Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving a Proposed Rule Change Regarding the Close-Out and Funds-Only Settlement Processes Associated With the Sponsoring Member/Sponsored Member Service, 11401-11406 [2020-03914]
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Federal Register / Vol. 85, No. 39 / Thursday, February 27, 2020 / Notices
Counsel, Railroad Retirement Board,
844 North Rush Street, Chicago, Illinois
60611–1275, (312) 751–4945, (TTD)
(312) 751–4701.
SUPPLEMENTARY INFORMATION: Executive
Order 13891, issued October 9, 2019,
and OMB Memorandum 20–02, issued
October 31, 2019, require each agency
by February 28, 2020 to establish a
single, searchable, indexed website that
contains, or links to, all of the agencies’
guidance documents currently in effect.
The Railroad Retirement Board has
established the required guidance portal
on its website, https://rrb.gov/guidance.
Dated: February 24, 2020.
Stephanie Hillyard,
Secretary to the Board.
[FR Doc. 2020–04030 Filed 2–26–20; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88262; File No. SR–FICC–
2019–007]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving a Proposed Rule Change
Regarding the Close-Out and FundsOnly Settlement Processes Associated
With the Sponsoring Member/
Sponsored Member Service
February 21, 2020.
I. Introduction
On December 27, 2019, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 proposed rule
change SR–FICC–2019–007. The
proposed rule change was published for
comment in the Federal Register on
January 10, 2020.3 The Commission did
not receive any comment letters on the
proposed rule change. For the reasons
discussed below, the Commission is
approving the proposed rule change.
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II. Description of the Proposed Rule
Change
FICC proposes to modify its
Government Securities Division
(‘‘GSD’’) Rulebook (‘‘Rules’’) 4 in order
to facilitate the submission of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 87896
(January 6, 2020), 85 FR 1354 (January 10, 2020)
(SR–FICC–2019–007) (‘‘Notice’’).
4 Capitalized terms not defined herein are defined
in the Rules, available at https://www.dtcc.com/
legal/rules-and-procedures.
2 17
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repurchase transactions (‘‘repos’’) with a
scheduled final settlement date beyond
the next Business Day after the initial
settlement date (‘‘term repo activity’’)
through the Sponsoring Member/
Sponsored Member Service (‘‘Service’’) 5
by: (1) Providing a mechanism by which
a Sponsoring Member may cause the
termination and liquidation of a
Sponsored Member’s positions arising
from trades between the Sponsoring
Member and its Sponsored Member that
have been novated to FICC; and (2)
revising how FICC calculates the fundsonly settlement obligations of
Sponsored Members and Sponsoring
Members with respect to Sponsored
Member Trades that have haircuts 6 in
order to ensure that the calculation does
not result in a return of the haircuts
until final settlement. In addition, FICC
proposes to make several clarifying and
technical changes to the Rules.
A. Background
FICC operates two divisions, GSD and
the Mortgage Backed Securities Division
(‘‘MBSD’’). GSD provides trade
comparison, netting, risk management,
settlement, and central counterparty
services for the U.S. Government
securities market. MBSD provides the
same services for the U.S. mortgagebacked securities market. GSD and
MBSD maintain separate sets of rules,
margin models, and clearing funds. The
proposed rule change relates solely to
GSD.
Under the GSD Rules, certain FICC
members are permitted to act as
‘‘Sponsoring Members’’ to sponsor into
FICC membership qualified institutional
buyers as defined by Rule 144A7 under
the Securities Act of 1933, as amended
(‘‘Securities Act’’),8 and certain legal
entities that, although not organized as
entities specifically listed in paragraph
(a)(1)(i) of Rule 144A under the
Securities Act, satisfy the financial
requirements necessary to be qualified
institutional buyers as specified in that
paragraph (‘‘Sponsored Members’’).9
A Sponsoring Member is permitted to
submit to FICC, for comparison,
novation, and netting, certain types of
eligible securities transactions between
itself and its Sponsored Members
(‘‘Sponsored Member Trades’’).10 The
5 The Service is primarily governed by Rule 3A,
supra note 4.
6 As used herein, the term ‘‘haircut’’ refers to the
amount of collateral in excess of the value of the
cash due to the Sponsored Member client at the
close leg of the Sponsored Member Trade.
7 17 CFR 230.144A.
8 15 U.S.C. 77a et seq.
9 Rule 3A (Sponsoring Members and Sponsored
Members), supra note 4.
10 Rule 1, definition of ‘‘Sponsored Member
Trade’’; Rule 3A, Sections 6(b) and 7(a), supra note
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11401
Sponsoring Member is required to
establish an omnibus account at FICC
for its Sponsored Members’ positions
arising from such Sponsored Member
Trades (‘‘Sponsoring Member Omnibus
Account’’),11 which is separate from the
Sponsoring Member’s regular netting
accounts. For operational and
administrative purposes, FICC interacts
solely with the Sponsoring Member as
agent for purposes of the day-to-day
satisfaction of its Sponsored Members’
obligations to or from FICC, including
their securities and funds-only
settlement obligations.12 Additionally,
for operational convenience, FICC
calculates a single Net Settlement
Obligation and Fail Net Settlement
Obligation in each CUSIP for the
Sponsoring Member Omnibus Account
and associated Deliver Obligations and
Receive Obligations.13 Such
calculations do not affect the Sponsored
Member’s obligations, which are
calculated in a manner that is generally
consistent with how FICC calculates the
obligations of its other members.14
Sponsoring Members are also
responsible for providing FICC with a
Sponsoring Member Guaranty, whereby
the Sponsoring Member guarantees to
FICC the payment and performance by
its Sponsored Members of their
obligations under the Rules.15 Although
Sponsored Members are principally
liable to FICC for their own settlement
obligations under the Rules, the
Sponsoring Member Guaranty requires
the Sponsoring Member to satisfy those
settlement obligations on behalf of a
Sponsored Member if the Sponsored
4. Securities Exchange Act Release No. 85470
(March 29, 2019), 84 FR 13328 (April 4, 2019) (SR–
FICC–2018–013) expanded the definition of
‘‘Sponsored Member Trade’’ to include certain
types of eligible securities transactions between a
Sponsored Member and a FICC member other than
the Sponsoring Member. However, this proposed
rule change applies only to Sponsored Member
Trades between the Sponsoring Member and its
Sponsored Member.
11 Rule 1, definition of ‘‘Sponsoring Member
Omnibus Account,’’ supra note 4.
12 Rule 3A, Sections 5, 6, 7, 8, and 9, supra note
4.
13 Rule 3A, Section 8(b), supra note 4. See also
Rule 3A, Section 7(a), supra note 4.
14 Rule 3A, Section 7, supra note 4.
15 Section 2(c) of Rule 3A states: ‘‘Each Netting
Member to become a Sponsoring Member shall also
sign and deliver to [FICC] a Sponsoring Member
Guaranty. . . .’’ A ‘‘Sponsoring Member Guaranty’’
is defined in Rule 1 as ‘‘a guaranty . . . that a
Sponsoring Member delivers to [FICC] whereby the
Sponsoring Member guarantees to [FICC] the
payment and performance by its Sponsored
Members of their obligations under [the] Rules,
including, without limitation, all of the securities
and funds-only settlement obligations of its
Sponsored Members under [the] Rules.’’ Rule 1;
Rule 3A, Section 2(c), supra note 4.
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Member defaults and fails to perform its
settlement obligations.16
Although the Rules currently permit
Sponsoring Members to submit term
repo activity within the Service,17 most
of the Sponsored Member Trades
submitted to FICC by Sponsoring
Members have a scheduled settlement
date of the next Business Day after the
initial settlement date (i.e., overnight
repo). FICC believes that certain
provisions of the Rules discourage the
submission of term repo activity within
the Service, as discussed more fully
below.
