[Federal Register Volume 88, Number 27 (Thursday, February 9, 2023)]
[Notices]
[Pages 8491-8494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02718]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96800; File No. SR-FICC-2023-001]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Clearing Agency Risk Management Framework

February 3, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 30, 2023, 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 amends the Clearing Agency Risk Management 
Framework (``Risk Management Framework'', or ``Framework'') of FICC and 
its affiliates, The Depository Trust Company (``DTC'') and National 
Securities Clearing Corporation (``NSCC,'' and together with FICC, the 
``CCPs'' and the CCPs together with DTC, the ``Clearing Agencies'').\5\ 
Specifically, the proposed rule change would amend the Risk Management 
Framework to (1) update the description of the dashboards used by the 
Clearing Agencies as internal performance management tools to measure 
the effectiveness of their various operations; and (2) clarify and 
revise the descriptions of certain matters within the Framework and 
correct errors in those descriptions, as further described below. The 
proposed changes would update and clarify the Risk Management Framework 
but do not reflect changes to how the Clearing Agencies comply with the 
applicable requirements of Rule 17Ad-22(e), as described in greater 
detail below.
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    \5\ See Securities Exchange Act Release Nos. 81635 (September 
15, 2017), 82 FR 44224 (September 21, 2017) (File Nos. SR-DTC-2017-
013; SR-FICC-2017-016; SR-NSCC-2017-012) (``Initial Filing'') and 
Securities Exchange Act Release No. 89271 (July 09, 2020), 85 FR 
42933 (July 15, 2020) (File No. SR-NSCC-2020-012); Securities 
Exchange Act Release No. 89269 (July 09, 2020), 85 FR 42954 (July 
15, 2020) (File No. SR-DTC-2020-009); and Securities Exchange Act 
Release No. 89270 (July 09, 2020), 85 FR 42927 (July 15, 2020) (File 
No. SR-FICC-2020-007) (together with the Initial Filing, the 
``Framework Filings'').
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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 Clearing Agencies adopted the Risk Management Framework \6\ to 
provide an outline for how each of the Clearing Agencies (i) maintains 
a well-founded, clear, transparent and enforceable legal basis for each 
aspect of its activities; (ii) comprehensively manages legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by it; (iii) identifies, 
monitors, and manages risks related to links it establishes with one or 
more clearing agencies, financial market utilities, or trading markets; 
(iv) meets the requirements of its participants and the markets it 
serves efficiently and effectively; (v) uses, or at a minimum 
accommodates, relevant internationally accepted communication 
procedures and standards in order to facilitate efficient payment, 
clearing and settlement; and (vi) publicly discloses certain 
information, including market data. In this way, the Risk Management 
Framework currently supports the Clearing Agencies' compliance with 
Rules 17Ad-22(e)(1), (3), (20), (21), (22) and (23) of the 
Standards,\7\ as described in the Framework Filings. In addition to 
setting forth the manner in which each of the Clearing Agencies 
addresses these requirements, the Risk Management Framework also 
contains a section titled ``Framework Ownership and Change Management'' 
that, among other matters, describes the Framework ownership and the 
required governance process for review and approval of changes to the 
Framework. In connection with the annual review and approval of the 
Framework by the Board of Directors of each of NSCC, DTC and FICC (each 
a ``Board'' and collectively, the ``Boards''), the Clearing Agencies 
are proposing to make certain revisions to the Framework.
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    \6\ Supra note 5.
    \7\ 17 CFR 240.17Ad-22(e)(1), (3), (20), (21), (22) and (23).
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    First, the proposed changes would update the Risk Management 
Framework to reflect a change to the dashboards used by the Clearing 
Agencies as internal performance management tools to measure the 
effectiveness of various aspects of their operations, as described in 
greater detail below.
    The proposed changes would also clarify and enhance the 
descriptions in the Risk Management Framework and correct errors in 
those descriptions by, for example, (1) enhancing the description of 
the Clearing Agencies processes for management of certain risks through 
risk tolerance statements; (2) clarifying the description of the 
``Three Lines of Defense,'' including but not limited to updating the 
descriptions of the ``first line of defense,'' the ``second line of 
defense,'' and the ``third line of defense,'' (3) clarifying the 
definition of Rules; (4) enhancing the description of the purpose and 
approval process of ``Risk Management Frameworks;'' and (5) updating 
the name of the Operational Risk Management group and the Third Party 
Risk function.
    Finally, the proposed changes would capitalize terms that 
mistakenly were not previously capitalized but refer to a specific 
term, remove an unnecessary

