Federal Register / Vol. 89, No. 229 / Wednesday, November 27, 2024 / Notices 93735 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3See 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. 

4Securities Exchange Act Release No. 99845 

(Mar. 22, 2024), 89 FR 21586 (Mar. 28, 2024) (File 

No. SR–FICC–2024–802) (‘‘Notice of Filing’’). On 

March 14, 2024, FICC filed the advance notice as 

a proposed rule change with the Commission 

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

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

CFR 240.19b–4. Securities Exchange Act Release 

No. 99844 (March 22, 2024), 89 FR 21603 (Mar. 28, 

2024) (File No. SR–FICC–2024–007) (‘‘Proposed 

Rule Change’’). On April 24, 2024, 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, pursuant to section 19(b)(2) 

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

Securities Exchange Act Release No. 100022 (Apr. 

24, 2024), 89 FR 34289 (Apr. 30, 2024) (File No. 

SR–FICC–2024–007). On June 21, 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. 100401 (Jun. 

21, 2024), 89 FR 53690 (Jun. 27, 2024) (File No. SR– 

FICC–2024–007). On September 18, 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. 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. Securities 

Exchange Act Release No. 101454 (Oct. 28, 2024), 

89 FR 87441 (Nov. 1, 2024) (File No. SR–FICC– 

2024–007). 

5Pursuant to Section 806(e)(1)(H) of the Clearing 

Supervision Act, the Commission may extend the 

review period of an advance notice for an 

additional 60 days, if the changes proposed in the 

advance notice raise novel or complex issues, 

subject to the Commission providing the financial 

market utility (‘‘FMU’’) with prompt written notice 

of the extension.12 U.S.C. 5465(e)(1)(H); see supra 

note 4, at 21602 (explaining the Commission’s 

rationale for determining that the proposed changes 

in the advance notice raise novel and complex 

issues). 

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-2024-802/ 

srficc2024802-462751-1210414.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-2024-802/ 

srficc2024802-494123-1433426.pdf. 

8See 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-2024-802/ 

srficc2024802-524215-1504462.pdf. 

9See 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-2024-802/ 

srficc2024802-539295-1544222.pdf. 

10Securities Exchange Act Release No. 101455 

(Oct. 28, 2024), 89 FR 87449 (Nov. 1, 2024) (File 

No. SR–FICC–2024–802) (‘‘Notice of Partial 

Amendment’’). 

11Comments on the Advance Notice are available 

at https://www.sec.gov/comments/sr-ficc-2024-802/ 

srficc2024802.htm. Comments on the Proposed 

Rule Change are available at https://www.sec.gov/ 

comments/sr-ficc-2024-007/srficc2024007.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. The 

Continued 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NASDAQ–2024–067 and should be 

submitted on or before December 18, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–27759 Filed 11–26–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101675; File No. SR–FICC– 

2024–802] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

No Objection To Advance Notice, as 

Modified by Partial Amendment No. 1, 

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 

November 21, 2024. 

On March 14, 2024, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2024–802 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 (‘‘Exchange Act’’).2 In the 

advance notice, FICC proposes to 

modify its Government Securities 

Division (‘‘GSD’’) Rulebook (‘‘GSD 

Rules’’) to calculate, collect, and hold 

margin for transactions that a direct 

GSD participant enters into for its own 

benefit (‘‘proprietary transactions’’) 

separately from margin a direct 

participant submits to FICC on behalf of 

indirect participants, and to address 

conditions of Note H to Rule 15c3–3a 

under the Exchange Act (‘‘Advance 

Notice’’).3 The Advance Notice was 

published for public comment in the 

Federal Register on March 28, 2024.4

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 April 24, 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 June 

25, 2024, the Commission received 

FICC’s response to the Commission’s 

request for additional information.7 On 

September 24, 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.8 On 

October 21, 2024, the Commission 

received FICC’s response to the 

Commission’s September 24, 2024 

request for additional information.9 On 

October 25, 2024, FICC filed Partial 

Amendment No. 1 to the Advance 

Notice.10 The Advance Notice, as 

modified by Partial Amendment No. 1, 

is referred to herein as the ‘‘Advance 

Notice.’’ 

The Commission has received 

comments regarding the substance of 

the Advance Notice.11 The Commission 


ddrumheller on DSK120RN23PROD with NOTICES1
93736 Federal Register / Vol. 89, No. 229 / Wednesday, November 27, 2024 / Notices 

comment letters to the Proposed Rule Change and 

Advance Notice also contained comments on the 

substance of another FICC proposed rule change, 

FICC–2024–005. The Commission will only be 

addressing comments relevant to this proposal and 

will address the comments on the other proposed 

rule change in a separate order. 

12See Letter from Laura Klimpel, Managing 

Director, Head of Fixed Income and Financing 

Solutions, Depository Trust & Clearing Corporation, 

(Aug. 1, 2024) (‘‘FICC Letter’’). 

13The 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. 

14See supra note 3. 

15 17 CFR 240.17ad–22(e)(6)(i). 

16 17 CFR 240.15c3–3. 

17 17 CFR 240.15c3–3a. 

18See supra note 3. 

19See GSD Rule 8, supra note 13. 

20See generally GSD Rule 3A, supra note 13. 

21See Securities Exchange Act Release No. 99817 

(Mar. 21, 2024), 89 FR 21362, at 21364 (Mar. 27, 

2024) (File No. SR–FICC–2024–005). 

22 Id. at 21365; see also GSD Rule 8, supra note 

13. 

23See Order, FICC–2024–005, available at https:// 

www.sec.gov/rules-regulations/self-regulatoryorganization-rulemaking/ficc. 

24See id. 

25See GSD Rule 3A, section 7 (describing 

novation of Sponsored Member Trades) and 2 

(identifying membership types), supra note 13. 

26See GSD Rules 3A (describing the operation of 

the Sponsoring Member Guaranty) and 1 (defining 

the Sponsoring Member Guaranty), supra note 13. 

also received a letter from FICC 

responding to the comments.12 This 

publication serves as notice of no 

objection to the Advance Notice. 

I. Description of the Advance Notice 

A. Background and Terminology 

FICC, through its GSD, is a central 

counterparty and provider of clearance 

and settlement services for the U.S. 

government securities markets. As a 

central counterparty in the U.S. 

government securities markets, FICC 

novates transactions between two 

counterparties, effectively becoming the 

buyer to every seller and the seller to 

every buyer, and guarantees the 

settlement of the novated transactions. 

This means that FICC is exposed to a 

number of risks arising from such 

transactions, including counterparty 

credit risk. FICC seeks to maintain 

sufficient resources (i.e., margin) to 

cover its credit exposures to its 

participants fully with a high degree of 

confidence and mitigate potential losses 

from a default of a direct GSD 

participant, which is generally referred 

to as a Netting Member under the GSD 

Rules 13 (and in this Notice of No 

Objection). 

On December 13, 2023, the 

Commission adopted amendments to 

the standards applicable to covered 

clearing agencies that clear transactions 

in U.S. Treasury securities (‘‘Treasury 

CCAs’’), such as FICC.14 These 

amendments require Treasury CCAs to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to, among other 

things, calculate, collect, and hold 

margin for direct participants’ 

proprietary positions separately and 

independently from margin calculated, 

collected, and held for indirect 

participants that rely on the services 

provided by the direct participant to 

access the Treasury CCA’s payment, 

clearing, or settlement facilities.15 The 

Commission also amended its brokerdealer customer protection rule (‘‘Rule 

15c3–3’’) 16 and the customer and 

proprietary accounts of broker-dealer 

(‘‘PAB’’) reserve formulas thereunder 

(‘‘Rule 15c3–3a’’) 17 to permit margin 

required and on deposit with Treasury 

CCAs to be included under certain 

conditions as a debit in the reserve 

formulas.18

The GSD Rules describe how FICC 

provides clearance and settlement 

services to both direct participants and 

indirect participants, the latter of which 

rely on the services provided by direct 

participants to access FICC’s clearance 

and settlement facilities. Currently, the 

GSD Rules allow indirect participants to 

access GSD’s clearing services through a 

Netting Member (that is, a direct 

participant) via two models: the 

correspondent clearing/prime broker 

services 19 and the Sponsored Service.20

The primary difference between the two 

models is that an indirect participant 

who becomes a Sponsored Member via 

the Sponsored Service model must 

establish an indirect, limited purpose 

FICC membership, whereas the 

correspondent clearing/prime broker 

services do not require an indirect 

member to establish any relationship 

with FICC.21

The correspondent clearing/prime 

broker services allow a Netting Member 

to submit eligible transactions to FICC 

on behalf of an indirect participant 

(referred to as the ‘‘Executing Firm’’), 

record these transactions in the same 

account as the proprietary transactions 

that the Netting Member (referred to as 

a ‘‘Submitting Member’’) enters into for 

its own benefit, and net the indirect 

participants’ transactions against the 

Netting Member’s proprietary 

transactions for purposes of calculating 

the Netting Member’s margin 

requirements. Unlike the Sponsored 

Service, FICC has no relationship with 

the Executing Firm, and all obligations 

(i.e., margin and settlement) under the 

GSD Rules remain with the Submitting 

Member.22

Under a proposed rule change being 

approved concurrently, FICC is 

renaming the prime broker/ 

correspondent clearing model to be 

known as the Agent Clearing Service 

and providing further specificity around 

the operation of that service.23 In that 

service, the Netting Member which 

serves as the direct participant to FICC 

would be referred to as the Agent 

Clearing Member, and the indirect 

participant would be referred to as an 

Executing Firm Customer. An Executing 

Firm Customer would have no direct 

relationship to FICC. This separate 

change would require that a Netting 

Member using the Agent Clearing 

Service submit transactions for 

Executing Firm Customers through an 

Agent Clearing Member Omnibus 

Account, to be recorded separately from 

its other clearing activity, including its 

proprietary activity. It would also add a 

definition for transactions eligible to be 

submitted by an Agent Clearing Member 

on behalf of its Executing Firm 

Customers (‘‘Agent Clearing 

Transactions’’). 

In addition, in the Sponsored Service, 

both currently and in a concurrently 

approved proposed rule change,24

Netting Members that are approved to 

be Sponsoring Members are able to 

sponsor certain indirect participants, 

referred to as Sponsored Members, into 

GSD membership and submit 

transactions on behalf of those 

Sponsored Members. A Sponsored 

Member is the legal counterparty to 

FICC for any submitted transactions.25

However, the Sponsoring Member 

unconditionally guarantees to FICC the 

Sponsored Member’s performance 

under a Sponsoring Member Guaranty, 

which guarantees to FICC the payment 

and performance of a Sponsored 

Member’s obligations to FICC.26

Therefore, reliance upon the Sponsoring 

Member Guaranty necessarily involves 

FICC’s reliance upon the financial 

resources of the Sponsoring Member. 

Unlike the correspondent clearing/ 

prime broker services, transactions by 

the Sponsoring Member’s Sponsored 

Members (‘‘Sponsored Member Trades’’) 

are not netted, for margining purposes, 

against transactions of the Sponsoring 

Member or another Sponsored Member. 

Instead, FICC records Sponsored 

Member Trades in a Sponsored Member 

Omnibus Account, and calculates 

margin requirements for each Sponsored 

Member individually on a gross basis 

(i.e., without netting their transactions 

against transactions of the Sponsoring 


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27See GSD Rule 3A, Section 10(c), supra note 13. 

28See supra note 3. 

29The MLA Charge is a margin component 

designed to address the market impact costs of 

liquidating a defaulted Netting Member’s portfolio 

that may increase when that portfolio includes large 

net unsettled positions in a particular group of 

securities with a similar risk profile or in a 

particular asset type, thereby causing those costs to 

be higher than the amount collected for the Netting 

Member’s volatility charge, which is designed to 

capture the market price risk associated with 

liquidating each Netting Member’s portfolio at a 

99th percentile level of confidence. See GSD Rule 

1 (defining Margin Liquidity Adjustment Charge), 

supra note 13; see also Securities Exchange Act 

Release No. 89560 (Aug. 14, 2020), 85 FR 51503 

(Aug. 20, 2020) (File No. SR–FICC–2020–09) 

(approving the MLA charge as a new component of 

the margin methodology); Securities Exchange Act 

Release No. 98558 (Sep. 27, 2023), 88 FR 68179 

(Oct. 3, 2023) (File No. SR–FICC–2023–012) 

(approving revisions to ECP charge). 

30The ECP is a margin component that allows 

FICC to collect additional margin if a member’s 

exposure to FICC, based on its clearing activity, is 

out of proportion to its capital levels. It is designed 

to mitigate the heightened default risk a member 

could pose to FICC if it operates with lower capital 

levels relative to its margin requirements. See 

Margin Component Schedule (defining Excess 

Capital Premium), supra note 13; see also Securities 

Exchange Act Release No. 54457 (Sep. 15, 2006), 71 

FR 55239 (Sep. 21, 2006) (File Nos. SR–FICC–2006– 

03 and SR–NSCC–2006–03) (approving the ECP 

charge as a new component of the margin 

methodology); Securities Exchange Act Release No. 

96786 (Feb. 7, 2023), 88 FR 8013 (Feb. 7, 2023) (File 

No. SR–NSCC–2022–005) (approving revisions to 

ECP charge). 

