Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Clearance Maintenance Fee, Reduce the End of Day Position Fee of the Government Securities Division, and Describe the Current Rebate Policy, 78904-78909 [2020-26786]

Download as PDF 78904 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices III. Date of Effectiveness of the Proposed Rule Change, as Modified by Amendment No. 1, and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) 50 of the Act and paragraph (f) 51 of Rule 19b–4 thereunder. At any time within 60 days of the filing of the proposed rule change, as modified by Amendment No. 1, 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 1, is consistent with the Act. Comments may be submitted by any of the following methods: khammond on DSKJM1Z7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– DTC–2020–014 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–DTC–2020–014. 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, as modified by Amendment No. 1, that are filed with the Commission, and all written communications relating to the proposed rule change, as modified by Amendment No. 1, 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 50 15 51 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Sep<11>2014 18:32 Dec 04, 2020 Jkt 253001 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 DTC 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–DTC– 2020–014 and should be submitted on or before December 28, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.52 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–26787 Filed 12–4–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90544; File No. SR–FICC– 2020–014] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Clearance Maintenance Fee, Reduce the End of Day Position Fee of the Government Securities Division, and Describe the Current Rebate Policy December 1, 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 November 16, 2020, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change. On November 30, 2020, FICC filed Amendment No. 1 to the proposed rule change, which revised a portion of the rule text and corresponding description in the notice relating to FICC’s current policy regarding the issuance of rebates to its members. FICC filed the proposed rule change, as modified by Amendment No. 1, pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(2) thereunder.4 CFR 200.30–3(a)(12). 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)(2). The proposed rule change, as modified by Amendment No. 1 is hereinafter referred to as the ‘‘Proposed Rule Change.’’ The Proposed Rule Change is described in Items I, II, and III below, which Items have been prepared primarily by FICC. 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 consists of modifications to FICC’s MortgageBacked Securities Division (‘‘MBSD’’) Clearing Rules (‘‘MBSD Rules’’) and Government Securities Division (‘‘GSD’’) Rulebook (‘‘GSD Rules’’ and together with the MBSD Rules, the ‘‘Rules’’) in order to (i) modify the respective Clearing Fund Maintenance Fee (‘‘Maintenance Fee’’) of GSD and MBSD, (ii) reduce the end of day position fee of GSD, and (iii) include a description of FICC’s current policy regarding the issuance of rebates to GSD Members and MBSD Clearing Members, 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 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 FICC is proposing to amend the MBSD Rules and the GSD Rules in order to (i) modify the respective Maintenance Fee of GSD and MBSD, (ii) reduce the end of day position fee of GSD, and (iii) include a description of FICC’s current policy regarding the issuance of rebates to GSD Members and MBSD Clearing Members, as described in greater detail below. 52 17 1 15 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 5 Capitalized terms not defined herein are defined in the GSD Rules and the MBSD Rules, as applicable, available at https://www.dtcc.com/legal/ rules-and-procedures. E:\FR\FM\07DEN1.SGM 07DEN1 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES (i) Background FICC operates a cost plus low margin pricing model and has in place procedures to control costs and to regularly review pricing levels against costs of operation. It reviews pricing levels against its costs of operation typically during the annual budget process. The budget is approved annually by the Board. FICC’s fees are cost-based plus a markup as approved by the Board or management (pursuant to authority delegated by the Board), as applicable. This markup or ‘‘low margin’’ is applied to recover development costs and operating expenses and to accumulate capital sufficient to meet regulatory and economic requirements. a. Maintenance Fee FICC implemented the Maintenance Fee in 2016 in order to (i) diversify FICC’s revenue sources, mitigating its dependence on revenues driven by settlement volumes, and (ii) add a stable revenue source that would contribute to FICC’s operating margin by offsetting increasing costs and expenses.6 The Maintenance Fees for MBSD and GSD are effectively the same and charged to MBSD Clearing Members and GSD Netting Members (collectively, ‘‘Members’’) in proportion to the Member’s deposit in their respective MBSD or GSD Clearing Fund (collectively, ‘‘Clearing Fund’’), as described below. The Maintenance Fee is calculated monthly, in arrears, as the product of (A) 0.25 percent and (B) the average of the Member’s cash deposit balance in the Clearing Fund as of the end of each day, for the month, multiplied by the number of days in that month and divided by 360. However, by its terms, the fee is waived if the monthly rate of return on FICC’s investment of the cash deposit balance of the Clearing Fund is less than 0.25 percent for the month (‘‘Waiver Provision’’). The Waiver Provision was included for the benefit of Members. FICC believed that if its monthly rate of return on the investment of the cash deposit balance in the Clearing Fund was less than 0.25 percent, then Members would likely be experiencing similarly low interest income on their deposits, including excess reserves, if applicable; in which case, FICC would waive the fee. Although this approach exposed FICC to the risk of not receiving revenue from the Maintenance Fee, FICC did not believe that such an 6 Securities Exchange Act Release No. 78529 (August 10, 2016), 81 FR 54626 (August 16, 2016) (SR–FICC–2016–004). VerDate Sep<11>2014 18:32 Dec 04, 2020 Jkt 253001 exposure would be common, significant, or long-term. b. End of Day Position Fee Currently, the Fee Structure of the GSD Rules includes the end of day position fee, which is a position management fee. FICC implemented the end of day position fee in 2018.7 The current end of day position fee is $0.115 per million par value. This end of day position fee is calculated for a GSD Member each Business Day based on the end of day gross position of the GSD Member (including positions of any GSD Non-Member that the GSD Member is clearing for) that Business Day. FICC determines the end of day gross position of a GSD Member by netting the par value of all compared buy/sell transactions, Repo Transactions, and unsettled obligations of the GSD Member (including any such activity submitted by the GSD Member for a GSD Non-Member that the GSD Member is clearing for) at the end of the Business Day by CUSIP Number and taking the sum of the absolute par value of each such CUSIP Number. The end of day position fee aims to align pricing with the costs of services provided by FICC because the end of day position fee is driven by position management. The end of day position fee aims to reflect the costs associated with end of day processing, overnight position management, and various risk and operational activities required to assure the ability of FICC to continue to provide a dependable, stable and efficient clearing and settlement service for GSD Members. c. Rebate FICC is also proposing to amend Section XII of the Fee Structure of the GSD Rules, the Important Note under Section I of the FICC MBSD Schedule of Charges Broker Account Group (‘‘Schedule of Charges Broker Account Group’’) of the MBSD Rules and Section I of the FICC MSBD Schedule of Charges Dealer Account Group (‘‘Schedule of Charges Dealer Account Group’’) of the MBSD Rules. The Proposed Rule Change would replace a current description of FICC’s policy on providing GSD Members and MBSD Clearing Members with a discount or surcharge with a description of its current policy regarding the issuance of rebates to GSD Members and MBSD Clearing Members. In connection with this change, the Proposed Rule Change would also change the title of Section 7 Securities Exchange Act Release No. 83401 (June 8, 2018), 83 FR 27812 (June 14, 2018) (SR– FICC–2018–003). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 78905 XII of the Fee Structure of the GSD Rules from ‘‘Capital Base, Pricing and Rebate Policy’’ to ‘‘Rebate Policy’’ to better describe the policy described in this section. (ii) Proposed Changes a. Proposed Modification to the Maintenance Fee Due to the coronavirus global pandemic and overall reaction by the financial markets, the rate of return on FICC’s investment of the cash deposit balance in the Clearing Fund has fallen below 0.25 percent, triggering the Waiver Provision. However, application of the Waiver Provision in this instance has proven to be longer and more significant than what FICC originally contemplated when drafting the provision, resulting in a drop in FICC’s revenues. If unaddressed, FICC’s revenue could continue to deteriorate and negatively impact FICC’s long-term financial health. To address this issue, FICC is removing the Waiver Provision so that FICC would be able to generate revenue from the Maintenance Fee even if FICC’s monthly rate of return on the investment of the cash deposit balance in the Clearing Fund is less than 0.25 percent. The ability to generate such revenue under such circumstances is important in helping FICC offset its costs and expenses in many economic environments. Additionally, the Proposed Rule Change would help provide consistent pricing between FICC and its affiliate clearing agencies, National Securities Clearing Corporation (‘‘NSCC’’) and The Depository Trust Company (‘‘DTC’’),8 as both NSCC and DTC have filed proposed rule changes concurrently with this filing that would result in the same calculation of their respective Maintenance Fee.9 To effectuate the proposed change described above, the Waiver Provision would be removed from (i) the Maintenance Fee in Section I (Fees) of the Schedule of Charges Broker Account Group in the MBSD Rules, (ii) the Maintenance Fee of Section 1(Fees) of the Schedule of Charges Dealer Account Group in the MBSD Rules, and (iii) Section XIII (Clearing Fund 8 The Depository Trust & Clearing Corporation (‘‘DTCC’’) is the parent company of DTC, NSCC, and FICC. DTCC operates on a shared services model for DTC, NSCC, and FICC. Most corporate functions are established and managed on an enterprise-wide basis pursuant to intercompany agreements under which it is generally DTCC that provides a relevant service to DTC, NSCC, or FICC. 9 See File No. SR–DTC–2020–014 and File No. SR–NSCC–2020–018 available at https:// www.dtcc.com/legal/sec-rule-filings. E:\FR\FM\07DEN1.SGM 07DEN1 78906 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Maintenance Fee) of the Fee Structure in the GSD Rules. b. Proposed Reduction of End of Day Position Fee FICC is proposing to reduce the end of day position fee from $0.115 per million par value to $0.105 per million par value. FICC believes that this proposed reduction in the end of day position fee would be consistent with FICC’s cost plus low-margin pricing model. As described above, FICC regularly reviews pricing levels against its costs of operation typically during the annual budget process. FICC determined during the 2020 annual budget process that the proposed reduction in the end of day position fee would help better align costs to revenue and be consistent with its cost plus low-margin pricing model. In addition, FICC believes a proposed reduction in one fee (rather than in a number of fees) is a more simple and clear way for FICC to continue to generate sufficient revenues to cover its operating costs plus generate a low net income operating margin (i.e., to be consistent with its pricing model). Furthermore, FICC believes that, with the proposed reduction in the end of day position fee, all GSD Members would benefit from a lower end of day position fee while, as described above, still enabling FICC to continue to generate sufficient revenues to cover its operating