SEPTEMBER 2023

Looking to the Horizon:
Assessing a Potential
Expansion of U.S. Treasury
Central Clearing
A DTCC WHITE PAPER TO THE INDUSTRYTable of Contents:
I. Executive Summary............................................................................................................................................................. 2
II. Survey Methodology and Demographics................................................................................................................... 4
III. Summary of the SEC’s Expanded Clearing Proposal............................................................................................. 6
IV. Key Findings from the Data and Survey Results...................................................................................................... 8
A. FICC’s Clearing Access Models and Tools........................................................................................................... 8• Access Models...................................................................................................................................................................................8• Value at Risk (VaR) Calculator.................................................................................................................................................12• Informational Materials on Treasury Clearing.................................................................................................................12
B. Indirect Participant Treasury Activity....................................................................................................................13• Incremental Indirect Participant Treasury Volume.......................................................................................................14• Potential Usage of Debit in Rule 15c3-3 Formula for Indirect Participant Margin.....................................14
C. Implications for FICC’s Risk Management...........................................................................................................15• Market Risk Management............................................................................................................................................................15• Liquidity Risk Management........................................................................................................................................................ 18
IV. Conclusions..........................................................................................................................................................................20
V. Appendix................................................................................................................................................................................. 21

DEAR COLLEAGUES,The U.S. Treasury Market is the largest and most liquid sovereign debt market in the world, with transactions cleared
through DTCC’s Fixed Income Clearing Corporation (FICC) that exceeded $1.5 quadrillion annually in 2022. Treasuries,
which are backed by the “full faith and credit” of the U.S. government, are widely held and actively traded by institutional
investors, central banks, corporations, individuals, and many other private and public institutions. Because the Federal
Reserve uses the U.S. Treasury Market as a key tool to implement monetary policy and the federal government relies on
the sale of Treasuries to finance essential services, the smooth and uninterrupted functioning of these markets is
critically important to the strength and stability of the entire U.S. economy.
The Federal Reserve and several large firms across the industry voiced strong concerns almost 40 years ago about thesafety and soundness of the existing processes for clearing and settling U.S. government securities transactions,
including the risks associated with the failure of a few major firms, the inefficiencies of manual paper processing oftrade confirmations, and bilateral trade-for-trade settlement. In response, the Government Securities Clearing
Corporation (GSCC), the predecessor to the current Government Securities Division (GSD) of FICC, was established in1986 as an industry utility to provide for the clearing and settlement of U.S. government securities transactions. As thecentral counterparty (CCP) for U.S. government securities, FICC’s GSD provides real-time trade matching, novation, risk
management, netting and settlement services for transactions in U.S. government debt securities, including repurchaseagreements or repos. Securities transactions processed by the GSD include transactions in Treasury bills, bonds, notes,
zero-coupon securities, fixed rate government agency securities and inflation-indexed Treasury securities, as well asagency mortgage-backed securities in its General Collateral Finance Repo (GCF Repo®) and Sponsored General
Collateral (GC) Services.1
In the face of several recent and notable instances of market volatility, the U.S. Securities and Exchange Commission(SEC) in September 2022 issued a proposal2 intended to further strengthen the resilience of the U.S. Treasury Market by
expanding the use of central clearing. The SEC’s Treasury clearing proposal is intended to provide market-wide benefits
such as standardized risk management, reduced settlement risk, centralized default management and increasedtransparency.
To facilitate greater industry discussion and public sector understanding of the potential impacts of the SEC’s Treasury
clearing proposal, earlier this year we conducted a voluntary, anonymous, in-depth 35-question survey of market
participants. The survey was completed by a variety of buy-side and sell-side institutions, representing FICC / GSD
Netting Members as well as sponsored member and non-member firms. FICC would like to thank the firms whocompleted the survey and provided feedback. The survey data and the insightful comments from our respondents– combined with the cleared Treasury activity data FICC has available today – constitute a unique and fruitful
opportunity to better inform FICC and other interested parties across the market and the public
sector and to aid us in evaluating more deeply the potential implications of the SEC’s proposal
to expand central clearing in the U.S. Treasury Market.
We look forward to feedback on this report from our members, their clients, the broader market
and our public sector stakeholders.
Laura Klimpel
DTCC’s General Manager of Fixed Income Clearing Corporationand Head of SIFMU Business Development
1

FICC is a wholly owned subsidiary of DTCC. Created to protect market stability and maximize value for the industry, DTCC is a non-public, not-for-profit holding company
that owns three registered clearing agencies. In addition to FICC, DTCC also owns DTC, the world’s largest central securities depository and a SEC-registered clearing
agency for the settlement of securities transactions for eligible securities and other financial assets, and NSCC, a SEC-registered clearing agency and CCP that provides
clearing, netting, settlement, risk management and CCP services for trades involving equities, corporate and municipal debt, exchange-traded funds, and unit investment
trusts in the U.S. Through its holding company structure and governance, FICC is user-owned and governed by the very market participants that it serves. Specifically, thecommon stock of DTCC is owned by the financial institutions that are participants of its three registered clearing agency subsidiaries, FICC, DTC and NSCC.
DTCC’s and FICC’s boards of directors are primarily composed of representatives of the clearing agency participants, including buy- and sell-side market participants, aswell as representatives from other self-regulatory organizations and independent directors. FICC is regulated by the U.S. Securities and Exchange Commission, and, under
the Dodd-Frank Act, is overseen by the Board of Governors of the Federal Reserve System. Pursuant to applicable federal securities law regulations, FICC GSD’s rules
and procedures are publicly available on its website at https://www.dtcc.com/~/media/Files/Downloads/legal/rules/ficc_gov_rules.pdf.

2

U.S. Securities and Exchange Commission: https://www.sec.gov/files/rules/proposed/2022/34-95763.pdf

1Section I: Executive Summary
Currently, U.S. Treasury Market activity is split between two disparate clearing processes: bilaterally cleared transactions
and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC). Following several notableinstances of market volatility, which were particularly acute in the repo market in late 2019 and at the start of the
COVID-19 pandemic in early 2020, the U.S. Securities and Exchange Commission (SEC) proposed a number of new
regulations across various aspects of the U.S. Treasury Market.3 Among those regulatory initiatives was a proposal in
September 2022 to expand the role of central clearing in the U.S. Treasury Market, with the stated policy goal of further
strengthening resilience and risk management (the “Expanded Clearing Proposal”).4
As currently written, the Expanded Clearing Proposal would require that a significantly larger portion of the U.S.
Treasury cash and repo markets (both bilateral and tri-party repo) be centrally cleared through an SEC-regulated
covered clearing agency that clears Treasury transactions. Since FICC currently serves as the sole central counterparty(CCP) for outright purchases and sales and repo transactions in U.S. Treasury securities, the immediate effect of thisrequirement could be that firms either need to become direct members of FICC or clear through another FICC member.