31An Inter-Dealer Broker is defined as a Person 

which is in the business of buying and selling 

securities as agent on behalf of dealers and is 

registered under Section 15 or Section 15C of the 

Exchange Act. GSD Rule 1 (defining Inter-Dealer 

Broker), supra note 13. An Inter-Dealer Broker 

Netting Member must meet that definition and 

certain applicable membership requirements. See 

id. and Rule 2A (setting forth membership 

requirements). 

32Under the proposed changes, ‘‘Cash Broker 

Account’’ would be a proprietary account 

maintained by FICC for an Inter-Dealer Broker 

Netting Member to record Brokered Transactions, 

other than Brokered Repo Transactions, submitted 

to the Corporation by the Inter-Dealer Broker 

Netting Member. ‘‘Repo Broker Account’’ would be 

a proprietary account maintained by the FICC for 

an Inter-Dealer Broker Netting Member in its 

capacity as a Repo Broker to record Brokered Repo 

Transactions submitted to the Corporation by the 

Inter-Dealer Broker Netting Member. 33 17 CFR 240.15c3–3a. 

Member or another Sponsored 

Member).27

B. Proposed Changes 

In the Advance Notice, FICC seeks to 

address the Commission’s new margin 

and account separation requirements 

and the conditions for including margin 

in the broker-dealer reserve formulas 

discussed in part I.A above.28 As 

described in greater detail below, the 

Advance Notice would (1) provide for 

the separate and independent 

calculation, collection, and holding of 

margin for proprietary transactions of a 

Netting Member from margin submitted 

to FICC by a Netting Member to support 

the transactions of an indirect 

participant (i.e., either an Executing 

Firm Customer or a Sponsored 

Member); (2) establish segregated 

accounts for direct and indirect 

participants, including establishing a 

minimum $1 million cash margin 

requirement for each Segregated Indirect 

Participant; (3) consolidate the 

methodology for calculating the margin 

requirements, including definitions of 

relevant terms and components for 

calculating margin requirements from 

various sections of the current GSD 

Rules into a single margin component 

schedule (‘‘Margin Component 

Schedule’’), specify how the various 

components relate to different types of 

margin, and make certain changes to the 

margin methodology, including revising 

the Margin Liquidity Adjustment 

(‘‘MLA Charge’’) 29 definition, providing 

a method for allocating net unsettled 

positions to individual indirect 

participants for calculating margin 

requirements, and revising and 

clarifying the calculation of the Excess 

Capital Premium (‘‘ECP’’) component 30

of the Clearing Fund; and (4) modify the 

terms relating to transactions submitted 

by Inter-Dealer Broker Netting 

Members 31 to FICC for clearance and 

settlement (‘‘Brokered Transactions’’). 

1. Separate Calculation, Collection, and 

Holding of Margin 

The Advance Notice would provide 

for the separate and independent 

calculation, collection, and holding of 

(i) margin deposited by a Netting 

Member to support its proprietary 

transactions, and (ii) margin deposited 

by a Netting Member to support the 

transactions of an indirect participant, 

that is, either an Executing Firm 

Customer or a Sponsored Member. To 

facilitate the separate and independent 

calculation, collection, and holding 

proprietary and indirect participant 

margin, FICC would establish 

proprietary accounts to record the 

proprietary transactions that the Netting 

Member enters into for its own benefit 

and separate indirect participant 

accounts to record transactions that the 

Netting Member submits on behalf of an 

indirect participant, which could be 

either a Sponsored Member or an 

Executing Firm Customer. 

For proprietary transactions, the 

accounts would include Dealer 

Accounts, which would be available for 

all Netting Members, and Cash Broker 

Accounts and Repo Broker Accounts, 

which would only be available for InterDealer Broker Netting Members.32 Cash 

Broker Accounts would be available for 

recording an Inter-Dealer Broker Netting 

Member’s Brokered Transactions (other 

than Brokered Repo Transactions), and 

Repo Broker Accounts would be for 

purposes of recording an Inter-Dealer 

Broker Netting Member’s Brokered Repo 

Transactions. 

For indirect participant transactions, 

FICC would establish Indirect 

Participants Accounts to record 

transactions that a Netting Member 

submits to FICC on behalf of Sponsored 

Members and Executing Firm 

Customers. These Indirect Participants 

Accounts would include Sponsoring 

Member Omnibus Accounts for 

recording Sponsored Member Trades 

and Agent Clearing Member Omnibus 

Accounts for recording Agent Clearing 

Transactions submitted on behalf of 

Executing Firm Customers. In addition, 

the proposal would permit a Sponsoring 

Member or Agent Clearing Member to 

designate any of its Indirect Participants 

Accounts as a segregated customer 

account (a ‘‘Segregated Indirect 

Participants Account’’). Such 

designation, as further described in part 

I.B.2 below, would give Netting 

Members a mechanism to direct FICC to 

calculate and segregate margin 

deposited in connection with the 

relevant Segregated Indirect Participants 

Account in accordance with the 

conditions described in Note H to Rule 

15c3–3a.33

The proposal would require each 

Netting Member to deposit two forms of 

margin: the Required Fund Deposit and 

the Segregated Customer Margin 

Requirement. The Required Fund 

Deposit, which would be deposited to 

the Clearing Fund, would be the sum of 

each Netting Member’s proprietary 

accounts (e.g., Dealer Accounts and 

Broker Accounts) and indirect 

participant accounts (e.g., Agent 

Clearing Omnibus Accounts and 

Sponsoring Member Omnibus 

Accounts) not designated as Segregated 

Indirect Participants Accounts. The 

Segregated Customer Margin 

Requirement, which would be excluded 

from the Clearing Fund, would be the 

sum of the Netting Member’s 

Sponsoring Member Omnibus Accounts 

designated as Segregated Indirect 

Participants Accounts and Agent 

Clearing Member Omnibus Accounts 

designated as Segregated Indirect 

Participants Accounts. 

FICC’s proposal would also provide 

that a Netting Member’s Margin 

Portfolio, which is utilized to determine 

a Netting Member’s margin requirement, 

cannot include both proprietary and 

indirect participant accounts. As a 

result, the transactions a Netting 


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34The Advance Notice would also specify the 

types of accounts in which Netting Members may 

record transactions to identify the purpose and use 

of these accounts. FICC’s ‘‘Accounts’’ are not 

custodial accounts in which FICC holds assets, but 

rather a mechanism for FICC to record and group 

transactions. These records are utilized by FICC in 

its calculation of a Netting Member’s margining, 

settlement, and other obligations. Proprietary 

Accounts would include ‘‘Dealer Accounts,’’ which 

would be available for all Netting Members, and 

‘‘Cash Broker Accounts’’ and ‘‘Repo Broker 

Accounts,’’ which would only be available for InterDealer Broker Netting Members. Non-Proprietary 

Accounts would include, in the case of a 

Sponsoring Member, Sponsoring Member Omnibus 

Accounts for purposes of recording Sponsored 

Member Trades, and, in the case of an Agent 

Clearing Member, Agent Clearing Member Omnibus 

Accounts for purposes of recording Agent Clearing 

Transactions of its Executing Firm Customers. 

35See Notice of Filing, supra note 4, at 89 FR 

21592. 

36See id., at 21592 (citing 17 CFR 240.15c3–3a). 

37 Id. at 21592–93. 

38 Id. at 21593–94. 

39See FICC Letter at 35 (describing this as ‘‘an 

express prohibition on FICC using Segregated 

Customer Margin held in respect of one Segregated 

Indirect Participant for the obligations of any other 

person’’ and stating that, as a result, the default of 

one Segregated Indirect Participant should not 

generally cause another segregated Indirect 

participant to lose its margin). 

40 Id. at 21594. 

41See Notice of Partial Amendment, supra note 

10, at 87450. 

42See Notice of Filing, supra note 4, at 21595– 

96. 

43See Notice of Partial Amendment, supra note 

10, at 87450. 

44See Notice of Filing, supra note 4, at 21594– 

95. 

45 Id. at 21595. 

46 Id. at 21595–96. 

Member submits to FICC on behalf of an 

indirect participant either as a 

Sponsoring Member or an Agent 

Clearing Member would no longer be 

netted against a Netting Member’s 

proprietary transactions for calculating a 

Netting Member’s margin 

requirements.34 Since proprietary 

transactions and transactions submitted 

for indirect participants would not be 

recorded in the same type of account, 

these changes would result in margin 

for a Netting Member’s proprietary 

transactions being calculated separately 

and independently from margin 

calculated for the transactions that the 

Netting Member submits on behalf of 

indirect participants. 

To help ensure that margin for 

proprietary transactions is calculated, 

collected, and held separately and 

independently of margin for indirect 

participant transactions, FICC would 

require each Netting Member, at the 

time it submits a transaction to FICC for 

clearance and settlement, to designate 

the account in which the particular 

transaction should be recorded using a 

separate Deposit ID, which is an existing 

operational mechanism used by Netting 

Members to identify the type of account 

for which a margin deposit is being 

made. The use of these separate Deposit 

IDs would result in margin for each type 

of account being separately transferred 

to FICC and recorded on FICC’s books 

as separate margin amounts for each 

account type. The proposal would also 

require FICC to report a Netting 

Member’s Required Fund Deposit and 

Segregated Customer Margin 

Requirement twice daily and specify the 

amount of margin attributable to each 

Required Fund Deposit Portion or 

Segregated Indirect Participants 

Account so that the Netting Member can 

transfer the different margin amounts 

separately. 

In addition, the proposal would 

eliminate the concept of a Permitted 

Margin Affiliate, which allows a Netting 

Member to include accounts of an 

affiliate that is also a Netting Member in 

the same Margin Portfolio as its 

accounts and net their transactions for 

margin calculation purposes. FICC 

states that no Netting Member currently 

has a Permitted Margin Affiliate, so 

keeping this option in the rules in 

conjunction with the proposed changes 

to establish separate and independent 

calculation, collection, and holding of 

margin would introduce unnecessary 

complexity in FICC’s rules.35

2. Segregation of Customer Margin 

FICC is proposing several changes to 

allow for the segregation of customer 

margin in a manner that satisfies the 

conditions for recording a debit in the 

customer reserve formula under Note H 

to Exchange Act Rule 15c3–3a.36 First, 

to satisfy Section (b)(2)(i) of Note H to 

Rule 15c3–3a,37 FICC would calculate 

the margin requirements applicable to 

any segregated account on a gross basis 

(i.e., FICC would treat each indirect 

participant as if it were a separate 

Netting Member for margin calculations 

and would not net the transactions of 

one indirect participant against the 

transactions of another indirect 

participant). Second, to satisfy Section 

(b)(2)(iii) of Note H to Rule 15c3–3a,38

FICC would establish Segregated 

Customer Margin Custody Accounts for 

eligible customers on its books and 

records. These accounts would segregate 

the margin deposited for transactions in 

that account from any margin for a 

Netting Member’s proprietary positions, 

both on FICC’s own books and records 

and at FICC’s custodians. FICC would 

only be able to use such segregated 

margin to secure or satisfy the 

obligations of the customer for whom 

such margin is held, and it would not 

be considered part of the mutualized 

Clearing Fund. FICC would not be able 

to apply such margin to the proprietary 

obligations of the Netting Member that 

deposited it with FICC, to the 

obligations of any other Netting Member 

or indirect participant, or to any lien or 

claim against FICC.39 FICC would 

provide written notice to any Netting 

Member that is a broker-dealer that any 

Segregated Customer Margin Custody 

Account is being held for the exclusive 

benefit of the customers and is being 

kept separate from any other accounts 

maintained by the broker-dealer or any 

other Netting Member at FICC, as 

required by Section (b)(2)(iii)(C) of Note 

H.40

Further, as amended, the proposal 

would clarify that any interest earned 

on Segregated Customer Margin 

consisting of cash must be paid to the 

Netting Member on behalf of, and as 

agent for, its Segregated Indirect 

Participant.41

Moreover, to comply with the custody 

requirements of (b)(2)(iv) of Note H,42

FICC would require segregated margin 

accounts to be held at either a bank 

within the meaning of the Exchange Act 

that is insured by the Federal Deposit 

Insurance Corporation and is a qualified 

custodian under the 1940 Act, or the 

Federal Reserve Bank of New York.43

FICC would require these accounts to be 

segregated from any other account of 

FICC and used exclusively to hold 

Segregated Customer Margin, in 

accordance with Section (b)(2)(iv)(A) of 

Note H. Moreover, each of these 

accounts would be subject to (i) a 

written notice of the bank or Federal 

Reserve Bank that the account is being 

held by the bank or Federal Reserve 

Bank pursuant to Rule 15c3–3 and is 

being kept separate from and not 

commingled with any other accounts 

maintained by FICC or any other person 

at the bank or Federal Reserve Bank and 

(ii) a written contract between FICC and 

the bank or Federal Reserve Bank which 

would provide that the Segregated 

Customer Margin in the account is 

subject to no right, charge, security 

interest, lien, or claim in favor of the 

bank or Federal Reserve Bank or any 

person claiming through the bank or 

Federal Reserve Bank, in accordance 

with Sections (b)(2)(iv)(B) and (C) of 

Note H.44 FICC would also only allow 

Segregated Customer Margin consisting 

of cash to be invested in U.S. Treasury 

securities with a maturity of one year or 

less, in accordance with Section 

(b)(2)(ii) of Note H.45

Finally, to satisfy Section (b)(2)(v) of 

Note H,46 FICC would provide specific 

procedures to allow Netting Members to 

request the return of excess segregated 


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47 Id. at 21590. 

