Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Notices 79541 

10 15 U.S.C. 78s(b)(3)(A). 

11 17 CFR 240.19b–4(f). 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On November 27, 2020, FICC filed this proposed 

rule change as an advance notice (SR–FICC–2020– 

804) 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 MBSD Rules, available at http://

www.dtcc.com/∼/media/Files/Downloads/legal/ 

rules/ficc_mbsd_rules.pdf. 

5Because FICC requested confidential treatment, 

the QRM Methodology was filed separately with the 

Secretary of the Commission as part of proposed 

rule change SR–FICC–2016–007 (the ‘‘VaR Filing’’). 

See Securities Exchange Act Release No. 79868 

(January 24, 2017), 82 FR 8780 (January 30, 2017) 

(SR–FICC–2016–007) (‘‘VaR Filing Approval 

Order’’). FICC also filed the VaR Filing proposal as 

an advance notice pursuant to Section 806(e)(1) of 

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)), 

with respect to which the Commission issued a 

Notice of No Objection. See Securities Exchange 

Act Release No. 79843 (January 19, 2017), 82 FR 

8555 (January 26, 2017) (SR–FICC–2016–801). The 

QRM Methodology has been amended following the 

VaR Filing Approval Order. See Securities 

Exchange Act Release Nos. 85944 (May 24, 2019), 

84 FR 25315 (May 31, 2019) (SR–FICC–2019–001) 

and 90182 (October 14, 2020) 85 FR 66630 (October 

20, 2020) (SR–FICC–2020–009). 

6 17 CFR 240.24b–2. 

of the Act 10 and paragraph (f) of Rule 

19b–4 thereunder.11 At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CboeBYX–2020–033 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR-CboeBYX–2020–033. 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 the Exchange. 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–CboeBYX–2020–033 and 

should be submitted on or before 

December 31, 2020. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–27086 Filed 12–9–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90568; File No. SR–FICC– 

2020–017] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Modify the Calculation of the MBSD 

VaR Floor To Incorporate a Minimum 

Margin Amount 

December 4, 2020. 

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 November 

20, 2020, 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 of Fixed 

Income Clearing Corporation (‘‘FICC’’) is 

attached hereto as Exhibit 5 and consists 

of a proposal to modify the calculation 

of the VaR Floor (as defined below) and 

the corresponding description in the 

FICC Mortgage-Backed Securities 

Division (‘‘MBSD’’) Clearing Rules 

(‘‘MBSD Rules’’) 4 to incorporate a 

‘‘Minimum Margin Amount’’ as 

described in greater detail below. 

The proposed rule change would 

necessitate changes to the Methodology 

and Model Operations Document— 

MBSD Quantitative Risk Model (the 

‘‘QRM Methodology’’), which is 

attached hereto as Exhibit 5.5 FICC is 

requesting confidential treatment of this 

document and has filed it separately 

with the Secretary of the Commission.6

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 the proposed rule 

change is to modify the calculation of 

the VaR Floor and the corresponding 

description in the MBSD Rules to 

incorporate a Minimum Margin 

Amount. 

The proposed changes would 

necessitate changes to the QRM 


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7MBSD Rule 4 Section 2, supra, note 4. 

8Unregistered Investment Pool Clearing Members 

are subject to a VaR Charge with a minimum 

targeted confidence level assumption of 99.5 

percent. See MBSD Rule 4, Section 2(c), supra note 

4. 

9See VaR Filing Approval Order, supra note 5. 

10The term ‘‘VaR Floor’’ is defined within the 

definition of VaR Charge. See MBSD Rule 1, supra 

note 4. 

11The VaR Floor calculation and percentages are 

described within the definition of VaR Charge. See 

MBSD Rule 1, supra note 4. 

12See definition of VaR Charge, MBSD Rule 1, 

supra note 4. 

13See FICC–MBSD Important Notice MBS761–19, 

dated November 5, 2019 (notifying Clearing 

Members that the designated VaR Floor percentage 

is 0.10%). 

14The vast majority of agency mortgage-backed 

securities trading occurs in a forward market, on a 

‘‘to-be-announced’’ or ‘‘TBA’’ basis. In a TBA trade, 

the seller of MBS agrees on a sale price, but does 

not specify which particular securities will be 

delivered to the buyer on settlement day. Instead, 

only a few basic characteristics of the securities are 

agreed upon, such as the mortgage-backed security 

program, maturity, coupon rate and the face value 

of the bonds to be delivered. This TBA trading 

convention enables a heterogeneous market 

consisting of thousands of different mortgagebacked security pools backed by millions of 

individual mortgages to be reduced—for trading 

purposes—to a series of liquid contracts. 

15For backtesting comparisons, FICC uses the 

Required Fund Deposit amount, without regard to 

the actual collateral posted by the Clearing Member. 

Methodology. The proposed changes are 

described in detail below. 

(i) Overview of The Required Fund 

Deposit and Clearing Fund Calculation 

A key tool that FICC uses to manage 

market risk is the daily calculation and 

collection of Required Fund Deposits 

from Clearing Members. The Required 

Fund Deposit serves as each Clearing 

Member’s margin. The aggregate of all 

Clearing Members’ Required Fund 

Deposits constitutes the Clearing Fund 

of MBSD, which FICC would access 

should a defaulting Clearing Member’s 

own Required Fund Deposit be 

insufficient to satisfy losses to FICC 

caused by the liquidation of that 

Clearing Member’s portfolio. 

The objective of a Clearing Member’s 

Required Fund Deposit is to mitigate 

potential losses to FICC associated with 

liquidation of such Clearing Member’s 

portfolio in the event that FICC ceases 

to act for such Clearing Member 

(hereinafter referred to as a ‘‘default’’). 

