[Federal Register Volume 90, Number 245 (Monday, December 29, 2025)]
[Notices]
[Pages 60827-60829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-23902]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104480; File No. SR-FICC-2025-026]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Update a Definition and Certain Provisions Related to Components of
GSD's Funds-Only Settlement
December 22, 2025.
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 December 19, 2025, 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 amendments to FICC's
Government Securities Division (``GSD'') Rulebook (``Rules'') \5\ to
(1) update the definition of ``Overnight Investment Rate'' to reflect
that such rate is applicable to cash held by FICC in connection with
funds-only settlement; (2) change the frequency of GCF Interest
Adjustment Payments and Interest Adjustment Payments to monthly, rather
than daily, in certain circumstances; and (3) remove an outdated
reference from a statement in Rule 13.
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\5\ Terms not defined herein are defined in the Rules, available
at http://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
FICC is proposing changes to the Rules that would update a
definition and certain provisions related to the components of GSD's
funds-only settlement, or ``FOS.'' Specifically, the proposed changes
would update and clarify the definition of Overnight Investment Rate,
which is the interest rate used in the calculation of two components of
FOS, the GCF Interest Adjustment Payment and the Interest Adjustment
Payment. The proposed changes would also update the frequency of GCF
Interest Adjustment Payments and Interest Adjustment Payments to
monthly, rather than daily, in certain circumstances. Finally, the
proposed changes would remove an outdated reference from a statement in
Rule 13, which was retained in the Rules in error. These proposed
changes would update, clarify and correct the Rules related to FOS,
providing Netting Members with a clearer understanding of these
provisions and their rights thereunder.
Overview of Funds-Only Settlement
FOS is a twice-daily process of generating a net credit or debit
cash amount for each Netting Member and settling those cash amounts
between Netting Members and FICC. FOS is described in Rule 13 and is a
cash pass-through process, meaning Netting Members who are in a debit
position submit payments that are then used to pay Netting Members in a
credit position.\6\
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\6\ Rule 13 (Funds-Only Settlement), id.
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Twice each Business Day, each Netting Member must pay (or is
entitled to collect) an aggregate Funds-Only Settlement Amount across
all CUSIPs in which it has outstanding positions. The main components
of this amount include, among other payments, a mark-to-market amount
for every Net Settlement Position, a mark-to-market amount for every
Forward Net Settlement Position, fail marks for obligations that were
scheduled to settle and have not yet settled, coupon payments and other
adjustments.\7\
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\7\ Each component of FOS is described in Rule 13 (Funds-Only
Settlement), id.
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The settlement ultimately occurs through the National Settlement
Service (``NSS''), a payment system operated by the Federal Reserve
System (``FRS'').\8\ Cash debits and credits are paid out by Funds-Only
Settling Bank Members, who are appointed by Netting Members. The
individual debits and credits of each Netting Member using the same
Funds-Only Settling Bank Member are totaled. Once the net debits and
credits are approved by Funds-Only Settling Bank Members, the New York
Federal Reserve Bank debits or credits each Funds-Only Settling Bank
Member. Funds-Only Settling Bank Members then debit or credit the
account of each Netting Member for which it settles. Funds transfers
become final at the time the funds are moved through NSS.
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\8\ NSS is a settlement service operated by the Federal Reserve
Banks available to depository institutions that settle for
participants in clearinghouses, financial exchanges and other
clearing and settlement groups. Settlement agents, acting on behalf
of those depository institutions in a settlement arrangement,
electronically submit settlement files to the Federal Reserve Banks.
Files are processed on receipt, and entries are automatically posted
to the depository institutions' Federal Reserve Bank accounts.
FICC's affiliate, The Depository Trust Company, maintains an account
at the New York Federal Reserve Bank and acts as agent for FICC for
FOS.
