```

[Federal Register Volume 89, Number 212 (Friday, November 1, 2024)]
[Notices]
[Pages 87441-87444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25429]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101454; File No. SR-FICC-2024-007]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Partial Amendment No. 1 to Proposed Rule Change To 
Modify the GSD Rules (i) Regarding the Separate Calculation, Collection 
and Holding of Margin for Proprietary Transactions and That for 
Indirect Participant Transactions, and (ii) To Address the Conditions 
of Note H to Rule 15c3-3a

October 28, 2024.
    On March 14, 2024, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange

[[Page 87442]]

Commission (``Commission'') the proposed rule change SR-FICC-2024-007 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to modify FICC's 
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') to 
calculate, collect, and hold margin for proprietary transactions of a 
direct participant separately from margin submitted to FICC by a direct 
participant on behalf of indirect participants and to address 
conditions of Note H to Rule 15c3-3a under the Exchange Act (the 
``Proposed Rule Change'').\3\ The Proposed Rule Change was published 
for public comment in the Federal Register on March 28, 2024.\4\ The 
Commission has received comments regarding the substance of the 
Proposed Rule Change.\5\ The Commission also received a letter from 
FICC responding to the comments.\6\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99149 (Dec. 13, 
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22) (``Adopting Release,'' 
and the rules adopted therein as ``Treasury Clearing Rules''). See 
also 17 CFR 240.15c3-3a.
    \4\ Securities Exchange Act Release No. 99844 (March 22, 2024), 
89 FR 21603 (Mar. 28, 2024) (File No. SR-FICC-2024-007) (``Notice of 
Filing''). FICC also filed a related Advance Notice with the 
Commission 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 and Rule 
19b-4(n)(1)(i) under the Exchange Act. 12 U.S.C. 5465(e)(1). 15 
U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, respectively. The Advance 
Notice was published in the Federal Register on March 28, 2024. 
Securities Exchange Act Release No. 99845 (Mar. 22, 2024), 89 FR 
21586 (Mar. 28, 2024) (File No. SR-FICC-2024-802).
    \5\ Comments on the Proposed Rule Change are available at 
https://www.sec.gov/comments/sr-ficc-2024-007/srficc2024007.htm. 
Comments on the Advance Notice are available at https://www.sec.gov/comments/sr-ficc-2024-802/srficc2024802.htm. Because the proposals 
contained in the Proposed Rule Change and the Advance Notice are the 
same, the Commission considers all comments received on the 
proposal, regardless of whether the comments are submitted with 
respect to the Advance Notice or the Proposed Rule Change.
    \6\ See Letter from Laura Klimpel, Managing Director, Head of 
Fixed Income and Financing Solutions, Depository Trust & Clearing 
Corporation, (Aug. 1, 2024) (``FICC Letter'').
---------------------------------------------------------------------------

    On April 24, 2024, pursuant to Section 19(b)(2) of the Exchange 
Act,\7\ 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.\8\ On June 21, 2024, 
pursuant to Section 19(b)(2)(B) of the Exchange Act,\9\ the Commission 
instituted proceedings to determine whether to approve or disapprove 
the Proposed Rule Change.\10\ On September 18, 2024, the Commission 
extended the time period for Commission action on the proceedings to 
determine whether to disapprove the Proposed Rule Change.\11\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(2).
    \8\ Securities Exchange Act Release No. 100022 (Apr. 24, 2024), 
89 FR 34289 (Apr. 30, 2024) (File No. SR-FICC-2024-007).
    \9\ 15 U.S.C. 78s(b)(2)(B).
    \10\ Securities Exchange Act Release No. 100401 (Jun. 21, 2024), 
89 FR 53690 (Jun. 27, 2024) (File No. SR-FICC-2024-007).
    \11\ Securities Exchange Act Release No. 101082 (Sep. 18, 2024), 
89 FR 77949 (Sep. 24, 2024) (File No. SR-FICC-2024-007).
---------------------------------------------------------------------------

    On October 25, 2024, FICC filed Partial Amendment No. 1 to the 
Proposed Rule Change.\12\ Pursuant to Section 19(b)(1) of the Act \13\ 
and Rule 19b-4 thereunder,\14\ the Commission is publishing notice of 
this Partial Amendment No.1 to the Proposed Rule Change as described in 
Item I below. The Commission is publishing this notice to solicit 
comments on Partial Amendment No. 1 from interested persons.
---------------------------------------------------------------------------

    \12\ Text of the proposed changes made by the Partial Amendment 
No. 1 to the Proposed Rule Change is available at https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking. The GSD Rules are available at https://www.dtcc.com/~/
media/Files/Downloads/legal/rules/ficc_gov_rules.pdf. Terms not 
otherwise defined herein are defined in the GSD Rules or in the 
Proposed Rule Change.
