Document ID: SEC-2017-0559-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Fixed Income Clearing Corporation
Posted Date: 2017-04-07T04:00Z

[Federal Register Volume 82, Number 66 (Friday, April 7, 2017)]
[Notices]
[Pages 17053-17065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06976]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80361; File No. SR-FICC-2017-803]

Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Advance Notice To Establish the Centrally Cleared 
Institutional Triparty Service and Make Other Changes

April 3, 2017.
    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 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on March 
9, 2017, Fixed Income Clearing Corporation (``FICC'') filed with the 
Securities and Exchange Commission (``Commission'') the advance notice 
SR-FICC-2017-803 (``Advance Notice'') 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 
Advance Notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ On March 9, 2017, FICC filed this Advance Notice as a 
proposed rule change (SR-FICC-2017-005) with the Commission pursuant 
to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4, 
17 CFR 240.19b-4. A copy of the proposed rule change 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 Advance 
Notice

    This Advance Notice consists of amendments to the Government 
Securities Division (``GSD'') Rulebook (``GSD Rules'') \4\ that would 
(i) establish the ``Centrally Cleared Institutional Triparty Service'' 
or the ``CCITTM Service'' \5\ and thereby make central 
clearing available to the institutional tri-party repurchase agreement 
(``repo'') market \6\ and (ii) make other amendments and clarifications 
to the GSD Rules, as described below.
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    \4\ Capitalized terms not defined herein are defined in the GSD 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \5\ CCIT is a trademark of The Depository Trust & Clearing 
Corporation. Pursuant to this filing, ``Centrally Cleared 
Institutional Triparty Service'' or ``CCIT Service'' would be 
defined as ``the service offered by the Corporation to clear 
institutional triparty repurchase agreement transactions, as more 
fully described in Rule 3B.'' Proposed GSD Rule 1, Definitions.
    \6\ The proposed rule changes with respect to the establishment 
of the proposed CCIT Service are reflected in proposed GSD Rule 3B, 
and conforming changes are proposed to GSD Rules 1, 2, 2A (Section 
2), 4 (Sections 1a and 7), 5, 22C, 24, 30 and 49.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the Advance Notice 
and discussed any comments it received on the Advance Notice. 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 and B below, of the most significant aspects of such 
statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

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

(B) Advance Notice Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

Nature of the Proposed Change
    The proposed rule change would, among other things, make central 
clearing available to the institutional tri-party repo market through 
the proposed CCIT Service.
    The proposed CCIT Service would allow the submission of tri-party 
repo transactions in GCF Repo[supreg] \7\ Securities between Netting 
Members that participate in the GCF Repo Service \8\ and institutional 
counterparties (other than investment companies registered under the 
Investment Company Act of 1940, as amended \9\ (``RICs'')), where the 
institutional counterparties are the cash lenders in the transactions 
submitted to GSD. The proposed CCIT Service would create a new GSD 
limited service

[[Page 17054]]

membership type for such institutional cash lenders, each referred to 
as a ``Centrally Cleared Institutional Triparty Member'' or ``CCIT 
Member.'' \10\
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    \7\ GCF Repo is a registered trademark of FICC.
    \8\ Pursuant to this filing, ``GCF Repo Service'' would be 
defined as ``the service offered by the Corporation to compare, net 
and settle GCF Repo Transactions.'' Proposed GSD Rule 1, 
Definitions.
    \9\ 15 U.S.C. 80a-1 et seq.
    \10\ Pursuant to this filing, the term ``Centrally Cleared 
Institutional Triparty Member'' or ``CCIT Member'' would be defined 
as ``a legal entity other than a Registered Investment Company 
approved to participate in the Corporation's CCIT Service as a cash 
lender.'' Proposed GSD Rule 1, Definitions.
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    This filing also contains proposed rule changes that are not 
related to the proposed CCIT Service that provide specificity, clarity 
and additional transparency to the GSD Rules.
(i) Background on the Proposed CCIT Service
    FICC believes that the tri-party repo market is critical to the 
stability of the U.S. financial system. The tri-party repo market 
creates market liquidity and price transparency for U.S. government and 
corporate securities, is interconnected with other payment clearing and 
settlement services that are central to the U.S. financial market, and 
serves as a critical source of funding for systemically important 
broker-dealers that make markets in U.S. government and corporate 
obligations.\11\ At its peak in 2008, about $2.8 trillion of securities 
were funded by tri-party repos.\12\ Volumes shrank to $1.6 trillion in 
the second half of the recent financial crisis and have been relatively 
steady around that level since then.\13\ Nonetheless, FICC believes the 
tri-party repo market remains a critical source of funding for broker-
dealers and an important cash management tool for institutional 
counterparties.
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    \11\ See Federal Reserve Bank of New York, Tri-Party Repo 
Infrastructure Reform, https://www.newyorkfed.org/banking/tpr_infr_reform.html (last visited Mar. 6, 2017).
    \12\ See A. Copeland et. al., The Tri-Party Repo Market before 
the 2010 Reforms, Federal Reserve Bank of New York Staff Report No. 
477 (Nov. 2010), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr477.pdf.
    \13\ See Federal Reserve Bank of New York, Tri-Party Repo 
Volume, https://www.newyorkfed.org/data-and-statistics/data-visualization/tri-party-repo/index.html#interactive/volume/collateral_value (last visited Mar. 6, 2017).
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    In response to the 2008 financial crisis, regulators asked tri-
party repo market participants to identify ways to reduce reliance on 
intraday credit, make risk management practices more robust to a broad 
range of events, and take steps to reduce the risk that a dealer's 
default could prompt destabilizing fire sales \14\ of its collateral by 
its lenders, with the goal of enhancing the tri-party repo market's 
ability to navigate stressed market conditions by implementing 
solutions that help mitigate risk and better safeguard the U.S. 
financial market.
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    \14\ 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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    Currently, FICC provides central clearing to a portion of the tri-
party repo market. Specifically, GSD's GCF Repo Service provides 
central clearing to sell-side entities, such as dealers that enter into 
tri-party repo transactions in GCF Repo Securities with each other.\15\ 
There is currently no U.S. clearing organization that novates tri-party 
repos between sell-side firms and institutional counterparties.
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    \15\ According to FICC's data, during 2016, the average daily 
dollar value of compared GCF Repo Transactions was approximately 
$114 billion.
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    FICC believes that central clearing of eligible tri-party repo 
transactions between GSD Netting Members and institutional 
counterparties through the proposed CCIT Service would help to 
safeguard the tri-party repo market in a number of ways. For example, 
the proposed CCIT Service would permit institutional firms that are 
eligible to participate in FICC as CCIT Members to benefit from FICC's 
guaranty of completion of settlement of their eligible tri-party repo 
transactions with Netting Members. FICC believes this would mitigate 
the risk of a large-scale exit by these institutional 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 
institutional firms would otherwise be engaging in the same type of 
eligible tri-party repo trading activity outside of a central 
counterparty, having such activity novated to FICC and subject to 
FICC's guaranty of completion of settlement would reduce the risk that 
such institutional firms discontinue such trading activity in a Netting 
Member default situation.
    Similarly, FICC believes that broadening the pool of tri-party 
repos eligible for central clearing at FICC through the proposed CCIT 
Service to institutional activity as well as sell-side activity would 
also reduce the potential for market disruption from fire sales by 
virtue of FICC's ability to centralize and control the liquidation of 
the portfolio of a defaulted Netting Member. Specifically, in a Netting 
Member default situation, the more institutional firms participate in 
FICC as CCIT Members, the more trading activity with the defaulted 
Netting Member could be centrally liquidated in an orderly manner by 
FICC rather by individual counterparties in potential fire sale 
conditions.
    Moreover, FICC believes that the proposed CCIT Service would 
decrease settlement and operational risk in the U.S. tri-party repo 
market as more tri-party repos for a greater number of Members would be 
eligible to be netted and subject to guaranteed settlement, novation, 
and independent risk management through FICC.
    Depending on the nature of their GSD-cleared portfolios and the 
purposes for which Netting Members borrow cash from institutional tri-
party money lenders through the proposed CCIT Service, the proposed 
CCIT Service would also provide Netting Members with the potential for 
more efficient use of collateral.\16\ Novation of tri-party repo 
borrowing activity to FICC through the proposed CCIT Service may also 
afford Netting Members the ability to offset on their balance sheets 
their obligations to FICC on CCIT Transactions against their 
obligations to FICC on other eligible FICC-cleared activity, as well as 
take lesser capital charges than would be required to the extent they 
engaged in the same borrowing activity outside of a central 
counterparty.\17\ By potentially alleviating balance sheet and capital 
constraints on their Netting Member counterparties, participation in 
FICC as CCIT Members may afford eligible institutional firms increased 
lending capacity and income.
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    \16\ The potential for more efficient use of collateral by 
Netting Members relates to the fact that, to the extent they borrow 
cash today via tri-party repo, Netting Members are required to 
collateralize their tri-party cash lenders, typically to a 102 
percent haircut for GSD eligible securities. See SIFMA, US Repo 
Market Fact Sheet 2016, p. 3, https://www.sifma.org/WorkArea/DownloadAsset.aspx?id=8589961606 (last visited Mar. 6, 2017). Such 
collateral is separate and apart from the Clearing Fund that Netting 
Members are required to post to FICC to support their sell-side 
activity in the same asset classes. If a Netting Member's tri-party 
borrowing activity were novated to FICC through the proposed CCIT 
Service, its Clearing Fund requirement to FICC could potentially be 
reduced to the extent it has offsetting cash lending activity within 
GSD.
    \17\ Netting Members interested in such relief should discuss 
this matter with their accounting and regulatory capital experts.
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(ii) Detailed Description of the Proposed Rule Changes Related to the 
Proposed CCIT Service
A. Proposed Changes to GSD Rule 1 (Definitions)
    FICC is proposing to amend the ``Applicant Questionnaire'' 
definition to delete the reference to ``Rule 2'' because this 
questionnaire is not mentioned in GSD Rule 2; however, it is mentioned 
in other GSD Rules, including, but not limited to, proposed GSD Rule 
3B. In light of the fact that proposed GSD Rule 3B would provide that 
references to a