costs plus generate a low net income operating margin. As described above, because the end of day position fee is calculated based on the gross position of the GSD Members, GSD Members that generate higher levels of activity and make greater use of FICC’s services would generally be subject to a higher overall amount in terms of the end of day position fee (similar to the Maintenance Fee described above). Conversely, GSD Members that generate lower levels of activity and use FICC’s services less would generally be subject to smaller overall amount in terms of their end of day position fee. Therefore, some GSD Members may see a greater reduction in the overall amount of the fee given that it is based on the level of their activity. The described change would not adjust that allocation. To effectuate the proposed change described above, FICC would revise the end of day position fee from $0.115 per million par value to $0.105 per million par value in Section II.B of the Fee Structure of the GSD Rules. c. Proposed Changes to the Rebate Policy FICC is also proposing to amend Section XII of the Fee Structure of the VerDate Sep<11>2014 18:32 Dec 04, 2020 Jkt 253001 GSD Rules, the Important Note under Section I of the Schedule of Charges Broker Account Group of the MBSD Rules and the Important Note under Section I of the Schedule of Charges Dealer Account Group of the MBSD Rules. The Proposed Rule Change would replace a current description of FICC’s policy on providing GSD Members and MBSD Clearing Members with a discount or surcharge with a description of its current policy regarding the issuance of rebates to GSD Members and MBSD Clearing Members. Currently, Section XII of the Fee Structure of the GSD Rules, the Important Note under Section I of the Schedule of Charges Broker Account Group of the MBSD Rules and the Important Note under Section I of the Schedule of Charges Dealer Account Group of the MBSD Rules all include an outdated description of FICC’s policy to adjust GSD Members’ and MBSD Clearing Members’ invoices based on FICC’s revenues. This description states that FICC may adjust invoices down in the form of a discount or up in the form of a surcharge, based on its revenues. FICC did historically provide GSD Members and MBSD Clearing Members with a discount on their invoices, but it does not have any record of adjusting invoices up, in the form of a surcharge, in the past. FICC views its practice of providing a rebate to GSD Members and MBSD Clearing Members as a corporate function, and not related to its operation as a self-regulatory organization. An FICC rebate is essentially a return of the revenue that FICC collects through the fees it charges GSD Members and MBSD Clearing Members for its services (as set forth in the Fee Structure of the GSD Rules, the Schedule of Charges Broker Account Group of the MBSD Rules and Schedule of Charges Dealer Account Group of the MBSD Rules). Rebates are not related to the amounts GSD Members and MBSD Clearing Members deposit with FICC as their Required Fund Deposits, which are made up of risk-based margin charges. The determination to provide a rebate is made at the corporation-level, based on a number of factors and considerations, as described below, and is not a separate determination made for each individual GSD Member and MBSD Clearing Member. Following the financial recession of 2008, FICC ceased providing such discounts in connection with the implementation of a financial strategy to strengthen its financial position and health. As a result of that strategy and improved financial markets, in 2019, FICC determined to reinstitute its PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 practice of discounting GSD Members’ and MBSD Clearing Members’ invoices, in the form of a rebate, based on its financial performance. In connection with this decision, FICC is proposing to replace the language regarding adjustment of invoices in Section XII of the Fee Structure of the GSD Rules, the Important Note under Section I of the Schedule of Charges Broker Account Group of the MBSD Rules and the Important Note under Section I of the Schedule of Charges Dealer Account Group of the MBSD Rules to describe its current rebate practice. This proposed change would not change FICC’s current rebate practice but would provide GSD Members and MBSD Clearing Members with transparency into this practice and the governance around rebates. First, the Proposed Rule Change would change the title of Section XII of the Fee Structure of the GSD Rules from ‘‘Capital Base, Pricing and Rebate Policy’’ to ‘‘Rebate Policy’’ to better describe the policy described in this section. Second, the proposed language would describe that FICC may provide GSD Members and MBSD Clearing Members with a rebate of excess net income, and would define excess net income as income of either FICC or related to one business line of FICC after application of expenses, capitalization costs, and applicable regulatory requirements. The language would also state that a rebate is discretionary, to make it clear that FICC is not obligated to provide a rebate. Third, the proposed language would state that a rebate would be approved by the Board. The proposed language would also state that, in determining whether a rebate is appropriate, the Board would consider one or more of the following, as appropriate: FICC’s regulatory capital requirements,10 anticipated expenses, investment needs, anticipated future expenses with respect to improvement or maintenance of FICC’s operations, cash balances, financial projections, and appropriate level of shareholders’ equity. Fourth, the proposed language would state that, if the Board determined to 10 FICC manages its general business risk by holding sufficient liquid net assets funded by equity to cover potential general business losses so it can continue operations and services as going concerns if those losses materialize, in compliance with the requirements of Rule 17Ad–22(e)(15). 17 CFR 240.17Ad–22(e)(15). FICC maintains a Clearing Agency Policy on Capital Requirements which defines the amount of capital it must maintain for this purpose and sets forth the manner in which this amount is calculated. See Securities Exchange Act Release No. 89363 (July 21, 2020), 85 FR 45276 (July 27, 2020) (SR–FICC–2020–008) (amending original filing). E:\FR\FM\07DEN1.SGM 07DEN1 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices issue a rebate, it would set a rebate period and a rebate payment date, both of which are used to determine which GSD Members and MBSD Clearing Members are eligible for a rebate. The proposed language would state that GSD Members and MBSD Clearing Members that maintain their membership during all or a portion of the rebate period and on the rebate payment date are eligible for a rebate. Finally, the proposed language would describe how rebates are applied to the invoices of eligible GSD Members and MBSD Clearing Members. The proposed language would state that rebates are applied to all eligible GSD Members and MBSD Clearing Members on a pro-rata basis based on such GSD Members’ and MBSD Clearing Members’ gross fees paid to FICC within the applicable rebate period, excluding pass-through fees and interest earned on cash deposits to the Clearing Fund. The proposed language would also state that rebates are applied to eligible Members’ invoices on the rebate payment date as either a reduction in fees owed or, if fees owed are lower than the allocated rebate amount, a payment of such difference. The proposed language would also note that rebate amounts may be adjusted for miscellaneous charges and discounts. khammond on DSKJM1Z7X2PROD with NOTICES (iii) Expected Member Impact The Proposed Rule Change is expected to increase FICC’s annual revenue by approximately $14.5 million. In general, FICC anticipates that the proposal would result in fee decreases for approximately 27% of impacted affiliated family of Members and fee increases for approximately 73% of impacted affiliated family of Members. Of the impacted affiliated family of Members that may have their fees decrease, 100% of those affiliated family of Members would have a decrease between $1,000 and $100,000 per year. Of the impacted affiliated family of Members that may have their fees increase, approximately 2% of those impacted affiliated family of Members would have an increase of less than $1,000 per year, approximately 60% of those impacted affiliated family of Members would have an increase of $1,000 to $100,000 per year, approximately 32% of those impacted affiliated family of members would have an increase of $100,000 to $1 million per year, and approximately 6% of those impacted affiliated family of Members would have an increase of $1 million or greater per year. VerDate Sep<11>2014 18:32 Dec 04, 2020 Jkt 253001 78907 (iv) Member Outreach FICC has conducted ongoing outreach to each Member in order to provide them with notice of the proposed changes and the anticipated impact for the Member. As of the date of this filing, no written comments relating to the proposed changes have been received in response to this outreach. The Commission will be notified of any written comments received. the proposed change would not alter how the Maintenance Fee is currently allocated (i.e., charged) to Members, FICC believes the fee would continue to be equitably allocated. More specifically, as mentioned above, the Maintenance Fee is and would continue to be charged to all Members in proportion to the Member’s cash deposit balance in the Clearing Fund. As such, and as is currently the case, Members that make greater use of FICC’s services Implementation Timeframe would generally be subject to a larger Maintenance Fee because such Member FICC would implement this proposal would typically be required to maintain on January 1, 2021. As proposed, a a larger Clearing Fund deposit pursuant legend would be added to the Fee to the respective MBSD Rules or GSD Structure of the GSD Rules, the Rules.15 Conversely, Members that use Schedule of Charges Broker Account FICC’s services less would generally be Group of the MBSD Rules and the subject to a smaller Maintenance Fee Schedule of Charges Dealer Account because such Members would typically Group of the MBSD Rules, as be required to maintain a smaller appropriate, stating there are changes Clearing Fund deposit pursuant to the that became effective upon filing with respective MBSD Rules or GSD Rules.16 the Commission but have not yet been The described change would not adjust implemented. The proposed legend would include the date on which such that allocation. For this reason, FICC changes would be implemented and the believes the Maintenance Fee would file number of this proposal, and state continue to be equitably allocated that once this proposal is implemented, among Members. Similarly, FICC believes that the the legend would automatically be Maintenance Fee would continue to be removed. a reasonable fee under the proposed 2. Statutory Basis change described above. Although FICC believes this proposal is removal of the Waiver Provision means consistent with the requirements of the that Members could be assessed a Act, and the rules and regulations Maintenance Fee at times when they thereunder applicable to a registered may not otherwise have been assessed clearing agency. Specifically, FICC the fee, the removal of the provision believes the proposed changes to (i) would enable FICC to collect needed modify the respective Maintenance Fee revenue from the fee even in a difficult of GSD and MBSD and (ii) reduce the economic environment. Additionally, end of day position fee of GSD are the proposed change would help consistent with Section 17A(b)(3)(D) of establish consistent pricing between the Act 11 and the Proposed Rule Change FICC and its affiliates, NSCC and DTC, to include a description of FICC’s regarding each of their respective current policy regarding the issuance of Maintenance Fees, as concurrent rebates to GSD Members and MBSD proposals by NSCC and DTC would Clearing Members is consistent with result in the same calculation.17 For this Rule 17Ad–22(e)(23)(ii),12 as reason, FICC believes the Maintenance promulgated under the Act, for the Fee would continue to be reasonable. reasons described below. In addition, FICC believes the Section 17A(b)(3)(D) of the Act proposed change to reduce the end of requires that the rules of a clearing day position fee in the GSD Rules is agency, such as FICC, provide for the consistent with Section 17A(b)(3)(D).18 equitable allocation of reasonable dues, The proposal would provide for the fees, and other charges among its equitable allocation of fees among participants.13 FICC believes that the participants because the proposal would proposed changes to the Maintenance apply to all participants, such that all Fee and the end of day position fee are Members would be subject to this consistent with this provision of the proposed reduction of the end of the Act.14 day position fee following the As described above, the proposal implementation of the proposed change. would modify the Maintenance Fee to The end of day position fee is and remove the Waiver Provision. Because 11 15 U.S.C. 78q–1(b)(3)(D). 