Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 90145 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3Securities Exchange Act Release No. 99712 

(March 11, 2024), 89 FR 18981 (March 15, 2024) 

(SR–FICC–2024–801). 

4On February 27, 2024, FICC filed the advance 

notice as a proposed rule change with the 

Commission pursuant to Section 19(b)(1) of the Act, 

15 U.S.C. 78s(b)(1), and Rule 19b–4 thereunder, 17 

CFR 240.19b–4. The notice of proposed rule change 

was published in the Federal Register on March 15, 

2024. Securities Exchange Act Release No. 99710 

(March 11, 2024), 89 FR 18991 (March 15, 2024) 

(SR–FICC–2024–003). On March 25, 2024, the 

Commission extended the review period of the 

proposed rule change, pursuant to section 19(b)(2) 

of the Act, 15 U.S.C. 78s(b)(2)(ii), until June 13, 

2024, as the date by which the Commission shall 

either approve, disapprove, or institute proceedings 

to determine whether to disapprove the proposed 

rule change. Securities Exchange Act Release No. 

99769 (March 19, 2024), 89 FR 20716 (March 25, 

2024) (SR–FICC–2024–003). On May 20, 2024, the 

Commission published in the Federal Register an 

Order Instituting Proceedings to determine whether 

to approve or disapprove the proposed rule change. 

Securities Exchange Act Release No. 100141 (May 

14, 2024), 89 FR 43915 (May 20, 2024) (SR–FICC– 

2024–003). On September 12, 2024, the 

Commission designated a longer period for 

Commission action on the proceedings to determine 

whether to disapprove the proposed rule change, 

until November 10, 2024. Securities Exchange Act 

Release No. 100958 (Sept. 6, 2024), 89 FR 74309 

(Sept. 12, 2024) (SR–FICC–2024–003). 

5Pursuant to Section 806(e)(1)(H) of the 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 financial market utility (‘‘FMU’’) with 

prompt written notice of the extension.12 U.S.C. 

5465(e)(1)(H); see supra note 3 at 18990 (explaining 

the Commission’s rationale for determining that the 

proposed changes in the advance notice raise novel 

and complex issues because the proposed changes 

to FICC’s margin model are a direct response by 

FICC to address the unique circumstances that 

occurred during recent periods of extreme market 

volatility (i.e., the pandemic-related market 

volatility in March 2020 and the volatility during 

the successive interest rate hikes that began in 

March 2022). 

6See 12 U.S.C. 5465(e)(1)(D). A memo regarding 

the Request for Additional Information and the 

tolled period of review is available at https://

www.sec.gov/comments/sr-ficc-2024-801/ 

srficc2024801-449019-1150022.pdf. 

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

memo regarding receipt of FICC’s response to the 

Request for Additional Information is available at 

https://www.sec.gov/comments/sr-ficc-2024-801/ 

srficc2024801-471851-1323835.pdf. 

8FICC has requested confidential treatment 

pursuant to 17 CFR 240.24b–2 with respect to 

Exhibit 3 and Exhibit 5b. 

9Securities Exchange Act Release No. 99712 (May 

14, 2024), 89 FR 43941 (May 20, 2024) (SR–FICC– 

2024–801) (‘‘Notice of Filing’’). 

10See 12 U.S.C. 5465(e)(1)(D). A memo regarding 

the second Request for Additional Information and 

the tolled period of review is available at https:// 

www.sec.gov/comments/sr-ficc-2024-801/ 

srficc2024801-506275-1473822.pdf. 

11See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii). A 

memo regarding receipt of FICC’s response to the 

second Request for Additional Information is 

available at https://www.sec.gov/comments/sr-ficc2024-801/srficc2024801-527175-1514362.pdf. 

12Comments on the Advance Notice are available 

at https://www.sec.gov/comments/sr-ficc-2024-801/ 

srficc2024801.htm. Comments on the proposed rule 

change are available at https://www.sec.gov/ 

comments/sr-ficc-2024-003/srficc2024003.htm. 

Because the proposals contained in the Advance 

Notice and the proposed rule change 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. 

13See Letter from Timothy B. Hulse, Managing 

Director, Financial Risk, Governance & Credit Risk, 

Depository Trust & Clearing Corporation, (June 24, 

2024) (‘‘FICC Letter’’). 

should be submitted on or before 

December 5, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–26418 Filed 11–13–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101566; File No. SR–FICC– 

2024–801] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

No Objection to Advance Notice, as 

Modified by Partial Amendment No. 1, 

To Adopt a Minimum Margin Amount at 

GSD 

November 8, 2024. 

On February 27, 2024, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2024–801 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 In the advance 

notice, FICC proposes to add a 

minimum margin amount calculation to 

the margin methodology of FICC’s 

Government Securities Division 

(‘‘GSD’’) to enhance margin collections 

during periods of extreme market 

volatility, as described more fully 

below. The notice of filing of the 

advance notice was published for 

comment in the Federal Register on 

March 15, 2024.3 4 Upon publication of 

notice of filing of the advance notice, 

the Commission extended the review 

period of the advance notice for an 

additional 60 days because the 

Commission determined that the 

advance notice raised novel and 

complex issues.5 On March 22, 2024, 

the Commission requested additional 

information from FICC pursuant to 

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

Supervision Act, which tolled the 

Commission’s period of review of the 

advance notice until 120 days from the 

date the information requested by the 

Commission was received by the 

Commission.6 On April 26, 2024, the 

Commission received FICC’s response to 

the Commission’s request for additional 

information.7

On April 5, 2024, FICC filed Partial 

Amendment No. 1 to the advance notice 

to correct errors FICC discovered 

regarding the impact analysis filed as 

Exhibit 3 and discussed in the filing 

narrative, as well as correct a typo in the 

methodology formula in Exhibit 5b.8

Partial Amendment No. 1 corrected 

percentages and other figures 

throughout the filing narrative. The 

corrections in Partial Amendment No. 1 

did not change the substance of the 

advance notice. On May 20, 2024, the 

Commission published notice of the 

advance notice, as modified by Partial 

Amendment No. 1 (hereinafter, the 

‘‘Advance Notice’’), for comment in the 

Federal Register.9

On August 13, 2024, the Commission 

made a second request for additional 

information from FICC pursuant to 

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

Supervision Act, which tolled the 

Commission’s period of review of the 

advance notice until 120 days from the 

date the information requested by the 

Commission was received by the 

Commission.10 On September 26, 2024, 

the Commission received FICC’s 

response to the Commission’s second 

request for additional information.11

The Commission has received 

comments regarding the substance of 

the changes proposed in the Advance 

Notice.12 In addition, the Commission 

received a letter from FICC responding 

to the comments.13 This publication 

serves as notice of no objection to the 

Advance Notice. 

I. The Advance Notice 

A. Executive Summary 

FICC proposes to add a new 

Minimum Margin Amount (‘‘MMA’’) 

calculation to the GSD margin 

methodology to ensure that FICC 

collects sufficient margin amounts from 

its members during sudden periods of 

extreme market volatility. Recently, 

FICC faced increased risk exposure to its 

members during two periods of extreme 

market volatility, i.e., the COVID-related 

volatility in March 2020 and the 

volatility resulting from the successive 

interest rate hikes that began in March 

2022. Those periods of volatility 

involved market price changes that 


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14The 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. 

15 GSD also clears and settles certain transactions 

on securities issued or guaranteed by U.S. 

government agencies and government sponsored 

enterprises. 

16See GSD Rule 4 (Clearing Fund and Loss 

Allocation), supra note 14. 

17See id. 

18Supra note 16. 

19See GSD Rule 1 (Definitions—VaR Charge), 

supra note 14. 

20See id. 

21Market price risk refers to the risk that 

volatility in the market causes the price of a 

security to change between the execution of a trade 

and settlement of that trade. This risk is sometimes 

also referred to as volatility risk. 

22See GSD Rule 1 (Definitions—Margin Proxy), 

supra note 14; Securities Exchange Act Release Nos. 

80341 (March 30, 2017), 82 FR 16644 (April 5, 

2017) (SR–FICC–2017–801); Securities Exchange 

Act Release No. 83223 (May 11, 2018), 83 FR 23020 

(May 17, 2018) (SR–FICC–2018–801). 

23See Notice of Filing, supra note 9 at 43944. 

Specifically, for member portfolios that contain 

both long and short positions in different classes of 

securities that have a high degree of historical price 

correlation, the sensitivity VaR methodology can 

generate inadequate VaR Charges. See id. 

24Supra note 19. 

25See Securities Exchange Act Release No. 83362 

(June 1, 2018), 83 FR 26514 (June 7, 2018) (SR– 

FICC–2018–001). Specifically, FICC calculates the 

VaR Floor by multiplying the absolute value of the 

sum of the portfolio’s net long positions and net 

short positions, grouped by product and remaining 

maturity, by a percentage designated by FICC for 

such group. For U.S. Treasury and agency 

securities, such percentage shall be a fraction, no 

less than 10 percent, of the historical minimum 

volatility of a benchmark fixed income index for 

such group by product and remaining maturity. For 

mortgage-backed securities, such percentage shall 

be a fixed percentage that is no less than 0.05 

percent. Supra note 19. 

26See Notice of Filing, supra note 9 at 43944. 

27Supra note 19. 

28Backtesting is an ex-post comparison of actual 

outcomes (i.e., the actual margin collected) with 

expected outcomes derived from the use of margin 

models. See 17 CFR 240.17ad–22(a)(1). 

29FICC’s Model Risk Management Framework 

(‘‘Model Risk Management Framework’’) sets forth 

the model risk management practices of FICC and 

states that VaR and Clearing Fund requirement 

coverage backtesting would be performed on a daily 

basis or more frequently. See Securities Exchange 

Act Release Nos. 81485 (Aug. 25, 2017), 82 FR 

41433 (Aug. 31, 2017) (SR–FICC–2017–014); 84458 

(Oct. 19, 2018), 83 FR 53925 (Oct. 25, 2018) (SR– 

FICC–2018–010); 88911 (May 20, 2020), 85 FR 

31828 (May 27, 2020) (SR–FICC–2020–004); 92380 

exceeded the GSD margin model’s 

projections, causing FICC to collect 

margin amounts that were insufficient 

to cover FICC’s risk exposure to its 

members. This highlighted the need for 

FICC to enhance the GSD margin 

methodology to provide better coverage 

during periods of extreme market 

volatility. 

