6724 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices 

40 15 U.S.C. 78s(b)(3)(A). 

41 17 CFR 240.19b–4(f). 

42 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3 15 U.S.C. 78a et seq. 

products available to market 

participants and investors, including 

products offered by certain competing 

U.S. equities exchanges without charge. 

In this competitive environment 

potential subscribers are free to choose 

which competing product to purchase to 

satisfy their need for market 

information. Often, the choice comes 

down to price, as market data customers 

look to purchase cheaper top-of-book 

data products, and quality, as market 

participants seek to purchase data that 

represents significant market liquidity. 

Intramarket Competition. The 

Exchange believes that the proposed 

fees do not put any market participants 

at a relative disadvantage compared to 

other market participants. As discussed, 

the proposed fees would apply to all 

internal distributors of the EDGX Top 

Feed on an equal and nondiscriminatory basis. The Exchange 

therefore believes that the proposed fees 

neither favor nor penalize one or more 

categories of market participants in a 

manner that would impose an undue 

burden on competition. To the extent 

that particular fees would apply to only 

a subset of subscribers, e.g., Professional 

versus Non-Professional Users, those 

distinctions are not unfairly 

discriminatory and do not unfairly 

burden one set of customers over 

another. 

Intermarket Competition. The 

Exchange believes that the proposed 

fees do not impose a burden on 

competition or on other SROs that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. In setting the 

proposed fees, the Exchange is 

constrained by the availability of 

numerous substitute products offered by 

other national securities exchanges as 

well as core data offered by the SIPs. 

Because market data customers can find 

suitable substitute feeds, an exchange 

that overprices its market data products 

stands a high risk that users may 

substitute another product. These 

competitive pressures ensure that no 

one exchange’s market data fees can 

impose an undue burden on 

competition, and the Exchange’s 

proposed fees do not do so here. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 40 and paragraph (f) of Rule 

19b–4 41 thereunder. 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– 

CboeEDGX–2021–002 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–CboeEDGX–2021–002. 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–CboeEDGX–2021–002 and 

should be submitted on or before 

February 12, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.42

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–01280 Filed 1–21–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90931; File No. SR–FICC– 

2020–803] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

No Objection To Advance Notice To 

Include Same-Day Settling Trades in 

the Risk Management, Novation, 

Guarantee, and Settlement Services of 

the Government Securities Division’s 

Delivery-Versus-Payment Service, and 

Make Other Changes 

January 14, 2021. 

On November 19, 2020, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2020–803 (‘‘Advance 

Notice’’) pursuant to Section 806(e)(1) of 

Title VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled Payment, Clearing and 

Settlement Supervision Act of 2010 

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

19b–4(n)(1)(i) 2 under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’).3 In the Advance Notice, FICC 

proposes to (1) expand its provision of 

central counterparty services to include 

the start leg of certain repurchase 

agreement (‘‘repo’’) transactions, and (2) 

enable participating FICC members to 

pair-off and settle certain offsetting 

obligations, as described more fully 

below. The Advance Notice was 

published for public comment in the 

Federal Register on December 29, 


jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices 6725 

4Securities Exchange Act Release No. 90736 

(December 21, 2020), 85 FR 85743 (December 29, 

2020) (File No. SR–FICC–2020–803) (‘‘Notice of 

Filing’’). 

5On November 19, 2020, FICC also filed a related 

proposed rule change (SR–FICC–2020–015) 

(‘‘Proposed Rule Change’’) with the Commission 

pursuant to Section 19(b)(1) of the Exchange Act 

and Rule 19b–4 thereunder. See 15 U.S.C. 78s(b)(1) 

and 17 CFR 240.19b–4 respectively. The Proposed 

Rule Change was published in the Federal Register 

on December 8, 2020. Securities Exchange Act 

Release No. 90551 (December 2, 2020), 85 FR 79051 

(December 8, 2020). In the Proposed Rule Change, 

FICC seeks approval of proposed changes to its 

rules necessary to implement the Advance Notice. 

The comment period for the related Proposed Rule 

Change filing closed on December 29, 2020, and the 

Commission received no comments. As the 

proposals contained in the Advance Notice were 

also filed as a proposed rule change, all public 

comments received on the proposal are considered, 

regardless of whether the comments are submitted 

on the Proposed Rule Change or the Advance 

Notice. 

6FICC is composed of two divisions: GSD and the 

Mortgage-Backed Securities Division (‘‘MBSD’’). 

GSD provides real-time trade matching, clearing, 

risk management, and netting for trades in U.S. 

government debt issues. MBSD provides real-time 

automated trade matching, trade confirmation, risk 

management, netting, and electronic pool 

notification to the mortgage-backed securities 

(‘‘MBS’’) market. The Advance Notice deals solely 

with proposed changes to the GSD Rulebook 

(‘‘Rules’’), which are available at http://

www.dtcc.com/legal/rules-and-procedures. 

