Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt the Interpretive Guidance With Respect to Settlement Finality, 12353-12357 [2020-04186]
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Federal Register / Vol. 85, No. 41 / Monday, March 2, 2020 / Notices
at Denise.McGovern@nrc.gov. The
schedule for Commission meetings is
subject to change on short notice.
The NRC Commission Meeting
Schedule can be found on the internet
at: https://www.nrc.gov/public-involve/
public-meetings/schedule.html.
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Dated at Rockville, Maryland, this 27th day
of February 2020.
For the Nuclear Regulatory Commission.
Denise L. McGovern,
Policy Coordinator, Office of the Secretary.
[FR Doc. 2020–04365 Filed 2–27–20; 4:15 pm]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88276; File No. SR–
CboeBZX–2020–003]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change To List and Trade Shares
of the –1x Short VIX Futures ETF, a
Series of VS Trust, Under Rule
14.11(f)(4) (Trust Issued Receipts)
list and trade shares of the –1x Short
VIX Futures ETF, a series of VS Trust,
under Rule 14.11(f)(4) (‘‘Trust Issued
Receipts’’). The proposed rule change
was published for comment in the
Federal Register on January 23, 2020.3
The Commission has received no
comment letters on the proposed rule
change.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is March 8, 2020.
The Commission is extending this 45day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,5 designates April 22,
2020, as the date by which the
Commission shall either approve or
disapprove or institute proceedings to
determine whether to disapprove the
proposed rule change (File Number SR–
CboeBZX–2020–003).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04185 Filed 2–28–20; 8:45 am]
BILLING CODE 8011–01–P
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1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88277; File No. SR–FICC–
2020–001]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Adopt the
Interpretive Guidance With Respect to
Settlement Finality
February 25, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
13, 2020, Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
primarily by the clearing agency. FICC
filed the proposed rule change pursuant
to Section 19(b)(3)(A) 3 of the Act and
subparagraph (f)(1) 4 of Rule 19b–4
thereunder. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change of Fixed
Income Clearing Corporation (‘‘FICC’’) is
annexed [sic] hereto as Exhibit 5. The
proposed rule change would amend the
FICC Government Securities Division
(‘‘GSD’’) Rulebook (the ‘‘GSD Rules’’)
and the FICC Mortgage-Backed
Securities Division (‘‘MBSD’’) Clearing
Rules (‘‘MBSD Rules’’ and collectively
with the GSD Rules, the ‘‘Rules’’) in
order to adopt the Interpretive Guidance
with respect to Settlement Finality
(‘‘Interpretive Guidance’’), which would
provide greater transparency to FICC
Members regarding settlement finality
in the Rules, as described in greater
detail below.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
February 25, 2020.
On January 3, 2020, Cboe BZX
Exchange, Inc. (‘‘BZX’’) 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 a proposed rule change to
12353
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(1).
5 Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such
terms in the GSD Rules or the MBSD Rules, as
applicable, available at https://www.dtcc.com/legal/
rules-and-procedures.
2 17
3 See Securities Exchange Act Release No. 87992
(January 16, 2020), 85 FR 4023.
4 15 U.S.C. 78s(b)(2).
5 Id.
6 17 CFR 200.30–3(a)(31).
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Federal Register / Vol. 85, No. 41 / Monday, March 2, 2020 / Notices
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
The proposed rule change would add
the Interpretive Guidance into the
Rules, which would provide greater
transparency to FICC Members relating
to settlement finality in the Rules.
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(i) Background
FICC is a clearing agency registered
with, and under the supervision of, the
Commission and it is a ‘‘covered
clearing agency’’ under the
Commission’s Standards for Covered
Clearing Agencies.6 Rule 17Ad–22(e)(8)
of the Act requires FICC to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to define the point
at which settlement is final to be no
later than the end of the day on which
the payment or obligation is due and,
where necessary or appropriate,
intraday or in real time.7 It is FICC’s
policy to ensure that the point of
settlement finality is defined in the
Rules in compliance with Rule 17Ad–
22(e)(8) of the Act and that the point of
settlement finality is transparent to
FICC’s Members. The proposed rule
change would add the Interpretive
Guidance to the Rules to provide greater
transparency regarding settlement
finality in the Rules.
A. FICC Money and Securities
Settlement
Through GSD, FICC processes two
types of settlements: (1) The funds-only
settlement process that consists of the
transfer of cash for (a) changes in the
value of securities when they are
marked to market, (b) cash adjustments
related to securities trades, (c) the passthrough of coupon payments for term
repurchase agreements (‘‘repos’’) or
trade obligations that cross a coupon
date, and (d) other items, such as billing
invoices and (2) the settlement process
associated with securities deliveries and
related payment obligations.
Through MBSD, FICC processes two
types of settlements: (1) The cash
6 See Standards for Covered Clearing Agencies,
Securities Exchange Act Release No. 78961, 81 FR
70786 (Oct. 13, 2016).
7 17 CFR 240.17Ad–22(e)(8).
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settlement process that that consists of
the transfer of cash for (a) the TBA
Transaction Adjustment Payment, (b)
Net Pool Transaction Adjustment
Payment, (c) principal and interest
payments for failing net pool settlement
obligations (to the extent that they are
not handled by the Fedwire Securities
Service Automated Claims Adjustment
Process), and (d) other items, such as
Factor Update Adjustments, CPR Claim
payments and billing invoices and (2)
the settlement associated with securities
deliveries and related payment
obligations.
B. Point of Settlement Finality for GSD
Funds-Only Settlement and MBSD Cash
Settlement
1. Funds-Only/Cash Settlement
Processes
GSD funds-only settlement and MBSD
cash settlement are governed by GSD
Rule 13 and MBSD Rule 11,
respectively,8 which require the settling
banks to use the FRB’s 9 National
Settlement Service (‘‘NSS’’) 10 to
complete GSD funds-only settlement
and MBSD cash settlement.11
GSD funds-only settlement and MBSD
cash settlement are each a daily process
of generating a net credit or debit cash
amount for each Member and settling
those cash amounts between Members
and FICC. The GSD funds-only
settlement and MBSD cash settlement
processes are primarily cash passthrough processes; i.e., those Members
that are in a net debit position are
obligated to submit payments that are
then used to pay Members in a net
credit position.12 Net debits and credits
of all Members using the same settling
bank are further netted and reported 13
to the settling bank which is required to
acknowledge the net-net debits or
credits.14 The settling banks then debit
8 GSD
Rule 13 and MBSD Rule 11, supra note 5.
