[Federal Register Volume 85, Number 217 (Monday, November 9, 2020)]
[Notices]
[Pages 71374-71381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90322; File No. SR-FICC-2020-012]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Government Securities Division Rulebook To Clarify Which
Funds-Only Settlement Payments and Underlying Marks Are Applicable to
Certain Transactions, and Make Other Changes
November 3, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 71375]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 27, 2020, 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. FICC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(4) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to the FICC
Government Securities Division (``GSD'') Rulebook (``Rules'') \5\ in
order to (i) clarify which funds-only settlement (``FOS'') payments and
underlying ``marks'' \6\ are applicable to transactions in GSD's
delivery-versus-payment (``DVP'') service (hereinafter ``DVP
Transactions''),\7\ clarify which payments and underlying marks are
applicable to GCF Repo Transactions and CCIT Transactions, and add a
payment that is currently debited from/credited to (as applicable)
Members that is not currently referenced in the Rules, (ii) restructure
Section 1 of Rule 13 to list only FOS payments rather than both
payments and some underlying marks,\8\ and (iii) make a correction and
certain technical changes, as described in greater detail below.
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\5\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
\6\ ``Marks'' refer to mark-to-market amounts that underlie or
make up a FOS payment. For example, the Collateral Mark is an
underlying component of the FOS payment known as the ``Forward Mark
Adjustment Payment.''
\7\ ``DVP Transactions'' refers to buy/sell transactions and
Repo Transactions that are Direct Transactions and Brokered
Transactions (other than GCF Repo Transactions and CCIT
Transactions).
\8\ Currently, Section 1 of Rule 13 references both payments and
some of the underlying marks that make up payments. FICC wishes to
provide clarity to this rule by limiting Section 1 to actual
payments rather than underlying components that make up payments.
This will be discussed in greater detail below.
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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 the proposed rule change is to amend the Rules in
order to: (i) Clarify which FOS payments and underlying marks are
applicable to DVP Transactions, clarify which payments and underlying
marks are applicable to GCF Repo Transactions and CCIT Transactions,
and add a payment that is currently debited from/credited to (as
applicable) Members that is not currently referenced in the Rules, (ii)
restructure Section 1 of Rule 13 to list only FOS payments rather than
both payments and some underlying marks, and (iii) make a correction
and certain technical changes, as described in greater detail below.
(i) Background
FOS is FICC's twice daily process of generating a net credit or
debit cash amount for each Member and settling those cash amounts
between Members and FICC. FOS is a cash-pass-through process, meaning
that those Members that are in a net debit position are obligated to
submit payments that are then used to pay Members that are in a net
credit position. FOS also includes certain payments that are not pass-
through payments, such as Invoice Amounts and Miscellaneous Adjustment
Amounts.
GSD processes FOS debit and credit payments via the Federal
Reserve's National Settlement Service (``NSS'') twice daily at 10:00
a.m. and 3:15 p.m.
GSD FOS payments are set forth in Rule 13, Section 1. The FOS
payments consist of (A) transaction adjustment payments for settlement
purposes, (B) risk management-related amounts (such as various mark-to-
market amounts), (C) security coupon and similar amounts, and (D) other
amounts (such as the invoice amounts). A description of these payments
is set forth below.
(A) Transaction Adjustment Payments for Settlement Purposes
The Transaction Adjustment Payment \9\ applies to both DVP
Transactions and GCF Repo Transactions that are settling the following
Business Day (i.e., the next Business Day after the Business Day on
which the Transaction Adjustment Payment was calculated). As a central
counterparty that performs a multilateral net process, FICC settles Net
Settlement Positions at the System Value. The System Price is used to
calculate the System Value. The Transaction Adjustment Payment adjusts
the parties' original Contract Value of their pre-netted transaction to
the Market Value \10\ of the pre-netted transaction.
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\9\ Rule 13, Section 1(a), supra note 5. The term ``Transaction
Adjustment Payment'' means the absolute value of the dollar
difference between the Contract Values and the Market Values of the
trades that comprise a Net Settlement Position or GCF Net Settlement
Position that is scheduled to settle on the current Business Day.
Rule 1, supra note 5.
\10\ The term ``Market Value'' means, on a particular Business
Day, the amount in dollars equal to: (1) As regards a trade other
than a Repo Transaction, the System Price established by FICC for
the underlying Eligible Netting Securities, multiplied by the par
value of such Securities, plus accrued coupon interest that has
accrued with regard to such Securities calculated to their Scheduled
Settlement Date, (2) as regards a Repo Transaction other than a GCF
Repo Transaction, the System Price established by FICC for the
underlying Eligible Netting Securities, multiplied by the par value
of such Securities, plus accrued coupon interest that has accrued
with regard to such Securities calculated to that Business Day, and
(3) as regards a GCF Repo Transaction, the principal value of the
Transaction. Rule 1, supra note 5.
Market Value applies to transactions, and System Value applies
to Net Settlement Positions. Both values are derived using the
System Price; for GCF Repo Transactions, Market Value means the
principal value.
