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[Federal Register Volume 90, Number 19 (Thursday, January 30, 2025)]
[Notices]
[Pages 8555-8557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01931]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102280; File Nos. SR-DTC-2024-011; SR-FICC-2024-011; 
SR-NSCC-2024-010]

Self-Regulatory Organizations; The Depository Trust Company; 
Fixed Income Clearing Corporation; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Amend the Clearing 
Agency Investment Policy

January 24, 2025.

I. Introduction

    On December 3, 2024, The Depository Trust Company (``DTC''), Fixed 
Income Clearing Corporation (``FICC''), and National Securities 
Clearing Corporation (``NSCC,'' each a subsidiary of The Depository 
Trust & Clearing Corporation (``DTCC'') and each a ``Clearing Agency,'' 
and collectively, the ``Clearing Agencies''), filed with the Securities 
and Exchange Commission (``Commission'') proposed rule changes SR-DTC-
2024-011, SR-FICC-2024-011, and SR-NSCC-2024-010, respectively, 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder (``Proposed Rule Changes'').\2\ 
The Proposed Rule Changes would amend the Clearing Agency Investment 
Policy (``Investment Policy'', or ``Policy'') of the Clearing Agencies 
to conform the Policy to the changes made to the FICC Government 
Securities Division Rulebook (``GSD Rules'') by SR-FICC-2024-007.\3\ 
The Proposed Rule Changes were published for comment in the Federal 
Register on December 17, 2024.\4\ The Commission has received no 
comments on the Proposed Rule Changes. For the reasons discussed below, 
the Commission is approving the Proposed Rule Changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 101695 (Nov. 21, 
2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-007) (``Account 
Segregation Filing''). The changes proposed in the Account 
Segregation Filing are expected to be implemented by no later than 
March 31, 2025. Terms not defined herein are defined in the GSD 
Rules, available at www.dtcc.com/~/media/Files/Downloads/legal/
rules/ficc_gov_rules.pdf.
    \4\ See Securities Exchange Act Release No. 101883 (Dec. 11, 
2024), 89 FR 102195 (Dec. 17, 2024) (File No. SR-DTC-2024-011) 
(``DTC Notice of Filing''); Securities Exchange Act Release No. 
101882 (Dec. 11, 2024), 89 FR 102234 (Dec. 17, 2024) (File No. SR-
FICC2024-011) (``FICC Notice of Filing''); Securities Exchange Act 
Release No. 101885 (Dec. 11, 2024), 89 FR 102211 (Dec. 17, 2024) 
(File No. SR-NSCC-2024-010) (``NSCC Notice of Filing'').
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II. Background

