[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43938-43941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10953]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100137; File No. SR-FICC-2024-008]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Modify the GSD Rules and 
MBSD Rules to Update Certain Member Requirements Under CCLF

May 14, 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 May 8, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The purpose of the proposed rule change is to modify the MBSD Rules 
concerning CCLF (also known as the Capped Contingency Liquidity 
Facility) to (i) require that each MBSD Clearing Member provide an 
annual attestation that its Defined Capped Liquidity Amount has been 
incorporated into its liquidity plans; (ii) require Clearing Members to 
provide certain acknowledgements to FICC concerning their understanding 
of and ability to meet their CCLF obligations; and (iii) provide 
additional clarity and transparency in the MBSD Rules concerning the 
liquidity funding reports that are made available to Clearing Members 
in connection with their CCLF obligations. The proposed rule change 
would also modify the GSD Rules to include a similar requirement that 
each GSD Netting Member provide certain acknowledgements to FICC 
concerning their understanding of and ability to meet their CCLF 
obligations and provide further clarity around GSD's regular 
attestation requirement in GSD Rule 22A.\3\
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    \3\ Capitalized terms not defined herein are defined in the GSD 
Rules and MBSD Rules, as applicable, available at www.dtcc.com/legal/rules-and-procedures.
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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
Background
    CCLF is a rules-based committed liquidity facility designed to help 
ensure that FICC maintains sufficient liquid financial resources to 
meet its cash settlement obligations in the event of a default of the 
member (and its affiliates) to which FICC has the largest exposure in 
extreme but plausible market conditions. In the event that FICC has 
ceased to act for an MBSD

[[Page 43939]]