Pursuant to the MBSD Rules, each 

Clearing Member’s Required Fund 

Deposit amount currently consists of the 

greater of (i) The Minimum Charge or 

(ii) the sum of the following 

components: the VaR Charge, the 

Deterministic Risk Component, a special 

charge (to the extent determined to be 

appropriate), and, if applicable, the 

Backtesting Charge, Holiday Charge and 

Intraday Mark-to-Market Charge.7 Of 

these components, the VaR Charge 

typically comprises the largest portion 

of a Clearing 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 

Clearing Member’s portfolio. The VaR 

Charge provides an estimate of the 

projected liquidation losses at a 99% 

confidence level. The methodology is 

designed to project the potential gains 

or losses that could occur in connection 

with the liquidation of a defaulting 

Clearing Member’s portfolio, assuming 

that a portfolio would take three days to 

hedge or liquidate in normal market 

conditions. The projected liquidation 

gains or losses are used to determine the 

amount of the VaR Charge, which is 

calculated to cover projected liquidation 

losses at 99% confidence level.8

On January 24, 2017, the Commission 

approved FICC’s VaR Filing to make 

certain enhancements to the MBSD 

value-at-risk (‘‘VaR’’) margin calculation 

methodology including the VaR 

Charge.9 The VaR Filing amended the 

definition of VaR Charge to, among 

other things, incorporate the VaR 

Floor.10 The VaR Floor is a calculation 

using a percentage of gross notional 

value of a Clearing Member’s portfolio 

and is used as an alternative to the VaR 

Charge amount calculated by the VaR 

model for Clearing Members’ portfolios 

where the VaR Floor calculation is 

greater than the VaR model-based 

calculation. The VaR Floor currently 

addresses the risk that the VaR model 

may calculate too low a VaR Charge for 

certain portfolios where the VaR model 

applies substantial risk offsets among 

long and short positions in different 

classes of mortgage-backed securities 

that have a high degree of historical 

price correlation. FICC applies the VaR 

Floor at the Clearing Member portfolio 

level. The VaR Floor is calculated by 

multiplying the market value of a 

Clearing Member’s gross unsettled 

positions by a designated percentage 

that is no less than 0.05% and no greater 

than 0.30%.11 FICC informs Clearing 

Members of the applicable percentage 

utilized by the VaR Floor by an 

Important Notice issued no later than 10 

Business Days prior to the 

implementation of such percentage.12

The percentage currently designated by 

FICC is 0.10%.13

FICC’s VaR model did not respond 

effectively to the recent levels of market 

volatility and economic uncertainty, 

and the VaR Charge amounts that were 

calculated using the profit and loss 

scenarios generated by FICC’s VaR 

model did not achieve a 99% 

confidence level for the period 

beginning in March 2020 through the 

beginning of April 2020. FICC’s VaR 

model calculates the risk profile of each 

Clearing Member’s portfolio by applying 

certain representative risk factors to 

measure the degree of responsiveness of 

a portfolio’s value to the changes of 

these risk factors. COVID–19 market 

volatility, borrower protection 

programs, home price outlook, and the 

Federal Reserve Bank of New York 

(‘‘FRBNY’’) authority to buy and sell 

mortgage-backed securities have created 

uncertainty in forward rates, 

origination/refinance pipelines, 

voluntary/involuntary mortgage 

prepayments, and supply/demand 

dynamics that are not reflected in the 

FICC VaR historical data set and the 

FICC VaR model incorporates this 

historical data to calibrate the 

volatilities of the risk factors and the 

correlations between risk factors. During 

this period, the market uncertainty and 

FRBNY purchases led to market price 

changes that exceeded the VaR model’s 

projections which yielded insufficient 

VaR Charges—particularly for higher 

coupon TBAs 14 where current TBA 

market prices may reflect higher 

mortgage prepayment risk than implied 

by the VaR model’s historical risk factor 

data in the lookback period. 

In addition, the VaR Floor did not 

effectively address the risk that the VaR 

model calculated too low a VaR Charge 

for all portfolios during the recent 

market volatility and economic 

uncertainty. The VaR Floor is currently 

designed specifically to account for 

substantial risk offsets among long and 

short positions in different classes of 

mortgage-backed securities that have a 

high degree of historical price 

correlation. The recent market volatility 

and economic uncertainty resulted in a 

variance between historical price 

changes and observed market price 

changes resulting in TBA price changes 

significantly exceeding those implied by 

the VaR model risk factors as indicated 

by backtesting data. 

FICC employs daily backtesting to 

determine the adequacy of each Clearing 

Member’s Required Fund Deposit.15

FICC compares the Required Fund 

Deposit for each Clearing Member with 

the simulated liquidation gains/losses 

using the actual positions in the 

Clearing Member’s portfolio, and the 

actual historical security returns. During 

the recent market volatility and 

economic uncertainty, the VaR Charges 

and the Required Fund Deposits yielded 

backtesting deficiencies beyond FICC’s 


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16MBSD’s monthly backtesting coverage ratios for 

Required Fund Deposit was 86.6% in March 2020 

and 94.2% in April 2020. 

17See Securities Exchange Act Release Nos. 

81485 (August 25, 2017), 82 FR 41433 (August 31, 

2017) (SR–DTC–2017–008; SR–FICC–2017–014; 

SR–NSCC–2017–008); 84458 (October 19, 2018), 83 

FR 53925 (October 25, 2018) (SR–DTC–2018–009; 

SR–FICC–2018–010; SR–NSCC–2018–009) and 

88911 (May 20, 2020), 85 FR 31828 (May 27, 2020) 

(SR–DTC–2020–008; SR–FICC–2020–004; SR– 

NSCC–2020–008) (‘‘Model Risk Management 

Framework Filings’’). The Model Risk Management 

Framework sets forth the model risk management 

practices adopted by FICC, National Securities 

Clearing Corporation, and The Depository Trust 

Company. The Model Risk Management Framework 

is designed to help identify, measure, monitor, and 

manage the risks associated with the design, 

development, implementation, use, and validation 

of quantitative models. The Model Risk 

Management Framework describes (i) governance of 

the Model Risk Management Framework; (ii) key 

terms; (iii) model inventory procedures; (iv) model 

validation procedures; (v) model approval process; 

and (vi) model performance procedures. 