B. Termination and Liquidation of
Defaulting Sponsored Member Positions
The Rules governing the termination
and liquidation of a defaulting member
provide that if FICC ceases to act for a
member (including a Sponsored
Member), FICC will close-out the
defaulting member’s positions by (i)
establishing a Final Net Settlement
Position for each Eligible Netting
Security with a distinct CUSIP equal to
the net of all outstanding Deliver
Obligations and Receive Obligations of
the member in respect of the security,
and (ii) taking market action to liquidate
such Final Net Settlement Position.18
The Rules require a Sponsoring
Member to advise FICC of
circumstances that would require FICC
to cease to act for a Sponsored
Member.19 Under the current Rules,
FICC has the exclusive ability to
terminate and liquidate a Sponsored
Member’s positions, even though the
relevant Sponsoring Member is
responsible for the Sponsored Member’s
payment and performance in respect of
such positions.20 The current Rules do
not allow a Sponsoring Member to
terminate or liquidate any Sponsored
Member Trades.21 FICC states that the
inability of Sponsoring Members to
terminate and liquidate Sponsored
Member Trades is inconsistent with
comparable intermediated
relationships.22 FICC states that in the
context of such other intermediated
relationships, the intermediary is
typically permitted to terminate and
liquidate the positions of a client that
the intermediary guarantees if an event
of default or other similar circumstance
occurs under the agreement between the
intermediary and the client.23 In such
scenarios, the intermediary’s ability to
terminate and liquidate its client’s
positions is not dependent on a third
party’s determination that a certain
circumstance or event has occurred.24
Instead, the intermediary and the client
bilaterally agree to the circumstances
and events that give rise to an event of
default allowing the intermediary to
terminate or liquidate the guaranteed
positions.25
FICC states that the inability of a
Sponsoring Member to terminate and
liquidate its defaulting Sponsored
Member’s positions discourages term
repo activity within the Service.26
Specifically, under the current Rules,
when a Sponsored Member defaults,
FICC currently controls the termination
and liquidation of the Sponsored
Member’s positions.27 As such, during
the time it would take FICC to terminate
and liquidate the Sponsored Member’s
positions, the Sponsoring Member
would effectively be forced to extend
credit to the defaulting Sponsored
Member under the Sponsored Member
Guaranty if the positions involved term
repo activity. Such a scenario could
cause the Sponsoring Member to incur
additional capital requirements until
such time as FICC terminates and
liquidates the Sponsored Member’s
positions.28 Additionally, since FICC
currently controls the termination and
liquidation of the Sponsored Member’s
positions, FICC sets the applicable
price, timing, and types of liquidation or
hedging transactions. However, the
Sponsoring Member would also likely
enter into one or more transactions with
third parties to hedge its own
performance obligations under the
Sponsoring Member Guaranty.
Therefore, the Sponsoring Member
would be exposed to potential risks
associated with pricing and timing
differences between its actions and
those taken by FICC in the aftermath of
a Sponsored Member default. FICC
believes that these circumstances
discourage Sponsoring Members from
engaging in term repo activity within
the Service.29
In order to encourage and facilitate
term repo activity within the Service,
FICC proposes to amend the Rules to
allow a Sponsoring Member to
terminate and liquidate a defaulting
Sponsored Member’s positions arising
from Sponsored Member Trades.30
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16 Id.
17 Rule
24 Id.
18 Rule
3A, Section 5, supra note 4.
22A, Section 2(b); Rule 3A, Sections 13(c)
and 15(b), supra note 4.
19 Rule 3A, Section 15(a), supra note 4.
20 Rule 3A, Section 13(c) and 15(b), supra note 4.
21 Id.
22 Notice, supra note 3 at 1355.
23 Id.
25 Id.
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26 Id.
27 Rule
3A, Section 13(c) and 15(b), supra note 4.
28 Id.
29 Notice,
supra note 3 at 1355–56.
proposal would only cover Sponsored
Member Trades between a Sponsored Member and
30 The
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Specifically, in the event (i) a
Sponsoring Member triggers the
termination of a Sponsored Member’s
positions, or (ii) FICC ceases to act for
the Sponsored Member and the
Sponsoring Member does not continue
to perform the obligations of the
Sponsored Member, both the Sponsored
Member’s positions and the Sponsoring
Member’s corresponding positions
arising from the Sponsored Member
Trades would be terminated. The
Sponsoring Member would calculate a
net liquidation value of such terminated
positions (i.e., Final Net Settlement
Positions), whose liquidation values
would be paid either to or by the
Sponsored Member by or to the
Sponsoring Member.31 The Final Net
Settlement Position would equal the net
of all outstanding Deliver Obligations
and Receive Obligations of the
Sponsored Member or Sponsoring
Member with respect to each security
with a distinct CUSIP number.
The Sponsoring Member would
liquidate the Final Net Settlement
Positions by establishing a ‘‘Sponsored
Member Liquidation Amount’’ and a
‘‘Sponsoring Member Liquidation
Amount,’’ which would be identical to,
but in the opposite direction of, each
other.32 If a Sponsored Member
Liquidation Amount is due to FICC, the
Sponsoring Member would be obligated
to pay such Sponsored Member
Liquidation Amount to FICC under the
Sponsoring Member Guaranty, and this
obligation would automatically be set
off against the obligation of FICC to pay
the corresponding Sponsoring Member
Liquidation Amount to the Sponsoring
Member. By virtue of such setoff, the
Sponsored Member’s obligation to FICC
would be discharged, as would FICC’s
obligation to the Sponsoring Member.
The Sponsoring Member may, however,
have a reimbursement claim against the
Sponsored Member in an amount equal
its Sponsoring Member. See supra note 9.
Additionally, the proposal would not cover
scenarios in which FICC has ceased to act for the
relevant Sponsoring Member or in the event of a
FICC default. Such scenarios would be governed by
current Rules 22A and 22B, respectively. Notice,
supra note 3 at 1356–57.
31 FICC intended that the proposal for the
Sponsoring Member to establish the Final Net
Settlement Position would align with current Rule
22A, which provides for FICC to establish the Final
Net Settlement Position when it ceases to act for a
member.
32 Therefore, if FICC were to owe the Sponsored
Member Liquidation Amount to the Sponsored
Member, the Sponsoring Member would owe the
Sponsoring Member Liquidation Amount to FICC.
By the same token, if the Sponsored Member were
to owe the Sponsored Member Liquidation Amount
to FICC, FICC would owe the Sponsoring Member
the Sponsoring Member Liquidation Amount. In all
instances, FICC would owe and be owed the same
amount of money. Notice, supra note 3 at 1357.
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to the Sponsored Member Liquidation
Amount.33
If a Sponsored Member Liquidation
Amount were owed by FICC to the
Sponsored Member, the Sponsoring
Member would satisfy that obligation by
transferring the Sponsored Member
Liquidation Amount to the account at
the Funds-Only Settling Member Bank
at which the Sponsoring Member
maintains Funds-Only Settlement
Amounts related to its Sponsored
Member Omnibus Account. To the
extent the Sponsoring Member makes
such a transfer, it would discharge
FICC’s obligation to transfer the
Sponsored Member Liquidation Amount
to the Sponsored Member and the
Sponsoring Member’s corresponding
obligation to transfer the Sponsoring
Member Liquidation Amount to FICC.
FICC would not, as a practical matter, be
involved in the settlement of the
foregoing liquidating transactions (i.e.,
FICC would not need to take any market
action), because the termination of the
Sponsored Member’s positions and the
corresponding Sponsoring Member’s
positions would leave FICC flat.
The proposal also provides that the
Sponsoring Member would indemnify
FICC for any claim by a Sponsored
Member arising out of the Sponsoring
Member’s calculation of the net
liquidation value. Finally, the proposal
includes a provision that a Sponsoring
Member may take a security interest in
FICC’s obligations to the Sponsored
Member. Such security interest would
not impose new obligations on FICC,
but could allow the Sponsoring Member
to direct FICC to submit payments due
to the Sponsored Member to the
Sponsoring Member, so that the
Sponsoring Member can apply such
amounts to the Sponsored Member’s
unsatisfied obligations to the
Sponsoring Member. The proposal
would also provide that FICC’s security
interest in the Sponsored Member’s
assets 34 would be subordinated to the
Sponsoring Member’s security interest.
However, as noted above, if a Sponsored
Member Liquidation Amount is due to
FICC, the Sponsoring Member would be
33 Such reimbursement claim would not be
governed by the Rules, but instead, would be
subject to the terms of the bilateral agreement
between the Sponsoring Member and Sponsored
Member. Id.
34 Under the current Rules, each Sponsored
Member grants to FICC a security interest in all
assets and property placed by the Sponsored
Member in the possession of FICC in order to secure
the obligations of the Sponsored Member to FICC.
Rule 3A, Section 8(g), supra note 4. This security
interest provides FICC with credit support in the
event that it must terminate and liquidate the
Sponsored Member’s positions and assert a claim
against the Sponsored Member. Notice, supra note
3 at 1358.
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obligated to pay such Sponsored
Member Liquidation Amount to FICC
under the Sponsoring Member
Guaranty, and this obligation would
automatically be set off against the
obligation of FICC to pay the
corresponding Sponsoring Member
Liquidation Amount to the Sponsoring
Member. As such, the Sponsored
Member’s obligation to FICC would be
discharged (as would FICC’s obligation
to the Sponsoring Member), and FICC
would not need to look to the
Sponsored Member or its assets for
performance in respect of the
terminated positions.
