Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44361 

48 17 CFR 240.17Ad–22(e)(23)(i) and (ii). 

49 12 U.S.C. 5465(e)(1)(I). 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3On December 18, 2017, FICC filed the advance 

notice as 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’’). 15 U.S.C. 78s(b)(1) and 17 CFR 

240.19b–4, respectively. The Proposed Rule Change 

was published in the Federal Register on January 

8, 2018. 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. Securities 

Exchange Act Release No. 82669 (February 8, 2018), 

83 FR 6653 (February 14, 2018) (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. 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. 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. Securities Exchange Act Release No. 

83630 (July 13, 2018), 83 FR 34213 (July 19, 2018) 

(SR–FICC–2017–021). FICC submitted a courtesy 

copy of Amendment No. 1 to the Proposed Rule 

Change through the Commission’s electronic public 

comment letter mechanism. Accordingly, 

Amendment No. 1 to the Proposed Rule Change has 

been publicly available on the Commission’s 

website at https://www.sec.gov/rules/sro/ficc.htm 

since June 29, 2018. The Commission did not 

receive any comments. The proposal, as set forth in 

both the advance notice and the Proposed Rule 

Change, each as modified by Amendments No. 1, 

shall not take effect until all required regulatory 

actions are completed. 

4Securities Exchange Act Release No. 82580 

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

(SR–FICC–2017–805) (‘‘Notice’’). 

5Pursuant 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. See Notice, supra note 4. 

6 12 U.S.C. 5465(e)(1)(D). 

7See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); 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. 

8Securities Exchange Act Release No. 83744 (July 

31, 2018), 83 FR 38413 (August 6, 2018) (SR–FICC– 

2017–805). FICC submitted a courtesy copy of 

Amendment No. 1 to the advance notice through 

the Commission’s electronic public comment letter 

mechanism. Accordingly, Amendment No. 1 to the 

advance notice has been publicly available on the 

Commission’s website at https://www.sec.gov/rules/ 

sro/ficc-an.htm since June 29, 2018. 

9 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. 

10The GSD Rules and the MBSD Rules are 

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

Continued 

proposal is reasonably designed to (1) 

publicly disclose all relevant rules and 

material procedures concerning key 

aspects of NSCC’s default rules and 

procedures, and (2) provide sufficient 

information to enable Members to 

identify and evaluate the risks by 

participating in NSCC. 

Therefore, the Commission believes 

that NSCC’s proposal is consistent with 

Rules 17Ad–22(e)(23)(i) and (ii) under 

the Act.48

III. Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(I) of the Clearing 

Supervision Act,49 that the Commission 

does not object to advance notice SR– 

NSCC–2017–806, as modified by 

Amendment No. 1, and that NSCC is 

authorized to implement the proposal as 

of the date of this notice or the date of 

an order by the Commission approving 

proposed rule change SR–NSCC–2017– 

018, as modified by Amendment No. 1, 

whichever is later. 

By the Commission. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18866 Filed 8–29–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83954; File No. SR–FICC– 

2017–805] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

No Objection to an Advance Notice, as 

Modified by Amendment No. 1, To 

Adopt a Recovery & Wind-Down Plan 

and Related Rules 

August 27, 2018. 

On December 18, 2017, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2017–805 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’’) 1 and Rule 19b– 

4(n)(1)(i) under the Securities Exchange 

Act of 1934 (‘‘Act’’) 2 to adopt a recovery 

and wind-down plan (‘‘R&W Plan’’) and 

related rules.3 The advance notice was 

published for comment in the Federal 

Register on January 30, 2018.4 In that 

publication, the Commission also 

extended the review period of the 

advance notice for an additional 60 

days, pursuant to Section 806(e)(1)(H) of 

the Clearing Supervision Act.5 On April 

10, 2018, the Commission required 

additional information from FICC 

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

Clearing Supervision Act,6 which tolled 

the Commission’s period of review of 

the advance notice until 60 days from 

the date the information required by the 

Commission was received by the 

Commission.7 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 

filed on December 18, 2017.8 On July 6, 

2018, the Commission received a 

response to its request for additional 

information in consideration of the 

advance notice, which, in turn, added a 

further 60-days to the review period 

pursuant to Section 806(e)(1)(E) and (G) 

of the Clearing Supervision Act.9 The 

Commission did not receive any 

comments. This publication serves as 

notice that the Commission does not 

object to the proposed changes set forth 

in the advance notice, as modified by 

Amendment No. 1 (hereinafter, 

‘‘Advance Notice’’). 

I. Description of the Advance Notice 

In the Advance Notice, FICC proposes 

to (1) adopt an R&W Plan; (2) amend 

FICC’s Government Securities Division 

(‘‘GSD’’) Rulebook (‘‘GSD Rules’’) 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; (3) 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 (4) amend Rule 1 of the 

Electronic Pool Netting (‘‘EPN’’) Rules 

of MBSD (‘‘EPN Rules’’) to provide that 

EPN Users, as defined therein, are 

bound by proposed Rule 17B (Winddown of the Corporation) and proposed 

Rule 40 (Market Disruption and Force 

Majeure) to be adopted to the MBSD 

Rules.10 Each of the proposed rules is 


amozie on DSK3GDR082PROD with NOTICES1
44362 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

Capitalized terms not defined herein are defined in 

the Rules. 

11References 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. 

12 DTCC is a user-owned and user-governed 

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 R&W 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. 

13FICC states that it uses the term ‘‘credit/ 

market’’ risks in the R&W Plan because 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. See infra note 23. 

