584 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3On November 20, 2020, FICC filed this Advance 

Notice as a proposed rule change (SR–FICC–2020– 

017) with the Commission pursuant to Section 

19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 

19b–4 thereunder, 17 CFR 240.19b–4. A copy of the 

proposed rule change is available at http://

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

(‘‘Proposed Rule Change’’). 

4 12 U.S.C. 5465(e)(1)(H). 

5Capitalized 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. 

6Because 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 Clearing Supervision Act (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). 

7 17 CFR 240.24b–2. 

the FY 2020 ACR on its website at: 

http://www.prc.gov. 

Comment deadlines. Comments by 

interested persons are due on or before 

February 1, 2021. Reply comments are 

due on or before February 12, 2021. The 

Commission, upon completion of its 

review of the FY 2020 ACR, comments, 

and other data and information 

submitted in this proceeding, will issue 

its ACD. 

Public Representative. Kenneth E. 

Richardson is designated to serve as the 

Public Representative to represent the 

interests of the general public in this 

proceeding. Neither the Public 

Representative nor any additional 

persons assigned to assist him shall 

participate in or advise as to any 

Commission decision in this proceeding 

other than in his or her designated 

capacity. 

IV. Ordering Paragraphs 

It is ordered: 

1. The Commission establishes Docket 

No. ACR2020 to consider matters raised 

by the United States Postal Service’s FY 

2020 Annual Compliance Report. 

2. Pursuant to 39 U.S.C. 505, the 

Commission appoints Kenneth E. 

Richardson as an officer of the 

Commission (Public Representative) in 

this proceeding to represent the 

interests of the general public. 

3. Comments on the United States 

Postal Service’s FY 2020 Annual 

Compliance Report to the Commission 

are due on or before February 1, 2021. 

4. Reply comments are due on or 

before February 12, 2021. 

5. The Secretary shall arrange for 

publication of this Order in the Federal 

Register. 

By the Commission. 

Erica A. Barker, 

Secretary. 

[FR Doc. 2020–29204 Filed 1–5–21; 8:45 am] 

BILLING CODE 7710–FW–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90834; File No. SR–FICC– 

2020–804] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing and Extension of the Review 

Period of an Advance Notice To Modify 

the Calculation of the MBSD VaR Floor 

To Incorporate a Minimum Margin 

Amount 

December 31, 2020. 

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 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Act’’),2 notice is 

hereby given that on November 27, 

2020, Fixed Income Clearing 

Corporation (‘‘FICC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the advance notice SR– 

FICC–2020–804 (‘‘Advance Notice’’) as 

described in Items I and II below, which 

Items have been prepared by the 

clearing agency.3 The Commission is 

publishing this notice to solicit 

comments on the Advance Notice from 

interested persons and to extend the 

review period of the Advance Notice for 

an additional 60 days pursuant to 

Section 806(e)(1)(H) of the Clearing 

Supervision Act.4

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice of Fixed Income 

Clearing Corporation (‘‘FICC’’) is 

attached [sic] 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 MortgageBacked Securities Division (‘‘MBSD’’) 

Clearing Rules (‘‘MBSD Rules’’) 5 to 

incorporate a ‘‘Minimum Margin 

Amount’’ as described in greater detail 

below. 

The proposal would necessitate 

changes to the Methodology and Model 

Operations Document—MBSD 

Quantitative Risk Model (the ‘‘QRM 

Methodology’’), which is attached 

hereto as Exhibit 5.6 FICC is requesting 

confidential treatment of this document 

and has filed it separately with the 

Secretary of the Commission.7

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the Advance Notice and discussed any 

comments it received on the Advance 

Notice. 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 and B below, of the most 

significant aspects of such statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants, 

or Others 

FICC has not received or solicited any 

written comments relating to this 

proposal. FICC will notify the 

Commission of any written comments 

received by FICC. 

(B) Advance Notice Filed Pursuant to 

Section 806(e) of the Clearing 

Supervision Act 

Description of Proposed Change 

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 

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 


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8MBSD Rule 4 Section 2, supra, note 4. 

9Unregistered 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. 

10See VaR Filing Approval Order, supra note 5. 

11The term ‘‘VaR Floor’’ is defined within the 

definition of VaR Charge. See MBSD Rule 1, supra 

note 4. 

12The VaR Floor calculation and percentages are 

described within the definition of VaR Charge. See 

MBSD Rule 1, supra note 4. 

