[Federal Register Volume 89, Number 58 (Monday, March 25, 2024)]
[Notices]
[Pages 20735-20739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06163]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99774; File No. SR-FICC-2024-004]


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

March 19, 2024.
    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 March 11, 2024, 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)(6) 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)(6).
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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 amendments to Clearing Agency 
Liquidity Risk Management Framework (``LRM Framework'') and the 
Clearing Agency Stress Testing Framework (Market Risk) (``ST 
Framework'' and, together with the LRM Framework, the ``Frameworks'') 
of FICC and its affiliates, The Depository Trust Company (``DTC'') and 
National Securities Clearing Corporation (``NSCC,'' and together with 
FICC and DTC, the ``Clearing Agencies''), as described below. FICC is 
filing the proposed rule change for immediate effectiveness pursuant to 
Section 19(b)(3)(A) of the Act \5\ and Rule 19b-4(f)(6) thereunder,\6\ 
as described in greater detail below.\7\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
    \7\ Capitalized terms not defined herein shall have the meaning 
assigned to such terms in each of the Clearing Agencies' respective 
Rules, available at www.dtcc.com/legal/rules-and-procedures.

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[[Page 20736]]

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
Background
    Rules 17Ad-22(e)(4) and (7) under the Act require the Clearing 
Agencies to establish, implement, maintain and enforce written policies 
and procedures reasonably designed to manage their credit and liquidity 
risks.\8\ The Clearing Agencies adopted the LRM Framework to set forth 
the manner in which they measure, monitor and manage the liquidity 
risks that arise in or are borne by each of the Clearing Agencies by, 
for example, (1) maintaining sufficient liquid resources to effect 
same-day settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios that 
include, but are not limited to, the default of the participant family 
that would generate the largest aggregate payment obligation for the 
Clearing Agency in extreme but plausible market conditions, and (2) 
determining the amount and regularly testing the sufficiency of 
qualifying liquid resources by conducting stress testing of those 
resources.\9\ In this way, the LRM Framework describes the liquidity 
risk management activities of each of the Clearing Agencies and how the 
Clearing Agencies meet the applicable requirements of Rule 17Ad-
22(e)(7).\10\
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    \8\ See 17 CFR 240.17Ad-22(e)(4) and (7).
    \9\ See Securities Exchange Act Release No. 82377 (Dec. 21, 
2017), 82 FR 61617 (Dec. 28, 2017) (File Nos. SR-DTC-2017-004; SR-
FICC-2017-008; SR-NSCC-2017-005).
    \10\ 17 CFR 240.17Ad-22(e)(7).
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    The Clearing Agencies adopted the ST Framework to set forth the 
manner in which they identify, measure, monitor, and manage their 
respective credit exposures to participants and those arising from 
their respective payment, clearing, and settlement processes by, for 
example, maintaining sufficient prefunded financial resources to cover 
its credit exposures to each participant fully with a high degree of 
confidence and testing the sufficiency of those prefunded financial 
resources through stress testing.\11\ In this way, the ST Framework 
describes the stress testing activities of each of the Clearing 
Agencies and how the Clearing Agencies meet the applicable requirements 
of Rule 17Ad-22(e)(4) under the Act.\12\
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    \11\ See Securities Exchange Act Release No. 82368 (Dec. 19, 
2017), 82 FR 61082 (Dec. 26, 2017) (SR-DTC-2017-005; SR-FICC-2017-
009; SR-NSCC-2017-006).
    \12\ 17 CFR 240.17Ad-22(e)(4).
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Proposed Changes
    The Clearing Agencies propose to make clarifying and organizational 
changes to the LRM Framework and ST Framework designed to improve the 