14See 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). 

15See id. 

16See supra note 10. 

17 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. 

referred to herein as a ‘‘Proposed Rule,’’ 

and are collectively referred to as the 

‘‘Proposed Rules.’’ 

FICC states that the R&W Plan would 

be used by the Board of Directors of 

FICC (‘‘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. 

FICC states that 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; 11 and (3) provide FICC with 

the legal basis to implement those 

provisions of the R&W Plan when 

necessary. 

A. FICC R&W Plan 

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 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’’); 12 (ii) an analysis of FICC’s 

intercompany arrangements and an 

existing link to another financial market 

infrastructure (‘‘FMI’’); (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 13 risks 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 designed to be 

comprehensive, effective, and 

transparent, how the tools provide 

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 wind-down 

and transfer of FICC’s business, 

including an estimate of the time and 

costs to effect a recovery or orderly 

wind-down of FICC. 

Certain recovery tools that would be 

identified in the R&W Plan are based in 

the Rules (including the Proposed 

Rules); therefore, descriptions of those 

tools in the R&W Plan 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 operational support for matters 

described in the R&W Plan, and that 

such documents would be supplemental 

and subordinate to the R&W Plan. 

FICC states that 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’’),14 (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,15 and (iii) the process for 

the allocation of losses among Members, 

as provided in GSD Rule 4 (Clearing 

Fund and Loss Allocation) and MBSD 

Rule 4 (Clearing Fund and Loss 

Allocation).16 The 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.17 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 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44363 

18Available at http://www.dtcc.com/∼/media/ 

Files/Downloads/legal/rules/ficc_cme_crossmargin_

agreement.pdf. See also GSD Rule 43 (CrossMargining Arrangements), supra note 10. 

19The DTCC, DTC, NSCC, FICC Risk Committee 

Charter is available at http://www.dtcc.com/∼/ 

media/Files/Downloads/legal/policy-andcompliance/DTCC-BOD-Risk-CommitteeCharter.pdf. 

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. FICC states that the Proposed 

Rules are designed to provide Members 

and Limited Members with 

transparency and certainty with respect 

to these matters. FICC also states that 

the Proposed Rules are designed to 

facilitate the implementation of the 

R&W Plan, particularly FICC’s strategy 

for winding down and transferring its 

business, and are designed to provide 

FICC with the legal basis to implement 

those aspects of the R&W Plan. 

1. 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 R&W 

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 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. 

FICC states that the overview section 

would provide a context for the R&W 

Plan by describing FICC’s business, 

organizational structure and critical 

links to other entities. FICC also states 

that 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. 

The R&W 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.18

FICC states that this section of the R&W 

Plan, which identifies and briefly 

describes FICC’s established links, is 

designed to 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 R&W 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 of the R&W Plan would provide 

an analysis of the potential systemic 

impact from a service disruption, which 

FICC states is important for evaluating 

how the recovery tools and the winddown 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 (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, therefore, 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 

banks, and broker-dealers. The R&W 

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. 

The R&W Plan would also include a 

non-exhaustive list of FICC services that 

are not deemed critical. 

FICC states that 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. While FICC’s Winddown 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 R&W Plan would describe the 

governance structure of both DTCC and 

FICC. This section of the R&W Plan 

would identify the ownership and 

governance model of these entities at 

both the Board and management levels. 

The R&W 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 

Wind-down Plan would range from 

relevant business line managers up to 

the Board through FICC’s governance 

structure. The R&W Plan would then 

identify the parties responsible for 

certain activities under both the 

Recovery Plan and the Wind-down Plan, 

and would describe their respective 

roles. The R&W 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 as well as oversight 

of FICC’s efforts to mitigate systemic 

risks that could impact those markets 

and the broader financial system.19 The 

R&W Plan would identify the DTCC 

Management Risk Committee 

(‘‘Management Risk Committee’’) as 

primarily responsible for general, dayto-day risk management through 

delegated authority from the Board Risk 

Committee. The R&W Plan would state 

that the Management Risk Committee 

has delegated specific day-to-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 R&W 

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 R&W 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 

R&W Plan would state that the 

Management Risk Committee provides 

oversight of actions relating to the 

default of a Member, which would be 


amozie on DSK3GDR082PROD with NOTICES1
44364 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

20The R&W 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. 

21The R&W Plan would define an ‘‘Affiliated 

Family’’ of Members as a number of affiliated 

entities that are all Members of either GSD or 

MBSD. 

22See 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 10. 

23See GSD Rule 4 (Clearing Fund and Loss 

Allocation) and MBSD Rule 4 (Clearing Fund and 

Loss Allocation), supra note 10. FICC states that 

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 GSD Rule 4 (Clearing 

Fund and Loss Allocation) and MBSD Rule 4 

(Clearing Fund and Loss Allocation). Therefore, 

FICC states that its 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 17 CFR 240.17Ad– 

22(e)(4). 

24FICC’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 No. 82377 

(December 21, 2017), 82 FR 61617 (December 28, 

2017) (SR–DTC–2017–004, SR–FICC–2017–008, 

SR–NSCC–2017–005). 

reported and escalated to it through the 

GCRO, and the Management Committee 

provides oversight of actions relating to 

non-default 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.20 More generally, the R&W 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. 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 R&W 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. 

2. FICC Recovery Plan 

FICC states that 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. 

FICC also states that as each event that 

could lead to a financial loss could be 

unique in its circumstances, FICC 

proposes that 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. In all cases, FICC states 

that it 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 to 

best protect FICC, the Members, and the 

markets in which it operates. 