18See definition of VaR Charge, MBSD Rule 1, 

supra note 4. 

19FICC plans to map 10-year and 20-year TBA to 

the corresponding 15-year TBA security benchmark. 

As of August 31, 2020, 20-year TBAs account for 

less than 0.5%, and 10-year TBAs account for less 

than 0.1%, of the positions in MBSD clearing 

portfolios. In the QRM Methodology, these TBAs 

are not selected as separate TBA security 

benchmarks due to the limited trading volumes in 

the market. FICC will continue to monitor the 

position exposures in MBSD and determine if a 

modification to the QRM Methodology may be 

required. 

risk tolerance.16 FICC proposes to 

introduce a Minimum Margin Amount 

into the VaR Floor to enhance the MBSD 

VaR model performance and improve 

the backtesting coverage during periods 

of heightened market volatility and 

economic uncertainty. FICC believes 

that this proposal will increase the 

margin back-testing performance during 

periods of heightened market volatility 

by maintaining a VaR Charge that is 

appropriately calibrated to the current 

market price volatility. 

(ii) Proposed Rule Change to Incorporate 

the Minimum Margin Amount in the 

VaR Floor 

FICC is proposing to introduce a new 

calculation called the ‘‘Minimum 

Margin Amount’’ to complement the 

existing VaR Floor calculation in the 

MBSD Rules. The Minimum Margin 

Amount would enhance backtesting 

coverage when there are potential VaR 

model performance challenges 

particularly when TBA price changes 

significantly exceed those implied by 

the VaR model risk factors as observed 

during March and April 2020. 

The Minimum Margin Amount would 

be defined in the MBSD Rules as a 

minimum volatility calculation for 

specified net unsettled positions, 

calculated using the historical market 

price changes of such benchmark TBA 

securities determined by FICC. The 

definition would state that the 

Minimum Margin Amount would cover 

such range of historical market price 

moves and parameters as FICC from 

time to time deems appropriate using a 

look-back period of no less than one 

year and no more than three years. 

FICC would set the range of historical 

market price moves and parameters 

from time to time in accordance with 

FICC’s model risk management practices 

and governance set forth in the Clearing 

Agency Model Risk Management 

Framework (‘‘Model Risk Management 

Framework’’).17 Under the proposed 

changes to the QRM Methodology, the 

Minimum Margin Amount would be 

computed through a dynamic haircut 

method that is based on observed TBA 

price moves that would provide a more 

reliable estimate for the portfolio risk 

level when current market conditions 

deviate from historical observations. 

The Minimum Margin Amount would 

also improve the responsiveness of the 

VaR model to a volatile market because 

it would have a shorter look back period 

from the VaR model. 

The MBSD Rules currently define the 

VaR Floor as an amount designated by 

FICC that is determined by multiplying 

the sum of the absolute values of a 

Clearing Member’s Long Positions and 

Short Positions, at market value, by a 

percentage designated by FICC that is no 

less than 0.05% and no greater than 

0.30%.18 FICC is proposing to revise the 

definition of the VaR Floor to 

incorporate the Minimum Margin 

Amount such that the VaR Floor would 

be the greater of (i) the VaR Floor 

Percentage Amount and (ii) the 

Minimum Margin Amount. 

The ‘‘VaR Floor Percentage Amount’’ 

would be an amount derived using the 

current VaR Floor percentage 

calculation in the MBSD Rules: an 

amount designated by FICC that is 

determined by multiplying the sum of 

the absolute values of a Clearing 

Member’s Long Positions and Short 

Positions, at market value, by a 

percentage designated by FICC that is no 

less than 0.05% and no greater than 

0.30%. As with the existing VaR Floor 

percentage, FICC would determine the 

percentage within this range to be 

applied based on factors including but 

not limited to a review performed at 

least annually of the impact of the VaR 

Floor parameter at different levels 

within the range to the backtesting 

performance and to Clearing Members’ 

margin charges. The VaR Floor 

percentage currently in place is 0.10%. 

Likewise, as with the existing VaR 

Floor percentage, FICC would inform 

Clearing Members of the applicable 

percentage used in the VaR Floor 

Percentage Amount by Important Notice 

issued no later than 10 Business Days 

prior to implementation of such 

percentage. This rule change is not 

proposing to change the VaR Floor 

percentage or the manner in which this 

component is calculated. 

The proposed Minimum Margin 

Amount would modify the VaR Floor to 

also cover circumstances where the 

market price volatility implied by the 

current VaR Charge calculation and the 

VaR Floor Percentage Amount is lower 

than market price volatility from 

corresponding price changes of the 

proposed TBA securities benchmarks 

observed during the lookback period. 

The proposed TBA securities 

benchmarks to be used in to calculate 

the Minimum Margin Amount in the 

QRM Methodology would be Federal 

National Mortgage Association (‘‘Fannie 

Mae’’) and Federal Home Loan Mortgage 

Corporation (‘‘Freddie Mac’’) 

conventional 30-year mortgage-backed 

securities (‘‘CONV30’’), Government 

National Mortgage Association (‘‘Ginnie 

Mae’’) 30-year mortgage-backed 

securities (‘‘GNMA30’’), Fannie Mae 

and Freddie Mac conventional 15-year 

mortgage-backed securities 

(‘‘CONV15’’), and Ginnie Mae 15-year 

mortgage-backed securities 

(‘‘GNMA15’’). These benchmarks were 

selected because they represent the 

majority of the trading volumes in the 

market.19 This proposal would allow 

offsetting between short and long 

positions within TBA securities 

benchmarks given that the TBAs 

aggregated in each benchmark exhibit 

similar risk profiles and can be netted 

together to calculate the Minimum 

Margin Amount that will cover the 

observed market price changes for each 

portfolio. 

