63456 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Notices 

6 15 U.S.C. 78f(b). 

7 15 U.S.C. 78f(b)(5). 

8 15 U.S.C. 78f(b)(7). 9 15 U.S.C. 78s(b)(1). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. FICC also filed a proposed 

change as an advance notice concerning GSD’s 

inclusion of GCF® repo positions in its intraday 

participant clearing fund requirement calculation 

and its hourly internal surveillance cycles under 

Section 806(e)(1) of the Payment, Clearing, and 

Settlement Supervision Act of 2010 (‘‘Payment, 

Clearing and Settlement Supervision Act). 12 U.S.C. 

5465(e)(1). Securities Exchange Act Release No. 

71469 (February 4, 2014), 79 FR 7722 (February 10, 

2014) (SR–FICC–2014–801). FICC subsequently 

amended the advance notice to establish the Early 

Unwind Intraday Charge described herein. 

Securities Exchange Act Release No. 73187 

Section 6(b) of the Act,6 in general, and 

furthers the objectives of Sections 

6(b)(5) 7 and 6(b)(7) 8 in particular in 

that it is designed: 

• To prevent fraudulent and 

manipulative acts and practices, 

• to promote just and equitable 

principles of trade, 

• to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

• to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and in general, to protect 

investors and the public interest, and 

• to provide a fair procedure for the 

disciplining of members. 

The Exchange believes that the 

proposed rule change will strengthen its 

ability to carry out its responsibilities as 

a self-regulatory organization by 

clarifying that CFE may hold any parties 

to and Authorized Reporters for an 

ECRP transaction responsible for 

compliance with the related rule 

depending on the facts and 

circumstances and by adding violations 

to its Minor Rule Violation Rule. CFE 

also believes that the additions to the 

Minor Rule Violation Rule will serve as 

an effective deterrent to future violative 

conduct and as an effective and efficient 

means of disciplining for infractions 

that do not warrant a regular 

disciplinary proceeding. CFE 

additionally believes that these 

additions will promote consistent 

application of sanctions by the 

Exchange for minor rule violations, 

establish a fair procedure for the 

disciplining of TPHs for minor rule 

violations and reinforce its surveillance 

and enforcement functions. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CFE does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act, in that the rule 

change makes enhancements to CFE’s 

ability to deter and discipline certain 

infractions. The Exchange believes that 

the proposed rule change is equitable 

and not unfairly discriminatory because 

the clarification of compliance 

responsibilities with respect to ECRP 

transactions and all of the additions to 

the Minor Rule Violation Rule would 

apply equally to all parties that are 

subject to the applicable requirements. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The proposed rule change will 

become effective on October 16, 2014. 

At any time within 60 days of the date 

of effectiveness of the proposed rule 

change, the Commission, after 

consultation with the CFTC, may 

summarily abrogate the proposed rule 

change and require that the proposed 

rule change be refiled in accordance 

with the provisions of Section 19(b)(1) 

of the Act.9

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CFE–2014–003 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CFE–2014–003. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site 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 such 

filing also will be available for 

inspection and copying at the principal 

offices of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–CFE– 

2014–003, and should be submitted on 

or before November 13, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25201 Filed 10–22–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73389; File No. SR–FICC– 

2014–01] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Order 

Approving Proposed Rule Change To 

Amend the Government Securities 

Division Rulebook in Order To 

Establish an Early Unwind Intraday 

Charge in Connection With the 

Inclusion of GCF Repo® Positions in 

GSD’s Intraday Participant Clearing 

Fund Requirement, and GSD’s Hourly 

Internal Surveillance Cycles 

October 17, 2014. 

I. Introduction 

On August 11, 2014, the Fixed Income 

Clearing Corporation (‘‘FICC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–FICC–2014–01 pursuant 

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

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

19b–4 thereunder.2 The proposed rule 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Notices 63457 

(September 23, 2014), 79 FR 58007 (September 26, 

2014) (SR–FICC–2014–801). 

3Securities Exchange Act Release No. 72908 

(August 25, 2014), 79 FR 51630 (August 29, 2014) 

(SR–FICC–2014–01). 

4The Early Unwind refers to the automatic return 

of the collateral from the reverse repo side (cash 

lender) to FICC’s account at the repo side’s (cash 

borrower’s) settlement bank and the return of cash 

to the reverse repo side, which typically occurs 

before the opening of Fedwire. 

5The GCF Repo® service enables dealers to trade 

general collateral repos, based on rate, term, and 

underlying product, throughout the day without 

requiring intra-day, trade-for- trade settlement on a 

Deliver-versus-Payment (‘‘DVP’’) basis. The service 

fosters a highly liquid market for securities 

financing. GCF Repo® is a registered trademark of 

The Depository Trust & Clearing Corporation. 