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(B) Risk Management-Related Amounts
The risk management-related amounts apply throughout the life of a
transaction to bring the transaction to market value (as applicable).
These amounts therefore protect FICC and its Members from market risk
in the event that there is a Member default and FICC must liquidate
such transactions in the market; the closer the value of such
transactions is to market, the smaller the amount of the loss that FICC
would face in the liquidation of such transactions.
The risk management-related amounts currently set forth in Section
1 of Rule 13 are the following: (1) Forward Mark Adjustment
Payment,\11\ (2) GCF Interest Rate Mark,\12\ (3) Interest Rate
Mark,\13\ (4) GCF Forward Mark,\14\ and (5) Fail Mark Adjustment
Payment.\15\ In connection with the Forward Mark Adjustment Payment,
there is a payment that reflects ``use of funds,'' (i.e., Interest
Adjustment Payment), as described below.
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\11\ Rule 13, Section 1(c), supra note 5.
\12\ Rule 13, Section 1(d), supra note 5.
\13\ Rule 13, Section 1(e), supra note 5.
\14\ Rule 13, Section 1(f), supra note 5.
\15\ Rule 13, Section 1(h), supra note 5.
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[[Page 71376]]
(1) Forward Mark Adjustment Payment
Currently, the Forward Mark Adjustment Payment applies to both DVP
Transactions and GCF Repo Transactions.\16\ The Forward Mark Adjustment
Payment equals the sum of 3 underlying marks (as applicable to a
Member's Forward Net Settlement Position): (a) Collateral Mark, (b)
Financing Mark, and (c) Interest Rate Mark. The Collateral Mark is a
mark-to-market amount on Forward Trades (Contract Value versus Market
Value). The Financing Mark is a mark-to-market amount on the repo rate
of a Repo Transaction that has a start date prior to current Business
Day. The Interest Rate Mark is a mark-to-market amount on the repo rate
for a Forward-Starting Repo Transaction.
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\16\ The term ``Forward Mark Adjustment Payment'' means, on a
particular Business Day, as regards a Member's Forward Net
Settlement Position, the sum of the Collateral Mark applicable to
such Position, the Financing Mark applicable to such Position, and
the Interest Rate Mark applicable to such Position. Notwithstanding
the above, as regards an outstanding Repo Transaction where a
request for substitution has been made but New Securities Collateral
has not been received by FICC, the term ``Forward Mark Adjustment
Payment'' means ``Forward Unallocated Sub Mark.'' Rule 1, supra note
5.
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In addition, in connection with the Forward Mark Adjustment
Payment, there is a payment called the Interest Adjustment Payment \17\
that reflects ``use of funds.'' This means that FICC will charge
overnight interest to the Member that received the Forward Mark
Adjustment Payment as a credit and this interest amount will be paid to
the Member that was charged the Forward Mark Adjustment Payment as a
debit. As FICC is passing through a cash payment for risk management
purposes, the Member who receives the cash has use of those funds, and
the Member who was debited does not have use of those funds. Because
the funds belong to the Member who was debited, such Member is entitled
to, and receives, the interest income on the amount that was debited.
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\17\ Rule 13, Section 1(g), supra note 5.
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(2) GCF Interest Rate Mark
The GCF Interest Rate Mark \18\ is the mark-to-market amount on the
repo rate of a GCF Repo Transaction that has started (typically
referred to as an ``in-flight'' transaction).
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\18\ The term ``GCF Interest Rate Mark'' means, on a particular
Business Day as regards any GCF Repo Transaction that is not
scheduled to settle on that day, the product of the principal value
of the GCF Repo Transaction on the Scheduled Settlement Date for its
End Leg multiplied by a factor equal to the absolute difference
between the Repo Rate established by FICC for such Repo Transaction
and its Contract Repo Rate, and then multiplied by a fraction, the
numerator of which is the number of calendar days from the current
day until the Scheduled Settlement Date for the End Leg of the Repo
Transaction and the denominator of which is 360. If the Repo
Transaction's Contract Repo Rate is greater than its System Repo
Rate, then the GCF Interest Rate Mark shall be a positive value for
the Reverse Repo Party, and a negative value for the Repo Party. If
the Repo Transaction's Contract Repo Rate is less than its System
Repo Rate, then the GCF Interest Rate Mark shall be a positive value
for the Repo Party, and a negative value for the Reverse Repo Party.
The term ``GCF Interest Rate Mark'' means, as regards a GCF Net
Settlement Position, the sum of all the GCF Interest Rate Mark
Payments on each of the GCF Repo Transactions that compose such
position. Rule 1, supra note 5.
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(3) Interest Rate Mark
As discussed above, the Interest Rate Mark \19\ is an underlying
component of the Forward Mark Adjustment Payment. In addition to
applying to DVP Transactions as stated above, the Interest Rate Mark
also applies to GCF Repo Transactions, and is a mark-to-market amount
on the repo rate of a forward-starting GCF Repo Transaction.
