[Federal Register Volume 84, Number 180 (Tuesday, September 17, 2019)]
[Notices]
[Pages 48974-48978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20011]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86927; File No. SR-FICC-2019-003]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change To Revise the MBSD VaR Floor
September 11, 2019.
I. Introduction
On July 18, 2019, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-
FICC-2019-003. The proposed rule change was published for comment in
the Federal Register on August 8, 2019.\3\ The Commission did not
receive any comment letters on the proposed rule change. For the
reasons discussed below, the Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 86553 (August 2, 2019),
84 FR 39041 (August 8, 2019) (SR-FICC-2019-003) (``Notice'').
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II. Description of the Proposed Rule Change
FICC proposes to amend its Mortgage-Backed Securities Division
(``MBSD'')
[[Page 48975]]
Clearing Rules (``MBSD Rules'') \4\ and the Methodology and Model
Operations Document MBSD Quantitative Risk Model (``QRM Methodology
Document'') \5\ to change one of FICC's margin calculations to: (1)
Allow FICC to adjust the margin calculation within a specified range if
necessary to cover FICC's credit exposures to each Clearing Member
fully with a high degree of confidence; (2) provide that FICC would
notify Clearing Members in advance of any such change to the margin
calculation; (3) provide that FICC would perform model performance
monitoring of the margin calculation on at least a monthly basis; and
(4) make certain non-substantive technical changes.
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\4\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the MBSD Rules, available at
http://www.dtcc.com/legal/rules-and-procedures.aspx.
\5\ FICC requested confidential treatment of the QRM Methodology
Document and has filed it separately with the Secretary of the
Commission in connection with this proposed rule change. See 17 CFR
240-24b-2.
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A. Background
A key tool that FICC uses to manage the credit risk presented by
Clearing Members is the daily calculation and collection of Required
Fund Deposits from Clearing Members.\6\ The Required Fund Deposit
serves as each Clearing Member's margin, and the aggregate of all
Clearing Members' Required Fund Deposits constitutes the MBSD Clearing
Fund, which FICC would access should a defaulting Clearing Member's own
Required Fund Deposit be insufficient to satisfy losses to FICC caused
by the liquidation of that Clearing Member's portfolio.\7\ Each
Clearing Member's Required Fund Deposit amount consists of multiple
components, the largest of which is based on the volatility of
specified net unsettled positions in the Clearing Member's portfolio,
known as the value-at-risk (``VaR'') Charge.\8\ This model-based
volatility calculation is designed to capture the market price risk
associated with the securities in the Clearing Member's portfolio.\9\
Specifically, the methodology underlying this calculation projects the
potential gains or losses that could occur in connection with the
liquidation of a defaulting Clearing Member's portfolio, assuming that
a portfolio would take three days to hedge or liquidate in normal
market conditions. The model-based volatility calculation uses the
projected liquidation gains or losses to arrive at a VaR Charge amount
that would cover the projected liquidation losses at a 99 percent
confidence level.\10\
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\6\ MBSD Rule 4, supra note 4.
\7\ Id.
\8\ Id.
\9\ MBSD Rule 1, supra note 4.
\10\ Unregistered Investment Pool Clearing Members are subject
to a VaR Charge with a minimum targeted confidence level assumption
of 99.5 percent. See MBSD Rule 4, Section 2(c), supra note 4.
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The MBSD Rules currently provide for two scenarios in which
alternatives to the model-based volatility calculation of the VaR
Charge would be necessary.\11\ First, FICC would base the VaR Charge on
an alternative volatility calculation using historical market price
changes of certain benchmark securities (the ``Margin Proxy'') for
scenarios in which the primary source of data required to perform the
model-based volatility calculation becomes unavailable for an extended
period of time.\12\ Second, FICC would set the VaR Charge at 5 basis
points of the market value of a Clearing Member's gross unsettled
positions (the ``VaR Floor'') for scenarios in which the model-based
volatility calculation (or Margin Proxy, if used) results in an amount
that is less than the VaR Floor.\13\
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\11\ MBSD Rule 1, supra note 4.
\12\ Id.
\13\ Id.