9 FRB means the Board of Governors of the
Federal Reserve System and each Federal Reserve
Bank, as appropriate. GSD Rule 1 and MBSD Rule
1, supra note 5.
10 NSS is a multilateral settlement service owned
and operated by the FRB. The service is offered to
depository institutions that settle for participants in
clearinghouses, financial exchanges and other
clearing and settlement groups. Settlement agents,
acting on behalf of those depository institutions in
a settlement arrangement, electronically submit
settlement files to the FRB. Files are processed on
receipt, and entries are automatically posted to the
depository institutions’ FRB accounts.
11 GSD Rule 13, Section 5(i) and MBSD Rule 11,
Section 9(i), supra note 5.
12 Certain amounts, such as billing amounts owed
by Members to FICC, are credited and paid to FICC
through the funds-only/cash settlement processes
rather than passed on to other Members.
13 GSD Rule 13, Sections 2 and 5(a) and MBSD
Rule 11, Section 9(a), supra note 5.
14 GSD Rule 13, Section 5(b) and MBSD Rule 11,
Section 9(b), supra note 5.
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or credit the Members’ accounts for
which they settle.15
FICC has a settlement interface with
its affiliate, The Depository Trust
Company (‘‘DTC’’). DTC acts as
Settlement Agent for FICC and for the
Members’ settling banks with respect to
GSD funds-only settlement and MBSD
cash settlement.16 In submitting the NSS
file, DTC, as Settlement Agent, submits
instructions to cause the FRB accounts
of the settling banks to be charged for
their net-net debit balances and credited
with their net-net credit balances.
Members are required to engage a
settling bank that meets FICC’s settling
bank limited membership criteria to
effect money settlement via NSS on
behalf of the Members.17 Each settling
bank is required to acknowledge the
daily settlement balances and their
intention to settle with FICC by the
applicable deadlines or its refusal to
settle by the applicable deadlines.18
Once a settling bank has acknowledged
the balances and its intention to settle,
it must settle such amounts pursuant to
the process set forth in the Rules by the
payment deadline established by FICC
on FICC’s posted time schedules.19
FICC processes GSD funds-only
settlement debit and credit payments
via the NSS twice daily at 10:00 a.m.
and 3:15 p.m.20 FICC processes MBSD
cash settlement debits via NSS in the
morning at 10:00 a.m. daily and
settlement credits via NSS in the
afternoon at 2:45 p.m. daily.21
2. Interpretive Guidance With Respect
to Settlement Finality—Funds-Only/
Cash Settlement
The point of finality for GSD fundsonly settlement and MBSD cash
settlement is defined by the Federal
Reserve Bank Operating Circular 12,22
15 Each Member is required to enter into a settling
bank agreement with the settling bank that settles
its account. GSD Rule 13, Section 4 and MBSD Rule
3A, Section (a), supra note 5. In the settling bank
agreement, the settling bank undertakes to perform
settlement services on behalf of the Member which
would include debiting or crediting the Member’s
account upon settlement.
16 GSD Rule 13, Section 5(h) and MBSD Rule 11,
Section 9(h), supra note 5.
17 GSD Rule 13, Section 4(a) and MBSD Rule 3A,
Section (a), supra note 5.
18 GSD Rule 13, Section 5(b) and MBSD Rule 11,
Section 9(b), supra note 5.
19 GSD Rule 13, Section 5(g) and MBSD Rule 11,
Section 9(g), supra note 5.
20 Schedule of Timeframes in the GSD Rules,
supra note 5.
21 The schedule of funds only settlement for
MBSD is posted on its website at https://
www.dtcc.com. See MBSD Rule 11, Section 9(g),
supra note 5.
22 Federal Reserve Bank Operating Circular 12
(Multilateral Settlement), Effective June 30, 2016
(‘‘Operating Circular 12’’), available at https://
www.frbservices.org.
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which governs NSS processing by the
FRB. FICC and each Member’s settling
bank is a ‘‘Settler’’ and together are in
a ‘‘Settlement Arrangement’’ (each term
as defined in Operating Circular 12) for
purposes of GSD funds-only settlement
and MBSD cash settlement.23 DTC, as
the Settlement Agent (as defined in the
Rules and in Operating Circular 12),
provides the Settlement File (as defined
in Operating Circular 12) to the FRB.
Each Settler maintains a Master Account
(as defined in Operating Circular 12)
with the FRB.24 The point of finality in
accordance with Operating Circular 12
is, for debits, the time at which the
Settler’s Master Account is debited by
the FRB,25 and, for credits, the time at
which the Settler’s Master Account is
credited by the FRB.26
Therefore, the point of finality with
respect to settlement for GSD funds-only
settlement and MBSD cash settlement is
the point at which each of the Master
Accounts for FICC and the settling
banks designated by each of the
Members have been debited and
credited through NSS pursuant to the
Settlement File provided by the
Settlement Agent.
C. Point of Finality for GSD and MBSD
Settlement of Securities Deliveries and
Related Payment Obligations
1. Securities Settlement Processes
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(a) GSD Securities Settlement/MBSD
Securities Settlement
GSD and MBSD settlement for
securities deliveries and related
payment obligations (other than GCF
Repo Transactions and CCIT
Transactions) are governed by GSD Rule
23 For purposes of Operating Circular 12, the
following definitions apply:
‘‘Balance’’ means the amount listed on a
Settlement File that a Settler owes (debit Balance)
or is due (credit Balance) as a result of the clearing
activities of the Settlement Arrangement.
‘‘Master Account’’ means the Master Account (as
that term is defined in the Reserve Banks’ Operating
Circular 1, Account Relationships) of a Settler on
the books of a Reserve Bank.
‘‘Settler’’ means an entity that has established an
account with a Reserve Bank and settles its own
Balances, settles Balances for the account of another
Participant, or both.
‘‘Settlement Agent’’ means the entity authorized
to act on behalf of the Settlers under Operating
Circular 12.
‘‘Settlement File’’ means the instructions
submitted by a Settlement Agent showing the debit
and credit Balances of the Settlers.
See Section 1.2 of Operating Circular 12, supra
note 22. See also Federal Reserve Banks Operating
Circular 1 (Account Relationships), Effective
February 1, 2013, available at https://
www.frbservices.org.
24 See id.
25 See Section 5.4 of Operating Circular 12, supra
note 22.
26 See Section 5.6 of Operating Circular 12, supra
note 22.