FICC believes that the proposal to
provide Sponsoring Members with the
ability to terminate and liquidate a
defaulting Sponsored Member’s
positions would remove the potential
risks to Sponsoring Members described
above stemming from the exclusive
ability of FICC to terminate and
liquidate the Sponsored Member’s
positions under the current Rules. With
this new ability, in the context of a
Sponsored Member default involving
term repo activity, the Sponsoring
Member would control the termination
and liquidation of the Sponsored
Member’s positions. In contrast to the
current Rules, the Sponsoring Member
would not be compelled to shoulder
risks and extend credit to its defaulting
Sponsored Member during the time it
would otherwise take FICC to terminate
and liquidate the Sponsored Member’s
positions. Therefore, FICC believes that
the proposal would encourage and
facilitate term repo activity within the
Service.35
C. Haircuts on Sponsored Member
Trades
In some Sponsored Member Trades, a
Sponsoring Member may choose to post
to its Sponsored Member client a
haircut. Similarly in some
circumstances, a Sponsoring Member
may choose to collect a haircut from its
Sponsored Member client to mitigate
the Sponsoring Member’s exposure
under the Sponsoring Member
Guaranty. In both scenarios, the intent
of the parties is for the haircut recipient
to retain the haircut for the duration of
the Sponsored Member Trade, which, in
the context of term repo activity, would
be the scheduled final settlement date
beyond the next Business Day after the
initial settlement date. FICC states that
Sponsoring Members and Sponsored
Members might have accounting
considerations that would favor
facilitating the posting of haircuts
through FICC’s systems.36 However,
under the current Rules regarding
FICC’s funds-only settlement process, a
Sponsored Member or Sponsoring
Member that received a haircut at the
Start Leg of a Sponsored Member Trade
would be required to transfer an amount
of cash equal to the haircut (plus or
minus any interim mark-to-market
movements) on the next Business Day
after the Start Leg has settled.37
Specifically, FICC’s standard funds-only
settlement process involves marking to
market twice each Business Day all
positions associated with term repo
activity, including any Sponsored
Member Trade with a Close Leg that is
scheduled to occur two or more
Business Days after the settlement of the
Start Leg.38 FICC calculates a ‘‘Collateral
Mark’’ equal to the absolute value of the
difference between (i) a Sponsored
Member Trade’s Contract Value (i.e., the
dollar value at which it is due to finally
settle), and (ii) its Market Value (i.e.,
FICC’s system price of the securities
underlying the transaction). This
Collateral Mark is incorporated into the
calculation of certain of the Funds-Only
Settlement Amounts payable.39 When
the Market Value exceeds the Contract
Value, the Collateral Mark is negative
for, and thus payable by, the party with
a Net Short Position (i.e., the party
required to deliver securities at final
settlement). Therefore, the purpose of
the haircut would be frustrated because
if the haircut is returned before final
settlement of a Sponsored Member
Trade, the party that was supposed to
retain the haircut for the duration of that
trade would cease to be overcollateralized, thus defeating the
contractual intent of the parties.
FICC proposes to amend the Rules to
ensure that haircuts in the scenario
described above are not returned until
final settlement. Specifically, FICC
would amend Section 9(a) of Rule 3A to
provide that, if the parties to a
Sponsored Member Trade agree for such
Sponsored Member Trade to have a
haircut, then any Funds-Only
Settlement Amount applicable to such
Sponsored Member Trade that includes
a Collateral Mark would be calculated
without regard for the Collateral Mark.
Such Collateral Mark would be replaced
by either a ‘‘Haircut Deficit’’ or ‘‘Haircut
Surplus.’’ A Haircut Deficit would exist
if the amount by which the Market
Value as of the settlement date of the
Start Leg exceeded the Contract Value of
the Close Leg (the ‘‘Initial Haircut’’) is
36 Notice,
37 Rule
supra note 3 at 1358.
13, supra note 4.
38 Id.
35 Notice,
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supra note 3 at 1356.
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39 Id.
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greater than the amount by which the
Market Value as of the time of
measurement exceeds the Contract
Value of the Close Leg (the ‘‘Current
Haircut’’). Any Haircut Deficit would be
payable by the party with a Net Long
Position. A ‘‘Haircut Surplus’’ would
exist if the Current Haircut exceeds the
Initial Haircut, and any Haircut Surplus
would be payable by the party with a
Net Short Position. FICC would also
amend Section 9(a) of Rule 3A to make
clear that any Initial Haircut would be
as agreed between the parties to the
Sponsored Member Trade, and that
FICC would not be under any obligation
to verify the parties’ agreement with
respect to any Initial Haircut, and its
calculation of the Initial Haircut would
be conclusive and binding on the
parties.
FICC believes that the proposed
changes described above would enable
a Sponsoring Member and its Sponsored
Member who intend for one of those
two parties to remain over-collateralized
for the duration of a Sponsored Member
Trade to transfer a haircut between each
other and allow such haircut to remain
with the intended party until final
settlement of the Sponsored Member
Trade.40 As such, the proposal would
encourage and facilitate term repo
activity within the Service.
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D. Clarifications and Technical Changes
FICC proposes to make several
clarifications and technical changes to
Rule 3A. First, FICC would add a
parenthetical to Section 8(c) to clarify
that the operational netting provisions
of Section 8(b) do not substantively
modify a Sponsored Member’s
obligations to FICC. Section 8(b)
provides that, for operational
convenience, FICC calculates a single
Net Settlement Position and Fail Net
Settlement Position in each CUSIP for
the Sponsoring Member’s Sponsoring
Member Omnibus Account.41 Section
8(c), in turn, provides that each
Sponsored Member shall satisfy its
allocable portion of the Deliver
Obligations and Receive Obligations
established for the Sponsoring Member
Omnibus Account.42 Neither Section
8(b) nor Section 8(c) modifies the
obligations of any Sponsored Member;
rather, those provisions are simply
designed for operational convenience.
Each Sponsored Member still remains
responsible for its Deliver Obligations
Receive Obligations to and from FICC,
which are calculated in accordance with
supra note 3 at 1359.
41 Rule 3A, Section 8(b), supra note 4.
42 Rule 3A, Section 8(c), supra note 4.
Rule 3A, Section 7.43 The Sponsored
Member’s allocable portion of the
Deliver Obligations and Receive
Obligations of the Sponsoring Member
Omnibus Account will always equal its
Deliver Obligations and Receive
Obligations to and from FICC, as
calculated under Rule 3A, Section 7.44
Therefore, in order to eliminate doubt
regarding the extent of the Sponsored
Member’s obligations upon a
termination and liquidation of a
Sponsored Member’s positions under
the proposed rule change, FICC
proposes to add a parenthetical to
Section 8(c) to clarify that a Sponsored
Member’s allocable portion of the
obligations established for the
Sponsoring Member Omnibus Account
are the obligations of the Sponsored
Member, as calculated in Rule 3A,
Section 7.
Second, FICC would add language at
the end of Sections 8(c) and 9(b) to
clarify that, if a Sponsoring Member
satisfies the net Deliver Obligations and
Receive Obligations or the net FundsOnly Settlement Amount obligations of
its Sponsoring Member Omnibus
Account (including through the
proposed setoff described above) before
the Sponsoring Member receives
corresponding performance from the
Sponsored Member, such satisfaction
would constitute performance by the
Sponsoring Member under the
Sponsoring Member Guaranty with
respect to the relevant Sponsored
Member’s allocable portion of the
Sponsoring Member Omnibus Account
Deliver Obligations and Receive
Obligations or Funds-Only Settlement
Amount obligations. If a termination
and liquidation were to occur, the
Sponsoring Member would be required
to perform on behalf of the Sponsored
Member under the Sponsoring Member
Guaranty. The added language at the
end of Sections 8(c) and 9(b) is designed
to ensure that, when the Sponsoring
Member effects such performance, it
would be entitled to reimbursement
from the Sponsored Member.
Third, in connection with the
proposed changes to Rule 3A, Section 9
regarding haircuts, FICC would make
certain re-lettering and grammatical
changes for clarity and readability.
Finally, FICC would revise proposed
Rule 3A, Section 9(c) to clarify that the
Sponsored Member is responsible for
satisfying the allocable portion of the
Funds-Only Settlement Amount
calculated for the Sponsoring Member
Omnibus Account.
40 Notice,
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III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 45
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and
rules and regulations thereunder
applicable to such organization. After
carefully considering the proposed rule
change, the Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to FICC. In particular, the
Commission finds that the proposed
rule change is consistent with Section
17A(b)(3)(F) of the Act,46 and Rule
17Ad–22(e)(21) promulgated under the
Act,47 for the reasons described below.
