Federal Register / Vol. 83, No. 249 / Monday, December 31, 2018 / Notices 67801 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3On December 13, 2018, FICC filed this proposed 

rule change as an advance notice (SR–FICC–2018– 

802) with the Commission pursuant to Section 

806(e)(1) of Title VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act entitled the 

Payment, Clearing, and Settlement Supervision Act 

of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b– 

4(n)(1)(i) under the Act, 17 CFR 240.19b–4(n)(1)(i). 

A copy of the advance notice is available at http:// 

www.dtcc.com/legal/sec-rule-filings.aspx. 

4Capitalized terms not defined herein are defined 

in the Rules, available at http://www.dtcc.com/∼/ 

media/Files/Downloads/legal/rules/ficc_gov_

rules.pdf. 

5 12 U.S.C. 1831o(a). 

6 17 CFR 230.144A. 

7 15 U.S.C. 77a et seq. 

8Rule 1, definition of ‘‘Sponsored Member 

Trade,’’ supra note 4. 

9Rule 1, definition of ‘‘Sponsoring Member 

Omnibus Account,’’ supra note 4. 

10Rule 3A, Sections 5, 6, 7, 8, and 9, supra note 4. 

11FICC Board of Directors means the Board of 

Directors of Fixed Income Clearing Corporation or 

a committee thereof acting under delegated 

authority. Rule 1, supra note 4. 

12Rule 3A, Section 2, supra note 4. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.54

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28396 Filed 12–28–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84951; File No. SR–FICC– 

2018–013] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Expand Sponsoring Member Eligibility 

in the Government Securities Division 

Rulebook and Make Other Changes 

December 21, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934, as 

amended, (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on December 13, 2018, 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.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change would 

amend the FICC Government Securities 

Division (‘‘GSD’’) Rulebook (‘‘Rules’’) 4

in order to (i) allow a broader group of 

Netting Members to participate in FICC 

as Sponsoring Members, (ii) allow a 

Sponsoring Member to establish a 

Sponsoring Member Omnibus Account 

that may contain transactions between a 

Sponsored Member and a Netting 

Member other than the Sponsoring 

Member, which Sponsoring Member 

Omnibus Account could be in addition 

to or in lieu of a Sponsoring Member 

Omnibus Account in which only 

transactions between a Sponsored 

Member and its Sponsoring Member 

would be permitted, and (iii) make 

certain conforming and technical 

changes in Rules 1 and 3A. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

The purpose of this proposed rule 

change is to (i) allow a broader group of 

Netting Members to participate in FICC 

as Sponsoring Members, (ii) allow a 

Sponsoring Member to establish a 

Sponsoring Member Omnibus Account 

that may contain transactions between a 

Sponsored Member and a Netting 

Member other than the Sponsoring 

Member, which Sponsoring Member 

Omnibus Account could be in addition 

to or in lieu of a Sponsoring Member 

Omnibus Account in which only 

transactions between a Sponsored 

Member and its Sponsoring Member 

would be permitted, and (iii) make 

certain conforming and technical 

changes in Rules 1 and 3A. 

(i) Background 

Under Rule 3A (Sponsoring Members 

and Sponsored Members), Bank Netting 

Members that are ‘‘well-capitalized’’ (as 

defined by the Federal Deposit 

Insurance Corporation’s applicable 

regulations) 5 and have at least $5 

billion in equity capital are permitted to 

sponsor, as ‘‘Sponsoring Members,’’ 

qualified institutional buyers as defined 

by Rule 144A 6 under the Securities Act 

of 1933, as amended (‘‘Securities Act’’),7

and certain legal entities that, although 

not organized as entities specifically 

listed in paragraph (a)(1)(i) of Rule 144A 

under the Securities Act, satisfy the 

financial requirements necessary to be 

qualified institutional buyers as 

specified in that paragraph (i.e., 

Sponsored Members) into GSD 

membership. 

Under Rule 3A, a Sponsoring Member 

is permitted to submit to FICC for 

comparison, novation, and netting 

certain types of eligible securities 

transactions between itself and its 

Sponsored Members (Sponsored 

Member Trades).8 The Sponsoring 

Member is required to establish an 

omnibus account at FICC for all its 

Sponsored Members’ FICC-cleared 

securities transactions (Sponsoring 

Member Omnibus Account),9 which is 

separate from the Sponsoring Member’s 

regular netting accounts. For operational 

and administrative purposes, FICC 

interacts solely with the Sponsoring 

Member as agent for purposes of the 

day-to-day satisfaction of its Sponsored 

Members’ obligations to FICC, including 

their securities and funds-only 

settlement obligations.10

Governance and Risk Management of 

Sponsoring Members 

All Sponsoring Members are subject 

to the following governance, market risk 

management, and credit risk 

management processes specifically 

related to their status as Sponsoring 

Members under the current Rules, 

which would continue to apply equally 

to all Sponsoring Members 

notwithstanding the proposed rule 

changes described in this filing. 

The governance process applicable to 

the approval of every applicant to 

become a Sponsoring Member is set 

forth in Rule 3A. In order to become a 

Sponsoring Member, an applicant is 

required to go through an application 

process, which includes a risk 

management review of the applicant by 

FICC specifically related to the activity 

it proposes to submit to FICC as a 

Sponsoring Member, and an approval of 

such applicant by the FICC Board of 

Directors 11 as a new Sponsoring 

Member.12 This application process is 

separate from the applicant’s original 

Netting Member application process. If 

the FICC Board of Directors denies the 

application of a Sponsoring Member 

applicant, FICC is required to handle 

such denial in the same way as set forth 

in Section 6 of Rule 2A with respect to 


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13Rule 3A, Section 2(b) and Rule 2A, Section 6, 

supra note 4. 14Rule 3A, Section 2(a), supra note 4. 15Rule 3, Section 12, supra note 4. 16Rule 3A, Section 10, supra note 4. 

17Rule 3A, Section 10(a), supra note 4. 

18Rule 3A, Section 10(c), supra note 4. 

19 Id. 

20Rule 3A, Section 10(b), supra note 4. 

21See Rule 3A, Section 10(b) and Rule 4, Section 

6, supra note 4. 