accuracy and clarity of the documents. Specifically, the proposed 
changes would (i) clarify in the LRM Framework the resources currently 
available to FICC and NSCC to meet settlement obligations and 
foreseeable liquidity shortfalls; (ii) clarify in the LRM Framework the 
Clearing Agencies' practices for reporting and escalating liquidity 
risk tolerance threshold breaches; (iii) relocate the governance and 
escalation requirements related to certain liquidity risk management 
processes from the ST Framework to the LRM Framework; and (iv) make 
other non-substantive clarifying, organizational, and cleanup changes 
to the LRM Framework. The proposed changes are described in detail 
below.
Proposed Clarifications to Description of FICC and NSCC Liquidity 
Resources
    The LRM Framework describes how the Clearing Agencies would address 
foreseeable liquidity shortfalls that would not be covered by their 
existing liquid resources. In the case of FICC, the LRM Framework 
provides, among other things, that the FICC Government Securities 
Division (``GSD'') and Mortgage-Backed Securities Division (``MBSD'') 
would look for additional repo counterparties beyond their respective 
existing master repurchase agreements and that MBSD may seek Members to 
provide additional repo capacity beyond their Capped Contingency 
Liquidity Facility (``CCLF'') requirements.\13\ With respect to NSCC, 
the LRM Framework provides that NSCC may look to utilize, among other 
things, certain uncommitted repurchase arrangements (e.g., stock loans 
or equity repos) or other uncommitted credit facilities to address 
foreseeable liquidity shortfalls. The Clearing Agencies propose to 
revise these statements and replace them with more accurate summaries 
of the types of liquidity resources available to FICC and NSCC.
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    \13\ See FICC GSD Rule 22A, Section 2a and FICC MBSD Rule 17, 
Section 2a, supra note 7.
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    The Clearing Agencies would modify the LRM Framework to state that 
FICC may use Clearing Fund deposits to meet its settlement obligations, 
as permitted under GSD Rule 4 and MBSD Rule 4,\14\ either through 
direct use of cash deposits to the Clearing Funds or through the pledge 
or rehypothecation of pledged eligible Clearing Fund securities. The 
LRM Framework would also be revised to clarify that FICC could also 
address a liquidity shortfall by accessing a short-term financial 
commercial arrangement, such as uncommitted Master Repurchase 
Agreements maintained by FICC and which do not constitute qualifying 
liquid resources, or by utilizing its general corporate funds to the 
extent such funds exceed amounts needed to meet FICC's regulatory 
capital requirements. In addition, the Clearing Agencies would further 
clarify that FICC could also address a liquidity shortfall by accessing 
its existing repo counterparties, even if such funds may not be 
available to meet same-day settlement obligations. The Clearing 
Agencies would also delete a footnote containing a cross-reference to a 
previously deleted footnote.
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    \14\ See supra note 7.
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    The Clearing Agencies also propose to revise the LRM Framework to 
remove references to certain specific uncommitted resources of NSCC, 
such as stock loans, equity repos, and other uncommitted credit 
facilities, which are no longer available to NSCC and for which NSCC no 
longer maintains the necessary agreements. This would be replaced with 
a more general clarification that all of the Clearing Agencies may seek 
to address unforeseen liquidity shortfalls in excess of qualifying 
liquid resources through uncommitted arrangements. The Clearing 
Agencies would also update the LRM Framework to use more accurate 
terminology and descriptions of NSCC's senior note issuance program. 
These proposed changes are not intended to reflect actual substantive 
changes to the senior note issuance program.
    The Clearing Agencies believe the proposed changes would enhance 
the LRM Framework by more precisely describing the existing tools and 
resources that FICC and NSCC may utilize to address foreseeable 
liquidity

