Document ID: SEC-2020-0544-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2020-04-09T04:00Z

[Federal Register Volume 85, Number 69 (Thursday, April 9, 2020)]
[Notices]
[Pages 19979-19982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07437]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88557; File No. SR-FICC-2020-002]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend the Government 
Securities Division Rulebook Relating to the Legal Entity Identifier 
Requirement

April 3, 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 March 25, 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. 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.
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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 a proposal to amend the FICC 
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') \3\ 
to require: (i) Each applicant to become a Netting Member and CCIT 
Member to obtain and provide a ``Legal Entity Identifier'' \4\ to FICC 
as part of its membership application, (ii) each Netting Member and 
CCIT Member to have a current Legal Entity Identifier on file with FICC 
at all times and to indemnify FICC for any losses and Legal Actions \5\ 
that arise due to the failure of a Netting Member or CCIT Member to do 
so, as further described below, and (iii) each Sponsoring Member to 
provide FICC with a Legal Entity Identifier for each of their current 
Sponsored Members and for each newly added Sponsored Member going 
forward and to indemnify FICC for any losses and Legal Actions that 
arise due to the failure of a Sponsoring Member to do so, as further 
described below.
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    \3\ Capitalized terms not defined herein are defined in the GSD 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \4\ A ``Legal Entity Identifier'' is a 20-character reference 
code to uniquely identify legally distinct entities that engage in 
financial transactions. The Legal Entity Identifier is based on the 
ISO 17442 standard developed by the International Organization for 
Standardization and satisfies the standards implemented by the 
Global Legal Entity Identifier Foundation. See https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei. FICC is proposing to add a new definition for the term ``Legal 
Entity Identifier'' in the GSD Rules, as further discussed below.
    \5\ ``Legal Action'' (as defined below and in the proposed rule 
change) means and includes any claim, counterclaim, demand, action, 
suit, countersuit, arbitration, inquiry, proceeding or investigation 
before any federal, state or foreign court or other tribunal, or any 
investigative or regulatory agency or self-regulatory organization.
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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 GSD Rules 
to require: (i) Each applicant to become a Netting Member and CCIT 
Member to obtain and provide a Legal Entity Identifier to FICC as part 
of its membership application, (ii) each Netting Member and CCIT Member 
to have a current Legal Entity Identifier on file with FICC at all 
times and to indemnify FICC for any losses and Legal Actions that arise 
due to the failure of a Netting Member or CCIT Member to do so, as 
further described below, and (iii) each Sponsoring Member to provide 
FICC with a Legal Entity Identifier for each of their current Sponsored 
Members and for each newly added Sponsored Member going forward and to 
indemnify FICC for any losses and Legal Actions that arise due to the 
failure of a Sponsoring Member to do so, as further described below.
Background
    The Office of Financial Research (``OFR'') of the U.S. Department 
of the Treasury has adopted a rule (``OFR Regulation'') establishing a 
data collection requirement covering centrally cleared transactions in 
the U.S. repurchase agreement (``repo'') market.\6\ This collection 
requires daily reporting to the OFR by ``covered reporters,'' which is 
defined to include central counterparties meeting certain criteria 
(i.e., clearing repurchase agreement transactions), such as FICC.
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    \6\ 84 FR 4975 (February 20, 2019) (hereinafter the ``OFR 
Release''). The OFR Regulation is codified at 12 CFR part 1610.
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    The OFR Regulation requires covered reporters, such as FICC, to 
submit the Legal Entity Identifier of each clearing member involved in 
a reportable repo transaction. A Legal Entity Identifier is a 20-
character, alpha-numeric code based on the ISO 17442 standard developed 
by the International Organization for Standardization.\7\ Each Legal 
Entity Identifier contains information about an entity's ownership 
structure.\8\
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    \7\ See supra note 4.
    \8\ See id.
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    In the OFR Release, the OFR stated that the submission of Legal 
Entity Identifiers by covered reporters would enhance the ability of 
the Financial Stability Oversight Council (``Council''),\9\ Council 
member

