Federal Register / Vol. 88, No. 162 / Wednesday, August 23, 2023 / Notices 57485 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 made clarifications and 

corrections to the description of the proposed rule 

change and Exhibit 3a of the filing (Summary of 

Impact Study) to incorporate a longer impact 

analysis. As originally filed, the time-period of the 

impact analysis was November 2021 to October 

2022. As amended by Amendment No. 1, the timeperiod of the impact analysis is November 2021 to 

March 2023. These clarifications and corrections 

have been incorporated, as appropriate, into the 

description of the proposed rule change in Item II 

below. FICC has requested confidential treatment of 

Exhibit 3a, pursuant to 17 CFR 240.24b–2. 

4Terms not defined herein are defined in the GSD 

Rules, available at www.dtcc.com/∼/media/Files/ 

Downloads/legal/rules/ficc_gov_rules.pdf. 5 GSD also clears and settles certain transactions 

on securities issued or guaranteed by U.S. 

government agencies and government sponsored 

enterprises. 6See GSD Rule 4 (Clearing Fund and Loss 

Allocation), supra note 4. FICC’s market risk 

management strategy is designed to comply with 

Rule 17Ad–22(e)(4) under the Act, where these 

risks are referred to as ‘‘credit risks.’’ 17 CFR 

240.17Ad–22(e)(4). 

7The GSD Rules identify when FICC may cease 

to act for a Member and the types of actions FICC 

may take. For example, FICC may suspend a firm’s 

membership with FICC or prohibit or limit a 

Member’s access to FICC’s services in the event that 

Member defaults on a financial or other obligation 

to FICC. See GSD Rule 21 (Restrictions on Access 

to Services) of the GSD Rules, supra note 4. 

8The Model Risk Management Framework 

(‘‘Model Risk Management Framework’’) sets forth 

the model risk management practices of FICC and 

states that Value at Risk (‘‘VaR’’) and Clearing Fund 

requirement coverage backtesting would be 

performed on a daily basis or more frequently. See 

Securities Exchange Act Release Nos. 81485 (Aug. 

25, 2017), 82 FR 41433 (Aug. 31, 2017) (SR–FICC– 

2017–014), 84458 (Oct. 19, 2018), 83 FR 53925 (Oct. 

25, 2018) (SR–FICC–2018–010), 88911 (May 20, 

2020), 85 FR 31828 (May 27, 2020) (SR–FICC–2020– 

004), 92380 (Jul. 13, 2021), 86 FR 38140 (Jul. 19, 

2021) (SR–FICC–2021–006), 94271 (Feb. 17, 2022), 

87 FR 10411 (Feb. 24, 2022) (SR–FICC–2022–001), 

and 97890 (Jul. 13, 2023), 88 FR 46287 (Jul. 19, 

2023) (SR–FICC–2023–008). 

9Members may be required to post additional 

collateral to the GSD Clearing Fund in addition to 

their Required Fund Deposit amount. See e.g., 

Section 7 of GSD Rule 3 (Ongoing Membership 

Requirements), supra note 4 (providing that 

adequate assurances of financial responsibility of a 

member may be required, such as increased 

Clearing Fund deposits). For backtesting 

comparisons, FICC uses the Required Fund Deposit 

amount, without regard to the actual, total collateral 

posted by the member to the GSD Clearing Fund. 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSEAMER–2023–40 and should 

be submitted on or before September 13, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18105 Filed 8–22–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98160; File No. SR–FICC– 

2023–011] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1, To 

Adopt a Portfolio Differential Charge 

as an Additional Component to the 

Government Securities Division 

Required Fund Deposit 

August 17, 2023. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 3, 

2023, Fixed Income Clearing 

Corporation (‘‘FICC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) proposed rule change 

SR–FICC–2023–011. On August 16, 

2023, FICC filed Amendment No. 1 to 

the proposed rule change, to make 

clarifications and corrections to the 

proposed rule change.3 The proposed 

rule change, as modified by Amendment 

No. 1, is described in Items I, II and III 

below, which Items have been prepared 

by the clearing agency. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change consists of 

modifications to FICC’s Government 

Securities Division (‘‘GSD’’) Rulebook 

(‘‘Rules’’) in order to adopt a Portfolio 

Differential Charge (‘‘PD Charge’’) as an 

additional component to the GSD 

Required Fund Deposit, as described in 

greater detail below.4

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

FICC is proposing to enhance the 

methodology for calculating Required 

Fund Deposit to the GSD Clearing Fund 

by adopting a new component, the PD 

Charge, which would be calculated to 

mitigate the risk presented to FICC by 

period-over-period fluctuations in a 

Member’s Margin Portfolio(s) that may 

occur between the collections of 

Member’s Required Fund Deposits. 

