Document ID: SEC-2019-0004-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2018-12-31T05:00Z

[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Notices]
[Pages 67801-67808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28376]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84951; File No. SR-FICC-2018-013]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Expand Sponsoring Member 
Eligibility in the Government Securities Division Rulebook and Make 
Other Changes

December 21, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on December 13, 2018, 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.\3\ 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\ On December 13, 2018, FICC filed this proposed rule change 
as an advance notice (SR-FICC-2018-802) with the Commission pursuant 
to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act entitled the Payment, Clearing, 
and Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and 
Rule 19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy 
of the advance notice is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would amend the FICC Government Securities 
Division (``GSD'') Rulebook (``Rules'') \4\ in order to (i) allow a 
broader group of Netting Members to participate in FICC as Sponsoring 
Members, (ii) allow a Sponsoring Member to establish a Sponsoring 
Member Omnibus Account that may contain transactions between a 
Sponsored Member and a Netting Member other than the Sponsoring Member, 
which Sponsoring Member Omnibus Account could be in addition to or in 
lieu of a Sponsoring Member Omnibus Account in which only transactions 
between a Sponsored Member and its Sponsoring Member would be 
permitted, and (iii) make certain conforming and technical changes in 
Rules 1 and 3A.
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    \4\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_gov_rules.pdf.
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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 this proposed rule change is to (i) allow a broader 
group of Netting Members to participate in FICC as Sponsoring Members, 
(ii) allow a Sponsoring Member to establish a Sponsoring Member Omnibus 
Account that may contain transactions between a Sponsored Member and a 
Netting Member other than the Sponsoring Member, which Sponsoring 
Member Omnibus Account could be in addition to or in lieu of a 
Sponsoring Member Omnibus Account in which only transactions between a 
Sponsored Member and its Sponsoring Member would be permitted, and 
(iii) make certain conforming and technical changes in Rules 1 and 3A.
(i) Background
    Under Rule 3A (Sponsoring Members and Sponsored Members), Bank 
Netting Members that are ``well-capitalized'' (as defined by the 
Federal Deposit Insurance Corporation's applicable regulations) \5\ and 
have at least $5 billion in equity capital are permitted to sponsor, as 
``Sponsoring Members,'' qualified institutional buyers as defined by 
Rule 144A \6\ under the Securities Act of 1933, as amended 
(``Securities Act''),\7\ and certain legal entities that, although not 
organized as entities specifically listed in paragraph (a)(1)(i) of 
Rule 144A under the Securities Act, satisfy the financial requirements 
necessary to be qualified institutional buyers as specified in that 
paragraph (i.e., Sponsored Members) into GSD membership.
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    \5\ 12 U.S.C. 1831o(a).
    \6\ 17 CFR 230.144A.
    \7\ 15 U.S.C. 77a et seq.
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    Under Rule 3A, a Sponsoring Member is permitted to submit to FICC 
for comparison, novation, and netting certain types of eligible 
securities transactions between itself and its Sponsored Members 
(Sponsored Member Trades).\8\ The Sponsoring Member is required to 
establish an omnibus account at FICC for all its Sponsored Members' 
FICC-cleared securities transactions (Sponsoring Member Omnibus 
Account),\9\ which is separate from the Sponsoring Member's regular 
netting accounts. For operational and administrative purposes, FICC 
interacts solely with the Sponsoring Member as agent for purposes of 
the day-to-day satisfaction of its Sponsored Members' obligations to 
FICC, including their securities and funds-only settlement 
obligations.\10\
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    \8\ Rule 1, definition of ``Sponsored Member Trade,'' supra note 
4.
    \9\ Rule 1, definition of ``Sponsoring Member Omnibus Account,'' 
supra note 4.
    \10\ Rule 3A, Sections 5, 6, 7, 8, and 9, supra note 4.
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Governance and Risk Management of Sponsoring Members
    All Sponsoring Members are subject to the following governance, 
market risk management, and credit risk management processes 
specifically related to their status as Sponsoring Members under the 
current Rules, which would continue to apply equally to all Sponsoring 
Members notwithstanding the proposed rule changes described in this 
filing.
    The governance process applicable to the approval of every 
applicant to become a Sponsoring Member is set forth in Rule 3A. In 
order to become a Sponsoring Member, an applicant is required to go 
through an application process, which includes a risk management review 
of the applicant by FICC specifically related to the activity it 
proposes to submit to FICC as a Sponsoring Member, and an approval of 
such applicant by the FICC Board of Directors \11\ as a new Sponsoring 
Member.\12\ This application process is separate from the applicant's 
original Netting Member application process. If the FICC Board of 
Directors denies the application of a Sponsoring Member applicant, FICC 
is required to handle such denial in the same way as set forth in 
Section 6 of Rule 2A with respect to

[[Page 67802]]