7 In addition to the DVP Service, FICC also 

provides such services to facilitate trading other 

types of repos. FICC’s General Collateral Finance 

(‘‘GCF’’) Repo® Service enables members to trade 

general collateral finance repos based on rate, term, 

and underlying product throughout the day on a 

blind basis. See Rule 20—Special Provisions for 

GCF Repo Transactions, supra note 6. FICC’s 

Centrally Cleared Institutional Triparty (‘‘CCIT’’) 

Service enables trading of tri-party repos between 

members that participate in the GCF Repo Service 

and members that are institutional cash lenders 

(other than investment companies registered under 

the Investment Company Act of 1940, as amended). 

See Rule 3B—CCIT Service, supra note 6. Unlike 

the DVP Service, the GCF Repo and CCIT Services 

settle via the triparty platform of a clearing bank. 

This Advance Notice proposes changes specific to 

the DVP Service. 

8There is one limited scenario in which FICC 

currently acts as CCP for the Start Leg of a brokered 

same-day starting repo. Specifically, if the Start Leg 

fails to settle on its original scheduled settlement 

date, FICC currently assumes responsibility for 

settlement of the Start Leg on the evening of the 

original scheduled settlement date. See Notice of 

Filing, supra note 4 at 85744. 

9See Notice of Filing, supra note 4 at 85744, 50. 

10Trade details may be submitted to FICC by, or 

on behalf of, a member in a form, manner, and 

timeframe prescribed by FICC’s Rules. See Rule 5— 

Comparison System, supra note 6. 

11 Id. 

12See Rule 6A—Bilateral Comparison, supra note 

6. 13For purposes of the Advance Notice, both IDBs 

and non-IDB repo brokers are FICC members. A 

qualifying non-IDB repo broker is one that FICC has 

determined: (1) Operates as a broker with regard to 

activity in a segregated repo account, and (2) agrees 

and participates in FICC’s repo netting service in 

the same manner as an IDB that participates in the 

service. See Rule 1—Definitions, supra note 6. 

14See Rule 6B—Demand Comparison, supra note 

6. 

15See Rule 5—Comparison System, supra note 6. 

16See Rule 11—Netting System, supra note 6. 

17See Notice of Filing, supra note 4 at 85745–46. 

18There are several risk factors inherent to trades 

that clear bilaterally as opposed to trades that clear 

through a CCP. For example, the credit risk 

associated with bilaterally cleared trades remains 

with the original counterparties, who might not 

utilize robust and transparent margin requirements, 

multilateral netting, emergency liquidity and loss 

sharing arrangements, or other risk mitigation 

measures. See U.S. Department of the Treasury 

Report, A Financial System That Creates Economic 

Opportunities: Capital Markets at 78, 81 (October 

2017), available at https://www.treasury.gov/presscenter/press-releases/documents/a-financialsystem-capital-markets-final-final.pdf; Joint Staff 

Report: The U.S. Treasury Market at 55 (October 15, 

2014), available at https://www.treasury.gov/presscenter/press-releases/Documents/Joint_Staff_

Report_Treasury_10-15-2014.pdf; Treasury Market 

Practices Group, White Paper on Clearing and 

Settlement in the Secondary Market for U.S. 

Treasury Securities at 2–4 (July 11, 2019), available 

at https://www.newyorkfed.org/medialibrary/ 

Microsites/tmpg/files/CS_FinalPaper_071119.pdf. 

2020,4 and the Commission has received 

no comments regarding the changes 

proposed in the Advance Notice.5 This 

publication serves as notice of no 

objection to the Advance Notice. 

I. The Advance Notice 

A. Background 

FICC, through its Government 

Securities Division (‘‘GSD’’), serves as a 

central counterparty (‘‘CCP’’) and 

provider of clearance and settlement 

services for cash-settled U.S. Treasury 

securities.6 Among its services, FICC 

provides real-time trade matching, 

clearing, risk management, and netting 

for repo transactions in U.S. Treasury 

securities in which all securities 

delivery obligations are made against 

full payment (‘‘delivery-versuspayment’’ or ‘‘DVP’’) (the ‘‘DVP 

Service’’).7

DVP repos involve a pair of 

transactions between two parties. The 

first transaction (the ‘‘Start Leg’’) 

consists of the sale of securities, in 

which one party delivers securities in 

exchange for the other party’s delivery 

of cash. The second transaction (the 

‘‘End Leg’’) occurs on a date after that 

of the Start Leg and consists of the 

repurchase of securities, in which the 

obligations to deliver cash and 

securities are the reverse of the Start 

Leg. The parties agree to the terms of the 

trade, including the specific securities, 

principal amount, interest rate, haircut, 

and date of maturity (i.e., either 

overnight or term). 

A DVP repo that is scheduled to start 

one or more business days after the 

submission of trade details to FICC is a 

‘‘forward starting’’ repo. A DVP repo 

that is scheduled to start on the same 

business day as trade details are 

submitted to FICC is a ‘‘same-day 

starting’’ repo. For forward starting 

repos, FICC acts as CCP for both the 

Start Leg and the End Leg. However, 

since the inception of the DVP Service, 

for same-day starting repos, FICC 

generally has acted as CCP for the End 

Leg only.8 Although FICC does not 

currently novate the Start Leg of sameday starting repos, FICC collects margin 

from the parties for the End Leg on the 

scheduled settlement date of the Start 

Leg.9 Currently, the parties to a sameday starting repo settle the Start Leg 

bilaterally outside of FICC. 