Background 

FICC, through GSD, serves as a central 

counterparty and provider of clearance 

and settlement services for the U.S. 

Treasury securities, as well as 

repurchase and reverse repurchase 

transactions involving U.S. Treasury 

securities.5 As part of its market risk 

management strategy, FICC manages its 

credit exposure to Members by 

determining the appropriate Required 

Fund Deposit to the GSD Clearing Fund 

and monitoring its sufficiency, as 

provided for in the GSD Rules.6 The 

Required Fund Deposit serves as each 

Member’s margin. 

The objective of a Member’s margin is 

to mitigate potential losses to FICC 

associated with liquidating a Member’s 

portfolio in the event FICC ceases to act 

for that Member (hereinafter referred to 

as a ‘‘default’’).7 The aggregate amount 

of all Members’ margin constitutes the 

GSD Clearing Fund. FICC would access 

the GSD Clearing Fund should a 

defaulting Member’s own margin be 

insufficient to satisfy losses to FICC 

caused by the liquidation of that 

Member’s portfolio. Each Member’s 

Required Fund Deposit is calculated at 

least twice daily at the start-of-day and 

noon on each Business Day. 

FICC regularly assesses market and 

liquidity risks as such risks relate to its 

margin methodologies to evaluate 

whether margin levels are 

commensurate with the particular risk 

attributes of each relevant product, 

portfolio, and market. For example, 

FICC employs daily backtesting to 

determine the adequacy of each 

Member’s Required Fund Deposit.8

FICC compares the Required Fund 

Deposit 9 for each Member with the 

simulated liquidation gains/losses, 

using the actual positions in the 

Member’s portfolio(s) and the actual 

historical security returns. A backtesting 

deficiency occurs when a Member’s 

Required Fund Deposit would not have 

been adequate to cover the projected 

liquidation losses estimated from a 

Member’s settlement activity based on 


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10Supra note 4. 

11See GSD Rule 4 (Clearing Fund and Loss 

Allocation), Section 1b. Supra note 4. 

12Market price risk refers to the risk that 

volatility in the market causes the price of a 

security to change between the execution of a trade 

and settlement of that trade. This risk is sometimes 

also referred to as volatility risk. 

13With respect to trades submitted in FICC’s 

Sponsored GC service, novation of a trade occurs 

when all of the requirements set forth in GSD Rule 

3A (Sponsoring Members and Sponsored Members), 

Section 7(b)(ii) are met. Supra note 4. 

14Upon implementation, FICC would use a 100- 

day look-back period in conjunction with a decay 

factor of 0.97. FICC has determined that a 100-day 

look-back period with a decay factor of 0.97 would 

provide it with a sufficient time series to reflect the 

current market conditions. As market conditions 

shifts, FICC may modify the look-back period and/ 

or the decay factor from time to time; however, any 

change in the look-back period and/or the decay 

factor would be subject to FICC’s model governance 

process and announced by FICC via an Important 

Notice posted to its website. 

15The uncertainty of the market condition and/ 

or changes in Members’ business model may lead 

to changes in Member activity pattern that would 

require a multiplier greater than 1 be invoked from 

time to time. FICC would determine whether to 

modify the multiplier based on the backtesting 

results to evaluate the effectiveness of PD Charge as 

a mitigant of the position change risk and may 

change the multiplier from time to time to maintain 

the effectiveness of the PD Charge in generating 

sufficient backtest coverage. Changes to the 

multiplier shall be approved through FICC’s model 

governance process and would be announced by 

FICC via an Important Notice posted to its website. 

the backtesting results. Backtesting 

deficiencies highlight exposure that 

could subject FICC to potential losses in 

the event that a Member defaults. 

FICC investigates the cause(s) of any 

backtesting deficiencies and determines 

if there is an identifiable cause of repeat 

backtesting deficiencies. FICC also 

evaluates whether multiple Members 

may experience backtesting deficiencies 

for the same underlying reason. 

Pursuant to the GSD Rules, each 

Member’s Required Fund Deposit 

amount consists of a number of 

applicable components, each of which 

is calculated to address specific risks 

faced by FICC, as identified within the 

GSD Rules.10 These components 

include the VaR Charge, Blackout 

Period Exposure Adjustment, 

Backtesting Charge, Holiday Charge, 

Margin Liquidity Adjustment Charge, 

and special charge.11 The VaR Charge 

generally comprises the largest portion 

of a Member’s Required Fund Deposit 

amount. 

