35854 Federal Register / Vol. 86, No. 127 / Wednesday, July 7, 2021 / Notices 

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

16 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires a self-regulatory organization to 

give the Commission written notice of its intent to 

file the proposed rule change, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Exchange 

has satisfied this requirement. 

17 17 CFR 240.19b–4(f)(6). 

18 17 CFR 240.19b–4(f)(6)(iii). 

19For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 90568 

(December 4, 2020), 85 FR 79541 (December 10, 

2020) (SR–FICC–2020–017) (‘‘Notice’’). FICC also 

filed the proposal contained in the Proposed Rule 

Change as advance notice SR–FICC–2020–804 

(‘‘Advance Notice’’) with the Commission pursuant 

to Section 806(e)(1) of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act entitled the 

Payment, Clearing, and Settlement Supervision Act 

of 2010 (‘‘Clearing Supervision Act’’). 12 U.S.C. 

5465(e)(1); 17 CFR 240.19b–4(n)(1)(i). Notice of 

filing of the Advance Notice was published for 

comment in the Federal Register on January 6, 

2021. Securities Exchange Act Release No. 90834 

(December 31, 2020), 86 FR 584 (January 6, 2021) 

(File No. SR–FICC–2020–804) (‘‘Notice of Filing’’). 

Upon publication of the Notice of Filing, 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. On March 

12, 2021, the Commission issued a request for 

information regarding the Advance Notice. See 

Commission’s Request for Additional Information, 

available at https://www.sec.gov/comments/sr-ficc2020-804/srficc2020804-8490035-229981.pdf. On 

April 16, 2021, FICC submitted its response thereto. 

See Response to Commission’s Request for 

Additional Information, available at https://

www.sec.gov/comments/sr-ficc-2020-804/ 

srficc2020804-8685526-235624.pdf; Letter from 

James Nygard, Director and Assistant General 

Counsel, FICC (April 16, 2021), available at https:// 

www.sec.gov/comments/sr-ficc-2020-804/ 

srficc2020804-8679555-235605.pdf. The proposal 

contained in the Proposed Rule Change and the 

Advance Notice shall not take effect until all 

regulatory actions required with respect to the 

proposal are completed. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 15 and Rule 19b– 

4(f)(6) thereunder.16

A proposed rule change filed under 

Rule 19b–4(f)(6) 17 normally does not 

become operative prior to 30 days after 

the date of the filing. However, Rule 

19b–4(f)(6)(iii) 18 permits the 

Commission to designate a shorter time 

if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has proposed to 

implement this proposed rule change on 

July 16, 2021 and has asked the 

Commission to waive the 30-day 

operative delay for this filing. The 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest, as it will provide an 

additional option for investors to 

receive consolidated high and low price 

information, which the Exchange states 

is meaningful information for investors, 

on the proposed implementation date of 

July 16, 2021. Accordingly, the 

Commission hereby waives the 30-day 

operative delay and designates the 

proposed rule change as operative upon 

filing.19

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, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR–

CboeEDGA–2021–016 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–CboeEDGA–2021–016. 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 (http://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 the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File No. 

SR–CboeEDGA–2021–016, and should 

be submitted on or before July 28, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–14387 Filed 7–6–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92303; File No. SR–FICC– 

2020–017] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Approving a Proposed Rule Change To 

Modify the Calculation of the MBSD 

VaR Floor To Incorporate a Minimum 

Margin Amount 

June 30, 2021. 

On November 20, 2020, Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–FICC–2020–017 

(‘‘Proposed Rule Change’’) pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder.2 The Proposed Rule 

Change was published for comment in 

the Federal Register on December 10, 

2020.3 On December 30, 2020, pursuant 


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4 15 U.S.C. 78s(b)(2). 

5Securities Exchange Act Release No. 90794 

(December 23, 2020), 85 FR 86591 (December 30, 

2020) (SR–FICC–2020–017). 

6Securities Exchange Act Release No. 91092 

(February 9, 2021), 86 FR 9560 (February 16, 2021) 

(SR–FICC–2020–017). 

7 15 U.S.C. 78s(b)(2)(B)(ii)(II). 

8Securities Exchange Act Release No. 92117 

(June 7, 2021), 86 FR 31354 (June 11, 2021) (SR– 

FICC–2020–017). 

9Comments on the Proposed Rule Change are 

available at https://www.sec.gov/comments/sr-ficc2020-017/srficc2020017.htm. Comments on the 

Advance Notice are available at https://

www.sec.gov/comments/sr-ficc-2020-804/ 

srficc2020804.htm. Because the proposals 

contained in the Advance Notice and the Proposed 

Rule Change are the same, all comments received 

on the proposal were considered regardless of 

whether the comments were submitted with respect 

to the Advance Notice or the Proposed Rule 

Change. 

10See Letter from Timothy J. Cuddihy, Managing 

Director of Depository Trust & Clearing Corporation 

Financial Risk Management, (March 5, 2021) (‘‘FICC 

Letter’’). 

11The model-based calculation, often referred to 

as the sensitivity VaR model, relies on historical 

risk factor time series data and security-level risk 

sensitivity data. Specifically, for TBAs, the modelbased calculation incorporates the following risk 

factors: (1) Key rate, which measures the sensitivity 

of a price change to changes in interest rates; (2) 

convexity, which measures the degree of curvature 

in the price/yield relationship of key interest rates; 

(3) spread, which is the yield spread added to a 

benchmark yield curve to discount a TBA’s cash 

flows to match its market price; (4) volatility, which 

reflects the implied volatility observed from the 

swaption market to estimate fluctuations in interest 

rates; (5) mortgage basis, which captures the basis 

risk between the prevailing mortgage rate and a 

blended Treasury rate; and (6) time risk factor, 

which accounts for the time value change (or carry 

adjustment) over an assumed liquidation period. 

See Securities Exchange Act Release No. 79491 

(December 7, 2016), 81 FR 90001, 90003–04 

(December 13, 2016) (File No. SR–FICC–2016–007). 

12FICC uses the VaR Floor to mitigate the risk 

that the model-based calculation does not result in 

margin amounts that accurately reflect FICC’s 

applicable credit exposure, which may occur in 

certain member portfolios containing long and short 

positions in different asset classes that share a high 

degree of historical price correlation. 

13Backtesting is an ex-post comparison of actual 

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

expected outcomes derived from the use of margin 

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

conducts daily backtesting to determine the 

adequacy of its margin assessments. MBSD’s 

monthly backtesting coverage ratio with respect to 

margin amounts was 86.6 percent in March 2020 

and 94.2 percent in April 2020. See Notice, supra 

note 3 at 79543. 

14The vast majority of agency MBS trading occurs 

in a forward market, on a ‘‘to-be-announced’’ or 

‘‘TBA’’ basis. In a TBA trade, the seller agrees on 

a sale price, but does not specify which particular 

securities will be delivered to the buyer on 

settlement day. Instead, only a few basic 

characteristics of the securities are agreed upon, 

such as the MBS program, maturity, coupon rate, 

and the face value of the bonds to be delivered. 

15The MBSD Clearing Rules are available at 

https://www.dtcc.com/legal/rules-andprocedures.aspx. 

16As part of the Proposed Rule Change, FICC 

filed Exhibit 5B—Proposed Changes to the 

Methodology and Model Operations Document 

MBSD Quantitative Risk Model (‘‘QRM 

Methodology’’). Pursuant to 17 CFR 240.24b–2, 

FICC requested confidential treatment of Exhibit 

5B. 

17FICC would consider the MBSD portfolio as 

consisting of four programs: Federal National 

Mortgage Association (‘‘Fannie Mae’’) and Federal 

Home Loan Mortgage Corporation (‘‘Freddie Mac’’) 

conventional 30-year mortgage-backed securities 

Continued 

to Section 19(b)(2) of the Act,4 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.5 On February 

16, 2021, the Commission instituted 

proceedings to determine whether to 

approve or disapprove the Proposed 

Rule Change.6 On June 11, 2021, 

pursuant to Section 19(b)(2) of the Act,7

the Commission extended the period for 

the conclusion of proceedings to 

determine whether to approve or 

disapprove the Proposed Rule Change.8

The Commission received comment 

letters on the Proposed Rule Change.9 In 

addition, the Commission received a 

letter from FICC responding to the 

public comments.10 For the reasons 

discussed below, the Commission is 

approving the Proposed Rule Change. 

I. Description of the Proposed Rule 

Change 

A. Background 

FICC, through MBSD, serves as a 

central counterparty (‘‘CCP’’) and 

provider of clearance and settlement 

services for the mortgage-backed 

securities (‘‘MBS’’) markets. A key tool 

that FICC uses to manage its respective 

credit exposures to its members is the 

daily collection of margin from each 

member. The aggregated amount of all 

members’ margin constitutes the 

Clearing Fund, which FICC would 

access should a defaulted member’s 

own margin be insufficient to satisfy 

losses to FICC caused by the liquidation 

of that member’s portfolio. 

Each member’s margin consists of a 

number of applicable components, 

including a value-at-risk (‘‘VaR’’) charge 

(‘‘VaR Charge’’) designed to capture the 

potential market price risk associated 

with the securities in a member’s 

portfolio. The VaR Charge is typically 

the largest component of a member’s 

margin requirement. The VaR Charge is 

designed to provide an estimate of 

FICC’s projected liquidation losses with 

respect to a defaulted member’s 

portfolio at a 99 percent confidence 

level. 