    \13\ 15 U.S.C. 78s(b)(1).
    \14\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Summary of the Terms of Substance of Partial Amendment No. 1 to the 
Proposed Rule Change

    FICC filed Partial Amendment No. 1 to its previously submitted 
Proposed Rule Change, which would make several changes to FICC's GSD 
Rules to (1) provide for FICC to calculate, collect, and hold margin 
for the proprietary transactions of a Netting Member separately and 
independently from the margin for transactions that the Netting Member 
submits to FICC on behalf of indirect participants; (2) simplify and 
revise the account types through which Members may record transactions 
at FICC and adopt a new Rule 2B to provide clearer public disclosures 
through the Rules regarding the GSD account structure; (3) allow 
Netting Members to elect for margin for indirect participant 
transactions to be calculated on a gross basis (i.e., an indirect 
participant-by-indirect participant basis) and legally segregated from 
the margin for the Netting Member's proprietary transactions (as well 
as those of other indirect participants); (4) align FICC's margin 
calculation methodology with the expanded account types and enhance 
public disclosure through the Rules of that calculation methodology; 
and (5) simplify the requirements for brokered transactions so that 
they only apply to transactions executed by an Inter-Dealer Broker 
Netting Member on the trading platform offered by that Inter-Dealer 
Broker Netting Member.
    Regarding the changes described in (3) above, Partial Amendment No. 
1 makes several changes to the requirements regarding Segregated 
Customer Margin. First, as originally proposed, the Proposed Rule 
Change requires FICC to establish and maintain on its books and records 
a Segregated Customer Margin Custody Account corresponding to each 
Segregated Indirect Participants Account.\15\ Partial Amendment No. 1 
deletes and replaces language in Rule 4, Section 1a, requiring 
Segregated Customer Margin credited to a Segregated Customer Margin 
Custody Account to be used exclusively to settle and margin 
Transactions in U.S. Treasury securities recorded in the corresponding 
Segregated Indirect Participants Account, with language requiring 
Segregated Customer Margin credited to a Segregated Customer Margin 
Custody Account to secure Transactions recorded in the corresponding 
Segregated Indirect Participants Account and satisfy payment and 
delivery obligations owning to the Corporation (including liquidating 
or otherwise using such Segregated Customer Margin to obtain relevant 
cash or securities) in connection with a default in respect of such 
Transactions.
---------------------------------------------------------------------------

    \15\ Notice of Filing supra note 4.
---------------------------------------------------------------------------

    Similarly, Partial Amendment No. 1 deletes and replaces language in 
Rule 4, Section 5 regarding the use of Clearing Fund and Segregated 
Customer Margin requiring FICC to only use the portion of Segregated 
Customer Margin that supports each Segregated Indirect Participant's 
Transactions. The Proposed Rule Change stated that FICC could use that 
portion to secure or settle the obligations of that Segregated Indirect 
Participant, and of the Sponsoring Member or Agent Clearing Member with 
respect to the obligations of that Segregated Indirect Participant, 
whereas Partial Amendment No. 1 replaces this language to state that 
FICC may only use that portion of Segregated Customer Margin to secure 
the Transactions of that Segregated Indirect Participant recorded in 
the corresponding Segregated Indirect Participants Account and satisfy 
payment and delivery obligations owing to FICC (including liquidating 
or otherwise using such Segregated Customer Margin to obtain relevant 
cash or securities) in connection with a default in respect of such 
Transactions.

[[Page 87443]]

Additionally, Partial Amendment No 1. clarifies language in that 
portion of Rule 4 regarding FICC's prohibition on using Segregated 
Customer Margin from one Segregated Indirect Participant's Transactions 
to secure or settle another Segregated Indirect Participant's 
Transaction by deleting reference to the term ``settle'' and replacing 
with satisfying payment or delivery obligations in connection with 
another Segregated Indirect Participant's Transaction.
