Document ID: SEC-2023-0247-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2023-03-07T05:00Z

[Federal Register Volume 88, Number 44 (Tuesday, March 7, 2023)]
[Notices]
[Pages 14189-14194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04580]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97001; File No. SR-FICC-2023-003]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Revise the Description of 
the Stressed Period Used To Calculate the Value-at-Risk Charge and Make 
Other Changes

March 1, 2023.
    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 February 17, 2023, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \3\ consists of amendments to the GSD 
Methodology Document--GSD Initial Market Risk Margin Model (``GSD QRM 
Methodology Document'') \4\ and the MBSD Methodology and Model 
Operations Document--MBSD Quantitative Risk Model (``MBSD QRM 
Methodology Document'',\5\ and collectively with the GSD QRM 
Methodology Document, the ``QRM Methodology Documents'') in order to 
revise the description of the stressed period used to calculate the VaR 
Charge (as defined below). FICC is also proposing to amend the GSD QRM 
Methodology Document in order to clarify the language describing the 
floor parameters used for the calculation of the VaR Floor. In 
addition, FICC is proposing to amend the QRM Methodology Documents to 
make certain technical changes, as described in greater detail below.
---------------------------------------------------------------------------

    \3\ Capitalized terms used herein and not defined shall have the 
meaning assigned to such terms in the FICC's Government Securities 
Division (``GSD'') Rulebook (``GSD Rules'') and FICC's Mortgage-
Backed Securities Division (``MBSD'') Clearing Rules (``MBSD 
Rules'', and together with the GSD Rules, the ``Rules''), available 
at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ The GSD QRM Methodology Document was filed as a confidential 
exhibit in the rule filing and advance notice for GSD sensitivity 
VaR. See Securities Exchange Act Release Nos. 83362 (June 1, 2018), 
83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May 11, 
2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801). The GSD QRM 
Methodology has been subsequently amended. See Securities Exchange 
Act Release Nos. 85944 (May 24, 2019), 84 FR 25315 (May 31, 2019) 
(SR-FICC-2019-001), 90182 (October 14, 2020), 85 FR 66630 (October 
20, 2020) (SR-FICC-2020-009), 93234 (October 1, 2021), 86 FR 55891 
(October 7, 2021) (SR-FICC-2021-007), and 95605 (August 25, 2022), 
87 FR 53522 (August 31, 2022) (SR-FICC-2022-005).
    \5\ The MBSD QRM Methodology was filed as a confidential exhibit 
in the rule filing and advance notice for MBSD sensitivity VaR. See 
Securities Exchange Act Release Nos. 79868 (January 24, 2017), 82 FR 
8780 (January 30, 2017) (SR-FICC-2016-007) and 79843 (January 19, 
2017), 82 FR 8555 (January 26, 2017) (SR-FICC-2016-801). The MBSD 
QRM Methodology has been amended. See Securities Exchange Act 
Release Nos. 85944 (May 24, 2019), 84 FR 25315 (May 31, 2019) (SR-
FICC-2019-001), 90182 (October 14, 2020), 85 FR 66630 (October 20, 
2020) (SR-FICC-2020-009), 92303 (June 30, 2021), 86 FR 35854 (July 
7, 2021) (SR-FICC-2020-017) and 95070 (June 8, 2022), 87 FR 36014 
(June 14, 2022) (SR-FICC-2022-002).
---------------------------------------------------------------------------

