Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68179 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Terms not defined herein are defined in the GSD 

Rules and MBSD Rules, as applicable, available at 

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

4See Securities Exchange Act Release No. 98163 

(Aug. 18, 2023), 88 FR 58004 (Aug. 24, 2023) (File 

No. SR–FICC–2023–012) (‘‘Notice of Filing’’). 

5Amendment No. 1 made clarifications and 

corrections to Exhibit 3b of the filing (Proposed 

Changes to the Depository Trust and Clearing 

Corporation (‘‘DTCC’’) Model Development 

Continued 

Contracts, (ii) the counterparty to and 

value of forward contracts, and (iii) 

other financial instruments, if any, and 

the characteristics of such instruments 

and cash equivalents, and amount of 

cash held in the Trust’s portfolio, if 

applicable. 

Trading in Shares of the Trust will be 

halted if the circuit breaker parameters 

in NYSE Arca Rule 7.12–E have been 

reached or because of market conditions 

or for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in ETH and/or MET Contracts and the 

securities and/or the financial 

instruments composing the daily 

disclosed portfolio of the Trust; or (2) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of Trust Issued Receipts based on Ether 

that will enhance competition among 

market participants, to the benefit of 

investors and the marketplace. As noted 

above, the Exchange has in place 

surveillance procedures that are 

adequate to properly monitor trading in 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and applicable federal securities 

laws. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of Trust 

Issued Receipts based on Ether and that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

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 

the 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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSEARCA–2023–63 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–NYSEARCA–2023–63. 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 (https://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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. 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–NYSEARCA–2023–63 and should be 

submitted on or before October 24, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21792 Filed 10–2–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98558; File No. SR–FICC– 

2023–012] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Amendment No. 1 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment No. 1, Relating to the 

Margin Liquidity Adjustment Charge 

September 27, 2023. 

I. Introduction 

On August 3, 2023, 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–2023–012 to amend 

FICC’s Government Securities Division 

(‘‘GSD’’) Rulebook (‘‘GSD Rules’’) and 

Mortgage-Backed Securities Division 

(‘‘MBSD’’) Clearing Rules (‘‘MBSD 

Rules,’’ and collectively with the GSD 

Rules, the ‘‘Rules’’) 3 to enhance FICC’s 

margin methodology with respect to the 

Margin Liquidity Adjustment Charge 

(‘‘MLA Charge’’). The proposed rule 

change was published for public 

comment in the Federal Register on 

August 24, 2023.4 The Commission has 

received no comments on the proposed 

rule change. On August 22, 2023, FICC 

filed Amendment No. 1 to the proposed 

rule change, to make clarifications to the 

proposed rule change.5 The proposed 


ddrumheller on DSK120RN23PROD with NOTICES1
68180 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

Documentation—FICC Market Liquidity 

Adjustment Model and Bid-ask Charge Model) to 

include a description of a term used in a calculation 

and to remove an unnecessary chart. These 

clarifications and corrections do not substantively 

change proposed rule change. FICC has requested 

confidential treatment of Exhibit 3b, pursuant to 17 

CFR 240.24b-2. 

6See GSD Rule 22A (Procedures for When the 

Corporation Ceases to Act) and MBSD Rule 17 

(Procedures for When the Corporation Ceases to 

Act), supra note 3. 

7FICC’s margin methodology assumes that a 

defaulted member’s portfolio would take three days 

to liquidate in normal market conditions. 

8See GSD Rule 1 (definition of ‘‘Margin Liquidity 

Adjustment Charge’’), supra note 3. Additional 

details regarding the calculation of the MLA Charge 

are set forth in the DTCC Model Development 

Documentation—FICC Market Liquidity 

Adjustment Model and Bid-ask Charge Model 

(‘‘Model Development Documentation’’). FICC 

would revise the Model Development Document to 

incorporate the changes in the Proposed Rule 

Change and included copies of changes to the 

Model Development Document in Exhibit 3b to the 

Proposed Rule Change. Pursuant to 17 CFR 240.24b2, FICC requested confidential treatment of Exhibit 

3b. 

9See MBSD Rule 1 (definition of ‘‘Margin 

Liquidity Adjustment Charge’’), supra note 3. 

10FICC determines average daily trading volume 

by reviewing data that is made publicly available 

by the Securities Industry and Financial Markets 

Association (‘‘SIFMA’’), at https://www.sifma.org/ 

resources/archive/research/statistics. See Notice of 

Filing, supra note 4, at 58006. 

11See id. 

12See supra notes 8 and 9. 

13See id. 

14The net directional market value of an asset 

group within a portfolio equals the absolute 

difference between the market value of the long net 

unsettled positions in that asset group, and the 

market value of the short net unsettled positions in 

that asset group. For example, if the market value 

of the long net unsettled positions is $100,000, and 

the market value of the short net unsettled positions 

is $150,000, the net directional market value of the 

asset group is $50,000. See id. 

15To determine the gross market value of the net 

unsettled positions in each asset group, FICC sums 

the absolute value of each CUISP in the asset group. 

See id. 

rule change, as modified by Amendment 

No. 1, is hereinafter referred to as the 

‘‘Proposed Rule Change.’’ The 

Commission is publishing this notice to 

solicit comments on Amendment No. 1 

from interested persons, and, for the 

reasons discussed below, the 

Commission is approving the Proposed 

Rule Change on an accelerated basis. 

II. Background 

FICC operates two divisions: GSD and 

MBSD. GSD provides trade comparison, 

netting, risk management, settlement, 

and central counterparty (‘‘CCP’’) 

services for the U.S. Government 

securities market. MBSD provides the 

same services for the U.S. mortgagebacked securities market. GSD and 

MBSD maintain separate sets of rules, 

margin models, and clearing funds. As 

a CCP, FICC interposes itself as the 

buyer to every seller and seller to every 

buyer for the financial transactions it 

clears. As such, FICC is exposed to the 

risk that one or more of its members 

may fail to make a payment or to deliver 

securities. 