To determine each member’s daily 

VaR Charge, FICC generally uses a 

model-based calculation designed to 

quantify the risks related to the 

volatility of market prices associated 

with the securities in a member’s 

portfolio.11 As an alternative to this 

calculation, FICC also uses a haircutbased calculation to determine the ‘‘VaR 

Floor,’’ which replaces the model-based 

calculation to become a member’s VaR 

Charge in the event that the VaR Floor 

is greater than the amount determined 

by the model-based calculation.12 Thus, 

the VaR Floor currently operates as a 

minimum VaR Charge. 

During the period of extreme market 

volatility in March and April 2020, 

FICC’s current model-based calculation 

and the VaR Floor haircut-based 

calculation generated VaR Charge 

amounts that were not sufficient to 

mitigate FICC’s credit exposure to its 

members’ portfolios at a 99 percent 

confidence level. Specifically, during 

the period of extreme market volatility, 

FICC observed that its margin 

collections yielded backtesting 

deficiencies beyond FICC’s risk 

tolerance.13 FICC states that these 

deficiencies arose from a particular 

aspect of its margin methodology with 

respect to MBS (particularly, higher 

coupon TBAs 14), i.e., that current prices 

may reflect higher mortgage prepayment 

risk than FICC’s margin methodology 

currently takes into account during 

periods of extreme market volatility. In 

the Proposed Rule Change, FICC 

proposes to revise the margin 

methodology in its Rules 15 and its 

quantitative risk model 16 to better 

address the risks posed by member 

portfolios holding TBAs during such 

volatile market conditions. 

B. Minimum Margin Amount 

FICC proposes to introduce a new 

minimum margin amount into its 

margin methodology. Under the 

proposal, FICC would revise the existing 

definition of the VaR Floor, which acts 

as the minimum margin requirement, to 

mean the greater of (1) the current 

haircut-based calculation, as described 

above, and (2) the proposed minimum 

margin amount, which would use a 

dynamic haircut method based on 

observed TBA price moves. Application 

of the minimum margin amount would 

increase FICC’s margin collection 

during periods of extreme market 

volatility, particularly when TBA price 

changes would otherwise significantly 

exceed those projected by either the 

model-based calculation or the current 

VaR Floor calculation. 

Specifically, the minimum margin 

amount would serve as a minimum VaR 

Charge for net unsettled positions, 

calculated using the historical market 

price changes of certain benchmark TBA 

securities.17 FICC proposes to calculate 


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(‘‘CONV30’’), Government National Mortgage 

Association (‘‘Ginnie Mae’’) 30-year mortgagebacked securities (‘‘GNMA30’’), Fannie Mae and 

Freddie Mac conventional 15-year mortgage-backed 

securities (‘‘CONV15’’), and Ginnie Mae 15-year 

mortgage-backed securities (‘‘GNMA15’’). Each 

program would, in turn, have a default benchmark 

TBA security. 

FICC would map 10-year and 20-year TBAs to the 

corresponding 15-year TBA security benchmark. As 

of August 31, 2020, 20-year TBAs account for less 

than 0.5%, and 10-year TBAs account for less than 

0.1%, of the positions in MBSD clearing portfolios. 

FICC states that these TBAs were not selected as 

separate TBA security benchmarks due to the 

limited trading volumes in the market. See Notice, 

supra note 3 at 79543. 

18The specific calculation would involve the 

following: FICC would first calculate risk factors 

using historical market prices of the benchmark 

TBA securities. FICC would then calculate each 

member’s portfolio exposure on a net position 

across all products and for each securitization 

program (i.e., CONV30, GNMA30, CONV15 and 

GNMA15). Finally, FICC would multiply a ‘‘base 

risk factor’’ by the absolute value of the member’s 

net position across all products, plus the sum of 

each risk factor spread to the base risk factor 

multiplied by the absolute value of its 

corresponding position, to determine the minimum 

margin amount. 

To determine the base risk factor, FICC would 

calculate an ‘‘outright risk factor’’ for GNMA30 and 

CONV30, which constitute the majority of the TBA 

market and of positions in MBSD portfolios. For 

each member’s portfolio, FICC would assign the 

base risk factor based on whether GNMA30 or 

CONV30 constitutes the larger absolute net market 

value in the portfolio. If GNMA30 constitutes the 

larger absolute net market value in the portfolio, the 

base risk factor would be equal to the outright risk 

factor for GNMA30. If CONV30 constitutes the 

larger absolute net market value in the portfolio, the 

base risk factor would be equal to the outright risk 

factor for CONV30. 

For a detailed example of the minimum margin 

amount calculation, see Notice, supra note 3 at 

79544. 

19FICC would be permitted to adjust the lookback 

period within the range in accordance with FICC’s 

model risk management practices and governance 

procedures set forth in the Clearing Agency Model 

Risk Management Framework. See Securities 

Exchange Act Release No. 81485 (August 25, 2017), 

82 FR 41433 (August 31, 2017) (SR–DTC–2017–008; 

SR–FICC–2017–014; SR–NSCC–2017–008); 

Securities Exchange Act Release No. 84458 (October 

19, 2018), 83 FR 53925 (October 25, 2018) (SR– 

DTC–2018–009; SR–FICC–2018–010; SR–NSCC– 

2018–009); Securities Exchange Act Release No. 

88911 (May 20, 2020), 85 FR 31828 (May 27, 2020) 

(SR–DTC–2020–008; SR–FICC–2020–004; SR– 

NSCC–2020–008). 

20Notice, supra note 3 at 79543–44. 

21 15 U.S.C. 78s(b)(2)(C). 

22 15 U.S.C. 78q–1(b)(3)(F). 

23 15 U.S.C. 78q–1(b)(3)(I). 

24 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i), and 

(e)(23)(ii). 

25 15 U.S.C. 78q–1(b)(3)(F). 

26See supra note 17. 

27Notice, supra note 3 at 79543–44. VaR 

calculations typically rely on historical data over a 

specified lookback period to estimate the 

probability distribution of potential market prices. 

The length of the lookback period is designed to 

reflect the market movements over the lookback 

period, and calculate margin levels accordingly. A 

VaR calculation that utilizes a relatively short 

lookback period would therefore respond with a 

sharper increase to a period of market volatility 

than a VaR calculation that utilizes a longer 

lookback period. Similarly, a VaR calculation that 

utilizes a short lookback period would respond 

with a sharper decrease once the period of market 

volatility recedes beyond lookback period. As a 

result, while a longer lookback period typically 

produces more stable VaR estimates over time, a 

shorter lookback period is typically more 

responsive to recent market events. See, e.g., 

Securities Exchange Act Release No. 80341 (March 

30, 2017), 82 FR 16644 (April 5, 2017) (SR–FICC– 

2017–801). 

28See Notice, supra note 3 at 79545. 

the minimum margin amount per 

member portfolio.18 The proposal 

would allow offsetting between short 

and long positions within TBA 

securities programs since the TBAs 

aggregated in each program exhibit 

similar risk profiles and can be netted 

together to calculate the minimum 

margin amount to cover the observed 

market price changes for each portfolio. 

The proposal would allow a lookback 

period for those historical market price 

moves and parameters of between one 

and three years, and FICC would set the 

initial lookback period for the minimum 

margin amount at two years.19 FICC 

states that the minimum margin amount 

would improve the responsiveness of its 

margin methodology during periods of 

market volatility because it would have 

a shorter lookback period than the 

model-based calculation, which reflects 

a ten-year lookback period.20

II. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 21

directs the Commission to approve a 

proposed rule change of a selfregulatory 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 

Change, the Commission finds that the 

Proposed Rule Change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to FICC. In particular, the 

Commission finds that the Proposed 

Rule Change is consistent with Sections 

17A(b)(3)(F) 22 and (b)(3)(I) 23 of the Act 

and Rules 17Ad–22(e)(4)(i), (e)(6)(i), and 

(e)(23)(ii) thereunder.24

A. Consistency With Section 

17A(b)(3)(F) of the Act 

Section 17A(b)(3)(F) of the Act 25

requires that the rules of a clearing 

agency, such as FICC, be designed to, 

among other things, (i) promote the 

prompt and accurate clearance and 

settlement of securities transactions, (ii) 

assure the safeguarding of securities and 

funds which are in the custody or 

control of the clearing agency or for 

which it is responsible, and (iii) protect 

investors and the public interest. 

As described above in Section I.B., 

FICC proposes to introduce the 

minimum margin amount into its 

margin methodology to help ensure that 

FICC collects sufficient margin to 

manage its potential loss exposure 

during periods of extreme market 

volatility, particularly when TBA price 

changes would otherwise significantly 

exceed those projected by the current 

model-based calculation and the current 

VaR Floor calculation (i.e., during 

periods of extreme market volatility, 

similar to that which occurred in March 

and April 2020). The minimum margin 

amount calculation would use a 

dynamic haircut method based on 

observed TBA price moves.26 FICC 

states that the minimum margin amount 

would improve the responsiveness of its 

margin methodology during periods of 

market volatility because it would have 

a shorter lookback period (two years, 

initially) than the model-based 

calculation (ten years).27

As described above in Section I.A., 

FICC provided backtesting data to 

demonstrate that during the period of 

extreme market volatility in March and 

April 2020, FICC’s current model-based 

calculation and VaR Floor haircut 

generated VaR Charge amounts that 

were not sufficient to mitigate FICC’s 

credit exposure to its members’ 

portfolios at a 99 percent confidence 

level. 