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
    FICC has observed significant volatility in the U.S. government 
securities market due to tightening monetary policy, increasing 
inflation, and recession fears. The significant volatility has led to 
greater risk exposures for FICC. In order to mitigate the increased 
risk exposures, FICC has to quickly and timely respond to rapidly 
changing market conditions. For example, in order to respond to rapidly 
changing market conditions, FICC may need to quickly and timely adjust 
the look-back period that FICC uses for purposes of calculating the VaR 
Charge with an appropriate stressed period, as needed, to enable FICC 
to calculate and collect adequate margin from members. Accordingly, 
FICC is proposing to amend the QRM Methodology Documents by revising 
the description of the stressed period used to calculate the VaR Charge 
in order to enable FICC to quickly and timely adjust the look-back 
period used for calculating the VaR Charge with an appropriate stressed 
period, as needed. Adjustments to the look-back period could affect the 
amount of the VaR Charge that GSD Members are assessed by either 
increasing or decreasing such charge to reflect the level of risk the 
activities of the GSD Members presented to FICC.
    FICC is also proposing to amend the GSD QRM Methodology Document in 
order to clarify the language describing the floor parameters used for 
the calculation of the VaR Floor. In addition, FICC is proposing to 
amend the QRM Methodology Documents to make certain technical changes.
    FICC, through GSD and MBSD, serves as a central counterparty 
(``CCP'') and provider of clearance and settlement services for the 
U.S. government securities and mortgage-backed securities markets. A 
key tool that FICC uses to manage its credit exposures to its members 
is the daily collection of margin from each member. The aggregated 
amount of all GSD and MBSD members' margin constitutes the GSD Clearing 
Fund and MBSD Clearing Fund (collectively referred to herein as the 
``Clearing Fund''), which FICC would be able to access should a 
defaulted member's own margin be insufficient to satisfy losses to FICC 
caused by the liquidation of that member's portfolio. Each member's 
margin consists of a number of applicable components, including a 
value-at-risk (``VaR'') charge (``VaR Charge'') designed to capture the 
potential market price risk associated with the securities in a 
member's portfolio. The VaR Charge is typically the largest component 
of a member's margin requirement. The VaR Charge is designed to cover 
FICC's projected liquidation losses with respect to a defaulted 
member's portfolio at a 99% confidence level.
    FICC calculates VaR Charge by using a methodology referred to as 
the sensitivity approach. The sensitivity approach leverages external 
vendor expertise in supplying the market risk attributes, which would 
then be incorporated by FICC into the GSD and MBSD models to calculate 
the VaR Charge. Specifically, FICC sources security-level risk 
sensitivity data and

[[Page 14190]]