6Noon intraday refers to the routine intraday 

margining cycle which is based on a 12:00 p.m. (ET) 

position snap shot. Pursuant to Rule 4, FICC may 

request additional margin outside of the formal 

intraday margin calls. 

7See supra note 2. 

8The Task Force was formed in September 2009 

under the auspices of the Payments Risk 

Committee, a private-sector body sponsored by the 

Federal Reserve Bank of New York. The Task 

Force’s goal is to enhance the repo market’s ability 

to navigate stressed market conditions by 

implementing changes that help better safeguard 

the market. DTCC, FICC’s parent company, has 

worked in close collaboration with the Task Force 

on their reform initiatives. 

9At the same time, FICC filed Amendment No. 1 

to the Advance Notice with the Commission, which 

contains the same change. See supra note 2. 

10As used herein, ‘‘prior EOD’’ refers to the end 

of day cycle immediately preceding the current 

noon intraday cycle and ‘‘same EOD’’ refers to the 

end of day cycle immediately subsequent to the 

current noon intraday cycle. 

11 If, however, a member is assessed an EUIC 

under circumstances that were not initially 

contemplated and the EUIC charge is deemed 

unnecessary, FICC management has the discretion 

to waive such charge. 

12The EUIC will be included in the noon intraday 

participant CFR, but not the same EOD CFR. This 

is because the risk associated with cash lockups 

exists at intraday, that is, at any time before at EOD. 

At EOD in the normal course of business, GCF 

Repo® positions consist of 100% eligible non-cash 

securities. GCF Repo® is used for overnight 

financing of securities inventory. Absent 

extraordinary circumstances, participants do not 

use cash to collateralized overnight cash loans. 

Cash Substitutions occur at intraday as participants 

substitute in cash to withdraw securities they need 

for intraday deliveries. 

13 In the event that a Cash Substitution or Early 

Unwind impacts the CFR, the prior end of day CFR 

is used as a proxy for the same end of day CFR for 

the portion of the portfolio that is impacted by such 

Cash Substitutions or Early Unwind of interbank 

allocations. The EUIC is designed to prevent the 

impact of Cash Substitutions and Early Unwind of 

interbank allocations from unduly reducing noon 

intraday CFR relative to the prior EOD CFR 

calculation, thus the EUIC will not increase the 

noon intraday CFR above the prior EOD CFR 

calculation. (But the noon intraday CFR calculation 

exclusive of EUIC could be higher than the prior 

EOD CFR calculation). 

change was published for comment in 

the Federal Register on August 29, 

2014.3 The Commission received no 

comment letters in response to the 

proposed rule change. For the reasons 

discussed below, the Commission is 

approving the proposed rule change. 

II. Description 

FICC proposed to amend the 

Government Securities Division 

(‘‘GSD’’) Rulebook (the ‘‘Rules’’) in 

order to establish an Early Unwind 

Intraday Charge (‘‘EUIC’’) to protect 

against the exposure that may result 

from a member’s intraday substitution 

of cash for securities that were used as 

collateral for a GCF Repo® position the 

prior day (‘‘Cash Substitution’’) or a 

clearing bank unwind of the cash 

lending side of the transaction for an 

inter-bank GCF Repo transaction at 7:30 

a.m. (ET) (‘‘Early Unwind’’) 4 in 

connection with including the 

underlying collateral pertaining to the 

GCF Repo® 5 positions in GSD’s noon 

intraday 6 participant Clearing Fund 

requirement (‘‘CFR’’) calculation, and its 

hourly internal surveillance cycles. 

Background 

On January 10, 2014, FICC filed 

advance notice SR–FICC–2014–801 7

(‘‘Advance Notice’’) with the 

Commission. This filing describes 

FICC’s proposal to include the 

underlying collateral pertaining to the 

GCF Repo® positions in its noon 

intraday participant CFR calculation, 

and its hourly internal surveillance 

cycles. FICC intended this enhancement 

to align GSD’s risk management 

calculations and monitoring with the 

changes that have been implemented to 

the tri-party infrastructure by the TriParty Repo Infrastructure Reform Task 

Force (‘‘Task Force’’),8 specifically, with 

respect to locking up of GCF Repo®

collateral until 3:30 p.m. (ET) rather 

than 7:30 a.m. (ET). Subsequent to the 

initial Advance Notice filing, FICC 

discovered that under the proposed 

change, a potential exposure may result 

from a GCF Repo® participant’s Cash 

Substitutions and Early Unwinds. As a 

result, on August 11, 2014, FICC filed 

this proposed rule change.9

Specifically, FICC discovered that 

there were instances where exposure to 

FICC arose as a result of certain Cash 

Substitutions or Early Unwind. This is 

because the noon intraday underlying 

collateral pertaining to the GCF Repo®

positions of impacted participants may 

exhibit a different risk profile than their 

same end-of-day (‘‘EOD’’) 10 positions. 

