[Federal Register Volume 84, Number 197 (Thursday, October 10, 2019)]
[Notices]
[Pages 54695-54699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22147]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87234; File No. SR-FICC-2019-801]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of No Objection To Advance Notice To Amend the GSD Rulebook To 
Establish a Process To Address Liquidity Needs in Certain Situations in 
the GCF Repo and CCIT Services and Make Other Changes

October 4, 2019.
    On August 9, 2019, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') 
advance notice SR-FICC-2019-801 (``Advance Notice'') pursuant to 
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, entitled Payment, Clearing and Settlement 
Supervision Act of 2010 (``Clearing Supervision Act'') \1\ and Rule 
19b-4(n)(1)(i) \2\ under the Securities

[[Page 54696]]

Exchange Act of 1934 (``Exchange Act'') \3\ to make changes to how FICC 
processes tri-party repo market transactions, specifically GCF Repo 
transactions and CCIT transactions. The Advance Notice was published 
for public comment in the Federal Register on September 10, 2019,\4\ 
and the Commission has received no comments regarding the changes 
proposed in the Advance Notice.\5\ This publication serves as notice of 
no objection to the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 34-86876 (September 5, 
2019), 84 FR 47618 (September 10, 2019) (File No. SR-FICC-2019-801) 
(``Notice of Filing''). On August 9, 2019, FICC also filed a related 
proposed rule change (SR-FICC-2019-004) with the Commission pursuant 
to Section 19(b)(1) of the Exchange Act and Rule 19b-4 thereunder 
(``Proposed Rule Change''). See 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4 respectively. In the Proposed Rule Change, which was 
published in the Federal Register on August 29, 2019, FICC seeks 
approval of proposed changes to its rules necessary to implement the 
Advance Notice. Securities Exchange Act Release No. 86745 (August 
23, 2019), 84 FR 45608 (August 29, 2019). The comment period for the 
related Proposed Rule Change filing closed on September 19, 2019, 
and the Commission received no comments.
    \5\ As the proposal contained in the Advance Notice was also 
filed as a proposed rule change, all public comments received on the 
proposal are considered regardless of whether the comments are 
submitted on the proposed rule change or the Advance Notice.
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I. The Advance Notice

    The proposals reflected in the Advance Notice would make changes to 
how FICC's Government Securities Division (``GSD'') processes tri-party 
repo transactions, specifically GCF Repo transactions \6\ and CCIT 
transactions.\7\ First, the proposals would establish new deadlines and 
associated late fees for FICC members to satisfy their obligations in 
connection with such transactions, i.e., to deliver cash or securities. 
Second, the Advance Notice would establish a process for FICC to access 
liquidity in situations where a member with a net cash delivery 
obligation in GCF Repo/CCIT activity, that is otherwise in good 
standing,\8\ is either (1) delayed in satisfying its cash delivery 
obligation or (2) unable to satisfy, in whole or in part, such 
obligation. More specifically, this process would allow FICC to access 
liquidity from either (i) the GCF Clearing Agent Bank \9\ in the form 
of overnight financing, which would be subject to the GCF Clearing 
Agent Bank's discretion, and/or (ii) end-of-day borrowing of Clearing 
Fund cash,\10\ subject to specified limits. Further, if those liquidity 
sources are insufficient to cover the affected member's outstanding 
cash delivery obligations, the proposal would enable FICC to obtain 
additional liquidity by entering into overnight repos with those 
members to whom cash is owed by the member with the unsatisfied net 
cash delivery obligations. Third, the Advance Notice would make a 
clarification and several technical changes and corrections to FICC's 
rules.\11\
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    \6\ ``GCF Repo transactions'' are tri-party repo transactions 
through FICC's general collateral finance repo (``GCF Repo'') 
service (``GCF Repo Service''). The GCF Repo Service enables dealers 
to trade general collateral repos, based on rate, term, and 
underlying product, throughout the day without requiring intra-day, 
trade-for-trade settlement on a Delivery-versus-Payment basis. See 
generally GCF Repo (DTCC description of the service), available at 
http://www.dtcc.com/clearing-services/ficc-gov/gcf-repo (last 
visited August 13, 2019).
    \7\ ``CCIT'' means Centrally Cleared Institutional Triparty. 
``CCIT transactions'' are tri-party repo transactions in GCF Repo 
securities between members that participate in the GCF Repo Service 
and CCIT members, which are institutional counterparties (other than 
registered investment companies (``RICs'') under the Investment 
Company Act of 1940, as amended) and are the cash lenders in the 
transactions. See generally Securities Exchange Act Release No. 
80361 (April 3, 2017), 82 FR 17053, 17054 (April 7, 2017) (SR-FICC-
2017-803) (notice of filing of the advance notice regarding creating 
the CCIT service).
    \8\ A member in good standing is a member for which FICC has not 
ceased to act for the member (in which case FICC's close-out rules 
would apply) or has not restricted the member's access to services.
    \9\ The GCF Clearing Agent Bank settles the repo transaction on 
its books. Currently, the only GCF Clearing Agent Bank is The Bank 
of New York Mellon.
    \10\ The Clearing Fund is an aggregate of all members' margin 
deposits to FICC designed to account for the costs associated with a 
member defaulting to FICC.
    \11\ The FICC GSD Rulebook (``Rules'') is available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms not 
defined herein are defined in the Rules.
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A. New Deadlines and Late Fees for Satisfaction of Obligations in GCF 
Repo and CCIT Transactions