[[Page 17055]]

``Member'' in other GSD Rules would not apply to CCIT Members unless 
specifically noted as such in proposed GSD Rule 3B or in such other GSD 
Rules, FICC is also proposing to amend the ``Applicant Questionnaire'' 
definition to specifically refer to CCIT Members.
    FICC is proposing to add the following defined terms, which relate 
to the proposed CCIT Service: ``CCIT,'' ``CCIT Account,'' ``CCIT Daily 
Repo Interest,'' ``CCIT MRA Account,'' ``CCIT Transaction,'' 
``Centrally Cleared Institutional Triparty Member or CCIT Member,'' 
``Centrally Cleared Institutional Triparty Service or CCIT Service,'' 
``Joint Account,'' ``Joint Account Submitter'' and ``Joint Account 
Submitter Agreement.''
    FICC is proposing to amend the definition of ``Contract Value'' to 
refer to a CCIT Transaction. FICC is also proposing to make a 
grammatical correction to this definition.
    FICC is proposing to amend the definition of ``Controlling 
Management'' in order to incorporate concepts that apply to CCIT 
Members and Registered Investment Company Netting Members and 
applicants to become such.
    FICC is proposing to amend the definition of ``GCF Net Funds 
Borrower Position'' to refer to CCIT Transactions and to add an 
explicit definition for the term ``GCF Net Funds Borrower.''
    FICC is proposing to amend the definition of ``GCF Net Funds Lender 
Position'' to refer to CCIT Members and CCIT Transactions and to 
include an explicit definition for the term ``GCF Net Funds Lender,'' 
which would include a Netting Member or a CCIT Member, as applicable.
    FICC is proposing to amend the definition of ``GCF Net Settlement 
Position'' and ``GCF Repo Security'' to refer to CCIT Transactions.
    FICC is proposing to include ``GCF Repo Service'' as a defined term 
in order to facilitate the drafting of proposed GSD Rule 3B, which 
covers the proposed CCIT Service.
    FICC is proposing to amend the definitions of ``Invoice Amount,'' 
``Member,'' ``Miscellaneous Adjustment Amount'' and ``Net Assets'' to 
refer to a CCIT Member.
    FICC is also proposing to amend the definition of a ``Tier Two 
Member'' (previously referred to in the GSD Rules as a ``Tier Two 
Netting Member'') to include a CCIT Member.
B. Proposed Changes to GSD Rule 2 (Members)
    FICC is proposing to amend GSD Rule 2 (Members) to include CCIT 
Members as a membership type and to make conforming changes that 
accommodate this inclusion.
C. Proposed Changes to GSD Rule 2A (Initial Membership Requirements)
    FICC is proposing to amend Section 2 of GSD Rule 2A (Initial 
Membership Requirements) to make conforming changes to accommodate the 
revised term ``Tier Two Member.''
D. Proposed GSD Rule 3B (Centrally Cleared Institutional Triparty 
Service)
    FICC is proposing to add GSD Rule 3B, entitled ``Centrally Cleared 
Institutional Triparty Service.'' This new rule would govern the 
proposed CCIT Service and would be comprised of 17 sections, each of 
which is described immediately below.
I. Proposed GSD Rule 3B, Section 1 (General)
    Section 1 of proposed GSD Rule 3B would be a general provision 
regarding the GSD Rules applicable to CCIT Members and to Netting 
Members that participate in the proposed CCIT Service.
    Section 1 of proposed GSD Rule 3B would establish that CCIT Members 
would be governed by proposed GSD Rule 3B, and that references to the 
term ``Member'' in other GSD Rules would not apply to CCIT Members 
unless specifically noted as such in proposed GSD Rule 3B or in such 
other GSD Rules. Section 1 of proposed GSD Rule 3B would also make 
clear that a Netting Member must be a participant of the GCF Repo 
Service in order to be a counterparty to a CCIT Member in a CCIT 
Transaction and that, in addition to the GSD Rules governing Netting 
Members, Netting Members that submit CCIT Transactions would also be 
subject to the provisions of proposed GSD Rule 3B and other GSD Rules 
applicable to CCIT Transactions.
II. Proposed GSD Rule 3B, Section 2 (Eligibility for Membership: CCIT 
Member)
    Section 2 of proposed GSD Rule 3B would establish the initial 
membership eligibility requirements for applicants that wish to become 
CCIT Members.
    Under Section 2 of proposed GSD Rule 3B, a legal entity would be 
eligible to apply to become a CCIT Member if it satisfies the following 
requirements: (i) Financial responsibility and ability to pay 
anticipated fees pursuant to the GSD Rules, including having minimum 
Net Assets \18\ of $100 million, or a prescribed multiplier of $100 
million in the case of applicants whose financial statements are 
prepared other than in accordance with U.S. generally accepted 
accounting principles; \19\ (ii) operational capability (applicable to 
a Joint Account Submitter, if relevant) to communicate with FICC and 
fulfill anticipated commitments to and meet other operational 
requirements of FICC; (iii) provision of an opinion of counsel 
acceptable to FICC that the GSD Rules would be enforceable against such 
applicant if it were to become a CCIT Member; and (iv) provision of an 
opinion of counsel (if required by FICC in its sole discretion) 
acceptable to FICC that, in the event FICC were to cease to act for the 
applicant after such applicant becomes a CCIT Member, FICC would be 
able to exercise the remedies described in the GSD Rules.
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    \18\ Pursuant to the GSD Rules, the term ``Net Assets'' means 
``the difference between the total assets and the total liabilities 
of a Netting Member.'' GSD Rule 1, Definitions. This filing would 
amend this definition to include CCIT Members. With respect to a 
CCIT Member applicant, the determination as to whether the applicant 
satisfies the minimum Net Asset requirement under Section 2 of 
proposed GSD Rule 3B would be based on financial disclosures 
provided by the applicant as part of the membership application 
process.
    \19\ FICC may impose greater standards on the applicant based 
upon the level of the anticipated positions and obligations of the 
applicant, the anticipated risk associated with the volume and types 
of transactions the applicant proposes to process through FICC and 
the overall financial condition of the applicant. Proposed GSD Rule 
3B, Section 2.
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    In addition, FICC would have the sole discretion to determine 
whether the applicability of any enumerated Disqualification Criteria 
(as set forth in Section 2 of proposed GSD Rule 3B) should be the basis 
for denial of the membership application.
    Section 2 of proposed GSD Rule 3B also states that FICC would 
retain the right to deny membership to an applicant if FICC becomes 
aware of any factor or circumstance about the applicant or its 
Controlling Management \20\ which may affect the suitability of that 
particular applicant as a Member of GSD. Further, applicants would be 
required to inform FICC as to any member of their Controlling 
Management that is or becomes subject to Statutory Disqualification.
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    \20\ Pursuant to this filing, the term ``Controlling 
Management'' would be revised to mean ``the Chief Executive Officer, 
the Chief Financial Officer, and the Chief Operations Officer, or 
their equivalents, of an applicant or Member or such other 
individuals or entities with direct or indirect control over the 
applicant or Member; provided that with respect to a Registered 
Investment Company Netting Member or an applicant to become a 
Registered Investment Company Netting Member, the term `Controlling 
Management' shall include the investment manager.'' Proposed GSD 
Rule 1, Definitions.
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    Section 2 of proposed GSD Rule 3B also includes provisions that 
would

[[Page 17056]]