The impact could be to increase or 

decrease the Value-at-Risk (‘‘VaR’’) 

component of the CFR. 

In certain instances, Cash 

Substitutions, for repo and reverse repo 

positions and Early Unwinds for reverse 

repo positions, could result in higher 

cash balances in the underlying 

collateral pertaining to GCF Repo®

positions at noon intraday than the 

same EOD, and could present a 

potential under-margin condition 

because cash collateral is not margined. 

In addition, FICC noted that it is likely 

that the cash will be replaced by 

securities in the next GCF Repo®

allocation of collateral. The undermargin condition will exist overnight 

because the VaR on the GCF Repo®

collateral in the same EOD cycle will 

not be calculated until after Fedwire is 

closed thus precluding members from 

satisfying margin deficits until the 

morning of the next business day. 

(b) Proposed Change 

FICC’s rule change amends GSD’s 

Rules to establish the EUIC to protect 

against the exposure that may result 

from a member’s Cash Substitutions or 

Early Unwinds.11 GSD will adjust the 

noon intraday CFR in the form of an 

EUIC to address this risk. In order to 

determine whether an EUIC should be 

applied, GSD will take the following 

steps: 

1. At noon, GSD will compare the 

prior EOD VaR component of the CFR 

calculation with the current day’s noon 

intraday VaR component of the CFR 

calculation. 

2. If the current day’s noon intraday 

VaR calculation is equal to or higher 

than the prior EOD’s VaR calculation 

then GSD will not apply an EUIC. If 

however, the current day’s noon 

calculation is lower, then GSD will 

proceed to the step 3 below. 

3. GSD will review the GCF Repo®

participant’s DVP and GCF Repo®

portfolio to determine whether the 

reduction in the noon calculation may 

be attributable to Cash Substitutions or 

Early Unwinds. If so, then GSD will 

apply the EUIC. 

4. At the participant level, the EUIC12

will be the lesser of (i) the net VaR 

decrease that may be deemed to be 

attributable to either cash substitutions 

and/or early unwind of interbank 

allocations or (ii) the prior EOD VaR 

minus the noon intraday VaR.13

The EUIC for Cash Substitutions will 

apply to the repo side (cash borrower) 

and the reverse repo side (cash lender) 

of the transaction. As such, the reverse 

repo side is subject to the EUIC 

notwithstanding its inability to control 

the Cash Substitutions. The EUIC for 

Cash Substitutions applies to the reverse 

repo side because although they do not 

initiate the Cash Substitutions, the Cash 

Substitutions change the participant’s 

risk profile and as a result, their noon 

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63458 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Notices 

14 15 U.S.C. 78s(b)(2)(C). 

15 15 U.S.C. 78q–1(b)(3)(F). 

16 15 U.S.C. 78q–1(b)(3)(F). 

17 17 CFR 240.17Ad–22. 

18 17 CFR 240.17Ad–22(b)(1). 

19 17 CFR 240.17Ad–22(b)(2). 

20 15 U.S.C. 78q–1. 

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

22 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

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

23 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1)(A). The Financial Stability 

Oversight Council designated FICC a systemically 

important financial market utility on July 18, 2012. 

See Financial Stability Oversight Council 2012 

Annual Report, Appendix A, http://

www.treasury.gov/initiatives/fsoc/Documents/

2012%20Annual%20Report.pdf. Therefore, FICC is 

required to comply with Title VIII of the Payment, 

Clearing and Settlement Supervision Act. 

2 17 CFR 240.19b–4(n)(1)(i). 

3Securities Exchange Act Release No. 71469 (Feb. 

4, 2014), 79 FR 7722 (Feb. 10, 2014) (SR–FICC– 

2014–801). 

4 12 U.S.C. 5465(e)(1)(D). 

5The Commission received a response to this 

request for additional information August 19, 2014, 

at which time a 60 day review period for the 

Advance Notice began pursuant to Section 

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

intraday CFR could be unduly reduced. 

The EUIC for Early Unwinds will only 

apply to the reverse repo side (cash 

lender) since it is only the reverse side 

whose lockup is unwound early. The 

securities subject to the Early Unwind 

are not returned to the repo side (cash 

borrower) in connection with Early 

Unwinds. Early Unwinds are performed 

on the reverse repo side to ensure that 

the underlying collateral is available to 

the repo side at its settlement bank. As 

such, the reverse repo side is subject to 

the EUIC notwithstanding its inability to 

control the Early Unwind as their noon 

intraday CFR could be unduly reduced 

as a result of such Early Unwinds. GSD 

has discussed the EUIC with the 

participants that are likely to be 

materially impacted by this proposed 

charge. These participants did not 

express any concerns about the EUIC. 