Netting Member applications.\13\ FICC may also require that a 
Sponsoring Member applicant be a Netting Member for a time period 
deemed necessary by FICC prior to being considered to become a 
Sponsoring Member.\14\
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    \11\ FICC Board of Directors means the Board of Directors of 
Fixed Income Clearing Corporation or a committee thereof acting 
under delegated authority. Rule 1, supra note 4.
    \12\ Rule 3A, Section 2, supra note 4.
    \13\ Rule 3A, Section 2(b) and Rule 2A, Section 6, supra note 4.
    \14\ Rule 3A, Section 2(a), supra note 4.
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    Once a Sponsoring Member is approved by the FICC Board of 
Directors, it is subject to ongoing credit surveillance and may be 
placed on the Watch List and/or may be subject to enhanced surveillance 
based on relevant factors as set forth in Rule 3, as FICC deems 
necessary to protect FICC and its members.\15\
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    \15\ Rule 3, Section 12, supra note 4.
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    FICC mitigates the market risk associated with Sponsored Member 
activity through the collection of Clearing Fund from the Sponsoring 
Member.\16\ A Sponsoring Member is required to maintain a Required Fund 
Deposit for all the Sponsored Member activity, which is calculated 
twice daily on a gross basis, in its Sponsoring Member Omnibus 
Account.\17\ Specifically, for purposes of calculating the Unadjusted 
GSD Margin Portfolio Amount for a Sponsoring Member Omnibus Account, 
each Sponsored Member's activity is assigned a separate VaR Charge, 
and, as such, the Unadjusted GSD Margin Portfolio Amount for the 
Sponsoring Member Omnibus Account is not reduced by any netting of 
positions as between different Sponsored Members within that Sponsoring 
Member Omnibus Account.\18\ In addition, for purposes of calculating 
the Unadjusted GSD Margin Portfolio Amount applicable to a Sponsoring 
Member Omnibus Account, FICC applies the higher of the Required Fund 
Deposit calculation as of the beginning of the current Business Day and 
intraday on the current Business Day.\19\ FICC has the right to apply 
all such Clearing Fund deposits plus all other Clearing Fund deposits 
of the Sponsoring Member for its Netting System accounts against any 
obligations owing to FICC by the Sponsoring Member, including (but not 
limited to) in a Sponsoring Member default situation.\20\ In a 
Sponsoring Member default situation, FICC may apply all such Clearing 
Fund deposits against any obligations owing to FICC by the Sponsoring 
Member before any of the other resources in the GSD default loss 
waterfall would be used, including, in the final tranche of such 
waterfall, potential loss mutualization to Netting Members.\21\
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    \16\ Rule 3A, Section 10, supra note 4.
    \17\ Rule 3A, Section 10(a), supra note 4.
    \18\ Rule 3A, Section 10(c), supra note 4.
    \19\ Id.
    \20\ Rule 3A, Section 10(b), supra note 4.
    \21\ See Rule 3A, Section 10(b) and Rule 4, Section 6, supra 
note 4.
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    Moreover, Sponsoring Members are also responsible for providing 
FICC with a Sponsoring Member Guaranty \22\ whereby the Sponsoring 
Member guarantees to FICC the payment and performance by its Sponsored 
Members of their obligations under the Rules.\23\ Although Sponsored 
Members are principally liable to FICC for their own settlement 
obligations under the Rules, the Sponsoring Member is required to 
provide a Sponsoring Member Guaranty to FICC with respect to such 
obligations whereby if a Sponsored Member defaults and does not satisfy 
its settlement obligations to FICC, the Sponsoring Member is required 
to satisfy those settlement obligations on behalf of its defaulted 
Sponsored Member. As long as the Sponsoring Member performs under the 
Sponsoring Member Guaranty, it would not separately be considered in 
default to FICC, but failure to do so would be grounds for FICC to 
cease to act for the Sponsoring Member.\24\
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    \22\ Section 2(c) of Rule 3A provides ``Each Netting Member to 
become a Sponsoring Member shall also sign and deliver to [FICC] a 
Sponsoring Member Guaranty . . . .'' A ``Sponsoring Member 
Guaranty'' is defined in Rule 1 as ``a guaranty . . . that a 
Sponsoring Member delivers to [FICC] whereby the Sponsoring Member 
guarantees to [FICC] the payment and performance by its Sponsored 
Members of their obligations under [the] Rules, including, without 
limitation, all of the securities and funds-only settlement 
obligations of its Sponsored Members under [the] Rules.'' Supra note 
4.
    \23\ Rule 3A, Section 2(c), supra note 4.
    \24\ Rule 3A, Section 2(g), supra note 4.
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Proposed Rule Changes To Expand Sponsoring Member Eligibility
    As described above, Rule 3A (Sponsoring Members and Sponsored 
Members) currently provides that Bank Netting Members that are ``well-
capitalized'' (as defined by the Federal Deposit Insurance 
Corporation's applicable regulations) \25\ and have at least $5 billion 
in equity capital are eligible to become Sponsoring Members.\26\
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    \25\ 12 U.S.C. 1831o(a).
    \26\ Rule 3A, Section 2(a), supra note 4.
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    In 2017, the Commission approved FICC rule filing SR-FICC-2017-
003,\27\ which expanded the types of entities that are eligible to 
participate in FICC as Sponsored Members under Rule 3A. Since that 
time, Netting Members that are not Bank Netting Members have expressed 
interest to FICC in participating in FICC as Sponsoring Members.
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    \27\ Securities Exchange Act Release No. 80563 (May 1, 2017), 82 
FR 21284 (May 5, 2017) (SR-FICC-2017-003).
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    The proposed rule change would create two categories of Netting 
Members that would be eligible to become Sponsoring Members. The first 
category of Netting Members would include currently eligible Bank 
Netting Members that are ``well-capitalized'' (as defined by the 
Federal Deposit Insurance Corporation's applicable regulations) \28\ 
and have at least $5 billion in equity capital (hereinafter and in the 
proposed rule change, ``Category 1 Sponsoring Members''). The second 
category of Netting Members eligible to become Sponsoring Members would 
include Netting Members that are Tier One Netting Members, except for 
Inter-Dealer Broker Netting Members and Non-IDB Repo Brokers with 
respect to activity in their Segregated Repo Accounts (hereinafter and 
in the proposed rule change, ``Category 2 Sponsoring Members''). As 
such, the proposed rule change would provide that Category 2 Sponsoring 
Member applicants could include, for example, Dealer Netting Members, 
Futures Commission Merchant Netting Members, and Foreign Netting 
Members.
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    \28\ 12 U.S.C. 1831o(a).
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    FICC is proposing that neither Inter-Dealer Broker Netting Members 
nor Non-IDB Repo Brokers with respect to activity in their Segregated 
Repo Accounts be eligible to become Category 2 Sponsoring Members. 
Although Inter-Dealer Broker Netting Members and Non-IDB Repo Brokers 
are types of Netting Members, a cap applies to their respective loss 
allocation obligations to FICC under Rule 4, Section 7 \29\ that does 
not apply to other types of Netting Members; therefore, FICC does not 
believe it would be appropriate to allow either Inter-Dealer Broker 
Netting Members or Non-IDB Repo Brokers to be eligible to become 
Category 2 Sponsoring Members. However, to the

