Document ID: SEC-2020-1834-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2020-11-17T05:00Z

[Federal Register Volume 85, Number 222 (Tuesday, November 17, 2020)]
[Notices]
[Pages 73329-73332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25267]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90386; File No. SR-FICC-2020-013]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Amend the Government Securities Division Rulebook To Add a Pre-
Payment Assessment and Certain Credits in Connection With a New 
Service, Which Has Not Yet Been Proposed for and Would Be Subject to 
Regulatory Approval

November 10, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 28, 2020, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to the FICC 
Government Securities Division (``GSD'') Rulebook (``Rules'') \5\ in 
order to add a $250,000 pre-payment assessment (the ``Sponsored GC Pre-
Payment Assessment'') in connection with a new service offering, which 
has not yet been proposed for and would be subject to regulatory 
approval, that would allow Sponsoring Members to transact cleared tri-
party Repo Transactions with their Sponsored Members on a general 
collateral basis (the ``Sponsored GC Service''). The proposal would 
include certain credits in connection with the Sponsored GC Pre-Payment 
Assessment, as further described below.
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    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Rules to 
add the Sponsored GC Pre-Payment Assessment in connection with the 
Sponsored GC Service. The proposal would include certain credits in 
connection with the Sponsored GC Pre-Payment Assessment, as further 
described below.
Proposal
    FICC is proposing to add the Sponsored GC Pre-Payment Assessment to 
the Rules to ensure Sponsoring Members' support of and readiness to 
participate in the Sponsored GC Service in order to justify FICC's 
investment in building the new technology infrastructure that would be 
necessary to implement the Sponsored GC Service, and also to ensure 
equitable treatment of Sponsoring Members irrespective of when they 
elect to onboard into the Sponsored GC Service. It is important to note 
that FICC's proposed use of the Sponsored GC Pre-Payment Assessment 
relates to the Sponsored GC Service being a new service for FICC, which 
as described above requires an investment by FICC in new technology 
infrastructure. As such, FICC does not anticipate using similar payment 
mechanisms for its existing services.
    As described in detail below, satisfaction of the Sponsored GC Pre-
Payment Assessment would be required at or before the time a Sponsoring 
Member onboards into the Sponsored GC Service. Because a Sponsoring 
Member would be required to obtain appropriate internal approvals prior 
to satisfying the Sponsored GC Pre-Payment Assessment, FICC believes 
that the Sponsored GC Pre-Payment Assessment would ensure that the 
Sponsoring Member is supportive of and ready to utilize the Sponsored 
GC Service, and would similarly reduce the likelihood that the 
Sponsoring Member

[[Page 73330]]