A key tool that FICC uses to manage 

its credit exposures to its members is 

the daily collection of the Required 

Fund Deposit (i.e., margin) from each 

member. A member’s margin is 

designed to mitigate potential losses 

associated with liquidation of the 

member’s portfolio in the event of that 

member’s default. The aggregated 

amount of all GSD and MBSD members’ 

margin constitutes the GSD Clearing 

Fund and MBSD Clearing Fund, 

respectively, which FICC would be able 

to access should a defaulted member’s 

own margin be insufficient to satisfy 

losses to FICC caused by the liquidation 

of that member’s portfolio. Each 

member’s margin consists of several 

components, each of which is designed 

to address specific risks faced by FICC 

arising out of its members’ trading 

activity. One of these components is the 

MLA Charge. As described more fully 

below, the MLA Charge is designed to 

address the risk presented to FICC by 

member portfolios that contain large net 

unsettled positions in a particular group 

of securities with a similar risk profile 

or in a particular transaction type. 

In the event of a member default, the 

Rules 6 provide FICC with the authority 

to close out and manage the positions in 

a defaulted member’s portfolio. The 

process of closing out a defaulted 

member’s portfolio typically involves 

buying and selling securities that the 

defaulted member was obligated to 

deliver and receive to and from FICC, or 

otherwise liquidating the portfolio.7

FICC’s transaction costs to liquidate the 

securities in a defaulted member’s 

portfolio are affected by, among other 

things, the marketability of such 

securities (‘‘market impact costs’’). As a 

general matter, less marketable 

securities are more difficult and costly 

to liquidate within the three-day 

assumed period of risk. One factor that 

could reduce the marketability of the 

securities in a defaulted member’s 

portfolio is if the portfolio were to 

contain a large concentration of net 

unsettled positions in a particular group 

of securities with a similar risk profile 

or in a particular transaction type. 

Therefore, such portfolios create the risk 

that FICC may face increased 

transaction costs to liquidate in the 

event of a member default. The MLA 

Charge is the margin component 

designed to mitigate the foregoing risk. 

A. Current MLA Charge 

To calculate the MLA Charge, FICC 

categorizes securities into asset groups 

that share similar risk profiles. Under 

the current GSD Rules, the asset groups 

include: (a) U.S. Treasury securities, 

which are further categorized into 

subgroups by maturity—those maturing 

in (i) less than one year, (ii) equal to or 

more than one year and less than two 

years, (iii) equal to or more than two 

years and less than five years, (iv) equal 

to or more than five years and less than 

ten years, and (v) equal to or more than 

ten years; (b) Treasury-Inflation 

Protected Securities (‘‘TIPS’’), which are 

further categorized into subgroups by 

maturity—those maturing in (i) less than 

two years, (ii) equal to or more than two 

years and less than six years, (iii) equal 

to or more than six years and less than 

eleven years, and (iv) equal to or more 

than eleven years; (c) U.S. agency 

bonds; and (d) mortgage pools 

transactions.8 Under the current MBSD 

Rules, there is currently one mortgagebacked securities asset group.9

FICC designed the MLA Charge 

calculation to compare the total market 

value of a portfolio’s net unsettled 

positions in a particular asset group to 

the available trading volume of that 

asset group (or subgroup) in the 

market.10 If the market value of the 

portfolio’s net unsettled positions in an 

asset group is large in comparison to the 

available trading volume of that asset 

group, then FICC faces the risk of 

increased transaction costs to liquidate 

those positions in the event of a member 

default.11

Calculation of the MLA Charge 

involves several steps, which are 

generally described as part of the 

definition of the MLA Charge in Rule 

1.12 First, FICC calculates the market 

impact cost with respect to the 

member’s net unsettled positions in 

each asset group.13 To determine the 

market impact cost for net unsettled 

positions in Treasuries maturing in less 

than one year and TIPS at GSD, FICC 

uses the directional market impact cost, 

which is a function of the net unsettled 

positions’ net directional market 

value.14 To determine the market impact 

cost for all other net unsettled positions 

at GSD and MBSD, FICC adds together 

two components: (1) the directional 

market impact cost, as described above, 

and (2) the basis cost, which is based on 

the net unsettled positions’ gross market 

value.15 The calculation of market 

impact cost for net unsettled positions 

in Treasuries maturing in less than one 

year and TIPS does not include basis 

cost because basis risk is negligible for 


ddrumheller on DSK120RN23PROD with NOTICES1
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16See id. 17See supra note 10. 18The VaR Charge is a margin component 

designed to mitigate the risk that market volatility 

could cause the price of securities in a member’s 

portfolio to change between trade execution and 

settlement. See GSD Rule 1 (definition of ‘‘VaR 

Charge’’); MBSD Rule 1 (definition of ‘‘VaR 

Charge’’), supra note 3. The VaR Charge is typically 

the largest component of a member’s margin 

requirement. For purposes of calculating the MLA 

Charge, FICC uses a portion of the VaR Charge that 

is based on a one-day assumed period of risk and 

calculated by applying a simple square-root of time 

scaling, referred to herein as the ‘‘1-day VaR 

Charge.’’ See Notice of Filing, supra note 4, at 

58006. 

19The threshold is based on an estimate of the 

market impact cost that is incorporated into the 

calculation of the 1-day VaR Charge, such that FICC 

only applies an MLA Charge when the calculated 

market impact cost exceeds this prescribed 

threshold. FICC reviews its method for calculating 

the thresholds from time to time. Any changes that 

FICC deems appropriate would be subject to FICC’s 

model risk management governance procedures set 

forth in the Clearing Agency Model Risk 

Management Framework (‘‘Model Risk Management 

Framework’’). 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 (July 13, 2021), 86 FR 

38140 (July 19, 2021) (SR–FICC–2021–006); 94271 

(Feb. 17, 2022), 87 FR 10411 (Feb. 24, 2022) (SR– 

FICC–2022–001); and 97890 (July 13, 2023), 88 FR 

46287 (July 19, 2023) (SR–FICC–2023–008). 

