Federal Register / Vol. 87, No. 79 / Monday, April 25, 2022 / Notices 24369 

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

2 17 CFR 240.19b–4. 

3Capitalized terms not otherwise defined herein 

are defined in the MBSD Rules, as applicable, 

available at http://www.dtcc.com/legal/rules-andprocedures. 

4Because FICC requested confidential treatment, 

the QRM Methodology was filed separately with the 

Secretary of the U.S. Securities and Exchange 

Commission (‘‘Commission’’) as part of proposed 

rule change SR–FICC–2016–007 (the ‘‘VaR Filing’’). 

See Securities Exchange Act Release No. 79868 

(January 24, 2017), 82 FR 8780 (January 30, 2017) 

(SR–FICC–2016–007) (‘‘VaR Filing Approval 

Order’’). FICC also filed the VaR Filing proposal as 

an advance notice pursuant to Section 806(e)(1) of 

the Payment, Clearing, and Settlement Supervision 

Act of 2010 (12 U.S.C. 5465(e)(1)) and Rule 19b– 

4(n)(1)(i) under the Securities Exchange Act of 

1934, as amended (‘‘Act’’) (17 CFR 240.19b– 

4(n)(1)(i)), with respect to which the Commission 

issued a Notice of No Objection. See Securities 

Exchange Act Release No. 79843 (January 19, 2017), 

82 FR 8555 (January 26, 2017) (SR–FICC–2016– 

801). The QRM Methodology has been amended 

following the VaR Filing Approval Order. See 

Securities Exchange Act Release Nos. 85944 (May 

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

2019–001), 90182 (October 14, 2020) 85 FR 66630 

(October 20, 2020) (SR–FICC–2020–009) and 92303 

(June 30, 2021) 86 FR 35854 (July 7, 2021) (SR– 

FICC–2020–017). 

5A Fail is a Transaction the clearing of which has 

not occurred or has not been reported to FICC as 

having occurred on the Contractual Settlement 

Date, or expiration date, as applicable. See 

definition of ‘‘Fail’’ in MBSD Rule 1, supra note 3. 

for Public Comments’’ or by using the 

search function. Written comments and 

recommendations for the proposed 

information collection should be sent 

within 30 days of publication of this 

notice to (i) www.reginfo.gov/public/do/ 

PRAMain and (ii) David Bottom, 

Director/Chief Information Officer, 

Securities and Exchange Commission, c/ 

o John Pezzullo, 100 F Street NE, 

Washington, DC 20549, or by sending an 

email to: PRA_Mailbox@sec.gov. 

Dated: April 19, 2022. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–08666 Filed 4–22–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94745; File No. SR–FICC– 

2022–002] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Revise the MBSD Clearing Rules To 

Move Certain DRC Items (Mark-toMarket Items, Cash Obligation Items 

and Accrued Principal and Interest) 

From the Required Fund Deposit 

Calculation to Cash Settlement, Revise 

Certain Thresholds and Parameters in 

the Intraday Mark-to-Market Charge, 

Establish a New Intraday VaR Charge 

and Make Certain Other Clarifications 

April 19, 2022. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on April 8, 

2022, Fixed Income Clearing 

Corporation (‘‘FICC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the clearing agency. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

FICC is proposing to amend the 

Mortgage-Backed Securities Division 

(‘‘MBSD’’) Clearing Rules (‘‘MBSD 

Rules’’) 3 to (1)(a) delete the 

Deterministic Risk Component (‘‘DRC’’) 

from the Required Fund Deposit 

calculation, (b) move certain items 

currently in the DRC (Mark-to-Market 

items, cash obligation items and accrued 

principal and interest) to Cash 

Settlement and (c) retain the six days’ 

interest for Fails item currently in the 

DRC calculation as a separate part of the 

Required Fund Deposit, (2) revise the 

definition of Intraday Mark-to Market 

Charge to reflect the movement of the 

DRC items to Cash Settlement and to 

revise certain thresholds and 

parameters, (3) establish a new intraday 

VaR Charge and (4) make other 

clarifying changes in the MBSD Rules, 

as described in more detail below. 

The proposal would also make certain 

conforming changes to the Methodology 

and Model Operations Document— 

MBSD Quantitative Risk Model (the 

‘‘QRM Methodology’’) in order to 

implement the proposed changes to the 

MBSD Rules, which changes are 

attached hereto [sic] as Exhibit 5B, as 

described in greater detail below.4

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

As described in greater detail below, 

FICC is proposing changes to the MBSD 

Rules that would move mark-to-market 

components from Clearing Members’ 

Required Fund Deposits to Cash 

Settlement. While the proposed change 

would impact, in some cases, the form 

of Clearing Members’ payments with 

respect to these obligations, a study 

described in greater detail below 

indicated that the impact to Clearing 

Members with debit balances would not 

be material as compared to their total 

Clearing Fund obligations. 

In connection with this proposed 

change, the proposal would also make 

conforming changes to the definition of 

‘‘Intraday Mark-to-Market Charge’’ and 

would clarify the MBSD Rules regarding 

the thresholds and parameters used in 

collecting this charge. An impact study 

based on the hypothetical assumption 

that MBSD would reduce the thresholds 

to the proposed floors, as described in 

greater detail below, indicated the 

proposal could increase total average 

Intraday Mark-to-Market Charges 

collected by FICC by an amount that 

represented approximately 2.8% of the 

total average Clearing Fund collected on 

those days. 

Finally, the proposal would provide 

greater transparency to Clearing 

Members by introducing a formal 

Intraday VaR Charge, which FICC 

currently collects as a special charge in 

certain market conditions. Again, a 

study conducted to approximate the 

impact of this proposed change 

indicated it could result in an increase 

in amounts collected by FICC, but that 

amount represented approximately less 

than 0.1% of total average Clearing 

Fund collected on the study dates, as 

described in greater detail below. 

These proposed changes to the MBSD 

Rules are summarized below and 

described in greater detail in this filing: 

(1) Move Mark-to-Market related 

charges from the Required Fund Deposit 

calculation to Cash Settlement. FICC is 

proposing to move all of the mark-tomarket components currently in the 

DRC (except for six days’ interest for 

Fails) 5 to Cash Settlement. FICC 

proposes to accomplish this by deleting 

the DRC from the Required Fund 

Deposit calculation and moving certain 

DRC items (Mark-to-Market items, cash 


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24370 Federal Register / Vol. 87, No. 79 / Monday, April 25, 2022 / Notices 

6 In addition to interest that has accrued with 

respect to a Fails position in Clearing Member’s 

portfolio, FICC also collects an additional six days 

of interest that has not yet accrued from the seller 

of any Fail because FICC assumes it could take 

three days to close out the position if the Clearing 

Member fails and the pool allocation process could 

take an additional three days. 

7 Important Notices are available at https://

www.dtcc.com/legal/important-notices. 

8For instance, FICC provides access to the FICC 

Risk Client Portal which is a Clearing Member 

accessible website portal that provides Clearing 

Members the ability, for information purposes, to 

view and analyze certain risks relating to their 

portfolio, including calculators to assess the risk 

and Clearing Fund impact of certain activities. FICC 

maintains the FICC Client Calculator available on 

the FICC Risk Client Portal that provides 

functionality to Clearing Members to enter ‘what-if’ 

position data and recalculate their VaR charge to 

determine margin impact pre-trade execution. The 

FICC Client Calculator allows Clearing 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. 

obligation items and accrued principal 

and interest) to Cash Settlement. One 

item that FICC currently includes in the 

DRC calculations is six days’ interest for 

Fails 6 which will be added directly to 

the Required Fund Deposit calculation 

and not moved to Cash Settlement. 

While these changes would impact 

how Clearing Members pay those 

amounts (i.e., through Cash Settlement 

rather than as part of the Required Fund 

Deposit), these changes would not affect 

the manner in which these items are 

calculated or the amounts that Clearing 

Members are paying with respect to 

these items. All of the items that are 

being moved to Cash Settlement would 

be required to be settled in cash. 

Therefore, the proposed change would 

require that Clearing Members satisfy 

their DRC obligations in cash as part of 

Cash Settlement, rather than through a 

mix of cash and Eligible Clearing Fund 

Securities as is permitted to satisfy 

Required Fund Deposit obligations. 

FICC is proposing these changes in 

order to more closely align FICC’s 

collections to industry practice, in 

response to regulatory feedback on its 

margin methodologies and to ensure the 

unrealized gains from mark-to-market 

changes do not leave the Required Fund 

Deposit insufficient to cover future 

exposure. 

(2) Revise the Intraday Mark-toMarket Charge Definition to reflect 

movement of Mark-to-Market charges to 

Cash Settlement and to revise 

thresholds and parameters. FICC is 

proposing to modify the definition of 

‘‘Intraday Mark-to-Market Charge’’ to 

reflect the proposed movement of the 

Mark-to-Market items and related items 

to Cash Settlement. In addition, FICC is 

proposing to remove the specific 

amounts listed for the dollar threshold 

and the percentage threshold and 

instead put floors in for the dollar 

threshold and percentage threshold. 

FICC is also proposing to remove the 

backtesting coverage target parameter. 

As discussed below, FICC currently has 

the ability to waive such thresholds and 

parameter under certain circumstances 

under the MBSD Rules which it does 

from time to time. However, FICC’s 

current practice is to waive or adjust 

these thresholds and parameter in 

volatile market conditions, as permitted 

by the MBSD Rules. Therefore, these 

proposed changes to the Intraday Markto-Market Charge definition would align 

the MBSD Rules with FICC’s current 

practice in certain circumstances and 

provide Clearing Members with greater 

transparency and certainty regarding the 

application of this charge outside of 

those circumstances. While FICC would 

have the authority to take this charge 

more frequently under the proposal, 

subject to the floors to the thresholds, 

neither the current calculation 

methodology nor the key components of 

the Intraday Mark-to-Market Charge 

would change. 

FICC would also remove the provision 

allowing FICC to collect an Intraday 

Mark-to-Market Charge under certain 

circumstances where a Clearing Member 

meets a certain Surveillance Threshold 

that is set by a Clearing Member’s rating 

on the Credit Risk Rating Matrix. FICC 

currently does not apply that provision 

and does not intend to apply that 

provision in the future. 

FICC believes that the proposed 

changes to the thresholds and 

parameters are consistent with its 

current practices with respect to these 

thresholds and parameters as provided 

in the MBSD Rules and would not have 

a substantial impact on Clearing 

Members. FICC is transparent with 

Clearing Members when it sets and 

waives thresholds and parameters and 

would continue to notify Clearing 

Members through publication of 

Important Notices on its website of the 

current thresholds and parameters it is 

using and of any changes to those 

thresholds and parameters.7 FICC would 

also continue to provide access to 

reports and calculator tools to allow 

Clearing Members to determine impacts 

of certain activity on their Required 

Fund Deposit amounts.8

FICC is proposing to change the 

thresholds and remove the backtesting 

coverage target parameter in order align 

the MBSD Rules with FICC’s current 

practice and to provide FICC with 

greater flexibility to adjust the 

application of the Intraday-Mark-toMarket Charge to better respond to 

changing market conditions and other 

factors in connection with its regular 

reviews of its margining methodologies 

without having to rely on the waiver 

provisions. FICC is proposing to remove 

the provision relating to Surveillance 

Threshold because it is a provision that 

FICC does not currently use and does 

not think is necessary. 

