Document ID: SEC-2019-1503-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corp.
Posted Date: 2019-10-16T04:00Z

[Federal Register Volume 84, Number 200 (Wednesday, October 16, 2019)]
[Notices]
[Pages 55362-55366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22480]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87258; File No. SR-FICC-2019-004]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Order Approving a Proposed Rule Change To Amend the GSD Rulebook To 
Establish a Process To Address Liquidity Needs in Certain Situations in 
the GCF Repo and CCIT Services and Make Other Changes

October 9, 2019.
    On August 9, 2019, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-
FICC-2019-004 to make changes to how FICC processes tri-party repo 
market transactions, specifically GCF Repo transactions and CCIT 
transactions.\3\ The proposed rule change

[[Page 55363]]

was published for comment in the Federal Register on August 29, 
2019,\4\ and the Commission has received no comments regarding the 
changes proposed in the proposed rule change.\5\ For the reasons 
discussed below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On August 9, 2019, FICC also filed the proposal contained in 
the proposed rule change as advance notice SR-FICC-2019-801 with the 
Commission pursuant to Section 806(e)(1) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act''), 12 U.S.C. 5465(e)(1), and Rule 19b-4(n)(1)(i) of 
the Act, 17 CFR 240.19b-4(n)(1)(i). Notice of Filing of the Advance 
Notice was published for comment in the Federal Register on 
September 10, 2019. Securities Exchange Act Release No. 34-86876 
(September 5, 2019), 84 FR 47618 (September 10, 2019) (File No. SR-
FICC-2019-801).
    \4\ Securities Exchange Act Release No. 86745 (August 23, 2019), 
84 FR 45608 (August 29, 2019). (``Notice of Filing'').
    \5\ As the proposal contained in the proposed rule change was 
also filed as an advance notice, all public comments received on the 
proposal are considered regardless of whether the comments are 
submitted on the proposed rule change or the advance notice.
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I. Description of the Proposed Rule Change

