Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices 78401 

14 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

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– 

NYSEAMER–2023–56 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–NYSEAMER–2023–56. 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–NYSEAMER–2023–56 and should 

be submitted on or before December 6, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–25105 Filed 11–14–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98893; File No. SR– 

NYSENAT–2023–25] 

Self-Regulatory Organizations; NYSE 

National, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 7.31 

November 9, 2023. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on October 

31, 2023, NYSE National, Inc. (‘‘NYSE 

National’’ or the ‘‘Exchange’’) 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 selfregulatory organization. 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 amend 

Rule 7.31 to provide for the use of ALO 

Reserve Orders. The proposed rule 

change is available on the Exchange’s 

website at www.nyse.com, 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 

self-regulatory organization 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 those 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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend 

Rule 7.31 to provide for the use of ALO 

Reserve Orders. 

ALO Orders 

Rule 7.31(e)(2) defines an ALO Order 

as a Non-Routable Limit Order that, 

unless it receives price improvement, 

will not remove liquidity from the 

Exchange Book. An ALO Order can be 

designated to be cancelled if it would be 

displayed at a price other than its limit 

price for any reason. An ALO Order can 

be designated as non-displayed. 

As described in Rule 7.31(e)(2)(A), an 

Aggressing ALO Order to buy (sell) will 

trade if its limit price crosses the 

working price of any displayed or nondisplayed orders to sell (buy) on the 

Exchange Book priced equal to or below 

(above) the PBO (PBB) of an Away 

Market, in which case it will trade as 

the liquidity taker with such orders. 

As noted above, Rule 7.31(e)(2) 

provides that an ALO Order may be 

designated to cancel if it would be 

displayed at a price other than its limit 

price. If an ALO Order is not so 

designated, any untraded quantity of 

such order to buy (sell) is processed as 

follows (Rules 7.31(e)(2)(B)(i) and (ii)): 

• If the limit price of the ALO Order 

locks the display price of any order to 

sell (buy) ranked Priority 2—Display 

Orders on the Exchange Book, it will 

have a working price and display price 

(if designated to display) one MPV 

below (above) the price of the displayed 

order on the Exchange Book. 

• If the limit price of the ALO Order 

locks or crosses the PBO (PBB) of an 

Away Market, it will have a working 

price equal to the PBO (PBB) of the 

Away Market and a display price (if 

designated to display) one MPV below 

(above) the PBO (PBB) of the Away 

Market. 

Rule 7.31(e)(2)(C) provides that any 

untraded quantity of an ALO Order to 

buy (sell) will have a working price and 

display price (if designated to display) 

equal to its limit price if it locks nondisplayed orders to sell (buy) on the 

Exchange Book. Rule 7.31(e)(2)(D) 

provides that an ALO Order to buy (sell) 

will not be assigned a working price or 

display price above (below) the limit 

price of such order. 

Once resting on the Exchange Book, 

ALO Orders may be re-priced or trade, 

or both, as described in Rule 

7.31(e)(2)(E): 

• If order(s) to sell (buy) ranked 

Priority 2—Display Orders or the PBO 

(PBB) of an Away Market re-prices 

higher (lower), an ALO Order to buy 

(sell) will trade or be priced, or both, 

consistent with Rules 7.31(e)(2)(A), 

(e)(2)(B)(i) and (ii), and (e)(2)(C). 

• If the PBO (PBB) of an Away Market 

re-prices lower (higher) to be equal to or 

lower (higher) than its last display price 


ddrumheller on DSK120RN23PROD with NOTICES1
78402 Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices 

4The Exchange does not propose to allow nondisplayed ALO Orders to be designated as Reserve 

Orders, given that a Reserve Order must have both 

displayed and non-displayed portions, and thus 

proposes to amend Rule 7.31(e)(2) to specify 

accordingly. 

or if its limit price no longer locks or 

crosses the PBO (PBB) of the Away 

Market, an ALO Order to buy (sell) will 

be priced pursuant to Rules 

7.31(e)(1)(A)(ii)(c) and (d). If the PBO 

(PBB) of an Away Market re-prices 

lower (higher) than the working price of 

a non-displayed ALO Order to buy 

(sell), such order will have a working 

price equal to the PBO (PBB) of the 

Away Market. 