(3) Establish a formal Intraday VaR 

Charge. FICC is proposing to establish a 

formal Intraday VaR Charge in the 

MBSD Rules. FICC currently monitors 

VaR intraday and periodically requires 

intraday VaR collections in the Required 

Fund Deposit under certain conditions 

described below as a special charge. The 

proposed Intraday VaR Charge would 

formalize a charge that FICC is currently 

collecting under its authority to collect 

a special charge. Similar to the proposed 

change to Intraday Mark-to-Market 

Charge parameters and thresholds, this 

proposed change would align the Rules 

with FICC’s current practice and would 

provide Clearing Member’s with greater 

transparency regarding this margin 

charge. However, the proposal would 

not implement substantive or material 

changes to the risk this charge is 

designed to mitigate or to the overall 

methodology or key components of the 

calculation of this charge. As discussed 

below, FICC is proposing to remove the 

discretion to apply the Intraday VaR 

Charge under certain circumstances 

compared to when it implements the 

special charge. As a result, the 

introduction of the Intraday VaR Charge 

would result in more consistent 

intraday VaR collections when 

compared to the current practice, on 

both Securities Industry and Financial 

Markets Association (‘‘SIFMA’’) 

designated settlement dates and nonSIFMA designated settlement dates. 

(4) Make certain clarifying changes. 

FICC is proposing to make certain 

clarifying changes to the MBSD Rules. 

Specifically, FICC would move certain 

definitions so that they are in 

alphabetical order, re-letter certain 

subsections that follow to conform to 

the deletion of certain subsections and 

update certain cross-references to 

improve the readability of the MBSD 

Rules and to reflect other changes set 

forth herein. The proposed clarifying 

changes would not have any substantive 

effect on the Clearing Members because 

such changes are clarifications and will 

not affect the rights or obligations of 

FICC or the Clearing Members. 

FICC would also update the QRM 

Methodology to reflect the proposed 

changes to the MBSD Rules. 


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9 In order to mitigate exposure from certain 

market conditions and other financial and 

operational capabilities of a Clearing Member, FICC 

may impose a special charge. For instance, as 

discussed below, in connection with its intraday 

VaR monitoring, FICC currently imposes a special 

charge if a Clearing Member has an intraday VaR 

increase exceeding 100% and $1 million. 

10MBSD Rule 4 Section 2, supra, note 3. 

11Unregistered Investment Pool Clearing 

Members are subject to a VaR Charge with a 

minimum targeted confidence level assumption of 

99.5 percent. See MBSD Rule 4, Section 2(c), supra 

note 3. 

12Section 2 of MBSD Rule 4 set forth each 

component of the Required Fund Deposit. MBSD 

Rule 4 Section 2, supra, note 3. 

13MBSD Rule 4 Section 2(a), supra, note 3. 

14MBSD Rules 4, Section 2(c)(ii), supra note 3. 

See also definition of ‘‘Deterministic Risk 

Component’’ in MBSD Rule 1, supra note 3. 

15 Definition of ‘‘Deterministic Risk Component’’ 

in MBSD Rule 1, supra note 3. 

16The Basel Committee on Banking Supervision 

and the Board of the International Organization of 

Securities Commissions recognized that the 

exchange of mark-to-market gains/losses ‘‘is a 

prudent risk management tool that limits the buildup of systemic risk’’—particularly for longer-dated 

transactions such as derivatives. See Basel 

Committee on Banking Supervision & Board of the 

International Organization of Securities 

Commissions, Margin Requirements for NonCentrally Cleared Derivatives, at page 7 (2015), 

available at https://www.bis.org/bcbs/publ/ 

d317.pdf. 

17 Definition of ‘‘TBA Transaction Adjustment 

Payment’’ in MBSD Rule 1, supra note 3. 

18MBSD Rule 11, Section 1 and Section 7(a), 

supra note 3. 

(i) Background 

Required Fund Deposit/VaR Charge 

The Required Fund Deposit serves as 

each Clearing Member’s margin. The 

objective of the Required Fund Deposit 

is to mitigate potential losses to FICC 

associated with liquidation of the 

Clearing Member’s portfolio in the event 

that FICC ceases to act for a Clearing 

Member (hereinafter referred to as a 

‘‘default’’). Pursuant to the MBSD Rules, 

each Clearing Member’s Required Fund 

Deposit amount currently consists of the 

greater of (i) the Minimum Charge or (ii) 

the sum of the following components: 

The VaR Charge, the DRC, a special 

charge (to the extent determined to be 

appropriate),9 and, if applicable, the 

Backtesting Charge, Holiday Charge, 

Intraday Mark-to-Market Charge and the 

Margin Liquidity Adjustment Charge.10

Of these components, the VaR Charge 

typically comprises the largest portion 

of a Clearing Member’s Required Fund 

Deposit amount. 

The VaR Charge is calculated using a 

risk-based margin methodology that is 

intended to capture the market price 

risk associated with the securities in a 

Clearing Member’s portfolio. The VaR 

Charge provides an estimate of the 

projected liquidation losses at a 99% 

confidence level. The methodology is 

designed to project the potential gains 

or losses that could occur in connection 

with the liquidation of a defaulting 

Clearing Member’s portfolio, assuming 

that a portfolio would take three days to 

hedge or liquidate in normal market 

conditions. The projected liquidation 

gains or losses are used to determine the 

amount of the VaR Charge, which is 

calculated to cover projected liquidation 

losses at 99% confidence level.11

The aggregate of all Clearing 

Members’ Required Fund Deposits 

constitutes the Clearing Fund of MBSD, 

which FICC would be able to access in 

the event a defaulting Clearing 

Member’s own Required Fund Deposit 

is insufficient to satisfy losses to FICC 

caused by the liquidation of that 

Clearing Member’s portfolio. 

(ii) Proposed Changes 

(a) Proposal To Delete the DRC, Move 

Certain DRC Items (the Mark-to-Market 

Items, Cash Obligation Items, and the 

Accrued Principal and Interest) to Cash 

Settlement and Retain Six Days’ Interest 

for Fails in the Required Fund Deposit 

Calculation 

Mark-to-Market—DRC 

MBSD calculates the full suite of 

components that comprise the Required 

Fund Deposit 12 and imposes the 

Required Fund Deposit once per day, at 

the start of the day, based on a Clearing 

Member’s prior end-of-day positions. 

One of the components of the daily 

Required Fund Deposit is a start-of-day 

Mark-to-Market component,13 which is 

designed to mitigate the risk arising out 

of the value change between the 

contract/settlement value of a Clearing 

Member’s open positions and the 

market value at the end of the prior day. 

Currently, MBSD’s Mark-to-Market 

items, cash obligation items, and 

accrued principal and interest are 

included as the DRC in a Clearing 

Member’s Required Fund Deposit 

calculation.14 When the DRC is 

calculated, a debit or credit is added to 

the Required Fund Deposit amount of 

each Clearing Member raising the 

amount or lowering the amount, 

respectively. 

Move Mark-to-Market, Cash Obligation 

Items and Accrued Principal and 

Interest to Cash Settlement 

The DRC is designed to bring a 

Clearing Member’s portfolio of open 

positions to market value. This charge is 

calculated as (i) the Mark-to-Market 

Debit; minus (ii) the Mark-to-Market 

Credit; plus (iii) a cash obligation item 

debit; minus (iv) a cash obligation item 

credit; plus or minus (v) accrued 

principal and interest.15 FICC also 

includes another parameter, six days’ 

interest for Fails, in the DRC calculation 

which is not explicitly referenced in the 

DRC definition in the MBSD Rules and 

is discussed in more detail below. FICC 

is proposing to move the Mark-toMarket items, cash obligation items, and 

accrued principal and interest from the 

Required Fund Deposit calculation to 

the Cash Settlement process in order to 

more closely align to industry practices 

regarding the handling of mark-tomarket, in response to regulatory 

feedback on its margin methodologies 

and to ensure the unrealized gains from 

mark-to-market changes do not leave the 

Required Fund Deposit insufficient to 

cover future exposure.16

One cash obligation item that would 

be moved from DRC and the Required 

Fund Deposit calculation to Cash 

Settlement is the TBA Transaction 

Adjustment Payment. The TBA 

Transaction Adjustment Payment is the 

difference between the Settlement Price 

and the System Price at settlement of a 

TBA Transaction.17 In connection with 

each TBA Transaction, a Clearing 

Member pays a TBA Transaction 

Adjustment Payment at Cash 

Settlement.18 Currently, the TBA 

Transaction Adjustment Payment 

amount is calculated by FICC beginning 

three days prior to the settlement. The 

pre-settlement calculated TBA 

Transaction Adjustment Payment 

amount is included as a cash obligation 

item which is a component of the DRC 

and included in the Required Fund 

Deposit. The TBA Transaction 

Adjustment Payment amount is paid by 

Clearing Members into the Required 

Fund Deposit each day beginning two 

days prior to the settlement of the TBA 

Transaction and every day until Cash 

Settlement. FICC is proposing to move 

this cash obligation item to daily Cash 

Settlement and, as a result, presettlement TBA Transaction Adjustment 

Payment amounts will be paid by 

Clearing Members beginning two days 

prior to settlement of the TBA 

Transaction through Cash Settlement. 

As a result, the Clearing Member that is 

receiving the TBA Transaction 

Adjustment Payment credits prior to 

settlement of the TBA Transaction will 

pay the amount of overnight interest on 

those funds through Cash Settlement 

which interest amount will then be 

credited to the Clearing Member that 

paid the TBA Transaction Adjustment 

Payment amount. This overnight 

interest will be added as a Cash 

Settlement item in the MBSD Rules. 


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19The schedule of cash settlement for MBSD is 

posted on its website at http://www.dtcc.com. See 

MBSD Rule 11, Section 9(f), supra note 3. 

20See definition of ‘‘Intraday Mark-to-Market 

Charge’’ in MBSD Rule 1, supra note 3. See also 

Securities Exchange Release No. 80253 (March 15, 

2017), 82 FR 14581 (March 21, 2017) (SR–FICC– 

2017–004) (codifying FICC’s practices with respect 

to the assessment and collection of the intraday 

Mark-to-Market charge in the MBSD Rules and 

describing the Intraday Mark-to-Market Charge) 

(‘‘Intraday Mark-to-Market Charge Filing’’). 

21 Id. 

22See Section (b) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

In order to move the Mark-to-Market 

items, cash obligation items, and 

accrued principal and interest from the 

DRC to the Cash Settlement process, 

FICC would change the calculation of 

Cash Settlement to include amounts for 

the following: (i) Amounts of presettlement TBA Transaction Adjustment 

Payments, (ii) the return of the presettlement TBA Transaction Adjustment 

Payments, (iii) accrued overnight 

interest in connection with presettlement TBA Transaction Adjustment 

Payments, (iv) Mark-to-Markets, (v) 

accrued principal and interest payments 

required for any Fail, (vi) the return of 

Mark-to-Market for each Transaction, 

and principal and interest related 

payments for each Fail that was 

collected or paid during the prior Cash 

Settlement Amount, and (vii) accrued 

overnight interest in connection with 

Mark-to-Markets. 