12 17 CFR.17Ad–22(e)(23)(ii). 13 15 U.S.C. 78q–1(b)(3)(D). 14 Id. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 15 See Rule 4, GSD Rules and Rule 4, MBSD Rules, supra note 5. 16 Id. 17 See supra note 9. 18 15 U.S.C. 78q–1(b)(3)(D). E:\FR\FM\07DEN1.SGM 07DEN1 khammond on DSKJM1Z7X2PROD with NOTICES 78908 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices would continue to be charged to all GSD Members. Because these proposed changes would not alter how the end of day position fee is currently allocated (i.e., charged) to Members, FICC believes these fees would continue to be equitably allocated. More specifically, as mentioned above, the end of day position fee is and would continue to be charged to all GSD Members based on their end of day gross positions. As such, and is currently the case, GSD Members that have more activity and make greater use of FICC’s services would generally be subject to a greater overall amount in terms of their end of day position fee. Conversely, GSD Members that generate lower levels of activity and use FICC’s services less would generally be subject to smaller overall amount in terms of their end of day position fee. For this reason, FICC believes the end of day position fee would continue to be equitably allocated among GSD Members. Similarly, FICC believes that the end of day position fee would continue to be a reasonable fee under the proposed change described above. The proposed reduction of the end of the day position fee would be consistent with FICC’s cost plus low-margin pricing model. With the proposed reduction of the end of day position fee, FICC believes it would still be able to continue to generate sufficient revenues to cover its operating costs plus generate a low net income operating margin while also enabling all GSD Members to benefit from a lower end of day position fee. For this reason, FICC believes the end of day position fee would continue to be reasonable. Based on the forgoing, FICC believes the Proposed Rule Change is consistent with Section 17A(b)(3)(D).19 Rule 17Ad–22(e)(23)(ii) under the Act requires that FICC establish, implement, maintain and enforce written policies and procedures reasonably designed to provide sufficient information to enable participants to identify and evaluate the risks, fees, and other material costs they incur by participating in the covered clearing agency.20 The Proposed Rule Change would replace an outdated description of FICC’s past practice of adjusting GSD Members’ and MBSD Clearing Members’ invoices, with an updated description of its current rebate practice, which, when applicable, results in a reduction to the amount of fees a GSD Member and MBSD Clearing Member owes to FICC. By updating Section XII of the Fee Structure of the GSD Rules, the Important Note under 19 Id. 20 17 Section I of the Schedule of Charges Broker Account Group of the MBSD Rules and the Important Note under Section I of the Schedule of Charges Dealer Account Group of the MBSD Rules with a clear, transparent description of FICC’s current rebate practice, the Proposed Rule Change would provide GSD Members and MBSD Clearing Members with sufficient information to evaluate the fees they may incur by participating in FICC. Therefore, FICC believes the Proposed Rule Change would be consistent with the requirements of Rule 17Ad– 22(e)(23)(ii).21 (B) Clearing Agency’s Statement on Burden on Competition FICC does not believe that the Proposed Rule Changes to (i) modify the Maintenance Fee of GSD and MBSD and (ii) update and enhance the transparency of FICC’s policy regarding the issuance of rebates to GSD Members and MBSD Clearing Members in the GSD Rules and MBSD Rules would have any impact, or impose any burden, on competition among its Members for the reasons described below. FICC believes that the proposed change to reduce the end of day position fee could promote competition among GSD Members for the reasons described below. FICC does not believe that the proposed change to the Maintenance Fee would have an impact on competition among its Members. As described above, the Maintenance Fee is charged ratably based on Members’ use of FICC’s services, as reflected in Members’ cash deposit balances to the Clearing Fund. Thus, the fee is designed to be reflective of each Member’s individual activity at FICC. Nevertheless, if removal of the Waiver Provision, and the resulting imposition of the Maintenance Fee at a time when a Member would not have otherwise been assessed the fee, would create a competitive burden for a Member, FICC believes such a burden would not be significant, given that the amount assessed would be the same but for application of the Waiver Provision. Moreover, FICC believes that any such burden would be necessary and appropriate in furtherance of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the Act.22 The burden would be necessary because it is essential that FICC offset some of its costs and expenses with stable revenue generated from the Maintenance Fee, regardless of the economic environment. As described above, not doing so could adversely affect FICC’s financial health. The burden would be appropriate because, as described above, the Maintenance Fee is calculated, using a balanced formula, to assess a fee that is reflective of the Member’s use of FICC’s services, so that FICC can defray some of its costs and expenses in providing those services. FICC believes that the proposed reduction of the end of day position fee could promote competition among GSD Members by potentially reducing GSD Members’ operating costs. As described above, the proposed reduction of the end of day position fee would apply equally to all GSD Members. In addition, FICC does not believe the Proposed Rule Change to describe its current rebate practice would have any impact, or impose any burden, on competition among its Members. As described above, this Proposed Rule Change would replace information currently in Section XII of the Fee Structure of the GSD Rules, the Important Note under Section I of the Schedule of Charges Broker Account Group of the MBSD Rules and Section I of the Schedule of Charges Dealer Account Group of the MBSD Rules, with a description of FICC’s current rebate practice. As described in the proposed language, under its current practice, rebates are allocated to eligible Members on a pro-rata basis based on such Members’ gross fees paid to FICC within the applicable rebate period. Therefore, the current practice is applied equally to all eligible Members. The Proposed Rule Change to provide Members with transparency into this practice would not cause any increase or decrease in the rebates Members may receive. Therefore, this Proposed Rule Change would not have any impact, or impose any burden, on competition among Members. (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) 23 of the Act and paragraph 21 Id. CFR 240.17Ad–22(e)(23)(ii). VerDate Sep<11>2014 18:32 Dec 04, 2020 22 15 Jkt 253001 PO 00000 U.S.C. 78q–1(b)(3)(I). Frm 00088 Fmt 4703 Sfmt 4703 23 15 E:\FR\FM\07DEN1.SGM U.S.C. 78s(b)(3)(A). 07DEN1 Federal Register / Vol. 85, No. 235 / Monday, December 7, 2020 / Notices (f) 24 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. 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: khammond on DSKJM1Z7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FICC–2020–014 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–2020–014. 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 24 17 CFR 240.19b–4(f). VerDate Sep<11>2014 18:32 Dec 04, 2020 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– 2020–014 and should be submitted on or before December 28, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–26786 Filed 12–4–20; 8:45 am] BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION [Docket No. SSA–2020–0026] Privacy Act of 1974; System of Records Office of the General Counsel and Office of Hearings Operations, Social Security Administration (SSA). ACTION: Notice of a modified system of records. AGENCY: In accordance with the Privacy Act, we are issuing public notice of our intent to modify an existing system of records entitled, Representative Disqualification, Suspension, and Non-Recognition File (60–0219), last published on May 10, 2010. This notice publishes details of the modified system as set forth below under the caption, SUPPLEMENTARY INFORMATION. SUMMARY: The system of records notice (SORN) is applicable upon its publication in today’s Federal Register, with the exception of the new routine uses, which are effective January 6, 2021. We invite public comment on the routine uses or other aspects of this SORN. In accordance with 5 U.S.C. 552a(e)(4) and (e)(11), we are providing the public a 30-day period in which to submit comments. Therefore, please submit any comments by January 6, 2021. DATES: The public, Office of Management and Budget (OMB), and Congress may comment on this publication by writing to the Executive Director, Office of Privacy and Disclosure, Office of the General Counsel, SSA, Room G–401 West High Rise, 6401 Security Boulevard, Baltimore, Maryland 21235–6401, or through the Federal e-Rulemaking Portal at https://www.regulations.gov. Please reference docket number SSA–2020– ADDRESSES: 25 17 Jkt 253001 PO 00000 CFR 200.30–3(a)(12). Frm 00089 Fmt 4703 Sfmt 4703 78909 0026. All comments we receive will be available for public inspection at the above address and we will post them to https://www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Tristin Dorsey, Government Information Specialist, Privacy Implementation Division, Office of Privacy and Disclosure, Office of the General Counsel, SSA, Room G–401 West High Rise, 6401 Security Boulevard, Baltimore, Maryland 21235–6401, telephone: (410) 966–5855, email: tristin.dorsey@ssa.gov. SUPPLEMENTARY INFORMATION: We are modifying the system manager and location to clarify the offices responsible for maintaining the system and the locations of the records within the system. We are clarifying that only the Office of the General Counsel (OGC) may make disclosures to the agencies and entities listed in routine uses Nos. 2, 3, and 4. In addition, we are expanding routine use No. 4 to include that OGC may make disclosures to the subject of an investigation or his or her legal counsel, for the purposes of identifying the representative of record, explaining the purpose of the request, and identifying and requesting information SSA needs to facilitate the investigation of, or litigation against, a representative. We are clarifying the language in routine use Nos. 8 and 17 for easier reading. We are also clarifying that we will retrieve records by claimant identification number and other claimant information that is relevant to the investigation. Lastly, we are modifying the notice throughout to correct miscellaneous stylistic formatting and typographical errors of the previously published notice, and to ensure the language reads consistently across multiple systems. We are republishing the entire notice for ease of reference. In accordance with 5 U.S.C. 552a(r), we have provided a report to OMB and Congress on this modified system of records. Matthew Ramsey, Executive Director, Office of Privacy and Disclosure, Office of the General Counsel. SYSTEM NAME AND NUMBER: Representative Disqualification, Suspension, and Non-Recognition Information File, 60–0219. SECURITY CLASSIFICATION: Unclassified. SYSTEM LOCATION: Social Security Administration, Office of the General Counsel, Office of General Law, 6401 Security Boulevard, E:\FR\FM\07DEN1.SGM 07DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78904-78909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26786]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90544; File No. SR-FICC-2020-014]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, 
as Modified by Amendment No. 1, To Modify the Clearance Maintenance 
Fee, Reduce the End of Day Position Fee of the Government Securities 
Division, and Describe the Current Rebate Policy