[[Page 19980]]

agencies \10\ and the OFR to identify potential risks to U.S. financial 
stability by facilitating an understanding of repo market participants' 
exposures, concentrations and network structures.\11\ The OFR stated 
that it expects that covered reporters (such as FICC) will take all 
feasible steps to require that their platform participants obtain Legal 
Entity Identifiers so that covered reporters are in compliance with the 
Legal Entity Identifier requirements of the OFR's final rule.\12\
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    \9\ The Council was established by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. The Council is charged with 
identifying risks to the financial stability of the United States, 
among other things. See https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/fsoc.
    \10\ The Council member agencies are the Board of Governors of 
the Federal Reserve System, Commodity Futures Trading Commission, 
Federal Deposit Insurance Corporation, Federal Housing Finance 
Agency, National Credit Union Administration, Office of the 
Comptroller of the Currency, Securities and Exchange Commission, 
Treasury Department and Consumer Financial Protection Bureau. See 
https://www.treasury.gov/initiatives/fsoc/about/Pages/FSOC-Member-Agencies.aspx.
    \11\ See OFR Release, supra note 6, at 4980.
    \12\ Id.
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    The implementation timeframe for the OFR Regulation is as follows:
     Subject to the third bullet point below, covered reporters 
were required to begin reporting all required data elements associated 
with specific security trades 180 days after April 22, 2019.\13\
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    \13\ 12 CFR 1610.10(e)(1)(i).
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     Subject to the bullet immediately below, covered reporters 
were required to begin reporting all required data elements associated 
with general collateral trades within 240 days after April 22, 
2019.\14\
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    \14\ 12 CFR 1610.10(e)(1)(ii).
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     If a covered reporter is able to effectuate a rulemaking 
through the Securities and Exchange Commission requiring each direct 
clearing member, counterparty and broker associated with a repurchase 
agreement transaction to obtain a Legal Entity Identifier and provide 
it to the covered reporter, the covered reporter shall begin reporting 
all data elements requiring a Legal Entity Identifier by the later date 
of its rulemaking, or 420 days after April 22, 2019.\15\
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    \15\ 12 CFR 1610.10(e)(1)(iii).
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Proposed Rule Changes
    In order to comply with the Legal Entity Identifier submission 
requirement in the OFR Regulation, FICC is proposing to require: (i) 
Each applicant to become a Netting Member and CCIT Member to obtain and 
provide a Legal Entity Identifier to FICC as part of its membership 
application, (ii) each Netting Member and CCIT Member to have a current 
Legal Entity Identifier on file with FICC at all times and to indemnify 
FICC for any losses and Legal Actions that arise due to the failure of 
a Netting Member or CCIT Member to do so, as further described below, 
and (iii) each Sponsoring Member to provide FICC with a Legal Entity 
Identifier for each of their current Sponsored Members and for each 
newly added Sponsored Member going forward and to indemnify FICC for 
any losses and Legal Actions that arise due to the failure of a 
Sponsoring Member to do so, as further described below.
    FICC proposes to add a new defined term, Legal Entity Identifier, 
to GSD Rule 1. FICC proposes to use the terminology of the Global Legal 
Entity Identifier Foundation for the definition.\16\
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    \16\ See supra note 4. The Global Legal Entity Identifier 
Foundation was established by the Financial Stability Board in June 
2014 to support the implementation and use of Legal Entity 
Identifiers. The Financial Stability Board is an international body 