FICC proposes to add the MMA 

calculation to the Value-at-Risk charge 

(‘‘VaR Charge’’) component of the GSD 

margin methodology. Whereas the 

current VaR Charge is determined as the 

greater of two separate calculations, 

FICC proposes to add the MMA as a 

third calculation so that the VaR Charge 

would be the greater of three separate 

calculations. FICC specifically designed 

the MMA calculation to be more 

responsive to volatile market conditions 

than the two existing VaR Charge 

calculations. As described more fully 

below, the MMA calculation uses a 

filtered historical simulation (‘‘FHS’’) 

approach, which takes historical price 

data, removes the historical volatility 

estimates, and replaces them with 

volatility estimates that reflect current 

market conditions. The FHS approach 

also incorporates parameters that would 

give more weight to recent market 

events, such that when market volatility 

spikes, the MMA calculation would 

generate higher amounts and be more 

likely to exceed the other two VaR 

Charge calculations. Conversely, when 

market volatility subsides, the MMA 

calculation would generate lower 

amounts and be less likely to exceed the 

other two VaR Charge calculations. 

FICC conducted a 2-year impact study 

to analyze, among other things, the 

actual daily member-level margin 

amounts and backtesting results in 

comparison to the margin amounts and 

backtesting results had the MMA 

calculation been in place. The impact 

study indicates that if FICC used the 

MMA calculation during the 2-year 

period of analysis, FICC’s margin 

collections and backtesting coverage 

would have significantly improved and 

enabled FICC to meet its 99 percent 

backtesting performance targets. 

B. Background 

FICC, through its Government 

Securities Division (‘‘GSD’’),14 serves as 

a central counterparty (‘‘CCP’’) and 

provider of clearance and settlement 

services for transactions in U.S. 

government securities, as well as 

repurchase and reverse repurchase 

transactions involving U.S. government 

securities.15 A key tool that FICC uses 

to manage its credit exposures to its 

members is the daily collection of the 

Required Fund Deposit (i.e., margin) 

from each member.16 The aggregated 

amount of all members’ Required Fund 

Deposits constitutes the Clearing Fund, 

which FICC would access should a 

defaulted member’s own Required Fund 

Deposit be insufficient to satisfy losses 

to FICC caused by the liquidation of that 

member’s portfolio.17

A member’s Required Fund Deposit 

consists of a number of components, 

each of which is calculated to address 

specific risks faced by FICC.18 The VaR 

Charge generally comprises the largest 

portion of a member’s Required Fund 

Deposit amount. The VaR Charge is a 

calculation of the volatility of the 

unsettled securities positions in a 

member’s portfolio.19 For each member 

portfolio, FICC currently uses two 

separate methods to calculate amounts, 

the greater of which constitutes the 

member’s VaR Charge.20

FICC’s first calculation uses a 

sensitivity-based VaR methodology to 

estimate the possible losses for a given 

portfolio based on: (1) confidence level, 

(2) a time horizon, and (3) historical 

market volatility. The sensitivity VaR 

methodology is intended to capture the 

market price risks that are associated 

with the securities positions in a 

member’s margin portfolio,21 at a 99 

percent confidence level. This 

methodology projects the potential 

losses that could occur in connection 

with the liquidation of a defaulting 

member’s portfolio, assuming a portfolio 

would take three days to liquidate in 

normal market conditions. The 

sensitivity VaR methodology relies on 

sensitivity data and historical risk factor 

time series data generated by an external 

vendor to calculate the risk profile of 

each member’s portfolio. In the event of 

a vendor data disruption, the GSD Rules 

provide for an alternative volatility 

calculation that relies on historical 

market index proxies (the ‘‘Margin 

Proxy’’ calculation).22

FICC recognizes that the sensitivity 

VaR methodology might not generate 

margin amounts sufficient to cover its 

exposure to its members consistent with 

its regulatory obligations when applied 

to certain types of member portfolios.23

Therefore, FICC’s second calculation 

uses a haircut-based methodology 

(currently referred to in the GSD Rules 

as the ‘‘VaR Floor’’),24 in which FICC 

applies a haircut to the market value of 

the gross unsettled positions in the 

member’s portfolio.25 The current VaR 

Floor is not designed to address the risk 

of potential underperformance of the 

sensitivity VaR methodology under 

extreme market volatility.26 Each 

member’s VaR Charge is either the 

sensitivity VaR calculation or the VaR 

Floor calculation, whichever is 

greater.27

FICC regularly assesses whether its 

margin methodologies generate margin 

levels commensurate with the particular 

risk attributes of each relevant product, 

portfolio, and market. For example, 

FICC employs daily backtesting 28 to 

determine the adequacy of margin 

collections from its members.29 FICC 


ddrumheller on DSK120RN23PROD with NOTICES1
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(July 13, 2021), 86 FR 38140 (July 19, 2021) (SR– 

FICC–2021–006); 94271 (Feb. 17, 2022), 87 FR 

10411 (Feb. 24, 2022) (SR–FICC–2022–001); 97890 

(July 13, 2023), 88 FR 46287 (July 19, 2023) (SR– 

FICC–2023–008). 

30Members may be required to post additional 

collateral to the Clearing Fund in addition to their 

Required Fund Deposit amount. See e.g., Section 7 

of GSD Rule 3 (Ongoing Membership 

Requirements), supra note 14 (providing that 

adequate assurances of financial responsibility of a 

member may be required, such as increased 

Clearing Fund deposits). For backtesting 

comparisons, FICC uses the Required Fund Deposit 

amount, without regard to the actual, total collateral 

posted by the member to the GSD Clearing Fund. 

31 During the periods of relatively low to 

moderate market volatility from January 2013 to 

March 2020, the VaR model generally performed 

above the 99 percent performance targets. See 

Notice of Filing, supra note 9 at 43943. 

32 During the pandemic-related volatility in 

March 2020 and the successive interest rate hikes 

that began in March 2022, the VaR model fell below 

the 99 percent performance targets. See Notice of 

Filing, supra note 9 at 43942–44. 

33As part of the Advance Notice, FICC filed 

Exhibit 3—FICC Impact Study. Pursuant to 17 CFR 

240.24b–2, FICC requested confidential treatment of 

Exhibit 3. 

34See Notice of Filing, supra note 9 at 43947. 

35See id. 

36See Notice of Filing, supra note 9 at 43943–44. 

37See Notice of Filing, supra note 9 at 43942–44. 

38See id. 

39The proposed changes would revise the GSD 

Rules and FICC’s Methodology Document—GSD 

Initial Market Risk Margin Model (the ‘‘QRM 

Methodology’’) relevant to the VaR model. As part 

of the Advance Notice, FICC filed Exhibit 5b— 

Proposed Changes to the QRM Methodology. 

Pursuant to 17 CFR 240.24b–2, FICC requested 

confidential treatment of Exhibit 5b. FICC originally 

filed the QRM Methodology as a confidential 

exhibit to proposed rule change SR–FICC–2018– 

001. See supra note 25; see also Securities Exchange 

Act Release No. 83223 (May 11, 2018), 83 FR 23020 

(May 17, 2018) (SR–FICC–2018–801). FICC has 

subsequently amended the QRM Methodology. See 

Securities Exchange Act Release Nos. 85944 (May 

24, 2019), 84 FR 25315 (May 31, 2019) (SR–FICC– 

2019–001); 90182 (Oct. 14, 2020), 85 FR 66630 (Oct. 

20, 2020) (SR–FICC–2020–009); 93234 (Oct. 1, 

2021), 86 FR 55891 (Oct. 7, 2021) (SR–FICC–2021– 

007); 95605 (Aug. 25, 2022), 87 FR 53522 (Aug. 31, 

2022) (SR–FICC–2022–005); 97342 (Apr. 21, 2023), 

88 FR 25721 (Apr. 27, 2023) (SR–FICC–2023–003); 

99447 (Jan. 30, 2024), 89 FR 8260 (Feb. 6, 2024) 

(SR–FICC–2024–001). 

40FICC refers to the proposed approach as the 

‘‘price return-based risk representation’’ in the QRM 

Methodology. See Notice of Filing, supra note 9 at 

43944. Given the availability and accessibility of 

historical price returns data, FICC believes the 

proposed approach would help minimize and 

diversify FICC’s risk exposure from external data 

vendors. See id. 

41The FHS method differs from the historical 

simulation method, which uses historical price 

return data as is, by incorporating the volatilities of 

historical price returns. In particular, the FHS 

method constructs the filtered historical price 

returns in two steps: (1) ‘‘devolatilizing’’ the 

historical price returns by dividing them by a 

volatility estimate for the day of the price return, 

and (2) ‘‘revolatilizing’’ the devolatilized price 

returns by multiplying them by a volatility estimate 

based on the current market. For additional 

background on the FHS method, see Filtered 

Historical Simulation Value-at-Risk Models and 

Their Competitors, Pedro Gurrola-Perez and David 

Murphy, Bank of England, March 2015, at 

www.bankofengland.co.uk/working-paper/2015/ 

filtered-historical-simulation-value-at-risk-modelsand-their-competitors. 

42FICC would provide members with at least one 

Business Day advance notice of any change to the 

decay factor via an Important Notice. 

43The ‘‘repo interest volatility charge’’ is a 

component of the VaR Charge designed to address 

repo interest volatility. The repo interest volatility 

charge is calculated based on internally constructed 

repo interest rate indices. As proposed, FICC would 

include the repo interest volatility charge as a 

component of the MMA; however, FICC is not 

proposing to otherwise change the repo interest 

volatility charge or the manner in which it is 

calculated. See Notice of Filing, supra note 9 at 

43944. 

