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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104595-104597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30520]

[[Page 104595]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101947; File No. SR-FICC-2024-012]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Clearing Fund Maintenance Fee of MBSD and GSD

December 17, 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 December 9, 2024, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the FICC 
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD 
Rules'') and Government Securities Division (``GSD'') Rulebook (``GSD 
Rules'' and together with the MBSD Rules, the ``Rules'') in order to 
modify the respective Clearing Fund Maintenance Fee (``Maintenance 
Fee'') of GSD and MBSD, effective January 1, 2025, as described in 
greater detail below.\5\
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    \5\ Capitalized terms not defined herein are defined in the GSD 
Rules and the MBSD Rules, as applicable, available at www.dtcc.com/legal/rules-and-procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    FICC is proposing to amend the MBSD Rules and the GSD Rules to 
modify the respective Maintenance Fee of GSD and MBSD, effective 
January 1, 2025, as described in greater detail below.
(i) Background
    FICC implemented the Maintenance Fee in 2016 in order to (i) 
diversify FICC's revenue sources, mitigating its dependence on revenues 
driven by trading volumes, and (ii) add a stable revenue source that 
would contribute to FICC's operating margin by offsetting increasing 
costs and expenses.\6\ The Maintenance Fees for MBSD and GSD are 
charged to MBSD Clearing Members and GSD Netting Members (collectively, 
``Members'') in proportion to the Member's cash deposit in their 
respective MBSD or GSD Clearing Fund (collectively, ``Clearing Fund''), 
as described below.
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    \6\ Securities Exchange Act Release No. 78529 (Aug. 10, 2016), 
81 FR 54626 (Aug. 16, 2016) (SR-FICC-2016-004).
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    The Maintenance Fee is calculated monthly, in arrears, as the 
product of (A) 0.25% and (B) the average of the Member's cash deposit 
balance in the Clearing Fund as of the end of each day, for the month, 
multiplied by the number of days in that month and divided by 360. FICC 
operates a cost plus low margin pricing model. Specifically, FICC's 
fees are cost-based plus a markup or ``low margin.''
(ii) Proposed Changes
Proposed Modification to the Maintenance Fee
    As part of FICC's annual pricing review process and budgeting for 
2025, FICC identified opportunities to better align fees and costs for 
FICC and potentially diversify its liquidity resources. In furtherance 
of these objectives, FICC is proposing to change the current 
methodology of the Clearing Fund Maintenance Fee for both MBSD and GSD.
    As currently calculated, the Maintenance Fee effectively 
disincentivizes Member's from posting excess cash as part of a Members 
Required Fund Deposit by imposing a 0.25% fee on a Member's cash 
deposit balance in the Clearing Fund. FICC is proposing to change the 
methodology of the Maintenance Fee to apply the fee to the total 
Required Fund Deposit instead of the cash deposit balance.\7\ The 
proposed change would also reduce the Maintenance Fee percentage from 
0.25% to 0.085%. This change will ideally remove the disincentive to 
Members posting excess cash in the Clearing Fund, resulting in an 
increase in cash deposits at FICC.
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    \7\ The Maintenance Fee would not apply to amounts deposited as 
Segregated Customer Margin, which, under changes to the GSD Rules 
recently approved by the Commission, are separate from a Member's 
Required Fund Deposit. See Securities Exchange Act Release No. 
101695 (Nov. 21, 2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-
007).
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    In addition, FICC continually evaluates the composition and 
sufficiency of its liquidity resources in line with its liquidity risk 
management strategy and objective. An increase in cash deposits to the 
clearing fund would result in additional liquidity resources for FICC, 
thereby improving FICC's ability to manage its liquidity risks. Members 
would be required to continue depositing cash as part of its Required 
Fund Deposit, which is currently charged a 0.25% fee, however, pursuant 
to the proposed changes, FICC would now collect the Maintenance Fee, in 
a manner that does not disincentivize excess cash deposits and would 
continue to achieve the Maintenance Fee's purpose of diversifying 
FICC's liquidity sources and maintaining a stable revenue source that 
would contribute to FICC's operating margins.
    To effectuate the proposed fee change described above, for MBSD, 
the terms ``0.25%'' and ``cash deposit balance'' would be changed to 
``0.085%'' and ``Required Fund Deposit,'' respectively, in (i) the 
Clearing Fund Maintenance Fee in Section I (Fees) of the Schedule of 
Charges Broker Account Group in the MBSD Rules, and (ii) the Clearing 
Fund Maintenance Fee of Section I (Fees) of the Schedule of Charges 
Dealer Account Group in the MBSD Rules. For GSD, the terms ``0.25%'' 
and ``cash deposit balance'' would be changed to ``0.085%'' and 
``Required Fund Deposit,'' respectively, in Section XIII (Clearing Fund 
Maintenance Fee) of the Fee Structure in the GSD Rules.
Expected Member Impact
    The proposed change is revenue neutral to FICC but not for FICC 
Members. Impact will vary across Members based on their risk profile 
and Required Fund Deposits. FICC projects that approximately 13% of 
Members will see a fee increase with only a small percentage of those 
Members seeing an increase over $1 million, approximately 17% of 
Members seeing a fee reduction and 70% of Members remaining neutral.

