[Federal Register Volume 83, Number 89 (Tuesday, May 8, 2018)]
[Notices]
[Pages 20882-20889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09693]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83153; File No. SR-FICC-2018-003]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend the Fee Structure of 
the Government Securities Division Rulebook

May 2, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 27, 2018, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would amend the Fee Structure of the FICC 
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') \3\ 
with respect to the fees associated with the delivery-versus-payment 
(``DVP'') service as well as make other changes, as described in 
greater detail below.
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    \3\ Capitalized terms not defined herein are defined in the GSD 
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_gov_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend the Fee 
Structure of the GSD Rules with respect to the fees associated with the 
DVP service and make other changes \4\ in order to reduce complexity 
and to better align pricing with the costs of services provided by GSD. 
The proposed rule change would also make conforming, clarifying, and 
technical changes. Taken collectively, the proposed rule changes are 
designed to be revenue neutral for GSD and may eliminate perceived 
pricing barriers to entry, as described below.
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    \4\ FICC is not proposing changes to fees specifically 
associated with either the GCF Repo[reg] Service or the CCIT Service 
at this time because those fees are more aligned with the costs of 
providing such services. However, as further discussed below in Item 
II.(A)1.(iii) (entitled ``PROPOSED FEE CHANGES''), FICC is proposing 
a change to the minimum monthly fee. The minimum monthly fee is not 
specific to any service and would apply to each account of either a 
Comparison-Only Member or a Netting Member; such account of a 
Netting Member could include GCF Repo and/or CCIT activity. The 
minimum monthly fee for an account would not apply if the total 
monthly fees incurred by the account pursuant to proposed Sections 
I, II, and IV of the GSD Fee Structure exceed $2,500. CCIT Members 
are not subject to the minimum monthly fee.
    For additional information on the GCF Repo Service and the CCIT 
Service, please refer to GSD Rule 20 and GSD Rule 3B, respectively. 
See GSD Rule 20 and GSD Rule 3B. GSD Rules, id.
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(i) Background
    GSD provides clearance and settlement services for trades executed 
by its Members in the U.S. government securities market. GSD supports 
and facilitates these services through transaction processing and 
position management.
    Transaction processing for the DVP service includes the recording 
and comparison of transactions submitted to GSD for clearance and 
settlement through GSD's comparison system, the Real-Time Trade 
Matching system.
    Position management for the DVP service includes trade netting, 
trade settlement, and the management of credit risks, market risks, and 
liquidity risks associated with transactions submitted to GSD for 
clearance and settlement.
(ii) Current Fees
    Members are assessed fees in accordance with the GSD Fee Structure. 
The current GSD Fee Structure covers a multitude of fees that are 
assessed on Members based upon their activities and the services 
utilized. The number of fees and the methods by which they are 
calculated makes the current GSD Fee Structure unnecessarily complex. 
In addition, due to changes in technology and regulatory environment, 
certain fees in the current GSD Fee Structure have become misaligned 
with the costs of services provided by GSD.

[[Page 20883]]