FICC designed the minimum margin 

amount calculation to better address the 

risks posed by member portfolios 

holding TBAs during such periods of 

extreme market volatility. As described 

in the Notice, FICC has provided data 

demonstrating that if the minimum 

margin amount had been in place, 

overall margin backtesting coverage 

(based on 12-month trailing backtesting) 

would have increased from 

approximately 99.3% to 99.6% through 

January 31, 2020 and approximately 

97.3% to 98.5% through June 30, 

2020.28 The Commission has reviewed 

FICC’s data and analysis (including 

detailed information regarding the 

impact of the proposed change on the 

portfolio of each FICC member over 

various time periods), and agrees that its 

results indicate that the proposed 

minimum margin amount would 

generate margin levels that should better 

enable FICC to cover the credit exposure 

arising from its members’ portfolios. 

Moreover, the Commission believes that 

adding the minimum margin amount to 

FICC’s margin methodology should 

allow FICC to collect margin that better 

reflects the risks and particular 

attributes of its members’ portfolios 

during periods of extreme market 


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29See Letter from James Tabacchi, Chairman, 

Independent Dealer and Trade Association, Mike 

Fratantoni, Chief Economist/Senior Vice President, 

Mortgage Bankers Association (January 26, 2021) 

(‘‘IDTA/MBA Letter I’’) at 2–3, 5; Letter from 

Christopher Killian, Managing Director, Securities 

Industry and Financial Markets Association 

(January 29, 2021) (‘‘SIFMA Letter I’’) at 2, 4; Letter 

from Christopher Killian, Managing Director, 

Securities Industry and Financial Markets 

Association (February 23, 2021) (‘‘SIFMA Letter II’’) 

at 2; Letter from Christopher A. Iacovella, Chief 

Executive Officer, American Securities Association 

(January 28, 2021) (‘‘ASA Letter’’) at 1–2. The 

Commission further addresses these comments 

below in Sections II.C. and II.D. to the extent the 

comments raise issues related to Rules (e)(4)(i) and 

(e)(6)(i) under the Exchange Act. 17 CFR 240.17Ad– 

22(e)(4)(i) and (e)(6)(i). 

30See id. 

31See FICC Letter at 4. 

32See id. 

33See Securities Exchange Act Release No. 78961 

(September 28, 2016), 81 FR 70786, 70866–67 

(October 13, 2016) (S7–03–14) (‘‘CCA Standards 

Adopting Release’’). 

volatility. For these reasons, the 

Commission believes that implementing 

the minimum margin amount should 

help ensure that, in the event of a 

member default, FICC’s operation of its 

critical clearance and settlement 

services would not be disrupted because 

of insufficient financial resources. 

Accordingly, the Commission finds that 

the minimum margin amount should 

help FICC to continue providing prompt 

and accurate clearance and settlement of 

securities transactions in the event of a 

member default, consistent with Section 

17A(b)(3)(F) of the Act. 

Moreover, as described above in 

Section I.A., FICC would access the 

mutualized Clearing Fund should a 

defaulted member’s own margin be 

insufficient to satisfy losses to FICC 

caused by the liquidation of that 

member’s portfolio. The minimum 

margin amount should help ensure that 

FICC has collected sufficient margin 

from members, thereby limiting nondefaulting members’ exposure to 

mutualized losses. The Commission 

believes that by helping to limit the 

exposure of FICC’s non-defaulting 

members to mutualized losses, the 

minimum margin amount should help 

FICC assure the safeguarding of 

securities and funds which are in its 

custody or control, consistent with 

Section 17A(b)(3)(F) of the Act. 

The Commission believes that the 

Proposed Rule Change should also help 

protect investors and the public interest 

by mitigating some of the risks 

presented by FICC as a CCP. Because a 

defaulting member could place stresses 

on FICC with respect to FICC’s ability to 

meet its clearance and settlement 

obligations upon which the broader 

financial system relies, it is important 

for FICC to maintain a robust margin 

methodology to limit FICC’s credit risk 

exposure in the event of a member 

default. As described above in Section 

I.B., the proposed minimum margin 

amount likely would function as the 

VaR Charge during periods of extreme 

market volatility, particularly when 

TBA price changes could otherwise 

significantly exceed those projected by 

the model-based calculation and the 

current VaR Floor calculation. When 

applicable, the minimum margin 

amount would increase FICC’s margin 

collection during periods of extreme 

market volatility. The minimum margin 

amount should help improve FICC’s 

ability to collect sufficient margin 

amounts commensurate with the risks 

associated with its members’ portfolios 

during periods of extreme market 

volatility. By enabling FICC to collect 

margin that more accurately reflects the 

risk characteristics of mortgage-backed 

securities and market conditions, FICC 

would be in a better position to absorb 

and contain the spread of any losses that 

might arise from a member default. 

Therefore, the minimum margin amount 

should reduce the possibility that FICC 

would need to utilize resources from 

non-defaulting members due to a 

member default, which could cause 

liquidity stress to non-defaulting 

members and inhibit their ability to 

facilitate securities transactions. 

Accordingly, because the minimum 

margin amount should help mitigate 

some of the risks presented by FICC as 

a CCP, the Commission believes that the 

proposal is designed to protect investors 

and the public interest, consistent with 

Section 17A(b)(3)(F) of the Act. 

Several commenters suggest that 

FICC’s implementation of the minimum 

margin amount would not be in the 

public interest because it would burden 

markets in times of stress and force 

members to maintain additional reserve 

funding capacity.29 More specifically, 

commenters suggest that due to 

potentially increased margin 

requirements, small- and mid-sized 

broker-dealers will be forced to scale 

back their offerings of risk management 

tools and services to smaller originators, 

who will then turn to larger institutions 

for these tools and services. They 

suggest that this would result in a more 

concentrated market, or that smaller 

originators would not be able to obtain 

these tools and services, putting the 

smaller originators in a position in 

which they could not implement their 

desired risk management approaches or 

fully serve their customer bases.30

In response, FICC states that the 

Proposed Rule Change is not intended 

to advantage or disadvantage capital 

formation in any particular market 

segment.31 Instead, FICC states that the 

Proposed Rule Change focuses entirely 

on managing the clearance and 

settlement risk associated with TBAs.32

The Commission acknowledges that 

the minimum margin amount could 

increase the margin required from some 

members, which may, in turn, cause 

such members to incur additional costs 

to access the liquidity needed to meet 

elevated margin requirements. Despite 

these potential impacts, the Commission 

believes that FICC has provided 

sufficient justification for the proposal. 

Specifically, FICC’s backtesting data 

demonstrates that its current 

methodology did not generate enough 

margin during March and April 2020, 

and the proposed minimum margin 

amount would generate margin levels 

that should better enable FICC to cover 

the credit exposure arising from its 

members’ portfolios. 

The Commission also acknowledges 

the possibility that, as a result of the 

Proposed Rule Change, some members 

might pass along some of the costs 

related to margin requirements such that 

these costs ultimately are borne, to some 

degree, by their clients. However, a nondefaulting member’s exposure to 

mutualized losses resulting from a 

member default, and any consequent 

disruptions to clearance and settlement 

absent the Proposed Rule Change, might 

also increase costs to a member’s clients 

and potentially adversely impact market 

participation, liquidity, and access to 

capital. The Proposed Rule Change, by 

helping to reduce counterparty default 

risk, would allow the corresponding 

portion of transaction costs to be 

allocated to more productive uses by 

members and their clients who 

otherwise would bear those costs.33

Moreover, as discussed above, by 

helping to limit the exposure of nondefaulting members to mutualized 

losses, the Proposed Rule Change 

should help FICC assure the 

safeguarding of securities and funds of 

its members that are in FICC’s custody 

or control, consistent with Section 

17A(b)(3)(F). 

While the Commission acknowledges 

that the proposal could result in certain 

FICC members raising the price of 

liquidity provision (or reducing the 

amount of liquidity provision) to their 

mortgage originator clients to account 

for increased margin requirements, a 

number of factors could mitigate such 

effects on market liquidity. First, to the 

extent that the minimum margin 

amount might raise margin 

requirements differently across MBS 

(e.g., higher coupon TBAs might 

generate higher margin requirements 


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34See Vickery, James I., and Joshua Wright. ‘‘TBA 

trading and liquidity in the agency MBS market.’’ 

Economic Policy Review 19, no. 1 (2013). 

35See Scharfstein, David, and Adi Sunderam. 

‘‘Market power in mortgage lending and the 

transmission of monetary policy.’’ Unpublished 

working paper, Harvard University 2 (2016) 

(showing that county-level competition among 

mortgage originators, as measured by the market 

share of the top four mortgage originators 

concentration, varies across different counties in 

the U.S.). 

36See id. at 3. 