[[Page 20737]]

shortfalls in compliance with Rule 17Ad-22(e)(7)(viii) under the 
Act.\15\
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    \15\ 17 CFR 240.17Ad-22(e)(7)(viii).
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Proposed Clarifications to Liquidity Risk Tolerances
    The LRM Framework describes the manner in which the liquidity risks 
of the Clearing Agencies are assessed and escalated through liquidity 
risk management controls that include a statement of risk tolerances 
that are specific to liquidity risk (``Liquidity Risk Tolerance 
Statement''). The Clearing Agencies propose to revise the LRM Framework 
to provide additional clarity and accuracy around their existing 
processes for reporting and escalating liquidity risk tolerances.
    The Clearing Agencies would revise the LRM Framework to remove 
certain statements regarding the reporting of risk tolerances and 
instead clarify that liquidity risk tolerance thresholds are 
communicated to relevant personnel and the management risk committee as 
prescribed by the Liquidity Risk Tolerance Statement of the Clearing 
Agencies' Corporate Risk Management Policy, with necessary escalation 
and analyses performed in accordance with a newly proposed section of 
the LRM Framework concerning liquidity risk governance and escalations 
(described in further detail below). This would include the removal of 
an outdated statement concerning potential responses to risk tolerance 
threshold reporting (e.g., responses such as risk avoidance, risk 
mitigation, risk acceptance), and instead focus on the required 
escalations set forth in the Liquidity Risk Tolerance Statements to be 
more consistent with the process as described in the Corporate Risk 
Management Policy. The Clearing Agencies would also remove specific 
references to the Stress Testing Team in communicating liquidity risk 
tolerance thresholds because this task may be performed by staff within 
the overall Liquidity Risk and Stress Testing function of DTCC. In 
addition, the LRM Framework would be revised to clarify that the 
liquidity risk profile prepared by the Operational Risk Management 
department (``ORM'') is reviewed with senior management in the Group 
Chief Risk Office (and not just within the Liquidity Risk Management 
team) and to update the name of the risk profile used by ORM to monitor 
liquidity risk management. The Clearing Agencies believe the proposed 
changes would enhance the LRM Framework by improving the accuracy and 
clarity of the document as it relates to liquidity risk tolerance 
reporting.
Proposed Clarifications to Liquidity Risk Governance and Escalation
    On November 17, 2022, the Commission approved a proposed rule 
change by the Clearing Agencies to amend the ST Framework and LRM 
Framework to, among other things, relocate certain descriptions of the 
Clearing Agencies' liquidity stress testing activities from the LRM 
Framework to the ST Framework.\16\ This included certain requirements 
related to liquidity risk escalations, and in particular, the process 
for escalating liquidity shortfalls. The Clearing Agencies now propose 
to add a new section to the LRM Framework to relocate requirements 
related to liquidity risk governance and the escalation of liquidity 
shortfalls back into the LRM Framework because these activities and 
processes are primarily driven the Clearing Agencies' Liquidity Risk 
Management team.
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    \16\ See Securities Exchange Act Release No. 96345 (Nov. 17, 
2022), 87 FR 71714 (Nov. 23, 2022) (File Nos. SR-DTC-2022-006; SR-
FICC-2022-004; SR-NSCC-2022-006).
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    The Clearing Agencies propose to add a new Liquidity Risk 
Governance sub-section to the LRM Framework, which would contain the 
same information as the Stress Test Governance section of the ST 
Framework but with modifications to refer to liquidity risk policies, 
procedures and risk tolerance statements rather than stress testing 
policies, procedures and risk tolerance statements. Additionally, the 
Clearing Agencies would relocate the Escalation of Liquidity Shortfalls 
section of the ST Framework to the LRM Framework with certain 
modifications and drafting clarifications. Specifically, the Clearing 
Agencies would revise and clarify the manner in which liquidity risk 
tolerance threshold breaches and liquidity shortfalls are identified, 
reported and escalated by stating that liquidity risk tolerance 
threshold breaches and liquidity shortfalls identified through the 
daily liquidity studies are reported and escalated in accordance with 
the Clearing Agencies' Liquidity Risk Tolerance Statement. The Clearing 
Agencies would also clarify that the Liquidity Risk Management team 
performs the daily analysis of any calculated liquidity shortfalls. In 
addition, the Clearing Agencies would clarify that the management risk 
committee does not directly evaluate the adequacy of liquidity 
resources as a first line function but rather reviews management 
evaluations and recommendations related to the adequacy of such 
resources, which may include adjusting the CCP's liquidity risk 
management methodology, model parameters, and any other relevant aspect 
of its liquidity risk management framework, or otherwise supplementing 
liquid resources. The ST Framework would also be revised to state that 
liquidity risk tolerance and liquidity shortfall reporting and 
escalations are governed by the LRM Framework.

Other Clarifying, Cleanup and Organizational Changes

    Finally, the Clearing Agencies propose other clarifying, cleanup 
and organizational changes to the LRM Framework to improve the accuracy 
and clarity of the document. The Clearing Agencies would relocate the 
definition of ``qualifying liquid resources'' from Section 5 of the LRM 
Framework to the Glossary of Key Terms in Section 2, with minor 
modifications to associated footnotes and citations, so that this term 
is clearly defined before its first usage within the LRM Framework. The 
Clearing Agencies would also update the Glossary of Key Terms to refer 
to the DTCC Treasury ``department'' rather than DTCC Treasury ``group'' 
to align with other references to the DTCC Treasury department 
throughout the LRM Framework and remove the defined term ``Stress 
Testing Team'' because specific responsibilities of this team would no 
longer be described in LRM Framework as they are covered in the ST 
Framework.
    In addition, Clearing Agencies would make several cleanup changes 
in the Liquidity Risk Measurement section of the LRM Framework to 
remove an outdated reference to previously removed sections of the LRM 
Framework, refer to the new Liquidity Risk Governance and Escalation 
Procedures section of the LRM Framework, and remove a specific 
reference to the Stress Test Team (the responsibilities of which are 
addressed in the ST Framework).
    Finally, the Clearing Agencies would make a minor clarification in 
the LRM Framework regarding the annual testing of certain uncommitted 
liquidity providers, which are non-qualifying liquid resources of FICC.
2. Statutory Basis
    The Clearing Agencies believe that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, the Clearing Agencies believe that the proposed changes are 
consistent with Section

