9560 Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Notices 

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

2 17 CFR 240.19b–4. 

3On November 27, 2020, FICC also filed the 

proposal contained in the proposed rule change as 

advance notice SR–FICC–2020–804 with the 

Commission pursuant to Section 806(e)(1) of the 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 (‘‘Clearing 

Supervision Act’’), 12 U.S.C. 5465(e)(1), and Rule 

19b–4(n)(1)(i) of the Act, 17 CFR 240.19b–4(n)(1)(i). 

Notice of filing of the advance notice and extension 

of the review period was published for comment in 

the Federal Register on January 6, 2021. Securities 

Exchange Act Release No. 90834 (December 31, 

2020), 86 FR 584 (January 6, 2021) (SR–FICC–2020– 

804). The proposal contained in the proposed rule 

change and the advance notice shall not take effect 

until all regulatory actions required with respect to 

the proposal are completed. 

4Securities Exchange Act Release No. 90568 

(December 4, 2020), 85 FR 79541 (December 10, 

2020) (SR–FICC–2020–017) (‘‘Notice’’). 

5See Letter from Christopher Killian, Managing 

Director, Securities Industry and Financial Markets 

Association, dated January 29, 2021, to Vanessa 

Countryman, Secretary, Commission, available at 

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

srficc2020017-8154310-226759.pdf; Letter from 

Christopher A. Iacovella, Chief Executive Officer, 

American Securities Association, dated January 28, 

2021, to Vanessa Countryman, Secretary, 

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

comments/sr-ficc-2020-804/srficc2020804-8302307- 

228379.pdf; Letter from James Tabacchi, Chairman, 

Independent Dealer and Trader Association and 

Mike Fratantoni, Chief Economist, Senior Vice 

President, Mortgage Bankers Association, dated 

January 26, 2021, to Allison Herren Lee, Acting 

Chair, Commission, available at https://

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

srficc2020017-8290678-228219.pdf; 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; 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-ficc-2020-017/srficc2020017-8155338- 

226778.pdf; 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; 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; and Letter from 

James Tabacchi, Chairman, Independent Dealer and 

Trader Association, dated December 10, 2020, to 

Vanessa Countryman, Secretary, Commission, 

available at https://www.sec.gov/comments/sr-ficc2020-017/srficc2020017-8127766-226454.pdf. See 

comments on the proposed rule change (SR–FICC– 

2020–017), available at https://www.sec.gov/ 

comments/sr-ficc-2020-017/srficc2020017.htm. 

Because the proposal contained in the proposed 

rule change was also filed as an advance notice, 

supra note 3, the Commission is considering all 

public comments received on the proposal 

regardless of whether the comments were submitted 

to the advance notice or the proposed rule change. 

6 15 U.S.C. 78s(b)(2). 

7Securities Exchange Act Release No. 90794 

(December 23, 2020), 85 FR 86591 (December 30, 

2020) (SR–FICC–2020–017). 

8 15 U.S.C. 78s(b)(2)(B). 

9The vast majority of agency MBS 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 MBS program, maturity, coupon rate, 

and the face value of the bonds to be delivered. 

10Although FICC expects its margin methodology 

to cover projected liquidation losses at a 99 percent 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02994 Filed 2–12–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91092; File No. SR–FICC– 

2020–017] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Modify the 

Calculation of the MBSD VaR Floor To 

Incorporate a Minimum Margin Amount 

February 9, 2021. 

I. Introduction 

On November 20, 2020, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 proposed rule 

change SR–FICC–2020–017 to introduce 

a new ‘‘Minimum Margin Amount’’ to 

complement the existing VaR Floor 

calculation.3 The proposed rule change 

was published for comment in the 

Federal Register on December 10, 

2020.4 The Commission has received 

comment letters on the proposed rule 

change.5 On December 23, 2020, 

pursuant to Section 19(b)(2) of the Act,6

the Commission designated a longer 

period within which to approve, 

disapprove, or institute proceedings to 

determine whether to approve or 

disapprove the proposed rule change 

and the Commission designated a longer 

period for comment on the proposed 

rule change.7 This order institutes 

proceedings, pursuant to Section 

19(b)(2)(B) of the Act,8 to determine 

whether to approve or disapprove the 

proposed rule change. 