37See Buchak, Greg, Gregor Matvos, Tomasz 

Piskorski, and Amit Seru. ‘‘Fintech, regulatory 

arbitrage, and the rise of shadow banks.’’ Journal of 

Financial Economics 130, no. 3 (2018): 453–483. 

38 In response to the COVID–19 outbreak, the 

Federal Open Market Committee (‘‘FOMC’’) 

announced that the Federal Reserve would 

purchase at least $200 billion of agency mortgagebacked securities over the coming months. While 

the Federal Reserve tapered purchases between 

April and May 2020, it restarted purchases in June 

2020. (See https://www.federalreserve.gov/ 

newsevents/pressreleases/ 

monetary20200315a.htm). On December 12, 2020, 

the FOMC directed the Federal Reserve Bank of 

New York to continue to purchase $40 billion of 

agency mortgage-backed securities per month. (See 

https://www.newyorkfed.org/markets/opolicy/ 

operating_policy_201216). 

39 15 U.S.C. 78q–1(b)(3)(F). 

40 15 U.S.C. 78q–1(b)(3)(I). 

41See Bradford National Clearing Corp., 590 F.2d 

1085, 1105 (D.C. Cir. 1978). 

42See Letter from James Tabacchi, Chairman, 

Independent Dealer and Trade Association, Mike 

Fratantoni, Chief Economist/Senior Vice President, 

Mortgage Bankers Association (February 23, 2021) 

(‘‘IDTA/MBA Letter II’’) at 3. 

43See IDTA/MBA Letter I at 2–4, 6; IDTA/MBA 

Letter II at 2–3; ASA Letter at 1–2; SIFMA Letter 

I at 4. 

44See IDTA/MBA Letter II at 2–3. Specifically, 

the commenter cites FICC’s statement that during 

the impact study period, the largest dollar increase 

for any member would have been $333 million, or 

37% increase in the VaR Charge. The commenter 

assumes that the member with the largest dollar 

increase is one of FICC’s largest clearing members. 

The commenter also cites FICC’s statement that the 

largest percentage increase in VaR Charge for any 

member would have been 146%, or $22 million. 

The commenter assumes that the member with the 

largest percentage increase is a smaller member. 

Thus, the commenter concludes that the minimum 

margin amount would affect smaller members more 

dramatically than larger members. Additionally, the 

commenter cites FICC’s statement that the top 10 

members based on size of the VaR Charges would 

have contributed 69.3% of the aggregate VaR 

Charges had the minimum margin amount been in 

place; whereas those 10 members only would be 

responsible for 54% of the additional margin 

collected pursuant to the minimum margin amount. 

Therefore, the commenter concludes that FICC’s 

largest members would contribute 

disproportionately less than FICC’s smaller 

members pursuant to the minimum margin amount. 

45See Letter from James Tabacchi, Chairman, 

Independent Dealer and Trade Association 

(February 23, 2021) (‘‘IDTA Letter’’) at 2. The 

commenter also speculates that the business models 

of larger members that enable them to net their 

exposures likely increases concentration risk at 

than other MBS), market participants, 

including mortgage originators, could 

respond by trading more of the 

securities for which the minimum 

margin amount would not increase 

margin or would increase margin less 

than higher coupon TBAs. 

Alternatively, mortgage originators 

could hedge the interest rate risk of their 

mortgage pipelines by trading in other 

hedging instruments such as Treasury 

futures and mortgage option contracts.34

Moreover, the Commission does not 

believe that the impact of the Proposed 

Rule Change would be that mortgage 

originators would raise mortgage rates 

in response to increased costs for 

liquidity. The ability of mortgage 

originators to raise mortgage rates 

depends in part on competition at the 

local loan market level, which could 

incentivize mortgage originators to 

avoid raising mortgage rates in spite of 

absorbing the costs associated with the 

minimum margin amount. Because 

competition between mortgage 

originators varies across local loan 

markets,35 their ability to raise mortgage 

rates likely also varies across markets. 

Mortgage originators in more 

competitive markets likely would have 

less ability to raise mortgage rates to 

pass on costs that may be associated 

with the Proposed Rule Change than 

mortgage originators in less competitive 

markets.36 Thus, it is unclear whether 

this proposal will have any effect on 

mortgage rates. 

Further, the introduction of costsaving technologies may lower mortgage 

origination costs and facilitate the entry 

of new mortgage originators operating 

on lower-cost business models.37 The 

entry of these new mortgage originators 

could limit the pricing power of 

incumbent mortgage originators in a 

given loan market. Finally, the Federal 

Reserve’s continued commitment to 

purchasing agency MBS 38 could 

continue to exert downward pressure on 

mortgage rates and mitigate an increase 

in mortgage rates, if any, by mortgage 

originators in response to Proposed Rule 

Change. FICC also provided confidential 

analysis as part of the Proposed Rule 

Change indicating that there does not 

appear to be a clear linkage between 

FICC margin amounts and community 

lenders’ mortgage activity. 

Finally, the Commission believes that 

the impact of the minimum margin 

amount would be entirely determined 

by a member’s portfolio composition 

and trading activity rather than the 

member’s size or type. The Proposed 

Rule Change would calculate the VaR 

Charge based on the risks presented by 

positions in the member’s portfolio. To 

the extent a member’s VaR Charge 

would increase under the Proposed Rule 

Change, that increase would be based on 

the securities held by the member and 

FICC’s requirement to collect margin to 

appropriately address the associated 

risk. 

Accordingly, notwithstanding the 

potential impact that the Proposed Rule 

Change might indirectly have on small 

mortgage originators, the Commission 

believes that such potential impacts are 

justified by the potential benefits to 

members and the resulting overall 

improved risk management at FICC 

described above (i.e., the prompt and 

accurate clearance and settlement of 

securities transactions and the 

safeguarding of securities and funds 

based on the collection of margin 

commensurate with the risks presented 

by TBAs), to render the Proposed Rule 

Change consistent with the investor 

protection and public interest 

provisions of Section 17A(b)(3)(F) of the 

Act. 

For the reasons discussed above, the 

Commission believes that the Proposed 

Rule Change is consistent with the 

requirements of Section 17A(b)(3)(F) of 

the Act.39

B. Consistency With Section 17A(b)(3)(I) 

of the Act 

Section 17A(b)(3)(I) of the Act 

requires that the rules of a clearing 

agency do not impose any burden on 

competition not necessary or 

appropriate in furtherance of the Act.40

This provision does not require the 

Commission to find that a proposed rule 

change represents the least 

anticompetitive means of achieving the 

goal. Rather, it requires the Commission 

to balance the competitive 

considerations against other relevant 

policy goals of the Act.41

The Commission received comments 

regarding the impacts the Proposed Rule 

Change might have on competition. One 

commenter argues that FICC has not 

explained how the additional margin 

collected pursuant to the minimum 

margin amount would be equitably 

distributed amongst members to avoid 

an unnecessary burden on 

competition.42 Several commenters 

argued that the proposal would 

disproportionately affect small- and 

mid-sized broker-dealer members rather 

than larger bank-affiliated broker-dealer 

members.43 One commenter states that 

FICC’s impact study demonstrates that 

smaller members would bear a greater 

burden than larger members if the 

minimum margin amount were to be 

adopted.44 One commenter argues that 

larger members should bear more of the 

minimum margin amount burden 

because their business models likely 

include subsidiaries that confer an 

unfair advantage by enabling them to 

net their exposures.45


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those members, which the minimum margin 

amount does not address. 

46See FICC Letter at 3; Notice, supra note 3 at 

79547–48. 

47See id. 

48See id. 

49See FICC Letter at 3; Notice, supra note 3 at 

79545, 47. 

50See FICC Letter at 4. 

51See id. 

52See id. 

53See CCA Standards Adopting Release, supra 

note 33, 81 FR at 70870. In addition, when 

considering the benefits, costs, and effects on 

competition, efficiency, and capital formation, the 

Commission recognized that a covered clearing 

agency, such as FICC, might pass incremental costs 

associated with compliance on to its members, and 

that such members may seek to terminate their 

membership with that CCA. See id., 81 FR at 70865. 

Moreover, when considering similar comments 

related to a proposed rule change designed to 

address a covered clearing agency’s liquidity risk, 

the Commission concluded that the imposition of 

additional costs did not render the proposal 

inconsistent with the Act. See Securities Exchange 

Act Release No. 82090 (November 15, 2017), 82 FR 

55427, 55438 n. 209 (November 21, 2017) (SR– 

FICC–2017–002). 

54These potential burdens are not fixed, and 

affected members may choose to restructure their 

liquidity sources, costs of capital, or business 

model, thereby moderating the potential impact of 

the Proposed Rule Change. 

55See 17 CFR 240.17Ad–22(e)(6)(i). 

56See FICC MBSD Membership Directory, 

available at https://www.dtcc.com/client-center/ 

ficc-mbs-directories. 

57See Notice, supra note 3 at 79545. 

58 15 U.S.C. 78q–1(b)(3)(I). 