20Notice of Filing, supra note 4, at 58006. 

21See id. 

22See id. 

23See id. 

24See id. 

25Securities Exchange Act Release No. 51896 

(June 21, 2005), 70 FR 36981 (June 27, 2005) (SR– 

FICC–2004–22). See GSD Rule 3A, supra note 3. 

26See GSD Rule 3A, Section 8, supra note 3. 

27 17 CFR 230.144A. 

28 15 U.S.C. 77a et seq. 

29See GSD Rule 3A, Section 8, supra note 3. 

30See GSD Rule 1 (definition of ‘‘Sponsoring 

Member Guaranty’’) and GSD Rule 3A, Section 2(c), 

supra note 3. 

31 Id. 

32Notice of Filing, supra note 4, at 58006. 

33See id. 

34See id. 

35See id. 

36See id. 

37See id. 

38See id. 

39See id. 

40Notice of Filing, supra note 4, at 58006–07. 

these types of positions.16 For all asset 

groups, when determining the market 

impact cost at GSD and MBSD, the net 

directional market value and the gross 

market value of the net unsettled 

positions are divided by the average 

daily volumes of the securities in that 

asset group over a lookback period.17

Next, FICC compares the calculated 

market impact cost to a portion of the 

Value at Risk (‘‘VaR’’) Charge (‘‘VaR 

Charge’’) that is allocated to the net 

unsettled positions in those asset 

groups.18 If the ratio of the calculated 

market impact cost to a portion of the 

VaR Charge is greater than a prescribed 

threshold,19 FICC applies an MLA 

Charge to that asset group.20 If the ratio 

of these two amounts is equal to or less 

than the threshold, FICC does not apply 

an MLA Charge to that asset group.21 In 

addition, FICC may apply a downward 

adjusting scaling factor in the 

calculation of the MLA Charge based on 

the ratio of the calculated market impact 

cost to the 1-day VaR Charge.22

For each member portfolio, FICC adds 

together the MLA Charges (if any) for 

each asset group to determine the total 

MLA Charge for the member portfolio.23

FICC calculates the final MLA Charge 

daily, and if applicable, includes the 

MLA Charge as a margin component.24

B. Current MLA Charge and MLA Excess 

Amount for Sponsored Members 

A Sponsoring Member is permitted to 

submit to FICC, for comparison, 

novation, and netting, certain eligible 

securities transactions of its Sponsored 

Members.25 A Sponsored Member may 

be sponsored by a single Sponsoring 

Member or by multiple Sponsoring 

Members. FICC requires each 

Sponsoring Member to establish an 

omnibus account at FICC (separate from 

its regular netting account) for 

Sponsored Member trading activity.26

Sponsored Members are generally 

required to meet the definition of a 

qualified institutional buyer (‘‘QIB’’), as 

defined in Rule 144A 27 under the 

Securities Act of 1933.28

For operational and administrative 

purposes, FICC interacts solely with the 

Sponsoring Member as agent for 

purposes of the day-to-day satisfaction 

of its Sponsored Members’ obligations 

to and from FICC, including their 

securities and funds-only settlement 

obligations.29 Sponsoring Members are 

also responsible for providing FICC with 

a Sponsoring Member Guaranty, 

whereby the Sponsoring Member 

guarantees to FICC the payment and 

performance by its Sponsored Members 

of their obligations under the GSD 

Rules.30 Although Sponsored Members 

are principally liable to FICC for their 

own settlement obligations under the 

GSD Rules, the Sponsoring Member 

Guaranty requires the Sponsoring 

Member to satisfy those settlement 

obligations on behalf of a Sponsored 

Member if the Sponsored Member 

defaults and fails to perform its 

settlement obligations.31

FICC’s calculation of the MLA Charge 

for a Sponsored Member that clears 

through a single account sponsored by 

a single Sponsoring Member is the same 

as described above in Section II.A.32

However, for a Sponsored Member that 

clears through multiple accounts 

sponsored by multiple Sponsoring 

Members, in addition to calculating an 

MLA Charge for each account as 

described above, FICC also calculates an 

MLA Charge for the combined net 

unsettled positions of the Sponsored 

Member across all of its Sponsoring 

Members (referred to herein as the 

‘‘consolidated portfolio’’).33

Currently, if the MLA Charge of the 

consolidated portfolio is greater than the 

sum of all MLA Charges for each 

account of the Sponsored Member, FICC 

charges the difference (referred to herein 

and currently defined in the Rules as 

the ‘‘MLA Excess Amount’’) in addition 

to the applicable MLA Charge.34 If the 

MLA Charge of the consolidated 

portfolio is not greater than the sum of 

all MLA Charges for each account of the 

Sponsored Member, FICC does not 

charge the MLA Excess Amount.35

Instead, FICC charges the applicable 

MLA Charge for each of the Sponsored 

Member’s accounts.36

The MLA Excess Amount is designed 

to capture the additional market impact 

cost that could be incurred when a 

Sponsored Member defaults, and each 

of its Sponsoring Members, in its 

capacity as the Sponsored Member’s 

guarantor, liquidates net unsettled 

positions associated with that defaulted 

Sponsored Member.37 If large net 

unsettled positions in the same asset 

group are being liquidated by multiple 

Sponsoring Members, the market impact 

cost to liquidate those positions could 

increase as Sponsoring Members 

compete for market liquidity in the 

same asset group at the same time.38

The MLA Excess Amount addresses this 

additional market impact cost by 

capturing any difference between the 

calculations of the MLA Charge for each 

of the Sponsored Member’s accounts on 

both a stand-alone basis and for the 

consolidated portfolio.39 The MLA 

Excess Amount for a Sponsored Member 

is allocated pro rata across each of its 

Sponsoring Members using a market 

volatility risk-weighted allocation 

methodology.40

III. Description of the Proposed Rule 

Change 

A. Amend MLA Charge Calculation and 

Eliminate MLA Excess Amount 

FICC proposes to amend the MLA 

Charge calculation for Sponsored 

Members that clear through multiple 

accounts sponsored by multiple 

Sponsoring Members to better align the 

amount of the MLA Charge with the 

market impact cost arising from position 

concentration of the Sponsored 

Member’s respective Sponsored Member 


ddrumheller on DSK120RN23PROD with NOTICES1
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41See Notice of Filing, supra note 4, at 58007. 