later withdraws from the Sponsored GC Service.
    The Sponsored GC Service, which as described above has not yet been 
proposed for and would be subject to regulatory approval, would be a 
voluntary service offering, which would allow (but not require) 
Sponsoring Members and their Sponsored Members to transact cleared tri-
party Repo Transactions on a general collateral basis.
    Any Sponsoring Member that chooses to participate in the Sponsored 
GC Service would be charged the Sponsored GC Pre-Payment Assessment at 
the time such Sponsoring Member onboards into the Sponsored GC Service. 
The Sponsored GC Pre-Payment Assessment would be credited against the 
Sponsoring Member's use of the Sponsored GC Service such that the 
Sponsoring Member would not make any payment to FICC for its use of the 
Sponsored GC Service until after the Sponsored GC Pre-Payment 
Assessment is completely depleted.
    In addition, any Sponsoring Member that elects to be charged the 
Sponsored GC Pre-Payment Assessment between November 2020 and February 
2021 would receive an additional $25,000 credit toward its use of the 
Sponsored GC Service (the ``Additional Sponsored GC Credit'') such that 
FICC's books and records would reflect that such Sponsoring Member has 
a total of $275,000 of credit towards its use of the Sponsored GC 
Service.\6\
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    \6\ The Sponsored GC Service would be priced using the existing 
delivery-versus-payment (``DVP'') service fees for transaction 
processing, and intraday and end-of-day position management. See Fee 
Structure, supra note 5.
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    In light of current market conditions depressing cleared repo 
volumes generally, FICC believes that requiring the Sponsored GC Pre-
Payment Assessment is necessary for FICC to be assured that Sponsoring 
Members are supportive of the Sponsored GC Service and also ready to 
utilize it in order to justify FICC's investment in the new technology 
infrastructure that would be necessary to implement the Sponsored GC 
Service. The $250,000 amount for the Sponsored GC Pre-Payment 
Assessment was selected as a result of dialogue between FICC and its 
Sponsoring Members. FICC believes this amount represents a sufficiently 
substantial outlay of funds by the Sponsoring Member to require it to 
obtain the appropriate internal approvals in order for the Sponsoring 
Member to satisfy such amount, and thereby ensures the Sponsoring 
Member's support of and readiness to utilize the Sponsored GC Service. 
In addition, although the amount was not specifically selected to 
ensure total coverage of the cost of the new technology infrastructure 
required in order for FICC to implement the Sponsored GC Service, FICC 
believes that the $250,000 amount for the Sponsored GC Pre-Payment 
Assessment would ensure coverage of a reasonable amount of FICC's costs 
associated with implementing the Sponsored GC Service.
    Similarly, the $25,000 amount for the Additional Sponsored GC 
Credit was chosen by FICC to reflect reasonable compensation for 
Sponsoring Members who elect to be charged the Sponsoring GC Pre-
Payment Assessment at least several months prior to implementation of 
the Sponsored GC Service (i.e., between November 2020 and February 
2021).
    Sponsoring Members that elect to participate in the Sponsored GC 
Service would have 36 months after their onboarding into the Sponsored 
GC Service to deplete their Sponsored GC Assessment and Additional 
Sponsored GC Credit, if applicable, before the credits would expire.
    To the extent that FICC, in consultation with its Board of 
Directors, decides at a later date, for any reason, not to implement 
the Sponsored GC Service, all previously collected Sponsored GC Pre-
Payment Assessments would be returned to the contributing Sponsoring 
Members in full at such time.
    In addition, if a Sponsoring Member elects to withdraw from the 
Sponsored GC Service before expiration of its Sponsored GC Pre-payment 
Assessment, it would be entitled to a return of any unused portion of 
its Sponsored GC Pre-payment Assessment from FICC. However, to the 
extent such Sponsoring Member should ever elect to participate in the 
Sponsored GC Service at a later time, it would be obligated to pay the 
entire Sponsored GC Pre-Payment Assessment again at such time.
Proposed Rule Changes
    In order to effectuate the proposal described above, FICC would 
amend Rule 1 (Definitions) to add two new definitions, ``Sponsored GC 
Pre-Payment Assessment'' and ``Sponsored GC Service.''
    The ``Sponsored GC Pre-Payment Assessment'' would be defined as a 
$250,000 assessment that shall be charged to a Sponsoring Member at the 
time the Sponsoring Member onboards into the Sponsored GC Service. Such 
assessment shall be credited by the Corporation against the Sponsoring 
Member's fees for use of the Sponsored GC Service until the earlier of 
(i) the assessment being completely depleted and (ii) thirty-six (36) 
months after the Sponsoring Member onboards into the Sponsored GC 
Service.
    The ``Sponsored GC Service'' would be defined as the 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 Sponsoring Members and Sponsored Members, as shall 
be described in Rule 3A. FICC would also add a footnote to this 
proposed definition stating that the Sponsored GC Service shall be the 
subject of a subsequent rule filing with the Commission, and the 
proposed definition shall be revised upon approval of the subsequent 
rule filing, and the footnote shall sunset at that time.
    In addition, FICC would amend Section VII (Sponsoring Members) of 
the Fee Structure to provide that a Sponsoring Member shall also be 
liable to FICC for the Sponsored GC Pre-Payment Assessment to the 
extent it participates in the Sponsored GC Service, and that FICC's 
books and records shall reflect the Sponsored GC Pre-Payment Assessment 
as a credit to such Sponsoring Member until expiration.
    Moreover, FICC would amend Section VII of the Fee Structure to 
provide that any Sponsoring Member that elects to be charged the 
Sponsored GC Pre-Payment Assessment between November 2020 and February 
2021 shall receive the Additional Sponsored GC Credit, which shall be 
credited by FICC against the Sponsoring Member's fees for use of the 
Sponsored GC Service until the earlier of (i) the Additional Sponsored 
GC Assessment being completely depleted and (ii) thirty-six (36) months 
after the Sponsoring Member onboards into the Sponsored GC Service, and 
that FICC's books and records shall reflect the Additional Sponsored GC 
Credit as a credit to such Sponsoring Member until expiration.
    Furthermore, FICC would amend Section VII of the Fee Structure to 
provide 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 would also add a footnote 
stating that the Sponsored GC Service shall be the subject of a 
subsequent rule filing with the Commission, and the referenced sentence 
shall be removed upon approval of the subsequent rule

[[Page 73331]]

