Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify the Calculation of the MBSD VaR Floor To Incorporate a Minimum Margin Amount, 79541-79548 [2020-27087]
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Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Notices
of the Act 10 and paragraph (f) of Rule
19b–4 thereunder.11 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. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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:
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CboeBYX–2020–033 on the subject line.
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10 15
11 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27086 Filed 12–9–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90568; File No. SR–FICC–
2020–017]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of Proposed Rule Change To
Modify the Calculation of the MBSD
VaR Floor To Incorporate a Minimum
Margin Amount
December 4, 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
20, 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
by the clearing agency.3 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
attached hereto as Exhibit 5 and consists
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 On November 27, 2020, FICC filed this proposed
rule change as an advance notice (SR–FICC–2020–
804) with the Commission pursuant to Section
806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the
Payment, Clearing, and Settlement Supervision Act
of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b–
4(n)(1)(i) under the Act, 17 CFR 240.19b–4(n)(1)(i).
A copy of the advance notice is available at https://
www.dtcc.com/legal/sec-rule-filings.aspx.
1 15
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of a proposal to modify the calculation
of the VaR Floor (as defined below) and
the corresponding description in the
FICC Mortgage-Backed Securities
Division (‘‘MBSD’’) Clearing Rules
(‘‘MBSD Rules’’) 4 to incorporate a
‘‘Minimum Margin Amount’’ as
described in greater detail below.
The proposed rule change would
necessitate changes to the Methodology
and Model Operations Document—
MBSD Quantitative Risk Model (the
‘‘QRM Methodology’’), which is
attached hereto as Exhibit 5.5 FICC is
requesting confidential treatment of this
document and has filed it separately
with the Secretary of the Commission.6
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
The purpose of the proposed rule
change is to modify the calculation of
the VaR Floor and the corresponding
description in the MBSD Rules to
incorporate a Minimum Margin
Amount.
The proposed changes would
necessitate changes to the QRM
4 Capitalized terms not defined herein are defined
in the MBSD Rules, available at https://
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/ficc_mbsd_rules.pdf.
5 Because FICC requested confidential treatment,
the QRM Methodology was filed separately with the
Secretary of the Commission as part of proposed
rule change SR–FICC–2016–007 (the ‘‘VaR Filing’’).
See Securities Exchange Act Release No. 79868
(January 24, 2017), 82 FR 8780 (January 30, 2017)
(SR–FICC–2016–007) (‘‘VaR Filing Approval
Order’’). FICC also filed the VaR Filing proposal as
an advance notice pursuant to Section 806(e)(1) of
the Payment, Clearing, and Settlement Supervision
Act of 2010 (12 U.S.C. 5465(e)(1)) and Rule 19b–
4(n)(1)(i) under the Act (17 CFR 240.19b–4(n)(1)(i)),
with respect to which the Commission issued a
Notice of No Objection. See Securities Exchange
Act Release No. 79843 (January 19, 2017), 82 FR
8555 (January 26, 2017) (SR–FICC–2016–801). The
QRM Methodology has been amended following the
VaR Filing Approval Order. See Securities
Exchange Act Release Nos. 85944 (May 24, 2019),
84 FR 25315 (May 31, 2019) (SR–FICC–2019–001)
and 90182 (October 14, 2020) 85 FR 66630 (October
20, 2020) (SR–FICC–2020–009).
6 17 CFR 240.24b–2.
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Methodology. The proposed changes are
described in detail below.
(i) Overview of The Required Fund
Deposit and Clearing Fund Calculation
A key tool that FICC uses to manage
market risk is the daily calculation and
collection of Required Fund Deposits
from Clearing Members. The Required
Fund Deposit serves as each Clearing
Member’s margin. The aggregate of all
Clearing Members’ Required Fund
Deposits constitutes the Clearing Fund
of MBSD, which FICC would access
should a defaulting Clearing Member’s
own Required Fund Deposit be
insufficient to satisfy losses to FICC
caused by the liquidation of that
Clearing Member’s portfolio.
The objective of a Clearing Member’s
Required Fund Deposit is to mitigate
potential losses to FICC associated with
liquidation of such Clearing Member’s
portfolio in the event that FICC ceases
to act for such Clearing Member
(hereinafter referred to as a ‘‘default’’).
Pursuant to the MBSD Rules, each
Clearing Member’s Required Fund
Deposit amount currently consists of the
greater of (i) The Minimum Charge or
(ii) the sum of the following
components: the VaR Charge, the
Deterministic Risk Component, a special
charge (to the extent determined to be
appropriate), and, if applicable, the
Backtesting Charge, Holiday Charge and
Intraday Mark-to-Market Charge.7 Of
these components, the VaR Charge
typically comprises the largest portion
of a Clearing Member’s Required Fund
Deposit amount.
The VaR Charge is calculated using a
risk-based margin methodology that is
intended to capture the market price
risk associated with the securities in a
Clearing Member’s portfolio. The VaR
Charge provides an estimate of the
projected liquidation losses at a 99%
confidence level. The methodology is
designed to project the potential gains
or losses that could occur in connection
with the liquidation of a defaulting
Clearing Member’s portfolio, assuming
that a portfolio would take three days to
hedge or liquidate in normal market
conditions. The projected liquidation
gains or losses are used to determine the
amount of the VaR Charge, which is
calculated to cover projected liquidation
losses at 99% confidence level.8
On January 24, 2017, the Commission
approved FICC’s VaR Filing to make
certain enhancements to the MBSD
7 MBSD
Rule 4 Section 2, supra, note 4.