A. Pricing Overly Complex
    The current GSD Fee Structure (as it relates to the DVP service) 
consists of trade submission fees, trade netting fees, Repo Transaction 
\5\ processing fees, and settlement fees.\6\
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    \5\ The term ``Repo Transaction'' means: (1) An agreement of a 
party to transfer Eligible Securities to another party in exchange 
for the receipt of cash, and the simultaneous agreement of the 
former party to later take back the same Eligible Securities (or any 
subsequently substituted Eligible Securities) from the latter party 
in exchange for the payment of cash, or (2) an agreement of a party 
to take in Eligible Securities from another party in exchange for 
the payment of cash, and the simultaneous agreement of the former 
party to later transfer back the same Eligible Securities (or any 
subsequently substituted Eligible Securities) to the latter party in 
exchange for the receipt of cash, as the context may indicate, the 
data on which have been submitted to FICC pursuant to the GSD Rules. 
A ``Repo Transaction'' includes a GCF Repo Transaction, unless the 
context indicates otherwise. See GSD Rule 1. GSD Rules, supra note 
3. For the purposes of describing the proposed rule changes, the 
term ``Repo Transaction'' will exclude GCF Repo Transactions.
    \6\ Settlement fees consist of obligation fees and pass-through 
fees for clearing bank services. These fees are not being changed 
under this proposal.
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    Trade submission fees are based on a seven-tiered structure where 
the fees are charged based on the number of sides of buy/sell 
transactions and Repo Transactions submitted and matched in a given 
month. There are two (2) tiered structures for the trade submission 
fees, one for the Dealer Accounts and the other one for the Broker 
Accounts.
    Trade netting fees consist of ``into the net'' fees and ``out of 
the net'' fees. The ``into the net'' fees are different for Broker 
Accounts and Dealer Accounts and are based on the number of sides of 
buy/sell transactions and Repo Transactions that are being netted (a 
seven-tiered structure based on the monthly number of sides of buy/sell 
transactions and Repo Transactions), and the par value of those 
sides.\7\ The ``out of the net'' fee is a par value-based fee for each 
Deliver Obligation and Receive Obligation created as a result of the 
netting process.\8\
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    \7\ With respect to the DVP service, the ``into the net'' par 
value-based fee is currently $0.015 per one million of par value for 
Broker Accounts and $0.016 per one million of par value for Dealer 
Accounts for each Compared Trade, Start Leg of a Repo Transaction, 
Close Leg of a Repo Transaction, Fail Deliver Obligation, and Fail 
Receive Obligation. See current Section III.A.1(ii) of the GSD Fee 
Structure. GSD Rules, supra note 3.
    \8\ With respect to the DVP service, the ``out of the net'' par 
value-based fee is currently $0.175 per one million of par value for 
each Deliver Obligation and Receive Obligation created as a result 
of the netting process. See current Section III.A.2 of the GSD Fee 
Structure. GSD Rules, supra note 3.
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    Repo Transaction processing fees are comprised of (1) two gross 
Repo Transaction processing fees, one for Broker Accounts and one for 
Dealer Accounts, and (2) a net Repo Transaction processing fee.\9\
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    \9\ The gross Repo Transaction processing fees are currently a 
0.0175 basis point charge and a 0.04 basis point charge applied to 
the gross dollar amount of each Term Repo Transaction for Broker 
Accounts and Dealer Accounts, respectively, that has been compared 
and netted but not yet settled. The net Repo Transaction processing 
fee is currently a 0.08 basis point charge applied to the net dollar 
amount of a Netting Member's Term Repo Transactions within a CUSIP 
that has been compared and netted but not yet settled. See current 
Section III.E. of the GSD Fee Structure. GSD Rules, supra note 3.
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    With a combination of the tiered structure for trade submission 
fees and trade netting fees, an ``into the net'' par value-based fee, 
an ``out of the net'' par value-based fee, and gross and net Repo 
Transaction processing fees, the current GSD Fee Structure can be 
difficult for Members to understand and reconcile. In fact, Members and 
market participants have often indicated to FICC that the current GSD 
Fee Structure is too complex and difficult to understand. The 
complexity of the GSD Fee Structure is also noted in the U.S. 
Department of the Treasury October 2017 report to President Donald 
Trump on U.S. capital markets (``Treasury Report'').\10\
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    \10\ See U.S. Department of the Treasury, A Financial System 
That Creates Economic Opportunities: Capital Markets (October 2017), 
at 81, available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf.
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B. Pricing Alignment With Costs of Services Provided by GSD
    With respect to the fees associated with the DVP service, a portion 
of the current GSD Fee Structure is based on transaction processing, 
with a number of fees charged to Members being driven by the number of 
transactions that the Members submit to GSD for clearance and 
settlement (tiered structure for trade submission fees and tiered 
structure for trade netting fees, as described in Item II.(A)1.(ii)A. 
above). As a result, under the current GSD Fee Structure, fees are 
higher for a Member that submitted a larger number of transactions to 
GSD than a Member that submitted a smaller number of transactions, even 
when the total par value of the trades that each such Member submitted 
to GSD is the same.
    With technological advancements, GSD's systems have become more 
scalable and efficient with respect to transaction processing, which 
has resulted in a reduction in GSD's costs associated with transaction 
processing. In contrast, GSD faces continued increasing risk management 
costs, such as costs of account monitoring, intraday margining, and end 
of day risk management. Therefore, GSD has had to shift its resource 
allocation so that a sizable portion of its resources is now dedicated 
to the management of Members' positions. Consequently, certain fees in 
the current GSD Fee Structure have become misaligned with the costs of 
services provided by GSD.
    As an example, the costs for GSD to manage a single $50 million 30-
day Term Repo Transaction \11\ for Member A and twenty (20) \12\ $50 
million overnight Repo Transactions \13\ for Member B are similar 
because the resulting daily positions are the same over the 30-day 
period, and similar resources are utilized to ensure the safety and 
soundness of the clearing agency to these transaction types. However, 
even though these transactions require similar costs and resources to 
manage, under the current GSD Fee Structure, Member B will be assessed 
a fee \14\ that is approximately 3.3 times the fee assessed on Member 
A. This is because under the current GSD Fee Structure, fees associated 
with Member B's overnight Repo Transactions are higher (e.g., on each 
Business Day, Member B will be assessed $0.17 per side of trade going 
into the net, $0.016 per million par value going into the net, and 
$0.175 per million par value out of the net) than fees associated with 
Member A's Term Repo Transaction (e.g., Member A will be assessed each 
of the following fees once: $0.17 per side of trade going into the net, 
$0.016 per million par value going into the net, and $0.175 per million 
par value out of the net; in addition, on each calendar day, Member A 
will be assessed a 0.04 basis point charge applied to the gross dollar 
amount of its Term Repo Transaction and a 0.08 basis point charge 
applied to the net dollar amount of its Term Repo Transaction).
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    \11\ The term ``Term Repo Transaction'' means, on any particular 
Business Day, a Repo Transaction for which settlement of the Close 
Leg is scheduled to occur two or more Business Days after the 
scheduled settlement of the Start Leg. See GSD Rule 1, Definitions. 
GSD Rules, supra note 3.
    \12\ The example assumes there are twenty (20) Business Days in 
a month. Twenty (20) overnight Repo Transactions would span the same 
number of calendar days, i.e., 30 calendar days, as a single 30-day 
Term Repo Transaction. This is because each overnight Repo 
Transaction that starts on a Friday will settle on the following 
Monday.
    \13\ Overnight Repo Transactions are Repo Transactions for which 
settlement of the Close Leg is scheduled to occur one Business Day 
after the scheduled settlement of the Start Leg.
    \14\ In addition, Member A and Member B would be assessed other 
fees, such as trade submission fees and clearance charges; however, 
these fees are excluded for the purposes of this example because 
they are not relevant to position management.