II. Summary of the Proposed Rule 

Change 

A. Background 

FICC, through its Mortgage-Backed 

Securities Division (‘‘MBSD’’), serves as 

a central counterparty (‘‘CCP’’) and 

provider of clearance and settlement 

services for the non-private label 

mortgage-backed securities markets. A 

key tool that FICC uses to manage its 

respective credit exposures to its 

members is collecting margin from each 

member. The aggregated amounts of all 

members’ margin constitutes the 

Clearing Fund, which FICC would 

access should a defaulted member’s 

own margin be insufficient to satisfy 

losses to the CCP caused by the 

liquidation of that member’s portfolio. 

Each member’s margin consists of a 

number of applicable components, 

including a value-at-risk (‘‘VaR’’) Charge 

designed to capture the potential market 

price risk associated with the securities 

in a member’s portfolio. The VaR Charge 

is typically the largest of the margin 

components. 

To determine the VaR Charge, FICC 

generally uses a risk-based calculation 

designed to quantify the risks related to 

the volatility of market prices associated 

with the securities in a member’s 

portfolio. However, FICC also uses a 

haircut-based calculation to determine a 

VaR Floor, which replaces the riskbased calculation to become a member’s 

VaR Charge in the event that the VaR 

Floor is greater than the amount 

determined by the risk-based 

calculation, operating as a minimum 

VaR Charge. FICC uses the VaR Floor to 

mitigate the risk that the risk-based 

calculation does not result in margin 

amounts that accurately reflect FICC’s 

applicable credit exposure, which may 

occur in certain member portfolios 

containing long and short positions in 

different asset classes that share a high 

degree of historical price correlation. 

B. Minimum Margin Amount 

FICC is proposing to introduce a new 

calculation called the ‘‘Minimum 

Margin Amount’’ to complement the 

existing VaR Floor calculation. Under 

the proposal, FICC would revise the 

existing definition of the VaR Floor to 

be the greater of (1) the current VaR 

Floor calculation, and (2) the Minimum 

Margin Amount. The Minimum Margin 

Amount would enhance FICC’s margin 

collection during periods of market 

volatility, particularly when TBA 9 price 

changes significantly exceed those 

implied by the VaR model risk factors, 

such as rates and option-adjusted 

spread. FICC observed this situation 

occur during March and April 2020, 

with the result that margin amounts 

collected were not sufficient to mitigate 

FICC’s credit exposure to its members’ 

portfolios.10 The Minimum Margin 


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Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Notices 9561 

confidence level, MBSD’s monthly backtesting 

coverage of the VaR Charge was 86.6 percent in 

March 2020 and 94.2 percent in April 2020. 11See generally Notice, supra note 4, 85 FR at 

79543–44 for a more detailed description of the 

calculation. 

12Notice, supra note 4, 85 FR at 79545. 

13 Id. 

14 Id. 

15 Id. 

16 Id. 

17The Backtesting Charge is an existing charge 

FICC adds to a member’s VaR Charge when a 

member has 12-month trailing backtesting coverage 

below the 99 percent backtesting coverage target. 

The Backtesting Charge is generally equal to the 

member’s third largest deficiency that occurred 

during the previous 12 months. 

18Notice, supra note 4, 85 FR at 79545. 

19 15 U.S.C. 78s(b)(2)(B). 

20 Id. 

21 15 U.S.C. 78q–1. 

22 15 U.S.C. 78q–1(b)(3)(F). 

23 15 U.S.C. 78q–1(b)(3)(I). 

24 17 CFR 240.17Ad–22(e)(4)(i). 

25 17 CFR 240.17Ad–22(e)(23)(ii). 

26 15 U.S.C. 78q–1(b)(3)(F). 

27 15 U.S.C. 78q–1(b)(3)(I). 

28 17 CFR 240.17Ad–22(e)(4)(i). 

29 17 CFR 240.17Ad–22(e)(6)(i) and (v). 

30 17 CFR 240.17Ad–23(e)(23)(ii). 

31 17 CFR 240.19b–4(g). 

32Section 19(b)(2) of the Act grants to the 

Commission flexibility to determine what type of 

Continued 

Amount would be calculated based on 

historical price movements of the 

securities in the member’s portfolio. 