relevant historical risk factor time series from an external vendor for 
all eligible securities. The sensitivity data is generated by a vendor 
based on its econometric, risk and pricing models.
(1) Revise the Description of the Stressed Period Used To Calculate the 
VaR Charge
    The sensitivity approach provides FICC with the ability to adjust 
the look-back period that FICC uses for purposes of calculating the VaR 
Charge. In particular, the sensitivity approach leverages external 
vendor data to incorporate a look-back period of 10 years, which allows 
the GSD and MBSD models to capture periods of historical volatility. In 
the event FICC observes that the 10-year look-back period does not 
contain a sufficient number of stressed market conditions, FICC will 
include an additional period of historically observed stressed market 
conditions to the 10-year look-back period.
    The QRM Methodology Documents currently describe the additional 
stressed period as a configurable continuous period (typically one 
year). In addition, the GSD QRM Methodology Document further specifies 
the duration of the stressed period as one-year of stressed market 
condition. To ensure the GSD and MBSD models are performing as 
designed, FICC regularly reviews metrics from various assessments, such 
as the proportion of failure (``POF'') test being used to determine 
whether the number of member deficiencies, if any, are statistically 
significant. While recent POF test results indicate that the GSD and 
MBSD models still perform as designed, FICC has observed a number of 
instances, for example in certain U.S. Treasury security tenors, where 
market volatility produced price returns in excess of the 99% 
confidence level calibration of the VaR models in recent months due to 
heightened volatility in the market.
    In order to provide FICC with more flexibility with respect to the 
inclusion of sufficient number of stressed market conditions in the 
look-back period so FICC can respond to rapidly changing market 
conditions more quickly and timely, FICC is proposing to eliminate this 
detailed description of the stressed period from Sections 2.10.1 (The 
list of key parameters) and A4.5.16.1 (Stressed VaR Calculation) of the 
GSD QRM Methodology Document, as well as Section 5.17.1 (Stressed VaR 
Calculation) of the MBSD QRM Methodology Document, and replace it with 
a more general description. Specifically, the proposed new description 
of the stressed period would provide in Section A4.5.16.1 of the GSD 
QRM Methodology Document and Section 5.17.1 of the MBSD QRM Methodology 
Document that the ``stressed period'' shall be a period of time that 
FICC may add, in its sole discretion, to the 10-year historical look-
back period that includes stressed market conditions that are not 
otherwise captured in the look-back period. The proposed new 
description would also provide that a stressed period, if added to the 
look-back period, shall be no shorter than 6 months and no longer than 
36 months, and comprised of either one continuous period specified by a 
start date and an end date or comprised of more than one non-continuous 
period. In addition, the proposed new description would provide that in 
determining whether it is necessary to add a stressed period to the 10-
year historical look-back period and the appropriate length of the 
added stressed period, FICC would review all relevant information 
available to it at the time of such determination, including, for 
example, (1) the nature of the stressed market conditions in the 
current 10-year historical look-back period, (2) backtesting coverage 
ratios, and (3) market volatility observed by FICC, in its sole 
discretion. Furthermore, the proposed new description would provide 
that changes to the stressed period shall be approved through FICC's 
model governance process, and any current stressed period shall be 
documented and published to FICC members at the time such stressed 
period becomes effective.
    FICC believes that having a more general description would enable 
FICC to adjust the stressed period more quickly and timely because the 
adjustment process, such as constructing a stressed period comprised of 
more than one year's historical data that may not be continuous,\6\ 
would be more streamlined and not require a rule change.\7\ By being 
able to quickly and timely make adjustments to the stressed period, 
FICC would have the flexibility to respond to rapidly changing market 
conditions more quickly and timely. Having the flexibility to respond 
to rapidly changing market conditions more quickly and timely would in 
turn help better ensure that FICC calculates and collects adequate 
margin from members as well as risk manages its credit exposures to its 
members.\8\
---------------------------------------------------------------------------

    \6\ FICC believes constructing a longer than one-year stressed 
period, or a stressed period that may not be continuous, would 
enable FICC to (i) better cope with market volatility spikes by 
increasing the calibrated volatility level of the VaR models, i.e., 
longer stressed periods generally result in higher calibrated 
volatility levels, and (ii) capture a sufficient number of stressed 
market conditions.
    \7\ Pursuant to Section 806(e)(1) of Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act and Rule 19b-
4(n)(1)(i) under the Act, if a change materially affects the nature 
or level of risks presented by FICC, then FICC is required to file 
an advance notice filing. 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-
4(n)(1)(i).
    \8\ FICC is currently contemplating changing the stressed period 
at GSD from one year to 1.5 year while keeping the current one-year 
stressed period at MBSD unchanged.
---------------------------------------------------------------------------

    Nonetheless, as described in the QRM Methodology Documents, the 
look-back period would continue to be tracked in the monthly model 
parameter report and any changes to the look-back period \9\ would 
continue to be subject to DTCC's internal model governance process as 
described in the Clearing Agency Model Risk Management Framework.\10\
---------------------------------------------------------------------------

