29834 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3On May 12, 2021, FICC filed this advance notice 

as a proposed rule change (SR–FICC–2021–003) 

with the Commission pursuant to Section 19(b)(1) 

of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b–4 

thereunder, 17 CFR 240.19b–4. A copy of the 

proposed rule change is available at http://

www.dtcc.com/legal/sec-rule-filings.aspx. 

4Capitalized terms not defined herein are defined 

in the Rules, available at http://www.dtcc.com/ 

legal/rules-and-procedures. 

underwriting compensation permitted 

by section 17(e) or 57(k)) received in 

connection with any Co-Investment 

Transaction will be distributed to the 

participants on a pro rata basis based on 

the amounts they invested or 

committed, as the case may be, in such 

Co-Investment Transaction. If any 

transaction fee is to be held by an 

Adviser pending consummation of the 

transaction, the fee will be deposited 

into an account maintained by the 

Adviser at a bank or banks having the 

qualifications prescribed in section 

26(a)(1), and the account will earn a 

competitive rate of interest that will also 

be divided pro rata among the 

participants. None of the Advisers, the 

Affiliated Funds, the other Regulated 

Funds or any affiliated person of the 

Affiliated Funds or the Regulated Funds 

will receive any additional 

compensation or remuneration of any 

kind as a result of or in connection with 

a Co-Investment Transaction other than 

(i) in the case of the Regulated Funds 

and the Affiliated Funds, the pro rata 

transaction fees described above and 

fees or other compensation described in 

Condition 2(c)(iii)(B)(z), (ii) brokerage or 

underwriting compensation permitted 

by section 17(e) or 57(k) or (iii) in the 

case of the Advisers, investment 

advisory compensation paid in 

accordance with investment advisory 

agreements between the applicable 

Regulated Fund(s) or Affiliated Fund(s) 

and its Adviser. 

15. Independence. If the Holders own 

in the aggregate more than 25 percent of 

the Shares of a Regulated Fund, then the 

Holders will vote such Shares in the 

same percentages as the Regulated 

Fund’s other shareholders (not 

including the Holders) when voting on 

(1) the election of directors; (2) the 

removal of one or more directors; or (3) 

any other matter under either the Act or 

applicable State law affecting the 

Board’s composition, size or manner of 

election; provided however, that this 

Condition 15 will not apply to a 

Regulated Fund during any time which 

the Holders in the aggregate own 100% 

of the Shares of such Regulated Fund. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11614 Filed 6–2–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92019; File No. SR–FICC– 

2021–801] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Advance Notice To Add the 

Sponsored GC Service and Make Other 

Changes 

May 27, 2021. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Act’’),2 notice is 

hereby given that on May 12, 2021, 

Fixed Income Clearing Corporation 

(‘‘FICC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the advance notice as described in Items 

I, II and III below, which Items have 

been prepared by the clearing agency.3

The Commission is publishing this 

notice to solicit comments on the 

advance notice from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice consists of 

modifications to the FICC Government 

Securities Division (‘‘GSD’’) Rulebook 

(‘‘Rules’’) 4 in order to (i) add a new 

service offering, which would allow a 

Sponsoring Member to submit for 

clearing Repo Transactions with its 

Sponsored Members on securities that 

are represented by Generic CUSIP 

Numbers and held under a triparty 

custodial arrangement (the ‘‘Sponsored 

GC Service’’), (ii) add language to Rule 

3A to allow FICC to recognize, for 

Capped Contingency Liquidity Facility®

(‘‘CCLF’’) calculation purposes, any 

offsetting settlement obligations as 

between a Sponsoring Member’s netting 

account and its Sponsoring Member 

Omnibus Account to ensure that a 

Sponsoring Member’s CCLF obligation 

is calculated in a manner that more 

closely aligns with the liquidity risk 

associated with Sponsored Member 

Trades, (iii) remove the requirement 

from Section 2 of Rule 3A that a 

Sponsoring Member provide a quarterly 

representation to FICC that each of its 

Sponsored Members is a ‘‘qualified 

institutional buyer’’ as defined in Rule 

144A of the Securities Act of 1933, as 

amended (‘‘Rule 144A’’), or is a legal 

entity that, although not organized as an 

entity specifically listed in paragraph 

(a)(1)(i) of Rule 144A, satisfies the 

financial requirements necessary to be a 

‘‘qualified institutional buyer’’ as 

specified in that paragraph, and (iv) 

make a clarification, certain corrections, 

and certain technical changes, as 

described in greater detail below. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the Advance Notice and discussed any 

comments it received on the Advance 

Notice. 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 and B below, of the most 

significant aspects of such statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants, 

or Others 

FICC reviewed the proposed rule 

change with Sponsoring Members and 

Sponsored Members in order to benefit 

from their expertise. Written comments 

relating to this proposed rule change 

have not been received from the 

Sponsoring Members, Sponsored 

Members or any other person. FICC will 

notify the Commission of any written 

comments received by FICC. 

(B) Advance Notice Filed Pursuant to 

Section 806(e) of the Clearing 

Supervision Act 

Nature of the Proposed Change 

The purpose of the proposed rule 

change is to amend the Rules to (i) add 

a new service offering, the Sponsored 

GC Service, (ii) add language to Rule 3A 

to allow FICC to recognize, for CCLF 

calculation purposes, any offsetting 

settlement obligations as between a 

Sponsoring Member’s netting account 

and its Sponsoring Member Omnibus 

Account to ensure that a Sponsoring 

Member’s CCLF obligation is calculated 

in a manner that more closely aligns 

with the liquidity risk associated with 

Sponsored Member Trades, (iii) remove 

the requirement from Section 2 of Rule 

3A that a Sponsoring Member provide a 

quarterly representation to FICC that 


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5Rule 3A, Section 3(a), supra note 4. 

6Rule 3A, Section 5, supra note 4. The term 

‘‘Sponsored Member Trade’’ means a transaction 

that satisfies the requirements of Section 5 of Rule 

3A and that is (a) between a Sponsored Member and 

its Sponsoring Member or (b) between a Sponsored 

Member and a Netting Member. Rule 1, supra note 

4. 

7The term ‘‘Sponsoring Member Omnibus 

Account’’ means an Account maintained by a 

Sponsoring Member that contains the activity of its 

Sponsored Members that is submitted to FICC. A 

Sponsoring Member may elect to establish one or 

more Sponsoring Member Omnibus Accounts. Each 

Sponsoring Member Omnibus Account may contain 

activity within the meaning of clause (a) of the 

Sponsored Member Trade definition or activity 

within the meaning of clause (b) of such definition. 

The Sponsoring Member Omnibus Account shall be 

separate from the Accounts associated with the 

Sponsoring Member’s activity as a Netting Member 

except as contemplated by Sections 10, 11 and 12 

of Rule 3A and under the Sponsoring Member 

Guaranty. Rule 1, supra note 4. 

8Rule 3A, Sections 5, 6(b), 7(a), 8(a), 8(c), 9(a), 

and 9(c), supra note 4. 

9 In March 2017, there was one Sponsoring 

Member and 1,422 Sponsored Members. See 

Securities Exchange Act Release No. 80236 (March 

14, 2017), 82 FR 14265 (March 17, 2017) (SR–FICC– 

2017–003). The Service currently has 

approximately 27 Sponsoring Members and 

approximately 1,894 Sponsored Members. As of 

March 31, 2017, the aggregate Purchase Price of 

outstanding Sponsored Member Trades was 

approximately $32.2 billion. As of March 31, 2021, 

the aggregate Purchase Price of outstanding 

Sponsored Member Trades was approximately $286 

billion. 

10The U.S. financial market experienced such a 

liquidity drain from the repo market in the 2007– 

2008 financial crisis when the bankruptcy of 

Lehman Brothers gave rise to concerns among cash 

provider institutional firms about the 

creditworthiness of their borrower counterparties. 

See Ben S. Bernanke, The Courage to Act: A Memoir 

of a Crisis and its Aftermath 397 (2017) (discussing 

‘‘the paralyzing uncertainty [on the part of repo 

lenders] about banks’ financial health’’ in 2007 and 

2008). 

11See Securities Exchange Act Release No. 88262 

(February 21, 2020), 85 FR 11401 (February 27, 

2020) (SR–FICC–2019–007). 

12 Gara Afonso et al., Federal Reserve Bank of 

New York, Staff Report No. 918: The Market Events 

of Mid-September 2019 (March 2020), available at 

https://www.newyorkfed.org/medialibrary/media/ 

research/staff_reports/sr918.pdf. 

each of its Sponsored Members is a 

‘‘qualified institutional buyer’’ as 

defined in Rule 144A, or is a legal entity 

that, although not organized as an entity 

specifically listed in paragraph (a)(1)(i) 

of Rule 144A, satisfies the financial 

requirements necessary to be a 

‘‘qualified institutional buyer’’ as 

specified in that paragraph, and (iv) 

make a clarification, certain corrections, 

and certain technical changes, as 

described in greater detail below. 

(i) Background 

Under Rule 3A (Sponsoring Members 

and Sponsored Members), certain 

Netting Members are permitted to 

sponsor, as Sponsoring Members, 

‘‘qualified institutional buyers’’ as 

defined by Rule 144A, and certain legal 

entities that, although not organized as 

entities specifically listed in paragraph 

(a)(1)(i) of Rule 144A, satisfy the 

financial requirements necessary to be 

‘‘qualified institutional buyers’’ as 

specified in that paragraph into FICC/ 

GSD membership.5 Under Rule 3A, a 

Sponsoring Member is permitted to 

submit to FICC for comparison, 

Novation, and netting certain types of 

eligible delivery versus payment 

(‘‘DVP’’) securities transactions 

(‘‘Sponsored Member Trades’’).6 A 

Sponsoring Member is required to 

establish an omnibus account at FICC 

for its Sponsored Members’ positions 

arising from such Sponsored Member 

Trades (‘‘Sponsoring Member Omnibus 

Account’’), which is separate from the 

Sponsoring Member’s regular netting 

accounts.7 For operational and 

administrative purposes, FICC interacts 

solely with the relevant Sponsoring 

Member as processing agent for 

purposes of the day-to-day satisfaction 

of its Sponsored Members’ obligations 

to or from FICC, including their 

securities and funds-only settlement 

obligations.8

The current Sponsoring Member/ 

Sponsored Member Service (the 

‘‘Service’’), which has been in existence 

since 2005, has seen a steady increase 

in the number of Sponsoring Members, 

in the number of Sponsored Members 

and in the volume of Sponsored 

Member Trades over the past three 

years.9 One of the main benefits of the 

Service is that it provides Sponsoring 

Members with the ability to offset on 

their balance sheets their obligations to 

FICC on Sponsored Member Trades 

with their Sponsored Members against 

their obligations to FICC on other 

eligible FICC-cleared activity, including 

trades with other Netting Members. 