The first step in the clearance and 

settlement process of a DVP repo is for 

the parties to submit the trade details to 

FICC.10 Upon receipt, FICC validates the 

trade details in a procedure referred to 

in FICC’s Rules as ‘‘Trade Comparison,’’ 

which culminates in the legally binding 

and enforceable contract between FICC 

and the parties to the trade.11 There are 

different types of Trade Comparisons, 

depending on which entity submits the 

trade details to FICC, and the 

procedures, timing, and other applicable 

operational arrangements vary 

depending on the type. For example, a 

Bilateral Comparison occurs when the 

individual FICC members that are the 

parties to a trade each submit trade 

details to FICC.12 A Demand 

Comparison occurs when an InterDealer Broker (‘‘IDB’’) or qualifying nonIDB repo broker 13 (each, a ‘‘Repo 

Broker’’) submits trade details to FICC 

on behalf of both parties to a trade.14

FICC generally novates and 

guarantees settlement of a trade upon 

Trade Comparison.15 Additionally, on a 

daily basis, FICC aggregates and 

matches a member’s offsetting 

obligations resulting from the member’s 

trades, thereby netting the member’s 

total daily settlement obligations.16 In 

the DVP Service, such netting takes 

place the night before the scheduled 

settlement date of whichever leg of the 

repo would settle on the following 

business day.17

Trades that settle bilaterally outside of 

FICC do not have the benefit of FICC’s 

CCP services, and therefore, such trades 

can be subject to greater risk of 

settlement fails.18 Moreover, trades 

facilitated by a Repo Broker that settle 

outside of FICC require multiple 

bilateral securities movements between 

the parties to the trade and the Repo 

Broker. The greater the number of 

bilateral securities movements involved 

in trade settlement, the greater the 

potential for operational risk resulting 

in settlement fails. If the Start Leg of a 

DVP repo submitted by a Repo Broker 

fails to settle on the original scheduled 

settlement date, FICC currently steps in 

that evening as CCP and assumes 


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19See Section 5, Rule 19—Special Provisions for 

Brokered Repo Transactions, supra note 6. 

20See Notice of Filing, supra note 4 at 85744. 

21 Id. 

22See Notice of Filing, supra note 4 at 85744, 49– 

50. 

23See Notice of Filing, supra note 4 at 85746. 

24 Id. 

25See Rule 6A—Bilateral Comparison, supra note 

6. 

26See Rule 1, supra note 6. 

27See Notice of Filing, supra note 4 at 85745. 

28 Id. 

29The Start Leg of same-day starting repos would 

be netted in the limited scenario of a brokered repo 

settlement fail on the scheduled settlement date. 

See supra note 8; Notice of Filing, supra note 4 at 

85744. 

30See Rule 1—Definitions, supra note 6. 

31For example, for an overnight repo that is an 

As-Of Trade, both legs would settle at Contract 

Value because both would settle on the date of 

Trade Comparison and therefore would not be 

netted. For an overnight repo that is a same-day 

starting repo, the Start Leg would settle on the date 

of Trade Comparison at Contract Value, whereas the 

End Leg would be netted that evening and settle the 

following business day at System Value. For an 

overnight repo that is forward starting (i.e., both 

responsibility for settling the trade.19

This process may involve FICC 

receiving securities from the failing 

party or netting the settlement 

obligations arising from the Start Leg 

against those of the End Leg of the same 

or another repo. FICC states that 

although its current process of 

centralizing the settlement of such 

failed Start Legs decreases further 

settlement risk, the current process is 

operationally inefficient because it does 

not eliminate the multiple securities 

movements that give rise to the risk of 

settlement fails.20

B. Proposed Same-Day Settling Service 

FICC states that its members have 

expressed an interest in FICC acting as 

CCP for the Start Leg of same-day 

starting repos.21 In the Advance Notice, 

FICC proposes to modify its Rules to 

include the Start Leg of same-day 

starting repos in the risk management, 

novation, guarantee, and settlement 

services of the DVP Service (the ‘‘SameDay Settling Service’’). Upon Trade 

Comparison, FICC would act as CCP for 

the Start Leg of same-day starting repos, 

which would settle on the same 

business day. FICC’s margin collection 

with respect to the trade would not 

change from the current process. After 

FICC’s novation, if the Start Leg were to 

fail, the parties’ obligations to and from 

FICC would go through the netting 

process that evening, and FICC would 

continue to apply the margin amounts 

collected with respect to the trade 

towards FICC’s risk management of the 

End Leg. 

FICC believes that the Same-Day 

Starting Service could increase 

settlement efficiencies and decrease 

settlement risk because it would 

eliminate the movement of securities 

between members by centralizing the 

settlement of the Start Leg of same-day 

starting repos with FICC.22 Moreover, 

for same-day starting repos submitted by 

Repo Brokers, the Same-Day Settling 

Service would remove the Repo Broker 

from the settlement process by 

eliminating the multiple bilateral 

securities movements involved in the 

settlement of the Start Leg. 