1. Securities Delivery Obligations
    Under FICC's current Rules, a Netting Member must meet its 
securities delivery obligations in connection with its GCF Repo and/or 
CCIT transactions within the timeframes established by FICC.\12\ 
Currently, FICC has set two deadlines by which Netting Members are 
required to meet their securities delivery obligations: 4:30 p.m. and 
6:00 p.m.\13\ If a Netting Member fails to satisfy a securities 
delivery obligation by 4:30 p.m., it is subject to a late fee of 
$500.\14\ If the Netting Member delivers the securities after the 6:00 
p.m. deadline, no additional late fee applies, but FICC cannot 
guarantee that it would be able to settle the transaction. Instead, 
FICC will only process such late transactions if FICC is able to 
contact both affected Netting Members and they agree to settle the 
transaction.
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    \12\ Rule 20, Section 3, supra note 11.
    \13\ The close of the Fedwire Funds Service at 6:30 p.m. is the 
final cutoff point at which a Netting Member's failure to deliver 
securities would be deemed by FICC to result in a failed 
transaction. In that scenario, the Netting Member would not be 
entitled to receive the funds borrowed, and would instead owe 
interest on the funds.
    \14\ Fee Structure, supra note 11.
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    In the Advance Notice, FICC proposes to eliminate the 6:00 p.m. 
deadline. The 4:30 p.m. deadline would remain in place. If a Netting 
Member fails to satisfy a securities delivery obligation by 4:30 p.m., 
it would remain subject to the $500 late fee. But if the Netting Member 
delivers the securities after 4:30 p.m., FICC would only process the 
transaction if it is able to contact both affected Netting Members and 
they agree to settle the transaction.
2. Cash Delivery Obligations
    FICC's Rules do not currently contain a deadline for a Netting 
Member's or CCIT Member's satisfaction of cash delivery obligations in 
the GCF Repo and CCIT Services. FICC proposes to establish 4:30 p.m., 
or, if later, one hour after the close of the Fedwire Securities 
Service reversals, as the deadline for a ``Net Funds Payor'' \15\ to 
satisfy its cash delivery obligations. FICC also proposes to establish 
late fees, subject to progressive increases. Specifically, the late 
fees would apply as follows for occurrences within the same 30 calendar 
day period: (a) $500 for the first occurrence, (b) $1,000 for the 
second occurrence, (c) $2,000 for the third occurrence, and (d) $3,000 
for the fourth occurrence or additional occurrences. The late fee would 
not apply if FICC determines that failure to meet this timeframe is not 
the fault of the Net Funds Payor.\16\
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    \15\ FICC's proposal would add ``Net Funds Payor'' as a new 
defined term, meaning a Netting Member or CCIT Member with cash 
delivery obligations.
    \16\ This determination would be made by FICC Product Management 
based on input from the GCF Clearing Agent Bank, internal FICC 
Operations staff and the Netting Member.
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    In addition, FICC proposes to establish additional late fees that 
would be imposed on Net Funds Payors that fail to meet their cash 
delivery obligation by the close of the Fedwire Funds Service.\17\ 
These fees would be in addition to the late fees described in the 
preceding paragraph, and FICC would impose both fees in the event that 
a Net Funds Payor did not satisfy its cash delivery obligations by the 
close of the Fedwire Funds Service. Specifically,