[[Page 67803]]

extent an Inter-Dealer Broker Netting Member or Non-IDB Repo Broker 
also has another type of Netting Member status with respect to which it 
is not subject to the loss allocation cap described above, such Inter-
Dealer Broker Netting Member or Non-IDB Repo Broker could apply to 
become a Category 2 Sponsoring Member under such other Netting Member 
status.
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    \29\ Section 7 of Rule 4 provides that ``an Inter-Dealer Broker 
Netting Member, or a Non-IDB Repo Broker with respect to activity in 
its Segregated Repo Account, shall not be subject to an aggregate 
loss allocation in an amount greater than $5 million pursuant to 
this Section 7 for losses and liabilities resulting from an Event 
Period.'' Supra note 4. The limit on loss allocation for these 
Members reflects their risk profile. Specifically, an Inter-Dealer 
Broker Netting Member is required to (A) limit its business to 
acting exclusively as a broker, (B) conduct all of its business in 
Repo Transactions with Netting Members, and (C) conduct at least 90 
percent of its business in transactions that are not Repo 
Transactions with Netting Members. Rule 3, Section 8(e), supra note 
4. Likewise, a Non-IDB Repo Broker is required to operate in the 
same way as a Broker with respect to activity in its Segregated Repo 
Account. Rule 1, definition of ``Repo Broker,'' supra note 4.
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    The minimum financial requirements applicable to Netting Member 
applicants to become Category 2 Sponsoring Members would be the same as 
those that apply to them with respect to their respective Netting 
Member category under Section 4(b) of Rule 2A. However, since a 
Category 2 Sponsoring Member may have substantially less capital than a 
Category 1 Sponsoring Member, the proposed rule change would provide 
that FICC could impose financial requirements on an applicant to become 
a Category 2 Sponsoring Member that are greater than the financial 
requirements applicable to such applicant in its capacity as a Netting 
Member under Section 4(b) of Rule 2A. FICC's determination as to 
whether to impose such increased financial requirements on a Category 2 
Sponsoring Member applicant would be based upon the level of the 
anticipated positions and obligations of such applicant, the 
anticipated risk associated with the volume and types of transactions 
such applicant proposes to process through FICC as a Category 2 
Sponsoring Member, and the overall financial condition of such 
applicant. Such a determination by FICC to impose increased financial 
requirements on a Category 2 Sponsoring Member applicant would be 
subject to the approval of the FICC Board of Directors in connection 
with its approval of the application of such Category 2 Sponsoring 
Member, and, once approved, FICC would thereafter regularly review such 
Category 2 Sponsoring Member regarding its continued adherence to such 
increased financial requirements.
    In addition to reserving the right of FICC to impose financial 
requirements on a Category 2 Sponsoring Member that are greater than 
the financial requirements applicable to it in its capacity as a 
Netting Member under Section 4(b) of Rule 2A, the proposed rule change 
would also impose an activity limit on a Category 2 Sponsoring Member's 
Sponsored Member activity so that such Sponsoring Member would only be 
permitted to novate new Sponsored Member activity to FICC to the extent 
the sum of the VaR Charges of its Sponsoring Member Omnibus Account(s) 
and its Netting System accounts (hereinafter ``Aggregate VaR Charges'') 
do not exceed its Netting Member Capital. The ratio of a Category 2 
Sponsoring Member's Aggregate VaR Charges to its Netting Member Capital 
would be calculated by FICC on at least an hourly basis for monitoring 
purposes. To the extent a Category 2 Sponsoring Member's Aggregate VaR 
Charges exceed its Netting Member Capital, it would not be permitted to 
submit new Sponsored Member activity to FICC until its Netting Member 
Capital equals or exceeds its Aggregate VaR Charges, unless otherwise 
determined by FICC in order to promote orderly settlement, which would 
include, but not be limited to, circumstances in which the novation of 
such activity would have a risk-reducing impact on the Category 2 
Sponsoring Member's overall FICC-cleared portfolio.
    FICC selected the ratio of Aggregate VaR Charges to Netting Member 
Capital for purposes of establishing the activity limit for Category 2 
Sponsoring Members because this ratio is an important indicator that a 
Category 2 Sponsoring Member's financial resources, as measured by its 
net assets or equity capital, are sufficient to meet the largest 
component of its Required Fund Deposit (i.e., VaR Charges). VaR Charges 
and Netting Member Capital are also metrics that already exist in the 
Rules for purposes of determining Netting Members' Excess Capital 
Ratios, and, in turn, whether an Excess Capital Premium could be 
applied by FICC to Netting Members' Required Fund Deposits as provided 
in Section 14 of Rule 3 (Ongoing Membership Requirements).\30\ As such, 
Netting Members that are interested in becoming Category 2 Sponsoring 
Members should already be familiar with and should be currently 
monitoring their FICC-cleared portfolio with respect to such metrics.
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    \30\ Rule 3, Section 14, supra note 4.
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    FICC proposes to apply the above-referenced activity limit only on 
Category 2 Sponsoring Members and not on Category 1 Sponsoring Members. 
This is because Category 1 Sponsoring Members are ``well-capitalized'' 
\31\ and, as banks, subject to extensive prudential supervision and 
regulation with respect to their obligations under guaranties of 
performance, such as the Sponsoring Member Guaranty; therefore, FICC 
believes the imposition of a limit on their Sponsored Member activity 
would be unnecessary. However, given that FICC would not require 
Category 2 Sponsoring Members to be banks or bank holding company 
affiliates, a Category 2 Sponsoring Member may not be subject to a 
regulatory standard equivalent to ``well-capitalized'' \32\ and/or may 
not be subject to the same type of prudential supervision and 
regulation as a Category 1 Sponsoring Member; therefore, FICC believes 
it would be prudent from a risk management perspective to impose a 
limit on Category 2 Sponsoring Members' Sponsored Member activity.
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    \31\ 12 U.S.C. 1831o(a).
    \32\ Id.
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    Moreover, in order to be consistent with FICC's authority under 
Section 7 of Rule 3 (Ongoing Membership Requirements) with respect to 
Members and applicants to become such, FICC proposes to reserve the 
right to require each Sponsoring Member, or any Netting Member 
applicant to become such, to furnish to FICC such adequate assurances 
of its financial responsibility and operational capability within the 
meaning of Section 7 of Rule 3 as FICC may at any time or from time to 
time deem necessary or advisable in order to protect FICC and its 
members, to safeguard securities and funds in the custody or control of 
FICC and for which FICC is responsible, or to promote the prompt and 
accurate clearance and settlement of securities transactions. Such a 
determination by FICC to impose adequate assurances on a Sponsoring 
Member applicant would be subject to the approval of the FICC Board of 
Directors in connection with its approval of the application of such 
Sponsoring Member, and, once approved, FICC would thereafter regularly 
review such Sponsoring Member regarding its continued adherence to such 
adequate assurances requirements, as appropriate. Any adequate 
assurances requirements imposed on a Sponsoring Member after its 
approval would be memorialized in writing to the Sponsoring Member and 
regularly reviewed by senior risk management of FICC.
Proposed Rule Changes To Expand Sponsored Member Trade Definition
    Currently, the term ``Sponsored Member Trade'' is defined in Rule 1 
as ``a transaction between a Sponsored Member and its Sponsoring 
Member. . . .'' \33\ Certain prospective Sponsoring Members have 
expressed an interest in allowing Sponsored Members to submit to FICC 
eligible securities transactions with Netting Members other than their 
Sponsoring Members. In light of the fact that in all cases, a 
Sponsoring Member is in control of