42See id. 

43As described in further detail in Model 

Development Documentation submitted in the 

Proposed Rule Change, FICC determines the 

threshold by an optimization process based on the 

ratio of an estimate of the market impact cost to the 

1-day VaR Charge. See supra note 8; see Notice of 

Filing, supra note 4, at 58007. 

44The proposed methodology would calculate the 

MLA Charge for the consolidated portfolio by 

applying the threshold to asset groups/subgroups, 

as opposed to the current methodology, which 

calculates the MLA Charge for the consolidated 

portfolio by applying the threshold to the entire 

portfolio. See supra note 8. 

45See Notice of Filing, supra note 4, at 58007. 

46See id. 

47See GSD Rule 1 (definition of ‘‘Margin 

Liquidity Adjustment Charge’’), supra note 3. 

48See MBSD Rule 1 (definition of ‘‘Margin 

Liquidity Adjustment Charge’’), supra note 3. 

49See Notice of Filing, supra note 4, at 58008. 

50See id. 

51The revised GSD Rule would contain 

provisions indicating that the asset groupings may 

be further categorized into subgroups. See id. 

accounts. Specifically, the revised 

calculation would apportion a higher 

MLA Charge to those Sponsored 

Member accounts with higher relative 

market impact costs (and lower relative 

VaR Charges) than the current 

calculation. 

FICC’s proposal to amend the MLA 

Charge calculation for Sponsored 

Members that clear through multiple 

accounts sponsored by multiple 

Sponsoring Members is designed to 

mitigate the risk of incurring additional 

market impact costs when a Sponsored 

Member defaults and each of its 

Sponsoring Members (each, as the 

Sponsored Member’s guarantor) 

liquidate the defaulted Sponsored 

Member’s large net unsettled positions 

in the same asset group.41 In light of this 

change to the MLA Charge calculation, 

FICC also proposes to simplify its 

margin methodology by eliminating the 

MLA Excess Amount from the GSD 

Rules because the amended MLA 

Charge calculation would address the 

additional market impact cost that the 

MLA Excess Amount was originally 

designed to address.42 Specifically, for 

such Sponsored Members, FICC 

proposes to calculate an MLA Charge 

both (1) for each asset group/subgroup 

in the account on a stand-alone basis, as 

described above in Section II.C, and (2) 

for each asset group/subgroup in the 

account as part of a consolidated 

portfolio, as described below, with the 

greater amount applied as the MLA 

Charge for the relevant asset group/ 

subgroup. 

When calculating the MLA Charge for 

each asset group/subgroup in the 

account as part of a consolidated 

portfolio, FICC would first calculate the 

market impact cost for each asset group/ 

subgroup based on the aggregate net 

unsettled positions of that asset group/ 

subgroup in the consolidated portfolio. 

FICC would allocate the market impact 

cost for each asset group/subgroup to 

each asset group/subgroup in each 

account of the Sponsored Member on a 

pro rata basis based on the market 

impact cost of that asset group/subgroup 

in the account. 

Next, FICC would compare the 

allocated market impact cost for an asset 

group/subgroup to a portion of the VaR 

Charge that is allocated to that asset 

group/subgroup in the account. If the 

ratio of the allocated market impact cost 

to a portion of the VaR Charge is greater 

than a prescribed threshold, FICC would 

apply an MLA Charge for that asset 

group/subgroup. If the ratio of the two 

amounts is equal to or less than this 

threshold, FICC would not apply an 

MLA Charge for that asset group/ 

subgroup.43

When applicable, FICC would 

calculate the MLA Charge for each asset 

group/subgroup in the account as part of 

the consolidated portfolio as a 

proportion of the product of (1) the 

amount by which the ratio of the 

allocated market impact cost for the 

asset group/subgroup to the portion of 

the VaR Charge allocated to that asset 

group/subgroup exceeds the prescribed 

threshold,44 and (2) a portion of the VaR 

Charge allocated to that asset group/ 

subgroup. 

FICC would then compare the MLA 

Charge for each asset group/subgroup in 

the account on a stand-alone basis 

against the MLA Charge for each asset 

group/subgroup in the account as part of 

a consolidated portfolio. FICC would 

apply the greater of these two amounts 

as the MLA Charge for the asset group. 

FICC would add the applicable MLA 

Charges for each asset group/subgroup 

together to calculate the total MLA 

Charge for that Sponsored Member 

account. 

FICC believes that the proposed 

revisions to the MLA Charge calculation 

for Sponsored Members that clear 

through multiple accounts sponsored by 

multiple Sponsoring Members would 

better allocate MLA Charges to those 

Sponsored Member accounts than the 

current calculation, so that the MLA 

Charge would increase for accounts 

with higher relative market impact 

costs.45 FICC also believes that the 

proposed revisions to the MLA Charge 

calculation would address the market 

impact costs that the MLA Excess 

Amount was originally designed to 

address, thereby enabling FICC to 

eliminate the MLA Excess Amount from 

the GSD Rules.46

B. Revise Description of Asset Groups 

and/or Subgroups 

As described above in Section II.A, 

FICC categorizes securities into asset 

groups/subgroups that share similar risk 

profiles for the purpose of calculating 

the MLA Charge. The current GSD Rules 

contain a list of the asset groups/ 

subgroups.47 The current MBSD Rules 

contain a statement that there is one 

mortgage-backed securities asset 

group.48 FICC states that it may need to 

set and adjust the asset groupings from 

time to time in response to changes in 

market conditions that cause the risk 

profiles of portfolio positions to shift.49

However, since the groups/subgroups 

are currently codified in the GSD Rules 

and MBSD Rules, FICC notes that any 

changes to the groupings would require 

the filing of a proposed rule change with 

the Commission, which FICC believes 

does not necessarily provide FICC with 

the flexibility to make timely changes in 

response to market conditions.50

Therefore, FICC proposes to retain the 

asset groups in the GSD Rules, but 

remove the asset subgroups (i.e., the 

specific maturities) from the GSD 

Rules.51 FICC proposes to revise the 

GSD Rules and the MBSD Rules to 

provide that FICC would publish the 

asset groups and subgroups on FICC’s 

website, and that FICC will provide at 

least 5 business days’ advance notice of 

any changes to the schedule via 

Important Notice. 