December 1, 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 November 16, 2020, Fixed Income Clearing Corporation (``FICC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change. On November 30, 2020, FICC filed Amendment No. 1 
to the proposed rule change, which revised a portion of the rule text 
and corresponding description in the notice relating to FICC's current 
policy regarding the issuance of rebates to its members. FICC filed the 
proposed rule change, as modified by Amendment No. 1, pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ 
The proposed rule change, as modified by Amendment No. 1 is hereinafter 
referred to as the ``Proposed Rule Change.'' The Proposed Rule Change 
is described in Items I, II, and III below, which Items have been 
prepared primarily by FICC. The Commission is publishing this notice to 
solicit comments on the Proposed Rule Change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The Proposed Rule Change consists of modifications to FICC's 
Mortgage-Backed Securities Division (``MBSD'') Clearing Rules (``MBSD 
Rules'') and Government Securities Division (``GSD'') Rulebook (``GSD 
Rules'' and together with the MBSD Rules, the ``Rules'') in order to 
(i) modify the respective Clearing Fund Maintenance Fee (``Maintenance 
Fee'') of GSD and MBSD, (ii) reduce the end of day position fee of GSD, 
and (iii) include a description of FICC's current policy regarding the 
issuance of rebates to GSD Members and MBSD Clearing Members, as 
described in greater detail below.\5\
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    \5\ Capitalized terms not defined herein are defined in the GSD 
Rules and the MBSD Rules, as applicable, available at https://www.dtcc.com/legal/rules-and-procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the Proposed Rule 
Change and discussed any comments it received on the Proposed Rule 
Change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    FICC is proposing to amend the MBSD Rules and the GSD Rules in 
order to (i) modify the respective Maintenance Fee of GSD and MBSD, 
(ii) reduce the end of day position fee of GSD, and (iii) include a 
description of FICC's current policy regarding the issuance of rebates 
to GSD Members and MBSD Clearing Members, as described in greater 
detail below.