Reserve Orders 

Rule 7.31(d)(1) provides for Reserve 

Orders, which are Limit or Inside Limit 

Orders with a quantity of the size 

displayed and with a reserve quantity 

(‘‘reserve interest’’) of the size that is not 

displayed. The displayed quantity of a 

Reserve Order is ranked Priority 2— 

Display Orders, and the reserve interest 

is ranked Priority 3—Non-Display 

Orders. Both the display quantity and 

the reserve interest of an arriving 

marketable Reserve Order are eligible to 

trade with resting interest in the 

Exchange Book or to route to Away 

Markets. The working price of the 

reserve interest of a resting Reserve 

Order will be adjusted in the same 

manner as a Non-Displayed Limit Order, 

as provided for in Rule 7.31(d)(2)(A). 

As described in Rule 7.31(d)(1)(A), 

the display quantity of a Reserve Order 

must be entered in round lots, and the 

displayed portion of a Reserve Order 

will be replenished when the display 

quantity is decremented to below a 

round lot. The replenish quantity will 

be the minimum display size of the 

order or the remaining quantity of the 

reserve interest if it is less than the 

minimum display quantity. 

Rule 7.31(d)(1)(B) provides that each 

time the display quantity of a Reserve 

Order is replenished from reserve 

interest, a new working time is assigned 

to the replenished quantity (each 

display quantity with a different time is 

referred to as a ‘‘child’’ order), while the 

reserve interest retains the working time 

of the original order entry. In addition, 

when a Reserve Order is replenished 

from reserve interest and already has 

two child orders that equal less than a 

round lot, the child order with the later 

working time will rejoin the reserve 

interest and be assigned the new 

working time assigned to the next 

replenished quantity. If a Reserve Order 

is not routable, the replenish quantity 

will be assigned a display and working 

price consistent with the instructions 

for the order. 

Rule 7.31(d)(1)(C) provides that a 

Reserve Order must be designated Day 

and may only be combined with a NonRoutable Limit Order or Primary Pegged 

Order. Rule 7.31(d)(1)(C) also currently 

provides that a Reserve Order may not 

be designated as an ALO Order. 

Rule 7.31(d)(1)(D) provides that 

routable Reserve Orders will be 

evaluated for routing both on arrival and 

each time their display quantity is 

replenished. 

Rule 7.31(d)(1)(E) provides that a 

request to reduce the size of a Reserve 

Order will cancel the reserve interest 

before cancelling the display quantity, 

and, if the Reserve Order has more than 

one child order, the child order with the 

latest working time will be cancelled 

first. 

Rule 7.31(d)(1)(F) provides that, if the 

PBBO is crossed and the display 

quantity of a Reserve Order to buy (sell) 

that is a Non-Routable Limit Order is 

decremented to less than a round lot, 

the display price and working price of 

such Reserve Order will not change and 

the reserve interest that replenishes the 

display quantity will be assigned a 

display price one MPV below (above) 

the PBO (PBB) and a working price 

equal to the PBO (PBB). Rule 

7.31(d)(1)(F) further provides that, when 

the PBBO uncrosses, the display price 

and working price will be adjusted as 

provided for under Rule 7.31(e)(1) 

relating to Non-Routable Limit Orders. 

ALO Reserve Orders 

The Exchange proposes to amend 

Rule 7.31 to provide for the use of ALO 

Reserve Orders. The proposed change is 

not intended to introduce any new 

functionality or modify any current 

functionality, but rather to facilitate the 

combination of two order types 

currently offered by the Exchange. As 

proposed, ALO Reserve Orders would, 

except as otherwise noted, operate 

consistent with current Rule 7.31(d)(1) 

regarding Reserve Orders and current 

Rule 7.31(e)(2) regarding ALO Orders. 

To allow for the use of ALO Reserve 

Orders, the Exchange first proposes to 

amend Rule 7.31(d)(1)(C) to delete the 

last sentence of such rule, which 

currently provides that a Reserve Order 

may not be designated as an ALO Order. 