FICC is proposing to modify the QRM 

Methodology to specify that the 

Minimum Margin Amount would be 

calculated per Clearing Member 

portfolio as follows: (i) risk factors 

would be calculated using historical 

market prices of benchmark TBA 

securities and (ii) each Clearing 

Member’s portfolio exposure would be 

calculated on a net position across all 

products and for each securitization 

program (i.e., CONV30, GNMA30, 

CONV15 and GNMA15). The Minimum 

Margin Amount would be calculated by 

multiplying a ‘‘base risk factor’’ 

(described below) by the absolute value 

of the Clearing Member’s net position 

across all products, plus the sum of each 

risk factor spread to the base risk factor 


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20To illustrate the Minimum Margin Amount 

calculation, consider an example where a Clearing 

Member has a portfolio with a net long position 

across all products of $2 billion and CONV30 

constitutes the larger absolute net market value in 

its portfolio as between GNMA30 and CONV30. 

Assume that the outright risk factor for CONV30 is 

0.0096. Further assume the Clearing Member has a 

net short position of $30 million in CONV15, and 

the corresponding risk factor spread to the base risk 

factor is 0.006; a net short position of $500 million 

in GNMA30, and the corresponding risk factor 

spread is 0.005; and a net long position of $120 

million in GNMA15, and the corresponding risk 

factor spread is 0.007. In order to generate the 

Minimum Margin Amount, FICC would multiply 

the base risk factor by the absolute value of the 

Clearing Member’s net position across all products, 

plus the sum of each risk factor spread of the 

subsequent products multiplied by absolute value 

of the position for the respective product (i.e., ([base 

risk factor]*ABS[portfolio net position]) + 

([CONV15 spread risk factor] * ABS[CONV15 net 

position]) + ([GNMA30 spread risk factor] * 

ABS[GNMA30 net position]) + ([GNMA15 Spread 

Risk Factor] * ABS[GNMA15 net position])). The 

resulting Minimum Margin Amount would be 

$22.72 million. 

21See Model Risk Management Framework, supra 

note 17. 

22A VaR model parameter adjustment or a VaR 

model add-on would be implemented by estimating 

how much the VaR model should be modified to 

correspond to the current market price volatility. A 

parameter adjustment would be a modification to 

one or more VaR model risk factors while an addon would be a percentage adjustment to the 

calculated VaR. 23FICC maintains the ability to include an 

additional period of historically observed stressed 

market conditions to a 10-year look-back period if 

FICC observes that (1) the results of the model 

performance monitoring are not within FICC’s 99th 

percentile confidence level or (2) the 10-year lookback period does not contain sufficient stressed 

market conditions. 24The Model Risk Management Framework 

provides that all models undergo ongoing model 

performance monitoring and backtesting which is 

the process of (i) evaluating an active model’s 

ongoing performance based on theoretical tests, (ii) 

monitoring the model’s parameters through the use 

of threshold indicators, and/or (iii) backtesting 

using actual historical data/realizations to test a 

VaR model’s predictive power. See Model Risk 

Management Framework Filings, supra note 17. 

25See Model Risk Management Framework, supra 

note 17. 

26See note 24. 

27See Model Risk Management Framework, supra 

note 17. 

multiplied by the absolute value of its 

corresponding position. 

Pursuant to the QRM Methodology, 

FICC calculates an outright risk factor 

for GNMA30 and CONV30. The base 

risk factor for a portfolio for the 

Minimum Margin Amount would be 

based on whether GNMA30 or CONV30 

constitutes the larger absolute net 

market value in each Clearing Member’s 

portfolio. If GNMA30 constitute the 

larger absolute net market value in the 

portfolio, the base risk factor would be 

equal to the outright risk factor for 

GNMA30. If CONV30 constitute the 

larger absolute new market value in the 

portfolio, the base risk factor would be 

equal to the outright risk factor for the 

CONV30.20 GNMA30 and CONV30 are 

used as the baseline programs for 

determining the base risk factors 

because those programs constitute the 

majority part of the TBA market and the 

majority of positions in MBSD 

portfolios. 

The proposed benchmark TBA 

securities, historical market price moves 

and parameters to be used to calculate 

the Minimum Margin Amount would be 

determined by FICC from time to time 

in accordance with FICC’s model risk 

management practices and governance 

set forth in the Clearing Agency Model 

Risk Management Framework.21

FICC is proposing to introduce the 

Minimum Margin Amount to 

complement the VaR Floor during 

market conditions when the TBA prices 

are driven by factors outside of those 

implied by the VaR model. The 

Minimum Margin Amount would use 

observable TBA prices and would be 

calculated with a shorter lookback 

period than the VaR model so it would 

be more responsive to current market 

conditions. This proposal provides a 

more transparent and market price 

sensitive approach than alternatives, 

such as a VaR model parameter 

adjustment and VaR model add-on, 

would provide to Clearing Members.22

The lookback period of the Minimum 

Margin Amount is intended to be 

shorter than the lookback period used 

for the VaR model, which is 10 years, 

plus, to the extent applicable, one 

stressed period.23 The lookback period 

of the Minimum Margin Amount would 

be between one to three years. 

Consistent with the VaR methodology 

outlined in the QRM Methodology and 

pursuant to the model performance 

monitoring required under the Model 

Risk Management Framework,24 the 

lookback period would be analyzed to 

evaluate its sensitivity and impact to the 

model performance under four 

distinctive market regimes, epitomized 

by recent observations: (i) Calm markets 

where the VaR coverage is above 99% 

(e.g. 2018); (ii) moderately volatile 

markets or external mortgage market 

events (e.g. summer 2013; summer 

2019); (iii) at the beginning of extreme 

market volatility (e.g., 2007; COVID–19 

in March), and (iv) post extreme market 

stress and mean-reverting to ‘normal’ 

market conditions. The lookback 

parameter in general affects (i) whether 

and how the floor will be invoked; (ii) 

the peak level of margin increase or the 

degree of procyclicality; and (iii) how 

quickly the margin will fall back to prestress levels. The lookback parameter 

update is intended to be an infrequent 

event and would typically happen only 

when there is a market regime change. 