13See definition of VaR Charge, MBSD Rule 1, 

supra note 4. 

14See FICC–MBSD Important Notice MBS761–19, 

dated November 5, 2019 (notifying Clearing 

Members that the designated VaR Floor percentage 

is 0.10%). 

15The 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. 

16For backtesting comparisons, FICC uses the 

Required Fund Deposit amount, without regard to 

the actual collateral posted by the Clearing Member. 

17MBSD’s monthly backtesting coverage ratios for 

Required Fund Deposit was 86.6% in March 2020 

and 94.2% in April 2020. 

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.8 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.9

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.10 The VaR Filing amended the 

definition of VaR Charge to, among 

other things, incorporate the VaR 

Floor.11 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%.12 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.13

The percentage currently designated by 

FICC is 0.10%.14

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 15 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.16

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 

risk tolerance.17 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 


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18See 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. 

19See definition of VaR Charge, MBSD Rule 1, 

supra note 4. 

20FICC 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. 

21To illustrate the Minimum Margin Amount 

calculation, consider an example where a Clearing 

Member has a portfolio with a net long position 

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’’).18 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%.19 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.20 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 

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 

CONV30.21 GNMA30 and CONV30 are 


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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. 

22See Model Risk Management Framework, supra 

note 17. 

23A 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. 

24FICC 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. 

25The 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. 

26See Model Risk Management Framework, supra 

note 17. 

27See note 24. 

28See Model Risk Management Framework, supra 

note 17. 

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.22

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.23

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.24 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,25 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.26

The Model Risk Management 

Framework would also require FICC to 

conduct model performance reviews of 

the Minimum Margin Amount 

methodology.27 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.28

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 

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. 


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29Excess Capital Premium is assessed when the 

Clearing Member’s VaR Charge exceeds the Excess 

Capital it maintains. 30Supra note 3. 

31See 12 U.S.C. 5461(b). 

32See 12 U.S.C. 5464(b). 

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 29 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 no objection to the 

advance notice and the approval of the 

related proposed rule change 30 by the 

Commission. FICC would announce the 

effective date of the proposed changes 

by Important Notice posted to its 

website. 

Anticipated Effect on and Management 

of Risk 

FICC believes that the proposed 

change, which consists of a proposal to 

modify the calculation of the VaR Floor 

and the corresponding description in 

the MBSD Rules to incorporate a 

Minimum Margin Amount, would 

enable FICC to better limit its exposure 

to Clearing Members arising out of the 

activity in their portfolios. As stated 

above, the proposed charge is designed 

to enhance the MBSD VaR model 

performance and improve the 

backtesting coverage during periods of 

heightened market volatility and 

economic uncertainty. The proposed 

charge would help ensure that FICC 

maintains an appropriate level of 

margin to address its risk management 

needs. 

Specifically, the proposed rule change 

seeks to remedy potential situations that 

are described above where FICC’s VaR 

model, including the existing VaR Floor, 

does not respond effectively to 

increased market volatility and 

economic uncertainty and the VaR 

Charge amounts do not achieve a 99% 

confidence level. Therefore, by enabling 

FICC to collect margin that more 

accurately reflects the risk 

characteristics of its Clearing Members, 

the proposal would enhance FICC’s risk 

management capabilities. 

By providing FICC with a more 

effective limit on its exposures, the 

proposed change would also mitigate 

risk for Members because lowering the 

risk profile for FICC would in turn 

lower the risk exposure that Members 

may have with respect to FICC in its 

role as a central counterparty. Further, 

the proposal is designed to meet FICC’s 

risk management goals and its 

regulatory obligations, as described 

below. 

Consistency With the Clearing 

Supervision Act 

Although Title VIII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act entitled the Payment, 

Clearing, and Settlement Supervision 

Act of 2010 (‘‘Clearing Supervision 

Act’’) does not specify a standard of 

review for an advance notice, its stated 

purpose is instructive: To mitigate 

systemic risk in the financial system 

and promote financial stability by, 

among other things, promoting uniform 

risk management standards for 

systemically important financial market 

utilities and strengthening the liquidity 

of systemically important financial 

market utilities.31

FICC believes that the proposal is 

consistent with the Clearing 

Supervision Act, specifically with the 

risk management objectives and 

principles of Section 805(b), and with 

certain of the risk management 

standards adopted by the Commission 

pursuant to Section 805(a)(2), for the 

reasons described below. 