(i) Managing Member Default Losses 

and Liquidity Needs Through the Crisis 

Continuum 

The Recovery Plan would 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 21 (referred to in the R&W Plan 

as the ‘‘Member default phase’’), and (4) 

a recovery phase. In the R&W 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.22 Further, the R&W Plan would, 

for purposes of the R&W Plan, use the 

following terms: (1) ‘‘Member default’’ 

to refer to the event or events that 

precipitate FICC ceasing to act for a 

Member or an Affiliated Family; (2) 

‘‘Defaulting Member’’ to refer to a 

Member for which FICC has ceased to 

act; and (3) ‘‘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 R&W Plan. 

FICC states that 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. FICC also states that 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 states that it manages 

these risk exposures collectively to limit 

their overall impact on FICC and the 

memberships of the Divisions. FICC 

states that 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.23

FICC states that it 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.24

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. FICC states 

that the Recovery Plan is designed to 

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 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44365 

25FICC’s stress testing practices are described in 

the Clearing Agency Stress Testing Framework 

(Market Risk). See Securities Exchange Act Release 

No. 82638 (December 19, 2017), 82 FR 61082 

(December 26, 2017) (SR–DTC–2017–005, SR– 

FICC–2017–009, SR–NSCC–2017–006). 

26See supra note 24 (concerning FICC’s liquidity 

risk management strategy). 

27See GSD Rule 21 (Restrictions on Access to 

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

Corporation Ceases to Act), MBSD Rule 14 

(Restrictions on Access to Services), and MBSD 

Rule 17 (Procedures for When the Corporation 

Ceases to Act), supra note 10. 

28See supra note 10. GSD Rule 4 (Clearing Fund 

and Loss Allocation) and MBSD Rule 4 (Clearing 

Fund and Loss Allocation) 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 of the General Business Risk Capital 

Requirement, which is calculated pursuant to the 

Capital Policy and, which FICC states 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 an 

effort to comply with Rule 17Ad–22(e)(15) under 

the Act. See supra note 14 (concerning the Capital 

Policy); 17 CFR 240.17Ad–22(e)(15). 

29As provided for in GSD Rule 4 (Clearing Fund 

and Loss Allocation) and MBSD Rule 4 (Clearing 

Fund and Loss Allocation), the ‘‘Event Period’’ is 

ten Business Days beginning on (i) with respect to 

a Member default, the day on which FICC 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 FICC notifies Members of the 

determination by the Board that there is a nondefault loss event. The proposed GSD Rule 4 

(Clearing Fund and Loss Allocation) and MBSD 

Rule 4 (Clearing Fund and Loss Allocation) define 

a ‘‘round’’ as a series of loss allocations relating to 

an Event Period, and provides 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 of those Members included in the round. See 

GSD Rule 4 (Clearing Fund and Loss Allocation) 

and MBSD Rule 4 (Clearing Fund and Loss 

Allocation), supra note 10. 

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, FICC states 

that 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; 25 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.26

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.27 The Recovery Plan 

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. 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. 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 (Clearing Fund 

and Loss Allocation) and MBSD Rule 4 

(Clearing Fund and Loss Allocation) 

provides 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 GSD Rule 4 (Clearing 

Fund and Loss Allocation) and MBSD 

Rule 4 (Clearing Fund and Loss 

Allocation), as applicable.28

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 R&W 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.29 The recovery 

phase would describe actions that FICC 

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

FICC states that it expects that 

significant deterioration of liquidity 

resources would cause it to enter the 

Recovery Corridor. Therefore, the R&W 

Plan would describe the actions FICC 

may take at this stage aimed at 

replenishing those resources. 

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. 

FICC states that 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. 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 


amozie on DSK3GDR082PROD with NOTICES1
44366 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

30The Corridor Actions that would be identified 

in the R&W Plan are designed to be 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 R&W Plan for 

the Corridor Indicator to which the action relates. 

31See supra note 10. 

32FICC states that the ‘‘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. 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. 

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). 

improve the status of the indicator,30 as 

well as management escalations 

required to authorize those steps. FICC 

states that because FICC has never 

experienced the default of multiple 

Members, it has not, historically, 

measured the deterioration or 

improvements metrics of the corridor 

indicators. Therefore, FICC states that 

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. FICC states that 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. FICC states that 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 

the order provided in GSD Rule 4 

(Clearing Fund and Loss Allocation) and 

MBSD Rule 4 (Clearing Fund and Loss 

Allocation), as applicable.31 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. FICC states that 

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 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. 

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. 

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 protocols 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. 

(ii) 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 R&W 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 R&W Plan would first identify some 

of the risks FICC faces that could lead 

to these losses, which include, for 

example, (1) the business and profit/loss 

risks of unexpected declines in revenue 

or growth of expenses; (2) 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 

(3) 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.32 The Recovery 

Plan would also describe FICC’s 

approach to financial risk and capital 

management. The R&W 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 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44367 

33See supra note 28. 

34See supra note 28. 

35See supra note 10. 

36See supra note 14 (concerning the Capital 

Policy). 

37See supra note 10. 38 11 U.S.C. 101 et seq. 

39The 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 be 

designed to make clear that FICC cannot predict the 

willingness of Members to do so. 

identify, monitor, and manage risks of 

non-default losses. 