    \9\ The look-back period includes the stressed period, if any.
    \10\ The Clearing Agency Model Risk Management Framework 
(``Framework'') sets forth the model risk management practices that 
FICC and its affiliates The Depository Trust Company (``DTC'') and 
National Securities Clearing Corporation (``NSCC,'' and together 
with FICC and DTC, the ``Clearing Agencies'') follow to identify, 
measure, monitor, and manage the risks associated with the design, 
development, implementation, use, and validation of quantitative 
models. The Framework is filed as a rule of the Clearing Agencies. 
See Securities Exchange Act Release Nos. 81485 (August 25, 2017), 82 
FR 41433 (August 31, 2017) (File Nos. SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008), 88911 (May 20, 2020), 85 FR 31828 (May 27, 
2020) (File Nos. SR-DTC-2020-008; SR-FICC-2020-004; SR-NSCC-2020-
008), 92380 (July 13, 2021), 86 FR 38140 (July 19, 2021) (File No. 
SR-FICC-2021-006), 92381 (July 13, 2021), 86 FR 38163 (July 19, 
2021) (File No. SR-NSCC-2021-008), 92379 (July 13, 2021), 86 FR 
38143 (July 19, 2021) (File No. SR-DTC-2021-003), 94271 (February 
17, 2022), 87 FR 10411 (February 24, 2022) (File No. SR-FICC-2022-
001), 94272 (February 17, 2022) 87 FR 10419 (February 24, 2022) 
(File No. SR-NSCC-2022-001), and 94273 (February 17, 2022), 87 FR 
10395 (February 24, 2022) (File No. SR-DTC-2022-001).
---------------------------------------------------------------------------

(2) Clarify the Floor Parameter Language
    The VaR Charge is subject to a minimum amount (the ``VaR Floor'') 
that FICC employs as an alternative to the amount calculated by the VaR 
model for portfolios where the VaR Floor \11\ is greater than the 
model-based charge amount. A VaR Floor addresses the risk that the VaR 
model may calculate too low a VaR Charge for certain portfolios where 
the VaR model applies substantial risk offsets among long and short 
positions in different classes of securities that have a high degree of 
historical correlation. Because this high degree of historical price 
correlation may not apply in future changing market conditions, FICC 
applies a VaR Floor in order to protect FICC against such risk in the 
event that FICC is

[[Page 14191]]

required to liquidate a large securities portfolio in stressed market 
conditions.\12\
---------------------------------------------------------------------------

    \11\ See definition of ``VaR Charge'' in GSD Rule 1 
(Definitions), supra note 3.
    \12\ See Securities Exchange Act Release Nos. 83362 (June 1, 
2018), 83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May 
11, 2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801).
---------------------------------------------------------------------------

    VaR Floor at GSD is determined by multiplying the absolute value of 
the sum of the Net Long Positions and Net Short Positions of Eligible 
Securities, grouped by product and remaining maturity, by a percentage 
designated by FICC from time to time for such group. Currently, the GSD 
Rules provide that for (i) U.S. Treasury and agency securities, such 
percentage shall be a fraction, no less than 10%, of the historical 
minimum volatility of a benchmark fixed income index (i.e., haircut 
rate) for such group by product and remaining maturity and (ii) 
mortgage-backed securities, such percentage shall be a fixed percentage 
that is no less than 0.05%.\13\ However, the GSD QRM Methodology 
Document specifies these percentages (referred to as floor parameters 
therein) for government bond and MBS Pool as simply 10% and 5 Bps, 
respectively.
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    To avoid inconsistency with the GSD Rules, FICC is proposing 
clarifying changes to the floor parameter language in Section 2.10.1 of 
the GSD QRM Methodology Document. Specifically, FICC is proposing to 
revise the description of the floor parameter for government bond by 
deleting the reference to 10% and adding language that state the 
parameter is a percentage as designated by FICC from time to time 
pursuant to the GSD Rules and applied to the haircut rate of the 
respective government bonds. Similarly, for the description of the 
floor parameter for MBS Pool, FICC is proposing to revise it by 
deleting the reference to 5 Bps and adding language that state the 
parameter is a percentage as designated by FICC from time to time 
pursuant to the GSD Rules.
    In addition, FICC is proposing to add a sentence making it clear 
that the floor parameters are tracked in the monthly model parameter 
report and that any future changes to the floor parameters would be 
subject to DTCC's internal model governance process set forth in the 
Clearing Agency Model Risk Management Framework.\14\
---------------------------------------------------------------------------