In addition, the Service allows 

Sponsoring Members to take lesser 

capital charges for Repo Transactions 

with Sponsored Members than would be 

required were such transactions 

uncleared. 

By alleviating balance sheet and 

capital constraints on Sponsoring 

Members, the Service allows eligible 

institutional firms to engage in greater 

activity than may otherwise be feasible, 

which in turn increases the liquidity 

available in the repo market. Such 

greater liquidity provides stability in the 

market and additionally increases 

potential returns for investors in both 

cash provider institutions and collateral 

provider institutions. For example, the 

increased liquidity the Service provides 

allows investors in institutional firms 

that act as cash provider Sponsored 

Members to invest more of their cash 

than may otherwise be possible outside 

of clearing, which in turn allows such 

investors the ability to earn a greater 

return as a result of their institutional 

firms’ participation in the Service. 

Likewise, for investors in institutional 

firms that act as collateral provider 

Sponsored Members, the increased 

liquidity ensures more consistent 

financing opportunities than may 

otherwise be available outside of 

clearing. Such consistent access to 

financing may increase the amount of 

cash the collateral provider institutional 

firms have to deploy into other 

investment strategies, which in turn 

allows their investors the opportunity to 

earn a greater return as a result of the 

institutional firms’ participation in the 

Service. 

FICC believes that enabling more repo 

transactions to clear through FICC 

mitigates the risk of a large-scale exit by 

institutional firms from the U.S. 

financial market in a stress scenario.10

To that point, during the recent market 

volatility in the first quarter of 2020, the 

Service in fact saw its peak volume of 

approximately $564 billion, rather than 

a decline, and no discernable impact to 

volumes notwithstanding the default of 

a Netting Member. In addition, no 

Sponsored Members defaulted during 

that volatile period. 

In recent years, FICC has taken steps 

to enable Sponsoring Members to 

submit term (rather than overnight) repo 

transactions for clearing. Specifically, in 

2019, the Commission approved rule 

changes that added a new close-out 

mechanism and adjusted the calculation 

of certain funds-only settlement 

amounts for Sponsored Member Trades 

that include haircuts.11 FICC believes 

that having more centrally cleared term 

repo transactions would promote the 

prompt and accurate clearance and 

settlement of securities transactions 

because more securities transactions 

would benefit from FICC’s risk 

management and guaranty of settlement. 

FICC also believes that enabling more 

term (rather than overnight) repo 

activity in the Service can serve to help 

reduce repo rate volatility in the market 

and, in turn, help to avoid events like 

those that occurred in September 2019, 

when a temporary reduction in 

overnight reverse repo activity by 

money market funds, including through 

the Service, contributed in part to the 

repo rate volatility on those days.12

Although the aforementioned rule 

changes have resulted in some 

Sponsoring Members transacting term 

Repo Transactions with certain of their 


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29836 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices 

13FICC has decided to use a new series of Generic 

CUSIP Numbers in connection with the proposed 

Sponsored GC Service rather than utilizing the 

existing Generic CUSIP Numbers employed for GCF 

Repo Transactions in order to avoid any operational 

processing errors that could otherwise result if a 

trade intended for the proposed Sponsored GC 

Service was inadvertently processed as a GCF Repo 

Transaction or vice versa. To that end, a trade 

submitted for the proposed Sponsored GC Service 

would be automatically rejected by FICC if not 

submitted in one of the nine new Generic CUSIP 

Numbers earmarked for the proposed Sponsored GC 

Service, and a GCF Repo Transaction would be 

rejected by FICC if not submitted in one of the nine 

Generic CUSIP Numbers dedicated to the GCF Repo 

Service. 

Sponsored Member clients, FICC has 

received additional feedback from 

several market participants that the 

Service’s current requirement that all 

Sponsored Member Trades be margined 

exclusively in cash through FICC’s 

funds-only settlement process is not 

conducive to certain cash provider 

Sponsored Member clients, particularly 

money market funds and other mutual 

funds, being able to transact term Repo 

Transactions with their Sponsoring 

Members in central clearing. 

Specifically, money market funds and 

other mutual funds are not generally 

operationally equipped to provide or 

receive cash margin in connection with 

their term repo activity (either 

bilaterally or in central clearing). These 

funds depend on transfers of securities 

to maintain required margin, and 

typically rely on a tri-party repo clearing 

bank to administer the collateral 

management on such trades. In 

particular, the tri-party repo clearing 

bank calculates the mark-to-market 

change in value of the securities 

underlying each repo transaction and 

facilitates the transfer of securities 

necessary to ensure the value of the 

securities equals a specified percentage 

of the outstanding principal amount of 

the repo transaction. 

In light of this feedback and in order 

to support more repo activity 

(particularly term repo activity) to be 

able to be transacted in central clearing, 

FICC is proposing to add the Sponsored 

GC Service, which would allow 

Sponsoring Members and their 

Sponsored Member clients to execute 

Repo Transactions with each other on a 

general collateral basis in the same asset 

classes as are currently eligible for 

Netting Members to transact in through 

FICC/GSD’s existing GCF Repo®

Service. Such Repo Transactions would 

be allowed to settle on the tri-party repo 

platform of a Sponsored GC Clearing 

Agent Bank (as defined below) in a 

similar manner to the way Sponsoring 

Members and Sponsored Members settle 

tri-party repo transactions with each 

other outside of central clearing, thereby 

making it more operationally efficient 

for them to transact Repo Transactions 

(particularly term Repo Transactions) 

with each other through FICC. 

(ii) Add a New Service Offering, the 

Sponsored GC Service 

(A) Key Parameters of the Proposed 

Sponsored GC Service 

As described above, a Sponsoring 

Member would be permitted to submit 

to FICC for Novation the End Leg of 

Repo Transactions with its Sponsored 

Member client that would be executed 

in one of a series of new Generic CUSIP 

Numbers that would be registered with 

CUSIP Global Services by FICC in 

connection with the proposed 

Sponsored GC Service (each a 

‘‘Sponsored GC Trade’’). The proposed 

schedule of securities that would be 

eligible under each of the new Generic 

CUSIP Numbers that would be 

established for the proposed Sponsored 

GC Service would be identical to the 

current schedule of securities that are 

eligible under each of the existing 

Generic CUSIP Numbers that is 

currently established for the GCF Repo 

Service, including (i) U.S. Treasury 

Securities maturing in ten (10) years or 

less, (ii) U.S. Treasury Securities 

maturing in thirty (30) years or less, (iii) 

Non-Mortgage-Backed U.S. Agency 

Securities, (iv) Federal National 

Mortgage Association (‘‘Fannie Mae’’) 

and Federal Home Loan Mortgage 

Corporation (‘‘Freddie Mac’’) Fixed Rate 

Mortgage-Backed Securities, (v) Fannie 

Mae and Freddie Mac Adjustable Rate 

Mortgage-Backed Securities, (vi) 

Government National Mortgage 

Association (‘‘Ginnie Mae’’) Fixed Rate 

Mortgage-Backed Securities, (vii) Ginnie 

Mae Adjustable Rate Mortgage-Backed 

Securities, (viii) U.S. Treasury InflationProtected Securities (‘‘TIPS’’) and (ix) 

U.S. Treasury Separate Trading of 

Registered Interest and Principal of 

Securities (‘‘STRIPS’’).13

Consistent with FICC’s processing of 

Repo Transactions in its existing GCF 

Repo Service, each Sponsored GC Trade 

would be required to be fully 

collateralized with securities eligible 

under the applicable Generic CUSIP 

Number and/or cash. However, 

consistent with the existing Service, 

Sponsoring Members and Sponsored 

Members would be permitted to transfer 

a haircut on a Sponsored GC Trade so 

that the value of the securities at the 

Start Leg (the ‘‘GC Start Leg Market 

Value’’) exceeds 100% of the initial 

principal balance of the Sponsored GC 

Trade. 

Consistent with the manner in which 

tri-party repo transactions are settled 

today outside of central clearing, the 

Start Leg of a Sponsored GC Trade 

would settle on a trade for trade basis 

on a Sponsored GC Clearing Agent 

Bank’s tri-party repo platform between 

the Sponsoring Member and the 

Sponsored Member. Novation to FICC of 

the End Leg of a Sponsored GC Trade 

would occur at the time when all of the 

following requirements have been 

satisfied on a given Business Day: (i) 

The trade data on the Sponsored GC 

Trade has been submitted to FICC by the 

Sponsoring Member pursuant to Rule 

6A by the deadline set forth in the 

proposed new Schedule of Sponsored 

GC Trade Timeframes, (ii) the data on 

the Sponsored GC Trade has been 

compared in the Comparison System 

pursuant to Rule 6A, (iii) the Start Leg 

of the Sponsored GC Trade has fully 

settled at the Sponsored GC Clearing 

Agent Bank by the deadline set forth in 

the proposed new Schedule of 

Sponsored GC Trade Timeframes, (iv) 

the Sponsored GC Clearing Agent Bank 

has, pursuant to communication links, 

formats, timeframes, and deadlines 

established by FICC for such purpose, 

provided to FICC a report containing 

such data as FICC may require from 

time to time, including information 

regarding the specific Eligible Securities 

that were delivered in the settlement of 

the Start Leg of the Sponsored GC Trade 

(the ‘‘Purchased GC Repo Securities’’), 

and (v) FICC determines that the data 

contained in such report matches the 

data on the Sponsored GC Trade 

submitted by the Sponsoring Member to 

the Comparison System. 

Accrued repo interest on Sponsored 

GC Trades would be paid and collected 

by FICC on a daily basis. If on any 

Business Day, the market value of the 

Purchased GC Repo Securities is less 

than the GC Start Leg Market Value, 

then the Sponsoring Member or 

Sponsored Member that transferred the 

securities in the Start Leg (the ‘‘GC 

Funds Borrower’’) would be required 

deliver to FICC (and FICC would be 

required to deliver to the GC Funds 

Borrower’s pre-Novation counterparty) 

additional Eligible Securities that are 

represented by the same Generic CUSIP 

Number as the Purchased GC Repo 

Securities (‘‘GC Comparable Securities’’) 

and/or cash, such that the market value 

of the Purchased GC Repo Securities 

(inclusive of the newly transferred 

securities and cash) is at least equal to 

the GC Start Leg Market Value. If on any 

Business Day, the market value of the 

Purchased GC Repo Securities is greater 

than the GC Start Leg Market Value, the 

Sponsoring Member or Sponsored 

Member that received the securities in 


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14FICC does not believe it is appropriate to 

require that each payment and delivery under a 

Sponsored GC Trade be made from (or to) the 

Sponsoring Member to (or from) FICC and 

separately from (or to) FICC to (or from) the 

Sponsored Member because inserting FICC in the 

middle of the payments and deliveries in this 

fashion would require substantial changes in 

operational processes for both Sponsored Members 

and Sponsoring Members. FICC does not believe 

such operational changes to be necessary in light of 

the fact that there can only be two pre-Novation 

counterparties involved in the settlement of a 

Sponsored GC Trade (i.e., the Sponsoring Member 

and its Sponsored Member client), as opposed to 

the multitude of Netting Members that may be 

involved in the settlement of GCF Repo 

Transactions the payment and delivery obligations 

under which are aggregated and netted in FICC’s 

Netting System. For such GCF Repo Transactions, 

insertion of FICC in the middle of the payments and 

deliveries can streamline the settlement process and 

create significant operational efficiencies for 

Netting Members. 

