Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 38413 

54 17 CFR 240.17Ad–22(e)(23)(i). 

1 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b– 

4(n)(1)(i), respectively. On December 18, 2017, FICC 

filed the Advance Notice as a proposed rule change 

(SR–FICC–2017–021) with the Commission 

pursuant to Section 19(b)(1) of the Act and Rule 

19b–4 thereunder (‘‘Proposed Rule Change’’). (17 

CFR 240.19b–4 and 17 CFR 240.19b–4, 

respectively.) The Proposed Rule Change was 

published in the Federal Register on January 8, 

2018. See Securities Exchange Act Release No. 

82431 (January 2, 2018), 83 FR 871 (January 8, 

2018) (SR–FICC–2017–021). On February 8, 2018, 

the Commission designated a longer period within 

which to approve, disapprove, or institute 

proceedings to determine whether to approve or 

disapprove the Proposed Rule Change. See 

Securities Exchange Act Release No. 82669 

(February 8, 2018), 83 FR 6653 (February 14, 2018) 

Continued 

are designed to enhance the resiliency 

of each Division’s loss allocation 

process. Having a resilient loss 

allocation process would help ensure 

that each Division can effectively and 

timely address losses relating to or 

arising out of either the default of one 

or more members or one or more nondefault loss events, which in turn would 

help each Division contain losses and 

continue to meet its clearance and 

settlement obligations. Therefore, FICC 

believes that the proposed rule changes 

to enhance the resiliency of each 

Division’s loss allocation process are 

consistent with Rule 17Ad–22(e)(13) 

under the Act. 

Rule 17Ad–22(e)(23)(i) under the Act 

requires FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

publicly disclose all relevant rules and 

material procedures, including key 

aspects of each Division’s default rules 

and procedures.54 The proposed rule 

changes to (i) align the loss allocation 

rules of the DTCC Clearing Agencies, (ii) 

improve the overall transparency and 

accessibility of the provisions in the 

Rules governing loss allocation and (iii) 

make conforming and technical 

changes, would not only ensure that 

each Division’s loss allocation rules are, 

to the extent practicable and 

appropriate, consistent with the loss 

allocation rules of other DTCC Clearing 

Agencies, but also would help to ensure 

that each Division’s loss allocation rules 

are transparent and clear to members. 

Aligning the loss allocation rules of the 

DTCC Clearing Agencies would provide 

consistent treatment, to the extent 

practicable and appropriate, especially 

for firms that are participants of two or 

more DTCC Clearing Agencies. Having 

transparent and clear loss allocation 

rules would enable members to better 

understand the key aspects of each 

Division’s default rules and procedures 

and provide members with increased 

predictability and certainty regarding 

their exposures and obligations. As 

such, FICC believes that the proposed 

rule changes to align the loss allocation 

rules of the DTCC Clearing Agencies as 

well as to improve the overall 

transparency and accessibility of each 

Division’s loss allocation rules are 

consistent with Rule 17Ad–22(e)(23)(i) 

under the Act. 

III. Date of Effectiveness of the Advance 

Notice, and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received. The clearing 

agency shall not implement the 

proposed change if the Commission has 

any objection to the proposed change. 

A proposed change may be 

implemented in less than 60 days from 

the date the advance notice is filed, or 

the date further information requested 

by the Commission is received, if the 

Commission notifies the clearing agency 

in writing that it does not object to the 

proposed change and authorizes the 

clearing agency to implement the 

proposed change on an earlier date, 

subject to any conditions imposed by 

the Commission. 

The clearing agency shall post notice 

on its website of proposed changes that 

are implemented. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing. 

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–2017–806 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FICC–2017–806. 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 Advance Notice that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notice between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

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

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FICC– 

2017–806 and should be submitted on 

or before August 21, 2018. 

By the Commission. 

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2018–16709 Filed 8–3–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83744; File No. SR–FICC– 

2017–805] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Amendment No. 1 to an 

Advance Notice To Adopt a Recovery 

& Wind-Down Plan and Related Rules 

July 31, 2018. 

On December 18, 2017, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2017–805 (‘‘Advance 

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

Title VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) and Rule 

19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Act’’).1 The 


sradovich on DSK3GMQ082PROD with NOTICES
38414 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 

(SR–DTC–2017–021; SR–FICC–2017–021; SR– 

NSCC–2017–017). On March 20, 2018, the 

Commission instituted proceedings to determine 

whether to approve or disapprove the Proposed 

Rule Change. See Securities Exchange Act Release 

No. 82913 (March 20, 2018), 83 FR 12997 (March 

26, 2018) (SR–FICC–2017–021). On June 25, 2018, 

the Commission designated a longer period for 

Commission action on the proceedings to determine 

whether to approve or disapprove the Proposed 

Rule Change. Therefore, September 5, 2018 is the 

date by which the Commission should either 

approve or disapprove the Proposed Rule Change. 

See Securities Exchange Act Release No. 83509 

(June 25, 2018), 83 FR 30785 (June 29, 2018) (SR– 

DTC–2017–021; SR–FICC–2017–021; SR–NSCC– 

2017–017). On June 28, 2018, FICC filed 

Amendment No. 1 to the Proposed Rule Change. 

See Securities Exchange Act Release No. 83630 

(July 13, 2018), 83 FR 34213 (July 19, 2018) (SR– 

FICC–2017–021). As of the date of this release, the 

Commission has not received any comments on the 

Proposed Rule Change. 

2Securities Exchange Act Release No. 82580 

(January 24, 2018), 83 FR 4341 (January 30, 2018) 

(SR–FICC–2017–805). Pursuant to Section 

806(e)(1)(H) of the Clearing Supervision Act, the 

Commission may extend the review period of an 

advance notice for an additional 60 days, if the 

changes proposed in the advance notice raise novel 

or complex issues, subject to the Commission 

providing the clearing agency with prompt written 

notice of the extension. 12 U.S.C. 5465(e)(1)(H). The 

Commission found that the Advance Notice raised 

novel and complex issues and, accordingly, 

extended the review period of the Advance Notice 

for an additional 60 days until April 17, 2018, 

pursuant to Section 806(e)(1)(H). Id. 

3 12 U.S.C. 5465(e)(1)(D); see Memorandum from 

the Office of Clearance and Settlement Supervision, 

Division of Trading and Markets, titled 

‘‘Commission’s Request for Additional 

Information,’’ available at https://www.sec.gov/ 

rules/sro/ficc-an.htm. 

4To promote the public availability and 

transparency of its post-notice amendment, FICC 

submitted a copy of Amendment No. 1 through the 

Commission’s electronic public comment letter 

mechanism. Accordingly, Amendment No. 1 has 

been posted on the Commission’s website at https:// 

www.sec.gov/rules/sro/ficc-an.htm and thus been 

publicly available since June 29, 2018. 

5 12 U.S.C. 5465(e)(1)(E) and (G); see 

Memorandum from the Office of Clearance and 

Settlement Supervision, Division of Trading and 

Markets, titled ‘‘Response to the Commission’s 

Request for Additional Information,’’ available at 

https://www.sec.gov/rules/sro/ficc-an.htm. 

6 17 CFR 240.17Ad–22(e)(3)(ii). 

7The GSD Rules and the MBSD Rules are referred 

to collectively herein as the ‘‘Rules.’’ Capitalized 

terms not defined herein are defined in the Rules. 

The Rules and the EPN Rules are available at http:// 

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

8References herein to ‘‘Members’’ refer to GSD 

Netting Members and MBSD Clearing Members. 

References herein to ‘‘Limited Members’’ refer to 

participants of GSD or MBSD other than GSD 

Netting Members and MBSD Clearing Members, 

including, for example, GSD Comparison-Only 

Members, GSD Sponsored Members, GSD CCIT 

Members, and MBSD EPN Users. 

9See Securities Exchange Act Release No. 82580 

(January 24, 2018), 83 FR 4341 (January 30, 2018) 

(SR–FICC–2017–805). 

notice of filing and extension of the 

review period of the Advance Notice 

was published for comment in the 

Federal Register on January 30, 2018.2

On April 10, 2018, the Commission 

required additional information from 

FICC pursuant to Section 806(e)(1)(D) of 

the Clearing Supervision Act, which 

tolled the Commission’s period of 

review of the Advance Notice.3 On June 

28, 2018, FICC filed Amendment No. 1 

to the Advance Notice to amend and 

replace in its entirety the Advance 

Notice as originally submitted on 

December 18, 2017.4 On July 6, 2018, 

the Commission received a response to 

its request for additional information in 

consideration of the Advance Notice, 

which added a further 60-days to the 

review period pursuant to Section 

806(e)(1)(E) and (G) of the Clearing 

Supervision Act.5

The Advance Notice, as amended by 

Amendment No. 1, is described in Items 

I and II below, which Items have been 

prepared by FICC. The Commission is 

publishing this notice to solicit 

comments on the Advance Notice, as 

amended by Amendment No. 1, from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

The Advance Notice of FICC proposes 

to adopt the Recovery & Wind-down 

Plan of FICC (‘‘R&W Plan’’ or ‘‘Plan’’). 

The R&W Plan would be maintained by 

FICC in compliance with Rule 17Ad– 

22(e)(3)(ii) under the Act by providing 

plans for the recovery and orderly winddown of FICC necessitated by credit 

losses, liquidity shortfalls, losses from 

general business risk, or any other 

losses, as described below.6

The Advance Notice would also 

propose to (1) amend FICC’s 

Government Securities Division 

(‘‘GSD’’) Rulebook (‘‘GSD Rules’’) in 

order to (a) adopt Rule 22D (Wind-down 

of the Corporation) and Rule 50 (Market 

Disruption and Force Majeure), and (b) 

make conforming changes to Rule 3A 

(Sponsoring Members and Sponsored 

Members), Rule 3B (Centrally Cleared 

Institutional Triparty Service) and Rule 

13 (Funds-Only Settlement) related to 

the adoption of these Proposed Rules to 

the GSD Rules; (2) amend FICC’s 

Mortgage-Backed Securities Division 

(‘‘MBSD,’’ and, together with GSD, the 

‘‘Divisions’’) Clearing Rules (‘‘MBSD 

Rules’’) in order to (a) adopt Rule 17B 

(Wind-down of the Corporation) and 

Rule 40 (Market Disruption and Force 

Majeure); and (b) make conforming 

changes to Rule 3A (Cash Settlement 

Bank Members) related to the adoption 

of these Proposed Rules to the MBSD 

Rules; and (3) amend Rule 1 of the 

Electronic Pool Netting (‘‘EPN’’) Rules 

of MBSD (‘‘EPN Rules’’) in order to 

provide that EPN Users, as defined 

therein, are bound by proposed Rule 

17B (Wind-down of the Corporation) 

and proposed Rule 40 (Market 

Disruption and Force Majeure) to be 

adopted to the MBSD Rules.7 Each of 

the proposed rules is referred to herein 

as a ‘‘Proposed Rule,’’ and are 

collectively referred to as the ‘‘Proposed 

Rules.’’ 

The Proposed Rules are designed to 

(1) facilitate the implementation of the 

R&W Plan when necessary and, in 

particular, allow FICC to effectuate its 

strategy for winding down and 

transferring its business; (2) provide 

Members and Limited Members with 

transparency around critical provisions 

of the R&W Plan that relate to their 

rights, responsibilities and obligations; 8

and (3) provide FICC with the legal 

basis to implement those provisions of 

the R&W Plan when necessary, as 

described below. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the Advance Notice and discussed any 

comments it received on the Advance 

Notice. The text of these statements may 

be examined at the places specified in 

Item IV below. The clearing agency has 

prepared summaries, set forth in 

sections A and B below, of the most 

significant aspects of such statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants, 

or Others 

While FICC has not solicited or 

received any written comments relating 

to this proposal, FICC has conducted 

outreach to Members in order to provide 

them with notice of the proposal. FICC 

will notify the Commission of any 

written comments received by FICC. 

(B) Advance Notice Filed Pursuant to 

Section 806(e) of the Clearing 

Supervision Act 

Description of Amendment No. 1 

This filing constitutes Amendment 

No. 1 (‘‘Amendment’’) to the Advance 

Notice (also referred to below as the 

‘‘Original Filing’’) previously filed by 

FICC.9 FICC is amending the proposed 

R&W Plan and the Original Filing in 

order to clarify certain matters and make 

minor technical and conforming 

changes to the R&W Plan, as described 

below and as marked on Exhibit 4 

hereto. To the extent such changes to 

the Plan require changes to the Original 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 38415 

10See Securities Exchange Act Release No. 81105 

(July 7, 2017), 82 FR 32399 (July 13, 2017) (SR– 

DTC–2017–003, SR–FICC–2017–007, SR–NSCC– 

2017–004). 

11See id. 

12See GSD Rule 4 (Clearing Fund and Loss 

Allocation) and MBSD Rule 4 (Clearing Fund and 

Loss Allocation), supra note 7. FICC is proposing 

changes to Rule 4 regarding allocation of losses in 

a separate filing submitted simultaneously with the 

Original Filing. See Securities Exchange Act 

Release Nos. 82431 (January 2, 2018), 83 FR 871 

(January 8, 2018) (SR–FICC–2017–021) and 82580 

(January 24, 2018), 83 FR 4341 (January 30, 2018) 

(SR–FICC–2017–805) (collectively referred to herein 

as the ‘‘Loss Allocation Filing’’). FICC has 

submitted an amendment to the Loss Allocation 

Filing. A copy of the amendment to the Loss 

Allocation Filing is available at http:// 

Continued 

Filing, the information provided under 

‘‘Description of Proposed Changes’’ in 

the Original Filing has been amended 

and is restated in its entirety below. 