The VaR Charge is based on the 

potential price volatility of unsettled 

positions using a sensitivity-based 

Value-at-Risk (VaR) methodology. The 

VaR methodology provides an estimate 

of the possible losses for a given 

portfolio based on: (1) confidence level, 

(2) a time horizon and (3) historical 

market volatility. The VaR methodology 

is intended to capture the risks related 

to market price that is associated with 

the Net Unsettled Positions in a 

Member’s Margin Portfolios. This riskbased margin methodology is designed 

to project the potential losses that could 

occur in connection with the liquidation 

of a defaulting Member’s Margin 

Portfolio, assuming a Margin Portfolio 

would take three days to liquidate in 

normal market conditions. The 

projected liquidation gains or losses are 

used to determine the amount of the 

VaR Charge to each Margin Portfolio, 

which is calculated to capture the 

market price risk 12 associated with each 

Member’s Margin Portfolio(s) at a 99% 

confidence level. The start-of-day VaR 

component of the Required Fund 

Deposit addresses the risk presented by 

a Member’s start-of-day positions. GSD 

also calculates VaR for intraday 

collection, which reflects the changes in 

a Member’s positions and risk profile 

due to the submission of new trades and 

completed settlement activity from the 

start-of-day to noon. 

The proposed change to include the 

PD Charge in the calculation of 

Required Fund Deposit to the GSD 

Clearing Fund is the result of FICC’s 

regular review of the effectiveness of its 

margin methodology. 

Proposed Change 

The PD Charge is designed to capture 

variability in the VaR Charge collected 

from the Member over the look back 

period. FICC believes the proposed PD 

Charge would help mitigate the risks 

posed to FICC by the variability of 

clearing activity submitted to GSD 

throughout the day by measuring the 

historical period-over-period increases 

in the VaR Charge of a Member over a 

given time period. 

A Member’s Margin Portfolio(s) may 

fluctuate significantly intraday as the 

Member executes trades throughout the 

day. Given that the trades are generally 

novated and guaranteed by FICC upon 

comparison,13 they may result in a 

coverage gap due to large un-margined 

intraday portfolio fluctuations that may 

not be mitigated until the collection of 

the Required Fund Deposit occurs 

intraday, or on the next Business Day. 

This exposure may result in backtesting 

deficiencies, and the PD Charge is 

designed to mitigate such exposure. 

The proposed PD Charge would 

increase Members’ Required Fund 

Deposits by an amount designed to 

address the variability of clearing 

activity submitted to GSD throughout 

the day, based upon the Member’s 

historical trading activity. The PD 

Charge would be calculated twice a day 

and, if applicable, charged as a part of 

each Member’s Required Fund Deposit. 

Specifically, the PD Charge would look 

at historical period-over-period 

increases between the (i) start-of-day 

and the intraday VaR components and 

(ii) the intraday and the end-of-day VaR 

components, respectively, of a 

Member’s Required Fund Deposit over a 

look-back period of no less than 100 

days 14 with a decay factor of no greater 

than 1 and would be calculated to equal 

the exponentially weighted moving 

average (‘‘EWMA’’) of such changes to 

the Member’s VaR Charge during the 

look-back period, times a multiplier that 

is no less than 1 and no greater than 3, 

as determined by FICC from time to 

time based on backtesting results.15 The 

array of VaR Charge increases would be 

exponentially weighted to emphasize 

more recent observations in determining 

the PD Charge. By addressing the 

period-over-period changes to each 

Member’s VaR Charge, the PD Charge 

would help mitigate the risks posed to 

FICC by un-margined period-overperiod fluctuations to a Member’s 

portfolio resulting from trading activity 

that would be guaranteed during the 

coverage gap. 

Accordingly, FICC is proposing to add 

a definition of ‘‘Portfolio Differential 

Charge’’ to GSD Rule 1 (Definitions) that 

would provide that the terms ‘‘Portfolio 

Differential Charge’’ or ‘‘PD Charge’’ 

mean, with respect to each Margin 

Portfolio, an additional charge to be 

included in each Member’s Required 

Fund Deposit. The proposed definition 

would also provide that the PD Charge 

shall be calculated twice each Business 

Day as the exponentially weighted 

moving average (‘‘EWMA’’) of the 

historical increases in the Member’s 

VaR Charge that occur between 

collections of Required Fund Deposits 

over a lookback period of no less than 

100 days with a decay factor of no 

greater than 1, times a multiplier that is 

no less than 1 and no greater than 3, as 

determined by FICC from time to time 

based on backtesting results. 