ABOUT THIS RESEARCH REPORT
To facilitate greater discussion and understanding of the potential impacts of the Expanded Clearing Proposal, FICC
conducted a voluntary, in-depth survey of U.S. Treasury Market participants in Q2 2023. The survey was completed by avariety of buy-side and sell-side institutions, representing both current FICC / GSD Netting Members and sponsoredmembers, as well as non-member firms.5
The survey data collected was combined, where relevant, with insights from the data that FICC has available on
currently cleared Treasury activity, to present a more complete picture of both the current and potential future state ofcentral clearing, and what the cleared U.S. Treasury Market could look like if the Expanded Clearing Proposal wereadopted.

KEY FINDINGS FROM THE RESEARCH
With centrally cleared indirect participant Treasury activity anticipated to increase by approximately $1.63 trillion daily,
the size and impact of this undertaking cannot be underestimated. Survey respondents indicated in their feedback
significant gaps in market awareness and understanding of FICC’s access models, risk tools and capabilities. To ensure
a successful implementation should the Expanded Clearing Proposal be adopted, these gaps must be addressed. At thesame time, DTCC will continue to evaluate enhancements to its services and methodologies to support the industry
and deliver increased value. Specific findings include:
Key Finding #1: Under the Expanded Clearing Proposal, FICC expects approximately $1.63 trillion daily in incremental
indirect participant Treasury activity ($500 billion of Repo, $520 billion of Reverse Repo and $605 billion of cash trades)
to come into clearing.

U.S. Securities and Exchange Commission, “SEC Proposes Rules to Include Certain Significant Market Participants as “Dealers” or ‘Government Securities Dealers’”(March 28, 2022), https://www.sec.gov/news/press-release/2022-54; U.S. Securities and Exchange Commission, “SEC Proposes Amendments to Include Significant U.S.
Treasury Market Platforms Within Regulation ATS” (Jan. 26, 2022), https://www.sec.gov/news/press-release/2022-10.
3

4

U.S. Securities and Exchange Commission: https://www.sec.gov/files/rules/proposed/2022/34-95763.pdf

5

Please see Section II for methodology and demographics of survey respondents.

2

Key Finding #2: FICC’s various access models and available services are not broadly understood, and a majority of
FICC members remain unsure which of FICC’s access models they want to use for the indirect participant activity.
Specifically, 52% indicated they were unsure as it relates to Treasure Reverse Repo and Treasury Repo activity and 58%
indicated they were unsure as it relates to indirect participant Treasury cash activity.
Key Finding #3: FICC expects that the incremental indirect participant Treasury volume could result in acorresponding increase in Value at Risk (VaR) margin, which it conservatively estimates could be approximately $26.6
billion across the FICC / GSD membership. The estimates assume that all incremental indirect participant activity clears
through one of FICC’s Gross Margin models. The estimates could potentially decrease if the activity were cleared
through one of FICC’s Net Margin models.
Key Finding #4: Findings are inconclusive about the potential impact of the incremental indirect participant Treasury
volume on FICC’s liquidity needs or its Capped Contingent Liquidity Facility® (CCLF®).
Key Finding #5: Respondents suggested a variety of enhancements to FICC’s offerings in connection with thepotential expansion of central clearing of Treasury activity. Some of these suggestions are risk-focused, such as
including enhanced cross-margining opportunities (particularly for indirect participants) as well as increasingtransparency of margin and CCLF calculations, and enhanced reporting tools related to FICC’s risk management
processes. Other suggestions are operations-focused, such as making enhancements to FICC’s novation processes andwindows of operation.

3

Section II: Survey Methodology and Demographics
FICC conducted a voluntary, anonymous, 35-question survey of market participants over a two-month period between
April 25 and June 30, 2023. The online survey was distributed by email to 229 firms who were identified as FICC’s clients
as well as trade associations representing various segments of market participants. FICC collected 72 completed
responses (a 31% response rate). Respondents were directed to answer a series of questions in the survey based onwhether or not they identified as a FICC / GSD Netting Member.
To avoid the collection of duplicative information, quantitative questions (regarding, for example, anticipated incremental
volumes, underlying collateral, transaction tenor) were posed only to respondents who identified as FICC / GSD Netting
Members. The survey data and responses were analyzed by FICC.

SURVEY DEMOGRAPHICS:•

Respondents were based in the following countries: United States (81%), Japan (6%), UK (6%), Canada (3%),
Australia (1%), France (1%), Switzerland (1%), and UAE (1%).

•

72%, or 52 of the respondents identified as FICC / GSD Netting Members; 28%, or 20 of the respondents
identified as non-Members (i.e., not GSD Netting Members). For the remainder of this report, references to“member respondents” refer to respondents who identified as FICC / GSD Netting Members.

4•

Respondents included Broker/Dealers (44%), Banks(19%), Asset Managers (17%), Foreign Banks (4%),
Government-Sponsored Enterprises (GSEs) (1%),
Principal Trading Firms (PTFs) (1%), and other types offirms (13%).

•532% of respondents access FICC / GSD’s central
clearing services through another member (e.g.,sponsoring member, correspondent clearer or prime
broker).

Section III: Summary of the SEC’s Expanded
Clearing Proposal
The SEC’s Expanded Clearing Proposal features several key components that could potentially impact FICC’scurrent operating model, notably the requirement to expand central clearing to activity that currently occurs among
participants of the bilateral markets, and related changes to FICC’s risk management, particularly with respect tocustomer margining.
If adopted as proposed, the Expanded Clearing Proposal will transform the role and services FICC offers both to its
membership and the broader U.S. Treasury Market.

EXPANSION OF TREASURY CENTRAL CLEARINGThe Expanded Clearing Proposal would require a significantly larger portion of Treasury cash and repo activity (bothbilateral and tri-party repo) to be submitted to a clearing agency operating as a central counterparty and subject to the
SEC’s most rigorous operational and risk management standards (a “covered clearing agency”).6 FICC is currently the
only covered clearing agency for transactions in Treasury securities and, therefore, the Expanded Clearing Proposal
would require that FICC adopt policies and procedures reasonably designed to require its members to submit for
central clearing the following secondary market Treasury transactions:•

all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by amember of the clearing agency,•

all purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker,
and•all purchase and sale transactions entered into between a clearing agency member and either a registeredbroker/dealer, government securities broker, a government securities dealer, a hedge fund, or a particular type ofleveraged account.

Furthermore, under the Expanded Clearing Proposal, FICC would be required to facilitate access to central clearing foradditional market participants, including those who prefer to access central clearing via indirect participation.