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The VaR Floor addresses the risk that the model-based volatility
calculation (or Margin Proxy, if used) may result in little or no VaR
Charge for certain portfolios where the calculation methodology applies
substantial risk offsets among long and short positions in different
classes of mortgage-backed securities that have a high degree of
historical price correlation.\14\ Due to the risk that historical price
correlation may not persist in future market conditions,\15\ FICC would
employ the VaR Floor, which is based on the market value of the gross
unsettled positions in the Clearing Member's portfolio, in order to
protect FICC against such risk in the event that FICC is required to
liquidate a mortgage-backed securities portfolio in stressed market
conditions.
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\14\ Such portfolios can represent large gross positions, but
net down to a relatively low VaR Charge amount.
\15\ For example, certain TBAs may have highly correlated
historical price returns despite having different coupons and,
although the net risk exposure may be adequately modeled under
current market conditions, future market conditions could cause the
risk relationship to change in a way that may not be adequately
captured by the model. TBA is defined in MBSD Rule 1. See MBSD Rule
1, supra note 4.
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B. VaR Floor Percentage Adjustments
The MBSD Rules currently define the VaR Floor as ``5 basis points
of the market value of a Clearing Member's gross unsettled positions.''
\16\ Therefore, the VaR Floor is used as the Clearing Member's VaR
Charge when the model-based volatility calculation yields an amount
that is lower than 5 basis points (referred to herein as the ``VaR
Floor Percentage'') of the market value of the Clearing Member's gross
unsettled positions.\17\
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\16\ MBSD Rule 1, supra note 4.
\17\ Id.
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After conducting a review of the VaR Floor Percentage in June 2017,
FICC found that a VaR Floor Percentage of 5 basis points resulted in
VaR Charges that did not adequately cover the market risk of certain
portfolios during periods of market volatility.\18\ FICC noted that an
increase in the VaR Floor Percentage to 10 basis points would improve
the backtesting coverage of those portfolios to 99.8%.\19\ The 2017
review also revealed that when applying the Margin Proxy, a VaR Floor
Percentage of 5 basis points resulted in VaR Charges that did not
adequately cover certain portfolios with offsetting long and short
positions within the same agency program.\20\ FICC further noted that
an increase in the VaR Floor Percentage to 20 basis points would better
cover the risks of such portfolios.\21\
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\18\ The 2017 review revealed that during periods of market
volatility, a VaR Floor Percentage of 5 basis points resulted in VaR
Charges that did not adequately cover portfolios containing long-
short positions (e.g., a portfolio that was long the GNMA II/FNMA
basis at a higher coupon and short the GNMA II/FNMA basis at a lower
coupon). Notice, supra note 3 at 39043.
\19\ Id.
\20\ The Margin Proxy allows for further netting among positions
within the same agency program than would occur using the model-
based volatility calculation. Notice, supra note 3 at 39043.
\21\ FICC conducted an impact study for the twelve months ending
February 2019, and found that in the Margin Proxy scenario, a VaR
Floor Percentage of 20 basis points would improve backtesting
coverage to 99% for 11 of the 14 portfolios that would have been
below 99% based on a VaR Floor Percentage of 5 basis points.
Additionally, FICC found that increasing the VaR Floor Percentage to
20 basis points would reduce the number of backtesting deficiencies
associated with the 3 small portfolios that would have remained
below the 99% confidence level (from 45 deficiencies to 11). FICC
states that it would utilize another margin charge (the Backtesting
Charge) to further mitigate any remaining exposure. Notice, supra
note 3 at 39043.
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Accordingly, FICC proposes to revise the VaR Floor definition to
allow FICC to adjust the VaR Floor Percentage within a specified range
in order to cover FICC's credit exposure to each Clearing Member fully
with a high degree of confidence.\22\ FICC proposes to set the range
within which it would be allowed to adjust the VaR Floor Percentage at
no less than 5 basis points and no more than 30 basis points of a
Clearing Member's gross unsettled positions.\23\ According to FICC, the
discretionary range for the VaR Floor Percentage up to 30 basis points
is
[[Page 48976]]
appropriate because it will enable FICC to make timely adjustments that
would ensure the VaR Charge remains adequate if market conditions
change.\24\
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\22\ Id.