1. Voluntary for Repo Brokers; 

Mandatory for Other Members 

As proposed in the Advance Notice, 

participation in the proposed Same-Day 

Settling Service would be voluntary for 

Repo Brokers. Repo Brokers often 

provide a suite of services to their 

clients, including facilitating the 

bilateral settlement of the Start Leg of 

same-day starting repos. FICC states that 

a requirement on Repo Brokers to 

participate in the Same-Day Settling 

Service could disrupt the current 

service offerings from Repo Brokers to 

their clients.23 Since Repo Brokers 

submit trade details to FICC on behalf 

of both parties to a trade, a Repo Broker 

opting out of the Same-Day Settling 

Service would simply result in 

settlement of the Start Leg bilaterally 

outside of FICC, as is done currently. 

FICC believes that providing optionality 

would allow Repo Brokers and their 

clients to determine whether a Repo 

Broker should participate in the SameDay Settling Service.24 For participating 

Repo Brokers, FICC would no longer 

assume responsibility for a failed Start 

Leg because FICC would already be 

acting as CCP for the Start Leg upon 

Trade Comparison. 

For FICC’s members that are not Repo 

Brokers, participation in the Same-Day 

Settling Service would be mandatory. 

Unlike Repo Brokers, FICC’s individual 

members submit trade details with 

respect to their own side of a trade only, 

such that Trade Comparison only occurs 

after FICC validates the trade details 

submitted by both parties to the trade.25

Accordingly, if one party to a same-day 

starting repo could choose to opt out of 

the Same-Day Settling Service, FICC 

would not be able to act as CCP with 

equal and opposite settlement 

obligations between the two parties. 

Such trades would, therefore, need to 

settle outside of FICC as they do 

currently. However, unlike the clients of 

a Repo Broker, such members would not 

know in advance whether any given 

Start Leg would settle with FICC as CCP 

or bilaterally outside of FICC. By 

requiring such members to participate 

in the Same-Day Settling Service, 

members would have certainty that their 

Compared Trades would settle with 

FICC acting as CCP. 

2. As-Of Trades 

For purposes of the Advance Notice, 

same-day starting repos would include 

As-Of Trades,26 in which a member 

submits a DVP repo for comparison on 

the business day after the scheduled 

settlement date for the Start Leg, and the 

End Leg is the current business day or 

thereafter. FICC states that members 

occasionally submit As-Of Trades due to 

human or operational errors.27 FICC 

further states that it included As-Of 

Trades in the Advance Notice in order 

to reasonably include as many 

variations of same-day starting repos as 

possible to ensure that FICC would 

provide consistent settlement 

processing for all same-day starting 

repos.28

Currently, the Start Leg of an As-Of 

Trade settles outside of FICC. An End 

Leg scheduled to settle on the current 

business day also settles outside of 

FICC. However, an End Leg scheduled 

to settle on a date after the current 

business day settles with FICC acting as 

CCP. As proposed in the Advance 

Notice, FICC would act as CCP with 

respect to both the Start and End Legs 

of a same-day starting repo, regardless of 

the timing of the respective scheduled 

settlement dates. 

3. Settlement at Contract Value or 

System Value 

As mentioned above, netting in the 

DVP Service occurs the night before the 

scheduled settlement date. Because 

settlement of Start Legs within the 

Same-Day Settling Service would occur 

on the same business day as Trade 

Comparison, such transactions would 

generally not be netted.29 Instead, FICC 

would settle such transactions on a 

trade-for-trade basis. Transactions that 

FICC settles on a trade-for-trade basis 

(i.e., transactions that are not netted) 

settle at ‘‘Contract Value,’’ which means 

the dollar value at which the transaction 

is to be settled on the scheduled 

settlement date.30 Transactions that 

settle on a future date (i.e., transactions 

that are netted) settle at ‘‘System 

Value,’’ which includes accrued 

interest. For consistency with the 

foregoing, FICC proposes to clarify the 

Rules with respect to the Same-Day 

Settling Service to reflect that any leg of 

a DVP repo to be settled on a trade-fortrade basis would settle at Contract 

Value, whereas any leg to be settled on 

a future date would settle at System 

Value.31


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legs would settle on dates in the future), both legs 

would be subject to netting and settle at System 

Value. Notice of Filing, supra note 4 at 85746. 

32The Fedwire is a service provided by the 

Federal Reserve Banks that includes settlement and 

transfer of DVP securities transactions. The Fedwire 

operates daily from 8:30 a.m. to 3:30 p.m. (All times 

herein are Eastern Time.) See Fedwire and National 

Securities Service, Federal Reserve Bank of New 

York (March 2015), available at https://

www.newyorkfed.org/aboutthefed/fedpoint/ 

fed43.html; Fedwire Securities Service, Board of 

Governors of the Federal Reserve System (July 31, 

2014), available at https://www.federalreserve.gov/ 

paymentsystems/fedsecs_about.htm. 

33See Notice of Filing, supra note 4 at 85748. 