    Second, as originally proposed, the Proposed Rule Change requires 
FICC to hold all Segregated Customer Margin in an account at a bank 
within the meaning of the Exchange Act that is insured by the Federal 
Deposit Insurance Corporation or at the Federal Reserve Bank of New 
York, which account shall be segregated from any other account of the 
Corporation and used exclusively to hold Segregated Customer 
Margin.\16\ Additionally, the Proposed Rule Change requires Segregated 
Customer Margin to be subject to a written notice of the bank or 
Federal Reserve Bank provided to and retained by the Corporation that 
the Segregated Customer Margin in the account is being held by the bank 
or Federal Reserve Bank pursuant to SEC Rule 15c3-3 and is being kept 
separate from any other accounts maintained by the Corporation or any 
other person at the bank or Federal Reserve Bank.\17\ Partial Amendment 
No. 1 revises the Proposed Rule Change to insert text that clarifies 
that FICC shall not only hold Segregated Customer Margin in an account 
of FICC at a bank within the meaning of the Exchange Act that is 
insured by the Federal Deposit Insurance Corporation, but shall also 
hold Segregated Customer Margin in an account at a bank that is also a 
qualified custodian under the Investment Company Act of 1940,\18\ as 
amended.\19\ Additionally, the Proposed Rule Change inserts text that 
clarifies that not only is each account holding Segregated Customer 
Margin being held by a bank or Federal Reserve Bank pursuant to SEC 
Rule 15c3-3 is being kept separate from any other accounts maintained 
by FICC or any other person at the bank or Federal Reserve Bank, but 
also requires these accounts to not be commingled with any other 
accounts maintained by FICC or any other persona at the bank or Federal 
Reserve Bank.
---------------------------------------------------------------------------

    \16\ Id.
    \17\ Id.
    \18\ 15 U.S.C. 80a-1 et seq.
    \19\ Notice of Filing, supra note 4.
---------------------------------------------------------------------------

    Third, as originally proposed, the Proposed Rule Change requires 
any interest earned on Segregated Customer Margin to be paid by FICC to 
the Netting Member.\20\ Partial Amendment No. 1 inserts language to 
clarify that any interest earned on Segregated Customer Margin 
consisting of cash shall be paid to the Netting Member for the benefit 
of, and as agent for, its Segregated Indirect Participants.
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

    Fourth, as originally proposed, the Proposed Rule Change would 
apply three requirements to each Segregated Customer Margin Requirement 
for a particular Segregated Indirect Participants Account: (1) A 
minimum of 40 percent of the Segregated Customer Margin Requirement for 
such Account shall be satisfied with cash and/or Eligible Clearing Fund 
Treasury Securities; (2) the lesser of $5,000,000 or 10 percent of the 
Segregated Customer Margin Requirement for the Account must be made and 
maintained in cash; and (3) a minimum of the product of $1 million and 
the number of Segregated Indirect Participants whose Transactions are 
recorded in such Segregated Indirect Participants Account must be made 
and maintained in cash.\21\ Partial Amendment No. 1 would revise the 
Proposed Rule Change by deleting the second requirement regarding the 
lesser of $5,000,000 or 10 percent of the Segregated Customer Margin 
Requirement for the Account must be made and maintained in cash.
---------------------------------------------------------------------------

    \21\ Id.
---------------------------------------------------------------------------

    Fifth, as originally proposed, FICC had the discretion to retain 
some or all of the Excess Segregated Customer Margin if the Member had 
an outstanding payment or margin obligation to FICC with respect to the 
Transactions of any Segregated Indirect Participant.\22\ Partial 
Amendment No. 1 would revise the Proposed Rule Change by adding text 
that clarifies the FICC shall not retain the Excess Segregated Customer 
Margin with respect to the Transactions of a Segregated Indirect 
Participant when they have determined, in their sole discretion, that 
such outstanding payment or margin obligation is unrelated to the 
Transactions of that Segregated Indirect Participant.
---------------------------------------------------------------------------

    \22\ Id.
---------------------------------------------------------------------------

    Sixth, Partial Amendment No. 1 would make the following change to 
the Margin Component Schedule in the Proposed Rule Change regarding 
Segregated Customer Margin Requirement Calculations.\23\ As originally 
proposed, each Segregated Indirect Participant would be required to 
deposit in the Segregated Indirect Participants Account Required Fund 
Deposit the greater of the (i) the sum of the Unadjusted GSD Margin 
Portfolio Amount and all applicable additional charges; and (ii) a 
minimum charge of $1 million. Partial Amendment No. 1 would revise the 
Proposed Rule Change by inserting text to clarify that FICC may, in its 
sole discretion, adjust the minimum charge of $1 million in the 
Segregated Indirect Participants Account Required Fund Deposit if FICC 
determines that a different minimum charge would be appropriate and 
consistent with achieving its backtesting coverage target and that 
Members would be notified of any such adjustment by an Important 
Notice.
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

    Seventh, Partial Amendment No. 1 would add text to Rule 3A, Section 
3, as proposed to be amended by SR-FICC-2024-005,\24\ to state that a 
Sponsored Member may be a series of a limited liability company, 
statutory trust, or other legal entity.
---------------------------------------------------------------------------

    \24\ Securities Exchange Act Release No. 99817 (March 21, 2024), 
89 FR 21362 (March 27, 2024) (File No. SR-FICC-2024-005).
---------------------------------------------------------------------------

    Regarding the changes described in (4) above, Partial Amendment No. 