In response, FICC states that the 

Notice addressed concerns that the 

Proposed Rule Change would impose a 

burden on competition.46 Specifically, 

the Notice acknowledged that based on 

FICC’s impact studies, the minimum 

margin amount would have increased 

members’ VaR Charges by an average of 

approximately 42% during the impact 

study period, and that the Proposed 

Rule Change could impose a burden on 

competition.47 Additionally, the Notice 

stated that members may be affected 

disproportionately by the minimum 

margin amount because members with 

higher percentages of higher coupon 

TBAs in their portfolios were more 

likely to be impacted.48

Regarding comments that the 

minimum margin amount would 

disproportionately affect smaller 

members, FICC acknowledges that the 

minimum margin amount could 

increase margin requirements as a result 

of extreme market volatility, and that it 

may also result in higher margin costs 

overall for members whose business is 

concentrated in higher coupon TBAs, 

relative to other members with more 

diversified portfolios.49 However, FICC 

states that the methodology for 

computing the minimum margin 

amount does not take into consideration 

the member’s size or overall mix of 

business.50 Any effect the proposal 

would have on a particular member’s 

margin requirement is solely a function 

of the default risk posed to FICC by the 

member’s activity at FICC—firm size or 

business model is not pertinent to the 

assessment of that risk.51 Accordingly, 

FICC believes that the Proposed Rule 

Change does not discriminate against 

members or affect them differently on 

either of those bases.52

The Commission acknowledges that 

the Proposed Rule Change could entail 

increased margin charges. In 

considering the costs and benefits of the 

requirements of Rule 17Ad–22(e)(6), the 

Commission expressly acknowledged 

that ‘‘since risk-based initial margin 

requirements may cause market 

participants to internalize some of the 

costs borne by the CCP as a result of 

large or risky positions, confirming that 

margin models are well-specified and 

correctly calibrated with respect to 

economic conditions will help ensure 

that the margin requirements continue 

to align the incentives of a CCP’s 

members with the goal of financial 

stability.’’ 53 Nevertheless, in response 

to the comments that the Proposed Rule 

Change would disproportionately affect 

small- and mid-sized broker-dealer 

members or those broker-dealer 

members that are not affiliated with 

large banks, the Commission believes 

that the impact of the minimum margin 

amount would be entirely determined 

by a member’s portfolio composition 

and trading activity rather than the 

member’s size or type. The Proposed 

Rule Change would calculate the VaR 

Charge based on the risks presented by 

positions in the member’s portfolio. To 

the extent a member’s VaR Charge 

would increase under the Proposed Rule 

Change, that increase would be based on 

the securities held by the member and 

FICC’s requirement to collect margin to 

appropriately address the associated 

risk. 

In addition, as noted above, the 

Commission acknowledges that the 

impact of a higher margin requirement 

may present higher costs on some 

members relative to others due to a 

number of factors, such as access to 

liquidity resources, cost of capital, 

business model, and applicable 

regulatory requirements. These higher 

relative burdens may weaken certain 

members’ competitive positions relative 

to other members.54 However, the 

Commission believes that such burden 

on competition stemming from a higher 

impact on some members than on others 

is necessary and appropriate in 

furtherance of the Act. FICC is required 

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.55 FICC’s members include a 

large and diverse population of entities 

with a range of ownership structures.56

By participating in FICC, each member 

is subject to the same margin 

requirements, which are designed to 

satisfy FICC’s regulatory obligation to 

manage the risks presented by its 

members. As discussed in more detail in 

Section II.D. below, the Proposed Rule 

Change is designed to ensure that FICC 

collects margin that is commensurate 

with the risks presented by each 

member’s portfolio resulting from 

periods of extreme market volatility. 

Furthermore, FICC has provided data 

demonstrating that if the minimum 

margin amount had been in place, 

overall margin backtesting coverage 

(based on 12-month trailing backtesting) 

would have increased from 

approximately 99.3% to 99.6% through 

January 31, 2020 and approximately 

97.3% to 98.5% through June 30, 

2020.57 As noted above, the Commission 

has reviewed FICC’s backtesting data 

and agrees that it indicates that had the 

minimum margin amount been in place 

during the study period, it would have 

generated margin levels that better 

reflect the risks and particular attributes 

of the member portfolios and help FICC 

achieve backtesting coverage closer to 

FICC’s targeted confidence level. In 

turn, the Commission believes that the 

Proposed Rule Change would improve 

FICC’s ability to maintain sufficient 

financial resources to cover its credit 

exposures to each member in full with 

a high degree of confidence. By helping 

FICC to better manage its credit 

exposure, the Proposed Rule Change 

would improve FICC’s ability to 

mitigate the potential losses to FICC and 

its members associated with liquidating 

a member’s portfolio in the event of a 

member default, in furtherance of 

FICC’s obligations under Section 

17A(b)(3)(F) of the Act. 

Therefore, for the reasons stated 

above, the Commission believes that the 

Proposed Rule Change is consistent 

with the requirements of Section 

17A(b)(3)(I) of the Act 58 because any 

competitive burden imposed by the 

Proposed Rule Change is necessary and 

appropriate in furtherance of the Act. 


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59 17 CFR 240.17Ad–22(e)(4)(i). 

60See IDTA/MBA Letter I at 4–5; ASA Letter at 

1; SIFMA Letter I at 2–3; Letter from Christopher 

Killian, Managing Director, Securities Industry and 

Financial Markets Association (February 23, 2021) 

(‘‘SIFMA Letter II’’) at 1–2. 

61See FICC Letter at 2–3. 

62See FICC Letter at 3. 

63 17 CFR 240.17Ad–22(e)(4)(i). 

64 In addition, because the proposals contained in 

the Advance Notice and the Proposed Rule Change 

are the same, all information submitted by FICC 

was considered regardless of whether the 

information was submitted with respect to the 

Advance Notice or the Proposed Rule Change. See 

supra note 9. 

65See Notice, supra note 3 at 79545. 

66 17 CFR 240.17Ad–22(e)(4)(i). 

67 17 CFR 240.17Ad–22(e)(6)(i) and (iii). 

68See id. 

69See IDTA/MBA Letter I at 5; ASA Letter at 2; 

SIFMA Letter I at 3–4. 

70See IDTA/MBA Letter I at 5. 

C. Consistency With Rule 17Ad– 

22(e)(4)(i) 

Rule 17Ad–22(e)(4)(i) under the Act 

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.59

Several commenters question whether 

FICC has adequately demonstrated that 

the proposed minimum margin amount 

is consistent with Rule 17Ad–22(e)(4)(i) 

under the Exchange Act, arguing that 

there are more effective methods that 

FICC could use to mitigate the relevant 

risks. Three commenters argue that the 

model-based calculation is well-suited 

to address FICC’s credit risk in volatile 

market conditions, and instead of 

adding the minimum margin amount to 

its margin methodology, FICC should 

enhance this calculation to address 

periods of extreme market volatility 

such as occurred in March and April 

2020.60

In response to these comments, FICC 

explains that enhancing the modelbased calculation would not be an 

effective approach towards mitigating 

the risk resulting from periods of 

extreme market volatility. Although the 

model-based calculation takes into 

account risk factors typical to TBAs, the 

extreme market volatility of March and 

April 2020 was caused by other factors 

(e.g., changes in the Federal Reserve 

purchase program) affecting TBA 

factors, yet such factors are not 

accounted for in the model-based 

calculation.61 To further demonstrate 

why the minimum margin amount is 

necessary, FICC relies upon the results 

of recent backtesting analyses 

demonstrating that its existing VaR 

Charge calculations did not respond 

effectively to the March and April 2020 

levels of market volatility and economic 

uncertainty such that FICC’s margin 

collections during that period did not 

meet its 99 percent confidence level.62

The Commission believes that the 

proposed minimum margin amount is 

consistent with Rule 17Ad–22(e)(4)(i) 

under the Exchange Act.63 As described 

above, FICC’s current VaR Charge 

calculations resulted in margin amounts 

that were not sufficient to mitigate 

FICC’s credit exposure to its members’ 

portfolios at FICC’s targeted confidence 

level during periods of extreme market 

volatility, particularly when TBA price 

changes significantly exceeded those 

implied by the VaR model risk factors. 

The Commission believes that adding 

the minimum margin amount 

calculation to its margin methodology 

should better enable FICC to collect 

margin amounts that are sufficient to 

mitigate FICC’s credit exposure to its 

members’ portfolios. 

In reaching this conclusion, the 

Commission thoroughly reviewed and 

analyzed the (1) Proposed Rule Change, 

including the supporting exhibits that 

provided confidential information on 

the calculation of the proposed 

minimum margin amount, impact 

analyses (including detailed information 

regarding the impact of the proposed 

change on the portfolio of each FICC 

member over various time periods), and 

backtesting coverage results, (2) 

comments received, and (3) 

Commission’s own understanding of the 

performance of the current margin 

methodology, with which the 

Commission has experience from its 

general supervision of FICC, compared 

to the proposed margin methodology.64

Specifically, as discussed above, the 

Commission has considered the results 

of FICC’s backtesting coverage analyses, 

which indicate that the current margin 

methodology results in backtesting 

coverage that does not meet FICC’s 

targeted confidence level. FICC’s 

backtesting data shows that if the 

minimum margin amount had been in 

place, overall margin backtesting 

coverage (based on 12-month trailing 

backtesting) would have increased from 

approximately 99.3% to 99.6% through 

January 31, 2020 and approximately 

97.3% to 98.5% through June 30, 

2020.65 The analyses also indicate that 

the minimum margin amount would 

result in improved backtesting coverage 

towards meeting FICC’s targeted 

coverage level. Therefore, the 

Commission believes that the proposal 

would provide FICC with a more precise 

margin calculation, thereby enabling 

FICC to manage its credit exposures to 

members by maintaining sufficient 

financial resources to cover such 

exposures fully with a high degree of 

confidence. 