    The proposals reflected in the proposed rule change would make 
changes to how FICC's Government Securities Division (``GSD'') 
processes tri-party repo transactions, specifically GCF Repo 
transactions \6\ and CCIT transactions.\7\ First, the proposals would 
establish new deadlines and associated late fees for FICC members to 
satisfy their obligations in connection with such transactions, i.e., 
to deliver cash or securities. Second, the proposed rule change would 
establish a process for FICC to access liquidity in situations where a 
member with a net cash delivery obligation in GCF Repo/CCIT activity, 
that is otherwise in good standing,\8\ is either (1) delayed in 
satisfying its cash delivery obligation or (2) unable to satisfy, in 
whole or in part, such obligation. More specifically, this process 
would allow FICC to access liquidity from either (i) the GCF Clearing 
Agent Bank \9\ in the form of overnight financing, which would be 
subject to the GCF Clearing Agent Bank's discretion, and/or (ii) end-
of-day borrowing of Clearing Fund cash,\10\ subject to specified 
limits. Further, if those liquidity sources are insufficient to cover 
the affected member's outstanding cash delivery obligations, the 
proposal would enable FICC to obtain additional liquidity by entering 
into overnight repos with those members to whom cash is owed by the 
member with the unsatisfied net cash delivery obligations. Third, the 
proposed rule change would make a clarification and several technical 
changes and corrections to FICC's rules.\11\
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    \6\ ``GCF Repo transactions'' are tri-party repo transactions 
through FICC's general collateral finance repo (``GCF Repo'') 
service (``GCF Repo Service''). The GCF Repo Service enables dealers 
to trade general collateral repos, based on rate, term, and 
underlying product, throughout the day without requiring intra-day, 
trade-for-trade settlement on a Delivery-versus-Payment basis. See 
generally GCF Repo (DTCC description of the service), available at 
http://www.dtcc.com/clearing-services/ficc-gov/gcf-repo (last 
visited August 13, 2019).
    \7\ ``CCIT'' means Centrally Cleared Institutional Triparty. 
``CCIT transactions'' are tri-party repo transactions in GCF Repo 
securities between members that participate in the GCF Repo Service 
and CCIT members, which are institutional counterparties (other than 
registered investment companies (``RICs'') under the Investment 
Company Act of 1940, as amended) and are the cash lenders in the 
transactions. See generally Securities Exchange Act Release No. 
80361 (April 3, 2017), 82 FR 17053, 17054 (April 7, 2017) (SR-FICC-
2017-803) (notice of filing of the advance notice regarding creating 
the CCIT service).
    \8\ A member in good standing is a member for which FICC has not 
ceased to act for the member (in which case FICC's close-out rules 
would apply) or has not restricted the member's access to services.
    \9\ The GCF Clearing Agent Bank settles the repo transaction on 
its books. Currently, the only GCF Clearing Agent Bank is The Bank 
of New York Mellon.
    \10\ The Clearing Fund is an aggregate of all members' margin 
deposits to FICC designed to account for the costs associated with a 
member defaulting to FICC.
    \11\ The FICC GSD Rulebook (``Rules'') is available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms not 
defined herein are defined in the Rules.
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    A. New Deadlines and Late Fees for Satisfaction of Obligations in 
GCF Repo and CCIT Transactions
1. Securities Delivery Obligations
    Under FICC's current Rules, a Netting Member must meet its 
securities delivery obligations in connection with its GCF Repo and/or 
CCIT transactions within the timeframes established by FICC.\12\ 
Currently, FICC has set two deadlines by which Netting Members are 
required to meet their securities delivery obligations: 4:30 p.m. and 
6:00 p.m.\13\ If a Netting Member fails to satisfy a securities 
delivery obligation by 4:30 p.m., it is subject to a late fee of 
$500.\14\ If the Netting Member delivers the securities after the 6:00 
p.m. deadline, no additional late fee applies, but FICC cannot 
guarantee that it would be able to settle the transaction. Instead, 
FICC will only process such late transactions if FICC is able to 
contact both affected Netting Members and they agree to settle the 
transaction.
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    \12\ Rule 20, Section 3, supra note 11.
    \13\ The close of the Fedwire Funds Service at 6:30 p.m. is the 
final cutoff point at which a Netting Member's failure to deliver 
securities would be deemed by FICC to result in a failed 
transaction. In that scenario, the Netting Member would not be 
entitled to receive the funds borrowed, and would instead owe 
interest on the funds.
    \14\ Fee Structure, supra note 11.
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    In the proposed rule change, FICC proposes to eliminate the 6:00 
p.m. deadline. The 4:30 p.m. deadline would remain in place. If a 
Netting Member fails to satisfy a securities delivery obligation by 
4:30 p.m., it would remain subject to the $500 late fee. But if the 
Netting Member delivers the securities after 4:30 p.m., FICC would only 
process the transaction if it is able to contact both affected Netting 
Members and they agree to settle the transaction.
2. Cash Delivery Obligations
    FICC's Rules do not currently contain a deadline for a Netting 
Member's or CCIT Member's satisfaction of cash delivery obligations in 
the GCF Repo and CCIT Services. FICC proposes to establish 4:30 p.m., 
or, if later, one hour after the close of the Fedwire Securities 
Service reversals, as the deadline for a ``Net Funds Payor'' \15\ to 
satisfy its cash delivery obligations. FICC also proposes to establish 
late fees, subject to progressive increases. Specifically, the late 
fees would apply as follows for occurrences within the same 30 calendar 
day period: (a) $500 for the first occurrence, (b) $1,000 for the 
second occurrence, (c) $2,000 for the third occurrence, and (d) $3,000 
for the fourth occurrence or additional occurrences. The late fee would 
not apply if FICC determines that failure to meet this timeframe is not 
the fault of the Net Funds Payor.\16\
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    \15\ FICC's proposal would add ``Net Funds Payor'' as a new 
defined term, meaning a Netting Member or CCIT Member with cash 
delivery obligations.
    \16\ This determination would be made by FICC Product Management 
based on input from the GCF Clearing Agent Bank, internal FICC 
Operations staff and the Netting Member.
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    In addition, FICC proposes to establish additional late fees that 
would be imposed on Net Funds Payors that fail to meet their cash 
delivery obligation by the close of the Fedwire Funds Service.\17\ 
These fees would be in addition to the late fees described in the 
preceding paragraph, and FICC would impose both fees in the event that 
a Net Funds Payor did not satisfy its cash delivery obligations by the 
close of the Fedwire Funds Service. Specifically, these late fees would 
apply as follows for occurrences within the same 90 calendar day 
period: (a) 100 basis points on the unsatisfied cash delivery 
obligation amount for the first occurrence,\18\ (b) 200 basis points on 
the unsatisfied cash delivery obligation amount for the second 
occurrence, (c) 300 basis points on the unsatisfied cash delivery 
obligation amount for the third