Other sections of the Original Filing are 

unchanged and are restated in their 

entity for convenience. 

First, this Amendment would clarify 

the meaning of the terms ‘‘cease to act,’’ 

‘‘Member default,’’ ‘‘Defaulting 

Member,’’ and ‘‘Member Default Losses’’ 

as such terms are used in the Plan. This 

Amendment would also make 

conforming changes as necessary to 

reflect the uses of these terms. 

Second, this Amendment would 

clarify that actions and tools described 

in the Plan that are available in one 

phase of the Crisis Continuum may be 

used in subsequent phases of the Crisis 

Continuum when appropriate to address 

the applicable situation. This 

Amendment would also clarify that the 

allocation of losses resulting from a 

Member default would be applied when 

provided for, and in accordance with, 

Rule 4 of the GSD Rules and the MBSD 

Rules, as applicable. 

Third, this Amendment would clarify 

that the Recovery Corridor (as defined 

therein) is not a ‘‘sub-phase’’ of the 

recovery phase. Rather, the Recovery 

Corridor is a period of time that would 

occur toward the end of the Member 

default phase, when indicators are that 

FICC may transition into the recovery 

phase. Thus, the Recovery Corridor 

precedes the recovery phase within the 

Crisis Continuum. 

Fourth, this Amendment would make 

revisions to address the allocation of 

losses resulting from a Member default 

in order to more closely conform such 

statements to the changes proposed by 

the Loss Allocation Filing, as defined 

below. 

Fifth, this Amendment would clarify 

the notifications that FICC would be 

required to make under the proposed 

GSD Rule 50 and MBSD Rule 40 (Market 

Disruption and Force Majeure). 

Finally, this Amendment would make 

minor, technical and conforming 

revisions to correct typographical errors 

and to simplify descriptions. For 

example, such revisions would use 

lower case for terms that are not defined 

therein, and would use upper case for 

terms that are defined. The Amendment 

would also simplify certain descriptions 

by removing extraneous words and 

statements that are repetitive. These 

minor, technical revisions would not 

alter the substance of the proposal. 

Description of Proposed Changes 

FICC is proposing to adopt the R&W 

Plan to be used by the Board and 

management of FICC in the event FICC 

encounters scenarios that could 

potentially prevent it from being able to 

provide its critical services as a going 

concern. The R&W Plan would identify 

(i) the recovery tools available to FICC 

to address the risks of (a) uncovered 

losses or liquidity shortfalls resulting 

from the default of one or more 

Members, and (b) losses arising from 

non-default events, such as damage to 

its physical assets, a cyber-attack, or 

custody and investment losses, and (ii) 

the strategy for implementation of such 

tools. The R&W Plan would also 

establish the strategy and framework for 

the orderly wind-down of FICC and the 

transfer of its business in the remote 

event the implementation of the 

available recovery tools does not 

successfully return FICC to financial 

viability. 

As discussed in greater detail below, 

the R&W Plan would provide, among 

other matters, (i) an overview of the 

business of FICC and its parent, The 

Depository Trust & Clearing Corporation 

(‘‘DTCC’’); (ii) an analysis of FICC’s 

intercompany arrangements and an 

existing link to another financial market 

infrastructures (‘‘FMIs’’); (iii) a 

description of FICC’s services, and the 

criteria used to determine which 

services are considered critical; (iv) a 

description of the FICC and DTCC 

governance structure; (v) a description 

of the governance around the overall 

recovery and wind-down program; (vi) a 

discussion of tools available to FICC to 

mitigate credit/market and liquidity 

risks, including recovery indicators and 

triggers, and the governance around 

management of a stress event along a 

‘‘Crisis Continuum’’ timeline; (vii) a 

discussion of potential non-default 

losses and the resources available to 

FICC to address such losses, including 

recovery triggers and tools to mitigate 

such losses; (viii) an analysis of the 

recovery tools’ characteristics, including 

how they are comprehensive, effective, 

and transparent, how the tools provide 

appropriate incentives to Members to, 

among other things, control and monitor 

the risks they may present to FICC, and 

how FICC seeks to minimize the 

negative consequences of executing its 

recovery tools; and (ix) the framework 

and approach for the orderly winddown and transfer of FICC’s business, 

including an estimate of the time and 

costs to effect a recovery or orderly 

wind-down of FICC. 

The R&W Plan would be structured as 

a roadmap, and would identify and 

describe the tools that FICC may use to 

effect a recovery from the events and 

scenarios described therein. Certain 

recovery tools that would be identified 

in the R&W Plan are based in the Rules 

(including the Proposed Rules) and, as 

such, descriptions of those tools would 

include descriptions of, and reference 

to, the applicable Rules and any related 

internal policies and procedures. Other 

recovery tools that would be identified 

in the R&W Plan are based in 

contractual arrangements to which FICC 

is a party, including, for example, 

existing committed or pre-arranged 

liquidity arrangements. Further, the 

R&W Plan would state that FICC may 

develop further supporting internal 

guidelines and materials that may 

provide operationally for matters 

described in the Plan, and that such 

documents would be supplemental and 

subordinate to the Plan. 

Key factors considered in developing 

the R&W Plan and the types of tools 

available to FICC were its governance 

structure and the nature of the markets 

within which FICC operates. As a result 

of these considerations, many of the 

tools available to FICC that would be 

described in the R&W Plan are FICC’s 

existing, business-as-usual risk 

management and Member default 

management tools, which would 

continue to be applied in scenarios of 

increasing stress. In addition to these 

existing, business-as-usual tools, the 

R&W Plan would describe FICC’s other 

principal recovery tools, which include, 

for example, (i) identifying, monitoring 

and managing general business risk and 

holding sufficient liquid net assets 

funded by equity (‘‘LNA’’) to cover 

potential general business losses 

pursuant to the Clearing Agency Policy 

on Capital Requirements (‘‘Capital 

Policy’’),10 (ii) maintaining the Clearing 

Agency Capital Replenishment Plan 

(‘‘Replenishment Plan’’) as a viable plan 

for the replenishment of capital should 

FICC’s equity fall close to or below the 

amount being held pursuant to the 

Capital Policy,11 and (iii) the process for 

the allocation of losses among Members, 

as provided in Rule 4 of the GSD Rules 

and Rule 4 of the MBSD Rules.12 The 


sradovich on DSK3GMQ082PROD with NOTICES
38416 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 

www.dtcc.com/legal/sec-rule-filings.aspx. FICC 

expects the Commission to review both proposals, 

as amended, together, and, as such, the proposal 

described in this filing anticipates the approval and 

implementation of those proposed changes to the 

Rules. 

13 DTCC operates on a shared services model with 

respect to FICC and its other subsidiaries. Most 

corporate functions are established and managed on 

an enterprise-wide basis pursuant to intercompany 

agreements under which it is generally DTCC that 

provides a relevant service to a subsidiary, 

including FICC. 14 17 CFR 240.17Ad–22(e)(3)(ii). 

15Available at http://www.dtcc.com/∼/media/ 

Files/Downloads/legal/rules/ficc_cme_crossmargin_

agreement.pdf. See also GSD Rule 43 (CrossMargining Arrangements), supra note 7. 

R&W Plan would provide governance 

around the selection and 

implementation of the recovery tool or 

tools most relevant to mitigate a stress 

scenario and any applicable loss or 

liquidity shortfall. 

The development of the R&W Plan is 

facilitated by the Office of Recovery & 

Resolution Planning (‘‘R&R Team’’) of 

DTCC.13 The R&R Team reports to the 

DTCC Management Committee 

(‘‘Management Committee’’) and is 

responsible for maintaining the R&W 

Plan and for the development and 

ongoing maintenance of the overall 

recovery and wind-down planning 

process. The Board, or such committees 

as may be delegated authority by the 

Board from time to time pursuant to its 

charter, would review and approve the 

R&W Plan biennially, and would also 

review and approve any changes that 

are proposed to the R&W Plan outside 

of the biennial review. 

As discussed in greater detail below, 

the Proposed Rules would define the 

procedures that may be employed in the 

event of FICC’s wind-down and would 

provide for FICC’s authority to take 

certain actions on the occurrence of a 

‘‘Market Disruption Event,’’ as defined 

therein. Significantly, the Proposed 

Rules would provide Members and 

Limited Members with transparency 

and certainty with respect to these 

matters. The Proposed Rules would 

facilitate the implementation of the 

R&W Plan, particularly FICC’s strategy 

for winding down and transferring its 

business, and would provide FICC with 

the legal basis to implement those 

aspects of the R&W Plan. 

FICC R&W Plan 

The R&W Plan is intended to be used 

by the Board and FICC’s management in 

the event FICC encounters scenarios 

that could potentially prevent it from 

being able to provide its critical services 

as a going concern. The R&W Plan 

would be structured to provide a 

roadmap, define the strategy, and 

identify the tools available to FICC to 

either (i) recover in the event it 

experiences losses that exceed its 

prefunded resources (such strategies 

and tools referred to herein as the 

‘‘Recovery Plan’’) or (ii) wind-down its 

business in a manner designed to permit 

the continuation of its critical services 

in the event that such recovery efforts 

are not successful (such strategies and 

tools referred to herein as the ‘‘Winddown Plan’’). The description of the 

R&W Plan below is intended to 

highlight the purpose and expected 

effects of the material aspects of the 

R&W Plan, and to provide Members and 

Limited Members with appropriate 

transparency into these features. 

Business Overview, Critical Services, 

and Governance 

The introduction to the R&W Plan 

would identify the document’s purpose 

and its regulatory background, and 

would outline a summary of the Plan. 

The stated purpose of the R&W Plan is 

that it is to be used by the Board and 

FICC management in the event FICC 

encounters scenarios that could 

potentially prevent it from being able to 

provide its critical services as a going 

concern. The R&W Plan would be 

maintained by FICC in compliance with 

Rule 17Ad–22(e)(3)(ii) under the Act 14

by providing plans for the recovery and 

orderly wind-down of FICC. 

The R&W Plan would describe 

DTCC’s business profile, provide a 

summary of the services of FICC as 

offered by each of the Divisions, and 

identify the intercompany arrangements 

and links between FICC and other 

entities, most notably a link between 

GSD and Chicago Mercantile Exchange 

Inc. (‘‘CME’’), which is also an FMI. 

This overview section would provide a 

context for the R&W Plan by describing 

FICC’s business, organizational 

structure and critical links to other 

entities. By providing this context, this 

section would facilitate the analysis of 

the potential impact of utilizing the 

recovery tools set forth in later sections 

of the Recovery Plan, and the analysis 

of the factors that would be addressed 

in implementing the Wind-down Plan. 

DTCC is a user-owned and usergoverned holding company and is the 

parent company of FICC and its 

affiliates, The Depository Trust 

Company (‘‘DTC’’) and National 

Securities Clearing Corporation 

(‘‘NSCC’’, and, together with FICC and 

DTC, the ‘‘Clearing Agencies’’). The 

Plan would describe how corporate 

support services are provided to FICC 

from DTCC and DTCC’s other 

subsidiaries through intercompany 

agreements under a shared services 

model. 

The Plan would provide a description 

of the critical contractual and 

operational arrangements between FICC 

and other legal entities, including the 

cross-margining agreement between 

GSD and CME, which is also an FMI.15

Pursuant to this arrangement, GSD 

offsets each cross-margining 

participant’s residual margin amount 

(based on related positions) at GSD 

against the offsetting residual margin 

amounts of the participant (or its 

affiliate) at CME. GSD and CME may 

then reduce the amount of collateral 

that they collect to reflect the offsets 

between the cross-margining 

participant’s positions at GSD and its (or 

its affiliate’s) positions at CME. This 

section of the Plan, identifying and 

briefly describing FICC’s established 

links, would provide a mapping of 

critical connections and dependencies 

that may need to be relied on or 

otherwise addressed in connection with 

the implementation of either the 

Recovery Plan or the Wind-down Plan. 

The Plan would define the criteria for 

classifying certain of FICC’s services as 

‘‘critical,’’ and would identify those 

critical services and the rationale for 

their classification. This section would 

provide an analysis of the potential 

systemic impact from a service 

disruption, and is important for 

evaluating how the recovery tools and 

the wind-down strategy would facilitate 

and provide for the continuation of 

FICC’s critical services to the markets it 

serves. The criteria that would be used 

to identify an FICC service or function 

as critical would include consideration 

as to (1) whether there is a lack of 

alternative providers or products; (2) 

whether failure of the service could 

impact FICC’s ability to perform its 

central counterparty services through 

either Division; (3) whether failure of 

the service could impact FICC’s ability 

to perform its multilateral netting 

services through either Division and, as 

such, could impact the volume of 

transactions; (4) whether failure of the 

service could impact FICC’s ability to 

perform its book-entry delivery and 

settlement services through either 

Division and, as such, could impact 

transaction costs; (5) whether failure of 

the service could impact FICC’s ability 

to perform its cash payment processing 

services through either Division and, as 

such, could impact the flow of liquidity 

in the U.S. financial markets; and (6) 

whether the service is interconnected 

with other participants and processes 

within the U.S. financial system, for 

example, with other FMIs, settlement 


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16See GSD Rule 5 (Comparison System), GSD 

Rule 6A (Bilateral Comparison), GSD Rule 6B 

(Demand Comparison), and GSD Rule 6C (LockedIn Comparison), supra note 7. 