allow CCIT Members to be represented by a Joint Account.\21\
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    \21\ Pursuant to this filing, ``Joint Account'' would be defined 
as ``two or more CCIT Members represented by a Joint Account 
Submitter.'' Proposed GSD Rule 1, Definitions.
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    In the market today, some institutional cash lenders submit trades 
as a ``joint account'' rather than at the individual legal entity 
level. This means that two or more institutional cash lenders create a 
joint account and have a submitter (such as their agent lender) conduct 
the trading on their behalf. The proposed rule changes would 
accommodate this structure and would provide that two or more approved 
CCIT Members may be represented by a Joint Account Submitter,\22\ 
provided that the applicable CCIT Members enter into a Joint Account 
Submitter Agreement with FICC. This agreement would permit CCIT 
Transactions to be submitted through a Joint Account on behalf of the 
CCIT Members. If FICC terminates a Joint Account Submitter Agreement, 
such Joint Account Submitter would no longer be permitted to represent 
the CCIT Members in the Joint Account. Each such CCIT Member would then 
be required to assume the duties of the Joint Account Submitter or 
appoint a new Joint Account Submitter subject to the requirements of 
the GSD Rules.
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    \22\ Pursuant to this filing, the term ``Joint Account 
Submitter'' would be defined as ``an authorized entity that (i) is 
acting as agent for two or more CCIT Members that are trading and 
submitting CCIT Transactions as a Joint Account and (ii) has been 
appointed by each such CCIT Member pursuant to a Joint Account 
Submitter Agreement.'' Proposed GSD Rule 1, Definitions.
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III. Proposed GSD Rule 3B, Section 3 (Membership Application Process To 
Become a CCIT Member)
    Section 3 of proposed GSD Rule 3B would establish the membership 
application process that would be required of each applicant to become 
a CCIT Member.
    Under Section 3 of proposed GSD Rule 3B, each applicant would be 
required to complete all documents and it or its Joint Account 
Submitter, as applicable, would be required to fulfill, within the 
timeframes established by FICC, any operational testing requirements 
and related reporting requirements that may be imposed by FICC to 
ensure the operational capability of the applicant. In addition, each 
applicant would be required to complete and deliver a FATCA 
Certification to FICC, and if the applicant is an FFI Member,\23\ the 
applicant would also be required to certify and periodically recertify 
that it is FATCA Compliant, unless such requirements have been 
explicitly waived in writing by FICC, and no such waiver would be 
issued if it would cause FICC to be obligated to withhold under FATCA 
on gross proceeds from the sale or other disposition of any property. 
The applicant would also be required to indemnify FICC as a result of 
its failing to be FATCA Compliant. Section 3 of proposed GSD Rule 3B 
would also provide for confidential treatment of information furnished 
to FICC pursuant to proposed GSD Rule 3B.
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    \23\ Pursuant to GSD Rule 1, the term ``FFI Member'' means ``any 
Person that is treated as a non-U.S. entity for U.S. federal income 
tax purposes.'' For the avoidance of doubt, the term FFI Member also 
includes ``any Member that is a U.S. branch of an entity that is 
treated as a non-U.S. entity for U.S. federal income tax purposes.'' 
GSD Rules, supra note 4.
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    In connection with FICC's evaluation of an applicant, FICC would be 
able to: (i) If applicable, contact the applicant's primary regulatory 
authority, other examining authority or regulator, or any self-
regulatory organization of which the applicant is a member and request 
from such authority or organization any records, reports or other 
information that, in their judgment, may be relevant to the 
application; (ii) examine the books, records and operational procedures 
of, and inspect the premises of, the applicant or its Controlling 
Management as they may be related to the business to be conducted 
through GSD; and (iii) take such other evidence or make such other 
inquiries as is necessary, including sworn or unsworn testimony, to 
ascertain relevant facts bearing upon the applicant's qualifications.
    Section 3 of proposed GSD Rule 3B would make clear that, 
notwithstanding that FICC has approved an application to become a CCIT 
Member, if a material change in the condition of the applicant or its 
Controlling Management were to occur, which in the judgment of FICC 
could bring into question the applicant's ability to perform as a CCIT 
Member, and such material change were to become known to FICC prior to 
the applicant's commencing use of GSD's services, FICC would have the 
right to stay commencement of the applicant's use of GSD's services 
until a reconsideration by FICC of the applicant's financial 
responsibility and operational capability could be completed. As a 
result of such reconsideration, FICC could determine to withdraw 
approval of an application to become a CCIT Member or condition the 
approval upon the furnishing of additional information or assurances.
    Section 3 of proposed GSD Rule 3B would also state that FICC could 
deny an application to become a CCIT Member upon FICC's determination 
that FICC does not have adequate personnel, space, data processing 
capacity, or other operational capability at that time to perform its 
services for the applicant without impairing the ability of FICC to 
provide services for its existing Members (including CCIT Members), to 
assure the prompt, accurate, and orderly processing and settlement of 
securities transactions or to otherwise carry out its functions; 
provided, however, that any such applications which are denied pursuant 
to this provision would be approved as promptly as the capabilities of 
FICC permit.
    Upon FICC's denial of an application to become a CCIT Member, FICC 
would furnish the applicant with a concise written statement setting 
forth the specific grounds under consideration upon which any such 
denial may be based and would notify the applicant of its right to 
request a hearing, such request to be filed by the applicant with FICC 
pursuant to GSD Rule 37 (Hearing Procedures).
IV. Proposed GSD Rule 3B, Section 4 (Membership Agreement)
    Section 4 of proposed GSD Rule 3B would govern the agreements that 
CCIT Member applicants would be required to sign and deliver to FICC.
    Section 4 of proposed GSD Rule 3B would describe the terms of the 
membership agreement that every CCIT Member applicant would be required 
to execute with FICC and, in the case of CCIT Member applicants that 
intend to participate in the proposed CCIT Service through a Joint 
Account, this section would require that such applicants also execute a 
Joint Account Submitter Agreement with FICC. This section would also 
specify the rights, obligations, and liability that a CCIT Member that 
participates in the proposed CCIT Service would have vis-[agrave]-vis 
its Joint Account Submitter, as well as the conditions under which FICC 
would be able to terminate the Joint Account Submitter Agreement. It 
should be noted that the Joint Account Submitter in its capacity as 
such would not be a Member.
V. Proposed GSD Rule 3B, Section 5 (On-Going Membership Requirements)
    Section 5 of proposed GSD Rule 3B would establish on-going 
membership requirements and would make clear that the initial 
eligibility qualifications and standards for CCIT membership would be 
continuing membership requirements. Additional on-going

[[Page 17057]]

membership requirements would also apply to CCIT Members as described 
below.
    Each CCIT Member would be required to submit the following to FICC: 
(i) Disclosure on at least an annual basis regarding such CCIT Member's 
Net Assets, and (ii) any financial statements the CCIT Member makes 
publicly available. In addition, each CCIT Member would be required to 
submit such other reports, financial, and other information as FICC 
from time to time may reasonably require. The time periods prescribed 
for submission of required disclosure would be set forth in notices 
posted to FICC's Web site and/or distributed by FICC from time to time. 
It would be the CCIT Member's responsibility to retrieve all notices 
daily from FICC's Web site.
    In addition, a CCIT Member would be required to submit written 
notice of any CCIT Reportable Event \24\ at least 90 calendar days 
prior to the effective date of such CCIT Reportable Event, unless the 
CCIT Member demonstrates that it could not have reasonably done so, and 
provides notice, both orally and in writing, to FICC as soon as 
possible.
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    \24\ Proposed GSD Rule 3B would define a ``CCIT Reportable 
Event'' as ``(i) an event that would, after giving effect thereto, 
cause a material change in the control, ownership or management of 
the CCIT Member, or that could have a material impact on such CCIT 
Member's business and/or financial condition; (ii) material changes 
in the CCIT Member's business lines, including new business lines 
undertaken; or (iii) any litigation which could reasonably be 
anticipated to have a material negative effect on the CCIT Member's 
financial condition or ability to conduct business.'' Proposed GSD 
Rule 3B, Section 5(c).
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    CCIT Members that are FFI Members would also be subject to FATCA-
related reporting requirements.
    Section 5 of proposed GSD Rule 3B would provide that a CCIT Member 
that fails to submit required information within the prescribed 
timeframes and in the manner requested by FICC would be subject to the 
applicable fines noted under ``Failure to Timely Provide Financial and 
Related Information'' and ``Reportable Events--Fine for Failure of 
Timely Notification,'' as applicable, in the Fine Schedules of the GSD 
Rules.
    FICC could, from time to time, require CCIT Members or their Joint 
Account Submitters, as applicable, to fulfill certain operational 
testing requirements and related reporting requirements to ensure the 
continuing operational capability of the CCIT Members. FICC would 
assess a fine or terminate the membership of any CCIT Member that does 
not fulfill any such operational testing and related reporting 
requirements within the timeframes established by FICC. If a Joint 
Account Submitter does not fulfill any such operational testing and 
related reporting requirements within the timeframes established by 
FICC, FICC could terminate the Joint Account Submitter Agreements for 
any or all CCIT Members that such Joint Account Submitter represents.
    A CCIT Member would also be required to promptly inform FICC, both 
orally and in writing, if it no longer is in compliance with any of the 
relevant qualifications and standards for admission to membership set 
forth in proposed GSD Rule 3B. Notification would be required within 
two Business Days from the date on which the CCIT Member first learns 
of its non-compliance. FICC would assess a $1,000.00 fine against any 
CCIT Member that fails to notify FICC. In addition, a CCIT Member would 
be required to notify FICC within two Business Days of learning that an 
investigation or proceeding to which it is or is becoming the subject 
of would cause the CCIT Member to fall out of compliance with any of 
the relevant qualifications and standards for membership set forth in 
proposed GSD Rule 3B. However, the CCIT Member would not be required to 
notify FICC if doing so would cause the CCIT Member to violate an 
applicable law, rule, or regulation.
    If with respect to a CCIT Member: (i) The CCIT Member fails to 
maintain the relevant standards and qualifications for admission to 
membership, including, but not limited to, minimum capital standards, 
operational testing, and related reporting requirements imposed by FICC 
from time to time; (ii) the CCIT Member violates any GSD Rule or other 
agreement with FICC; (iii) the CCIT Member fails to satisfy in a timely 
manner any obligation to FICC; (iv) there is any CCIT Reportable Event 
relating to such Member; or (v) FICC otherwise deems it necessary or 
advisable, in order to (a) protect FICC, its Members (including CCIT 
Members), or its creditors or investors; (b) safeguard securities and 
funds in the custody or control of FICC or for which FICC is 
responsible; or (c) promote the prompt and accurate processing, 
clearance or settlement of securities transactions, FICC would 
undertake appropriate action to determine the status of the CCIT Member 
and its continued eligibility. In addition, FICC could review the 
financial responsibility and operational capability of the CCIT Member 
and/or its Controlling Management to the extent provided in the GSD 
Rules and otherwise require from the CCIT Member additional reporting 
of its financial or operational condition at such intervals and in such 
detail as FICC determines, and would make a determination as to whether 
such CCIT Member should be placed on the Watch List by FICC consistent 
with the provisions of Section 5 of proposed GSD Rule 3B (described 
below).
    In addition, if FICC has reason to believe that a CCIT Member may 
fail to comply with any of the GSD Rules, FICC could require the CCIT 
Member to provide FICC, within such timeframe, in such detail, and 
pursuant to such manner as FICC determines, with assurances in writing 
of a credible nature that the CCIT Member shall not, in fact, violate 
the GSD Rules. Each CCIT Member, or any applicant to become such, would 
be required to furnish to FICC such adequate assurances of the CCIT 
Member's financial responsibility and operational capability as FICC 
could at any time or from time to time deem necessary or advisable in 
order to (i) protect FICC, its Members (including CCIT Members), or its 
creditors or investors; (ii) safeguard securities and funds in the 
custody or control of FICC or for which FICC is responsible; or (iii) 
promote the prompt and accurate processing, clearance or settlement of 
securities transactions. Upon the request of a CCIT Member or applicant 
to become such, FICC could choose to confer with the CCIT Member or 
applicant before or after requiring it to furnish adequate assurances 
pursuant to this proposed GSD Rule 3B.
    Adequate assurances of financial responsibility or operational 
capability of a CCIT Member or applicant to become such, as could be 
required by FICC pursuant to proposed GSD Rule 3B, could include, but 
would not be limited to, as appropriate in the context of the CCIT 
Member's use of GSD's services: (i) Imposing restrictions or 
modifications on the CCIT Member's use of GSD's services (whether 
generally, or with respect to certain transactions); or (ii) requiring 
additional reporting by the CCIT Member of its financial or operational 
condition at such intervals and in such detail as FICC determines.
    Section 5 of proposed GSD Rule 3B would provide that in the event 
that a CCIT Member fails to satisfy the relevant requirements of any 
GSD Rules, FICC would cease to act for the CCIT Member, unless the CCIT 
Member requests that such action not be taken and FICC determines that 
it is appropriate instead to establish a time period (the 
``Noncompliance Time Period''), which would be no longer than 30 
calendar days (unless otherwise determined by FICC), during which the 
CCIT Member would be required to resume compliance with such