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[[Page 20884]]

C. Review of Current Fees and Rationale for Proposed Fee Amounts
    Over the past two years, GSD performed an extensive review of the 
current GSD Fee Structure with the goals of reducing pricing complexity 
and aligning pricing with costs, while on an overall basis maintaining 
GSD's revenue at the current level.
    GSD believes it is reasonable and appropriate to assess Members 
fees that are commensurate with the costs of services provided to 
Members. Accordingly, based on a review of the costs associated with 
position management vis-[agrave]-vis the overall cost structure as well 
as the current fees, GSD estimates that the transaction processing fees 
and the position management fees associated with the DVP service should 
account for approximately thirty percent (30%) and seventy percent 
(70%), respectively, of GSD's projected revenue associated with the DVP 
service. In particular, the position management fees would be comprised 
of an intraday position management fee and an end of day position 
management fee, each aimed to reflect the respective costs of services 
required in managing intraday positions and end of day positions. The 
proposed fee changes would better align GSD's revenue with the 30/70 
split between transaction processing and position management costs. 
FICC expects GSD's net revenue to remain relatively unchanged as a 
result of this proposal.
(iii) Proposed Fee Changes
    Based upon feedback from Members and market participants as well as 
a review of current fees conducted by FICC as described above, FICC is 
proposing to modify the GSD Fee Structure to (i) reduce pricing 
complexity and (ii) better align pricing with costs of services 
provided by GSD.
    In that respect, the proposed GSD Fee Structure would establish 
four (4) new fees, modify three (3) existing fees, and eliminate twelve 
(12) fees, each as further described below.
    FICC is proposing to add the following fees--

 Transaction processing fee for Broker Accounts
 Transaction processing fee for Dealer Accounts
 Intraday position fee
 End of day position fee

    FICC is proposing to modify the following fees--

 Minimum monthly fee
 Auction takedown fee
 Locked-in trade data fee

    FICC is proposing to eliminate the following fees--

 Surcharge for submission method
 Seven-tiered transaction based DVP trade submission fee for 
Broker Accounts
 Seven-tiered transaction based DVP trade submission fee for 
Dealer Accounts
 Seven-tiered transaction based DVP netting fee for Broker 
Accounts
 Seven-tiered transaction based DVP netting fee for Dealer 
Accounts
 DVP par value based into the net fee for Broker Accounts
 DVP par value based into the net fee for Dealer Accounts
 DVP par value based obligation fee (the ``out of the net'' 
fee)
 Gross Repo Transaction processing fee for Broker Accounts for 
DVP transactions
 Gross Repo Transaction processing fee for Dealer Accounts for 
DVP transactions
 Net Repo Transaction processing fee for DVP transactions
 Fees applicable to additional accounts

    The foregoing proposed fee changes would address pricing 
complexity, pricing alignment to costs, or both, as further described 
in the section-by-section discussion below. FICC believes the proposed 
fee changes that address pricing complexity would enhance pricing 
transparency, making it easier for Members (and prospective members) to 
understand the GSD Fee Structure. FICC also believes shifting the GSD 
Fee Structure regarding the DVP service away from a volume-driven 
approach may result in making central clearing more accessible to 
additional market participants. Taken collectively, the proposed rule 
changes are designed to be revenue neutral for GSD and may eliminate 
perceived pricing barriers to entry.
Section I of GSD Fee Structure
    In order to address the complexity of the GSD Fee Structure, FICC 
is proposing to replace the seven-tiered trade submission fees for both 
Dealer Accounts and Broker Accounts with a single transaction 
processing fee that would be charged to Members upon the comparison of 
a side of a buy/sell transaction or a Repo Transaction in the DVP 
service. As proposed, Dealer Accounts would be charged a fee of $0.04 
per million par value for transaction processing, and Broker Accounts 
would be charged a fee of $0.02 per million par value for transaction 
processing.\15\ This proposed change would also enable GSD to better 
align pricing with costs by assessing a fee that is more reflective of 
the costs that GSD is currently incurring for transaction processing, 
as described above in Item II.(A)1.(ii)C.
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    \15\ Broker Accounts submit two sides per transaction. As such, 
a Broker Account would be charged a total of $0.04 per million par 
value (i.e., $0.02 per million par value times two) for each 
transaction.
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    In order to further reduce the complexity of the current GSD Fee 
Structure, FICC is proposing to delete fees in Section I of the GSD Fee 
Structure that are no longer applicable. Specifically, FICC is 
proposing to delete Section I.B. of the GSD Fee Structure, which 
imposes surcharges on a Member based on the submission method used by 
the Member. Current Section I.B. of the GSD Fee Structure imposes 
certain surcharges on Members submitting trade data to GSD using 
submission methods other than the Interactive Submission Method, e.g., 
the Multiple Batch Submission Method or the Single Batch Submission 
Method. These surcharges are no longer required because all Members 
currently submit trade data to GSD using the Interactive Submission 
Method, and FICC does not expect that to change in the future because 
of technological advancements in real-time trade submission capability 
across the financial industry. This proposed change would necessitate 
the re-lettering of the subsequent provisions in Section I of the GSD 
Fee Structure.
Section II of GSD Fee Structure
    In order to better align pricing with the costs of services 
provided by GSD, FICC is proposing to add two position management fees 
applicable to the DVP service in proposed Section II of the GSD Fee 
Structure. The first position management fee would be the intraday 
position fee of $0.04 per million par value that would be calculated 
for a Member each Business Day based on the largest gross position of 
the Member (including positions of any Non-Member that the Member is 
clearing for) that Business Day. FICC proposes to determine the gross 
position of a Member in 15-minute intervals between 9 a.m. and 4 p.m. 
each Business Day by netting the par value of all compared buy/sell 
transactions, Repo Transactions, and unsettled obligations of the 
Member (including any such activity submitted by the Member for a Non-
Member that the Member is clearing for) by CUSIP Number and taking the 
sum of the absolute par value of each such CUSIP Number.
    The second position management fee would be the end of day position 
fee of $0.115 per million par value that would be calculated for a 
Member each Business Day based on the end of day gross position of the 
Member (including positions of any Non-Member that the