In response to the comments 

regarding enhancing the model-based 

calculation instead of adding the 

minimum margin amount, the 

Commission believes that FICC’s modelbased calculation takes into account risk 

factors that are typical TBA attributes, 

whereas the extreme market volatility of 

March and April 2020 was caused by 

other external factors that are less 

subject to modeling. Thus, the 

commenters’ preferred approach is not a 

viable alternative that would allow for 

consideration of such factors. 

Accordingly, for the reasons 

discussed above, the Commission 

believes that the changes proposed in 

the Proposed Rule Change are 

reasonably designed to enable FICC to 

effectively identify, measure, monitor, 

and manage its credit exposure to 

members, consistent with Rule 17Ad– 

22(e)(4)(i).66

D. Consistency With Rules 17Ad– 

22(e)(6)(i) and (iii) 

Rules 17Ad–22(e)(6)(i) and (iii) under 

the Act require that FICC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market, and calculates margin sufficient 

to cover its potential future exposure to 

participants.67

One commenter suggests that the 

minimum margin amount would be 

inefficient and ineffective at collecting 

margin amounts commensurate with the 

risks presented by the securities in 

member portfolios.68 Several 

commenters argue that the proposed 

minimum margin amount calculation 

would produce sudden and persistent 

spikes in margin requirements.69 One 

commenter argues that the minimum 

margin amount would effectively 

replace FICC’s existing model-based 

calculation with one likely to produce 

procyclical results by increasing margin 

requirements at times of increased 

market volatility.70 One commenter 

suggests the March–April 2020 market 

volatility was so unique that FICC need 


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71See SIFMA Letter I at 3. 

72See IDTA/MBA Letter I at 4. 

73See IDTA/MBA Letter I at 5; SIFMA Letter I at 

2. 

74See SIFMA Letter I at 2. 

75See IDTA/MBA Letter I at 4–5; ASA Letter at 

1; SIFMA Letter I at 2–3. 

76See IDTA/MBA Letter I at 5. 

77See FICC Letter at 5–6. 

78See id. 

79See id. 

80See FICC Letter at 5. 

81See FICC Letter at 7–8. 

82See Securities Exchange Act Release No. 90182 

(October 14, 2020), 85 FR 66630 (October 20, 2020) 

(SR–FICC–2020–009). 

83See FICC Letter at 7–8. 

84FICC provided this data as part of its response 

to the Commission’s Request for Additional 

Information in connection with the Advance 

Notice. Pursuant to 17 CFR 240.24b–2, FICC 

requested confidential treatment of its RFI response. 

See also FICC Letter at 5. 

85See FICC Letter at 5. 

not adjust its margin methodology to 

account for a future similar event.71

In addition, one commenter argues 

that the proposed minimum margin 

amount is inconsistent with Rule 17Ad– 

22(e)(6)(i) because the minimum margin 

amount calculation is not reasonably 

designed to mitigate future risk due to 

its reliance on historical price 

movements that will not generate 

margin requirements that equate to 

future protections against market 

volatility.72 Two commenters argue that 

the proposed minimum margin amount 

calculation is not reasonably designed 

to mitigate future risks because the 

calculation relies on historical price 

movements, which will not necessarily 

generate margin amounts that will 

protect against future periods of market 

volatility.73 One commenter argues that 

the minimum margin amount is not 

necessary despite the March and April 

2020 backtesting deficiencies because 

there were no failures or other events 

that caused systemic issues.74

Several commenters speculate that 

since the minimum margin amount is 

typically larger than the model-based 

calculation, the minimum margin 

amount will likely become the 

predominant calculation for 

determining a member’s VaR Charge.75

One commenter argues that instead of 

the minimum margin amount, FICC 

should consider adding concentration 

charges to its margin methodology to 

address the relevant risks.76

In response, FICC states that any 

increased margin requirements resulting 

from the proposed minimum margin 

amount during periods of extreme 

market volatility would appropriately 

reflect the relevant risks presented to 

FICC by member portfolios holding 

large TBA positions.77 FICC also states 

that the minimum margin amount’s 

reliance on observed price volatility 

with a shorter lookback period will 

provide margin that responds quicker 

during market volatility to limit FICC’s 

exposures.78 FICC also notes that the 

margin increases that the minimum 

margin amount would have imposed 

following the March–April 2020 market 

volatility would not have persisted at 

such high levels indefinitely.79

In addition, regarding whether the 

minimum margin amount will likely 

become the predominant calculation for 

determining a member’s VaR Charge, 

FICC states that as the period of extreme 

market volatility stabilized and the 

model-based calculation recalibrated to 

current market conditions, the average 

daily VaR Charge increase decreased 

from $2.2 billion (i.e., 42%) to $838 

million (i.e., 7%) during the fourth 

quarter of 2020.80 Regarding 

concentration charges, FICC states that 

concentration charges and the minimum 

margin amount address separate and 

distinct types of risk.81 Whereas the 

minimum margin amount is designed to 

cover the risk of market price volatility, 

concentration charges (e.g., FICC’s 

recently approved Margin Liquidity 

Adjustment Charge 82) are designed to 

mitigate the risk to FICC of incurring 

additional market impact cost from 

liquidating a directionally concentrated 

portfolio.83

The Commission believes that the 

proposal is consistent with Rule 17Ad– 

22(e)(6)(i). Implementing the proposed 

minimum margin amount would result 

in margin requirements that reflect the 

risks such holdings present to FICC 

better than FICC’s current margin 

methodology. In reaching this 

conclusion and considering the 

comments above, the Commission 

thoroughly reviewed and analyzed the 

(1) Proposed Rule Change, including the 

supporting exhibits that provided 

confidential information on the 

calculation of the proposed minimum 

margin amount, impact analyses, and 

backtesting coverage results, (2) 

comments received, and (3) 

Commission’s own understanding of the 

performance of the current margin 

methodology, with which the 

Commission has experience from its 

general supervision of FICC, compared 

to the proposed margin methodology. 

Based on its review and analysis of 

these materials, including the effect that 

the minimum margin amount would 

have on FICC’s backtesting coverage, the 

Commission believes that the proposed 

minimum margin amount is designed to 

consider, and collect margin 

commensurate with, the market risk 

presented by member portfolios holding 

TBA positions, specifically during 

periods of market volatility such as 

what occurred in March and April 2020. 

For the same reasons, the Commission 

disagrees with the comments suggesting 

that the minimum margin amount 

calculation is not designed to effectively 

and efficiently collect margin sufficient 

to mitigate the risks presented by the 

securities. 

In response to comments regarding 

the sudden and persistent increases in 

margin that could arise from the 

minimum margin amount, the 

Commission acknowledges that, for 

some member portfolios in certain 

market conditions, application of the 

minimum margin amount calculation 

would result in an increase in the 

member’s margin requirement based on 

the potential exposures arising from the 

TBA positions. The Commission notes 

that, by design, the minimum margin 

amount should respond more quickly to 

heightened market volatility because of 

its use of historical price data over a 

relatively short lookback period, as 

opposed to the model-based calculation 

which relies on risk factors and uses a 

longer lookback period. 

The Commission also observes, 

however, based on its review and 

analysis of FICC’s confidential data and 

analyses, that the increase in margin 

requirements generated by the 

minimum margin amount—as compared 

to the other calculations—would 

generally only apply during periods of 

high market volatility and for a time 

period thereafter.84 The frequency with 

which the minimum margin amount 

would constitute a majority of members’ 

margin requirements decreases as 

markets become less volatile, and 

therefore, is not expected to persist 

indefinitely.85 The Commission believes 

that including the minimum margin 

amount as a potential method of 

determining a member’s margin 

requirement is appropriate, in light of 

the potential exposures that could arise 

in a time of heightened market volatility 

and the need for FICC to cover those 

exposures. Therefore, the Commission 

believes that the proposal would 

provide FICC with a margin calculation 

better designed to enable FICC to cover 

its credit exposures to its members by 

enhancing FICC’s risk-based margin 

system to produce margin levels 

commensurate with, the risks and 

particular attributes of TBAs. 

In response to the comments 

regarding the potential procyclical 

nature of the minimum margin amount 

calculation and whether it is 


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35862 Federal Register / Vol. 86, No. 127 / Wednesday, July 7, 2021 / Notices 

86 17 CFR 240.17Ad–22(e)(6)(i). 

87See 17 CFR 240.17Ad–22(e)(6)(iii) (requiring a 

covered clearing agency to establish, implement, 

maintain and enforce written policies and 

procedures reasonably designed to cover its credit 

exposures to its participants by establishing a riskbased margin system that, at a minimum, calculates 

margin sufficient to cover its potential future 

exposure to participants in the interval between the 

last margin collection and the close out of positions 

following a participant default). 

88 17 CFR 240.17Ad–22(a)(13). 

89See FICC Letter at 3. 

90See FICC Letter at 5. The Commission’s 

conclusion is also based upon information that 

FICC submitted confidentially regarding memberlevel impact of the proposal from February through 

December 2020. 