\23\ Id.
\24\ Id.
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FICC's discretion to adjust the VaR Floor Percentage would be
subject to the governance process set forth in the Clearing Agency
Model Risk Management Framework (``Framework'') \25\ applicable to
model performance concerns. Specifically, the Model Validation and
Control Group (``MVC'') would escalate any proposed VaR Floor
Percentage adjustment to the Model Risk Governance Committee
(``MRGC''), which, in turn, would escalate the proposed adjustment to
the Management Risk Committee and/or Risk Committee of the Board for
approval.\26\ Additionally, FICC proposes to review, on at least an
annual basis, the impact of alternative VaR Floor Percentages within
the proposed range of 5 to 30 basis points to the backtesting
performance and to Clearing Members' margin charges.\27\
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\25\ See Securities Exchange Act Release No. 81485 (August 25,
2017), 82 FR 41433 (August 31, 2017) (SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008) (``Framework Approval Order''). The Framework
sets forth the model risk management practices adopted by FICC,
National Securities Clearing Corporation, and The Depository Trust
Company. The Framework is designed to help identify, measure,
monitor, and manage the risks associated with the design,
development, implementation, use, and validation of quantitative
models. The Framework describes: (i) Governance of the Framework;
(ii) key terms; (iii) model inventory procedures; (iv) model
validation procedures; (v) model approval process; and (vi) model
performance procedures.
\26\ Framework Approval Order, supra note 25 at 41436; Notice,
supra note 3 at 39042.
\27\ Notice, supra note 3 at 39042.
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Upon Commission approval of the proposed rule change, FICC proposes
to initially set the VaR Floor at 10 basis points when there is
sufficient data to generate the model-based volatility calculation, and
20 basis points when there is insufficient data for the model-based
volatility calculation (i.e., when the Margin Proxy is used).\28\
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\28\ Notice, supra note 3 at 39042-43.
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C. Notifications to Clearing Members of Changes to VaR Floor Percentage
For any adjustment to the VaR Floor Percentage that would fall
within the proposed range, FICC would issue an Important Notice no
later than 10 Business Days prior to the implementation of the
adjustment. FICC states that providing notice in advance of the
implementation of an adjustment is designed to provide Clearing Members
with time to adjust to any new VaR Charge amounts that would result
from an adjustment to the VaR Floor Percentage.\29\ FICC believes that
10 Business Days' prior notice would provide Clearing Members with
sufficient time to prepare for any new VaR Charge amounts and thereby
ensure that the Clearing Members have the funds to satisfy their new
VaR Charge amounts.\30\
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\29\ Notice, supra note 3 at 39044.
\30\ Id.
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For adjustments that would fall outside of the proposed range, FICC
has represented that it would submit a rule filing to the
Commission.\31\ As proposed, FICC would not apply a VaR Floor
Percentage that is less than 5 basis points (which is the current VaR
Floor Percentage); however, the proposed change would allow FICC to
adjust the VaR Floor Percentage above 5 basis points (up to 30 basis
points).
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\31\ Notice, supra note 3 at 39042.
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D. Model Performance Monitoring of VaR Floor Percentage
The Framework provides that, as part of model performance
monitoring, on at least a monthly basis, FICC: (1) Performs a
sensitivity analysis on its margin model; (2) reviews the key
parameters and assumptions for backtesting; and (3) considers
modifications to ensure its backtesting practices are appropriate for
determining the adequacy of applicable margin resources.\32\ The
Framework also states that MVC performs a model validation for each
FICC model approved for use in production not less than annually,
including, among other things, on its margin systems and related
models. \33\
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\32\ Framework Approval Order, supra note 25 at 41437; Notice,
supra note 3 at 39042.
\33\ Framework Approval Order, supra note 25 at 41434; Notice,
supra note 3 at 39042.