The R&W 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,33 (b) the Corporate 

Contribution,34 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 (Clearing 

Fund and Loss Allocation) and MBSD 

Rule 4 (Clearing Fund and Loss 

Allocation).35

The R&W 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.36 Finally the R&W 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 (Clearing 

Fund and Loss Allocation) and MBSD 

Rule 4 (Clearing Fund and Loss 

Allocation).37

The R&W Plan would also describe 

proposed GSD Rule 50 (Market 

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. 

FICC states that this Proposed Rule is 

designed to 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. 

The R&W 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’’). FICC states that the intent 

is to make 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 

R&W 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 R&W 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. FICC states that, 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. 

(iii) 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 

incentives to Members and minimize 

negative impact on Members and the 

financial system. 

3. 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. FICC 

states that while such event is extremely 

unlikely, given the comprehensive 

nature of the recovery tools, 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. Bankruptcy 

Code,38 and (3) after effectuating this 

transfer, FICC liquidating any remaining 

assets in an orderly manner in 

bankruptcy proceedings. FICC states 

that the proposed transfer approach to a 

wind-down 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 R&W 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. 

Therefore, FICC states that a business 

reorganization or ‘‘bail-in’’ of debt 

approach would be unlikely to mitigate 

significant losses. Additionally, FICC 

states that the proposed 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. FICC states that 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.39 The Wind-down Plan 

would identify some of the indicators 

that it has entered this Runway Period. 

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 R&W Plan, FICC states 

that 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, FICC states that this 


amozie on DSK3GDR082PROD with NOTICES1
44368 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

40See 11 U.S.C. 101 et seq. 

41See 11 U.S.C. 363. 

42The 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, FICC states that it would have the benefit 

of any rules-based liquidity funding. The Winddown 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. 

43See supra note 10. 

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 

transfer arrangements during the 

Runway Period and prior to making any 

filings under Chapter 11 of the U.S. 

Bankruptcy Code.40 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. Bankruptcy Code, 

and pursuant to a bankruptcy court 

order under Section 363 of the 

Bankruptcy Code, with the intent that 

the transfer be free and clear of claims 

against, and interests in, FICC, except to 

the extent expressly provided in the 

court’s order.41

FICC states that 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 non-critical 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.42 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.43 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. The Winddown 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 R&W 

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 winddown 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 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44369 

44See supra note 14. 

45See supra note 14. 

costs would constitute the Recovery/ 

Wind-down Capital Requirement under 

the Capital Policy.44 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.45

FICC states that 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, as discussed below. 

B. Proposed Rules 

In connection with the adoption of 

the R&W Plan, FICC proposes to adopt 

the Proposed Rules, each of which is 

described below. FICC states that the 

Proposed Rules are designed to facilitate 

the execution of the R&W Plan and are 

designed to provide Members and 

Limited Members with transparency as 

to critical aspects of the R&W Plan, 

particularly as they relate to the rights 

and responsibilities of both FICC and 

Members. FICC also states that the 

Proposed Rules are designed to provide 

a legal basis to these aspects of the R&W 

Plan. 

1. GSD Rule 22D and MBSD Rule 17B 

(Wind-Down of the Corporation) 

FICC states that the proposed GSD 

Rule 22D and MBSD Rule 17B 

(collectively, ‘‘Wind-down Rule’’) are 

designed 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. FICC states that the Wind-down 

Rule is designed to 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 Winddown 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. FICC states 

that, generally, the proposed Winddown 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. 

(i) Wind-Down Trigger 

First, FICC states that the Proposed 

Rule is designed to 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 Winddown 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. 

(ii) 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 Wind-down Plan, the Board 

would identify the critical and noncritical services that would be 

transferred to the Transferee at the 

Transfer Time (as defined below and in 

the Proposed Rule), as well as any noncritical 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’’). 

(iii) Treatment of Pending Transactions 

The Wind-down Rule would 

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. 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. FICC states that 

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. 

FICC states that the Proposed Rule is 

designed to 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. 

(iv) Notice Provisions 

The proposed Wind-down Rule 

would provide that, upon a decision to 

implement the Wind-down 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 Non-Eligible Members and 

Non-Eligible Limited Members (as 


amozie on DSK3GDR082PROD with NOTICES1
44370 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

46The 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. 

47Nothing 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. 

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. 

(v) 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, FICC states that the 

proposed Wind-down Rule is designed 

to make clear that it would not prohibit 

(1) Members and Limited Members that 

are not transferred by operation of the 

Wind-down Rule from applying for 

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.46

(vi) Comparability Period 

FICC states that 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. 

The proposed Wind-down 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. FICC 

states that the purpose of these 

provisions and the intended effect of the 

proposed Wind-down 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. 

(vii) Subordination of Claims Provisions 

and Miscellaneous Matters 

The proposed Wind-down Rule 

would 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., firms 

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). FICC states that this 

provision is designed to incentivize 

Members to participate in FICC’s 

recovery efforts.47

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. 

FICC states that the purpose of the 

limitation of liability is to facilitate and 

protect FICC’s ability to act 

expeditiously in response to 

extraordinary events. Such limitation of 

liability would be available only 

following triggering of the Wind-down 

Plan. In addition, and as a separate 

matter, FICC states that the limitation of 

liability provides Members with 

transparency for the unlikely situation 

when those extraordinary events could 

occur, as well as supporting the legal 

framework within which FICC would 

take such actions. FICC states that these 

provisions, collectively, are designed to 

enable FICC to take such acts as the 

Board determines necessary to 

effectuate an orderly transfer and winddown of its business should recovery 

efforts prove unsuccessful. 

2. 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. FICC states that 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 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44371 

48See 12 U.S.C. 5461(b). 