The proposed change is intended to 

allow ALO Orders, as described in Rule 

7.31(e)(2) and the paragraphs 

thereunder,4 to have a displayed 

quantity, along with non-displayed 

reserve interest, as described in Rule 

7.31(d)(1). The display quantity of an 

ALO Reserve Order would be 

replenished as provided in Rules 

7.31(d)(1)(A) and (B). As ALO Reserve 

Orders are non-routable, under Rule 

7.31(d)(1)(B)(ii), the replenish quantity 

of an ALO Reserve Order would be 

assigned a display price and working 

price consistent with the behavior of 

ALO Orders as described in current 

Exchange rules. 

Aggressing ALO Reserve Orders 

would trade in accordance with current 

Rule 7.31(e)(2)(A). If an ALO Reserve 

Order is designated to cancel, it will 

cancel if it would be displayed at a price 

other than its limit price for any reason, 

as described in Rule 7.31(e)(2). 

Otherwise, any untraded quantity of an 

ALO Reserve Order would continue to 

be processed as ALO Orders are 

currently, as described in Rules 

7.31(e)(2)(B) and (C). Similarly, the 

working price of the reserve interest of 

a resting ALO Reserve Order would be 

adjusted as provided for in Rule 

7.31(d)(1) (i.e., in accordance with Rule 

7.31(d)(2)(A)). Rule 7.31(d)(1)(E) would 

also apply to requests to reduce the size 

of ALO Reserve Orders. 

As described in Rule 7.31(d)(1)(F), 

when the PBBO is crossed and the 

display quantity of an ALO Reserve 

Order to buy (sell) is decremented to 

less than a round lot, the display price 

and working price of the order would 

not change, but the reserve interest that 

replenishes the display quantity would 

be assigned a display price one MPV 

below (above) the PBO (PBB) and a 

working price equal to the PBO (PBB). 

The Exchange proposes to amend Rule 

7.31(d)(1)(F) to add new rule text 

describing how the display price and 

working price of an ALO Reserve Order 

would be adjusted when a previously 

crossed PBBO uncrosses. Specifically, 

the Exchange proposes to add text to the 

last sentence of Rule 7.31(d)(1)(F) 

providing that the display price and 

working price of an ALO Reserve Order 

would be adjusted in accordance with 

Rule 7.31(e)(2)(E), which describes how 

ALO Orders resting on the Exchange 

Book are repriced and/or traded. 

Because ALO Orders behave differently 

from other Non-Routable Limit Orders 

and may only trade when they receive 

price improvement, the Exchange 

proposes to add text to Rule 

7.31(e)(2)(F) clarifying that ALO Reserve 

Orders would have their display price 

and working price adjusted consistent 

with the rules applicable to ALO Orders 

when the PBBO uncrosses. 

The proposed change is intended to 

facilitate the combined use of two 

existing order types available on the 

Exchange, thereby providing ETP 

Holders with enhanced flexibility and 

optionality when trading on the 

Exchange. The proposed change could 

also promote increased liquidity and 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices 78403 

5See, e.g., MEMX Rules 11.8(b)(4) and (7) 

(providing that a Limit Order may include a reserve 

quantity and may be designated with a Post Only 

instruction); see also MEMX User Manual, available 

at https://info.memxtrading.com/wp-content/ 

uploads/2023/03/MEMX-User-Manual-03.10.23.pdf, 

at 9 (providing that a Limit Order designated Day 

may have both reserve quantity and Post Only 

instructions). 

6 15 U.S.C. 78f(b). 

7 15 U.S.C. 78f(b)(5). 

8See note 5, supra. 

9See id. 

10 15 U.S.C. 78s(b)(3)(A)(iii). 

11 17 CFR 240.19b–4(f)(6). 

12 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6) requires a self-regulatory organization to 

give the Commission written notice of its intent to 

file the proposed rule change at least five business 

days prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 13 15 U.S.C. 78s(b)(2)(B). 

trading opportunities on the Exchange, 

to the benefit of all market participants. 

The Exchange also believes the 

proposed change would permit the 

Exchange to offer functionality already 

available on at least one other equities 

exchange, thereby promoting 

competition among equities exchanges.5

Because of the technology changes 

associated with this proposed rule 

change, the Exchange will announce the 

implementation date by Trader Update, 

which, subject to effectiveness of this 

proposed rule change, will be in the 

fourth quarter of 2023. 