[[Page 67804]]

which securities transactions it submits for clearing on behalf of its 
Sponsored Members \34\ and, in turn, its related obligations to FICC 
with respect to the Clearing Fund,\35\ loss allocation,\36\ Capped 
Contingency Liquidity Facility[supreg] (``CCLF[supreg]''),\37\ the 
Sponsoring Member Guaranty,\38\ and fees,\39\ FICC is proposing to 
allow a Sponsoring Member to establish a Sponsoring Member Omnibus 
Account that may contain transactions between a Sponsored Member and a 
Netting Member other than the Sponsoring Member, which Sponsoring 
Member Omnibus Account could be in addition to or in lieu of a 
Sponsoring Member Omnibus Account in which only transactions between a 
Sponsored Member and its Sponsoring Member would be permitted.\40\
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    \33\ Rule 1, definition of ``Sponsored Member Trade,'' supra 
note 4.
    \34\ Section 6(b) of Rule 3A provides ``The Sponsoring Member 
shall act as processing agent for performing all functions and 
receiving Reports and information set forth in the trade submission 
and comparison Rules on behalf of its Sponsored Members.'' Supra 
note 4.
    \35\ Section 10(a) of Rule 3A provides ``Each Sponsoring Member 
shall make and maintain so long as such Member is a Sponsoring 
Member a deposit to the Clearing Fund as a Required Fund Deposit to 
support the activity in the Sponsoring Member Omnibus Account . . . 
.'' Supra note 4.
    \36\ Rule 3A, Section 12, supra note 4.
    \37\ Approved by the Commission, CCLF will be implemented on 
November 15, 2018. Securities Exchange Act Release No. 82090 
(November 15, 2017), 82 FR 55427 (November 21, 2017) (SR-FICC-2017-
002).
    \38\ Section 2 of Rule 3A provides ``Each Netting Member to 
become a Sponsoring Member shall also sign and deliver to [FICC] a 
Sponsoring Member Guaranty . . . .'' A ``Sponsoring Member 
Guaranty'' is defined in Rule 1 as ``a guaranty . . . that a 
Sponsoring Member delivers to [FICC] whereby the Sponsoring Member 
guarantees to [FICC] the payment and performance by its Sponsored 
Members of their obligations under [the] Rules, including, without 
limitation, all of the securities and funds-only settlement 
obligations of its Sponsored Members under [the] Rules.'' Supra note 
4.
    \39\ Fee Structure, supra note 4.
    \40\ To the extent a Sponsoring Member elects to establish a 
Sponsoring Member Omnibus Account that may contain transactions 
between a Sponsored Member and a Netting Member other than the 
Sponsoring Member, the Required Fund Deposit for such Sponsoring 
Member Omnibus Account would be calculated to be inclusive of all 
transactions submitted into such account, including any transactions 
between a Sponsored Member and a Netting Member other than the 
Sponsoring Member as well as any transactions between a Sponsored 
Member and the Sponsoring Member.
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Benefits of the Proposal
    FICC believes that the novation of eligible securities transactions 
to FICC provides Sponsoring Members and their Sponsored Members the 
benefits of FICC's independent risk management and guaranty of 
completion of settlement of such transactions. In addition, Sponsoring 
Members may be able to offset or otherwise reduce their balance sheets 
with respect to their obligations to FICC on Sponsored Member Trades, 
as well as take lesser capital charges than would be required to the 
extent they engaged in the same securities transactions with their 
Sponsored Members outside of a central counterparty.\41\ By 
participating in FICC as Sponsored Members, eligible institutional 
firms may be afforded increased lending capacity and income because 
balance sheet and capital constraints on their Sponsoring Members may 
be alleviated. Specifically, the opportunity for Sponsoring Members to 
intermediate their Sponsored Members' securities transactions in a more 
capital efficient manner through FICC may allow such Sponsoring Members 
to engage in a greater number of securities transactions, thereby 
potentially increasing their Sponsored Members' opportunity to lend 
and, in turn, their income.
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    \41\ Sponsoring Members interested in such relief should discuss 
this matter with their accounting and regulatory capital experts.
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    FICC believes that the proposed rule changes to expand Sponsoring 
Member eligibility and the Sponsored Member Trade definition, as 
described above, would help to safeguard the U.S. financial market by 
lowering the risk of liquidity drain, protecting against fire sale 
risk,\42\ and decreasing settlement and operational risk.
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    \42\ Fire sale risk is the risk of rapid asset sales of 
securities held by cash lenders when a dealer defaults. This rapid 
sale has the potential to create a market crisis because cash 
lenders are likely to sell large amounts of securities in a short 
period of time, which could dramatically reduce the price of such 
securities that such lenders are looking to sell.
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    FICC believes that expanding the types of Netting Members that are 
eligible to participate in FICC as Sponsoring Members would increase 
the number of Sponsoring Members and, in turn, the number of Sponsored 
Member Trades that would be cleared and settled by FICC. Similarly, 
FICC believes that the proposed rule changes to expand the Sponsored 
Member Trade definition would also increase the number of Sponsored 
Member Trades that would be cleared and settled by FICC. FICC believes 
having more Sponsored Member Trades that clear and settle through FICC 
would mitigate the risk of a large scale exit by firms from the U.S. 
financial market in a stress scenario and therefore lower the risk of a 
liquidity drain in such a scenario. Specifically, to the extent firms 
would otherwise be engaging in the same type of eligible securities 
transactions (e.g., repurchase agreement transactions) outside of a 
central counterparty, FICC believes having such securities transactions 
novated to FICC and subject to FICC's guaranty of completion of 
settlement would reduce the risk that such firms discontinue such 
securities transactions in a Netting Member default situation.
    Similarly, FICC believes having more Sponsored Member Trades that 
clear and settle through FICC would also reduce the potential for 
market disruption from fire sales. Specifically, in a Netting Member 
default situation, more securities transactions with the defaulted 
Netting Member could be centrally hedged and liquidated in an orderly 
manner by FICC rather than by individual counterparties in potential 
fire sale conditions.
    In addition, to the extent firms would otherwise be engaging in 
eligible securities transactions (e.g., repurchase agreement 
transactions) outside of a central counterparty, FICC believes having 
more Sponsored Member Trades that clear and settle through FICC would 
also decrease settlement and operational risk in the U.S. financial 
market in that such securities transactions would now be eligible to be 
net settled \43\ and subject to guaranteed settlement, novation, and 
independent risk management through FICC.
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    \43\ It should be noted that net settlements of securities for 
Sponsored Member Trades would be executed by the Sponsoring Member's 
designated clearing bank in accordance with Rule 12 (Securities 
Settlement).
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(ii) Proposed Changes to the Rules
Rule 1 (Definitions)
    FICC is proposing to add two defined terms: ``Category 1 Sponsoring 
Member'' and ``Category 2 Sponsoring Member'' to Rule 1. In order to 
conform Rule 1 with the inclusion of these additional defined terms, 
FICC is also proposing to amend the definition of ``Sponsoring Member'' 
to include references to a Category 1 Sponsoring Member and a Category 
2 Sponsoring Member.
    FICC is also proposing to amend the definition of ``Sponsored 
Member Trade.'' Currently, the term ``Sponsored Member Trade'' is 
defined in Rule 1 as ``a transaction between a Sponsored Member and its 
Sponsoring Member. . . .'' \44\ As described above, in light of the 
fact that certain prospective Sponsoring Members have expressed an 
interest in allowing Sponsored Members to submit to FICC eligible 
securities transactions with Netting Members other than their 
Sponsoring Member, and that, in all cases, a Sponsoring Member is in 
control of which securities transactions