44The ‘‘bid-ask spread risk charge’’ is a 

component of the VaR Charge designed to address 

transaction costs related to bid-ask spread in the 

market that FICC could incur when liquidating a 

portfolio. As proposed, FICC would include the bidask spread risk charge as a component of the MMA; 

Continued 

compares each Member’s Required 

Fund Deposit 30 with the simulated 

liquidation gains/losses, using the 

actual positions in each member 

portfolio and the actual historical 

security returns. A backtesting 

deficiency occurs when a member’s 

Required Fund Deposit would not have 

been adequate to cover the projected 

liquidation losses. Backtesting 

deficiencies highlight exposures that 

could subject FICC to potential losses in 

the event of a member default. 

FICC believes that its current VaR 

model has performed well in low to 

moderate volatility markets,31 though it 

has not met FICC’s performance targets 

during periods of extreme market 

volatility.32 As described more fully 

below, FICC performed an impact study 

on its members’ margin portfolios 

covering the period beginning July 1, 

2021 through June 30, 2023 (‘‘Impact 

Study’’).33 During the period of the 

Impact Study, FICC’s VaR model 

backtesting coverage was 98.86 percent, 

with 843 VaR model backtesting 

deficiencies.34 Also, during the period 

of the Impact Study, FICC’s overall 

margin backtesting coverage was 98.87 

percent, with 685 overall margin 

backtesting deficiencies.35 Thus, the 

Impact Study demonstrates that FICC’s 

backtesting metrics fell below 

performance targets during the period of 

the Impact Study.36 FICC states that the 

foregoing backtesting deficiencies are 

attributable to recent periods of extreme 

volatility in the fixed income market 

caused by monetary policy changes, 

inflation, and recession fears, which 

have led to greater risk exposures for 

FICC.37 Specifically, FICC states that the 

periods of extreme market volatility in 

March 2020 related to the COVID 

pandemic and the successive interest 

rate hikes that began in March 2022, 

have led to market price changes that 

exceeded the projections of FICC’s 

current VaR model, resulting in 

insufficient VaR Charges.38

Accordingly, in the Advance Notice, 

FICC proposes changes to the VaR 

model that FICC believes would 

mitigate the risk of potential 

underperformance of the VaR model 

during periods of extreme market 

volatility.39

C. Proposed Changes 

In the Advance Notice, FICC proposes 

to introduce a new minimum margin 

amount (i.e., the MMA) into the GSD 

margin methodology. FICC proposes to 

calculate the MMA for each member 

portfolio as a supplement to the existing 

sensitivity VaR calculation and the 

haircut-based VaR Floor calculation 

described above in Section I.B. FICC 

proposes to rename the current haircutbased VaR Floor calculation as the ‘‘VaR 

Floor Percentage Amount.’’ FICC 

proposes to revise the existing VaR 

Floor definition to mean the greater of 

(1) the VaR Floor Percentage Amount, 

and (2) the MMA. Thus, the greater of 

the three calculations (i.e., sensitivity 

VaR, VaR Floor Percentage Amount, and 

MMA) would constitute the member’s 

VaR Charge. Additionally, FICC 

proposes to clarify that the VaR Floor 

would also apply in the event that the 

Margin Proxy is invoked. The proposed 

changes are described in greater detail 

below. 

1. Minimum Margin Amount 

Calculation 

FICC would calculate the MMA for 

each portfolio using historical price 

returns to represent risk.40 FICC would 

calculate the MMA as the sum of the 

following: (1) amounts calculated using 

an FHS approach 41 to assess volatility 

by scaling historical market price 

returns to current market volatility, with 

market volatility being measured by 

applying an exponentially weighted 

moving average (‘‘EWMA’’) to the 

historical market price returns with a 

decay factor between 0.93 and 0.99,42 as 

determined by FICC based on sensitivity 

analysis, macroeconomic conditions, 

and/or backtesting performance; (2) 

amounts calculated using a haircut 

method to measure the risk exposure of 

those securities that lack sufficient 

historical price return data; and (3) 

amounts calculated to incorporate risks 

related to (i) repo interest volatility 

(‘‘repo interest volatility charge’’) 43 and 

(ii) transaction costs related to bid-ask 

spread in the market that could be 

incurred when liquidating a portfolio 

(‘‘bid-ask spread risk charge’’).44


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however, FICC is not proposing to otherwise change 

the bid-ask spread risk charge or the manner in 

which it is calculated. See Notice of Filing, supra 

note 9 at 43944. 45See Notice of Filing, supra note 9 at 43945. 46See Notice of Filing, supra note 9 at 43942. 

47See Model Risk Management Framework, supra 

note 29. 

48The Model Risk Management Framework 

provides that all models undergo ongoing model 

performance monitoring and backtesting, which is 

the process of (1) evaluating an active model’s 

ongoing performance based on theoretical tests, (2) 

monitoring the model’s parameters through the use 

of threshold indicators, and/or (3) backtesting using 

actual historical data/realizations to test a VaR 

model’s predictive power. Supra note 29. 

49See Notice of Filing, supra note 9 at 43946. 

50See id. 

51See Model Risk Management Framework, supra 

note 29. Similar to the lookback period described 

above, FICC would also analyze the decay factor to 

evaluate its sensitivity and impact to the model 

performance pursuant to the model performance 

monitoring required under the Model Risk 

Management Framework. 

52Accounting for the basis risk would enable 

FICC to explicitly model and manage the basis risk 

between an agency security and the mapped U.S. 

Treasury index, given that agency securities are not 

as actively traded as U.S. Treasury securities. 

53See note 29. 

54See Notice of Filing, supra note 9 at 43946. 

FHS Method: For the FHS method, 

FICC would first construct historical 

price returns using certain mapped 

fixed income securities benchmarks. 

Specifically, FICC proposes to use the 

following mapped fixed income 

securities benchmarks with the FHS 

method when calculating the MMA: (1) 

Bloomberg Treasury indexes for U.S. 

Treasury and agency securities; (2) 

Bloomberg TIPS indexes for Treasury 

Inflation-Protected Securities (‘‘TIPS’’); 

and (3) to-be-announced (‘‘TBA’’) 

securities for mortgage-backed securities 

(‘‘MBS’’) pools. FICC states that it chose 

these benchmarks because their price 

movements generally closely track those 

of the securities mapped to them and 

that their price history is generally 

readily available and accessible.45

After constructing historical price 

returns, FICC would estimate a market 

volatility associated with each historical 

price return by applying an EWMA to 

the historical price returns. FICC would 

‘‘devolatilize’’ the historical price 

returns (i.e., remove an amount 

attributable to the historical market 

volatility from the price returns) by 

dividing them by the corresponding 

EWMA volatilities to obtain the residual 

returns. FICC would ‘‘revolatilize’’ the 

residual returns (i.e., add an amount 

attributable to the current market 

volatility to the residual returns) by 

multiplying them by the current EWMA 

volatility to obtain the filtered returns. 

FICC proposes to use the FHS method 

to improve the responsiveness of the 

VaR model to periods of extreme market 

volatility because historical returns are 

scaled to current market volatility.46

FICC would use filtered return time 

series to simulate the profits and losses 

of a member’s portfolio and derive the 

volatility of the portfolio using the 

standard historical simulation approach. 

Specifically, FICC would map each 

security that is in a member’s portfolio 

to a respective fixed income securities 

benchmark, as applicable, based on the 

security’s asset class and remaining 

maturity. FICC would use the filtered 

returns of the benchmark as the 

simulated returns of the mapped 

security to calculate the simulated 

profits and losses of a member’s 

portfolio. Finally, FICC would calculate 

the MMA as the 99-percentile of the 

simulated portfolio loss. In accordance 

with FICC’s model risk management 

practices and governance set forth in the 

Clearing Agency Model Risk 

Management Framework,47 FICC would 

determine the mapped fixed income 

securities benchmarks, historical market 

price returns, parameters, and volatility 

assessments used to calculate the MMA. 

FHS Parameters: The proposed MMA 

would use a lookback period for the 

FHS and a decay factor for calculating 

the EWMA volatility of the historical 

price returns. Specifically, the MMA 

lookback period would be the same as 

the lookback period currently used for 

the sensitivity VaR calculation, which is 

10 years, plus, to the extent applicable, 

a stressed period. FICC would analyze 

the MMA’s lookback period and 

evaluate its sensitivity and impact on 

margin model performance, consistent 

with the VaR methodology outlined in 

the QRM Methodology and pursuant to 

the model performance monitoring 

required under the Model Risk 

Management Framework.48

The decay factor generally affects (1) 

whether and how the MMA would be 

invoked (i.e., applied as a member’s VaR 

Charge), (2) the peak level of margin 

increase or the degree of procyclicality, 

and (3) how quickly the margin would 

fall back to pre-stress levels. As 

proposed, FICC would have the 

discretion to set the decay factor 

between 0.93 and 0.99, with the initial 

decay factor value set at 0.97. FICC 

expects that any adjustment to the decay 

factor would be an infrequent event that 

would typically happen only when 

there is an unprecedented market 

volatility event resulting in risk 

exposures to FICC that cannot be 

adequately mitigated by the thencalibrated decay factor.49 FICC’s 

decision to adjust the decay factor 

would be based on an analysis of the 

decay factor’s sensitivity and impact to 

the model performance, considering 

factors including the impact to the VaR 

Charges, macroeconomic conditions, 

and/or backtesting performance.50 Any 

decision by FICC to adjust the decay 

factor would be in accordance with 

FICC’s model risk management practices 

and governance set forth in the Model 

Risk Management Framework.51

Haircut Method: Occasionally, a 

member’s portfolio might contain 

classes of securities that reflect market 

price changes that are not consistently 

related to historical price moves. The 

value of such securities is often 

uncertain because the securities’ market 

volume varies widely. Because the 

volume and historical price information 

for such securities are not sufficient to 

perform accurate statistical analyses, the 

FHS method would not generate an 

MMA amount that adequately reflects 

the risk profile of such securities. 