2. Statutory Basis 

The proposed rule change is 

consistent with Section 6(b) of the Act,6

in general, and furthers the objectives of 

Section 6(b)(5),7 in particular, because it 

is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Exchange believes that the 

proposed rule change is designed to 

remove impediments to and perfect the 

mechanism of a free and open market 

because it would allow for the 

combined use of two existing order 

types available on the Exchange and 

permit the Exchange to offer 

functionality similar to that already 

available on at least one other equities 

exchange.8 ETP Holders would be free 

to choose to use the proposed ALO 

Reserve Order type or not, and the 

proposed change would not otherwise 

impact the operation of the Reserve 

Order or ALO Order as described in 

current Exchange rules. The Exchange 

also believes that the proposed rule 

change would remove impediments to 

and perfect the mechanism of a free and 

open market, as well as protect investors 

and the public interest, by expanding 

the options available to ETP Holders 

when trading on the Exchange and 

promoting increased liquidity and 

additional trading opportunities for all 

market participants. 

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 purposes of the Act. In addition, 

as noted above, Exchange believes the 

proposed rule change would allow the 

Exchange to offer functionality already 

available on at least one other equities 

exchange 9 and thus would promote 

competition among equities exchanges. 

The Exchange also believes that, to the 

extent the proposed change increases 

opportunities for order execution, the 

proposed change would promote 

competition by making the Exchange a 

more attractive venue for order flow and 

enhancing market quality for all market 

participants. 

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 

The Exchange has filed the proposed 

rule change pursuant to Section 

19(b)(3)(A)(iii) of the Act 10 and Rule 

19b–4(f)(6) thereunder.11 Because the 

proposed rule change does not: (i) 

significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

prior to 30 days from the date on which 

it was filed, or such shorter time as the 

Commission may designate, if 

consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

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

of the Act and Rule 19b–4(f)(6)(iii) 

thereunder.12

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) 13 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSENAT–2023–25 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–NYSENAT–2023–25. 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 


ddrumheller on DSK120RN23PROD with NOTICES1
78404 Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 985925 

(Sept. 28, 2023), 88 FR 68803 (Oct. 4, 2023) (File 

No. SR–FICC–2023–014) (‘‘Notice of Filing’’). 

4Capitalized terms not defined herein are defined 

in the GSD Rulebook (‘‘GSD Rules’’), available at 

https://www.dtcc.com/∼/media/Files/Downloads/ 

legal/rules/ficc_gov_rules.pdf, or the MBSD 

Rulebook (‘‘MBSD Rules’’), available at https://

www.dtcc.com/∼/media/Files/Downloads/legal/ 

rules/ficc_mbsd_rules.pdf. 

5 GSD and MBSD maintain separate sets of rules, 

margin models, and clearing funds. 

6See GSD Rule 4 and MBSD Rule 4, supra note 

4 (requiring members to make Required Fund 

Deposits to the GSD and MBSD Clearing Funds, as 

applicable, with the amount of each member’s 

deposit being determined by FICC in accordance 

with these rules). 

7The GSD Rules and MBSD Rules each 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) and MBSD 

Rule 14 (Restrictions on Access to Services), supra 

note 4. 

8See GSD Rule 4, Section 3 (Form of Deposit) and 

MBSD Rule 4, Section 3 (Form of Deposit), supra 

note 4. 

9See GSD Rule 1 and MBSD Rule 1 (defining 

what constitutes Eligible Clearing Fund Securities 

and the components thereof, which are Eligible 

Clearing Fund Agency Securities, Eligible Clearing 

Fund Mortgage-Backed Securities, and Eligible 

Clearing Fund Treasury Securities), supra note 4. 

10See GSD Rule 4, Section 3b and MBSD Rule 4, 

Section 3b, supra note 4 (referencing the 

applicability of haircuts and concentration limits to 

certain types of Eligible Clearing Fund Securities). 

11Notice of Filing, supra note 3, 88 FR at 68804. 

12 Id. 

13See Schedule of Haircuts for Eligible Clearing 

Fund Securities in the GSD Rules and MBSD Rules, 

supra note 4. The Schedule of Haircuts for Eligible 

Clearing Fund Securities in the GSD Rules and 

MBSD Rules was last modified in 2011 in order to 

harmonize with the increased haircuts on clearing 

fund collateral at the National Securities Clearing 

Corporation, an affiliate of FICC. See Securities 

Exchange Act Release No. 64488 (May 13, 2011), 76 

FR 29018 (May 19, 2011) (SR–FICC–2011–03). 