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12 and MBSD Rule 9, respectively.27
Settlement for securities deliveries and
related payment obligations occurs on a
delivery-versus-payment basis on the
books of FICC’s clearing bank 28 or via
Fedwire Securities Service
(‘‘Fedwire’’).29
FICC designates a clearing bank to act
on its behalf in the delivery and receipt
of securities to or from the Members for
securities settlement.30 FICC shall notify
each GSD Member and MBSD Member,
as applicable, of the clearing bank or
banks that FICC will use to deliver
eligible securities to Members and to
receive eligible securities from
Members, and by product, the types of
securities that each such clearing bank
will so deliver and receive.31 In turn,
each Member (prior to activating its
membership) must notify FICC of the
clearing bank or banks that the Member
has designated to act on its behalf in the
delivery and receipt of securities to or
from FICC.32 Such designation is subject
to FICC’s determination that such
clearing bank (a) has and will maintain
access to Fedwire, (b) has and will
maintain the operational capability to
interact satisfactorily with the clearing
banks that act on behalf of FICC, and (c)
has agreed to act on behalf of such
Member in accordance with the Rules.33
If the Member’s designated clearing
bank for securities settlement is the
same as FICC’s clearing bank,
obligations for securities deliveries and
related payment obligations will be
settled for a Member on the books of
FICC’s designated clearing bank. If the
Member’s designated clearing bank is
not the same as FICC’s clearing bank,
obligations for securities deliveries and
related payment obligations will be
settled between the clearing banks using
Fedwire. All deliveries are made against
full payment.34
27 GSD
Rule 12 and MBSD Rule 9, supra note 5.
currently uses The Bank of New York
Mellon (‘‘BNY Mellon’’) as its clearing bank for this
purpose.
29 Fedwire Securities Service is an electronic
securities service owned and operated by the FRB
that provides issuance, maintenance, transfer and
settlement services for all marketable U.S. Treasury
securities, as well as certain securities issued by
other federal government agencies, governmentsponsored enterprises and international
organizations. See https://frbservices.org/financialservices/securities/.
30 GSD Rule 12, Section 2 and MBSD Rule 9,
Section 2, supra note 5.
31 Id.
32 Id.
33 Id.
34 GSD Rule 12, Section 1 and MBSD Rule 9,
Section 1, supra note 5.
28 FICC
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12355
(b) GCF Repo® Service and the CCIT
Service Settlement
Settlement for securities deliveries
and related payment obligations relating
to the GCF Repo® Service and the CCIT
Service are governed by GSD Rule 20
and GSD Rule 3B.35 FICC and each
Member settling transactions through
the GCF Repo Service and CCIT Service
maintain accounts at FICC’s designated
clearing bank for settlement of securities
deliveries and related payment
obligations with respect to the GCF
Repo Service and the CCIT Service.36
Settlement for securities deliveries and
related payment obligations 37 for the
GCF Repo Service and the CCIT Service
occurs on the books of FICC’s
designated clearing bank.38
2. Interpretive Guidance With Respect
to Settlement Finality—Settlement for
Securities Deliveries and Related
Payment Obligations
Settlement for securities deliveries
and related payment obligations occurs
(i) on the books of FICC’s designated
clearing bank for each Member whose
designated clearing bank for such
settlement is the same as FICC’s
designated clearing bank and (ii)
through the Fedwire system, for each
Member whose designated clearing bank
for such settlement is not the same as
FICC’s designated clearing bank.
(a) Point of Finality on the Books of
FICC’s Clearing Bank
The point of finality relating to
settlement of securities deliveries and
related payment obligations that occurs
35 The GCF Repo service is primarily governed by
GSD Rule 20 and enables Netting Members to trade
general collateral finance repurchase agreement
transactions based on rate, term, and underlying
product throughout the day with brokers on a blind
basis. GSD Rule 20, supra note 5. The CCIT Service
is governed by GSD Rule 3B and enables tri-party
repurchase agreement transactions in GCF Repo
Securities between Netting Members that
participate in the GCF Repo Service and
institutional cash lenders (other than investment
companies registered under the Investment
Company Act of 1940, as amended). GSD Rule 3B,
supra note 5. Section 11 of GSD Rule 3B provides
that GSD Rule 20 shall apply to the netting and
settlement obligations of FICC and each party to a
CCIT Transaction in the same way in which such
provisions apply to GCF Repo Transactions. GSD
Rule 3B, Section 11, supra note 5.
36 See GSD Rule 3B, Section 9(b), supra note 5
(requiring each CCIT Member to maintain two
accounts at the GCF Clearing Agent Bank, one of
which, the CCIT Account, is for the CCIT Member’s
activity in respect of CCIT Transactions).
37 GSD Rule 3B, Section 13 provides that certain
payment obligations relating to CCIT Transactions
are processed pursuant to GSD funds-only
settlement described in Item II.(A)(1)(i)B. above. See
GSD Rule 3B, Section 13, supra note 5.
38 The clearing bank for this purpose is defined
as the GCF Clearing Agent Bank. See GSD Rule 3B
and GSD Rule 20, supra note 5. FICC currently uses
BNY Mellon as the GCF Clearing Agent Bank.
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Federal Register / Vol. 85, No. 41 / Monday, March 2, 2020 / Notices
on the books of FICC’s clearing bank is
the point at which FICC’s clearing bank
has acted upon a settlement instruction
from FICC.
Pursuant to the agreement between
FICC and FICC’s clearing bank, a
settlement instruction is an instruction
by FICC to the clearing bank in respect
of settlement that: (1)(a) Instructs the
clearing bank to direct delivery, from
the FICC account to the Member
account(s) designated in such settlement
instruction, of securities specified for
each such Member account and (b)
specifies the dollar amounts that the
clearing bank is simultaneously to take
collection of from each of the respective
Member accounts designated in the
settlement instruction for the FICC
account; or (2)(a) instructs the clearing
bank to direct payment, from the FICC
account to the designated Member
account(s), of the dollar amounts
specified in the settlement instruction
for each such Member account and (b)
specifies the securities that the clearing
bank is simultaneously to take receipt of
from each of the Member accounts
designated in the settlement instruction
for the FICC account.
FICC’s clearing bank has acted upon
such instructions when the clearing
bank (i)(a) directs delivery, from the
FICC account to the Member account(s)
designated in such settlement
instruction, of securities specified for
each such Member account and (b)
simultaneously collects the dollar
amounts from each of the respective
Member accounts designated in the
settlement instruction for the FICC
account; or (ii)(a) directs payment, from
the FICC account to the designated
Member account(s), of the dollar
amounts specified in the settlement
instruction for each such Member
account and (b) simultaneously takes
receipt of securities from each of the
Member accounts designated in the
settlement instruction for the FICC
account.