Clearing Member pursuant to MBSD Rule 17 or for a GSD Netting Member 
pursuant to GSD Rule 22A, FICC may declare a Capped Contingency 
Liquidity Facility Event (a ``CCLF Event''), pursuant to which such 
members may be required to hold and fund their deliveries to the 
insolvent member, up to a predetermined cap, by entering into repo 
transactions with FICC until the associated closeout is complete. The 
maximum predetermined cap amount that an MBSD Clearing Member would be 
required to fund during a CCLF Event is referred to as the ``Defined 
Capped Liquidity Amount.'' The maximum predetermined cap amount that a 
GSD Netting Member would be required to fund during a CCLF Event is 
referred to as the ``Individual Total Amount.'' Each MBSD Clearing 
Member's Defined Capped Liquidity Amount or GSD Netting Member's 
Individual Total Amount is generally established at set intervals based 
on liquidity studies performed by FICC; however, FICC may also reset 
such amounts at such other time periods as FICC may determine from time 
to time (an ``ad hoc resizing'').\4\
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    \4\ See MBSD Rule17, Section 2a(c) and GSD Rule 22A, Section 
2a(b), supra note 3.
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Proposed Changes
    FICC proposes to modify the MBSD Rules to (i) require that each 
Clearing Member provide a regular attestation that its Defined Capped 
Liquidity Amount has been incorporated into its liquidity plans and 
(ii) provide additional clarity and transparency concerning the 
liquidity funding reports that are made available to Clearing Members 
in connection with their CCLF obligations. Additionally, FICC proposes 
to modify both the MBSD Rules and GSD Rules to require MBSD Clearing 
Members and GSD Netting Members to provide certain acknowledgements to 
FICC concerning their understanding of and ability to meet their CCLF 
obligations. FICC also proposes to modify the GSD Rules to provide 
further clarity around GSD's regular attestation requirement in GSD 
Rule 22A. The proposed changes are discussed in detail below.
Required Attestation
    FICC proposes to adopt new Section 2a(e) of MBSD Rule 17 that would 
require each Clearing Member to provide to FICC a regular attestation 
that the Clearing Member's Defined Capped Liquidity Amount has been 
incorporated into its liquidity plans (``Required Attestation''). The 
Required Attestation would be required on at least an annual basis or 
upon demand by FICC. The newly proposed rule would require that each 
Required Attestation be signed by two authorized officers of the 
Clearing Member (or otherwise be satisfactory in form and substance to 
FICC) and contain the following certifications: (1) such officers have 
read and understand the MBSD Rules; (2) the Clearing Member's Defined 
Capped Liquidity Amount has been incorporated into the Clearing 
Member's liquidity planning; (3) the Clearing Member acknowledges and 
agrees that its Defined Capped Liquidity Amount may be changed pursuant 
to Section 2a(c) of MBSD Rule 17 or otherwise upon ten Business Days' 
Notice; (4) the Clearing Member will incorporate any changes to its 
Defined Capped Liquidity Amount into its liquidity planning; and (5) 
the Clearing Member shall, through periodic discussions with its 
financing sources and other methods, continually reassess its liquidity 
plans and related operational plans, including in the event of any 
changes to such Clearing Member's Defined Capped Liquidity Amount, to 
ensure such Clearing Member's ability to meet its Defined Capped 
Liquidity Amount. FICC would also add a new defined term to the 
definitions in MBSD Rule 1 for ``Required Attestation,'' which would 
refer readers to newly proposed Section 2a(e) of MBSD Rule 17.
    FICC believes that the proposed rule change would strengthen the 
CCLF program by requiring each Clearing Member to attest that it 
understands its potential obligations under CCLF, has taken appropriate 
steps to incorporate such obligations in its liquidity planning, and 
continually reassess its liquidity plans and related operational plans 
as those obligations change. FICC notes that the proposed rule would 
mirror an existing requirement in the GSD Rules that Netting Members 
provide a comparable Required Attestation to FICC concerning such 
Netting Member's CCLF obligations.\5\
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    \5\ See GSD Rule 22A, Section 2a(d), supra note 3, and proposed 
conforming changes to the GSD Rule discussed below.
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Liquidity Funding Report
    FICC also proposes to adopt new Section 2a(d) of MBSD Rule 17 to 
provide additional clarity and transparency around the liquidity 
funding reports made available to MBSD Clearing Members. Specifically, 
Section 2a(d) of MBSD Rule 17 would provide that on each Business Day, 
FICC will make a liquidity funding report available to each Clearing 
Member, for informational purposes only, that includes (i) the Clearing 
Member's Defined Capped Liquidity Amount and (ii) other information 
concerning historical CCLF requirements. The proposed rule would 
further reiterate that, in the event that FICC declares a CCLF Event, 
Clearing Members shall be required to enter into CCLF Transactions up 
to their Defined Capped Liquidity Amount as calculated by FICC. FICC 
notes that the proposed rule would provide similar clarity and 
transparency regarding the information and reporting made available by 
FICC to MBSD Clearing Members as is currently provided to GSD Netting 
Members under Section 2a(c) of GSD Rule 22A.\6\
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    \6\ See GSD Rule 22A, Section 2a(c), supra note 3.
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CCLF Acknowledgements
    FICC proposes to adopt new Section 2a(f) of MBSD Rule 17 and 
Section 2a(e) of GSD Rule 22A to permit FICC to require MBSD Clearing 
Members and GSD Netting Members to provide certain acknowledgements to 
FICC, in such form and at such times as FICC may determine from time to 
time, concerning such member's understanding of and ability to meet its 
CCLF obligations. Such written acknowledgements would include, but not 
be limited to, an acknowledgement from each member whose CCLF 
obligations increase by an amount exceeding certain thresholds 
established FICC following any ad hoc resizing of the CCLF confirming 
such member's ability to meet the increased obligation.\7\ Proposed 
Section 2a(f) of MBSD Rule 17 and Section 2a(e) of GSD Rule 22A would 
further provide that FICC will inform members of any such required 
acknowledgements, including specific thresholds for any required 
acknowledgement, by Important Notice. FICC believes that the proposed 
rule change would strengthen the CCLF program by ensuring that each 
MBSD Clearing Member and GSD Netting Member is informed of and 
understands certain key obligations under CCLF as may be required by 
FICC, particularly in the event of an ad hoc resizing of the facility.
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    \7\ FICC would initially establish this threshold to be any 
increase of $1 million or more.
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Other Proposed Clarifying Changes
    Finally, FICC would also modify Section 2(a)(d) of GSD Rule 22A 
concerning GSD's Required Attestations to clarify that the regular 
interval for attestations from GSD Netting Members is ``on at least an 
annual basis.'' As a matter of practice, GSD currently requires the 
attestations on an at least an annual basis, and the proposed change