17See GSD Rule 11 (Netting System), GSD Rule 

12 (Securities Settlement), and GSD Rule 13 

(Funds-Only Settlement), supra note 7. 

18See GSD Rule 6C (Locked-In Comparison) and 

GSD Rule 17 (Netting and Settlement of NettingEligible Auction Purchases), supra note 7. 

19See GSD Rule 7 (Repo Transactions), GSD Rule 

11 (Netting System), GSD Rule 18 (Special 

Provisions for Repo Transactions), GSD Rule 19 

(Special Provisions for Brokered Repo 

Transactions), and GSD Rule 20 (Special Provisions 

for GCF Repo Transactions), supra note 7. 

20See MBSD Rule 5 (Trade Comparison), supra 

note 7. 

21See MBSD Rule 6 (TBA Netting), supra note 7. 

22See EPN Rules, supra note 7. 

23See MBSD Rule 8 (Pool Netting System) and 

MBSD Rule 9 (Pool Settlement with the 

Corporation), supra note 7. 

24The charter of the Board Risk Committee is 

available at http://www.dtcc.com/∼/media/Files/ 

Downloads/legal/policy-and-compliance/DTCCBOD-Risk-Committee-Charter.pdf. 

25The Plan would state that these groups would 

be involved to address how to mitigate the financial 

impact of non-default losses, and in recommending 

mitigating actions, the Management Committee 

would consider information and recommendations 

from relevant subject matter experts based on the 

nature and circumstances of the non-default event. 

Any necessary operational response to these events, 

however, would be managed in accordance with 

applicable incident response/business continuity 

process; for example, processes established by the 

DTCC Technology Risk Management group would 

be followed in response to a cyber event. 

banks, and broker-dealers. The Plan 

would then list each of those services, 

functions or activities that FICC has 

identified as ‘‘critical’’ based on the 

applicability of these six criteria. GSD’s 

critical services would include, for 

example, its Real-Time Trade Matching 

(‘‘RTTM®’’) service,16 its services 

related to netting and settlement of 

submitted trades for Netting Members,17

the Auction Takedown service,18 and 

the Repurchase Agreement Netting 

Service.19 MBSD’s critical services 

would include, for example, its RTTM® 

service,20 its netting service for to-beannounced (‘‘TBA’’) transactions,21 its 

Electronic Pool Notification service,22

and its pool netting and settlement.23

The R&W Plan would also include a 

non-exhaustive list of FICC services that 

are not deemed critical. 

The evaluation of which services 

provided by FICC are deemed critical is 

important for purposes of determining 

how the R&W Plan would facilitate the 

continuity of those services. As 

discussed further below, while FICC’s 

Wind-down Plan would provide for the 

transfer of all critical services to a 

transferee in the event FICC’s winddown is implemented, it would 

anticipate that any non-critical services 

that are ancillary and beneficial to a 

critical service, or that otherwise have 

substantial user demand from the 

continuing membership, would also be 

transferred. 

The Plan would describe the 

governance structure of both DTCC and 

FICC. This section of the Plan would 

identify the ownership and governance 

model of these entities at both the Board 

of Directors and management levels. 

The Plan would state that the stages of 

escalation required to manage recovery 

under the Recovery Plan or to invoke 

FICC’s wind-down under the Winddown Plan would range from relevant 

business line managers up to the Board 

through FICC’s governance structure. 

The Plan would then identify the parties 

responsible for certain activities under 

both the Recovery Plan and the Winddown Plan, and would describe their 

respective roles. The Plan would 

identify the Risk Committee of the 

Board (‘‘Board Risk Committee’’) as 

being responsible for oversight of risk 

management activities at FICC, which 

include focusing on both oversight of 

risk management systems and processes 

designed to identify and manage various 

risks faced by FICC, and, due to FICC’s 

critical role in the markets in which it 

operates, oversight of FICC’s efforts to 

mitigate systemic risks that could 

impact those markets and the broader 

financial system.24 The Plan would 

identify the DTCC Management Risk 

Committee (‘‘Management Risk 

Committee’’) as primarily responsible 

for general, day-to-day risk management 

through delegated authority from the 

Board Risk Committee. The Plan would 

state that the Management Risk 

Committee has delegated specific dayto-day risk management, including 

management of risks addressed through 

margining systems and related 

activities, to the DTCC Group Chief Risk 

Office (‘‘GCRO’’), which works with 

staff within the DTCC Financial Risk 

Management group. Finally, the Plan 

would describe the role of the 

Management Committee, which 

provides overall direction for all aspects 

of FICC’s business, technology, and 

operations and the functional areas that 

support these activities. 

The Plan would describe the 

governance of recovery efforts in 

response to both default losses and nondefault losses under the Recovery Plan, 

identifying the groups responsible for 

those recovery efforts. Specifically, the 

Plan would state that the Management 

Risk Committee provides oversight of 

actions relating to the default of a 

Member, which would be reported and 

escalated to it through the GCRO, and 

the Management Committee provides 

oversight of actions relating to nondefault events that could result in a loss, 

which would be reported and escalated 

to it from the DTCC Chief Financial 

Officer (‘‘CFO’’) and the DTCC Treasury 

group that reports to the CFO, and from 

other relevant subject matter experts 

based on the nature and circumstances 

of the non-default event.25 More 

generally, the Plan would state that the 

type of loss and the nature and 

circumstances of the events that lead to 

the loss would dictate the components 

of governance to address that loss, 

including the escalation path to 

authorize those actions. As described 

further below, both the Recovery Plan 

and the Wind-down Plan would 

describe the governance of escalations, 

decisions, and actions under each of 

those plans. 

Finally, the Plan would describe the 

role of the R&R Team in managing the 

overall recovery and wind-down 

program and plans for each of the 

Clearing Agencies. 

FICC Recovery Plan 

The Recovery Plan is intended to be 

a roadmap of those actions that FICC 

may employ across both Divisions to 

monitor and, as needed, stabilize its 

financial condition. As each event that 

could lead to a financial loss could be 

unique in its circumstances, the 

Recovery Plan would not be prescriptive 

and would permit FICC to maintain 

flexibility in its use of identified tools 

and in the sequence in which such tools 

are used, subject to any conditions in 

the Rules or the contractual arrangement 

on which such tool is based. FICC’s 

Recovery Plan would consist of (1) a 

description of the risk management 

surveillance, tools, and governance that 

FICC would employ across evolving 

stress scenarios that it may face as it 

transitions through a ‘‘Crisis 

Continuum,’’ described below; (2) a 

description of FICC’s risk of losses that 

may result from non-default events, and 

the financial resources and recovery 

tools available to FICC to manage those 

risks and any resulting losses; and (3) an 

evaluation of the characteristics of the 

recovery tools that may be used in 

response to either default losses or nondefault losses, as described in greater 

detail below. In all cases, FICC would 

act in accordance with the Rules, within 

the governance structure described in 

the R&W Plan, and in accordance with 

applicable regulatory oversight to 

address each situation in order to best 

protect FICC, the Members, and the 

markets in which it operates. 

Managing Member Default Losses and 

Liquidity Needs Through the Crisis 

Continuum. The Recovery Plan would 


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26The Plan would define an ‘‘Affiliated Family’’ 

of Members as a number of affiliated entities that 

are all Members of either GSD or MBSD. 

27See GSD Rule 21 (Restrictions on Access to 

Services) and MBSD Rule 14 (Restrictions on 

Access to Services), supra note 7. 

28See GSD Rules 21 (Restrictions on Access to 

Services) and 22 (Insolvency of a Member), and 

MBSD Rules 14 (Restrictions on Access to Services) 

and 16 (Insolvency of a Member), supra note 7. 

29See GSD Rule 4 (Clearing Fund and Loss 

Allocation) and MBSD Rule 4 (Clearing Fund and 

Loss Allocation), supra note 7. Because GSD and 

MBSD do not maintain a guaranty fund separate 

and apart from the Clearing Fund they collect from 

Members, FICC monitors its credit exposure to its 

Members by managing the market risks of each 

Member’s unsettled portfolio through the collection 

of each Division’s Clearing Fund. The aggregate of 

all Members’ Required Clearing Fund deposits to 

each of GSD or MBSD comprises that Division’s 

Clearing Fund that represents FICC’s prefunded 

resources to address uncovered loss exposures as 

provided in each Division’s proposed Rule 4. 

Therefore, FICC’s market risk management strategy 

for both Divisions is designed to comply with Rule 

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

referred to as ‘‘credit risks.’’ See also 17 CFR 

240.17Ad–22(e)(4). 

30FICC’s liquidity risk management strategy, 

including the manner in which FICC utilizes its 

liquidity tools, is described in the Clearing Agency 

Liquidity Risk Management Framework. See 

Securities Exchange Act Release Nos. 80489 (April 

19, 2017), 82 FR 19120 (April 25, 2017) (SR–DTC– 

2017–004, SR–NSCC–2017–005, SR–FICC–2017– 

008); 81194 (July 24, 2017), 82 FR 35241 (July 28, 

2017) (SR–DTC–2017–004, SR–NSCC–2017–005, 

SR–FICC–2017–008). 

31FICC’s stress testing practices are described in 

the Clearing Agency Stress Testing Framework 

(Market Risk). See Securities Exchange Act Release 

Nos. 80485 (April 19, 2017), 82 FR 19131 (April 25, 

2017) (SR–DTC–2017–005, SR–FICC–2017–009, 

SR–NSCC–2017–006); 81192 (July 24, 2017), 82 FR 

35245 (July 28, 2017) (SR–DTC–2017–005, SR– 

FICC–2017–009, SR–NSCC–2017–006). 

32See supra note 30. 

33See GSD Rule 21 (Restrictions on Access to 

Services), GSD Rule 22A (Procedures for When the 

Corporation Ceases to Act), MBSD Rule 14 

describe the risk management 

surveillance, tools, and governance that 

FICC may employ across an increasing 

stress environment, which is referred to 

as the ‘‘Crisis Continuum.’’ This 

description would identify those tools 

that can be employed to mitigate losses, 

and mitigate or minimize liquidity 

needs, as the market environment 

becomes increasingly stressed. The 

phases of the Crisis Continuum would 

include (1) a stable market phase, (2) a 

stress market phase, (3) a phase 

commencing with FICC’s decision to 

cease to act for a Member or Affiliated 

Family of Members (referred to in the 

Plan as the ‘‘Member default phase’’),26

and (4) a recovery phase. This section of 

the Recovery Plan would address 

conditions and circumstances relating to 

FICC’s decision to cease to act for a 

Member pursuant to the applicable 

Rules.27 In the Plan, the term ‘‘cease to 

act’’ and the actions that lead to such 

decision are used within the context of 

each Division’s Rules, in particular 

Rules 21 and 22 of the GSD Rules and 

Rules 14 and 16 of the MBSD Rules.28

Further, for ease of reference, the R&W 

Plan would, for purposes of the Plan, 

use the term ‘‘Member default’’ to refer 

to the event or events that precipitate 

FICC ceasing to act for a Member or an 

Affiliated Family, would use the term 

‘‘Defaulting Member’’ to refer to a 

Member for which NSCC has ceased to 

act, and would use the term ‘‘Member 

Default Losses’’ to refer to losses that 

arise out of or relate to the Member 

default (including any losses that arise 

from liquidation of that Member’s 

portfolio), and to distinguish such losses 

from those that arise out of the business 

or other events not related to a Member 

default, which are separately addressed 

in the Plan. 

The Recovery Plan would provide 

context to its roadmap through this 

Crisis Continuum by describing FICC’s 

ongoing management of credit, market 

and liquidity risk across the Divisions, 

and its existing process for measuring 

and reporting its risks as they align with 

established thresholds for its tolerance 

of those risks. The Recovery Plan would 

discuss the management of credit/ 

market risk and liquidity exposures 

together, because the tools that address 

these risks can be deployed either 

separately or in a coordinated approach 

in order to address both exposures. FICC 

manages these risk exposures 

collectively to limit their overall impact 

on FICC and the memberships of the 

Divisions. As part of its market risk 

management strategy, FICC manages its 

credit exposure to Members by 

determining the appropriate required 

deposits to the GSD and MBSD Clearing 

Fund and monitoring its sufficiency, as 

provided for in the applicable Rules.29

FICC manages its liquidity risks with an 

objective of maintaining sufficient 

resources to be able to fulfill obligations 

that have been guaranteed by FICC in 

the event of a Member default that 

presents the largest aggregate liquidity 

exposure to FICC over the settlement 

cycle.30

The Recovery Plan would outline the 

metrics and indicators that FICC has 

developed to evaluate a stress situation 

against established risk tolerance 

thresholds. Each risk mitigation tool 

identified in the Recovery Plan would 

include a description of the escalation 

thresholds that allow for effective and 

timely reporting to the appropriate 

internal management staff and 

committees, or to the Board. The 

Recovery Plan would make clear that 

these tools and escalation protocols 

would be calibrated across each phase 

of the Crisis Continuum. The Recovery 

Plan would also establish that FICC 

would retain the flexibility to deploy 

such tools either separately or in a 

coordinated approach, and to use other 

alternatives to these actions and tools as 

necessitated by the circumstances of a 

particular Member default in 

accordance with the applicable Rules. 