[[Page 78905]]

(i) Background
    FICC operates a cost plus low margin pricing model and has in place 
procedures to control costs and to regularly review pricing levels 
against costs of operation. It reviews pricing levels against its costs 
of operation typically during the annual budget process. The budget is 
approved annually by the Board. FICC's fees are cost-based plus a 
markup as approved by the Board or management (pursuant to authority 
delegated by the Board), as applicable. This markup or ``low margin'' 
is applied to recover development costs and operating expenses and to 
accumulate capital sufficient to meet regulatory and economic 
requirements.
a. Maintenance Fee
    FICC implemented the Maintenance Fee in 2016 in order to (i) 
diversify FICC's revenue sources, mitigating its dependence on revenues 
driven by settlement volumes, and (ii) add a stable revenue source that 
would contribute to FICC's operating margin by offsetting increasing 
costs and expenses.\6\ The Maintenance Fees for MBSD and GSD are 
effectively the same and charged to MBSD Clearing Members and GSD 
Netting Members (collectively, ``Members'') in proportion to the 
Member's deposit in their respective MBSD or GSD Clearing Fund 
(collectively, ``Clearing Fund''), as described below.
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    \6\ Securities Exchange Act Release No. 78529 (August 10, 2016), 
81 FR 54626 (August 16, 2016) (SR-FICC-2016-004).
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    The Maintenance Fee is calculated monthly, in arrears, as the 
product of (A) 0.25 percent and (B) the average of the Member's cash 
deposit balance in the Clearing Fund as of the end of each day, for the 
month, multiplied by the number of days in that month and divided by 
360. However, by its terms, the fee is waived if the monthly rate of 
return on FICC's investment of the cash deposit balance of the Clearing 
Fund is less than 0.25 percent for the month (``Waiver Provision'').
    The Waiver Provision was included for the benefit of Members. FICC 
believed that if its monthly rate of return on the investment of the 
cash deposit balance in the Clearing Fund was less than 0.25 percent, 
then Members would likely be experiencing similarly low interest income 
on their deposits, including excess reserves, if applicable; in which 
case, FICC would waive the fee. Although this approach exposed FICC to 
the risk of not receiving revenue from the Maintenance Fee, FICC did 
not believe that such an exposure would be common, significant, or 
long-term.
b. End of Day Position Fee
    Currently, the Fee Structure of the GSD Rules includes the end of 
day position fee, which is a position management fee. FICC implemented 
the end of day position fee in 2018.\7\ The current end of day position 
fee is $0.115 per million par value. This end of day position fee is 
calculated for a GSD Member each Business Day based on the end of day 
gross position of the GSD Member (including positions of any GSD Non-
Member that the GSD Member is clearing for) that Business Day. FICC 
determines the end of day gross position of a GSD Member by netting the 
par value of all compared buy/sell transactions, Repo Transactions, and 
unsettled obligations of the GSD Member (including any such activity 
submitted by the GSD Member for a GSD Non-Member that the GSD Member is 
clearing for) at the end of the Business Day by CUSIP Number and taking 
the sum of the absolute par value of each such CUSIP Number.
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    \7\ Securities Exchange Act Release No. 83401 (June 8, 2018), 83 
FR 27812 (June 14, 2018) (SR-FICC-2018-003).
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    The end of day position fee aims to align pricing with the costs of 
services provided by FICC because the end of day position fee is driven 
by position management. The end of day position fee aims to reflect the 
costs associated with end of day processing, overnight position 
management, and various risk and operational activities required to 
assure the ability of FICC to continue to provide a dependable, stable 
and efficient clearing and settlement service for GSD Members.
c. Rebate
    FICC is also proposing to amend Section XII of the Fee Structure of 
the GSD Rules, the Important Note under Section I of the FICC MBSD 
Schedule of Charges Broker Account Group (``Schedule of Charges Broker 
Account Group'') of the MBSD Rules and Section I of the FICC MSBD 
Schedule of Charges Dealer Account Group (``Schedule of Charges Dealer 
Account Group'') of the MBSD Rules. The Proposed Rule Change would 
replace a current description of FICC's policy on providing GSD Members 
and MBSD Clearing Members with a discount or surcharge with a 
description of its current policy regarding the issuance of rebates to 
GSD Members and MBSD Clearing Members. In connection with this change, 
the Proposed Rule Change would also change the title of Section XII of 
the Fee Structure of the GSD Rules from ``Capital Base, Pricing and 
Rebate Policy'' to ``Rebate Policy'' to better describe the policy 
described in this section.
(ii) Proposed Changes
a. Proposed Modification to the Maintenance Fee
    Due to the coronavirus global pandemic and overall reaction by the 
financial markets, the rate of return on FICC's investment of the cash 
deposit balance in the Clearing Fund has fallen below 0.25 percent, 
triggering the Waiver Provision. However, application of the Waiver 
Provision in this instance has proven to be longer and more significant 
than what FICC originally contemplated when drafting the provision, 
resulting in a drop in FICC's revenues. If unaddressed, FICC's revenue 
could continue to deteriorate and negatively impact FICC's long-term 
financial health.
    To address this issue, FICC is removing the Waiver Provision so 
that FICC would be able to generate revenue from the Maintenance Fee 
even if FICC's monthly rate of return on the investment of the cash 
deposit balance in the Clearing Fund is less than 0.25 percent. The 
ability to generate such revenue under such circumstances is important 
in helping FICC offset its costs and expenses in many economic 
environments. Additionally, the Proposed Rule Change would help provide 
consistent pricing between FICC and its affiliate clearing agencies, 
National Securities Clearing Corporation (``NSCC'') and The Depository 
Trust Company (``DTC''),\8\ as both NSCC and DTC have filed proposed 
rule changes concurrently with this filing that would result in the 
same calculation of their respective Maintenance Fee.\9\
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    \8\ The Depository Trust & Clearing Corporation (``DTCC'') is 
the parent company of DTC, NSCC, and FICC. DTCC operates on a shared 
services model for DTC, NSCC, and FICC. Most corporate functions are 
established and managed on an enterprise-wide basis pursuant to 
intercompany agreements under which it is generally DTCC that 
provides a relevant service to DTC, NSCC, or FICC.
    \9\ See File No. SR-DTC-2020-014 and File No. SR-NSCC-2020-018 
available at https://www.dtcc.com/legal/sec-rule-filings.
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    To effectuate the proposed change described above, the Waiver 
Provision would be removed from (i) the Maintenance Fee in Section I 
(Fees) of the Schedule of Charges Broker Account Group in the MBSD 
Rules, (ii) the Maintenance Fee of Section 1(Fees) of the Schedule of 
Charges Dealer Account Group in the MBSD Rules, and (iii) Section XIII 
(Clearing Fund