22Section 2(c) of Rule 3A provides ‘‘Each Netting 

Member to become a Sponsoring Member shall also 

sign and deliver to [FICC] a Sponsoring Member 

Guaranty . . . .’’ A ‘‘Sponsoring Member 

Guaranty’’ is defined in Rule 1 as ‘‘a guaranty . . . 

that a Sponsoring Member delivers to [FICC] 

whereby the Sponsoring Member guarantees to 

[FICC] the payment and performance by its 

Sponsored Members of their obligations under [the] 

Rules, including, without limitation, all of the 

securities and funds-only settlement obligations of 

its Sponsored Members under [the] Rules.’’ Supra 

note 4. 

23Rule 3A, Section 2(c), supra note 4. 

24Rule 3A, Section 2(g), supra note 4. 

25 12 U.S.C. 1831o(a). 

26Rule 3A, Section 2(a), supra note 4. 

27Securities Exchange Act Release No. 80563 

(May 1, 2017), 82 FR 21284 (May 5, 2017) (SR– 

FICC–2017–003). 

28 12 U.S.C. 1831o(a). 29Section 7 of Rule 4 provides that ‘‘an InterDealer Broker Netting Member, or a Non-IDB Repo 

Broker with respect to activity in its Segregated 

Repo Account, shall not be subject to an aggregate 

loss allocation in an amount greater than $5 million 

pursuant to this Section 7 for losses and liabilities 

resulting from an Event Period.’’ Supra note 4. The 

limit on loss allocation for these Members reflects 

their risk profile. Specifically, an Inter-Dealer 

Broker Netting Member is required to (A) limit its 

business to acting exclusively as a broker, (B) 

conduct all of its business in Repo Transactions 

with Netting Members, and (C) conduct at least 90 

percent of its business in transactions that are not 

Repo Transactions with Netting Members. Rule 3, 

Section 8(e), supra note 4. Likewise, a Non-IDB 

Repo Broker is required to operate in the same way 

as a Broker with respect to activity in its Segregated 

Repo Account. Rule 1, definition of ‘‘Repo Broker,’’ 

supra note 4. 

Netting Member applications.13 FICC 

may also require that a Sponsoring 

Member applicant be a Netting Member 

for a time period deemed necessary by 

FICC prior to being considered to 

become a Sponsoring Member.14

Once a Sponsoring Member is 

approved by the FICC Board of 

Directors, it is subject to ongoing credit 

surveillance and may be placed on the 

Watch List and/or may be subject to 

enhanced surveillance based on relevant 

factors as set forth in Rule 3, as FICC 

deems necessary to protect FICC and its 

members.15

FICC mitigates the market risk 

associated with Sponsored Member 

activity through the collection of 

Clearing Fund from the Sponsoring 

Member.16 A Sponsoring Member is 

required to maintain a Required Fund 

Deposit for all the Sponsored Member 

activity, which is calculated twice daily 

on a gross basis, in its Sponsoring 

Member Omnibus Account.17

Specifically, for purposes of calculating 

the Unadjusted GSD Margin Portfolio 

Amount for a Sponsoring Member 

Omnibus Account, each Sponsored 

Member’s activity is assigned a separate 

VaR Charge, and, as such, the 

Unadjusted GSD Margin Portfolio 

Amount for the Sponsoring Member 

Omnibus Account is not reduced by any 

netting of positions as between different 

Sponsored Members within that 

Sponsoring Member Omnibus 

Account.18 In addition, for purposes of 

calculating the Unadjusted GSD Margin 

Portfolio Amount applicable to a 

Sponsoring Member Omnibus Account, 

FICC applies the higher of the Required 

Fund Deposit calculation as of the 

beginning of the current Business Day 

and intraday on the current Business 

Day.19 FICC has the right to apply all 

such Clearing Fund deposits plus all 

other Clearing Fund deposits of the 

Sponsoring Member for its Netting 

System accounts against any obligations 

owing to FICC by the Sponsoring 

Member, including (but not limited to) 

in a Sponsoring Member default 

situation.20 In a Sponsoring Member 

default situation, FICC may apply all 

such Clearing Fund deposits against any 

obligations owing to FICC by the 

Sponsoring Member before any of the 

other resources in the GSD default loss 

waterfall would be used, including, in 

the final tranche of such waterfall, 

potential loss mutualization to Netting 

Members.21

Moreover, Sponsoring Members are 

also responsible for providing FICC with 

a Sponsoring Member Guaranty 22

whereby the Sponsoring Member 

guarantees to FICC the payment and 

performance by its Sponsored Members 

of their obligations under the Rules.23

Although Sponsored Members are 

principally liable to FICC for their own 

settlement obligations under the Rules, 

the Sponsoring Member is required to 

provide a Sponsoring Member Guaranty 

to FICC with respect to such obligations 

whereby if a Sponsored Member 

defaults and does not satisfy its 

settlement obligations to FICC, the 

Sponsoring Member is required to 

satisfy those settlement obligations on 

behalf of its defaulted Sponsored 

Member. As long as the Sponsoring 

Member performs under the Sponsoring 

Member Guaranty, it would not 

separately be considered in default to 

FICC, but failure to do so would be 

grounds for FICC to cease to act for the 

Sponsoring Member.24

Proposed Rule Changes To Expand 

Sponsoring Member Eligibility 

As described above, Rule 3A 

(Sponsoring Members and Sponsored 

Members) currently provides that Bank 

Netting Members that are ‘‘wellcapitalized’’ (as defined by the Federal 

Deposit Insurance Corporation’s 

applicable regulations) 25 and have at 

least $5 billion in equity capital are 

eligible to become Sponsoring 

Members.26

In 2017, the Commission approved 

FICC rule filing SR–FICC–2017–003,27

which expanded the types of entities 

that are eligible to participate in FICC as 

Sponsored Members under Rule 3A. 

Since that time, Netting Members that 

are not Bank Netting Members have 

expressed interest to FICC in 

participating in FICC as Sponsoring 

Members. 

The proposed rule change would 

create two categories of Netting 

Members that would be eligible to 

become Sponsoring Members. The first 

category of Netting Members would 

include currently eligible Bank Netting 

Members that are ‘‘well-capitalized’’ (as 

defined by the Federal Deposit 

Insurance Corporation’s applicable 

regulations) 28 and have at least $5 

billion in equity capital (hereinafter and 

in the proposed rule change, ‘‘Category 

1 Sponsoring Members’’). The second 

category of Netting Members eligible to 

become Sponsoring Members would 

include Netting Members that are Tier 

One Netting Members, except for InterDealer Broker Netting Members and 

Non-IDB Repo Brokers with respect to 

activity in their Segregated Repo 

Accounts (hereinafter and in the 

proposed rule change, ‘‘Category 2 

Sponsoring Members’’). As such, the 

proposed rule change would provide 

that Category 2 Sponsoring Member 

applicants could include, for example, 

Dealer Netting Members, Futures 

Commission Merchant Netting 

Members, and Foreign Netting 

Members. 