[[Page 20885]]

Member is clearing for) that Business Day. FICC proposes to determine 
the end of day gross position of a Member by netting the par value of 
all compared buy/sell transactions, Repo Transactions, and unsettled 
obligations of the Member (including any such activity submitted by the 
Member for a Non-Member that the Member is clearing for) at the end of 
the Business Day by CUSIP Number and taking the sum of the absolute par 
value of each such CUSIP Number.
    The two proposed position management fees would better align 
pricing with costs of services provided by GSD because they would be 
driven by position management and, as stated above, GSD's costs 
associated with position management have increased. The proposed 
intraday position fee of $0.04 per million par value is aimed to 
reflect the costs associated with monitoring and management of Members' 
intraday DVP positions. The proposed end of day position fee of $0.115 
per million par value is aimed to reflect the costs associated with end 
of day processing, overnight position management, and various risk and 
operational activities required to assure the ability of FICC to 
continue to provide a dependable, stable and efficient clearing and 
settlement service for Members.
Section IV of GSD Fee Structure
    In order to reduce pricing complexity further, FICC is proposing to 
eliminate all netting fees provided in renumbered Section IV of the GSD 
Fee Structure, i.e., (1) the two seven-tiered netting fees for both 
Broker Accounts and Dealer Accounts, (2) the ``into the net'' fees of 
$0.015 per one million of par value for Broker Accounts and $0.016 per 
one million of par value for Dealer Accounts for each Compared Trade, 
Start Leg of a Repo Transaction, Close Leg of a Repo Transaction, Fail 
Deliver Obligation, and Fail Receive Obligation, and (3) the ``out of 
the net'' fees of $0.175 per one million of par value for each Deliver 
Obligation and Receive Obligation created as a result of the netting 
process. This would reduce pricing complexity and thereby enhance 
pricing transparency because the proposal would eliminate the necessity 
for Members to reconcile their fees to the multiple-tiered netting 
fees, the ``into the net'' fees, and the ``out of the net'' fees.
    In addition, FICC is proposing to delete from renumbered Section 
IV.C. of the GSD Fee Structure the Repo Transaction processing fees and 
related language for Term Repo Transactions in the DVP service that 
have been compared and netted but not yet settled. This would reduce 
pricing complexity and thereby enhance pricing transparency because 
there would no longer be separate Repo Transaction processing fees for 
Term Repo Transactions. As proposed, Term Repo Transactions would be 
assessed the proposed position management fees, just like overnight 
Repo Transactions and buy/sell transactions.
Section V of GSD Fee Structure
    In order to reduce pricing complexity, FICC is proposing to 
eliminate fees applicable to additional accounts from current Section V 
of the GSD Fee Structure. FICC believes this proposed change would 
reduce pricing complexity and thereby enhance pricing transparency 
because Members would no longer need to differentiate and keep track of 
their main accounts versus their additional accounts. As proposed, each 
account of every Comparison-Only Member and Netting Member would now be 
subject to the same fee, i.e., the minimum monthly fee.
    In order to better align pricing with the costs of services 
provided by GSD, FICC is proposing changes to fees associated with 
accounts of Comparison-Only Members and Netting Members. Specifically, 
FICC is proposing to modify the minimum monthly fee in proposed Section 
V of the GSD Fee Structure. As proposed, the minimum monthly fee would 
be increased from $1,000 to $2,500 per account and would apply to all 
accounts of every Comparison-Only Member and Netting Member instead of 
just their sole or primary account.\16\ FICC is proposing to increase 
the minimum monthly fee to $2,500 per account because FICC believes 
this change would better reflect GSD's costs of account monitoring, 
which have increased as described above in Item II.(A)1.(ii)B.
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    \16\ As proposed, the minimum monthly fee would apply to all 
accounts of a Netting Member, including any account the Netting 
Member may have as a Sponsoring Member.
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(iv) Expected Member Impact
    In general, FICC anticipates that the proposal would result in fee 
increases for Members that currently have large directional term 
repurchase agreement positions. This is because under the current GSD 
Fee Structure, Members with Term Repo Transactions are charged less 
than Members with overnight Repo Transactions. In contrast, under the 
proposal the Members would be assessed the same position management 
fees for both their Term Repo Transactions as well as their overnight 
Repo Transactions.
    Using the same example from Item II.(A)1.(ii)B (entitled ``CURRENT 
FEES--Pricing Alignment with Costs of Services Provided by GSD''), 
under the proposal, both Member A and Member B would be assessed the 
same fee for position management of their respective Repo Transactions 
because the proposal would harmonize how fees are assessed for the 
management of positions related to overnight Repo Transactions and Term 
Repo Transactions.\17\
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    \17\ When comparing with fees under the current GSD Fee 
Structure, excluding transaction processing fees and clearance 
charges, as proposed, Member A would see a fee increase of 
approximately 2.6 times and Member B would see a decrease of 
approximately twenty percent (20%).
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    Meanwhile, FICC anticipates that Members with high volumes of buy/
sell transactions that maintain minimal positions would see a decrease 
in their fees because the position management fee associated with their 
activities would be minimal.
    FICC anticipates that the proposal would have a lesser impact on 
fees for Members with diversified portfolios of varying transaction 
types/terms.
(v) Alternatives Considered
    During development of this proposal, FICC considered a range of 
alternatives to the proposal, including:
    (i) A tiered, fixed monthly membership fee based on Members' 
historical activity level, which would provide certainty to Members 
regarding their monthly fee amounts. However, establishing an equitable 
baseline for such a fixed membership fee would be difficult because 
Members' volumes and positions vary (materially in some cases) over 
time due to market events, trading strategies or corporate outlook, 
and, as such, Members' utilization of GSD services would change 
accordingly;
    (ii) A single fee based on Members' end of day positions; however, 
under this alternative, Members with end of day positions would 
disproportionally subsidize intraday position holders who do not carry 
end of day positions as well as Members with large transaction volumes 
but minimal end of day positions;
    (iii) A combination of two fees based on Members' end of day and 
intraday positions, respectively; however, under this alternative, 
Members with end of day and/or intraday positions would 
disproportionally subsidize Members with large transaction volumes but 
minimal intraday and/or end of day positions; and
    (iv) A combination of two fees based on Members' end of day 
positions and