15Rule 3A, supra note 4. 

16See Rule 3A, Section 10, supra note 4. 

17The term ‘‘GCF Interest Rate Mark’’ means, on 

a particular Business Day as regards any GCF Repo 

Transaction that is not scheduled to settle on that 

day, the product of the principal value of the GCF 

Repo Transaction on the Scheduled Settlement Date 

for its End Leg multiplied by a factor equal to the 

absolute difference between the Repo Rate 

established by FICC for such Repo Transaction and 

its Contract Repo Rate, and then multiplied by a 

fraction, the numerator of which is the number of 

calendar days from the current day until the 

Scheduled Settlement Date for the End Leg of the 

Repo Transaction and the denominator of which is 

360. If the Repo Transaction’s Contract Repo Rate 

is greater than its System Repo Rate, then the GCF 

Interest Rate Mark shall be a positive value for the 

Reverse Repo Party, and a negative value for the 

Repo Party. If the Repo Transaction’s Contract Repo 

Rate is less than its System Repo Rate, then the GCF 

Interest Rate Mark shall be a positive value for the 

Repo Party, and a negative value for the Reverse 

Repo Party. The term ‘‘GCF Interest Rate Mark’’ 

means, as regards a GCF Net Settlement Position, 

the sum of all the GCF Interest Rate Mark Payments 

on each of the GCF Repo Transactions that compose 

such position. Rule 1, supra note 4. 

18No other components of funds-only settlement 

would be necessary to apply to Sponsored GC 

Trades because, as described above, (i) all 

Sponsored GC Trades would novate after the 

settlement of the Start Legs of such trades (i.e., not 

during the Forward-Starting Period), (ii) mark-tomarket changes in the value of the securities 

transferred under Sponsored GC Trades would be 

managed by the Sponsored GC Clearing Agent Bank 

on FICC’s behalf (consistent with the manner in 

which GCF Repo Transactions are processed today), 

and (iii) the accrued repo interest on Sponsored GC 

Trades would be passed on a daily basis, as 

described above. 

19Rule 3A, Section 14(c), supra note 4. 

20Rule 3A, Section 11, supra note 4. 

the start leg (the ‘‘GC Funds Lender’’) 

would be required to return to FICC 

(and FICC would be required to return 

to the relevant GC Funds Borrower) 

Purchased GC Repo Securities such that 

the market value of the remaining 

Purchased GC Repo Securities remains 

at least equal to the GC Start Leg Market 

Value. 

Such additional securities and/or cash 

must be delivered within the timeframe 

set forth in the proposed new Schedule 

of Sponsored GC Trade Timeframes. 

Any securities or cash transferred by the 

GC Funds Borrower pursuant to these 

requirements would constitute 

Purchased GC Repo Securities, and any 

Purchased GC Repo Securities 

transferred by the GC Funds Lender 

pursuant to these requirements would, 

following such transfer, no longer 

constitute Purchased GC Repo 

Securities. 

In addition, consistent with the 

processing of Repo Transactions in 

FICC’s existing GCF Repo Service, a GC 

Funds Borrower would be permitted to 

substitute for Purchased GC Repo 

Securities, GC Comparable Securities 

and/or cash within the timeframe set 

forth in the proposed new Schedule of 

Sponsored GC Trade Timeframes. 

In order to facilitate settlement, FICC 

would direct each GC Funds Borrower 

and GC Funds Lender to make any 

payment or delivery due to FICC in 

respect of a Sponsored GC Trade (except 

for certain funds-only settlement 

obligations, as discussed below) directly 

to the relevant Member’s pre-Novation 

counterparty. As a result, each transfer 

of Purchased GC Repo Securities and 

daily repo interest would be made 

directly between the relevant GC Funds 

Borrower and GC Funds Lender through 

the tri-party repo platform of a 

Sponsored GC Clearing Agent Bank.14

To that end, each GC Funds Borrower 

and GC Funds Lender would agree that 

any such direct payment or delivery 

discharges FICC’s obligation to make the 

same payment or delivery. Otherwise, 

all legal rights and obligations as 

between FICC and Sponsoring Members, 

and as between FICC and Sponsored 

Members, would be the same with 

respect to Sponsored GC Trades as with 

respect to Sponsored Member Trades in 

the existing Service, which is governed 

by Rule 3A.15

(B) Risk Management of Sponsored GC 

Trades 

Sponsored GC Trades would be risk 

managed in a similar fashion to 

Sponsored Member Trades in the 

existing Service. 

To mitigate market risk, the VaR 

Charge would be calculated for each 

Sponsored Member client individually 

based on such Sponsored Member 

client’s activity in the existing Service, 

as well as such Sponsored Member 

client’s activity in the proposed 

Sponsored GC Service. The VaR Charge 

for the Sponsoring Member Omnibus 

Account would continue to be the sum 

of the individual VaR Charges for each 

Sponsored Member client, i.e., the 

Sponsoring Member Omnibus Account 

would continue to be gross margined.16

To facilitate FICC’s ability to surveil a 

given Sponsored Member’s FICC-cleared 

activity across its Sponsored GC Trades 

as well as its other Sponsored Member 

Trades within the existing Service, both 

with the same Sponsoring Member and 

across Sponsoring Members (if 

applicable), the same symbol would be 

used to identify the Sponsored Member 

for purposes of trade submission and 

risk management under the proposal. 

In addition, FICC would risk manage 

the mark-to-market risk associated with 

unaccrued repo interest on a Sponsored 

GC Trade in the same way it manages 

such risk in the GCF Repo Service, 

namely through a proposed new GC 

Interest Rate Mark component of fundsonly settlement. This proposed new 

mark would be calculated in the same 

manner as the GCF Interest Rate Mark 

is for GCF Repo Transactions.17 In light 

of the application of the proposed new 

GC Interest Rate Mark to Sponsored GC 

Trades, an Interest Adjustment Payment 

would also be applied to account for 

overnight use of funds by the 

Sponsoring Member or Sponsored 

Member, as applicable, based on such 

party’s receipt from FICC of a Forward 

Mark Adjustment Payment (reflecting a 

GC Interest Rate Mark) on the previous 

Business Day.18

For liquidity risk management, 

Sponsored Member Trades between a 

Sponsoring Member and its Sponsored 

Member in the existing Service do not 

independently create liquidity risk for 

FICC. This is because FICC is not 

required to complete settlement of such 

Sponsored Member Trades in the event 

that either the Sponsoring Member or 

Sponsored Member defaults. In the 

event that the Sponsoring Member 

defaults, Section 14(c) of Rule 3A 

permits FICC to close out (rather than 

settle) the Sponsored Member Trades of 

the defaulter’s Sponsored Members.19

Likewise, if the Sponsored Member 

defaults, FICC is also not required to 

complete settlement. Rather, under 

Section 11 of Rule 3A, FICC may offset 

its settlement obligations to the 

Sponsoring Member against the 

Sponsoring Member’s obligations under 

the Sponsoring Member Guaranty to 

perform on behalf of its defaulted 

Sponsored Member.20

As a result, to the extent a Sponsoring 

Member either (1) runs a matched book 

of Sponsored Members (i.e., enters into 

offsetting Sponsored Member Trades 

with its own Sponsored Members) or (2) 

simply enters into Sponsored Member 

Trades without entering into offsetting 

transactions, it does not increase FICC’s 

liquidity risk. By contrast, if a 

Sponsoring Member enters into an 


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offsetting Repo Transaction with a thirdparty Netting Member that is novated to 

FICC, then that will increase FICC’s 

liquidity risk. This is because, unlike in 

the context of Sponsored Member 

Trades, in the event of the Sponsoring 

Member’s default, FICC is required to 

settle with such third-party Netting 

Member. 

Sponsored GC Trades would impact 

FICC’s liquidity risk similarly to 

Sponsored Member Trades in the 

existing Service in this regard, in that 

liquidity risk to FICC would only be 

increased to the extent the Sponsoring 

Member enters into a Repo Transaction 

with a third-party Netting Member 

(which it may choose to do in order to 

offset the Sponsored GC Trade that it 

executed with its Sponsored Member). 

Accordingly, FICC proposes to manage 

the liquidity risk associated with 

Sponsored GC Trades in the same 

manner that it manages such risk for 

other Sponsored Member Trades. As 

discussed below in Item II(B)(iii), FICC 

is proposing to add language to Rule 3A 

to revise the manner in which it 

calculates a Sponsoring Member’s 

Individual Total Amount for purposes 

of its CCLF obligation, with respect to 

all Sponsored Member Trades, 

including Sponsored GC Trades, in 

order to reflect the fact that Sponsored 

Member Trades do not create liquidity 

risk. 

(C) Proposed Rule Changes 

To effectuate the proposed changes 

described above, FICC would revise 

Rule 1 to add the following new defined 

terms: (1) GC Collateral Return 

Entitlement, (2) GC Collateral Return 

Obligation, (3) GC Comparable 

Securities, (4) GC Daily Repo Interest, 

(5) GC Funds Borrower, (6) GC Funds 

Lender, (7) GC Interest Rate Mark, (8) 

GC Repo Security, (9) GC Start Leg 

Market Value, (10) Purchased GC Repo 

Securities, (11) Sponsored GC Clearing 

Agent Bank, and (12) Sponsored GC 

Trade. 

GC Collateral Return Entitlement 

would mean the entitlement of a 

Sponsoring Member or Sponsored 

Member, as applicable, to receive the 

Purchased GC Repo Securities (as 

defined below) in exchange for cash at 

the End Leg of a Sponsored GC Trade. 

GC Collateral Return Obligation 

would mean the obligation of a 

Sponsoring Member or Sponsored 

Member, as applicable, to deliver the 

Purchased GC Repo Securities in 

exchange for cash at the End Leg of a 

Sponsored GC Trade. 

GC Comparable Securities would 

mean, in relation to a Sponsored GC 

Trade, any GC Repo Securities that are 

represented by the same Generic CUSIP 

Number as the GC Repo Securities that 

were transferred in the Start Leg of the 

Sponsored GC Trade, as set forth in the 

proposed new Schedule of GC 

Comparable Securities. 

GC Daily Repo Interest would mean 

the daily interest amount that is payable 

under a Sponsored GC Trade. 

GC Funds Borrower would mean a 

Sponsoring Member or Sponsored 

Member, as applicable, that has a GC 

Collateral Return Entitlement and 

associated cash payment obligation. 