that monitors and makes recommendations about the global financial 
system. www.fsb.org
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(i) Netting Member and CCIT Member Applicants
    FICC is proposing to amend Section 5 of GSD Rule 2A to require each 
Netting Member applicant to obtain and provide a Legal Entity 
Identifier to FICC as part of its membership application. The same 
change would be made regarding CCIT Member applicants in Section 3 of 
GSD Rule 3B. The proposed change would entail a re-lettering of 
subsections (d) and (e) of Section 3 of GSD Rule 3B. FICC is proposing 
to implement the changes discussed in this paragraph upon approval of 
this filing from the Commission.
(ii) Netting Members and CCIT Members
    FICC is proposing to amend Section 2 of GSD Rule 3 to add language 
that would require each Netting Member to have a current Legal Entity 
Identifier on file with FICC at all times. The same change would be 
made to Section 5 of GSD Rule 3B for CCIT Members. For existing Netting 
Members and CCIT Members, FICC is proposing to add a footnote in each 
case that states such members shall have 60 calendar days from the date 
of the Commission's approval of this filing to submit their Legal 
Entity Identifiers to FICC.\17\
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    \17\ The proposed footnote in each case would also state that 
the footnote will sunset at the end of the 60-calendar day period.
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    FICC is also proposing to add language to Section 2 of GSD Rule 3 
and Section 5 of GSD Rule 3B to provide that a Netting Member/CCIT 
Member shall indemnify FICC, and its employees, officers, directors, 
shareholders, agents, and Members (collectively, the ``LEI Indemnified 
Parties''), for any and all losses, liabilities, expenses and Legal 
Actions suffered or incurred by the LEI Indemnified Parties arising 
from a Netting Member's or CCIT Member's failure to have its current 
Legal Entity Identifier on file with FICC. ``Legal Action'' would mean 
and include any claim, counterclaim, demand, action, suit, countersuit, 
arbitration, inquiry, proceeding or investigation before any federal, 
state or foreign court or other tribunal, or any investigative or 
regulatory agency or self-regulatory organization. FICC is proposing 
this indemnity because in fulfilling its regulatory obligations under 
the OFR Regulation, FICC would be relying upon Netting Members and CCIT 
Members to keep their Legal Entity Identifiers on file with FICC 
current.
(iii) Sponsoring Members and Sponsored Members
    FICC is proposing to amend Section 2 of GSD Rule 3A to require that 
each Sponsoring Member submit the Legal Entity Identifiers of its 
Sponsored Member applicants. FICC would implement this change regarding 
applicants upon the Commission's approval of this filing. The proposed 
rule change would also add language to Section 2 of GSD Rule 3A to 
require that each Sponsoring Member provide FICC with a Legal Entity 
Identifier for each of its existing Sponsored Members such that FICC 
has a current Legal Entity Identifier for each such Sponsored Member at 
all times. For existing Sponsored Members, FICC is proposing to add a 
footnote that states the Sponsoring Members shall have 60 calendar days 
from the date of the Commission's approval of this filing to submit the 
Legal Entity Identifiers of their Sponsored Members to FICC.\18\ In 
order to cover new Sponsored Members, FICC is proposing to amend 
Section 3 of GSD Rule 3A to add that the Sponsoring Member must provide 
the Legal Entity Identifier of each entity it wishes to sponsor into 
membership as a Sponsored Member. FICC is proposing to implement the 
change to Section 3 of GSD Rule 3A upon the Commission's approval of 
this filing.
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    \18\ The proposed footnote would also state that the footnote 
will sunset at the end of the 60-calendar day period.
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    FICC is also proposing to amend Section 2 of GSD Rule 3A to include 
an indemnity, described above, with respect to Sponsoring Members 
because,