48See Notice of Partial Amendment, supra note 

10, at 87450. 

49See Notice of Filing, supra note 4, at 21592. 

50Like the current requirement for Netting 

Member Required Fund Deposits, the proposal 

would require that a minimum of 40 percent of the 

Segregated Customer Margin Requirement be 

satisfied with cash and/or Eligible Clearing Fund 

Treasury Securities. 

51See Notice of Filing, supra note 4, at 21595. 

52 Id. 

53 Id.; FICC Letter at 28–29. 

54See FICC Letter at 28–29. 

55 Id. at 29. 

56See Notice of Partial Amendment, supra note 

10, at 87451. 

57 Id. 

58See FICC Letter at 30. 

59 Id. at 31. 

60See Notice of Filing, supra note 4, at 21596. 

61FICC would move the calculation methodology 

from Rule 4, Sections 1b, and 2a, Rule 3, Section 

14, and Rule 3A, Section 10 to the new Margin 

Component Schedule. FICC would move the 

definitions from Rule 1 to Section 5 of the Margin 

Component Schedule. 

62See Notice of Filing, supra note 4, at 21596. 

63This method does not represent a change from 

the current method of calculating Required Fund 

Deposits, but merely moves the description from 

current Rule 4 to the new Margin Component 

Schedule. 

margin. FICC notes that these changes 

would allow broker-dealer Netting 

Members to collect margin from 

customers and deposit it with FICC and 

to provide all customers, including 

those that access FICC through nonbroker-dealers, the ability to segregate 

margin they deposit.47 FICC would have 

the ability to retain some or all of the 

excess segregated customer margin if the 

Netting Member had an outstanding 

payment or margin obligation to FICC 

for transactions of any Segregated 

Indirect Participant. FICC could not 

retain the excess segregated customer 

margin for a Segregated Indirect 

Participant when FICC has determined, 

in its sole discretion, that such 

outstanding payment or margin 

obligation is unrelated to the 

transactions of that Segregated Indirect 

Participant.48 FICC states that these 

aspects of the Advance Notice would 

allow for the segregation of certain 

customer margin in a manner that 

satisfies the conditions for a brokerdealer to record a debit in the customer 

reserve formula under Note H to Rule 

15c3–3a.49

a. $1 Million Minimum Cash Margin 

Requirement 

FICC is also proposing a minimum $1 

million cash margin requirement for 

each Segregated Indirect Participant 

Account, similar to the $1 million 

minimum cash margin requirement 

currently applicable to each Netting 

Member.50 FICC conducts daily 

backtesting to evaluate whether each 

Netting Member’s margin is sufficient to 

cover FICC’s credit exposures to that 

member based on a simulated 

liquidation of the member’s portfolio on 

that day. FICC’s daily backtesting of the 

sufficiency of Clearing Fund deposits 

has shown a heightened risk of 

backtesting deficiencies (i.e., the 

projected liquidation losses to FICC due 

to a Netting Member’s default would be 

greater than the member’s margin) for 

members with lower deposits.51

Because FICC is required to calculate 

the margin requirements for Segregated 

Indirect Participants on a gross basis, as 

if each Segregated Indirect Participant 

were a separate Margin Portfolio, and 

Segregated Customer Margin would not 

be available to address losses from other 

direct or indirect participants, FICC 

believes it is also appropriate to apply 

the same minimum cash requirement to 

each Segregated Indirect Participant that 

it applies to each Margin Portfolio.52

Moreover, FICC believes that the $1 

million cash requirement is the 

appropriate minimum amount to 

optimize the balance between financial 

impact of the requirement to 

participants and FICC’s ability to 

continue to meet its regulatory 

obligation to maintain a backtesting 

performance coverage ratio above its 99 

percent coverage target.53 FICC states 

that the $1 million minimum is 

supported by its prior analyses of the 

appropriate minimum margin 

requirement for Netting Members.54

FICC further describes this minimum 

requirement as critical to ensuring that 

the account segregation does not expose 

FICC and its participants to undue loss. 

FICC explains that the Segregated 

Customer Margin posted by an 

individual Segregated Indirect 

Participant needs to be enough, on its 

own, to address losses arising from the 

Segregated Indirect Participant’s 

positions, and that, otherwise, such 

losses may be mutualized.55

However, FICC, in its sole discretion, 

would have the ability to adjust the 

amount of the minimum $1 million 

margin requirement if FICC determines 

that a different minimum charge would 

be appropriate and consistent with 

achieving its backtesting coverage 

target.56 FICC would notify Netting 

Members of any such adjustment to the 

minimum margin requirement through 

an Important Notice.57 In discussing this 

proposed ability, FICC states that it will 

review the $1 million floor for 

Segregated Customer Margin as part of 

ongoing internal surveillance and risk 

management monitoring procedures.58

FICC further states that it would be 

prudent to have the ability to adjust the 

$1 million floor proactively to the extent 

that FICC identifies as part of these 

reviews that activity levels, margin 

performance observed through 

backtesting, and other measures indicate 

that FICC would be able to continue to 

manage the risks presented to it and 

meet its regulatory risk management 

obligations (including, for example, its 

99% backtesting coverage target) with a 

lower minimum Segregated Customer 

Margin Requirement (that is, an amount 

below $1 million).59

3. Margin Component Schedule 

To improve the clarity and 

transparency of its margin components 

and Clearing Fund calculation 

methodology,60 FICC would move the 

margin calculation methodology, 

including the relevant defined terms, 

into a new Margin Component 

Schedule. Currently, the terms and 

information concerning the margin 

calculation methodology, as well as the 

relevant definitions, appear in several 

different locations.61 FICC states that its 

methodology and the included 

components would continue to be 

substantively the same as the 

methodology under the current Rules.62

The new Margin Component 

Schedule would set out the 

methodology for calculating margin 

amounts. That Margin Component 

Schedule would provide for FICC to 

perform substantially the same 

calculation it currently performs when 

determining a Netting Member’s 

Required Fund Deposit, except that (i) 

the calculation would be performed on 

a Segregated Indirect Participant-bySegregated Indirect Participant basis as 

though each Segregated Indirect 

Participant represented a separate 

Margin Portfolio and (ii) FICC would 

not impose an ECP on Segregated 

Indirect Participant Accounts. 

Specifically, for Required Fund Deposit 

calculations, the margin amount shall 

equal the VaR Charge, plus or minus the 

Blackout Period Exposure Adjustment 

(as applicable), plus the Portfolio 

Differential Charge, with the following 

potential additional charges, as 

applicable: the Backtesting Charge, the 

Holiday Charge, the MLA Charge, the 

ECP, and the Intraday Supplemental 

Fund Deposit.63 For Segregated 

Customer Margin Requirement 

calculations, the margin amount shall 

equal the VaR Charge, plus or minus the 

Blackout Period Exposure Adjustment 

(as applicable), plus the Portfolio 

Differential Charge, with the following 

potential additional charges, as 


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64See supra Section I.B.2.a for a description of 

the proposed $1 million minimum cash margin 

requirement for each Segregated Indirect Participant 

Account. 

65See Notice of Filing, supra note 4, at 21593. 

66 Id. 

67FICC proposed to amend the definition of 

Account to be an account maintained by FICC for 

a Member to record transactions submitted by the 

member. FICC states that this change would clarify 

that Accounts are recordkeeping mechanisms for 

FICC to determine which transactions should be 

netted against each other, but are not custodial 

accounts through which FICC holds assets for a 

Netting Member. See Notice of Filing, supra note 

4, at 21592. 

68See GSD Rule 1 (defining MLA Charge, 

including for Sponsored Members sponsored by 

multiple Sponsoring Members), supra note 13; 

Securities Exchange Act Release No. 98558 (Sep. 

27, 2024), 89 FR 68179 (Oct. 3, 2023) (File No. SR– 

FICC–2023–012). 

69See Notice of Filing, supra note 4, at 21596– 

97; Notice of Partial Amendment, supra note 10, at 

87451. 

70See Notice of Filing, supra note 4, at 21596– 

97. 

71See GSD Rule 1 (defining Excess Capital Ratio 

and Excess Capital Differential) and Rule 3, Section 

14 (describing the Excess Capital Premium), supra 

note 13. 

72 In addition, FICC would amend the definition 

of Netting Member Capital to refer to a Netting 

Member’s Net Capital, Net Assets, or Equity Capital 

to link the calculation to the appropriate regulatory 

framework for each Netting Member and add the 

term Equity Capital to clarify that a Netting 

Member’s most recent Call Report, or financial 

statements or equivalent reporting if a Netting 

Member is not required to file a Call Report, will 

be used for the calculation of the Excess Capital 

Premium. 

73See Notice of Filing, supra note 4, at 21597. 

74 Id. See Securities Exchange Act Release No. 

96786 (Feb. 1, 2023), 88 FR 8013 (Feb. 7, 2023) (SR– 

NSCC–2022–005). 

applicable: the Backtesting Charge, the 

Holiday Charge, the MLA Charge, and 

the Intraday Supplemental Fund 

Deposit. 

For both types of calculations, the 

Margin Component Schedule addresses 

the applicable minimum cash margin 

requirements ($1 million for each 

Netting Member and Segregated Indirect 

Participant) 64 and FICC’s authority to 

require increased deposits as 

appropriate, including the use of a 

special charge. FICC would not add 

Segregated Customer Margin to Section 

4 of the Margin Component Schedule, 

which describes FICC’s ability to 

impose increased Required Fund 

Deposits under certain circumstances.65

However, when determining whether to 

increase the Required Fund Deposit of 

a Netting Member under the 

circumstances described in Section 4, 

FICC would consider the risk presented 

by a Netting Member from the activity 

it submits to FICC, including activity of 

indirect participants.66

a. MLA Charge 

FICC would amend the definition of 

the MLA Charge to account for the use 

of Segregated Indirect Participant 

Accounts. Specifically, the definition 

would provide that, if a Segregated 

Indirect Participant clears through 

multiple Accounts 67 (including 

Accounts of different Netting Members), 

then the MLA Charge for transactions in 

a Segregated Indirect Participants 

Account would be the greater of (i) an 

amount calculated for only the 

transactions maintained in that Account 

(i.e., excluding the other Accounts 

where the Segregated Indirect 

Participant’s transactions are recorded) 

and (ii) an amount calculated on a 

consolidated portfolio basis (i.e., taking 

into account the transactions in each of 

the Accounts). This would be the same 

methodology currently used for 

Sponsored Members clearing through 

multiple Accounts.68

b. Allocation of Net Unsettled Positions 

The Advance Notice would also 

provide a method for allocating net 

unsettled positions to individual 

indirect participants for calculating 

margin requirements. Specifically, as 

amended, FICC would modify the 

definition of Current Net Settlement 

Positions in Rule 1 to provide that, for 

calculating margin requirements and not 

for purposes of calculating the Net 

Settlement Position under GSD Rule 11, 

positions that are not clearly allocable to 

an individual Sponsored Member or 

Segregated Indirect Participant (other 

than Sponsored GC Trades), because 

one or more transactions recorded for 

indirect participants did not settle on 

the original Scheduled Settlement Date, 

would be allocated pro rata to 

Sponsored Members or Segregated 

Indirect Participants that had positions 

in the same direction and CUSIP as the 

un-allocable Current Net Unsettled 

Positions at the end of the preceding 

business day. FICC states that this 

situation could arise if a transaction 

recorded in a Sponsoring Member 

Omnibus Account or Segregated 

Indirect Participants Account fails to 

settle and that such failure to settle 

would not occur with Sponsored GC 

Trades.69 FICC believes this 

methodology facilitates a reasonable and 

fair allocation for purposes of 

calculating gross margin requirements.70

c. Calculation of Excess Capital 

Premium 

In addition, the Advance Notice 

would amend the terms related to the 

ECP component of the Clearing Fund, 

which is used to collect additional 

margin if a Netting Member’s exposure 

to FICC through its clearing activity is 

out of proportion to its capital. 

Currently, the ECP applicable to a 

Netting Member equals the Netting 

Member’s ‘‘Excess Capital Ratio’’ (i.e., 

its VaR Charge divided by its Netting 

Member Capital) multiplied by its 

‘‘Excess Capital Differential’’ (i.e., the 

amount by which a Netting Member’s 

VaR Charge exceeds its Netting Member 

Capital). However, FICC currently 

reserves the right to collect less than 

this amount or to return some or all of 

this amount.71

The changes would seek to make the 

calculation of the ECP component 

clearer and more predictable by (i) 

capping the amount of the ECP at two 

times the amount by which a Netting 

Member’s VaR Charge exceeds its 

Netting Capital,72 (ii) specifying the 

Netting Member Capital amounts used 

to calculate the ECP (that is, the Net 

Capital amount from each Netting 

Member’s most recent Form X–17–A–5 

(Financial and Operational Combined 

Uniform Single Report (‘‘FOCUS 

Report’’)) or the Equity Capital amount 

on its most recent Consolidated Report 

of Condition and Income (‘‘Call 

Report’’)), (iii) providing that FICC may 

calculate the premium based on 

updated available information, and (iv) 

permitting FICC, in its discretion, to 

waive the amount of the ECP and setting 

forth a specific procedure for doing so. 