Furthermore, the proposed definition 

would provide that FICC will provide 

Members with at a minimum 10 

Business Days advance notice of any 

change to the lookback period, the 

decay factor, and/or the multiplier via 

an Important Notice. 

In addition, FICC is proposing to 

amend Section 1b of GSD Rule 4 

(Clearing Fund and Loss Allocation) to 

include the PD Charge as an additional 

component in the calculation of each 

Member’s Required Fund Deposit. 


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16 GSD increased the minimum Required Fund 

Deposit for Members to $1 million on Dec. 5, 2022 

(see Securities Exchange Act Release No. 96136 

(Oct. 24, 2022) 87 FR 65268 (Oct. 28, 2022) (SR– 

FICC–2022–006)); however, for the purpose of this 

Impact Study, the $1 million minimum 

Requirement Fund Deposit is assumed to be in 

effect for the entirety of the Impact Study period. 

17 15 U.S.C. 78q–1(b)(3)(F). 

18 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i), (e)(6)(iii), 

and (e)(23)(ii). 

19 15 U.S.C. 78q–1(b)(3)(F). 

20 Id. 

21 17 CFR 240.17Ad–22(e)(4)(i). 

Impact Study 

FICC has conducted an impact study 

for the period from November 2021 to 

March 2023 (‘‘Impact Study’’).16 The 

results of the Impact Study indicate 

that, if the proposed PD Charge had 

been in place during the Impact Study 

period, the change would have resulted 

in an average daily PD Charge of 

approximately $660 million for the 

start-of-day margin calculation 

(approximately 2.2% of the start-of-day 

average daily Clearing Fund deposit) 

and approximately $839 million for the 

noon margin calculation (approximately 

2.9% of the noon average daily Clearing 

Fund deposit). 

The rolling 12-month Clearing Fund 

requirement backtesting coverage ratio 

(from April 2022 through March 2023) 

would have improved by approximately 

25 bps (from 98.37% to 98.62%). 

Specifically, if the proposed PD Charge 

had been in place during this 12-month 

period, the number of backtesting 

deficiencies would have been reduced 

by 77 (from 498 to 421 or approximately 

15%) and the backtesting coverage for 

44 Members (approximately 34% of the 

GSD membership) would have 

improved, with 14 Members who were 

below 99% coverage brought back to 

above 99%. 

The average daily PD Charge in 

dollars per Member would be 

approximately $5.4 million 

(approximately 2.2% of the average 

daily Clearing Fund deposit per 

Member) for the start-of-day margin 

calculation and approximately $6.9 

million (approximately 2.9% of the 

average daily Clearing Fund deposit per 

Member) for the noon margin 

calculation. 

The three largest average daily PD 

Charge in dollars for Members would be 

$41.09 million (approximately 3.22% of 

its average daily Clearing Fund deposit), 

$31.50 million (approximately 8.14% of 

its average daily Clearing Fund deposit), 

and $26.40 million (approximately 

5.90% of its average daily Clearing Fund 

deposit) for the start-of-day margin 

calculation and $104.06 million 

(approximately 4.55% of its average 

daily Clearing Fund deposit), $62.47 

million (approximately 7.46% of its 

average daily Clearing Fund deposit), 

and $52.15 million (approximately 

6.38% of its average daily Clearing Fund 

deposit) for the noon margin 

calculation. 

The three largest average daily PD 

Charge for Members as percentages of 

the relevant Member’s average daily 

Clearing Fund deposit would be 16.74% 

(PD Charge of $1.42 million), 15.76% 

(PD Charge of $3.64 million), and 

13.87% (PD Charge of $7.74 million) for 

the start-of-day margin calculation and 

39.76% (PD Charge $15.55 million), 

26.16% (PD Charge of $0.43 million), 

and 22.47% (PD Charge of $21.42 

million) for the noon margin 

calculation. 

Implementation Timeframe 

Subject to approval by the 

Commission, FICC expects to 

implement this proposal by no later 

than 60 Business Days after such 

approval and would announce the 

effective date of the proposed change by 

an Important Notice posted to FICC’s 

website. 

2. Statutory Basis 

FICC believes the proposed change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a registered 

clearing agency. In particular, FICC 

believes the proposed rule change is 

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

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

(e)(6)(i), (e)(6)(iii), and (e)(23)(ii), each 

promulgated under the Act,18 for the 

reasons described below. 