Therefore, the Recovery Plan would 

both provide FICC with a roadmap to 

follow within each phase of the Crisis 

Continuum, and would permit it to 

adjust its risk management measures to 

address the unique circumstances of 

each event. 

The Recovery Plan would describe the 

conditions that mark each phase of the 

Crisis Continuum, and would identify 

actions that FICC could take as it 

transitions through each phase in order 

to both prevent losses from 

materializing through active risk 

management, and to restore the 

financial health of FICC during a period 

of stress. 

The stable market phase of the Crisis 

Continuum would describe active risk 

management activities in the normal 

course of business. These activities 

would include (1) routine monitoring of 

margin adequacy through daily review 

of back testing and stress testing results 

that review the adequacy of the margin 

calculations for each of GSD and MBSD, 

and escalation of those results to 

internal and Board committees; 31 and 

(2) routine monitoring of liquidity 

adequacy through review of daily 

liquidity studies that measure 

sufficiency of available liquidity 

resources to meet cash settlement 

obligations of the Member that would 

generate the largest aggregate payment 

obligation.32

The Recovery Plan would describe 

some of the indicators of the stress 

market phase of the Crisis Continuum, 

which would include, for example, 

volatility in market prices of certain 

assets where there is increased 

uncertainty among market participants 

about the fundamental value of those 

assets. This phase would involve 

general market stresses, when no 

Member default would be imminent. 

Within the description of this phase, the 

Recovery Plan would provide that FICC 

may take targeted, routine risk 

management measures as necessary and 

as permitted by the Rules. 

Within the Member default phase of 

the Crisis Continuum, the Recovery Plan 

would provide a roadmap for the 

existing procedures that FICC would 

follow in the event of a Member default 

and any decision by FICC to cease to act 

for that Member.33 The Recovery Plan 


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(Restrictions on Access to Services), and MBSD 

Rule 17 (Procedures for When the Corporation 

Ceases to Act), supra note 7. 

34See supra note 12. The Loss Allocation Filing 

proposes to amend GSD Rule 4 and MBSD Rule 4 

to define the amount FICC would contribute to 

address a loss resulting from either a Member 

default or a non-default event as the ‘‘Corporate 

Contribution.’’ This amount would be 50 percent 

(50%) of the ‘‘General Business Risk Capital 

Requirement,’’ which is calculated pursuant to the 

Capital Policy and is an amount sufficient to cover 

potential general business losses so that FICC can 

continue operations and services as a going concern 

if those losses materialize, in compliance with Rule 

17Ad–22(e)(15) under the Act. See also supra note 

10; 17 CFR 240.17Ad–22(e)(15). 

35The Loss Allocation Filing proposes to amend 

Rule 4 to introduce the concept of an ‘‘Event 

Period’’ as the ten (10) Business Days beginning on 

(i) with respect to a Member default, the day on 

which NSCC notifies Members that it has ceased to 

act for a Member under the Rules, or (ii) with 

respect to a non-default loss, the day that NSCC 

notifies Members of the determination by the Board 

that there is a non-default loss event, as described 

in greater detail in that filing. The proposed GSD 

Rule 4 and MBSD Rule 4 would define a ‘‘round’’ 

as a series of loss allocations relating to an Event 

Period, and would provide that the first Loss 

Allocation Notice in a first, second, or subsequent 

round shall expressly state that such notice reflects 

the beginning of a first, second, or subsequent 

round. The maximum allocable loss amount of a 

round is equal to the sum of the ‘‘Loss Allocation 

Caps’’ (as defined in the proposed GSD Rule 4 and 

MBSD Rule 4) of those Members included in the 

round. See supra note 12. 

36The Corridor Actions that would be identified 

in the Plan are indicative, but not prescriptive; 

therefore, if FICC needs to consider alternative 

actions due to the applicable facts and 

circumstances, the escalation of those alternative 

actions would follow the same escalation protocol 

identified in the Plan for the Corridor Indicator to 

which the action relates. 

would provide that the objectives of 

FICC’s actions upon a Member or 

Affiliated Family default are to (1) 

minimize losses and market exposure of 

the affected Members and the applicable 

Division’s non-Defaulting Members; and 

(2), to the extent practicable, minimize 

disturbances to the affected markets. 

The Recovery Plan would describe 

tools, actions, and related governance 

for both market risk monitoring and 

liquidity risk monitoring through this 

phase. For example, in connection with 

managing its market risk during this 

phase, FICC would, pursuant to the 

applicable Division’s Rules, (1) monitor 

and assess the adequacy of the GSD and 

MBSD Clearing Fund resources; (2), 

when necessary and appropriate 

pursuant to the applicable Division’s 

Rules, assess and collect additional 

margin requirements; and (3) follow its 

operational procedures to liquidate the 

Defaulting Member’s portfolio. 

Management of liquidity risk through 

this phase would involve ongoing 

monitoring of the adequacy of FICC’s 

liquidity resources, and the Recovery 

Plan would identify certain actions 

FICC may deploy as it deems necessary 

to mitigate a potential liquidity 

shortfall, which would include, for 

example, adjusting its strategy for 

closing out the Defaulting Member’s 

portfolio or seeking additional liquidity 

resources. The Recovery Plan would 

state that, throughout this phase, 

relevant information would be escalated 

and reported to both internal 

management committees and the Board 

Risk Committee. 

The Recovery Plan would also 

identify financial resources available to 

FICC, pursuant to the Rules, to address 

losses arising out of a Member default. 

Specifically, GSD Rule 4 and MBSD 

Rule 4, as each are proposed to be 

amended by the Loss Allocation Filing, 

would provide that losses remaining 

after application of the Defaulting 

Member’s resources be satisfied first by 

applying a ‘‘Corporate Contribution,’’ 

and then, if necessary, by allocating 

remaining losses among the 

membership in accordance with such 

GSD Rule 4 and MBSD Rule 4, as 

applicable.34

In order to provide for an effective 

and timely recovery, the Recovery Plan 

would describe the period of time that 

would occur near the end of the 

Member default phase, during which 

FICC may experience stress events or 

observe early warning indicators that 

allow it to evaluate its options and 

prepare for the recovery phase (referred 

to in the Plan as the ‘‘Recovery 

Corridor’’). The Recovery Plan would 

then describe the recovery phase of the 

Crisis Continuum, which would begin 

on the date that FICC issues the first 

Loss Allocation Notice of the second 

loss allocation round with respect to a 

given ‘‘Event Period.’’ 35 The recovery 

phase would describe actions that FICC 

may take to avoid entering into a winddown of its business. 

FICC expects that significant 

deterioration of liquidity resources 

would cause it to enter the Recovery 

Corridor. As such, the Plan would 

describe the actions FICC may take at 

this stage aimed at replenishing those 

resources. Recovery Corridor indicators 

may include, for example, a rapid and 

material change in market prices or 

substantial intraday activity volume by 

the Member that subsequently defaults, 

neither of which are mitigated by 

intraday margin calls, or subsequent 

defaults by other Members or Affiliated 

Families during a compressed time 

period. Throughout the Recovery 

Corridor, FICC would monitor the 

adequacy of the Divisions’ respective 

resources and the expected timing of 

replenishment of those resources, and 

would do so through the monitoring of 

certain corridor indicator metrics. 

The majority of the corridor 

indicators, as identified in the Recovery 

Plan, relate directly to conditions that 

may require either Division to adjust its 

strategy for hedging and liquidating a 

Defaulting Member’s portfolio, and any 

such changes would include an 

assessment of the status of the corridor 

indicators. Corridor indicators would 

include, for example, effectiveness and 

speed of FICC’s efforts to close out the 

portfolio of the Defaulting Member, and 

an impediment to the availability of its 

financial resources. For each corridor 

indicator, the Recovery Plan would 

identify (1) measures of the indicator, 

(2) evaluations of the status of the 

indicator, (3) metrics for determining 

the status of the deterioration or 

improvement of the indicator, and (4) 

‘‘Corridor Actions,’’ which are steps that 

may be taken to improve the status of 

the indicator,36 as well as management 

escalations required to authorize those 

steps. Because FICC has never 

experienced the default of multiple 

Members, it has not, historically, 

measured the deterioration or 

improvements metrics of the corridor 

indicators. As such, these metrics were 

chosen based on the business judgment 

of FICC management. 

The Recovery Plan would also 

describe the reporting and escalation of 

the status of the corridor indicators 

throughout the Recovery Corridor. 

Significant deterioration of a corridor 

indicator, as measured by the metrics 

set out in the Recovery Plan, would be 

escalated to the Board. FICC 

management would review the corridor 

indicators and the related metrics at 

least annually, and would modify these 

metrics as necessary in light of 

observations from simulations of 

Member defaults and other analyses. 

Any proposed modifications would be 

reviewed by the Management Risk 

Committee and the Board Risk 

Committee. The Recovery Plan would 

estimate that FICC may remain in the 

Recovery Corridor between one day and 

two weeks. This estimate is based on 

historical data observed in past Member 

defaults, the results of simulations of 

Member defaults, and periodic liquidity 

analyses conducted by FICC. The actual 

length of a Recovery Corridor would 

vary based on actual market conditions 

observed at the time, and FICC would 

expect the Recovery Corridor to be 

shorter in market conditions of 

increased stress. 

The Recovery Plan would outline 

steps by which FICC may allocate its 

losses, which would occur when and in 


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37As these matters are described in greater detail 

in the Loss Allocation Filing and in the proposed 

amendments to GSD Rule 4 and MBSD Rule 4, 

described therein, reference is made to that filing 

and the details are not repeated here. See supra 

note 12. 

38This ‘‘three lines of defense’’ approach to risk 

management includes (1) a first line of defense 

comprised of the various business lines and 

functional units that support the products and 

services offered by FICC; (2) a second line of 

defense comprised of control functions that support 

FICC, including the risk management, legal and 

compliance areas; and (3) a third line of defense, 

which is performed by an internal audit group. The 

Clearing Agency Risk Management Framework 

includes a description of this ‘‘three lines of 

defense’’ approach to risk management, and 

addresses how FICC comprehensively manages 

various risks, including operational, general 

business, investment, custody, and other risks that 

arise in or are borne by it. See Securities Exchange 

Act Release No. 81635 (September 15, 2017), 82 FR 

44224 (September 21, 2017) (SR–DTC–2017–013, 

SR–FICC–2017–016, SR–NSCC–2017–012). The 

Clearing Agency Operational Risk Management 

Framework describes the manner in which FICC 

manages operational risks, as defined therein. See 

Securities Exchange Act Release No. 81745 

(September 28, 2017), 82 FR 46332 (October 4, 

2017) (SR–DTC–2017–014, SR–FICC–2017–017, 

SR–NSCC–2017–013). 

39See supra note 34. 

40See supra note 34. 

41See supra note 12. 

42See supra note 10. 

43See supra note 12. 

the order provided in the amended GSD 

Rule 4 and MBSD Rule 4, as 

applicable.37 The Recovery Plan would 

also identify tools that may be used to 

address foreseeable shortfalls of FICC’s 

liquidity resources following a Member 

default, and would provide that these 

tools may be used as appropriate during 

the Crisis Continuum to address 

liquidity shortfalls if they arise. The 

goal in managing FICC’s qualified 

liquidity resources is to maximize 

resource availability in an evolving 

stress situation, to maintain flexibility 

in the order and use of sources of 

liquidity, and to repay any third party 

lenders of liquidity in a timely manner. 

Additional voluntary or uncommitted 

tools to address potential liquidity 

shortfalls, for example uncommitted 

bank loans, which may supplement 

FICC’s other liquid resources described 

herein, would also be identified in the 

Recovery Plan. The Recovery Plan 

would state that, due to the extreme 

nature of a stress event that would cause 

FICC to consider the use of these 

liquidity tools, the availability and 

capacity of these liquidity tools, and the 

willingness of counterparties to lend, 

cannot be accurately predicted and are 

dependent on the circumstances of the 

applicable stress period, including 

market price volatility, actual or 

perceived disruptions in financial 

markets, the costs to FICC of utilizing 

these tools, and any potential impact on 

FICC’s credit rating. 

As stated above, the Recovery Plan 

would state that FICC will have entered 

the recovery phase on the date that it 

issues the first Loss Allocation Notice of 

the second loss allocation round with 

respect to a given Event Period. The 

Recovery Plan would provide that, 

during the recovery phase, FICC would 

continue and, as needed, enhance, the 

monitoring and remedial actions already 

described in connection with previous 

phases of the Crisis Continuum, and 

would remain in the recovery phase 

until its financial resources are expected 

to be or are fully replenished, or until 

the Wind-down Plan is triggered, as 

described below. 

The Recovery Plan would describe 

governance for the actions and tools that 

may be employed within each phase of 

the Crisis Continuum, which would be 

dictated by the facts and circumstances 

applicable to the situation being 

addressed. Such facts and 

circumstances would be measured by 

the various indicators and metrics 

applicable to that phase of the Crisis 

Continuum, and would follow the 

relevant escalation protocol that would 

be described in the Recovery Plan. The 

Recovery Plan would also describe the 

governance procedures around a 

decision to cease to act for a Member, 

pursuant to the applicable Division’s 

Rules, and around the management and 

oversight of the subsequent liquidation 

of the Defaulting Member’s portfolio. 

The Recovery Plan would state that, 

overall, FICC would retain flexibility in 

accordance with each Division’s Rules, 

its governance structure, and its 

regulatory oversight, to address a 

particular situation in order to best 

protect FICC and the Members, and to 

meet the primary objectives, throughout 

the Crisis Continuum, of minimizing 

losses and, where consistent and 

practicable, minimizing disturbance to 

affected markets. 