[[Page 17058]]

requirements. In the event that the CCIT Member is unable to satisfy 
such requirements within the Noncompliance Time Period, FICC would 
cease to act for the CCIT Member. If FICC takes any cease to act action 
pursuant to this provision, it would be required to promptly file with 
its records and with the Commission a full report of such actions, and 
the reasons thereof. Notwithstanding anything to the contrary in 
Section 5 of proposed GSD Rule 3B, if FICC, in its sole discretion, 
determines that a CCIT Member's financial condition has significantly 
deteriorated during a Noncompliance Time Period, FICC could immediately 
cease to act for the CCIT Member.
    Section 5 of proposed GSD Rule 3B would require that CCIT Members 
and their Joint Account Submitters, as applicable, comply with all 
applicable laws, including applicable laws relating to securities, 
taxation and money laundering, as well as global sanctions regulations 
in connection with their use of GSD's services. As part of their 
compliance with global sanctions regulations, all CCIT Members and 
their Joint Account Submitters would be prohibited from conducting any 
transaction or activity through FICC which they know to violate global 
sanctions regulations. CCIT Members subject to the jurisdiction of the 
U.S. would be required to periodically confirm that they and their 
Joint Account Submitters, as applicable, have implemented a risk-based 
program reasonably designed to comply with applicable sanctions 
regulations issued by the Office of Foreign Assets Control. Failure to 
do so in the manner and timeframes set forth by FICC from time to time 
would result in a $5,000.00 fine.
    Section 5 of proposed GSD Rule 3B would also prohibit a CCIT Member 
that is an FFI Member from conducting CCIT Transactions or activity 
through FICC if such CCIT Member is not FATCA Compliant, unless such 
requirement has been explicitly waived in writing by FICC with respect 
to the specific CCIT Member. In addition, CCIT Members that are FFI 
Members would be required, as applicable under FATCA, to certify and 
periodically recertify to FICC that they are FATCA Compliant by 
providing to FICC a FATCA Certification. Failure to do so in the manner 
and timeframes set forth by FICC from time to time would result in a 
fine, unless such requirement has been explicitly waived in writing by 
FICC with respect to the specific CCIT Member. Nevertheless, no waiver 
would be issued if it would cause FICC to be obligated to withhold 
under FATCA on gross proceeds from the sale or other disposition of any 
property. A CCIT Member that is an FFI Member would also be required to 
indemnify FICC for losses, liabilities, or expenses sustained by FICC 
as a result of such CCIT Member failing to be FATCA Compliant.
    Section 5 of proposed GSD Rule 3B would also provide that a CCIT 
Member and its Controlling Management's books and records, insofar as 
they relate to such CCIT Member's transactions processed through FICC, 
would be required to be open to the inspection of the duly authorized 
representatives of FICC upon reasonable prior notice and during the 
CCIT Member's or its Controlling Management's normal business hours. 
Each CCIT Member would be required to furnish to FICC all such 
information about the CCIT Member's and its Controlling Management's 
business and transactions as FICC may require; provided that (i) the 
aforesaid rights of FICC would be subject to any applicable laws, 
rules, or regulations of regulatory bodies having jurisdiction over the 
CCIT Member or its Controlling Management that relate to the 
confidentiality of records; and (ii) if the CCIT Member ceases 
membership, FICC would have no right to inspect the CCIT Member's or 
its Controlling Management's books and records or to require 
information relating to transactions wholly subsequent to the time when 
the CCIT Member ceases membership.
    Section 5 of proposed GSD Rule 3B would also provide that a CCIT 
Member could be monitored for financial and/or operational factors as 
FICC deems necessary to protect FICC and its Members from undue risk. 
CCIT Members would not be assigned a rating from the Credit Risk Rating 
Matrix; however, they could be included on the Watch List at FICC's 
discretion. Placement on the Watch List would result in a more thorough 
monitoring of the CCIT Member's financial and/or operational condition, 
as applicable, and activities by FICC. FICC could require CCIT Members 
placed on the Watch List to make more frequent financial disclosures, 
possibly including interim and/or pro forma reports. A CCIT Member 
would be placed on the Watch List if FICC takes any action against such 
CCIT Member pursuant to Section 5(f) of proposed GSD Rule 3B. A CCIT 
Member would continue to be included on the Watch List until the 
condition(s) that resulted in its placement on the Watch List improved 
to the point where the condition(s) are no longer present or a 
determination is made by FICC that close monitoring is no longer 
warranted.
VI. Proposed GSD Rule 3B, Section 6 (Voluntary Termination)
    Section 6 of proposed GSD Rule 3B would establish the requirements 
regarding a CCIT Member's election to voluntarily terminate its GSD 
membership.
    A CCIT Member would be permitted to elect to terminate its 
membership by providing FICC with 10 Business Days' written notice of 
such termination; however, FICC, in its discretion, could accept such 
termination within a shorter notice period. FICC's acceptance, which 
would be no later than 10 Business Days after receipt of the written 
notice, would be evidenced by a notice to Members (including CCIT 
Members) announcing the CCIT Member's termination and the effective 
date of the termination of the CCIT Member (the ``Termination Date''). 
As of the Termination Date, a CCIT Member that terminates its 
membership in GSD would no longer be eligible or required to submit to 
FICC data on trades and would no longer be eligible to have its trade 
data submitted by a Joint Account Submitter, unless the Board 
determines otherwise in order to ensure an orderly liquidation of the 
CCIT Member's positions. Section 6 of proposed GSD Rule 3B would 
provide that a CCIT Member's voluntary termination of membership would 
not affect its obligations to FICC, or the rights of FICC, with respect 
to transactions submitted to FICC before the Termination Date.
VII. Proposed GSD Rule 3B, Section 7 (Loss Allocation Obligations of 
CCIT Members)
    CCIT Members would only be permitted to participate in the proposed 
CCIT Service as cash lenders, and FICC would have a perfected security 
interest in each CCIT Member's underlying repo securities. In the event 
that a CCIT Member defaults or becomes insolvent, FICC would obtain and 
deliver the underlying repo securities to the Netting Member with whom 
the defaulted CCIT Member had open CCIT Transactions. As a result of 
FICC's perfected security interest, CCIT Members would not present 
market risk because FICC would not be required to take market action in 
order to obtain the underlying repo securities. In light of the 
foregoing, FICC believes it is appropriate from a risk management 
perspective not to require a Required Fund Deposit from CCIT Members.
    However, FICC does propose to establish loss allocation obligations 
for CCIT Members, and Section 7 of proposed GSD Rule 3B would set forth 
such obligations.

[[Page 17059]]