The decision to update the lookback 

parameter would be based on the abovementioned sensitivity analysis with 

considerations to the impacts to both 

the VaR Charges and the backtesting 

performance. The shorter lookback 

would more accurately reflect recent 

market conditions and would provide 

more responsiveness to market 

condition changes. The initial default 

lookback period for the Minimum 

Margin Amount calculation would be 

two years but may be adjusted as set 

forth above in accordance with FICC’s 

model risk management practices and 

governance set forth in the Model Risk 

Management Framework.25

The Model Risk Management 

Framework would also require FICC to 

conduct model performance reviews of 

the Minimum Margin Amount 

methodology.26 Specifically, FICC 

would monitor each Clearing Member’s 

Required Fund Deposit and the 

aggregate Clearing Fund requirements 

versus the requirements calculated by 

the Minimum Margin Amount. In order 

to apply the risk management principles 

and model performance monitoring 

required under the Model Risk 

Management Framework, FICC’s current 

model risk management practices would 

provide for a review of the robustness of 

the Required Fund Deposit inclusive of 

the Minimum Margin Amount by 

comparing the results versus the threeday profit and loss of each Clearing 

Member’s margin portfolio based on 

actual market price moves. If the 

backtesting results of Required Fund 

Deposit inclusive of the Minimum 

Margin Amount did not meet FICC’s 

99% confidence level, FICC could 

consider adjustments to the Minimum 

Margin Amount, including changing the 

look-back period (as discussed above) 

and/or applying a historical stressed 

period to the Minimum Margin Amount 

calibration, as appropriate. Any 

adjustment to the Minimum Margin 

Amount calibration would be subject to 

the model risk management practices 

and governance process set forth in the 

Model Risk Management Framework.27

A. Proposed MBSD Rule Changes 

In connection with incorporating the 

Minimum Margin Amount, FICC would 

modify the MBSD Rules to: 

• Add a definition of ‘‘Minimum 

Margin Amount’’ and define it as a 

minimum volatility calculation for 

specified net unsettled positions of a 

Clearing Member, calculated using the 

historical market price changes of such 

benchmark TBA securities determined 


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28Excess Capital Premium is assessed when the 

Clearing Member’s VaR Charge exceeds the Excess 

Capital it maintains. 

29Supra note 3. 

30 15 U.S.C. 78q–1(b)(3)(F). 31 17 CFR 240.17Ad–22(e)(4), (e)(6) and (e)(23)(ii). 32 15 U.S.C. 78q–1(b)(3)(F). 

by FICC. The definition would specify 

that the Minimum Margin Amount shall 

cover such range of historical market 

price moves and parameters as the 

Corporation from time to time deems 

appropriate using a look-back period of 

no less than one year and no more than 

three years; 

• add a definition of ‘‘VaR Floor 

Percentage Amount’’ which would be 

defined substantially the same as the 

current calculation for the VaR Floor 

percentage with non-substantive 

modifications to reflect that the 

calculated amount is a separate defined 

term; and 

• move the defined term VaR Floor 

out of the definition of VaR Charge and 

define it as the greater of (i) the VaR 

Floor Percentage Amount and (ii) the 

Minimum Margin Amount. 

B. Proposed QRM Methodology Changes 

In connection with incorporating the 

Minimum Margin Amount, FICC would 

modify the QRM Methodology to: 

• Describe how the Minimum Margin 

Amount, as defined in the MBSD Rules, 

would be calculated, including 

• establishing CONV30, GNMA30, 

CONV15 and GNMA15 as proposed 

TBA securities benchmarks for purposes 

of the calculation and calculating risk 

factors using historical market prices of 

such benchmark TBA securities; 

• using a dynamic haircut method 

that allows offsetting between short and 

long positions within a program and 

among different programs; and 

• multiplying a ‘‘base risk factor’’ 

(based on whether GNMA30 or CONV30 

constitutes the larger absolute net 

market value in each Clearing Member’s 

portfolio) by the absolute value of the 

Clearing Member’s net position across 

all products, plus the sum of each risk 

factor spread to the base risk factor 

multiplied by the absolute value of its 

corresponding position; 

• describe the developmental 

evidence and impacts to backtesting 

performance and margin charges 

relating to Minimum Margin Amount; 

and 

• make certain technical changes to 

the QRM Methodology to re-number 

sections and tables, and update certain 

section titles as necessary, to add a new 

section that describes the proposed 

Minimum Margin Amount and the 

selection of benchmarks. 

C. Impact Studies 

FICC performed an impact study on 

Clearing Members’ portfolios for the 

period beginning February 3, 2020 

through June 30, 2020 (‘‘Impact Study 

Period’). If the proposed rule changes 

had been in place during the Impact 

Study Period compared to the existing 

MBSD Rules: 

• Aggregate average daily aggregate 

VaR Charges would have increased by 

approximately $2.2 billion or 42%; and 

• aggregate average daily Backtesting 

Charges would have decreased by 

approximately $450 million or 53%. 

Impact studies also indicated that if 

the proposed rule changes had been in 

place, overall margin backtesting 

coverage (based on 12-month trailing 

backtesting) would have increased from 

approximately 99.3% to 99.6% through 

January 31, 2020 and approximately 

97.3% to 98.5% through June 30, 2020. 

D. Impacts to Clearing Members Over 

the Impact Study Period 

On average, at the Clearing Member 

level, the Minimum Margin Amount 

would have increased the VaR Charge 

by $27 million over the Impact Study 

Period. The largest percent increase in 

VaR Charge for any Clearing Member 

would have been 146%, or $22 million. 