[[Page 20886]]

transaction processing, respectively; however, under this alternative, 
Members with end of day positions would disproportionately subsidize 
intraday position holders with minimal end of day positions.
    Given the shortcomings noted above, FICC did not choose the 
foregoing alternatives.
(vi) Conforming, Clarifying, and Technical Changes
    FICC is proposing a number of conforming, clarifying, and technical 
changes. The proposed rule changes to make conforming, clarifying, and 
technical changes are set forth in proposed Sections I, III, IV, V, VI, 
VII, VIII, and XII of the GSD Fee Structure, as further described 
below.
Section I of GSD Fee Structure
    FICC is proposing to rename the heading of Section I of the GSD Fee 
Structure from ``Trade Comparison Fees'' to ``Transaction Fees'' to 
better reflect the proposed changes to that section, as described 
above.
    FICC is proposing to rename the heading of Section I.A. of the GSD 
Fee Structure from ``Trade Submission'' to ``Transaction Processing.'' 
In addition, FICC is proposing changes throughout Section I.A. of the 
GSD Fee Structure to clarify that references to a ``trade'' means a 
``buy/sell transaction.'' FICC is also proposing a number of conforming 
changes in Section I.A. of the GSD Fee Structure. Specifically, FICC is 
proposing to delete a reference to ``submission fee'' and replace it 
with ``processing fee.'' FICC is also proposing to update the reference 
to ``subsection D'' to reflect the proposed re-lettering of that 
subsection.
    Additionally, FICC is proposing to update the format of (i) the 
$.50 rejection fee to $0.50 in Section I.A. of the GSD Fee Structure, 
(ii) the 15 cents yield-to-price conversion charge to $0.15 in the 
proposed Section I.B. of the GSD Fee Structure, (iii) the 25 cents and 
5 cents modification/cancellation fees to $0.25 and $0.05, 
respectively, in the proposed Section I.C. of the GSD Fee Structure, 
(iv) the 25 cents coupon pass-through fee to $0.25 in the proposed 
Section I.D. of the GSD Fee Structure, (v) the $.75 repurchase 
agreement collateral substitution fee to $0.75 in the proposed Section 
I.E. of the GSD Fee Structure, (vi) the $.07 and $.025 recording fees 
to $0.07 and $0.025 in the proposed Section I.G. of the GSD Fee 
Structure, and (vii) the $.07 recording fee to $0.07 in the proposed 
Section I.H. of the GSD Fee Restructure, in order to be consistent with 
the format of the other fees in the GSD Fee Structure.
    For better organization of the GSD Fee Structure, FICC is proposing 
to relocate current Sections III.B. (Auction Takedown Process), III.F. 
(Coupon Pass-Through Fee), and III.G. (Repo Collateral Substitution 
Fees), which cover fees associated with the Auction Takedown Service, 
pass-through of coupon payments, and the processing of repurchase 
agreement collateral substitution requests, to proposed Sections I.F., 
I.D., and I.E., respectively, of the GSD Fee Structure because each of 
these fees is a type of transaction fee.
    In addition, FICC is proposing to revise the section on Auction 
Takedown Process (proposed Section I.D. of the GSD Fee Structure) by 
replacing the words ``locked-in trades'' with ``buy/sell transactions'' 
because all trades associated with the Auction Takedown Service are 
locked-in. FICC is also proposing to change this section to reflect 
that, instead of the ``Trade Submission'' fees, fees for trades 
associated with the Auction Takedown Service would include the proposed 
``Transaction Processing'' fees in Section I.A. of the GSD Fee 
Structure and the proposed ``Position Management Fees'' in Section II 
of the GSD Fee Structure.
    FICC is proposing a conforming change in the proposed Section I.G. 
of the GSD Fee Structure by deleting the reference to ``Trade 
Submission'' fee schedule and replacing it with ``Transaction 
Processing'' fees.
Section III of GSD Fee Structure
    FICC is proposing the renumbering of this section from current 
Section II of the GSD Fee Structure to proposed Section III of the GSD 
Fee Structure.
Section IV of GSD Fee Structure
    FICC is proposing to rename the heading of renumbered Section IV of 
the GSD Fee Structure from ``Netting Fee and Charges (in addition to 
the comparison fee)'' to ``Other Charges (in addition to the 
transaction fees)'' to better reflect the proposed changes to this 
section, as described above.
    As described above, for better organization of the GSD Fee 
Structure, FICC is also proposing to relocate current Sections III.B. 
(Auction Takedown Process), III.F. (Coupon Pass-Through Fee), and 
III.G. (Repo Collateral Substitution Fees) to proposed Sections I.F., 
I.D., and I.E., respectively, of the GSD Fee Structure. These proposed 
changes would necessitate a re-lettering of all subsequent provisions 
in renumbered Section IV of the GSD Fee Structure.
    In addition, FICC is proposing to rename the heading of renumbered 
Section IV.C. of the GSD Fee Structure from ``Repo Transaction 
Processing Fee'' to ``GCF Repo Transaction and CCIT Transaction 
Processing Fee'' to better reflect the proposed changes to this 
section. FICC is also proposing two conforming changes: (i) Relocate 
and update the reference to ``Repo Broker'' definition to appear right 
after the first usage of ``Repo Broker'' in this section and (ii) 
reflect the remaining fee in renumbered Section IV.C. of the GSD Fee 
Structure in a singular form.
    In addition, FICC is proposing a conforming change in renumbered 
Section IV.D. of the GSD Fee Structure to reflect the proposed 
renumbering of sections in the GSD Fee Structure by changing a 
reference from ``Section III'' to ``Section IV.''
Section V of GSD Fee Structure
    Currently, the minimum monthly fee does not apply if the total 
monthly fees incurred by the sole or primary account of a Comparison-
Only Member or a Netting Member pursuant to existing Sections I and III 
of the GSD Fee Structure exceed the minimum monthly fee; however, this 
is not expressly stated in the current GSD Fee Structure. FICC is 
proposing to add a sentence to proposed Section V of the GSD Fee 
Structure that would make it clear to Members that the minimum monthly 
fee would not apply to an account if the total monthly fees incurred by 
the account pursuant to Sections I, II (a proposed new section), and IV 
(renumbered from III) of the GSD Fee Structure exceed $2,500.
Section VI of GSD Fee Structure
    FICC is proposing changes in Section VI of the GSD Fee Structure to 
clarify that references to ``trades'' means ``buy/sell transactions and 
Repo Transactions.''
Section VII of GSD Fee Structure
    FICC is proposing two changes to Section VII of the GSD Fee 
Structure. The first change is being proposed in order to conform to 
the deletion of the fee for additional accounts in proposed Section V 
of the GSD Fee Structure, as described above in Item II.(A)1.(iii) 
(entitled ``PROPOSED FEE CHANGES''). Specifically, FICC is proposing to 
delete the reference to the fee for additional accounts, which is being 
eliminated under the proposal.
    The second change is being proposed in order to make it clear that 
a Sponsoring Member would be subject to the minimum monthly fee set 
forth in proposed Section V of the GSD Fee Structure, as described 
above in Item II.(A)1.(iii) (entitled ``PROPOSED FEE