[[Page 54697]]

these late fees would apply as follows for occurrences within the same 
90 calendar day period: (a) 100 basis points on the unsatisfied cash 
delivery obligation amount for the first occurrence,\18\ (b) 200 basis 
points on the unsatisfied cash delivery obligation amount for the 
second occurrence, (c) 300 basis points on the unsatisfied cash 
delivery obligation amount for the third occurrence, and (d) 400 basis 
points on the unsatisfied cash delivery obligation amount for the 
fourth occurrence or any additional occurrences. The late fees would 
not apply if FICC determines that the failure to meet this timeframe is 
not primarily the fault of the Net Funds Payor.\19\
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    \17\ See Fedwire Services Operating Hours, available at https://www.frbservices.org/resources/financial-services/wires/operating-hours.html (last visited September 2, 2019).
    \18\ The late fee is based on the ACT/360 day count convention, 
where ``ACT'' represents the actual number of days in the period. 
For example, assuming a first occurrence unsatisfied cash delivery 
obligation of $100 million, the late fee would be $100 million * 
100/3600000 = $2,777.78. This example uses the first occurrence 
amount. This calculation would apply to the rest of the proposed 
late fees in this section.
    \19\ The determination would be made by FICC Product Management 
based on input from the GCF Clearing Agent Bank, internal FICC 
Operations staff and the Netting Member.
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B. Proposed Process To Provide Liquidity