FICC is proposing that neither InterDealer Broker Netting Members nor 

Non-IDB Repo Brokers with respect to 

activity in their Segregated Repo 

Accounts be eligible to become Category 

2 Sponsoring Members. Although InterDealer Broker Netting Members and 

Non-IDB Repo Brokers are types of 

Netting Members, a cap applies to their 

respective loss allocation obligations to 

FICC under Rule 4, Section 7 29 that 

does not apply to other types of Netting 

Members; therefore, FICC does not 

believe it would be appropriate to allow 

either Inter-Dealer Broker Netting 

Members or Non-IDB Repo Brokers to be 

eligible to become Category 2 

Sponsoring Members. However, to the 


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30Rule 3, Section 14, supra note 4. 

31 12 U.S.C. 1831o(a). 

32 Id. 

33Rule 1, definition of ‘‘Sponsored Member 

Trade,’’ supra note 4. 

extent an Inter-Dealer Broker Netting 

Member or Non-IDB Repo Broker also 

has another type of Netting Member 

status with respect to which it is not 

subject to the loss allocation cap 

described above, such Inter-Dealer 

Broker Netting Member or Non-IDB 

Repo Broker could apply to become a 

Category 2 Sponsoring Member under 

such other Netting Member status. 

The minimum financial requirements 

applicable to Netting Member 

applicants to become Category 2 

Sponsoring Members would be the same 

as those that apply to them with respect 

to their respective Netting Member 

category under Section 4(b) of Rule 2A. 

However, since a Category 2 Sponsoring 

Member may have substantially less 

capital than a Category 1 Sponsoring 

Member, the proposed rule change 

would provide that FICC could impose 

financial requirements on an applicant 

to become a Category 2 Sponsoring 

Member that are greater than the 

financial requirements applicable to 

such applicant in its capacity as a 

Netting Member under Section 4(b) of 

Rule 2A. FICC’s determination as to 

whether to impose such increased 

financial requirements on a Category 2 

Sponsoring Member applicant would be 

based upon the level of the anticipated 

positions and obligations of such 

applicant, the anticipated risk 

associated with the volume and types of 

transactions such applicant proposes to 

process through FICC as a Category 2 

Sponsoring Member, and the overall 

financial condition of such applicant. 

Such a determination by FICC to impose 

increased financial requirements on a 

Category 2 Sponsoring Member 

applicant would be subject to the 

approval of the FICC Board of Directors 

in connection with its approval of the 

application of such Category 2 

Sponsoring Member, and, once 

approved, FICC would thereafter 

regularly review such Category 2 

Sponsoring Member regarding its 

continued adherence to such increased 

financial requirements. 

In addition to reserving the right of 

FICC to impose financial requirements 

on a Category 2 Sponsoring Member that 

are greater than the financial 

requirements applicable to it in its 

capacity as a Netting Member under 

Section 4(b) of Rule 2A, the proposed 

rule change would also impose an 

activity limit on a Category 2 

Sponsoring Member’s Sponsored 

Member activity so that such 

Sponsoring Member would only be 

permitted to novate new Sponsored 

Member activity to FICC to the extent 

the sum of the VaR Charges of its 

Sponsoring Member Omnibus 

Account(s) and its Netting System 

accounts (hereinafter ‘‘Aggregate VaR 

Charges’’) do not exceed its Netting 

Member Capital. The ratio of a Category 

2 Sponsoring Member’s Aggregate VaR 

Charges to its Netting Member Capital 

would be calculated by FICC on at least 

an hourly basis for monitoring purposes. 

To the extent a Category 2 Sponsoring 

Member’s Aggregate VaR Charges 

exceed its Netting Member Capital, it 

would not be permitted to submit new 

Sponsored Member activity to FICC 

until its Netting Member Capital equals 

or exceeds its Aggregate VaR Charges, 

unless otherwise determined by FICC in 

order to promote orderly settlement, 

which would include, but not be limited 

to, circumstances in which the novation 

of such activity would have a riskreducing impact on the Category 2 

Sponsoring Member’s overall FICCcleared portfolio. 

FICC selected the ratio of Aggregate 

VaR Charges to Netting Member Capital 

for purposes of establishing the activity 

limit for Category 2 Sponsoring 

Members because this ratio is an 

important indicator that a Category 2 

Sponsoring Member’s financial 

resources, as measured by its net assets 

or equity capital, are sufficient to meet 

the largest component of its Required 

Fund Deposit (i.e., VaR Charges). VaR 

Charges and Netting Member Capital are 

also metrics that already exist in the 

Rules for purposes of determining 

Netting Members’ Excess Capital Ratios, 

and, in turn, whether an Excess Capital 

Premium could be applied by FICC to 

Netting Members’ Required Fund 

Deposits as provided in Section 14 of 

Rule 3 (Ongoing Membership 

Requirements).30 As such, Netting 

Members that are interested in 

becoming Category 2 Sponsoring 

Members should already be familiar 

with and should be currently 

monitoring their FICC-cleared portfolio 

with respect to such metrics. 

FICC proposes to apply the abovereferenced activity limit only on 

Category 2 Sponsoring Members and not 

on Category 1 Sponsoring Members. 

This is because Category 1 Sponsoring 

Members are ‘‘well-capitalized’’ 31 and, 

as banks, subject to extensive prudential 

supervision and regulation with respect 

to their obligations under guaranties of 

performance, such as the Sponsoring 

Member Guaranty; therefore, FICC 

believes the imposition of a limit on 

their Sponsored Member activity would 

be unnecessary. However, given that 

FICC would not require Category 2 

Sponsoring Members to be banks or 

bank holding company affiliates, a 

Category 2 Sponsoring Member may not 

be subject to a regulatory standard 

equivalent to ‘‘well-capitalized’’ 32 and/ 

or may not be subject to the same type 

of prudential supervision and regulation 

as a Category 1 Sponsoring Member; 

therefore, FICC believes it would be 

prudent from a risk management 

perspective to impose a limit on 

Category 2 Sponsoring Members’ 

Sponsored Member activity. 