14Notice of Filing, supra note 3, 88 FR at 68804. 

FICC also filed excerpts from its internal market 

risk management procedures as Confidential 

Exhibit 3b to its filing. 

15 Id. 

16 Id. 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSENAT–2023–25 and should be 

submitted on or before December 6, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–25203 Filed 11–14–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98882; File No. SR–FICC– 

2023–014] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Approving Proposed Rule Change 

Relating to the GSD and MBSD 

Schedules of Haircuts for Eligible 

Clearing Fund Securities 

November 8, 2023. 

I. Introduction 

On September 22, 2023, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–FICC–2023–014 to 

modify the GSD and MBSD Schedules 

of Haircuts for Eligible Clearing Fund 

Securities, and to remove them and the 

related concentration limits from the 

respective Rules, and make other 

clarifying changes (‘‘Proposed Rule 

Change’’), pursuant to section 19(b)(1) of 

the Securities Exchange Act of 1934 

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

The Proposed Rule Change was 

published for comment in the Federal 

Register on October 4, 2023.3 The 

Commission has received no comments 

on the Proposed Rule Change. For the 

reasons discussed below, the 

Commission is approving the Proposed 

Rule Change.4

II. Background 

FICC is a central counterparty 

(‘‘CCP’’), which means it interposes 

itself as the buyer to every seller and 

seller to every buyer for the financial 

transactions it clears. FICC’s 

Government Securities Division 

(‘‘GSD’’) provides CCP services for the 

U.S. Government securities market, and 

FICC’s Mortgage Backed-Securities 

Division (‘‘MBSD’’) provides CCP 

services for the U.S. mortgage-backed 

securities markets.5 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 margin (referred 

to as ‘‘Required Fund Deposit’’ in the 

GSD and MBSD Rules) from each 

member.6 The aggregated amount of all 

GSD and MBSD members’ margin 

constitutes the GSD Clearing Fund and 

MBSD Clearing Fund. The objective of 

the GSD and MBSD Clearing Funds 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 FICC would be able to 

access the 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. 

A member may provide its required 

margin in the form of cash or an open 

account indebtedness secured by 

Eligible Clearing Fund Securities.8

Eligible Clearing Fund Securities are 

defined to include certain agency, 

mortgage-backed, and Treasury 

securities.9 These securities are valued 

based on the prior Business Day’s 

closing market price, less a haircut, and 

may be subject to a concentration 

limit.10 FICC states that haircuts are 

used to protect FICC and its members 

from price fluctuations, i.e., if FICC is 

required to liquidate collateral of an 

insolvent member and such collateral is 

worth less at the time of liquidation 

than when it is pledged to FICC.11 FICC 

also states that concentration limits are 

intended to reduce FICC’s risk by 

limiting the percentage of certain types 

of Eligible Clearing Fund Securities 

pledged by members to secure the 

Clearing Fund deposits, because when a 

member’s portfolio contains large net 

unsettled positions in a particular group 

of securities with a similar risk profile 

or in a particular asset type, such 

securities could present additional risk 

to FICC.12

Currently, collateral haircuts 

applicable to relevant security types and 

remaining maturity terms are specified 

as fixed percentages in the Schedule of 

Haircuts for Eligible Clearing Fund 

Securities in the GSD Rules and MBSD 

Rules.13 According to FICC and set forth 

in its internal risk management 

procedures, the sufficiency of collateral 

haircuts is evaluated through use of 

back-tests, stress-tests and market 

observations.14 Specifically, FICC 

conducts daily backtesting analysis by 

comparing the collateral haircut for each 

member in simulated liquidations with 

the member’s actual collateral held on 

deposit at FICC.15 FICC escalates any 

exceptions that it observes to assess the 

root cause and determine whether 

further analysis and/or review would be 

appropriate, taking into account 

whether a particular security may 

present inherent volatility and/or 

liquidity risks that could likely result in 

an erosion in the value of the security 

exceeding the applicable collateral 

haircut.16 On a quarterly basis, FICC 

reviews the composition of the Eligible 

Clearing Fund Securities that members 

have pledged to secure their Required 


ddrumheller on DSK120RN23PROD with NOTICES1