    \14\ Supra note 10.
---------------------------------------------------------------------------

    Lastly, consistent with the proposed changes to the floor 
parameters described above, FICC is proposing to delete from the GSD 
QRM Methodology Document the language in Sections 3.2.2 (Calculation of 
haircut of Treasury and Agency bonds without sensitivity analytics 
data) and 3.5 (Total VaR, Core Charge and Standalone VaR) that 
references the floor parameters for government bond and MBS pool 
positions being tentatively set to 10% and 0.05%, respectively.
(3) Technical Changes
    FICC is proposing to make certain technical changes to the GSD QRM 
Methodology Document. Specifically, FICC proposes to clarify in 
Sections 1.1 (Purpose and scope), A4.5.16 (Stressed VaR), and A4.5.16.1 
(Stressed VaR Calculation) of the GSD QRM Methodology Document that 
``SVaR'' refers to sensitivity VaR and not stressed VaR. In addition, 
FICC is also proposing to fix typographical errors in Sections 2.10.1 
(The list of key parameters) and A4.5.16.1 (Stressed VaR Calculation) 
of the GSD QRM Methodology Document.
Impact Study
    FICC conducted an impact study for the period from January 2021 to 
October 2022 (``Impact Study'') which reviewed the overall impact of 
the contemplated change to the stressed period (i.e., changing the 
current stressed period of one year (September 2008 to August 2009) to 
a stressed period of 1.5 years (January 2008 to June 2009) on the GSD 
VaR model backtesting coverage and VaR Charge amounts as well as the 
effect on the GSD Members during the Impact Study period. The results 
of the Impact Study indicates that, if a stressed period of 1.5 years 
had been in place for GSD, the GSD's rolling 12-month VaR model 
backtesting coverage ratio would have improved by 29 bps (from 98.52% 
to 98.81%) as of October 2022 and the associated VaR Charge increase 
for GSD would be approximately $387 million (or 2.1%) on average during 
that period.
    The three GSD Members with the largest average daily VaR Charge 
increases in dollar amount during the Impact Study period would have 
had increases of approximately $43.7 million, $43.24 million, and 
$39.55 million representing an average daily increase for such Members 
of 3.4%, 4.4%, and 2.8%, respectively. The three GSD Members with the 
largest average daily VaR Charge increases as a percentage of VaR 
Charges paid by such Members during the Impact Study period would have 
had an average daily increase of 16.6%, 15.7% and 12.7%, respectively, 
had the contemplated stressed period been in place.
    The three GSD Members with the largest average daily VaR Charge 
decreases in dollar amount during the Impact Study period would have 
had decreases of approximately $8.59 million, $7.93 million, and $7.24 
million representing an average daily decrease for such Members of 
4.3%, 1.3%, and 2.9%, respectively. The three GSD Members with the 
largest average daily VaR Charge decreases as a percentage of VaR 
Charges paid by such Members during the Impact Study period would have 
had an average daily decrease of 4.3%, 4.0% and 3.4%, respectively, had 
the contemplated stressed period been in place.
Implementation Timeframe
    Subject to approval by the Commission, FICC would implement the 
proposed rule changes by no later than 60 Business Days after such 
approval and would announce the effective date of the proposed changes 
by an Important Notice posted to its website.
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. Specifically, FICC believes that the 
proposed changes to the QRM Methodology Documents described above are 
consistent with Section 17A(b)(3)(F) of the Act, for the reasons 
described below.\15\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a clearing agency be designed to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\16\
---------------------------------------------------------------------------