[[Page 55364]]

occurrence, and (d) 400 basis points on the unsatisfied cash delivery 
obligation amount for the fourth occurrence or any additional 
occurrences. The late fees would not apply if FICC determines that the 
failure to meet this timeframe is not primarily the fault of the Net 
Funds Payor.\19\
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    \17\ See Fedwire Services Operating Hours, available at https://www.frbservices.org/resources/financial-services/wires/operating-hours.html (last visited September 2, 2019).
    \18\ The late fee is based on the ACT/360 day count convention, 
where ``ACT'' represents the actual number of days in the period. 
For example, assuming a first occurrence unsatisfied cash delivery 
obligation of $100 million, the late fee would be $100 million * 
100/3600000 = $2,777.78. This example uses the first occurrence 
amount. This calculation would apply to the rest of the proposed 
late fees in this section.
    \19\ The determination would be made by FICC Product Management 
based on input from the GCF Clearing Agent Bank, internal FICC 
Operations staff and the Netting Member.
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B. Proposed Process To Provide Liquidity

    The proposed rule change would establish a process for FICC to 
access liquidity in situations where a Member with a net cash delivery 
obligation in GCF Repo/CCIT activity (i.e., Net Funds Payor), that is 
otherwise in good standing, is either (1) delayed in satisfying its 
cash delivery obligation or (2) unable to satisfy, in whole or in part, 
such obligation.\20\ Unless FICC has ceased to act for the Member (in 
which case FICC's close-out rules would apply) or has restricted the 
Member's access to services,\21\ the Net Funds Payor shall be permitted 
to continue to submit additional tri-party repo transactions for 
clearing to FICC during this process.
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    \20\ Such delay could, for example, be due to operational issues 
experienced by the Net Funds Payor. If a Netting Member with a 
collateral obligation does not deliver its securities, FICC 
considers it a fail. However, if a Netting Member or CCIT Member 
with a cash delivery obligation is unable to deliver its cash (and 
is in good standing), FICC has represented that it intends to employ 
the proposed process. Notice of Filing, supra note 4 at 47620.
    \21\ See Rule 22A, supra note 11. FICC has represented that, 
before it uses the proposed process, it would first evaluate whether 
to recommend to the Board's Risk Committee that FICC cease to act 
for such Net Funds Payor. FICC would consider, but would not be 
limited to, the following factors in its evaluation: (i) The Net 
Funds Payor's current financial position, (ii) the amount of the 
outstanding payment, (iii) the cause of the late payment, (iv) 
current market conditions, and (v) the size of the potential 
overnight reverse repurchase agreements under the GCF Repo 
Allocation Waterfall MRAs (as defined below) on the GSD membership. 
Notice of Filing, supra note 4 at 47620. FICC already has the 
authority to cease to act for a member that does not fulfill an 
obligation to FICC and will continually evaluate throughout the 
proposed process whether FICC will cease to act. Id.
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    Pursuant to the proposal, once FICC determines that a Net Funds 
Payor is in good standing with GSD but is experiencing an issue, such 
as an operational issue, that may result in a late payment, partial 
payment or non-payment of its cash delivery obligation on the 
settlement date, the following process would occur. First, in the case 
where the Net Funds Payor only satisfies part of its cash delivery 
obligation, the GCF Clearing Agent Bank would settle the cash it 
received pursuant to such GCF Clearing Agent Bank's settlement 
algorithm (as is done today).
    Next, FICC would consider whether it would seek liquidity to cover 
any of the Net Funds Payor's delivery shortfall amounts in one of the 
two forms discussed. The two potential forms of liquidity would be (i) 
end-of-day borrowing of Clearing Fund cash (``EOD Clearing Fund Cash'') 
and/or (ii) GCF Clearing Agent Bank loans.\22\ The cash amount that 
FICC would be able to access via the EOD Clearing Fund Cash and/or GCF 
Clearing Agent Bank loans would then be applied to the unsatisfied cash 
delivery obligations due to the Net Funds Receivers on a pro rata 
basis, based upon the percentage due to each Net Fund Receiver out of 
the total amount of all unsatisfied obligations.
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    \22\ FICC has represented that it would not prioritize accessing 
these two sources of potential liquidity because FICC's decision to 