49 12 U.S.C. 5464(a)(2). 

50 12 U.S.C. 5464(b). 

51 12 U.S.C. 5464(a)(2). 

52 15 U.S.C. 78q–1. 

53See 17 CFR 240.17Ad–22. 

54 Id. 

55 12 U.S.C. 5464(b). 

56See 17 CFR 240.17Ad–22. 

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. 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 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. FICC states that 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. 

3. 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 proposes 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) EPN 

Rule 1 (Definitions). FICC states that 

these proposed changes are designed to 

clarify that certain types of Limited 

Members, as identified in those rules, 

would be subject to the Proposed Rules. 

II. Discussion and Commission 

Findings 

Although the Clearing Supervision 

Act does not specify a standard of 

review for an advance notice, its stated 

purpose is instructive: 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.48

Section 805(a)(2) of the Clearing 

Supervision Act 49 authorizes the 

Commission to prescribe risk 

management standards for the payment, 

clearing and settlement activities of 

designated clearing entities engaged in 

designated activities for which the 

Commission is the supervisory agency. 

Section 805(b) of the Clearing 

Supervision Act 50 provides the 

following objectives and principles for 

the Commission’s risk management 

standards prescribed under Section 

805(a): 

• To promote robust risk 

management; 

• to promote safety and soundness; 

• to reduce systemic risks; and 

• to support the stability of the 

broader financial system. 

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act 51 and Section 17A of the Act 52

(‘‘Rule 17Ad–22’’).53 Rule 17Ad–22 

requires registered clearing agencies to 

establish, implement, maintain, and 

enforce written policies and procedures 

that are reasonably designed to meet 

certain minimum requirements for their 

operations and risk management 

practices on an ongoing basis.54

Therefore, it is appropriate for the 

Commission to review proposed 

changes in advance notices against the 

objectives and principles of these risk 

management standards as described in 

Section 805(b) of the Clearing 

Supervision Act 55 and against Rule 

17Ad–22.56

A. Consistency With Section 805(b) of 

the Clearing Supervision Act 

The Commission believes that the 

proposed changes in the Advance 

Notice are designed to help FICC 

promote robust risk management, 

promote safety and soundness, reduce 

systemic risks, and support the stability 

of the broader financial system. As 

described above, the R&W Plan, 

generally, would help FICC promote 

robust risk management and 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. Specifically, the Recovery 

Plan would provide a roadmap that 

would identify a number of triggers for 

the potential application of a number of 

available recovery tools. Identifying 

triggers for the potential application of 

recovery tools would help promote 

robust risk management and reduce 

systemic risks by better enabling FICC to 

more promptly determine when and 

how it may need to manage a significant 

stress event, and, as needed, stabilize its 

financial condition. 

Similarly, the Force Majeure Rule is 

designed to provide a roadmap to 

address extraordinary events that may 

occur outside of FICC’s control. 

Specifically, the Force Majeure Rule 

would define a Market Disruption Event 

and provide governance around 

determining when such an event has 

occurred. The Force Majeure Rule also 

would 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 FICC’s 

services, if practicable. By defining a 

Market Disruption Event and providing 

such governance and authority, the 

Commission believes that the Force 

Majeure Rule also would help promote 

robust risk management and reduce 

systemic risks by improving FICC’s 

ability to identify and manage a force 

majeure event, and, as needed, to 

stabilize its financial condition so that 

FICC can continue to operate and act as 


amozie on DSK3GDR082PROD with NOTICES1
44372 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

57 12 U.S.C. 5464(b). 

58A ‘‘covered clearing agency’’ means, among 

other things, a clearing agency registered with the 

Commission under Section 17A of the Exchange 

Act (15 U.S.C. 78q–1 et seq.) that is designated 

systemically important by the Financial Stability 

Oversight Counsel (‘‘FSOC’’) pursuant to the 

Clearing Supervision Act (12 U.S.C. 5461 et seq.). 

See 17 CFR 240.17Ad–22(a)(5)–(6). On July 18, 

2012, FSOC designated FICC as systemically 

important. U.S. Department of the Treasury, ‘‘FSOC 

Makes First Designations in Effort to Protect Against 

Future Financial Crises,’’ available at https://

www.treasury.gov/press-center/press-releases/ 

Pages/tg1645.aspx. Therefore, FICC is a covered 

clearing agency. 

59 17 CFR 240.17Ad–22(e)(2)(i). 

60 15 U.S.C. 78q–1. 

61 17 CFR 240.17Ad–22(e)(2)(iii). 

62 17 CFR 240.17Ad–22(e)(2)(v). 

63 15 U.S.C. 78q–1. 

a source of stability for the financial 

markets it serves. 

The Commission believes that the 

Recovery Plan and the Force Majeure 

Rule reflect an approach designed to 

allow for a more considered and 

comprehensive evaluation by FICC of a 

stressed market situation and the ways 

in which FICC could apply available 

recovery tools in a manner intended to 

minimize the potential negative effects 

of the stress situation for FICC, its 

membership, and the broader financial 

system. Therefore, the Commission 

believes that the Recovery Plan and the 

Force Majeure Rule would help promote 

robust risk management at FICC and, 

thus, reduce systemic risks by 

establishing a means for FICC to best 

determine the most appropriate way to 

address such stress situations in an 

effective manner. 