    Each Clearing Agency established the Clearing Agency Investment 
Policy,\5\ which governs the management, custody, and investment of 
cash deposited to the DTC Participants Fund and the respective NSCC and 
FICC Clearing Funds,\6\ the proprietary liquid net assets (cash and 
cash equivalents) of the Clearing Agencies, and other funds held by the 
Clearing Agencies pursuant to their respective rules. The Investment 
Policy states that it establishes a conservative investment philosophy 
that places the highest priority on maximizing the liquidity and 
avoiding risk to the funds in the custody of the Clearing Agencies.\7\
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    \5\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007; SR-FICC-
2016-005; SR-NSCC-2016-003) (``2016 Framework Order'').
    \6\ The DTC Participants Fund and the respective Clearing Funds 
of NSCC and FICC are described further in DTC Rules, NSCC Rules, 
MBSD Rules, GSD Rules, respectively. See DTC Rules, Rule 4 
(Participants Fund and Participants Investment); NSCC Rules, Rule 4 
(Clearing Fund); GSD Rules Rule 4 (Clearing Fund and Loss 
Allocation); MBSD Rules, Rule 4 (Clearing Fund and Loss Allocation).
    \7\ See 2016 Framework Order, 81 FR at 91233.
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    The Investment Policy includes, generally, a glossary of key terms, 
the roles and responsibilities of DTCC staff in administering the 
Investment Policy, guiding principles for investments, sources of 
investable funds, allowable investments of those funds, limitations on 
such investments, authority required for those investments, and 
authority required to exceed established investment limits.\8\ In 
particular, the Investment Policy provides that allowable investments 
include bank deposits, reverse repurchase agreements, direct 
obligations of the U.S. government, money market mutual funds, high 
grade corporate debt, hedge transactions, and further specifies which 
particular allowable investment is permitted for different portions of 
the Clearing Agencies' resources.\9\
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    \8\ See 2016 Framework Order, 81 FR at 91232-33.
    \9\ See Securities Exchange Act Release Nos. 91291 (March 10, 
2021), 86 FR 14500, 14501 (March 16, 2021) (SR-DTC-2021-002); 
Securities Exchange Act Release Nos. 91292 (March 10, 2021), 86 FR 
14503, 14504 (March 16, 2021) (SR-FICC-2021-001); and Securities 
Exchange Act Release Nos. 91293 (March 10, 2021), 86 FR 14506, 14507 
(March 16, 2021) (SR-NSCC-2021-003).
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    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.\10\ 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.\11\ The Commission also amended its broker-
dealer customer protection rule (``Rule 15c3-3'') \12\ and the customer 
and proprietary accounts of broker-dealer (``PAB'' reserve formulas 
thereunder (``Rule 15c3-3a'') \13\ to permit margin required and on 
deposit with Treasury CCAs to be included under certain conditions as a 
debit in the reserve formulas.\14\
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    \10\ See Securities Exchange Act Release No. 99149 (Dec. 13, 
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22) (``Adopting Release,'' 
and the rules adopted therein as ``Treasury Clearing Rules''). See 
also 17 CFR 240.15c3-3a.
    \11\ 17 CFR 240.17ad-22(e)(6)(i).
    \12\ 17 CFR 240.15c3-3.
    \13\ 17 CFR 240.15c3-3a.
    \14\ See supra note 10.
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    On November 21, 2024, the Commission issued an order approving a 
proposed rule change filed by FICC to modify the 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.\15\ Such changes are 
expected to be implemented by FICC in the GSD Rules by no later than 
March 31, 2025.
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    \15\ See supra note 3.
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    The proposed changes to the Investment Policy would conform the 
Policy to the changes made to the GSD Rules pursuant to the Account 
Segregation Filing.

III. Description of the Proposed Rule Change

    The Clearing Agencies propose to modify the Investment Policy to 
(i) conform the Policy to the changes made to GSD Rules to calculate, 
collect, and hold margin for proprietary transactions of GSD Netting 
Members separately from transactions submitted on behalf of individual 
participants; (ii) implement changes to comply with SEC rules 
(specifically Rule 15c3-3 and 15c3-3a)

[[Page 8556]]

regarding legal segregation of designated funds and restricting how 
they are held and invested; and (iii) update terms and make conforming 
changes.

A. Separating and Holding Indirect Participant Margin

    The Clearing Agencies propose to modify the Investment Policy to 
conform the Policy to the changes made to GSD Rules to calculate, 
collect, and hold margin for proprietary transactions of GSD Netting 
Members separately from transactions submitted on behalf of individual 
participants. First, the Clearing Agencies propose to add a definition 
in Section 2 (Glossary of Terms) of the Investment Policy for the term 
Indirect Participants Clearing Fund Deposits which shall mean ``the 
total amount deposited in the GSD Clearing Fund to support activity in 
Agency Clearing Member Omnibus Accounts and Sponsoring Member Omnibus 
Accounts, other than Segregated Indirect Participants Accounts, as such 
terms are defined in the FICC Government Securities Division (`GSD') 
Rulebook (`GSD Rules').'' \16\
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    \16\ See DTC Notice of Filing, supra note 4, at 102212; FICC 
Notice of Filing, supra note 4, at 102235; and NSCC Notice of 
Filing, supra note 4, at 102197.
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    Second, the Clearing Agencies propose to amend Section 3.2 (Guiding 
Principles) to specify that Indirect Participants Clearing Fund 
Deposits will be held by separately and independently on FICC's books 
and records from all other deposits to the GSD Clearing Fund.
    Third, the Clearing Agencies propose to amend Section 5 (Investable 
Funds) to specify that Indirect Participants Clearing Fund Deposits are 
included in the GSD Clearing Fund.