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

requires that the rules of FICC be 

designed to, among other things, 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 be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions.19

FICC believes the proposed change to 

implement a PD Charge is designed to 

assure the safeguarding of securities and 

funds which are in its custody or 

control or for which it is responsible 

because it is designed to mitigate risks 

to FICC by un-margined period-overperiod fluctuations to a Member’s 

portfolio that could increase the risks to 

FICC related to liquidating a Member’s 

portfolio following that Member’s 

default. Specifically, the proposed PD 

Charge would allow FICC to collect 

financial resources to cover exposures 

that it may face due to fluctuations in 

a Member’s portfolio that occur between 

collections of Required Fund Deposits. 

The Clearing Fund is a key tool that 

FICC uses to mitigate potential losses to 

FICC associated with liquidating a 

Member’s portfolio in the event of 

Member default. Therefore, the 

proposed change to include a PD Charge 

among the GSD Clearing Fund 

components would enable FICC to 

better address period-over-period 

changes in a Member’s portfolio that 

occur between collections of Required 

Fund Deposits, such that, in the event 

of Member default, FICC’s operations 

would not be disrupted and nondefaulting Members would not be 

exposed to losses they cannot anticipate 

or control. In this way, the proposed 

change to implement the PD Charge is 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of FICC or for which 

it is responsible, consistent with section 

17A(b)(3)(F) of the Act.20

Rule 17Ad–22(e)(4)(i) under the Act 

requires, in part, that FICC 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.21 As described above, 

FICC believes the proposed change to 

adopt a PD Charge would enable it to 

better identify, measure, monitor, and, 

through the collection of Members’ 

Required Fund Deposits, manage its 

credit exposures to Members by 

maintaining sufficient resources to 

cover those credit exposures fully with 

a high degree of confidence. 

Specifically, FICC believes that the 

proposed PD Charge would effectively 

mitigate the risks to FICC by unmargined period-over-period 

fluctuations to a Member’s portfolio and 

would address the increased risks FICC 

may face related to liquidating a 

Member’s portfolio following that 

Member’s default. Therefore, FICC 

believes 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. As such, FICC believes 

the proposed change to adopt a PD 


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22 Id. 

23 17 CFR 240.17Ad–22(e)(6)(i). 

24 Id. 

25 17 CFR 240.17Ad–22(e)(6)(iii). 

26 Id. 

27 17 CFR 240.17Ad–22(e)(23)(ii). 

28 Id. 

29 15 U.S.C. 78q–1(b)(3)(I). 

30 15 U.S.C. 78q–1(b)(3)(F). 

31 Id. 

Charge is consistent with Rule 17Ad– 

22(e)(4)(i) under the Act.22

Rule 17Ad–22(e)(6)(i) under the Act 

requires, in part, that FICC 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.23 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 Members. FICC’s proposed 

change to introduce a PD Charge is 

designed to more effectively address the 

risks presented by un-margined periodover-period fluctuations to a Member’s 

portfolio. FICC believes the addition of 

the PD Charge would enable FICC to 

assess a more appropriate level of 

margin that accounts for increases in 

these risks that may occur between 

collections of Required Fund Deposits. 

This proposed change is designed to 

assist FICC in maintaining a risk-based 

margin system that considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant portfolio. Therefore, 

FICC believes the proposed change to 

adopt a PD Charge is consistent with 

Rule 17Ad–22(e)(6)(i) under the Act.24

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

requires, in part, that FICC 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, calculates margin 

sufficient to cover its potential future 

exposure to participants in the interval 

between the last margin collection and 

the close out of positions following a 

participant default.25 The Required 

Fund Deposits are made up of riskbased components (as margin) that are 

calculated and assessed daily to limit 

FICC’s credit exposures to Members. 

FICC’s proposed change to introduce a 

PD Charge is designed to more 

effectively address the risks presented 

by un-margined period-over-period 

fluctuations to a Member’s portfolio. 