34See Section 14, Rule 11—Netting System, supra 

note 6. 

35See Notice of Filing, supra note 4 at 85749–50. 

36See 12 U.S.C. 5461(b). 

37 12 U.S.C. 5464(a)(2). 

38 12 U.S.C. 5464(b). 

4. Late-Day Compared Trades 

FICC states that members occasionally 

execute same-day starting repos after the 

close of the Fedwire Securities Service 

(‘‘Fedwire’’), which is the service that 

members generally use for settling 

bilateral securities obligations.32

Currently, such trades settle bilaterally 

between the parties outside of FICC, 

provided that both parties use the same 

clearing bank for settlement. In the 

Advance Notice, FICC proposes to 

include such late-day trades in the 

Same-Day Settling Service (i.e., FICC 

proposes to act as CCP for the Start Leg) 

on a reasonable efforts basis, meaning 

that FICC would attempt to contact the 

parties to the trade and FICC’s clearing 

bank to confirm agreement to settle the 

trade.33

Specifically, for members that clear at 

FICC’s clearing bank, FICC would 

attempt to settle any same-day starting 

repos that are compared between 3:01 

p.m. and 5:00 p.m., provided that (1) 

FICC is able to contact the parties to the 

trade and FICC’s clearing bank, and (2) 

the parties and FICC’s clearing bank 

agree to settle the trade. For members 

that do not clear at FICC’s clearing bank, 

FICC proposes to attempt to settle, on a 

reasonable efforts basis, same-day 

starting repos that are compared during 

the Fedwire reversal period between 

3:01 p.m. and 3:30 p.m., provided that 

(1) FICC is able to contact FICC’s 

clearing bank and the parties to the 

trade, (2) FICC’s clearing bank and the 

parties to the trade confirm agreement to 

settle the trade, and (3) FICC’s clearing 

bank, the member’s clearing bank, and 

the Federal Reserve Bank of New York 

each permit settlement of the trade. 

5. Other Changes to FICC’s Rules To 

Incorporate the Same-Day Settling 

Service 

In the Advance Notice, FICC proposes 

changes to several Rule provisions to 

ensure the relevant applicability of such 

provisions to the Same-Day Settling 

Service. FICC proposes to add a newly 

defined term ‘‘Same-Day Settling Trade’’ 

to capture the universe of DVP repos 

that would be covered by the Same-Day 

Settling Service. FICC proposes to 

modify the definitions of ‘‘Deliver 

Obligation’’ and ‘‘Receive Obligation’’ to 

include references to Same-Day Settling 

Trades. FICC proposes to modify the 

definitions of ‘‘Settlement Value’’ and 

‘‘System Value’’ to contemplate that 

Same-Day Settling Trades could settle at 

Contract Value or System Value, 

depending on the circumstances of the 

trade, as described above. 

FICC proposes to incorporate SameDay Settling Trades into the existing 

Rule provisions governing the 

Comparison System and Netting 

System. FICC proposes to add Rule 

provisions addressing eligibility 

requirements for Same-Day Settling 

Trades to qualify for FICC’s novation 

and settlement guarantee. FICC 

proposes to incorporate Same-Day 

Settling Trades into the Rule provisions 

governing how parties satisfy their 

obligations to FICC, including trades 

that become uncompared or canceled. 

FICC proposes to incorporate Same-Day 

Settling Trades into the Rule provisions 

dealing with settlement fails. Finally, 

FICC proposes to include appropriate 

cross-references to ensure that various 

Rule provisions related to general 

securities settlement apply to Same-Day 

Settling Trades. 

C. Proposed Pair-Off Service 

Settlement fails occur because one 

party does not have inventory to settle 

with the other party on the scheduled 

settlement date. Currently, a member’s 

obligations that remain unsettled when 

the Fedwire closes go through FICC’s 

overnight netting system for settlement 

the following business day, and the 

member is subject to FICC’s fails 

charge.34 In a scenario where a member 

has offsetting unsettled failed 

obligations in the same security (i.e., 

separate failed obligations to both 

deliver and receive the same security) 

after the close of the Fedwire, those 

obligations currently go through the 

overnight netting system for settlement 

the following day. 

In the Advance Notice, FICC proposes 

an optional service for members 

whereby FICC would pair-off a 

member’s offsetting failed securities 

settlement obligations each day, 

beginning at 3:32 p.m. (shortly after the 

Fedwire closes) until 4:00 p.m. (the 

‘‘Pair-Off Service’’). Additionally, the 

member would receive either a debit or 

credit, as applicable, to account for any 

difference in the settlement value of its 

deliver and receive obligations as part of 

FICC’s intraday funds-only settlement 

(‘‘FOS’’) process. Therefore, the 

proposed Pair-Off Service would enable 

participating members to settle their 

obligations on the day they arise, rather 

than continuing to the next day as 

unsettled failed obligations, as they 

would under the current practice. Failed 

obligations that remain unsettled 

overnight present market risk exposure 

to both FICC and the parties to such 

trades. FICC believes that by enabling 

the earlier settlement of a member’s 

offsetting obligations, the proposed PairOff Service could reduce such overnight 

market risk.35

FICC proposes to start the Pair-Off 

Service at approximately 3:32 p.m., and 

provide FOS banks with their intraday 

net FOS figures by 4:00 p.m. for 

acknowledgement by 4:30 p.m. 