1 would add language to clarify how the definition of Current Net 
Settlement Position relates to Sponsored GC Trades and that the 
definition does not refer to calculating the Net Settlement Position 
under Rule 11. As originally proposed, the definition stated that, if a 
Current Net Settlement Position recorded in a Sponsoring Member Omnibus 
Account or Segregated Indirect Participants Account is not clearly 
allocable to an individual Sponsored Member or Segregated Indirect 
Participant, including because one or more transactions recorded in the 
Account did not settle on its original Scheduled Settlement Date, then, 
for purposes of calculating the relevant Netting Member's Sponsoring 
Member Omnibus Account Required Fund Deposit or Segregated Customer 
Margin Requirement for such Account, FICC shall allocate the positions 
in the manner specified. In Partial Amendment No. 1, the definition 
states if a Current Net Settlement Position recorded in a Sponsoring 
Member Omnibus Account or Segregated Indirect Participants Account is 
not clearly allocable to an individual Sponsored Member or Segregated 
Indirect Participant, including because one or more transactions (other 
than Sponsored GC Trades) recorded in the Account did not settle on its 
original Scheduled Settlement Date (such failure to settle would not 
occur with respect to Sponsored GC Trades), then, for purposes of 
calculating the relevant

[[Page 87444]]

Netting Member's Sponsoring Member Omnibus Account Required Fund 
Deposit or Segregated Customer Margin Requirement for such Account and 
not for purposes of calculating the Net Settlement Position under Rule 
11, FICC shall allocate the positions in the manner specified.\25\
---------------------------------------------------------------------------

    \25\ Partial Amendment No. 1 would also amend the definition of 
Netting Member Capital to use the defined terms Net Assets and 
Equity Capital.
---------------------------------------------------------------------------

    Regarding the changes described in (5) above, Partial Amendment No. 
1 makes several changes to the Proposed Rule Change and existing rules 
regarding the use of the term Brokered Transactions, including changes 
to its definition. Specifically, Partial Amendment No. 1 would delete 
and add text to the definition of Brokered Transaction to clarify that 
a Brokered Transaction means the side of a transaction, including a 
Repo Transaction, that is submitted to the Corporation for Novation by 
an Inter-Dealer Broker Netting Member calling for the delivery of an 
Eligible Netting Security, or the posting of cash or an Eligible 
Netting Security as collateral, that such Inter-Dealer Broker Netting 
Member enters into with another Netting Member or a Sponsored Member or 
Executing Firm Customer through the Inter-Dealer Broker Netting 
Member's own trading platform. As initially proposed, the definition of 
Brokered Transaction referred only to any transaction, including a Repo 
Transaction, calling for the delivery of an Eligible Netting Security, 
or the posting of cash or an Eligible Netting Security as collateral.
    Partial Amendment No. 1 also revises text proposed in SR-FICC-2024-
005 regarding the treatment of Agent Clearing Transactions and deletes 
reference to the term Brokered Transactions, such that Brokered 
Transactions would not be excluded from being an Agent Clearing 
Transaction.
    Additionally, Partial Amendment No. 1 makes the following changes 
to delete references to the term Brokered Transactions: (i) amends text 
from the Proposed Rule Change regarding Rule 1, to remove the term 
Brokered Transactions from the definition of Dealer Account; (ii) 
revises Rule 4, Section 7 regarding loss allocation for Inter-Dealer 
Broker Netting Members, to replace a reference to a Segregated Repo 
Account, with a reference to a Broker Account, and to remove a 
reference to a Non-IDB Repo Broker, as the Proposed Rule Change deletes 
the use of that term from the Rules; and (iii) amends existing Rule 3A 
Section 5 regarding Sponsored Member Trades and deletes reference to 
the term Brokered Transactions, such that the text now states that 
Sponsored Member Trades (other than Sponsored GC Trades) may be any 
type of transaction eligible for submission to FICC for netting with 
the exception of Netting Eligible Auction Purchases and GCF Repo 
Transactions.
    Finally, Partial Amendment No. 1 makes several technical and 
conforming changes throughout the Proposed Rule Change, such as 
renumbering section numbers to reflect the addition of new sections.
    Partial Amendment No. 1 would not change the purpose of, or 
statutory basis for the proposed rule change. All other representations 
in the Proposed Rule Change remain as stated therein and no other 
changes are being made.

II. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-FICC-2024-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-FICC-2024-007. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking). Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website at 
(https://dtcc.com/legal/sec-rule-filings.aspx). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-FICC-2024-007 and should be submitted on or 
before November 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(31).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25429 Filed 10-31-24; 8:45 am]
BILLING CODE 8011-01-P
```