[[Page 8492]]

citation and make certain grammatical changes.
i. Proposed Amendments To Update the Description of Performance 
Measurement Tools
    The proposed changes would update the Risk Management Framework to 
reflect a recent change to the dashboards that are used by the Clearing 
Agencies as internal performance management tools and address their 
compliance with the requirements of Rule 17Ad-22(e)(21).\8\ Section 4.3 
of the Framework identifies certain processes implemented by the 
Clearing Agencies to be efficient and effective in meeting the 
requirements of their respective participants and the markets they 
serve.\9\ This list of processes is not meant to be exhaustive, and the 
Clearing Agencies may use other methods to achieve their goals and meet 
their regulatory requirements. The proposed change would update the 
Framework to remove reference to a process that was previously used by 
the Clearing Agencies to monitor their performance and the review 
standards for such processes.
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    \8\ 17 CFR 240.17Ad-22(e)(21).
    \9\ Id.
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    The Clearing Agencies previously used the DTCC Core Balanced 
Scoreboard (``BBS'') to provide insight into the effectiveness of their 
various operations in meeting the needs of their participants and the 
markets they serve. The Clearing Agencies have eliminated the BBS and 
now utilize multiple other dashboards to measure the outcomes that were 
previously measured by the BBS. The elimination of the BBS is not a 
material change in how the Clearing Agencies approach risk management, 
as they are simply using other methods to continue to comply with the 
requirements of Rule 17Ad-22(e)(21).\10\ The use of multiple dashboards 
allows for a more holistic view of the performance of the Clearing 
Agencies and their subsidiaries. The proposed change would also enhance 
the descriptions of these processes by describing the annual review of 
this process and how results are tracked.
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    \10\ Supra note 8.
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ii. Proposed Amendment To Clarify, Enhance, and Correct Descriptions in 
the Framework
    The proposed changes would improve the clarity and 
comprehensiveness of the descriptions of certain matters within the 
Risk Management Framework and correct grammatical errors in certain 
descriptions. Some specific examples of such proposed changes include:
1. Proposed Change To Describe the Clearing Agencies' Assessment and 
Review of Risk Tolerance Statements
    Section 3 of the Framework describes management's responsibility to 
establish risk tolerance statements for the range of risks that arise 
in or are borne by the Clearing Agencies. Section 3 also outlines the 
review and approval process for such risk tolerance statements and the 
Clearing Agencies' performance relative to those statements. The 
proposed change would clarify that the Clearing Agencies' performance 
relative to those risk tolerance statements is assessed quarterly and 
is shared with senior management and the Board Risk Committees of the 
Clearing Agencies.
2. Proposed Changes To Clarify the Description of the ``Three Lines of 
Defense''
    Section 3.1 of the Framework describes the ``three lines of 
defense'' approach adopted by each of the Clearing Agencies for 
identifying, assessing, measuring, monitoring, mitigating, and 
reporting the risks that arise in or are borne by it. A proposed change 
would remove the last sentence of this Section, which states, ``While 
the Framework provides a general description of the Three Lines of 
Defense approach for risk management, the Three Lines of Defense 
approach may be used by the Clearing Agencies for managing specific 
risks, for example operational risk, which is addressed in the 
Operational Risk Management Framework (see Section 3 below)'' This 
sentence is unnecessarily duplicative of the statements in Section 
3.3.3 of the Framework which provides details of the various 
frameworks, separate and apart from this Framework, used by the 
Clearing Agencies to manage specific risks and, therefore, may cause 
confusion to a reader. The deletion of the sentence would resolve any 
such possible confusion, thereby clarifying the entirety of Section 3. 
The Clearing Agencies are also proposing a change to enhance the 
examples provided in Section 3.1.1 to illustrate the Clearing Agency 
Business/Support Areas role as the first line of defense in managing 
risk by adding two additional examples: (a) ``Defining and monitoring 
business risk metrics applicable to their function;'' and (b) ``Clearly 
understanding and reporting the residual, unmitigated risk that is 
acceptable to their function.'' Additionally, a proposed change to 
Section 3.1.3 would update the description of the responsibilities of 
internal audit to be in line with the internal audit charter.
3. Proposed Change To Clarify the Definition of ``Rules''
    Section 3.3.2 of the Framework includes a defined term for the 
``Rules'' of the Clearing Agencies. The proposed change would clarify 
that the ``Rules'' referred to for purposes of this Framework are filed 
with the Commission. Therefore, the proposed change would update the 
definition of Rules for clarification purposes and would not 
substantively change the definition.
4. Enhance the Description of the Purpose and Approval Process of 
``Risk Management Frameworks''
    Section 3.3.3 describes the system of frameworks, maintained by the 
Clearing Agencies, separate and apart from this Framework to manage a 
range of risks. This Section outlines in greater detail certain of 
these risk management frameworks and their purpose. The proposed 
changes to this Section 3.3.3 would enhance the description of one of 
these frameworks; clarify that such frameworks are in support of this 
Framework; and clarify that such frameworks may be approved by an 
applicable Board committee as delegated by the Boards, pursuant to the 
Document Standards described in this Framework.
5. Stating a Change to the Name of the Vendor Risk Management Group and 
to the Third-Party Risk Function Group
    The Framework describes the role of the Operational Risk Management 
Group as the group that manages incidents, and the Third-Party 
Management Function manages third party risks to the Clearing Agencies. 
The proposed change would update the Framework to reflect a change in 
the name of these two groups. The Operational Risk Management Group is 
now referred to as Operational and Technology Risk and the Third-Party 
Risk Management group is now referred to as Third Party Risk. This 
proposed change would reflect a recent organizational name change.
6. Proposed Changes To Capitalize Defined Terms and Correct Grammatical 
and Formatting Errors, Removal of Citation
    These proposed changes would fix grammatical errors and capitalize 
terms that should be defined terms in the Framework or removes 
inconsistent wording. Some of these changes include: (i) make IOSCO a 
defined term in footnote 2 for clarification purposes;