Moreover, in order to be consistent 

with FICC’s authority under Section 7 of 

Rule 3 (Ongoing Membership 

Requirements) with respect to Members 

and applicants to become such, FICC 

proposes to reserve the right to require 

each Sponsoring Member, or any 

Netting Member applicant to become 

such, to furnish to FICC such adequate 

assurances of its financial responsibility 

and operational capability within the 

meaning of Section 7 of Rule 3 as FICC 

may at any time or from time to time 

deem necessary or advisable in order to 

protect FICC and its members, to 

safeguard securities and funds in the 

custody or control of FICC and for 

which FICC is responsible, or to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions. Such a determination by 

FICC to impose adequate assurances on 

a Sponsoring Member applicant would 

be subject to the approval of the FICC 

Board of Directors in connection with 

its approval of the application of such 

Sponsoring Member, and, once 

approved, FICC would thereafter 

regularly review such Sponsoring 

Member regarding its continued 

adherence to such adequate assurances 

requirements, as appropriate. Any 

adequate assurances requirements 

imposed on a Sponsoring Member after 

its approval would be memorialized in 

writing to the Sponsoring Member and 

regularly reviewed by senior risk 

management of FICC. 

Proposed Rule Changes To Expand 

Sponsored Member Trade Definition 

Currently, the term ‘‘Sponsored 

Member Trade’’ is defined in Rule 1 as 

‘‘a transaction between a Sponsored 

Member and its Sponsoring 

Member. . . .’’ 33 Certain prospective 

Sponsoring Members have expressed an 

interest in allowing Sponsored Members 

to submit to FICC eligible securities 

transactions with Netting Members 

other than their Sponsoring Members. In 

light of the fact that in all cases, a 

Sponsoring Member is in control of 


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34Section 6(b) of Rule 3A provides ‘‘The 

Sponsoring Member shall act as processing agent 

for performing all functions and receiving Reports 

and information set forth in the trade submission 

and comparison Rules on behalf of its Sponsored 

Members.’’ Supra note 4. 

35Section 10(a) of Rule 3A provides ‘‘Each 

Sponsoring Member shall make and maintain so 

long as such Member is a Sponsoring Member a 

deposit to the Clearing Fund as a Required Fund 

Deposit to support the activity in the Sponsoring 

Member Omnibus Account . . . .’’ Supra note 4. 

36Rule 3A, Section 12, supra note 4. 

37Approved by the Commission, CCLF will be 

implemented on November 15, 2018. Securities 

Exchange Act Release No. 82090 (November 15, 

2017), 82 FR 55427 (November 21, 2017) (SR–FICC– 

2017–002). 

38Section 2 of Rule 3A provides ‘‘Each Netting 

Member to become a Sponsoring Member shall also 

sign and deliver to [FICC] a Sponsoring Member 

Guaranty . . . .’’ A ‘‘Sponsoring Member 

Guaranty’’ is defined in Rule 1 as ‘‘a guaranty . . . 

that a Sponsoring Member delivers to [FICC] 

whereby the Sponsoring Member guarantees to 

[FICC] the payment and performance by its 

Sponsored Members of their obligations under [the] 

Rules, including, without limitation, all of the 

securities and funds-only settlement obligations of 

its Sponsored Members under [the] Rules.’’ Supra 

note 4. 

39Fee Structure, supra note 4. 

40To the extent a Sponsoring Member elects to 

establish a Sponsoring Member Omnibus Account 

that may contain transactions between a Sponsored 

Member and a Netting Member other than the 

Sponsoring Member, the Required Fund Deposit for 

such Sponsoring Member Omnibus Account would 

be calculated to be inclusive of all transactions 

submitted into such account, including any 

transactions between a Sponsored Member and a 

Netting Member other than the Sponsoring Member 

as well as any transactions between a Sponsored 

Member and the Sponsoring Member. 

41Sponsoring Members interested in such relief 

should discuss this matter with their accounting 

and regulatory capital experts. 

42Fire sale risk is the risk of rapid asset sales of 

securities held by cash lenders when a dealer 

defaults. This rapid sale has the potential to create 

a market crisis because cash lenders are likely to 

sell large amounts of securities in a short period of 

time, which could dramatically reduce the price of 

such securities that such lenders are looking to sell. 

43 It should be noted that net settlements of 

securities for Sponsored Member Trades would be 

executed by the Sponsoring Member’s designated 

clearing bank in accordance with Rule 12 

(Securities Settlement). 

44Rule 1, definition of ‘‘Sponsored Member 

Trade,’’ supra note 4. 

which securities transactions it submits 

for clearing on behalf of its Sponsored 

Members 34 and, in turn, its related 

obligations to FICC with respect to the 

Clearing Fund,35 loss allocation,36

Capped Contingency Liquidity Facility®

(‘‘CCLF®’’),37 the Sponsoring Member 

Guaranty,38 and fees,39 FICC is 

proposing to allow a Sponsoring 

Member to establish a Sponsoring 

Member Omnibus Account that may 

contain transactions between a 

Sponsored Member and a Netting 

Member other than the Sponsoring 

Member, which Sponsoring Member 

Omnibus Account could be in addition 

to or in lieu of a Sponsoring Member 

Omnibus Account in which only 

transactions between a Sponsored 

Member and its Sponsoring Member 

would be permitted.40

Benefits of the Proposal 

FICC believes that the novation of 

eligible securities transactions to FICC 

provides Sponsoring Members and their 

Sponsored Members the benefits of 

FICC’s independent risk management 

and guaranty of completion of 

settlement of such transactions. In 

addition, Sponsoring Members may be 

able to offset or otherwise reduce their 

balance sheets with respect to their 

obligations to FICC on Sponsored 

Member Trades, as well as take lesser 

capital charges than would be required 

to the extent they engaged in the same 

securities transactions with their 

Sponsored Members outside of a central 

counterparty.41 By participating in FICC 

as Sponsored Members, eligible 

institutional firms may be afforded 

increased lending capacity and income 

because balance sheet and capital 

constraints on their Sponsoring 

Members may be alleviated. 

Specifically, the opportunity for 

Sponsoring Members to intermediate 

their Sponsored Members’ securities 

transactions in a more capital efficient 

manner through FICC may allow such 

Sponsoring Members to engage in a 

greater number of securities 

transactions, thereby potentially 

increasing their Sponsored Members’ 

opportunity to lend and, in turn, their 

income. 