B. Legally Segregating and Limiting Investments of Segregated Customer 
Margin

    The Clearing Agencies propose to modify the Investment Policy to 
implement changes to comply with SEC rules (specifically Rule 15c3-3 
and 15c3-3a) regarding legal segregation of designated funds and 
restricting how they are held and invested. First, the Clearing 
Agencies propose to amend Section 2 (Glossary of Terms) to include a 
definition of the term Segregated Customer Margin which shall have the 
meaning given such term in the GSD Rules.
    Second, the Clearing Agencies propose to amend Section 3.2 
(Separation/Segregation of Funds) to include a statement that that 
Segregated Customer Margin will be segregated and held separately and 
independently from any other funds as described in the GSD Rules, 
specifically, Section 1a of GSD Rule 4. The Clearing Agencies state 
that the proposed changes to this section address how FICC would comply 
with the conditions set forth in Rule 15c3-3 and Rule 15c3-3a regarding 
segregating and holding Segregated Customer Margin.\17\
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    \17\ See DTC Notice of Filing, supra note 4, at 102213; FICC 
Notice of Filing, supra note 4, at 102236; NSCC Notice of Filing, 
supra note 4, at 102197.
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    Third, the Clearing Agencies propose to amend Section 5 (Investable 
Funds) to include Segregated Customer Margin as a source of investable 
funds as described in the GSD Rules, specifically, Section1a of GSD 
Rule 4. The Clearing Agencies also propose to add a description of the 
recipient of investment income for Segregated Customer Margin which 
shall be GSD Netting Members for the benefit of the respective Indirect 
Participants.\18\ Additionally, the Clearing Agencies would clarify in 
the description of Participants Fund and Clearing Funds that Segregated 
Customer Margin is not treated as general FICC Clearing Fund.
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    \18\ GSD Rules also state 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. See Securities Exchange Act Release No. 101454 (Oct. 
28, 2024), 89 FR 87441, 87443 (Nov. 1, 2024) (File No. SR-FICC-2024-
007).
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    Fourth, the Clearing Agencies propose to amend Section 6.1 
(Allowable Investments) by including Segregated Customer Margin as a 
separate category of Allowable Investments and specifying these funds 
may only be invested in bank deposits, including the Federal Reserve 
Bank of New York.
    Fifth, the Clearing Agencies propose to amend Section 6.2 
(Investment Limits) to clarify that Segregated Customer Margin shall 
only be held in an account of FICC at a bank within the meaning of the 
Act that is insured by the Federal Deposit Insurance Corporation 
(``FDIC''), or at the Federal Reserve Bank of New York, as described in 
GSD Rule 4.\19\ Additionally, the Clearing Agencies propose to include 
language that higher investments limits may apply to investments of 
Segregated Customer Margin.
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    \19\ In addition to FICC requirements to hold Segregated 
Customer Margin in accounts at a bank within the meaning of the Act 
that is insured by the FDIC, GSD Rules require those accounts to be 
held at a bank that is a qualified custodian under the Investment 
Company Act of 1940 Act. See id.
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C. Update Terms and Conforming Changes