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, in part, that the Rules of a
clearing agency, such as FICC, be
‘‘designed to promote the prompt and
accurate clearance and settlement of
securities transactions. . . .’’ 48
As stated above in Section II.B., under
the current Rules, FICC has the
exclusive ability to terminate and
liquidate a defaulting Sponsored
Member’s positions; the current Rules
do not allow a Sponsoring Member to
terminate and liquidate any Sponsored
Member Trades. The inability on the
part of Sponsoring Members to
terminate and liquidate its defaulting
Sponsored Member’s positions
discourages term repo activity within
the Service because during the time it
would take FICC to terminate and
liquidate the Sponsored Member’s
positions, the Sponsoring Member
would effectively be forced to extend
credit to the defaulting Sponsored
Member under the Sponsored Member
Guaranty. In such a scenario, the
Sponsoring Member could incur
additional capital requirements until
FICC completes the termination and
liquidation of the Sponsored Member’s
positions. Additionally, since under the
current Rules, FICC sets the applicable
price, timing, and types of liquidation or
hedging transactions, the Sponsoring
Member would be exposed to potential
risks associated with pricing and timing
differences between its own hedging
transactions and those taken by FICC in
the aftermath of a Sponsored Member
default. To avoid exposing Sponsoring
45 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
47 17 CFR 240.17Ad–22(e)(21).
48 15 U.S.C. 78q–1(b)(3)(F).
46 15
43 Rule
3A, Section 7, supra note 4.
44 Id.
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Federal Register / Vol. 85, No. 39 / Thursday, February 27, 2020 / Notices
Members to the foregoing risks, FICC
proposes to amend the Rules to provide
a mechanism whereby Sponsoring
Members would control the termination
and liquidation of their defaulting
Sponsored Members’ positions. By
providing Sponsoring Members with
greater ability to manage their risks
associated with Sponsored Member
Trades, the proposal would encourage
Sponsoring Members to submit more
term repo Sponsored Member Trades to
FICC within the Service. Increasing the
number of trades centrally-cleared by
FICC would promote the prompt and
accurate clearance and settlement of
securities transactions because
securities transactions that might
otherwise be conducted bilaterally
would benefit from FICC’s risk
management and guarantee of
settlement. Accordingly, the
Commission finds that FICC’s proposal
to provide a mechanism for Sponsoring
Members to terminate and liquidate
their defaulting Sponsored Members’
positions should promote the prompt
and accurate clearance and settlement of
securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.49
As stated above in Section II.C.,
Sponsored Member Trades may involve
a haircut from either the Sponsoring
Member or the Sponsored Member. In
the context of term repo activity, the
intent of both the Sponsoring Member
and the Sponsored Member is for the
haircut recipient to retain the haircut
until the scheduled final settlement
date. However, the current Rules require
the haircut to be returned before final
settlement of the Sponsored Member
Trade, which creates inefficiencies that
discourage term repo activity within the
Service. FICC proposes to amend the
Rules to ensure that such haircuts are
not returned until final settlement. As a
result, the proposal would encourage
and facilitate more term repo activity
within the Service. Increasing the
number of trades centrally-cleared by
FICC would promote the prompt and
accurate clearance and settlement of
securities transactions because
securities transactions that might
otherwise be conducted bilaterally
would benefit from FICC’s risk
management and guarantee of
settlement. Accordingly, the
Commission finds that FICC’s proposal
to ensure that such haircuts with respect
to Sponsored Member Trades are not
returned until final settlement should
promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.50
As stated above in Section II.D., FICC
proposes several clarifications and
technical changes to Rule 3A. FICC
states that these changes are designed to
enhance clarity and transparency
regarding the Service.51 Having
transparent and clear Rule provisions
regarding the Service should enable
members to better understand the
operation of the Service, and should
also provide members with increased
predictability and certainty regarding
their rights and obligations. Such
increased predictability and certainty
regarding their rights and obligations
may encourage Sponsoring Members to
submit a greater number of securities
transactions to be centrally-cleared by
FICC. Increasing the number of trades
centrally-cleared by FICC would
promote the prompt and accurate
clearance and settlement of securities
transactions because securities
transactions that might otherwise be
conducted bilaterally would benefit
from FICC’s risk management and
guarantee of settlement. Accordingly,
the Commission finds that FICC’s
proposed clarifications and technical
changes should promote the prompt and
accurate clearance and settlement of
securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.52
B. Consistency With Rule 17Ad–
22(e)(21) Under the Act
Rule 17Ad–22(e)(21) under the Act
requires that each covered clearing
agency, such as FICC, ‘‘establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to . . . be efficient
and effective in meeting the
requirements of its participants and the
markets it serves. . . .’’ 53
As stated above in Section II.B., the
current Rules do not allow a Sponsoring
Member to terminate and liquidate any
Sponsored Member Trades. The
inability on the part of Sponsoring
Members to terminate and liquidate its
defaulting Sponsored Member’s
positions discourages term repo activity
within the Service because during the
time it would take FICC to terminate
and liquidate the Sponsored Member’s
positions, the Sponsoring Member
would effectively be forced to extend
credit to the defaulting Sponsored
Member under the Sponsored Member
Guaranty. In such a scenario, the
Sponsoring Member could incur
50 Id.
51 Notice,
supra note 3 at 1360.
U.S.C. 78q–1(b)(3)(F).
53 17 CFR 240.17Ad–22(e)(21).
additional capital requirements until
FICC completes the termination and
liquidation of the Sponsored Member’s
positions. Additionally, since under the
current Rules, FICC sets the applicable
price, timing, and types of liquidation or
hedging transactions, the Sponsoring
Member would be exposed to potential
risks associated with pricing and timing
differences between its own hedging
transactions and those taken by FICC in
the aftermath of a Sponsored Member
default. To avoid exposing Sponsoring
Members to the foregoing risks, FICC
proposes to amend the Rules to provide
a mechanism whereby Sponsoring
Members would control the termination
and liquidation of their defaulting
Sponsored Members’ positions. By
providing Sponsoring Members with
greater ability to manage their risks
associated with Sponsored Member
Trades, the proposal would enhance
FICC’s Rules in a manner that meets the
needs of Sponsoring Members and
Sponsored Members.
Additionally, as stated above in
Section II.C., the current Rules require
haircuts with respect to term repo
Sponsored Member Trades to be
returned before final settlement, which
discourages term repo activity within
the Service. FICC proposes to amend the
Rules to ensure that such haircuts are
not returned until final settlement. As a
result, the proposal would encourage
and facilitate term repo activity within
the Service by ensuring that haircuts
with respect to Sponsored Member
Trades are not returned until final
settlement in a manner consistent with
the intent of the Sponsoring Member
and Sponsored Member. For the reasons
described in this Section III.B., the
Commission finds FICC’s proposals to
(i) provide a mechanism for Sponsoring
Members to terminate and liquidate
their defaulting Sponsored Members’
positions, and (ii) ensure that haircuts
with respect to term repo Sponsored
Member Trades are not returned until
final settlement would constitute
policies and procedures reasonably
designed to be efficient and effective in
meeting the requirements of FICC’s
members and the relevant markets FICC
serves, consistent with Rule 17Ad–
22(e)(21) under the Act.54
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and, in
particular, with the requirements of
52 15
49 Id.
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54 Id.
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Federal Register / Vol. 85, No. 39 / Thursday, February 27, 2020 / Notices
Section 17A of the Act 55 and the rules
and regulations promulgated
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 56 that
proposed rule change SR–FICC–2019–
007, be, and hereby is, approved.57
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–03914 Filed 2–26–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88264; File No. SR–
CboeEDGX–2020–009]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Regarding
Solicitation Auction Mechanism (SAM)
Fees, Qualified Contingent Cross
(QCC) Order Rebates, and Automated
Improvement Mechanism (AIM) Fees
February 21, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
11, 2020, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend its Fee Schedule in
connection with its recently adopted
Solicitation Auction Mechanism
(‘‘SAM’’ or ‘‘SAM Auction’’) and with
Qualified Contingent Cross (‘‘QCC’’)
orders, as well as make certain
clarifications in connection with AIM
lotter on DSKBCFDHB2PROD with NOTICES
55 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
57 In approving the proposed rule change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
58 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
56 15
VerDate Sep<11>2014
17:26 Feb 26, 2020
Jkt 250001
fees. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to modify the
Fee Schedule to adopt fees for its
recently adopted SAM Auction and
tiered pricing in connection with certain
QCC and SAM orders, effective
February 3, 2020.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 22% of the market share.3 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange possesses significant pricing
power in the execution of option order
flow. The Exchange believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue use
of certain categories of products, in
response to fee changes. Accordingly,
competitive forces constrain the
Exchange’s transaction fees, and market
3 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (January 22, 2020),
available at https://markets.cboe.com/us/options/
market_statistics/.