[[Page 78906]]

Maintenance Fee) of the Fee Structure in the GSD Rules.
b. Proposed Reduction of End of Day Position Fee
    FICC is proposing to reduce the end of day position fee from $0.115 
per million par value to $0.105 per million par value.
    FICC believes that this proposed reduction in the end of day 
position fee would be consistent with FICC's cost plus low-margin 
pricing model. As described above, FICC regularly reviews pricing 
levels against its costs of operation typically during the annual 
budget process. FICC determined during the 2020 annual budget process 
that the proposed reduction in the end of day position fee would help 
better align costs to revenue and be consistent with its cost plus low-
margin pricing model. In addition, FICC believes a proposed reduction 
in one fee (rather than in a number of fees) is a more simple and clear 
way for FICC to continue to generate sufficient revenues to cover its 
operating costs plus generate a low net income operating margin (i.e., 
to be consistent with its pricing model).
    Furthermore, FICC believes that, with the proposed reduction in the 
end of day position fee, all GSD Members would benefit from a lower end 
of day position fee while, as described above, still enabling FICC to 
continue to generate sufficient revenues to cover its operating costs 
plus generate a low net income operating margin. As described above, 
because the end of day position fee is calculated based on the gross 
position of the GSD Members, GSD Members that generate higher levels of 
activity and make greater use of FICC's services would generally be 
subject to a higher overall amount in terms of the end of day position 
fee (similar to the Maintenance Fee described above). Conversely, GSD 
Members that generate lower levels of activity and use FICC's services 
less would generally be subject to smaller overall amount in terms of 
their end of day position fee. Therefore, some GSD Members may see a 
greater reduction in the overall amount of the fee given that it is 
based on the level of their activity. The described change would not 
adjust that allocation.
    To effectuate the proposed change described above, FICC would 
revise the end of day position fee from $0.115 per million par value to 
$0.105 per million par value in Section II.B of the Fee Structure of 
the GSD Rules.
c. Proposed Changes to the Rebate Policy
    FICC is also proposing to amend Section XII of the Fee Structure of 
the GSD Rules, the Important Note under Section I of the Schedule of 
Charges Broker Account Group of the MBSD Rules and the Important Note 
under Section I of the Schedule of Charges Dealer Account Group of the 
MBSD Rules. The Proposed Rule Change would replace a current 
description of FICC's policy on providing GSD Members and MBSD Clearing 
Members with a discount or surcharge with a description of its current 
policy regarding the issuance of rebates to GSD Members and MBSD 
Clearing Members.
    Currently, Section XII of the Fee Structure of the GSD Rules, the 
Important Note under Section I of the Schedule of Charges Broker 
Account Group of the MBSD Rules and the Important Note under Section I 
of the Schedule of Charges Dealer Account Group of the MBSD Rules all 
include an outdated description of FICC's policy to adjust GSD Members' 
and MBSD Clearing Members' invoices based on FICC's revenues. This 
description states that FICC may adjust invoices down in the form of a 
discount or up in the form of a surcharge, based on its revenues. FICC 
did historically provide GSD Members and MBSD Clearing Members with a 
discount on their invoices, but it does not have any record of 
adjusting invoices up, in the form of a surcharge, in the past.
    FICC views its practice of providing a rebate to GSD Members and 
MBSD Clearing Members as a corporate function, and not related to its 
operation as a self-regulatory organization. An FICC rebate is 
essentially a return of the revenue that FICC collects through the fees 
it charges GSD Members and MBSD Clearing Members for its services (as 
set forth in the Fee Structure of the GSD Rules, the Schedule of 
Charges Broker Account Group of the MBSD Rules and Schedule of Charges 
Dealer Account Group of the MBSD Rules). Rebates are not related to the 
amounts GSD Members and MBSD Clearing Members deposit with FICC as 
their Required Fund Deposits, which are made up of risk-based margin 
charges. The determination to provide a rebate is made at the 
corporation-level, based on a number of factors and considerations, as 
described below, and is not a separate determination made for each 
individual GSD Member and MBSD Clearing Member.
    Following the financial recession of 2008, FICC ceased providing 
such discounts in connection with the implementation of a financial 
strategy to strengthen its financial position and health. As a result 
of that strategy and improved financial markets, in 2019, FICC 
determined to reinstitute its practice of discounting GSD Members' and 
MBSD Clearing Members' invoices, in the form of a rebate, based on its 
financial performance. In connection with this decision, FICC is 
proposing to replace the language regarding adjustment of invoices in 
Section XII of the Fee Structure of the GSD Rules, the Important Note 
under Section I of the Schedule of Charges Broker Account Group of the 
MBSD Rules and the Important Note under Section I of the Schedule of 
Charges Dealer Account Group of the MBSD Rules to describe its current 
rebate practice. This proposed change would not change FICC's current 
rebate practice but would provide GSD Members and MBSD Clearing Members 
with transparency into this practice and the governance around rebates.
    First, the Proposed Rule Change would change the title of Section 
XII of the Fee Structure of the GSD Rules from ``Capital Base, Pricing 
and Rebate Policy'' to ``Rebate Policy'' to better describe the policy 
described in this section.
    Second, the proposed language would describe that FICC may provide 
GSD Members and MBSD Clearing Members with a rebate of excess net 
income, and would define excess net income as income of either FICC or 
related to one business line of FICC after application of expenses, 
capitalization costs, and applicable regulatory requirements. The 
language would also state that a rebate is discretionary, to make it 
clear that FICC is not obligated to provide a rebate.
    Third, the proposed language would state that a rebate would be 
approved by the Board. The proposed language would also state that, in 
determining whether a rebate is appropriate, the Board would consider 
one or more of the following, as appropriate: FICC's regulatory capital 
requirements,\10\ anticipated expenses, investment needs, anticipated 
future expenses with respect to improvement or maintenance of FICC's 
operations, cash balances, financial projections, and appropriate level 
of shareholders' equity.
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    \10\ FICC manages its general business risk by holding 
sufficient liquid net assets funded by equity to cover potential 
general business losses so it can continue operations and services 
as going concerns if those losses materialize, in compliance with 
the requirements of Rule 17Ad-22(e)(15). 17 CFR 240.17Ad-22(e)(15). 
FICC maintains a Clearing Agency Policy on Capital Requirements 
which defines the amount of capital it must maintain for this 
purpose and sets forth the manner in which this amount is 
calculated. See Securities Exchange Act Release No. 89363 (July 21, 
2020), 85 FR 45276 (July 27, 2020) (SR-FICC-2020-008) (amending 
original filing).
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    Fourth, the proposed language would state that, if the Board 
determined to