[[Page 20887]]

CHANGES''). This is a clarifying change because, pursuant to the GSD 
Rules, Sponsoring Members are by definition also Netting Members,\18\ 
and, as proposed, each account of every Netting Member would be subject 
to the minimum monthly fee, which would include any account the Netting 
Member may have as a Sponsoring Member. This proposed change would make 
it clear to a Sponsoring Member that its Sponsoring Member Omnibus 
Account would be subject to the minimum monthly fee.
---------------------------------------------------------------------------

    \18\ The term ``Sponsoring Member'' means a Netting Member whose 
application to become a Sponsoring Member has been approved by the 
Board pursuant to GSD Rule 3A. See GSD Rule 1, Definitions. GSD 
Rules, supra note 3.
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Section VIII of GSD Fee Structure
    In current Section VIII of the GSD Fee Structure, FICC is proposing 
(i) a technical change to reflect the reference to the GSD Fee 
Structure as ``Fee Structure'' instead of ``fee structure'' and (ii) 
changes to clarify that references to a ``trade'' means a ``buy/sell 
transaction.'' In addition, FICC is proposing a change to clarify that 
a CCIT Transaction, like a Term GCF Repo Transaction, would be 
considered to have one Start Leg and one Close Leg during its term. 
This clarification is being proposed because a CCIT Transaction is 
similar to a GCF Repo Transaction, and FICC believes this would be a 
helpful clarification for Members.
Section XII of GSD Fee Structure
    FICC is proposing a conforming change in current Section XII of the 
GSD Fee Structure by deleting the reference to ``comparison and netting 
fees'' and replacing it with ``transaction fees.'' In addition, FICC is 
proposing a technical change by deleting the outdated reference to 
``Operations and Planning Committee'' and replacing it with Board, 
which is defined in GSD Rule 1 (Definitions) as ``the Board of 
Directors of Fixed Income Clearing Corporation or a committee thereof 
acting under delegated authority.'' \19\
---------------------------------------------------------------------------