Regarding the waiver procedure, only a 

Managing Director in FICC’s Group 

Chief Risk Office would be able to grant 

a waiver of an ECP in certain situations. 

These situations would be limited to 

exigent circumstances or other 

unexpected events. When deciding 

whether to grant a waiver, FICC would 

consider the degree to which a Netting 

Member’s capital position and trading 

activity compare or correlate to the 

exigent circumstances and whether 

FICC can effectively manage the risk 

exposure from the Netting Member 

without collecting the ECP.73 Any 

waiver would be documented in a 

written report made available to the 

Netting Member. FICC states that these 

changes are substantially similar to 

changes recently adopted by the 

National Securities Clearing Corporation 

(‘‘NSCC’’) and they would enhance the 

ability of Netting Members to identify 

what their ECP will be and to ensure 

such amount is accurately calibrated.74

In addition, the Advance Notice 

would revise the definitions of Excess 

Capital Ratio and Excess Capital 

Differential to exclude the VaR Charge 

for Segregated Indirect Participants. 

FICC is proposing this change because 

each indirect participant would be 

responsible for satisfying its own 


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75 Id. 

76 Id. 

77See Notice of Partial Amendment, supra note 

10, at 87451. 

78See Notice of Filing, supra note 4, at 21598. 

79 Id. 

80See Notice of Filing, supra note 4, at 89 FR 

21588. 

81Notice of Partial Amendment, supra note 10, at 

87451; see also FICC Letter at 22–23. 

82See 12 U.S.C. 5461(b). 

83 12 U.S.C. 5464(a)(2). 

84 12 U.S.C. 5464(b). 

85 12 U.S.C. 5464(c). 

86 17 CFR 240.17ad–22. See Securities Exchange 

Act Release No. 68080 (Oct. 22, 2012), 77 FR 66220 

(Nov. 2, 2012) (S7–08–11). See also Securities 

Exchange Act Release No. 78961 (Sep. 28, 2016), 81 

FR 70786 (Oct. 13, 2016) (S7–03–14). FICC is a 

‘‘covered clearing agency’’ as defined in Rule 17ad– 

22(a)(5). 

87 Id. 

88 12 U.S.C. 5464(b). 

89 17 CFR 240.17ad–22(e)(4)(i), (e)(6)(i), (e)(6)(iii), 

(e)(18)(ii), (e)(18)(iii), (e)(18)(iv)(C), (e)(19), and 

(e)(23)(ii). 

90 12 U.S.C. 5464(b). 

91Several of the issues raised by the commenters 

are directed at issues specific to 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 Jirˇı ́ Kro ́l, Deputy 

CEO, Global Head of Government Affairs, 

Alternative Investment Management Association, at 

6–7 (Apr. 23, 2024) (‘‘AIMA Letter’’); Letter from 

Joanna Mallers, Secretary, Futures Industry of 

America, Principal Traders Group (Oct. 11, 2024) 

(‘‘FIA PTG Letter II’’) at 2–3; Letter from Sarah A. 

Bessin, Deputy General Counsel and Nhan Nguyen, 

Associate General Counsel, Investment Company 

Institute, at 12 (Jun. 20, 2024) (‘‘ICI Letter’’); Letter 

from Katherine Darras, General Counsel, 

International Swaps and Derivatives Association, at 

4 (Apr. 17, 2024) (‘‘ISDA Letter I’’); Letter from 

Jennifer W. Han, Executive Vice President, Chief 

Counsel and Head of Global Regulatory Affairs, 

Managed Funds Association, at 7 (Apr. 17, 2024) 

(‘‘MFA Letter I’’); Letter from Jennifer W. Han, 

Executive Vice President, Chief Counsel and Head 

of Global Regulatory Affairs, Managed Funds 

Association (Nov. 12, 2024) (‘‘MFA Letter II’’) at 7; 

Letter from William C. Thum, Managing Director 

and Assistant General Counsel, Securities Industry 

and Financial Markets Association, Asset 

Management Group, at 9 (May 24, 2024) (‘‘SIFMA 

AMG Letter’’) (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 

discussed above, generally considers whether the 

proposal would promote robust risk management, 

promote safety and soundness, reduce systemic 

risks, and support the broader financial system. 

respective VaR Charge, not the Netting 

Member, and the Excess Margin Charge 

is designed to address the risk that a 

Netting Member with low capital 

relative to value-at-risk is not able to 

perform its obligations.75 FICC states 

that including the VaR Charge that is 

calculated for an indirect participant 

and is satisfied by the capital of that 

indirect participant in the calculation of 

the Netting Member’s ECP could result 

in assessing an ECP for that Netting 

Member that is greater than the amount 

required to mitigate the risk this margin 

component is designed to address.76

FICC also states that this change is 

designed to ensure that the ECP does 

not result in differential treatment of 

Netting Members that act as 

intermediaries for Segregated Indirect 

Participants. 

4. Modification of Terms for Brokered 

Transactions 

The Advance Notice would modify 

the terms relating to Brokered 

Transactions. FICC’s rules currently cap 

the amount of loss allocation that may 

be applied to Inter-Dealer Broker 

Netting Members and Non-IDB Repo 

Brokers submitting Brokered 

Transactions. FICC would revise the 

definition of Brokered Transactions to 

include only the side of the transactions 

submitted to FICC for novation by an 

Inter-Dealer Broker Netting Member and 

entered into on the Inter-Dealer Broker 

Netting Member’s own trading 

platform.77 As a result, the favorable 

loss allocation treatment for Brokered 

Transactions would apply only to the 

transactions that present limited risk 

since an Inter-Dealer Broker is standing 

between two counterparties in those 

transactions and is therefore completely 

flat (that is, subject to offsetting 

exposures).78 Since FICC believes the 

favorable loss allocation treatment is 

appropriate only for Inter-Dealer Broker 

Netting Members submitting Brokered 

Transactions, it would delete the term 

‘‘Non-IDB Repo Broker’’ from its rules.79

FICC states that these changes would 

improve FICC’s risk management and 

promote access by ensuring that its 

differential treatment of different parties 

and transactions has a sound risk 

management justification.80

In addition, the proposed changes 

would provide that transactions entered 

into on inter-dealer brokers and similar 

platforms may be cleared using the 

Sponsored Service or the Agent Clearing 

Service.81

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.82

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.83 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): 84

• to promote robust risk management; 

• to promote safety and soundness; 

• to reduce systemic risks; and 

• to support the stability of the 

broader financial system. 

Section 805(c) provides, in addition, 

that the Commission’s risk management 

standards may address risk management 

and default policies and procedures, 

among other areas.85

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’’).86

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.87 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 88 and in 

the Clearing Agency Rules, in particular 

Rules 17ad–22(e)(4)(i), (e)(6)(i), 

(e)(6)(iii), (e)(18)(ii), (e)(18)(iii), 

(e)(18)(iv)(C), (e)(19), and (e)(23)(ii) 

thereunder.89

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.90

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.91

1. Separate Calculation and Collection 

of Margin for Proprietary and Customer 

Accounts 

The proposed changes to require the 

separate and independent calculation 


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92 17 CFR 240.17ad–22(e)(6). 

93 17 CFR 240.17ad–22(a). 

94See FICC Letter at 3, 30–31. 

95 In addition, the requirements applicable to 

FICC as a self-regulatory organization under Section 

19(b) of the Exchange Act and as a designated 

financial market utility under Title VIII of the 

Payment, Clearing, and Supervision Act (12 U.S.C. 

5465(e)) would continue to apply. Thus, for 

example, if FICC were to amend the $1 million 

minimum margin requirement to an amount that 

would materially alter the level or nature of risk 

presented, FICC would be obligated to submit an 

advance notice of such change with the 

Commission. 

96See, e.g., Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, To Implement Changes to the 

Required Fund Deposit Calculation in the 

Government Securities Division Rulebook, 

Exchange Act Release No. 83362 (June 1, 2018), 83 

FR 26514 (June 7, 2018) (approving changes to how 

and collection of margin for Netting 

Members’ proprietary transactions and 

indirect participants’ transactions, as 

described in Section I.B.1., should allow 

FICC to better identify and measure the 

unique risk profiles of each Netting 

Member and indirect participant. This 

proposed change would ensure that an 

indirect participant’s positions are no 

longer netted against a Netting 

Member’s positions, that margin is 

collected with respect to the indirect 

participant’s positions specific to those 

transactions, and that interest on an 

indirect participant’s cash margin 

would be paid to the Netting Member 

for the benefit of, and as agent for, the 

indirect participant. As discussed in 

more detail in Section II.C.1 below, this 

should enhance FICC’s ability to 

calculate and collect the appropriate 

margin from each direct and indirect 

participant, which is consistent with 

promoting robust risk management. 

The separate and independent 

calculation and collection of margin for 

proprietary and indirect participants’ 

transactions should allow FICC to better 

identify and measure the unique risk 

profiles of each Netting Member and 

indirect participant, enhancing FICC’s 

ability to calculate and collect sufficient 

margin from each Netting Member and 

indirect participant to cover potential 

losses from a Netting Member or 

indirect participant default, thereby 

reducing the likelihood that any losses 

arising out of a default would exceed 

FICC’s prefunded resources, as 

discussed in more detail in Section 

II.C.1 below, and threaten the safety and 

soundness of FICC’s ongoing clearance 

and settlement services. Accordingly, 

the proposals are consistent with 

promoting safety and soundness at 

FICC. 

The separation of proprietary and 

customer margin discussed in Section 

I.B.1 above is consistent with reducing 

systemic risks and supporting the 

stability of the broader financial system. 

The separation of proprietary and 

customer accounts should also help 

avoid the risk of mutualizing loss among 

non-defaulting members as part of the 

close-out process and/or a disorderly 

default in the event of a direct 

participant default, in that FICC would 

be responsible for the central 

liquidation of the defaulting 

participant’s trades and would be able 

to have a more holistic view of the 

market. These effects should, in turn, 

reduce the potential resultant effects on 

non-defaulting Netting Members, their 

customers, and the broader market, 

which is consistent with reducing 

systemic risks and supporting the 

stability of the broader financial system. 

2. $1 Million Minimum Cash Margin 

Requirement 

For the reasons discussed below in 

more detail in Section II.B.2, the 

proposed $1 million minimum cash 

margin requirement for Segregated 

Indirect Participants, which could be 

adjusted by FICC if it determines that a 

different minimum amount would be 

appropriate and consistent with 

achieving its backtesting coverage target, 

should help ensure that each indirect 

participant provides sufficient margin to 

cover its potential obligations to FICC, 

thereby helping to allow FICC to meet 

its settlement obligations in the event of 

a default and to protect FICC, nondefaulting Netting Members, indirect 

participants, and the market from losses 

from an indirect participant default. 

Accordingly, the proposed $1 million 

minimum cash margin requirement is 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system, as well as 

promoting safety and soundness. 

In addition, as indicated by FICC’s 

backtesting results, and discussed 

further in Section II.B.2 below, the $1 

million minimum margin requirement 

should enhance FICC’s ability to collect 

the appropriate margin from each 

indirect participant, which is consistent 

with robust risk management. FICC’s 

flexibility to adjust the minimum 

margin amount if it determines that a 

different amount would be appropriate 

and consistent with achieving its 

backtesting coverage target is also 

consistent with robust risk management, 

because meeting backtesting coverage 

targets is essential to ensuring that the 

margin collected would be sufficient for 

FICC to cover its credit exposures to its 

Netting Members and indirect 

participants fully with a high degree of 

confidence, as required for a covered 

clearing agency such as FICC.92 As 

defined in the Covered Clearing Agency 

Standards, backtesting is an ex-post 

comparison of actual outcomes with 

expected outcomes derived from the use 

of margin models,93 and it is a key 

analytical mechanism for a CCP to 

consider the effectiveness of its margin 

model. FICC’s ability to adjust the 

minimum margin amount would apply 

only where it would be appropriate and 

consistent with achieving its backtesting 

coverage target. This ability would, 

therefore, be limited to circumstances 

where its backtesting coverage target 

requirements are not being met or the 

amount of margin being collected 

exceeds the amount needed to cover the 

indirect participant’s exposure to FICC. 

Based on FICC’s representations, the 

Commission understands that FICC 

generally intends to use this ability to 

adjust the minimum margin 

requirement below $1 million if a lower 

minimum would suffice to reduce 

backtesting deficiencies comparably to 

the $1 million.94 As part of its ongoing 

supervision of FICC, the Commission 

will continue to monitor the 

performance of the $1 million minimum 

margin requirement, including as its 

performance compares to backtesting, 

and will engage with FICC regarding 

any changes to that requirement and the 

supporting analysis for such changes, to 

help ensure that FICC is appropriately 

exercising that discretion consistent 

with the requirements imposed upon it 

by the rule (i.e., that it determines that 

any such adjustments would be 

appropriate and consistent with 

achieving its backtesting coverage 

target).95 For example, not meeting 

backtesting coverage requirements 

would be an indication that the 

minimum margin amount is insufficient 

to cover FICC’s credit exposure to its 

Netting Members and indirect 

participants, whereas, on the contrary, 

higher backtesting performance could 

indicate that the margin collected 

exceeds the exposure to FICC. 