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The VaR Floor Percentage is currently subject to periodic model
validations as part of FICC's margin model validation on at least an
annual basis to determine if the VaR Floor Percentage would remain
adequate to cover FICC's credit exposure to Clearing Members with
certain types of portfolios fully with a high degree of confidence.\34\
FICC proposes to designate the VaR Floor Percentage as a parameter of
its VaR model that will be reviewed on at least a monthly basis per the
Framework. As such, FICC proposes to amend the QRM Methodology Document
to state that FICC would conduct model performance monitoring of the
VaR Floor Percentage on at least a monthly basis.
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\34\ See id.
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E. Technical Changes
FICC proposes several technical changes to the MBSD Rules to
restate the calculation of the VaR Floor to provide more detail than
the current provision and to use the defined terms ``Long Positions''
\35\ and ``Short Positions.'' \36\ Specifically, FICC would add a new
sentence stating: ``Such VaR Floor will be determined by multiplying
the sum of the absolute values of Long Positions and Short Positions,
at market value, by a percentage designated by the Corporation that is
no less than 0.05% and no greater than 0.30%. [FICC] shall determine
the percentage within this range to be applied based on factors
including but not limited to a review performed at least annually of
the impact of the VaR Floor parameter at different levels within the
range to the backtesting performance and to Clearing Members' margin
charges. [FICC] shall inform Clearing Members of the applicable
percentage utilized by the VaR Floor by an Important Notice issued no
later than 10 Business Days prior to the implementation of such
percentage.''
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\35\ The term ``Long Position'' means a Member's obligations
with respect to the purchase of an Eligible Security or an Option
Contract, as determined pursuant to the MBSD Rules. MBSD Rule 1,
supra note 4.
\36\ The term ``Short Position'' means a Member's obligation
with respect to the sale of an Eligible Security or an Option
Contract, as determined pursuant to the MBSD Rules. MBSD Rule 1,
supra note 4.
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Finally, FICC proposes a technical change to the QRM Methodology
Document to reference that there will be at least annual model
validation of the VaR Floor Percentage.\37\ FICC states that the
purpose of the proposed technical changes is to enhance the clarity and
accuracy of the MBSD Rules and the QRM Methodology Document.\38\
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\37\ The QRM methodology Document currently provides that the
VaR Floor Percentage is reviewed annually and updated. Notice, supra
note 3 at 39043.
\38\ Notice, supra note 3 at 39044.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \39\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the proposed rule
change, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FICC. In particular, the
Commission finds that the proposed rule change is consistent with
Sections
[[Page 48977]]
17A(b)(3)(F) \40\ of the Act and Rules 17Ad-22(e)(4)(i),\41\
(e)(6)(i),\42\ and (e)(23)(ii),\43\ each promulgated under the Act, for
the reasons described below.
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\39\ 15 U.S.C. 78s(b)(2)(C).
\40\ 15 U.S.C. 78q-1(b)(3)(F)
\41\ 17 CFR 240.17Ad-22(e)(4)(i).
\42\ 17 CFR 240.17Ad-22(e)(6)(i).
\43\ 17 CFR 240.17Ad-22(e)(23)(ii).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\44\
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\44\ 15 U.S.C. 78q-1(b)(3)(F).
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First, as described above in Section II.B., FICC states that the
current VaR Floor Percentage of 5 basis points has resulted in VaR
Charges that do not adequately cover FICC's exposure to certain
Clearing Member portfolios. FICC's proposal for the ability to adjust
the VaR Floor Percentage from 5 basis points up to 30 basis points
would better enable FICC to collect margin amounts commensurate with
its credit exposure to the types of Clearing Member portfolios not
adequately covered using a VaR Floor Percentage of 5 basis points.
FICC's collection of margin amounts commensurate with its credit
exposures would help ensure that FICC maintains adequate funds
necessary to manage the risks associated with performing its clearance
and settlement functions. Accordingly, the Commission finds the
proposal to allow FICC to adjust the VaR Floor Percentage from 5 basis
points up to 30 basis points would promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\45\ Moreover, FICC's collection of
margin amounts commensurate with the credit exposure presented by each
Clearing Member portfolio should help ensure that, in the event of a
Clearing Member default, FICC's operations would not be disrupted and
non-defaulting Clearing Members would not be exposed to losses that
they cannot anticipate or control. Accordingly, the Commission finds
the proposal to allow FICC to adjust the VaR Floor Percentage from 5
basis points up to 30 basis points should safeguard the securities and
funds that are in FICC's custody or control or for which FICC is
responsible, consistent with Section 17A(b)(3)(F) of the Act.\46\
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\45\ Id.