GC Funds Lender would mean a 

Sponsoring Member or Sponsored 

Member, as applicable, that has a GC 

Collateral Return Obligation and 

associated cash payment entitlement. 

GC Interest Rate Mark would mean, 

on a particular Business Day as regards 

any Sponsored GC Trade where the End 

Leg is not scheduled to settle on that 

day, the product of the principal value 

of the Sponsored GC Trade on the 

Scheduled Settlement Date for its End 

Leg multiplied by a factor equal to the 

absolute difference between the System 

Repo Rate established by FICC for such 

Sponsored GC Trade and its Contract 

Repo Rate, and then multiplied by a 

fraction, the numerator of which is the 

number of calendar days from the 

current day until the Scheduled 

Settlement Date for the End Leg of the 

Sponsored GC Trade and the 

denominator of which is 360. If the 

Sponsored GC Trade’s Contract Repo 

Rate is greater than its System Repo 

Rate, then the GC Interest Rate Mark 

would be a positive value for the GC 

Funds Lender, and a negative value for 

the GC Funds Borrower. If the 

Sponsored GC Trade’s Contract Repo 

Rate is less than its System Repo Rate, 

then the GC Interest Rate Mark would be 

a positive value for the GC Funds 

Borrower, and a negative value for the 

GC Funds Lender. 

GC Repo Security would mean an 

Eligible Security that is only eligible for 

submission to FICC in connection with 

the comparison and Novation of 

Sponsored GC Trades. 

GC Start Leg Market Value would 

mean, in relation to a Sponsored GC 

Trade, the market value of the GC Repo 

Securities transferred in the Start Leg of 

the Sponsored GC Trade, measured as of 

the date of the settlement of the Start 

Leg of such Sponsored GC Trade. 

Purchased GC Repo Securities would 

mean the GC Repo Securities transferred 

by the Sponsoring Member or 

Sponsored Member, as applicable, in 

settlement of the Start Leg of a 

Sponsored GC Trade, plus all cash and 

other GC Repo Securities transferred by 

such Sponsoring Member or Sponsored 

Member pursuant to proposed Sections 

8(b)(ii) and 8(b)(v) of Rule 3A, less any 

GC Repo Securities or cash received by 

the Sponsoring Member or Sponsored 

Member pursuant to proposed Sections 

8(b)(iii) and 8(b)(v) of Rule 3A. 

Sponsored GC Clearing Agent Bank 

would mean a Clearing Agent Bank that 

has agreed to provide FICC, upon 

request, under mutually agreeable 

terms, with clearing services for 

Sponsored GC Trades. 

Sponsored GC Trade would mean, in 

connection with the Sponsored GC 

Service, a Sponsored Member Trade that 

is a Repo Transaction between a 

Sponsored Member and its Sponsoring 

Member involving securities 

represented by a Generic CUSIP Number 

the data on which are submitted to FICC 

by the Sponsoring Member pursuant to 

the provisions of Rule 6A, for Novation 

to FICC pursuant to proposed Section 

7(b)(ii) of Rule 3A. 

FICC also proposes to revise the 

following defined terms in Rule 1: (1) 

Eligible Security, (2) End Leg, (3) 

General Collateral Repo Transaction, (4) 

Generic CUSIP Number, (5) Initial 

Haircut, (4) Interest Adjustment 

Payment, (5) Sponsored Member Trade, 

(6) Start Leg, (7) Forward Mark 

Adjustment Payment, and (8) 

Sponsoring Member Omnibus Account, 

each as described in greater detail 

below. 

FICC proposes to revise the definition 

of Eligible Security to state that a GC 

Repo Security would be deemed to be 

an Eligible Security only in connection 

with a Sponsored GC Trade. 

FICC also proposes to revise the 

definition of End Leg to include a 

definition applicable to Sponsored GC 

Trades. As regards a Sponsored GC 

Trade, End Leg would mean the 

concluding settlement aspects of the 

transaction, involving the retransfer of 

the Purchased GC Repo Securities by 

the GC Funds Lender and the taking 

back of such Purchased GC Repo 

Securities by the GC Funds Borrower. 

Because FICC is revising the definition 

of End Leg to add a definition 

applicable to Sponsored GC Trades, 

FICC would also revise the first 

sentence of the current definition to 

state that it does not apply to Sponsored 

GC Trades by adding the phrase ‘‘or a 

Sponsored GC Trade’’ after ‘‘as regards 

a Repo Transaction other than a GCF 

Repo Transaction (or CCIT Transaction 

as applicable).’’ 

FICC proposes to revise the definition 

of General Collateral Repo Transaction 

to state that General Collateral Repo 

Transaction would mean a Repo 

Transaction, other than a GCF Repo 

Transaction or Sponsored GC Trade 


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(unless the context indicates otherwise), 

with a Generic CUSIP Number. 

FICC also proposes to revise the 

definition of Generic CUSIP Number to 

state that FICC would use separate 

Generic CUSIP Numbers for General 

Collateral Repo Transactions, GCF Repo 

Transactions and Sponsored GC Trades. 

FICC also proposes to revise the 

definition of Initial Haircut to include a 

definition applicable to Sponsored GC 

Trades. As regards any Sponsored GC 

Trade, Initial Haircut would mean any 

difference between (x) the Contract 

Value of the Start Leg of the Sponsored 

GC Trade and (y) the GC Start Leg 

Market Value. Because FICC is revising 

the definition of Initial Haircut to 

include a definition applicable to 

Sponsored GC Trades, FICC would 

revise proposed section (i) in the 

definition to state that proposed section 

(i) would apply to any Sponsored 

Member Trade that is not a Sponsored 

GC Trade by adding the phrase ‘‘that is 

not a Sponsored GC Trade’’ after ‘‘as 

regards any Sponsored Member Trade.’’ 

FICC also proposes to revise the 

definition Interest Adjustment Payment 

to include a definition applicable to 

Sponsored GC Trades. As regards a 

Sponsored GC Trade, Interest 

Adjustment Payment would mean the 

product of the GC Interest Rate Mark 

multiplied by the applicable Overnight 

Investment Rate and then multiplied by 

a fraction, the numerator of which is the 

number of calendar days between the 

previous Business Day and the current 

Business Day and the denominator of 

which is 360. 

FICC proposes to revise the definition 

of Sponsored Member Trade to include 

Sponsored GC Trades. 

FICC also proposes to revise the 

definition of Start Leg to include a 

definition applicable to Sponsored GC 

Trades. As regards a Sponsored GC 

Trade, Start Leg would mean the initial 

settlement aspects of the Transaction, 

involving the transfer of GC Repo 

Securities by the Sponsoring Member or 

Sponsored Member, as applicable, that 

is the GC Funds Borrower and the 

taking in of such GC Repo Securities by 

the Sponsoring Member or Sponsored 

Member, as applicable, that is the GC 

Funds Lender. Because FICC is 

proposing to revise the definition of 

Start Leg to add a definition applicable 

to Sponsored GC Trades, FICC would 

revise that the first sentence of the 

current definition to state that it does 

not apply to Sponsored GC Trades by 

adding the phrase ‘‘or a Sponsored GC 

Trade’’ after ‘‘as regards a Repo 

Transaction other than a GCF Repo 

Transaction.’’ 

FICC also proposes to revise the 

definition of Forward Mark Adjustment 

Payment in Rule 1 to state that it would 

refer to the GC Interest Rate Mark with 

respect to Sponsored GC Trades. 

FICC also proposes to make 

conforming changes to the definition of 

Sponsoring Member Omnibus Account 

to state that it may contain all types of 

Sponsored Member Trades. The current 

definition of Sponsoring Member 

Omnibus Account states that each 

Sponsoring Member Omnibus Account 

may contain activity within the meaning 

of clause (a) of the Sponsored Member 

Trade definition or activity within the 

meaning of clause (b) of such definition. 

In addition, FICC proposes to revise 

the definition of Sponsored GC Service 

in Rule 1 and to revise Section VII 

(Sponsoring Members) of the Fee 

Structure, as described below. 

FICC proposes to revise the definition 

of Sponsored GC Service in Rule 1 to 

state that it would mean the service 

offered by FICC to clear tri-party 

repurchase agreement transactions 

between Sponsoring Members and 

Sponsored Members, as described in 

Rule 3A. Currently, the definition of 

Sponsored GC Service states that it 

means a service to be offered by FICC, 

which has not yet been proposed for 

and would be subject to regulatory 

approval, to clear tri-party repurchase 

agreement transactions between the 

Sponsoring Members and Sponsored 

Members, as shall be described in Rule 

3A. FICC also proposes to remove the 

footnote in the definition of Sponsored 

GC Service, which states that the 

Sponsored GC Service shall be the 

subject of a subsequent rule filing with 

the Commission and that the definition 

of Sponsored GC Service shall be 

revised upon approval of the subsequent 

rule filing, and at that time the footnote 

shall sunset. 

FICC also proposes to revise Section 

VII (Sponsoring Members) of the Fee 

Structure to remove language that states 

that to the extent FICC, in consultation 

with its Board of Directors, does not 

implement the Sponsored GC Service, 

all previously collected Sponsored GC 

Pre-Payment Assessments shall be 

returned to the contributing Sponsoring 

Members in full. FICC also proposes to 

remove the footnote in this section 

which states that the Sponsored GC 

Service shall be the subject of a 

subsequent rule filing with the 

Commission and that Section VII of the 

Fee Structure shall be revised to remove 

the referenced sentence upon approval 

of the subsequent rule filing, and at that 

time the footnote shall sunset. 

In addition, FICC proposes to revise 

Rule 3A, Section 5 (Sponsored Member 

Trades) to state that this section does 

not apply to Sponsored GC Trades. 

Section 5 concerns the types of trades 

that may be submitted as Sponsored 

Member Trades and discusses the 

application of Rule 14 (Forward Trades) 

and Rule 18 (Special Provisions for 

Repo Transactions) to Sponsored 

Member Trades. The requirements that 

Sponsored GC Trades must meet would 

be separately enumerated in Section 7, 

and the provisions of Rules 14 and 18, 

which only apply to transactions 

eligible for FICC’s general netting 

system, would not apply to such 

Sponsored GC Trades. 

FICC also proposes to revise Rule 3A, 

Section 6 (Trade Submission and the 

Comparison System) to state that the 

current Schedule of Timeframes would 

apply to Sponsored Member Trades 

other than Sponsored GC Trades. The 

proposed new Schedule of Sponsored 

GC Trade Timeframes would apply to 

Sponsored GC Trades. 

Section 7 (The Netting System, 

Novation and Guaranty of Settlement) of 

Rule 3A would be revised to create a 

proposed new paragraph (a). The 

proposed new paragraph (a) would 

provide that the current provisions of 

Section 7, which would be reorganized 

as proposed new subparagraphs (i) 

through (iv) of proposed new paragraph 

(a), apply to Sponsored Member Trades 

other than Sponsored GC Trades. These 

provisions concern the netting and 

Novation of Sponsored Member Trades. 