PO 00000
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Fmt 4703
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participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. In response to the competitive
environment, the Exchange offers
specific rates and credits in its fees
schedule, like that of other options
exchanges’ fees schedules, which the
Exchange believes provide incentive to
Members to increase order flow of
certain qualifying orders.
SAM Overview
SAM is the Exchange’s recently
adopted solicited order mechanism for
larger-sized orders.4 By way of
background, SAM will provide an
additional method for market
participants to effect orders in a price
improvement auction for larger-sized
orders. SAM includes functionality in
which a Member (an ‘‘Initiating
Member’’) may electronically submit for
execution an order it represents as agent
on behalf of a customer,5 broker dealer,
or any other person or entity (‘‘Agency
Order’’) 6 against any other order it
represents as agent (an ‘‘Initiating
Order’’, or ‘‘Contra Order’’), provided it
submits the Agency Order for electronic
execution into the SAM Auction
pursuant to Rule 21.21 (SAM Auction
for simple orders) or Rule 21.22 (SAM
Auction for complex orders). The
Exchange may designate any class of
options traded on EDGX Options as
eligible for SAM. The Exchange notes
that all Users, other than the Initiating
Member, may submit responses to a
SAM Auction (‘‘Response Orders’’).
SAM Auctions take into account SAM
Responses as well as contra interest
resting on the EDGX Options Book at
the conclusion of the SAM Auction
(‘‘unrelated orders’’), regardless of
whether such unrelated orders were
already present on the Book when the
Agency Order was received by the
Exchange or were received after the
4 See Securities Exchange Act Release No. 87692
(December 9, 2019), 84 FR 68231 (December 13,
2019) (Order Approving a Proposed Rule Change To
Adopt Rule 21.23 (Complex Solicitation Auction
Mechanism)) (SR–CboeEDGX–2019–064).
5 The term ‘‘Priority Customer’’ means any person
or entity that is not: (A) A broker or dealer in
securities; or (B) a Professional. The term ‘‘Priority
Customer Order’’ means an order for the account of
a Priority Customer. See Rule 16.1(a)(45). A
‘‘Professional’’ is any person or entity that: (A) Is
not a broker or dealer in securities; and (B) places
more than 390 orders in listed options per day on
average during a calendar month for its own
beneficial account(s). All Professional orders shall
be appropriately marked by Options Members. See
Rule 16.1(a)(46).
6 The Agency Order must be for at least the
minimum size designated by the Exchange (which
may not be less than 500 standard option contracts
or 5,000 mini-option contracts). The Initiating
Member must designate each Agency Order as allor-none (‘‘AON’’). See Rule 21.21(a)(3).
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]]>Agencies
[Federal Register Volume 85, Number 39 (Thursday, February 27, 2020)]
[Notices]
[Pages 11401-11406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03914]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88262; File No. SR-FICC-2019-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change Regarding the Close-Out and
Funds-Only Settlement Processes Associated With the Sponsoring Member/
Sponsored Member Service
February 21, 2020.
I. Introduction
On December 27, 2019, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-
FICC-2019-007. The proposed rule change was published for comment in
the Federal Register on January 10, 2020.\3\ The Commission did not
receive any comment letters on the proposed rule change. For the
reasons discussed below, the Commission is approving the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 87896 (January 6, 2020),
85 FR 1354 (January 10, 2020) (SR-FICC-2019-007) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
FICC proposes to modify its Government Securities Division
(``GSD'') Rulebook (``Rules'') \4\ in order to facilitate the
submission of repurchase transactions (``repos'') with a scheduled
final settlement date beyond the next Business Day after the initial
settlement date (``term repo activity'') through the Sponsoring Member/
Sponsored Member Service (``Service'') \5\ by: (1) Providing a
mechanism by which a Sponsoring Member may cause the termination and
liquidation of a Sponsored Member's positions arising from trades
between the Sponsoring Member and its Sponsored Member that have been
novated to FICC; and (2) revising how FICC calculates the funds-only
settlement obligations of Sponsored Members and Sponsoring Members with
respect to Sponsored Member Trades that have haircuts \6\ in order to
ensure that the calculation does not result in a return of the haircuts
until final settlement. In addition, FICC proposes to make several
clarifying and technical changes to the Rules.
---------------------------------------------------------------------------
\4\ Capitalized terms not defined herein are defined in the
Rules, available at https://www.dtcc.com/legal/rules-and-procedures.
\5\ The Service is primarily governed by Rule 3A, supra note 4.
\6\ As used herein, the term ``haircut'' refers to the amount of
collateral in excess of the value of the cash due to the Sponsored
Member client at the close leg of the Sponsored Member Trade.
---------------------------------------------------------------------------
A. Background
FICC operates two divisions, GSD and the Mortgage Backed Securities
Division (``MBSD''). GSD provides trade comparison, netting, risk
management, settlement, and central counterparty services for the U.S.
Government securities market. MBSD provides the same services for the
U.S. mortgage-backed securities market. GSD and MBSD maintain separate
sets of rules, margin models, and clearing funds. The proposed rule
change relates solely to GSD.
Under the GSD Rules, certain FICC members are permitted to act as
``Sponsoring Members'' to sponsor into FICC membership qualified
institutional buyers as defined by Rule 144A\7\ under the Securities
Act of 1933, as amended (``Securities Act''),\8\ and certain legal
entities that, although not organized as entities specifically listed
in paragraph (a)(1)(i) of Rule 144A under the Securities Act, satisfy
the financial requirements necessary to be qualified institutional
buyers as specified in that paragraph (``Sponsored Members'').\9\
---------------------------------------------------------------------------
\7\ 17 CFR 230.144A.
\8\ 15 U.S.C. 77a et seq.
\9\ Rule 3A (Sponsoring Members and Sponsored Members), supra
note 4.
---------------------------------------------------------------------------
A Sponsoring Member is permitted to submit to FICC, for comparison,
novation, and netting, certain types of eligible securities
transactions between itself and its Sponsored Members (``Sponsored
Member Trades'').\10\ The Sponsoring Member is required to establish an
omnibus account at FICC for its Sponsored Members' positions arising
from such Sponsored Member Trades (``Sponsoring Member Omnibus
Account''),\11\ which is separate from the Sponsoring Member's regular
netting accounts. For operational and administrative purposes, FICC
interacts solely with the Sponsoring Member as agent for purposes of
the day-to-day satisfaction of its Sponsored Members' obligations to or
from FICC, including their securities and funds-only settlement
obligations.\12\ Additionally, for operational convenience, FICC
calculates a single Net Settlement Obligation and Fail Net Settlement
Obligation in each CUSIP for the Sponsoring Member Omnibus Account and
associated Deliver Obligations and Receive Obligations.\13\ Such
calculations do not affect the Sponsored Member's obligations, which
are calculated in a manner that is generally consistent with how FICC
calculates the obligations of its other members.\14\
---------------------------------------------------------------------------
\10\ Rule 1, definition of ``Sponsored Member Trade''; Rule 3A,
Sections 6(b) and 7(a), supra note 4. Securities Exchange Act
Release No. 85470 (March 29, 2019), 84 FR 13328 (April 4, 2019) (SR-
FICC-2018-013) expanded the definition of ``Sponsored Member Trade''
to include certain types of eligible securities transactions between
a Sponsored Member and a FICC member other than the Sponsoring
Member. However, this proposed rule change applies only to Sponsored
Member Trades between the Sponsoring Member and its Sponsored
Member.
\11\ Rule 1, definition of ``Sponsoring Member Omnibus
Account,'' supra note 4.
\12\ Rule 3A, Sections 5, 6, 7, 8, and 9, supra note 4.
\13\ Rule 3A, Section 8(b), supra note 4. See also Rule 3A,
Section 7(a), supra note 4.
\14\ Rule 3A, Section 7, supra note 4.
---------------------------------------------------------------------------
Sponsoring Members are also responsible for providing FICC with a
Sponsoring Member Guaranty, whereby the Sponsoring Member guarantees to
FICC the payment and performance by its Sponsored Members of their
obligations under the Rules.\15\ Although Sponsored Members are
principally liable to FICC for their own settlement obligations under
the Rules, the Sponsoring Member Guaranty requires the Sponsoring
Member to satisfy those settlement obligations on behalf of a Sponsored
Member if the Sponsored
[[Page 11402]]
Member defaults and fails to perform its settlement obligations.\16\
---------------------------------------------------------------------------
\15\ Section 2(c) of Rule 3A states: ``Each Netting Member to
become a Sponsoring Member shall also sign and deliver to [FICC] a
Sponsoring Member Guaranty. . . .'' A ``Sponsoring Member Guaranty''
is defined in Rule 1 as ``a guaranty . . . that a Sponsoring Member
delivers to [FICC] whereby the Sponsoring Member guarantees to
[FICC] the payment and performance by its Sponsored Members of their
obligations under [the] Rules, including, without limitation, all of
the securities and funds-only settlement obligations of its
Sponsored Members under [the] Rules.'' Rule 1; Rule 3A, Section
2(c), supra note 4.