FICC believes that the proposed rule 

changes to expand Sponsoring Member 

eligibility and the Sponsored Member 

Trade definition, as described above, 

would help to safeguard the U.S. 

financial market by lowering the risk of 

liquidity drain, protecting against fire 

sale risk,42 and decreasing settlement 

and operational risk. 

FICC believes that expanding the 

types of Netting Members that are 

eligible to participate in FICC as 

Sponsoring Members would increase 

the number of Sponsoring Members 

and, in turn, the number of Sponsored 

Member Trades that would be cleared 

and settled by FICC. Similarly, FICC 

believes that the proposed rule changes 

to expand the Sponsored Member Trade 

definition would also increase the 

number of Sponsored Member Trades 

that would be cleared and settled by 

FICC. FICC believes having more 

Sponsored Member Trades that clear 

and settle through FICC would mitigate 

the risk of a large scale exit by firms 

from the U.S. financial market in a 

stress scenario and therefore lower the 

risk of a liquidity drain in such a 

scenario. Specifically, to the extent 

firms would otherwise be engaging in 

the same type of eligible securities 

transactions (e.g., repurchase agreement 

transactions) outside of a central 

counterparty, FICC believes having such 

securities transactions novated to FICC 

and subject to FICC’s guaranty of 

completion of settlement would reduce 

the risk that such firms discontinue 

such securities transactions in a Netting 

Member default situation. 

Similarly, FICC believes having more 

Sponsored Member Trades that clear 

and settle through FICC would also 

reduce the potential for market 

disruption from fire sales. Specifically, 

in a Netting Member default situation, 

more securities transactions with the 

defaulted Netting Member could be 

centrally hedged and liquidated in an 

orderly manner by FICC rather than by 

individual counterparties in potential 

fire sale conditions. 

In addition, to the extent firms would 

otherwise be engaging in eligible 

securities transactions (e.g., repurchase 

agreement transactions) outside of a 

central counterparty, FICC believes 

having more Sponsored Member Trades 

that clear and settle through FICC would 

also decrease settlement and operational 

risk in the U.S. financial market in that 

such securities transactions would now 

be eligible to be net settled 43 and 

subject to guaranteed settlement, 

novation, and independent risk 

management through FICC. 

(ii) Proposed Changes to the Rules 

Rule 1 (Definitions) 

FICC is proposing to add two defined 

terms: ‘‘Category 1 Sponsoring Member’’ 

and ‘‘Category 2 Sponsoring Member’’ to 

Rule 1. In order to conform Rule 1 with 

the inclusion of these additional defined 

terms, FICC is also proposing to amend 

the definition of ‘‘Sponsoring Member’’ 

to include references to a Category 1 

Sponsoring Member and a Category 2 

Sponsoring Member. 

FICC is also proposing to amend the 

definition of ‘‘Sponsored Member 

Trade.’’ Currently, the term ‘‘Sponsored 

Member Trade’’ is defined in Rule 1 as 

‘‘a transaction between a Sponsored 

Member and its Sponsoring 

Member. . . .’’ 44 As described above, 

in light of the fact that certain 

prospective Sponsoring Members have 

expressed an interest in allowing 

Sponsored Members to submit to FICC 

eligible securities transactions with 

Netting Members other than their 

Sponsoring Member, and that, in all 

cases, a Sponsoring Member is in 

control of which securities transactions 


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45Supra note 34. 

46Supra note 35. 

47Supra note 36. 

48Supra note 37. 

49Supra note 38. 

50Supra note 39. 

51 12 U.S.C. 1831o(a). 

52 15 U.S.C. 78q–1(b)(3)(F). 

53 17 CFR 240.17Ad–22(e)(18). 

it submits for clearing on behalf of its 

Sponsored Members 45 and, in turn, its 

related obligations to FICC with respect 

to the Clearing Fund,46 loss allocation,47

CCLF,48 Sponsoring Member 

Guaranty,49 and fees,50 FICC is 

proposing to expand the Sponsored 

Member Trade definition to provide that 

a Sponsored Member Trade is a 

transaction that satisfies the 

requirements of Section 5 of Rule 3A 

and that is (a) between a Sponsored 

Member and its Sponsoring Member or 

(b) between a Sponsored Member and a 

Netting Member. 

Similarly, FICC is proposing to amend 

the definition of ‘‘Sponsoring Member 

Omnibus Account’’ in Rule 1 to provide 

that a Sponsoring Member may elect to 

establish one or more Sponsoring 

Member Omnibus Accounts, and that 

each Sponsoring Member Omnibus 

Account may contain activity within the 

meaning of clause (a) of the proposed 

Sponsored Member Trade definition or 

activity within the meaning of clause (b) 

of such definition. In addition, FICC is 

proposing a technical change to revise 

‘‘the Account’’ to ‘‘an Account’’ to 

reflect that a Sponsoring Member may 

have more than one Sponsoring Member 

Omnibus Account under this proposal. 

Rule 3A (Sponsoring Members and 

Sponsored Members) 

Currently, only Bank Netting 

Members that are ‘‘well-capitalized’’ 51

and have at least $5 billion in equity 

capital are eligible to apply to become 

Sponsoring Members. In order to 

establish a second category of Netting 

Members eligible to become Sponsoring 

Members, FICC is proposing to amend 

Section 2(a) of Rule 3A by (i) renaming 

Sponsoring Members that are wellcapitalized Bank Netting Members as 

Category 1 Sponsoring Members and (ii) 

adding a sentence to Section 2(a) of Rule 

3A that provides that a Netting Member 

that is a Tier One Netting Member, other 

than an Inter-Dealer Broker Netting 

Member, or a Non-IDB Repo Broker with 

respect to activity in its Segregated Repo 

Account, would be eligible to apply to 

become a Category 2 Sponsoring 

Member. In addition, FICC is proposing 

a technical change to add a missing 

parenthesis in Section 2(a) of Rule 3A. 

FICC is proposing a conforming 

change to reorganize Section 2(b) of 

Rule 3A into four (4) subsections, 

grouping the current first three 

sentences in that section into subsection 

(i) and the current last sentence in that 

section into subsection (iii). 