CHANGES TO CUSTOMER ACTIVITY AND MARGINING
The Expanded Clearing Proposal would result in several important changes to FICC’s operations and risk management.
One area of client and stakeholder focus is on how FICC would be required to handle customer activity and margin.
Today, FICC generally does not require the proprietary or “house” activity of its members to be segregated from thecleared activity of its members’ customers on its books and records. This framework is largely driven by a historicaldesire to prioritize the efficiencies of transaction and margin netting. An important exception to this approach is FICC’ssponsored member access model, where the activity of sponsored members must be segregated from the proprietaryor house activity of their sponsoring members on FICC’s books and records. The sponsored member access model also
provides for a separate calculation and collection of gross margin related to the activity of sponsored members with nomargin offsets permitted as between different sponsored members’ activity or between a sponsored member’s activity
and the proprietary or house activity of the sponsoring member.
6

See Exchange Act Rule 17Ad-22(a)(5) and Rule 17Ad-22(e).

6Under the Expanded Clearing Proposal, these existing paradigms would change, as the proposal would require FICC tocalculate, collect, and hold house and customer margin separately. The Expanded Clearing Proposal would create theoption to calculate and collect margin associated with customer activity on a gross or net basis depending on the client
clearing model selected by the member, and whether the member is seeking capital relief under the customer
protection rules for broker/dealer customers outlined in Exchange Act Rule 15c3-3. Under the Expanded Clearing
Proposal, FICC would offer its members and their indirect participant clients a variety of options via different accessmodels that would allow those parties to balance the benefits of netting and segregation in different ways.
Please see Appendix, “FICC’S Indirect Participant Access Models,” for more information on how the changes to thesegregation rules may be applied to FICC’s indirect participant access models (subject to whether and how any final
version of the Expanded Clearing Proposal is adopted).

7

Section IV: Key Findings from the Data andSurvey Results
A. FICC’s Clearing Access Models and Tools
FICC has deep experience with central clearing, having provided clearing, netting and settlement services to the U.S.
Treasury Market since 1986. While FICC has evolved its services and product offerings significantly since its inception
almost 40 years ago, that evolution has largely been driven by the specific needs of FICC’s then-current membership,rather than in response to regulatory initiatives, such as the impetus after the 2008 financial crisis to move OTC
derivatives activity into central clearing.
In response to the Expanded Clearing Proposal, whole new swaths of market participants – as others did, post-2008 in
the OTC derivatives markets – must consider the implications of central clearing on their businesses in a potentiallydifferent manner. This changing dynamic was apparent in the survey results, as responses indicated significant gaps inmarket awareness and understanding of FICC’s access models and available services.

ACCESS MODELSFICC offers a variety of direct and indirect participation models for buy-side and sell-side market participants.
The different models allow market participants to access FICC in the way that best meets their business andregulatory needs.
FICC / GSD membership types include Netting Membership, Centrally Cleared Institutional Tri-Party (CCIT™) Service
Membership and sponsored membership. Due to their direct relationships with FICC, both Netting Memberships and
CCIT™ Memberships are considered direct participation models under the Expanded Clearing Proposal. Sponsoredmembership, on the other hand, is considered an indirect participation model due to the requirement that a sponsoredmember access clearing at FICC through at least one sponsoring member relationship. FICC also offers market
participants that are not FICC / GSD members indirect access to clearing through an intermediary who participates ineither its Prime Broker Clearing or Correspondent Clearing Services.
Each of FICC’s indirect access models facilitates both Futures Commission Merchant (FCM)-style clearing
arrangements as between clients and their clearing intermediaries whereby client activity with third parties is “given up”
to the intermediary for clearing, as well as activity where the client and the clearing intermediary are trading
counterparties; each such indirect access model also provides substantially the same benefits of clearing (centralizedrisk management and centralized default management) and substantially the same guarantee of settlement as areoffered under an FCM-style client clearing offering in the derivatives space.

8

The survey revealed that market participants have an inconsistent degree of familiarity with FICC’s various services.
For example, among all respondents, relatively more indicated that they are “very familiar” with GSD’s Sponsored
Delivery-Versus-Payment (DVP) Service (53%) and with its Sponsored General Collateral (GC) Service (47%). However,relatively fewer respondents indicated that they are “very familiar” with GSD’s Prime Broker Clearing/Correspondent
Clearing Services (24%) and with its CCIT™ Service (21%). Consistent with these responses, a significant number of
non-member respondents replied that they are “not familiar” with the fact that Registered Investment Companies (i.e.,‘40 Act Funds) are eligible to become GSD Netting Members (55%).

When member respondents were asked which of FICC’s access models they planned to use for their indirect
participant Treasury activity, 52% indicated they were unsure as it relates to Treasury Reverse Repo andTreasury Repo activity, and 58% indicated they were unsure as it relates to indirect participant Treasury
cash activity.

9

OTHER NOTEWORTHY AREAS OF COMMENT REGARDING FICC’S INDIRECT PARTICIPATION MODELS
NEED FOR DOCUMENTATION STANDARDIZATION
One recommendation from the survey was that FICC and SIFMA develop standardized documentation to govern
the relationship between clearing members and their indirect participant clients. When it comes to the questionof standardizing documentation to facilitate central clearing of Treasury transactions, it should be noted there are
essentially two core relationships and, therefore, two sets of documents. One core relationship is between the
CCP and its participant (or indirect participant as applicable), and today, FICC has in place for its SponsoredService and Prime Broker Clearing and Correspondent Clearing Services standardized documentation
addressing those direct and indirect relationships. The second core relationship, and the one truly at issue in the
respondent survey feedback, is the necessary documentation between the clearing member and its indirect
participant client. A common element in this varied documentation is that the contracts are away from FICC –and to which FICC is not a party. FICC agrees with survey respondents; it is critical that the industry cometogether under SIFMA leadership to develop such standardized documentation for itself. FICC welcomes theopportunity to offer its expertise to a SIFMA-led industry group of buy- and sell-side firms to develop suchstandardized documentation.

ELIGIBILITY STANDARD FOR SPONSORED MEMBERSHIP
Certain survey respondents recommended that FICC revisit the Qualified Institutional Buyer (QIB) standard
currently applied to sponsored members, and expressed concern that without such a change, non-QIB market
participants may not have reasonable access to central clearing at FICC if the Expanded Clearing Proposal wereadopted. FICC is actively investigating whether a revision to the eligibility criteria for sponsored membershipwould be appropriate under the Expanded Clearing Proposal and welcomes further engagement with theindustry and its supervisors on this topic. In addition, FICC would also note that its other indirect participation
models, including its Prime Broker and Correspondent Clearing models, do not require the underlying client to bea QIB or a member of FICC / GSD.