3. Margin Component Schedule 

The proposed changes in section I.B.3 

regarding the calculation of margin for 

segregated and non-segregated accounts 

should help ensure that FICC collects 

margin sufficient to cover its exposures 

with respect to both direct and indirect 

participants. Requiring that the margin 

requirement for a Segregated Indirect 

Participant Account be calculated in 

generally the same manner as a Netting 

Member’s requirement, which the 

Commission generally has reviewed and 

approved as part of FICC’s rules,96


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FICC calculates the Value at Risk component of its 

margin methodology, addition of the new ‘‘Blackout 

Period Exposure adjustment’’ component to the 

margin methodology, eliminating certain existing 

components, and revising additional components). 

97See Securities Exchange Act Release No. 96786 

(Feb. 1, 2023), 88 FR 8013 (Feb. 7, 2023) (SR– 

NSCC–2022–005); see also id. (discussing the view 

that capping the ratio at 2.0 strikes an appropriate 

balance between addressing the heightened default 

risk without imposing overly burdensome Excess 

Capital Premium charges). 

98 17 CFR 240.17ad–22(e)(4)(i). 

99See id. 

100See ISDA Letter I at 4; ICI Letter at 12; AIMA 

Letter at 6–7; MFA Letter II at 6. 

should help ensure that FICC collects 

margin sufficient to cover its exposures 

with respect to both direct and indirect 

participants, as discussed further in 

Sections II.B.3 and II.C.2 below, which 

is consistent with promoting robust risk 

management. In addition, by doing so, 

these proposed changes should help 

ensure that, in the event of such a 

default, FICC’s operation of its critical 

clearance and settlement services would 

not be disrupted because of insufficient 

financial resources, which is consistent 

with safety and soundness at FICC. For 

the same reasons, these proposed 

changes should also help ensure that 

FICC is able to continue to meet its 

obligation in the event of a default, 

without accessing non-defaulting 

Netting Members’ or indirect 

participants’ margin deposits, which is 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system. 

4. Allocation of Net Unsettled Positions 

The proposed changes described in 

Section I.B.3.b. to adopt a method for 

allocating net unsettled positions to 

individual indirect participants for 

calculating margin requirements should 

reduce the potential exposure to FICC 

arising from indirect participant 

transactions that fail to settle by 

ensuring that FICC has a mechanism to 

collect margin for such transactions. 

Further, these proposed changes should 

make clear that such obligations are 

allocated only to participants that are 

outside the Sponsored GC service, since 

such fails to deliver do not occur in that 

service. By accounting for risks arising 

from net unsettled positions, the 

proposed changes are consistent with 

promoting robust risk management. 

5. Calculation of Excess Capital 

Premium 

The proposed changes to the 

calculation of the ECP described in 

Section I.B.3.c. above are consistent 

with promoting robust risk 

management, because the changes 

should help ensure that FICC continues 

to collect margin sufficient to address 

the heightened default risk presented by 

a Netting Member operating with lower 

capital levels relative to its margin 

requirements. Based on its review of the 

Advance Notice, including the detailed 

impact analysis submitted as a 

confidential exhibit, FICC’s margin 

coverage would not be impacted by this 

change and FICC would continue to 

collect sufficient margin to manage its 

potential exposure to its Netting 

Members. 

In addition, the proposed changes to 

the calculation of the ECP should result 

in a simplified and more straightforward method for calculating the ECP, 

based on understandable metrics with 

which FICC’s Netting Members are 

familiar. Using a clearly defined source 

for determining Netting Member Capital 

in the calculation of the ECP would 

result in a more consistent calculation 

across different types of Netting 

Members. Moreover, capping the Excess 

Capital Ratio at 2.0 would provide 

transparency to Netting Members so 

they can understand how the ECP will 

be calculated, and it also would align 

FICC’s cap with the recently approved 

changes to the ECP calculation at 

NSCC.97 By improving the consistency 

and predictability of the ECP, the 

proposed enhancements would also 

improve FICC’s ability to collect margin 

amounts that reflect the risks posed by 

its Netting Members such that, in the 

event of Netting Member default, FICC’s 

operations would not be disrupted, and 

non-defaulting Netting Members and 

indirect participants would not be 

exposed to losses they cannot anticipate 

or control. In this way, this portion of 

the Advance Notice is consistent with 

promoting safety and soundness, as well 

as reducing systemic risks and 

supporting the stability of the broader 

financial system. 

6. Modification of Terms for Brokered 

Transactions 

The proposed changes described in 

Section I.B.4. to revise the definition of 

Brokered Transactions to include only 

the side of the transactions submitted to 

FICC for novation by an Inter-Dealer 

Broker Netting Member and entered into 

on the Inter-Dealer Broker Netting 

Member’s own trading platform should 

enhance FICC’s risk management by 

providing favorable loss allocation 

treatment only to transactions that 

present limited risk to FICC. As a result, 

these changes should help ensure that 

FICC has sufficient prefunded financial 

resources to continue meeting its 

obligations in the event of a default, 

which is consistent with promoting 

safety and soundness at FICC, as well as 

reducing systemic risk and supporting 

the stability of the broader financial 

system. 

A. 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.98

1. Separate Calculation and Collection 

of Margin for Proprietary and Customer 

Accounts 

The proposed changes to require the 

separate and independent calculation 

and collection of margin for Netting 

Members’ proprietary transactions and 

indirect participants’ transactions, as 

described in Section I.B.1., are 

consistent with Rule 17ad–22(e)(4)(i).99

The separate calculation and collection 

of margin from Netting Members and 

indirect participants should allow FICC 

to better identify and measure the 

unique risk profile of each participant, 

enhancing FICC’s ability to calculate 

and collect the appropriate margin from 

each direct and indirect participant. As 

a result, the proposed changes should 

help ensure that FICC has sufficient 

margin to cover potential losses from a 

Netting Member or indirect participant 

default, thereby reducing the probability 

that FICC, non-defaulting Netting 

Members, or non-defaulting indirect 

participants would incur losses 

resulting from a default. 

2. $1 Million Minimum Cash Margin 

Requirement 

The proposed minimum $1 million 

cash margin requirement for each 

Segregated Indirect Participant Account, 

as described in Section I.B.2.a, is 

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

Several commenters state that FICC 

lacks a sufficient basis or justification 

for the required $1 million minimum 

margin amount.100 Specifically, one 

commenter stated that using the amount 

applicable to Netting Members is not an 

appropriate basis for establishing a 

minimum for indirect participants, and 

also stated that the requirement lacks 

any support or analysis as to the level 

of margin attributable to a typical fund’s 

positions in cleared Treasury repo, 

which is data FICC should have readily 


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101 ICI Letter at 12. 102AIMA Letter at 6. See also MFA Letter II at 

7. 103AIMA Letter at 7; MFA Letter I at 7; SIFMA 

AMG Letter at 9. 

104 ISDA I at 4; see also MFA Letter II at 7 (stating 

that the requirement should be determined based 

on a participant’s particular risk profile, including 

its planned and historical clearing activity). 

105See FICC Letter at 28; Securities Exchange Act 

Release No. 96136 (Oct. 24, 2022), 87 FR 65268 

(Oct. 28, 2022) (SR–FICC–2022–006) (‘‘FICC–2022– 

006 Order’’). The impact study contains an analysis 

of backtesting results on a member-by-member basis 

over a twelve-month period ending June 30, 2022, 

and it includes, for both the then-current rule and 

the proposed $1 million minimum rule, the number 

of backtesting deficiencies and the level of coverage 

obtained. It contains the same analysis for a 

$500,000 minimum as well, including the same 

data points on a member-by-member basis. 

106See FICC Letter at 28. 

107 Id. 

108See FICC Letter at 29. 

109 Id. 

110 Id. 

111 Id. 

112 Id. 

113 Id. 

114FICC–2022–006 Order, supra note 105, at 

65270. 

115See FICC Letter at 30. 

116 Id. 

117 Id. 

118 Id. 

119 Id. 

120 Id. 

available.101 An additional commenter 

stated the requirement seems arbitrary, 

and not practical or necessary, 

especially in the current done-with 

model, to force every segregated 

customer to be subject to the same 

minimum requirement as a Netting 

Member.102

In addition, commenters state that 

FICC should adopt a lower minimum 

requirement ($100,000 to $250,000), a 

dynamic minimum based on average 

exposure subject to a $250,000 cap, or 

a minimum set by the relevant Netting 

Member.103 Commenters also state that 

FICC should determine a minimum 

deposit based on the individual client 

and the risk that such client presents to 

FICC and other market participants.104

In response, FICC states that the $1 

million floor for Segregated Indirect 

Participants is the same floor FICC 

already has in place for its Netting 

Members.105 FICC states that its impact 

study, conducted in 2022 when 

adopting the rule applicable to Netting 

Members, demonstrated that a $1 

million floor would protect FICC and its 

participants from incurring a loss in the 

event of a Netting Member failure 

because the study indicated that a $1 

million floor would provide an adequate 

buffer for additional repo activity due to 

increases in repo interest rates and 

would have mitigated 65 out of 396 

backtesting deficiencies (16%) during 

the period from July 1, 2021 to June 30, 

2022.106 FICC further states that it 

analyzed alternative minimum margin 

amounts, such as $500,000, and, based 

on the results of its analysis, the $1 

million floor provided the appropriate 

balance of improving backtesting 

performance and margin coverage while 

minimizing the impact on Netting 

Members.107

FICC also states that the backtesting 

data from the period after the $1 million 

minimum floor was implemented 

indicated a ‘‘material reduction of 

backtesting deficiencies at FICC.’’ 108

From December 5, 2022 to June 30, 

2024, FICC states that the $1 million 

floor eliminated 24 backtesting 

deficiencies, a 12% reduction.109

Further, during a period of 12-month 

period of moderate market volatility 

from July 1, 2023 to June 30, 2024, FICC 

states that the $1 million floor 

eliminated 15 backtesting deficiencies, a 

22% reduction.110

FICC further states that the $1 million 

floor is appropriate because the 

Segregated Customer Margin posted by 

each individual Segregated Indirect 

Participant needs to be sufficient on its 

own to address losses arising from the 

Segregated Indirect Participant’s 

positions.111 This is because Segregated 

Customer Margin is not subject to loss 

mutualization under the proposal, so 

FICC can only use Segregated Customer 

Margin posted by an individual 

Segregated Indirect Participant to satisfy 

that customer’s obligations. As a result, 

each Segregated Indirect Participant’s 

portfolio would present a risk to FICC 

that is equivalent to the risk of a 

proprietary portfolio of an individual 

Netting Member.112 If the Segregated 

Customer Margin is insufficient, losses 

would need to be mutualized, with 

harm to FICC, its non-defaulting Netting 

Members, and, potentially, the market 

as a whole.113

In addition, FICC stated that the risk 

cited by the Commission of inconsistent 

activity giving rise to dramatic changes 

in risk exposure, discussed by the 

Commission in the FICC–2022–006 

Order,114 is arguably more pronounced 

for indirect participants than for Netting 

Members.115 First, indirect participants 

may clear through multiple Netting 

Members and shift their activity through 

different Netting Members, which can 

present risks to FICC since FICC cannot 

use the Segregated Customer Margin 

posted by the Segregated Indirect 

Participant through one Netting Member 

to address the Segregated Indirect 

Participant’s transactions cleared by 

another Netting Member.116 As a result, 

FICC states that, even if the Segregated 

Indirect Participant’s overall activity 

remains steady, FICC could see dramatic 

shifts in its risk simply because the 

Segregated Indirect Participant shifts the 

Netting Members it uses as its 

intermediary at FICC.117 Second, FICC 

states that it does not have the same 

general understanding of indirect 

participants’ business that it has for its 

Netting Members, since it does not 

collect the same information on 

individual customers’ business or 

finances that it does for its Netting 

Members.118 As a result, FICC states that 

it is less likely to know when there may 

be significant swings in indirect 

participant risk exposures as it would 

for its Netting Members and, since 

indirect participants are likely to have a 

far more diverse array of business 

models and interest rate considerations 

than FICC’s Netting Members, they 

could engage in inconsistent activity 

that could increase risk exposure to 

FICC.119 According to FICC, the 

possibility of inconsistent activity 

among indirect participants is 

potentially greater.120

The Commission disagrees with 

commenters who stated that using the 

same minimum as Netting Members is 

not appropriate for Segregated Indirect 

Participants. As stated in Section I.A. 

above, FICC and non-defaulting Netting 

Members and indirect participants may 

be subject to losses should the 

Segregated Customer Margin of an 

indirect participant be insufficient to 

satisfy losses caused by the liquidation 

of that indirect participant’s portfolio. 