\46\ Id.
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Second, as described above in Section II.C., FICC states that it
designed the proposal to provide 10 Business Days' notice to Clearing
Members prior to implementing any adjustment to the VaR Floor
Percentage in order to provide Clearing Members with sufficient time
prepare for any new VaR Charge amounts and thereby ensure that Clearing
Members are able to satisfy their Required Fund Deposit amounts.
Providing such notice in advance of implementing any adjustment to the
VaR Floor Percentage would help Clearing Members prepare to meet their
margin obligations, and thereby facilitate FICC's collection of
adequate margin amounts necessary to manage the risks associated with
performing its clearance and settlement functions, as well as help
ensure that, in the event of a Clearing Member default, FICC's
operations would not be disrupted and non-defaulting Clearing Members
would not be exposed to losses that they cannot anticipate or control.
Accordingly, the Commission finds the proposal to provide 10 Business
Days' notice to Clearing Members prior to implementing any adjustment
to the VaR Floor Percentage should: (1) Promote the prompt and accurate
clearance and settlement of securities transactions; and (2) safeguard
the securities and funds that are in FICC's custody or control or for
which FICC is responsible, consistent with Section 17A(b)(3)(F) of the
Act.\47\
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\47\ Id.
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Third, as described above in Section II.D., the VaR Floor
Percentage is currently subject to periodic model validations as part
of FICC's margin model validation on at least an annual basis. FICC
proposes to increase the frequency of this review by designating the
VaR Floor Percentage as a parameter of its VaR model to be reviewed on
at least a monthly basis. More frequent reviews would alert FICC of the
need to adjust the VaR Floor Percentage and would enable FICC to make
such adjustments in a more timely manner. Thus, more frequent reviews
of the VaR Floor Percentage would help FICC ensure that it collects
margin amounts commensurate with the credit risks presented by each
Clearing Member portfolio. FICC's collection of margin amounts
commensurate with the credit exposure presented by each Clearing Member
portfolio should help ensure that, in the event of a Clearing Member
default, FICC's operations would not be disrupted and non-defaulting
Clearing Members would not be exposed to losses that they cannot
anticipate or control. Accordingly, the Commission finds the proposal
for FICC to review the VaR Floor Percentage on at least a monthly basis
would safeguard the securities and funds that are in FICC's custody or
control or for which FICC is responsible, consistent with Section
17A(b)(3)(F) of the Act.\48\
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\48\ Id.
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Fourth, as described above in Section II.E., FICC designed the
proposed technical changes to enhance the clarity and accuracy of the
MBSD Rules and the QRM Methodology Document. Enhancing the clarity and
accuracy of the MBSD Rules helps to provide Clearing Members with a
better understanding of their rights and obligations thereunder. A
better understanding of Clearing Member rights and obligations would
reasonably help to increase the predictability and certainty of
Clearing Member interactions with FICC, which, in turn, would better
enable FICC to perform its clearance and settlement functions.
Additionally, since the QRM Methodology Document is used by FICC Risk
Management personnel, enhanced clarity regarding the frequency of model
validation of the VaR Floor Percentage would better enable FICC
personnel to perform the related risk management functions that support
FICC's clearance and settlement activities. Accordingly, the Commission
finds the proposed technical changes would promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\49\
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\49\ Id.
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B. Consistency With Rule 17Ad-22(e)(4)(i) Under the Act
Rule 17Ad-22(e)(4)(i) under the Act requires a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
exposures arising from its payment, clearing, and settlement processes
by maintaining sufficient financial resources to cover its credit
exposure to each participant fully with a high degree of
confidence.\50\
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\50\ 17 CFR 240.17Ad-22(e)(4)(i).
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As described above in Section II.D., FICC's proposal to conduct at
least monthly reviews of the VaR Floor Percentage is designed to help
FICC more effectively identify, measure, monitor, and manage its credit
exposure to each Clearing Member portfolio by increasing the frequency
of review from annually to monthly and thereby enabling FICC to
identify the need for
[[Page 48978]]
adjustments to the VaR Floor Percentage in a more timely manner.