As a result of this change, a Clearing 

Member’s Cash Settlement amount 

would be calculated to include such 

Clearing Member’s pre-settlement TBA 

Transaction Adjustment Payment items, 

Mark-to-Market items, cash obligation 

items, and accrued principal and 

interest. The Cash Settlement amount 

would be a cash-only event that is 

collected or paid (as applicable) by the 

payment deadlines established by FICC. 

FICC currently processes MBSD cash 

settlement debits at 10 a.m. EST daily 

and cash settlement credits at 2:45 p.m. 

EST daily.19

Six Days’ Interest for Fails 

Currently, in addition to interest on 

Fails that has accrued with respect to 

any Fails position, the DRC calculation 

also includes an additional amount 

equal to six days’ interest that has not 

yet accrued for a sell position of a Fail. 

This parameter is not in the MBSD 

Rules. It is reflective of FICC’s current 

practice and it is designed to account for 

the risk that if a Clearing Member with 

a net sell position defaults, FICC would 

make appropriate principal and interest 

payments on an allocated pool that 

settles past record date, in addition to 

the delivery of the related securities to 

the non-defaulting Clearing Member 

with the corresponding buy position. 

FICC collects an additional six days of 

interest from the seller of any Fail 

because FICC assumes it could take 

three days to close out the position and 

the pool allocation process could take 

an additional three days. 

Although FICC is proposing to move 

three of the items of the DRC from the 

Required Fund Deposit calculation to 

MBSD’s Cash Settlement process as 

discussed above, FICC would continue 

to include the six days’ interest for Fails 

as a component in the Required Fund 

Deposit calculation. FICC is proposing 

to keep the six days’ interest for Fails in 

the Required Fund Deposit calculation 

because this amount would not have 

accrued but would continue to mitigate 

additional interest that may accrue in 

the event that FICC must close out the 

position in the event of a Clearing 

Member default. Therefore, the six days’ 

interest for Fails would remain in the 

Required Fund Deposit calculation and 

would be formally added in the MBSD 

Rules. 

(b) Proposal To Revise the Definition of 

Intraday Mark-to-Market Charge 

Intraday Mark-to-Market Charge 

Another component of the daily 

Required Fund Deposit is the Intraday 

Mark-to-Market Charge. During each 

trading day, the exposure a Clearing 

Member’s position presents to FICC may 

change due to the settlement of existing 

transactions and new trade activities 

and as the value of the Clearing 

Member’s portfolio changes due to 

market influences. The DRC is intended 

to cover FICC’s exposure to a Clearing 

Member that is due to market moves 

and/or trading and settlement activity 

by bringing the portfolio of outstanding 

positions up to the market value at the 

end of the prior day. However, because 

the DRC is calculated only once daily 

using the prior end-of-day positions and 

prices, it does not mitigate FICC’s 

exposure arising out of intraday changes 

to a Clearing Member’s positions and to 

the market value of the Clearing 

Member’s portfolio that result in an 

adverse change to the Clearing 

Member’s Mark-to-Market. FICC 

manages this intraday risk exposure by 

observing hourly snapshots of Clearing 

Members’ portfolios from 9:00 a.m. EST 

to 4:00 p.m. EST and monitoring 

intraday changes to each Clearing 

Member’s Mark-to-Market. FICC may 

then collect an Intraday Mark-to-Market 

Charge from Clearing Members to cover 

significant risk exposures that warrant 

the collection of intraday margin 

pursuant to the MBSD Rules. 

FICC currently calculates the Intraday 

Mark-to-Market Charge by tracking three 

criteria (each, a ‘‘Parameter Break’’) for 

each Clearing Member.20 The Parameter 

Breaks help FICC determine whether a 

Clearing Member’s Mark-to-Market 

exposure poses a risk to FICC that is 

significant enough to warrant an 

Intraday Mark-to-Market Charge. The 

objective of the Parameter Breaks is to 

ensure that FICC is able to limit 

exposure to intraday Mark-to-Market 

fluctuations that (a) are of a large dollar 

amount (the ‘‘Dollar Threshold’’), (b) 

exhaust a significant portion of a 

Clearing Member’s VaR Charge (the 

‘‘Percentage Threshold’’) and (c) are 

experienced by Clearing Members with 

backtesting deficiencies that bring 

backtesting results for that Clearing 

Member below the 99 percent 

confidence target (the ‘‘Coverage 

Target’’), indicating that a Clearing 

Member’s activity was not sufficiently 

covered by margin.21

FICC’s current practice is to review 

intraday snapshots of each Clearing 

Member’s portfolios to determine 

whether the Clearing Member has 

experienced a change in its Mark-toMarket exposure that warrants FICC 

assessing an Intraday Mark-to-Market 

Charge. More specifically, if a Clearing 

Member’s Mark-to-Market exposure 

breaches all three Parameter Breaks, the 

Clearing Member will be subject to the 

Intraday Mark-to-Market Charge and 

FICC will collect the charge subject to 

waivers or changes to the amount of the 

calculated charge, as described below. 

However, where FICC determines that 

certain market conditions exist, 

including but not limited to (i) sudden 

swings in an equity index in either 

direction that exceed certain threshold 

amounts determined by FICC and (ii) 

moves in U.S. Treasury yields and 

mortgage-backed security spreads 

outside of historically observed market 

moves, FICC does not require that the 

Coverage Target be breached and FICC 

may reduce the Dollar Threshold and 

the Percentage Threshold if FICC 

determines that such reduction is 

appropriate in order to accelerate 

collection of anticipated additional 

margin from Clearing Members whose 

portfolios may present relatively greater 

risks to FICC on an overnight basis. Any 

such reduction would not cause the 

Dollar Threshold to be less than 

$250,000 and the Percentage Threshold 

to be less than 5 percent.22

Irrespective of market conditions, 

FICC retains the discretion to impose 

the Intraday Mark-to-Market Charge on 


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23See Section (c) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

24See Section (d) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

25 Id. 

26See Section (b) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

27See Section (c) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

28See Section (d) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

29See 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); Securities 

Exchange Act Release No. 92380 (July 13, 2021), 86 

FR 38140 (July 19, 2021) (SR–FICC–2021–006); 

Securities Exchange Release No. 94271 (February 

17, 2022), 87 FR 10411 (February, 24 2022) (SR– 

FICC–2022–001). 

Clearing Members that (i) are 

approaching but have not yet breached 

the Percentage Threshold (but are at 20 

percent or greater of the daily VaR 

Charge) and (ii) have a Mark-to-Market 

exposure that exceeds a certain dollar 

amount (‘‘Surveillance Threshold’’) that 

is set by FICC per Clearing Member 

based on the Clearing Member’s internal 

Credit Risk Rating Matrix (‘‘CRRM’’) 

rating and/or the Clearing Member’s 

Watch List status, if the Corporation 

determines that the size of such Clearing 

Member’s Mark-to-Market change 

exposes the Corporation to increased 

risk (‘‘Surveillance Threshold 

Provision’’).23

Although FICC generally collects the 

Intraday Mark-to-Market Charge under 

the conditions described above, FICC 

retains the discretion to waive or alter 

such Intraday Mark-to-Market Charge in 

circumstances where it determines that 

the Mark-to-Market exposure and/or the 

breaches of the Parameter Breaks do not 

accurately reflect FICC’s risk exposure 

to the Clearing Member’s intraday Markto-Market fluctuation (e.g., Mark-toMarket fluctuation arising from trade 

error).24 Based on FICC’s assessment of 

the impact of these circumstances and 

FICC’s actual risk exposure to a Clearing 

Member, FICC may, in its discretion, 

waive or alter (decrease or increase) an 

Intraday Mark-to-Market Charge for a 

Clearing Member. Given the variability 

of the factors that result in breaches of 

the Parameter Breaks, FICC believes that 

it is important to maintain such 

discretion in order to limit the 

imposition of the Intraday Mark-toMarket Charge to those Clearing 

Members with Mark-to-Market 

exposures that pose a significant level of 

risk to FICC. The MBSD Rules provide 

that such Intraday Mark-to-Market 

Charge as a result of this waiver 

provision would not reduce a Clearing 

Member’s Required Fund Deposit below 

the amount reported at the start of day 

and any increase to the Intraday Markto-Market Charge would not cause the 

Intraday Mark-to-Market Charge to be 

greater than two times its calculated 

amount.25

Revise the Intraday Mark-to-Market 

Charge To Reflect Movement of Mark-toMarket Items to Cash Settlement and To 

Revise Thresholds and Parameters 

FICC is proposing to revise the 

definition of Intraday Mark-to-Market 

Charge in order to reflect the movement 

of the Mark-to-Market items to Cash 

Settlement from the Required Fund 

Deposit. FICC is also proposing to revise 

the Dollar Threshold and the Percentage 

Threshold to remove the specific 

threshold amounts currently listed and 

provide a floor amount for each. In 

addition, FICC is proposing to remove 

the Coverage Target from the definition. 

FICC is proposing each of these 

changes to provide it with greater 

flexibility to change the thresholds that 

apply to the Intraday Mark-to-Market 

Charge. Although the definition 

currently provides FICC the ability to (i) 

change the Dollar Threshold and the 

Percentage Threshold and not consider 

the Coverage Target if certain market 

conditions occur,26 (ii) collect an 

Intraday Mark-to-Market Charge from a 

Clearing Member if it has not breached 

the Percentage Threshold but exceeds a 

certain dollar threshold based on the 

Clearing Member’s CRRM rating 27 and 

(iii) waive or alter the imposition of the 

Intraday Mark-to-Market Charge under 

certain circumstances,28 FICC would 

like the ability to change the default 

thresholds that apply from time to time 

(subject to a floor) rather than rely on 

the set percentages because it believes 

that this would allow FICC to more 

quickly adapt to changing market 

conditions and more accurately reflects 

FICC’s current application of the Dollar 

Threshold and Percentage Threshold. 

In addition, FICC’s current practice is 

to waive or adjust the Dollar Threshold 

and parameter in volatile market 

conditions, as permitted by the MBSD 

Rules. Therefore, these proposed 

changes to the Intraday Mark-to-Market 

Charge definition would align the 

MBSD Rules with FICC’s current 

practice in certain circumstances and 

provide Clearing Members with greater 

transparency and certainty regarding the 

application of this charge outside of 

those circumstances. While FICC would 

have the authority to take this charge 

more frequently under the proposed 

changes, subject to the threshold floors, 

neither the current calculation 

methodology nor the key components of 

the Intraday Mark-to-Market Charge 

would change. 

FICC has relied on the waiver 

provisions in the definition and reduced 

the thresholds from time to time on a 

case-by-case basis. FICC believes that 

removing the set percentages and 

providing a floor of not less than 

$1,000,000 for the Dollar Threshold and 

not less than 10 percent of the daily VaR 

Charge for the Percentage Threshold, 

would align the MBSD Rules with 

FICC’s current practice in certain 

circumstances and give Clearing 

Members a better understanding of the 

default thresholds that FICC is using to 

determine whether to apply the Intraday 

Mark-to-Market Charge. FICC is 

transparent with Clearing Members 

when it sets and waives thresholds and 

parameters and would continue to 

notify Clearing Members of the current 

thresholds and parameters it is using 

and of any changes to those thresholds 

and parameters. FICC would also 

continue to provide reports and tools to 

allow Clearing Members to determine 

impacts of certain activity on their 

Required Fund Deposit amounts. 