use either or both sources would be considered on a case-by-case 
basis, taking into consideration factors such as the specific 
circumstances at issue (i.e., the time of day and the size of the 
shortfall), availability of a bank loan, market conditions (i.e., 
whether there are stress events occurring in the market), commercial 
considerations (i.e., the current loan rates), and ease of 
operational execution. Notice of Filing, supra note 4 at 47620.
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    If FICC were to use GCF Clearing Agent Bank loans to provide 
liquidity, any overnight financing from the GCF Clearing Agent Bank 
would be subject to the GCF Clearing Agent Bank's discretion because 
FICC's overnight financing arrangements with its GCF Clearing Agent 
Bank are uncommitted. As such, the financing would be secured by FICC's 
pledge of Clearing Fund securities subject to the GCF Clearing Agent 
Bank's current haircut schedule.\23\ If FICC were to use EOD Clearing 
Fund Cash to provide liquidity, such use would be subject to certain 
internal limitations. Specifically, GSD would establish a cap on the 
amount of EOD Clearing Fund Cash that may be used for this purpose to 
the lesser of $1 billion or 20 percent of available Clearing Fund Cash. 
Any resulting costs incurred by FICC in accessing EOD Clearing Fund 
Cash and/or GCF Clearing Agent Bank loans would be debited from the Net 
Funds Payor whose shortfall caused the liquidity need.
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    \23\ See Rule 4, Section 5, supra note 11.
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    Finally, to the extent that the amount of liquidity FICC obtains 
via the Clearing Fund cash and overnight financing arrangement (if any) 
is insufficient to cover the outstanding cash delivery obligations, the 
relevant Net Funds Receivers would be required under FICC's Rules to 
enter into overnight repurchase agreements with FICC on the Generic 
CUSIP Number for which such Net Funds Payor failed to fulfill its cash 
delivery obligation. This arrangement would be done pursuant to the 
``GCF Repo Allocation Waterfall MRA,'' which is a committed financing 
arrangement that would be added as part of this proposal to the binding 
terms of FICC's rulebook.\24\ The amount FICC would seek to obtain via 
this committed facility would be the remaining unsettled amount per Net 
Funds Receiver, thus satisfying the outstanding amount of the Net Funds 
Payor's cash delivery obligations.\25\ The associated overnight 
interest of the reverse repurchase agreement would be debited from the 
Net Funds Payor that did not satisfy its cash delivery obligation and 
credited to the affected Net Funds Receivers in the funds-only 
settlement process as a Miscellaneous Adjustment Amount.\26\
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    \24\ Such reverse repurchase agreements would be entered into 
pursuant to the terms of a 1996 SIFMA Master Repurchase Agreement 
(available at http://www.sifma.org/services/standard-forms-and-documentation/mra,-gmra,-msla-and-msftas/), which would be 
incorporated into the Rules, subject to specific changes set forth 
in the Rules.
    \25\ FICC represents that these reverse repurchase agreements 
would be at a market rate, which would be the overnight par weighted 
average rate at the Generic CUSIP Number level. Notice of Filing, 
supra note 4 at 47621.
    \26\ See Rule 13, Section 1(m) and Rule 3B, Section 13(a)(ii), 
supra note 11.
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    Any resulting costs, such as financing costs, incurred by the Net 
Funds Receivers would be debited from the Net Funds Payor whose 
shortfall caused the need for the reverse repurchase agreement. A Net 
Funds Receiver requesting compensation in this regard would need to 
submit a formal claim to FICC. Upon review and approval by FICC, the 
Net Funds Receiver would receive a credit that would be processed in 
the funds-only settlement process as a Miscellaneous Adjustment 
Amount.\27\ The debit of the Net Funds Payor would be processed in the 
same way.
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    \27\ Id.
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C. Clarification, Technical Changes and Corrections

    FICC also proposes to make certain clarifying, technical changes, 
and corrections both to reflect the changes proposed in this proposed 
rule change and to revise certain aspects of the Rules that FICC has 
determined to be inaccurate or incorrect as related to the GCF Repo 
Service. These changes include adding particular parentheticals, 
changes to titles of sections, corrections to refer to the title of the 
Fedwire Securities Service, updating references and descriptions, 
adding new defined terms, and updating