Accordingly, FICC proposes to change 

the timing of FOS processing from the 

current time of 3:15 p.m. to 4:30 p.m. to 

enable FICC to settle any net money 

differences that would arise from the 

proposed Pair-Off Service. 

II. Discussion and Commission 

Findings 

Although the Clearing Supervision 

Act does not specify a standard of 

review for an advance notice, the stated 

purpose of the Clearing Supervision Act 

is instructive: To mitigate systemic risk 

in the financial system and promote 

financial stability by, among other 

things, promoting uniform risk 

management standards for SIFMUs and 

strengthening the liquidity of SIFMUs.36

Section 805(a)(2) of the Clearing 

Supervision Act authorizes the 

Commission to prescribe regulations 

containing risk management standards 

for the payment, clearing, and 

settlement activities of designated 

clearing entities engaged in designated 

activities for which the Commission is 

the supervisory agency.37 Section 805(b) 

of the Clearing Supervision Act 

provides the following objectives and 

principles for the Commission’s risk 

management standards prescribed under 

Section 805(a): 38

• To promote robust risk 

management; 

• to promote safety and soundness; 

• to reduce systemic risks; and 

• to support the stability of the 

broader financial system. 

Section 805(c) provides, in addition, 

that the Commission’s risk management 

standards may address such areas as 


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6728 Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices 

39 12 U.S.C. 5464(c). 

40 17 CFR 240.17Ad–22. See Securities Exchange 

Act Release No. 68080 (October 22, 2012), 77 FR 

66220 (November 2, 2012) (S7–08–11). See also 

Securities Exchange Act Release No. 78961 

(September 28, 2016), 81 FR 70786 (October 13, 

2016) (S7–03–14) (‘‘Covered Clearing Agency 

Standards’’). FICC is a ‘‘covered clearing agency’’ as 

defined in Rule 17Ad–22(a)(5). 

41 Id. 

42 12 U.S.C. 5464(b). 

43 17 CFR 240.17Ad–22(e)(21)(i), (ii), and (iii). 

44 12 U.S.C. 5464(b). 45See supra note 18. 

risk management and default policies 

and procedures, among others areas.39

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act and Section 17A of the Exchange 

Act (the ‘‘Clearing Agency Rules’’).40

The Clearing Agency Rules require, 

among other things, each covered 

clearing agency to establish, implement, 

maintain, and enforce written policies 

and procedures that are reasonably 

designed to meet certain minimum 

requirements for its operations and risk 

management practices on an ongoing 

basis.41 As such, it is appropriate for the 

Commission to review advance notices 

against the Clearing Agency Rules and 

the objectives and principles of these 

risk management standards as described 

in Section 805(b) of the Clearing 

Supervision Act. As discussed below, 

the Commission believes the proposals 

in the Advance Notice are consistent 

with the objectives and principles 

described in Section 805(b) of the 

Clearing Supervision Act 42 and in the 

Clearing Agency Rules, in particular 

Rule 17Ad–22(e)(21).43

A. Consistency With Section 805(b) of 

the Clearing Supervision Act 

The Commission believes that the 

Advance Notice is consistent with the 

stated objectives and principles of 

Section 805(b) of the Clearing 

Supervision Act because the changes 

proposed in the Advance Notice are 

consistent with reducing systemic risks, 

supporting the stability of the broader 

financial system, promoting robust risk 

management, and promoting safety and 

soundness.44

The Commission believes that the 

proposals in the Advance Notice are 

consistent with the principles of 

reducing systemic risk and supporting 

the stability of the broader financial 

system. When a CCP novates a trade and 

takes offsetting and guaranteed 

positions between the two original 

parties to the trade, the length of time 

from novation to trade settlement may 

affect the CCP’s exposure to credit, 

market, and liquidity risk. For example, 

settlement fails extend the time to 

settlement and can thereby present risk 

to the CCP that a member’s positions 

and other resources that the CCP holds 

(generally, the member’s margin) 

decline in market value as the CCP 

considers whether and how it might 

liquidate, transfer, or otherwise dispose 

of such assets to minimize losses. 

Settlement fails can also affect the 

amount of liquidity risk a CCP may need 

to bear for purposes of settling an 

unsettled trade because CCPs may rely 

on incoming payments from some 

members to facilitate payments to other 

members. For FICC’s members, a 

settlement fail on a securities delivery 

obligation causes the non-failing party 

to withhold payment while settlement is 

rescheduled for the following business 

day and until the trade ultimately 

settles. In the interim, the non-failing 

party cannot use the securities, which it 

may have already committed to deliver 

in subsequent trading activity, giving 

rise to the risk of further settlement 

fails. Also, the failing party does not 

have use of the cash proceeds from the 

trade. Settlement fails can, therefore, 

undermine the liquidity of a wellfunctioning market, and a member 

default could lead to the default of other 

members and market participants as 

well. Settlement fails can therefore be a 

source of systemic risk and instability to 

the broader market. 