Non-Default Losses. The Recovery 

Plan would outline how FICC may 

address losses that result from events 

other than a Member default. While 

these matters are addressed in greater 

detail in other documents, this section 

of the Plan would provide a roadmap to 

those documents and an outline for 

FICC’s approach to monitoring and 

managing losses that could result from 

a non-default event. The Plan would 

first identify some of the risks FICC 

faces that could lead to these losses, 

which include, for example, the 

business and profit/loss risks of 

unexpected declines in revenue or 

growth of expenses; the operational 

risks of disruptions to systems or 

processes that could lead to large losses, 

including those resulting from, for 

example, a cyber-attack; and custody or 

investment risks that could lead to 

financial losses. The Recovery Plan 

would describe FICC’s overall strategy 

for the management of these risks, 

which includes a ‘‘three lines of 

defense’’ approach to risk management 

that allows for comprehensive 

management of risk across the 

organization.38 The Recovery Plan 

would also describe FICC’s approach to 

financial risk and capital management. 

The Plan would identify key aspects of 

this approach, including, for example, 

an annual budget process, business line 

performance reviews with management, 

and regular review of capital 

requirements against LNA. These risk 

management strategies are collectively 

intended to allow FICC to effectively 

identify, monitor, and manage risks of 

non-default losses. 

The Plan would identify the two 

categories of financial resources FICC 

maintains to cover losses and expenses 

arising from non-default risks or events 

as (1) LNA, maintained, monitored, and 

managed pursuant to the Capital Policy, 

which include (a) amounts held in 

satisfaction of the General Business Risk 

Capital Requirement,39 (b) the Corporate 

Contribution,40 and (c) other amounts 

held in excess of FICC’s capital 

requirements pursuant to the Capital 

Policy; and (2) resources available 

pursuant to the loss allocation 

provisions of GSD Rule 4 and MBSD 

Rule 4.41

The Plan would address the process 

by which the CFO and the DTCC 

Treasury group would determine which 

available LNA resources are most 

appropriate to cover a loss that is caused 

by a non-default event. This 

determination involves an evaluation of 

a number of factors, including the 

current and expected size of the loss, 

the expected time horizon over when 

the loss or additional expenses would 

materialize, the current and projected 

available LNA, and the likelihood LNA 

could be successfully replenished 

pursuant to the Replenishment Plan, if 

triggered.42 Finally the Plan would 

discuss how FICC would apply its 

resources to address losses resulting 

from a non-default event, including the 

order of resources it would apply if the 

loss or liability exceeds FICC’s excess 

LNA amounts, or is large relative 

thereto, and the Board has declared the 

event a ‘‘Declared Non-Default Loss 

Event’’ pursuant to GSD Rule 4 and 

MBSD Rule 4.43

The Plan would also describe 

proposed GSD Rule 50 (Market 


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44Standards for Covered Clearing Agencies, 

Securities Exchange Act Release No. 78961 

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

2016) (S7–03–14). 45 11 U.S.C. 1101 et seq. 

46The Wind-down Plan would state that, given 

FICC’s position as a user-governed financial market 

utility, it is possible that Members might 

voluntarily elect to provide additional support 

during the recovery phase leading up to a potential 

trigger of the Wind-down Plan, but would also 

make clear that FICC cannot predict the willingness 

of Members to do so. 

Disruption and Force Majeure) and 

proposed MBSD Rule 40 (Market 

Disruption and Force Majeure), which 

FICC is proposing to adopt in the GSD 

Rule and MBSD Rules, respectively. 

This Proposed Rule would provide 

transparency around how FICC would 

address extraordinary events that may 

occur outside its control. Specifically, 

the Proposed Rule would define a 

‘‘Market Disruption Event’’ and the 

governance around a determination that 

such an event has occurred. The 

Proposed Rule would also describe 

FICC’s authority to take actions during 

the pendency of a Market Disruption 

Event that it deems appropriate to 

address such an event and facilitate the 

continuation of its services, if 

practicable, as described in greater 

detail below. 

The Plan would describe the 

interaction between the Proposed Rule 

and FICC’s existing processes and 

procedures addressing business 

continuity management and disaster 

recovery (generally, the ‘‘BCM/DR 

procedures’’), making clear that the 

Proposed Rule is designed to support 

those BCM/DR procedures and to 

address circumstances that may be 

exogenous to FICC and not necessarily 

addressed by the BCM/DR procedures. 

Finally, the Plan would describe that, 

because the operation of the Proposed 

Rule is specific to each applicable 

Market Disruption Event, the Proposed 

Rule does not define a time limit on its 

application. However, the Plan would 

note that actions authorized by the 

Proposed Rule would be limited to the 

pendency of the applicable Market 

Disruption Event, as made clear in the 

Proposed Rule. Overall, the Proposed 

Rule is designed to mitigate risks caused 

by Market Disruption Events and, 

thereby, minimize the risk of financial 

loss that may result from such events. 

Recovery Tool Characteristics. The 

Recovery Plan would describe FICC’s 

evaluation of the tools identified within 

the Recovery Plan, and its rationale for 

concluding that such tools are 

comprehensive, effective, and 

transparent, and that such tools provide 

appropriate incentives to Members and 

minimize negative impact on Members 

and the financial system, in compliance 

with guidance published by the 

Commission in connection with the 

adoption of Rule 17Ad–22(e)(3)(ii) 

under the Act.44 FICC’s analysis and the 

conclusions set forth in this section of 

the Recovery Plan are described in 

greater detail in Item 3(b) of this filing, 

below. 

FICC Wind-Down Plan 

The Wind-down Plan would provide 

the framework and strategy for the 

orderly wind-down of FICC if the use of 

the recovery tools described in the 

Recovery Plan do not successfully 

return FICC to financial viability. While 

FICC believes that, given the 

comprehensive nature of the recovery 

tools, such event is extremely unlikely, 

as described in greater detail below, 

FICC is proposing a wind-down strategy 

that provides for (1) the transfer of 

FICC’s business, assets and 

memberships of both Divisions to 

another legal entity, (2) such transfer 

being effected in connection with 

proceedings under Chapter 11 of the 

U.S. Federal Bankruptcy Code,45 and (3) 

after effectuating this transfer, FICC 

liquidating any remaining assets in an 

orderly manner in bankruptcy 

proceedings. FICC believes that the 

proposed transfer approach to a winddown would meet its objectives of (1) 

assuring that FICC’s critical services 

will be available to the market as long 

as there are Members in good standing, 

and (2) minimizing disruption to the 

operations of Members and financial 

markets generally that might be caused 

by FICC’s failure. 

In describing the transfer approach to 

FICC’s Wind-down Plan, the Plan would 

identify the factors that FICC considered 

in developing this approach, including 

the fact that FICC does not own material 

assets that are unrelated to its clearance 

and settlement activities. As such, a 

business reorganization or ‘‘bail-in’’ of 

debt approach would be unlikely to 

mitigate significant losses. Additionally, 

FICC’s approach was developed in 

consideration of its critical and unique 

position in the U.S. markets, which 

precludes any approach that would 

cause FICC’s critical services to no 

longer be available. 

First, the Wind-down Plan would 

describe the potential scenarios that 

could lead to the wind-down of FICC, 

and the likelihood of such scenarios. 

The Wind-down Plan would identify 

the time period leading up to a decision 

to wind-down FICC as the ‘‘Runway 

Period.’’ This period would follow the 

implementation of any recovery tools, as 

it may take a period of time, depending 

on the severity of the market stress at 

that time, for these tools to be effective 

or for FICC to realize a loss sufficient to 

cause it to be unable to effectuate 

settlements and repay its obligations.46

The Wind-down Plan would identify 

some of the indicators that it has 

entered this Runway Period, which 

would include, for example, successive 

Member defaults, significant Member 

retirements thereafter, and FICC’s 

inability to replenish its financial 

resources following the liquidation of 

the portfolio of the Defaulting 

Member(s). 

The trigger for implementing the 

Wind-down Plan would be a 

determination by the Board that 

recovery efforts have not been, or are 

unlikely to be, successful in returning 

FICC to viability as a going concern. As 

described in the Plan, FICC believes this 

is an appropriate trigger because it is 

both broad and flexible enough to cover 

a variety of scenarios, and would align 

incentives of FICC and the Members to 

avoid actions that might undermine 

FICC’s recovery efforts. Additionally, 

this approach takes into account the 

characteristics of FICC’s recovery tools 

and enables the Board to consider (1) 

the presence of indicators of a 

successful or unsuccessful recovery, and 

(2) potential for knock-on effects of 

continued iterative application of FICC’s 

recovery tools. 

The Wind-down Plan would describe 

the general objectives of the transfer 

strategy, and would address 

assumptions regarding the transfer of 

FICC’s critical services, business, assets 

and membership, and the assignment of 

GSD’s link with another FMI, to another 

legal entity that is legally, financially, 

and operationally able to provide FICC’s 

critical services to entities that wish to 

continue their membership following 

the transfer (‘‘Transferee’’). The Winddown Plan would provide that the 

Transferee would be either (1) a third 

party legal entity, which may be an 

existing or newly established legal 

entity or a bridge entity formed to 

operate the business on an interim basis 

to enable the business to be transferred 

subsequently (‘‘Third Party 

Transferee’’); or (2) an existing, debt-free 

failover legal entity established ex-ante 

by DTCC (‘‘Failover Transferee’’) to be 

used as an alternative Transferee in the 

event that no viable or preferable Third 

Party Transferee timely commits to 

acquire FICC’s business. FICC would 

seek to identify the proposed 

Transferee, and negotiate and enter into 


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47See 11 U.S.C. et seq. 48See id. at 363. 49The proposed transfer arrangements outlined in 

the Wind-down Plan do not contemplate the 

transfer of any credit or funding agreements, which 

are generally not assignable by FICC. However, to 

the extent the Transferee adopts rules substantially 

identical to those FICC has in effect prior to the 

transfer, it would have the benefit of any rulesbased liquidity funding. The Wind-down Plan 

contemplates that neither of the Divisions’ 

respective Clearing Funds would be transferred to 

the Transferee, as they are not held in a bankruptcy 

remote manner and they are the primary prefunded 

liquidity resource to be accessed in the recovery 

phase. 50See supra note 7. 

51See supra note 10. 

52See supra note 10. 

transfer arrangements during the 

Runway Period and prior to making any 

filings under Chapter 11 of the U.S. 

Federal Bankruptcy Code.47 As stated 

above, the Wind-down Plan would 

anticipate that the transfer to the 

Transferee be effected in connection 

with proceedings under Chapter 11 of 

the U.S. Federal Bankruptcy Code, and 

pursuant to a bankruptcy court order 

under Section 363 of the Bankruptcy 

Code, such that the transfer would be 

free and clear of claims against, and 

interests in, FICC, except to the extent 

expressly provided in the court’s 

order.48

In order to effect a timely transfer of 

its services and minimize the market 

and operational disruption of such 

transfer, FICC would expect to transfer 

all of its critical services and any noncritical services that are ancillary and 

beneficial to a critical service, or that 

otherwise have substantial user demand 

from the continuing membership. 

Following the transfer, the Wind-down 

Plan would anticipate that the 

Transferee and its continuing 

membership would determine whether 

to continue to provide any transferred 

non-critical service on an ongoing basis, 

or terminate the non-critical service 

following some transition period. FICC’s 

Wind-down Plan would anticipate that 

the Transferee would enter into a 

transition services agreement with 

DTCC so that DTCC would continue to 

provide the shared services it currently 

provides to FICC, including staffing, 

infrastructure and operational support. 

The Wind-down Plan would also 

anticipate the assignment of FICC’s link 

arrangements, including its 

arrangements with clearing banks and 

GSD’s cross-margining arrangement 

with CME, described above, to the 

Transferee.49 The Wind-down Plan 

would provide that Members’ open 

positions existing prior to the effective 

time of the transfer would be addressed 

by the provisions of the proposed Winddown Rule, as defined and described 

below, and the existing GSD Rule 22B 

(Corporation Default) and MBSD Rule 

17 (Corporation Default) (collectively, 

‘‘Corporation Default Rule’’), as 

applicable, and that the Transferee 

would not acquire any pending or open 

transactions with the transfer of the 

business.50 The Wind-down Plan would 

anticipate that the Transferee would 

accept transactions for processing with 

a trade date from and after the effective 

time of the transfer. 

The Wind-down Plan would provide 

that, following the effectiveness of the 

transfer to the Transferee, the winddown of FICC would involve addressing 

any residual claims against FICC 

through the bankruptcy process and 

liquidating the legal entity. As such, and 

as stated above, the Wind-down Plan 

does not contemplate FICC continuing 

to provide services in any capacity 

following the transfer time, and any 

services not transferred would be 

terminated. 

The Wind-down Plan would also 

identify the key dependencies for the 

effectiveness of the transfer, which 

include regulatory approvals that would 

permit the Transferee to be legally 

qualified to provide the transferred 

services from and after the transfer, and 

approval by the applicable bankruptcy 

court of, among other things, the 

proposed sale, assignments, and 

transfers to the Transferee. 