Accordingly, FICC would use a haircut 

method to assess the market risk of 

securities that are more difficult to 

simulate (e.g., due to thin trading 

history). 

Specifically, FICC would use a haircut 

method for MBS pools that are not TBA 

securities eligible, floating rate notes, 

and U.S. Treasury/agency securities 

with remaining time to maturities of less 

than or equal to one year. FICC would 

also use a haircut method to account for 

the basis risk between an agency 

security and the mapped U.S. Treasury 

index to supplement the historical 

market price moves generated by the 

FHS method for agency securities to 

reflect any residual risks between 

agency securities and the mapped fixed 

income securities benchmarks (i.e., 

Bloomberg Treasury indexes).52

Similarly, FICC would use a haircut 

method to account for the MBS pool/ 

TBA basis risk to address the residual 

risk for using TBA price returns as 

proxies for MBS pool returns used in 

the FHS method. 

Ongoing Performance Monitoring: The 

Model Risk Management Framework 

would require FICC to conduct ongoing 

model performance monitoring of the 

MMA methodology.53 FICC’s current 

model performance monitoring 

practices would provide for sensitivity 

analysis of relevant model parameters 

and assumptions to be conducted 

monthly, or more frequently when 

markets display high volatility.54

Additionally, FICC would monitor each 

member’s Required Fund Deposit and 

the aggregate Clearing Fund 

requirements versus the requirements 

calculated by the MMA, by comparing 

the results versus the three-day profit 


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55See id. 

56See id. 

57See Model Risk Management Framework, supra 

note 29. 

58FICC states that it currently does not use 

Margin Proxy as an adjustment factor to the VaR 

and does not intend to use it as such in the future. 

See Notice of Filing, supra note 9 at 43947. 

59The Backtesting Charge is an additional charge 

that may be added to a member’s VaR Charge to 

mitigate exposures to FICC caused when the 

member exhibits a pattern of breaching the target 

coverage ratio of 99 percent. See GSD Rule 1 

(Definitions—Backtesting Charge), supra note 14. 

60Margin Proxy was not invoked during the 

period of the Impact Study. However, if the 

proposed MMA had been in place and the Margin 

Proxy was invoked during the period of the Impact 

Study: the aggregate average daily SOD VaR Charges 

would have increased by approximately $4.16 

billion or 20.97 percent; the VaR model backtesting 

coverage would have increased from approximately 

98.17 percent to 99.38 percent; and the number of 

the VaR model backtesting deficiencies would have 

been reduced by 899 (from 1358 to 459, or 

approximately 66.2 percent). 

61The term ‘‘Net Capital’’ means, as of a 

particular date, the amount equal to the net capital 

of a broker or dealer as defined in SEC Rule 15c3– 

1(c)(2), or any successor rule or regulation thereto. 

See GSD Rule 1 (Definitions), supra note 14. 

62FICC may deem such data to be unavailable 

and deploy Margin Proxy when there are concerns 

with the quality of data provided by the vendor. See 

Notice of Filing, supra note 9 at 43946. 

63See id. 

64See 12 U.S.C. 5461(b). 

65 12 U.S.C. 5464(a)(2). 

66 12 U.S.C. 5464(b). 

and loss of each member’s portfolio 

based on actual market price moves.55

Based on the results of the sensitivity 

analysis and/or backtesting, FICC could 

consider adjustments to the MMA, 

including changing the decay factor as 

appropriate.56 Any adjustment to the 

MMA calculation would be subject to 

the model risk management practices 

and governance process set forth in the 

Model Risk Management Framework.57

Impact Study: As mentioned above in 

Section I.B., FICC performed an Impact 

Study on its members’ margin portfolios 

covering the period beginning July 1, 

2021 through June 30, 2023.58 The 

Impact Study lists the actual daily and 

average VaR Charges at both the 

member-level and CCP-level during the 

period of the Impact Study, compared 

with how those amounts would have 

changed if the proposed MMA had been 

in place. The Impact Study also lists the 

actual daily backtesting results at the 

member-level during the period of the 

Impact Study, compared with how those 

amounts would have changed if the 

proposed MMA had been in place. The 

Impact Study shows that if the proposed 

MMA had been in place during the 

period of the Impact Study, when 

compared to the current VaR 

methodology: (1) the aggregate average 

daily start-of-day (‘‘SOD’’) VaR Charges 

would have increased by approximately 

$2.90 billion or 13.89 percent; (2) the 

aggregate average daily noon VaR 

Charges would have increased by 

approximately $3.03 billion or 14.06 

percent; and (3) the aggregate average 

daily Backtesting Charges 59 would have 

decreased by approximately $622 

million or 64.46 percent.60

The Impact Study indicates that if the 

proposed MMA had been in place, the 

VaR model backtesting coverage would 

have increased from approximately 

98.86 percent to 99.46 percent during 

the period of the Impact Study and the 

number of VaR model backtesting 

deficiencies would have been reduced 

by 441 (from 843 to 402, or 

approximately 52 percent). The Impact 

Study also indicates that if the proposed 

MMA had been in place: (1) overall 

margin backtesting coverage would have 

increased from approximately 98.87 

percent to 99.33 percent, (2) the number 

of overall margin backtesting 

deficiencies would have been reduced 

by 280 (from 685 to 405, or 

approximately 41 percent), and (3) the 

overall margin backtesting coverage for 

94 members (approximately 72 percent 

of the GSD membership) would have 

improved, with 36 members who were 

below 99 percent coverage brought back 

to above 99 percent. 

On average, at the member-level, the 

proposed MMA would have increased 

the SOD VaR Charge by approximately 

$22.43 million, or 17.56 percent, and 

the noon VaR Charge by approximately 

$23.25 million, or 17.43 percent, over 

the period of the Impact Study. The 

largest average percentage increase in 

SOD VaR Charge for any member would 

have been approximately 66.88 percent, 

or $97,051 (0.21percent of the member’s 

average Net Capital),61 and the largest 

average percentage increase in noon 

VaR Charge for any member would have 

been approximately 64.79 percent, or 

$61,613 (0.13 percent of the member’s 

average Net Capital). The largest average 

dollar increase in SOD VaR Charge for 

any member would have been 

approximately $268.51 million (0.34 

percent of the member’s average Net 

Capital), or 19.06 percent, and the 

largest dollar increase in noon VaR 

Charge for any member would have 

been approximately $289.00 million 

(1.07 percent of the member’s average 

Net Capital), or 13.67 percent. The top 

10 members based on the size of their 

average SOD VaR Charges and average 

noon VaR Charges would have 

contributed approximately 51.87 

percent and 53.64 percent of the 

aggregated SOD VaR Charges and 

aggregated noon VaR Charges, 

respectively, during the period of the 

Impact Study had the proposed MMA 

been in place. The same members 

would have contributed to 50.08 percent 

and 51.52 percent of the increase in 

aggregated SOD VaR Charges and 

aggregated noon VaR Charges, 

respectively, had the proposed MMA 

been in place during the period of the 

Impact Study. 

2. Clarification of VaR Floor To Include 

Margin Proxy 

As mentioned above in Section I.B., 

the Margin Proxy methodology is 

currently invoked as an alternative 

volatility calculation if the requisite 

vendor data used for the sensitivity VaR 

calculation is unavailable for an 

extended period of time.62 FICC 

proposes to clarify that the VaR Floor, 

which does not depend upon any 

vendor data, operates as a floor for the 

Margin Proxy, such that if the Margin 

Proxy, when invoked, is lower than the 

VaR Floor, then the VaR Floor would be 

utilized as the VaR Charge with respect 

to a member’s portfolio. FICC believes 

this clarification would enable Margin 

Proxy to be an effective risk mitigant 

under extreme market volatility and 

heightened market stress because as 

discussed above in Section I.C.1., the 

proposed VaR Floor would include the 

MMA calculation.63

II. Discussion and Commission 

Findings 

Although the Clearing Supervision 

Act does not specify a standard of 

review for an advance notice, the stated 

purpose of the Clearing Supervision Act 

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 

(SIFMUs) and strengthening the 

liquidity of SIFMUs.64

Section 805(a)(2) of the Clearing 

Supervision Act authorizes the 

Commission to prescribe regulations 

containing 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.65 Section 805(b) 

of the Clearing Supervision Act 

provides the following objectives and 

principles for the Commission’s risk 

management standards prescribed under 

Section 805(a): 66

• to promote robust risk management; 

• to promote safety and soundness; 

• to reduce systemic risks; and 


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67 12 U.S.C. 5464(c). 

68 17 CFR 240.17ad–22. See Securities Exchange 

Act Release No. 68080 (October 22, 2012), 77 FR 

66220 (November 2, 2012) (S7–08–11). See also 

Securities Exchange Act Release No. 78961 

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

2016) (S7–03–14). FICC is a ‘‘covered clearing 

agency’’ as defined in Rule 17ad–22(a)(5). 

69 Id. 

70 12 U.S.C. 5464(b). 

71 17 CFR 240.17ad–22(e)(4)(i), (e)(6)(i), and 

(e)(23)(ii). 

72 12 U.S.C. 5464(b). 

73Several of the issues raised by the commenters 

are directed at the proposed rule change and will 

be addressed in that context. These comments 

generally relate to the proposal’s impact on 

competition and its consistency with the Exchange 

Act. See Letter from Independent Dealer and Trade 

Association (May 7, 2024) (‘‘IDTA Letter’’) at 2, 3– 

6; Letter from Robert Toomey, Head of Capital 

Markets, Managing Director/Associate General 

Counsel, Securities Industry and Financial Markets 

Association (May 22, 2024) (‘‘SIFMA Letter’’) at 2, 

5, 7–8 (commenting on the proposal’s impact on 

competition). The Commission’s evaluation of the 

Advance Notice is conducted under the Clearing 

Supervision Act and, as noted above, generally 

considers whether the proposal would promote 

robust risk management, promote safety and 

soundness, reduce systemic risks, and support the 

broader financial system. 