    \16\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed changes to the QRM Methodology 
Documents described in Item II(A)1(1) above to revise the description 
of the stressed period used to calculate the VaR Charge are designed to 
assure the safeguarding of securities and funds which are in the 
custody or control of FICC or for which it is responsible, consistent 
with Section 17A(b)(3)(F) of the Act.\17\ As described above, FICC 
believes these proposed changes would provide FICC with more 
flexibility with respect to the adjustment of the stressed period and 
thus allow FICC to respond to rapidly changing market conditions more 
quickly and timely. FICC believes that having more flexibility with 
respect to this adjustment would enable FICC to more accurately 
calculate the necessary margin from members while continuing to limit 
its exposure to members such that, in the event of a member default, 
FICC's operations would not be disrupted and non-defaulting members

[[Page 14192]]

would not be exposed to losses they cannot anticipate or control. In 
this way, these proposed changes are designed to assure the 
safeguarding of securities and funds which are in the custody and 
control of FICC or for which it is responsible, consistent with Section 
17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------

    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    FICC believes that the (i) proposed changes to the floor parameter 
language as described in Item II(A)1(2) above and (ii) the proposed 
technical changes described in Item II(A)1(3) above would enhance the 
clarity of the GSD QRM Methodology Document for FICC. As the GSD QRM 
Methodology Document is used by FICC Risk Management personnel 
regarding the calculation of margin requirements, it is therefore 
important that FICC Risk Management has a clear description of the 
calculation of the margin methodology. Having a clear description of 
the calculation of the margin methodology would promote an accurate and 
smooth functioning of the margining process. Having an accurate and 
smooth functioning of the margining process would enable FICC to more 
accurately calculate the necessary margin from members and, as 
described above, assure the safeguarding of securities and funds which 
are in the custody or control of FICC or for which it is responsible, 
consistent with Section 17A(b)(3)(F) of the Act.\19\
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(i) under the Act \20\ requires a covered 
clearing agency to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those exposures arising from its payment, clearing, and settlement 
processes by maintaining sufficient financial resources to cover its 
credit exposure to each participant fully with a high degree of 
confidence. FICC believes that the proposed changes in Item II(A)1(1) 
above are consistent with the requirements of Rule 17Ad-22(e)(4)(i) 
under the Act.\21\ As described above, FICC believes these proposed 
changes to revise the description of the stressed period used to 
calculate the VaR Charge would provide FICC with more flexibility with 
respect to the adjustment of the stressed period. FICC believes that 
having more flexibility with respect to the adjustment of the stressed 
period would allow FICC to respond to rapidly changing market 
conditions more quickly and timely. Having the ability to respond to 
rapidly changing market conditions more quickly and timely would in 
turn help FICC better measure, monitor, and manage its credit exposures 
to participants and those exposures arising from its payment, clearing, 
and settlement processes. Moreover, the added flexibility would allow 
FICC to collect more accurate margin amounts that would help offset the 
risks presented to FICC by the changing market conditions, thus help 
ensure that FICC maintains sufficient financial resources to cover its 
credit exposure to each participant fully with a high degree of 
confidence. Therefore, FICC believes that the proposed changes 
described in Item II(A)1(1) above are consistent with the requirements 
of Rule 17Ad-22(e)(4)(i) under the Act.\22\
---------------------------------------------------------------------------