    \19\ See GSD Rule 1. GSD Rules, supra note 3.
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(vii) Member Outreach
    Beginning in December 2017, FICC conducted outreach to each Member 
in order to provide them with notice of the proposed changes and the 
anticipated impact for the Member. As of the date of this filing, no 
written comments relating to the proposed changes have been received in 
response to this outreach. The Commission will be notified of any 
written comments received.
(viii) Implementation Timeframe
    Pending Commission approval, FICC expects to implement this 
proposal on July 2, 2018. As proposed, a legend would be added to the 
GSD Fee Structure stating that there are changes that have been 
approved by the Commission but have not yet been implemented. The 
proposed legend also would include a date on which such changes would 
be implemented and the file number of this proposal, and state that, 
once this proposal is implemented, the legend would automatically be 
removed from the GSD Fee Structure.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, FICC believes this proposal 
is consistent with Sections 17A(b)(3)(D) \20\ and 17A(b)(3)(F) \21\ of 
the Act and Rule 17Ad-22(e)(23)(ii),\22\ as promulgated under the Act, 
for the reasons described below.
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    \20\ 15 U.S.C. 78q-1(b)(3)(D).
    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ 17 CFR 240.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act requires that the GSD Rules provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its participants.\23\ FICC believes the proposed rule 
changes to the GSD Fee Structure, described in detail in Item 
II.(A)1.(iii) (entitled ``PROPOSED FEE CHANGES''), to better align 
pricing with costs of GSD services would provide for the equitable 
allocation of reasonable fees. As described above in Item II.(A)1.(ii)B 
(entitled ``CURRENT FEES--Pricing Alignment with Costs of Services 
Provided by GSD''), GSD's costs have increased due to the continued 
increasing risk management costs and are no longer aligned with the 
current GSD Fee Structure. This proposal would better align GSD's 
pricing (e.g., fees associated with the DVP service as well as the 
minimum monthly fee) with costs attributed to GSD's management of 
Members' DVP positions and costs of account monitoring, respectively. 
With respect to proposed fees associated with the DVP service, a Member 
whose DVP positions result in higher position management costs to GSD 
would be charged a relatively higher fee as that would be reflective of 
the higher costs to GSD in managing those positions of the Member. On 
the other hand, a Member whose DVP positions require less management by 
GSD would be charged a lower fee that is reflective of the lower costs 
to GSD in managing those positions of the Member. Accordingly, FICC 
believes the proposed fees would be equitably allocated because Members 
with similar DVP positions would be treated alike under the proposal. 
With respect to proposed changes to the minimum monthly fee, each 
account of every Comparison-Only Member and Netting Member would be 
subject to a minimum monthly fee threshold that reflects the costs of 
account monitoring. To the extent applicable monthly fees for such an 
account fall below the proposed minimum monthly fee threshold, then the 
Comparison-Only Member or the Netting Member, as applicable, would be 
assessed the minimum monthly fee for that account. FICC believes the 
proposed changes to the minimum monthly fee would allow FICC to 
equitably allocate fees that are reflective of the costs of account 
monitoring among the accounts that are being monitored. FICC believes 
the proposed rule changes discussed in this paragraph would be 
reasonable because the proposed fees would be commensurate with the 
costs of resources allocated by GSD to manage Members' DVP positions 
and monitor accounts of Comparison-Only Members and Netting Members. In 
addition, taken collectively, the proposed fee changes are designed to 
maintain GSD's existing revenue derived from fees associated with the 
DVP service and the minimum monthly fee, in accordance with the current 
GSD Fee Structure, which fees have been in effect since January 1, 2016 
\24\ and July 3, 2000,\25\ respectively. Therefore, FICC believes the 
proposed rule changes to the GSD Fee Structure described in detail in 
Item II.(A)1.(iii) (entitled ``PROPOSED FEE CHANGES'') to better align 
pricing with costs of GSD services are consistent with Section 
17A(b)(3)(D) of the Act.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78q-1(b)(3)(D).
    \24\ See Securities Exchange Act Release No. 76840 (January 6, 
2016), 81 FR 1450 (January 12, 2016) (FR-FICC-2015-005).
    \25\ See Securities Exchange Act Release No. 43026 (July 12, 
2000), 65 FR 44555 (July 18, 2000) (SR-GSCC-00-07).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the GSD 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\26\ The proposed rule changes to 
make conforming, clarifying, and technical changes, as described in 
Item II.(A)1.(vi) (entitled ``CONFORMING, CLARIFYING, AND TECHNICAL 
CHANGES''), would help ensure that the GSD Rules, including the GSD Fee 
Structure, remain accurate

[[Page 20888]]

and clear to Members. Having accurate and clear GSD Rules would help 
Members to better understand their rights and obligations regarding 
GSD's clearance and settlement services. When Members better understand 
their rights and obligations regarding GSD's clearance and settlement 
services, they can act in accordance with the GSD Rules, which FICC 
believes would promote the prompt and accurate clearance and settlement 
of securities transactions by GSD. As such, FICC believes the proposed 
rule changes to make conforming, clarifying, and technical changes are 
consistent with Section 17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(ii) under the Act requires FICC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to 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.\27\ The proposed rule changes to reduce the complexity of the 
GSD Fee Structure, as described in Item II.(A)1.(iii) (entitled 
``PROPOSED FEE CHANGES''), and to make conforming, clarifying, and 
technical changes, as described in Item II.(A)1.(vi) (entitled 
``CONFORMING, CLARIFYING, AND TECHNICAL CHANGES'') would help ensure 
that the GSD Fee Structure is transparent and clear to Members. Having 
a transparent and clear GSD Fee Structure would help Members to better 
understand GSD's fees and help provide Members with increased 
predictability and certainty regarding the fees they incur in 
participating in GSD. As such, FICC believes the proposed rule changes 
to reduce the complexity of the GSD Fee Structure and to make 
conforming, clarifying, and technical changes are consistent with Rule 
17Ad-22(e)(23)(ii) under the Act.
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC believes the proposed rule changes to fees associated with the 
DVP service to better align GSD's pricing with its costs of services 
could have an impact on competition because these changes would likely 
either increase or decrease Members' fees when compared to their fees 
under the current GSD Fee Structure. FICC believes these proposed rule 
changes could both burden competition and promote competition by 
altering Members' fees. When fees are decreased because of these 
proposed rule changes, the proposal could promote competition by 
positively impacting Members' operating costs. Conversely, when the 
proposed rule changes result in fee increases for Members, the proposal 
could burden competition by negatively affecting Members' operating 
costs. While some Members may experience large increases in their fees 
when compared to their fees under the current GSD Fee Structure, FICC 
does not believe such change in fees would in and of itself mean that 
the burden on competition is significant. This is because even though 
the amount of the fee increase may be significant, FICC believes the 
increase in fees would similarly affect all Members that tend to 
maintain large directional term repurchase agreement positions\28\ and 
therefore the burden on competition would not be significant. 
Regardless of whether the burden on competition is deemed significant, 
FICC believes any burden on competition that is created by the proposed 
rule changes to fees associated with the DVP service would be necessary 
and appropriate in furtherance of the purposes of the Act, as permitted 
by Section 17A(b)(3)(I) of the Act.\29\
---------------------------------------------------------------------------