[[Page 55365]]

certain defined terms. These changes are described in detail in the 
Notice of Filing.\28\
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    \28\ Notice of Filing, supra note 4 at 47622.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \29\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. After carefully considering the proposed rule 
change, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to FICC. In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 17A(b)(3)(F) \30\ of the Act and Rule 17Ad-22(e)(7) 
thereunder.\31\
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    \29\ 15 U.S.C. 78s(b)(2)(C).
    \30\ 15 U.S.C. 78q-1(b)(3)(F)
    \31\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 17A(b)(3)(F)

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a clearing agency, such as FICC, be designed to promote the prompt 
and accurate clearance and settlement of securities transactions.\32\
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    \32\ 15 U.S.C. 78q-1(b)(3)(F).
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1. New Deadlines and Late Fees for Satisfaction of Obligations in GCF 
Repo and CCIT Transactions
    FICC has represented that Netting Members generally meet their 
securities delivery obligations by the current 4:30 p.m. securities 
allocation deadline. However, according to FICC, because of the 
interconnectivity between the GCF Repo market within FICC and the tri-
party repo market outside of FICC, in which obligations to deliver 
securities collateral typically occur after collateral allocations at 
FICC, the securities collateral that is used to settle GCF Repo 
positions may subsequently be used by Netting Members to complete tri-
party repo transactions. Therefore, settling GCF Repo Service 
transactions earlier in the day reduces the likelihood that an 
operational issue may result in a failed or incomplete tri-party repo 
transaction outside of FICC. When a Netting Member depends on the 
proceeds from the GCF Repo Service transaction to satisfy its cash 
obligations in its tri-party repo transactions outside of FICC, the 
Netting Member could default on its obligations and transmit losses to 
other market participants.
    The Commission believes that the proposed new deadlines (i.e., 4:30 
p.m. for securities delivery obligations, and 4:30 p.m., or one hour 
after the close of the Fedwire Securities Service, whichever is later, 
for cash delivery obligations), as well as the associated late fees, 
should lower the potential operational risk that could arise from 
delayed GCF Repo settlements and should help FICC manage the risk of 
delayed settlement. The Commission believes that these measures should 
incentivize Netting Members and CCIT Members to meet their cash 
delivery obligations on a timely basis, which, in turn, should help 
FICC reduce its overall settlement risk. As such, the Commission 
believes that the proposed deadlines and late fees would be consistent 
with promoting the prompt and accurate clearance and settlement of 
securities transactions as required under Section 17A(b)(3)(F) of the 
Act.\33\
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    \33\ Id.
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2. Proposed Process To Provide Liquidity
    As described in Section I.B above, the proposed rule change would 
also establish a process for FICC to access liquidity in situations 
where a Member with a cash delivery obligation in GCF Repo/CCIT 
activity, that is otherwise in good standing, is either (1) delayed in 
satisfying its cash delivery obligation or (2) unable to satisfy, in 
whole or in part, such obligation. The Commission believes that 
establishing a process for FICC to access liquidity in these particular 
circumstances is designed to provide FICC with additional sources of 
liquidity and, therefore, an improved ability to manage its liquidity 
risk in the event that a Netting Member cannot meet its cash delivery 
obligations. In addition, the proposed process for FICC to access 
liquidity in these particular circumstances should help decrease the 
risk of unsettled obligations and belated settlement due to a lack of 
liquidity and, therefore, avoid the potential impact that a sudden 
liquidity demand could have on FICC and its Members. As such, the 
proposed rule change should help ensure that, in the event of these 
particular circumstances, FICC's operations would not be disrupted and 
Clearing Members would not be exposed to losses that they cannot 
anticipate or control because FICC would be able to access additional 
liquidity resources to complete settlement. As such, the Commission 
believes that these changes should promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.\34\
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    \34\ Id.
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3. Clarification, Technical Changes and Corrections
    As described in Section I.C above, the proposed rule change also 
includes certain clarifications, technical changes, and corrections to 
FICC's Rules both to reflect the changes proposed in this proposed rule 
change and to revise certain aspects of the Rules that FICC has 
determined to be inaccurate or incorrect as related to the GCF Repo 
Service. The proposed changes are designed to provide clear and 
coherent Rules regarding GCF Repo transactions for Netting Members and 
CCIT Members, which should, in turn, help Netting Members and CCIT 
Members better understand and remain compliant with the Rules. As such, 
the Commission believes that the proposed clarifications, technical 
changes, and corrections to FICC's Rules would promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\35\
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    \35\ Id.
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B. Consistency With Rule 17Ad-22(e)(7)(i)