As discussed below, different provisions 

would apply to Sponsored GC Trades. 

Proposed new paragraph (b) of 

Section 7 would only apply to 

Sponsored GC Trades. Proposed new 

subparagraph (i) of proposed new 

paragraph (b) of Section 7 would 

provide that only the End Legs of a 

Sponsored GC Trade may be novated to 

FICC and that a Sponsored GC Trade is 

permitted (but not required) to have an 

Initial Haircut. Proposed new 

subparagraph (ii) of proposed new 

paragraph (b) of Section 7 would 

provide requirements that would have 

to be satisfied in order for a Sponsored 

GC Trade to be novated on a given 

Business Day. The following 

requirements would be included: (A) 

The trade data on the Sponsored GC 

Trade must have been submitted to 

FICC by the Sponsoring Member 

pursuant to Rule 6A by the deadline set 

forth in FICC’s proposed new Schedule 

of Sponsored GC Trade Timeframes, (B) 

the data on the Sponsored GC Trade 

must have been compared in the 

Comparison System pursuant to Rule 

6A, (C) the Start Leg of the Sponsored 

GC Trade must have fully settled at the 

Sponsored GC Clearing Agent Bank by 


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the deadline set forth in FICC’s 

proposed new Schedule of Sponsored 

GC Trade Timeframes, (D) the 

Sponsored GC Clearing Agent Bank 

must have, pursuant to communication 

links, formats, timeframes, and 

deadlines established by FICC for such 

purpose, provided to FICC a report 

containing such data as FICC may 

require from time to time, including 

information regarding the specific GC 

Repo Securities that were delivered in 

settlement of the Start Leg of the 

Sponsored GC Trade, and (E) FICC must 

determine that the data contained in 

such report matches the data on the 

Sponsored GC Trade submitted by the 

Sponsoring Member pursuant to Rule 

6A. Proposed new subparagraph (iii) of 

proposed new paragraph (b) of Section 

7 would state that, on each Business 

Day, FICC would provide each 

Sponsoring Member with one or more 

Reports setting forth (A) each Sponsored 

GC Trade, the data on which has been 

compared in the Comparison System 

and (B) each Sponsored GC Trade, the 

End Leg of which has been novated to 

FICC. Proposed new subparagraph (iv) 

of proposed new paragraph (b) of 

Section 7 would require that each 

Sponsoring Member and Sponsored 

Member acknowledges and agrees that it 

has authorized each relevant Sponsored 

GC Clearing Agent Bank to provide FICC 

with all information and data as FICC 

may require or request from time to time 

in order to novate and process 

Sponsored GC Trades. 

Section 8 (Securities Settlement) of 

Rule 3A would be revised to create a 

new paragraph (a). The proposed new 

paragraph (a) would provide that the 

bulk of the current provisions of Section 

8, which would be reorganized as 

subparagraphs (i) through (vii) of 

proposed new paragraph (a), apply to 

Sponsored Member Trades other than 

Sponsored GC Trades. Those provisions 

concern the process for settling 

Sponsored Member Trades. As 

discussed below, different settlement 

requirements would apply to Sponsored 

GC Trades. 

Proposed new paragraph (b) of 

Section 8 would apply only to 

Sponsored GC Trades. Proposed new 

subparagraph (i) of proposed new 

paragraph (b) of Section 8 would state 

that GC Collateral Return Obligations 

and cash payment obligations associated 

with GC Collateral Return Entitlements 

must be satisfied by a GC Funds Lender 

and GC Funds Borrower, respectively, 

within the timeframes established for 

such by FICC in the proposed new 

Schedule of Sponsored GC Trade 

Timeframes. In addition, any failure by 

the GC Funds Borrower to satisfy its 

cash payment obligations associated 

with GC Collateral Return Entitlements 

within the timeframe established for 

such by FICC in the proposed new 

Schedule of Sponsored GC Trade 

Timeframes would subject the GC 

Funds Borrower to a late fee as if such 

GC Funds Borrower were a Net Funds 

Payor within the meaning of Section IX 

of the Fee Structure (Late Fee Related to 

GCF Repo Transactions). Proposed new 

subparagraph (ii) of proposed new 

paragraph (b) of Section 8 would state 

that if on any Business Day, the market 

value of a GC Funds Borrower’s GC 

Collateral Return Entitlement from the 

previous Business Day (or the current 

Business Day) is less than the GC Start 

Leg Market Value, then such GC Funds 

Borrower would deliver to FICC (and 

FICC would deliver to the relevant GC 

Funds Lender) additional GC 

Comparable Securities and/or cash, 

such that the market value of the GC 

Funds Borrower’s GC Collateral Return 

Entitlement (and the market value of the 

relevant GC Funds Lender’s GC 

Collateral Return Obligation) is at least 

equal to the GC Start Leg Market Value. 

Such additional securities and/or cash 

must be delivered by the GC Funds 

Borrower within the timeframe set forth 

in the proposed new Schedule of 

Sponsored GC Trade Timeframes. 

Proposed new subparagraph (iii) of 

proposed new paragraph (b) of Section 

8 would state that if on any Business 

Day, the market value of a GC Funds 

Lender’s GC Collateral Return 

Obligation from the previous Business 

Day (or the current Business Day) is 

greater than the GC Start Leg Market 

Value, then such GC Funds Lender 

would deliver to FICC (and FICC would 

deliver to the relevant GC Funds 

Borrower) some of the Purchased GC 

Repo Securities, such that the market 

value of the GC Funds Lender’s GC 

Collateral Return Obligation (and the 

market value of the relevant GC Funds 

Borrower’s Collateral Return 

Entitlement) is at least equal to the GC 

Start Leg Market Value. Such Purchased 

GC Repo Securities must be delivered 

within the timeframe set forth in the 

proposed new Schedule of Sponsored 

GC Trade Timeframes. Proposed new 

subparagraph (iv) of proposed new 

paragraph (b) of Section 8 would state 

that each GC Funds Borrower (or if the 

repo rate for the relevant Sponsored GC 

Trade is negative, the GC Funds Lender) 

would, within the timeframe set forth in 

the proposed new Schedule of 

Sponsored GC Trade Timeframes, pay 

the daily accrued GC Daily Repo Interest 

to FICC (and FICC would pay such GC 

Daily Repo Interest to the GC Funds 

Lender or GC Funds Borrower, as 

applicable). Proposed new subparagraph 

(v) of proposed new paragraph (b) of 

Section 8 would state that a GC Funds 

Borrower may substitute cash and/or GC 

Comparable Securities for any 

Purchased GC Repo Securities in 

accordance with the timeframe set forth 

in the proposed new Schedule of 

Sponsored GC Trade Timeframes. 

Proposed new subparagraph (vi) of 

proposed new paragraph (b) of Section 

8 would state that FICC directs each 

Sponsored Member and Sponsoring 

Member to satisfy any payment or 

delivery obligation due to FICC, except 

for any obligation to pay a Funds-Only 

Settlement Amount, by making the 

relevant payment or delivery to an 

account at the relevant Sponsored GC 

Clearing Agent Bank specified by the 

pre-Novation counterparty to the 

Sponsored Member or Sponsoring 

Member, as applicable, in accordance 

with such procedures as the Sponsored 

GC Clearing Agent Bank may specify 

from time to time. Each Sponsored 

Member and Sponsoring Member that is 

owed any such payment or delivery 

from FICC would acknowledge and 

agree that, if the pre-Novation 

counterparty to such Sponsored GC 

Trade makes the relevant payment or 

delivery as described in the prior 

sentence, FICC’s obligation to make 

such payment or delivery would be 

discharged and satisfied in full. 

Proposed new subparagraph (vii) of 

proposed new paragraph (b) of Section 

8 would state that the market value of 

all GC Repo Securities would be 

determined by the relevant Sponsored 

GC Clearing Agent Bank each Business 

Day. 

In addition, FICC proposes to move 

language from current Section 8(a) to 

proposed new Section 8(c). Proposed 

new Section 8(c) would state that 

notwithstanding the foregoing and any 

other activities the Sponsoring Member 

may perform in its capacity as agent for 

Sponsored Members, each Sponsored 

Member would be principally obligated 

to FICC with respect to all securities 

settlement obligations under the Rules, 

and the Sponsoring Member would not 

be a principal under the Rules with 

respect to the settlement obligations of 

its Sponsored Members. This provision 

would apply to both Sponsored GC 

Trades as well as other kinds of 

Sponsored Member Trades. 

FICC also proposes to revise Section 

9 of Rule 3A to state which provisions 

would apply to Sponsored Member 

Trades other than Sponsored GC Trades, 

which provisions would apply only to 

Sponsored GC Trades, and which 

provisions would apply to all 


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Sponsored Member Trades. Specifically, 

FICC proposes to add language to state 

that Section 9(a) applies to Sponsored 

Member Trades other than Sponsored 

GC Trades and current Sections 9(b), (c), 

(d), and (e), which would be reorganized 

as proposed new Sections 9(c)(i), (c)(ii), 

(c)(iii), and (c)(iv), respectively, applies 

to all Sponsored Member Trades. In 

addition, FICC proposes to add a new 

Section 9(b) to Rule 3A, which would 

only apply to Sponsored GC Trades and 

would state that each Sponsoring 

Member and Sponsored Member would 

be obligated to pay to FICC, and/or 

would be entitled to receive from FICC, 

the following amounts: Forward Mark 

Adjustment Payment and Interest 

Adjustment Payment. It would also state 

that such amounts would be payable 

and receivable as though they were 

amounts described in Rule 13. 

FICC proposes to add Section 10(i) to 

Rule 3A that would state that for 

purposes of applying Rule 4 to a 

Sponsoring Member Omnibus Account, 

each Sponsored GC Trade would be 

treated as a GCF Repo Transaction, each 

GC Funds Lender and GC Funds 

Borrower would be treated as a GCF 

Counterparty, and each Sponsored GC 

Clearing Agent Bank would be treated as 

a GCF Clearing Agent Bank. 

FICC would also revise Section 4 of 

Rule 5 (Comparison System) to add 

Sponsored GC Trades. Specifically, 

Section 4 of Rule 5 would be revised to 

state that GCF Repo Transactions and 

Sponsored GC Trades must be 

submitted exactly as executed. 

FICC is also proposing to add a new 

Schedule of Sponsored GC Trade 

Timeframes that would only be 

applicable to Sponsored GC Trades. The 

proposed new Schedule of Sponsored 

GC Trade Timeframes would state that 

the time during which reports would be 

made available with respect to end of 

day Clearing Fund requirements and 

funds-only settlement requirements 

would be from 10:30 p.m. to 2:00 a.m. 