FICC believes the addition of the PD 

Charge would enable FICC to assess a 

more appropriate level of margin that 

accounts for increases in these risks that 

may occur between collections of 

Required Fund Deposits. This proposed 

change is designed to assist FICC in 

maintaining a risk-based margin system 

that produces margin levels sufficient to 

cover its potential future exposure to 

participants in the interval between the 

last margin collection and the close out 

of positions following a participant 

default. Therefore, FICC believes the 

proposed change to adopt a PD Charge 

is consistent with Rule 17Ad– 

22(e)(6)(iii) under the Act.26

Rule 17Ad–22(e)(23)(ii) under the Act 

requires that FICC establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for providing sufficient 

information to enable participants to 

identify and evaluate the risks, fees, and 

other material costs they incur by 

participating in FICC.27 FICC is 

proposing to amend the GSD Rules to 

include a description of the PD Charge, 

including the method by which FICC 

would calculate that charge. Through 

these proposed amendments to the GSD 

Rules, the proposal would assist FICC in 

providing its Members with sufficient 

information to identify and evaluate the 

risks and costs, in the form of Required 

Fund Deposits to the GSD Clearing 

Fund, that they incur by participating in 

FICC. In this way, FICC believes the 

proposed change is consistent with Rule 

17Ad–22(e)(23)(ii) under the Act.28

(B) Clearing Agency’s Statement on 

Burden on Competition 

FICC believes that the proposed 

change to adopt a PD Charge could have 

an impact on competition. Specifically, 

FICC believes the proposed charge 

could burden competition because it 

could result in Members being assessed 

a higher Required Fund Deposit than 

they would have been assessed under 

the current GSD Clearing Fund formula. 

The impact of this proposal on a 

particular Member would depend on the 

period-over-period change in the size 

and composition of the Member’s 

portfolio. The proposed change is not 

designed in a way that is intended to or 

expected to impact Members of a certain 

legal entity type or size or who employ 

a particular business model. FICC 

expects that Members that present 

similar pattern in portfolio changes, 

regardless of the type or size of the 

Member or a Member’s particular 

business practices, would have similar 

impact on their Required Fund Deposit 

amounts as a result of the proposal. 

When the proposal results in a larger 

Required Fund Deposit, the proposed 

change could burden competition for 

Members that have lower operating 

margins or higher costs of capital 

compared to other Members. However, 

the increase in Required Fund Deposit 

would be in direct relation to the 

specific risks presented by each 

Member’s portfolio, and each Member’s 

Required Fund Deposit would continue 

to be calculated with the same 

parameters and at the same confidence 

level for each Member. Therefore, 

because the impact of the proposal on 

a Member is relative to the specific risks 

presented by that Member’s clearing 

activity and not on the type or size of 

a Member, FICC believes that any 

burden on competition imposed by the 

proposed change would be both 

necessary and appropriate, as permitted 

by section 17A(b)(3)(I) of the Act for the 

reasons described in this filing and 

further below.29

FICC believes the above described 

burden on competition that may be 

created by the proposed PD Charge 

would be necessary in furtherance of the 

Act, specifically section 17A(b)(3)(F) of 

the Act.30 As stated above, the proposed 

PD Charge is designed to address the 

risks to FICC by un-margined periodover-period fluctuations to a Member’s 

portfolio that could increase the costs to 

FICC of liquidating a Member portfolio 

in the event of the Member’s default. 

Specifically, the proposed PD Charge 

would allow FICC to collect sufficient 

financial resources to cover exposure 

that it may face due to fluctuations in 

Members’ portfolios that occur between 

collections of margin. Therefore, FICC 

believes this proposed change is 

necessary and appropriate in 

furtherance of the requirements of 

section 17A(b)(3)(F) of the Act, which 

requires that the GSD Rules be designed 

to assure the safeguarding of securities 

and funds that are in FICC’s custody or 

control or which it is responsible.31


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Federal Register / Vol. 88, No. 162 / Wednesday, August 23, 2023 / Notices 57489 

32 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i), and 

(e)(6)(iii). 

33 Id. 

34 15 U.S.C. 78q–1(b)(3)(F). 

FICC believes the proposed change 

would also support FICC’s compliance 

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

and (e)(6)(iii) under the Act, which 

require FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

(x) effectively identify, measure, 

monitor, and manage its credit 

exposures to participants and those 

arising from its payment, clearing, and 

settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence; (y) cover its credit 

exposures to its participants by 

establishing a risk based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market; and (z) cover its credit 

exposures to its participants by 

establishing a risk based margin system 

that, at a minimum, calculates margin 

sufficient to cover its potential future 

exposure to participants in the interval 

between the last margin collection and 

the close out of positions following a 

participant default.32

As described above, FICC believes the 

introduction of the PD Charge would 

allow FICC to employ a risk-based 

methodology that would address the 

increased risks to FICC by period-overperiod fluctuations to a Member’s 

portfolio that may occur between 

collections of the Required Fund 

Deposits. Therefore, the proposed 

change would better limit FICC’s credit 

exposures to Members, necessary in 

furtherance of the requirements of Rules 

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

under the Act. 33

FICC believes that the abovedescribed burden on competition that 

could be created by the proposed 

change would be appropriate in 

furtherance of the Act because, as 

described above, such change has been 

appropriately designed to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

FICC or for which it is responsible, as 

required by section 17A(b)(3)(F) of the 

Act.34 Specifically, the proposed change 

would improve the risk-based margining 

methodology that FICC employs to set 

margin requirements and better limit 

FICC’s credit exposures to its Members. 