Additionally, as described above in Section II.B., FICC's proposed
ability to adjust the VaR Floor Percentage within the range of 5 to 30
basis points is designed to better enable FICC to limit its credit
exposure to certain Clearing Member portfolios in the event that the
model-based volatility calculation (or Margin Proxy, if used) yield too
low a VaR Charge for such portfolios. As described above in Sections
II.B. and C., FICC's proposals for the ability to adjust the VaR Floor
Percentage within the range of 5 to 30 basis points, as well as the
provision of prior notice of such adjustments to Clearing Members, are
designed to help FICC better manage its credit exposure to Clearing
Members by collecting sufficient margin with respect to each Clearing
Member portfolio. Accordingly, the Commission finds the proposed
changes are consistent with the requirements of Rule 17Ad-22(e)(4)(i)
under the Act.\51\
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\51\ Id.
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C. Consistency With Rule 17Ad-22(e)(6)(i) Under the Act
Rule 17Ad-22(e)(6)(i) under the Act requires a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to cover, if the covered clearing
agency provides central counterparty services, 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.\52\
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\52\ 17 CFR 240.17Ad-22(e)(6)(i).
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FICC's proposals to: (1) Monitor the VaR Floor Percentage; (2)
adjust the VaR Floor Percentage in the event that other calculations
result in VaR Charges that do not adequately cover the risks presented
by certain Clearing Member portfolios; and (3) notify Clearing Members
in advance of any adjustment to the VaR Floor Percentage, are designed
to cover FICC's credit exposure to Clearing Member portfolios where
such exposure has not been adequately covered in the past.
Specifically, the proposal to allow FICC to adjust the VaR Floor
Percentage from 5 basis points up to 30 basis points should help FICC
to collect margin amounts commensurate with its credit exposure to the
types of Clearing Member portfolios not adequately covered using a VaR
Floor Percentage of 5 basis points. FICC's proposal to provide Clearing
Members with notice in advance of implementing any adjustment to the
VaR Floor Percentage should help Clearing Members prepare to meet their
margin obligations, and thereby facilitate FICC's collection of margin
amounts commensurate with affected Clearing Member portfolios. FICC's
proposal to increase the frequency with which it reviews the VaR Floor
Percentage from annually to monthly should alert FICC of the need to
adjust the VaR Floor Percentage and make such adjustments in a more
timely manner. Thus, the increased frequency of review would further
help FICC ensure that it collects margin amounts commensurate with the
credit risks presented by each Clearing Member portfolio. For these
reasons, the Commission finds the proposed changes are consistent with
the requirements of Rule 17Ad-22(e)(6)(i) under the Act.\53\
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\53\ Id.
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D. Consistency With Rule 17Ad-22(e)(23)(ii) Under the Act
Rule 17Ad-22(e)(23)(ii) under the Act requires a covered clearing
agency 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.\54\
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\54\ 17 CFR 240.17Ad-22(e)(23)(ii).
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As described above in Section II.E., FICC's proposed technical
changes to the MBSD Rules would provide more details as to how the VaR
Floor is calculated than is currently set forth in the MBSD Rules.
Providing more comprehensive written information in the MBSD Rules
regarding the VaR Floor would enable Clearing Members to better
understand how the VaR Floor operates, which, in turn, should enable
Clearing Members to better evaluate the costs of participating in FICC.
Accordingly, the Commission finds the proposed technical changes to the
MBSD Rules are consistent with Rule 17Ad-22(e)(23)(ii) under the
Act.\55\
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\55\ Id.
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act
and, in particular, with the requirements of Section 17A of the Act
\56\ and the rules and regulations promulgated thereunder.
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\56\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\57\ that proposed rule change SR-FICC-2019-003, be, and hereby is,
approved.\58\
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\57\ 15 U.S.C. 78s(b)(2).
\58\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\59\
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\59\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20011 Filed 9-16-19; 8:45 am]
BILLING CODE 8011-01-P