Therefore, the point of finality of
settlement of securities deliveries and
related payment obligations that occur
on the books of FICC’s clearing bank is
when each of the accounts held by FICC
and the Members at the clearing bank
for purposes of securities settlement
have been debited and credited in
accordance with the settlement
instructions provided by FICC.
(b) Point of Finality on the Fedwire
System
The point of finality relating to
settlement of securities deliveries and
related payment obligations that occurs
through the Fedwire system is defined
by the Federal Reserve Banks Operating
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Circular No. 7,39 which governs book
entry security account maintenance and
transfers. FICC’s clearing bank and each
Member’s clearing bank is a
‘‘Participant’’ and maintains a
‘‘Securities Account’’ and a ‘‘Master
Account’’ with the FRB (each term as
defined in Operating Circular 7).40
Operating Circular 7 states that
‘‘[u]nless a Transfer is rejected in
accordance with this Circular, all debits
and credits in connection with a
Transfer become final at the time the
debits and credits are posted to the
Sender’s and Receiver’s Securities
Accounts and, in case of Transfer
Against Payment, their corresponding
Master Accounts.’’ 41 For purposes of
settlement of securities deliveries and
related payment obligations, the
clearing banks designated by FICC and
each Member to deliver and receive
39 Federal Reserve Banks Operating Circular 7
(Book-Entry Securities Account Maintenance and
Transfer Services), Effective October 29, 2017
(‘‘Operating Circular 7’’), available at https://
www.frbservices.org.
40 For purposes of Operating Circular 7, the
following definitions apply:
‘‘Book-Entry Security’’ means a marketable
security issued in electronic form by the United
States Government (the ‘‘Treasury’’), any agency or
instrumentality thereof, certain international
organizations, or others, that the Reserve Banks
have determined is eligible to be held in a
Securities Account and is eligible for Transfer.
‘‘Free Transfer’’ means a Transfer that does not
involve any credit or debit to a Master Account
other than a transaction fee.
‘‘Master Account’’ means a ‘‘Master Account’’ (as
defined in the Reserve Banks’ Operating Circular 1,
Account Relationships) on the books of a Reserve
Bank. A Master Account is a Funds Account for
purposes of the regulations listed in Appendix A of
Operating Circular 7. A Master Account does not
contain Book-Entry Securities.
‘‘Participant’’ means an entity that maintains a
Securities Account with a Reserve Bank in the
entity’s name.
‘‘Receiver’’ means the Participant receiving a
Book-Entry Security as a result of a Transfer.
‘‘Securities Account’’ means an account at a
Reserve Bank containing Book-Entry Securities.
‘‘Sender’’ means the Participant sending a
Transfer Message.
‘‘Transfer’’ means the electronic movement over
the Fedwire® Securities Service of a par amount of
Book-Entry Securities by debit to the designated
Securities Account of the Sender and by credit to
the designated Securities Account of the Receiver,
or by debit to one Securities Account of a
Participant and credit to another Securities Account
of that same Participant, in which case that
Participant is both a Sender and a Receiver. A
Transfer is either a Free Transfer or a Transfer
Against Payment.
‘‘Transfer Against Payment’’ means a Transfer
that is effected with a credit to the Master Account
of the Sender and a debit to the Master Account of
the Receiver, for the amount of the payment.
‘‘Transfer Message’’ means an instruction of a
Participant to a Reserve Bank to effect a Transfer.
See Operating Agreement Circular 7, Section 3.0,
supra note 39.
41 Operating Circular 7, Section 9.1.1, supra note
39. Capitalized terms are defined as set forth in
Operating Circular 7. See supra note 40.
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
securities and related funds on behalf of
FICC and each Member, respectively,
are the Senders and Receivers described
in Operating Circular 7. Therefore, the
point of finality of settlement of
securities deliveries and related
payment obligations is when each of the
Securities Accounts and the Master
Accounts of the clearing banks
designated by FICC and each of the
Members have been debited and
credited through the Fedwire system in
accordance with the settlement
instructions provided by FICC.42
(ii) Description of the Proposed Rule
Change
In order to provide Members greater
transparency regarding settlement
finality, FICC is proposing to amend the
Rules to include the Interpretive
Guidance. The Interpretive Guidance
would describe settlement finality as set
forth above in Items II.(A)(1)(i)B.2. and
II.(A)(1)(i)C.2. above.
(2) Statutory Basis
Section 17A(b)(3)(F) of the Act 43
requires, in part, that the Rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions. The proposed
rule change would provide additional
transparency to FICC Members
regarding settlement finality with
respect to securities transactions
processed through FICC. Accordingly,
the proposed rule change would ensure
that the Rules are transparent and clear,
which would enable all stakeholders to
readily understand their respective
rights and obligations in connection
with FICC’s clearance and settlement of
securities transactions. Therefore, FICC
believes that the proposed rule change
would promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.44
Rule 17Ad–22(e)(8) under the Act 45
requires FICC to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
define the point at which settlement is
final to be no later than the end of the
day on which the payment or obligation
is due and, where necessary or
42 Each Business Day, FICC makes available to
each Member a Report that provides settlement
information that FICC deems sufficient to enable
each such Member to be able to settle its securities
deliveries and related payment obligations and each
Member is obligated to provide the appropriate
instructions to its clearing bank to deliver and/or
receive securities and related payments as set forth
in the Report. GSD Rule 12, Section 3 and MBSD
Rule 9, Section 3, supra note 5.
43 15 U.S.C. 78q–1(b)(3)(F).
44 Id.
45 17 CFR 240.17Ad–22(e)(8).
E:\FR\FM\02MRN1.SGM
02MRN1
Federal Register / Vol. 85, No. 41 / Monday, March 2, 2020 / Notices
appropriate, intraday or in real time.
The proposed rule change to add the
Interpretive Guidance would enhance
the transparency with respect to the
point at which settlement is final with
respect to transactions processed
through FICC. Having clear provisions
in this regard would enable FICC
Members to better identify the point at
which settlement is final with respect to
their cash and securities transactions.