In addition, it would state that 2:00 p.m. 

would be the time during which reports 

would be made available with respect to 

intraday Clearing Fund requirements, 

and intraday funds-only settlement 

requirements. The proposed new 

Schedule of Sponsored GC Trade 

Timeframes would also state that at 

10:00 a.m., funds-only settlement debits 

and credits are executed via the Federal 

Reserve’s National Settlement Service 

and at 4:30 p.m., the intraday fundsonly settlement debits and credits are 

executed via the Federal Reserve’s 

National Settlement Service. 

The proposed new Schedule of 

Sponsored GC Trade Timeframes would 

also state that 9:00 a.m. would be the 

deadline for the GC Funds Borrower to 

satisfy the obligation described in 

proposed Section 8(b)(ii) of Rule 3A in 

accordance with the provisions of 

proposed Section 8(b)(vi) of Rule 3A. It 

would also state that FICC reserves the 

right to also require a GC Funds 

Borrower to satisfy the obligation 

described in proposed Section 8(b)(ii) 

on an intraday basis based on the 

market value of the applicable GC Repo 

Securities as determined by the GC 

Clearing Agent Bank in accordance with 

proposed Section 8(b)(vii) of Rule 3A. It 

would also state that 12:00 p.m. would 

be the deadline for the GC Funds 

Borrower (or if the repo rate for the 

relevant Sponsored GC Trade is 

negative, the GC Funds Lender) to pay 

to FICC the accrued GC Daily Repo 

Interest as described in proposed 

Section 8(b)(iv) in accordance with the 

provisions of proposed Section 8(b)(vi) 

of Rule 3A (unless the End Leg of the 

related Sponsored GC Trade is due to 

settle on the same day). The proposed 

new Schedule of Sponsored GC 

Timeframes would state that any 

accrued GC Daily Repo Interest that is 

due on the settlement day of the End 

Leg of the related Sponsored GC Trade 

would be paid in connection with the 

settlement of the End Leg. 

The proposed new Schedule of 

Sponsored GC Trade Timeframes would 

also state that 5:00 p.m. would be the 

deadline for final input by the 

Sponsoring Members to FICC of 

Sponsored GC Trade data. Furthermore, 

5:30 p.m. would be the deadline for (i) 

full settlement of the Start Leg of the 

Sponsored GC Trade in accordance with 

proposed Section 7(b)(ii)(C) of Rule 3A, 

(ii) substitutions of Purchased GC Repo 

Securities in accordance with proposed 

Section 8(b)(v) of Rule 3A, and (iii) 

satisfaction of GC Collateral Return 

Obligations and cash payment 

obligations associated with GC 

Collateral Return Entitlements by GC 

Funds Lenders and GC Funds 

Borrowers, respectively, in accordance 

with proposed Section 8(b)(i) of Rule 

3A. 

The proposed new Schedule of 

Sponsored GC Trade Timeframes would 

also state that the time by which a GC 

Funds Lender would be required to 

deliver any securities to a GC Funds 

Borrower in connection with proposed 

Section 8(b)(iii) of Rule 3A would be 

determined by the relevant Sponsored 

GC Clearing Agent Bank. Furthermore, it 

would state that all times may be 

extended as needed by FICC to (i) 

address operational or other delays that 

would reasonably prevent members or 

FICC from meeting the deadline or 

timeframe, as applicable, or (ii) allow 

the FICC time to operationally exercise 

its existing rights under the Rules. In 

addition, it would state that times 

applicable to FICC are standards and not 

deadlines and that actual processing 

times may vary slightly, as necessary. 

FICC also proposes to revise the 

Schedule for the Deletion of Trade Data 

to state which provisions would not 

apply to Sponsored GC Trades. In 

addition, FICC would also add language 

to state that trade data on Sponsored GC 

Trades that remain uncompared on a 

given Business Day would pend in the 

Comparison System until FICC’s 

deadline for final input by Sponsoring 

Members of Sponsored GC Trade data 

(as provided in the Schedule of 

Sponsored GC Trade Timeframes) on 

such Business Day. FICC would also 

add language to state that trade data on 

Sponsored GC Trades, which have been 

compared in the Comparison System 

pursuant to Rule 6A but the Start Legs 

of which have not fully settled at a 

Sponsored GC Clearing Agent Bank by 

the deadline set forth in FICC’s 

proposed new Schedule of Sponsored 

GC Trade Timeframes, would be deleted 

from the Comparison System during the 

same processing cycle as the Repo Start 

Date for such Sponsored GC Trades. 

FICC also proposes to revise the 

Schedule of Required Data Submission 

Items to state that items (1) and (2) in 

this schedule would not be required for 

Sponsored Member Trades. 

FICC also proposes to revise the 

following schedules to exclude 

Sponsored GC Trades: (i) Schedule of 

Required and Accepted Data 

Submission Items for a Substitution and 

(ii) Schedule of Required and Accepted 

Data Submission Items for New 

Securities Collateral. 

In addition, as described above, FICC 

would add a proposed new Schedule of 

GC Comparable Securities. 

(iii) Add Language to Rule 3A To Allow 

FICC To Recognize, for CCLF 

Calculation Purposes, Any Offsetting 

Settlement Obligations as Between a 

Sponsoring Member’s Netting Account 

and Its Sponsoring Member Omnibus 

Account To Ensure That a Sponsoring 

Member’s CCLF Obligation is Calculated 

in a Manner That More Closely Aligns 

With the Liquidity Risk Associated With 

Sponsored Member Trades 

As described above, Sponsored 

Member Trades between a Sponsoring 

Member and its Sponsored Member in 

the existing Service do not 

independently create liquidity risk for 

FICC. This is because FICC is not 

required to complete settlement of such 

Sponsored Member Trades in the event 

that either the Sponsoring Member or 


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21Rule 3A, Section 14(c), supra note 4. 

22Rule 3A, Section 11, supra note 4. 

23As described above, a Sponsored GC Trade 

would impact FICC’s liquidity risk similarly to a 

Sponsored Member Trade in the existing Service in 

this regard, in that liquidity risk to FICC would only 

be increased to the extent the Sponsoring Member 

enters into an offsetting Repo Transaction with a 

third-party Netting Member that is novated to FICC. 

24See Rule 3A, Section 8(b) and Rule 22A, 

Section 2a(b), supra note 4. 

25Consider the following example: A Sponsoring 

Member sells 100 shares of CUSIP 123 to a 

Sponsored Member in a Repo Transaction. That 

transaction will result in the Sponsoring Member’s 

netting account being long 100 shares of CUSIP 123 

and the Sponsoring Member’s Sponsoring Member 

Omnibus Account being short 100 shares of CUSIP 

123. Under the existing Rules, the Sponsoring 

Member will have a CCLF obligation for both the 

long position in the netting account as well as the 

short position in the Sponsoring Member Omnibus 

Account even though, as described above, the 

Sponsored Member Trade does not independently 

create liquidity risk for FICC. 

Although this limitation on offset is consistent 

with FICC’s approach of not offsetting the positions 

of two accounts of the same Member for CCLF 

purposes, there is an important difference between 

Sponsored Member Trades and other FICC repo 

activity. As discussed above, the Service requires 

that a Sponsoring Member have a Sponsoring 

Member Omnibus Account that is separate from its 

netting account. For all other repo activity, the 

Member has the option to collapse all of its activity 

into a single participant account in order to achieve 

a similar netting benefit. Sponsoring Members do 

not have that option with respect to their Sponsored 

Member Trades, so FICC believes this proposed 

change is necessary to ensure that a Sponsoring 

Member’s CCLF obligations are calculated in a 

manner that more closely aligns with the liquidity 

risk associated with Sponsored Member Trades. 

26For example, a Sponsoring Member may enter 

into a Sponsored GC Trade on a Generic CUSIP 

Number and an offsetting Sponsored Member Trade 

in a specific CUSIP Number (e.g., CUSIP 123). 

Although CUSIP 123 may be an eligible security 

under the Generic CUSIP Number underlying the 

Sponsored GC Trade, the Sponsored GC Clearing 

Agent Bank may allocate to the Sponsored GC 

Trade a different eligible CUSIP Number (e.g., 

CUSIP 456) from the securities eligibility schedule. 

In that situation, the CUSIP 123 and CUSIP 456 

positions in the Sponsoring Member’s netting 

account and the Sponsoring Member Omnibus 

Account would not offset within the respective 

account, but the proposed change to Section 8(d) of 

Rule 3A would allow FICC to offset the CUSIP 123 

and CUSIP 456 positions across the Sponsoring 

Member’s netting account and Sponsoring Member 

Omnibus Account to ensure that the CCLF 

obligation applicable to the Sponsoring Member 

accurately reflects the liquidity risk that its 

positions create. 

27The Individual Total Amount dictates the 

maximum amount of liquidity a Member must 

provide under FICC’s CCLF. See Rule 22A, Section 

2a(b), supra note 4. 

Sponsored Member defaults. In the 

event that the Sponsoring Member 

defaults, Section 14(c) of Rule 3A 

permits FICC to close out (rather than 

settle) the Sponsored Member Trades of 

the defaulter’s Sponsored Members.21

Likewise, if the Sponsored Member 

defaults, FICC is also not required to 

complete settlement. Rather, under 

Section 11 of Rule 3A, FICC may offset 

its settlement obligations to the 

Sponsoring Member against the 

Sponsoring Member’s obligations under 

the Sponsoring Member Guaranty to 

perform on behalf of its defaulted 

Sponsored Member.22

Accordingly, liquidity risk to FICC is 

only increased to the extent the 

Sponsoring Member enters into a Repo 

Transaction with a third-party Netting 

Member that is novated to FICC. Such 

a Repo Transaction creates liquidity risk 

to FICC because, in the event of the 

Sponsoring Member’s default, FICC is 

required to settle with such third-party 

Netting Member.23

In light of this, FICC believes that a 

Sponsored Member Trade should only 

increase the obligation of a Sponsoring 

Member with respect to FICC’s CCLF to 

the extent the Sponsoring Member 

offsets that trade with a Repo 

Transaction entered into with a thirdparty Netting Member that is novated to 

FICC. To the extent a Sponsoring 

Member either (1) enters into an 

offsetting Sponsored Member Trade 

with another Sponsored Member (i.e., it 

runs a matched book of Sponsored 

Member Trades) or (2) simply does not 

enter into an offsetting transaction at all, 

then the Sponsored Member Trade has 

no effect on FICC’s liquidity risk, and so 

should not affect the Sponsoring 

Member’s CCLF obligation. 