FICC would notify Clearing Members 

by important notice of the Dollar 

Threshold and Percentage Threshold 

that it would be applying and upon 

changes to those thresholds. Changes to 

such parameters and thresholds would 

be subject to FICC’s model risk 

management governance procedures set 

forth in the Clearing Agency Model Risk 

Management Framework which include 

daily backtesting of model performance, 

periodic sensitivity analyses of models 

and annual validation of models 

(‘‘Model Risk Management 

Framework’’).29 Initially, upon 

implementation of the proposed 

changes, FICC would continue to use 

the same Dollar Threshold ($1,000,000) 

and the same Percentage Threshold 

(30%) that it is currently using in 

determining whether to apply the 

Intraday Mark-to-Market Charge. 

Remove the Coverage Target 

FICC is also proposing to remove the 

Coverage Target from the definition 

because it believes that it is not 

necessary with the other Parameter 

Breaks. In addition, in volatile market 

conditions an Intraday Mark-to-Market 

Charge may be appropriate even if a 

Clearing Member is meeting the 


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30See Section (b) of the definition of ‘‘Intraday 

Mark-to-Market Charge’’ in MBSD Rule 1, supra 

note 3. 

31See Intraday Mark-to-Market Charge Filing 

supra note 20. 

32FICC would continue to monitor intraday 

volatility in increments throughout the day, and the 

calculation of the Intraday VaR Charge would be 

done at those intervals. Similar to the Intraday 

Mark-to-Market Charge, collections may occur 

multiple times throughout the day, as determined 

from time to time by FICC. 33See supra note 29. 

established Coverage Target. This 

concept is already reflected in Section 

(b) of the definition of Intraday Mark-toMarket Charge 30 which provides FICC 

the ability to not consider the Coverage 

Target. FICC has relied on the waiver 

provisions in the definition and not 

considered the Coverage Target on a 

case-by-case basis. FICC believes that 

removing the Coverage Target would 

align the MBSD Rules with FICC’s 

current practice and also provide greater 

transparency into FICC’s application of 

the Intraday Mark-to-Market Charge 

rather than relying on the waiver 

provision in Section (b) on a case-bycase basis giving Clearing Members a 

better understanding of the default 

thresholds that FICC is using to 

determine whether to apply the Intraday 

Mark-to-Market Charge. 

Remove the Surveillance Threshold 

Provision 

FICC is also proposing to remove the 

Surveillance Threshold Provision. The 

Surveillance Thresholds were intended 

as a tool to aid FICC in identifying 

Clearing Members whose Mark-toMarket exposures may necessitate the 

collection of an Intraday Mark-to-Market 

Charge.31 However, FICC does not 

currently apply the Surveillance 

Threshold Provision and does not 

intend to apply the Surveillance 

Threshold Provision in the future, 

Therefore, FICC believes that removing 

the provision would align the MBSD 

Rules with FICC’s current practice. 

(c) Proposal To Introduce the Intraday 

VaR Charge 

Intraday VaR Collections 

MBSD observes hourly snapshots 

from 8:00 a.m. EST to 4:00 p.m. EST of 

Clearing Members’ portfolios to monitor 

large changes due to SIFMA TBA 

settlement activity. If a Clearing 

Member’s portfolio has an intraday VaR 

Charge increase exceeding 100% and $1 

million from the start-of-day VaR 

Charge, FICC may assess a special 

charge, typically on SIFMA designated 

settlement dates, and require the 

Clearing Member to make an intraday 

payment to the Required Fund Deposit. 

A Clearing Member may also be subject 

to an intraday VaR collection via a 

special charge on any non-SIFMA 

designated settlement date if the 

Clearing Member’s portfolio has an 

intraday VaR Charge increase exceeding 

100% and $1 million and it is deemed 

by FICC that the increase in VaR could 

lead to a backtesting deficiency or push 

a Clearing Member below 99% backtest 

coverage. 

Establish Intraday VaR Charge 

FICC is proposing to amend the 

MBSD Rules to include a formal 

Intraday VaR Charge. More specifically, 

FICC is proposing to utilize its existing 

intraday monitoring to determine when 

the difference between a Clearing 

Member’s (1) start of day VaR Charge, 

collected on that Business Day as part 

of the Clearing Member’s start of day 

Required Fund Deposit based on that 

Clearing Member’s prior end-of-day 

positions, and (2) a calculation of the 

VaR Charge based on that Clearing 

Member’s adjusted intraday positions as 

of a point intraday between the 

collection of the start of day Required 

Fund Deposit and end of day settlement, 

exceeds a certain percentage or dollar 

amount.32 FICC has occasionally 

observed significant intraday changes to 

market price volatility and significant 

changes to the size and composition of 

Clearing Members’ portfolios that could 

cause the amount collected as the VaR 

Charge at the start of that Business Day 

to no longer be sufficient to mitigate the 

volatility risks that such positions 

present to FICC. Therefore, FICC 

believes it is appropriate to implement 

an Intraday VaR Charge that, similar to 

the current Intraday Mark-to-Market 

Charge and the intraday VaR collections 

pursuant to the special charge, may be 

collected by FICC when certain 

thresholds are met. 

The Intraday VaR Charge would be 

collected when (1) the start of day VaR 

Charge, collected on that Business Day 

as part of the Clearing Member’s start of 

day Required Fund Deposit based on 

that Clearing Member’s prior end-of-day 

positions, and (2) a calculation of the 

VaR Charge based on that Clearing 

Member’s adjusted intraday positions as 

of a point intraday between the 

collection of the start of day Required 

Fund Deposit and end of day settlement, 

exceeds a certain percentage threshold 

and dollar amount. As with the current 

intraday VaR monitoring and collections 

through the special charge, the initial 

percentage threshold and dollar amount 

to be used by FICC would be 100% and 

$1 million. FICC could adjust the 

percentage amount and dollar threshold 

or other parameters from time to time as 

appropriate in order to continue to 

reflect a threshold that mitigates the 

volatility risks that such positions 

present to FICC. Changes to the Intraday 

VaR Charge thresholds would be subject 

to FICC’s model risk management 

governance procedures set forth in the 

Model Risk Management Framework.33

FICC would update Clearing Members 

by important notice if the default 

thresholds or parameters for the 

Intraday VaR Charge are changed. 

As discussed above, FICC currently 

may impose a special charge on nonSIFMA designated settlement dates if a 

Clearing Member’s portfolio has an 

intraday VaR Charge increase exceeding 

100% and $1 million and it is deemed 

by FICC that the increase in VaR could 

lead to a backtesting deficiency or push 

a Clearing Member below 99% backtest 

coverage. FICC would impose the 

Intraday Var Charge using the same 

methodology on SIFMA-designated 

settlement dates and non SIFMAdesignated settlement dates. As a result, 

FICC would begin charging the Intraday 

VaR Charge on both SIFMA designated 

settlement dates and non-SIFMA 

designated settlement dates if the 

thresholds are crossed regardless of 

whether the increase in VaR could lead 

to a backtesting deficiency or push a 

Clearing Member below 99% backtest 

coverage. 

Portfolio compositions in MBSD can 

change materially between the day 

before settlement and the settlement 

date, when components of the portfolio 

settle. FICC has implemented an 

intraday market price risk surveillance 

process to monitor the change in market 

price risk associated with settlement 

risk. The portfolio that is currently 

margined intraday includes the actual 

settled positions and the intraday 

trades/positions that have been 

transacted, providing FICC with the 

accurate portfolio to margin and 

measure whether the Intraday VaR 

Charge should be applied. 

(d) Proposed Clarifying Changes 

FICC is proposing to make certain 

clarifying changes to the MBSD Rules. 

Specifically, FICC would move certain 

definitions so that they are in 

alphabetical order, re-letter certain 

subsections that follow to conform to 

the deletion of certain subsections and 

update certain cross-references to reflect 

other changes set forth herein. The 

proposed clarifying changes would not 

have any substantive effect on the 

Clearing Members because such changes 

are clarifications and will not affect the 


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rights or obligations of FICC or the 

Clearing Members. 

(iii) Detailed Description of the 

Proposed Changes to the MBSD Rules 

(a) Proposed Changes to MBSD Rule 1 

(Definitions) 

FICC is proposing to amend the 

definition of the term ‘‘Aggregated 

Account’’ to reflect that the Mark-toMarket requirements would be included 

in the calculation for the Cash 

Settlement obligations. 

FICC is proposing to delete the term 

‘‘Deterministic Risk Component’’ 

because FICC would eliminate DRC 

from the Required Fund Deposit 

calculation as set forth in MBSD Rule 4 

and move three items DRC to Cash 

Settlement, as described above. 

FICC is proposing to move the 

placement of the term ‘‘Government 

Securities Division Funds-Only Settling 

Bank Member’’ so that it appears in the 

correct alphabetical order. 

FICC is proposing to move the 

placement of the term ‘‘Government 

Securities Issuer Clearing Member’’ so 

that it appears in the correct 

alphabetical order. 

FICC is proposing to revise the term 

‘‘Intraday Mark-to-Market Charge’’ to (i) 

reflect the movement of the DRC items 

to Cash Settlement, (ii) revise the Dollar 

Threshold to be a certain threshold 

dollar amount as determined by FICC 

from time to time subject to a 

$1,000,000 floor, (iii) revise the 

Percentage Threshold to be a certain 

threshold percentage as determined by 

FICC from time to time subject to a 10% 

floor, (iv) remove the Coverage Target, 

(v) remove the Surveillance Threshold 

Provision, as described above and (vi) 

re-letter and change certain crossreferences to reflect the foregoing 

changes. 

FICC is proposing to add the new 

defined term ‘‘Intraday VaR Charge’’. 

This term would be defined as an 

additional charge that is collected from 

a Clearing Member if the difference of 

(i) a Clearing Member’s VaR Charge 

collected pursuant to MBSD Rule 4 and 

(ii) such Clearing Member’s intraday 

VaR calculations exceeds a certain 

percentage threshold and dollar amount 

determined by FICC from time to time 

based on its regular review of margining 

methodologies. 

FICC is proposing to add the 

following terms that would be referred 

to in MBSD Rule 11 which governs the 

Cash Settlement process in connection 

with the movement of the cash 

obligation items and accrued principal 

and interest of the DRC from the 

Required Fund Deposit calculation to 

Cash Settlement: 

‘‘Margin Transaction Adjustment 

Payment Return Interest’’—This term 

would be defined as the overnight 

interest that accrued on the Margin 

Transaction Adjustment Payment for 

each Transaction that was collected or 

paid during the prior Cash Settlement. 

‘‘Margin Transaction Adjustment 

Payment Return’’—This term would be 

defined as the return of Margin 

Transaction Adjustment Payment for 

each Transaction that was collected or 

paid during the prior Cash Settlement. 