filing, and the footnote shall sunset at that time.
    Additionally, FICC would amend Section VII of the Fee Structure to 
provide that to the extent a Sponsoring Member elects to withdraw from 
the Sponsored GC Service prior to the expiration of its Sponsored GC 
Pre-Payment Assessment, it shall be entitled to a return of any unused 
portion of such Sponsored GC Pre-Payment Assessment from FICC; provided 
that, for the avoidance of doubt, such Sponsoring Member shall be 
liable for the Sponsored GC Pre-Payment Assessment to the extent that 
it ever elects to participate in the Sponsored GC Service in the 
future.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. FICC believes this proposal is consistent 
with Section 17A(b)(3)(D) of the Act,\7\ for the reasons described 
below.
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    \7\ 15 U.S.C. 78q-1(b)(3)(D).
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    Section 17A(b)(3)(D) of the Act requires that the Rules provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its participants.\8\ FICC believes the proposed rule changes to 
add the Sponsored GC Pre-Payment Assessment and to provide for certain 
credits as described above would provide for the equitable allocation 
of reasonable charges.
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    \8\ Id.
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    FICC believes the proposed rule changes are equitable because the 
Sponsored GC Pre-Payment Assessment would represent for every 
Sponsoring Member that elects to participate in the Sponsored GC 
Service a sufficiently substantial outlay of funds to require it to 
obtain appropriate internal approvals in order to satisfy it, thereby 
ensuring such Sponsoring Member's support of and readiness to utilize 
the Sponsored GC Service.
    In addition, FICC believes the proposed rule changes are equitable 
because the Sponsored GC Pre-Payment Assessment would apply uniformly 
to all Sponsoring Members that choose to use the Sponsored GC Service, 
regardless of when the Sponsoring Member elects to onboard into this 
service, and every Sponsoring Member would have the same amount of 
time, i.e., 36 months from their firm's onboarding into the Sponsored 
GC Service, to deplete their Sponsored GC Pre-Payment Assessment and 
Additional Sponsored GC Credit, if applicable, before the credits would 
expire. Based on volume estimates provided by Sponsoring Members that 
have expressed interest in participating in the Sponsored GC Service, 
FICC believes that 36 months represents ample time for every Sponsoring 
Member to utilize the Sponsored GC Pre-Payment Assessment and 
Additional Sponsored GC Credit, if applicable, before the credits would 
expire.
    Moreover, FICC believes the proposed Additional Sponsored GC Credit 
is reasonable as between the Sponsoring Members that would elect to be 
charged the Sponsored GC Pre-Payment Assessment during the period from 
November 2020 to February 2021, and those Sponsoring Members that would 
not, because the former Sponsoring Members would be contributing their 
capital to FICC at least several months prior to the implementation of 
the Sponsored GC Service, and therefore, would not have use of that 
capital during that time period. In consideration of this early 
contribution of capital, FICC believes it would be reasonable for such 
Sponsoring Members to receive the Additional Sponsored GC Credit, and 
for those Sponsoring Members that elect to hold onto their capital and 
not pay their Sponsored GC Pre-Payment Assessments until the time they 
onboard into the Sponsored GC Service after its implementation, not to 
receive the Additional Sponsored GC Credit.
    Furthermore, FICC believes the Sponsored GC Pre-Payment Assessment 
would represent a reasonable charge to assess on the Sponsoring Members 
that elect to participate in the Sponsored GC Service because, as 
described above, the Sponsored GC Pre-Payment Assessment would be 
credited against a Sponsoring Member's use of the Sponsored GC Service 
such that the Sponsoring Member would not make any payment to FICC for 
its use of the Sponsored GC Service until after the Sponsored GC Pre-
Payment Assessment is completely depleted or has expired. In addition, 
as described above, to the extent a Sponsoring Member elects to 
withdraw from the Sponsored GC Service prior to the expiration of its 
Sponsored GC Pre-Payment Assessment, FICC would be obligated to return 
any unused portion of such Sponsored GC Pre-Payment Assessment to the 
Sponsoring Member. However, to the extent such Sponsoring Member should 
ever elect to participate in the Sponsored GC Service at a later time, 
it would be obligated to pay again the Sponsored GC Pre-Payment 
Assessment at such time.

(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition. First, as described 
above, participation in the proposed Sponsored GC Service would be 
entirely voluntary on the part of Sponsoring Members, and those 
Sponsoring Members who elect not to participate in the Sponsored GC 
Service would not be required to satisfy the Sponsored GC Pre-Payment 
Assessment. In addition, the Sponsored GC Pre-Payment Assessment would 
not have any impact, or impose any burden, on competition because, as 
described above, it would be applied uniformly to all Sponsoring 
Members who elect to participate in the Sponsored GC Service regardless 
of when the Sponsoring Member elects to onboard into the Sponsored GC 
Service, and every Sponsoring Member would have the same amount of 
time, i.e., 36 months from their firm's onboarding into the proposed 
Sponsored GC Service, to deplete it. Moreover, applying the Additional 
Sponsored GC Credit to Sponsoring Members who elect to be charged the 
Sponsored GC Pre-Payment Assessment between November 2020 and February 
2021, and not applying the Additional Sponsored GC Credit to those 
Sponsoring Members that do not elect to make such early contribution of 
capital, would not have any impact, or impose any burden, on 
competition because the former Sponsoring Members would have 
contributed their capital at least several months prior to the 
implementation of the Sponsored GC Service, and the latter Sponsoring 
Members would be able to hold onto their capital until the time they 
onboard into the Sponsored GC Service after its implementation.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to 
this proposal. FICC will notify the Commission of any written comments 
received by FICC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \9\ of the Act and paragraph (f) \10\ of Rule 19b-4 
thereunder. At any

[[Page 73332]]

time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2020-013 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-2020-013. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.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-2020-013 and should be submitted on 
or before December 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25267 Filed 11-16-20; 8:45 am]
BILLING CODE 8011-01-P