    In particular, Section 7 of proposed GSD Rule 3B provides that 
Section 7 of GSD Rule 4 (Clearing Fund and Loss Allocation), which 
covers loss allocation generally, would apply to CCIT Members as Tier 
Two Members. Section 7 of proposed GSD Rule 3B and Section 7 of GSD 
Rule 4, together, would provide that CCIT Members would be responsible 
for the total amount of loss allocated to them. With respect to CCIT 
Members with a Joint Account Submitter, loss allocation would be 
calculated at the Joint Account level and then applied pro rata to each 
CCIT Member within the Joint Account based on the trade settlement 
allocation instructions. If, at the time FICC calculates loss 
allocation, the trade settlement allocation instructions to the 
individual CCIT Member level have not yet been received by FICC, the 
CCIT Members in the Joint Account would be required to provide the 
allocation to FICC within the timeframes set by FICC in its discretion.
VIII. Proposed GSD Rule 3B, Section 8 (Obligations Under Rule 4 
Regarding Netting Members That Participate in the CCIT Service)
    Section 8 of proposed GSD Rule 3B would establish the applicability 
of GSD Rule 4 (Clearing Fund and Loss Allocation) to Netting Members 
with respect to their CCIT Transactions.
    Section 8 of proposed GSD Rule 3B would provide that the provisions 
of GSD Rule 4 would apply to the CCIT Service activity of Netting 
Members in the same manner that such provisions apply to Netting 
Members' GCF Repo Transaction activity.
IX. Proposed GSD Rule 3B, Section 9 (Trade Submission and the 
Comparison System)
    Section 9 of proposed GSD Rule 3B would establish trade submission 
and comparison requirements for CCIT Transactions.
    With respect to trade submission, Section 9 of proposed GSD Rule 3B 
would permit CCIT Members (whether submitting individually or through a 
Joint Account) to submit only CCIT Transactions to FICC. FICC would 
leverage its existing GCF Repo Service infrastructure and operations to 
process CCIT Transactions, subject to certain differences given the 
nature of the CCIT Transactions and certain industry conventions 
applicable to such transactions, which FICC wishes to accommodate in 
its processing. CCIT Transactions would be required to be in Generic 
CUSIP Numbers approved by FICC for the GCF Repo Service.
    Each CCIT Member would be required to maintain two accounts at the 
GCF Clearing Agent Bank(s) at which Netting Members with whom the CCIT 
Member enters into CCIT Transactions maintain accounts. CCIT Members 
acting through a Joint Account would be required to cause the Joint 
Account Submitter to maintain two accounts for the Joint Account 
activity at the GCF Clearing Agent Bank(s) at which the Netting Members 
with whom the CCIT Members enter into CCIT Transactions maintain 
accounts. One account at each such GCF Clearing Agent Bank would be 
designated for the CCIT Member's activity with FICC, and the second 
account would be designated for purposes of the committed liquidity 
facility to which the CCIT Member would be subject. This facility is 
described in Section 14 of proposed GSD Rule 3B.
    With respect to trade comparison, Section 9 of proposed GSD Rule 3B 
would provide that the provisions of GSD Rule 5 (Comparison System) 
would apply to CCIT Transactions, subject to the following: (i) 
``Member,'' when used in GSD Rule 5 (Comparison System), would include 
a CCIT Member or a Joint Account Submitter acting on behalf of a CCIT 
Member, as applicable; (ii) with respect to Section 3 (Trade Submission 
Communication Methods) of GSD Rule 5, CCIT Transactions could only be 
submitted using the Interactive Submission Method or FICC's web 
interface; and (iii) with respect to Section 4 (Submission Size 
Alternatives) of GSD Rule 5, CCIT Transactions would be required to be 
submitted exactly as executed.
    Also with respect to trade comparison, FICC would permit CCIT 
Transactions to be submitted for either Bilateral Comparison or Locked-
In Comparison. Currently, in the GCF Repo Service (which the CCIT 
Service would be leveraging), transactions are submitted for Locked-In 
Comparison. Because institutional tri-party repo transactions are 
typically transacted on a bilateral basis, FICC wishes to accommodate 
this convention and allow CCIT Transactions to be submitted for either 
Bilateral Comparison or Locked-In Comparison.
    Section 9 of proposed GSD Rule 3B would provide that GSD Rule 6A 
(Bilateral Comparison) would govern the comparison of CCIT Transactions 
that are submitted for Bilateral Comparison, subject to the following:
    (i) ``Member,'' when used in GSD Rule 6A, would include a CCIT 
Member or a Joint Account Submitter acting on behalf of a CCIT Member, 
as applicable;
    (ii) with respect to Section 1 (General) of GSD Rule 6A, the 
Schedule of Required and Other Data Submission Items for GCF Repo 
Transactions would apply to CCIT Transactions. The Schedule of Required 
Match Data and the Schedule of Money Tolerances would not apply to CCIT 
Transactions. With respect to the Schedule of Required and Other Data 
Submission Items for GCF Repo Transactions, the fields requiring Broker 
information would not apply; and
    (iii) with respect to Section 2 (Submission Method Requirements) of 
GSD Rule 6A, CCIT Transactions could only be submitted using the 
Interactive Submission Method or FICC's web interface.
    Section 9 of proposed GSD Rule 3B would provide that the following 
provisions of GSD Rule 6C (Locked-In Comparison) would govern the 
comparison of CCIT Transactions that are submitted on a Locked-In Trade 
basis: Section 1 (General), Section 2 (Authorizations of Transmission 
to and Receipt by the Corporation of Data on Locked-In Trades), the 
first sentence in Section 4 (Submission Requirements), Section 5 (GCF 
Repo Transactions), Section 7 (Reporting of Locked-In Trades), Section 
8 (Discretion to not Accept Data), Section 9 (Binding Nature of 
Comparison System Output on Locked-In Trades), Section 12 (Affirmation, 
Cancellation and Modification Requirements for Data on GCF Repo 
Transactions) and Section 13 (Timing of Comparison). For purposes of 
the application of these provisions to CCIT Transactions, CCIT 
Transactions would be treated as GCF Repo Transactions. ``Member,'' 
when used in applicable parts of GSD Rule 6C, would include a CCIT 
Member or, as applicable, a Joint Account Submitter acting on behalf of 
a CCIT Member.
    Section 9 of proposed GSD Rule 3B states that the Schedule of GCF 
Timeframes would apply to CCIT Transactions (whether submitted for 
Bilateral Comparison or Locked-In Comparison) and CCIT Members would be 
subject to any applicable late fees (applied at the Joint Account level 
if applicable) noted in the Fee Structure for failure to meet 
applicable deadlines. CCIT Members would be subject to all consequences 
for not meeting the deadlines in the schedules noted in GSD Rule 20 
(Special Provisions for GCF Repo Transactions) in the same manner that 
such consequences apply to Netting Members.

[[Page 17060]]

A. Proposed GSD Rule 3B, Section 10 (Forward Trades)
    Section 10 of proposed GSD Rule 3B would apply to CCIT Transactions 
that are Forward Trades.
    Section 10 of proposed GSD Rule 3B would provide that the 
provisions of GSD Rule 14 (Forward Trades) would apply to CCIT 
Transactions in the same way such provisions apply to GCF Repo 
Transactions.
B. Proposed GSD Rule 3B, Section 11 (Netting System and Settlement of 
CCIT Transactions)
    Section 11 of proposed GSD Rule 3B would govern the netting and 
settlement of CCIT Transactions.
    Section 11 of proposed GSD Rule 3B would provide that GSD Rule 20 
(Special Provisions for GCF Repo Transactions) would apply to the 
netting and settlement obligations of FICC and each party to a CCIT 
Transaction in the same manner in which such provisions apply to GCF 
Repo Transactions, subject to the following: (i) When used, ``Netting 
Member'' would include a CCIT Member or, as applicable, a Joint 
Account; (ii) CCIT Members (whether acting individually or through a 
Joint Account) would always be GCF Net Funds Lenders; (iii) CCIT 
Members would not be Interbank Pledging Members; \25\ (iv) CCIT Members 
would not be initiators of requests for collateral substitutions but 
would be the recipients of such collateral substitutions; \26\ and (v) 
the CCIT Transaction activity of Netting Members would be netted with 
such Netting Members' GCF Repo Service activity for one net obligation 
per GCF Repo Service Generic CUSIP Number.
---------------------------------------------------------------------------

    \25\ Interbank processing is not a feature of the CCIT Service 
because CCIT Members would be required to have accounts at each GCF 
Clearing Agent Bank at which Netting Members with whom the CCIT 
Members enter into CCIT Transactions maintain accounts. The net cash 
requirement for each account would be settled at the applicable 
bank, thereby eliminating the need for interbank processing.
    \26\ Because CCIT Members would be cash lenders in CCIT 
Transactions, they would not initiate collateral substitutions, as 
collateral substitution is a market practice initiated by cash 
borrowers in repo transactions.
---------------------------------------------------------------------------

    Section 11 of proposed GSD Rule 3B would also provide that on each 
Business Day, CCIT Members submitting CCIT Transactions through a Joint 
Account would be required to cause their Joint Account Submitter to 
submit the trade settlement allocation with respect to trades settled 
by the Joint Account during that Business Day.
    In the event that FICC ceases to act for a CCIT Member, FICC would 
need to obtain the underlying securities collateral to avoid having to 
take market action to purchase such securities. To address this 
concern, Section 11 of proposed GSD Rule 3B would provide that each 
CCIT Member grants to FICC a security interest in the underlying 
securities as security for the CCIT Member's performance of its 
obligations under each CCIT Transaction. Section 11 of proposed GSD 
Rule 3B would further provide that in the event a CCIT Transaction were 
re-characterized as a loan, the securities delivered to the CCIT Member 
would be deemed pledged to such Member as security for the performance 
of FICC's obligations. In such circumstances, FICC would not be 
considered to have a security interest in the securities but as owning 
the securities. In addition, Section 11 of proposed GSD Rule 3B would 
provide that if FICC ceases to act for a CCIT Member, FICC could 
instruct the relevant GCF Clearing Agent Bank to deliver to FICC the 
Eligible Securities that the CCIT Member is obligated to return to FICC 
against payment by FICC of the Contract Value.
C. Proposed GSD Rule 3B, Section 12 (Compared Trades)
    Section 12 of proposed GSD Rule 3B would establish FICC's guaranty 
of settlement of CCIT Transactions.
    Section 12 of proposed GSD Rule 3B would provide that GSD Rule 11B 
(Guaranty of Settlement) would apply to CCIT Transactions that are 
Compared Trades.
D. Proposed GSD Rule 3B, Section 13 (Funds-Only Settlement)
    Section 13 of proposed GSD Rule 3B would establish the funds-only 
settlement obligations that would apply to CCIT Members and to Netting 
Members that are parties to CCIT Transactions.
    FICC proposes that CCIT Members would have Funds-Only Settlement 
Amount obligations as set forth in GSD Rule 13 (Funds-Only Settlement), 
and that GSD Rule 13 would apply in its entirety to CCIT Members in the 
same manner as it applies to Netting Members, except that only the 
following components of Section 1 (General) of GSD Rule 13 would apply 
to CCIT Members: (i) The Invoice Amount,\27\ and (ii) the Miscellaneous 
Adjustment Amount.\28\ FICC proposes to not collect/pay the remaining 
funds-only settlement components included in Section 1 of GSD Rule 13 
from/to CCIT Members in order to align with current market practice for 
institutional cash lenders in the tri-party repo market. Such modified 
approach to the funds-only settlement process would be appropriate for 
FICC to take with respect to CCIT Members in light of the fact that no 
market action would be required by FICC in the event of a CCIT Member's 
default due to the perfected security interest FICC would have in such 
CCIT Member's underlying repo securities.
---------------------------------------------------------------------------

    \27\ Pursuant to the GSD Rules, the term ``Invoice Amount'' 
means ``all fee amounts due and owing from a Netting Member to the 
Corporation on a particular Business Day.'' GSD Rule 1, Definitions. 
This filing would amend this definition to include CCIT Members.
    \28\ Pursuant to the GSD Rules, the ``Miscellaneous Adjustment 
Amount'' means ``the net total of all miscellaneous funds-only 
amounts that, on a particular Business Day, are required to be paid 
by a Netting Member to the Corporation and/or are entitled to be 
collected by a Member from the Corporation.'' GSD Rule 1, 
Definitions. This filing would amend this definition to include CCIT 
Members.
---------------------------------------------------------------------------