[[Page 8493]]

(ii) change the word ``settlement'' to ``settling'' in Section 4.2 for 
consistency; (3) remove the words ``and Liquidity Providers'' from the 
heading ``Risks Related to Investment Counterparties and Liquidity 
Providers'' in Section 4.2.1 as the paragraph does not discuss 
liquidity providers and (4) deletion of footnote 21 as unnecessary.
    The proposed rule change would make additional immaterial edits to 
the Framework that do not alter how the Clearing Agencies comply with 
the applicable requirements of Rule 17Ad-22(e).
2. Statutory Basis
    The Clearing Agencies believe that the proposed changes are 
consistent with Section 17A(b)(3)(F) of the Act \11\ for the reasons 
described below. Section 17A(b)(3)(F) of the Act requires, in part, 
that the rules of a registered clearing agency be designed to promote 
the prompt and accurate clearance and settlement of securities 
transactions, and to assure the safeguarding of securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible.\12\ The proposed changes would (1) update the Risk 
Management Framework to remove reference to the BBS and include a 
description of the governance around the dashboards used by the 
Clearing Agencies to measure the effectiveness of their operations, and 
(2) clarify the descriptions of certain matters within the Framework to 
improve comprehensiveness and correct errors, as described above. By 
creating clearer, updated descriptions and correcting errors, the 
Clearing Agencies believe that the proposed changes would make the Risk 
Management Framework more effective in providing an overview of the 
important risk management activities of the Clearing Agencies, as 
described therein.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ Id.
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    As described in the Framework Filings, the risk management 
functions described in the Risk Management Framework allow the Clearing 
Agencies to continue to promote the prompt and accurate clearance and 
settlement of securities transactions and continue to assure the 
safeguarding of securities and funds which are in their custody or 
control or for which they are responsible notwithstanding the default 
of a member of an affiliated family. The proposed changes to improve 
the clarity and accuracy of the descriptions of risk management 
functions within the Framework would assist the Clearing Agencies in 
carrying out these risk management functions. Therefore, the Clearing 
Agencies believe these proposed changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\13\
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    \13\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    The Clearing Agencies do not believe that the proposed changes to 
the Framework described above would have any impact, or impose any 
burden, on competition. As described above, the proposed rule change 
would improve the comprehensiveness of the Framework by creating 
clearer, updated descriptions and correcting errors, thereby making the 
Risk Management Framework more effective in providing an overview of 
the important risk management activities of the Clearing Agencies. As 
such, the Clearing Agencies do not believe that the proposed rule 
change would 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. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submitcomments. General questions 
regarding the rule filing process or logistical questions regarding 
this filing should be directed to the Main Office of the Commission's 
Division of Trading and Markets at [email protected] or 202-
551-5777.
    FICC reserves the right not to respond to any comments received.

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) \14\ of the Act and paragraph (f) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
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    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

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-2023-001 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-2023-001. 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

[[Page 8494]]

Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of FICC and on DTCC's website (http://dtcc.com/legal/sec-rule-filings.aspx). All comments received will be posted without 
change. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FICC-2023-001 
and should be submitted on or before March 2, 2023.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02718 Filed 2-8-23; 8:45 am]
BILLING CODE 8011-01-P