[[Page 20738]]

17A(b)(3)(F) of the Act \17\ and Rule 17Ad-22(e)(7) under the Act \18\ 
for the reasons set forth below.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(7).
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    Section 17A(b)(3)(F) of the Act \19\ 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. The 
proposed changes would improve the accuracy and clarity of the 
Frameworks, and specifically the LRM Framework, by (i) clarifying in 
the LRM Framework the resources currently available to FICC and NSCC to 
meet settlement obligations and liquidity shortfalls; (ii) clarifying 
in the LRM Framework the Clearing Agencies' practices for reporting and 
escalating liquidity risk tolerance thresholds; (iii) relocating the 
governance and escalation requirements related to certain liquidity 
risk management processes from the ST Framework to the LRM Framework; 
and (iv) making other non-substantive clarifying, organizational and 
cleanup changes to the LRM Framework. The LRM Framework and the 
policies and procedures that support the LRM Framework help assure that 
each Clearing Agency can effectively measure, monitor, and manage their 
liquidity risks to promote the timely settlement of securities 
transactions. The proposed changes would enhance the LRM Framework by 
improving the accuracy and clarity of the descriptions of key aspects 
of the Clearing Agencies' liquidity risk management processes, thereby 
facilitating the Clearing Agencies' ability to continue the prompt and 
accurate clearance and settlement of securities transactions as 
required by Section 17A(b)(3)(F) of the Act.
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(7) under the Act 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.\20\ As discussed above, the LRM Framework 
and the policies and procedures that support the LRM Framework help 
assure that each Clearing Agency can effectively measure, monitor, and 
manage their liquidity risks. The Clearing Agencies believe that by 
improving the accuracy and clarity of the descriptions of key aspects 
of the Clearing Agencies' liquidity risk management processes, the 
proposed changes would facilitate the maintenance of written policies 
and procedures reasonably designed to effectively measure, monitor, and 
manage liquidity risks as required by Rule 17Ad-22(e)(7) under the Act.
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    \20\ See 17 CFR 240.17Ad-22(e)(7).
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    In addition, Rule 17Ad-22(e)(7)(viii) under the Act specifically 
requires a covered clearing agency to establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to 
address 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.\21\ The Clearing Agencies believe that including 
additional clarity and specificity in the LRM Framework concerning the 
types of liquidity resources available to FICC and NSCC to address 
foreseeable liquidity shortfalls would further promote compliance with 
Rule 17Ad-22(e)(7)(viii) under the Act.
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    \21\ See 17 CFR 240.17Ad-22(e)(7)(viii).
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    For these reasons, the Clearing Agencies believe the proposed rule 
change is consistent with the requirements of Section 17A(b)(3)(F) of 
the Act \22\ and Rule 17Ad-22(e)(7) thereunder.\23\
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
    \23\ 17 CFR 240.17Ad-22(e)(7).
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(B) Clearing Agency's Statement on Burden on Competition

    The proposed changes would enhance the Frameworks, and specifically 
the LRM Framework, by providing additional clarity and accuracy 
concerning the Clearing Agencies' existing liquidity risk management 
processes. The Frameworks, and the proposed rule changes described 
herein, would not advantage or disadvantage any particular participant 
or user of the Clearing Agencies' services or unfairly inhibit access 
to the Clearing Agencies' services. The Clearing Agencies therefore do 
not believe that the proposed rule change would have any impact, or 
impose any burden, on competition.

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

    The Clearing Agencies have 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 www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the SEC's Division of Trading 
and Markets at [email protected] or 202-551-5777.
    The Clearing Agencies reserve the right to not respond to any 
comments received.

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

    Because the foregoing proposed rule change does not:
    (i) significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \24\ and 
Rule 19b-4(f)(6) thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
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    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.

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:

[[Page 20739]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2024-004 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-2024-004. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FICC and on 
DTCC's website (https://dtcc.com/legal/sec-rule-filings.aspx). Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to File Number SR-FICC-2024-004 and should be 
submitted on or before April 15, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06163 Filed 3-22-24; 8:45 am]
BILLING CODE 8011-01-P