    The Clearing Agencies propose to update terms in the Investment 
Policy and make conforming changes. The Clearing Agencies would replace 
references to the ``Management Committee'' with the term ``senior most 
management committee,'' which the Clearing Agencies state would more 
accurately describe the internal governing body without referring to 
its formal name.\20\ The Clearing Agencies state the change to replace 
the formal name of the internal governing committee will ensure this 
body is accurately described in the Investment Policy in the event of 
any future changes to its formal name.\21\ The Clearing Agencies would 
also include a new defined term for ``senior most management 
committee'' in Section 2 to make clear it references the highest-level 
committee of DTCC.
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    \20\ See DTC Notice of Filing, supra note 4, at 102213; FICC 
Notice of Filing, supra note 4, at 102236; NSCC Notice of Filing, 
supra note 4, at 102197.
    \21\ See id. For example, the Notices of Filing state that the 
Management Committee has recently changed its name to the Executive 
Committee.
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    Additionally, the Clearing Agencies would make several conforming 
changes to Section 4.3 (regarding authorization to establish new 
investment relationships), Section 6.2.3 (regarding authorization of 
investment transactions in U.S. Treasury securities), Section 6.2.5 
(regarding authorization of investment transactions in high-grade 
corporate debt) and Section 7.2 (regarding authorization to exceed 
investment limits).

IV. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \22\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. After carefully considering the Proposed Rule 
Changes, the Commission finds that the Proposed Rule Changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to the Clearing Agencies. In 
particular, the Commission finds that the Proposed Rule Changes are 
consistent with Section 17A(b)(3)(F) of the Act.\23\
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    \22\ 15 U.S.C. 78s(b)(2)(C).
    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency, such as the Clearing Agencies, be designed to, among 
other things, promote the prompt and accurate

[[Page 8557]]

clearance and settlement of securities transactions and assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible.\24\
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    \24\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, the Clearing Agencies propose to amend the 
Investment Policy to support changes made to GSD Rules pursuant to the 
Account Segregation Filing. The proposed changes to the Investment 
Policy in Section 3.2 to state that Segregated Customer Margin shall be 
segregated and held separately and independently from any other funds 
in compliance with applicable conditions set out in Rule 15c3-3 and 
Rule 15c3-3a should enhance the Clearing Agencies' ability to meet 
their settlement obligations in the event of a Netting Member or 
indirect participant default. By doing so, the Proposed Rule Changes 
should better ensure that, in the event of a default, the Clearing 
Agencies' operation of its critical clearance and settlement services 
would not be disrupted because of insufficient financial resources and, 
therefore, that the Clearing Agencies would be able to continue 
providing prompt and accurate clearance and settlement of securities 
transactions, consistent with Section 17A(b)(3)(F).\25\
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    \25\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, the investment guidelines and governance procedures 
set forth in the Investment Policy are designed to safeguard the 
securities and funds that are in the custody or control of the Clearing 
Agencies on behalf of thier members. Specifically, the Proposed Rule 
Changes amend Section 6.1 of the Investment Policy to specify 
Segregated Customer Margin as an Allowable Investment and those funds 
shall only be held in an account of FICC at a bank that is insured by 
the FDIC, or at the Federal Reserve Bank of New York consistent with 
GSD Rules. In addition, the Proposed Rule Changes would align the 
terminology used in the Investment Policy with the terminology used in 
the GSD Rules to clarify the investable funds that are subject to the 
Investment Policy. By eliminating inconsistent use of terminology, the 
proposed changes should help to improve the effectiveness of the 
Investment Policy. Therefore, the Proposed Rule Changes would implement 
changes to the Investment Policy that are consistent with changes made 
to the GSD Rules pursuant the Account Segregation Filing, and also 
should safeguard the securities and funds in custody or control of the 
Clearing Agencies on behalf of its members, consistent with Section 
17A(b)(3)(F).\26\
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    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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    For these reasons, the Proposed Rule Changes are designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions and assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible, consistent with Section 17A(b)(3)(F) of the Act.\27\
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    \27\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Changes are consistent with the requirements of the Act 
and in particular with the requirements of Section 17A of the Act \28\ 
and the rules and regulations promulgated thereunder.
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    \28\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\29\ that proposed rule changes SR-DTC-2024-011, SR-FICC-2024-011, and 
SR-NSCC-2024-010, be, and hereby are, approved.\30\
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    \29\ 15 U.S.C. 78s(b)(2).
    \30\ In approving the Proposed Rule Changes, the Commission 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01931 Filed 1-29-25; 8:45 am]
BILLING CODE 8011-01-P
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