    The Advance Notice would establish a process for FICC to access 
liquidity in situations where a Member with a net cash delivery 
obligation in GCF Repo/CCIT activity (i.e., Net Funds Payor), that is 
otherwise in good standing, is either (1) delayed in satisfying its 
cash delivery obligation or (2) unable to satisfy, in whole or in part, 
such obligation.\20\ Unless FICC has ceased to act for the Member (in 
which case FICC's close-out rules would apply) or has restricted the 
Member's access to services,\21\ the Net Funds Payor shall be permitted 
to continue to submit additional tri-party repo transactions for 
clearing to FICC during this process.
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    \20\ Such delay could, for example, be due to operational issues 
experienced by the Net Funds Payor. If a Netting Member with a 
collateral obligation does not deliver its securities, FICC 
considers it a fail. However, if a Netting Member or CCIT Member 
with a cash delivery obligation is unable to deliver its cash (and 
is in good standing), FICC has represented that it intends to employ 
the proposed process. Notice of Filing, supra note 4 at 47620.
    \21\ See Rule 22A, supra note 11. FICC has represented that, 
before it uses the proposed process, it would first evaluate whether 
to recommend to the Board's Risk Committee that FICC cease to act 
for such Net Funds Payor. FICC would consider, but would not be 
limited to, the following factors in its evaluation: (i) The Net 
Funds Payor's current financial position, (ii) the amount of the 
outstanding payment, (iii) the cause of the late payment, (iv) 
current market conditions, and (v) the size of the potential 
overnight reverse repurchase agreements under the GCF Repo 
Allocation Waterfall MRAs (as defined below) on the GSD membership. 
Notice of Filing, supra note 4 at 47620. FICC already has the 
authority to cease to act for a member that does not fulfill an 
obligation to FICC and will continually evaluate throughout the 
proposed process whether FICC will cease to act. Id.
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    Pursuant to the proposal, once FICC determines that a Net Funds 
Payor is in good standing with GSD but is experiencing an issue, such 
as an operational issue, that may result in a late payment, partial 
payment or non-payment of its cash delivery obligation on the 
settlement date, the following process would occur. First, in the case 
where the Net Funds Payor only satisfies part of its cash delivery 
obligation, the GCF Clearing Agent Bank would settle the cash it 
received pursuant to such GCF Clearing Agent Bank's settlement 
algorithm (as is done today).
    Next, FICC would consider whether it would seek liquidity to cover 
any of the Net Funds Payor's delivery shortfall amounts in one of the 
two forms discussed. The two potential forms of liquidity would be (i) 
end-of-day borrowing of Clearing Fund cash (``EOD Clearing Fund Cash'') 
and/or (ii) GCF Clearing Agent Bank loans.\22\ The cash amount that 
FICC would be able to access via the EOD Clearing Fund Cash and/or GCF 
Clearing Agent Bank loans would then be applied to the unsatisfied cash 
delivery obligations due to the Net Funds Receivers on a pro rata 
basis, based upon the percentage due to each Net Fund Receiver out of 
the total amount of all unsatisfied obligations.
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    \22\ FICC has represented that it would not prioritize accessing 
these two sources of potential liquidity because FICC's decision to 
use either or both sources would be considered on a case-by-case 
basis, taking into consideration factors such as the specific 
circumstances at issue (i.e., the time of day and the size of the 
shortfall), availability of a bank loan, market conditions (i.e., 
whether there are stress events occurring in the market), commercial 
considerations (i.e., the current loan rates), and ease of 
operational execution. Notice of Filing, supra note 4 at 47620.
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    If FICC were to use GCF Clearing Agent Bank loans to provide 
liquidity, any overnight financing from the GCF Clearing Agent Bank 
would be subject to the GCF Clearing Agent Bank's discretion because 
FICC's overnight financing arrangements with its GCF Clearing Agent 
Bank are uncommitted. As such, the financing would be secured by FICC's 
pledge of Clearing Fund securities subject to the GCF Clearing Agent 
Bank's current haircut schedule.\23\ If FICC were to use EOD Clearing 
Fund Cash to provide liquidity, such use would be subject to certain 
internal limitations. Specifically, GSD would establish a cap on the 
amount of EOD Clearing Fund Cash that may be used for this purpose to 
the lesser of $1 billion or 20 percent of available Clearing Fund Cash. 
Any resulting costs incurred by FICC in accessing EOD Clearing Fund 
Cash and/or GCF Clearing Agent Bank loans would be debited from the Net 
Funds Payor whose shortfall caused the liquidity need.
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    \23\ See Rule 4, Section 5, supra note 11.
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    Finally, to the extent that the amount of liquidity FICC obtains 
via the Clearing Fund cash and overnight financing arrangement (if any) 
is insufficient to cover the outstanding cash delivery obligations, the 
relevant Net Funds Receivers would be required under FICC's Rules to 
enter into overnight repurchase agreements with FICC on the Generic 
CUSIP Number for which such Net Funds Payor failed to fulfill its cash 
delivery obligation. This arrangement would be done pursuant to the 
``GCF Repo Allocation Waterfall MRA,'' which is a committed financing 
arrangement that would be added as part of this proposal to the binding 
terms of FICC's rulebook.\24\ The amount FICC would seek to obtain via 
this committed facility would be the remaining unsettled amount per Net 
Funds Receiver, thus satisfying the outstanding amount of the Net Funds 
Payor's cash delivery obligations.\25\ The associated overnight 
interest of the reverse repurchase agreement would be debited from the 
Net Funds Payor that did not satisfy its cash delivery obligation and 
credited to the affected Net Funds Receivers in the funds-only 
settlement process as a Miscellaneous Adjustment Amount.\26\
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    \24\ Such reverse repurchase agreements would be entered into 
pursuant to the terms of a 1996 SIFMA Master Repurchase Agreement 
(available at http://www.sifma.org/services/standard-forms-and-documentation/mra,-gmra,-msla-and-msftas/), which would be 
incorporated into the Rules, subject to specific changes set forth 
in the Rules.
    \25\ FICC represents that these reverse repurchase agreements 
would be at a market rate, which would be the overnight par weighted 
average rate at the Generic CUSIP Number level. Notice of Filing, 
supra note 4 at 47621.
    \26\ See Rule 13, Section 1(m) and Rule 3B, Section 13(a)(ii), 
supra note 11.
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    Any resulting costs, such as financing costs, incurred by the Net 
Funds Receivers would be debited from the Net Funds Payor whose 
shortfall caused the need for the reverse repurchase agreement. A Net 
Funds Receiver requesting compensation in this regard would need to 
submit a formal claim to FICC. Upon review and approval by FICC, the 
Net Funds Receiver would receive a credit that would be processed in 
the funds-only settlement process as a Miscellaneous Adjustment 
Amount.\27\