[[Page 67805]]

it submits for clearing on behalf of its Sponsored Members \45\ and, in 
turn, its related obligations to FICC with respect to the Clearing 
Fund,\46\ loss allocation,\47\ CCLF,\48\ Sponsoring Member 
Guaranty,\49\ and fees,\50\ FICC is proposing to expand the Sponsored 
Member Trade definition to provide that a Sponsored Member Trade is a 
transaction that satisfies the requirements of Section 5 of Rule 3A and 
that is (a) between a Sponsored Member and its Sponsoring Member or (b) 
between a Sponsored Member and a Netting Member.
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    \44\ Rule 1, definition of ``Sponsored Member Trade,'' supra 
note 4.
    \45\ Supra note 34.
    \46\ Supra note 35.
    \47\ Supra note 36.
    \48\ Supra note 37.
    \49\ Supra note 38.
    \50\ Supra note 39.
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    Similarly, FICC is proposing to amend the definition of 
``Sponsoring Member Omnibus Account'' in Rule 1 to provide that a 
Sponsoring Member may elect to establish one or more Sponsoring Member 
Omnibus Accounts, and that each Sponsoring Member Omnibus Account may 
contain activity within the meaning of clause (a) of the proposed 
Sponsored Member Trade definition or activity within the meaning of 
clause (b) of such definition. In addition, FICC is proposing a 
technical change to revise ``the Account'' to ``an Account'' to reflect 
that a Sponsoring Member may have more than one Sponsoring Member 
Omnibus Account under this proposal.
Rule 3A (Sponsoring Members and Sponsored Members)
    Currently, only Bank Netting Members that are ``well-capitalized'' 
\51\ and have at least $5 billion in equity capital are eligible to 
apply to become Sponsoring Members. In order to establish a second 
category of Netting Members eligible to become Sponsoring Members, FICC 
is proposing to amend Section 2(a) of Rule 3A by (i) renaming 
Sponsoring Members that are well-capitalized Bank Netting Members as 
Category 1 Sponsoring Members and (ii) adding a sentence to Section 
2(a) of Rule 3A that provides that a Netting Member that is a Tier One 
Netting Member, other than an Inter-Dealer Broker Netting Member, or a 
Non-IDB Repo Broker with respect to activity in its Segregated Repo 
Account, would be eligible to apply to become a Category 2 Sponsoring 
Member. In addition, FICC is proposing a technical change to add a 
missing parenthesis in Section 2(a) of Rule 3A.
---------------------------------------------------------------------------

    \51\ 12 U.S.C. 1831o(a).
---------------------------------------------------------------------------