    \20\ 17 CFR 240.17Ad-22(e)(4)(i).
    \21\ Id.
    \22\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) under the Act \23\ requires a covered 
clearing agency to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to cover, if the covered 
clearing agency provides central counterparty services, its credit 
exposures to its participants by establishing a risk-based margin 
system that, at a minimum, considers, and produces margin levels 
commensurate with, the risks and particular attributes of each relevant 
product, portfolio, and market. FICC believes that the proposed changes 
in Item II(A)1(1) above are consistent with the requirements of Rule 
17Ad-22(e)(6)(i).\24\ Specifically, FICC believes that the proposed 
changes to replace the current detailed description of the stressed 
period with a more general description, as described above, would 
provide FICC with more flexibility to respond to rapidly changing 
market conditions more quickly and timely because FICC would be able to 
make adjustments to the stressed period without a rule change. Having 
this flexibility would enable FICC to better risk manage its credit 
exposure to its members because FICC would then be able to make 
appropriate and timely adjustments to the stressed period, as described 
above. Being able to adjust the stressed period quickly and timely 
would allow FICC to continue to produce margin levels commensurate with 
the risks and particular attributes of each relevant product, 
portfolio, and market. Therefore, FICC believes this proposed change is 
consistent with Rule 17Ad-22(e)(6)(i) under the Act.\25\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(6)(i).
    \24\ Id.
    \25\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(v) under the Act \26\ requires a covered 
clearing agency to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to cover, if the covered 
clearing agency provides central counterparty services, its credit 
exposures to its participants by establishing a risk-based margin 
system that, at a minimum, uses an appropriate method for measuring 
credit exposure that accounts for relevant product risk factors and 
portfolio effects across products. FICC believes that the proposed 
changes in Item II(A)1(1) above are consistent with the requirements of 
Rule 17Ad-22(e)(6)(v).\27\ Specifically, FICC believes that the 
proposed changes to replace the current detailed description of the 
stressed period with a more general description, as described above, 
would provide FICC with more flexibility to respond to rapidly changing 
market conditions more quickly and timely because FICC would be able to 
make adjustments to the stressed period without a rule change. Having 
this flexibility would enable FICC to better risk manage its credit 
exposure to its members because FICC would then be able to make 
appropriate and timely adjustments to the stressed period, as described 
above. Being able to adjust the stressed period quickly and timely 
would allow FICC to continue to produce margin levels commensurate with 
relevant product risk factors and portfolio effects across products. 
Therefore, FICC believes this proposed change is consistent with Rule 
17Ad-22(e)(6)(v) under the Act.\28\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(6)(v).
    \27\ Id.
    \28\ Id.
---------------------------------------------------------------------------

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

    FICC believes proposed changes described in Item II(A)1(1) above 
may have an impact on competition because these changes could result in 
members being assessed a higher margin than they would have been 
assessed under the current description of the stressed period. When 
these proposed changes result in a higher VaR Charge, they could burden 
competition for members that have lower operating margins or higher 
costs of capital compared to other members. However, the increase in 
VaR Charge would be in direct relation to the specific risks presented 
by each member's portfolio, and each member's margin requirement would 
continue to be calculated with the same parameters and at the same 
confidence level for each member. Therefore, members that have a 
similar portfolio, regardless of the type of member, would have similar 
impacts on their margin

[[Page 14193]]

requirement amounts. As such, FICC believes any burden on competition 
imposed by the proposed changes described in Item II(A)1(1) would not 
be significant and, regardless of whether such burden on competition 
could be deemed significant, would be necessary and appropriate, as 
permitted by Section 17A(b)(3)(I) of the Act for the reasons described 
in this filing and further below.\29\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC believes any burden on competition imposed by the proposed 
changes described in Item II(A)1(1) would not be significant. As the 
result of the Impact Study indicates, if a stressed period of 1.5 years 
had been in place for GSD, the associated VaR Charge increase at GSD 
would be approximately $387 million (or 2.1%) on average.
    However, even if the burden on competition imposed by the proposed 
changes described in Item II(A)1(1) were deemed significant, FICC 
believes that any such burden on competition would be necessary 
because, as described above, the proposed changes would provide FICC 
with more flexibility with respect to the adjustment of the stressed 
period and allow FICC to respond to rapidly changing market conditions 
more quickly and timely. Having more flexibility with respect to this 
calculation would thus help better ensure that FICC calculates and 
collects adequate margin from members and thereby assure the 
safeguarding of securities and funds which are in the custody and 
control of FICC or for which it is responsible, consistent with Section 
17A(b)(3)(F) of the Act.\30\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    In addition, FICC believes the proposed changes described in Item 
II(A)1(1) are necessary to support FICC's compliance with Rules 17Ad-
22(e)(4)(i), (e)(6)(i), and (e)(6)(v) under the Act.\31\ Specifically, 
as described above, FICC believes these proposed changes would provide 
FICC with more flexibility with respect to the adjustment of the 
stressed period. Having more flexibility with respect to these 
adjustments would allow FICC to respond to rapidly changing market 
conditions more quickly and timely. Having the ability to respond to 
rapidly changing market conditions more quickly and timely would in 
turn help FICC better measure, monitor, and manage its credit exposures 
to participants and those exposures arising from its payment, clearing, 
and settlement processes, consistent with the requirements of Rule 
17ad-22(e)(4)(i) under the Act.\32\
---------------------------------------------------------------------------