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\19\ The term ``Interest Rate Mark'' means, on a particular
Business Day as regards a Forward-Starting Repo Transaction during
its Forward-Starting Period, the product of the principal value of
the Repo Transaction on the Scheduled Settlement Date for its Start
Leg multiplied by a factor equal to the absolute difference between
the System Repo Rate established by FICC for such Repo Transaction
and its Contract Repo Rate, and then multiplied by a fraction, the
numerator of which is the number of calendar days from the Scheduled
Settlement Date for the Start Leg of the Repo Transaction until the
Scheduled Settlement Date for the End Leg of the Repo Transaction
and the denominator of which is 360. If the Repo Transaction's
Contract Repo Rate is greater than its System Repo Rate, then the
Interest Rate Mark shall be a positive value for the Reverse Repo
Party, and a negative value for the Repo Party. If the Repo
Transaction's Contract Repo Rate is less than its System Repo Rate,
then the Interest Rate Mark shall be a positive value for the Repo
Party, and a negative value for the Reverse Repo Party. The Interest
Rate Mark for any Repo Transaction other than a Forward-Starting
Repo Transaction during its Forward-Starting Period, and for any
trade other than a Repo Transaction, shall be zero. The term
``Interest Rate Mark'' means, as regards a Forward Net Settlement
Position, the sum of all the Interest Rate Marks on each of the
Forward Trades that compose such position. Rule 1, supra note 5.
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Similar to the Interest Adjustment Payment, the Interest Rate Mark
Adjustment Payment \20\ is the interest paid or collected for ``use of
funds'' in connection with the sum of a Member's GCF Interest Rate Mark
and Interest Rate Mark.
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\20\ Rule 13, Section 1(f), supra note 5. The term ``Interest
Rate Mark Adjustment Payment'' means, as regards the sum of a
Netting Member's GCF Interest Rate Mark and Interest Rate Mark, the
product of that sum multiplied by the applicable Overnight
Investment Rate and then multiplied by a fraction, the numerator of
which is the number of calendar days between the previous Business
Day and the current Business Day and the denominator of which is
360. Rule 1, supra note 5.
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(4) GCF Forward Mark
The GCF Forward Mark \21\ is currently stated to be the sum of the
Accrued Repo Interest-to-Date and the GCF Interest Rate Mark.
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\21\ The term ``GCF Forward Mark'' means, on a particular
Business Day as regards any GCF Repo Transaction that is not
scheduled to settle on that day, the sum of the Accrued Repo
Interest-to-Date and the GCF Interest Rate Mark on such GCF Repo
Transaction. Rule 1, supra note 5.
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(5) Fail Mark Adjustment Payment
The Fail Mark Adjustment Payment \22\ is a mark-to-market amount
for obligations that were scheduled to settle and have not yet settled.
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\22\ The term ``Fail Mark Adjustment Payment'' means the
absolute value of the dollar difference between the Settlement Value
of a Fail Deliver Obligation or a Fail Receive Obligation that
constitutes all or part of a Fail Net Settlement Position on the
current Business Day and the Settlement Value of such Fail Deliver
Obligation or Fail Receive Obligation on the immediately previous
Business Day. Rule 1, supra note 5.
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(C) Security Coupon and Similar Amounts
FOS includes certain coupon and similar payments as follows: (1)
Delivery Differential Adjustment Payment,\23\ (2) Coupon Adjustment
Payment,\24\ and (3) Clearance Difference Amount.\25\
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\23\ Rule 13, Section 1(b), supra note 5.
\24\ Rule 13, Section 1(i) and Section 1(j), supra note 5.
\25\ Rule 13, Section 1(k), supra note 5.
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The Delivery Differential Adjustment Payment \26\ is the amount of
the difference between the Federal Reserve's auction award price and
FICC's System Price.
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\26\ The term ``Delivery Differential Adjustment Payment'' means
the absolute value of the dollar difference between the System Value
and the Settlement Value of a Netting Member's Deliver Obligation or
a Receive Obligation. Rule 1, supra note 5.
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The Coupon Adjustment Payment \27\ is the amount that reflects
coupon interest from the issuer of the security that is passed to a
Member.
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\27\ The term ``Coupon Adjustment Payment'' means the coupon
payments due and owing on each Eligible Netting Security that
comprises either a Coupon-Eligible End Leg or a Fail Net Settlement
Position. Rule 1, supra note 5.
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The Clearance Difference Amount \28\ is the amount of any
differences that may occur between the amounts that are reflected in
FICC's records versus the Clearing Agent Bank.
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\28\ The term ``Clearance Difference Amount'' means the absolute
value of the dollar difference between the Settlement Value of a
Deliver Obligation or a Receive Obligation and the actual value at
which such Deliver Obligation or Receive Obligation was settled, by
the delivery or receipt of Eligible Netting Securities. Rule 1,
supra note 5.
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(D) Other Amounts
The other amounts that are part of GSD FOS are as follows: (1)
Invoice Amount \29\ and (2) Miscellaneous Adjustment Amount.\30\
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\29\ Rule 13, Section 1(l), supra note 5.