    For Netting Members that are parties to CCIT Transactions, FICC 
proposes that the Invoice Amount, the Miscellaneous Adjustment Amount, 
and the Transaction Adjustment Payment components of Section 1 of GSD 
Rule 13 would apply (inclusive of their CCIT Transactions) in the same 
manner that such components are currently applied to their GSD funds-
only settlement obligations.
    However, the GCF Interest Rate Mark and Interest Rate Mark 
components of Section 1 of GSD Rule 13 would apply in a different 
manner with respect to Netting Members' CCIT Transactions than such 
components are currently applied to their GSD funds-only settlement 
obligations. Specifically, if the GCF Interest Rate Mark funds-only 
settlement component (for a CCIT Transaction for which the Start Leg 
has settled) or the Interest Rate Mark funds-only settlement component 
(for a CCIT Transaction that is a Forward Trade, during such CCIT 
Transaction's Forward-Starting Period) result in a debit to the Netting 
Member, such debit amount would be collected and held by FICC overnight 
and then returned to the Netting Member the following day in a credit 
for the same amount, plus a use of funds amount (Interest Rate Market 
Adjustment Payment). FICC proposes to collect and hold debit amounts 
reflecting Netting Members' GCF Interest Rate Mark or Interest Rate 
Mark, as applicable, overnight to mitigate the interest rate risk that 
FICC faces from a Netting Member's default with respect to its CCIT 
Transactions. However, if the GCF Interest Rate Mark or the Interest 
Rate Mark component, as applicable, results in a credit to a Netting 
Member,

[[Page 17061]]

the Netting Member would not be paid the credit because the related 
debit would not be collected from the CCIT Member for the reasons 
described above.
    In addition, FICC proposes to apply a new funds-only settlement 
component to CCIT Transactions, which would be referred to as ``CCIT 
Daily Repo Interest.'' CCIT Daily Repo Interest would reflect the daily 
interest earned on a CCIT Transaction and would be collected by FICC on 
each Business Day during the course of a CCIT Transaction from the cash 
borrowing Netting Member party to a CCIT Transaction (other than on the 
Actual Settlement Date of the CCIT Transactions on which it would be 
treated as a Transaction Adjustment Payment) and paid through by FICC 
on the same day to the cash lending CCIT Member as part of the funds-
only settlement process, unless the parties enter into a negative rate 
CCIT Transaction, in which case the debits and credits would be 
reversed. It should be noted that a Netting Member would not receive 
any use of funds amount credit from FICC on any CCIT Daily Repo 
Interest collected from such Netting Member during the course of a CCIT 
Transaction because the related debit would not be collected from the 
CCIT Member in order to align with current market practice for 
institutional cash lenders in the tri-party repo market.
E. Proposed GSD Rule 3B, Section 14 (Liquidity Requirements of CCIT 
Members)
    Section 14 of proposed GSD Rule 3B would establish a rules-based 
committed liquidity facility for CCIT Members.
    The September 1996 Securities Industry and Financial Markets 
Association Master Repurchase Agreement (without the referenced 
annexes) (the ``SIFMA MRA'') would be incorporated by reference into 
the GSD Rules as a master repurchase agreement between FICC as seller 
and each CCIT Member as buyer (the ``CCIT MRA'').
    The CCIT MRA could be invoked by FICC in the event that FICC ceases 
to act for a Netting Member that engaged in CCIT Transactions (the 
``Defaulting Member''), and would require CCIT Members that have open 
trades with the Defaulting Member to enter into repo transactions 
subject to the CCIT MRA (each, a ``CCIT MRA Transaction''). Only CCIT 
Members that have outstanding CCIT Transactions with the Defaulting 
Member would be required to enter into CCIT MRA Transactions, and the 
aggregate total purchase price of a CCIT Member's CCIT MRA Transactions 
would be limited to no more than the aggregate total principal dollar 
amount of such CCIT Member's outstanding CCIT Transactions with the 
Defaulting Member. The securities posted to the CCIT Members under CCIT 
MRA Transactions would have a market value of 102 percent of the 
aggregate purchase price, and the pricing rate in respect of each CCIT 
MRA Transaction would be the rate published on FICC's Web site at the 
time that FICC initiates such CCIT MRA Transaction, corresponding to: 
(A) U.S. Treasury <30-year maturity (CUSIP: 371487AE9) if the 
underlying securities are U.S. Treasury securities; (B) Non-Mortgage 
Backed U.S. Agency Securities (CUSIP: 371487AH2) if the underlying 
securities are non-mortgage-backed U.S. agency securities; or (C) 
Fannie Mae and Freddie Mac Fixed Rate MBS (CUSIP: 371487AL3) if the 
underlying securities are mortgage-backed securities, or, if the 
relevant foregoing rate is unavailable, a rate that FICC reasonably 
determines approximates the average daily interest rate paid by a 
seller of the underlying securities under a cleared repo transaction.
    CCIT MRA Transactions would be terminable only by demand of FICC, 
except in the following circumstances: (i) A Corporation Default occurs 
during the term of a CCIT MRA Transaction; or (ii) if FICC is not able 
to settle a CCIT MRA Transaction by (x) the 30th calendar day following 
the entry into such CCIT MRA Transaction where the underlying 
securities are non-mortgage-backed U.S. agency securities or U.S. 
Treasury securities, or (y) the 60th calendar day following the entry 
into such CCIT MRA Transaction where the underlying securities are 
mortgage-backed securities (any such day, a ``CCIT MRA Termination 
Date''). In either of the aforementioned circumstances, the affected 
CCIT Member would have the right to terminate the CCIT MRA Transaction 
and sell the underlying securities.
    Section 14 of proposed GSD Rule 3B would also make clear that all 
delivery obligations with respect to an original CCIT Transaction would 
be deemed satisfied by operation of Section 14, and settlement of any 
original CCIT Transaction between FICC and any CCIT Member would be 
final, notwithstanding that the relevant Eligible Securities are not 
required to be delivered to FICC in connection with such original CCIT 
Transaction by the CCIT Member that was a buyer in the original CCIT 
Transaction (such delivery being netted against delivery to the buyer 
under the CCIT MRA).
    In addition to the above, Section 14 of proposed GSD Rule 3B also 
provides for uncommitted liquidity repurchase transactions between each 
CCIT Member as Buyer and FICC as Seller under the SIFMA MRA that would 
also be incorporated by reference in the GSD Rules.
F. Proposed GSD Rule 3B, Section 15 (Restrictions on Access to Services 
by a CCIT Member, Insolvency of a CCIT Member and Wind-Down of a CCIT 
Member)
    Section 15 of proposed GSD Rule 3B would govern (i) the rights of 
FICC to restrict a CCIT Member's access to its services, (ii) FICC's 
rights in the event of an insolvency of a CCIT Member, and (iii) the 
winding down of a CCIT Member's CCIT activity.
    Section 15 of proposed GSD Rule 3B would provide that the 
provisions of GSD Rule 21 (Restrictions on Access to Services), GSD 
Rule 21A (Wind-Down of a Netting Member) and GSD Rule 22 (Insolvency of 
a Member) would apply to CCIT Members in the same manner as such 
provisions apply to Netting Members.
G. Proposed GSD Rule 3B, Section 16 (Procedures for When the 
Corporation Ceases To Act for a CCIT Member)
    Section 16 of proposed GSD Rule 3B would establish FICC's 
procedures for when it ceases to act for a CCIT Member.
    Section 16 of proposed GSD Rule 3B would provide that GSD Rule 22A 
(Procedures for When the Corporation Ceases to Act) would apply when 
FICC ceases to act for a CCIT Member in the same manner as such rule 
applies to Netting Members, except that with respect to Section 2(b) of 
GSD Rule 22A, the CCIT Member for whom FICC has ceased to act would be 
required to return each Eligible Security that the CCIT Member is 
obligated to return to FICC against payment by FICC of the Contract 
Value.
H. Proposed GSD Rule 3B, Section 17 (Other Applicable Rules, Schedules, 
Interpretations and Statements)
    Section 17 of proposed GSD Rule 3B would establish certain other 
GSD Rules as being applicable to CCIT Members in the same manner that 
such rules apply to Netting Members.
    Section 17 of proposed GSD Rule 3B would provide that GSD Rule 1 
(Definitions), GSD Rule 22B (Corporation Default), proposed GSD Rule 
22C (Interpretation in Relation to the Federal Deposit Insurance 
Corporation Act of 1991), GSD Rule 23 (Fine Payments), GSD Rule 25 
(Bills

[[Page 17062]]

Rendered), GSD Rule 27 (Admission to Premises of the Corporation, 
Powers of Attorney, Etc.), GSD Rule 28 (Forms), GSD Rule 29 (Release of 
Clearing Data), GSD Rule 31 (Distribution Facilities), GSD Rule 32 
(Signatures), GSD Rule 33 (Procedures), GSD Rule 34 (Insurance), GSD 
Rule 35 (Financial Reports), GSD Rule 36 (Rule Changes), GSD Rule 37 
(Hearing Procedures), GSD Rule 38 (Governing Law and Captions), GSD 
Rule 39 (Limitations of Liability), GSD Rule 40 (General Provisions), 
GSD Rule 41 (Cross-Guaranty Agreements), GSD Rule 42 (Suspension of 
Rules), GSD Rule 44 (Action by the Corporation), GSD Rule 45 (Notices), 
GSD Rule 46 (Interpretation of Terms), GSD Rule 47 (Interpretation of 
Rules) and GSD Rule 48 (Disciplinary Proceedings) would apply to CCIT 
Members in the same manner that such rules apply to Netting Members.
    Section 17 of proposed GSD Rule 3B would provide that CCIT Members 
would be Voluntary Purchaser Participants within the meaning of the 
Shareholders Agreement of DTCC, dated as of November 4, 1999, as 
heretofore or hereafter amended and restated.\29\ In addition, Section 
17 of proposed GSD Rule 3B would provide that all schedules cited in or 
pertaining to the GSD Rules which are cited in proposed GSD Rule 3B 
would apply to CCIT Members and that the Statements of Policy or 
Interpretation contained in the GSD Rules as applicable to the CCIT 
Service would also be applicable to CCIT Members.
---------------------------------------------------------------------------