Additionally, to better reflect the 

different risk profiles of the mortgage 

pools/mortgage-backed securities asset 

groups, FICC proposes to add language 

in the GSD Rules and MBSD Rules to 

indicate that mortgage pools/mortgagebacked securities asset groups may be 

further categorized into subgroups by 

mortgage pool types. FICC also proposes 

to revise the MBSD Rules to provide 

that for the purpose of calculating the 

MLA Charge at MBSD, a member’s net 

unsettled positions in TBA transactions, 

Specified Pool Trades, and Stipulated 

Trades shall be included in one 

mortgage-backed securities asset group, 

which may be further categorized into 

subgroups by mortgage pool types. 

C. Clarifying and Technical Changes 

FICC proposes to modify certain 

language in the GSD Rules and MBSD 

Rules to clarify certain aspects of the 

MLA Charge, without making 

substantive changes to the methodology. 

Specifically, FICC proposes to clarify 

that for the purpose of determining the 

MLA Charge amount, FICC first 

calculates the MLA Charge for each 

asset group/subgroup, and then FICC 


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52 15 U.S.C. 78s(b)(2)(C). 

53 15 U.S.C. 78q–1(b)(3)(F). 

54 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i), and 

(e)(19). 

55 15 U.S.C. 78q–1(b)(3)(F). 

56 Id. 

57FICC has requested confidential treatment of 

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

adds the MLA Charges together to result 

in one MLA Charge for each member 

portfolio. FICC also proposes to clarify 

that FICC calculates the market impact 

cost for the combined net unsettled 

positions in each asset group/subgroup; 

not for each net unsettled position. 

Similarly, FICC proposes to clarify that 

the associated VaR Charge allocation is 

also performed for each asset group/ 

subgroup; not for each net unsettled 

position. 

Finally, FICC proposes to make 

several technical changes to the GSD 

Rules that reflect the correct usage of 

terms. Specifically, in GSD Rule 1, FICC 

proposes to replace the term ‘‘mortgage 

pools transactions’’ with ‘‘mortgage 

pools,’’ and the term ‘‘MLA charge’’ 

with ‘‘MLA Charge.’’ 

IV. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 52

directs the Commission to approve a 

proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization. After 

carefully considering the Proposed Rule 

Change, the Commission finds that the 

Proposed Rule Change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to FICC. In particular, the 

Commission finds that the Proposed 

Rule Change is consistent with Section 

17A(b)(3)(F) 53 of the Act and Rules 

17Ad-22(e)(4)(i), (e)(6)(i), and (e)(19) 

thereunder.54

A. Consistency With Section 

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

1. Prompt and Accurate Clearance and 

Settlement 

Section 17A(b)(3)(F) of the Act 55

requires that the rules of a clearing 

agency, such as FICC, be designed to, 

among other things, promote the prompt 

and accurate clearance and settlement of 

securities transactions and assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.56 The Commission believes 

that the Proposed Rule Change is 

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

the Act for the reasons stated below. 

As described above in Section III.A, 

FICC proposes to amend the MLA 

Charge calculation at GSD for 

Sponsored Members that clear through 

multiple accounts sponsored by 

multiple Sponsoring Members. 

Specifically, the amended calculation 

would apportion a higher MLA Charge 

to those Sponsored Member accounts 

with higher relative market impact costs 

than the current calculation. As a result, 

the proposal would better align the 

MLA Charge with the risk arising from 

position concentration in such 

Sponsored Member portfolios. The 

Commission believes that a closer 

alignment between the MLA Charge and 

the risks presented by the concentration 

of securities in Sponsored Member 

portfolios would help facilitate FICC’s 

ability to set margins that more 

accurately reflect the risks posed by 

such portfolios. Setting margins that 

accurately reflect the risks posed by its 

members’ portfolios could reduce the 

likelihood that FICC would not have 

collected sufficient margin to address 

losses arising out of a member default. 

Reducing the likelihood that FICC holds 

insufficient margin to address default 

losses would, in turn, further assure that 

FICC’s operation of its critical clearance 

and settlement services would not be 

disrupted because of insufficient 

financial resources. 

As part of the Proposed Rule Change, 

FICC filed Exhibit 3a—Summary of 

Impact Study (‘‘Impact Study’’), which 

provided the actual MLA Charges at the 

member-level, account-level, and CCPlevel, from October 19, 2020 through 

October 31, 2022, as compared to the 

MLA Charges that FICC would have 

assessed if the proposed enhancement 

had been in place during that time 

period.57 The Commission reviewed 

and analyzed the Impact Study, which 

showed, among other things, that had 

the proposed enhancement been in 

place for Sponsored Members that clear 

through multiple accounts sponsored by 

multiple Sponsoring Members, it would 

have resulted in an average daily 

increase of $9.47 million in the 

aggregate MLA Charge for the impacted 

Sponsored Members. Therefore, the 

Impact Study demonstrates that the 

proposed MLA Charge calculation 

would enable FICC to set higher margin 

coverage levels than those using the 

current calculation, providing further 

assurance that FICC’s operation of its 

critical clearance and settlement 

services would not be disrupted because 

of insufficient financial resources. 

Additionally, as described above in 

Section III.A, the proposed 

enhancement to the MLA Charge 

calculation would enable FICC to 

simplify its margin methodology by 

eliminating the MLA Excess Amount 

from the GSD Rules because the 

enhanced MLA Charge calculation 

would address the additional market 

impact cost that the MLA Excess 

Amount was originally designed to 

address. Thus, the proposed 

enhancement to the MLA Charge 

calculation and removal of the MLA 

Excess Amount from the GSD Rules 

would render FICC’s margin 

methodology more accurate, robust, and 

streamlined, further assuring its 

effectiveness. 