Under the proposal, Netting Members 

that are Tier One Netting Members, 

except for Inter-Dealer Broker Netting 

Members and Non-IDB Repo Brokers 

with respect to activity in their 

Segregated Repo Accounts, would be 

eligible to apply to become Category 2 

Sponsoring Members. Accordingly, an 

applicant to become a Category 2 

Sponsoring Member may have 

substantially less capital than a Category 

1 Sponsoring Member. Therefore, FICC 

is proposing to add a new subsection (ii) 

to Section 2(b) of Rule 3A that would 

provide FICC with the right to impose 

financial requirements on a Netting 

Member applying to become a Category 

2 Sponsoring Member that are greater 

than the financial requirements 

applicable to the applicant in its 

capacity as a Netting Member under 

Section 4(b) of Rule 2A, based upon the 

level of the anticipated positions and 

obligations of such applicant, the 

anticipated risk associated with the 

volume and types of transactions such 

applicant proposes to process through 

FICC as a Category 2 Sponsoring 

Member, and the overall financial 

condition of such applicant. FICC is also 

proposing to add that the Board would 

approve any increased financial 

requirements imposed by FICC in 

connection with the approval of an 

application of a Netting Member to 

become a Category 2 Sponsoring 

Member, and FICC would thereafter 

regularly review such Category 2 

Sponsoring Member regarding its 

compliance with such increased 

financial requirements. 

In addition, in order to be consistent 

with FICC’s authority under Section 7 of 

Rule 3 (Ongoing Membership 

Requirements) with respect to Members 

and applicants to become such, FICC is 

proposing to add a new subsection (iv) 

to Section 2(b) of Rule 3A that would 

require each Sponsoring Member, or any 

Netting Member applicant to become 

such, to furnish to FICC such adequate 

assurances of its financial responsibility 

and operational capability within the 

meaning of Section 7 of Rule 3 as FICC 

may at any time or from time to time 

deem necessary or advisable in order to 

protect FICC and its members, to 

safeguard securities and funds in the 

custody or control of FICC and for 

which FICC is responsible, or to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions. FICC is also proposing to 

add that the Board would approve any 

adequate assurances imposed by FICC 

in connection with the approval of an 

application of a Netting Member to 

become a Sponsoring Member, and FICC 

would thereafter regularly review such 

Sponsoring Member regarding its 

compliance with such adequate 

assurances, as appropriate. Furthermore, 

FICC is proposing to add that any 

adequate assurances imposed on a 

Sponsoring Member by FICC after its 

approval would be communicated in 

writing to the Sponsoring Member, and 

FICC would thereafter regularly review 

such Sponsoring Member regarding its 

compliance with such adequate 

assurances, as appropriate. 

Moreover, in order to conform to the 

proposal to allow a Netting Member that 

is a Tier One Netting Member, other 

than an Inter-Dealer Broker Netting 

Member, or a Non-IDB Repo Broker with 

respect to activity in its Segregated Repo 

Account, to apply to become a Category 

2 Sponsoring Member, FICC is 

proposing to amend Section 2(e) of Rule 

3A by deleting the reference to Bank 

Netting Members and adding language 

that provides that each Sponsoring 

Member would submit to FICC the 

reports and information required to be 

submitted for its respective type of 

Netting Member. 

Furthermore, in order to impose an 

activity limit on a Category 2 

Sponsoring Member’s Sponsored 

Member activity, as described above, 

FICC is proposing to add a new sentence 

to Section 2(h) of Rule 3A that provides 

if the sum of the VaR Charges of its 

Sponsoring Member Omnibus 

Account(s) and its Netting System 

accounts exceeds its Netting Member 

Capital, a Category 2 Sponsoring 

Member would not be permitted to 

submit activity into its Sponsoring 

Member Omnibus Account(s), unless 

otherwise determined by FICC in order 

to promote orderly settlement. FICC 

would also make a conforming change 

to the first sentence in this section to 

add ‘‘Category 1’’ before the first 

reference to Sponsoring Member. 

2. Statutory Basis 

FICC believes this proposal is 

consistent with the requirements of the 

Act, and the rules and regulations 

thereunder applicable to a registered 

clearing agency. Specifically, FICC 

believes this proposal is consistent with 

Section 17A(b)(3)(F) of the Act 52 and 

Rule 17Ad–22(e)(18),53 as promulgated 

under the Act, for the reasons described 

below. 

Section 17A(b)(3)(F) of the Act 

requires, in part, that the Rules be 


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54 15 U.S.C. 78q–1(b)(3)(F). 

55 Id. 

56 Id. 

57 Id. 

58 Id. 

59 17 CFR 240.17Ad–22(e)(18). 

designed to (i) assure the safeguarding 

of securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible, (ii) 

remove impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions, 

and (iii) promote the prompt and 

accurate clearance and settlement of 

securities transactions.54

FICC believes that the proposal is 

designed to remove certain 

impediments to the clearance and 

settlement of securities transactions, 

including the risk of liquidity drain, fire 

sale risk, and settlement and operational 

risks as it would enable a greater 

number of securities transactions to be 

cleared and settled by a central 

counterparty. Specifically, FICC 

believes that the clearance and 

settlement of securities transactions 

through a central counterparty would 

help to safeguard the U.S. financial 

market by lowering the risk of a 

liquidity drain through the central 

counterparty’s guaranty of completion 

of settlement of centrally cleared 

securities transactions, and would 

protect against fire sale risk through the 

central counterparty’s ability to 

centralize and control the hedging and 

liquidation of a failed counterparty’s 

portfolio. FICC also believes that having 

more securities transactions clear and 

settle through a central counterparty 

would decrease the settlement and 

operational risks that market 

participants would otherwise face to the 

extent they were required to clear and 

settle their securities transactions 

bilaterally because those securities 

transactions would be eligible to be net 

settled and subject to guaranteed 

settlement, novation, and independent 

risk management by the central 

counterparty. 

FICC believes that the proposed rule 

changes to expand the Sponsored 

Member Trade definition would 

increase the number of Sponsored 

Member Trades that would be cleared 

and settled by FICC. FICC also believes 

that the proposed rule changes to 

expand Sponsoring Member eligibility 

would increase the number of 

Sponsoring Members and, in turn, the 

number of Sponsored Member Trades 

that would be cleared and settled by 

FICC. 