91See Securities Exchange Act Release No. 34– 

90182 (October 14, 2020), 85 FR 66630 (October 20, 

2020). 

92 17 CFR 240.17Ad–22(e)(6)(i) and (iii). 

93 17 CFR 240.17Ad–22(e)(23)(ii). 

94See SIFMA Letter I at 4; ASA Letter at 2. 

95See id. 

appropriate for the margin methodology 

to take into account such extreme 

market events, the Commission notes 

that as a general matter, margin floors 

generally operate to reduce 

procyclicality by preventing margin 

levels from falling too low. Moreover, 

despite the commenters’ procyclicality 

concerns, the Commission understands 

that the purpose of the minimum 

margin amount calculation is to ensure 

that FICC collects sufficient margin in 

times of heightened market volatility, 

which means that FICC would, by 

design, collect additional margin at such 

times if the minimum margin amount 

applies. The Commission believes that, 

because heightened market volatility 

may lead to increased credit exposure 

for FICC, it is reasonable for FICC’s 

margin methodology to collect 

additional margin at such times and to 

be responsive to market activity of this 

nature. 

In response to the comment that the 

proposed minimum margin amount is 

not necessary because the March and 

April 2020 market volatility did not 

cause the failure of FICC members or 

otherwise cause broader systemic 

problems, the Commission disagrees. 

Similar to the Commission’s analysis 

above, the relevant standard is not 

merely for FICC to maintain sufficient 

financial resources to avoid failures or 

systemic issues, but for FICC to cover its 

credit exposures to members with a riskbased margin system that produces 

margin levels commensurate with, the 

risks and particular attributes of each 

relevant product, portfolio, and 

market.86 During periods of extreme 

market volatility, FICC has 

demonstrated that adding the minimum 

margin amount to its margin 

methodology better enables FICC to 

manage its credit exposures to members 

by producing margin charges 

commensurate with the applicable risks. 

The Commission has reviewed and 

analyzed FICC’s backtesting data, and 

agrees that the data demonstrate that the 

minimum margin amount would result 

in better backtesting coverage and, 

therefore, less credit exposure of FICC to 

its members. Accordingly, the 

Commission believes that the proposed 

minimum margin amount would enable 

FICC to better manage its credit risks 

resulting from periods of extreme 

market volatility. 

In response to the comments 

regarding the minimum margin amount 

calculation’s reliance on historical price 

movements, the Commission does not 

agree that Rule 17Ad–22(e)(6)(i) 

precludes FICC from implementing a 

margin methodology that relies, at least 

in part, on historical price movements 

or that FICC’s margin methodology must 

generate margin requirements that 

‘‘equate to future protections against 

market volatility.’’ FICC’s credit 

exposures are reasonably measured both 

by events that have actually happened 

as well as events that could potentially 

occur in the future. For this reason, a 

risk-based margin system is necessary 

for FICC to cover its potential future 

exposure to members.87 Potential future 

exposure is, in turn, defined as the 

maximum exposure estimated to occur 

at a future point in time with an 

established single-tailed confidence 

level of at least 99 percent with respect 

to the estimated distribution of future 

exposure.88 Thus, to be consistent with 

its regulatory requirements, FICC must 

consider potential future exposure, 

which includes, among other things, 

losses associated with the liquidation of 

a defaulted member’s portfolio. 

In response to the comments 

regarding enhancing the model-based 

calculation instead of adding the 

minimum margin amount, the 

Commission believes that, as FICC 

stated in its response, the inputs to 

FICC’s model-based calculation include 

risk factors that are typical TBA 

attributes, whereas the extreme market 

volatility of March and April 2020, 

which affected the TBA markets, was 

caused by other external factors that are 

less subject to modeling. Accordingly, 

the Commission believes that FICC 

would more effectively cover its 

exposure during such periods by 

including the minimum margin amount 

as an alternative margin component 

based on the price volatility in each 

member’s portfolio using observable 

TBA benchmark prices, using a 

relatively short lookback period.89

In response to the comments 

regarding whether the minimum margin 

amount will likely become the 

predominant calculation for 

determining a member’s VaR Charge, 

the Commission disagrees. For example, 

the average daily VaR Charge increase 

from February 3, 2020 through June 30, 

2020 would have been approximately 

$2.2 billion or 42%, but as the modelbased calculation took into account the 

current market conditions, the average 

daily increase during Q4 of 2020 would 

have been approximately $838 million 

or 7%.90

Finally, in response to the comments 

regarding concentration charges, the 

Commission notes that there is a 

distinction between concentration 

charges and the VaR Charge in that they 

are generally designed to mitigate 

different risks. Whereas the VaR Charge 

is designed to cover the risk of market 

price volatility, concentration charges 

are typically designed to mitigate the 

risk of incurring additional market 

impact cost from liquidating a 

directionally concentrated portfolio.91

Accordingly, the Commission believes 

that adding the minimum margin 

amount to FICC’s margin methodology 

would be consistent with Rules 17Ad– 

22(e)(6)(i) and (iii) because this new 

margin calculation should better enable 

FICC to establish a risk-based margin 

system that considers and produces 

relevant margin levels commensurate 

with the risks associated with 

liquidating member portfolios in a 

default scenario, including volatility in 

the TBA market.92

E. Consistency With Rule 17Ad– 

22(e)(23)(ii) 

Rule 17Ad–22(e)(23)(ii) under the 

Exchange Act requires each covered 

clearing agency 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.93

Several commenters express concerns 

that the Proposed Rule Change does not 

provide sufficient information to enable 

FICC’s members to identify and evaluate 

the minimum margin amount. Two 

commenters argue that FICC’s margin 

calculations are opaque, which makes 

liquidity planning difficult for 

members.94 In particular, these 

commenters express concern that the 

minimum margin amount could trigger 

sudden margin spikes that could result 

in forced selling or other market 

disruptions.95 One commenter argues 

that since the Proposed Rule Change 


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96See SIFMA Letter II at 2. 

97See SIFMA Letter I at 4; ASA Letter at 2. 

98See SIFMA Letter I at 4. 

99See IDTA/MBA Letter I at 3. 

100See IDTA/MBA Letter I at 3; IDTA/MBA Letter 

II at 3. 

101See SIFMA Letter I at 3. 

102See SIFMA Letter I at 4. CCLF is a rules-based, 

committed liquidity resource designed to enable 

FICC to meet its cash settlement obligations in the 

event of a default of the member or family of 

affiliated members to which FICC has the largest 

exposure in extreme but plausible market 

conditions. See MBSD Rule 17, supra note 15. 

103As part of the Proposed Rule Change, FICC 

filed Exhibit 3—FICC Impact Studies. Pursuant to 

17 CFR 240.24b–2, FICC requested confidential 

treatment of Exhibit 3. 

104See Notice, supra note 3 at 79545. 

105See FICC Letter at 6. 

106See id. 

107See id. 

108See id. 

109See id. 

110See id. 

111See FICC Letter at 6–7. 

112See FICC Letter at 7. 

113See id. 

114See FICC Letter 5. 

115See FICC Letter at 7. 

116See id. 

117 17 CFR 240.17Ad–22(e). 