\30\ Rule 13, Section 1(m), supra note 5.
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[[Page 71377]]
The Invoice Amount \31\ is a Member's billing amount.
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\31\ The term ``Invoice Amount'' means all fee amounts due and
owing from a Netting Member or CCIT Member, as applicable, to FICC
on a particular Business Day. Rule 1, supra note 5.
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The Miscellaneous Adjustment Amount \32\ is a catch-all amount, in
case it is needed.
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\32\ The term ``Miscellaneous Adjustment Amount'' means the net
total of all miscellaneous funds-only amounts that, on a particular
Business Day, are required to be paid by a Netting Member or CCIT
Member, as applicable, to FICC and/or are entitled to be collected
by a Member (including a CCIT Member, as applicable) from FICC. Rule
1, supra note 5.
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(ii) Proposed Rule Changes
The purpose of the proposed rule change is to amend the Rules in
order to: (A) Clarify which FOS payments and underlying marks are
applicable to DVP Transactions, clarify which payments and underlying
marks are applicable to GCF Repo Transactions and CCIT Transactions,
and add a payment that is currently debited from/credited to (as
applicable) Members that is not currently referenced in the Rules, (B)
restructure Section 1 of Rule 13 to list only FOS payments rather than
both payments and some underlying marks, and (C) make a correction and
certain technical changes, as described in greater detail below.
(A) Clarify Which FOS Payments and Underlying Marks are Applicable to
DVP Transactions, Clarify Which Payments and Underlying Marks are
Applicable to GCF Repo Transactions and CCIT Transactions, and add a
Payment That is Currently Debited From/Credited to (as applicable)
Members That is not Currently Referenced in the Rules
At this time, Section 1 of Rule 13 includes references to payments
and certain underlying marks. Some of these payments and marks as
currently defined apply to both DVP Transactions and GCF Repo
Transactions. In order to provide more clarity, FICC proposes to amend
the Rules to clarify which FOS payments are applicable to DVP
Transactions and which FOS payments are applicable to GCF Repo
Transactions. This proposal would not change the way FICC operates or
the payments/marks applicable to GCF Repo Transactions, but instead
would take out defined terms from more general definitions in order to
be more standalone. Specifically, FICC would clarify Rule 1 by amending
certain existing defined terms, deleting certain existing defined terms
and adding new defined terms, as described further below.
Furthermore, FICC would amend Rule 13 to specifically list the FOS
payments that are applicable to DVP Transactions and the FOS payments
that are applicable to GCF Repo Transactions, as further described
below.
DVP Transactions
As described above, certain FOS payments and underlying marks would
be revised to clarify that they only apply to DVP Transactions. The
Forward Mark Adjustment Payment is a risk management-related amount
that equals the sum of 3 underlying marks (as applicable to a Member's
Forward Net Settlement Position): (a) Collateral Mark, (b) Financing
Mark, and (c) Interest Rate Mark. FICC proposes to clarify that the
Forward Mark Adjustment Payment and its underlying marks, the
Collateral Mark, Financing Mark, and Interest Rate Mark, would apply
only to DVP Transactions. As such, FICC proposes to revise the
definitions of Collateral Mark, Financing Mark, Interest Rate Mark, and
Forward Mark Adjustment Payment in Rule 1 to clarify that these terms
do not apply to GCF Repo Transactions and CCIT Transactions.
Furthermore, FICC is proposing to delete the defined term Interest
Rate Mark Adjustment Payment (and its credit, debit and net
equivalents, the Debit Interest Rate Mark Adjustment Payment, Credit
Interest Rate Mark Adjustment Payment, and Net Interest Rate Mark
Adjustment Payment) in Rule 1, because FICC believes it would enhance
clarity to amend the Rules to have separate terms to describe what this
FOS payment covers for GCF Repo Transactions and DVP Transactions. This
FOS payment covers ``use of funds'' as described above. For DVP
Transactions, FICC would retain Interest Adjustment Payment, as
currently defined, for ``use of funds'' purposes. FICC would amend Rule
1 to add the specific term GCF Interest Adjustment Payment, which would
be applicable to GCF Repo Transactions and with respect to CCIT
Transactions, only as stipulated in Rule 3B.
In addition, FICC proposes to amend the definitions of Credit
Transaction Adjustment Payment, Debit Transaction Adjustment Payment
and Transaction Adjustment Payment in Rule 1 to state that these terms
apply to DVP Transactions. Specifically, FICC proposes to delete the
reference to GCF Net Settlement Position in the definition of
Transaction Adjustment Payment, and the descriptions related to GCF Net
Settlement Position in the definitions of Credit Transaction Adjustment
Payment and Debit Transaction Adjustment Payment in Rule 1. The
definition of Transaction Adjustment Payment would also be amended to
add that it would not apply to GCF Repo Transactions and CCIT
Transactions. FICC would delete the reference to GCF Net Settlement
Position in Section 1(a) of Rule 13 because this Section 1(a) describes
Transaction Adjustment Payments (which would be revised to only
describe payments for settlement purposes for DVP Transactions). FICC
would also add the defined term GCF Transaction Adjustment Payment to
Rule 1, as described below.