This potential exposure both to FICC 

and non-defaulting Netting Members 

and indirect participants makes it 

essential that FICC determine margin 

amounts for Segregated Indirect 

Participant Accounts that are reasonably 

designed to ensure that FICC has 

sufficient margin to cover the losses of 

a defaulting Segregated Indirect 

Participant. 

The analyses conducted by FICC both 

in connection with the 2022 change to 

the required minimum margin amount 

for Netting Members and after the 

implementation of that requirement, 

which the Commission has reviewed 

and analyzed, support the use of the $1 

million margin requirement for 

Segregated Indirect Participant 

Accounts. The Commission agrees that 

these studies demonstrate that a $1 

million margin floor has a material 

impact on reducing the number of 

backtesting deficiencies experienced by 

FICC’s Netting Members, which would 

likely help FICC better manage its credit 

exposure to its Netting Members and 

indirect participants and credit 


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121This also makes the 2022 impact study 

relevant to this determination because FICC would 

calculate margin requirements for each Segregated 

Indirect Participant in the same manner as margin 

requirements for each Netting Member. The 

Commission reviewed and analyzed that impact 

study when approving the current minimum 

applicable to Netting Members, and the same 

analysis should apply here as well. 

122See FICC Letter at 29. 

123 Id. 

124See Notice of Filing, supra note 4, at 89 FR 

21595. 

125See GSD Member Directories, available at 

https://www.dtcc.com/client-center/ficc-govdirectories. 

126One commenter states that FICC should not 

delay recalibration of the minimum margin 

requirement to a later date. MFA Letter II at 6–7. 

However, as the Commission discussed above, the 

minimum margin requirement is appropriate, based 

on the data available at this time. The Commission 

will continue to monitor implementation of this 

requirement going forward once more data 

regarding the use of segregated accounts is 

available. 

exposures arising from its payment, 

clearing, and settlement processes. 

Consideration of the appropriate 

Netting Member minimum is directly 

relevant to what is appropriate for 

Segregated Indirect Participant 

Accounts because FICC would treat 

such accounts the same as Netting 

Member accounts in the event of a 

default of that individual customer.121

Even though a Segregated Indirect 

Participant would be the customer of a 

Sponsoring Member or an Agent 

Clearing Member, each Segregated 

Indirect Participant Account would 

need to provide sufficient margin to 

independently cover its losses in the 

event of a default. FICC will determine 

the appropriate margin for each 

Segregated Indirect Participant Account 

as if it were a separate Netting Member. 

As discussed above, indirect 

participants may increase risk by 

clearing through different Netting 

Members, which would provide FICC 

with less insight into their overall 

portfolio. Accordingly, it is appropriate 

for the minimum amount to be the same 

for both Netting Members and indirect 

participants. 

In response to commenters who 

proposed an alternative amount or 

approach, the Commission also has 

reviewed and analyzed the analysis of 

alternative minimum amounts that FICC 

conducted, which show that there 

would still be potential for higher 

amounts of backtesting deficiencies 

using a $500,000 alternative minimum, 

making the alternatives proposed by 

commenters ($100,000, $250,000 or a 

dynamic minimum with a $250,000 cap) 

not reasonably designed to allow FICC 

to collect sufficient margin to cover its 

exposures. As discussed above, FICC’s 

backtesting data from December 5, 2022 

to June 30, 2024 indicates that 

increasing the minimum margin amount 

from $100,000 to $1 million eliminated 

24 Netting Member backtesting 

deficiencies, a 12% reduction.122

Further, during a 12-month period of 

moderate market volatility from July 1, 

2023 to June 30, 2024, the $1 million 

floor eliminated 15 backtesting 

deficiencies, a 22% reduction.123

Because FICC is not able to predict 

how many indirect participants may 

elect to submit activity to FICC through 

a Segregated Indirect Participants 

Account or the size or volume of that 

activity, margin requirements for each 

Segregated Indirect Participant would 

be calculated in the same manner as for 

Netting Members.124 FICC’s impact 

studies of Netting Members provide a 

reasonable approximation of the risks 

FICC may face if the minimum margin 

amount is set below $1 million. 

Therefore, the proposed $1 million floor 

is appropriate to increase the probability 

that the margin amount collected by 

FICC is sufficient to cover FICC’s credit 

exposure to Segregated Indirect 

Participants and protect non-defaulting 

parties from experiencing losses. 

However, as described above in Section 

I.B.2.a., if FICC determines that a 

different minimum charge would be 

appropriate and consistent with 

achieving its backtesting coverage target, 

FICC would have the ability to adjust 

the minimum charge of $1 million 

margin requirement. This added 

flexibility should allow FICC to 

continue to collect the appropriate 

amount of margin to cover its credit 

exposure to each participant fully with 

a high degree of confidence, as 

demonstrated by FICC’s meeting its 

backtesting coverage targets, while 

minimizing the burden on indirect 

participants. 

Moreover, the Commission disagrees 

that allowing the Netting Member to 

determine a minimum would be 

appropriate. It is unclear what basis a 

Netting Member would use to determine 

such a minimum in a way that would 

ensure that the amount is sufficient to 

meet FICC’s regulatory obligations and 

minimize backtesting deficiencies 

because a Netting Member would not be 

able to replicate FICC’s backtesting or 

calculate FICC’s regulatory obligations. 

The Commission disagrees that 

determining a minimum deposit on a 

case-by-case basis would be feasible for 

every Segregated Indirect Participant. 

FICC has stated that it does not know 

how many Segregated Indirect 

Participants will participate in FICC. At 

this time, there are over 2500 Sponsored 

Members at FICC,125 and it is likely that 

additional indirect participants will 

want to access clearing going forward in 

light of the Treasury Clearing rules. 

Determining a minimum for even half 

the current Sponsored Members on a 

case-by-case basis would be extremely 

burdensome for FICC and would require 

the submission of detailed financial 

information by each Sponsored Member 

to inform FICC of its planned business 

activities, and it is unclear how or on 

what basis such a minimum would be 

adjusted over time. Establishment of a 

minimum requirement is appropriate to 

ensure that FICC can meet its 

obligations under Rule 17ad–22(e)(4)(i), 

and reliance upon the minimum for 

Netting Members is appropriate 

because, as discussed above, FICC has to 

treat each Segregated Indirect 

Participant as a stand-alone account for 

risk management purposes to segregate 

its margin appropriately. 

For these reasons, the $1 million 

minimum margin requirement should 

help ensure that FICC has sufficient 

margin to cover potential losses from a 

Segregated Indirect Participant default, 

thereby reducing the probability that 

FICC, non-defaulting Netting Members, 

and non-defaulting indirect participants 

would incur losses resulting from a 

default. Moreover, as described above in 

Section I.B.2.a., FICC would have the 

ability to adjust the amount of the 

minimum $1 million margin 

requirement if FICC determines that a 

different minimum charge would be 

appropriate and consistent with 

achieving its backtesting coverage target. 

The Commission agrees with FICC that 

it should continue to assess the 

performance of this minimum 

requirement with respect to FICC’s 

backtesting coverage requirements, as it 

provided in the Amendment to this 

filing, to ensure that FICC is not 

collecting more margin than is 

necessary to meet its regulatory 

obligations to cover its exposure to its 

participants.126 Although the 

Commission recognizes that FICC could 

use this ability to increase the $1 

million minimum to some greater 

amount, it would only be able to do so 

if determines that a different minimum 

charge would be appropriate and 

consistent with achieving its backtesting 

coverage target. 

3. Margin Component Schedule 

The proposed changes in section I.B.3 

regarding the calculation of margin for 

segregated and non-segregated accounts 

should ensure that FICC collects margin 

sufficient to cover its exposures with 

respect to both direct and indirect 

participants. Requiring that the margin 


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127See id. 

128 17 CFR 240.17ad–22(e)(6)(i). 

129Commenters requested clarification that 

FICC’s funds-only settlement amounts are 

settlement payments rather than margin. See ISDA 

Letter at 6; Letter from Katherine Darras, General 

Counsel, International Swaps and Derivatives 

Association (July 18, 2024) (‘‘ISDA Letter II’’) at 6; 

SIFMA Letter at 4; Letter from Walt L. Lukken, 

President and Chief Executive Officer, Futures 

Industry of America (Apr. 18, 2024) (‘‘FIA Letter’’) 

at 11. The Advance Notice does not make any 

amendments to the funds-only settlement process at 

FICC. See GSD Rule 13. This aspect of FICC’s rules 

is, therefore, not relevant to this Advance Notice. 

However, FICC clarified that it views such 

payments as constituting settlements that discharge 

outstanding payment obligations, rather than as 

margin or collateral. FICC Letter at 43. The 

Commission agrees with this clarification, based 

upon its knowledge of FICC’s margin and payment 

flows and the applicable GSD Rules. 

130See SIFMA AMG Letter at 10. 

131See FICC Letter at 36. 

132 Id. 

requirement for a Segregated Indirect 

Participant Account be calculated in 

generally the same manner as a Netting 

Member’s requirement, which the 

Commission has reviewed and approved 

as part of FICC’s rules, should help 

ensure that FICC collects margin 

sufficient to cover its exposures with 

respect to both direct and indirect 

participants. By doing so, this portion of 

the Advance Notice should better 

ensure that, in the event of a Netting 

Member’s or indirect participant’s 

default, FICC has sufficient margin to 

cover potential losses from the default, 

thereby reducing the probability that 

FICC, non-defaulting Netting Members, 

and non-defaulting indirect participants 

would incur losses resulting from a 

default. Collecting the same margin 

components for a Segregated Indirect 

Participant Account as those used for a 

Netting Member Account is appropriate 

because FICC has to risk-manage each 

Segregated Indirect Participant Account 

individually, and application of the 

existing margin methodology would 

help ensure that FICC collects sufficient 

margin to cover its exposures to 

participants for all Accounts. FICC has, 

however, taken into account how the 

ECP should apply differently when 

determining a Segregated Customer 

Margin Requirement, which is 

appropriate for the reasons discussed in 

Section II.C.3 below, and the changes 

related to the ECP Charge would ensure 

that Segregated Indirect Participants are 

not required to post additional margin 

to account for the capital position of its 

Netting Member. 

Accordingly, for the reasons 

discussed above, the Advance Notice is 

reasonably designed to enable FICC to 

effectively identify, measure, monitor, 

and manage its credit exposure to 

Netting Members and indirect 

participants, consistent with Rule 17ad– 

22(e)(4)(i).127

B. Consistency With Rule 17ad– 

22(e)(6)(i) 

Rule 17ad–22(e)(6)(i) requires FICC to 

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, if the covered clearing 

agency provides central counterparty 

services for U.S. Treasury securities, 

calculates, collects, and holds margin 

amounts from a direct participant for its 

proprietary positions in Treasury 

securities separately and independently 

from margin calculated and collected 

from that direct participant in 

connection with U.S. Treasury 

securities transactions by an indirect 

participant that relies on the services 

provided by the direct participant to 

access the covered clearing agency’s 

payment, clearing, or settlement 

facilities.128

1. Separation of Proprietary and 

Customer Margin 

The proposed changes to separate 

proprietary and customer margin are 

consistent with Rule 17ad–22(e)(6)(i). 

First, to help ensure that proprietary 

transactions and transactions submitted 

to FICC on behalf of indirect 

participants are margined separately, 

FICC would require that each margin 

portfolio contain only transactions from 

the same account type and that Netting 

Members use separate Deposit IDs for 

different transaction types. Second, 

FICC would calculate each Segregated 

Indirect Participant’s margin 

requirement separately on a gross basis 

as though each Segregated Indirect 

Participant were a separate Netting 

Member. Finally, FICC would create a 

separate ‘‘Segregated Customer Margin 

Custody Account’’ for each Netting 

Member that contains deposits of 

Segregated Customer Margin for indirect 

participants, with interest earned on 

cash margin paid to each Segregated 

Indirect Participant’s Netting Member 

for the benefit of, and as an agent for, 

the Segregated Indirect Participant. 

Collectively, these proposed changes 

should ensure that a Netting Member’s 

proprietary transactions are not netted 

with indirect participant transactions 

for margin calculations and that margin 

for indirect participant transactions is 

collected and held separately and 

independently from margin for a Netting 

Member’s proprietary transactions. 

Moreover, by calculating each 

Segregated Indirect Participant’s margin 

requirement separately from Netting 

Members and other Segregated Indirect 

Participants, the proposed changes 

should allow FICC to better isolate the 

risk profiles of individual indirect 

participants from Netting Members, 

which should help FICC better 

understand and monitor each individual 

participant’s risk exposures.129

One commenter expressed concern 

that the proposal would not fully 

eliminate fellow customer risk because 

it would allow for the pro rata 

allocation of Current Net Settlement 

positions among Segregated Indirect 

Participant positions held in the same 

Segregated Indirect Participants 

Account.130 In response, FICC explained 

that, due to the requirement in the 

Treasury Clearing Rules that margin for 

customer positions be calculated 

separately from margin for a Netting 

Member’s proprietary positions, FICC 

would not be able to allocate the margin 

obligations from Current Net Settlement 

Positions to a Netting Member’s 

portfolio.131 As a result, such margin 

must be allocated to customer positions 

and FICC states that, when it is not 

aware of the allocation of Current Net 

Settlement Positions among customers, 

it is most equitable to allocate such 

positions pro rata to customers who 

were long or short the relevant 

securities.132 The Commission agrees 

that allocating the positions to the 

Netting Member’s account would be 

inconsistent with Rule 17ad–22(e)(6)(i) 

because it would impermissibly net 

proprietary transactions against indirect 

participant transactions. The 

Commission further agrees that the 

positions must be allocated to ensure 

that FICC is able to appropriately riskmanage those positions (that is, to 

collect appropriate margin). The 

Commission further agrees with FICC’s 

approach of limiting such pro rata 

allocations only to customers engaging 

in non-Sponsored GC Trades because 

settlement failures do not occur with 

respect to Sponsored GC Trades. 