‘‘Margin Transaction Adjustment 

Payment Return Interest’’—This term 

would be defined as the overnight 

interest that accrued on the Margin 

Transaction Adjustment Payment for 

each Transaction that was collected or 

paid during the prior Cash Settlement. 

‘‘Mark Return’’—This term would be 

defined as the return of Mark-to-Market 

for each Transaction, and principal and 

interest related payments for each Fail 

that was collected or paid during the 

prior Cash Settlement. 

‘‘Mark Return Interest’’—The term 

‘‘Mark Return Interest’’ means the 

overnight interest that accrued on the 

Mark Return for each Transaction that 

was collected or paid during the prior 

Cash Settlement. 

FICC is proposing to amend the term 

‘‘Mark-to-Market’’ to change the crossreference from MBSD Rule 4 to MBSD 

Rule 11 because the Mark-to-Market 

calculation would be moved to MBSD 

Rule 11 in connection with the 

movement of Mark-to-Market items of 

the DRC from the Required Fund 

Deposit calculation to Cash Settlement. 

FICC is proposing to delete the terms 

‘‘Mark-to-Market Credit’’ and ‘‘Mark-toMarket Debit’’ because those terms are 

only used in the definition of 

‘‘Deterministic Risk Component’’ which 

FICC is proposing to delete in 

connection with the movement of DRC 

items the Required Fund Deposit 

calculation to Cash Settlement. 

(b) Proposed Changes to MBSD Rule 4 

(Clearing Fund and Loss Allocation) 

Section 2 (Required Fund Deposit 

Requirements) 

FICC is proposing to amend this 

section as follows: (i) Move the Mark-toMarket calculation of profits and losses 

(as set forth in subsection (a)) to the 

Cash Settlement process (set forth in 

Section 7 of MBSD Rule 11); (ii); reletter the subsections that follow to 

conform to the deletion of subsection 

(a); (iii) update cross-references; (iv) 

reflect that the definitions of Long 

Position and Short Position would now 

also be used in Rule 11 in connection 

with the movement of the Mark-toMarket calculation to Rule 11; (v) add, 

with respect to a Clearing Member that 

is a seller, an amount equal to six days 

interest for any Fail as a separate item 

in the Required Fund Deposit; (vi) add 

the Intraday VaR Charge as a separate 

line item of the Required Fund Deposit 

to reflect the introduction of the 

Intraday VaR Charge and (vii) capitalize 

‘‘Intraday VaR Charge’’ in new proposed 

Section 2(e) to reflect the introduction 

of the Intraday VaR Charge. 

Proposed New Section 3a (Calculation 

of Intraday VaR Charge and Intraday 

Mark-to-Market Charge) 

FICC is proposing to add this new 

Section 3a to provide it with the 

authority to collect an Intraday VaR 

Charge and the Intraday Mark-to-Market 

Charge from Clearing Members as 

discussed above. In connection with 

this change, FICC would re-letter 

current Sections 3a (Special Provisions 

Relating to Deposits of Cash) and 3b 

(Special Provisions Relating to Deposits 

of Eligible Clearing Fund Securities) in 

order to conform to this proposed new 

Section 3a. The section would provide 

that pursuant to procedures established 

by the FICC, FICC would re-calculate 

intraday, each Business Day, at the 

times established by FICC for this 

purpose, the amount of the Intraday VaR 

Charge and the Intraday Mark-to-Market 

Charge to each Clearing Member’s 

margin portfolio based upon the open 

positions in such margin portfolio at a 

designated time intraday, for purposes 

of establishing whether a Clearing 

Member shall be required to make 

payment of an additional amount to its 

Required Fund Deposit. Such additional 

amounts would be deemed part of the 

Clearing Member’s Required Fund 

Deposit for all purposes under the 

MBSD Rules. 

The section would provide that FICC 

would establish procedures for 

collection of an amount calculated in 

respect of a Clearing Member’s Intraday 

VaR Charge and Intraday Mark-toMarket Charge, including parameters 

regarding threshold amounts that 

require payment, and the form and time 

by which payment is required to be 

made to FICC. Consistent with the 

application of the special charge, FICC 

would also reserve the right to require 

a Clearing Member or Clearing Members 

generally to make additional Intraday 

VaR Charges or Intraday Mark-to-Market 

Charges if FICC determines it to be 

necessary to protect itself and its 

Clearing Members in response to factors 

such as market conditions or financial 

or operational capabilities affecting a 

Clearing Member or Clearing Members 

generally. The methodology for such 


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34See supra note 29. 

35See MBSD Rule 4, supra note 3. 

36The data reflected in the impact study reflects 

only the Clearing Members who had average DRC 

debits over the study period. 

additional Intraday Var Charges or 

Intraday Market Charges would be 

subject to FICC’s model risk 

management governance procedures set 

forth in the Model Risk Management 

Framework. 34

Section 5 (Use of Clearing Fund) 

FICC is proposing to replace the 

reference to ‘‘Section 3a’’ with ‘‘Section 

3b’’ in order to reflect the proposed 

renumbering of Section 3a to 3b 

described above. 

(c) Proposed Changes to MBSD Rule 11 

(Cash Settlement) 

Proposed New Section 7 (Mark-toMarket—Computation of Profits or Loss) 

FICC is proposing to move the Markto-Market calculation (as set forth in 

Section 2(a) of MBSD Rule 4) to 

proposed new Section 7 of MBSD Rule 

11 to reflect the movement of Mark-toMarket to Cash Settlement, as described 

above. This proposed section would be 

further amended to state that on each 

Business Day, profits and/or losses 

would be computed by FICC and such 

amounts would be reflected on a Report 

made available to Clearing Members by 

FICC. The amount reflected would be 

either paid by FICC to the Clearing 

Member or paid by the Clearing Member 

to FICC. 

Section 7 (Computation of Cash Balance 

for Each Account) 

FICC is proposing to re-number this 

current Section 7 as Section 8a to 

conform to the proposed changes to 

move the Mark-to-Market calculation to 

Section 7 in MBSD Rule 11. 

FICC is proposing to amend the Cash 

Balance calculation to include the 

positive and negative amounts of any (i) 

Margin Transaction Adjustment 

Payment, (ii) Margin Transaction 

Adjustment Payment Return, (iii) 

Margin Transaction Adjustment 

Payment Return Interest, (iv) Mark-toMarket; (v) accrued principal and 

interest payments required for any Fail, 

(vi) Mark Return and (vii) Mark Return 

Interest. FICC is proposing to add these 

defined terms in connection with the 

movement of the cash obligation items 

and accrued principal and interest of 

the DRC from the Required Fund 

Deposit calculation to Cash Settlement. 

In connection with these changes, FICC 

would re-letter the remainder of the 

clauses listed in this section. 

Section 8 (Netting of Cash Balances for 

Aggregated Accounts) 

FICC is proposing to re-number this 

current Section 8 as Section 8b to 

conform to the proposed changes to 

move the Mark-to-Market calculation to 

Section 7 in MBSD Rule 11. 

(d) Proposed Change to the Section 

Entitled ‘‘Interpretative Guidance With 

Respect to Watch List Consequences’’ 

FICC is proposing to amend 

subsection 1 (Additional Clearing Fund 

Deposits) of Section A (Clearing FundRelated Consequences) to (i) update the 

reference to Section 2(a) of Rule 4 to 

Section 3a of Rule 4 to reflect the new 

Section 3a; (ii) add a reference to the 

Intraday VaR Charge; (iii) change 

references of ‘‘Surveillance Thresholds’’ 

to ‘‘thresholds’’ to reflect the removal of 

the Surveillance Threshold Provision 

and the definition of Surveillance 

Threshold and to reflect that the 

Intraday VaR Charge may be subject to 

certain thresholds that are not 

‘‘Surveillance Thresholds’’; (iv) delete 

the statement that pursuant to Section 

2(f) of MBSD Rule 4, the Corporation 

may subject a Clearing Member to an 

intraday VaR Charge if the Clearing 

Member is on the Watch List because 

such statement would be redundant 

following the proposed changes just 

described and (v) change cross 

references for subsections 2(c) of MBSD 

Rule 4 to 2(b) to conform to the 

proposed renumbering of subsection 

2(c) of MBSD Rule 4. 

(e) Proposed QRM Methodology 

Changes 

In connection with the proposed 

changes, FICC would modify the QRM 

Methodology to reflect the move of the 

DRC items from the Required Fund 

Deposit calculation to the MBSD Cash 

Settlement process and delete the 

concept of the DRC and to add the six 

days’ interest for any Fail by a seller in 

the Required Fund Deposit calculation. 

(iv) Impact on Clearing Members 

FICC conducted an impact study of 

the proposed changes based on data 

from July 1, 2020 to June 30, 2021 

(‘‘Impact Study’’). The results of the 

Impact Study are described below. 

(a) Proposed Movement of DRC Items to 

Cash Settlement 

FICC does not believe that the 

movement of the DRC items to Cash 

Settlement would have a substantial 

economic impact on Clearing Members 

because the amounts that are currently 

imposed on Clearing Members for the 

DRC items and included in their 

Required Fund Deposit amounts would 

not change. However, pursuant to this 

proposed change such amounts would 

be effectuated as a cash pass-through— 

meaning that, those Clearing Members 

that are in a net debit position would be 

obligated to submit payments that are 

then used to pay Clearing Members in 

a net credit position, and the calculated 

amounts would reflect the difference 

between the contract value of a trade 

and the current market value of the 

security in a Clearing Member’s 

portfolio. The movement would require 

any debits as a result of such 

components to be paid in cash through 

Cash Settlement rather than increasing 

the Required Fund Deposit amount. 

Clearing Members currently may pay a 

portion of the Required Fund Deposit in 

Eligible Clearing Fund Securities.35 As a 

result of the proposed change to move 

the DRC items to Cash Settlement, 

Clearing Members would be required to 

fund any debits as a result of such items 

with cash, rather than through a mix of 

cash and Eligible Clearing Fund 

Securities as is permitted to satisfy 

Required Fund Deposit obligations. 

FICC also believes that while the 

requirement to fund such adjustments 

with cash rather than Eligible Clearing 

Fund Securities may present some 

operational changes for Clearing 

Members, it does not believe such 

changes would have a substantial 

economic effect on such Clearing 

Members because the amounts that the 

Clearing Members are required to pay 

with respect to the DRC obligations 

would not change. Clearing Members 

would be paying the same amounts for 

the Mark-to-Market components 

following the movement of such 

components to Cash Settlement. The 

only impact on Clearing Members 

would be that the Clearing Members 

would be paying such debits as part of 

Cash Settlement rather than as part of 

the Required Fund Deposit. 

Over the Impact Study period, 49 of 

the 102 Clearing Members had an 

overall average DRC debit balance.36 Of 

those 49 Clearing Members, on average, 

26 Clearing Members funded their 

Required Fund Deposit with only cash. 

Therefore, based on the Impact Study 

period data, these 26 Clearing Members 

would not have had to change the form 

of their payment whatsoever with 

respect to the DRC items if the proposed 

change to move these items to Cash 

Settlement had been in effect on those 

dates. 