The largest dollar increase for any 

Clearing Member would have been $333 

million, or 37% increase in the VaR 

Charge. The top 10 Clearing Members 

based on the size of their VaR Charges 

would have contributed 69.3% of the 

aggregate VaR Charges during the 

Impact Study Period had the Minimum 

Margin Amount been in place. The same 

Clearing Members would have 

contributed to 54% of the increase 

resulting from the Minimum Margin 

Amount during the Impact Study 

Period. 

The portfolios that would have 

observed large percent increases were 

largely made up with concentrations in 

higher coupon TBAs and GNMA 

positions. However, no Clearing 

Members would have triggered the 

Excess Capital Premium charge 28 due to 

the increase in Required Fund Deposits 

resulting from the Minimum Margin 

Amount during the Impact Study 

Period. 

(iii) Implementation Timeframe 

FICC would implement the proposed 

changes no later than 20 Business Days 

after the later of the approval of the 

proposed rule change and no objection 

to the related advance notice 29 by the 

Commission. FICC would announce the 

effective date of the proposed changes 

by Important Notice posted to its 

website. 

2. Statutory Basis 

FICC believes that 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 that this proposal is consistent 

with Section 17A(b)(3)(F) of the Act 30

and Rules 17Ad–22(e)(4)(i) and (e)(6)(i), 

each promulgated under the Act,31 for 

the reasons described below. 

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

requires, in part, that the MBSD Rules 

be designed to assure the safeguarding 

of securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible.32 FICC 

believes the proposed changes are 

designed to assure the safeguarding of 

securities and funds which are in its 

custody or control or for which it is 

responsible because they are designed to 

enable FICC to better limit its exposure 

to Clearing Members in the event of a 

Clearing Member default, as described 

below. 

The Required Fund Deposits are made 

up of risk-based components (as margin) 

that are calculated and assessed daily to 

limit FICC’s credit exposures to Clearing 

Members. FICC is proposing changes to 

the MBSD Rules and QRM Methodology 

that are designed to more effectively 

measure and address risk characteristics 

in situations where the risk factors used 

in the VaR method do not adequately 

predict TBA prices. The proposed 

changes above would adjust the VaR 

Floor to help ensure that FICC collects 

adequate margin from its Clearing 

Members, particularly in periods of high 

market volatility and economic 

uncertainty. During these periods, the 

existing VaR model has been shown to 

be inadequate based on backtesting 

performances. Backtesting percentages 

covering such periods indicate the risk 

that VaR Charges will be insufficient to 

manage risk in the event of a Clearing 

Member’s default. FICC pays particular 

attention to Clearing Members with 

backtesting deficiencies that bring the 

results for that Clearing Member below 

the 99% confidence target to determine 

if there is an identifiable cause of repeat 

backtesting deficiencies. During the 

recent period of market volatility and 

economic uncertainty, there were 

numerous repeated backtesting 

deficiencies. The Minimum Margin 

Amount, to be defined in the MBSD 

Rules and further incorporated in the 

QRM Methodology as described herein, 

is a proposed targeted response to 

enhance the MBSD VaR model 


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33 Id. 

34See 17 CFR 240.17Ad–22(e)(4)(i). 

35 Id. 

36See 17 CFR 240.17Ad–22(e)(6)(i). 

performance and improve the 

backtesting coverage during periods of 

heightened market volatility and 

economic uncertainty. 

As a result of the recent market 

volatility and economic uncertainty, 

FICC’s VaR model did not achieve a 

99% confidence level for all Clearing 

Members in March and April 2020. The 

Minimum Margin Amount is intended 

to allow the VaR Charge to be more 

responsive during market conditions 

when the VaR model projections do not 

closely correspond with observed 

market price changes. Backtesting 

studies indicate that aggregate average 

daily aggregate VaR Charges would have 

increased by approximately $2.2 billion 

or 42%, average aggregate daily 

Backtesting Charges would have 

decreased by approximately $450 

million or 53% during the Impact Study 

Period and the overall margin 

backtesting coverage (based on 12- 

month trailing backtesting) would have 

improved from approximately 97.3% to 

98.5% through June 30, 2020 if the 

Minimum Margin Amount calculation 

had been in place. Improving the overall 

backtesting coverage level would help 

FICC ensure that it maintains an 

appropriate level of margin to address 

its risk management needs. 

The use of the Minimum Margin 

Amount would reduce risk by allowing 

FICC to calculate the exposure in each 

portfolio using the risk spread based on 

observed TBA price moves of TBA 

positions within each portfolio. As 

reflected by backtesting studies during 

the Impact Study Period, using observed 

market prices of such benchmark TBA 

securities to set risk exposure would 

provide a more reliable estimate than 

the FICC VaR historical data set for the 

portfolio risk level when current market 

conditions deviate from historical 

observations. This proposal would 

allow offsetting between short and long 

positions within TBA securities 

benchmarks given that the TBAs 

aggregated in each benchmark exhibit 

similar risk profiles and can be netted 

together to calculate the Minimum 

Margin Amount that will cover the 

observed market price changes for each 

portfolio. Adding the Minimum Margin 

Amount to the VaR Floor would help to 

ensure that the risk exposure during 

periods of market volatility and 

economic uncertainty is adequately 

captured in the VaR Charges. FICC 

believes that would help to ensure that 

FICC continues to accurately calculate 

and assess margin and in turn, collect 

sufficient margin from its Clearing 

Members and better enable FICC to limit 

its exposures that could be incurred 

when liquidating a portfolio. 

FICC believes the proposed technical 

changes to the QRM Methodology 

described above would enhance the 

clarity of the QRM Methodology for 

FICC. Having a clear and accurate 

methodology document, which 

describes how the Minimum Margin 

Amount would be calculated and the 

selection of benchmarks, that the 

Minimum Margin Amount would be 

included within the calculation of the 

VaR Charges and the developmental 

evidence and impacts to backtesting 

performance and margin charges, would 

help to ensure that FICC continues to 

accurately calculate and assess margin 

and in turn, collect sufficient margin 

from its Clearing Members and better 

enable FICC to limit its exposures that 

could be incurred when liquidating a 

portfolio. 