would set a member’s VaR Charge as the 

greater of the model-based calculation, 

current VaR Floor haircut, and the 

minimum margin amount, members 

would always need to be prepared to 

fund the minimum margin amount, 

which makes it difficult for members to 

identify and evaluate the material costs 

associated with their trading 

activities.96 Two commenters argue that 

the Proposed Rule Change did not 

discuss the anticipated impacts on 

members’ cost to do business or 

disparate impacts between large and 

small members.97 One commenter 

argues that enhancing the model-based 

calculation would better enable 

members to understand the causes of 

increased margin requirements than the 

minimum margin amount.98 One 

commenter claims that at the time of its 

comment letter, FICC had not yet 

provided members with updated impact 

studies demonstrating that as 2020 

market volatility stabilized, the 

minimum margin amount and modelbased calculation became more 

aligned.99 One commenter claims that 

FICC has not explained which entities 

contributed to the March and April 2020 

backtesting deficiencies, or how any 

reduced Backtesting Charges during the 

impact study period were equitably 

distributed among members.100 One 

commenter states that while the 

proposed lookback period for the 

minimum margin amount would be two 

years, the period FICC appears to have 

used to determine a deficit in the 

desired 99 percent coverage ratio is only 

one month.101 Finally, one commenter 

argues that the minimum margin 

amount is difficult to evaluate because 

FICC did not discuss whether the 

minimum margin amount would cause 

additional member obligations with 

respect to FICC’s Capped Contingency 

Liquidity Facility (‘‘CCLF’’).102

In response to the comments, the 

Commission notes that FICC provided a 

detailed member-level impact analysis 

of the minimum margin amount as part 

of the Proposed Rule Change filing.103

FICC discussed the impact analysis in 

the narrative of the Proposed Rule 

Change in general terms to avoid 

disclosing confidential member 

information.104

Additionally, FICC responds that it 

has provided its members with 

explanations regarding the effects of the 

minimum margin amount, including 

updated impact study data through the 

fourth quarter of 2020.105 FICC further 

states that it provides ongoing tools and 

resources to assist its members to 

determine their margin requirements 

and the anticipated impact of the 

minimum margin amount.106

Specifically, FICC maintains the Real 

Time Matching Report Center, Clearing 

Fund Management System, and FICC 

Customer Reporting service, which are 

member-accessible websites for 

accessing risk reports and other risk 

disclosures.107 These websites enable a 

member to view and download margin 

requirement information and 

component details.108 The reporting 

enables a member to view, for example, 

a portfolio breakdown by CUSIP, 

including the amounts attributable to 

the model-based calculation.109 In 

addition, members are able to view and 

download spreadsheets that contain 

market amounts for current clearing 

positions, and the associated VaR 

Charge.110 FICC also maintains the FICC 

Risk Client Portal, which is a memberaccessible website that enables members 

to view and analyze certain risks related 

to their portfolios, including daily 

customer reports and calculators to 

assess the risk and margin impact of 

certain activities.111 FICC maintains the 

FICC Client Calculator that enables 

members to enter ‘‘what-if’’ position 

data and recalculate their VaR Charge to 

determine margin impact before trade 

execution.112 Finally, the FICC Client 

Calculator allows members to see the 

impact to the VaR Charge if specific 

transactions are executed, or to 

anticipate the impact of an increase or 

decrease to a current clearing 

position.113

Regarding the comment that although 

the proposed lookback period for the 

minimum margin amount would be two 

years, the period FICC appears to have 

used to determine a deficit in the 

desired 99 percent coverage ratio is only 

one month, FICC states that the 

minimum margin amount lookback 

period is for the model calibration, 

whereas the backtesting coverage 

calculation is based on rolling 12 

months.114

Finally, regarding CCLF, FICC states 

margin requirements and CCLF 

obligations are not directly related, and 

each is designed to account for different 

risks.115 Margin requirements are 

designed to address the market risk 

inherent in each member’s portfolio and 

mitigate potential losses to FICC 

associated with liquidating a member’s 

portfolio in a default scenario. CCLF is 

a rules-based liquidity tool designed to 

ensure that MBSD has sufficient 

liquidity resources to complete 

settlement in the event of the failure of 

FICC’s largest member (including 

affiliates). FICC does not believe that 

CCLF procedures or member obligations 

would need to be modified as a result 

of implementing the minimum margin 

amount.116

For the foregoing reasons, the 

Commission disagrees with the 

comments stating that the Proposed 

Rule Change does not provide sufficient 

information to enable members to 

identify and evaluate the risks and other 

material costs they incur by 

participating in FICC or that the 

Proposed Rule Change does not allow 

members to predict the minimum 

margin amount’s impact on their 

activities. The Commission 

acknowledges that, as some commenters 

have noted, the Proposed Rule Change 

does not provide or specify the actual 

models or calculations that FICC would 

use to determine the minimum margin 

amount. However, when adopting the 

CCA Standards,117 the Commission 

declined to adopt a commenter’s view 

that a covered clearing agency should be 

required to provide, at least quarterly, 

its methodology for determining initial 

margin requirements at a level of detail 

adequate to enable participants to 

replicate the covered clearing agency’s 

calculations, or, in the alternative, that 

the covered clearing agency should be 

required to provide a computational 

method with the ability to determine the 

initial margin associated with changes 

to each respective participant’s portfolio 

or hypothetical portfolio, participant 

defaults and other relevant information. 

The Commission stated that 

‘‘[m]andating disclosure of this 


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35864 Federal Register / Vol. 86, No. 127 / Wednesday, July 7, 2021 / Notices 

118See CCA Standards Adopting Release, supra 

note 33, 81 FR at 70845. 

119 17 CFR 240.17Ad–22(e)(23)(ii). 

120 15 U.S.C. 78q–1. 

121 15 U.S.C. 78s(b)(2). 

122 In approving the proposed rule change, the 

Commission considered the proposals’ impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). See also Sections II.A. and II.B. 

123 17 CFR 200.30–3(a)(12). 

frequency and granularity would be 

inconsistent with the principles-based 

approach the Commission is taking in 

Rule 17Ad–22(e).’’ 118 Consistent with 

that approach, the Commission does not 

believe that Rule 17Ad–22(e)(23)(ii) 

would require FICC to disclose its actual 

margin methodology, so long as FICC 

has provided sufficient information for 

its members to understand the potential 

costs and risks associated with 

participating in FICC. 

For the reasons discussed above, the 

Commission believes that the Proposed 

Rule Change would enable FICC to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to provide 

sufficient information to enable 

members to identify and evaluate the 

risks, fees, and other material costs they 

incur as FICC’s members, consistent 

with Rule 17Ad–22(e)(23)(ii).119

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular with the requirements of 

Section 17A of the Act 120 and the rules 

and regulations promulgated 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 121 that 

proposed rule change SR–FICC–2020– 

017, be, and hereby is, approved.122

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.123

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–14390 Filed 7–6–21; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

Reporting and Recordkeeping 

Requirements Under OMB Review 

AGENCY: Small Business Administration. 

ACTION: 30-Day notice. 

SUMMARY: The Small Business 

Administration (SBA) is seeking 

approval from the Office of Management 

and Budget (OMB) for the information 

collection described below. In 

accordance with the Paperwork 

Reduction Act and OMB procedures, 

SBA is publishing this notice to allow 

all interested member of the public an 

additional 30 days to provide comments 

on the proposed collection of 

information. 

DATES: Submit comments on or before 

August 6, 2021. 

ADDRESSES: Written comments and 

recommendations for this information 

collection request should be sent within 

30 days of publication of this notice to 

www.reginfo.gov/public/do/PRAMain. 

Find this particular information 

collection request by selecting ‘‘Small 

Business Administration’’; ‘‘Currently 

Under Review,’’ then select the ‘‘Only 

Show ICR for Public Comment’’ 

checkbox. This information collection 

can be identified by title and/or OMB 

Control Number. 

FOR FURTHER INFORMATION CONTACT: You 

may obtain a copy of the information 

collection and supporting documents 

from the Agency Clearance Office at 

Curtis.Rich@sba.gov; (202) 205–7030, or 

from www.reginfo.gov/public/do/ 

PRAMain. 

SUPPLEMENTARY INFORMATION: On March 

27, 2020, the Coronavirus Aid, Relief 

and Economic Security Act (the CARES 

Act), Public Law 116–136, was enacted 

to provide emergency and immediate 

national economic relief and assistance 

across the American economy, 

including to small businesses, workers, 

families, and the health-care system, to 

alleviate the severe economic hardships 

and public health threat created by the 

2019 Novel Coronavirus pandemic. 

Section 1112 of the CARES Act, as set 

forth in Public Law 116–136, authorizes 

SBA to pay, for a 6-month period, the 

principal, interest, and associated fees 

(subsidy debt relief) to eligible 

borrowers in the 7(a), 504, and 

Microloan Programs. Under Section 325 

of the Economic Aid to Hard-Hit Small 

Businesses, Nonprofits, and Venues Act 

(Economic Aid Act), enacted December 

27, 2020, Public Law 116–260, Congress 

amended and extended the Section 1112 

subsidy debt relief payments subject to 

the availability of funds appropriated by 

Congress. 

The purpose of the Section 1112 

Gross Loan Payment Template allows 

SBA to accurately make payments to the 

lender on behalf of the borrower. 

Therefore, each SBA participating 

lender with an eligible loan(s) must 

submit a request to SBA for each eligible 

loan with the gross monthly payment 

due including accrued interest and 

associated fees due. SBA will reconcile 

those amounts and transmit the funds 

electronically to the lender on behalf of 

the borrower in accordance with the 

provisions set forth in the CARES Act 

and Economic Aid Act. 

Solicitation of Public Comments: 

Comments may be submitted on (a) 

whether the collection of information is 

necessary for the agency to properly 

perform its functions; (b) whether the 

burden estimates are accurate; (c) 

whether there are ways to minimize the 

burden, including through the use of 

automated techniques or other forms of 

information technology; and (d) whether 

there are ways to enhance the quality, 

utility, and clarity of the information. 

Title: CARES Act Section 1112 Gross 

Loan Payment. 

Description of Respondents: 7(a), 504, 

and Microloan Program Participants. 

Estimated Number of Respondents: 

2,965. 

Estimated Annual Responses: 2,965. 

Estimated Annual Hour Burden: 

9,142. 

Curtis Rich, 

Management Analyst. 

[FR Doc. 2021–14395 Filed 7–6–21; 8:45 am] 

BILLING CODE 8026–03–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

[Summary Notice No. 2022–2084] 

Petition for Exemption; Summary of 

Petition Received; Double Helix 

Aviation, LLC. 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Notice. 

SUMMARY: This notice contains a 

summary of a petition seeking relief 

from specified requirements of Federal 

Aviation Regulations. The purpose of 

this notice is to improve the public’s 

awareness of, and participation in, 

FAA’s exemption process. Neither 

publication of this notice nor the 

inclusion nor omission of information 

in the summary is intended to affect the 

legal status of the petition or its final 

disposition. 

DATES: Comments on this petition must 

identify the petition docket number and 

must be received on or before July 27, 

2021. 

ADDRESSES: Send comments identified 

by docket number FAA–2021–0356 

using any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and follow 

the online instructions for sending your 

comments electronically. 


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