    FICC is proposing a conforming change to reorganize Section 2(b) of 
Rule 3A into four (4) subsections, grouping the current first three 
sentences in that section into subsection (i) and the current last 
sentence in that section into subsection (iii).
    Under the proposal, Netting Members that are Tier One Netting 
Members, except for Inter-Dealer Broker Netting Members and Non-IDB 
Repo Brokers with respect to activity in their Segregated Repo 
Accounts, would be eligible to apply to become Category 2 Sponsoring 
Members. Accordingly, an applicant to become a Category 2 Sponsoring 
Member may have substantially less capital than a Category 1 Sponsoring 
Member. Therefore, FICC is proposing to add a new subsection (ii) to 
Section 2(b) of Rule 3A that would provide FICC with the right to 
impose financial requirements on a Netting Member applying to become a 
Category 2 Sponsoring Member that are greater than the financial 
requirements applicable to the applicant in its capacity as a Netting 
Member under Section 4(b) of Rule 2A, based upon the level of the 
anticipated positions and obligations of such applicant, the 
anticipated risk associated with the volume and types of transactions 
such applicant proposes to process through FICC as a Category 2 
Sponsoring Member, and the overall financial condition of such 
applicant. FICC is also proposing to add that the Board would approve 
any increased financial requirements imposed by FICC in connection with 
the approval of an application of a Netting Member to become a Category 
2 Sponsoring Member, and FICC would thereafter regularly review such 
Category 2 Sponsoring Member regarding its compliance with such 
increased financial requirements.
    In addition, in order to be consistent with FICC's authority under 
Section 7 of Rule 3 (Ongoing Membership Requirements) with respect to 
Members and applicants to become such, FICC is proposing to add a new 
subsection (iv) to Section 2(b) of Rule 3A that would require each 
Sponsoring Member, or any Netting Member applicant to become such, to 
furnish to FICC such adequate assurances of its financial 
responsibility and operational capability within the meaning of Section 
7 of Rule 3 as FICC may at any time or from time to time deem necessary 
or advisable in order to protect FICC and its members, to safeguard 
securities and funds in the custody or control of FICC and for which 
FICC is responsible, or to promote the prompt and accurate clearance 
and settlement of securities transactions. FICC is also proposing to 
add that the Board would approve any adequate assurances imposed by 
FICC in connection with the approval of an application of a Netting 
Member to become a Sponsoring Member, and FICC would thereafter 
regularly review such Sponsoring Member regarding its compliance with 
such adequate assurances, as appropriate. Furthermore, FICC is 
proposing to add that any adequate assurances imposed on a Sponsoring 
Member by FICC after its approval would be communicated in writing to 
the Sponsoring Member, and FICC would thereafter regularly review such 
Sponsoring Member regarding its compliance with such adequate 
assurances, as appropriate.
    Moreover, in order to conform to the proposal to allow a Netting 
Member that is a Tier One Netting Member, other than an Inter-Dealer 
Broker Netting Member, or a Non-IDB Repo Broker with respect to 
activity in its Segregated Repo Account, to apply to become a Category 
2 Sponsoring Member, FICC is proposing to amend Section 2(e) of Rule 3A 
by deleting the reference to Bank Netting Members and adding language 
that provides that each Sponsoring Member would submit to FICC the 
reports and information required to be submitted for its respective 
type of Netting Member.
    Furthermore, in order to impose an activity limit on a Category 2 
Sponsoring Member's Sponsored Member activity, as described above, FICC 
is proposing to add a new sentence to Section 2(h) of Rule 3A that 
provides if the sum of the VaR Charges of its Sponsoring Member Omnibus 
Account(s) and its Netting System accounts exceeds its Netting Member 
Capital, a Category 2 Sponsoring Member would not be permitted to 
submit activity into its Sponsoring Member Omnibus Account(s), unless 
otherwise determined by FICC in order to promote orderly settlement. 
FICC would also make a conforming change to the first sentence in this 
section to add ``Category 1'' before the first reference to Sponsoring 
Member.
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 this proposal 
is consistent with Section 17A(b)(3)(F) of the Act \52\ and Rule 17Ad-
22(e)(18),\53\ as promulgated under the Act, for the reasons described 
below.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78q-1(b)(3)(F).
    \53\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be

[[Page 67806]]

designed to (i) assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible, (ii) remove impediments to and perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions, and (iii) promote the prompt and accurate 
clearance and settlement of securities transactions.\54\
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    FICC believes that the proposal is designed to remove certain 
impediments to the clearance and settlement of securities transactions, 
including the risk of liquidity drain, fire sale risk, and settlement 
and operational risks as it would enable a greater number of securities 
transactions to be cleared and settled by a central counterparty. 
Specifically, FICC believes that the clearance and settlement of 
securities transactions through a central counterparty would help to 
safeguard the U.S. financial market by lowering the risk of a liquidity 
drain through the central counterparty's guaranty of completion of 
settlement of centrally cleared securities transactions, and would 
protect against fire sale risk through the central counterparty's 
ability to centralize and control the hedging and liquidation of a 
failed counterparty's portfolio. FICC also believes that having more 
securities transactions clear and settle through a central counterparty 
would decrease the settlement and operational risks that market 
participants would otherwise face to the extent they were required to 
clear and settle their securities transactions bilaterally because 
those securities transactions would be eligible to be net settled and 
subject to guaranteed settlement, novation, and independent risk 
management by the central counterparty.
    FICC believes that the proposed rule changes to expand the 
Sponsored Member Trade definition would increase the number of 
Sponsored Member Trades that would be cleared and settled by FICC. FICC 
also believes that the proposed rule changes to expand Sponsoring 
Member eligibility would increase the number of Sponsoring Members and, 
in turn, the number of Sponsored Member Trades that would be cleared 
and settled by FICC.
    By lowering the risk of liquidity drain in the U.S. financial 
market, protecting against fire sale risk, and making a greater number 
of securities transactions eligible to be net settled and subject to 
guaranteed settlement, novation, and independent risk management by 
FICC, FICC believes that these proposed rule changes would remove 
impediments to and perfect the mechanism of a national system for the 
prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of the Act. Therefore, 
FICC believes that the proposed rule changes to expand the Sponsored 
Member Trade definition as well as expand Sponsoring Member eligibility 
are consistent with Section 17A(b)(3)(F) of the Act.\55\
---------------------------------------------------------------------------