[[Page 78907]]

issue a rebate, it would set a rebate period and a rebate payment date, 
both of which are used to determine which GSD Members and MBSD Clearing 
Members are eligible for a rebate. The proposed language would state 
that GSD Members and MBSD Clearing Members that maintain their 
membership during all or a portion of the rebate period and on the 
rebate payment date are eligible for a rebate.
    Finally, the proposed language would describe how rebates are 
applied to the invoices of eligible GSD Members and MBSD Clearing 
Members. The proposed language would state that rebates are applied to 
all eligible GSD Members and MBSD Clearing Members on a pro-rata basis 
based on such GSD Members' and MBSD Clearing Members' gross fees paid 
to FICC within the applicable rebate period, excluding pass-through 
fees and interest earned on cash deposits to the Clearing Fund. The 
proposed language would also state that rebates are applied to eligible 
Members' invoices on the rebate payment date as either a reduction in 
fees owed or, if fees owed are lower than the allocated rebate amount, 
a payment of such difference. The proposed language would also note 
that rebate amounts may be adjusted for miscellaneous charges and 
discounts.
(iii) Expected Member Impact
    The Proposed Rule Change is expected to increase FICC's annual 
revenue by approximately $14.5 million.
    In general, FICC anticipates that the proposal would result in fee 
decreases for approximately 27% of impacted affiliated family of 
Members and fee increases for approximately 73% of impacted affiliated 
family of Members. Of the impacted affiliated family of Members that 
may have their fees decrease, 100% of those affiliated family of 
Members would have a decrease between $1,000 and $100,000 per year. Of 
the impacted affiliated family of Members that may have their fees 
increase, approximately 2% of those impacted affiliated family of 
Members would have an increase of less than $1,000 per year, 
approximately 60% of those impacted affiliated family of Members would 
have an increase of $1,000 to $100,000 per year, approximately 32% of 
those impacted affiliated family of members would have an increase of 
$100,000 to $1 million per year, and approximately 6% of those impacted 
affiliated family of Members would have an increase of $1 million or 
greater per year.
(iv) Member Outreach
    FICC has conducted ongoing outreach to each Member in order to 
provide them with notice of the proposed changes and the anticipated 
impact for the Member. As of the date of this filing, no written 
comments relating to the proposed changes have been received in 
response to this outreach. The Commission will be notified of any 
written comments received.
Implementation Timeframe
    FICC would implement this proposal on January 1, 2021. As proposed, 
a legend would be added to the Fee Structure of the GSD Rules, the 
Schedule of Charges Broker Account Group of the MBSD Rules and the 
Schedule of Charges Dealer Account Group of the MBSD Rules, as 
appropriate, stating there are changes that became effective upon 
filing with the Commission but have not yet been implemented. The 
proposed legend would include the date on which such changes would be 
implemented and the file number of this proposal, and state that once 
this proposal is implemented, the legend would automatically be 
removed.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, FICC believes the proposed 
changes to (i) modify the respective Maintenance Fee of GSD and MBSD 
and (ii) reduce the end of day position fee of GSD are consistent with 
Section 17A(b)(3)(D) of the Act \11\ and the Proposed Rule Change to 
include a description of FICC's current policy regarding the issuance 
of rebates to GSD Members and MBSD Clearing Members is consistent with 
Rule 17Ad-22(e)(23)(ii),\12\ as promulgated under the Act, for the 
reasons described below.
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    \11\ 15 U.S.C. 78q-1(b)(3)(D).
    \12\ 17 CFR.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act requires that the rules of a 
clearing agency, such as FICC, provide for the equitable allocation of 
reasonable dues, fees, and other charges among its participants.\13\ 
FICC believes that the proposed changes to the Maintenance Fee and the 
end of day position fee are consistent with this provision of the 
Act.\14\
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    \13\ 15 U.S.C. 78q-1(b)(3)(D).
    \14\ Id.
---------------------------------------------------------------------------

    As described above, the proposal would modify the Maintenance Fee 
to remove the Waiver Provision. Because the proposed change would not 
alter how the Maintenance Fee is currently allocated (i.e., charged) to 
Members, FICC believes the fee would continue to be equitably 
allocated. More specifically, as mentioned above, the Maintenance Fee 
is and would continue to be charged to all Members in proportion to the 
Member's cash deposit balance in the Clearing Fund. As such, and as is 
currently the case, Members that make greater use of FICC's services 
would generally be subject to a larger Maintenance Fee because such 
Member would typically be required to maintain a larger Clearing Fund 
deposit pursuant to the respective MBSD Rules or GSD Rules.\15\ 
Conversely, Members that use FICC's services less would generally be 
subject to a smaller Maintenance Fee because such Members would 
typically be required to maintain a smaller Clearing Fund deposit 
pursuant to the respective MBSD Rules or GSD Rules.\16\ The described 
change would not adjust that allocation. For this reason, FICC believes 
the Maintenance Fee would continue to be equitably allocated among 
Members.
---------------------------------------------------------------------------