74See supra notes 7, 11. 

75 In addition, because the proposals contained in 

the Advance Notice and the proposed rule change 

are the same, all information submitted by FICC 

was considered regardless of whether the 

information submitted with respect to the Advance 

Notice or the proposed rule change. See supra note 

9. 

76See Notice of Filing, supra note 9 at 43947. 

77See id. 

• to support the stability of the 

broader financial system. 

Section 805(c) provides, in addition, 

that the Commission’s risk management 

standards may address such areas as 

risk management and default policies 

and procedures, among other areas.67

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act and Section 17A of the Exchange 

Act (the ‘‘Clearing Agency Rules’’).68

The Clearing Agency Rules require, 

among other things, each covered 

clearing agency to establish, implement, 

maintain, and enforce written policies 

and procedures that are reasonably 

designed to meet certain minimum 

requirements for its operations and risk 

management practices on an ongoing 

basis.69 As such, it is appropriate for the 

Commission to review advance notices 

against the Clearing Agency Rules and 

the objectives and principles of these 

risk management standards as described 

in Section 805(b) of the Clearing 

Supervision Act. As discussed below, 

the proposals in the Advance Notice are 

consistent with the objectives and 

principles described in Section 805(b) of 

the Clearing Supervision Act 70 and in 

the Clearing Agency Rules, in particular 

Rule 17ad–22(e)(4)(i), (e)(6)(i), and 

(e)(23)(ii).71

A. Consistency With Section 805(b) of 

the Clearing Supervision Act 

The proposals in the Advance Notice 

are consistent with the stated objectives 

and principles of Section 805(b) of the 

Clearing Supervision Act.72

Specifically, the changes proposed in 

the Advance Notice are consistent with 

promoting robust risk management, 

promoting safety and soundness, 

reducing systemic risks, and supporting 

the broader financial system.73

1. Promoting Robust Risk Management 

and Safety and Soundness 

Incorporating the proposed MMA into 

the GSD margin methodology would be 

consistent with the promotion of robust 

risk management and safety and 

soundness at FICC. As described above 

in Section I.B., the extreme market 

volatilities during recent stressful 

market periods led to market price 

changes that exceeded the current VaR 

model’s projections, generating margin 

amounts that were not sufficient to 

mitigate FICC’s credit exposure to its 

members’ portfolios at a 99 percent 

confidence level. FICC’s proposed 

incorporation of the MMA calculation 

into the GSD margin methodology 

would result in margin levels that better 

reflect the risks and particular attributes 

of member portfolios during periods of 

extreme market volatility, which is 

consistent with promoting robust risk 

management. 

Implementing the MMA would enable 

FICC to collect additional margin when 

the market price volatility implied by 

the current sensitivity VaR calculation 

and VaR Floor calculation is lower than 

the market price volatility implied by 

the proposed MMA calculation. In its 

consideration of the proposed MMA, the 

Commission reviewed and analyzed the: 

(1) Advance Notice, including the 

supporting exhibits that provided 

confidential information on the 

proposed MMA calculation, Impact 

Study (including detailed information 

regarding the impact of the proposed 

changes on the portfolios of each FICC 

member over various time periods), and 

backtesting coverage results, (2) FICC’s 

response to the Commission’s requests 

for additional information; 74 and (3) the 

Commission’s own understanding of the 

performance of the current GSD margin 

methodology, with which the 

Commission has experience from its 

general supervision of FICC, compared 

to the proposed margin methodology.75

Based on the Commission’s review of 

the Impact Study, had the proposed 

MMA been in place, both the VaR 

model backtesting coverage and the 

overall margin backtesting coverage 

would have risen above the 99 percent 

confidence level to 99.46 percent and 

99.33 percent, respectively, over the 

time period covered by the Impact 

Study.76 Additionally, the number of 

VaR model backtesting deficiencies and 

overall margin backtesting deficiencies 

would have been reduced by 441 and 

280, respectively.77

The proposed MMA methodology 

would be more likely to apply as the 

VaR Charge during periods of extreme 

market volatility because the MMA 

methodology is more responsive to 

spikes in market volatility than the 

sensitivity VaR calculation. As 

described above in Section I.C.1., the 

MMA calculation relies, in part, on the 

FHS method, which takes historical 

price data, removes the historical 

volatility estimates, and replaces them 

with volatility estimates that reflect 

current market conditions. Additionally, 

as described above in Section I.C.1., the 

decay factor used in the FHS method 

affects (1) whether and how the MMA 

would apply to determine a member’s 

VaR Charge; (2) the peak level of margin 

increase or the degree of procyclicality; 

and (3) how quickly the margin would 

fall back to pre-stress levels. A faster 

decay (i.e., smaller decay factor value), 

like the one FICC intends to use 

initially, would give more weight to 

more recent market events, while a 

slower decay would give more weight to 

older market events. Thus, when market 

volatility spikes, the MMA calculation 

would generate higher amounts and 

thereby be more likely to apply as the 

VaR Charge (after exceeding the 

sensitivity VaR calculation). Conversely, 

when market volatility subsides, the 

MMA calculation would generate lower 

amounts and be less likely to apply. 

The Impact Study supports this 

analysis. If the proposed MMA 

calculation had been in place during the 

period of the Impact Study, the MMA 

would have applied primarily during 

the recent extreme market volatility 

events (i.e., those in March 2020 and 

commencing in March 2022). In 

contrast, during periods of low to 

moderate market volatility, the MMA 

calculation would generally not be the 

greatest amount of the three calculations 

and thus, would not be invoked. 

Instead, in periods of low to moderate 

market volatility, the sensitivity VaR 

calculation is likely to be the VaR 

Charge for members whose portfolios do 

not contain long and short positions in 

different classes of securities that share 

a high degree of price correlation. For 

such long/short portfolios, in low to 


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78See Notice of Filing, supra note 9 at 43943. 

79See 12 U.S.C. 5464(b). 

80See IDTA Letter at 5–6. 

81See id. 

82See FICC Letter at 5. 

83See id. 

84See id. 

85See GSD Rule 1 (Definitions—Net Capital) 

(defining Net Capital’’ to mean, as of a particular 

date, the amount equal to the net capital of a broker 

or dealer as defined in SEC Rule 15c3–1(c)(2) or any 

successor rule or regulation thereto) and 17 CFR 

240.15c3–1(c)(2) (requiring that every broker or 

Continued 

moderate volatility markets, the VaR 

Floor Percentage Amount calculation is 

more likely to be the VaR Charge. The 

sensitivity VaR calculation and VaR 

Floor Percentage Amount calculations 

are likely to generate sufficient margin 

levels above FICC’s 99 percent 

performance targets during periods of 

low to moderate market volatility. 

Indeed, during the periods of low to 

moderate market volatility from January 

2013 to March 2020, the GSD VaR 

model has generally performed above 

FICC’s 99 percent backtesting 

performance targets.78

Implementing the proposed MMA 

should enable FICC to better manage its 

exposure to its members during periods 

of extreme market volatility by 

generating margin levels that meet 

FICC’s 99 percent backtesting coverage 

targets. Accordingly, the proposal is 

consistent with promoting robust risk 

management because the MMA would 

enable FICC to better manage the 

relevant risks presented by the 

securities it clears in volatile market 

conditions. 

Additionally, FICC proposes to clarify 

that if the Margin Proxy, when invoked, 

is lower than the VaR Floor, then the 

VaR Floor would be utilized as the VaR 

Charge with respect to a member’s 

portfolio. Although Margin Proxy was 

not invoked during the period of the 

Impact Study, had the proposed changes 

been in place during that period, the 

VaR model backtesting coverage would 

have increased from approximately 

98.17 percent to 99.38 percent and the 

VaR model backtesting deficiencies 

would have been reduced by 899 (from 

1,358 to 459). The Commission agrees 

that ensuring the VaR Floor operates as 

a floor for the Margin Proxy would be 

more effective at mitigating risks under 

extreme market volatility because as 

proposed, the VaR Floor would include 

the MMA calculation. Accordingly, the 

proposal is consistent with promoting 

robust risk management because the 

enhanced VaR Floor would enable FICC 

to better manage the relevant risks, 

regardless of whether the sensitivity 

VaR calculation or Margin Proxy are 

invoked. 

Further, by helping to ensure that 

FICC collects margin amounts sufficient 

to manage the risk associated with its 

members’ portfolios during periods of 

extreme market volatility, the proposed 

MMA changes and Margin Proxy 

clarifications would help limit FICC’s 

exposure in a member default scenario. 

These proposed changes would 

generally provide FICC with additional 

resources to manage potential losses 

arising out of a member default. Such an 

increase in FICC’s available financial 

resources would decrease the likelihood 

that losses arising out of a member 

default would exceed FICC’s prefunded 

resources and threaten the safety and 

soundness of FICC’s ongoing operations. 

Accordingly, the proposals are also 

consistent with promoting safety and 

soundness at FICC. 

2. Reducing Systemic Risks and 

Supporting the Stability of the Broader 

Financial System 

Consistent with the objectives and 

principles of the Clearing Supervision 

Act, the Commission also considers 

whether the proposals in the Advance 

Notice would reduce systemic risks and 

support the stability of the broader 

financial system.79

The proposed MMA changes and 

Margin Proxy clarifications are 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system. As discussed 

above in Section I.B., FICC would access 

its Clearing Fund should a defaulted 

member’s own margin be insufficient to 

satisfy losses to FICC caused by the 

liquidation of the member’s portfolio. 

FICC proposes to add the MMA 

calculation to the GSD margin 

methodology to collect additional 

margin from members during periods of 

extreme market volatility to cover such 

costs, and thereby better manage the 

potential costs of liquidating a defaulted 

member’s portfolio. Similarly, FICC’s 

proposal to clarify the application of the 

VaR Floor to include Margin Proxy 

would ensure FICC’s ability to collect 

additional margin from members if the 

Margin Proxy, when invoked, is lower 

than the VaR Floor. These changes and 

clarifications to the GSD margin 

methodology could reduce the 

possibility that FICC would need to 

mutualize among the non-defaulting 

members a loss arising out of the closeout process. Reducing the potential for 

loss mutualization could, in turn, 

reduce the potential resultant effects on 

non-defaulting members, their 

customers, and the broader market 

arising out of a member default. 