As described above, the proposed PD 

Charge would enable FICC to produce 

margin levels more commensurate with 

the risks and particular attributes of 

each Member’s portfolio. The proposed 

PD Charge would do this by measuring 

the historical period-over-period 

increases in the VaR Charge of the 

Member. Therefore, because the 

proposed PD Charge is designed to 

provide FICC with an appropriate 

measure of the risk presented by 

Members’ portfolios, FICC believes the 

proposed change is appropriately 

designed to meet its risk management 

goals and regulatory obligations. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

FICC has not received or solicited any 

written comments relating to this 

proposal. If any written comments are 

received, they will be publicly filed as 

an Exhibit 2 to this filing, as required by 

Form 19b–4 and the General 

Instructions thereto. 

Persons submitting comments are 

cautioned that, according to Section IV 

(Solicitation of Comments) of the 

Exhibit 1A in the General Instructions to 

Form 19b–4, the Commission does not 

edit personal identifying information 

from comment submissions. 

Commenters should submit only 

information that they wish to make 

available publicly, including their 

name, email address, and any other 

identifying information. 

All prospective commenters should 

follow the Commission’s instructions on 

how to submit comments, available at 

www.sec.gov/regulatory-actions/how-tosubmit-comments. General questions 

regarding the rule filing process or 

logistical questions regarding this filing 

should be directed to the Main Office of 

the SEC’s Division of Trading and 

Markets at tradingandmarkets@sec.gov 

or 202–551–5777. 

FICC reserves the right not to respond 

to any comments received. 

III. Date of Effectiveness of the 

Proposed Rule Change, and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FICC–2023–011 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–2023–011. 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://www.dtcc.com/legal/sec-rulefilings.aspx). Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to File 

Number SR–FICC–2023–011 and should 

be submitted on or before September 13, 

2023. 


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35 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Trust was formed as a Delaware statutory 

trust on July 13, 2021 and is operated as a grantor 

trust for U.S. federal tax purposes. The Trust has 

no fixed termination date. 

4The Commission approved BZX Rule 14.11(e)(4) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

5All statements and representations made in this 

filing regarding (a) the description of the portfolio, 

(b) limitations on portfolio holdings or reference 

assets, or (c) the applicability of Exchange rules and 

surveillance procedures shall constitute continued 

listing requirements for listing the Shares on the 

Exchange. 

6See Form S–1 Registration Statement submitted 

to the Commission on July 21, 2021. The 

Registration Statement is not yet effective and the 

Shares will not trade on the Exchange until such 

time that the Registration Statement is effective. 

7See Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 (August 1, 2018). This 

proposal was subsequently disapproved by the 

Commission. See Securities Exchange Act Release 

No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 

2018) (the ‘‘Winklevoss Order’’). 

8See streetTRACKS Gold Shares, Exchange Act 

Release No. 50603 (Oct. 28, 2004), 69 FR 64614, 

64618–19 (Nov. 5, 2004) (SR–NYSE–2004–22) (the 

‘‘First Gold Approval Order’’); iShares COMEX 

Gold Trust, Exchange Act Release No. 51058 (Jan. 

19, 2005), 70 FR 3749, 3751, 3754–55 (Jan. 26, 2005) 

(SR–Amex–2004–38); iShares Silver Trust, 

Exchange Act Release No. 53521 (Mar. 20, 2006), 71 

FR 14967, 14968, 14973–74 (Mar. 24, 2006) (SR– 

Amex–2005–072); ETFS Gold Trust, Exchange Act 

Release No. 59895 (May 8, 2009), 74 FR 22993, 

22994–95, 22998, 23000 (May 15, 2009) (SR– 

NYSEArca–2009–40); ETFS Silver Trust, Exchange 

Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771, 

18772, 18775–77 (Apr. 24, 2009) (SR–NYSEArca– 

2009–28); ETFS Palladium Trust, Exchange Act 

Release No. 61220 (Dec. 22, 2009), 74 FR 68895, 

68896 (Dec. 29, 2009) (SR–NYSEArca–2009–94) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘[t]he most significant 

palladium futures exchanges are the NYMEX and 

the Tokyo Commodity Exchange,’’ that ‘‘NYMEX is 

the largest exchange in the world for trading 

precious metals futures and options,’’ and that 

NYSE Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which NYMEX 

is a member, Exchange Act Release No. 60971 (Nov. 