There is no automatic unwind (return 

of securities) to the repo side. If the repo 

side needs its securities before the 3:30 

p.m. (ET) scheduled unwind, it may 

perform a securities-for-securities 

substitution or a cash-for-securities 

substitution (in which case it may be 

subject to the EUIC). 

III. Discussion 

Section 19(b)(2)(C) of the Act 14

directs the Commission to approve a 

self-regulatory organization’s proposed 

rule change if the Commission finds that 

such proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization. Section 

17A(b)(3)(F) of the Act 15 requires, 

among other things, that the rules of a 

clearing agency are designed to assure 

the safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible. 

The Commission finds that the 

proposed rule change to establish the 

EUIC to protect against the exposure 

that may result from intraday Cash 

Substitutions and Early Unwinds in 

connection with FICC’s proposal to 

include the underlying collateral 

pertaining to the GCF Repo® positions 

in GSD’s noon intraday participant CFR 

calculation and hourly internal 

surveillance cycles is consistent with 

Section 17A(b)(3)(F) of the Act.16

Although the inclusion of GCF Repo®

positions into intraday participant CFR 

calculations and hourly surveillance 

cycles may better reflect the actual risk 

in its members’ portfolios, the inclusion 

of the EUIC may allow FICC to use even 

more accurate and current position 

information in its margin calculations 

and mitigate the effects of Cash 

Substitutions and Early Unwinds that 

occur during the intraday period. This 

more accurate margin calculation may 

allow FICC to better safeguard and 

secure securities and funds which are in 

its custody or control or for which it is 

responsible. 

The proposed change is also 

consistent with Rule 17Ad–22 17 of the 

Clearing Agency Standards which 

establishes the minimum requirements 

regarding how registered clearing 

agencies must maintain effective risk 

management procedures and controls. 

Specifically, Rule 17Ad–22(b)(1) 

requires a clearing agency that performs 

CCP services to establish, implement, 

maintain, and enforce written policies 

reasonably designed to measure its 

credit exposures at least daily and to 

limit exposures to potential losses from 

defaults by participants under normal 

market conditions so that the operations 

of the clearing agency should not be 

disrupt and non-defaulting participants 

would not be exposed to losses that they 

cannot anticipate or control.18 Rule 

17Ad–22(b)(2) requires FICC to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to use margin 

requirements to limit its credit 

exposures to participants under normal 

market conditions and use risk-based 

models and parameters to set margin 

requirements.19 To these ends, the 

change may provide FICC with a more 

accurate measurement of daily credit 

exposure using a risk-based model and 

is designed to address exposures that 

may occur from intraday activity. In 

sum, FICC’s more accurate and timely 

calculations around and monitoring of 

GCF Repo® activity should better enable 

FICC to respond in the event that a 

member defaults. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission concludes that the 

proposal is consistent with the 

requirements of the Act, particularly the 

requirements of Section 17A of the 

Act,20 and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,21 that the 

proposed rule change (File No. SR– 

FICC–2014–01) be and hereby is 

approved.22

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25207 Filed 10–22–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73388; File No. SR–FICC– 

2014–801] 

Self-Regulatory Organizations; The 

Fixed Income Clearing Corporation; 

Notice of No Objection to Advance 

Notice Filing, as Amended by 

Amendment No. 1, Concerning the 

Government Security Division’s 

Inclusion of GCF Repo® Positions in 

Its Intraday Participant Clearing Fund 

Requirement Calculation, and Its 

Hourly Internal Surveillance Cycles 

October 17, 2014. 

On January 10, 2014, The Fixed 

Income Clearing Corporation (‘‘FICC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–FICC–2014–801 (‘‘Advance 

Notice’’) pursuant to Section 

806(e)(1)(A) of the Payment, Clearing, 

and Settlement Supervision Act of 2010 

(‘‘Payment, Clearing and Settlement 

Supervision Act’’ or ‘‘Title VIII’’) 1 and 

Rule 19b–4(n)(1)(i) of the Securities 

Exchange Act of 1934 (‘‘Act’’).2 The 

Advance Notice was published for 

comment in the Federal Register on 

February 10, 2014.3 On March 10, 2014, 

the Commission staff sent FICC a letter, 

pursuant to Section 806(e)(1)(D) 4 and 

Commission authorization, requesting 

additional information regarding this 

advance notice.5 FICC filed an 

amendment to the Advance Notice on 

August 11, 2014, which was published 

mstockstill on DSK4VPTVN1PROD with NOTICES