[[Page 19981]]

akin to the Netting Members and CCIT Members, FICC would be relying on 
the Sponsoring Members to keep the Legal Entity Identifiers of their 
Sponsored Members on file with FICC current.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, inter alia, that the GSD 
Rules be designed to foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities transactions.\19\ 
FICC understands that the Council and its member agencies have a 
significant interest in the clearance and settlement of the securities 
transactions cleared by FICC. As explained in the OFR Release, these 
parties wish to identify risks to U.S. financial stability; \20\ 
monitoring of the repo market is important for financial stability 
monitoring because the repo market plays a crucial role in providing 
short-term funding and performing other functions for U.S. markets.\21\ 
The OFR Regulation (which includes the Legal Entity Identifier 
requirement) is expected to help fulfill the Council's purposes and 
duties in the monitoring of the repo market.\22\ FICC believes that the 
proposed rule changes (which would add the defined term ``Legal Entity 
Identifier'' to the GSD Rules and would further amend the GSD Rules to 
require: (i) Each applicant to become a Netting Member and CCIT Member 
to obtain and provide a Legal Entity Identifier to FICC as part of its 
membership application, (ii) each Netting Member and CCIT Member to 
have a current Legal Entity Identifier on file with FICC at all times 
and to provide the indemnity described in Item II(A)1(ii) above, and 
(iii) each Sponsoring Member to provide FICC with a Legal Entity 
Identifier for each of their current Sponsored Members and for each 
newly added Sponsored Member going forward and to indemnify FICC as 
described in Item II(A)1(iii) above) would facilitate FICC's compliance 
with the OFR Regulation. Therefore, given the purposes of the OFR 
Regulation described here, FICC believes that the proposed rule changes 
would foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions.\23\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ See OFR Release, supra note 6, at 4975.
    \21\ Id.
    \22\ Id.
    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, Section 17A(b)(3)(F) of the Act requires, inter alia, 
that the GSD Rules be designed to protect the public interest.\24\ The 
purpose of the OFR Regulation is to assist the Council and its member 
agencies to monitor the stability of the repo market. The stability of 
the repo market serves the public interest because the repo market 
plays a crucial role in the U.S. markets. Because the proposed rule 
changes would facilitate FICC's compliance with the OFR Regulation, 
which, in turn, serves the public interest, FICC believes that the 
proposed rule changes would serve to protect the public interest.\25\
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    \24\ Id.
    \25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that the proposed changes to add the defined term 
``Legal Entity Identifier'' to the GSD Rules and to further amend the 
GSD Rules to require: (i) Each applicant to become a Netting Member and 
CCIT Member to obtain and provide a Legal Entity Identifier to FICC as 
part of its membership application, (ii) each Netting Member and CCIT 
Member to have a current Legal Entity Identifier on file with FICC at 
all times and to provide the indemnity described above in Item 
II(A)1(ii), and (iii) each Sponsoring Member to provide FICC with a 
Legal Entity Identifier for each of their current Sponsored Members and 
for each newly added Sponsored Member going forward and to indemnify 
FICC as described above in Item II(A)1(iii) could impose a burden on 
competition because these changes would impose a cost on firms that 
currently do not have Legal Entity Identifiers to obtain and maintain 
them. FICC does not believe that any burden on competition imposed by 
the proposed rule change would be significant because the cost to 
obtain and maintain a Legal Entity Identifier is relatively small,\26\ 
and FICC understands that many of its members already maintain Legal 
Entity Identifiers for other purposes. Regardless of whether the 
potential burden on competition is deemed significant, FICC believes 
the proposed rule change is both necessary and appropriate in 
furtherance of the purposes of the Act. Specifically, FICC believes 
that any burden on competition that is created by the proposed changes 
would be necessary in furtherance of the purposes of the Act \27\ 
because the proposed rule change would permit FICC to comply with the 
OFR Regulation, which ultimately would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions by allowing the OFR to identify risks to U.S. 
financial stability. FICC also believes that any burden that is created 
by the proposed rule change would be appropriate in furtherance of the 
purposes of the Act \28\ because the proposed changes would be limited 
to information that FICC is required to provide pursuant to the OFR 
Regulation.
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    \26\ For example, the cost to obtain a Legal Entity Identifier 
is $100 from Business Entity Data BV, and the cost to renew (which 
is required annually) is $80. See www.gmeiutility.org.
    \27\ 15 U.S.C. 78q-1(b)(3)(I).
    \28\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to the proposed rule changes have not 
been solicited or received. 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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2020-002 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2020-002. This file 
number should be included on the

[[Page 19982]]

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-2020-002 
and should be submitted on or before April 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07437 Filed 4-8-20; 8:45 am]
 BILLING CODE 8011-01-P