\16\ Id.
---------------------------------------------------------------------------
Although the Rules currently permit Sponsoring Members to submit
term repo activity within the Service,\17\ most of the Sponsored Member
Trades submitted to FICC by Sponsoring Members have a scheduled
settlement date of the next Business Day after the initial settlement
date (i.e., overnight repo). FICC believes that certain provisions of
the Rules discourage the submission of term repo activity within the
Service, as discussed more fully below.
---------------------------------------------------------------------------
\17\ Rule 3A, Section 5, supra note 4.
---------------------------------------------------------------------------
B. Termination and Liquidation of Defaulting Sponsored Member Positions
The Rules governing the termination and liquidation of a defaulting
member provide that if FICC ceases to act for a member (including a
Sponsored Member), FICC will close-out the defaulting member's
positions by (i) establishing a Final Net Settlement Position for each
Eligible Netting Security with a distinct CUSIP equal to the net of all
outstanding Deliver Obligations and Receive Obligations of the member
in respect of the security, and (ii) taking market action to liquidate
such Final Net Settlement Position.\18\
---------------------------------------------------------------------------
\18\ Rule 22A, Section 2(b); Rule 3A, Sections 13(c) and 15(b),
supra note 4.
---------------------------------------------------------------------------
The Rules require a Sponsoring Member to advise FICC of
circumstances that would require FICC to cease to act for a Sponsored
Member.\19\ Under the current Rules, FICC has the exclusive ability to
terminate and liquidate a Sponsored Member's positions, even though the
relevant Sponsoring Member is responsible for the Sponsored Member's
payment and performance in respect of such positions.\20\ The current
Rules do not allow a Sponsoring Member to terminate or liquidate any
Sponsored Member Trades.\21\ FICC states that the inability of
Sponsoring Members to terminate and liquidate Sponsored Member Trades
is inconsistent with comparable intermediated relationships.\22\ FICC
states that in the context of such other intermediated relationships,
the intermediary is typically permitted to terminate and liquidate the
positions of a client that the intermediary guarantees if an event of
default or other similar circumstance occurs under the agreement
between the intermediary and the client.\23\ In such scenarios, the
intermediary's ability to terminate and liquidate its client's
positions is not dependent on a third party's determination that a
certain circumstance or event has occurred.\24\ Instead, the
intermediary and the client bilaterally agree to the circumstances and
events that give rise to an event of default allowing the intermediary
to terminate or liquidate the guaranteed positions.\25\
---------------------------------------------------------------------------
\19\ Rule 3A, Section 15(a), supra note 4.
\20\ Rule 3A, Section 13(c) and 15(b), supra note 4.
\21\ Id.
\22\ Notice, supra note 3 at 1355.
\23\ Id.
\24\ Id.
\25\ Id.
---------------------------------------------------------------------------
FICC states that the inability of a Sponsoring Member to terminate
and liquidate its defaulting Sponsored Member's positions discourages
term repo activity within the Service.\26\ Specifically, under the
current Rules, when a Sponsored Member defaults, FICC currently
controls the termination and liquidation of the Sponsored Member's
positions.\27\ As such, during the time it would take FICC to terminate
and liquidate the Sponsored Member's positions, the Sponsoring Member
would effectively be forced to extend credit to the defaulting
Sponsored Member under the Sponsored Member Guaranty if the positions
involved term repo activity. Such a scenario could cause the Sponsoring
Member to incur additional capital requirements until such time as FICC
terminates and liquidates the Sponsored Member's positions.\28\
Additionally, since FICC currently controls the termination and
liquidation of the Sponsored Member's positions, FICC sets the
applicable price, timing, and types of liquidation or hedging
transactions. However, the Sponsoring Member would also likely enter
into one or more transactions with third parties to hedge its own
performance obligations under the Sponsoring Member Guaranty.
Therefore, the Sponsoring Member would be exposed to potential risks
associated with pricing and timing differences between its actions and
those taken by FICC in the aftermath of a Sponsored Member default.
FICC believes that these circumstances discourage Sponsoring Members
from engaging in term repo activity within the Service.\29\
---------------------------------------------------------------------------
\26\ Id.
\27\ Rule 3A, Section 13(c) and 15(b), supra note 4.
\28\ Id.
\29\ Notice, supra note 3 at 1355-56.
---------------------------------------------------------------------------
In order to encourage and facilitate term repo activity within the
Service, FICC proposes to amend the Rules to allow a Sponsoring Member
to terminate and liquidate a defaulting Sponsored Member's positions
arising from Sponsored Member Trades.\30\ Specifically, in the event
(i) a Sponsoring Member triggers the termination of a Sponsored
Member's positions, or (ii) FICC ceases to act for the Sponsored Member
and the Sponsoring Member does not continue to perform the obligations
of the Sponsored Member, both the Sponsored Member's positions and the
Sponsoring Member's corresponding positions arising from the Sponsored
Member Trades would be terminated. The Sponsoring Member would
calculate a net liquidation value of such terminated positions (i.e.,
Final Net Settlement Positions), whose liquidation values would be paid
either to or by the Sponsored Member by or to the Sponsoring
Member.\31\ The Final Net Settlement Position would equal the net of
all outstanding Deliver Obligations and Receive Obligations of the
Sponsored Member or Sponsoring Member with respect to each security
with a distinct CUSIP number.
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\30\ The proposal would only cover Sponsored Member Trades
between a Sponsored Member and its Sponsoring Member. See supra note
9. Additionally, the proposal would not cover scenarios in which
FICC has ceased to act for the relevant Sponsoring Member or in the
event of a FICC default. Such scenarios would be governed by current
Rules 22A and 22B, respectively. Notice, supra note 3 at 1356-57.
\31\ FICC intended that the proposal for the Sponsoring Member
to establish the Final Net Settlement Position would align with
current Rule 22A, which provides for FICC to establish the Final Net
Settlement Position when it ceases to act for a member.
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The Sponsoring Member would liquidate the Final Net Settlement
Positions by establishing a ``Sponsored Member Liquidation Amount'' and
a ``Sponsoring Member Liquidation Amount,'' which would be identical
to, but in the opposite direction of, each other.\32\ If a Sponsored
Member Liquidation Amount is due to FICC, the Sponsoring Member would
be obligated to pay such Sponsored Member Liquidation Amount to FICC
under the Sponsoring Member Guaranty, and this obligation would
automatically be set off against the obligation of FICC to pay the
corresponding Sponsoring Member Liquidation Amount to the Sponsoring
Member. By virtue of such setoff, the Sponsored Member's obligation to
FICC would be discharged, as would FICC's obligation to the Sponsoring
Member. The Sponsoring Member may, however, have a reimbursement claim
against the Sponsored Member in an amount equal
[[Page 11403]]
to the Sponsored Member Liquidation Amount.\33\
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\32\ Therefore, if FICC were to owe the Sponsored Member
Liquidation Amount to the Sponsored Member, the Sponsoring Member
would owe the Sponsoring Member Liquidation Amount to FICC. By the
same token, if the Sponsored Member were to owe the Sponsored Member
Liquidation Amount to FICC, FICC would owe the Sponsoring Member the
Sponsoring Member Liquidation Amount. In all instances, FICC would
owe and be owed the same amount of money. Notice, supra note 3 at
1357.
\33\ Such reimbursement claim would not be governed by the
Rules, but instead, would be subject to the terms of the bilateral
agreement between the Sponsoring Member and Sponsored Member. Id.
---------------------------------------------------------------------------
If a Sponsored Member Liquidation Amount were owed by FICC to the
Sponsored Member, the Sponsoring Member would satisfy that obligation
by transferring the Sponsored Member Liquidation Amount to the account
at the Funds-Only Settling Member Bank at which the Sponsoring Member
maintains Funds-Only Settlement Amounts related to its Sponsored Member
Omnibus Account. To the extent the Sponsoring Member makes such a
transfer, it would discharge FICC's obligation to transfer the
Sponsored Member Liquidation Amount to the Sponsored Member and the
Sponsoring Member's corresponding obligation to transfer the Sponsoring
Member Liquidation Amount to FICC. FICC would not, as a practical
matter, be involved in the settlement of the foregoing liquidating
transactions (i.e., FICC would not need to take any market action),
because the termination of the Sponsored Member's positions and the
corresponding Sponsoring Member's positions would leave FICC flat.