As such, FICC believes the proposed
rule change is consistent with Rule
17Ad–22(e)(8) of the Act.46
(B) Clearing Agency’s Statement on
Burden on Competition
FICC does not believe that the
proposed rule change would impact
competition.47 The proposed rule
change would provide interpretive
guidance with respect to settlement
finality relating to transactions
processed through FICC. The proposed
rule change would not change current
practices of FICC and would not affect
FICC Members’ rights or obligations. As
such, FICC believes that the proposed
rule change would not impact FICC
Members or have any impact on
competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
FICC has not received or solicited any
written comments relating to this
proposal. FICC will notify the
Commission of any written comments
received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 48 of the Act and paragraph
(f) 49 of Rule 19b–4 thereunder. At any
time within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
khammond on DSKJM1Z7X2PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
Electronic Comments
• Use the Commission’s internet
comment for (https://www.sec.gov/rules/
sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FICC–2020–001 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2020–001. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FICC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FICC–
2020–001 and should be submitted on
or before March 23, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04186 Filed 2–28–20; 8:45 am]
46 Id.
BILLING CODE 8011–01–P
47 15
U.S.C. 78q–1(b)(3)(I).
48 15 U.S.C. 78s(b)(3)(A).
49 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
18:10 Feb 28, 2020
50 17
Jkt 250001
PO 00000
Frm 00108
Fmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88279; File No. SR–
CboeBZX–2020–017]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Codify the
Cancel Back Order Type and To Add
That the Post Only Order Designated
as Cancel Back May Remove Liquidity
Pursuant to Exchange Rule 21.1
February 25, 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
12, 2020, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 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 BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
codify the Cancel Back order type and
amend the Post Only order instructions
that may remove liquidity pursuant to
Rule 21.1. 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/
equities/regulation/rule_filings/bzx/), 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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
CFR 200.30–3(a)(12).
Sfmt 4703
12357
E:\FR\FM\02MRN1.SGM
02MRN1
]]>Agencies
[Federal Register Volume 85, Number 41 (Monday, March 2, 2020)]
[Notices]
[Pages 12353-12357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04186]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88277; File No. SR-FICC-2020-001]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Adopt the Interpretive Guidance With Respect to Settlement Finality
February 25, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 13, 2020, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared primarily by the clearing agency. FICC filed
the proposed rule change pursuant to Section 19(b)(3)(A) \3\ of the Act
and subparagraph (f)(1) \4\ of Rule 19b-4 thereunder. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change of Fixed Income Clearing Corporation
(``FICC'') is annexed [sic] hereto as Exhibit 5. The proposed rule
change would amend the FICC Government Securities Division (``GSD'')
Rulebook (the ``GSD Rules'') and the FICC Mortgage-Backed Securities
Division (``MBSD'') Clearing Rules (``MBSD Rules'' and collectively
with the GSD Rules, the ``Rules'') in order to adopt the Interpretive
Guidance with respect to Settlement Finality (``Interpretive
Guidance''), which would provide greater transparency to FICC Members
regarding settlement finality in the Rules, as described in greater
detail below.\5\
---------------------------------------------------------------------------
\5\ Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the GSD Rules or
the MBSD Rules, as applicable, available at https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed
[[Page 12354]]
any comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item IV below.
The clearing agency has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
The proposed rule change would add the Interpretive Guidance into
the Rules, which would provide greater transparency to FICC Members
relating to settlement finality in the Rules.
(i) Background
FICC is a clearing agency registered with, and under the
supervision of, the Commission and it is a ``covered clearing agency''
under the Commission's Standards for Covered Clearing Agencies.\6\ Rule
17Ad-22(e)(8) of the Act requires FICC to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to define the point at which settlement is final to be no
later than the end of the day on which the payment or obligation is due
and, where necessary or appropriate, intraday or in real time.\7\ It is
FICC's policy to ensure that the point of settlement finality is
defined in the Rules in compliance with Rule 17Ad-22(e)(8) of the Act
and that the point of settlement finality is transparent to FICC's
Members. The proposed rule change would add the Interpretive Guidance
to the Rules to provide greater transparency regarding settlement
finality in the Rules.
---------------------------------------------------------------------------
\6\ See Standards for Covered Clearing Agencies, Securities
Exchange Act Release No. 78961, 81 FR 70786 (Oct. 13, 2016).
\7\ 17 CFR 240.17Ad-22(e)(8).
---------------------------------------------------------------------------
A. FICC Money and Securities Settlement
Through GSD, FICC processes two types of settlements: (1) The
funds-only settlement process that consists of the transfer of cash for
(a) changes in the value of securities when they are marked to market,
(b) cash adjustments related to securities trades, (c) the pass-through
of coupon payments for term repurchase agreements (``repos'') or trade
obligations that cross a coupon date, and (d) other items, such as
billing invoices and (2) the settlement process associated with
securities deliveries and related payment obligations.
Through MBSD, FICC processes two types of settlements: (1) The cash
settlement process that that consists of the transfer of cash for (a)
the TBA Transaction Adjustment Payment, (b) Net Pool Transaction
Adjustment Payment, (c) principal and interest payments for failing net
pool settlement obligations (to the extent that they are not handled by
the Fedwire Securities Service Automated Claims Adjustment Process),
and (d) other items, such as Factor Update Adjustments, CPR Claim
payments and billing invoices and (2) the settlement associated with
securities deliveries and related payment obligations.
B. Point of Settlement Finality for GSD Funds-Only Settlement and MBSD
Cash Settlement
1. Funds-Only/Cash Settlement Processes
GSD funds-only settlement and MBSD cash settlement are governed by
GSD Rule 13 and MBSD Rule 11, respectively,\8\ which require the
settling banks to use the FRB's \9\ National Settlement Service
(``NSS'') \10\ to complete GSD funds-only settlement and MBSD cash
settlement.\11\
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\8\ GSD Rule 13 and MBSD Rule 11, supra note 5.
\9\ FRB means the Board of Governors of the Federal Reserve
System and each Federal Reserve Bank, as appropriate. GSD Rule 1 and
MBSD Rule 1, supra note 5.
\10\ NSS is a multilateral settlement service owned and operated
by the FRB. The service is offered to depository institutions that
settle for participants in clearinghouses, financial exchanges and
other clearing and settlement groups. Settlement agents, acting on
behalf of those depository institutions in a settlement arrangement,
electronically submit settlement files to the FRB. Files are
processed on receipt, and entries are automatically posted to the
depository institutions' FRB accounts.
\11\ GSD Rule 13, Section 5(i) and MBSD Rule 11, Section 9(i),
supra note 5.