The Commission believes that the 

R&W Plan, generally, would help FICC 

promote safety and soundness and 

support the stability of the broader 

financial system by providing a 

roadmap to wind–down that is designed 

to ensure the availability of FICC’s 

critical services to the marketplace, 

while reducing disruption to the 

operations of membership and financial 

markets that might be caused by FICC’s 

failure. Specifically, as described above, 

the Wind–down Plan, as facilitated by 

the Wind–down Rule, would provide 

for the wind–down of FICC’s business 

and transfer of membership and critical 

services if the recovery tools do not 

successfully return FICC to financial 

viability. Accordingly, critical services, 

such as services that lack alternative 

providers or products; services that the 

failure of which could impact the 

volume of transactions, transaction 

costs, or the flow of liquidity in the U.S. 

financial markets; and services that are 

interconnected with other participants 

and processes within the U.S. financial 

system would be able to continue in an 

orderly manner while FICC is seeking to 

wind–down its services. By designing 

the Wind–down Plan and the Wind– 

down Rule to enable the continuity of 

FICC’s critical services and membership 

in an orderly manner while FICC is 

seeking to wind–down its services, the 

Commission believes these proposed 

changes would help FICC promote 

safety and soundness and support 

stability in the broader financial system 

in the event the Wind–down Plan is 

implemented. 

As described above, to incorporate the 

Proposed Rules into the Rules and the 

EPN Rules, FICC proposes 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) EPN 

Rule 1 (Definitions). These proposed 

changes would clarify that certain types 

of Limited Members, as identified in 

those rules, would be subject to the 

Proposed Rules. These proposed 

changes would help these Limited 

Members readily understand their rights 

and obligations and would help enable 

Limited Members that are governed by 

the Proposed Rules to have a better 

understanding of the Proposed Rules. 

Enhanced access to and transparency of 

these rules would therefore assist such 

parties in understanding, planning for, 

and reacting in an orderly manner to, 

the implementation by FICC of the R&W 

Plan. Therefore, the Commission 

believes that these proposed changes to 

the Rules and the EPN Rules would help 

support the stability of the broader 

financial system. 

By better enabling 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, the 

Commission believes that the proposed 

changes in the Advance Notice are 

consistent with Section 805(b) of the 

Clearing Supervision Act.57

B. Consistency With Rules 17Ad– 

22(e)(2)(i), (iii), and (v) Under the Act 

Rule 17Ad–22(e)(2)(i) under the Act 

requires a covered clearing agency 58 to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to provide for 

governance arrangements that are clear 

and transparent.59 Rule 17Ad– 

22(e)(2)(iii) under the Act requires a 

covered clearing agency to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to provide for 

governance arrangements that support 

the public interest requirements in 

Section 17A of the Act 60 applicable to 

clearing agencies, and the objectives of 

owners and participants.61 Rule 17Ad– 

22(e)(2)(v) under the Act requires a 

covered clearing agency to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to provide for 

governance arrangements that specify 

clear and direct lines of responsibility.62

As described above, the R&W Plan is 

designed to identify clear lines of 

responsibility concerning the R&W Plan 

including (1) the ongoing development 

of the R&W Plan; (2) ongoing 

maintenance of the R&W Plan; (3) 

reviews and approval of the R&W Plan; 

and (4) the functioning and 

implementation of the R&W Plan. As 

described above, the R&R Team, which 

reports to the Management Committee, 

is responsible for maintaining the R&W 

Plan and for the development and 

ongoing maintenance of the overall 

recovery and wind–down planning 

process. Meanwhile, 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 also would review and approve any 

changes that are proposed to the R&W 

Plan outside of the biennial review. 

Moreover, the R&W Plan would state the 

stages of escalation required to manage 

recovery under the Recovery Plan or to 

invoke FICC’s wind–down under the 

Wind–down Plan, which would range 

from relevant business line managers up 

to the Board. The R&W Plan would 

identify the parties responsible for 

certain activities under both the 

Recovery Plan and the Wind–down 

Plan, and would describe their 

respective roles. The R&W Plan also 

would specify the process FICC would 

take to receive input from various 

parties at FICC, including management 

committees and the Board. 

In considering the above, the 

Commission believes that the R&W Plan 

would help contribute to establishing, 

implementing, maintaining, and 

enforcing written policies and 

procedures reasonably designed to 

provide for governance arrangements 

that are clear and transparent because it 

would specify lines of control. The 

Commission also believes that the R&W 

Plan would help contribute to 

establishing, implementing, 

maintaining, and enforcing written 

policies and procedures reasonably 

designed to provide for governance 

arrangements that support the public 

interest requirements in Section 17A of 

the Act 63 applicable to clearing 


amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 44373 

64 17 CFR 240.17Ad–22(e)(2)(i), (iii), and (v). 

65 17 CFR 240.17Ad–22(e)(3)(ii). 

66 11 U.S.C. 101 et seq. 

67See, e.g., 11 U.S.C. 363, 726, and 1129(a)(7). 

68See 11 U.S.C. 363(f). 

69The Wind-down Plan would identify certain 

factors the Board may consider in evaluating 

alternatives, 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. 

70 17 CFR 240.17Ad–22(e)(3)(ii). 

71 17 CFR 240.17Ad–22(e)(15)(i). 

agencies, and the objectives of owners 

and participants because the R&W Plan 

specifies the process FICC would take to 

receive input from various FICC 

stakeholders. In addition, the 

Commission believes that the R&W Plan 

would help contribute to establishing, 

implementing, maintaining, and 

enforcing written policies and 

procedures reasonably designed to 

provide for governance arrangements 

that specify clear and direct lines of 

responsibility because it specifies who 

is responsible for the ongoing 

development, maintenance, reviews, 

approval, functioning, and 

implementation of the R&W Plan. 