    \29\ GSD Rule 49, DTCC Shareholders Agreement.
---------------------------------------------------------------------------

E. Proposed Changes to GSD Rule 4 (Clearing Fund and Loss Allocation)
    The proposed changes to GSD Rule 4 (Clearing Fund and Loss 
Allocation) would provide that CCIT Members would be treated as Tier 
Two Members for purposes of default loss allocation.
    Unlike Tier One Netting Members, which are subject to default loss 
mutualization, a Tier Two Member is only subject to loss allocation as 
a result of the default of a Netting Member with whom it had open FICC-
cleared transactions at the time of such Netting Member's default. FICC 
assesses Tier Two Members ratably based upon their open trading 
activity with the Defaulting Member that resulted in a loss. Tier Two 
Members whose trades with the Defaulting Member result in a bilateral 
liquidation profit are not allocated any portion of a Remaining Loss.
    In light of the fact that a CCIT Member would only provide 
liquidity as a cash lender in the proposed CCIT Service and would not 
present market risk to FICC due to the perfected security interest FICC 
would have in such CCIT Member's underlying repo securities, FICC 
believes it is appropriate to treat CCIT Members as Tier Two Members 
and subject them to default loss allocation obligations with respect to 
the default of a Netting Member with whom they had open CCIT 
Transactions at the time of such Netting Member's default, but not loss 
mutualization obligations as is required for Tier One Netting Members 
as described above. Specifically, the proposed changes to GSD Rule 4 
would provide that loss would be assessed against CCIT Members as Tier 
Two Members ratably based upon a percentage of loss attributable to 
each CCIT Member's specific Generic CUSIP Number that it had open with 
the Defaulting Member.
    Conforming changes would also be made to GSD Rule 4 to refer to the 
defined term ``Tier Two Member'' (previously referred to in the GSD 
Rules as a ``Tier Two Netting Member''), which defined term would be 
revised by this filing to include a CCIT Member.
F. Proposed Changes to GSD Rule 5 (Comparison System)
    Conforming changes would be made to GSD Rule 5 (Comparison System) 
to reference obligations between a Netting Member and a CCIT Member (or 
Joint Account, as applicable) with respect to novation.
G. Proposed Changes to GSD Rule 22C (Interpretation in Relation to the 
Federal Deposit Insurance Corporation Act of 1991)
    Conforming changes would be made to GSD Rule 22C, formerly GSD Rule 
22B Section (c), in order to establish that any actions taken under 
Section 11(e) of proposed GSD Rule 3B constitute remedies under a 
``security agreement or arrangement or other credit enhancement.'' \30\
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    \30\ Certain other proposed changes to GSD Rule 22B unrelated to 
the establishment of the proposed CCIT Service are described below 
in Item II(B)(iv).
---------------------------------------------------------------------------

H. Proposed Changes to GSD Rule 24 (Charges for Services Rendered)
    Conforming changes would be made to GSD Rule 24 (Charges for 
Services Rendered) to provide that CCIT Members would be responsible 
for all fees pertaining to their CCIT Member activity as set forth in 
the Fee Structure. Such fees would be applied at the Joint Account 
level where applicable.
I. Proposed Changes to GSD Rule 30 (Lists To Be Maintained)
    Conforming changes would be made to GSD Rule 30 (Lists to be 
Maintained) to reflect that FICC would maintain lists of all CCIT 
Members (and their Joint Account Submitters, as applicable) and that 
such lists would be made available to Members upon request.
J. Proposed Changes to GSD Rule 49 (DTCC Shareholders Agreement)
    The proposed changes to Section 3 of GSD Rule 49 (DTCC Shareholders 
Agreement) would provide that all Tier Two Members, including CCIT 
Members and Netting Members whose membership type has been designated 
as a ``Tier Two Member'' type by FICC pursuant to GSD Rule 2A (Initial 
Membership Requirements), are Voluntary Purchaser Participants.
(iii) Impact of the Proposed CCIT Service on Various Persons
    The proposed CCIT Service would be voluntary. Institutional cash 
lenders that wish to become CCIT Members and Netting Members that wish 
to participate in the proposed CCIT Service would have an opportunity 
to review the proposed rule change and determine if they would like to 
participate. Choosing to participate would make these entities subject 
to all of the rule changes that would be applicable to the proposed 
CCIT Service as described below.
    The proposed CCIT Service would affect institutional cash lenders 
that choose to become CCIT Members because it would impose various 
requirements on them. These requirements include, but are not limited 
to, the following sections of proposed GSD Rule 3B: (1) Eligibility and 
initial application requirements as specified in Sections 1, 2, 3 and 
4; (2) on-going membership requirements as specified in Section 5; (3) 
loss allocation requirements as specified in Section 7; (4) trade 
submission requirements as specified in Section 9; (5) netting and 
settlement requirements as specified in Section 11; (6) funds-only 
settlement requirements as specified in Section 13; and (7) liquidity 
requirements in the event of a default of a Netting Member with whom 
such CCIT Member has traded as specified in Section 14.
    Specific details on the requirements and the manner in which the 
proposed CCIT Service would affect institutional cash lenders that 
choose to become CCIT Members can be found above in Section (ii)--
Detailed Description of the Proposed Rule Changes Related to the 
Proposed CCIT Service.

[[Page 17063]]

    The proposed CCIT Service would affect Netting Members that choose 
to participate in the service because it would impose various 
requirements on them. These requirements include, but are not limited 
to, the funds-only settlement requirements as specified in Section 13 
of proposed GSD Rule 3B.
    Specific details on these requirements and the manner in which the 
proposed CCIT Service would affect Netting Members that choose to 
participate in the proposed CCIT Service are described above in Section 
(ii)--Detailed Description of the Proposed Rule Changes Related to the 
Proposed CCIT Service.
(iv) Other Proposed Rule Changes
    This filing contains proposed rule changes that are in addition to 
the ones related to the establishment of the proposed CCIT Service. The 
proposed rule changes that are not related to the proposed CCIT Service 
would provide specificity, clarity and additional transparency to the 
GSD Rules as described below.
A. Proposed Changes to GSD Rule 2A (Initial Membership Requirements)
    Section 3 of GSD Rule 2A governs the admission criteria and 
membership qualifications and standards for Comparison-Only Members.
    FICC is proposing to amend Section 3(a) of GSD Rule 2A because FICC 
interprets this Section as applying specifically to the operational 
capability requirement for applicants to become Comparison-Only 
Members, but the existing rule text is more broadly written. In order 
to align the rule text with FICC's interpretation of the requirement of 
this Section, FICC is proposing to amend the rule text to provide that 
it applies only with respect to the operational capability requirement 
for applicants that wish to become Comparison-Only Members.\31\
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    \31\ The operational capability requirement is also applicable 
to applicants to become Netting Members, pursuant to GSD Rule 2A, 
Section 4. GSD Rule 2A, Initial Membership Requirements.
---------------------------------------------------------------------------

B. Proposed Changes to GSD Rule 3 (Ongoing Membership Requirements)
    GSD Rule 3 governs ongoing standards for Members.\32\
---------------------------------------------------------------------------

    \32\ Pursuant to the GSD Rules, the term ``Member'' means a 
``Comparison-Only Member'' or a ``Netting Member.'' The term 
``Member'' also includes a Sponsoring Member in its capacity as a 
Sponsoring Member and a Sponsored Member, each to the extent 
specified in GSD Rule 3A. GSD Rule 1, Definitions. This filing would 
amend this definition to include CCIT Members to the extent 
specified in proposed GSD Rule 3B.
---------------------------------------------------------------------------

    Section 7 of GSD Rule 3 relates to a Member's ongoing obligation to 
inform FICC, both orally and in writing, if it is no longer in 
compliance with any of the relevant qualifications. This includes, but 
is not limited to, a Member's ongoing obligation to notify FICC within 
two business days of learning of an investigation or proceeding to 
which it is or is becoming the subject of that would cause the Member 
to fall out of compliance with any of the relevant qualifications and 
standards for membership set forth in GSD Rules 2, 2A and 3. FICC is 
proposing to change the rule text in order clarify that this obligation 
to notify FICC arises at the point in time that such Member learns that 
an investigation or proceeding would cause it to fall out of compliance 
(and not before such time). FICC believes that the proposed change 
provides Members with clarity on the point in time at which a Member is 
required to notify FICC. Certain other conforming and typographical 
changes would also be made to this Section.
    Section 10 of GSD Rule 3 provides that a Member's books and 
records, insofar as they relate to such Member's transactions processed 
through FICC, would be required to be open to the inspection of the 
duly authorized representatives of FICC in accordance with the 
provisions of this Section. In light of the fact that Registered 
Investment Companies are permitted to be Netting Members under GSD Rule 
3, and Registered Investment Company trading activity is typically 
controlled by a separate investment adviser, FICC proposes to amend 
Section 10 to require that, in addition to having access to the books 
and records of the Registered Investment Company Netting Member itself 
(as is required under current GSD Rule 3), that FICC also have access 
to the books and records of the Controlling Management of a Registered 
Investment Company Netting Member in accordance with the provisions of 
this Section.
    Section 13 of GSD Rule 3 governs Comparison-Only Members' and 
Netting Members', as applicable, election to terminate their GSD 
membership. Currently, this rule states that a Comparison-Only Member's 
or Netting Member's, as applicable, request to terminate its GSD 
membership will not be effective until accepted by FICC. Because the 
existing rule is open-ended with respect to FICC's duty to accept such 
Member's request to terminate its membership and such open-endedness 
could create uncertainty for a Member that wishes to terminate its GSD 
membership as to when such termination will be effective, FICC is 
proposing to amend this section to provide that a Member's written 
notice of its termination would not be effective until accepted by 
FICC, which acceptance could be no later than 10 Business Days after 
the receipt of the written notice from such Member.
C. Proposed Changes to GSD Rule 4 (Clearing Fund and Loss Allocation)
    Section 5 of GSD Rule 4 governs FICC's use of Clearing Fund 
deposits. FICC proposes to correct an out-of-date cross-reference and 
make a typographical correction to this section.
D. Proposed Changes to GSD Rule 20 (Special Provisions For GCF Repo 
Transactions) and the Schedule of GCF Timeframes
    Section 3 of GSD Rule 20 governs FICC's collateral allocation 
requirements for each Netting Member in a GCF Net Funds Borrower 
Position or GCF Net Funds Lender Position.
    FICC proposes to amend Section 3 of GSD Rule 20 to require that all 
GCF Repo Transactions be fully collateralized at the time established 
by FICC in the Schedule of GCF Timeframes,\33\ and to amend the 
Schedule of GCF Timeframes to establish 9:00 New York Time as the 
deadline for satisfaction of such requirement. FICC also proposes to 
amend Section 3 of GSD Rule 20 to prohibit a Member that receives 
collateral in the GCF Repo process (i.e., a Member with a Collateral 
Allocation Entitlement) from withdrawing the securities or cash 
collateral that such Member receives.
---------------------------------------------------------------------------