Currently, FICC does not impose a 

CCLF obligation on a Sponsoring 

Member to the extent the Sponsoring 

Member runs a matched book of 

Sponsored Member Trades. This is 

because FICC calculates a Sponsoring 

Member’s CCLF obligation based on the 

net settlement obligations of its 

Sponsoring Member Omnibus Account 

and the net settlement obligations of the 

Sponsoring Member’s netting account.24

In other words, FICC nets all of the 

positions recorded in the Sponsoring 

Member’s Sponsoring Member Omnibus 

Account, regardless of whether they 

relate to the same Sponsored Member, 

and separately nets all of the positions 

in Sponsoring Member’s netting 

account. As a result, to the extent a 

Sponsoring Member enters into 

perfectly offsetting Sponsored Member 

Trades, the settlement obligations of 

those trades will net out in the 

Sponsoring Member Omnibus Account 

and in the netting account and thereby 

create no CCLF obligation for the 

Sponsoring Member. 

However, currently, if a Sponsoring 

Member enters into a Sponsored 

Member Trade without entering into an 

offsetting transaction, it is subject to 

CCLF obligations for the position of its 

Sponsored Member recorded in its 

Sponsoring Member Omnibus Account 

as well as its own position arising from 

the Sponsored Member Trade recorded 

in its netting account. This is because, 

although the positions in the 

Sponsoring Member Omnibus Account 

and netting account arising from such 

Sponsored Member Trade are perfectly 

offsetting, FICC does not currently net 

them against each other for CCLF 

purposes due to the current CCLF 

allocation being calculated at the 

participant account level.25

In order to ensure that a Sponsoring 

Member’s CCLF obligation is calculated 

in a manner that more closely aligns 

with the liquidity risk associated with 

Sponsored Member Trades, FICC 

proposes to add language to Rule 3A to 

allow it to recognize, for CCLF 

calculation purposes, any offsetting 

settlement obligations as between a 

Sponsoring Member’s netting account 

and its Sponsoring Member Omnibus 

Account. This proposed change would 

ensure that all Sponsored Member 

Trades, whether perfectly offset by other 

Sponsored Member Trades or not, 

would be recognized for CCLF purposes 

as not affecting FICC’s liquidity risk. 

With respect to Sponsored GC Trades in 

particular, this proposed change would 

ensure that FICC applies an appropriate 

CCLF obligation to a Sponsoring 

Member in the event a Sponsored GC 

Clearing Agent Bank allocates to a 

Sponsored GC Trade a different security 

than the security that underlies an 

offsetting Sponsored Member Trade.26

Specifically, FICC proposes to add 

new Section 8(d) to Rule 3A, which 

would state that FICC, when calculating 

Individual Total Amounts 27 for a 

Sponsoring Member, may net any 

offsetting settlement obligations across 

the Sponsoring Member’s proprietary 

positions and the positions of its 

Sponsored Members in its Sponsoring 

Member Omnibus Account(s). 

Expected Member Impact 

FICC has conducted a study for the 

period from January 1, 2021 to March 

30, 2021 as to the impact on FICC/GSD 

Netting Members’ CCLF allocations as a 

result of recognizing offset between 

positions in a Sponsoring Member’s 

netting account and its Sponsoring 

Member Omnibus Account. The impact 

of recognition of the offsetting positions 

as between a Sponsoring Member’s 

netting account and its Sponsoring 

Member Omnibus Account relates 

strictly to the allocation of the total 

CCLF facility amongst the FICC/GSD 

netting membership, with certain 

Sponsoring Members receiving less 

allocation of CCLF once the offsets 

between the Sponsoring Member’s 


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28Rule 3A, Section 2(d), supra note 4. 

29Rule 3A, Section 3(d), supra note 4. 30 17 CFR 240.19b–4(n)(2)(i). 

netting account and the Sponsoring 

Member Omnibus Account are 

recognized. 

(iv) Remove the Requirement From 

Section 2 of Rule 3A That a Sponsoring 

Member Provide a Quarterly 

Representation to FICC That Each of Its 

Sponsored Members is a ‘‘Qualified 

Institutional Buyer’’ as Defined in Rule 

144A, or is a Legal Entity That, 

Although Not Organized as an Entity 

Specifically Listed in Paragraph (a)(1)(i) 

of Rule 144A, Satisfies the Finanial 

Requirements Necessary To Be a 

‘‘Qualified Institutional Buyer’’ as 

Specified in That Paragraph 

FICC also proposes to remove the 

requirement from Section 2 of Rule 3A 

that a Sponsoring Member provide to 

FICC a quarterly representation that 

each of its Sponsored Members is a 

‘‘qualified institutional buyer’’ as 

defined in Rule 144A, or is a legal entity 

that, although not organized as an entity 

specifically listed in paragraph (a)(1)(i) 

of Rule 144A, satisfies the financial 

requirements necessary to be a 

‘‘qualified institutional buyer’’ as 

specified in that paragraph.28 FICC 

proposes to remove this requirement 

because Section 3(d) of Rule 3A 

separately requires a Sponsoring 

Member to notify FICC if its Sponsored 

Member is no longer either a ‘‘qualified 

institutional buyer’’ as defined in Rule 

144A, or a legal entity that, although not 

organized as an entity specifically listed 

in paragraph (a)(1)(i) of Rule 144A, 

satisfies the financial requirements 

necessary to be a ‘‘qualified institutional 

buyer’’ as specified in that paragraph.29

As such, FICC views the quarterly 

representation requirement in Section 2 

of Rule 3A to be an overlapping and 

redundant requirement that creates 

administrative burdens for FICC and for 

its Sponsoring Members that are, in 

FICC’s view, unnecessary. 

To effectuate the proposed changes 

described above, FICC would revise 

Rule 3A to remove Section 2(d). 

(v) A Clarification, Certain Corrections, 

and Certain Technical Changes 

FICC proposes to make a clarification 

to the Rules. Specifically, in the 

definition of Initial Haircut, FICC 

proposes to add the phrase ‘‘, if any,’’ 

after ‘‘absolute value of the dollar 

difference.’’ 

FICC also proposes to make certain 

corrections to the Rules. 

First, FICC proposes to correct the 

definition of Initial Haircut in Rule 1 so 

that it would be defined, with respect to 

Sponsored Member Trades that are not 

Sponsored GC Trades, as the absolute 

dollar difference between the Market 

Value of the Sponsored Member Trade, 

as of the settlement date of the Start Leg, 

and the Contract Value of the Start Leg 

of the Sponsored Member Trade, instead 

of the Contract Value of the Close Leg 

(as is currently provided). 

Second, FICC proposes to correct the 

reference in Rule 3A, Section 3(a)(ii)(B) 

to paragraph (a)(1)(i)(H) of Rule 144A 

instead of paragraph (a)(1)(i) of Rule 

144A (as is currently provided). 

Third, FICC also proposes to correct a 

typographical error in Section VII (Fee 

Structure) by revising from the reference 

to Additional Sponsored GC Credit 

instead of Additional Sponsored GC 

Assessment (as is currently provided). 

FICC also proposes to make certain 

technical changes, such as numbering 

and renumbering sections and making 

conforming grammatical changes. 

For example, because FICC is 

removing Section 2(d) of Rule 3A, FICC 

proposes to renumber the subsequent 

subsections in Rule 3A, Section 2. 

Specifically, FICC proposes to renumber 

current Sections 2(e), 2(f), 2(g), 2(h), 2(i), 

and 2(j) as Sections 2(d), 2(e), 2(f), 2(g), 

2(h), and 2(i), respectively. 

In addition, Section 7 of Rule 3A, in 

connection with FICC’s creation of a 

proposed new paragraph (a) as 

described above, FICC proposes to 

renumber current Sections 7(a), 7(b), 

7(c) and 7(d) as new Sections 7(a)(i), 

7(a)(ii), 7(a)(iii) and 7(a)(iv), 

respectively. In addition, in current 

Sections 8(b) and 8(c), FICC proposes to 

revise the references from Section 7 to 

Section 7(a) to reflect the proposed 

renumbering of Section 7 described 

above. 

Likewise, in Section 8 of Rule 3A, in 

connection with FICC’s creation of a 

proposed new paragraph (a) as 

described above, FICC proposes to 

renumber current Sections 8(a), 8(b), 

8(c), 8(d), 8(e), 8(f) and 8(g) as new 

Sections 8(a)(i), 8(a)(ii), 8(a)(iii), 8(a)(iv), 

8(a)(v), 8(a)(vi), and 8(a)(vii), 

respectively. In addition, in current 

Section 8(a), FICC proposes to revise the 

reference from Section 8(c) to Section 

8(a)(iii) to reflect the proposed 

renumbering of Section 8 described 

above. In current Section 8(f), FICC also 

proposes to revise the reference from 

subsection (b) to subsection (a)(ii) to 

reflect the proposed renumbering of 

Section 8 described above. 

In addition, in current Section 9 of 

Rule 3A, in connection with FICC’s 

addition of proposed new paragraph (b) 

as described above, FICC proposes to 

renumber current Sections 9(b), 9(c), 

9(d) and 9(e) as new Sections 9(c)(i), 

9(c)(ii), 9(c)(iii) and 9(c)(iv), 

respectively. 

Because FICC is adding Sponsored GC 

Trades to the definition of Sponsored 

Member Trade as described above, FICC 

would create new sections (a) and (b) 

and renumber current sections (a) and 

(b) as subsections (i) and (ii) of new 

section (a). FICC would also revise the 

definition of Same-Day Settling Trade 

and current Section 8(c) and Section 

18(a) of Rule 3A to reflect the proposed 

changes to the Sponsored Member 

Trade definition. 

In addition, in the definition of Initial 

Haircut, FICC is proposing to add 

section numbers (i) and (ii) to make it 

clear that proposed section (i) of the 

definition would apply to any 

Sponsored Member Trade that is not a 

Sponsored GC Trade and proposed 

section (ii) would apply to any 

Sponsored Member Trade. 

In addition, FICC would also make 

certain conforming grammatical 

changes. For example, FICC would add 

a comma and move the word ‘‘and’’ in 

the definition of Generic CUSIP Number 

to reflect the addition of Sponsored GC 

Trades. Similarly, in each of the (i) 

Schedule of Required and Accepted 

Data Submission Items for a 

Substitution and (ii) Schedule of 

Required and Accepted Data 

Submission Items for New Securities 

Collateral, FICC would also add a 

comma and move the word ‘‘and’’ as 

conforming grammatical changes. As 

another example, FICC would also add 

the word ‘‘or’’ in the definition of 

Sponsored Member Trade to reflect the 

addition of Sponsored GC Trades. In the 

definition of Initial Haircut, FICC would 

also add the word ‘‘and’’ to reflect the 

addition of proposed section (ii). As 

another example, in Section 18(a) of 

Rule 3A, FICC would revise the 

reference from subsection to subsections 

to reflect the proposed changes to the 

definition of Sponsored Member Trades 

described above. 

Expected Effect on Risks to the Clearing 

Agency, Its Participants and the Market 

FICC believes that the proposed 

changes in Item II(B)(ii) above, 

specifically adding a new way to settle 

in the Service for Sponsored GC Trades, 

could affect the performance of essential 

clearing and settlement functions.30 As 

described above, consistent with the 

manner in which tri-party repo 

transactions are settled today outside of 

central clearing, as opposed to settling 

through FICC’s tri-party account in the 

manner that GCF Repo activity settles, 

Sponsored GC Trades would settle on a 


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31 12 U.S.C. 5464(b). 