The Wind-down Plan would address 

governance matters related to the 

execution of the transfer of FICC’s 

business and its wind-down. The Winddown Plan would address the duties of 

the Board to execute the wind-down of 

FICC in conformity with (1) the Rules, 

(2) the Board’s fiduciary duties, which 

mandate that it exercise reasonable 

business judgment in performing these 

duties, and (3) FICC’s regulatory 

obligations under the Act as a registered 

clearing agency. The Wind-down Plan 

would also identify certain factors the 

Board may consider in making these 

decisions, which would include, for 

example, whether FICC could safely 

stabilize the business and protect its 

value without seeking bankruptcy 

protection, and FICC’s ability to 

continue to meet its regulatory 

requirements. 

The Wind-down Plan would describe 

(1) actions FICC or DTCC may take to 

prepare for wind-down in the period 

before FICC experiences any financial 

distress, (2) actions FICC would take 

both during the recovery phase and the 

Runway Period to prepare for the 

execution of the Wind-down Plan, and 

(3) actions FICC would take upon 

commencement of bankruptcy 

proceedings to effectuate the Winddown Plan. 

Finally, the Wind-down Plan would 

include an analysis of the estimated 

time and costs to effectuate the plan, 

and would provide that this estimate be 

reviewed and approved by the Board 

annually. In order to estimate the length 

of time it might take to achieve a 

recovery or orderly wind-down of 

FICC’s critical operations, as 

contemplated by the R&W Plan, the 

Wind-down Plan would include an 

analysis of the possible sequencing and 

length of time it might take to complete 

an orderly wind-down and transfer of 

critical operations, as described in 

earlier sections of the R&W Plan. The 

Wind-down Plan would also include in 

this analysis consideration of other 

factors, including the time it might take 

to complete any further attempts at 

recovery under the Recovery Plan. The 

Wind-down Plan would then multiply 

this estimated length of time by FICC’s 

average monthly operating expenses, 

including adjustments to account for 

changes to FICC’s profit and expense 

profile during these circumstances, over 

the previous twelve months to 

determine the amount of LNA that it 

should hold to achieve a recovery or 

orderly wind-down of FICC’s critical 

operations. The estimated wind-down 

costs would constitute the ‘‘Recovery/ 

Wind-down Capital Requirement’’ 

under the Capital Policy.51 Under that 

policy, the General Business Risk 

Capital Requirement is calculated as the 

greatest of three estimated amounts, one 

of which is this Recovery/Wind-down 

Capital Requirement.52

The R&W Plan is designed as a 

roadmap, and the types of actions that 

may be taken both leading up to and in 

connection with implementation of the 

Wind-down Plan would be primarily 

addressed in other supporting 

documentation referred to therein. 

The Wind-down Plan would address 

proposed GSD Rule 22D and MBSD 

Rule 17B (Wind-down of the 

Corporation), which would be adopted 

to facilitate the implementation of the 

Wind-down Plan, and are discussed 

below. 

Proposed Rules 

In connection with the adoption of 

the R&W Plan, FICC is proposing to 

adopt the Proposed Rules, each 

described below. The Proposed Rules 

would facilitate the execution of the 

R&W Plan and would provide Members 

and Limited Members with 

transparency as to critical aspects of the 

Plan, particularly as they relate to the 

rights and responsibilities of both FICC 


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and Members. The Proposed Rules also 

provide a legal basis to these aspects of 

the Plan. 

GSD Rule 22D and MBSD Rule 17B 

(Wind-Down of the Corporation) 

The proposed GSD Rule 22D and 

MBSD Rule 17B (collectively, ‘‘Winddown Rule’’) would be adopted by both 

Divisions to facilitate the execution of 

the Wind-down Plan. The Wind-down 

Rule would include a proposed set of 

defined terms that would be applicable 

only to the provisions of this Proposed 

Rule. The Wind-down Rule would make 

clear that a wind-down of FICC’s 

business would occur (1) after a 

decision is made by the Board, and (2) 

in connection with the transfer of FICC’s 

services to a Transferee, as described 

therein. Because GSD and MBSD are 

both divisions of FICC, the individual 

Wind-down Rules are designed to work 

together. A decision by the Board to 

initiate the Wind-down Plan would be 

pursuant to, and trigger the provisions 

of, the Wind-down Rule of each 

Division simultaneously. Generally, the 

proposed Wind-down Rule is designed 

to create clear mechanisms for the 

transfer of Eligible Members, Eligible 

Limited Members, and Settling Banks 

(as these terms would be defined in the 

Wind-down Rule), and FICC’s business 

in order to provide for continued access 

to critical services and to minimize 

disruption to the markets in the event 

the Wind-down Plan is initiated. 

Wind-down Trigger. First, the 

Proposed Rule would make clear that 

the Board is responsible for initiating 

the Wind-down Plan, and would 

identify the criteria the Board would 

consider when making this 

determination. As provided for in the 

Wind-down Plan and in the proposed 

Wind-down Rule, the Board would 

initiate the Plan if, in the exercise of its 

business judgment and subject to its 

fiduciary duties, it has determined that 

the execution of the Recovery Plan has 

not or is not likely to restore FICC to 

viability as a going concern, and the 

implementation of the Wind-down Plan, 

including the transfer of FICC’s 

business, is in the best interests of FICC, 

Members and Limited Members of both 

Divisions, its shareholders and 

creditors, and the U.S. financial 

markets. 

Identification of Critical Services; 

Designation of Dates and Times for 

Specific Actions. The Proposed Rule 

would provide that, upon making a 

determination to initiate the Winddown Plan, the Board would identify 

the critical and non-critical services that 

would be transferred to the Transferee at 

the Transfer Time (as defined below and 

in the Proposed Rule), as well as any 

non-critical services that would not be 

transferred to the Transferee. The 

proposed Wind-down Rule would 

establish that any services transferred to 

the Transferee will only be provided by 

the Transferee as of the Transfer Time, 

and that any non-critical services that 

are not transferred to the Transferee 

would be terminated at the Transfer 

Time. The Proposed Rule would also 

provide that the Board would establish 

(1) an effective time for the transfer of 

FICC’s business to a Transferee 

(‘‘Transfer Time’’), (2) the last day that 

transactions may be submitted to either 

Division for processing (‘‘Last 

Transaction Acceptance Date’’), and (3) 

the last day that transactions submitted 

to either Division will be settled (‘‘Last 

Settlement Date’’). 

Treatment of Pending Transactions. 

The Wind-down Rule would also 

authorize the Board to provide for the 

settlement of pending transactions of 

either Division prior to the Transfer 

Time, so long as the applicable 

Division’s Corporation Default Rule has 

not been triggered. For example, the 

Proposed Rule would provide the Board 

with the ability to, if it deems 

practicable, based on FICC’s resources at 

that time, allow pending transactions of 

either Division to complete prior to the 

transfer of FICC’s business to a 

Transferee. The Board would also have 

the ability to allow Members to only 

submit trades to the applicable Division 

that would effectively offset pending 

positions or provide that transactions 

will be processed in accordance with 

special or exception processing 

procedures. The Proposed Rule is 

designed to enable these actions in 

order to facilitate settlement of pending 

transactions of the applicable Division 

and reduce claims against FICC that 

would have to be satisfied after the 

transfer has been effected. If none of 

these actions are deemed practicable (or 

if the applicable Division’s Corporation 

Default Rule has been triggered with 

respect to a Division), then the 

provisions of the proposed Corporation 

Default Rule would apply to the 

treatment of open, pending transactions 

of such Division. 

The Proposed Rule would make clear, 

however, that neither Division would 

accept any transactions for processing 

after the Last Transaction Acceptance 

Date or which are designated to settle 

after the Last Settlement Date for such 

Division. Any transactions to be 

processed and/or settled after the 

Transfer Time would be required to be 

submitted to the Transferee, and would 

not be FICC’s responsibility. 

Notice Provisions. The proposed 

Wind-down Rule would provide that, 

upon a decision to implement the Winddown Plan, FICC would provide its 

Members and Limited Members and its 

regulators with a notice that includes 

material information relating to the 

Wind-down Plan and the anticipated 

transfer of the membership of both 

Divisions and business, including, for 

example, (1) a brief statement of the 

reasons for the decision to implement 

the Wind-down Plan; (2) identification 

of the Transferee and information 

regarding the transaction by which the 

transfer of FICC’s business would be 

effected; (3) the Transfer Time, Last 

Transaction Acceptance Date, and Last 

Settlement Date; and (4) identification 

of Eligible Members and Eligible 

Limited Members, and the critical and 

non-critical services that would be 

transferred to the Transferee at the 

Transfer Time, as well as those NonEligible Members and Non-Eligible 

Limited Members (as defined in the 

Proposed Rule), and any non-critical 

services that would not be included in 

the transfer. FICC would also make 

available the rules and procedures and 

membership agreements of the 

Transferee. 

Transfer of Membership. The 

proposed Wind-down Rule would 

address the expected transfer of both 

Divisions’ membership to the 

Transferee, which FICC would seek to 

effectuate by entering into an 

arrangement with a Failover Transferee, 

or by using commercially reasonable 

efforts to enter into such an arrangement 

with a Third Party Transferee. 

Therefore, the Wind-down Rule would 

provide Members, Limited Members 

and Settling Banks with notice that, in 

connection with the implementation of 

the Wind-down Plan and with no 

further action required by any party, (1) 

their membership with the applicable 

Division would transfer to the 

Transferee, (2) they would become party 

to a membership agreement with such 

Transferee, and (3) they would have all 

of the rights and be subject to all of the 

obligations applicable to their 

membership status under the rules of 

the Transferee. These provisions would 

not apply to any Member or Limited 

Member that is either in default of an 

obligation to FICC or has provided 

notice of its election to withdraw its 

membership from the applicable 

Division. Further, the proposed Winddown Rule would make clear that it 

would not prohibit (1) Members and 

Limited Members that are not 

transferred by operation of the Winddown Rule from applying for 


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53The Members and Limited Members whose 

membership is transferred to the Transferee 

pursuant to the proposed Wind-down Rule would 

submit transactions to be processed and settled 

subject to the rules and procedures of the 

Transferee, including any applicable margin 

charges or other financial obligations. 

54Nothing in the proposed Wind-down Rule 

would seek to prevent a Member, Limited Member 

or Settling Bank that retired its membership at 

either of the Divisions from applying for 

membership with the Transferee. Once its FICC 

membership is terminated, however, such firm 

would not be able to benefit from the membership 

assignment that would be effected by this proposed 

Wind-down Rule, and it would have to apply for 

membership directly with the Transferee, subject to 

its membership application and review process. 

membership with the Transferee, or (2) 

Members, Limited Members, and 

Settling Banks that would be transferred 

to the Transferee from withdrawing 

from membership with the Transferee.53

Comparability Period. The proposed 

automatic mechanism for the transfer of 

both Divisions’ memberships is 

intended to provide the membership 

with continuous access to critical 

services in the event of FICC’s winddown, and to facilitate the continued 

prompt and accurate clearance and 

settlement of securities transactions. 

Further to this goal, the proposed Winddown Rule would provide that FICC 

would enter into arrangements with a 

Failover Transferee, or would use 

commercially reasonable efforts to enter 

into arrangements with a Third Party 

Transferee, providing that, in either 

case, with respect to the critical services 

and any non-critical services that are 

transferred from FICC to the Transferee, 

for at least a period of time to be agreed 

upon (‘‘Comparability Period’’), the 

business transferred from FICC to the 

Transferee would be operated in a 

manner that is comparable to the 

manner in which the business was 

previously operated by FICC. 

Specifically, the proposed Wind-down 

Rule would provide that: (1) The rules 

of the Transferee and terms of 

membership agreements would be 

comparable in substance and effect to 

the analogous Rules and membership 

agreements of FICC; (2) the rights and 

obligations of any Members, Limited 

Members and Settling Banks that are 

transferred to the Transferee would be 

comparable in substance and effect to 

their rights and obligations as to FICC; 

and (3) the Transferee would operate the 

transferred business and provide any 

services that are transferred in a 

comparable manner to which such 

services were provided by FICC. The 

purpose of these provisions and the 

intended effect of the proposed Winddown Rule is to facilitate a smooth 

transition of FICC’s business to a 

Transferee and to provide that, for at 

least the Comparability Period, the 

Transferee (1) would operate the 

transferred business in a manner that is 

comparable in substance and effect to 

the manner in which the business was 

operated by FICC, and (2) would not 

require sudden and disruptive changes 

in the systems, operations and business 

practices of the new members of the 

Transferee. 

Subordination of Claims Provisions 

and Miscellaneous Matters. The 

proposed Wind-down Rule would also 

include a provision addressing the 

subordination of unsecured claims 

against FICC of its Members and 

Limited Members who fail to participate 

in FICC’s recovery efforts (i.e., such 

firms are delinquent in their obligations 

to FICC or elect to retire from FICC in 

order to minimize their obligations with 

respect to the allocation of losses, 

pursuant to the Rules). This provision is 

designed to incentivize Members to 

participate in FICC’s recovery efforts.54

The proposed Wind-down Rule 

would address other ex-ante matters, 

including provisions providing that its 

Members, Limited Members and 

Settling Banks (1) will assist and 

cooperate with FICC to effectuate the 

transfer of FICC’s business to a 

Transferee, (2) consent to the provisions 

of the rule, and (3) grant FICC power of 

attorney to execute and deliver on their 

behalf documents and instruments that 

may be requested by the Transferee. 

Finally, the Proposed Rule would 

include a limitation of liability for any 

actions taken or omitted to be taken by 

FICC pursuant to the Proposed Rule. 