Therefore, the Commission believes 

that the R&W Plan is consistent with 

Rules 17Ad–22(e)(2)(i), (iii), and (v) 

under the Act.64

C. Consistency With Rule 17Ad– 

22(e)(3)(ii) Under the Act 

Rule 17Ad–22(e)(3)(ii) under the Act 

requires a covered clearing agency 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.65

As described above, the R&W Plan’s 

Recovery Plan provides a plan for 

FICC’s recovery necessitated by credit 

losses, liquidity shortfalls, losses from 

general business risk, or any other losses 

by defining the risk management 

activities, stress conditions and 

indicators, and tools that FICC may use 

to address stress scenarios that could 

eventually prevent FICC from being able 

to provide its critical services as a going 

concern. More specifically, through the 

framework of the Crisis Continuum, 

which identifies tools that can be 

employed to mitigate losses and 

mitigate or minimize liquidity needs as 

the market environment becomes 

increasingly stressed, the Recovery Plan 

would identify measures that FICC may 

take to manage risks of credit losses and 

liquidity shortfalls, and other losses that 

could arise from a Member default. The 

Recovery Plan also would address 

FICC’s management of general business 

risks and other non-default risks that 

could lead to losses by identifying 

potential non-default losses and the 

resources available to FICC to address 

such losses, including recovery triggers 

and tools to mitigate such losses. 

Therefore, the Commission believes that 

the R&W Plan’s Recovery Plan helps 

FICC 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 FICC, which 

includes a recovery plan necessitated by 

credit losses, liquidity shortfalls, losses 

from general business risk, or any other 

losses. 

As described above, the R&W Plan’s 

Wind-down Plan provides a plan for 

orderly wind-down of FICC, which 

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 

Wind-down Plan sets forth mechanisms 

for the transfer of the membership of 

both Divisions and FICC’s business, and 

it is designed to maintain continued 

access to FICC’s critical services and to 

minimize market impact of the transfer 

while FICC is seeking to ultimately 

wind-down its services. Specifically, the 

Wind-down Plan would provide for the 

transfer of FICC’s business, assets, and 

membership to another legal entity with 

such transfer being effected in 

connection with proceedings under 

Chapter 11 of the U.S. Bankruptcy 

Code.66 After effectuating this transfer, 

FICC would liquidate any remaining 

assets in an orderly manner in 

bankruptcy proceedings. 

Although the Commission is not 

opining on the Wind-down Plan’s 

consistency with the U.S. Bankruptcy 

Code, in reviewing the proposed 

changes, the Commission believes that 

FICC’s intent to use bankruptcy 

proceedings to achieve an orderly 

liquidation of assets after any transfer of 

FICC’s business appears reasonable, in 

light of the provisions of the Bankruptcy 

Code that address the liquidation and 

distribution of a debtor’s property 

among creditors and interest holders.67

Under many circumstances, Section 363 

of the Bankruptcy Code provides for the 

sale of property ‘‘free and clear of any 

interest in such property of an entity 

other than the estate[.]’’ 68 The 

Commission believes that FICC’s 

analysis regarding the applicability of 

these provisions, while not free from 

doubt, presents a reasonable approach 

to liquidation in light of the 

circumstances and the available 

alternatives.69 Therefore, the 

Commission believes that the R&W 

Plan’s Wind-down Plan helps FICC 

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 FICC, which 

includes a wind-down plan necessitated 

by credit losses, liquidity shortfalls, 

losses from general business risk, or any 

other losses. 

Therefore, the Commission believes 

that the R&W Plan is consistent with 

Rule 17Ad–22(e)(3)(ii) under the Act.70

D. Consistency With Rules 17Ad– 

22(e)(15)(i)–(ii) Under the Act 

Rule 17Ad–22(e)(15)(i) under the Act 

requires a covered clearing agency to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to identify, 

monitor, and manage its general 

business risk and hold sufficient liquid 

net assets funded by equity to cover 

potential general business losses so that 

the covered clearing agency can 

continue operations and services as a 

going concern if those losses 

materialize, including by determining 

the amount of liquid net assets funded 

by equity based upon its general 

business risk profile and the length of 

time required to achieve a recovery or 

orderly wind-down, as appropriate, of 

its critical operations and services if 

such action is taken.71 Rule 17Ad– 

22(e)(15)(ii) under the Act requires a 

covered clearing agency to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to identify, 

monitor, and manage its general 

business risk and hold sufficient liquid 

net assets funded by equity to cover 

potential general business losses so that 

the covered clearing agency can 

continue operations and services as a 

going concern if those losses 

materialize, including by holding liquid 

net assets funded by equity equal to the 

greater of either (x) six months of the 


amozie on DSK3GDR082PROD with NOTICES1
44374 Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices 

72 17 CFR 240.17Ad–22(e)(3)(ii). 

73 17 CFR 240.17Ad–22(e)(15)(ii). 

74Supra note 14. 

75 17 CFR 240.17Ad–22(e)(15)(i) and (ii). 

76 12 U.S.C. 5465(e)(1)(I). 

1Applicants request that the order apply not only 

to the existing series of the Trust (the ‘‘Initial 

Funds’’), but that the order also extend to any future 

series of the Trust and any other existing or future 

registered open-end management investment 

companies and any series thereof that are part of the 

same ‘‘group of investment companies,’’ as defined 

in section 12(d)(1)(G)(ii) of the Act, as the Trust and 

are, or may in the future be, advised by the Initial 

Adviser or its successor or any other investment 

adviser controlling, controlled by, or under 

common control with the Initial Adviser or its 

successor (together with the Initial Funds, each 

series a ‘‘Fund,’’ and collectively, the ‘‘Funds’’). 