    \55\ Id.
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the Rules be designed 
to assure the safeguarding of securities and funds which are in the 
custody or control of FICC or for which it is responsible.\56\ FICC 
believes that the risk management that would apply to the proposal 
would allow FICC to assure the safeguarding of securities and funds 
which are in the custody or control of FICC or for which it is 
responsible. Specifically, as provided under the current Rules and as 
described above, all Sponsoring Members would continue to be subject to 
an approval process that is separate from their original Netting Member 
applications, ongoing credit surveillance in their capacity as 
Sponsoring Members, as well as the calculation of Required Fund 
Deposits with respect to their Sponsoring Member Omnibus Accounts 
whereby no offsets for netting of positions as between different 
Sponsored Members are permitted and the higher of the Required Fund 
Deposit calculation as of the beginning of the current Business Day and 
intraday on the current Business Day is applied by FICC.
---------------------------------------------------------------------------

    \56\ Id.
---------------------------------------------------------------------------

    In addition, as provided under the proposed rule change and as 
described above, Category 2 Sponsoring Member applicants would be 
subject to the same financial requirements as those that apply to them 
with respect to their respective Netting Member category under Section 
4(b) of Rule 2A, but FICC would reserve the right to impose greater 
financial requirements on the Category 2 Sponsoring Member applicant 
based upon the level of the anticipated positions and obligations of 
such applicant, the anticipated risk associated with the volume and 
types of transactions such applicant proposes to process through FICC 
as a Category 2 Sponsoring Member, and the overall financial condition 
of such applicant. An activity limit would also be imposed on a 
Category 2 Sponsoring Member's Sponsored Member activity so that such 
Sponsoring Member would only be permitted to novate new Sponsored 
Member activity to FICC to the extent its Aggregate VaR Charges do not 
exceed its Netting Member Capital, unless otherwise determined by FICC 
in order to promote orderly settlement, which would include, but not be 
limited to, circumstances in which the novation of such activity would 
have a risk-reducing impact on the Category 2 Sponsoring Member's 
overall FICC-cleared portfolio.
    Moreover, as provided under the proposed rule change and as 
described above, FICC would reserve the right to require each 
Sponsoring Member, or any Netting Member applicant to become such, to 
furnish to FICC such adequate assurances of its financial 
responsibility and operational capability within the meaning of Section 
7 of Rule 3 as FICC may at any time or from time to time deem necessary 
or advisable in order to protect FICC and its members, to safeguard 
securities and funds in the custody or control of FICC and for which 
FICC is responsible, or to promote the prompt and accurate clearance 
and settlement of securities transactions.
    By structuring the proposal in a way that addresses potential 
market and credit risks, FICC believes that the proposed rule change 
would 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.\57\
---------------------------------------------------------------------------

    \57\ Id.
---------------------------------------------------------------------------

    In addition, FICC believes that the proposed rule changes to make 
certain conforming and/or technical changes in Rule 1 and Rule 3A would 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions by ensuring that the Rules remain clear and 
accurate to Members. Having clear and accurate Rules would facilitate 
Members' understanding of those rules and provide Members with 
increased predictability and certainty regarding their obligations. As 
such, FICC believes these proposed changes would promote the prompt and 
accurate clearance and settlement of securities, consistent with 
Section 17A(b)(3)(F) of the Act.\58\
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(18) under the Act requires, in part, that FICC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to establish objective, risk-based, and 
publicly disclosed criteria for participation.\59\ The proposed rule 
changes to expand

[[Page 67807]]

Sponsoring Member eligibility would establish objective, risk-based, 
and publicly disclosed criteria for additional types of Netting Members 
to participate in FICC as Sponsoring Members. Specifically, as 
described above, an applicant to become a Category 2 Sponsoring Member 
would be required to be a Netting Member that is a Tier One Netting 
Member, other than an Inter-Dealer Broker Netting Member, or a Non-IDB 
Repo Broker with respect to activity in its Segregated Repo Account, 
and the Rules establish objective, risk-based, and publicly disclosed 
criteria in Rules 2A and 3 for Netting Members.\60\ Therefore, FICC 
believes that the proposed rule changes to expand Sponsoring Member 
eligibility are consistent with Rule 17Ad-22(e)(18) under the Act cited 
above.
---------------------------------------------------------------------------

    \59\ 17 CFR 240.17Ad-22(e)(18).
    \60\ Rules 2A and 3, supra note 4.
---------------------------------------------------------------------------