[[Page 43940]]

would align the GSD Rules with the proposed MBSD Rules concerning 
Required Attestations and provide additional clarity and transparency 
to GSD Netting Members concerning the attestation requirement.
2.Statutory Basis
    FICC believes 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. section 17A(b)(3)(F) of Act 
\8\ requires, in part, that the rules of a clearing agency be designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions and 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. FICC believes the proposed rule change 
would strengthen the CCLF program by requiring each MBSD Clearing 
Member to attest to its understanding of its potential obligations 
under CCLF, that it has taken appropriate steps to incorporate such 
obligations in its liquidity planning, and that it continually 
reassesses its liquidity plans and related operational plans as those 
obligations change. Furthermore, the proposed rule change would also 
clearly state in both the MBSD and GSD Rules that Required Attestations 
are completed on at least an annual basis. It would also require MBSD 
Clearing Members and GSD Netting Members to acknowledge, among other 
things, significant increases in their CCLF obligations following any 
ad hoc resizing of the CCLF. CCLF provides additional liquidity to FICC 
in the event that its other liquidity resources are insufficient upon 
the default of an MBSD Clearing Member or GSD Netting Member, which 
would help ensure that FICC has sufficient funds to meet its cash 
settlement obligations to its non-defaulting participants. FICC 
therefore believes the proposed rule change is designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds which are in the 
custody or control of FICC or for which it is responsible, consistent 
with section 17A(b)(3)(F) of the Act.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(7) under the Act \9\ requires generally 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. As described above, the proposed 
attestation and acknowledgements are intended to reinforce each 
member's understanding of its responsibilities under CCLF. 
Specifically, they are designed to ensure that the member understands 
its potential obligations under CCLF, that it has taken appropriate 
steps to incorporate such obligations in its liquidity planning, and 
that it continually reassesses its liquidity plans and related 
operational plans as those obligations change. CCLF provides additional 
liquidity to FICC in the event that its other liquidity resources are 
insufficient upon a member default and helps to ensure that FICC has 
sufficient funds to manage its liquidity risk and meet its cash 
settlement obligations on an ongoing and timely basis. FICC therefore 
believes the proposed rule change is reasonably designed to comply with 
the requirements of Rule 17Ad-22(e)(7) under the Act.
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    \9\ 17 CFR 240.17Ad-22(e)(7).
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of Act \10\ requires that the rules of a 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act. FICC does not 
believe that the proposed rule change would impose any burden or have 
an impact on competition. The proposed rule change would not impact the 
financial obligations of FICC's members under CCLF. The proposed 
Required Attestation is intended to ensure that each MBSD Clearing 
Member understands its potential obligations under CCLF, has taken 
appropriate steps to incorporate such obligations in its liquidity 
planning, and continually reassess its liquidity plans and related 
operational plans as those obligations change. Pursuant to Section 7 of 
Rule 2A, each MBSD Clearing Member agrees to abide by the MBSD Rules 
and to be bound by all the provisions thereof. This includes the 
requirements and obligations associated with CCLF as provided in 
Section 2a of MBSD Rule 17. FICC believes that most of the 
responsibilities and activities to which MBSD Clearing Members would be 
required to attest (e.g., reading and understanding the MBSD Rules, 
understanding its obligations under CCLF, incorporating such 
obligations into its liquidity planning, and continually reassessing 
such plans, especially as its CCLF obligations change) are, to a large 
extent, reasonably and fairly implied in order to abide by and comply 
with such Clearing Member's existing obligations under the CCLF rules. 
Furthermore, the proposed rule change would not prescribe the specific 
ways in which Clearing Members satisfy the attestation requirement but 
rather provides flexibility for each Clearing Member to consider 
methods to meet its CCLF obligations in the manner that best suits its 
specific business, operating, and regulatory model, as well as 
applicable balance sheet, liquidity plan, and ownership structure. 
Finally, FICC does not believe that requiring a written acknowledgement 
from MBSD Clearing Members or GSD Netting Members regarding their 
understanding of and ability to meet CCLF obligations, particularly 
those following an ad hoc resizing, would impose any burden or 
competitive impact on those members. Accordingly, FICC does not believe 
that the proposed rule change would impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
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    \10\ 15 U.S.C. 78q-1(b)(3)(I).
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(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 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.
    FICC reserves the right to not respond to any comments received.

[[Page 43941]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-FICC-2024-008 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-2024-008. 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 
a.m. and 3 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 (dtcc.com/legal/sec-rule-filings). 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-2024-008 and 
should be submitted on or before June 10, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10953 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P