FICC’S TRADE SUBMISSION TIMELINES
Certain respondents expressed concern about FICC’s trade submission timelines. However, as discussed further
below, FICC understands these concerns to vary as between FICC’s DVP and Sponsored GC Services.
Sponsored DVP Trade Timing: Certain respondents expressed concern regarding latency in terms of FICC’s
novation of Sponsored DVP activity. FICC’s novation window for all DVP trades opens at 7 a.m. ET and stays open
until 8 p.m. ET. Once a sponsored DVP trade is submitted and matched, it is novated to FICC in real-time andmessaging regarding such novation is sent immediately back to the sponsoring member.
There may be a latency in terms of when the sponsored member is thereafter notified by its sponsoring memberthat the sponsored DVP trade has novated, but there is no latency in terms of when FICC communicates with thesponsoring member regarding novation. If sponsored members are interested in receiving real time updates
regarding their sponsored member trade status directly from FICC, they may subscribe to FICC’s sponsoredmember trade status API.7

For more information about subscribing to FICC’s sponsored member trade status API, please contact the DTCC Integration Team or visit the DTCC’s API
Marketplace at https://developer.dtcc.com/.
7

10

Sponsored GC Trade Timing: With respect to activity submitted into its Sponsored GC Service, FICC currently
accepts sponsored member trade submissions from 7 a.m. ET until 5 p.m. ET and then novates such activity upon
settlement of the start leg of the tri-party repos, provided such settlement occurs by 5:30 p.m. ET. Certain
respondents recommended that FICC consider extending the trade submission and novation windows later in the
day to better align with the general timing for settlement of the uncleared, tri-party repo market. FICC will take thatrecommendation into consideration and welcomes related dialog with the industry and its supervisors.

SPONSORED TRADE START LEG NOVATION
Certain respondents also recommended that FICC clear the start legs of all sponsored member trades. Currently,
FICC novates and settles the start leg of any sponsored member trade where the pre-novation counterparty of thesponsored member is a third party member of FICC (i.e., “done-away” from the sponsoring member), as well as any
sponsored member trade where the start leg of such repo is scheduled for some business day in the future. FICC
currently does not novate and settle the start legs of same-day settling sponsored repos where the sponsoredmember’s pre-novation counterparty is its sponsoring member (for example, “done-with” Sponsored DVP repo aswell as sponsored GC repo).
FICC’s decision not to novate and settle the start legs of same-day settling sponsored repos was intentional andmade in consultation with the industry, based on the operational and legal complexities that novation andsettlement by FICC presented to both sponsoring members and sponsored members. Nontheless, FICC will takethat recomendation into consideration and welcomes further dialog with the industry and its supervisors.8

It should be noted that even though FICC does not currently clear the start leg of certain sponsored member trades, this fact has no effect on the guarantee of
settlement, comparison, centralized risk and default management, and other benefits offered by FICC on the end leg of such trades.
8

11

VALUE-AT-RISK (VAR) CALCULATORFICC currently makes available to all FICC / GSD Netting Members an online, interactive, web-based Value-at-Risk(VaR) calculator to estimate their Clearing Fund requirements based on changes (i.e., addition or subtraction of
positions) to their FICC-cleared portfolios. According to the survey, only 58% of FICC / GSD Netting Members
respondents said they use the VaR calculator. Based on this survey data, FICC plans to develop and publicize additional
educational assets and FAQs to help Members understand how to use the VaR calculator with the intent of increasing
their utilization of it.

INFORMATIONAL MATERIALS ON TREASURY CLEARING
Among all survey respondents, a majority (56%) stated they were not familiar with the microsite FICC launched lastyear in response to the Expanded Clearing Proposal, at USTClearing.com. USTClearing.com provides the industry with a
hub of information on Treasury clearing and FICC, including information regarding FICC’s various services for Treasury
activity, its direct and indirect participation models, its risk management practices, governance and thought leadership.
In response to this survey data, FICC will continue its industry outreach to raise awareness of USTClearing.com andmake information on this important topic as widely disseminated as possible.

12

B. Indirect Participant Treasury Activity
As described above, one of the key features of the Expanded Clearing Proposal is that it would significantly broaden thescope of Treasury activity that would be required to be submitted into central clearing. If a market participant coveredby the proposed clearing requirement is not a direct FICC / GSD member, it would need to have its Treasury activity
submitted for clearing by a direct FICC / GSD member that would act as its clearing intermediary (for example, asponsoring member, prime broker or correspondent clearer).
When asked about the types of Treasury activity they might need to submit for clearing on behalf of their indirect
participant clients under the Expanded Clearing Proposal, 64% of member respondents expected to submit indirect
participant Treasury Reverse Repo activity for clearing, 58% expected to submit indirect participant Treasury Repo
activity, and 50% expected to submit indirect participant Treasury cash activity.
Member respondents were also asked what percentage of their Treasury activity that currently clears through FICC
represents indirect participant activity. Nearly 75% of member respondents indicated that they submit 50% or less of
their indirect participant Treasury activity into FICC, which suggests that a significant portion of such indirect participant
Treasury activity clears and settles on a bilateral basis, and would be an incremental increase in volume in central
clearing if it were required to be submitted under the Expanded Clearing Proposal.

What percentage of the Treasury activity that you are
currently clearing through the Government Securities
Division of FICC represents client activity?
0-25%

44%

26-50%

51-75%

76-100%

29%

10%

17%

INCREMENTAL INDIRECT PARTICIPANT TREASURY VOLUME
FICC then asked each member respondent to provide a specific estimate of what incremental indirect participant
Treasury activity they may need to submit for clearing under the Expanded Clearing Proposal broken down by product(Treasury Repo, Treasury Reverse Repo and Treasury Cash activity) and by the following volume bands: “$0”, “$1–$10
billion”, “$11–20 billion”, “$21–$30 billion”, “$31–$40 billion”, “> $40 billion”. FICC recorded the median volume from eachvolume band that a member respondent selected, except for the “>$40 billion” volume band which FICC recorded as$40 billion for purposes of the calculation of the volume estimates.

13

For any Indirect Participant Treasury repo
activity (Indirect Participant as collateralprovider) that you may be required to submit
for clearing if the Proposal is adopted,
please advise on the estimated incremental
aggregate notional size of such repo activity.

$0

For any Indirect Participant Treasury reverse
repo activity (Indirect Participant acting as
cash provider) that you may be required tosubmit for clearing of the Proposal is adopted,
please advise on the estimated incremental
aggregate notion size of such reverse repo
activity

31%

$0
$0

$1-10bn$1-10bn$1-10bn
11-20bn2%

31-40bn

4%

31-40bn

>40bn

12%

>40bn

42%

42%

10%

21-30bn

25%

33%

42%

11-20bn

For any client cash Treasury activity (i.e.,purchase or sale activity in Treasuries) thatyou may be required to submit for clearing
if the Proposal is adopted, please advise on
the estimated aggregate notional size of such
Treasury cash activity

10%2%11-20bn10%

21-30bn

8%

>40bn

13%

15%

Based on this data, FICC estimates that, in aggregate, there will be an incremental $500 billion of indirect participant
Treasury Repo activity, $520 billion of indirect participant Treasury Reverse Repo activity and $605 billion ofindirect participant Treasury Cash activity that could be submitted to FICC under the Expanded Clearing Proposal if
it were adopted.