Therefore, in the event that the 

positions are not allocated, a pro rata 

allocation among customers is 

appropriate. 

Accordingly, the proposed changes in 

the Advance Notice would be consistent 

with Rule 17ad–22(e)(6)(i) because they 

should help ensure that FICC calculates, 

collects, and holds margin for a Netting 

Member’s proprietary positions 


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133 17 CFR 240.17ad–22(e)(6)(i). 134 ISDA Letter I at 7; ISDA Letter II at 6. 135Compare proposed Margin Component 

Schedule section 2 (regarding Required Fund 

Deposits) with section 3 (regarding Segregated 

Customer Margin). 

136See proposed Margin Component Schedule 

section 4; see also Notice of Filing, supra note 4, 

at 21593. 

137See ISDA Letter I at 7. 

138See Letter from Joanna Mallers, Secretary, 

Futures Industry of America, Principal Traders 

Group (Apr. 17, 2024) (‘‘FIA PTG Letter I’’) at 8. 

separately from the margin for positions 

the member clears for customers.133

5. Margin Component Schedule 

The proposed changes to establish a 

Margin Component Schedule, which 

would consolidate the terms and 

information relating to margin 

calculation throughout the Rules into a 

single schedule, are consistent with 

Rule 17ad–22(e)(6)(i). Under the 

proposed Margin Component Schedule, 

FICC would perform substantially the 

same calculation it currently performs 

when determining a Netting Member’s 

Required Fund Deposit and include the 

methodology for calculating a Netting 

Member’s Segregated Customer Margin 

Requirement. By including a 

methodology to calculate each 

Segregated Indirect Participant’s margin 

requirement separately from Netting 

Members and other Segregated Indirect 

Participants, the proposed changes 

should help ensure that FICC calculates, 

collects, and holds margin for a Netting 

Member’s proprietary positions 

separately from the margin for positions 

the member clears for customers. 

Moreover, calculating margin 

requirements for each Segregated 

Indirect Participant should allow FICC 

to better isolate the risk profiles of 

individual indirect participants from 

Netting Members, which should help 

FICC better understand and monitor 

each individual participant’s risk 

exposures and thereby collect margin 

commensurate with the risks of each 

Netting Member and indirect participant 

portfolio. 

A commenter states that FICC should 

confirm that segregation of margin for 

indirect participants does not magnify 

risk for Netting Members. Specifically, 

the commenter states that it is not clear 

whether the Required Fund Deposit to 

be posted by Netting Members 

incorporates any exposure associated 

with Segregated Indirect Participant 

Accounts and expresses concern as to 

whether FICC’s rules allow FICC to 

collect additional margin to cover any 

enhanced risk that may arise relating to 

the Netting Member’s obligations to 

FICC for its clients who are indirect 

participants generally or who choose 

segregation specifically.134 However, 

FICC’s proposed rules establish that the 

calculation of a Netting Member’s 

Required Fund Deposit excludes the 

exposure of its Segregated Indirect 

Participants.135 FICC’s rules do permit 

FICC to collect increased Required Fund 

Deposits from Netting Members if 

‘‘necessary to protect [FICC] and its 

Members from Legal Risk,’’ which, FICC 

states, would include the consideration 

of the Netting Members’ indirect 

participants.136

This commenter also states the fact 

that the ability to prefund margin for a 

customer is only temporary puts 

pressure on the Netting Member’s own 

Required Fund Deposits, which ‘‘it 

seems would still cover the obligations 

of all its clients’’ and also on the Netting 

Member and the broader FICC 

membership, in the event of a failure by 

any Segregated Indirect Participant.137

However, the Netting Member’s 

Required Fund Deposits would not be 

calculated based on the obligations of its 

clients, and, in the event of the default 

of an indirect participant, FICC would 

use the Segregated Customer Margin for 

only that indirect participant. Therefore, 

the Commission disagrees that the 

inability to permanently prefund the 

customer’s margin requirement puts 

additional pressure on the Netting 

Member’s own Required Fund Deposits. 

Another commenter states that FICC 

should explain why it is appropriate to 

calculate a segregated customer’s margin 

requirement as if it were a Netting 

Member, even though the margin 

calculation for FICC Netting Members 

covers both initial margin and guaranty 

fund contributions (and customers are 

not expected to be contributing to the 

guaranty fund).138 However, FICC does 

not maintain a separate guaranty fund 

into which a Netting Member 

contributes for its customers. The 

Segregated Customer Margin 

Requirement must be sufficient to cover 

the exposures to FICC arising from that 

particular customer’s activity because, 

under the segregation system proposed 

by the Advance Notice which would 

allow broker-dealers participating in 

FICC to comply with the conditions of 

Note H to Rule 15c3–3, FICC would not 

be able to use the margin collected from 

a Segregated Indirect Participant for any 

reason unrelated to the Segregated 

Indirect Participant. Therefore, 

calculating each Segregated Customer 

Margin Requirement in this manner is 

appropriate to ensure that FICC has 

appropriate resources to cover each 

customer’s exposures. Therefore, this 

aspect of the Advance Notice is 

consistent with Rule 17ad–22(e)(6)(i) 

under the Exchange Act. 

6. Excess Capital Premium 

The proposed changes to the 

calculation of the ECP charge are 

consistent with Rule 17ad–22(e)(6)(i). 

FICC’s margin deposits are made up of 

risk-based components (as margin) that 

are calculated and assessed daily to 

limit FICC’s exposures to Netting 

Members. FICC’s proposed changes to 

use clearly defined sources in the 

calculation of the ECP charge would 

collectively make the calculation clearer 

and more predictable to Netting 

Members, while continuing to apply an 

appropriate risk-based charge designed 

to mitigate the risks presented to FICC. 

Similarly, the proposal to cap the Excess 

Capital Ratio at 2.0 would allow FICC to 

appropriately address the risks it faces 

without imposing an overly burdensome 

ECP and would reduce the 

circumstances in which FICC may 

waive the charge, resulting in a more 

transparent margining methodology. 

Finally, the proposed rule change would 

clarify the exigent circumstances under 

which FICC may determine that it is 

appropriate to waive the ECP charge. 

Overall, these proposed changes would 

improve the effectiveness of the 

calculation of the ECP and, therefore, 

allow FICC to more effectively address 

the increased default risks presented by 

Netting Members that operate with 

lower capital levels relative to their 

margin requirements. 

In addition, FICC proposes to exclude 

VaR Charges for Segregated Indirect 

Participants Accounts when 

determining a Netting Member’s Excess 

Capital Differential, in order to take into 

account the fact that each indirect 

participant would be responsible for 

satisfying its own respective VaR 

Charge. Not including these Segregated 

Indirect Participants Accounts when 

determining the Excess Capital 

Differential, and, therefore, the ECP 

Charge, is consistent with the purpose 

of the Excess Premium Charge. This 

charge is designed to address the risk 

that a Netting Member with low capital 

relative to its value-at-risk to FICC is not 

able to perform its obligations. Because 

the Netting Member’s capital is not used 

to meet the indirect participant’s 

obligation to FICC, excluding the 

indirect participant VaR Charges from 

the determination of the ECP should 

result in FICC collecting margin 

commensurate with the risks and 

particular attributes of each relevant 

portfolio. 

Taken together, the proposed changes 

enhance the ability of the ECP to 

produce margin levels commensurate 


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139 17 CFR 240.17ad–22(e)(6)(iii). 

140See FICC Letter at 28. 

141 Id. 

142 17 CFR 240.17ad–22(e)(6)(iii). 

143 17 CFR 240.17ad–22(e)(4)(18)(ii). 

144 Id. 

145 17 CFR 240.17ad–22(e)(18)(iii). 

146 17 CFR 240.17ad–22(e)(18)(iii). 

147 17 CFR 240.17ad–22(e)(18)(iv)(C). 

148Specifically, one commenter stated that for 

indirect participants, having a ‘‘right’’ to direct their 

Netting Member to segregate their margin is highly 

desirable because it would allow an indirect 

participant to have certainty that margin that it 

posts receives the protection afforded by 

segregation. SIFMA AMG Letter at 6. Another such 

commenter stated that, despite what a customer 

may desire with respect to margin and segregation, 

there could be incentives for direct participants to 

finance the margin for their customers’ transactions 

(and thereby earn extra fees for doing so) instead 

of the customer financing or posting that margin, 

with the risks FICC faces related to its 

Netting Members’ operating capital 

levels. Therefore, this aspect of the 

Advance Notice is consistent with Rule 

17ad–22(e)(6)(i) under the Exchange 

Act. 

C. Consistency With Rule 17ad– 

22(e)(6)(iii) 

Rule 17ad–22(e)(6)(iii) 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, calculates margin 

sufficient to cover its potential future 

exposure to members in the interval 

between the last margin collection and 

the close out of positions following a 

member default.139

As summarized in Section I.B.3 

above, FICC employs daily backtesting 

to determine the adequacy of each 

Netting Member’s Required Fund 

Deposit, paying particular attention to 

members that have backtesting 

deficiencies below the 99% confidence 

target. Such backtesting deficiencies 

highlight exposure that could subject 

FICC to potential losses if a Netting 

Member defaults. As discussed in 

Section II.C.2, FICC’s impact study 

during the period from July 1, 2021 to 

June 30, 2022 demonstrated that a $1 

million floor would have protected FICC 

and its participants by reducing the 

possibility of incurring a loss in the 

event of a Netting Member failure by 

mitigating 16% of backtesting 

deficiencies.140 Moreover, after the $1 

million floor was implemented for 

Netting Members, FICC states that it 

eliminated 22% of backtesting 

deficiencies during a 12-month period 

of moderate market volatility from July 

1, 2023 to June 30, 2024.141

Therefore, adding the proposed $1 

million minimum requirement for 

Segregated Customer Margin, and the 

ability to adjust the minimum million 

margin requirement to achieve FICC’s 

backtesting coverage target, should 

better ensure that FICC maintains 

sufficient margin to cover its potential 

future exposure to its indirect 

participants in the interval between the 

last margin collection and the close out 

of positions following an indirect 

participant default. This should, 

thereby, reduce the likelihood FICC or 

non-defaulting Netting Members or 

indirect participants would incur losses 

as a result. Accordingly, FICC’s 

proposed $1 million minimum 

requirement for Segregated Customer 

Margin would be consistent with Rule 

17ad–22(e)(6)(iii).142

D. Consistency With Rule 17ad– 

22(e)(18)(ii) 

Rule 17ad–22(e)(18)(ii) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

establish objective, risk-based, and 

publicly disclosed criteria for 

participation, which require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in the clearing agency.143

The proposed changes to consolidate 

FICC’s margin methodology in a single 

location, identify the particular 

Required Fund Deposit Portions and 

Segregated Customer Margin 

Requirements, and clarify the 

calculation of the Excess Capital 

Premium and circumstances in which 

FICC would waive the application of 

such premium should enhance FICC’s 

public disclosure of the risk-based 

margin obligations that Netting 

Members and their indirect participants 

would have as a result of their 

participation in FICC’s clearance and 

settlement services. This improved 

public disclosure should allow Netting 

Members and their indirect participants 

to better understand how their activity 

would impact margin calculations, 

which are designed to ensure that 

participants have sufficient financial 

resources and robust operational 

capacity to meet obligations to FICC. 

Accordingly, the proposed changes 

would be consistent with Rule 17ad– 

22(e)(18)(ii).144

E. Consistency With Rule 17ad– 

22(e)(18)(iii) 

Rule 17ad–22(e)(18)(iii) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

establish objective, risk-based, and 

publicly disclosed criteria for 

participation, which monitor 

compliance with its participant 

requirements on an ongoing basis.145

The proposed changes would require 

Netting Members to designate the 

specific account type when submitting 

transactions and to identify any 

Sponsored Member or Executing Firm 

Customer for whom the transaction is 

submitted. These changes should 

enhance FICC’s ability to monitor which 

transactions are being entered into by 

which entities and assess the specific 

risks associated with those entities. This 

enhanced monitoring of participant 

activity should allow FICC to better 

monitor participants’ compliance with 

FICC’s Rules. Accordingly, the proposed 

changes would be consistent with Rule 

17ad–22(e)(18)(iii) because they should 

enhance FICC’s ability to monitor 

compliance with its participant 

requirements on an ongoing basis.146

F. Consistency With Rule 17ad– 

22(e)(18)(iv)(C) 

Rule 17ad–22(e)(18)(iv)(C) requires 

that FICC establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

ensure that it has appropriate means to 

facilitate access to clearance and 

settlement services of all eligible 

secondary market transactions in U.S. 