Coupon Adjustment Payment, Clearance Difference Amount and Delivery
Differential Adjustment Payment currently apply only to DVP
Transactions. As such, FICC proposes to revise the definitions of
Coupon Adjustment Payment, Coupon-Eligible End Leg, Fail Mark
Adjustment Payment, and Clearance Difference Amount (and its credit and
debit equivalents, Credit Clearance Difference Amount and Debit
Clearance Difference Amount), and Delivery Differential Adjustment
Payment to clarify that these terms do not apply to GCF Repo
Transactions and CCIT Transactions.\33\
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\33\ As described above, the term ``Coupon Adjustment Payment''
means the coupon payments due and owing on each Eligible Netting
Security that comprises either a Coupon-Eligible End Leg or a Fail
Net Settlement Position. Rule 1, supra note 5.
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FICC also proposes to add a new defined term, Redemption Adjustment
Payment (and its credit, debit and net equivalents, Credit Redemption
Adjustment Payment, Debit Redemption Adjustment Payment, and Net
Redemption Adjustment Payment) to Rule 1 to reflect an amount that is
currently being debited from/credited to Members today. For a Net
Settlement Position, the Redemption Adjustment Payment means the
difference between the Redemption Value (as defined below and in the
proposed rule change) and the Settlement Value due and owing on each
Eligible Netting Security that comprises such position. For the End Leg
of a Repo Transaction, the Redemption Adjustment Payment means the
difference between the Maturity Value and the Contract Value due and
owing on each Eligible Netting Security that comprises such
Transaction. If the Redemption Adjustment Payment is a positive value,
it would be a Credit Redemption Adjustment Payment. If the Redemption
Adjustment Payment is a negative value, it would be a Debit Redemption
Adjustment Payment. Net Redemption Adjustment Payment would mean the
absolute dollar value difference on a
[[Page 71378]]
particular Business Day for a Netting Member between the total of all
Credit Redemption Adjustment Payments and the total of all Debit
Redemption Adjustment Payments.\34\
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\34\ If the total of all of the Credit Redemption Adjustment
Payments is greater than all of the Debit Redemption Adjustment
Payments, then the Net Redemption Adjustment Payment would be a
positive dollar amount owing from FICC to the Member. If the total
of all the Credit Redemption Adjustment Payments is less than the
total of all of the Debit Redemption Adjustment Payments, then the
Net Redemption Adjustment Payment would be a negative dollar amount
owing from the Member to FICC.
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FICC also proposes to add the defined term Redemption Value to Rule
1, which would mean, as regards a Net Settlement Position or a Deliver
Obligation, the principal amount paid to the holder of such position or
obligation in redeeming Eligible Netting Securities at the maturity for
such securities.
GCF Repo Transactions and CCIT Transactions
Furthermore, FICC proposes to add certain defined terms associated
with FOS that would be applicable only to GCF Repo Transactions and
CCIT Transactions.
Specifically, FICC proposes to add GCF Forward Mark Adjustment
Payment (and its credit, debit and net equivalents, Credit GCF Forward
Mark Adjustment Payment, Debit GCF Forward Mark Adjustment Payment, and
Net GCF Forward Mark Adjustment Payment) to Rule 1. These proposed
terms would only be applicable to GCF Repo Transactions.
FICC also proposes to add GCF Transaction Adjustment Payment (and
its credit, debit, and net equivalents, Credit GCF Transaction
Adjustment Payment, Debit GCF Transaction Adjustment Payment, and Net
GCF Transaction Adjustment Payment) to Rule 1. These proposed terms
would be applicable to both GCF Repo Transactions and CCIT
Transactions.
In addition, FICC proposes to add the following terms to Rule 1,
which would be applicable to GCF Repo Transactions and with respect to
CCIT Transactions, only as stipulated in Rule 3B: (1) GCF Forward
Starting Interest Rate Mark, and (2) GCF Interest Adjustment Payment
(and its credit, debit and net equivalents, Credit GCF Interest
Adjustment Payment, Debit GCF Interest Adjustment Payment, and Net GCF
Interest Adjustment Payment).
GCF Forward Mark and GCF Forward Mark Adjustment Payment
While GCF Forward Mark is referenced in Rule 13, Section 1(f) and
is defined to be the sum of Accrued Repo Interest-to-Date and GCF
Interest Rate Mark, FICC believes that Section 1 of Rule 13 should be
clarified to reference an actual payment (the proposed ``GCF Forward
Mark Adjustment Payment'') that represents the payment of this mark
(which is discussed below). FICC also proposes to revise the definition
of GCF Forward Mark in Rule 1 to include the new defined term GCF
Forward Starting Interest Rate Mark. FICC is currently collecting the
amount represented by the proposed GCF Forward Starting Interest Rate
Mark, and the addition of this reference to the definition of GCF
Forward Mark is not a substantive change.