By lowering the risk of liquidity drain 

in the U.S. financial market, protecting 

against fire sale risk, and making a 

greater number of securities transactions 

eligible to be net settled and subject to 

guaranteed settlement, novation, and 

independent risk management by FICC, 

FICC believes that these proposed rule 

changes would remove impediments to 

and perfect the mechanism of a national 

system for the prompt and accurate 

clearance and settlement of securities 

transactions, consistent with the 

requirements of the Act. Therefore, FICC 

believes that the proposed rule changes 

to expand the Sponsored Member Trade 

definition as well as expand Sponsoring 

Member eligibility are consistent with 

Section 17A(b)(3)(F) of the Act.55

Section 17A(b)(3)(F) of the Act 

requires that the Rules be designed to 

assure the safeguarding of securities and 

funds which are in the custody or 

control of FICC or for which it is 

responsible.56 FICC believes that the 

risk management that would apply to 

the proposal would allow FICC to assure 

the safeguarding of securities and funds 

which are in the custody or control of 

FICC or for which it is responsible. 

Specifically, as provided under the 

current Rules and as described above, 

all Sponsoring Members would 

continue to be subject to an approval 

process that is separate from their 

original Netting Member applications, 

ongoing credit surveillance in their 

capacity as Sponsoring Members, as 

well as the calculation of Required Fund 

Deposits with respect to their 

Sponsoring Member Omnibus Accounts 

whereby no offsets for netting of 

positions as between different 

Sponsored Members are permitted and 

the higher of the Required Fund Deposit 

calculation as of the beginning of the 

current Business Day and intraday on 

the current Business Day is applied by 

FICC. 

In addition, as provided under the 

proposed rule change and as described 

above, Category 2 Sponsoring Member 

applicants would be subject to the same 

financial requirements as those that 

apply to them with respect to their 

respective Netting Member category 

under Section 4(b) of Rule 2A, but FICC 

would reserve the right to impose 

greater financial requirements on the 

Category 2 Sponsoring Member 

applicant based upon the level of the 

anticipated positions and obligations of 

such applicant, the anticipated risk 

associated with the volume and types of 

transactions such applicant proposes to 

process through FICC as a Category 2 

Sponsoring Member, and the overall 

financial condition of such applicant. 

An activity limit would also be imposed 

on a Category 2 Sponsoring Member’s 

Sponsored Member activity so that such 

Sponsoring Member would only be 

permitted to novate new Sponsored 

Member activity to FICC to the extent its 

Aggregate VaR Charges do not exceed its 

Netting Member Capital, unless 

otherwise determined by FICC in order 

to promote orderly settlement, which 

would include, but not be limited to, 

circumstances in which the novation of 

such activity would have a riskreducing impact on the Category 2 

Sponsoring Member’s overall FICCcleared portfolio. 

Moreover, as provided under the 

proposed rule change and as described 

above, FICC would reserve the right to 

require each Sponsoring Member, or any 

Netting Member applicant to become 

such, to furnish to FICC such adequate 

assurances of its financial responsibility 

and operational capability within the 

meaning of Section 7 of Rule 3 as FICC 

may at any time or from time to time 

deem necessary or advisable in order to 

protect FICC and its members, to 

safeguard securities and funds in the 

custody or control of FICC and for 

which FICC is responsible, or to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions. 

By structuring the proposal in a way 

that addresses potential market and 

credit risks, FICC believes that the 

proposed rule change would 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.57

In addition, FICC believes that the 

proposed rule changes to make certain 

conforming and/or technical changes in 

Rule 1 and Rule 3A would be designed 

to promote the prompt and accurate 

clearance and settlement of securities 

transactions by ensuring that the Rules 

remain clear and accurate to Members. 

Having clear and accurate Rules would 

facilitate Members’ understanding of 

those rules and provide Members with 

increased predictability and certainty 

regarding their obligations. As such, 

FICC believes these proposed changes 

would promote the prompt and accurate 

clearance and settlement of securities, 

consistent with Section 17A(b)(3)(F) of 

the Act.58

Rule 17Ad–22(e)(18) under the Act 

requires, in part, that FICC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to establish 

objective, risk-based, and publicly 

disclosed criteria for participation.59

The proposed rule changes to expand 


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60Rules 2A and 3, supra note 4. 

61 12 U.S.C. 1831o(a). 

62Rule 2A, Section 4(b)(ii)(A)(1), supra note 4. 

63 15 U.S.C. 78q–1(b)(3)(I). 

64 Id. 

65 15 U.S.C. 78q–1(b)(3)(F). 

66 15 U.S.C. 78q–1(b)(3)(I). 

67 12 U.S.C. 1831o(a). 

Sponsoring Member eligibility would 

establish objective, risk-based, and 

publicly disclosed criteria for additional 

types of Netting Members to participate 

in FICC as Sponsoring Members. 

Specifically, as described above, an 

applicant to become a Category 2 

Sponsoring Member would be required 

to be a Netting Member that is a Tier 

One Netting Member, other than an 

Inter-Dealer Broker Netting Member, or 

a Non-IDB Repo Broker with respect to 

activity in its Segregated Repo Account, 

and the Rules establish objective, riskbased, and publicly disclosed criteria in 

Rules 2A and 3 for Netting Members.60

Therefore, FICC believes that the 

proposed rule changes to expand 

Sponsoring Member eligibility are 

consistent with Rule 17Ad–22(e)(18) 

under the Act cited above. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

FICC believes that the proposed rule 

changes to expand Sponsoring Member 

eligibility could have an impact on 

competition by both promoting 

competition and burdening competition. 

The proposed rule change to expand 

Sponsoring Member eligibility could 

promote competition by increasing the 

types of Netting Members that may 

participate in FICC as Sponsoring 

Members. This could promote 

competition by enabling firms that are 

not Bank Netting Members and that 

were not previously eligible to 

participate in GSD as Sponsoring 

Members to now do so as Category 2 

Sponsoring Members. At the same time, 

the proposed rule change would also 

impose certain requirements on 

Category 2 Sponsoring Members that are 

different than those that would apply to 

Category 1 Sponsoring Members. 

Specifically, the proposed rule change 

would provide for a limit on the activity 

Category 2 Sponsoring Members could 

submit to FICC on behalf of their 

Sponsored Members, and also provide 

that FICC could impose greater financial 

requirements on a Category 2 

Sponsoring Member applicant than 

would otherwise apply to such firm in 

its capacity as a Netting Member, based 

upon the level of the anticipated 

positions and obligations of such 

applicant, the anticipated risk 

associated with the volume and types of 

transactions such applicant proposes to 

process through FICC as a Category 2 

Sponsoring Member, and the overall 

financial condition of such applicant. 