One commenter states that FICC’s 

implementation of the proposed MMA 

would increase costs for market 

participants, leading to negative effects 

on the broader U.S. Treasury markets.80

Specifically, the commenter states that 

markets with high margin costs 

generally have fewer market 

participants, decreased market liquidity, 

wider bid/offer spreads, and encourage 

market participants to either exit the 

market or pass additional expenses to 

their customers.81 In response, FICC 

states that the proposed MMA is not 

designed to advantage or disadvantage 

capital formation.82 Instead, FICC states 

that the purpose of the proposed MMA 

is to manage the risk associated with 

member portfolios during periods of 

extreme market volatility.83 FICC states 

that although the proposal’s increased 

margin requirements could lessen 

liquidity for members, it is necessary 

and appropriate to mitigate the relevant 

risks.84

In considering the comments 

opposing FICC’s implementation of the 

MMA calculation as proposed, the 

Commission considered the Advance 

Notice filing materials including the 

Impact Study, comment letters, FICC’s 

response letter, and the Commission’s 

own understanding of the GSD margin 

methodology based on the 

Commission’s general supervision of 

FICC. As stated above in Section II.A.1., 

during the period of the Impact Study, 

the actual GSD VaR model backtesting 

coverage and overall margin backtesting 

coverage both fell below the 99 percent 

confidence level. These shortfalls are 

specifically attributable to the periods of 

extreme market volatility of March 2020 

and commencing in March 2022. The 

Impact Study demonstrates that had the 

proposed MMA calculation been in 

place during that period, margin 

amounts would have exceeded the 99 

percent backtesting coverage levels. 

Thus, implementing the MMA 

calculation would have better enabled 

FICC to calculate and collect margin 

amounts sufficient to mitigate the risks 

presented by its members’ portfolios 

during periods of extreme market 

volatility. 

The Commission acknowledges that 

implementing the proposed MMA 

would increase margin requirements 

during periods of extreme market 

volatility. However, as detailed above in 

Section I.C.1., the Impact Study 

demonstrates that the increased margin 

requirements attributable to the MMA at 

the member-level would represent 

relatively small percentages (i.e., 

typically a fraction of one percent) of 

members’ average Net Capital,85 which 


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dealer at all times have and maintain net capital no 

less than a particular requirement, as set forth in the 

Rule). 

86See 17 CFR 240.17ad–22(e)(4)(i). 

87See IDTA Letter at 5 (discussing trading 

strategies that involve Treasury securities in 

separate maturity buckets, such as buyers at 

Treasury auctions ‘‘rolling backwards’’ ahead of the 

auction by short-selling one issue and buy a 

different outstanding Treasury, Butterfly Spread, 

and ‘‘roll down the curve’’). 

88See id. 

89See FICC Letter at 5. 

90See id. 

91Supra note 40. 

92See FICC Letter at 5. 

93Procyclicality risk with respect to margin 

requirements is the cycle created when a decrease 

in the mark-to-market value of the securities in a 

portfolio triggers an increase in margin 

requirements, which in turn, causes a further 

decrease in portfolio value. 

94See SIFMA Letter at 6–7. 

95See SIFMA Letter at 7. 

96See FICC Letter at 5–6. 

97See id. 

98FICC could adjust the decay factor in 

accordance with the Model Risk Management 

Framework. FICC would analyze the decay factor to 

evaluate its sensitivity and impact to the model 

performance pursuant to the model performance 

monitoring required under the Model Risk 

Management Framework. Supra note 29. 

99 12 U.S.C. 5464(b). 

100 17 CFR 240.17ad–22(e)(4)(i). 

101See id. 

indicates that members would likely 

have access to sufficient financial 

resources to meet the increased MMA 

obligation if invoked during periods of 

extreme market volatility. Therefore, the 

comment that the increased margin 

costs attributable to the MMA would 

decrease market liquidity, widen bid/ 

offer spreads, and encourage market 

participants to either exit the market or 

pass additional expenses to their 

customers, do not appear likely based 

on the limited size of increased VaR 

Charges from the Impact Study. 

Additionally, by helping to ensure FICC 

collects sufficient margin to cover its 

exposure to members, implementing the 

MMA would decrease the likelihood of 

loss mutualization in the event of a 

member default, which could encourage 

greater market participation. Moreover, 

FICC has a regulatory obligation to have 

policies and procedures to calculate and 

collect margin amounts sufficient to 

mitigate the relevant risks presented to 

it by its members’ portfolios.86 Indeed, 

FICC’s role as a CCP that reduces 

systemic risk and promotes market 

stability is dependent on effectively 

managing the relevant risks, which 

includes FICC’s collection of sufficient 

margin from its members. 

One commenter states that the 

proposed MMA would negatively affect 

markets by having a detrimental effect 

on certain trading strategies that rely on 

margin offsets across maturity 

buckets.87 The commenter states that 

the MMA would eliminate such offsets, 

resulting in gross margining across 

maturity buckets and decreased 

liquidity.88 In response, FICC states that 

the proposed MMA would not eliminate 

such margin offsets across maturity 

buckets.89 Specifically, FICC states that 

the MMA would not differ from the 

current VaR model insofar as the FHS 

approach would likewise offset the 

market risk of long positions in one 

maturity bucket with the market risk of 

short positions in another maturity 

bucket.90 Based on the Commission’s 

review and understanding of FICC’s 

proposed changes to the QRM 

Methodology,91 the Commission agrees 

with FICC’s response that the FHS 

approach allows for similar offsetting as 

the current GSD VaR model regarding 

the market risk of long positions in one 

maturity bucket offsetting the market 

risk of short positions in another 

maturity bucket.92

Another commenter states that FICC’s 

proposal did not adequately address the 

procyclicality risk 93 associated with the 

MMA calculation.94 The commenter 

suggests that FICC should consider 

revising the MMA calculation to include 

anti-procyclical measures that would 

avoid extreme reactions to changes in 

market volatility.95 In response, FICC 

states that it considered and evaluated 

a number of anti-procyclical measures 

when developing the MMA proposal.96

However, FICC states that, based on the 

outlook for interest rate volatility, FICC 

determined to rely on the decay factor 

to control the MMA’s responsiveness to 

market volatility.97

The Commission disagrees with the 

comment that FICC’s proposed MMA 

calculation does not adequately address 

procyclicality risk. The decay factor 

affects, among other things, the speed of 

the MMA calculation’s responsiveness 

to spikes in extreme market volatility, as 

well as the speed with which the MMA 

calculation would generate lower 

numbers after such volatility subsides. 

FICC chose to initially set the decay 

factor at 0.97—a relatively fast decay 

factor—to respond to market volatility 

relatively quickly.98 FICC’s data 

demonstrate that had the MMA been in 

place during the period of the Impact 

Study, the MMA would have been 

invoked in a targeted manner (i.e., 

specifically during periods of extreme 

market volatility, but not during periods 

of low to moderate market volatility). 

Further, the Commission understands 

that FICC would be able to use the 

decay factor to address future interest 

rate volatility that may occur. Thus, the 

Impact Study supports FICC’s assertion 

that including the decay factor in the 

MMA calculation would have mitigated 

any procyclical results. 

Accordingly, the Commission finds 

that FICC’s adoption of the proposed 

MMA and changes to the Margin Proxy 

would be consistent with the reduction 

of systemic risk and supporting the 

stability of the broader financial system. 

For the reasons stated above, the 

changes proposed in the Advance 

Notice are consistent with Section 

805(b) of the Clearing Supervision 

Act.99

B. Consistency With Rule 17ad– 

22(e)(4)(i) 

Rule 17ad–22(e)(4)(i) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

effectively identify, measure, monitor, 

and manage its credit exposures to 

participants and those arising from its 

payment, clearing, and settlement 

processes, including by maintaining 

sufficient financial resources to cover its 

credit exposure to each participant fully 

with a high degree of confidence.100

The proposals in the Advance Notice 

are consistent with Rule 17ad–22(e)(4)(i) 

under the Exchange Act.101 As 

described above in Section II.A.1., the 

current GSD VaR model generated 

margin amounts that were not sufficient 

to mitigate FICC’s credit exposure to its 

members’ portfolios at the 99 percent 

backtesting confidence level during 

periods of extreme market volatility, 

particularly during March 2020 and 

beginning in March 2022. The Impact 

Study demonstrates that had the 

proposed MMA calculation been in 

place during that period, margin 

amounts would have exceeded the 99 

percent backtesting coverage levels. 

Therefore, adding the MMA calculation 

to the GSD margin methodology should 

better enable FICC to calculate and 

collect margin amounts that are 

sufficient to mitigate FICC’s credit 

exposure to its members’ portfolios 

during periods of extreme market 

volatility. 

Additionally, FICC proposes to clarify 

that if the Margin Proxy, when invoked, 

is lower than the VaR Floor, then the 

VaR Floor would be utilized as the VaR 

Charge with respect to a member’s 

portfolio. Although Margin Proxy was 

not invoked during the period of the 

Impact Study, had the proposed changes 

been in place during that period, the 

VaR model backtesting coverage would 

have been increased to exceed the 99 

percent backtesting coverage level. 


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102See id. 

103 17 CFR 240.17ad–22(e)(6)(i). 

104FICC could adjust the decay factor in 

accordance with the Model Risk Management 

Framework. FICC would analyze the decay factor to 

evaluate its sensitivity and impact to the model 

performance pursuant to the model performance 

monitoring required under the Model Risk 

Management Framework. Supra note 29. 

105SIFMA Letter at 6. 

106See IDTA Letter at 3 (arguing that calculating 

averages using a two-year period instead of a ninemonth period decreases the average 2.66 times). 