Treasury securities, including those of 

indirect participants.147

As discussed above in Section II.B.3, 

by improving the transparency of FICC’s 

account offerings and margin 

calculation methodology, the proposed 

changes should enhance market 

participants’ understanding of how 

margin is calculated and their options 

for posting margin, thereby facilitating 

access to FICC’s clearance and 

settlement services. In addition, the 

proposed changes should offer greater 

optionality to Netting Members and 

indirect participants, which should 

allow Netting Members and indirect 

participants to adopt a margining 

arrangement that aligns with their 

business objectives and regulatory, 

operational, and practical constraints. 

By enhancing transparency of FICC’s 

margin framework and account options 

and offering greater optionality to 

participants concerning the type of 

account they transact in and how their 

margin is posted, the proposal should 

facilitate access to FICC’s clearance and 

settlement systems. 

Several commenters proposed that 

FICC should require Netting Members to 

offer account segregation to 

customers.148 One such commenter 


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and for the direct participant to accept the 

customer’s margin without offering the option of 

segregation (and thereby avoid the additional 

operational and other costs associated with 

segregation), which would still be permissible if 

FICC were not to require its Netting Members to 

offer account segregation. MFA Letter I at 4. 

149SIFMA AMG Letter at 6. 

150FICC Letter at 33. 

151See ICI Letter at 13. 

152See supra note 3 at 2751. 

153FIA–PTG Letter at 7–9. 

154FICC Letter at 39. 

155FIA–PTG Letter at 7–9. 

156FICC Letter at 40. 

157See FIA PTG Letter I at 7–9. 

158See Treasury Clearing Adopting Release, supra 

note 3, at 2767 (removing, in response to 

commenters, the requirement that the covered 

clearing agency have procedures to return customer 

position margin to the broker-dealer that is no 

longer needed to meet a current margin requirement 

resulting from positions in U.S. Treasury securities 

of the broker-dealer’s customers no later than the 

close of the next business day after the day the 

customer position margin is no longer needed for 

this purpose because such a requirement may add 

significant operational burdens to covered clearing 

agencies for U.S. Treasury securities and because 

the debit is limited to margin required and on 

deposit at the covered clearing agency and therefore 

does not include the excess margin). 

159See MFA Letter I at 6. 

160See FICC Letter at 32. Specifically, FICC stated 

that the Treasury Clearing Rules, in particular the 

amendments to Exchange Act Rule 15c3–3a, 

provide that a broker-dealer may record a debit in 

the customer and PAB reserve formulas for margin 

it collects from customers and on-posts to FICC, but 

only if the broker-dealer collects from the customer 

the full amount of margin required for the 

customer’s positions. Accordingly, a broker-dealer 

is effectively precluded from collecting from 

customers only a portion of the margin that their 

positions require and on-posting that amount to 

FICC. Were FICC to allow segregation of customer 

margin even if the customer did not fully fund its 

margin obligations, such segregation would 

effectively allow non-broker-dealer Netting 

Members to offer what broker-dealers cannot, i.e., 

permitting their customers to post a portion of the 

margin required by FICC and on-post that margin 

to FICC. This ability would place such Netting 

Members at a competitive advantage relative to 

broker-dealer Netting Members. 

161 15 U.S.C. 78s(b)(1). 

162See supra note 3 at 2751. 

163See SIFMA AMG Letter at 12–13. 

164See id. (citing Article 15(2) of the European 

Union’s Money Market Fund Regulation, which it 

describes as prohibiting European Money Market 

Mutual Funds from pledging any assets received 

under reverse repos and certain restrictions on 

Undertakings for Collective Investments in 

Transferable Securities and similar investment 

vehicles related to their ability to post margin that 

will be held on deposit at FICC). 

165 17 CFR 240.17ad–22(e)(18)(iv)(C). 

166 17 CFR 240.17ad–22(e)(19). 

specified that this should include bank 

Netting Members, who would not face 

the same restrictions on the use of 

customer margin as broker-dealer 

customers subject to Rule 15c3–3 and 

therefore may not be as incentivized to 

provide segregated account services.149

FICC did not propose a requirement 

that its Netting Members offer 

segregated accounts to their customers. 

Therefore, the Commission is not 

addressing any changes related to such 

a requirement in this Advance Notice. 

Nothing in the Treasury Clearing Rules 

or Rule 15c3–3 requires a covered 

clearing agency, like FICC, to require its 

Netting Members to provide certain 

services. Moreover, certain Netting 

Members may have regulatory or other 

reasons not to offer segregation, and, if 

required to offer such services, may 

choose to cease providing customer 

clearing services, which could, in turn, 

increase concentration in the market 

and reduce liquidity.150

Additionally, a commenter urged 

FICC to allow indirect participants to 

post margin directly to FICC without 

intermediation from a Netting 

Member.151 The Treasury Clearing Rules 

do not require FICC to provide this 

function, and FICC did not propose 

such a method for direct posting of 

margin.152 Accordingly, the 

Commission is not addressing any 

changes related to such a requirement in 

this Advance Notice. 

One commenter sought clarification 

whether Netting Members other than 

broker-dealers can elect segregation for 

their customers.153 Based on the 

Advance Notice, the Commission 

understands, and FICC confirmed,154

that any Sponsoring Member or Agent 

Clearing Member, regardless of whether 

registered as broker-dealers, would be 

able to designate an account as a 

Segregated Indirect Participants 

Account. 

The same commenter also sought 

clarification whether a customer may 

segregate margin obtained through a 

margin financing arrangement.155 Based 

on the Advance Notice, the Commission 

understands, and FICC confirmed,156

that such segregation would be 

permissible under FICC’s rules. 

This commenter also asked why 

excess margin would only be returned 

on request and states that an indirect 

participant should not have to request a 

return of its excess margin.157 The 

Treasury Clearing Rules do not require 

FICC to provide this function, and FICC 

did not propose such a function. 

Accordingly, the Commission is not 

addressing any changes related to such 

a requirement in this Advance Notice. 

Moreover, when it adopted the 

amendments to Rule 15c3–3, the 

Commission declined to adopt a 

requirement to ‘‘push’’ excess margin to 

direct participants.158

Another commenter suggested that 

FICC allow customer margin to be 

segregated, even when customers do not 

post the full amount of the margin 

needed to cover their positions.159 FICC 

states that allowing customer margin to 

be segregated when customers do not 

post the full amount of margin would 

lead to disparities that would put 

broker-dealer Netting Members at 

competitive disadvantage to other 

Netting Members.160 The Treasury 

Clearing Rules do not require FICC to 

provide this function, and FICC did not 

propose such a function. Any changes to 

FICC’s rules to impose such a 

requirement would have to be filed with 

the Commission pursuant to Section 

19(b) 161 of the Exchange Act, as well as, 

potentially, in an advance notice filed 

pursuant to Section 806(e) of the 

Clearing Supervision Act.162 Therefore, 

the Commission is not addressing any 

changes related to such a requirement in 

this Advance Notice. 

Finally, one commenter urged FICC to 

address the cross-border implications of 

the proposal and provide a framework 

for compliance by non-U.S. Netting 

Members and indirect participants.163

Specifically, this commenter was 

concerned that the U.S. Treasury 

clearing mandate will adversely impact 

foreign customers that are limited in 

their ability, or prohibited entirely, to 

post margin in connection with 

transactions involving U.S. Treasury 

securities.164 However, nothing in the 

Advance Notice would require a 

particular market participant to post 

margin in connection with transactions 

involving U.S. Treasury securities. 

Indirect participants remain able to 

access FICC’s central clearing services 

through access models that do not 

require the direct posting of margin to 

FICC (e.g., via the non-segregated 

versions of FICC’s Sponsored and Agent 

Clearing Services), which should allow 

flexibility for market participants to 

determine the most effective way to 

access FICC indirectly regardless of 

potential regulatory or other constraints 

on the ability to post margin directly. 

Accordingly, the proposed changes 

would be consistent with Rule 17ad– 

22(e)(18)(iv)(C).165

G. Consistency With Rule 17ad– 

22(e)(19) 

Rule 17ad–22(e)(19) requires that 

FICC establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

identify, monitor, and manage the 

material risks to the covered clearing 

agency arising from arrangements in 

which firms that are indirect 

participants in FICC rely on the services 

provided by direct participants to access 

FICC’s clearance and settlement 

facilities.166 The proposed changes 


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167 17 CFR 240.17ad–22(e)(19). 

168 17 CFR 240.17ad–22(e)(23)(ii). 

169 17 CFR 240.17ad–22(e)(23)(ii). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

5See infra note 6. 

6See 17 CFR 240.10c–1a (‘‘SEA Rule 10c–1a’’); 

Securities Exchange Act Release No. 98737 (October 

13, 2023), 88 FR 75644 (November 3, 2023) 

(Reporting of Securities Loans) (‘‘Adopting 

Release’’). 

7SEA Rule 10c–1a(j)(1) defines a ‘‘covered 

person’’ as (i) any person that agrees to a covered 

securities loan on behalf of a lender 

(‘‘intermediary’’) other than a clearing agency when 

providing only the functions of a central 

counterparty pursuant to Rule 17Ad–22(a)(2) of the 

Exchange Act or a central securities depository 

pursuant to Rule 17Ad–22(a)(3) of the Exchange 

Act; or (ii) any person that agrees to a covered 

securities loan as a lender when an intermediary is 

not used unless paragraph (j)(1)(iii) of this section 

applies; or (iii) a broker or dealer when borrowing 

fully paid or excess margin securities pursuant to 

Rule 15c3–3(b)(3) of the Exchange Act. 

8SEA Rule 10c–1a(j)(2) defines a ‘‘covered 

securities loan’’ as a transaction in which any 

described in Section I.B.1 would require 

that each margin portfolio contains only 

transactions from the same account 

type, Netting Members use separate 

Deposit IDs for different transaction 

types, each Segregated Indirect 

Participant’s margin requirement be 

calculated separately on a gross basis as 

though each Segregated Indirect 

Participant were a separate Netting 

Member, and Segregated Customer 

Margin for each indirect participant be 

deposited into a separate interestearning Segregated Customer Margin 

Custody Account. These changes should 

enhance FICC’s ability to isolate the risk 

profiles of individual indirect 

participants from Netting Members, 

which should help FICC better 

understand and monitor each individual 

participant’s risk exposures. In addition, 

the calculation and collection of 

Segregated Customer Margin on a gross 

basis, as described in Section I.B.1 and 

1.B.2, and the establishment of a $1 

million cash floor for Segregated 

Customer Margin, as described in 

Section I.B.2.a, should help ensure that 

FICC will have sufficient margin to 

manage the risk to FICC during an 

indirect participant default. 

Accordingly, the proposed changes 

would be consistent with Rule 17ad– 

22(e)(19) because they should enhance 

FICC’s ability to identify, monitor, and 

manage the material risks to FICC 

associated with indirect participants 

relying on Netting Members to access 

FICC’s clearance and settlement 

services.167

H. 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 providing sufficient 

information to enable participants to 

identify and evaluate the risks, fees, and 

other material costs they incur by 

participating in FICC.168 The proposed 

changes described in Section I.B.3 to 

consolidate and clarify FICC’s margin 

calculation methodology in the 

proposed Margin Component Schedule, 

adopt a method for allocating net 

unsettled positions to individual 

indirect participants for purposes of 

calculating margin requirements and to 

clarify the calculation of the ECP should 

make it easier for both Netting Members 

and indirect participants to identify and 

price the potential margining costs 

associated with how each chooses to 

submit transactions to FICC for 

clearance and settlement. 

Accordingly, the proposed changes 

would be consistent with Rule 17ad– 

22(e)(23)(ii) because they should 

enhance the ability of Netting Members 

and indirect participants to identify and 

evaluate the costs to access FICC’s 

clearance and settlement services.169

IV. 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–2024–802), as modified by 

Partial Amendment No. 1, 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–2024–007, whichever 

is later. 

By the Commission. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–27766 Filed 11–26–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101697; File No. SR– 

FINRA–2024–020] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Adopt Fees in FINRA 

Rule 7720 (Securities Lending and 

Transparency Engine (SLATETM)) 

November 21, 2024. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on November 

20, 2024, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by FINRA. FINRA 

has designated the proposed rule change 

as ‘‘establishing or changing a due, fee 

or other charge’’ under Section 

19(b)(3)(A)(ii) of the Act 3 and Rule 19b– 

4(f)(2) thereunder,4 which renders the 

proposal effective upon receipt of this 

filing by the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to adopt new 

FINRA Rule 7720 (Securities Lending 

and Transparency Engine (SLATETM)) to 

establish securities loan reporting fees 

and securities loan data products with 

associated fees in connection with 

FINRA’s separately proposed Rule 6500 

Series (Securities Lending and 

Transparency Engine (SLATE)) 

establishing securities loan reporting 

and data dissemination requirements.5

The text of the proposed rule change 

is available on FINRA’s website at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

(i) Background 

On October 13, 2023, the Commission 

adopted new SEA Rule 10c–1a 6 to 

require any ‘‘covered person’’ 7 who 

agrees to a ‘‘covered securities loan’’ 8 to 


ddrumheller on DSK120RN23PROD with NOTICES1