The GCF Forward Mark Adjustment Payment would apply only to GCF
Repo Transactions and would mean, on a particular Business Day, as
regards a Member's Forward Net Settlement Position, the payment as it
relates to the Member's GCF Forward Mark. If the GCF Forward Mark
Adjustment Payment is a positive value, it would be a Credit GCF
Forward Mark Adjustment Payment. If the GCF Forward Mark Adjustment
Payment is a negative value, then it would be a Debit GCF Forward Mark
Adjustment Payment. Net GCF Forward Mark Adjustment Payment would mean
the absolute value of the dollar difference on a particular Business
Day for a Netting Member between the total of all Credit GCF Forward
Mark Adjustment Payments and the total of all of the Debit GCF Forward
Mark Adjustment Payments.\35\
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\35\ If the total of all of the Credit GCF Forward Mark
Adjustment Payments is greater than the total of all of the Debit
GCF Forward Mark Adjustment Payments, then the Net GCF Forward Mark
Adjustment Payment would be a positive dollar amount owing from FICC
to the Member. If the total of all of the Credit GCF Forward Mark
Adjustment Payments is less than the total of all of the Debit GCF
Forward Mark Adjustment Payments, then the Net GCF Forward Mark
Adjustment Payment would be a negative dollar amount owing from the
Member to FICC.
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GCF Forward Starting Interest Rate Mark
GCF Forward Starting Interest Rate Mark would be applicable only to
GCF Repo Transactions and with respect to CCIT Transactions, only as
stipulated in Rule 3B, and would be the equivalent term to Interest
Rate Mark for DVP Transactions. Like Interest Rate Mark for DVP
Transactions, this would be a mark (or underlying component) of a FOS
payment. Specifically, this mark would be part of the GCF Forward Mark,
which is a FOS payment that is applicable to Forward-Starting Repo
Transactions that are GCF Repo Transactions.
GCF Interest Adjustment Payment
FICC also proposes to add the defined term GCF Interest Adjustment
Payment (and its credit, debit and net equivalents, the Credit GCF
Interest Adjustment Payment, Debit GCF Interest Adjustment Payment, and
Net GCF Interest Adjustment Payment) to Rule 1. This term would be
applicable to GCF Repo Transactions and with respect to CCIT
Transactions, as stipulated in Rule 3B, and would be the equivalent
term to Interest Adjustment Payment for DVP Transactions.
GCF Transaction Adjustment Payment
The current definition of Transaction Adjustment Payment covers
both FOS payments applicable to DVP Transactions and those that are
applicable to GCF Repo Transactions. In order to enhance clarity, as
described above, FICC would distinguish between the FOS payments that
are applicable to DVP Transactions and those that are applicable to GCF
Repo Transactions. Specifically, as described above, FICC would add the
defined term GCF Transaction Adjustment Payment (and its credit, debit
and net equivalents, the Credit GCF Transaction Adjustment Payment,
Debit GCF Transaction Adjustment Payment, and Net GCF Transaction
Adjustment Payment) to Rule 1.
GCF Transaction Adjustment Payment would mean, as regards a Netting
Member, the total repo interest on the Netting Member's GCF Repo
Transactions and CCIT Transactions, as applicable, for which the
Scheduled Settlement Date for the End Leg of such transactions is the
next Business Day.
If the GCF Transaction Adjustment Payment is a positive value, it
would be a Credit GCF Transaction Adjustment Payment. If the GCF
Transaction Adjustment Payment is a negative value, it would be a Debit
GCF Transaction Adjustment Payment. Net GCF Transaction Adjustment
Payment would mean, on a particular Business Day, the absolute value of
the dollar difference between the total of all Credit GCF Transaction
Adjustment Payments and the total of all Debit GCF Transaction
Adjustment Payments for a Netting Member.\36\
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\36\ If the total of all of the Credit GCF Transaction
Adjustment Payments is greater than the total of all of the Debit
GCF Transaction Adjustment Payments, then the Net GCF Transaction
Adjustment Payment would be a positive dollar amount owing from FICC
to the Member. If the total of all of the Credit GCF Transaction
Adjustment Payments is less than the total of all of the Debit GCF
Transaction Adjustment Payments, then the Net GCF Transaction
Adjustment Payments would be a negative dollar amount owing from the
Member to FICC.
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[[Page 71379]]
FICC would also amend the definition of Transaction Adjustment
Payment so that it would be applicable only to DVP Transactions, as
described above.
Forward-Starting Period and Forward-Starting Repo Transaction
FICC also proposes to clarify that the definitions of Forward-
Starting Period and Forward-Starting Repo Transaction in Rule 1 include
CCIT Transactions. As such, FICC would amend the definitions of
Forward-Starting Period and Forward-Starting Repo Transaction in Rule 1
to reference CCIT Transactions.