The purpose of the limitation of liability 

is to facilitate and protect FICC’s ability 

to act expeditiously in response to 

extraordinary events. As noted, such 

limitation of liability would be available 

only following triggering of the Winddown Plan. In addition, and as a 

separate matter, the limitation of 

liability provides Members with 

transparency for the unlikely situation 

when those extraordinary events could 

occur, as well supporting the legal 

framework within which FICC would 

take such actions. These provisions, 

collectively, are designed to enable FICC 

to take such acts as the Board 

determines necessary to effectuate an 

orderly transfer and wind-down of its 

business should recovery efforts prove 

unsuccessful. 

GSD Rule 50 and MBSD Rule 40 (Market 

Disruption and Force Majeure) 

The proposed GSD Rule 50 and MBSD 

Rule 40 (Market Disruption and Force 

Majeure) (collectively, ‘‘Force Majeure 

Rule’’) would address FICC’s authority 

to take certain actions upon the 

occurrence, and during the pendency, of 

a ‘‘Market Disruption Event,’’ as defined 

therein. Because GSD and MBSD are 

both divisions of FICC, the individual 

Force Majeure Rules are designed to 

work together. A decision by the Board 

or management of FICC that a Market 

Disruption Event has occurred in 

accordance with the Force Majeure Rule 

would trigger the provisions of the 

Force Majeure Rule of each Division 

simultaneously. The Proposed Rule is 

designed to clarify FICC’s ability to take 

actions to address extraordinary events 

outside of the control of FICC and of the 

memberships of the Divisions, and to 

mitigate the effect of such events by 

facilitating the continuity of services (or, 

if deemed necessary, the temporary 

suspension of services). To that end, 

under the proposed Force Majeure Rule, 

FICC would be entitled, during the 

pendency of a Market Disruption Event, 

to (1) suspend the provision of any or 

all services, and (2) take, or refrain from 

taking, or require its Members and 

Limited Members to take, or refrain 

from taking, any actions it considers 

appropriate to address, alleviate, or 

mitigate the event and facilitate the 

continuation of FICC’s services as may 

be practicable. 

The proposed Force Majeure Rule 

would identify the events or 

circumstances that would be considered 

a ‘‘Market Disruption Event,’’ including, 

for example, events that lead to the 

suspension or limitation of trading or 

banking in the markets in which FICC 

operates, or the unavailability or failure 

of any material payment, bank transfer, 

wire or securities settlement systems. 

The proposed Force Majeure Rule 

would define the governance 

procedures for how FICC would 

determine whether, and how, to 

implement the provisions of the rule. A 

determination that a Market Disruption 

Event has occurred would generally be 

made by the Board, but the Proposed 

Rule would provide for limited, interim 

delegation of authority to a specified 

officer or management committee if the 

Board would not be able to take timely 

action. In the event such delegated 

authority is exercised, the proposed 

Force Majeure Rule would require that 

the Board be convened as promptly as 

practicable, no later than five Business 

Days after such determination has been 

made, to ratify, modify, or rescind the 

action. The proposed Force Majeure 

Rule would also provide for prompt 

notification to the Commission, and 

advance consultation with Commission 

staff, when practicable, including 


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Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 38425 

55 12 U.S.C. 5461(b). 

56 Id. at 5464(a)(2). 

57 Id. at 5464(b). 

58 Id. 

59 15 U.S.C. 78q–1(b)(3)(F). 

notification when an event is no longer 

continuing and the relevant actions are 

terminated. The Proposed Rule would 

require Members and Limited Members 

to notify FICC immediately upon 

becoming aware of a Market Disruption 

Event, and, likewise, would require 

FICC to notify Members and Limited 

Members if it has triggered the Proposed 

Rule and of actions taken or intended to 

be taken thereunder. 

Finally, the Proposed Rule would 

address other related matters, including 

a limitation of liability for any failure or 

delay in performance, in whole or in 

part, arising out of the Market 

Disruption Event. The purpose of the 

limitation of liability would be similar 

to the purpose of the analogous 

provision in the proposed Wind-down 

Rule, which is to facilitate and protect 

FICC’s ability to act expeditiously in 

response to extraordinary events. 

Proposed Changes to GSD Rules, MBSD 

Rules, and EPN Rules 

In order to incorporate the Proposed 

Rules into the Rules and the EPN Rules, 

FICC is also proposing to amend (1) 

GSD Rule 3A (Sponsoring Members and 

Sponsored Members), GSD Rule 3B 

(Centrally Cleared Institutional Triparty 

Service) and GSD Rule 13 (Funds-Only 

Settlement); (2) MBSD Rule 3A (Cash 

Settlement Bank Members); and (3) Rule 

1 of the EPN Rules. As shown on 

Exhibit 5b, these proposed changes 

would clarify that certain types of 

Limited Members, as identified in those 

rules, would be subject to the Proposed 

Rules. 

Expected Effect on and Management of 

Risk 

FICC believes the proposal to adopt 

the R&W Plan and the Proposed Rules 

would enable it to better manage its 

risks. As described above, the Recovery 

Plan would identify the recovery tools 

and the risk management activities that 

FICC may use to address risks of 

uncovered losses or shortfalls resulting 

from a Member default and losses 

arising from non-default events. By 

creating a framework for its 

management of risks across an evolving 

stress scenario and providing a roadmap 

for actions it may employ to monitor 

and, as needed, stabilize its financial 

condition, the Recovery Plan would 

strengthen FICC’s ability to manage risk. 

The Wind-down Plan would also enable 

FICC to better manage its risks by 

establishing the strategy and framework 

for its orderly wind-down and the 

transfer of FICC’s business when the 

Wind-down Plan is triggered. By 

creating clear mechanisms for the 

transfer of the Divisions’ membership 

and business, the Wind-down Plan 

would facilitate continued access to 

FICC’s critical services and minimize 

market impact of the transfer and enable 

FICC to better manage risks related to its 

wind-down. 

FICC believes the Proposed Rules 

would enable it to better manage its 

risks by facilitating, and providing a 

legal basis for, the implementation of 

critical aspects of the R&W Plan. The 

Proposed Rules would provide Members 

and Limited Members with 

transparency around those provisions of 

the R&W Plan that relate to their and 

FICC’s rights, responsibilities and 

obligations. Therefore, FICC believes the 

Proposed Rules would enable it to better 

manage its risks by providing this 

transparency and creating certainty, to 

the extent practicable, around the 

occurrence of a Market Disruption Event 

(as such term is defined in the proposed 

Force Majeure Rule), and around the 

implementation of the Wind-down Plan. 

Consistency With the Clearing 

Supervision Act 

The stated purpose of Title VIII of the 

Clearing Supervision Act is to mitigate 

systemic risk in the financial system 

and promote financial stability by, 

among other things, promoting uniform 

risk management standards for 

systemically important financial market 

utilities and strengthening the liquidity 

of systemically important financial 

market utilities.55 Section 805(a)(2) of 

the Clearing Supervision Act 56 also 

authorizes the Commission to prescribe 

risk management standards for the 

payment, clearing, and settlement 

activities of designated clearing entities, 

like FICC, for which the Commission is 

the supervisory agency. Section 805(b) 

of the Clearing Supervision Act 57 states 

that the objectives and principles for 

risk management standards prescribed 

under Section 805(a) shall be to promote 

robust risk management, promote safety 

and soundness, reduce systemic risks, 

and support the stability of the broader 

financial system. 

FICC believes that the proposal is 

consistent with Section 805(b) of the 

Clearing Supervision Act because it is 

designed to address each of these 

objectives. The Recovery Plan and the 

proposed Force Majeure Rule would 

promote robust risk management and 

would reduce systemic risks by 

providing FICC with a roadmap for 

actions it may employ to monitor and 

manage its risks, and, as needed, to 

stabilize its financial condition in the 

event those risks materialize. Further, 

the Recovery Plan would identify the 

triggers of recovery tools, but would not 

provide that those triggers necessitate 

the use of those tools. Instead, the 

Recovery Plan would provide that the 

triggers of these tools lead to escalation 

to an appropriate management body, 

which would have the authority and 

flexibility to respond appropriately to 

the situation. Essentially, the Recovery 

Plan and the proposed Force Majeure 

Rule are designed to minimize losses to 

both FICC and Members by giving FICC 

the ability to determine the most 

appropriate way to address each stress 

situation. This approach would allow 

for proper evaluation of the situation 

and the possible impacts of the use of 

the available recovery tools in order to 

minimize the negative effects of the 

stress situation, and would reduce 

systemic risks related to the 

implementation of the Recovery Plan 

and the underlying recovery tools. 

The Wind-down Plan and the 

proposed Wind-down Rule, which 

would facilitate the implementation of 

the Wind-down Plan, would promote 

safety and soundness and would 

support the stability of the broader 

financial system, because they would 

establish a framework for the orderly 

wind-down of FICC’s business and 

would set forth clear mechanics for the 

transfer of its critical services and the 

memberships of both Divisions. By 

designing the Wind-down Plan and this 

Proposed Rule to enable the continuity 

of FICC’s critical services and 

membership, FICC believes they would 

promote safety and soundness and 

would support stability in the broader 

financial system in the event the Winddown Plan is implemented. 

By assisting FICC to promote robust 

risk management, promote safety and 

soundness, reduce systemic risks, and 

support the stability of the broader 

financial system, as described above, 

FICC believes the proposal is consistent 

with Section 805(b) of the Clearing 

Supervision Act.58

FICC also believes that the proposal is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a registered 

clearing agency. In particular, FICC 

believes that the R&W Plan, each of the 

Proposed Rules and the other proposed 

changes to the Rules and the EPN Rules 

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

of the Act,59 the R&W Plan and each of 

the Proposed Rules are consistent with 


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38426 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 

60 17 CFR 240.17Ad–22(e)(3)(ii). 

61 Id. at 240.17Ad–22(e)(15)(ii). 

62 15 U.S.C. 78q–1(b)(3)(F). 

63 Id. 

64 17 CFR 240.17Ad–22(e)(3)(ii). 

65 Id. 

66 Id. 

67 Id. 

68 Id. 

Rule 17Ad–22(e)(3)(ii) under the Act,60

and the R&W Plan is consistent with 

Rule 17Ad–22(e)(15)(ii) under the Act,61

for the reasons described below. 

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

requires, in part, that the rules of FICC 

be designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions, and to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

FICC or for which it is responsible.62

The Recovery Plan and the proposed 

Force Majeure Rule would promote the 

prompt and accurate clearance and 

settlement of securities transactions by 

providing FICC with a roadmap for 

actions it may employ to mitigate losses, 

and monitor and, as needed, stabilize, 

its financial condition, which would 

allow it to continue its critical clearance 

and settlement services in stress 

situations. Further, as described above, 

the Recovery Plan is designed to 

identify the actions and tools FICC may 

use to address and minimize losses to 

both FICC and Members. The Recovery 

Plan and the proposed Force Majeure 

Rule would provide FICC’s management 

and the Board with guidance in this 

regard by identifying the indicators and 

governance around the use and 

application of such tools to enable them 

to address stress situations in a manner 

most appropriate for the circumstances. 

Therefore, the Recovery Plan and the 

proposed Force Majeure Rule would 

also contribute to the safeguarding of 

securities and funds which are in the 

custody or control of FICC or for which 

it is responsible by enabling actions that 

would address and minimize losses. 

The Wind-down Plan and the 

proposed Wind-down Rule, which 

would facilitate the implementation of 

the Wind-down Plan, would also 

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 FICC or for which 

it is responsible. The Wind-down Plan 

and the proposed Wind-down Rule 

would collectively establish a 

framework for the transfer and orderly 

wind-down of FICC’s business. These 

proposals would establish clear 

mechanisms for the transfer of FICC’s 

critical services and membership. By 

doing so, the Wind-down Plan and this 

Proposed Rule are designed to facilitate 

the continuity of FICC’s critical services 

and enable Members and Limited 

Members to maintain access to FICC’s 

services through the transfer of its 

Divisions’ memberships in the event the 

Wind-down Plan is triggered by the 

Board. Therefore, by facilitating the 

continuity of FICC’s critical clearance 

and settlement services, FICC believes 

the proposals would promote the 

prompt and accurate clearance and 

settlement of securities transactions. 

Further, by creating a framework for the 

transfer and orderly wind-down of 

FICC’s business, FICC believes the 

proposals would enhance the 

safeguarding of securities and funds 

which are in the custody or control of 

FICC or for which it is responsible. 

Finally, the other proposed changes to 

the Rules and the EPN Rules would 

clarify the application of the Proposed 

Rules to certain types of Limited 

Members and would enable these 

Limited Members to readily understand 

their rights and obligations. As such, 

FICC believes these proposed changes 

would enable Limited Members that are 

governed by the applicable rules to have 

a better understanding of those rules 

and, thereby, would assist in promoting 

the prompt and accurate clearance and 

settlement of securities transactions. 