POTENTIAL USAGE OF DEBIT IN RULE 15c3-3 FORMULA FOR INDIRECT PARTICIPANT MARGIN
As currently written, the Expanded Clearing Proposal would allow customer funds to be used to satisfy FICC margin
requirements applicable to those customers’ centrally cleared Treasury activity, provided that the customer funds wereappropriately segregated. The SEC’s existing customer protection regulations (under Rule 15c3-3) currently do not allow
FICC / GSD Netting Member broker/dealers to use customers’ funds for this purpose. Without the proposed change,
FICC / GSD Netting Member broker/dealers must use their own assets to satisfy margin requirements applicable tocustomers’ activity.
The Expanded Clearing Proposal would allow customer funds to be used to satisfy FICC margin requirements. While
FICC understands that the current inability for its broker/dealer members that act as sponsoring members for FICC
cleared repo to take a debit in the SEC Rule 15c3-3 formula for rehypothecated customer margin has been an
articulated pain point the survey responses revealed that 73% of broker/dealer member respondents indicated that they
are only planning to seek a debit in the Rule 15c3-3 formula for 25% or less of the margin related to their indirect
participant Treasury Reverse Repo activity. Moreover, an even higher percentage (77%) of broker/dealer member
respondents indicated that they are only planning to seek a debit in the Rule 15c3-3 formula for 25% or less of themargin related to their indirect participant Treasury Repo activity. That said, given the relative lack of certainty amongst
the FICC / GSD membership as to which access models they may select for their indirect participant Treasury activity(as described above), FICC expects that the views of broker/dealers may evolve on this topic, as they continue to honetheir thinking and conduct further discussions with their customers around how and on what terms they may be willingto act as a clearing intermediary if the Expanded Clearing Proposal were adopted.

14

C. Implications for Risk Management
One of the key areas of focus in the comment letters and public responses to the Expanded Clearing Proposal has
been about how bringing a significantly larger portion of Treasury activity under FICC’s Market Risk Management
processes might impact the aggregate amount of margin that FICC would be required to collect, as well as how suchincremental Treasury activity would impact FICC’s default-related liquidity needs and required Liquidity Risk
Management resources.

MARKET RISK MANAGEMENT
A key tool that FICC uses to manage market risk is the daily calculation and collection of Required Fund Deposits from
FICC / GSD Netting Members. The Required Fund Deposit serves as each Netting Member’s margin. The Required
Fund Deposit is calculated and collected to cover the risk associated with the liquidation of a Netting Member’s
portfolio in the event of such Member’s default. FICC calculates Required Fund Deposits twice each business day,based on a Netting Member’s 12:00 p.m. ET and end-of-day positions.
The Required Fund Deposit is comprised of several components which serve to address a Netting Member’s potential
market risk exposure. Of these components, the Value-at-Risk (VaR) Charge generally comprises the largest portion of a
Netting Member’s Required Fund Deposit amount. The VaR Charge is calculated using a risk-based margin
methodology that is intended to capture the market price risk associated with the securities in a Netting Member’s
portfolio over a designated time period. The VaR Charge is calibrated to cover the projected liquidation losses at a 99%
confidence level, assuming a three-day liquidation period.
FICC uses historical simulation, based on risk sensitivities and relevant risk factor time series, to estimate the impact ofmarket volatilities on the Netting Member’s portfolio(s); a 10-year historical look-back period is used if it includes
sufficient stressed market scenarios. If, however, FICC determines that the historical look-back period does not containadequate shocks, additional periods of stressed market conditions may be added to the 10-year historical data. The
additional stressed period is currently set at 1.5 years to capture data from 2008 through 2009.
VaR Charges for a sponsoring member’s Omnibus Account are calculated separately from the VaR Charges for thesponsoring member’s other FICC / GSD Accounts. FICC also applies Gross Margining to a sponsoring member’s
Omnibus Account, which means that the positions of each sponsored member within a given Omnibus Account are
margined separately from positions of all other sponsored member(s) and margin netting offsets are not provided
between positions of different sponsored member(s). In contrast, VaR Charges for Prime Broker Clearing Accounts andCorrespondent Clearing Accounts are calculated on a Net basis (Net Margining), which means that the positions of all
the clients within a given Prime Broker Account or Correspondent Clearer Account are netted together and thepositions of one client could provide margin netting offsets against the positions of another client.

ANALYSIS OF MARKET RISK MANAGEMENT SURVEY DATA
For the analysis of the survey results, FICC applied a conservative approach in determining the estimates, and it iscertainly possible to derive different – and potentially even lower – projections if one makes assumptions that take more
explicitly into account the availability of netting, offsets and the prevalence of matched book positions that may besubmitted under a finalized Expanded Clearing Proposal. Indeed, the SEC pointed to such factors as being meaningful
and relevant when considering how the Expanded Clearing Proposal might bring benefits to the U.S. Treasury Market
by ensuring that the risks presented by various types of trading in the bilateral market are centralized and made subject
to standardized, rigorous risk management practices, including standardized margin requirements.

15

To perform VaR impact calculations, FICC used “the remaining time to maturity” of the underlying Treasury collateral
data provided by member respondents and applied an internally calculated haircut equivalent for each collateral tenor.
As an example, if the estimated incremental indirect participant Repo volume for the 0-3 years “remaining time tomaturity” collateral tenor provided by a member respondent was $1 billion, FICC multiplied such volume by its
calculated haircut equivalent for the 0-3 year “remaining time to maturity” collateral tenor, which at the time of thestudy was 29 basis points. Absent any other activity and potential margin offsets with existing or other potential
incremental indirect participant activity, the incremental VaR Charge would be calculated by FICC as $1 billion *29 bps = $2.9 million.
Summary of the survey data:•

19% of the member respondents indicated they did not plan to submit any incremental indirect participant
Treasury activity and were thus excluded from this analysis. The remaining member respondents indicated thatthey would be submitting, in aggregate, an additional $500 billion of Treasury Repo activity, $520 billion ofTreasury Reverse Repo activity and $605 billion of Treasury cash activity on behalf of their indirect participants, ora total of approximately $1.63 trillion daily in incremental indirect participant Treasury activity.
If all the incremental indirect participant Treasury activity were cleared through one of the Gross Margin models,9the potential aggregate increase in VaR Charges from such incremental Treasury activity would be approximately$26.6 billion across the FICC / GSD membership.

•

Note that of this potential aggregate $26.6 billion increase in VaR Charges, only member respondents
representing $18.4 billion in VaR Charges indicated that they planned to use the Sponsored Service, a Gross
Margin model for their indirect participant activity. The remaining member respondents (representing $8.2 billion
in Gross Margin VaR Charges) were less certain whether they would select one of FICC’s Gross Margin or Net
Margin models, and such decision, as described above, could have a material impact in terms of reducing theamount of margin the member would be required to post for their indirect participant activity.