---------------------------------------------------------------------------
GSD funds-only settlement and MBSD cash settlement are each a daily
process of generating a net credit or debit cash amount for each Member
and settling those cash amounts between Members and FICC. The GSD
funds-only settlement and MBSD cash settlement processes are primarily
cash pass-through processes; i.e., those Members that are in a net
debit position are obligated to submit payments that are then used to
pay Members in a net credit position.\12\ Net debits and credits of all
Members using the same settling bank are further netted and reported
\13\ to the settling bank which is required to acknowledge the net-net
debits or credits.\14\ The settling banks then debit or credit the
Members' accounts for which they settle.\15\
---------------------------------------------------------------------------
\12\ Certain amounts, such as billing amounts owed by Members to
FICC, are credited and paid to FICC through the funds-only/cash
settlement processes rather than passed on to other Members.
\13\ GSD Rule 13, Sections 2 and 5(a) and MBSD Rule 11, Section
9(a), supra note 5.
\14\ GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b),
supra note 5.
\15\ Each Member is required to enter into a settling bank
agreement with the settling bank that settles its account. GSD Rule
13, Section 4 and MBSD Rule 3A, Section (a), supra note 5. In the
settling bank agreement, the settling bank undertakes to perform
settlement services on behalf of the Member which would include
debiting or crediting the Member's account upon settlement.
---------------------------------------------------------------------------
FICC has a settlement interface with its affiliate, The Depository
Trust Company (``DTC''). DTC acts as Settlement Agent for FICC and for
the Members' settling banks with respect to GSD funds-only settlement
and MBSD cash settlement.\16\ In submitting the NSS file, DTC, as
Settlement Agent, submits instructions to cause the FRB accounts of the
settling banks to be charged for their net-net debit balances and
credited with their net-net credit balances. Members are required to
engage a settling bank that meets FICC's settling bank limited
membership criteria to effect money settlement via NSS on behalf of the
Members.\17\ Each settling bank is required to acknowledge the daily
settlement balances and their intention to settle with FICC by the
applicable deadlines or its refusal to settle by the applicable
deadlines.\18\ Once a settling bank has acknowledged the balances and
its intention to settle, it must settle such amounts pursuant to the
process set forth in the Rules by the payment deadline established by
FICC on FICC's posted time schedules.\19\
---------------------------------------------------------------------------
\16\ GSD Rule 13, Section 5(h) and MBSD Rule 11, Section 9(h),
supra note 5.
\17\ GSD Rule 13, Section 4(a) and MBSD Rule 3A, Section (a),
supra note 5.
\18\ GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b),
supra note 5.
\19\ GSD Rule 13, Section 5(g) and MBSD Rule 11, Section 9(g),
supra note 5.
---------------------------------------------------------------------------
FICC processes GSD funds-only settlement debit and credit payments
via the NSS twice daily at 10:00 a.m. and 3:15 p.m.\20\ FICC processes
MBSD cash settlement debits via NSS in the morning at 10:00 a.m. daily
and settlement credits via NSS in the afternoon at 2:45 p.m. daily.\21\
---------------------------------------------------------------------------
\20\ Schedule of Timeframes in the GSD Rules, supra note 5.
\21\ The schedule of funds only settlement for MBSD is posted on
its website at https://www.dtcc.com. See MBSD Rule 11, Section 9(g),
supra note 5.
---------------------------------------------------------------------------
2. Interpretive Guidance With Respect to Settlement Finality--Funds-
Only/Cash Settlement
The point of finality for GSD funds-only settlement and MBSD cash
settlement is defined by the Federal Reserve Bank Operating Circular
12,\22\
[[Page 12355]]
which governs NSS processing by the FRB. FICC and each Member's
settling bank is a ``Settler'' and together are in a ``Settlement
Arrangement'' (each term as defined in Operating Circular 12) for
purposes of GSD funds-only settlement and MBSD cash settlement.\23\
DTC, as the Settlement Agent (as defined in the Rules and in Operating
Circular 12), provides the Settlement File (as defined in Operating
Circular 12) to the FRB. Each Settler maintains a Master Account (as
defined in Operating Circular 12) with the FRB.\24\ The point of
finality in accordance with Operating Circular 12 is, for debits, the
time at which the Settler's Master Account is debited by the FRB,\25\
and, for credits, the time at which the Settler's Master Account is
credited by the FRB.\26\
---------------------------------------------------------------------------
\22\ Federal Reserve Bank Operating Circular 12 (Multilateral
Settlement), Effective June 30, 2016 (``Operating Circular 12''),
available at https://www.frbservices.org.
\23\ For purposes of Operating Circular 12, the following
definitions apply:
``Balance'' means the amount listed on a Settlement File that a
Settler owes (debit Balance) or is due (credit Balance) as a result
of the clearing activities of the Settlement Arrangement.
``Master Account'' means the Master Account (as that term is
defined in the Reserve Banks' Operating Circular 1, Account
Relationships) of a Settler on the books of a Reserve Bank.
``Settler'' means an entity that has established an account with
a Reserve Bank and settles its own Balances, settles Balances for
the account of another Participant, or both.
``Settlement Agent'' means the entity authorized to act on
behalf of the Settlers under Operating Circular 12.
``Settlement File'' means the instructions submitted by a
Settlement Agent showing the debit and credit Balances of the
Settlers.
See Section 1.2 of Operating Circular 12, supra note 22. See
also Federal Reserve Banks Operating Circular 1 (Account
Relationships), Effective February 1, 2013, available at https://www.frbservices.org.
\24\ See id.
\25\ See Section 5.4 of Operating Circular 12, supra note 22.
\26\ See Section 5.6 of Operating Circular 12, supra note 22.
---------------------------------------------------------------------------
Therefore, the point of finality with respect to settlement for GSD
funds-only settlement and MBSD cash settlement is the point at which
each of the Master Accounts for FICC and the settling banks designated
by each of the Members have been debited and credited through NSS
pursuant to the Settlement File provided by the Settlement Agent.
C. Point of Finality for GSD and MBSD Settlement of Securities
Deliveries and Related Payment Obligations
1. Securities Settlement Processes
(a) GSD Securities Settlement/MBSD Securities Settlement
GSD and MBSD settlement for securities deliveries and related
payment obligations (other than GCF Repo Transactions and CCIT
Transactions) are governed by GSD Rule 12 and MBSD Rule 9,
respectively.\27\ Settlement for securities deliveries and related
payment obligations occurs on a delivery-versus-payment basis on the
books of FICC's clearing bank \28\ or via Fedwire Securities Service
(``Fedwire'').\29\
---------------------------------------------------------------------------
\27\ GSD Rule 12 and MBSD Rule 9, supra note 5.
\28\ FICC currently uses The Bank of New York Mellon (``BNY
Mellon'') as its clearing bank for this purpose.