Applicants further request that the order also apply 

to any future principal underwriter and distributor 

for a Fund. For purposes of the requested order, 

‘‘successor’’ is limited to an entity that results from 

a reorganization into another jurisdiction or a 

change in the type of business organization. For 

purposes of the request for relief, the term ‘‘group 

of investment companies’’ means any two or more 

registered investment companies, including closedend investment companies, and BDCs, that hold 

themselves out to investors as related companies for 

purposes of investment and investor services. 

2Certain of the Underlying Funds have obtained 

exemptions from the Commission necessary to 

permit their shares to be listed and traded on a 

national securities exchange at negotiated prices 

and, accordingly, to operate as an exchange-traded 

fund (‘‘ETF’’). 

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, as contemplated by the 

plans established under Rule 17Ad– 

22(e)(3)(ii) under the Act,72 discussed 

above.73

As discussed above, FICC’s Capital 

Policy is designed to address how FICC 

holds LNA in compliance with these 

requirements,74 while the Wind-down 

Plan would include an analysis to 

estimate the amount of time and cost to 

achieve a recovery or orderly winddown of FICC’s critical operations and 

services, and would provide that the 

Board review and approve this analysis 

and estimation annually. The Winddown Plan also would 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 amount of 

LNA that FICC plans to 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, the 

Commission believes that the R&W Plan 

is consistent with Rules 17Ad– 

22(e)(15)(i) and (ii) under the Act.75

III. Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(I) of the Clearing 

Supervision Act,76 that the Commission 

DOES NOT OBJECT to advance notice 

SR–FICC–2017–805, as modified by 

Amendment No. 1, and that FICC is 

authorized to implement the proposal as 

of the date of this notice or the date of 

an order by the Commission approving 

proposed rule change SR–FICC–2017– 

021, as modified by Amendment No. 1, 

whichever is later. 

By the Commission. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18868 Filed 8–29–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

33214; File No. 812–14837] 

Innovator ETFs Trust, et al. 

August 24, 2018. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice. 

Notice of an application for an order 

under section 12(d)(1)(J) of the 

Investment Company Act of 1940 (the 

‘‘Act’’) for an exemption from sections 

12(d)(1)(A), (B), and (C) of the Act and 

under sections 6(c) and 17(b) of the Act 

for an exemption from section 17(a) of 

the Act. The requested order would 

permit certain registered open-end 

investment companies to acquire shares 

of certain registered open-end 

investment companies, registered 

closed-end investment companies, 

business development companies, as 

defined in section 2(a)(48) of the Act 

(‘‘BDCs’’), and registered unit 

investment trusts (collectively, 

‘‘Underlying Funds’’) that are within 

and outside the same group of 

investment companies as the acquiring 

investment companies, in excess of the 

limits in section 12(d)(1) of the Act. 

APPLICANTS: Innovator ETFs Trust (the 

‘‘Trust’’), a Delaware statutory trust that 

is registered under the Act as an openend management investment company 

with multiple series, Innovator Capital 

Management, LLC (the ‘‘Initial 

Adviser’’), a limited liability company 

organized under the laws of the state of 

Delaware that is registered as an 

investment adviser under the 

Investment Advisers Act of 1940, and 

Foreside Fund Services, LLC (the 

‘‘Distributor’’), registered as a brokerdealer under the Securities Exchange 

Act of 1934 (the ‘‘1934 Act’’) and a 

member of the Financial Industry 

Regulatory Authority. 

FILING DATES: The application was filed 

on October 31, 2017, and amended on 

May 1, 2018. 

HEARING OR NOTIFICATION OF HEARING: An 

order granting the requested relief will 

be issued unless the Commission orders 

a hearing. Interested persons may 

request a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on September 18, 2018, 

and should be accompanied by proof of 

service on the applicants, in the form of 

an affidavit, or, for lawyers, a certificate 

of service. Pursuant to rule 0–5 under 

the Act, hearing requests should state 

the nature of the writer’s interest, any 

facts bearing upon the desirability of a 

hearing on the matter, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Commission’s Secretary. 

ADDRESSES: Secretary, U.S. Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

Applicants: Innovator ETFs Trust and 

Innovator Capital Management, LLC, 

120 North Hale Street, Suite 200, 

Wheaton, IL 60187; Foreside Fund 

Services, LLC, Three Canal Plaza, Suite 

100, Portland, ME 04101. 

FOR FURTHER INFORMATION CONTACT: 

Christine Y. Greenlees, Senior Counsel, 

at (202) 551–6879, or Andrea 

Ottomanelli Magovern, Branch Chief, at 

(202) 551–6821 (Division of Investment 

Management, Chief Counsel’s Office). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained via the Commission’s 

website by searching for the file 

number, or for an applicant using the 

Company name box, at http://

www.sec.gov/search/search.htm or by 

calling (202) 551–8090. 

Summary of the Application 

1. Applicants request an order to 

permit (a) each Fund 1 (each a ‘‘Fund of 

Funds’’) to acquire shares of Underlying 

Funds 2 in excess of the limits in 

sections 12(d)(1)(A) and (C) of the Act 

and (b) each Underlying Fund that is a 

registered open-end management 


amozie on DSK3GDR082PROD with NOTICES1