[[Page 104596]]

    The proposed changes will take effect on January 1, 2025.
Member Outreach
    FICC has conducted ongoing outreach to Members to provide them with 
notice of the proposed changes and the anticipated impact for the 
Member. As of the date of this filing, no written comments relating to 
the proposed changes have been received in response to this outreach. 
The Commission will be notified of any written comments received.
Implementation Timeframe
    FICC would implement this proposal on January 1, 2025. As proposed, 
a legend would be added to the Rules stating there are changes that 
became effective upon filing with the Commission but have not yet been 
implemented. The proposed legend also would include the date on which 
such changes would be implemented and the file number of this proposal, 
and state that, once this proposal is implemented, the legend would 
automatically be removed.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, FICC believes the proposed 
changes to modify the respective Maintenance Fee of GSD and MBSD is 
consistent with Section 17A(b)(3)(D) of the Act \8\ and Rule 17ad-
22(e)(23)(ii) \9\ thereunder, for the reasons described below.
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    \8\ 15 U.S.C. 78q-1(b)(3)(D).
    \9\ 17 CFR.17ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act requires that the rules of a 
clearing agency, such as FICC, provide for the equitable allocation of 
reasonable dues, fees, and other charges among its participants.\10\ 
FICC believes that the proposed changes to the Maintenance Fee are 
consistent with this provision of the Act.
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    \10\ 15 U.S.C. 78q-1(b)(3)(D).
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    FICC believes the fee would continue to be equitably allocated. 
More specifically, as mentioned above, the Maintenance Fee would be 
charged to all Members in proportion to the Member's total Required 
Fund Deposit. As such, and as is currently the case, Members that 
present greater risk to FICC would generally be subject to a larger 
Maintenance Fee because such Member would typically be required to 
maintain a larger Clearing Fund deposit pursuant to the respective MBSD 
Rules or GSD Rules.\11\ Conversely, Members that present less risk to 
FICC would generally be subject to a smaller Maintenance Fee because 
such Members would typically be required to maintain a smaller Clearing 
Fund deposit pursuant to the respective MBSD Rules or GSD Rules.\12\ 
For this reason, FICC believes the Maintenance Fee would continue to be 
equitably allocated among Members.
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    \11\ See Rule 4, GSD Rules and Rule 4, MBSD Rules, supra note 5.
    \12\ Id.
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    FICC also believes the fee is reasonable because, as discussed 
above, the proposed fee change would remove an unnecessary disincentive 
for Members to post more cash as part of their Clearing Fund by 
modifying the Maintenance Fee to base the fee on the total Required 
Fund Deposit rather than basing it on the cash component only. By 
removing this disincentive, FICC believes Members may post more cash as 
part of their Required Total Fund Deposit, providing FICC with access 
to additional liquid resources. For this reason, FICC believes the 
Maintenance Fee would continue to be reasonable. Based on the forgoing, 
FICC believes the proposed rule change is consistent with Section 
17A(b)(3)(D) of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(D).
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    Rule 17ad-22(e)(23)(ii) under the Act requires FICC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide sufficient information to enable 
participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed fees would be clearly and transparently published 
in Section I (Fees) of the Schedule of Charges Broker Account Group in 
the MBSD Rules, Section I (Fees) of the Schedule of Charges Dealer 
Account Group in the MBSD Rules, and Section XIII (Clearing Fund 
Maintenance Fee) of the Fee Structure in the GSD Rules, which are 
available on a public website,\14\ thereby enabling Members to identify 
the fees and costs associated with participating in FICC. As such, FICC 
believes the proposed rule change is consistent with Rule 17ad-
22(e)(23)(ii) under the Act.\15\
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    \14\ See supra note 5.
    \15\ 17 CFR 240.17ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that although Members may experience some impact from 
the proposed rule change to modify the Maintenance Fee calculation, 
FICC does not believe that the proposed rule change would impose a 
burden on competition among its Members that is not necessary or 
appropriate in furtherance of the purposes of the Act.\16\ As described 
above, the Maintenance Fee is charged ratably based on the risk that 
each Member brings to FICC, as reflected in Members' total Required 
Fund Deposit. Thus, the fee is designed to be reflective of each 
Member's individual activity at FICC.
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    \16\ 15 U.S.C. 78q-1(b)(3)(D).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at [email protected] or 202-551-5777.
    FICC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \17\ of the Act and paragraph (f) \18\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors,

[[Page 104597]]

or otherwise in furtherance of the purposes of the Act.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2024-012 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2024-012. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (www.sec.gov/rules/sro.shtml). Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(www.dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-FICC-2024-012 and should be submitted on or 
before January 13, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30520 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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