[[Page 54698]]

The debit of the Net Funds Payor would be processed in the same way.
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    \27\ Id.
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C. Clarification, Technical Changes and Corrections

    FICC also proposes to make certain clarifying, technical changes, 
and corrections both to reflect the changes proposed in this Advance 
Notice and to revise certain aspects of the Rules that FICC has 
determined to be inaccurate or incorrect as related to the GCF Repo 
Service. These changes include adding particular parentheticals, 
changes to titles of sections, corrections to refer to the title of the 
Fedwire Securities Service, updating references and descriptions, 
adding new defined terms, and updating certain defined terms. These 
changes are described in detail in the Notice of Filing.\28\
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    \28\ Notice of Filing, supra note 4 at 47622.
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II. Discussion and Commission Findings

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, the stated purpose of the Clearing 
Supervision Act is instructive: To mitigate systemic risk in the 
financial system and promote financial stability by, among other 
things, promoting uniform risk management standards for SIFMUs and 
strengthening the liquidity of SIFMUs.\29\
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    \29\ See 12 U.S.C. 5461(b).
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    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe regulations containing risk management 
standards for the payment, clearing, and settlement activities of 
designated clearing entities engaged in designated activities for which 
the Commission is the supervisory agency.\30\ Section 805(b) of the 
Clearing Supervision Act provides the following objectives and 
principles for the Commission's risk management standards prescribed 
under Section 805(a): \31\
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    \30\ 12 U.S.C. 5464(a)(2).
    \31\ 12 U.S.C. 5464(b).
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     To promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk 
management standards may address such areas as risk management and 
default policies and procedures, among others areas.\32\
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    \32\ 12 U.S.C. 5464(c).
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    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and Section 17A of the 
Exchange Act (the ``Clearing Agency Rules'').\33\ The Clearing Agency 
Rules require, among other things, each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to meet certain minimum 
requirements for its operations and risk management practices on an 
ongoing basis.\34\ As such, it is appropriate for the Commission to 
review advance notices against the Clearing Agency Rules and the 
objectives and principles of these risk management standards as 
described in Section 805(b) of the Clearing Supervision Act. As 
discussed below, the Commission believes the proposal in the Advance 
Notice is consistent with the objectives and principles described in 
Section 805(b) of the Clearing Supervision Act,\35\ and in the Clearing 
Agency Rules, in particular Rule 17Ad-22(e)(7).\36\
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    \33\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No. 
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11). 
See also Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing 
Agency Standards''). The Commission established an effective date of 
December 12, 2016 and a compliance date of April 11, 2017 for the 
Covered Clearing Agency Standards. FICC is a ``covered clearing 
agency'' as defined in Rule 17Ad-22(a)(5).
    \34\ 17 CFR 240.17Ad-22.
    \35\ 12 U.S.C. 5464(b).
    \36\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    For the reasons discussed immediately below, the Commission 
believes that the Advance Notice is consistent with the stated 
objectives and principles of Section 805(b) of the Clearing Supervision 
Act.
1. New Deadlines and Late Fees for Satisfaction of Obligations in GCF 
Repo and CCIT Transactions
    FICC has represented that Netting Members generally meet their 
securities delivery obligations by the current 4:30 p.m. securities 
allocation deadline. However, according to FICC, because of the 
interconnectivity between the GCF Repo market within FICC and the tri-