•

To further contextualize this potential $26.6 billion aggregate increase in VaR Charges related to indirect
participant activity, note that during the first half of 2023 the total FICC / GSD VaR Charges for sponsoredmember activity, which currently accounts for approximately $642 billion in average daily FICC / GSD volume,
has averaged $9.6 billion and represents approximately 35% of the total FICC / GSD VaR Charges. To the extent
that approximately $1.63 trillion of additional daily indirect participant Treasury activity may be submitted to FICC,
it is logical to expect that the VaR Charges for such indirect participant activity (estimated by FICC based on thesurvey results) would correspondingly increase the overall FICC / GSD Clearing Fund, particularly if such activity
is routed into one or more of FICC’s Gross Margin models.

•

Notably, even if FICC were to see the margin it holds for indirect participant activity increase from $9.6 billion to$36.2 billion to the extent the Expanded Treasury Clearing Proposal were adopted, such total margin isconsiderably modest as compared to the initial margins held by other major central counterparties for othercleared asset classes. For example, according to FIA’s 2023 Q1 Data, LCH LTD holds $254.8 billion in initial
margin, CME holds $224.5 billion in initial margin and OCC holds $74.8 billion in initial margin.10

The activity in the Sponsored Service is always Gross Margined. For the Correspondent Clearing/Prime Broker models, a Netting Member in the future, under the
Expanded Clearing Proposal, may choose either to Gross Margin or Net Margin that activity. Gross Margining must be chosen if a Broker/Dealer Netting Member wants
the ability to take a debit in the SEC Rule 15c3-3 formula for the customer margin.
9

10

FIA’s CCP Tracker update - Q1 2023 highlights, https://www.fia.org/fia/articles/ccp-tracker-update-q1-2023-highlights

16

OTHER NOTEWORTHY AREAS OF COMMENT REGARDING FICC MARKET RISK MANAGEMENT
Enhanced Cross Margining: Certain respondents commented that FICC should extend its existing crossmargining arrangements between FICC-cleared Treasury cash and repo activity and CME-cleared Treasury futures
to include additional asset classes, such as swaps, and also to include end-user customer positions within crossmargining, in addition to the house positions of FICC and CME common members for which cross-margining isoffered today. As discussed in its October 2021 whitepaper11, FICC wholeheartedly supports expansions of crossmargining, as they more closely tie margin requirements to the risk of the relevant transactions. Since that time,
FICC has remained active in seeking to realize these benefits for its members and the broader markets, recently
obtaining the necessary regulatory approval to enhanve the FICC-CME cross-margining methodology and expand
the suite of products available for cross-margining of house positions12. In addition, FICC is currently co-leadingwith CME a workstream of the Commodity Futures Trading Commission’s (CFTC) Global Markets Advisory
Committee focused on identifying potential solutions to end-user customer cross-margining. FICC looks forward to
related dialog regarding this and other potential expansions of cross-margining with the industry and its
supervisors.
Margin Transparency: Certain respondents expressed a need for increased transparency of FICC’s margining
processes. However, some of those comments appear to reflect a lack of awareness of the information, tools, andreporting FICC makes available to its membership today, which includes the entire FICC / GSD margin
methodology document and detailed descriptions and formulae, as applicable, for each component of its Clearing
Fund, as well as a host of other information regarding how FICC manages risk. All of this material is available on
USTClearing.com.
Some respondents also expressed concern that FICC not be permitted to make changes to its margin calculation
without prior notice in order to avoid procyclical impacts of margin hikes in volatile environments. FICC would notethat it is not permitted to make material changes to its initial margin methodology (referred to by FICC as its“Clearing Fund methodology”) without regulatory approval and requisite public notice and comment. In terms of
FICC’s variation margining, which is a mark-to-market pass-through between its members conducted twice daily
as part of its Funds-Only Settlement process, such margining depends on changes in the price of securities thatare the subject of the cleared trade, and the pricing FICC uses is provided to it by standard industry vendors.
Certain respondents also commented that FICC should provide reporting to sponsoring members regarding the
break-down of how much of their VaR Charge is allocable to each individual sponsored member. FICC provides
that type of reporting today to sponsoring members; sponsoring members should contact their FICC RelationshipManager directly for more information on how they can gain access to that reporting.
Single Clearing Fund: Certain respondents also commented that FICC should implement separate calls for initial
margin, variation margin, and a guaranty fund. Unlike Derivatives Clearing Organizations (DCOs) and certain otherclearing organizations, FICC does not require indirect participants to post initial margin for their transactions, nordoes it require FICC / GSD Netting Members to post a default fund to cover potential tail risks. Rather, FICC
maintains a single Clearing Fund and applies Clearing Fund requirements exclusively to its FICC / GSD Netting
Members. This provides FICC / GSD Netting Members and their indirect participant clients with flexibility to selectwho will fund the Clearing Fund requirements that arise from indirect participant activity. FICC appreciates thecomment and welcomes further dialog with the industry and its supervisors regarding the optimal structuring of its
risk management resources.

DTCC White Paper - “Making US Treasury Market Safer for All Participants: How FICC’s Open Access Model Promotes Central Clearing” (October 2021), https://www.dtcc.com/-/media/Files/Downloads/WhitePapers/Making-the-Treasury-Market-Safer-for-all-Participants.pdf
1112

SEC approval order: https://www.sec.gov/files/rules/sro/ficc/2023/34-98327.pdf

17Certain respondents also commented that all margin postings by an indirect participant be excluded from FICC’s
default loss waterfall. FICC would note that (as described above) the Expanded Clearing Proposal would requirethat FICC hold in segregated accounts any margin postings by indirect participants for which their broker/dealer
clearing intermediary is seeking a debit in the SEC Rule 15c3-3 formula, and that such separately held margin also
be excluded from FICC’s default loss waterfall.
Porting: Certain respondents commented that FICC should allow for porting of clients’ Treasury activity in theevent of the default of their clearing member, like the construct applicable in the derivatives space. As FICC noted
in its own comment letter to the Expanded Clearing Proposal, FICC is continually reviewing the features of its risk
management and default management programs and plans to consider whether expressly providing for porting ofa defaulting FICC / GSD Netting Member’s indirect participant positions may increase confidence among indirect
participants and facilitate greater clearing. FICC welcomes related discussion with the industry and its supervisors.