\29\ Fedwire Securities Service is an electronic securities
service owned and operated by the FRB that provides issuance,
maintenance, transfer and settlement services for all marketable
U.S. Treasury securities, as well as certain securities issued by
other federal government agencies, government-sponsored enterprises
and international organizations. See https://frbservices.org/financial-services/securities/.
---------------------------------------------------------------------------
FICC designates a clearing bank to act on its behalf in the
delivery and receipt of securities to or from the Members for
securities settlement.\30\ FICC shall notify each GSD Member and MBSD
Member, as applicable, of the clearing bank or banks that FICC will use
to deliver eligible securities to Members and to receive eligible
securities from Members, and by product, the types of securities that
each such clearing bank will so deliver and receive.\31\ In turn, each
Member (prior to activating its membership) must notify FICC of the
clearing bank or banks that the Member has designated to act on its
behalf in the delivery and receipt of securities to or from FICC.\32\
Such designation is subject to FICC's determination that such clearing
bank (a) has and will maintain access to Fedwire, (b) has and will
maintain the operational capability to interact satisfactorily with the
clearing banks that act on behalf of FICC, and (c) has agreed to act on
behalf of such Member in accordance with the Rules.\33\
---------------------------------------------------------------------------
\30\ GSD Rule 12, Section 2 and MBSD Rule 9, Section 2, supra
note 5.
\31\ Id.
\32\ Id.
\33\ Id.
---------------------------------------------------------------------------
If the Member's designated clearing bank for securities settlement
is the same as FICC's clearing bank, obligations for securities
deliveries and related payment obligations will be settled for a Member
on the books of FICC's designated clearing bank. If the Member's
designated clearing bank is not the same as FICC's clearing bank,
obligations for securities deliveries and related payment obligations
will be settled between the clearing banks using Fedwire. All
deliveries are made against full payment.\34\
---------------------------------------------------------------------------
\34\ GSD Rule 12, Section 1 and MBSD Rule 9, Section 1, supra
note 5.
---------------------------------------------------------------------------
(b) GCF Repo[supreg] Service and the CCIT Service Settlement
Settlement for securities deliveries and related payment
obligations relating to the GCF Repo[supreg] Service and the CCIT
Service are governed by GSD Rule 20 and GSD Rule 3B.\35\ FICC and each
Member settling transactions through the GCF Repo Service and CCIT
Service maintain accounts at FICC's designated clearing bank for
settlement of securities deliveries and related payment obligations
with respect to the GCF Repo Service and the CCIT Service.\36\
Settlement for securities deliveries and related payment obligations
\37\ for the GCF Repo Service and the CCIT Service occurs on the books
of FICC's designated clearing bank.\38\
---------------------------------------------------------------------------
\35\ The GCF Repo service is primarily governed by GSD Rule 20
and enables Netting Members to trade general collateral finance
repurchase agreement transactions based on rate, term, and
underlying product throughout the day with brokers on a blind basis.
GSD Rule 20, supra note 5. The CCIT Service is governed by GSD Rule
3B and enables tri-party repurchase agreement transactions in GCF
Repo Securities between Netting Members that participate in the GCF
Repo Service and institutional cash lenders (other than investment
companies registered under the Investment Company Act of 1940, as
amended). GSD Rule 3B, supra note 5. Section 11 of GSD Rule 3B
provides that GSD Rule 20 shall apply to the netting and settlement
obligations of FICC and each party to a CCIT Transaction in the same
way in which such provisions apply to GCF Repo Transactions. GSD
Rule 3B, Section 11, supra note 5.
\36\ See GSD Rule 3B, Section 9(b), supra note 5 (requiring each
CCIT Member to maintain two accounts at the GCF Clearing Agent Bank,
one of which, the CCIT Account, is for the CCIT Member's activity in
respect of CCIT Transactions).
\37\ GSD Rule 3B, Section 13 provides that certain payment
obligations relating to CCIT Transactions are processed pursuant to
GSD funds-only settlement described in Item II.(A)(1)(i)B. above.
See GSD Rule 3B, Section 13, supra note 5.
\38\ The clearing bank for this purpose is defined as the GCF
Clearing Agent Bank. See GSD Rule 3B and GSD Rule 20, supra note 5.
FICC currently uses BNY Mellon as the GCF Clearing Agent Bank.
---------------------------------------------------------------------------
2. Interpretive Guidance With Respect to Settlement Finality--
Settlement for Securities Deliveries and Related Payment Obligations
Settlement for securities deliveries and related payment
obligations occurs (i) on the books of FICC's designated clearing bank
for each Member whose designated clearing bank for such settlement is
the same as FICC's designated clearing bank and (ii) through the
Fedwire system, for each Member whose designated clearing bank for such
settlement is not the same as FICC's designated clearing bank.
(a) Point of Finality on the Books of FICC's Clearing Bank
The point of finality relating to settlement of securities
deliveries and related payment obligations that occurs
[[Page 12356]]
on the books of FICC's clearing bank is the point at which FICC's
clearing bank has acted upon a settlement instruction from FICC.
Pursuant to the agreement between FICC and FICC's clearing bank, a
settlement instruction is an instruction by FICC to the clearing bank
in respect of settlement that: (1)(a) Instructs the clearing bank to
direct delivery, from the FICC account to the Member account(s)
designated in such settlement instruction, of securities specified for
each such Member account and (b) specifies the dollar amounts that the
clearing bank is simultaneously to take collection of from each of the
respective Member accounts designated in the settlement instruction for
the FICC account; or (2)(a) instructs the clearing bank to direct
payment, from the FICC account to the designated Member account(s), of
the dollar amounts specified in the settlement instruction for each
such Member account and (b) specifies the securities that the clearing
bank is simultaneously to take receipt of from each of the Member
accounts designated in the settlement instruction for the FICC account.
FICC's clearing bank has acted upon such instructions when the
clearing bank (i)(a) directs delivery, from the FICC account to the
Member account(s) designated in such settlement instruction, of
securities specified for each such Member account and (b)
simultaneously collects the dollar amounts from each of the respective
Member accounts designated in the settlement instruction for the FICC
account; or (ii)(a) directs payment, from the FICC account to the
designated Member account(s), of the dollar amounts specified in the
settlement instruction for each such Member account and (b)
simultaneously takes receipt of securities from each of the Member
accounts designated in the settlement instruction for the FICC account.