These requirements may impact firms 

that are unable to comply therewith, 

and thereby burden competition by 

excluding them from being able to 

participate in FICC as Category 2 

Sponsoring Members. However, FICC 

does not believe that the proposed rule 

change would result in a significant 

burden on competition given that: (i) 

The metrics proposed by FICC for the 

limit on Category 2 Sponsoring 

Members’ Sponsored Member activity, 

namely VaR Charges and Netting 

Member Capital, already exist in the 

Rules for purposes of determining 

whether FICC could apply an Excess 

Capital Premium to a Netting Member’s 

Required Fund Deposit, therefore, 

Netting Members interested in becoming 

Category 2 Sponsoring Members should 

already be familiar with and should be 

currently monitoring their FICC-cleared 

portfolio with respect to such metrics, 

and (ii) while FICC may subject 

Category 2 Sponsoring Members to 

greater financial requirements than 

would otherwise apply to them as 

Netting Members, current Sponsoring 

Members who would be considered 

Category 1 Sponsoring Members under 

the proposed rule change are already 

subject to greater financial requirements 

than would otherwise apply to them as 

Bank Netting Members, i.e., they are 

required to have at least $5 billion in 

equity capital and be ‘‘well 

capitalized’’ 61 rather than have of $100 

million in equity capital, and capital 

levels and ratios that meet the 

applicable minimum levels required by 

their Appropriate Regulatory Agency.62

Moreover, FICC would not restrict the 

ability of Category 2 Sponsoring 

Members to enter into securities 

transactions with Sponsored Members 

outside of GSD. 

Regardless of whether the potential 

burden on competition discussed in the 

previous paragraph is significant, FICC 

believes that any resulting burden on 

competition that may be created by the 

proposed rule change would be 

necessary and appropriate in 

furtherance of the purposes of the Act, 

as permitted by Section 17A(b)(3)(I) of 

the Act.63 FICC believes that any burden 

on competition that may be created by 

the proposed rule change would be 

necessary in furtherance of the purposes 

of the Act 64 because, as described above 

in Item II(A)2, the Rules must be 

designed to assure the safeguarding of 

securities and funds that are in FICC’s 

custody or control or for which it is 

responsible.65 FICC has designed the 

risk management processes that would 

be applicable to the Category 2 

Sponsoring Members to assure the 

safeguarding of securities and funds that 

are in FICC’s custody or control or for 

which it is responsible. As described 

above, FICC would subject Category 2 

Sponsoring Members to the same 

governance, market risk management, 

and credit risk management processes as 

those that apply to Category 1 

Sponsoring Members, as well as impose 

a limit on the activity they could submit 

to FICC on behalf of their Sponsored 

Members. FICC would also have the 

right to subject Category 2 Sponsoring 

Members to greater financial 

requirements in their capacity as 

Category 2 Sponsoring Members than 

would otherwise apply to them in their 

capacity as Netting Members. 

FICC also believes any burden on 

competition that may be created by the 

requirements FICC proposes to impose 

on Category 2 Sponsoring Members that 

are different than those that apply to 

Category 1 Sponsoring Members would 

be appropriate in furtherance of the 

purposes of the Act 66 because the 

proposed rule change must be 

structured in the context of FICC’s 

prudent risk management processes. 

Because FICC would not require 

Category 2 Sponsoring Members to be 

banks or bank holding company 

affiliates, a Category 2 Sponsoring 

Member may not be subject to a 

regulatory standard equivalent to ‘‘wellcapitalized’’ 67 and/or may not be 

subject to the same type of prudential 

supervision and regulation as a Category 

1 Sponsoring Member. As such, FICC 

believes it would be prudent from a risk 

management perspective to subject them 

to a limit on the activity they could 

submit to FICC on behalf of their 

Sponsored Members and have the right 

to subject them to greater financial 

requirements in their capacity as 

Category 2 Sponsoring Members than 

would otherwise apply to them in their 

capacity as Netting Members, as 

described above. 

FICC does not believe that the 

proposed rule changes to exclude InterDealer Broker Netting Members and 

Non-IDB Repo Brokers with respect to 

activity in their Segregated Repo 

Accounts from being eligible to become 

Category 2 Sponsoring Members would 

have an impact on competition because, 

as described above, Inter-Dealer Broker 

Netting Members and Non-IDB Repo 

Brokers could apply to become Category 

2 Sponsoring Members under another 

Netting Member status. 


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68Rule 1, definition of ‘‘Sponsored Member 

Trade,’’ supra note 4. 

69 15 U.S.C. 78q–1(b)(3)(I). 

70 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

FICC believes that the proposed rule 

change to expand the Sponsored 

Member Trade definition could have an 

impact on competition by promoting 

competition. The proposed rule change 

to expand the Sponsored Member Trade 

definition could promote competition 

by increasing the number of potential 

counterparties a Sponsored Member 

could have in clearing. Under the 

current Rules, the Sponsoring Member 

must be the counterparty to all of its 

Sponsored Members’ FICC-cleared 

securities transactions.68 The proposed 

rule changes would provide that as long 

as a Sponsoring Member establishes a 

Sponsoring Member Omnibus Account 

to which securities transactions between 

its Sponsored Members and other 

Netting Members could be submitted, its 

Sponsored Members could transact in 

clearing with Netting Members other 

than itself, which could increase trading 

opportunities for Sponsored Members 

and Netting Members and thereby 

promote competition. 

FICC does not believe that the 

proposed rule changes to make the 

conforming and technical changes 

described above would have an impact 

on competition.69 These changes would 

simply provide specificity, clarity, and 

additional transparency within the 

Rules and not affect Members’ rights 

and obligations. As such, FICC believes 

that these proposed rule changes would 

not have any impact on competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. FICC will notify 

the Commission of any written 

comments received by FICC. 

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. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FICC–2018–013 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–2018–013. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FICC– 

2018–013 and should be submitted on 

or before January 22, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.70

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28376 Filed 12–28–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84924; File No. SR– 

NASDAQ–2018–106] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Eliminate 

the Extended Life Priority Order 

Attribute 

December 21, 2018. 

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, 2018, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to eliminate 

the Extended Life Priority Order 

Attribute, which has not been 

implemented to date. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaq.cchwallstreet.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 


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