18

LIQUIDITY RISK MANAGEMENT
FICC manages liquidity risk presented by its FICC / GSD membership by maintaining qualifying liquid resources
sufficient to meet the potential amount of funding required to settle the outstanding FICC-cleared transactions in theevent of a default of the FICC / GSD Netting Member (including the Member’s family of affiliated Members) with thelargest aggregate liquidity exposure to FICC in extreme but plausible market conditions. These qualifying liquid
resources include Clearing Fund cash and the FICC / GSD CCLF. CCLF is a rules-based, committed liquidity resource
which takes the form of a repurchase agreement pursuant to which each FICC / GSD Netting Member is obligated toprovide a level of funding if the CCLF is invoked. More information about how FICC can invoke the CCLF and how FICC
sizes each Member’s contribution can be found in FICC’s Principles for Financial Market Infrastructures (PFMI)
Disclosure Framework.13
Certain respondents commented that FICC should provide additional information to its membership regarding the
calculation and allocation of the FICC / GSD CCLF. FICC appreciates the comment and would note that while it
currently publishes educational materials regarding the CCLF to the DTCC Learning Center for use by the FICC / GSD
membership, it is working on augmenting those educational materials with new content based on frequently asked
questions from the FICC / GSD membership. Certain respondents also commented that FICC should enhance thereporting it provides its membership regarding their CCLF obligations. FICC also appreciates this comment and would
note that it is considering a series of enhancements to its suite of CCLF reporting to ease the membership’s use andconsumption of those reports.

ANALYSIS OF LIQUIDITY RISK MANAGEMENT SURVEY DATA
Survey results are inconclusive as to whether the incremental indirect participant Treasury Repo, Treasury
Reverse Repo and/or Treasury Cash activity that may be required to be submitted to FICC under the Expanded
Clearing Proposal would have a significant impact on FICC / GSD’s liquidity needs or on the overall size or
allocation of its CCLF.

INDIRECT PARTICIPANT TREASURY REPO AND REVERSE REPO ACTIVITY
As described above, member respondents indicated that in aggregate they planned to submit to FICC for clearing
approximately $500 billion of indirect participant Treasury Repo activity and in aggregate approximately $520 billion ofindirect participant Treasury Reverse Repo activity, if the Expanded Treasury Clearing Proposal were adopted.
•

Out of 38 member respondents who indicated a non-zero increase in either or both their indirect participant
Treasury Repo and Treasury Reverse Repo activity, 21 of those respondents (55%) indicated that they planned tosubmit what appears to be a matched book to FICC – in other words, they plan to submit to FICC the same
notional amount of indirect participant Repo activity as indirect participant Reverse Repo activity. If that Reverse
Repo and Repo activity have the same underlying CUSIPs and the same settlement dates, such activity shouldbe netted as part of FICC’s multilateral net settlement process and, in turn, have minimal impact on either FICC’sliquidity needs or the CCLF.

FICC PFMI Disclosure Framework is available on DTCC’s website, https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/FICC_Disclosure_
Framework.pdf https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/FICC_Disclosure_Framework.pdf
13

19

•

Only 8 out of 38 member respondents (21%) indicated that they planned to submit to FICC a net directional book– either more indirect participant Treasury Repo activity than indirect participant Treasury Reverse Repo activity
or vice versa, and for only 3 out of 38 member respondents would such net directional impact be greater than
$15 billion.

•

Directional settlement obligations owing to FICC, without other offsetting settlement obligations within amember’s portfolio, could potentially result in an increase in FICC’s liquidity needs and/or impact the overall sizeor allocation of the CCLF.

•

However, given that the estimated incremental indirect participant Treasury Repo and Treasury Reverse Repo
activity does not appear to be significantly directional in nature, and even such net directional activity could
potentially offset against other settlement obligations related to members’ existing FICC-cleared activity, it isinconclusive whether the addition of such Treasury Repo and Treasury Reverse Repo activity into clearing would
have a significant impact on FICC / GSD’s liquidity needs or the overall size or allocation of the CCLF.

INDIRECT PARTICIPANT TREASURY CASH ACTIVITY•

As described above, member respondents indicated that in the aggregate they planned to submit to FICC $605
billion of Treasury cash activity on behalf of their indirect participants if the Expanded Clearing Proposal wereadopted.

•15 out of 42 member respondents indicated that they plan to submit over $20 billion in incremental Treasury cash
activity on behalf of indirect participants, with 9 out of those 15 indicating that the volume would be greater than
$30 billion.

•

The incremental Treasury cash volume estimates were, however, provided to FICC on a gross basis such that
FICC does not have the break-down as to the mix of Buy and Sell activity within a given member’s portfolio and/or whether any of the incremental indirect participant Treasury cash activity would have settlement offset
opportunities across other indirect participant activity and/or across the member’s existing FICC-cleared
portfolio. As described above, any such offsets could result in a reduction in settlement obligations and mitigate
the liquidity risk presented to FICC by the member and, in turn, not impact FICC / GSD’s liquidity needs.

•

Without such additional information, it is similarly inconclusive whether the addition of such indirect participant
Treasury cash activity into clearing would have a significant impact on FICC / GSD’s liquidity needs or the overall
size or allocation of the CCLF.

20

Section V: Conclusions
FICC’s clients play a critical role in reimagining the financial marketplaces of the future, and so are uniquely placed toshare views on the impact of the Expanded Clearing Proposal and the evolution of central clearing for the U.S. Treasury
Market.
We are committed to continuing to work with our members, their clients, the broader market, and our public sector
stakeholders to have further discussions on the various services and access models offered by FICC / GSD to help
firms evaluate which model is right for them. We will continue to explore the impact the Expanded Clearing Proposal
could have on FICC’s operations, risk models and the tools we provide, and engage the industry for further feedback as
we move forward.
For ongoing support, information, and dialog on this important topic, please continue to visit USTClearing.com. We willleverage this online hub to provide the industry with important information from FICC as this Expanded Clearing
Proposal continues to evolve, including details regarding FICC’s various services for Treasury activity, our direct andindirect participation models, risk management practices, governance and thought leadership.
FICC would like to again thank the firms who participated in the survey. We hope this report helps contribute to a better
understanding of the potential implications of the Expanded Clearing Proposal for the U.S. Treasury Market. We
encourage you to share your thoughts and participate in the ongoing dialog that we are trying to foster.