    Rule 17Ad-22(e)(7) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity. Specifically, Rule 17Ad-22(e)(7)(i) requires 
policies and procedures for maintaining sufficient liquid resources at 
the minimum in all relevant currencies to effect same-day and, where 
appropriate, intraday and multiday settlement of payment obligations 
with a high degree of confidence under a wide range of foreseeable 
stress scenarios that includes, but is not limited to, the default of 
the participant family that would generate the largest aggregate 
payment obligation for the covered clearing agency in extreme but 
plausible market conditions.\36\
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    \36\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the proposed process for FICC to access 
liquidity in the event that Netting Members will be delayed in 
satisfying or cannot satisfy

[[Page 55366]]

their cash delivery obligations is designed to help ensure that FICC 
has sufficient liquid resources available in such circumstances. 
Moreover, for any outstanding liquidity obligations after the 
utilization of EOD Clearing Fund cash and/or overnight financing with 
the GCF Clearing Agent Bank, any transactions pursuant to the GCF Repo 
Allocation Waterfall MRA would be sized based on the actual liquidity 
need presented in a particular situation, which would help FICC 
maintain sufficient liquid resources to settle the cash delivery 
obligations of a Netting Member. Therefore, the Commission believes 
that adoption of the proposed changes is consistent with Rule 17Ad-
22(e)(7)(i).\37\
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    \37\ Id.
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C. Consistency With Rule 17Ad-22(e)(7)(ii)

    Rule 17Ad-22(e)(7)(ii) requires policies and procedures for holding 
qualifying liquid resources sufficient to meet the minimum liquidity 
resource requirement under 17Ad-22(e)(7)(i) in each relevant currency 
for which the covered clearing agency has payment obligations owed to 
clearing members.\38\ Rule 17Ad-22(a)(14) defines qualifying liquid 
resources to include, among other things, assets that are readily 
available and convertible into cash through prearranged funding 
arrangements, such as committed arrangements without material adverse 
change provisions, including repurchase agreements.\39\
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    \38\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \39\ 17 CFR 240.17Ad-22(a)(14).
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    As described above, the proposed process for FICC to access 
liquidity in the event that Netting Members will be delayed in 
satisfying or cannot satisfy their cash delivery obligations includes, 
in part, the GCF Repo Allocation Waterfall MRA. This agreement would be 
a committed arrangement that is a repurchase agreement and all 
transactions entered into pursuant to the GCF Repo Allocation Waterfall 
MRA are designed to be readily available to meet the cash delivery 
obligations owed to Netting Members. This arrangement therefore 
constitutes a qualifying liquid resource, as defined in Rule 17Ad-
22(a)(14), and the Commission believes, therefore, that adoption of the 
proposed changes is consistent with Rule 17Ad-22(e)(7)(ii).\40\
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    \40\ 17 CFR 240.17Ad-22(e)(7)(ii).
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D. Consistency With Rule 17Ad-22(e)(7)(viii)

    Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by, at a minimum, addressing foreseeable 
liquidity shortfalls that would not be covered by the covered clearing 
agency's liquid resources and seek to avoid unwinding, revoking, or 
delaying the same-day settlement of payment obligations.\41\
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    \41\ 17 CFR 240.17Ad-22(e)(7)(viii).
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    The proposed process for FICC to access liquidity when Netting 
Members are delayed in satisfying or cannot satisfy their cash delivery 
obligations provides FICC with a process to address liquidity 
shortfalls which may arise in such circumstances and allow FICC to 
complete settlement on a timely basis. Therefore, this proposed process 
should help to avoid unwinding, revoking, or delaying same-day 
settlement obligations. The Commission believes, therefore, that 
adoption of the proposed changes are consistent with Rule 17Ad-
22(e)(7)(viii).\42\
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    \42\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with the requirements of Section 17A of the Act \43\ and 
the rules and regulations promulgated thereunder.
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    \43\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\44\ that proposed rule change SR-FICC-2019-004, be, and hereby is, 
Approved.\45\
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    \44\ 15 U.S.C. 78s(b)(2).
    \45\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \46\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22480 Filed 10-15-19; 8:45 am]
 BILLING CODE 8011-01-P