party repo market outside of FICC, in which obligations to deliver 
securities collateral typically occur after collateral allocations at 
FICC, the securities collateral that is used to settle GCF Repo 
positions may subsequently be used by Netting Members to complete tri-
party repo transactions. Therefore, settling GCF Repo Service 
transactions earlier in the day reduces the likelihood that an 
operational issue may result in a failed or incomplete tri-party repo 
transaction outside of FICC. When a Netting Member depends on the 
proceeds from the GCF Repo Service transaction to satisfy its cash 
obligations in its tri-party repo transactions outside of FICC, the 
Netting Member could default on its obligations and transmit losses to 
other market participants. Accordingly, the Commission believes that 
these measures would be consistent with reducing systemic risks and 
supporting the stability of the broader financial market by requiring 
GCF Repo obligations to be satisfied earlier in the day and thus 
helping to reduce the potential operational risk of incomplete tri-
party repo transactions outside of FICC.
    Additionally, the Commission believes that the proposed new 
deadlines (i.e., 4:30 p.m. for securities delivery obligations, and 
4:30 p.m., or one hour after the close of the Fedwire Securities 
Service, whichever is later, for cash delivery obligations), as well as 
the associated late fees, should lower the potential operational risk 
that could arise from delayed GCF Repo settlements and should help FICC 
manage the risk of delayed settlement. The Commission believes that 
these measures should incentivize Netting Members and CCIT Members to 
meet their cash delivery obligations on a timely basis, which, in turn, 
should help FICC reduce its overall settlement risk. As such, the 
Commission believes that the proposed deadlines and late fees would be 
consistent with promoting robust risk management and safety and 
soundness.
2. Proposed Process To Provide Liquidity
    The Commission believes that the proposed changes to establish a 
process for FICC to access liquidity in situations where a Member with 
a cash delivery obligation in GCF Repo/CCIT activity, that is otherwise 
in good standing, is either (1) delayed in satisfying its cash delivery 
obligation or (2) unable to satisfy, in whole or in part, such 
obligation, should help FICC to better manage its liquidity risk and to 
mitigate the related settlement risk. Specifically, the Commission 
believes that establishing a process for FICC to access liquidity in 
these particular circumstances is designed to provide FICC with 
additional sources of liquidity and, therefore, an improved ability to 
manage its liquidity risk in the event that a Netting Member cannot 
meet its cash delivery obligations. As such, the Commission believes 
that this proposed process is consistent with promoting robust risk 
management and safety and soundness.

[[Page 54699]]

    In addition, the proposed process for FICC to access liquidity in 
these particular circumstances should help decrease the risk of 
unsettled obligations and belated settlement due to a lack of liquidity 
and, therefore, minimize the potential impact that a sudden liquidity 
demand could have on FICC and its Members. As such, the Commission 
believes that these changes are consistent with reducing systemic risk 
and supporting the stability of the broader financial system by aiming 
to avoid potential market disruption that could occur if FICC cannot 
settle.
3. Clarification, Technical Changes and Corrections
    The Commission believes that the proposed clarifications, technical 
changes, and corrections are consistent with promoting safety and 
soundness. The changes are designed to provide clear and coherent Rules 
regarding GCF Repo transactions for Netting Members and CCIT Members. 
The Commission believes that clear and coherent Rules would help 
enhance the ability of FICC and its Netting Members and CCIT Members to 
more effectively plan for, manage, and address the risks related to GCF 
Repo and CCIT transactions. As such, the Commission believes that the 
conforming and technical changes are designed to promote both robust 
risk management and safety and soundness.
    Accordingly, and for the reasons stated above, the Commission 
believes the changes proposed in the Advance Notice are consistent with 
Section 805(b) of the Clearing Supervision Act.\37\
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    \37\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(7)(i)