Of the remaining 23 Clearing 

Members with an average DRC debit 

balance, taking into consideration the 

average ratio of cash and Eligible 

Clearing Fund Securities on deposit in 


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37 15 U.S.C. 78q–1(b)(3)(F). 

38 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i) and (iii). 

39 15 U.S.C. 78q–1(b)(3)(F). 

the Required Fund Deposit for such 

Clearing Members, the amount of the 

DRC debit balance that had been paid in 

Eligible Clearing Fund Securities that 

would need to be paid in cash totaled 

on average $191 million in the aggregate 

for all such Clearing Members and 

approximately $8.3 million for each 

Clearing Member. These amounts 

represent approximately 1.4% of the 

total Clearing Fund collected on those 

dates and an average of 6.7% of those 

Clearing Members’ Clearing Fund 

obligations. 

(b) Changes To Revise the Intraday 

Mark-to-Market Charge 

FICC believes that the changes to 

revise the definition of the Intraday 

Mark-to-Market Charge to remove the 

specific thresholds and provide a floor 

for the Dollar Threshold and the 

Percentage Threshold and to remove the 

Coverage Target from the definition, as 

described above, would not have a 

substantial impact on Clearing 

Members. As discussed above, the 

MBSD Rules currently provide the 

ability to waive or adjust such 

provisions under certain conditions and 

FICC believes that providing more 

flexibility with respect to setting the 

default thresholds would provide more 

transparency to the Clearing Members. 

The proposal to remove the Coverage 

Target from the Intraday Mark-to-Market 

calculation would have resulted in 

approximately 353 additional Intraday 

Mark-to-Market Charges over the study 

period and such additional charges 

would have resulted in an average 

aggregate daily increase of total Intraday 

Mark-to-Market Charges collected by 

approximately $109,822,538. This 

amount represents approximately 0.8% 

of the total average Clearing Fund 

collected on those dates. 

While FICC does not intend to change 

the Dollar Threshold ($1,000,000) or the 

Percentage Threshold (30%) that it is 

currently using upon implementation of 

the proposed changes, it has conducted 

an Impact Study of the results of the 

impact if it were to reduce the 

Percentage Threshold to the proposed 

10% floor. As shown in the Impact 

Study from the period from July 1, 2020 

to June 30, 2021, if FICC were to 

decrease the percentage threshold to 

10% and remove the Coverage Target, 

the Intraday Mark-to-Market Charge 

would have resulted in approximately 

2,522 additional Intraday Mark-toMarket Charges over that period, and 

such charges would have result in an 

average aggregate daily increase of total 

Intraday Mark-to-Market Charges 

collected by approximately 

$376,905,268. This amount represents 

approximately 2.8% of the total average 

Clearing Fund collected on those dates. 

(c) Introduction of the Intraday VaR 

Charge 

The proposed Intraday VaR Charge 

would formalize a charge that FICC is 

currently collecting under its authority 

to collect a special charge. Similar to the 

proposed change to Intraday Mark-toMarket Charge parameters and 

thresholds, this proposed change would 

align the Rules with FICC’s current 

practice and would provide Clearing 

Members with greater transparency 

regarding this margin charge. However, 

the proposal would not implement 

substantive or material changes to the 

risk this charge is designed to mitigate 

or to the overall methodology or key 

components of the calculation of this 

charge. 

As discussed above, FICC would 

begin charging the Intraday VaR Charge 

on both SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates if the thresholds are 

crossed regardless of whether the 

increase in VaR could lead to a 

backtesting deficiency or push a 

Clearing Member below 99% backtest 

coverage. As a result, the introduction of 

the Intraday VaR Charge would result in 

more consistent intraday VaR 

collections when compared to the 

current practice, on both SIFMA 

designated settlement dates and nonSIFMA designated settlement dates. 

The Impact Study showed the 

Intraday VaR Charge would have 

resulted in approximately 126 Intraday 

VaR Charges collected over the Impact 

Study period, and such charges would 

have been an average of $11,663,204, 

which represents less than 0.1% of the 

total average Clearing Fund collected on 

those dates. The Impact Study did not 

indicate that the introduction of the 

Intraday VaR would have an impact on 

any specific Clearing Member type or 

Clearing Members that held particular 

portfolios. 

(d) Clarifying Changes 

The proposed clarifying changes 

would not have any substantive effect 

on the Clearing Members because such 

changes are clarifications and will not 

affect the rights or obligations of FICC 

or the Clearing Members. 

(v) Implementation Timeframe 

FICC would implement the proposed 

changes no later than 60 Business Days 

after the approval of the proposed rule 

change by the Commission and would 

announce the effective date of the 

proposed changes by Important Notice 

posted to its website. As proposed, a 

legend would be added to MBSD Rule 

1, MBSD Rule 4, MBSD Rule 11 and the 

Interpretive Guidance With Respect to 

Watchlist Consequences in the MBSD 

Rules stating that the changes would be 

effective no later than 60 Business Days 

after the approval of the proposed rule 

change by the Commission, that FICC 

would announce the effective date of 

the proposed changes by Important 

Notice posted to its website and that 

once this proposal is implemented the 

legend would automatically be 

removed. 

2. Statutory Basis 

FICC believes that the proposed 

changes are consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a registered clearing agency. In 

particular, FICC believes that the 

proposed changes are consistent with 

Section 17A(b)(3)(F) of the Act,37 and 

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

(e)(6)(iii), each promulgated under the 

Act,38 for the reasons described below. 

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

requires, in part, that the rules of a 

clearing agency be designed to assure 

the safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.39 FICC believes the 

proposed changes are designed to assure 

the safeguarding of securities and funds 

which are in its custody or control or for 

which it is responsible because they are 

designed to enable FICC to better limit 

its exposure to Clearing Members in the 

event of a Clearing Member default, as 

described below. The proposal to move 

DRC items (Mark-to-Market items, cash 

obligation items and accrued principal 

and interest) from the Required Fund 

Deposit calculation to the MBSD Cash 

Settlement process would more closely 

align FICC’s mark-to-market process to 

industry practice and better segregate 

the unrealized gains or losses associated 

with a Clearing Member’s margin 

portfolio from the portion of the margin 

that measures potential future exposure 

and limit the build-up of systemic risk. 

Currently, the Required Fund Deposit 

may be reduced by credits relating to 

unrealized mark-to-market gains. During 

the time between the last margin 

collection and the close out of a 

Clearing Member’s position such gains 

may reduce without a corresponding 

increase in the Required Fund Deposit 

leaving the Required Fund Deposit 

insufficient to cover the future 

exposure. Therefore, FICC believes that 


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40 Id. 

41 15 U.S.C. 78q–1(b)(3)(F). 

42 Id. 

43 15 U.S.C. 78q–1(b)(3)(F). 

44 Id. 

45See 17 CFR 240.17Ad–22(e)(4)(i). 

46 Id. 

moving such mark-to-market items to a 

cash pass-through adjustment is 

consistent with Section 17A(b)(3)(F) of 

the Act.40 FICC believes that the 

changes to revise the definition of the 

Intraday Mark-to-Market Charge to (i) 

remove the specific thresholds and 

provide a floor for the Dollar Threshold 

and the Percentage Threshold and (ii) 

remove the Coverage Target from the 

definition, as described above, is 

designed to assure the safeguarding of 

securities and funds which are in its 

custody or control or for which it is 

responsible because the removal of the 

specific thresholds would provide the 

ability for FICC to adjust the Intraday 

Mark-to-Market Charge default 

thresholds more quickly and effectively 

in response to adverse changes in 

market conditions, consistent with 

Section 17A(b)(3)(F) of the Act.41

FICC believes the proposed change to 

implement an Intraday VaR Charge is 

designed to assure the safeguarding of 

securities and funds which are in its 

custody or control or for which it is 

responsible because it is designed to 

mitigate changes in volatility that could 

occur intraday and increase the risks to 

FICC related to liquidating a Clearing 

Member’s portfolio following that 

Clearing Member’s default. Specifically, 

the proposed Intraday VaR Charge 

would allow FICC to collect financial 

resources to cover its exposures that it 

may face due to increases in volatility 

that occur between collections of startof-day Required Fund Deposits. 

The Clearing Fund is a key tool that 

FICC uses to mitigate potential losses to 

FICC associated with liquidating a 

Clearing Member’s portfolio in the event 

of Clearing Member default. The 

proposed Intraday VaR Charge would 

formalize a charge that FICC is currently 

collecting under its authority to collect 

a special charge. Similar to the proposed 

change to Intraday Mark-to-Market 

Charge parameters and thresholds, this 

proposed change would align the Rules 

with FICC’s current practice and would 

provide Clearing Member’s with greater 

transparency regarding this margin 

charge. While the proposed changes are 

not expected to materially change the 

overall methodology or key components 

of the calculation of this charge, the 

changes would result in more 

consistency in the application of this 

charge on SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates. As discussed above, 

FICC would begin charging the Intraday 

VaR Charge on both SIFMA designated 

settlement dates and non-SIFMA 

designated settlement dates if the 

thresholds are crossed regardless of 

whether the increase in VaR could lead 

to a backtesting deficiency or push a 

Clearing Member below 99% backtest 

coverage. As a result, the introduction of 

the Intraday VaR Charge would result in 

more consistent intraday VaR 

collections when compared to the 

current practice, on both SIFMA 

designated settlement dates and nonSIFMA designated settlement dates. 

Therefore, the proposed change to 

include an Intraday VaR Charge among 

the Clearing Fund components, when 

applicable, would enable FICC to better 

address any changes to market price 

volatility or the size of a Clearing 

Member’s portfolio that occur intraday, 

such that, in the event of Clearing 

Member default, FICC’s operations 

would not be disrupted, and nondefaulting Members would not be 

exposed to losses they cannot anticipate 

or control. In this way, the proposed 

change to implement the Intraday VaR 

Charge is designed to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

FICC or for which it is responsible, 

consistent with Section 17A(b)(3)(F) of 

the Act.42

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

requires, in part, that the rules of a 

clearing agency be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions.43

FICC believes that the proposed changes 

to the Parameter Breaks for the Intraday 

Mark-to-Market Charge and removal of 

the Coverage Target and Surveillance 

Threshold Provision would provide 

greater transparency and improve 

Clearing Members’ understanding of the 

application of the Intraday Market-toMarket Charge by providing that the 

default thresholds could be adjusted, 

subject to a floor, and providing that the 

Coverage Target would no longer be a 

Parameter Break and that the 

Surveillance Threshold Provision, 

which is not currently being applied by 

FICC, would no longer be applicable. 

FICC also believes that the proposal to 

introduce the Intraday VaR Charge, 

which would formalize the intraday 

VaR charge that FICC is currently 

collecting under its authority to collect 

a special charge, would also align the 

MBSD Rules to FICC’s current practices 

and bring greater transparency to 

Clearing Members. In addition, FICC 

believes that the proposal to make 

certain clarifying changes in the MBSD 

Rules and the QRM Methodology are 

consistent with Section 17(A)(b)(3)(F) of 

the Act because such changes would 

enhance the clarity and transparency of 

the MBSD Rules. By enhancing the 

clarity and transparency of the MBSD 

Rules, the proposed changes would 

allow Clearing Members to more 

efficiently and effectively conduct their 

business in accordance with the MBSD 

Rules, which FICC believes would 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, consistent with Section 

17A(b)(3)(F) of the Act.44

Rule 17Ad–22(e)(4)(i) under the Act 45

requires a covered clearing agency to 

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 exposures arising from its 

payment, clearing, and settlement 

processes by maintaining sufficient 

financial resources to cover its credit 

exposure to each participant fully with 

a high degree of confidence. 