107See IDTA Letter at 3. 

108See IDTA Letter at 3; SIFMA Letter at 6. 

109See e.g., IDTA Letter at 3–4 (contrasting FICC’s 

Impact Study analysis that expresses the largest 

member increase that would have resulted from the 

MMA as 0.21 percent of net capital, against the 

average margin increase that the MMA would have 

added for IDTA members of 5.1 percent of net 

capital, or 16.0 percent of net capital for the top 100 

days in terms of margin increases); see SIFMA 

Letter at 6. 

110See IDTA Letter at 3–4, 7; SIFMA Letter at 6. 

For example, one commenter suggests that FICC 

should express the impact as the average percent 

increase for the top 100 most stressful days. See 

IDTA Letter at 3–4 (stating that the average 

percentage increase for the top 100 most stressful 

days in terms of margin increases for IDTA 

members, the more relevant metric in terms of 

capital planning in actual practice was 37.23 

percent or $27.52 million). The other commenter 

suggests that a better measure of liquidity impact 

than average daily data would be the peak aggregate 

additional margin that would be required for both 

a 1-day and 5-day period. See SIFMA Letter at 6. 

111See FICC Letter at 7. 

112See id. 

113See FICC Letter at 6. 

114Exhibit 3 includes, among other things, the 

following confidentially filed information covering 

the period from July 1, 2021 through June 30 2023: 

actual daily VaR amounts for each member; daily 

VaR amounts for each member had MMA been 

implemented; daily VaR increase (reflected in 

dollars, percent, and percent of Net Capital), if any, 

attributable to MMA; average member-level VaR 

amounts (reflected in dollars and average of Net 

Capital); average member-level VaR amounts had 

MMA been implemented; average member-level 

VaR increase (reflected in percent and percent of 

Net Capital), if any, attributable to MMA; further 

analysis of the foregoing data to determine 

minimum, maximum, and average increases to 

member-level VaR amounts, Net Capital amounts, 

and CCP-level VaR amounts; member-level VaR 

amounts had Margin Proxy been invoked (daily and 

summarized); and member-level backtesting results 

(daily and summarized). 

115FICC’s responses to the Commission’s requests 

for additional information include, among other 

things, the following confidentially filed 

information: FICC’s proprietary information 

regarding the GSD margin methodology; backtesting 

data and analyses of daily member-level sensitivity 

VaR, Margin Proxy, and MMA amounts with 

alternative stress periods; daily member-level 

backtesting, sensitivity VaR, and MMA amounts 

during the Impact Study period specific to bond 

and MBS positions; and daily member-level 

Continued 

Therefore, the proposed clarifications 

regarding the applicability of the VaR 

Floor when Margin Proxy is invoked 

would help ensure FICC’s ability to 

manage its credit exposures to members 

by maintaining sufficient financial 

resources to cover such exposures fully 

with a high degree of confidence. 

Accordingly, for the reasons 

discussed above, the proposed MMA 

changes and Margin Proxy clarifications 

are reasonably designed to enable FICC 

to effectively identify, measure, 

monitor, and manage its credit exposure 

to participants, consistent with Rule 

17ad–22(e)(4)(i).102

C. Consistency With Rule 17ad– 

22(e)(6)(i) 

Rule 17ad–22(e)(6)(i) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to cover 

its credit exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market, and calculates margin sufficient 

to cover its potential future exposure to 

participants.103

The proposals in the Advance Notice 

are consistent with Rule 17ad– 

22(e)(6)(i). As described above in 

Section II.A.1., the Impact Study 

demonstrates that the current VaR 

model generated margin deficiencies 

during periods of extreme market 

volatility, whereas implementing the 

proposed MMA changes and Margin 

Proxy clarifications would result in VaR 

Charges that reflect the risks of member 

portfolios during such periods better 

than the current GSD VaR model. 

Moreover, FICC’s inclusion of the decay 

factor in the MMA calculation 

appropriately limits invoking the MMA 

as the VaR Charge to periods of extreme 

market volatility. As described above in 

Section II.A.1., the decay factor affects, 

among other things, the peak level of 

margin increase or the degree of 

procyclicality and how quickly the 

margin would fall back to pre-stress 

levels. FICC chose to initially set the 

decay factor at 0.97—a relatively fast 

decay factor—to be quickly responsive 

to market volatility.104 FICC’s data 

demonstrate that had the MMA been in 

place during the period of the Impact 

Study, the MMA would have been 

invoked in a targeted manner (i.e., 

specifically during periods of extreme 

market volatility, but not during periods 

of low to moderate market volatility). 

Thus, the MMA is specifically designed 

to enable FICC to collect margin 

amounts commensurate with the 

relevant risks associated with member 

portfolios during periods of extreme 

market volatility. The proposal would 

provide FICC with a margin 

methodology better designed to enable 

FICC to cover its credit exposures to its 

members by enhancing FICC’s riskbased margin system to produce margin 

levels commensurate with the relevant 

risks during periods of extreme market 

volatility. 

Several commenters addressed FICC’s 

Impact Study. Specifically, one 

commenter states that the Impact Study 

is too limited, providing backtesting 

data with extremely uneven daily 

impacts, thereby rendering it impossible 

to properly assess the MMA’s 

impacts.105 Another commenter states 

that FICC underestimates the MMA’s 

impacts by using the full two-year 

period of the Impact Study to calculate 

average impacts when the actual period 

of increased volatility only covers a 

nine-month period.106 This commenter 

states that while FICC expressed the 

increase in margin requirements in 

terms of long-term averages, brokerdealers actually plan for capitalization 

based on meeting their largest margin 

requirement rather than their average 

capital usage.107 These commenters 

state that while FICC’s impact analysis 

cited examples of members with the 

largest average percentage and dollar 

increases resulting from the MMA, those 

market participants are either too small 

or too large to be representative of the 

proposal’s impact on other members.108

The commenters state that the actual 

effects of the MMA on middle-market 

dealers will be higher than FICC’s cited 

examples.109 These two commenters 

suggest that alternative impact 

measurements would provide a more 

accurate analysis of the proposed 

MMA’s impacts.110

In response to these comments, FICC 

states that due to confidentiality 

restrictions on releasing member-level 

data, the public-facing Advance Notice 

filing narrative analyzed the Impact 

Study using anonymized data and 

averages of maximum dollar and 

percentage changes.111 However, FICC 

provided the Commission with 

expanded and detailed daily memberlevel Impact Study data confidentially, 

as part of the Advance Notice filing in 

Exhibit 3.112 FICC further states that 

both prior and subsequent to filing the 

Advance Notice, FICC actively engaged 

with members on multiple occasions, 

conducting outreach to each member in 

order to provide notice of the proposal 

along with individualized anticipated 

impacts for each member.113

In considering the comments critical 

of the Impact Study and FICC’s analyses 

thereof, the Commission considered the 

Advance Notice (including the Impact 

Study 114 and other confidentially filed 

data 115), comment letters, FICC’s 


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sensitivity VaR and MMA amounts for the period 

of February 1, 2024 through July 31, 2024, with 

analysis relating to the FICC–CME cross-margining 

arrangement. 

116Supra notes 7, 11. 

117These comments include regarding: FICC’s use 

of the two-year period of the Impact Study instead 

of the 9-month period of extreme market volatility 

when presenting average impacts (see IDTA Letter 

at 3); FICC’s use of long-term average margin 

increases instead of maximum margin increases 

resulting from implementing the MMA (see id.); 

FICC’s examples of members with the largest 

average percentage and dollar increases resulting 

from the MMA (see IDTA Letter at 3; see SIFMA 

Letter at 6); and preferred alternative impact 

measurements (see IDTA Letter at 3–4; see SIFMA 

Letter at 6). 

118See FICC Letter at 7. 

119See id. 

120See id. 

121See id. 

122See SIFMA Letter at 6. 

123See FICC Letter at 6. 

124 17 CFR 240.17ad–22(e)(6)(i). 

125 17 CFR 240.17ad–22(e)(23)(ii). 

126See SIFMA Letter at 7–8. 

response letter, and the Commission’s 

own understanding of the GSD margin 

methodology based on its general 

supervision of FICC. Based on the 

Commission’s review and analysis of 

these materials, the Commission 

disagrees with the comments suggesting 

that FICC’s Impact Study and analyses 

are inaccurate and/or misleading. In the 

Advance Notice narrative, FICC 

described the Impact Study in 

anonymized terms, highlighting 

averages and maximum dollar and 

percentage changes, due to the 

confidential nature of the member-level 

transactions that comprise the 

underlying data. However, FICC filed 

the confidential member-level data with 

the Commission in Exhibit 3 to the 

Advance Notice filing. FICC also 

provided relevant confidential data in 

its response to the Commission’s 

requests for additional information.116

Additionally, in the Commission’s 

supervisory role, the Commission 

routinely collects confidential marginrelated data from FICC. These data 

sources enable the Commission to 

evaluate the effects of the MMA on a 

member-by-member basis. 

The purpose of the Impact Study and 

FICC’s analyses thereof in the publicly 

available Advance Notice filing 

materials is to highlight comparisons of 

the GSD VaR model’s performance with 

and without incorporating the MMA 

and to highlight the proposal’s general 

impacts on members using anonymized 

data and averages of maximum dollar 

and percentage changes. FICC did not 

state that its public discussion of the 

Impact Study was the sole source of 

data for the Commission and the public 

to utilize in evaluating the proposals in 

the Advance Notice. Rather, FICC 

provided additional detailed memberlevel data confidentially, both to 

members and the Commission, to more 

fully evaluate the impacts of the 

proposals in the Advance Notice. 

Regarding the comments that FICC’s 

analysis of the Impact Study data 

presented an inaccurate picture of the 

MMA’s impacts,117 the Commission 

recognizes that FICC provided 

individual impact studies for each 

member that included the average 

impact for the entire period of the 

Impact Study as well as the average 

impact on those days that the proposed 

MMA would have been applied for each 

member.118 Therefore, the commenters’ 

concerns regarding the Impact Study do 

not take into account that both the 

Commission and FICC’s members also 

reviewed more detailed confidential 

data to better understand the specific 

member-level impacts of the proposals. 