Specifically, FICC would use a dynamic 

haircut method based on observed TBA 

price moves that would provide a more 

reliable estimate for the portfolios’ risk 

level when current market conditions 

deviate from historical observations. 

The Minimum Margin Amount would 

be a minimum volatility calculation for 

specified net unsettled positions, 

calculated 11 using the historical market 

price changes of such benchmark TBA 

securities determined by FICC. The 

Minimum Margin Amount would cover 

such range of historical market price 

moves and parameters using a look-back 

period of no less than one year and no 

more than three years. 

C. Summary of the Effect of the Changes 

Proposed in the Proposed Rule Change 

FICC performed an impact study on 

members’ portfolios for the period 

beginning February 3, 2020 through 

June 30, 2020. On average, at the 

member level, FICC found that the 

Minimum Margin Amount would have 

increased the VaR Charge by $27 

million during the period of the impact 

study.12 The largest percent increase in 

VaR Charge for any member would have 

been 146%, or $22 million.13 The largest 

dollar increase for any member would 

have been $333 million, or 37% 

increase in the VaR Charge.14 The top 10 

members based on the size of their VaR 

Charges would have contributed 69.3% 

of the aggregate VaR Charges had the 

Minimum Margin Amount been in 

place.15 The same members would have 

contributed to 54% of the increase 

resulting from the Minimum Margin 

Amount.16

Backtesting studies indicate that 

average daily Backtesting Charges 17

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.18

III. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Change and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 19 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of proceedings is appropriate 

at this time in view of the legal and 

policy issues raised by the proposed 

rule change. Institution of proceedings 

does not indicate that the Commission 

has reached any conclusions with 

respect to any of the issues involved. 

Rather, the Commission seeks and 

encourages interested persons to 

comment on the proposed rule change, 

and provide the Commission with 

arguments to support the Commission’s 

analysis as to whether to approve or 

disapprove the proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,20 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of, and input from 

commenters with respect to, the 

proposed rule change’s consistency with 

Section 17A of the Act,21 and the rules 

thereunder, including the following 

provisions: 

• Section 17A(b)(3)(F) of the Act,22

which requires, among other things, that 

the rules of a clearing agency must be 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible and to 

protect investors and the public interest; 

• Section 17A(b)(3)(I) of the Act,23

which requires that the rules of a 

clearing agency do not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act; 

• Rule 17Ad–22(e)(4)(i) under the 

Act,24 which requires a covered clearing 

agency 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 arising from its 

payment, clearing, and settlement 

processes, including by maintaining 

sufficient financial resources to cover its 

credit exposure to each participant fully 

with a high degree of confidence; 

• Rule 17Ad–22(e)(6)(i) and (v) under 

the Act, which require 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 (1) 

considers, and produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market, and (2) 

uses an appropriate method for 

measuring credit exposure that accounts 

for relevant product risk factors and 

portfolio effects across products; and 

• Rule 17Ad–22(e)(23)(ii) under the 

Act,25 which requires a covered clearing 

agency establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

provide sufficient information to enable 

participants to identify and evaluate the 

risks, fees, and other material costs they 

incur by participating in the covered 

clearing agency. 

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposed rule change. In particular, the 

Commission invites the written views of 

interested persons concerning whether 

the proposed rule change is consistent 

with Section 17A(b)(3)(F) of the Act,26

Section 17A(b)(3)(I) of the Act,27 Rule 

17Ad–22(e)(4)(i) under the Act,28 Rule 

17Ad–22(e)(6)(i) and (v),29 Rule 17Ad– 

22(e)(23)(ii) under the Act,30 or any 

other provision of the Act, or the rules 

and regulations thereunder. Although 

there do not appear to be any issues 

relevant to approval or disapproval that 

would be facilitated by an oral 

presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4(g) 

under the Act,31 any request for an 

opportunity to make an oral 

presentation.32


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9562 Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Notices 

proceeding—either oral or notice and opportunity 

for written comments—is appropriate for 

consideration of a particular proposal by a selfregulatory organization. See Securities Act 

Amendments of 1975, Senate Comm. on Banking, 

Housing & Urban Affairs, S. Rep. No. 75, 94th 

Cong., 1st Sess. 30 (1975). 