(i) Consistency With Section 805(b) of 

the Clearing Supervision Act 

Section 805(b) of the Clearing 

Supervision Act 32 states that the 

objectives and principles for the risk 

management standards prescribed under 

Section 805(a) shall be to, among other 

things, promote robust risk 

management, promote safety and 

soundness, reduce systemic risks, and 

support the stability of the broader 

financial system. For the reasons 

described below, FICC believes that the 


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33 Id. 

34 Id. 

35See 12 U.S.C. 5464(a)(2). 

36See 12 U.S.C. 5464(a)(2). 

37See 15 U.S.C. 78q–1. 

38See 17 CFR 240.17Ad–22. 

39 Id. 

40 17 CFR 240.17Ad–22(e)(4), (e)(6) and (e)(23)(ii). 

41See 17 CFR 240.17Ad–22(e)(4)(i). 

proposed changes in this advance notice 

are consistent with the objectives and 

principles of the risk management 

standards as described in Section 805(b) 

of the Clearing Supervision Act. 

FICC is proposing to modify the 

calculation of the VaR Floor and the 

corresponding description in the MBSD 

Rules and QRM Methodology to 

incorporate a Minimum Margin Amount 

which would enable FICC to better limit 

its exposure to Clearing Members 

arising out of the activity in their 

portfolios. FICC believes the proposed 

changes are consistent with promoting 

robust risk management because the 

changes would better enable FICC to 

limit its exposure to Clearing Members 

in the event of a Clearing Member 

default by collecting adequate 

prefunded financial resources to cover 

its potential losses resulting from the 

default of a Clearing Member and the 

liquidation of a defaulting Clearing 

Member’s portfolio. Specifically, the 

proposed Minimum Margin Amount 

would modify the VaR Floor to cover 

circumstances, such as market volatility 

and economic uncertainty, where the 

current VaR Charge calculation and the 

Var Floor is lower than market price 

volatility from corresponding TBA 

securities benchmarks. The proposed 

changes 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 

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 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. 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. 

For these reasons, FICC believes the 

proposed changes would help to 

promote MBSD’s robust risk 

management, which, in turn, is 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system, consistent 

with Section 805(b) of the Clearing 

Supervision Act.33

FICC also believes the changes 

proposed in this advance notice are 

consistent with promoting safety and 

soundness, which, in turn, is consistent 

with reducing systemic risks and 

supporting the stability of the broader 

financial system, consistent with 

Section 805(b) of the Clearing 

Supervision Act.34 As described above, 

the proposed changes are designed to 

help ensure that FICC is collecting 

adequate prefunded financial resources 

to cover its potential losses resulting 

from the default of a Clearing Member 

and the liquidation of a defaulting 

Clearing Member’s portfolio in times of 

market volatility and economic 

uncertainty. Because the proposed 

changes would better position FICC to 

limit its exposures to Clearing Members 

in the event of a Clearing Member’s 

default, FICC believes the proposed 

changes are consistent with promoting 

safety and soundness, which, in turn, is 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system. 

(ii) Consistency With 805(a)(2) of the 

Clearing Supervision Act 

Section 805(a)(2) of the Clearing 

Supervision Act 35 authorizes the 

Commission to prescribe risk 

management standards for the payment, 

clearing and settlement activities of 

designated clearing entities, like FICC, 

and financial institutions engaged in 

designated activities for which the 

Commission is the supervisory agency 

or the appropriate financial regulator. 

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act 36 and Section 17A of the Securities 

Exchange Act of 1934 (the ‘‘Act’’) 37 (the 

risk management standards are referred 

to as the ‘‘Covered Clearing Agency 

Standards’’).38

The Covered Clearing Agency 

Standards require registered clearing 

agencies to establish, implement, 

maintain, and enforce written policies 

and procedures that are reasonably 

designed to be consistent with the 

minimum requirements for their 

operations and risk management 

practices on an ongoing basis.39 FICC 

believes that this proposal is consistent 

with Rules 17Ad–22(e)(4)(i) and 

(e)(6)(i), each promulgated under the 

Act,40 for the reasons described below. 

Rule 17Ad–22(e)(4)(i) under the Act 41

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 


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42 Id. 

43See 17 CFR 240.17Ad–22(e)(6)(i). 

44 Id. 

45 12 U.S.C. 5465(e)(1)(G). 

46 12 U.S.C. 5465(e)(1)(F). 

47 12 U.S.C. 5465(e)(1)(H). 