FICC believes that the proposed 

changes to move the DRC items to Cash 

Settlement are consistent with Rule 

17Ad–22(e)(4)(i) under the Act because 

the changes would help to ensure that 

FICC maintains sufficient financial 

resources to cover its credit exposure to 

each Clearing Member with a high 

degree of confidence by better 

segregating the unrealized gains or 

losses associated with a Clearing 

Member’s margin portfolio from the 

portion of the margin that measures 

potential future exposure and by 

limiting the build-up of systemic risk. 

By better segregating the unrealized 

gains or losses from the Required Fund 

Deposit and moving the mark-to market 

adjustments to a cash-pass through 

adjustment, FICC believes that the 

proposed changes would help ensure 

that FICC maintains sufficient financial 

resources by calculating and collecting 

margin to cover its credit exposure to 

each Clearing Member with a high 

degree of confidence, consistent with 

Rule 17Ad–22(e)(4)(i) under the Act.46

FICC believes the proposed change to 

add the Intraday VaR Charge would 

enable it to better identify, measure, 

monitor, and, through the collection of 

Clearing Members’ Required Fund 

Deposits, manage its credit exposures to 

Clearing Members by maintaining 

sufficient resources to cover those credit 

exposures fully with a high degree of 

confidence. Specifically, FICC believes 

that the proposed Intraday VaR Charge 

would effectively mitigate the risks 


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47 Id. 

48 17 CFR 240.17Ad–22(e)(6)(i). 49 17 CFR 240.17Ad–22(e)(6)(i). 

50 Id. 

51See 17 CFR 240.17Ad–22(e)(6)(iii). 

52 Id. 

53See 15 U.S.C. 78q–1(b)(3)(I). 

related to intraday increases in volatility 

and would address the increased risks 

FICC may face related to liquidating a 

Clearing Member’s portfolio following 

that Clearing Member’s default. 

The proposed Intraday VaR Charge 

would formalize a charge that FICC is 

currently collecting under its authority 

to collect a special charge. This 

proposed change would align the Rules 

with FICC’s current practice and would 

provide Clearing Member’s with greater 

transparency regarding this margin 

charge. While the proposed changes are 

not expected to materially change the 

overall methodology or key components 

of the calculation of this charge, the 

changes would result in more 

consistency in the application of this 

charge on SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates. As discussed above, 

FICC would begin charging the Intraday 

VaR Charge on both SIFMA designated 

settlement dates and non-SIFMA 

designated settlement dates if the 

thresholds are crossed regardless of 

whether the increase in VaR could lead 

to a backtesting deficiency or push a 

Clearing Member below 99% backtest 

coverage. As a result, the introduction of 

the Intraday VaR Charge would result in 

more consistent intraday VaR 

collections when compared to the 

current practice, on both SIFMA 

designated settlement dates and nonSIFMA designated settlement dates. 

Therefore, FICC believes the proposal 

would enhance FICC’s ability to 

effectively identify, measure and 

monitor its credit exposures and would 

enhance its ability to maintain sufficient 

financial resources to cover its credit 

exposure to each participant fully with 

a high degree of confidence, consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act.47

Rule 17Ad–22(e)(6)(i) under the Act 

requires, in part, 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.48

The Required Fund Deposits are made 

up of risk-based components (as margin) 

that are calculated and assessed daily to 

limit FICC’s credit exposures to Clearing 

Members. FICC believes that the 

proposed changes to move the DRC 

items to Cash Settlement are consistent 

with Rule 17Ad–22(e)(6)(i) under the 

Act because the changes would help to 

ensure that FICC produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market by better 

segregating the unrealized gains or 

losses associated with a Clearing 

Member’s margin portfolio from the 

portion of the margin that measures 

potential future exposure and by 

limiting the build-up of systemic risk. 

By better segregating the unrealized 

mark-to-market gains that currently 

reduce Required Fund Deposits, FICC 

believes that the proposed changes 

would help ensure that FICC maintains 

a risk-based margin system that 

considers, and produces margin levels 

commensurate with, the risks of 

portfolios that experience significant 

mark-to-market volatility on an intraday 

basis, consistent with Rule 17Ad– 

22(e)(6)(i) under the Act.49

FICC’s proposed change to introduce 

an Intraday VaR Charge is designed to 

more effectively address the risks 

presented by significant intraday 

changes to market price volatility or a 

Clearing Member’s portfolio. The 

proposed Intraday VaR Charge would 

formalize a charge that FICC is currently 

collecting under its authority to collect 

a special charge. This proposed change 

would align the Rules with FICC’s 

current practice and would provide 

Clearing Member’s with greater 

transparency regarding this margin 

charge. While the proposed changes are 

not expected to materially change the 

overall methodology or key components 

of the calculation of this charge, the 

changes would result in more 

consistency in the application of this 

charge on SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates. As discussed above, 

FICC would begin charging the Intraday 

VaR Charge on both SIFMA designated 

settlement dates and non-SIFMA 

designated settlement dates if the 

thresholds are crossed regardless of 

whether the increase in VaR could lead 

to a backtesting deficiency or push a 

Clearing Member below 99% backtest 

coverage. As a result, the introduction of 

the Intraday VaR Charge would result in 

more consistent intraday VaR 

collections when compared to the 

current practice, on both SIFMA 

designated settlement dates and nonSIFMA designated settlement dates. 

FICC believes the addition of the 

Intraday VaR Charge would enable FICC 

to assess a more appropriate level of 

margin that accounts for increases in 

these volatility risks that may occur 

intraday. This proposed change is 

designed to assist FICC in maintaining 

a risk-based margin system that 

considers, and produces margin levels 

commensurate with, the risks of 

portfolios that experience significant 

volatility on an intraday basis. 

Therefore, FICC believes the proposed 

change is consistent with Rule 17Ad– 

22(e)(6)(i) under the Act.50

Rule 17Ad–22(e)(6)(iii) under the 

Act 51 requires 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 risk-based 

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. 

FICC believes that the proposed 

changes are consistent with Rule 17Ad– 

22(e)(6)(iii) under the Act cited above 

because moving the DRC items to Cash 

Settlement would better segregate the 

unrealized gains or losses associated 

with a Clearing Member’s margin 

portfolio from the portion of the margin 

that measures potential future exposure 

and limit the build-up of systemic risk. 

Currently, the Required Fund Deposit 

may be reduced by credits relating to 

unrealized mark-to-market gains. During 

the time between the last margin 

collection and the close out of a 

Clearing Member’s position such gains 

may reduce without a corresponding 

increase in the Required Fund Deposit 

leaving the Required Fund Deposit 

insufficient to cover the future 

exposure. As such, by segregating the 

unrealized mark-to-market gains and 

losses from the Required Fund Deposit 

FICC believes that the proposed changes 

are designed to allow FICC to calculate 

amounts that are sufficient to cover 

FICC’s potential future exposure to 

Clearing Members in the interval 

between the last margin collection and 

the close out of positions following a 

participant default, consistent with Rule 

17Ad–22(e)(6)(iii) under the Act.52

(B) Clearing Agency’s Statement on 

Burden on Competition 

FICC does not believe that the 

proposed rule changes would impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the Act.53


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54FICC exercises its ability to waive the Coverage 

Target and lower the Percentage Threshold 

consistently across Clearing Member types based on 

its model risk management governance procedures 

set forth in the Clearing Agency Model Risk 

Management Framework. See supra note 29. For 

instance, FICC may waive the Coverage Target for 

all Clearing Members during volatile market 

conditions if backtesting indicates that such change 

is necessary to ensure its models are accurately 

accessing risk. 55 15 U.S.C. 78q–1(b)(3)(F). 

56 Id. 

57 Id. 

58 15 U.S.C. 78q–1(b)(3)(F). 

FICC believes that the proposal to 

move the DRC items to Cash Settlement 

could impose a burden on competition 

because the proposed change could 

require a Clearing Member to fund 

debits relating to such items with cash 

rather than have the ability to fund all 

or a portion of such debits with Eligible 

Clearing Fund Securities. FICC also 

believes that while the requirement to 

fund such adjustments with cash rather 

than Eligible Clearing Fund Securities 

would present some operational 

changes for Clearing Members it does 

not believe such changes would have a 

substantial economic effect on such 

Clearing Members or otherwise be a 

significant burden on competition 

because the amounts that the Clearing 

Members are required to pay with 

respect to the DRC obligations would 

not change. Clearing Members would be 

paying the same amounts for the Markto-Market components following the 

movement of such components to Cash 

Settlement. The only impact on Clearing 

Members would be that the Clearing 

Members would be paying such debits 

as part of Cash Settlement rather than as 

part of the Required Fund Deposit. 

FICC believes that the changes to the 

Parameter Breaks for the Intraday Markto-Market Charge could have an impact 

on competition. Specifically, the 

removal of the Coverage Target 

Parameter Break and setting a floor for 

the Percentage Threshold that is lower 

than the current default threshold could 

result in the Intraday Mark-to-Market 

Charge being applied more often on 

Clearing Members. However, FICC has 

the ability to waive the Coverage Target 

and lower the Percentage Threshold 

currently under certain conditions.54 In 

addition, the use of the Intraday Markto-Market Charge would be in direct 

relation to the specific risks presented 

by each Clearing Members’ portfolio, 

and each Clearing Member’s Required 

Fund Deposit would continue to be 

calculated with the same parameters 

and at the same confidence level for 

each Clearing Member. Therefore, 

because the impact of the proposal on 

a Clearing Member is related to the 

specific risks presented by that Clearing 

Member’s clearing activity and not on 

the type or size of a Clearing Member, 

FICC believes that any burden on 

competition imposed by the proposed 

change would be both necessary and 

appropriate in furtherance of FICC’s 

efforts to mitigate risks and meet the 

requirements of the Act, as described in 

this filing and further below. 

FICC believes that the proposed 

change to introduce the Intraday VaR 

Charge could have an impact on 

competition. Specifically, FICC believes 

the proposed change could burden 

competition because it would result in 

larger Required Fund Deposit amounts 

for Clearing Members when the Intraday 

VaR Charge is applicable and result in 

a Required Fund Deposit that is greater 

than the amount calculated pursuant to 

the current methodology. 

The impacts of this proposal on a 

particular Clearing Member with respect 

to the Intraday VaR Charge would 

depend on the size and composition of 

the Clearing Member’s portfolio and the 

potential market volatility of positions 

in that portfolio and would not be due 

to the type of legal entity or size of a 

Clearing Member. Therefore, Clearing 

Members that present similar adjusted 

intraday portfolios, regardless of the 

type or size of Clearing Member, would 

have similar impacts on their Required 

Fund Deposit amounts. 