    \15\ See Rule 4, GSD Rules and Rule 4, MBSD Rules, supra note 5.
    \16\ Id.
---------------------------------------------------------------------------

    Similarly, FICC believes that the Maintenance Fee would continue to 
be a reasonable fee under the proposed change described above. Although 
removal of the Waiver Provision means that Members could be assessed a 
Maintenance Fee at times when they may not otherwise have been assessed 
the fee, the removal of the provision would enable FICC to collect 
needed revenue from the fee even in a difficult economic environment. 
Additionally, the proposed change would help establish consistent 
pricing between FICC and its affiliates, NSCC and DTC, regarding each 
of their respective Maintenance Fees, as concurrent proposals by NSCC 
and DTC would result in the same calculation.\17\ For this reason, FICC 
believes the Maintenance Fee would continue to be reasonable.
---------------------------------------------------------------------------

    \17\ See supra note 9.
---------------------------------------------------------------------------

    In addition, FICC believes the proposed change to reduce the end of 
day position fee in the GSD Rules is consistent with Section 
17A(b)(3)(D).\18\ The proposal would provide for the equitable 
allocation of fees among participants because the proposal would apply 
to all participants, such that all Members would be subject to this 
proposed reduction of the end of the day position fee following the 
implementation of the proposed change. The end of day position fee is 
and

[[Page 78908]]

would continue to be charged to all GSD Members.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    Because these proposed changes would not alter how the end of day 
position fee is currently allocated (i.e., charged) to Members, FICC 
believes these fees would continue to be equitably allocated. More 
specifically, as mentioned above, the end of day position fee is and 
would continue to be charged to all GSD Members based on their end of 
day gross positions. As such, and is currently the case, GSD Members 
that have more activity and make greater use of FICC's services would 
generally be subject to a greater overall amount in terms of their end 
of day position fee. Conversely, GSD Members that generate lower levels 
of activity and use FICC's services less would generally be subject to 
smaller overall amount in terms of their end of day position fee. For 
this reason, FICC believes the end of day position fee would continue 
to be equitably allocated among GSD Members.
    Similarly, FICC believes that the end of day position fee would 
continue to be a reasonable fee under the proposed change described 
above. The proposed reduction of the end of the day position fee would 
be consistent with FICC's cost plus low-margin pricing model. With the 
proposed reduction of the end of day position fee, FICC believes it 
would still be able to continue to generate sufficient revenues to 
cover its operating costs plus generate a low net income operating 
margin while also enabling all GSD Members to benefit from a lower end 
of day position fee. For this reason, FICC believes the end of day 
position fee would continue to be reasonable.
    Based on the forgoing, FICC believes the Proposed Rule Change is 
consistent with Section 17A(b)(3)(D).\19\
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(ii) under the Act requires that FICC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide sufficient information to enable 
participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency.\20\ The Proposed Rule Change would replace an outdated 
description of FICC's past practice of adjusting GSD Members' and MBSD 
Clearing Members' invoices, with an updated description of its current 
rebate practice, which, when applicable, results in a reduction to the 
amount of fees a GSD Member and MBSD Clearing Member owes to FICC. By 
updating Section XII of the Fee Structure of the GSD Rules, the 
Important Note under Section I of the Schedule of Charges Broker 
Account Group of the MBSD Rules and the Important Note under Section I 
of the Schedule of Charges Dealer Account Group of the MBSD Rules with 
a clear, transparent description of FICC's current rebate practice, the 
Proposed Rule Change would provide GSD Members and MBSD Clearing 
Members with sufficient information to evaluate the fees they may incur 
by participating in FICC. Therefore, FICC believes the Proposed Rule 
Change would be consistent with the requirements of Rule 17Ad-
22(e)(23)(ii).\21\
---------------------------------------------------------------------------

    \20\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \21\ Id.
---------------------------------------------------------------------------

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

    FICC does not believe that the Proposed Rule Changes to (i) modify 
the Maintenance Fee of GSD and MBSD and (ii) update and enhance the 
transparency of FICC's policy regarding the issuance of rebates to GSD 
Members and MBSD Clearing Members in the GSD Rules and MBSD Rules would 
have any impact, or impose any burden, on competition among its Members 
for the reasons described below. FICC believes that the proposed change 
to reduce the end of day position fee could promote competition among 
GSD Members for the reasons described below.
    FICC does not believe that the proposed change to the Maintenance 
Fee would have an impact on competition among its Members. As described 
above, the Maintenance Fee is charged ratably based on Members' use of 
FICC's services, as reflected in Members' cash deposit balances to the 
Clearing Fund. Thus, the fee is designed to be reflective of each 
Member's individual activity at FICC. Nevertheless, if removal of the 
Waiver Provision, and the resulting imposition of the Maintenance Fee 
at a time when a Member would not have otherwise been assessed the fee, 
would create a competitive burden for a Member, FICC believes such a 
burden would not be significant, given that the amount assessed would 
be the same but for application of the Waiver Provision. Moreover, FICC 
believes that any such burden would be necessary and appropriate in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act.\22\
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    \22\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    The burden would be necessary because it is essential that FICC 
offset some of its costs and expenses with stable revenue generated 
from the Maintenance Fee, regardless of the economic environment. As 
described above, not doing so could adversely affect FICC's financial 
health. The burden would be appropriate because, as described above, 
the Maintenance Fee is calculated, using a balanced formula, to assess 
a fee that is reflective of the Member's use of FICC's services, so 
that FICC can defray some of its costs and expenses in providing those 
services.
    FICC believes that the proposed reduction of the end of day 
position fee could promote competition among GSD Members by potentially 
reducing GSD Members' operating costs. As described above, the proposed 
reduction of the end of day position fee would apply equally to all GSD 
Members.
    In addition, FICC does not believe the Proposed Rule Change to 
describe its current rebate practice would have any impact, or impose 
any burden, on competition among its Members. As described above, this 
Proposed Rule Change would replace information currently in Section XII 
of the Fee Structure of the GSD Rules, the Important Note under Section 
I of the Schedule of Charges Broker Account Group of the MBSD Rules and 
Section I of the Schedule of Charges Dealer Account Group of the MBSD 
Rules, with a description of FICC's current rebate practice. As 
described in the proposed language, under its current practice, rebates 
are allocated to eligible Members on a pro-rata basis based on such 
Members' gross fees paid to FICC within the applicable rebate period. 
Therefore, the current practice is applied equally to all eligible 
Members. The Proposed Rule Change to provide Members with transparency 
into this practice would not cause any increase or decrease in the 
rebates Members may receive. Therefore, this Proposed Rule Change would 
not have any impact, or impose any burden, on competition among 
Members.

(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) \23\ of the Act and paragraph

[[Page 78909]]

(f) \24\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the Proposed Rule 
Change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2020-014 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-2020-014. 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-2020-014 and should be submitted on 
or before December 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26786 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P

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