    \28\ Though admittedly a fee increase would be more impactful 
for Members that are smaller than for Members that are larger, FICC 
believes such difference in impact is due to the relative market 
positions of the respective Members and not as a result of these 
proposed rule changes.
    \29\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC believes the proposed rule changes to the minimum monthly fee 
to better align GSD's pricing with its costs of services could have an 
impact on competition but only to the extent that the minimum monthly 
fee applies to a Comparison-Only Member's or Netting Member's 
account(s) (because the minimum monthly fee only applies if the 
threshold amount is not reached as described above). There would be no 
impact on competition, however, if an account incurs applicable fees 
that exceed the proposed minimum monthly fee threshold because the 
minimum monthly fee would not apply to the account. When the minimum 
monthly fee would apply, FICC believes the proposed rule changes to the 
minimum monthly fee could burden competition by increasing Members' 
fees and thereby negatively affecting such Members' operating costs. 
FICC does not believe such burden on competition would be significant 
because the proposed minimum monthly fee would apply equally to all 
Comparison-Only Members and Netting Members that have minimal activity 
in their accounts. Regardless of whether the burden on competition is 
deemed significant, FICC believes any burden on competition that is 
created by the proposed rule changes to the minimum monthly fee would 
be necessary and appropriate in furtherance of the purposes of the Act, 
as permitted by Section 17A(b)(3)(I) of the Act.\30\
---------------------------------------------------------------------------

    \30\ Id.
---------------------------------------------------------------------------

    The proposed rule changes to better align GSD's pricing (e.g., fees 
associated with the DVP service as well as the minimum monthly fee) 
with the costs of services would be necessary in furtherance of the 
purposes of the Act because the GSD Rules must provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its participants.\31\ As described above, the proposed rule changes 
would result in fees that are equitably allocated (by better aligning 
pricing with costs so that (i) a Member whose positions result in 
higher costs to GSD for maintaining such positions would be charged a 
relatively higher fee, and a Member whose positions require less 
maintenance by GSD would be charged a lower fee and (ii) fees that are 
reflective of the costs of account monitoring would be allocated among 
the accounts that are being monitored) and would result in reasonable 
fees (by being designed to be revenue neutral and commensurate with 
costs). As such, FICC believes the proposed rule changes to better 
align GSD's pricing with the costs of services would be necessary in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act.\32\
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78q-1(b)(3)(D).
    \32\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC believes any burden on competition that is created by the 
proposed rule changes to better align GSD's pricing (e.g., fees 
associated with the DVP service as well as the minimum monthly fee) 
with the costs of services would also be appropriate in furtherance of 
the purposes of the Act. The proposed rule changes would provide GSD 
with the ability to assess fees that are not only reflective of the 
services utilized by Members but are also commensurate with FICC's 
increased risk management costs, such as costs of account monitoring, 
intraday margining, and end of day risk management. Having the ability 
to assess fees that are reflective of the services provided by GSD and 
that are commensurate with GSD's costs of providing such services would 
help GSD to continue providing dependable and stable clearance and 
settlement services to its Members. As such, FICC believes the proposed 
rule changes to better align GSD's pricing with the costs of services 
would be appropriate in furtherance of the purposes of the Act,

[[Page 20889]]

as permitted by Section 17A(b)(3)(I) of the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

    FICC does not believe the proposed rule changes to reduce the 
complexity of the GSD Fee Structure and to make conforming, clarifying, 
and technical changes, as discussed above in Items II.(A)1.(iii) and 
(vi), respectively, would impact competition.\34\ The proposed rule 
changes to address the complexity of the GSD Fee Structure would allow 
Members to better understand the GSD Fee Structure and allow them more 
ease in reconciling to it. Making conforming, clarifying, and technical 
changes to ensure the GSD Fee Structure remains clear and accurate 
would facilitate Members' understanding of the GSD Fee Structure and 
their obligations thereunder. Having transparent, accessible, clear, 
and accurate provisions in the GSD Fee Structure would improve the 
readability and clarity of the GSD Rules regarding the fees that 
Members would incur by participating in GSD. These changes would apply 
equally to all Members and would not affect Members' rights and 
obligations. As such, FICC believes the proposed rule changes to reduce 
the complexity of the GSD Fee Structure and to make conforming, 
clarifying, and technical changes would not have any impact on 
competition.
---------------------------------------------------------------------------

    \34\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to this proposed rule change have not 
been solicited or received. FICC will notify the Commission of any 
written comments received by FICC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2018-003 on the subject line.

Paper Comments

     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-2018-003. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2018-003 and should be submitted on 
or before May 29, 2018.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09693 Filed 5-7-18; 8:45 am]
 BILLING CODE 8011-01-P