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

    FICC believes that the proposed rule changes to expand Sponsoring 
Member eligibility could have an impact on competition by both 
promoting competition and burdening competition. The proposed rule 
change to expand Sponsoring Member eligibility could promote 
competition by increasing the types of Netting Members that may 
participate in FICC as Sponsoring Members. This could promote 
competition by enabling firms that are not Bank Netting Members and 
that were not previously eligible to participate in GSD as Sponsoring 
Members to now do so as Category 2 Sponsoring Members. At the same 
time, the proposed rule change would also impose certain requirements 
on Category 2 Sponsoring Members that are different than those that 
would apply to Category 1 Sponsoring Members. Specifically, the 
proposed rule change would provide for a limit on the activity Category 
2 Sponsoring Members could submit to FICC on behalf of their Sponsored 
Members, and also provide that FICC could impose greater financial 
requirements on a Category 2 Sponsoring Member applicant than would 
otherwise apply to such firm in its capacity as a Netting Member, based 
upon the level of the anticipated positions and obligations of such 
applicant, the anticipated risk associated with the volume and types of 
transactions such applicant proposes to process through FICC as a 
Category 2 Sponsoring Member, and the overall financial condition of 
such applicant. These requirements may impact firms that are unable to 
comply therewith, and thereby burden competition by excluding them from 
being able to participate in FICC as Category 2 Sponsoring Members. 
However, FICC does not believe that the proposed rule change would 
result in a significant burden on competition given that: (i) The 
metrics proposed by FICC for the limit on Category 2 Sponsoring 
Members' Sponsored Member activity, namely VaR Charges and Netting 
Member Capital, already exist in the Rules for purposes of determining 
whether FICC could apply an Excess Capital Premium to a Netting 
Member's Required Fund Deposit, therefore, Netting Members interested 
in becoming Category 2 Sponsoring Members should already be familiar 
with and should be currently monitoring their FICC-cleared portfolio 
with respect to such metrics, and (ii) while FICC may subject Category 
2 Sponsoring Members to greater financial requirements than would 
otherwise apply to them as Netting Members, current Sponsoring Members 
who would be considered Category 1 Sponsoring Members under the 
proposed rule change are already subject to greater financial 
requirements than would otherwise apply to them as Bank Netting 
Members, i.e., they are required to have at least $5 billion in equity 
capital and be ``well capitalized'' \61\ rather than have of $100 
million in equity capital, and capital levels and ratios that meet the 
applicable minimum levels required by their Appropriate Regulatory 
Agency.\62\ Moreover, FICC would not restrict the ability of Category 2 
Sponsoring Members to enter into securities transactions with Sponsored 
Members outside of GSD.
---------------------------------------------------------------------------

    \61\ 12 U.S.C. 1831o(a).
    \62\ Rule 2A, Section 4(b)(ii)(A)(1), supra note 4.
---------------------------------------------------------------------------

    Regardless of whether the potential burden on competition discussed 
in the previous paragraph is significant, FICC believes that any 
resulting burden on competition that may be created by the proposed 
rule change would be necessary and appropriate in furtherance of the 
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\63\ FICC believes that any burden on competition that may be 
created by the proposed rule change would be necessary in furtherance 
of the purposes of the Act \64\ because, as described above in Item 
II(A)2, the Rules must be designed to assure the safeguarding of 
securities and funds that are in FICC's custody or control or for which 
it is responsible.\65\ FICC has designed the risk management processes 
that would be applicable to the Category 2 Sponsoring Members to assure 
the safeguarding of securities and funds that are in FICC's custody or 
control or for which it is responsible. As described above, FICC would 
subject Category 2 Sponsoring Members to the same governance, market 
risk management, and credit risk management processes as those that 
apply to Category 1 Sponsoring Members, as well as impose a limit on 
the activity they could submit to FICC on behalf of their Sponsored 
Members. FICC would also have the right to subject Category 2 
Sponsoring Members to greater financial requirements in their capacity 
as Category 2 Sponsoring Members than would otherwise apply to them in 
their capacity as Netting Members.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78q-1(b)(3)(I).
    \64\ Id.
    \65\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    FICC also believes any burden on competition that may be created by 
the requirements FICC proposes to impose on Category 2 Sponsoring 
Members that are different than those that apply to Category 1 
Sponsoring Members would be appropriate in furtherance of the purposes 
of the Act \66\ because the proposed rule change must be structured in 
the context of FICC's prudent risk management processes. Because FICC 
would not require Category 2 Sponsoring Members to be banks or bank 
holding company affiliates, a Category 2 Sponsoring Member may not be 
subject to a regulatory standard equivalent to ``well-capitalized'' 
\67\ and/or may not be subject to the same type of prudential 
supervision and regulation as a Category 1 Sponsoring Member. As such, 
FICC believes it would be prudent from a risk management perspective to 
subject them to a limit on the activity they could submit to FICC on 
behalf of their Sponsored Members and have the right to subject them to 
greater financial requirements in their capacity as Category 2 
Sponsoring Members than would otherwise apply to them in their capacity 
as Netting Members, as described above.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78q-1(b)(3)(I).
    \67\ 12 U.S.C. 1831o(a).
---------------------------------------------------------------------------

    FICC does not believe that the proposed rule changes to exclude 
Inter-Dealer Broker Netting Members and Non-IDB Repo Brokers with 
respect to activity in their Segregated Repo Accounts from being 
eligible to become Category 2 Sponsoring Members would have an impact 
on competition because, as described above, Inter-Dealer Broker Netting 
Members and Non-IDB Repo Brokers could apply to become Category 2 
Sponsoring Members under another Netting Member status.

[[Page 67808]]

    FICC believes that the proposed rule change to expand the Sponsored 
Member Trade definition could have an impact on competition by 
promoting competition. The proposed rule change to expand the Sponsored 
Member Trade definition could promote competition by increasing the 
number of potential counterparties a Sponsored Member could have in 
clearing. Under the current Rules, the Sponsoring Member must be the 
counterparty to all of its Sponsored Members' FICC-cleared securities 
transactions.\68\ The proposed rule changes would provide that as long 
as a Sponsoring Member establishes a Sponsoring Member Omnibus Account 
to which securities transactions between its Sponsored Members and 
other Netting Members could be submitted, its Sponsored Members could 
transact in clearing with Netting Members other than itself, which 
could increase trading opportunities for Sponsored Members and Netting 
Members and thereby promote competition.
---------------------------------------------------------------------------

    \68\ Rule 1, definition of ``Sponsored Member Trade,'' supra 
note 4.
---------------------------------------------------------------------------

    FICC does not believe that the proposed rule changes to make the 
conforming and technical changes described above would have an impact 
on competition.\69\ These changes would simply provide specificity, 
clarity, and additional transparency within the Rules and not affect 
Members' rights and obligations. As such, FICC believes that these 
proposed rule changes would not have any impact on competition.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(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 change 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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the 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-2018-013 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-2018-013. 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-2018-013 and should be submitted on 
or before January 22, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\70\
---------------------------------------------------------------------------

    \70\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2018-28376 Filed 12-28-18; 8:45 am]
BILLING CODE 8011-01-P