Therefore, the point of finality of settlement of securities
deliveries and related payment obligations that occur on the books of
FICC's clearing bank is when each of the accounts held by FICC and the
Members at the clearing bank for purposes of securities settlement have
been debited and credited in accordance with the settlement
instructions provided by FICC.
(b) Point of Finality on the Fedwire System
The point of finality relating to settlement of securities
deliveries and related payment obligations that occurs through the
Fedwire system is defined by the Federal Reserve Banks Operating
Circular No. 7,\39\ which governs book entry security account
maintenance and transfers. FICC's clearing bank and each Member's
clearing bank is a ``Participant'' and maintains a ``Securities
Account'' and a ``Master Account'' with the FRB (each term as defined
in Operating Circular 7).\40\ Operating Circular 7 states that
``[u]nless a Transfer is rejected in accordance with this Circular, all
debits and credits in connection with a Transfer become final at the
time the debits and credits are posted to the Sender's and Receiver's
Securities Accounts and, in case of Transfer Against Payment, their
corresponding Master Accounts.'' \41\ For purposes of settlement of
securities deliveries and related payment obligations, the clearing
banks designated by FICC and each Member to deliver and receive
securities and related funds on behalf of FICC and each Member,
respectively, are the Senders and Receivers described in Operating
Circular 7. Therefore, the point of finality of settlement of
securities deliveries and related payment obligations is when each of
the Securities Accounts and the Master Accounts of the clearing banks
designated by FICC and each of the Members have been debited and
credited through the Fedwire system in accordance with the settlement
instructions provided by FICC.\42\
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\39\ Federal Reserve Banks Operating Circular 7 (Book-Entry
Securities Account Maintenance and Transfer Services), Effective
October 29, 2017 (``Operating Circular 7''), available at https://www.frbservices.org.
\40\ For purposes of Operating Circular 7, the following
definitions apply:
``Book-Entry Security'' means a marketable security issued in
electronic form by the United States Government (the ``Treasury''),
any agency or instrumentality thereof, certain international
organizations, or others, that the Reserve Banks have determined is
eligible to be held in a Securities Account and is eligible for
Transfer.
``Free Transfer'' means a Transfer that does not involve any
credit or debit to a Master Account other than a transaction fee.
``Master Account'' means a ``Master Account'' (as defined in the
Reserve Banks' Operating Circular 1, Account Relationships) on the
books of a Reserve Bank. A Master Account is a Funds Account for
purposes of the regulations listed in Appendix A of Operating
Circular 7. A Master Account does not contain Book-Entry Securities.
``Participant'' means an entity that maintains a Securities
Account with a Reserve Bank in the entity's name.
``Receiver'' means the Participant receiving a Book-Entry
Security as a result of a Transfer.
``Securities Account'' means an account at a Reserve Bank
containing Book-Entry Securities.
``Sender'' means the Participant sending a Transfer Message.
``Transfer'' means the electronic movement over the
Fedwire[supreg] Securities Service of a par amount of Book-Entry
Securities by debit to the designated Securities Account of the
Sender and by credit to the designated Securities Account of the
Receiver, or by debit to one Securities Account of a Participant and
credit to another Securities Account of that same Participant, in
which case that Participant is both a Sender and a Receiver. A
Transfer is either a Free Transfer or a Transfer Against Payment.
``Transfer Against Payment'' means a Transfer that is effected
with a credit to the Master Account of the Sender and a debit to the
Master Account of the Receiver, for the amount of the payment.
``Transfer Message'' means an instruction of a Participant to a
Reserve Bank to effect a Transfer.
See Operating Agreement Circular 7, Section 3.0, supra note 39.
\41\ Operating Circular 7, Section 9.1.1, supra note 39.
Capitalized terms are defined as set forth in Operating Circular 7.
See supra note 40.
\42\ Each Business Day, FICC makes available to each Member a
Report that provides settlement information that FICC deems
sufficient to enable each such Member to be able to settle its
securities deliveries and related payment obligations and each
Member is obligated to provide the appropriate instructions to its
clearing bank to deliver and/or receive securities and related
payments as set forth in the Report. GSD Rule 12, Section 3 and MBSD
Rule 9, Section 3, supra note 5.
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(ii) Description of the Proposed Rule Change
In order to provide Members greater transparency regarding
settlement finality, FICC is proposing to amend the Rules to include
the Interpretive Guidance. The Interpretive Guidance would describe
settlement finality as set forth above in Items II.(A)(1)(i)B.2. and
II.(A)(1)(i)C.2. above.
(2) Statutory Basis
Section 17A(b)(3)(F) of the Act \43\ requires, in part, that the
Rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions. The proposed rule change would
provide additional transparency to FICC Members regarding settlement
finality with respect to securities transactions processed through
FICC. Accordingly, the proposed rule change would ensure that the Rules
are transparent and clear, which would enable all stakeholders to
readily understand their respective rights and obligations in
connection with FICC's clearance and settlement of securities
transactions. Therefore, FICC believes that the proposed rule change
would promote the prompt and accurate clearance and settlement of
securities transactions, consistent with Section 17A(b)(3)(F) of the
Act.\44\
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\43\ 15 U.S.C. 78q-1(b)(3)(F).
\44\ Id.
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Rule 17Ad-22(e)(8) under the Act \45\ requires FICC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to define the point at which settlement is final to
be no later than the end of the day on which the payment or obligation
is due and, where necessary or
[[Page 12357]]
appropriate, intraday or in real time. The proposed rule change to add
the Interpretive Guidance would enhance the transparency with respect
to the point at which settlement is final with respect to transactions
processed through FICC. Having clear provisions in this regard would
enable FICC Members to better identify the point at which settlement is
final with respect to their cash and securities transactions. As such,
FICC believes the proposed rule change is consistent with Rule 17Ad-
22(e)(8) of the Act.\46\
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\45\ 17 CFR 240.17Ad-22(e)(8).
\46\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC does not believe that the proposed rule change would impact
competition.\47\ The proposed rule change would provide interpretive
guidance with respect to settlement finality relating to transactions
processed through FICC. The proposed rule change would not change
current practices of FICC and would not affect FICC Members' rights or
obligations. As such, FICC believes that the proposed rule change would
not impact FICC Members or have any impact on competition.
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\47\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. FICC will notify the Commission of any written comments
received by FICC.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \48\ of the Act and paragraph (f) \49\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\48\ 15 U.S.C. 78s(b)(3)(A).
\49\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment for (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FICC-2020-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2020-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2020-001 and should be submitted on
or before March 23, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04186 Filed 2-28-20; 8:45 am]
BILLING CODE 8011-01-P