48 Id. 

49See Letter from Kelli McMorrow, Head of 

Government Affairs, American Securities 

Association, dated December 18, 2020, to Vanessa 

Countryman, Secretary, Commission, available at 

https://www.sec.gov/comments/sr-ficc-2020-017/ 

srficc2020017-8173139-227003.pdf (‘‘ASA Letter’’); 

Letter from Pete Mills, Senior Vice President, 

Mortgage Bankers Association, dated December 17, 

2020, to Jay Clayton, Chairman, Commission, 

available at https://www.sec.gov/comments/sr-ficc2020-017/srficc2020017-8155338-226778.pdf 

(‘‘MBA Letter’’); Letter from Christopher Killian, 

Managing Director, Securities Industry and 

Financial Markets Association, dated December 16, 

2020, to Vanessa Countryman, Secretary, 

Commission, available at https://www.sec.gov/ 

comments/sr-ficc-2020-017/srficc2020017-8154310- 

226759.pdf (‘‘SIFMA Letter’’); Letter from Curtis 

Richins, President & CEO, Mortgage Capital 

Trading, Inc., dated December 15, 2020, to Vanessa 

Countryman, Secretary, Commission, available at 

https://www.sec.gov/comments/sr-ficc-2020-017/ 

srficc2020017-8156568-226839.pdf (‘‘MCT Letter’’); 

and Letter from James Tabacchi, Chairman, 

Independent Dealer and Trader Association, dated 

December 10, 2020, to Vanessa Countryman, 

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.42

Rule 17Ad–22(e)(6)(i) under the Act 43

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 

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.44

III. Date of Effectiveness of the Advance 

Notice and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received,45 unless 

extended as described below. The 

clearing agency shall not implement the 

proposed change if the Commission has 

any objection to the proposed change.46

Pursuant to Section 806(e)(1)(H) of the 

Clearing Supervision Act,47 the 

Commission may extend the review 

period of an advance notice for an 

additional 60 days, if the changes 

proposed in the advance notice raise 

novel or complex issues, subject to the 

Commission providing the clearing 

agency with prompt written notice of 

the extension. 

Here, as the Commission has not 

requested any additional information, 

the date that is 60 days after FICC filed 

the Advance Notice with the 

Commission is January 26, 2021. 

However, the Commission is extending 

the review period of the Advance Notice 

for an additional 60 days under Section 

806(e)(1)(H) of the Clearing Supervision 

Act 48 because the Commission finds the 

Advance Notice is both novel and 

complex, as discussed below. 

The Commission believes that the 

changes proposed in the Advance 

Notice raise novel and complex issues. 

Specifically, FICC developed this 

proposal as a direct response to lessons 

learned during the pandemic-related 

market volatility experienced in March 

and April 2020. As noted above, the 

TBA price changes significantly 

exceeded those implied by the VaR 

model risk factors, which resulted in 

insufficient VaR Charges during that 

time period. Moreover, because of the 

variance between historical price 

changes and the observed market price 

changes in March and April 2020, the 

current VaR Floor did not effectively 

address the risk that the margin model 

calculated too low a VaR Charge for all 

portfolios during that time period. 

Therefore, FICC has developed the 

proposal described in the Advance 

Notice to provide a more reliable 

estimate for the portfolio risk level 

when current market conditions deviate 

from historical observations, as occurred 

in March and April 2020. Determining 

the appropriate method to address this 

particular set of circumstances in the 

context of FICC’s VaR Model presents 

novel and complex issues. 

Moreover, the Commission 

understands that comments likely 

would assert that the changes to FICC’s 

risk management practices described in 

the Advance Notice would have a 

significant and lasting impact on the 

market participants in the mortgage 

market.49 Currently, there is the 


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Secretary, Commission, available at https://

www.sec.gov/comments/sr-ficc-2020-017/ 

srficc2020017-8127766-226454.pdf (‘‘IDTA Letter’’). 

In addition, commenters stated that the 

Commission should expect to receive additional 

comments that will assert substantive issues with 

the proposal. Id. Because the proposals contained 

in the Advance Notice and Proposed Rule Change 

raise the same substantive issues, supra note 3, the 

Commission considers all public comments 

received on the proposal regardless of whether the 

comments were submitted to the Advance Notice or 

the Proposed Rule Change. 

50See generally Agency MBS Historical 

Operational Results and Planned Purchase 

Amounts, https://www.newyorkfed.org/markets/ 

ambs/ambs_schedule; Consumer Finance 

Protection Bureau information site, https://

www.consumerfinance.gov/coronavirus/mortgageand-housing-assistance/mortgage-relief/. 