21

APPENDIX –FICC’s Indirect Participant Access Models
Under the Expanded Clearing Proposal, FICC would offer its FICC/GSD Netting Members and their indirect participant
clients a variety of account options that would allow those parties to balance the benefits of netting and segregation indifferent ways. Non-15c3-3 account structures would generally maximize the ability for FICC/GSD Netting Members to
net down position exposures and, therefore, resultant margin obligations. One exception to this option is with respect tosponsored member accounts that FICC Gross Margins (irrespective of whether the sponsoring member is seeking Rule15c3-3 capital relief ) in light of FICC’s rules-based obligations to each individual sponsored member in the event of thedefault of its sponsoring member. On the other hand, 15c3-3 accounts would uniformly be margined on a gross basis,
with no offsets between customer positions. In addition, that margin for 15c3-3 accounts would be held by FICC in
separate accounts that are both physically and legally segregated from any exposure to FICC members’ positions or the
positions of any fellow customers. In other words, FICC is considering a 15c3-3 account structure that is similar to the“Legal Segregation with Operational Commingling” or “LSOC” approach used in the cleared swaps space.
In the case where a FICC/GSD Netting Member or its indirect participant client prioritizes availing itself of the accountstructure contemplated under the proposed amendments to Rule 15c3-3, the 15c3-3 account structure at FICC is likely
to provide for the following: (a) physical segregation of customer Clearing Fund cash at the Federal Reserve Bank of
New York (FRBNY)14 and customer Clearing Fund securities at a large commercial custodial bank; (b) customer
Clearing Fund assets would not be subject to any FICC loss mutualization purposes (whether arising from a fellow
customer or clearing intermediary default); and (c) customer Clearing Fund assets would be invested consistent withthe proposed amendments to Rule 15c3-3 that are expected to emphasize the use of cash and short-term U.S. Treasury
instruments.
A summary of how these changes may be applied15 to FICC’s indirect participant access models is reflected in thetable below:

ISSUE

Segregation of Clearing Fund

FICC TODAYFICC POST-ADOPTION

Prime Broker / Correspondent
Clearing Model:
No segregation of margin; Clearing Fundrequirements are calculated and collected
at the submitting Netting Member level on a
net basis with all other activity in the sameaccount (which can include customer as well
as house activity).

Prime Broker / Correspondent
Clearing Model:
Under a 15c3-3 account structure, eachcustomer’s margin would be calculated
on a gross basis and held physicallysegregated from all other FICC margin andwould also be legally segregated from
FICC member as well as fellow customer
exposures.

Sponsored Membership Model:
Margin for all sponsored members is held
separately on an omnibus book-entry basis
from the house activity of the sponsoring
member. Margin on sponsored member
activity is calculated on a gross basis (i.e.,
no offsets between different sponsoredmembers’ activity).

Sponsored Membership Model:
Under a 15c3-3 account structure, eachsponsored member’s margin would be
calculated on a gross basis and held
physically segregated from all other
FICC margin and would also be legallysegregated from FICC member as well as
fellow customer exposures.

This assumes that FICC would be able to establish the necessary central bank account arrangements for customer margin described in the Expanded Clearing Proposal.
Subject to any final requirements adopted by the SEC as well as further industry consultation and regulatory review by the SEC insofar as FICC / GSD is required tomake necessary regulatory filings (i.e., proposed rule change filings under Section 19 of the Exchange Act) prior to implementation of these structures.
14

15

22

ISSUE

Fellow customer risk (i.e., customer margin
can be used to offset other customer
default)

FICC TODAYFICC POST-ADOPTION

Prime Broker / Correspondent Clearing
Model:
Yes, customer activity margin is collected
on a net basis from the submitting Netting
Member and, therefore, is subject to loss
mutualization.

Prime Broker / Correspondent Clearing
Model:
No, under a 15c3-3 account structure,each customer’s margin would be
calculated on a gross basis and held
physically segregated from all other
FICC margin and would also be legallysegregated from FICC member as well as
fellow customer exposures.

Sponsored Membership Model:
Yes, sponsored member activity margin isviewed as proprietary or house margin of
the Sponsoring Member and, therefore, issubject to loss mutualization.

Sponsored Membership Model:
No, under a 15c3-3 account structure,each sponsored member’s margin would
be calculated on a gross basis and held
physically segregated from all other
FICC margin and would also be legallysegregated from FICC member and as well
as fellow customer exposures.

Prime Broker / Correspondent Clearing
Model:
Yes, customer activity margin is collected
on a net basis from the submitting Netting
Member and, therefore, is subject to loss
mutualization.

Prime Broker / Correspondent Clearing
Model:
No, under a 15c3-3 account structure,each customer’s margin would be
calculated on a gross basis and held
physically segregated from all other
FICC margin and would also be legallysegregated from FICC member as well as
fellow customer exposures.

Sponsored Membership Model:
Yes, sponsored member activity margin isviewed as proprietary or house margin of
the Sponsoring Member and, therefore, issubject to loss mutualization.

Sponsored Membership Model:
No, under a 15c3-3 structure, eachsponsored member’s margin would be
calculated on a gross basis and held
physically segregated from all other
FICC margin and would also be legallysegregated from FICC member and as well
as fellow customer exposures.

Intermediary default risk (i.e., customer
margin can be used to offset agency
clearing/Sponsoring Member default risk)

23

ISSUE

FICC TODAYFICC POST-ADOPTION

Prime Broker / Correspondent
Clearing Model:
Yes, all FICC margin including margin forcustomer activity is invested as part of the
GSD Clearing Fund pursuant to the existing
investment policy applicable to FICC / GSD(the “Clearing Agency Investment Policy”).

Investment of customer assets

Sponsored Membership Model:
Yes, all FICC margin including margin forsponsored member activity is invested aspart of the GSD Clearing Fund pursuant to
the Clearing Agency Investment Policy.

Clearing house visibility ofcustomer transactions

Prime Broker / Correspondent
Clearing Model:
Yes, all FICC margin including margin forcustomer activity would continue to beinvested as part of the GSD Clearing
Fund pursuant to the Clearing Agency
Investment Policy.
For customer margin held in a 15c3-3
account structure, the policy would
be revised to address the proposed
amendments to Rule 15c3-3 to address
requirements applicable to investment ofmargin held in such account.
Sponsored Membership Model:
Yes, all FICC margin including margin
for sponsored member activity would
continue to be invested as part of the GSD
Clearing Fund pursuant to the Clearing
Agency Investment Policy.
For customer margin held in a 15c3-3
account structure, the policy would
be revised to address the proposed
amendments to Rule 15c3-3 to address
requirements applicable to investment ofmargin held in such account.

Prime Broker / Correspondent Clearing
Model:
Yes, in some cases, so long as the submitting
Netting Member uses a unique client
identifier (Executing Firm symbol) as part of
the trade submission.

Prime Broker / Correspondent
Clearing Model:
Yes, in all cases, the submitting Netting
Member would be required to use aunique client identifier (Executing Firmsymbol) as part of the trade submission
for the customer account.

Sponsored membership:
Yes, the sponsoring member is required touse a unique client identifier (Executing Firmsymbol) as part of the trade submission for
the Omnibus Account.

Sponsored Membership:
Yes, the sponsoring member will continue
to be required to use a unique client
identifier (Executing Firm symbol) as
part of the trade submission for the
Omnibus Account.

24

For more information on our products and services, visit DTCC.com
For information on careers at DTCC, visit careers.dtcc.com

FOLLOW US ON© 2023 DTCC. All rights reserved. DTCC, DTCC (Stylized), ADVANCING FINANCIAL MARKETS. TOGETHER, and the Interlocker graphic are registered and unregisteredtrademarks of The Depository Trust & Clearing Corporation. DTCC Public (White). 29508-TC083123