    \31\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i), and (e)(6)(v).
    \32\ 17 CFR 240.17Ad-22(e)(4)(i).
---------------------------------------------------------------------------

    FICC also believes these proposed changes would enable FICC to be 
better equipped to respond to rapidly changing market conditions. FICC 
believes having this flexibility would help lead to a better risk 
management practice because it would enable FICC to adjust the stressed 
period in response to fast changing market conditions. Being able to 
adjust the stressed period in response to fast changing market 
conditions would enable FICC to produce margin levels more commensurate 
with the risks it faces as a CCP and help FICC cover its credit 
exposures to its participants, consistent with the requirements of 
Rules 17Ad-22(e)(6)(i) and (e)(6)(v) under the Act.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.17Ad-22(e)(6)(i) and (e)(6)(v).
---------------------------------------------------------------------------

    FICC also believes that any burden on competition that may be 
imposed by the proposed changes described in Item II(A)1(1) would be 
appropriate in furtherance of the Act because, as described above, 
these proposed changes have been specifically designed to assure the 
safeguarding of securities and funds which are in the custody and 
control of FICC or for which it is responsible, as required by Section 
17A(b)(3)(F) of the Act.\34\ As described above, the proposed changes 
to revise the description of the stressed period used to calculate the 
VaR Charge would also enable FICC to produce margin levels commensurate 
with the risks and particular attributes of each member's portfolio. 
Therefore, because the proposed changes are designed to provide FICC 
with an appropriate measure of the risks presented by members' 
portfolios, FICC believes these proposed changes are appropriately 
designed to meet its risk management goals and regulatory obligations.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    FICC believes that the proposed changes described in Item II(A)1(1) 
above may also promote competition because these changes could also 
result in members being assessed a lower margin than they would have 
been assessed under the current description of the stressed period, and 
thereby could potentially lower operating costs for members.\35\
---------------------------------------------------------------------------

    \35\ As the result of the Impact Study indicates, if FICC were 
to change the stressed period pursuant to the proposed changes 
described in Item II(A)1(1), some members would be assessed a lower 
margin than they would have been assessed under the current 
continuous one-year stressed period.
---------------------------------------------------------------------------

    With respect to the proposed changes described in Items II(A)1(2) 
and II(A)1(3) above to make clarifying and technical changes to the GSD 
QRM Methodology Document, FICC does not believe these proposed changes 
would have any impact on competition because these proposed changes 
would only enhance the clarity of the GSD QRM Methodology Document, 
which would promote an accurate and smooth functioning of the margining 
process at FICC and would not affect the substantive rights and 
obligations of members.

(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. If any additional written comments are received, they 
will be publicly filed as an Exhibit 2 to this filing, as required by 
Form 19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
SEC's Division of Trading and Markets at [email protected] or 
202-551-5777.
    FICC reserves the right not to respond to any comments received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 14194]]

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 [email protected]. Please include 
File Number SR-FICC-2023-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-FICC-2023-003. 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 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-2023-003 and should be submitted on 
or before March 28, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04580 Filed 3-6-23; 8:45 am]
BILLING CODE 8011-01-P