The proposal also provides that the Sponsoring Member would
indemnify FICC for any claim by a Sponsored Member arising out of the
Sponsoring Member's calculation of the net liquidation value. Finally,
the proposal includes a provision that a Sponsoring Member may take a
security interest in FICC's obligations to the Sponsored Member. Such
security interest would not impose new obligations on FICC, but could
allow the Sponsoring Member to direct FICC to submit payments due to
the Sponsored Member to the Sponsoring Member, so that the Sponsoring
Member can apply such amounts to the Sponsored Member's unsatisfied
obligations to the Sponsoring Member. The proposal would also provide
that FICC's security interest in the Sponsored Member's assets \34\
would be subordinated to the Sponsoring Member's security interest.
However, as noted above, if a Sponsored Member Liquidation Amount is
due to FICC, the Sponsoring Member would be obligated to pay such
Sponsored Member Liquidation Amount to FICC under the Sponsoring Member
Guaranty, and this obligation would automatically be set off against
the obligation of FICC to pay the corresponding Sponsoring Member
Liquidation Amount to the Sponsoring Member. As such, the Sponsored
Member's obligation to FICC would be discharged (as would FICC's
obligation to the Sponsoring Member), and FICC would not need to look
to the Sponsored Member or its assets for performance in respect of the
terminated positions.
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\34\ Under the current Rules, each Sponsored Member grants to
FICC a security interest in all assets and property placed by the
Sponsored Member in the possession of FICC in order to secure the
obligations of the Sponsored Member to FICC. Rule 3A, Section 8(g),
supra note 4. This security interest provides FICC with credit
support in the event that it must terminate and liquidate the
Sponsored Member's positions and assert a claim against the
Sponsored Member. Notice, supra note 3 at 1358.
---------------------------------------------------------------------------
FICC believes that the proposal to provide Sponsoring Members with
the ability to terminate and liquidate a defaulting Sponsored Member's
positions would remove the potential risks to Sponsoring Members
described above stemming from the exclusive ability of FICC to
terminate and liquidate the Sponsored Member's positions under the
current Rules. With this new ability, in the context of a Sponsored
Member default involving term repo activity, the Sponsoring Member
would control the termination and liquidation of the Sponsored Member's
positions. In contrast to the current Rules, the Sponsoring Member
would not be compelled to shoulder risks and extend credit to its
defaulting Sponsored Member during the time it would otherwise take
FICC to terminate and liquidate the Sponsored Member's positions.
Therefore, FICC believes that the proposal would encourage and
facilitate term repo activity within the Service.\35\
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\35\ Notice, supra note 3 at 1356.
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C. Haircuts on Sponsored Member Trades
In some Sponsored Member Trades, a Sponsoring Member may choose to
post to its Sponsored Member client a haircut. Similarly in some
circumstances, a Sponsoring Member may choose to collect a haircut from
its Sponsored Member client to mitigate the Sponsoring Member's
exposure under the Sponsoring Member Guaranty. In both scenarios, the
intent of the parties is for the haircut recipient to retain the
haircut for the duration of the Sponsored Member Trade, which, in the
context of term repo activity, would be the scheduled final settlement
date beyond the next Business Day after the initial settlement date.
FICC states that Sponsoring Members and Sponsored Members might have
accounting considerations that would favor facilitating the posting of
haircuts through FICC's systems.\36\ However, under the current Rules
regarding FICC's funds-only settlement process, a Sponsored Member or
Sponsoring Member that received a haircut at the Start Leg of a
Sponsored Member Trade would be required to transfer an amount of cash
equal to the haircut (plus or minus any interim mark-to-market
movements) on the next Business Day after the Start Leg has
settled.\37\ Specifically, FICC's standard funds-only settlement
process involves marking to market twice each Business Day all
positions associated with term repo activity, including any Sponsored
Member Trade with a Close Leg that is scheduled to occur two or more
Business Days after the settlement of the Start Leg.\38\ FICC
calculates a ``Collateral Mark'' equal to the absolute value of the
difference between (i) a Sponsored Member Trade's Contract Value (i.e.,
the dollar value at which it is due to finally settle), and (ii) its
Market Value (i.e., FICC's system price of the securities underlying
the transaction). This Collateral Mark is incorporated into the
calculation of certain of the Funds-Only Settlement Amounts
payable.\39\ When the Market Value exceeds the Contract Value, the
Collateral Mark is negative for, and thus payable by, the party with a
Net Short Position (i.e., the party required to deliver securities at
final settlement). Therefore, the purpose of the haircut would be
frustrated because if the haircut is returned before final settlement
of a Sponsored Member Trade, the party that was supposed to retain the
haircut for the duration of that trade would cease to be over-
collateralized, thus defeating the contractual intent of the parties.
---------------------------------------------------------------------------
\36\ Notice, supra note 3 at 1358.
\37\ Rule 13, supra note 4.
\38\ Id.
\39\ Id.
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FICC proposes to amend the Rules to ensure that haircuts in the
scenario described above are not returned until final settlement.
Specifically, FICC would amend Section 9(a) of Rule 3A to provide that,
if the parties to a Sponsored Member Trade agree for such Sponsored
Member Trade to have a haircut, then any Funds-Only Settlement Amount
applicable to such Sponsored Member Trade that includes a Collateral
Mark would be calculated without regard for the Collateral Mark. Such
Collateral Mark would be replaced by either a ``Haircut Deficit'' or
``Haircut Surplus.'' A Haircut Deficit would exist if the amount by
which the Market Value as of the settlement date of the Start Leg
exceeded the Contract Value of the Close Leg (the ``Initial Haircut'')
is
[[Page 11404]]
greater than the amount by which the Market Value as of the time of
measurement exceeds the Contract Value of the Close Leg (the ``Current
Haircut''). Any Haircut Deficit would be payable by the party with a
Net Long Position. A ``Haircut Surplus'' would exist if the Current
Haircut exceeds the Initial Haircut, and any Haircut Surplus would be
payable by the party with a Net Short Position. FICC would also amend
Section 9(a) of Rule 3A to make clear that any Initial Haircut would be
as agreed between the parties to the Sponsored Member Trade, and that
FICC would not be under any obligation to verify the parties' agreement
with respect to any Initial Haircut, and its calculation of the Initial
Haircut would be conclusive and binding on the parties.
FICC believes that the proposed changes described above would
enable a Sponsoring Member and its Sponsored Member who intend for one
of those two parties to remain over-collateralized for the duration of
a Sponsored Member Trade to transfer a haircut between each other and
allow such haircut to remain with the intended party until final
settlement of the Sponsored Member Trade.\40\ As such, the proposal
would encourage and facilitate term repo activity within the Service.
---------------------------------------------------------------------------
\40\ Notice, supra note 3 at 1359.
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D. Clarifications and Technical Changes
FICC proposes to make several clarifications and technical changes
to Rule 3A. First, FICC would add a parenthetical to Section 8(c) to
clarify that the operational netting provisions of Section 8(b) do not
substantively modify a Sponsored Member's obligations to FICC. Section
8(b) provides that, for operational convenience, FICC calculates a
single Net Settlement Position and Fail Net Settlement Position in each
CUSIP for the Sponsoring Member's Sponsoring Member Omnibus
Account.\41\ Section 8(c), in turn, provides that each Sponsored Member
shall satisfy its allocable portion of the Deliver Obligations and
Receive Obligations established for the Sponsoring Member Omnibus
Account.\42\ Neither Section 8(b) nor Section 8(c) modifies the
obligations of any Sponsored Member; rather, those provisions are
simply designed for operational convenience. Each Sponsored Member
still remains responsible for its Deliver Obligations Receive
Obligations to and from FICC, which are calculated in accordance with
Rule 3A, Section 7.\43\ The Sponsored Member's allocable portion of the
Deliver Obligations and Receive Obligations of the Sponsoring Member
Omnibus Account will always equal its Deliver Obligations and Receive
Obligations to and from FICC, as calculated under Rule 3A, Section
7.\44\ Therefore, in order to eliminate doubt regarding the extent of
the Sponsored Member's obligations upon a termination and liquidation
of a Sponsored Member's positions under the proposed rule change, FICC
proposes to add a parenthetical to Section 8(c) to clarify that a
Sponsored Member's allocable portion of the obligations established for
the Sponsoring Member Omnibus Account are the obligations of the
Sponsored Member, as calculated in Rule 3A, Section 7.
---------------------------------------------------------------------------
\41\ Rule 3A, Section 8(b), supra note 4.
\42\ Rule 3A, Section 8(c), supra note 4.
\43\ Rule 3A, Section 7, supra note 4.
\44\ Id.