By better enabling FICC to limit its 

exposure to Clearing Members, the 

proposed changes to the MBSD Rules 

and QRM Methodology are designed to 

better ensure that, in the event of a 

Clearing Member default, FICC would 

have adequate margin from the 

defaulting Clearing Member and nondefaulting Clearing Members would not 

be exposed to losses they cannot 

anticipate or control. Therefore, the 

proposed changes would 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, consistent with Section 

17A(b)(3)(F) of the Act.33

Rule 17Ad–22(e)(4)(i) under the Act 34

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to effectively 

identify, measure, monitor, and manage 

its credit exposures to participants and 

those exposures arising from its 

payment, clearing, and settlement 

processes by maintaining sufficient 

financial resources to cover its credit 

exposure to each participant fully with 

a high degree of confidence. As 

described above, FICC believes that the 

proposed changes would enable it to 

better identify, measure, monitor, and, 

through the collection of Clearing 

Members’ Required Fund Deposits, 

manage its credit exposures to Clearing 

Members by maintaining sufficient 

resources to cover those credit 

exposures fully with a high degree of 

confidence. More specifically, as 

indicated by backtesting studies, 

implementation of a Minimum Margin 

Amount by changing the MBSD Rules 

and QRM Methodology as described 

herein would allow FICC to limit its 

credit exposures to Clearing Members in 

the event that the current VaR model 

yields too low a VaR Charge for such 

portfolios and improve backtesting 

performance. As indicated by the 

backtesting studies, aggregate average 

daily aggregate VaR Charges would have 

increased by approximately $2.2 billion 

or 42%, average aggregate daily 

Backtesting Charges would have 

decreased by approximately $450 

million or 53% during the Impact Study 

Period and the overall margin 

backtesting coverage (based on 12- 

month trailing backtesting) would have 

improved from approximately 97.3% to 

98.5% through June 30, 2020 if the 

Minimum Margin Amount calculation 

had been in place. By identifying and 

providing for appropriate VaR Charges, 

adding the Minimum Margin Amount to 

the VaR Floor would help to ensure that 

the risk exposure during periods of 

market volatility and economic 

uncertainty is adequately identified, 

measured and monitored. As a result, 

FICC believes that the proposal would 

enhance FICC’s ability to effectively 

identify, measure and monitor its credit 

exposures and would enhance its ability 

to maintain sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence, consistent with the 

requirements of Rule 17Ad–22(e)(4)(i) of 

the Act.35

Rule 17Ad–22(e)(6)(i) under the Act 36

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market. FICC believes that the proposed 

changes to adjust the VaR Floor to 

include the Minimum Margin Amount 

by changing the MBSD Rules and QRM 

Methodology as described herein are 

consistent with the requirements of Rule 

17Ad–22(e)(6)(i) cited above. The 

Required Fund Deposits are made up of 

risk-based components (as margin) that 

are calculated and assessed daily to 

limit FICC’s credit exposures to Clearing 

Members. FICC is proposing changes 

that are designed to more effectively 

measure and address risk characteristics 

in situations where the risk factors used 

in the VaR method do not adequately 

predict TBA prices. As reflected in 

backtesting studies, FICC believes the 

proposed changes would appropriately 


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37 Id. 38 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i). 

limit FICC’s credit exposure to Clearing 

Members in the event that the VaR 

model yields too low a VaR Charge in 

such situations. Such backtesting 

studies indicate that aggregate average 

daily aggregate VaR Charges would have 

increased by approximately $2.2 billion 

or 42%, aggregate average daily 

Backtesting Charges would have 

decreased by approximately $450 

million or 53% during the Impact Study 

Period and the overall margin 

backtesting coverage (based on 12- 

month trailing backtesting) would have 

improved from approximately 97.3% to 

98.5% through June 30, 2020 if the 

Minimum Margin Amount calculation 

had been in place. By identifying and 

providing for appropriate VaR Charges, 

adding the Minimum Margin Amount to 

the VaR Floor would help to ensure that 

margin levels are commensurate with 

the risk exposure of each portfolio 

during periods of market volatility and 

economic uncertainty. The proposed 

changes would therefore allow FICC to 

continue to produce margin levels 

commensurate with the risks and 

particular attributes of each relevant 

product, portfolio, and market. As such, 

FICC believes that the proposed changes 

are consistent with the requirements of 

Rule 17Ad–22(e)(6)(i) of the Act.37

(B) Clearing Agency’s Statement on 

Burden on Competition 

FICC believes the proposed rule 

changes to modify the VaR Floor to 

incorporate a Minimum Margin Amount 

as described above could impose a 

burden on competition. As a result of 

the incorporation of the Minimum 

Margin Amount, Clearing Members may 

experience increases in their Required 

Fund Deposits. An impact study during 

the Impact Study Period indicates that 

on average each Clearing Member would 

have had an increase in VaR Charge of 

approximately 42%. Impact studies also 

indicate that the proposed changes 

could impact each Clearing Member in 

a different manner compared to other 

Clearing Members depending on the 

products in such Clearing Member’s 

portfolio. Clearing Members with higher 

percentages of higher coupon TBAs in 

their portfolios, are more likely to be 

impacted by the proposed changes. 

Such increases could burden Clearing 

Members that have lower operating 

margins or higher costs of capital than 

other Clearing Members. It is not clear 

whether the burden on competition 

would necessarily be significant because 

it would depend on whether the 

affected Clearing Members were 

similarly situated in terms of business 

type and size. Regardless of whether the 

burden on competition is significant, 

FICC believes that any burden on 

competition would be necessary and 

appropriate in furtherance of the 

purposes of the Act. 