The comment that FICC’s public 

discussion of the Impact Study 

presented limited data, rendering it 

impossible to properly evaluate the 

MMA’s impacts, does not take into 

account that FICC provided more 

comprehensive confidential data to the 

Commission and members that was 

sufficient to properly assess the MMA’s 

impacts. Specifically, such data 

includes, among other things, actual 

daily VaR Charge for each member, 

hypothetical daily VaR Charge for each 

member had the MMA been in place, 

hypothetical daily VaR Charge for each 

member had Margin Proxy been 

invoked, analyses of increases 

attributable to the MMA, and numerous 

backtesting analyses. The comment that 

FICC’s public discussion of the Impact 

Study underestimated the MMA’s 

impacts by calculating the average 

impacts based on the full two-year 

period rather than the nine-month 

period of volatility does not take into 

account that FICC confidentially 

provided individual impact studies for 

each member that included average 

impacts on each day that the MMA 

would have applied to the member.119

Similarly, the comment that FICC’s 

public discussion of the Impact Study 

expressed the increase in margin 

requirements in terms of long-term 

averages as opposed to largest margin 

requirements does not take into account 

that FICC confidentially provided 

individual impact studies for each 

member indicating maximum margin 

increases on each day that the MMA 

would have applied to the member.120

The comment that FICC’s public 

discussion of the Impact Study cited 

impacted members that are not 

representative and underestimate the 

MMA’s impacts on middle-market 

participants does not take into account 

that FICC provided member-level 

impact data to each member.121

One commenter also states that FICC 

should expand the Impact Study to 

cover the March 2020 period of stress in 

light of FICC’s statements that the MMA 

proposal was driven, in part, by the VaR 

model’s underperformance during that 

period.122 In response, FICC states that 

inclusion of that data is not necessary 

because the Impact Study’s two-year 

period achieves the purpose of 

demonstrating the effectiveness of the 

proposed MMA during periods of both 

low and high market volatility.123 The 

Commission agrees that the Impact 

Study’s two-year period sufficiently 

demonstrates the performance of the 

proposed MMA during periods of both 

low and high market volatility, as the 

two-year study period also included 

periods of both low and high market 

volatility. Inclusion of March 2020 in 

the Impact Study is not required for the 

Commission to evaluate the 

responsiveness of the MMA. 

Accordingly, the proposals in the 

Advance Notice are consistent with 

Rule 17ad–22(e)(6)(i) because the new 

MMA margin calculation and Margin 

Proxy clarifications should better enable 

FICC to establish a risk-based margin 

system that considers and produces 

relevant margin levels commensurate 

with the risks associated with 

liquidating participant portfolios in a 

default scenario during periods of 

extreme market volatility.124

D. Consistency With Rule 17ad– 

22(e)(23)(ii) 

Rule 17ad–22(e)(23)(ii) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

provide sufficient information to enable 

participants to identify and evaluate the 

risks, fees, and other material costs they 

incur by participating in FICC.125

One commenter states that FICC’s 

proposals in the Advance Notice lack 

transparency, quick implementation, 

and tools and resources to support 

market preparedness to identify risks 

and costs associated with how FICC 

calculates margin amounts.126

Specifically, the commenter urges FICC 

to provide members with (1) daily VaR 

calculations, (2) an MMA calculator, 

and (3) a phased implementation of the 

MMA, including a parallel run period 


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127See id. 

128See FICC Letter at 7. 

129See id. 

130See id. 

131See id. 

132See id. 

133See id. 

134 17 CFR 240.17ad–22(e)(23)(ii). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 100664 

(Aug. 6, 2024), 89 FR 65695 (Aug. 12, 2024) (File 

No. SR–OCC–2024–010) (‘‘Notice of Filing’’). 4Comments on the proposed rule change are 

available at https://www.sec.gov/comments/sr-occ2024-010/srocc2024010.htm. 5See OCC Info Memo #55123, Intraday Risk 

Monitoring (dated Aug. 30, 2024), available at 

https://infomemo.theocc.com/ 

infomemos?number=55123. The amendment did 

not change the purpose or basis of the proposed 

rule change. 

6 15 U.S.C. 78s(b)(2). 

7Securities Exchange Act Release No. 101193 

(Sept. 25, 2024), 89 FR 79977 (Oct. 1, 2024) (File 

No. SR–OCC–2024–010). 

8 15 U.S.C. 78s(b)(2)(B). 

9OCC describes itself as ‘‘the sole clearing agency 

for standardized equity options listed on a national 

securities exchange registered with the Commission 

(‘listed options’).’’ See Securities Exchange Act 

Release No. 96533 (Dec. 19, 2022), 87 FR 79015 

(Dec. 23, 2022) (File No. SR–OCC–2022–012). 

10Capitalized terms have the same meaning as 

provided in OCC’s By-Laws and Rules, which can 

be found on OCC’s public website: https://

www.theocc.com/Company-Information/ 

Documents-and-Archives/By-Laws-and-Rules. 

where the MMA is calculated but not 

invoked.127

In response, FICC states that it 

provides tools and resources to enable 

members to determine their margin 

requirements and the impact of FICC’s 

proposals.128 Specifically, FICC 

maintains the Real Time Matching 

Report Center, Clearing Fund 

Management System, FICC Customer 

Reporting Service, and FICC Risk Client 

Portal which are client accessible 

websites for accessing risk reports and 

other risk disclosures.129 These 

resources enable members to view 

Clearing Fund requirement information 

and margin component details, 

including portfolio breakdowns by 

CUSIP and amounts attributable to the 

sensitivity-based VaR model.130

Members are also able to view data on 

market amounts for current clearing 

positions and associated VaR 

Charges.131 Additionally, the FICC 

Client Calculator enables members to, 

among other things, enter ‘‘what-if’’ 

position data to determine hypothetical 

VaR Charges before trade execution. 

FICC states that as of June 24, 2024, 

FICC is in the process of enhancing the 

FICC Client Calculator to incorporate 

the MMA and FICC expects the 

enhancement to be available to members 

prior to implementation of the MMA, 

subject to the Commission’s 

approval.132 FICC also states that it is 

currently developing a tool that would 

enable non-members to assess potential 

VaR Charges (including MMA) as 

well.133

The extensive tools and resources that 

FICC makes available to members 

should enable members to obtain 

individualized information to determine 

their Clearing Fund requirements, 

margin component details, and assess 

the impact of FICC’s proposals. 

Additionally, FICC’s multiple member 

outreach efforts (before and after 

development of the proposals in the 

Advance Notice) provided members 

with relevant individualized impact 

analyses with which to evaluate the 

proposals in the Advance Notice. 

Accordingly, FICC has provided tools 

and resources sufficient for its members 

to evaluate their daily VaR and other 

margin-related calculations, rendering a 

phased implementation of the proposed 

MMA unwarranted. 

Based on the foregoing, FICC has 

provided sufficient information, tools, 

and resources to enable members to 

identify and evaluate the relevant risks 

and costs associated with the changes 

proposed in the Advance Notice, 

consistent with Rule 17ad– 

22(e)(23)(ii).134

III. Conclusion 

It is therefore noticed, pursuant to 

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

Supervision Act, that the Commission 

does not object to Advance Notice (SR– 

FICC–2024–801) and that FICC is 

authorized to implement the proposed 

change as of the date of this notice or 

the date of an order by the Commission 

approving proposed rule change SR– 

FICC–2024–003, whichever is later. 

By the Commission. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–26519 Filed 11–13–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101551; File No. SR–OCC– 

2024–010] 

Self-Regulatory Organizations; the 

Options Clearing Corporation; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change, as Modified by 

Partial Amendment No. 1, by the 

Options Clearing Corporation To 

Establish a Margin Add-On Charge 

That Would Be Applied to All Clearing 

Member Accounts To Help Mitigate the 

Risks Arising From Intraday and 

Overnight Trading Activity 

November 7, 2024. 

I. Introduction 

On July 25, 2024, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2024– 

010 pursuant to Section 19(b) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 2

thereunder to establish a margin add-on 

charge that would be applied to all 

Clearing Member accounts to assist with 

mitigating the risks arising from 

intraday and overnight trading activity, 

particularly activity attributable to 

short-dated options trading. Proposed 

rule change SR–OCC–2024–010 was 

published for public comment in the 

Federal Register on August 12, 2024.3

The Commission has received 

comments regarding the proposed rule 

change.4

On September 4, 2024, OCC amended 

the proposed rule change to include as 

Exhibit 2 an information memorandum 

OCC published on its website informing 

OCC’s membership of the details of the 

margin add-on charge.5 On September 

25, 2024, pursuant to Section 19(b)(2) of 

the Exchange Act,6 the Commission 

issued a Notice of Filing of Partial 

Amendment No. 1 and designated a 

longer period within which to approve, 

disapprove, or institute proceedings to 

determine whether to approve or 

disapprove the proposed rule change.7

This order institutes proceedings, 

pursuant to Section 19(b)(2)(B) of the 

Exchange Act,8 to determine whether to 

approve or disapprove the proposed 

rule change, as modified by Partial 

Amendment No. 1 (hereinafter 

‘‘Proposed Rule Change’’). 

II. Summary of the Proposed Rule 

Change 

OCC is a central counterparty 

(‘‘CCP’’), which means that as part of its 

function as a clearing agency, it 

interposes itself as the buyer to every 

seller and the seller to every buyer for 

certain financial transactions. As the 

CCP for the listed options markets in the 

United States,9 as well as for certain 

futures and stock loans, OCC is exposed 

certain risks arising from providing 

clearing and settlement services to its 

Clearing Members.10 Because OCC is 

obligated to perform on the contracts it 

clears, even where one of its Clearing 

Members defaults, one such risk to 

which OCC is exposed is credit risk in 

the form of exposure to a Clearing 


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