32 Id. 

33 17 CFR 240.17Ad–22(e)(7). 

34 17 CFR 240.17Ad–22(e)(18). 

35 17 CFR 240.17Ad–22(e)(21)(i). 

36 17 CFR 240.17Ad–22(e)(7). 

37 Id. 

38 17 CFR 240.17Ad–22(e)(18). 

trade for trade basis between the 

Sponsoring Member and Sponsored 

Member on a Sponsored GC Clearing 

Agent Bank’s tri-party repo platform. 

FICC would direct each GC Funds 

Borrower and GC Funds Lender to make 

any payment or delivery due to FICC in 

respect of a Sponsored GC Trade (except 

for certain funds-only settlement 

obligations, as discussed above) directly 

to the relevant Member’s pre-Novation 

counterparty. As a result, each transfer 

of Purchased GC Repo Securities and 

daily repo interest would be made 

directly between the relevant GC Funds 

Borrower and GC Funds Lender through 

the tri-party repo platform of a 

Sponsored GC Clearing Agent Bank. To 

that end, each GC Funds Borrower and 

GC Funds Lender would agree that any 

such direct payment or delivery 

discharges FICC’s obligation to make the 

same payment or delivery. 

Otherwise, all legal rights and 

obligations as between FICC and 

Sponsoring Members, and as between 

FICC and Sponsored Members, would 

be the same with respect to Sponsored 

GC Trades as with respect to Sponsored 

Member Trades in the existing Service, 

which is governed by Rule 3A. 

Management of Identified Risks 

While Sponsored GC Trades would 

settle between the Sponsoring Member 

and Sponsored Member on a trade for 

trade basis on a Sponsored Member’s 

tri-party repo platform (consistent with 

the manner those firms settle repo with 

each other outside of central clearing), 

as opposed to settling through FICC’s 

tri-party account in the manner that 

GCF Repo activity settles, FICC would 

nonetheless monitor the settlement 

status of Sponsored GC Trades through 

hourly (or more frequent) reporting to be 

provided by the Sponsored GC Clearing 

Agent Bank to FICC as the Sponsored 

GC Clearing Agent Bank, and the 

administration of collateralization to 

address mark-to-market changes in the 

value of the securities collateral 

associated with Sponsored GC activity 

would be monitored by FICC in a 

manner consistent with the way that it 

monitors GCF Repo activity. 

Consistency With the Clearing 

Supervision Act 

FICC believes that the proposed rule 

change would be consistent with 

Section 805(b) of the Clearing 

Supervision Act.31 The objectives and 

principles of Section 805(b) of the 

Clearing Supervision Act are to promote 

robust risk management, promote safety 

and soundness, reduce systemic risks, 

and support the stability of the broader 

financial system.32

FICC believes that the proposed 

changes described in Items II(B)(ii) and 

II(B)(iii) above are consistent with the 

objectives of and principles of Section 

805(b) of the Clearing Supervision Act 

cited above because FICC believes that 

these proposed changes would enable 

and may encourage Sponsoring 

Members to submit a greater number of 

securities transactions to be cleared and 

settled by FICC. FICC believes that 

having more securities transactions 

clear and settle through FICC would 

also help to promote safety and 

soundness, reduce systemic risks, and 

support the stability of the broader 

financial system by mitigating the risk 

of a large-scale exit by institutional 

firms from the U.S. financial market in 

a stress scenario through FICC’s 

guaranty of completion of settlement for 

a greater number of eligible securities 

transactions. By mitigating the risk of a 

large-scale exit by institutional firms 

from the U.S. financial market in a 

stress scenario and having more 

securities transactions that clear and 

settle through FICC in the context of its 

risk management processes, FICC 

believes the proposed rule changes 

described in Items II(B)(ii) and II(B)(iii) 

above would promote robust risk 

management, promote safety and 

soundness, reduce systemic risks, and 

support the stability of the broader 

financial system. Therefore, FICC 

believes that the proposed rule changes 

described in Items II(B)(ii) and II(B)(iii) 

above are consistent with the objectives 

and principles of Section 805(b) of the 

Clearing Supervision Act cited above. 

FICC also believes that the proposed 

changes described in Items II(B)(iv) and 

II(B)(v) above are designed to provide 

clear and coherent Rules regarding 

Sponsoring Members. FICC believes that 

clear and coherent Rules should 

enhance the ability of FICC and 

Sponsoring Members to more effectively 

plan for, manage, and address the risks 

and financial requirements related to 

Sponsoring Members. As such, FICC 

believes that the proposed changes 

described in Items II(B)(iv) and II(B)(v) 

above are designed to promote robust 

risk management, consistent with the 

objectives and principles of Section 

805(b) of the Clearing Supervision Act 

cited above. 

FICC also believes that the proposed 

changes are consistent with Rule 17Ad– 

22(e)(7),33 Rule 17Ad–22(e)(18),34 and 

Rule 17Ad–22(e)(21)(i),35 as 

promulgated under the Act, for the 

reasons stated below. 

Rule 17Ad–22(e)(7) under the Act 

requires FICC to establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

effectively measure, monitor, and 

manage the liquidity risk that arises in 

or is borne by the covered clearing 

agency, including measuring, 

monitoring, and managing its settlement 

and funding flows on an ongoing and 

timely basis, and its use of intraday 

liquidity.36 FICC believes that the 

proposed changes described in Item 

II(B)(iii) above are consistent with Rule 

17Ad–22(e)(7) because, as described 

above, all Sponsored Member Trades 

(including Sponsored Member Trades in 

the existing Service and Sponsored GC 

Trades in the proposed Sponsored GC 

Service) do not independently create a 

liquidity risk. FICC believes the 

proposed changes described in Item 

II(B)(iii) above would allow FICC to 

calculate a Sponsoring Member’s CCLF 

obligation in a manner that more closely 

aligns with the liquidity risk associated 

with Sponsored Member Trades. As 

such, FICC believes that the proposed 

changes described in Item II(B)(iii) 

above are reasonably designed to 

effectively measure, monitor, and 

manage the liquidity risk that arises in 

or is borne by the covered clearing 

agency, including measuring, 

monitoring, and managing its settlement 

and funding flows on an ongoing and 

timely basis, and its use of intraday 

liquidity, consistent with Rule 17Ad– 

22(e)(7).37

Rule 17Ad–22(e)(18) under the Act 

requires FICC to establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

establish objective, risk-based, and 

publicly disclosed criteria for 

participation, which permit fair and 

open access by direct, and where 

relevant, indirect participants and other 

financial market utilities, require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in the clearing agency, and 

monitor compliance with such 

participation requirements on an 

ongoing basis.38 FICC believes that the 

proposed changes described in Item 

II(B)(iv) above would enhance clarity 

and therefore, may enhance compliance 

by the Sponsoring Members with the 

requirement to notify FICC if a 


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39Rule 3A, Section 3(d), supra note 4. 

40 17 CFR 240.17Ad–22(e)(18). 

41 17 CFR 240.17Ad–22(e)(21)(i). 

42Rule 3A, Section 3(d), supra note 4. 

43 17 CFR 240.17Ad–22(e)(21)(i). 44 17 CFR 200.30–3(a)(91). 

Sponsored Member is no longer either a 

‘‘qualified institutional buyer’’ as 

defined in Rule 144A, or a legal entity 

that, although not organized as an entity 

specifically listed in paragraph (a)(1)(i) 

of Rule 144A, satisfies the financial 

requirements necessary to be a 

‘‘qualified institutional buyer’’ as 

specified in that paragraph. As 

described above, this requirement is set 

forth in Section 3(d) of Rule 3A.39 With 

these proposed changes, there would be 

a clear and singular mechanism for 

Sponsoring Members to notify FICC of 

a Sponsored Member’s failure to satisfy 

the above-described requirement (as 

opposed to having overlapping and 

redundant requirements that could 

cause confusion). Therefore, FICC 

believes the proposed changes described 

in Item II(B)(iv) above are consistent 

with Rule 17Ad–22(e)(18).40

Rule 17Ad–22(e)(21)(i) under the Act 

requires FICC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

be efficient and effective in meeting the 

requirements of its participants and the 

markets it serves, and have the covered 

clearing agency’s management regularly 

review the efficiency and effectiveness 

of its clearing and settlement 

arrangements.41 FICC believes that the 

proposed changes described in Item 

II(B)(ii) above would improve the 

efficiency and effectiveness of FICC’s 

clearing and settlement arrangements by 

making it more operationally efficient 

for Sponsoring Members and their 

Sponsored Members that are money 

market funds and other mutual funds to 

transact Repo Transactions (particularly 

term Repo Transactions) through FICC 

by allowing them to settle such Repo 

Transactions on the tri-party repo 

platform of a Sponsored GC Clearing 

Agent Bank in a similar manner to the 

way such Sponsoring Members and 

Sponsored Members settle tri-party repo 

transactions with each other outside of 

central clearing. FICC also believes that 

the proposed rule changes described in 

Item II(B)(iv) above would improve the 

efficiency and effectiveness of FICC’s 

clearing and settlement arrangements by 

removing the quarterly representation 

requirement of Sponsoring Members 

under Section 2 of Rule 3A, which, as 

described above, overlaps and is 

redundant with the separate 

requirement under Section 3(d) of Rule 

3A that requires a Sponsoring Member 

to notify FICC if its Sponsored Member 

is no longer either a ‘‘qualified 

institutional buyer’’ as defined in Rule 

144A, or a legal entity that, although not 

organized as an entity specifically listed 

in paragraph (a)(1)(i) of Rule 144A.42

Therefore, FICC believes that the 

proposed changes described in Items 

II(B)(ii) and II(B)(iv) above are 

consistent with Rule 17Ad– 

22(e)(21)(i).43

III. Date of Effectiveness of the Advance 

Notice, and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received. The clearing 

agency shall not implement the 

proposed change if the Commission has 

any objection to the proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission providing the clearing 

agency with prompt written notice of 

the extension. A proposed change may 

be implemented in less than 60 days 

from the date the advance notice is 

filed, or the date further information 

requested by the Commission is 

received, if the Commission notifies the 

clearing agency in writing that it does 

not object to the proposed change and 

authorizes the clearing agency to 

implement the proposed change on an 

earlier date, subject to any conditions 

imposed by the Commission. 

The clearing agency shall post notice 

on its website of proposed changes that 

are implemented. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the Advance Notice 

is consistent with the Clearing 

Supervision 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–2021–801 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–2021–801. 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 Advance Notice that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notice 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– 

2021–801 and should be submitted on 

or before June 18, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.44

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11605 Filed 6–2–21; 8:45 am] 

BILLING CODE 8011–01–P 


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