As described above in Section III.B, 

FICC proposes to (1) remove the 

enumerated asset subgroups from the 

GSD Rules, (2) change both the GSD 

Rules and MBSD Rules to indicate that 

FICC may further categorize asset 

groups into subgroups, and (3) change 

both the GSD Rules and MBSD Rules to 

indicate that a member’s net unsettled 

positions in TBA transactions, Specified 

Pool Trades, and Stipulated Trades shall 

be included in one mortgage-backed 

securities asset group, which may be 

further categorized into subgroups by 

mortgage pool types. FICC states that the 

purpose of these changes is to facilitate 

FICC’s ability to timely set and adjust 

the asset groupings from time to time in 

response to changes in market 

conditions that cause a shift in the risk 

profiles of portfolio positions. FICC 

would publish the asset groups and 

subgroups on FICC’s website, and that 

FICC will provide at least 5 business 

days’ advance notice of any changes to 

the schedule via Important Notice. 

FICC’s ability to promptly respond to 

changing risk profiles of the securities 

in its members’ portfolios would better 

enable FICC to set margins that more 

accurately reflect the risks posed by 

such portfolios. Setting margins that 

accurately reflect the risks posed by its 

members’ portfolios could reduce the 

likelihood that FICC would not have 

collected sufficient margin to address 

losses arising out of a member default. 

Reducing the likelihood that FICC holds 

insufficient margin to address default 

losses would, in turn, further assure that 

FICC’s operation of its critical clearance 

and settlement services would not be 

disrupted because of insufficient 

financial resources. 

As described above in Section III.C, 

FICC proposes to make several technical 

changes to the GSD Rules that reflect the 

correct usage of terms. Enhancing the 

clarity of the GSD Rules would enable 

members to more efficiently and 

effectively understand and conduct 

their business in accordance with the 

GSD Rules. When members conduct 


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58 15 U.S.C. 78q–1(b)(3)(F). 

59 Id. 

60 17 CFR 240.17Ad–22(e)(4)(i). 

61See supra note 57. 

62 17 CFR 240.17Ad–22(e)(4)(i). 

63 17 CFR 240.17Ad–22(e)(6)(i). 

64See supra note 57. 

65 17 CFR 240.17Ad–22(e)(6)(i). 

66 17 CFR 240.17Ad–22(e)(19). 

their business in accordance with the 

GSD Rules, FICC is able to focus more 

of its resources on providing its 

clearance and settlement services. 

Accordingly, for the reasons above, 

the Commission finds that the Proposed 

Rule Change should help FICC to 

continue providing prompt and accurate 

clearance and settlement of securities 

transactions, consistent with Section 

17A(b)(3)(F) of the Act.58

2. Safeguarding Securities and Funds 

As described above in Section II, FICC 

would access the mutualized Clearing 

Fund should a defaulted member’s own 

margin be insufficient to satisfy losses to 

FICC caused by the liquidation of that 

member’s portfolio. As discussed above 

in Section IV.A.1, FICC’s proposals to 

enhance the MLA Charge calculation 

and eliminate the MLA Excess Amount 

should help ensure that FICC collects 

sufficient margin from its members. 

Similarly, FICC’s proposals to remove 

the asset subgroups from the GSD Rules 

and otherwise streamline the GSD Rules 

and MBSD Rules with respect to the 

asset groups/subgroups, should help 

facilitate FICC’s ability to promptly 

respond to changing risk profiles of its 

members’ portfolios, and thereby set 

margins that more accurately reflect the 

risks posed by such portfolios. 

Accordingly, the Proposed Rule Change 

should help minimize the likelihood 

that FICC would have to access the 

Clearing Fund, thereby limiting nondefaulting members’ exposure to 

mutualized losses. 

The Commission believes that by 

helping to limit the exposure of FICC’s 

non-defaulting members to mutualized 

losses, the Proposed Rule Change would 

help FICC assure the safeguarding of 

securities and funds which are in its 

custody or control, consistent with 

Section 17A(b)(3)(F) of the Act.59

B. Consistency With Rule 17Ad– 

22(e)(4)(i) Under the Act 

Rule 17Ad–22(e)(4)(i) under the Act 

requires that each covered clearing 

agency that provides central 

counterparty services, such as 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.60 The Commission 

believes that the proposal is consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act for the reasons stated below. 

As discussed above in Section IV.A, 

FICC’s proposed enhancement to the 

MLA Charge calculation and removal of 

the MLA Excess Amount from the GSD 

Rules would render FICC’s margin 

methodology more accurate than the 

current methodology by apportioning a 

higher MLA Charge to those Sponsored 

Member accounts with higher relative 

market impact costs. As a result, the 

proposal would better align the MLA 

Charge with the risk arising from 

position concentration in such 

Sponsored Member portfolios. The 

Commission has reviewed and analyzed 

the filing materials, including the 

Impact Study,61 and agrees that the 

proposed enhancement to the MLA 

Charge calculation and removal of the 

MLA Excess Amount from the GSD 

Rules would enable FICC to set margins 

that more accurately reflect the risks 

posed by such portfolios than the 

current methodology. As a result, 

implementing the Proposed Rule 

Change would better enable FICC to 

collect sufficient margin in connection 

with Sponsored Members that clear 

through multiple accounts sponsored by 

multiple Sponsoring Members. 

Accordingly, the Commission finds 

the Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act because it is designed to assist FICC 

in managing its credit exposures to its 

members by maintaining sufficient 

financial resources to cover its credit 

exposure to the portfolios of Sponsored 

Members that clear through multiple 

accounts sponsored by multiple 

Sponsoring Members.62

C. Consistency With Rule 17Ad– 

22(e)(6)(i) Under the Act 

Rule 17Ad–22(e)(6)(i) under the Act 

requires that each covered clearing 

agency that provides central 

counterparty services, such as 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.63 The Commission believes that 

the proposal is consistent with Rule 

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

reasons stated below. 