When the Intraday VaR Charge results 

in a larger Required Fund Deposit, the 

proposed change could burden 

competition for Clearing Members that 

have lower operating margins or higher 

costs of capital compared to other 

Clearing Members. However, the 

increase in Required Fund Deposit 

would be in direct relation to the 

specific risks presented by each Clearing 

Member’s adjusted intraday positions, 

and each Clearing Member’s Required 

Fund Deposit would continue to be 

calculated with the same parameters 

and at the same confidence level for 

each Clearing Member. Therefore, 

because the impact of the proposal on 

a Clearing Member is related to the 

specific risks presented by that Clearing 

Member’s clearing activity and not on 

the type or size of a Clearing Member, 

FICC believes that any burden on 

competition imposed by the proposed 

change would be both necessary and 

appropriate in furtherance of FICC’s 

efforts to mitigate risks and meet the 

requirements of the Act, as described in 

this filing and further below. 

FICC believes the above-described 

burden on competition that may be 

created by the proposed changes would 

be necessary in furtherance of the Act, 

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

Act.55

As discussed above, the proposal to 

move DRC items (Mark-to-Market items, 

cash obligation items and accrued 

principal and interest) from the 

Required Fund Deposit calculation to 

the MBSD Cash Settlement process 

would more closely align FICC’s markto-market process to industry practice 

and better segregate the unrealized gains 

or losses associated with a Clearing 

Member’s margin portfolio from the 

portion of the margin that measures 

potential future exposure and limit the 

build-up of systemic risk consistent 

with Section 17A(b)(3)(F) of the Act.56

As discussed above, FICC believes 

that the changes to revise the definition 

of the Intraday Mark-to-Market Charge 

to remove the specific thresholds and 

provide a floor for the Dollar Threshold 

and the Percentage Threshold and to 

remove the Coverage Target from the 

definition, as described above, are 

designed to assure the safeguarding of 

securities and funds which are in its 

custody or control or for which it is 

responsible because they would provide 

the ability for FICC to adjust the 

Intraday Mark-to-Market Charge default 

thresholds more quickly and effectively 

in response to adverse changes in 

market conditions consistent with 

Section 17A(b)(3)(F) of the Act.57 In 

addition, FICC believes that the 

proposed changes to the Parameter 

Breaks for the Intraday Mark-to-Market 

Charge and removal of the Surveillance 

Threshold Provision would also align 

the MBSD Rules to FICC’s current 

practice in certain circumstances and 

provide greater transparency and 

improve Clearing Members’ 

understanding of the application of the 

Intraday Market-to-Market Charge, 

which is also consistent with Section 

17A(b)(3)(F) of the Act, as described 

above.58

In addition, as stated above, the 

proposed Intraday VaR Charge is 

designed to address the risks of 

increases in market price volatility or 

other changes to a Clearing Member’s 

portfolio on an intraday basis that could 

increase the costs to FICC of liquidating 

a Member portfolio in the event of the 

Clearing Member’s default. Specifically, 

the proposed intraday volatility charge 

would allow FICC to collect sufficient 

financial resources to cover its exposure 

that it may face increased costs in 

liquidating positions that experience 

intraday volatility that is not captured 

by the start of day VaR Charge. The 

proposed Intraday VaR Charge would 

formalize a charge that FICC is currently 


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Federal Register / Vol. 87, No. 79 / Monday, April 25, 2022 / Notices 24381 

59 Id. 

60 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i) and (iii). 

61 Id. 

62 17 CFR 240.17Ad–22(e)(4)(i) and (e)(6)(i). 63 15.U.S.C. 78q–1(b)(3)(I). 

collecting under its authority to collect 

a special charge. As discussed above, 

the change would align the Rules with 

FICC’s current practice and would 

provide Clearing Member’s with greater 

transparency regarding this margin 

charge. While the proposed changes are 

not expected to materially change the 

overall methodology or key components 

of the calculation of this charge, the 

changes would result in more 

consistency in the application of this 

charge on SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates. 

Therefore, FICC believes this 

proposed change is necessary and 

appropriate in furtherance of the 

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

the Act, which requires that the MBSD 

Rules be designed to assure the 

safeguarding of securities and funds that 

are in FICC’s custody or control or 

which it is responsible.59

FICC believes these proposed changes 

would also support FICC’s compliance 

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

and (e)(6)(iii) under the Act,60 which 

require FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

(x) 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; (y) 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 (z) 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. 

As described above, FICC believes 

that moving the DRC items to Cash 

Settlement would better address the 

increased risks FICC may face when 

intraday mark-to-market adjustments are 

necessary for a Clearing Member’s 

portfolio. FICC believes that moving 

such mark-to-market adjustments as 

cash pass-through adjustments will 

segregate the unrealized gains or losses 

associated with a Clearing Member’s 

margin portfolio from the portion of the 

margin that measures potential future 

exposure and limit the build-up of 

systemic risk. Currently, the Required 

Fund Deposit may be reduced by credits 

relating to unrealized mark-to-market 

gains. During the time between the last 

margin collection and the close out of a 

Clearing Member’s position such gains 

may reduce without a corresponding 

increase in the Required Fund Deposit 

leaving the Required Fund Deposit 

insufficient to cover the future 

exposure. Therefore, removing such 

mark-to-market adjustments from the 

Required Fund Deposit would better 

limit FICC’s credit exposures to Clearing 

Members, necessary and appropriate in 

furtherance of the requirements of Rules 

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

under the Act.61

As described above, FICC believes the 

introduction of the Intraday VaR Charge 

would allow FICC to employ a riskbased methodology that would address 

the increased risks FICC may face when 

intraday volatility changes a Clearing 

Member’s portfolio such that the VaR 

Charge collected at the start of the day 

no longer addresses the risks these 

positions present to FICC. The proposed 

Intraday VaR Charge would formalize a 

charge that FICC is currently collecting 

under its authority to collect a special 

charge. As discussed above, the change 

would align the Rules with FICC’s 

current practice and would provide 

Clearing Member’s with greater 

transparency regarding this margin 

charge. While the proposed changes are 

not expected to materially change the 

overall methodology or key components 

of the calculation of this charge, the 

changes would result in more 

consistency in the application of this 

charge on SIFMA designated settlement 

dates and non-SIFMA designated 

settlement dates. Therefore, the 

proposed change would better limit 

FICC’s credit exposures to Clearing 

Members, necessary and appropriate in 

furtherance of the requirements of Rules 

17Ad–22(e)(4)(i) and Rule 17Ad– 

22(e)(6)(i) under the Act.62

FICC believes that the abovedescribed burden on competition that 

could be created by the proposed 

change would be appropriate in 

furtherance of the Act because such 

changes have been appropriately 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of FICC or for which 

it is responsible, as described in detail 

above. The proposed movement of the 

DRC items to Cash Settlement and the 

proposed Intraday VaR Charge would 

also enable FICC to produce margin 

levels more commensurate with the 

risks and particular attributes of each 

Clearing Member’s portfolio. 

The proposed changes would do this 

by segregating the unrealized gains in 

Clearing Member’s portfolios as 

discussed above with respect to the 

movement of the DRC items to Cash 

Settlement and by measuring the change 

in volatility that impacts Clearing 

Members’ portfolios and could occur 

intraday with respect to the Intraday 

VaR Charge. Therefore, because the 

proposed changes are designed to 

provide FICC with an appropriate 

measure of the volatility risks presented 

by Clearing Members’ portfolios, FICC 

believes the proposal is appropriately 

designed to meet its risk management 

goals and its regulatory obligations. 

FICC believes it has designed the 

proposed changes in an appropriate way 

in order to meet compliance with its 

obligations under the Act. Specifically, 

the proposals would improve the riskbased margining methodology that FICC 

employs to set margin requirements and 

better limit FICC’s credit exposures to 

its Clearing Members. 

Therefore, FICC does not believe that 

the proposed changes would impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the Act.63

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

In an effort to ensure that Clearing 

Members understand the proposed 

changes, FICC has invited all Clearing 

Members to participate in several 

informational sessions. 

In addition, the FICC Product 

Management, FICC Risk Management 

and FICC Relationship Management 

teams have made themselves available 

to answer individual questions from 

Clearing Members. One Clearing 

Member has expressed concern 

regarding FICC’s proposed change to 

move the Mark-to-Market amount to the 

Cash Settlement process. This Clearing 

Member has noted that the proposed 

change would create a significant 

burden because the change would 

require it to fund the mark-to-market 

differences with cash while under the 

current MBSD Rules, the amount could 

be funded with cash or securities. FICC 

believes that while the requirement to 

fund such adjustments with cash rather 

than Eligible Clearing Fund Securities 

would present some operational 


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24382 Federal Register / Vol. 87, No. 79 / Monday, April 25, 2022 / Notices 

64 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

changes for Clearing Members it does 

not believe such changes would have a 

substantial economic effect on such 

Clearing Members or otherwise be a 

significant burden. Clearing Members 

would be paying the same amounts for 

the Mark-to-Market components 

following the movement of such 

components to Cash Settlement. The 

only impact on Clearing Members 

would be that the Clearing Members 

would be paying such debits as part of 

Cash Settlement rather than as part of 

the Required Fund Deposit. 

FICC has not received or solicited any 

written comments relating to this 

proposal. If any written comments are 

received, they will be publicly filed as 

an Exhibit 2 to this filing, as required by 

Form 19b–4 and the General 

Instructions thereto. 

Persons submitting comments are 

cautioned that, according to Section IV 

(Solicitation of Comments) of the 

Exhibit 1A in the General Instructions to 

Form 19b–4, the Commission does not 

edit personal identifying information 

from comment submissions. 

Commenters should submit only 

information that they wish to make 

available publicly, including their 

name, email address, and any other 

identifying information. 

All prospective commenters should 

follow the Commission’s instructions on 

how to submit comments, available at 

https://www.sec.gov/regulatory-actions/ 

how-to-submit-comments. General 

questions regarding the rule filing 

process or logistical questions regarding 

this filing should be directed to the 

Main Office of the Commission’s 

Division of Trading and Markets at 

tradingandmarkets@sec.gov or 202– 

551–5777. 

III. Date of Effectiveness of the 

Proposed Rule Change, and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be 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 Number SR– 

FICC–2022–002 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–FICC–2022–002. 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 FICC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). 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 Number SR–FICC– 

2022–002 and should be submitted on 

or before May 16, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.64

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–08677 Filed 4–22–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94750; File No. SR– 

CboeEDGX–2022–024] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Extend the 

Current Pilot Program Related to EDGX 

Rule 11.15, Clearly Erroneous 

Executions, to the Close of Business 

on July 20, 2022 

April 19, 2022. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on April 18, 

2022, Cboe EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange filed the 

proposal as a ‘‘non-controversial’’ 

proposed rule change pursuant to 

Section 19(b)(3)(A)(iii) of the Act 3 and 

Rule 19b–4(f)(6) thereunder.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe EDGX Exchange, Inc. (‘‘EDGX’’ 

or the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposed rule 

change to extend the current pilot 

program related to EDGX Rule 11.15, 

Clearly Erroneous Executions, to the 

close of business on July 20, 2022. The 

text of the proposed rule change is 

provided in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

options/regulation/rule_filings/edgx/), 

at the Exchange’s Office of the 

Secretary, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 


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