\ which 
requires that a covered clearing agency 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;
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    \20\ 17 CFR 240.17ad-22(e)(4).
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    <bullet> Rule 17ad-22(e)(6)(iii) under the Exchange Act,\21\ which 
requires that a covered clearing agency establish 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, calculates margin sufficient to cover its potential future 
exposure to participants in the interval between the last margin 
collection and the close out of positions following a participant 
default;
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    \21\ 17 CFR 240.17ad-22(e)(6)(iii).
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    <bullet> Rule 17ad-22(e)(7)(i) under the Exchange Act,\22\ which 
requires that a covered clearing agency effectively measure, monitor, 
and manage the liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by, at a minimum, maintaining sufficient 
liquid resources at the minimum in all relevant currencies to effect 
same-day and, where appropriate, intraday and multiday settlement of 
payment obligations with a high degree of confidence under a wide range 
of foreseeable stress scenarios that includes, but is not limited to, 
the default of the participant family that would generate the largest 
aggregate payment obligation for the covered clearing agency in extreme 
but plausible market conditions;
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    \22\ 17 CFR 240.17ad-22(e)(7)(i).
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    <bullet> Rule 17ad-22(e)(7)(ix) under the Exchange Act,\23\ which 
requires that a covered clearing agency establish, implement, maintain 
and enforce written policies and procedures reasonably designed to 
describe its process to replenish any liquid resources that it may 
employ during a stress event;
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    \23\ 17 CFR 240.17ad-22(e)(7)(ix).
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    <bullet> Rule 17ad-22(e)(18)(i) under the Exchange Act,\24\ which 
requires that a covered clearing agency establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to 
establish objective, risk-based, and publicly disclosed criteria for 
participation, which, permit fair and open access by direct, and where 
relevant, indirect participants and other financial market utilities;
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    \24\ 17 CFR 240.17ad-22(e)(18)(i).
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    <bullet> Rule 17Ad-22(e)(23) under the Exchange Act,\25\ which 
requires that a covered clearing agency establish, implement, maintain 
and enforce written policies and procedures reasonably designed to, 
among other things, publicly disclose all relevant rules and material 
procedures, including key aspects of its default rules and procedures, 
and provide sufficient information to enable participants to identify 
and evaluate the risks, fees, and other material costs they incur by 
participating in the covered clearing agency.
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    \25\ 17 CFR 240.17ad-22(e)(23).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with Sections 17A(b)(3)(F) and 17A(b)(3)(I) 
\26\ of the Exchange Act, and Rules 17ad-22(e)(4), (e)(6)(iii), 
(e)(7)(i), (e)(7)(ix), (e)(18)(i), and (e)(23) \27\ of the Exchange 
Act, or any other provision of the Exchange Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4(g) under the Exchange Act,\28\ any 
request for an opportunity to make an oral presentation.\29\
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    \26\ 15 U.S.C. 78q-1(b)(3)(F) and (b)(3)(I).
    \27\ 17 CFR 240.17ad-22(e)(4), (e)(6)(iii), (e)(7)(i), 
(e)(7)(iii), (e)(18)(i), and (e)(23).
    \28\ 17 CFR 240.19b-4(g).
    \29\ Section 19(b)(2) of the Exchange Act grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by December 1, 2026. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 15, 2026.
    Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a0d2d5ccc58dc3cfcdcdc5ced4d3e0d3c5c38ec7cfd6"><span class="__cf_email__" data-cfemail="d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2">[email&#160;protected]</span></a>. Please include 
file number SR-FICC-2026-008 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to file number SR-FICC-2026-008. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the filing will be available for inspection and 
copying at the principal office of FICC and on DTCC's website 
(<a href="http://www.dtcc.com/legal/sec-rule-filings">www.dtcc.com/legal/sec-rule-filings</a>). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to file number SR-FICC-2026-008 and should be submitted on or 
before December 1, 2026.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12) and (a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-22851 Filed 11-9-26; 8:45 am]
BILLING CODE 8011-01-P


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