As discussed above in Section IV.A, 

FICC’s proposed enhancement to the 

MLA Charge calculation and removal of 

the MLA Excess Amount from the GSD 

Rules would render FICC’s margin 

methodology more accurate than the 

current methodology by apportioning a 

higher MLA Charge to those Sponsored 

Member accounts with higher relative 

market impact costs. As a result, the 

proposal would better align the MLA 

Charge with the risk arising from 

position concentration in such 

Sponsored Member portfolios. The 

Commission has reviewed and analyzed 

the filing materials, including the 

Impact Study,64 and agrees that the 

proposed enhancement to the MLA 

Charge calculation and removal of the 

MLA Excess Amount from the GSD 

Rules would enable FICC to set margins 

that more accurately reflect the risks 

posed by such portfolios than the 

current methodology. As a result, 

implementing the Proposed Rule 

Change would better enable FICC to set 

margin amounts at levels commensurate 

with the risks associated with the 

portfolios of Sponsored Members that 

clear through multiple accounts 

sponsored by multiple Sponsoring 

Members. 

Accordingly, the Commission finds 

the Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(6)(i) under the 

Act because it 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 its 

Sponsored Member portfolios.65

D. Consistency With Rule 17Ad– 

22(e)(19) Under the Act 

Rule 17Ad–22(e)(19) under the Act 

requires that each covered clearing 

agency that provides central 

counterparty services, such as FICC, 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to identify, 

monitor, and manage the material risks 

to the covered clearing agency arising 

from arrangements in which firms that 

are indirect participants in the covered 

clearing agency rely on the services 

provided by direct participants to access 

the covered clearing agency’s payment, 

clearing, or settlement facilities.66 The 

Commission believes that the proposal 

is consistent with Rule 17Ad–22(e)(19) 


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67See id. 

68See id. 69 17 CFR 240.17Ad–22(e)(19). 

70 15 U.S.C. 78s(b)(2)(C)(iii). 

71See supra note 8. 

72 Id. 

73 15 U.S.C. 78q–1. 

74 15 U.S.C. 78s(b)(2). 

75 In approving the Proposed Rule Change, the 

Commission considered its impact on efficiency, 

competition, and capital formation. 15 U.S.C. 78c(f). 

under the Act for the reasons stated 

below. 

As discussed above in Section II.B, 

FICC’s Sponsored Service allows 

eligible members to sponsor their clients 

into a limited form of FICC membership 

such that a Sponsoring Member is 

permitted to submit to FICC, for 

comparison, novation, and netting, 

certain eligible securities transactions of 

its Sponsored Members. Sponsored 

Members are indirect FICC participants 

that rely on the services provided by 

direct FICC participants (i.e., 

Sponsoring Members) to access FICC’s 

clearance and settlement facilities.67

Therefore, Rule17Ad–22(e)(19) requires 

FICC to identify, monitor, and manage 

the material risks arising from the 

Sponsored Service.68

FICC’s proposals to amend the MLA 

Charge calculation and eliminate the 

MLA Excess Amount are designed to 

address the risks arising from Sponsored 

Members that clear through multiple 

accounts sponsored by multiple 

Sponsoring Members. As described 

above in Section II.B, for such 

Sponsored Members, FICC currently 

calculates an MLA Charge for each 

Sponsored Member account on both a 

stand-alone and consolidated portfolio 

basis, ultimately applying whichever 

MLA Charge calculation is greater to the 

Sponsored Member’s margin. FICC has 

identified an opportunity to amend the 

MLA Charge calculation for such 

Sponsored Members to better align the 

amount of the MLA Charge with the 

market impact cost arising from position 

concentration in the Sponsored 

Member’s respective Sponsored Member 

accounts. Specifically, the revised 

calculation would apportion a higher 

MLA Charge to those Sponsored 

Member accounts with higher relative 

market impact costs than the current 

calculation. The proposed change 

would also enable FICC to simplify its 

margin methodology by eliminating the 

MLA Excess Amount from the GSD 

Rules because the enhancement would 

address the additional market impact 

cost that the MLA Excess Amount was 

originally designed to address. As 

discussed above in Section IV.A, the 

Commission believes that 

implementation of these proposals 

would help facilitate FICC’s ability to 

set margins that more accurately and 

efficiently reflect the risks posed by the 

portfolios of Sponsored Members that 

clear through multiple Sponsoring 

Members. 

Accordingly, the Commission believes 

that by improving FICC’s margin 

methodology with respect to FICC’s 

Sponsored Members, the Proposed Rule 

Change would help FICC better manage 

the material risks arising from the 

Sponsored Service, consistent with Rule 

17Ad–22(e)(19).69

V. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning whether 

Amendment No. 1 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–2023–012 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–2023–012. 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 such 

filings will also be available for 

inspection and copying at the principal 

office of FICC and FICC’s website at 

https://www.dtcc.com/legal. 

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–2023–012 and 

should be submitted on or before 

October 24, 2023. 

VI. Accelerated Approval of the 

Proposed Rule Change, as Modified by 

Amendment No. 1 

The Commission finds good cause, 

pursuant to Section 19(b)(2)(C)(iii) of 

the Act,70 to approve the Proposed Rule 

Change, as modified by Amendment No. 

1, prior to the thirtieth day after the date 

of publication of Amendment No. 1 in 

the Federal Register. As noted above, in 

Amendment No. 1, FICC updated the 

Exhibit 3b 71 to the Proposed Rule 

Change to add a missing description of 

a term used in a calculation and to 

remove an unnecessary chart. 

Amendment No. 1 neither modifies the 

Proposed Rule Change as originally 

published in any substantive manner, 

nor does Amendment No. 1 affect any 

rights or obligations of FICC or its 

members. Instead, Amendment No. 1 

makes technical changes to clarify 

Exhibit 3b. Additionally, since FICC 

filed Amendment No. 1 on August 22, 

2023, the Commission has had sufficient 

time to review and consider 

Amendment No. 1 as part of its analysis 

of the Proposed Rule Change. 