Therefore, FICC believes the R&W 

Plan, each of the Proposed Rules, and 

the other proposed changes are 

consistent with the requirements of 

Section 17A(b)(3)(F) of the Act.63

Rule 17Ad–22(e)(3)(ii) under the Act 

requires FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by the covered 

clearing agency, which includes plans 

for the recovery and orderly wind-down 

of the covered clearing agency 

necessitated by credit losses, liquidity 

shortfalls, losses from general business 

risk, or any other losses.64 The R&W 

Plan and each of the Proposed Rules are 

designed to meet the requirements of 

Rule 17Ad–22(e)(3)(ii).65

The R&W Plan would be maintained 

by FICC in compliance with Rule 17Ad– 

22(e)(3)(ii) in that it provides plans for 

the recovery and orderly wind-down of 

FICC necessitated by credit losses, 

liquidity shortfalls, losses from general 

business risk, or any other losses, as 

described above.66 Specifically, the 

Recovery Plan would define the risk 

management activities, stress conditions 

and indicators, and tools that FICC may 

use to address stress scenarios that 

could eventually prevent it from being 

able to provide its critical services as a 

going concern. Through the framework 

of the Crisis Continuum, the Recovery 

Plan would address measures that FICC 

may take to address risks of credit losses 

and liquidity shortfalls, and other losses 

that could arise from a Member default. 

The Recovery Plan would also address 

the management of general business 

risks and other non-default risks that 

could lead to losses. 

The Wind-down Plan would be 

triggered by a determination by the 

Board that recovery efforts have not 

been, or are unlikely to be, successful in 

returning FICC to viability as a going 

concern. Once triggered, the Winddown Plan would set forth clear 

mechanisms for the transfer of the 

memberships of both Divisions and 

FICC’s business, and would be designed 

to facilitate continued access to FICC’s 

critical services and to minimize market 

impact of the transfer. By establishing 

the framework and strategy for the 

execution of the transfer and winddown of FICC in order to facilitate 

continuous access to FICC’s critical 

services, the Wind-down Plan 

establishes a plan for the orderly winddown of FICC. Therefore, FICC believes 

the R&W Plan would provide plans for 

the recovery and orderly wind-down of 

the covered clearing agency necessitated 

by credit losses, liquidity shortfalls, 

losses from general business risk, or any 

other losses, and, as such, meets the 

requirements of Rule 17Ad– 

22(e)(3)(ii).67

As described in greater detail above, 

the Proposed Rules are designed to 

facilitate the execution of the R&W Plan, 

provide Members and Limited Members 

with transparency regarding the 

material provisions of the Plan, and 

provide FICC with a legal basis for 

implementation of those provisions. As 

such, FICC also believes the Proposed 

Rules meet the requirements of Rule 

17Ad–22(e)(3)(ii).68

FICC has evaluated the recovery tools 

that would be identified in the Recovery 

Plan and has determined that these tools 

are comprehensive, effective, and 

transparent, and that such tools provide 

appropriate incentives to Members to 

manage the risks they present. The 

recovery tools, as outlined in the 

Recovery Plan and in the proposed 

Force Majeure Rule, provide FICC with 

a comprehensive set of options to 

address its material risks and support 

the resiliency of its critical services 

under a range of stress scenarios. FICC 


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69 Id. at 240.19b–4. 

70Supra note 44. 

71 17 CFR 240.17Ad–22(e)(3)(ii). 

72 Id. at 240.17Ad–22(e)(15)(ii). 

73 Id. 

also believes the recovery tools are 

effective, as FICC has both legal basis 

and operational capability to execute 

these tools in a timely and reliable 

manner. Many of the recovery tools are 

provided for in the Rules; Members are 

bound by the Rules through their 

membership agreements with FICC, and 

the Rules are adopted pursuant to a 

framework established by Rule 19b–4 

under the Act,69 providing a legal basis 

for the recovery tools found therein. 

Other recovery tools have legal basis in 

contractual arrangements to which FICC 

is a party, as described above. Further, 

as many of the tools are embedded in 

FICC’s ongoing risk management 

practices or are embedded into its 

predefined default-management 

procedures, FICC is able to execute 

these tools, in most cases, when needed 

and without material operational or 

organizational delay. 

The majority of the recovery tools are 

also transparent, as they are, or are 

proposed to be, included in the Rules, 

which are publicly available. FICC 

believes the recovery tools also provide 

appropriate incentives to Members, as 

they are designed to control the amount 

of risk they present to FICC’s clearance 

and settlement system. Members’ 

financial obligations to FICC, 

particularly their required deposits to 

the applicable Division’s Clearing Fund, 

are measured by the risk posed by the 

Members’ activity in FICC’s systems, 

which incentivizes them to manage that 

risk which would correspond to lower 

financial obligations. Finally, FICC’s 

Recovery Plan provides for a continuous 

evaluation of the systemic consequences 

of executing its recovery tools, with the 

goal of minimizing their negative 

impact. The Recovery Plan would 

outline various indicators over a 

timeline of increasing stress, the Crisis 

Continuum, with escalation triggers to 

FICC management or the Board, as 

appropriate. This approach would allow 

for timely evaluation of the situation 

and the possible impacts of the use of 

a recovery tool in order to minimize the 

negative effects of the stress scenario. 

Therefore, FICC believes that the 

recovery tools that would be identified 

and described in its Recovery Plan, 

including the authority provided to it in 

the proposed Force Majeure Rule, 

would meet the criteria identified 

within guidance published by the 

Commission in connection with the 

adoption of Rule 17Ad–22(e)(3)(ii).70

Therefore, FICC believes the R&W 

Plan and each of the Proposed Rules are 

consistent with Rule 17Ad– 

22(e)(3)(ii).71

Rule 17Ad–22(e)(15)(ii) under the Act 

requires FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

identify, monitor, and manage its 

general business risk and hold sufficient 

LNA to cover potential general business 

losses so that FICC can continue 

operations and services as a going 

concern if those losses materialize, 

including by holding LNA equal to the 

greater of either (x) six months of the 

covered clearing agency’s current 

operating expenses, or (y) the amount 

determined by the board of directors to 

be sufficient to ensure a recovery or 

orderly wind-down of critical 

operations and services of the covered 

clearing agency.72 While the Capital 

Policy addresses how FICC holds LNA 

in compliance with these requirements, 

the Wind-down Plan would include an 

analysis that would estimate the amount 

of time and the costs to achieve a 

recovery or orderly wind-down of 

FICC’s critical operations and services, 

and would provide that the Board 

review and approve this analysis and 

estimation annually. The Wind-down 

Plan would also provide that the 

estimate would be the ‘‘Recovery/Winddown Capital Requirement’’ under the 

Capital Policy. Under that policy, the 

General Business Risk Capital 

Requirement, which is the sufficient 

amount of LNA that FICC should hold 

to cover potential general business 

losses so that it can continue operations 

and services as a going concern if those 

losses materialize, is calculated as the 

greatest of three estimated amounts, one 

of which is this Recovery/Wind-down 

Capital Requirement. Therefore, FICC 

believes the R&W Plan, as it interrelates 

with the Capital Policy, is consistent 

with Rule 17Ad–22(e)(15)(ii).73

III. Date of Effectiveness of the Advance 

Notice, and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received. The clearing 

agency shall not implement the 

proposed change if the Commission has 

any objection to the proposed change. 

A proposed change may be 

implemented in less than 60 days from 

the date the advance notice is filed, or 

the date further information requested 

by the Commission is received, if the 

Commission notifies the clearing agency 

in writing that it does not object to the 

proposed change and authorizes the 

clearing agency to implement the 

proposed change on an earlier date, 

subject to any conditions imposed by 

the Commission. 

The clearing agency shall post notice 

on its website of proposed changes that 

are implemented. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing. 

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–2017–805 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FICC–2017–805. 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 Advance Notice that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notice between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

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


sradovich on DSK3GMQ082PROD with NOTICES
38428 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices 

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

2 17 CFR 240.19b–4. 

3References to rules are to Nasdaq rules, unless 

otherwise noted. 

4This proposed change was initially filed on July 

3, 2018, and became immediately effective on that 

date. See SR–NASDAQ–2018–055, available at 

http://nasdaq.cchwallstreet.com/. A firm eligible to 

purchase the proposed license may purchase it for 

the month of July, effective on July 3, 2018, and the 

monthly fee for the license will be prorated for the 

period July 3 through July 31, 2018. Any fees owed 

by the purchaser of the enterprise license for the 

use of Nasdaq Basic, NLS, NLS Plus and the Nasdaq 

Depth-of-Book products on July 1 and July 2, 2018, 

will also be prorated accordingly. 

5 ‘‘Distributor’’ will be defined in proposed Rule 

7032(c)(3) by reference to Rules 7023(a)(4), 

7039(f)(3), and 7047(d)(1) to reflect the current 

definitions of that term as set forth in each of these 

rules. Those definitions will continue to apply to 

each product, respectively. At a later date, Nasdaq 

will submit an additional proposed rule change to 

consolidate generally-applicable definitions and 

move these definitions to a new rule that will apply 

to all market data fee rules in the 7000 series. 

6 ‘‘Display Usage’’ will be defined in Rule 

7032(c)(2) by reference to Rules 7023(a)(2), 

7039(f)(2), and 7047(d)(2), to reflect the current 

definitions of that term as set forth in each of these 

rules. Those definitions will continue to apply to 

each product, respectively. 

7 ‘‘Investment Adviser’’ will be defined in 

proposed Rule 7032(c)(4) by reference to Section 

202(a)(11) of the Investment Advisers Act of 1940, 

as ‘‘any person who, for compensation, engages in 

the business of advising others, either directly or 

through publications or writings, as to the value of 

securities or as to the advisability of investing in, 

purchasing, or selling securities, or who, for 

compensation and as part of a regular business, 

issues or promulgates analyses or reports 

concerning securities . . . .’’ 

8See Rule 7048(b)(5) (providing that a brokerdealer that purchases this enterprise license will 

also have the right to distribute NLS data to an 

unlimited number of Professional and NonProfessional Subscribers who are natural persons 

and with whom the broker-dealer has a brokerage 

relationship). In addition, there is an enterprise 

license for specialized usage of NLS at Rule 

7039(c)(3), but specialized usage is not relevant to 

this proposal, which focuses on distribution to the 

general investing public and the professionals 

servicing retail investors through brokerage or retail 

advisory accounts. 

9See Rule 7023(a)(1). The Exchange proposes to 

incorporate the definition of Depth-of-Book data 

currently set forth at Rule 7023(a)(1) by reference 

at proposed Rule 7032(c)(1). Rule 7023(a)(1) defines 

Depth-of-Book as ‘‘data feeds containing price 

quotations at more than one price level’’; the Depthof-Book data feeds are Nasdaq Level 2, which 

means ‘‘with respect to stocks listed on Nasdaq, the 

best-priced orders or quotes from each Nasdaq 

member displayed in the Nasdaq Market Center,’’ 

and Nasdaq TotalView, which means ‘‘with respect 

to stocks listed on Nasdaq and on an exchange other 

than Nasdaq, all orders and quotes from all Nasdaq 

members displayed in the Nasdaq Market Center as 

well as the aggregate size of such orders and quotes 

at each price level in the execution functionality of 

the Nasdaq Market Center.’’ 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FICC– 

2017–805 and should be submitted on 

or before August 21, 2018. 

By the Commission. 

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2018–16707 Filed 8–3–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83751; File No. SR– 

NASDAQ–2018–058] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Lower Fees 

and Administrative Costs for 

Distributors of Nasdaq Basic, Nasdaq 

Last Sale, NLS Plus and the Nasdaq 

Depth-of-Book Products Through a 

Consolidated Enterprise License 

July 31, 2018. 

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 July 17, 

2018, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ 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 lower fees 

and administrative costs for Distributors 

of Nasdaq Basic, Nasdaq Last Sale 

(‘‘NLS’’), NLS Plus and the Nasdaq 

Depth-of-Book products (TotalView and 

Level 2) by introducing a consolidated 

enterprise license for the Display Usage 

of all five products. This market data 

enterprise license will allow 

Distributors who are broker-dealers or 

Investment Advisers to disseminate 

these products to a wide audience for a 

monthly fee of $600,000, with the 

opportunity to lower that fee further to 

$500,000 per month if the Distributor 

contracts for twelve months of the 

service in advance. The proposed 

enterprise license will be introduced 

through an amendment to Rule 3 7032, 

which is currently reserved. The 

proposal is described in further detail 

below. 

This amendment is immediately 

effective upon filing.4

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaq.cchwallstreet.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 

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 lower fees 

and administrative costs for 

Distributors 5 of Nasdaq Basic, NLS, 

NLS Plus and the Nasdaq Depth-of-Book 

products (TotalView and Level 2) by 

introducing a consolidated enterprise 

license for the Display Usage 6 of all five 

products. This license will allow 

Distributors who are broker-dealers or 

Investment Advisers 7 to disseminate 

these products to a wide audience for a 

monthly fee of $600,000, with the 

opportunity to lower that fee further to 

$500,000 per month if they contract for 

twelve months of service in advance. No 

fees will increase as a result of this 

license. As discussed below, this fee 

reduction responds to competitive 

pressures exerted by other exchanges 

that sell market data. 

Current Enterprise License Fees 

The Exchange currently offers 

enterprise licenses for Depth-of-Book 

products and Nasdaq Basic. There is no 

enterprise license for the distribution of 

NLS to the general investing public, but 

there is a cap of $41,500 per month on 

such fees, and NLS may also be 

distributed under one of the enterprise 

licenses for Nasdaq Basic.8

Depth-of-Book Products 

Nasdaq offers two Depth-of-Book 

products, TotalView and Level 2.9

TotalView, Nasdaq’s premier Depth-ofBook product, provides complete, realtime depth data for Nasdaq and nonVerDate Sep<11>2014 17:36 Aug 03, 2018 Jkt 244001 PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 E:\FR\FM\06AUN1.SGM 06AUN1

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