Specifically, FICC believes that the 

proposed rule changes would be 

necessary in furtherance of the Act, as 

described in this filing and further 

below. FICC believes that the above 

described burden on competition that 

may be created by the proposed changes 

to incorporate a Minimum Margin 

Amount in the VaR Floor is necessary, 

because the MBSD Rules must be 

designed to assure the safeguarding of 

securities and funds that are in FICC’s 

custody or control or which it is 

responsible, consistent with Section 

17A(b)(3)(F). As described above, FICC 

believes that the use of the Minimum 

Margin Amount would reduce risk by 

allowing FICC to calculate the exposure 

in each portfolio using the risk spread 

based on observed TBA price moves of 

TBA positions within each portfolio and 

provide a more reliable estimate than 

the FICC VaR historical data set for the 

portfolio risk level when current market 

conditions deviate from historical 

observations. Accurately calculating and 

assessing margin and in turn, collecting 

sufficient margin from its Clearing 

Members would better enable FICC to 

limit its exposures that could be 

incurred when liquidating a portfolio. 

By better enabling FICC to limit its 

exposure to Clearing Members, the 

proposed changes to the MBSD Rules 

and QRM Methodology are designed to 

better ensure that, in the event of a 

Clearing Member default, FICC would 

have adequate margin from the 

defaulting Clearing Member and nondefaulting Clearing Members would not 

be exposed to losses they cannot 

anticipate or control. Therefore, the 

proposed changes would 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, consistent with Section 

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

FICC also believes these proposed 

changes are necessary to support FICC’s 

compliance with Rules 17Ad–22(e)(4)(i) 

and Rule 17Ad–22(e)(6)(i) under the 

Act,38 which require FICC to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to (x) effectively 

identify, measure, monitor, and manage 

its credit exposures to participants and 

those arising from its payment, clearing, 

and settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence and (y) cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market. 

As described above, FICC believes 

that implementing the Minimum Margin 

Amount into the VaR Floor would allow 

FICC to more effectively measure and 

address risk characteristics in situations 

where the risk factors used in the VaR 

method do not adequately predict TBA 

prices, particularly in periods of high 

volatility and economic uncertainty. 

FICC’s existing VaR model did not 

respond effectively to the recent levels 

of market volatility and economic 

uncertainty, and the VaR Charge 

amounts that were calculated using the 

profit and loss scenarios generated by 

FICC’s VaR model did not achieve a 

99% confidence level beginning in midMarch 2020. In addition, the VaR Floor 

did not effectively address the risk that 

the VaR model calculated too low a VaR 

Charge for all portfolios. As reflected in 

backtesting studies during the Impact 

Study Period, FICC believes the 

proposed changes would appropriately 

cover FICC’s credit exposure to Clearing 

Members with a high degree of 

confidence in the event that the VaR 

model yields too low a VaR Charge in 

such situations. The proposed rule 

changes would limit FICC’s exposure to 

Clearing Members by ensuring that each 

Clearing Member has an appropriate 

minimum VaR Charge in the event that 

the VaR model yields too low a VaR 

Charge for such portfolios. By 

identifying and providing for 

appropriate VaR Charges, adding the 

Minimum Margin Amount to the VaR 

Floor would help to ensure that margin 

levels are commensurate with the risk 

exposure of each portfolio during 

periods of market volatility and 

economic uncertainty. Therefore, FICC 

believes that these proposed changes 

would allow FICC to effectively 

identify, measure, monitor, and manage 

its credit exposures to Clearing 

Members and better limit FICC’s credit 

exposures to Clearing Members by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each Clearing Member fully with a high 

degree of confidence and producing 

margin levels commensurate with, the 

risks and particular attributes of each 

relevant product and portfolio, 

consistent with the requirements of 


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39 Id. 

40 15.U.S.C. 78q–1(b)(3)(I). 

41 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b-4. 

Rules 17Ad–22(e)(4)(i) and Rule 17Ad– 

22(e)(6)(i) under the Act. 39

FICC also believes that the above 

described burden on competition that 

could be created by the proposed 

changes would be appropriate in 

furtherance of the Act because such 

changes have been appropriately 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of FICC or for which 

it is responsible, as described in detail 

above. The proposed change to 

incorporate the Minimum Margin 

Amount would enable FICC to produce 

margin levels more commensurate with 

the risks and particular attributes of 

each Clearing Member’s portfolio. Any 

increase in Required Fund Deposit as a 

result of such proposed changes for a 

particular Clearing Member would be in 

direct relation to the specific risks 

presented by such Clearing Members’ 

portfolio, and each Clearing Member’s 

Required Fund Deposit would continue 

to be calculated with the same 

parameters and at the same confidence 

level. Therefore, Clearing Members with 

portfolios that present similar risks, 

regardless of the type of Clearing 

Member, would have similar impacts on 

their Required Fund Deposit amounts. 

In addition, the proposed changes 

would improve the risk-based margining 

methodology that FICC employs to set 

margin requirements and better limit 

FICC’s credit exposures to its Clearing 

Members. Impact studies indicate that 

the proposed methodology would result 

in backtesting coverage that more 

appropriately addresses the risks 

presented by each portfolio. Therefore, 

because the proposed changes are 

designed to provide FICC with a more 

appropriate and complete measure of 

the risks presented by Clearing 

Members’ portfolios, FICC believes the 

proposals are appropriately designed to 

meet its risk management goals and its 

regulatory obligations. 

Therefore, FICC does not believe that 

the proposed changes would impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the Act.40

(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 changes 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–2020–017 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–2020–017. 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– 

2020–017 and should be submitted on 

or before December 31, 2020. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.41

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–27087 Filed 12–9–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90569; File No. SRCboeBZX–2020–088] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Amend Its 

Fee Schedule To Update the Add 

Volume Tiers, To Eliminate the 

Remove Volume Tier, and To Eliminate 

Unused Fee Codes 

December 4, 2020. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

2, 2020, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III 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 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

to amend the fee schedule. The text of 


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