Rule 3B
In addition, FICC proposes to revise Section 13(b) of Rule 3B,
which describes the FOS payments that apply to Netting Members with
respect to their CCIT Transactions. In Section 13(b)(i) of Rule 3B,
Transaction Adjustment Payment would be revised to the new proposed
term GCF Transaction Adjustment Payment. As described above, with
respect to CCIT Transactions and GCF Repo Transactions, GCF Transaction
Adjustment Payment would be the equivalent term to Transaction
Adjustment Payment for DVP Transactions. GCF Transaction Adjustment
Payment, like Transaction Adjustment Payment, would describe payments
for settlement purposes.
Similarly, the references in Section 13(b)(iii) of Rule 3B to
Interest Rate Mark would be revised to GCF Forward Starting Interest
Rate Mark. GCF Forward Starting Interest Rate Mark would apply only to
GCF Repo Transactions and with respect to CCIT Transactions, as
stipulated in Rule 3B, and would be equivalent to the current defined
term Interest Rate Mark (which, as described above, would be amended to
clarify that it only applies to DVP Transactions). Like Interest Rate
Mark for DVP Transactions, GCF Forward Starting Interest Rate Mark
would be an underlying mark of a FOS payment, the proposed GCF Forward
Mark Adjustment Payment. GCF Forward Mark Adjustment Payment is a FOS
payment for risk management-related amounts and is applicable to
Forward-Starting Repo Transactions that are a GCF Repo Transactions. As
described above, the definition of GCF Forward Mark would be revised to
include GCF Forward Starting Interest Rate Mark, so it would state
that, on a particular Business Day as regards any GCF Repo Transaction
that is not scheduled to settle on that day, the sum of the Accrued
Repo Interest-to-Date, the GCF Forward Starting Interest Rate Mark and
the GCF Interest Rate Mark on such GCF Repo Transaction.
Furthermore, in Section 13(b)(iv) of Rule 3B, FICC would revise the
reference from Interest Rate Mark Adjustment Payment to GCF Interest
Adjustment Payment and would add that the GCF Interest Adjustment
Payment is as it relates to (ii) and (iii) of Section 13(b) of Rule 3B.
Current Section 13(b)(ii) of Rule 3B specifies that Netting Members are
obligated to pay debits but are not entitled to collect credits for GCF
Interest Rate Mark with respect to their CCIT Transactions. As
described above, Section 13(b)(iii) of Rule 3B would be revised to
reference the GCF Forward Starting Interest Rate Mark rather than the
Interest Rate Mark. Netting Members would be obligated to pay debits
but would not be entitled to collect credits for the GCF Forward
Starting Interest Rate Mark with respect to their CCIT Transactions. As
described above, GCF Interest Adjustment Payment would be added as a
new defined term and would be equivalent to the current defined term,
Interest Adjustment Payment (which would apply only to DVP
Transactions). As described above, FICC is proposing to delete the term
Interest Rate Mark Adjustment Payment because this payment would be
covered by the new defined term GCF Interest Adjustment Payment (which
would apply to GCF Repo Transactions and with respect to CCIT
Transactions, only as stipulated in Rule 3B) and the current defined
term, Interest Adjustment Payment (which would apply only to DVP
Transactions).
(B) Restructure Section 1 of Rule 13 To List Only FOS Payments Rather
Than Both Payments and Some Underlying Marks
FICC believes it would enhance clarity and consistency in Rule 13
to only list the FOS payments in Section 1 of Rule 13 (and not the
underlying marks). Currently, Section 1 of Rule 13 lists both FOS
payments and some underlying marks. Specifically, Sections 1(d), (e),
and (f) of Rule 13 lists the GCF Interest Rate Mark, the Interest Rate
Mark, Debit Interest Rate Marks, Debit GCF Forward Marks and Credit
Interest Rate Marks and Credit GCF Forward Marks, which are underlying
marks of FOS payments. As such, FICC proposes to delete current
Sections 1(d), (e), and (f) of Rule 13.
FICC also proposes to amend Rule 13 by adding the new proposed FOS
payment, Redemption Adjustment Payment, as proposed Section 1(h).
FICC also proposes to amend Rule 13 by adding the new proposed FOS
payments that are applicable to GCF Repo Transactions (GCF Transaction
Adjustment Payment, GCF Forward Mark Adjustment Payment, and GCF
Interest Adjustment Payment) as proposed Sections 1(j), (k), and (l).
(C) A Correction and Certain Technical Changes
FICC is proposing to make corrections to the definition of Forward
Trade to reflect FICC's practice. FICC is correcting that a Repo
Transaction may be a Forward Trade (the current definition excludes
Repo Transactions in error). In addition, FICC is also adding a
sentence to make clear that if the Forward Trade is a Repo Transaction,
the Start Leg and the End Leg would be considered separate trades. FICC
is making a correction to provide that a Forward Trade is a trade whose
Scheduled Settlement Date is one or more Business Days after the date
it is submitted to FICC (not two or more Business Days as is currently
stated in the definition). These corrections are necessary to ensure
that the definition of Forward Trade reflects current practice.