As described above in Section I.A., 

FICC currently acts as CCP for only the 

End Leg of a same-day starting DVP 

repo. The Start Leg currently settles 

bilaterally outside of FICC between the 

parties to the trade. Trades that settle 

bilaterally outside of FICC are generally 

exposed to more operational risk and 

consequently may result in more 

settlement fails than trades which are 

novated and risk-managed by FICC in its 

role as CCP.45

By centralizing settlement of the Start 

Leg of same-day starting repos, the 

proposal would eliminate the current 

bilateral settlement of securities 

between the parties. Once the Start Leg 

is subject to FICC’s settlement 

guarantee, a settlement fail would be 

contained between the failing party and 

FICC. Even if the start leg were to fail, 

FICC’s margin collection and other risk 

mitigation measures would be in place 

to protect the non-failing party 

originally on the other side of the trade. 

The Same-Day Settling Service would 

thereby likely reduce the spread of 

settlement fails to other market 

participants. As a result, the 

Commission believes that the Same-Day 

Settling Service could reduce the risk 

associated with settlement fails in the 

DVP repo market. More broadly, by 

preventing the spread of settlement fails 

to other market participants, the SameDay Settling Service also could help 

reduce systemic risk and support the 

stability of the broader financial system. 

Additionally, as discussed above in 

Section I.A., trades facilitated by a Repo 

Broker that settle outside of FICC 

require multiple bilateral securities 

movements between the parties to the 

trade and the Repo Broker. The greater 

the number of bilateral securities 

movements involved in trade 

settlement, the greater the potential for 

operational risk resulting in settlement 

fails. FICC currently manages the risk of 

a failed Start Leg for a brokered repo by 

assuming responsibility for trade 

settlement on the evening of the original 

scheduled settlement date. While this 

approach decreases further settlement 

risk, it neither prevents the original 

settlement fail nor does it eliminate the 

multiple bilateral securities movements 

for settling the Start Leg until after a 

settlement fail. For participating Repo 

Brokers, the Same-Day Settling Service 

would eliminate the bilateral securities 

movements and the associated risk of 

settlement fails because FICC would 

novate and guarantee settlement of the 

Start Leg upon Trade Comparison. As a 

result, the Commission believes that the 

Same-Day Settling Service could 

improve efficiency in the settlement 

process for brokered DVP repos and 

thereby reduce the risk of settlement 

fails. 

Finally, as discussed above in Section 

I.C., the proposed Pair-Off Service 

would enable participating members to 

settle their offsetting failed securities 

settlement obligations each day after the 

Fedwire closes. FICC’s current process 

is for such failed obligations to go 

through the evening netting system, 

with settlement rescheduled for the 

following business day. The proposed 

Pair-Off Service represents a more 

efficient process for resolving failed 

settlement obligations because 

settlement would occur on the day they 

arise, rather than continuing as 

settlement fails to the next business day. 

Moreover, failed obligations that remain 

unsettled overnight present market risk 

exposure to both FICC and the parties to 

such trades. By enabling the earlier 

settlement of a member’s offsetting 

obligations, the proposed Pair-Off 

Service could reduce such overnight 

market risk. 

For the reasons discussed above, the 

Commission believes that the proposals 

in the Advance Notice could minimize 

the occurrence of settlement fails, 

reduce associated risks, and improve 

settlement efficiency. Accordingly, the 

Commission believes that the proposals 


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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Notices 6729 

46 Id. 

47 Id. 

48 Id. 

49 17 CFR 240.17Ad–22(e)(21). 

50Additionally, when a FICC member fails to 

meet its settlement obligations, the member incurs 

FICC’s fails charge, which could further impact the 

member’s liquidity. See Section 14, Rule 11— 

Netting System, supra note 6. 

51 17 CFR 240.17Ad–22(e)(21). 52 Id. 

in the Advance Notice are consistent 

with the objectives of reducing systemic 

risks and supporting the stability of the 

broader financial system.46

The Commission further believes that 

FICC’s proposals in the Advance Notice 

are consistent with the objectives of 

promoting robust risk management and 

promoting safety and soundness. First, 

as discussed above in Section I.A., FICC 

currently acts as CCP for the End Leg of 

same-day starting repos. In that role, 

FICC risk manages, novates, and 

guarantees settlement of such trades. 

The proposed Same-Day Settling 

Service would expand FICC’s role as 

CCP to include the Start Leg of sameday starting repos, thereby applying 

FICC’s existing risk management 

standards to such trades. The 

Commission believes that extending 

FICC’s existing risk management 

standards in acting as CCP for the Start 

Leg of same-day settling repos is 

consistent with the objective of 

promoting robust risk management.47

Additionally, as discussed above in 

Section I.C., the proposed Pair-Off 

Service would enable participating 

members to settle their offsetting failed 

securities settlement obligations each 

day, shortly after the Fedwire closes. 