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Proposed Changes to the Definition of Overnight Investment Rate
The Rules define Overnight Investment Rate as the interest rate
earned by FICC on the investment of the portion of the cash deposited
to its Clearing Fund that is invested overnight. However, this term is
currently only used in the definitions of two components of FOS--the
GCF Interest Adjustment Payment and the Interest Adjustment Payment--
and is not used in reference to FICC's deposits
[[Page 60828]]
of cash that Netting Members may deposit to satisfy their Required Fund
Deposits to the Clearing Fund.\9\
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\9\ See Rule 1 (Definitions) (defined terms for ``GCF Interest
Adjustment Payment'' and ``Interest Adjustment Payment'') and
Section 3a of Rule 4 (Clearing Fund and Loss Allocation) (which
describes the investment of cash deposits to the Clearing Fund
without reference to the Overnight Investment Rate, supra note 5.
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Therefore, FICC is proposing to correct and clarify the definition
of Overnight Investment Rate to mean the interest rate earned by FICC
on the investment of cash held by FICC in connection with certain FOS
debits that are invested overnight. The proposed change would correct
the definition of this term, making the Rules clearer in describing the
related components of FOS.
Proposed Changes to Frequency of Certain FOS Component Processing
The components of FOS credit and debit payments are described in
Section 1 of Rule 13, and Netting Members are required to make such
credit and debit payments ``one or more times each Business Day''.\10\
As stated above, in practice, FOS credit and debits are currently
processed twice each Business Day.
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\10\ Section 1 of Rule 13, id.
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Because FOS is a pass-through process, if FICC debits a Netting
Member for one component of FOS but does not have an equivalent credit
to pay to another Netting Member, then FICC must hold and invest the
cash amount it has debited overnight, until it can pay that amount to a
Netting Member the next Business Day. This may occur in connection with
the credit and debit payments of the Debit Forward Mark Adjustment
Payments and the corresponding Credit Forward Mark Adjustment Payment,
or with the Debit GCF Forward Mark Adjustment Payments and the
corresponding Credit GCF Forward Mark Adjustment Payment.\11\
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\11\ See Rule 1 (Definitions) (defined terms for ``Debit Forward
Mark Adjustment Payment'', ``Credit Forward Mark Adjustment
Payment'', ``Debit GCF Forward Mark Adjustment Payment'' and
``Credit GCF Forward Mark Adjustment Payment'') and Rule 13,
Sections 1(d) and (l), id.
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The interest rate that FICC earns on such investments is the
Overnight Investment Rate. The Interest Adjustment Payment and GCF
Interest Adjustment Payment are components of FOS related to the
overnight interest earned on such investments and, as noted above, may
be assessed by FICC on the Debit Forward Mark Adjustment Payment,
Credit Forward Mark Adjustment Payment, Debit GCF Forward Mark
Adjustment Payment, and Credit GCF Forward Mark Adjustment Payment
amounts.
Historically, FICC has deposited amounts related to these FOS
components at commercial banks that have paid interest on a daily
basis, allowing FICC to pay its portion of the GCF Interest Adjustment
Payment and the Interest Adjustment Payment components of FOS on a
daily basis, within the timeframes specified in Rule 13.
However, fewer investment counterparties pay interest on deposits
on a daily basis, and those that do offer daily interest payments do so
at an interest rate that is not aligned with prevailing market rates.
In order for FICC to earn an interest rate on its investments
related to FOS debits that is more aligned with the market, FICC would
begin depositing these amounts with investment counterparties that do
not pay interest on a daily basis. Therefore, FICC is proposing to
amend Rule 13 to reflect a less frequent payment of the accrued GCF
Interest Adjustment Payment and Interest Adjustment Payment components
of FOS, to a monthly basis.
In order to reflect this change, FICC would amend Section 1 of Rule
13 to describe the circumstances in which it would pay the Credit
Interest Adjustment Payment and the GCF Interest Adjustment Payment
components of FOS on a less frequent basis than other components of
FOS. Specifically, FICC would add a subsection (i) to Section 1(d) of
Rule 13 to provide that, when a Debit Forward Mark Adjustment Payment
is collected, for which FICC does not have an equivalent Credit Forward
Mark Adjustment Payment to pay to another Netting Member, the related
Credit Interest Adjustment Payment would be paid on a monthly basis.