Specifically, the definition of Forward Trade must be consistent with
the definition of Forward Net Settlement Position, which is made up of
a Member's Forward Trades. The definition of Forward Net Settlement
Position provides that the Scheduled Settlement Date of a Forward Trade
is one or more Business Days in the future, it includes Repo
Transactions, and provides the Start and End Legs shall constitute
separate positions. These are the items that FICC is proposing to
correct in the definition of Forward Trade. These corrections to the
definition of Forward Trade are relevant to the FOS process because
under FICC's current process, a Forward Mark Adjustment Payment is
applied to Forward Trades that are T+1 trades.
FICC is also proposing to make certain technical changes, such as
conforming grammatical changes, capitalizing defined terms, renumbering
sections, and reordering a list. For example, in Rule 1, FICC proposes
to make a conforming grammatical change to add ``and a'' in the
definition of Forward-Starting Period because a reference to CCIT
Transaction would be added. As another example, because FICC is adding
a new defined term, Redemption Value, in Rule 1, FICC proposes to
capitalize the references to redemption value in the definition of
Maturity Value and System Value.
In addition, certain paragraphs would be deleted or added in Rule
13, so FICC proposes to make conforming technical changes to renumber
these paragraphs accordingly.
[[Page 71380]]
FICC would also make conforming changes to Section 2 of Rule 13,
which currently states that the Funds-Only Settlement Amount of each
Netting Member is determined by calculating the net total, for a
particular Business Day, of the payments and underlying marks set forth
in that section. FICC proposes to delete the following terms: The Net
Interest Rate Mark Adjustment Payment, the GCF Interest Rate Mark, and
the Interest Rate Mark. FICC would add the new proposed terms, Net GCF
Transaction Adjustment Payment, Net GCF Forward Mark Adjustment
Payment, Net GCF Interest Adjustment Payment, and Net Redemption
Adjustment Payment.
In order to enhance clarity and consistency, FICC proposes to
reorder the list of payments that make up the Funds-Only Settlement
Amount in Section 2 of Rule 13. Currently, the Net Coupon Adjustment
Payment and the Net Clearance Difference Amount are listed as items (i)
and (j) in the second paragraph of Section 2 of Rule 13. FICC proposes
to move the Net Coupon Adjustment Payment to new item (f) and the Net
Clearance Difference Amount to new item (g) to be consistent with the
order in which these payments appear in Section 1 of Rule 13. FICC
would also make a conforming change to renumber the subsections in
Section 2 of Rule 13 accordingly.
In addition, FICC is proposing to delete the reference to the term
``Clearing Fund Funds-Only Settlement Amount'' from the definition of
Opening Balance in Rule 1, because this is an outdated Clearing Fund
component that should have been deleted when GSD moved to a VaR-based
Clearing Fund methodology. FICC is also proposing to clarify the
definition by deleting ``on a given Business Day'' and ``of the
previous Business Day'' from the definition of Opening Balance and
adding ``immediately prior'' before processing cycle because, as
described above, FOS occurs twice daily. As such, the Opening Balance
of the intraday FOS would be the amount reported to the Member during
the morning FOS cycle.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\37\
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\37\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed changes to (i) clarify which FOS payments and
underlying marks are applicable to DVP Transactions, clarify which
payments and underlying marks are applicable to GCF Repo Transactions
and CCIT Transactions, and add a payment that is currently debited
from/credited to (as applicable) Members that is not currently
referenced in the Rules, (ii) restructure Section 1 of Rule 13 to list
only FOS payments rather than both payments and some underlying marks,
and (iii) make a correction and certain technical changes to the Rules
would help to ensure that the Rules are accurate and clear to
participants. When participants better understand their rights and
obligations regarding the Rules, such participants are more likely to
act in accordance with the Rules, which FICC believes would promote the
prompt and accurate clearance and settlement of securities
transactions. As such, FICC believes that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act.\38\
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\38\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe the proposed rule changes to (i) clarify
which FOS payments and underlying marks are applicable to DVP
Transactions, clarify which payments and underlying marks are
applicable to GCF Repo Transactions and CCIT Transactions, and add a
payment that is currently debited from/credited to (as applicable)
Members that is not currently referenced in the Rules, (ii) restructure
Section 1 of Rule 13 to list only FOS payments rather than both
payments and some underlying marks, and (iii) make a correction and
certain technical changes would impact competition. The proposed rule
changes would help to ensure that the Rules remain clear and accurate.
In addition, the changes would facilitate participants' understanding
of the Rules and their obligations thereunder. These changes would not
affect FICC's operations or the rights and obligations of the
membership. As such, FICC believes the proposed rule changes would not
have any impact on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \39\ of the Act and paragraph (f) \40\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\39\ 15 U.S.C 78s(b)(3)(A).
\40\ 17 CFR 240.19b-4(f).
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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-2020-012 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-2020-012. 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
[[Page 71381]]
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-2020-012
and should be submitted on or before November 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24785 Filed 11-6-20; 8:45 am]
BILLING CODE 8011-01-P