33See Notice, supra note 3. 34 17 CFR 200.30–3(a)(31). 

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by February 

23, 2021. Any person who wishes to file 

a rebuttal to any other person’s 

submission must file that rebuttal by 

March 3, 2021. 

The Commission asks that 

commenters address the sufficiency of 

FICC’s statements in support of the 

proposed rule change, which are set 

forth in the Notice,33 in addition to any 

other comments they may wish to 

submit about the proposed rule change. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FICC–2020–017 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FICC–2020–017. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

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

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FICC– 

2020–017 and should be submitted on 

or before February 23, 2021. Rebuttal 

comments should be submitted by 

March 3, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02996 Filed 2–12–21; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Docket No: SBA–2020–0011] 

SBA Lender Risk Rating System 

AGENCY: Small Business Administration. 

ACTION: Notice of revised Risk Rating 

System and Lender Portal definition of 

Confidential Information; request for 

comments. 

SUMMARY: This notice implements 

changes to the Small Business 

Administration’s (SBA’s) Risk Rating 

System. The Risk Rating System is an 

internal tool to assist SBA in assessing 

the risk of the SBA loan operations and 

loan portfolio of each active 7(a) Lender 

and Certified Development Company 

(CDC). Consistent with industry best 

practices, SBA recently redeveloped the 

model used to calculate the composite 

Risk Ratings of lenders and the risk 

associated with each SBA loan to ensure 

that the Risk Rating System remains 

current and predictive as technologies, 

the economy, and available data evolve. 

In conjunction with the redevelopment 

of the Lender Risk Rating, SBA is 

updating the Lender Portal and its 

definition for Confidential Information. 

SBA is publishing this notice with a 

request for comments to provide the 

public with an opportunity to comment. 

DATES: This notice is effective February 

16, 2021. 

Comment Date: Comments must be 

received on or before April 19, 2021. 

ADDRESSES: You may submit comments, 

identified by Docket number SBA– 

2020–0011 by using any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Identify 

comments by ‘‘Docket Number SBA– 

2020–0011, SBA Lender Risk Rating 

System,’’ and follow the instructions for 

submitting comments. 

• Email: Eddie Ledford, Deputy 

Director, Office of Credit Risk 

Management, U.S. Small Business 

Administration, at edward.ledford@

sba.gov. 

All comments will be posted on 

http://www.Regulations.gov. If you wish 

to include within your comment 

confidential business information (CBI) 

as defined in the Privacy and Use 

Notice/User Notice at http://

www.Regulations.gov and you do not 

want that information disclosed, you 

must submit the comment by either 

Mail or Hand Delivery and you must 

address the comment to the attention of 

Eddie Ledford, Deputy Director, Office 

of Credit Risk Management, U.S. Small 

Business Administration. In the 

submission, you must highlight the 

information that you consider is CBI 

and explain why you believe this 

information should be held confidential. 

SBA will make a final determination, in 

its discretion, of whether the 

information is CBI and, therefore, will 

be published or not. 

FOR FURTHER INFORMATION CONTACT: 

Eddie Ledford, Deputy Director, Office 

of Credit Risk Management, U.S. Small 

Business Administration, 409 Third 

Street SW, 8th Floor, Washington, DC 

20416, (202) 205–6402. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

(A) Introduction to the Risk Rating 

System 

The Risk Rating System is an internal 

tool that uses data in SBA’s Loan and 

Lender Monitoring System (L/LMS), 

borrower data provided by Dun & 

Bradstreet (D&B), and certain 

macroeconomic factors to assist SBA in 

assessing the risk of the SBA loan 

performance of each 7(a) Lender and 

CDC (each, an SBA Lender) on a 

uniform basis and identifying those SBA 

Lenders whose portfolio performance, 

or other lender-specific risk-related 

factors, may demonstrate the need for 

additional SBA monitoring or other 

action. The Risk Rating System also 

serves as a vehicle to measure the 

aggregate strength of SBA’s overall 7(a) 

loan and 504 loan portfolios and to 

assist SBA in managing the related risk. 

SBA uses the Risk Rating System to 

make more effective use of its lender 

review and assessment resources. The 

Risk Rating System is available to SBA 

Lenders through SBA’s Lender Portal 


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