FICC would also add a subsection (i) to Section 1(l) of Rule 13 to
similarly provide that, when a Debit GCF Forward Mark Adjustment
Payment is collected, for which FICC does not have an equivalent Credit
GCF Forward Mark Adjustment Payment to pay to another Netting Member,
the related Credit GCF Interest Adjustment Payment would be paid on a
monthly basis.
Proposed Changes To Remove Outdated Reference From Rule 13
FICC is proposing to delete a reference to Section 3 of Rule 13
from a statement in Section 1 of Rule 13 because Section 3 of Rule 13
was removed from the Rules in a prior proposed rule change. This
reference to Section 3 was retained in the Rule in error.
The relevant statement currently provides that, other than as
provided for in Section 3, all payment obligations and collection
rights with respect to the FOS components must be satisfied each
Business Day on a net total basis through payment or collection, as set
forth in Section 2 of Rule 13, of the Funds-Only Settlement Amount. The
proposed rule change would correct this statement by replacing the
reference to Section 3 of Rule 13 in this statement with a more general
reference to ``this Rule''.
Implementation Timeframe
FICC would implement the proposed rule change by no later than
February 28, 2026 and would announce the implementation date of the
proposed changes by an Important Notice posted to FICC's website.
2. Statutory Basis
FICC believes the proposed rule changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, FICC
believes the proposed rule changes are consistent with Section
17A(b)(3)(F) of the Act \12\ and Rule 17ad-22(e)(23)(ii), promulgated
under the Act,\13\ for the reasons described below.
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17ad-22(e)(23)(ii).
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Section 17A(b)(3)(F) of the Act 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 assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\14\ The
proposed changes would describe a change in the timing of the Credit
Interest Adjustment Payment and the Credit GCF Interest Adjustment
Payment, and the circumstances in which that less frequent timing would
be applicable, as described in more detail above. This proposed change
is driven by a change in practice by FICC that would provide Netting
Members with an interest rate on deposits of cash related to FOS
payments and debits that is more aligned with prevailing market rates.
In this way, the proposed rule change would assure the safeguarding of
funds which are in the custody or control of FICC, consistent with
Section 17A(b)(3)(F) of the Act.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ Id.
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The proposed rule changes would also update the defined term for
[[Page 60829]]
Overnight Investment Rate in the Rules and would remove a reference in
Rule 13 that was retained in error. These two proposed changes would
correct the Rules, ensuring they are clear and easily understood by
Netting Members. 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. Therefore, FICC believes that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act.\16\
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\16\ Id.
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Rule 17ad-22(e)(23)(ii) under the Act requires that FICC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide sufficient information to enable
participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency.\17\ As stated above, the proposed rule changes would correct
the Rules by updating the definition of Overnight Investment Rate and
removing an incorrect reference in Section 1 of Rule 13. As such, these
proposed changes would further improve the public disclosures in the
Rules regarding FOS and the timing of certain payments related to the
FOS process. Therefore, FICC believes that the proposed changes are
consistent with Rule 17ad-22(e)(23)(ii) under the Act.\18\
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\17\ 17 CFR 240.17ad-22(e)(23)(ii).
\18\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe the proposed rule changes would have any
impact on competition. First, the proposed changes regarding the timing
of certain FOS payments would apply equally to all Netting Members.
Further, the proposed changes to the definition of Overnight Investment
Rate and the correction to Rule 13 are designed to improve market
participants' understanding of the provisions in the Rules governing
FOS. As such, FICC does not believe such proposed amendments would have
any effect on participants' respective competitive positions.
(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 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/rules-regulations/how-submit-comment. 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.
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) of the Act \19\ and paragraph (f) of Rule 19b-4
thereunder.\20\ 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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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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 (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking);
or
Send an email to [email protected]. Please include
File Number SR-FICC-2025-026 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-2025-026. 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-regulations/self-regulatory-organization-rulemaking). Copies of the
filing will be available for inspection and copying at the principal
office of FICC and on DTCC's website (www.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-2025-
026 and should be submitted on or before January 20, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23902 Filed 12-23-25; 8:45 am]
BILLING CODE 8011-01-P