9, 2009), 74 FR 59283, 59285–86, 59291 (Nov. 17, 

2009)); ETFS Platinum Trust, Exchange Act Release 

No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887–88 

(Dec. 29, 2009) (SR–NYSEArca–2009–95) (notice of 

proposed rule change included NYSE Arca’s 

representation that ‘‘[t]he most significant platinum 

futures exchanges are the NYMEX and the Tokyo 

Commodity Exchange,’’ that ‘‘NYMEX is the largest 

exchange in the world for trading precious metals 

futures and options,’’ and that NYSE Arca ‘‘may 

obtain trading information via the Intermarket 

Surveillance Group,’’ of which NYMEX is a 

member, Exchange Act Release No. 60970 (Nov. 9, 

2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); 

Sprott Physical Gold Trust, Exchange Act Release 

No. 61496 (Feb. 4, 2010), 75 FR 6758, 6760 (Feb. 

10, 2010) (SR–NYSEArca–2009–113) (notice of 

proposed rule change included NYSE Arca’s 

representation that the COMEX is one of the ‘‘major 

world gold markets,’’ that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ and that NYMEX, of which 

COMEX is a division, is a member of the 

Intermarket Surveillance Group, Exchange Act 

Release No. 61236 (Dec. 23, 2009), 75 FR 170, 171, 

174 (Jan. 4, 2010)); Sprott Physical Silver Trust, 

Exchange Act Release No. 63043 (Oct. 5, 2010), 75 

FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR– 

NYSEArca–2010–84); ETFS Precious Metals Basket 

Trust, Exchange Act Release No. 62692 (Aug. 11, 

2010), 75 FR 50789, 50790 (Aug. 17, 2010) (SR– 

NYSEArca–2010–56) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘the most significant gold, silver, platinum and 

palladium futures exchanges are the COMEX and 

the TOCOM’’ and that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

member, Exchange Act Release No. 62402 (Jun. 29, 

2010), 75 FR 39292, 39295, 39298 (July 8, 2010)); 

ETFS White Metals Basket Trust, Exchange Act 

Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 

56158 (Sept. 15, 2010) (SR–NYSEArca–2010–71) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant 

silver, platinum and palladium futures exchanges 

are the COMEX and the TOCOM’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which COMEX 

is a member, Exchange Act Release No. 62620 (July 

30, 2010), 75 FR 47655, 47657, 47660 (Aug. 6, 

2010)); ETFS Asian Gold Trust, Exchange Act 

Release No. 63464 (Dec. 8, 2010), 75 FR 77926, 

77928 (Dec. 14, 2010) (SR–NYSEArca–2010–95) 

(notice of proposed rule change included NYSE 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18106 Filed 8–22–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98156; File No. SR– 

CboeBZX–2023–058] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the Global X Bitcoin 

Trust, Under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares 

August 17, 2023. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on August 4, 

2023, Cboe BZX Exchange, Inc. (the 

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

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change to list and trade shares of 

the Global X Bitcoin Trust (the 

‘‘Trust’’),3 under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under BZX Rule 

14.11(e)(4),4 which governs the listing 

and trading of Commodity-Based Trust 

Shares on the Exchange.5 Global X 

Digital Assets is the sponsor of the Trust 

(‘‘Sponsor’’). The Shares will be 

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).6 A thirdparty U.S.-based trust company and 

qualified custodian will be responsible 

for custody of the Trust’s bitcoin (the 

‘‘Custodian’’). 

As further discussed below, the 

Commission has historically approved 

or disapproved exchange filings to list 

and trade series of Trust Issued 

Receipts, including spot-based 

Commodity-Based Trust Shares, on the 

basis of whether the listing exchange 

has in place a comprehensive 

surveillance sharing agreement with a 

regulated market of significant size 

related to the underlying commodity to 

be held.7 Prior orders from the 

Commission have pointed out that in 

every prior approval order for 

Commodity-Based Trust Shares, there 

has been a derivatives market that 

represents the regulated market of 

significant size, generally a Commodity 

Futures Trading Commission (the 

‘‘CFTC’’) regulated futures market.8


lotter on DSK11XQN23PROD with NOTICES1