---------------------------------------------------------------------------
Second, FICC would add language at the end of Sections 8(c) and
9(b) to clarify that, if a Sponsoring Member satisfies the net Deliver
Obligations and Receive Obligations or the net Funds-Only Settlement
Amount obligations of its Sponsoring Member Omnibus Account (including
through the proposed setoff described above) before the Sponsoring
Member receives corresponding performance from the Sponsored Member,
such satisfaction would constitute performance by the Sponsoring Member
under the Sponsoring Member Guaranty with respect to the relevant
Sponsored Member's allocable portion of the Sponsoring Member Omnibus
Account Deliver Obligations and Receive Obligations or Funds-Only
Settlement Amount obligations. If a termination and liquidation were to
occur, the Sponsoring Member would be required to perform on behalf of
the Sponsored Member under the Sponsoring Member Guaranty. The added
language at the end of Sections 8(c) and 9(b) is designed to ensure
that, when the Sponsoring Member effects such performance, it would be
entitled to reimbursement from the Sponsored Member.
Third, in connection with the proposed changes to Rule 3A, Section
9 regarding haircuts, FICC would make certain re-lettering and
grammatical changes for clarity and readability. Finally, FICC would
revise proposed Rule 3A, Section 9(c) to clarify that the Sponsored
Member is responsible for satisfying the allocable portion of the
Funds-Only Settlement Amount calculated for the Sponsoring Member
Omnibus Account.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \45\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the proposed rule
change, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FICC. In particular, the
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act,\46\ and Rule 17Ad-22(e)(21)
promulgated under the Act,\47\ for the reasons described below.
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\45\ 15 U.S.C. 78s(b)(2)(C).
\46\ 15 U.S.C. 78q-1(b)(3)(F).
\47\ 17 CFR 240.17Ad-22(e)(21).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
of a clearing agency, such as FICC, be ``designed to promote the prompt
and accurate clearance and settlement of securities transactions. . .
.'' \48\
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78q-1(b)(3)(F).
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As stated above in Section II.B., under the current Rules, FICC has
the exclusive ability to terminate and liquidate a defaulting Sponsored
Member's positions; the current Rules do not allow a Sponsoring Member
to terminate and liquidate any Sponsored Member Trades. The inability
on the part of Sponsoring Members to terminate and liquidate its
defaulting Sponsored Member's positions discourages term repo activity
within the Service because during the time it would take FICC to
terminate and liquidate the Sponsored Member's positions, the
Sponsoring Member would effectively be forced to extend credit to the
defaulting Sponsored Member under the Sponsored Member Guaranty. In
such a scenario, the Sponsoring Member could incur additional capital
requirements until FICC completes the termination and liquidation of
the Sponsored Member's positions. Additionally, since under the current
Rules, FICC sets the applicable price, timing, and types of liquidation
or hedging transactions, the Sponsoring Member would be exposed to
potential risks associated with pricing and timing differences between
its own hedging transactions and those taken by FICC in the aftermath
of a Sponsored Member default. To avoid exposing Sponsoring
[[Page 11405]]
Members to the foregoing risks, FICC proposes to amend the Rules to
provide a mechanism whereby Sponsoring Members would control the
termination and liquidation of their defaulting Sponsored Members'
positions. By providing Sponsoring Members with greater ability to
manage their risks associated with Sponsored Member Trades, the
proposal would encourage Sponsoring Members to submit more term repo
Sponsored Member Trades to FICC within the Service. Increasing the
number of trades centrally-cleared by FICC would promote the prompt and
accurate clearance and settlement of securities transactions because
securities transactions that might otherwise be conducted bilaterally
would benefit from FICC's risk management and guarantee of settlement.
Accordingly, the Commission finds that FICC's proposal to provide a
mechanism for Sponsoring Members to terminate and liquidate their
defaulting Sponsored Members' positions should promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\49\
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\49\ Id.
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As stated above in Section II.C., Sponsored Member Trades may
involve a haircut from either the Sponsoring Member or the Sponsored
Member. In the context of term repo activity, the intent of both the
Sponsoring Member and the Sponsored Member is for the haircut recipient
to retain the haircut until the scheduled final settlement date.
However, the current Rules require the haircut to be returned before
final settlement of the Sponsored Member Trade, which creates
inefficiencies that discourage term repo activity within the Service.
FICC proposes to amend the Rules to ensure that such haircuts are not
returned until final settlement. As a result, the proposal would
encourage and facilitate more term repo activity within the Service.
Increasing the number of trades centrally-cleared by FICC would promote
the prompt and accurate clearance and settlement of securities
transactions because securities transactions that might otherwise be
conducted bilaterally would benefit from FICC's risk management and
guarantee of settlement. Accordingly, the Commission finds that FICC's
proposal to ensure that such haircuts with respect to Sponsored Member
Trades are not returned until final settlement should promote the
prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\50\
---------------------------------------------------------------------------
\50\ Id.
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As stated above in Section II.D., FICC proposes several
clarifications and technical changes to Rule 3A. FICC states that these
changes are designed to enhance clarity and transparency regarding the
Service.\51\ Having transparent and clear Rule provisions regarding the
Service should enable members to better understand the operation of the
Service, and should also provide members with increased predictability
and certainty regarding their rights and obligations. Such increased
predictability and certainty regarding their rights and obligations may
encourage Sponsoring Members to submit a greater number of securities
transactions to be centrally-cleared by FICC. Increasing the number of
trades centrally-cleared by FICC would promote the prompt and accurate
clearance and settlement of securities transactions because securities
transactions that might otherwise be conducted bilaterally would
benefit from FICC's risk management and guarantee of settlement.
Accordingly, the Commission finds that FICC's proposed clarifications
and technical changes should promote the prompt and accurate clearance
and settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\52\
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\51\ Notice, supra note 3 at 1360.
\52\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(21) Under the Act
Rule 17Ad-22(e)(21) under the Act requires that each covered
clearing agency, such as FICC, ``establish, implement, maintain and
enforce written policies and procedures reasonably designed to . . . be
efficient and effective in meeting the requirements of its participants
and the markets it serves. . . .'' \53\
---------------------------------------------------------------------------
\53\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------
As stated above in Section II.B., the current Rules do not allow a
Sponsoring Member to terminate and liquidate any Sponsored Member
Trades. The inability on the part of Sponsoring Members to terminate
and liquidate its defaulting Sponsored Member's positions discourages
term repo activity within the Service because during the time it would
take FICC to terminate and liquidate the Sponsored Member's positions,
the Sponsoring Member would effectively be forced to extend credit to
the defaulting Sponsored Member under the Sponsored Member Guaranty. In
such a scenario, the Sponsoring Member could incur additional capital
requirements until FICC completes the termination and liquidation of
the Sponsored Member's positions. Additionally, since under the current
Rules, FICC sets the applicable price, timing, and types of liquidation
or hedging transactions, the Sponsoring Member would be exposed to
potential risks associated with pricing and timing differences between
its own hedging transactions and those taken by FICC in the aftermath
of a Sponsored Member default. To avoid exposing Sponsoring Members to
the foregoing risks, FICC proposes to amend the Rules to provide a
mechanism whereby Sponsoring Members would control the termination and
liquidation of their defaulting Sponsored Members' positions. By
providing Sponsoring Members with greater ability to manage their risks
associated with Sponsored Member Trades, the proposal would enhance
FICC's Rules in a manner that meets the needs of Sponsoring Members and
Sponsored Members.
Additionally, as stated above in Section II.C., the current Rules
require haircuts with respect to term repo Sponsored Member Trades to
be returned before final settlement, which discourages term repo
activity within the Service. FICC proposes to amend the Rules to ensure
that such haircuts are not returned until final settlement. As a
result, the proposal would encourage and facilitate term repo activity
within the Service by ensuring that haircuts with respect to Sponsored
Member Trades are not returned until final settlement in a manner
consistent with the intent of the Sponsoring Member and Sponsored
Member. For the reasons described in this Section III.B., the
Commission finds FICC's proposals to (i) provide a mechanism for
Sponsoring Members to terminate and liquidate their defaulting
Sponsored Members' positions, and (ii) ensure that haircuts with
respect to term repo Sponsored Member Trades are not returned until
final settlement would constitute policies and procedures reasonably
designed to be efficient and effective in meeting the requirements of
FICC's members and the relevant markets FICC serves, consistent with
Rule 17Ad-22(e)(21) under the Act.\54\
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\54\ Id.
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act
and, in particular, with the requirements of
[[Page 11406]]
Section 17A of the Act \55\ and the rules and regulations promulgated
thereunder.
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\55\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\56\ that proposed rule change SR-FICC-2019-007, be, and hereby is,
approved.\57\
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\56\ 15 U.S.C. 78s(b)(2).
\57\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\58\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03914 Filed 2-26-20; 8:45 am]
BILLING CODE 8011-01-P