51 12 U.S.C. 5465(e)(1)(H). 

52This extension extends the time periods under 

Sections 806(e)(1)(E) and (G) of the Clearing 

Supervision Act. 12 U.S.C. 5465(e)(1)(E) and (G). 

1The CAT NMS Plan is a national market system 

plan approved by the Commission pursuant to 

Section 11A of the Exchange Act and the rules and 

regulations thereunder. See Securities Exchange Act 

Release No. 79318 (November 15, 2016), 81 FR 

84696 (November 23, 2016). 

2 15 U.S.C 78k–1(a)(3). 

potential for additional economic 

uncertainty in the mortgage market due 

to, among other things, uncertainty 

associated with the effects of the Federal 

Reserve Bank of New York asset 

purchases of MBS and CARES Act 

mortgage forbearance programs.50 The 

Commission believes that the potential 

impact on the mortgage market arising 

from this proposal also presents novel 

and complex issues. 

Accordingly, pursuant to Section 

806(e)(1)(H) of the Clearing Supervision 

Act,51 the Commission is extending the 

review period of the Advance Notice to 

March 27, 2021, which is the date by 

which the Commission shall notify the 

clearing agency of any objection 

regarding the Advance Notice, unless 

the Commission requests further 

information for consideration of the 

Advance Notice (SR–FICC–2020–804).52

The clearing agency shall post notice 

on its website of proposed changes that 

are implemented. 

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 Advance Notice 

is consistent with the Clearing 

Supervision 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–2020–804 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–2020–804. 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 Advance Notice that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notice 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– 

2020–804 and should be submitted on 

or before January 29, 2021. 

By the Commission. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–29251 Filed 1–5–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90826; File No. 4–698] 

Joint Industry Plan; Notice of Filing of 

Amendment to the National Market 

System Plan Governing the 

Consolidated Audit Trail by BOX 

Exchange LLC; Cboe BYX Exchange, 

Inc., Cboe BZX Exchange, Inc., Cboe 

EDGA Exchange, Inc., Cboe EDGX 

Exchange, Inc., Cboe C2 Exchange, 

Inc. and Cboe Exchange, Inc., 

Financial Industry Regulatory 

Authority, Inc., Investors Exchange 

LLC, Long-Term Stock Exchange, Inc., 

Miami International Securities 

Exchange LLC, MEMX, LLC, MIAX 

Emerald, LLC, MIAX PEARL, LLC, 

Nasdaq BX, Inc., Nasdaq GEMX, LLC, 

Nasdaq ISE, LLC, Nasdaq MRX, LLC, 

Nasdaq PHLX LLC, The NASDAQ 

Stock Market LLC; and New York Stock 

Exchange LLC, NYSE American LLC, 

NYSE Arca, Inc., NYSE Chicago, Inc., 

and NYSE National, Inc. 

December 30, 2020. 

I. Introduction 

On December 18, 2020, the Operating 

Committee for Consolidated Audit Trail, 

LLC (‘‘CAT LLC’’), on behalf of the 

following parties to the National Market 

System Plan Governing the 

Consolidated Audit Trail (the ‘‘CAT 

NMS Plan’’ or ‘‘Plan’’): 1 BOX Exchange 

LLC; Cboe BYX Exchange, Inc., Cboe 

BZX Exchange, Inc., Cboe EDGA 

Exchange, Inc., Cboe EDGX Exchange, 

Inc., Cboe C2 Exchange, Inc. and Cboe 

Exchange, Inc., Financial Industry 

Regulatory Authority, Inc., Investors 

Exchange LLC, Long-Term Stock 

Exchange, Inc., Miami International 

Securities Exchange LLC, MEMX, LLC, 

MIAX Emerald, LLC, MIAX PEARL, 

LLC, Nasdaq BX, Inc., Nasdaq GEMX, 

LLC, Nasdaq ISE, LLC, Nasdaq MRX, 

LLC, Nasdaq PHLX LLC, The NASDAQ 

Stock Market LLC; and New York Stock 

Exchange LLC, NYSE American LLC, 

NYSE Arca, Inc., NYSE Chicago, Inc., 

and NYSE National, Inc. (collectively, 

the ‘‘Participants,’’ ‘‘self-regulatory 

organizations,’’ or ‘‘SROs’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

pursuant to Section 11A(a)(3) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’),2 and Rule 608 


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