FICC’s current process is for such failed 

obligations to go through the evening 

netting system, with settlement 

rescheduled for the following business 

day. The proposed Pair-Off Service 

represents a more efficient process for 

resolving failed settlement obligations 

because settlement would occur on the 

day they arise, rather than continuing as 

settlement fails to the next business day. 

As discussed above, failed obligations 

that remain unsettled overnight present 

market risk exposure to both FICC and 

the parties to such trades. By enabling 

the earlier settlement of a member’s 

offsetting obligations for those members 

who choose to use the service, the 

proposed Pair-Off Service could reduce 

such overnight market risk and protect 

FICC from sustaining associated losses. 

Accordingly, the Commission believes 

that adopting the proposed Pair-Off 

Service is consistent with the objectives 

of promoting robust risk management 

and promoting safety and soundness.48

B. Consistency With Rule 17Ad– 

22(e)(21) 

Rule 17Ad–22(e)(21) under the 

Exchange Act requires each covered 

clearing agency to establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

be efficient and effective in meeting the 

requirements of its participants and the 

markets it serves, and have the covered 

clearing agency’s management regularly 

review the efficiency and effectiveness 

of its (i) clearing and settlement 

arrangements, (ii) operating structure, 

including risk management policies, 

procedures and systems, and (iii) scope 

of products cleared or settled.49

As discussed above in Section I.B, the 

proposed Same-Day Settling Service 

would eliminate bilateral settlements 

between the parties to the Start Leg of 

a DVP repo and allow FICC to settle 

both the Start and End Legs of a DVP 

Repo. In that regard, the proposed 

Same-Day Settling Service represents a 

more efficient and effective settlement 

process than FICC’s current process, 

which generally includes bilateral 

settlement of the Start Leg. FICC 

designed the Same-Day Settling Service 

in response to requests from its 

members, to mitigate the operational 

risk that can result in settlement fails. 

As discussed above, if not contained, 

settlement fails can spread to other 

market participants and undermine the 

liquidity of a well-functioning market.50

In contrast, reducing the occurrence of 

settlement fails (and their resultant 

effects) would strengthen broader 

market liquidity. Therefore, by reducing 

the risk of settlement fails, the proposal 

would benefit FICC’s members when it 

results in transactions that settle on time 

that might have otherwise failed, with 

lower overall transaction costs. 

Accordingly, the Commission believes 

that adopting the proposed Same-Day 

Settling Service would be consistent 

with Rule 17Ad–22(e)(21) 51 because the 

proposal would broaden the scope of 

the DVP Service to include the Start Leg 

of same-day starting repos in a manner 

designed to be efficient and effective in 

reducing settlement fails to the benefit 

of FICC’s members and the broader DVP 

repo market. 

Moreover, as discussed above in 

Section I.C, the proposed Pair-Off 

Service would enable participating 

members to settle their offsetting failed 

securities settlement obligations each 

day, shortly after the Fedwire closes. 

Under FICC’s current process, such 

failed obligations go through the 

evening netting system, with settlement 

rescheduled for the following business 

day. The proposed Pair-Off Service 

represents a more efficient process for 

resolving failed settlement obligations 

because settlement would occur on the 

day the obligations arise, rather than 

continuing as settlement fails to the next 

business day. As discussed above, failed 

obligations that remain unsettled 

overnight present market risk exposure 

to both FICC and the parties to such 

trades. By enabling earlier settlement of 

a member’s offsetting obligations, the 

proposed Pair-Off Service could reduce 

such overnight market risk. 

Accordingly, the Commission believes 

that adopting the proposed Pair-Off 

Service would be consistent with Rule 

17Ad–22(e)(21) 52 because the proposal 

would enable the earlier settlement of a 

member’s offsetting failed obligations in 

a manner designed to be efficient and 

effective in reducing overnight market 

risk to the benefit of FICC’s members. 

III. Conclusion 

It is therefore noticed, pursuant to 

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

Supervision Act, that the Commission 

does not object to Advance Notice (SR– 

FICC–2020–803) and that FICC is 

authorized to implement the proposed 

change as of the date of this notice or 

the date of an order by the Commission 

approving proposed rule change SR– 

FICC–2020–015, whichever is later. 

By the Commission. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–01324 Filed 1–21–21; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice: 11330] 

Notice of Department of State 

Sanctions Actions on Hong Kong 

Normalization 

SUMMARY: The Secretary of State has 

imposed sanctions on fourteen 

individuals pursuant to Executive Order 

13936, the President’s Executive Order 

on Hong Kong Normalization. 

DATES: The Secretary of State’s 

determination regarding the fourteen 

individuals identified in the 

SUPPLEMENTARY INFORMATION section 

was effective on December 7, 2020. 

FOR FURTHER INFORMATION CONTACT: 

Taylor Ruggles, Director, Office of 

Economic Sanctions Policy and 

Implementation, Bureau of Economic 

and Business Affairs, Department of 

State, Washington, DC 20520, tel.: (202) 

647–7677, email: RugglesTV@state.gov. 

SUPPLEMENTARY INFORMATION: Pursuant 

to Section 4(a)(iii)(A) of E.O. 13936 the 


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