    \33\ The Schedule of GCF Timeframes is an appendix to the GSD 
Rules.
---------------------------------------------------------------------------

E. Proposed Changes to GSD Rule 22B (Corporation Default)
    GSD Rule 22B describes specific events that would cause a 
Corporation Default \34\ and the effect of this default on Transactions 
that have been submitted to FICC.
---------------------------------------------------------------------------

    \34\ Subsection (b) of GSD Rule 22B describes the events that 
would cause FICC to be in default to its Members. GSD Rule 22B, 
Corporation Default.
---------------------------------------------------------------------------

    FICC proposes to amend GSD Rule 22B to specify the steps that 
Members would need to take in the event of a Corporation Default. The 
proposed rule changes to subsection (a) of GSD Rule 22B would state 
that upon the immediate termination of the open Transactions between 
Members that have been novated to FICC, such Members would be required 
to promptly take market action to close out such positions. Each Member 
would then report the results of the market action to the Board. FICC 
believes that the proposed change would be helpful to Members and would 
promote clarity

[[Page 17064]]

and transparency with respect to the process surrounding a Corporation 
Default.
F. Proposed Changes to GSD Rule 35 (Financial Reports)
    FICC proposes to amend GSD Rule 35 (Financial Reports) to add a 
provision to reflect FICC's current practice of having its independent 
public accountants conduct an annual study and evaluation of FICC's 
system of internal accounting controls with respect to the safeguarding 
of participants' assets, prompt and accurate clearance and settlement 
of securities transactions, and the reliability of related records. 
Such study and evaluation is conducted in accordance with the standards 
established by the American Institute of Certified Public Accountants 
and is made available to all Members within a reasonable time upon 
receipt from FICC's independent accountants.
Anticipated Effect on and Management of Risk
    FICC proposes to address and manage the liquidity, market, credit 
and operational risks that may be presented by the establishment of the 
proposed CCIT Service as detailed below.
    The proposed CCIT Service is structured in a manner that allows 
FICC to protect itself from associated liquidity risk that may arise 
from this proposed service.
    The proposed rule change would require a rule-based committed 
liquidity facility in the form of the CCIT MRA. CCIT Members that have 
outstanding CCIT Transactions with a Defaulting Member would be 
required to enter into CCIT MRA Transactions up to the aggregate total 
principal dollar amount of their outstanding CCIT Transactions with the 
Defaulting Member.
    The proposed rule change would also permit, but not require, all 
CCIT Members to enter into liquidity repurchase transactions with FICC 
that would provide FICC with additional potential sources of liquidity 
in the event that it ceases to act for any Member.\35\
---------------------------------------------------------------------------

    \35\ Pursuant to a telephone call with FICC's internal counsel 
on March 16, 2017, staff in the Office of Clearance and Settlement 
revised this sentence to clarify that the proposed rule change would 
``permit, but not require, all CCIT Members to enter into liquidity 
repurchase transactions with FICC . . .'' to provide FICC with 
additional potential sources of liquidity. FICC inadvertently stated 
that the proposed rule change would ``require'' CCIT Members to 
enter into ``uncommitted'' liquidity repo transactions.
---------------------------------------------------------------------------

    The proposed rule change would also protect FICC from market risk 
in the event of a CCIT Member's default in the form of the perfected 
security interest in FICC's favor in each CCIT Member's underlying repo 
securities. In the event that FICC ceases to act for a CCIT Member, 
FICC would obtain and deliver the underlying repo securities to the 
CCIT Member's solvent counterparty. As a result of this perfected 
security interest, CCIT Members would not present market risk because 
FICC would not be required to take market action to purchase the 
underlying repo securities. As a result, FICC believes it is 
appropriate from a risk management perspective not to require a 
Required Fund Deposit from CCIT Members.
    Credit risk would be managed through our appropriate minimum 
financial standards, on-boarding and monitoring of each CCIT Member.
    FICC's ability to leverage the processes and infrastructure of the 
GCF Repo Service would enable FICC to mitigate operational risk since 
the GCF Repo Service has been in existence for many years.
Consistency With the Clearing Supervision Act
    The proposed CCIT Service as described in detail above would be 
consistent with Section 805(b) of the Clearing Supervision Act.\36\ The 
objectives and principles of Section 805(b) of the Clearing Supervision 
Act are to promote robust risk management, promote safety and 
soundness, reduce systemic risks, and support the stability of the 
broader financial system.\37\
---------------------------------------------------------------------------

    \36\ 12 U.S.C. 5464(b).
    \37\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed CCIT Service would promote robust 
risk management, promote safety and soundness, reduce systemic risks, 
and support the stability of the broader financial system, consistent 
with the objectives and principles of Section 805(b) of the Clearing 
Supervision Act cited above.
    By providing for sufficient liquidity resources for FICC to settle 
the obligations of a CCIT Member's defaulted Netting Member pre-
novation counterparty in the form of the CCIT MRA and by protecting 
FICC from market risk in the event of a CCIT Member's default in the 
form of the perfected security interest in FICC's favor in each CCIT 
Member's underlying repo securities, FICC believes the proposed CCIT 
Service would promote robust risk management, consistent with the 
objective and principles of Section 805(b) of the Clearing Supervision 
Act cited above.
    Moreover, by expanding the availability of GSD's infrastructure to 
institutional cash lenders, FICC believes that the proposed CCIT 
Service would help to safeguard the tri-party repo market by (i) 
decreasing settlement and operational risk (by making a greater number 
of transactions eligible to be netted and subject to guaranteed 
settlement, novation, and independent risk management through FICC), 
(ii) lowering the risk of liquidity drain in the tri-party repo market 
(through FICC's guaranty of completion of settlement for a greater 
number of eligible tri-party repo transactions), and (iii) protecting 
against fire sale risk (through FICC's ability to centralize and 
control the liquidation of a greater portion of a failed counterparty's 
portfolio). Therefore, FICC believes that the proposed CCIT Service 
would promote safety and soundness, reduce systemic risks and support 
the stability of the broader financial system, consistent with the 
objective and principles of Section 805(b) of the Clearing Supervision 
Act cited above.
    The proposal is also consistent with Rules 17Ad-22(d)(2) and 
(d)(9), promulgated under the Act. Rule 17Ad-22(d)(2) requires, in 
part, that FICC establish, implement, maintain and enforce written 
policies and procedures reasonably designed to ``require participants 
to have sufficient financial resources and robust operational capacity 
to meet obligations arising from participation in the clearing 
agency.'' \38\ Rule 17Ad-22(d)(9) requires that FICC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to ``provide market participants with sufficient 
information for them to identify and evaluate the risks and costs 
associated with using its services.'' \39\ In connection with the 
establishment of the proposed CCIT Service, FICC would make certain 
modifications to the GSD Rules (as described above) in order to create 
the requirements that would be applicable to CCIT Members, including 
initial and on-going financial responsibility and operational capacity 
requirements, as well as the requirements that would be applicable to 
Netting Members with respect to their participation in the proposed 
CCIT Service. If approved, the requirements applicable to the proposed 
CCIT Service would become part of the GSD Rules, which are publicly 
available on The Depository Trust & Clearing Corporation's Web site 
(www.dtcc.com), and market participants would be able to review them in 
connection with their evaluation of potential participation in the 
proposed CCIT Service. Therefore, FICC believes the proposed rule 
change

[[Page 17065]]

would ``require participants to have sufficient financial resources and 
robust operational capacity to meet obligations arising from 
participation in the clearing agency'' and ``provide market 
participants with sufficient information for them to identify and 
evaluate the risks and costs associated with using its services,'' 
consistent with the requirements of Rules 17Ad-22(d)(2) and (d)(9), 
cited above.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(d)(2).
    \39\ 17 CFR 240.17Ad-22(d)(9).
---------------------------------------------------------------------------

III. Date of Effectiveness of the Advance Notice, and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The clearing agency shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    The clearing agency shall post notice on its Web site of proposed 
changes that are implemented.
    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 Advance 
Notice is consistent with the Clearing Supervision 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-2017-803 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-2017-803. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the Advance Notice that are filed 
with the Commission, and all written communications relating to the 
Advance Notice 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 Web site 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 Web site 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2017-803 and should be submitted on 
or before April 24, 2017.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06976 Filed 4-6-17; 8:45 am]
 BILLING CODE 8011-01-P