Accordingly, the Commission finds 

good cause, pursuant to Section 

19(b)(2)(C)(iii) of the Act,72 to approve 

the Proposed Rule Change, as modified 

by Amendment No. 1, prior to the 

thirtieth day after the date of 

publication of notice of Amendment No. 

1 in the Federal Register. 

VII. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change, as modified by 

Amendment No. 1, is consistent with 

the requirements of the Act and in 

particular with the requirements of 

Section 17A of the Act 73 and the rules 

and regulations promulgated 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 74 that 

proposed rule change SR–FICC–2023– 

012, be, and hereby is, approved.75


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76 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The term ‘‘Lead Market Maker’’ applies to 

transactions for the account of a Lead Market Maker 

(as defined in Options 2, Section 12(a)). A Lead 

Market Maker is an Exchange member who is 

registered as an options Lead Market Maker 

pursuant to Options 2, Section 12(a). An options 

Lead Market Maker includes a Remote Lead Market 

Maker which is defined as an options Lead Market 

Maker in one or more classes that does not have a 

physical presence on an Exchange floor and is 

approved by the Exchange pursuant to Options 2, 

Section 11. 

4The term ‘‘Market Maker’’ is defined in Options 

1, Section 1(b)(28) as a member of the Exchange 

who is registered as an options Market Maker 

pursuant to Options 2, Section 12(a). A Market 

Maker includes SQTs and RSQTs as well as Floor 

Market Makers. 

5The term ‘‘Directed Market Maker’’ means a 

Market Maker that receives a Directed Order in 

accordance with Options 2, Section 10. 

6The term ‘‘Directed Order’’ means any order to 

buy or sell which has been directed to a particular 

Lead Market Maker, RSQT, or SQT by an Order 

Flow Provider, as defined in Options 2, Section 10. 

To qualify as a Directed Order, an order must be 

delivered to the Exchange via the System. 

7Options 7, Section 5 sets forth pricing for index 

and singly listed options (includes options 

overlying FX Options, equities, ETFs, ETNs, and 

indexes not listed on another exchange). 

8 15 U.S.C. 78f(b). 

9 15 U.S.C. 78f(b)(4) and (5). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21783 Filed 10–2–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98561; File No. SR–Phlx– 

2023–44] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Pricing 

Schedule at Options 7, Section 4 

Regarding Marketing Fees 

September 27, 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 

September 13, 2023, Nasdaq PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘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 

The Exchange proposes to a proposal 

to amend its Pricing Schedule at 

Options 7, Section 4. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, at the principal 

office of the Exchange, 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 amend the 

Exchange’s Pricing Schedule at Options 

7, Section 4 to specify the application of 

its marketing fees. Today, the Exchange 

delineates pricing for multiply-listed 

options in Options 7, Section 4, 

including marketing fees (‘‘Marketing 

Fees’’). The Marketing Fees for 

multiply-listed options are assessed on 

Lead Market Makers,3 Market Makers,4

and Directed Market Makers 5 for trades 

resulting from either Directed or nonDirected Customer Orders 6 that are 

delivered electronically and executed 

on the Exchange, with certain specified 

exceptions, including the exclusion of 

transactions in broad-based index 

options symbols listed in Options 7, 

Section 5.A. 

The Exchange now proposes to amend 

the rule to specify that no Marketing 

Fees will be assessed on transactions in 

options symbols subject to Options 7, 

Section 5 pricing 7 to make clear that the 

exclusion also applies to all singly listed 

options subject to pricing in Options 7, 

Section 5.C and Options 7, Section 5.D 

(in addition to broad-based index 

options symbols in Options 7, Section 

5.A, as currently specified). The 

Exchange notes that this is not a change 

to current practice; rather, the proposed 

changes are intended to memorialize 

how the Exchange currently assesses 

Marketing Fees. Today, the Exchange 

already indicates in the header of 

Options 7, Section 4 that the pricing set 

forth in Section 4 (including Marketing 

Fees) applies only to multiply listed 

options excluding SPY and the broadbased index options in Options 7, 

Section 5.A. Section 4 specifically 

excludes the broad-based index options 

in Options 7, Section 5.A because some 

of the symbols (like NDX) are multiply 

listed. Furthermore, Options 7, Section 

5 specifically indicates that the pricing 

set forth in this Section 5 applies to 

index options and singly listed options. 

By implication, options that are singly 

listed on Phlx, and that are subject to 

Options 7, Section 5.C and Section 5.D 

pricing are excluded from Options 7, 

Section 4 pricing like the Marketing 

Fees. However, the Exchange believes 

that further clarity will be helpful by 

explicitly stating this exclusion in the 

Marketing Fees portion of Section 4 to 

avoid potential confusion by market 

participants and investors. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,8 in general, and furthers the 

objectives of Sections 6(b)(4) and 6(b)(5) 

of the Act,9 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees, and other charges 

among members and issuers and other 

persons using any facility, and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Exchange believes that the 

proposed changes in Options 7, Section 

4 to specify that no Marketing Fees will 

be assessed on transactions in options 

symbols subject to Options 7, Section 5 

pricing are reasonable because the 

changes will make clear that the 

exclusion also applies to all singly listed 

options subject to pricing in Options 7, 

Section 5.C and Options 7, Section 5.D 

(in addition to broad-based index 

options symbols in Options 7, Section 

5.A, as currently specified). As 

discussed above, the proposed changes 

will not amend current practice; rather, 

the proposed changes are intended to 

memorialize how the Exchange 

currently assesses Marketing Fees. 

While the Exchange already indicates 

which sections of its Pricing Schedule 

apply to which options in the manner 

discussed above, the Exchange believes 

that further clarity will be helpful by 

explicitly stating in the Marketing Fees 

pricing program itself that all symbols 

subject to Options 7, Section 5 pricing 


ddrumheller on DSK120RN23PROD with NOTICES1