    Rule 17Ad-22(e)(7) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to 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. Specifically, Rule 17Ad-22(e)(7)(i) requires 
policies and procedures for 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.\38\
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    \38\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the proposed process for FICC to access 
liquidity in the event that Netting Members will be delayed in 
satisfying or cannot satisfy their cash delivery obligations is 
designed to help ensure that FICC has sufficient liquid resources 
available in such circumstances. Moreover, for any outstanding 
liquidity obligations after the utilization of EOD Clearing Fund cash 
and/or overnight financing with the GCF Clearing Agent Bank, any 
transactions pursuant to the GCF Repo Allocation Waterfall MRA would be 
sized based on the actual liquidity need presented in a particular 
situation, which would help FICC maintain sufficient liquid resources 
to settle the cash delivery obligations of a Netting Member. Therefore, 
the Commission believes that adoption of the proposed changes is 
consistent with Rule 17Ad-22(e)(7)(i).\39\
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    \39\ Id.
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C. Consistency With Rule 17Ad-22(e)(7)(ii)

    Rule 17Ad-22(e)(7)(ii) requires policies and procedures for holding 
qualifying liquid resources sufficient to meet the minimum liquidity 
resource requirement under 17Ad-22(e)(7)(i) in each relevant currency 
for which the covered clearing agency has payment obligations owed to 
clearing members.\40\ Rule 17Ad-22(a)(14) defines qualifying liquid 
resources to include, among other things, assets that are readily 
available and convertible into cash through prearranged funding 
arrangements, such as committed arrangements without material adverse 
change provisions, including repurchase agreements.\41\
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    \40\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \41\ 17 CFR 240.17Ad-22(a)(14).
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    As described above, the proposed process for FICC to access 
liquidity in the event that Netting Members will be delayed in 
satisfying or cannot satisfy their cash delivery obligations includes, 
in part, the GCF Repo Allocation Waterfall MRA. This agreement would be 
a committed arrangement that is a repurchase agreement and all 
transactions entered into pursuant to the GCF Repo Allocation Waterfall 
MRA are designed to be readily available to meet the cash delivery 
obligations owed to Netting Members. This arrangement therefore 
constitutes a qualifying liquid resource, as defined in Rule 17Ad-
22(a)(14), and the Commission believes, therefore, that adoption of the 
proposed changes is consistent with Rule 17Ad-22(e)(7)(ii).\42\
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    \42\ 17 CFR 240.17Ad-22(e)(7)(ii).
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D. Consistency With Rule 17Ad-22(e)(7)(viii)

    Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to 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, addressing foreseeable 
liquidity shortfalls that would not be covered by the covered clearing 
agency's liquid resources and seek to avoid unwinding, revoking, or 
delaying the same-day settlement of payment obligations.\43\
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    \43\ 17 CFR 240.17Ad-22(e)(7)(viii).
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    The proposed process for FICC to access liquidity when Netting 
Members are delayed in satisfying or cannot satisfy their cash delivery 
obligations provides FICC with a process to address liquidity 
shortfalls which may arise in such circumstances and allow FICC to 
complete settlement on a timely basis. Therefore, this proposed process 
should help to avoid unwinding, revoking, or delaying same-day 
settlement obligations. The Commission believes, therefore, that 
adoption of the proposed changes are consistent with Rule 17Ad-
22(e)(7)(viii).\44\
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    \44\ Id.
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III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act, that the Commission does not object to 
Advance Notice (SR-FICC-2019-801) and that FICC is authorized to 
implement the proposed change as of the date of this notice or the date 
of an order by the Commission approving proposed rule change SR-FICC-
2019-004, whichever is later.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22147 Filed 10-9-19; 8:45 am]
 BILLING CODE 8011-01-P