Investment Pool Clearing Members
are subject to a VaR Charge with a minimum
targeted confidence level assumption of 99.5
percent. See MBSD Rule 4, Section 2(c), supra note
4.
8 Unregistered
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value-at-risk (‘‘VaR’’) margin calculation
methodology including the VaR
Charge.9 The VaR Filing amended the
definition of VaR Charge to, among
other things, incorporate the VaR
Floor.10 The VaR Floor is a calculation
using a percentage of gross notional
value of a Clearing Member’s portfolio
and is used as an alternative to the VaR
Charge amount calculated by the VaR
model for Clearing Members’ portfolios
where the VaR Floor calculation is
greater than the VaR model-based
calculation. The VaR Floor currently
addresses the risk that the VaR model
may calculate too low a VaR Charge for
certain portfolios where the VaR model
applies substantial risk offsets among
long and short positions in different
classes of mortgage-backed securities
that have a high degree of historical
price correlation. FICC applies the VaR
Floor at the Clearing Member portfolio
level. The VaR Floor is calculated by
multiplying the market value of a
Clearing Member’s gross unsettled
positions by a designated percentage
that is no less than 0.05% and no greater
than 0.30%.11 FICC informs Clearing
Members of the applicable percentage
utilized by the VaR Floor by an
Important Notice issued no later than 10
Business Days prior to the
implementation of such percentage.12
The percentage currently designated by
FICC is 0.10%.13
FICC’s VaR model did not respond
effectively to the recent levels of market
volatility and economic uncertainty,
and the VaR Charge amounts that were
calculated using the profit and loss
scenarios generated by FICC’s VaR
model did not achieve a 99%
confidence level for the period
beginning in March 2020 through the
beginning of April 2020. FICC’s VaR
model calculates the risk profile of each
Clearing Member’s portfolio by applying
certain representative risk factors to
measure the degree of responsiveness of
a portfolio’s value to the changes of
these risk factors. COVID–19 market
volatility, borrower protection
programs, home price outlook, and the
Federal Reserve Bank of New York
(‘‘FRBNY’’) authority to buy and sell
mortgage-backed securities have created
9 See
VaR Filing Approval Order, supra note 5.
term ‘‘VaR Floor’’ is defined within the
definition of VaR Charge. See MBSD Rule 1, supra
note 4.
11 The VaR Floor calculation and percentages are
described within the definition of VaR Charge. See
MBSD Rule 1, supra note 4.
12 See definition of VaR Charge, MBSD Rule 1,
supra note 4.
13 See FICC–MBSD Important Notice MBS761–19,
dated November 5, 2019 (notifying Clearing
Members that the designated VaR Floor percentage
is 0.10%).
10 The
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uncertainty in forward rates,
origination/refinance pipelines,
voluntary/involuntary mortgage
prepayments, and supply/demand
dynamics that are not reflected in the
FICC VaR historical data set and the
FICC VaR model incorporates this
historical data to calibrate the
volatilities of the risk factors and the
correlations between risk factors. During
this period, the market uncertainty and
FRBNY purchases led to market price
changes that exceeded the VaR model’s
projections which yielded insufficient
VaR Charges—particularly for higher
coupon TBAs 14 where current TBA
market prices may reflect higher
mortgage prepayment risk than implied
by the VaR model’s historical risk factor
data in the lookback period.
In addition, the VaR Floor did not
effectively address the risk that the VaR
model calculated too low a VaR Charge
for all portfolios during the recent
market volatility and economic
uncertainty. The VaR Floor is currently
designed specifically to account for
substantial risk offsets among long and
short positions in different classes of
mortgage-backed securities that have a
high degree of historical price
correlation. The recent market volatility
and economic uncertainty resulted in a
variance between historical price
changes and observed market price
changes resulting in TBA price changes
significantly exceeding those implied by
the VaR model risk factors as indicated
by backtesting data.
FICC employs daily backtesting to
determine the adequacy of each Clearing
Member’s Required Fund Deposit.15
FICC compares the Required Fund
Deposit for each Clearing Member with
the simulated liquidation gains/losses
using the actual positions in the
Clearing Member’s portfolio, and the
actual historical security returns. During
the recent market volatility and
economic uncertainty, the VaR Charges
and the Required Fund Deposits yielded
backtesting deficiencies beyond FICC’s
14 The vast majority of agency mortgage-backed
securities trading occurs in a forward market, on a
‘‘to-be-announced’’ or ‘‘TBA’’ basis. In a TBA trade,
the seller of MBS agrees on a sale price, but does
not specify which particular securities will be
delivered to the buyer on settlement day. Instead,
only a few basic characteristics of the securities are
agreed upon, such as the mortgage-backed security
program, maturity, coupon rate and the face value
of the bonds to be delivered. This TBA trading
convention enables a heterogeneous market
consisting of thousands of different mortgagebacked security pools backed by millions of
individual mortgages to be reduced—for trading
purposes—to a series of liquid contracts.
15 For backtesting comparisons, FICC uses the
Required Fund Deposit amount, without regard to
the actual collateral posted by the Clearing Member.
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Federal Register / Vol. 85, No. 238 / Thursday, December 10, 2020 / Notices
risk tolerance.16 FICC proposes to
introduce a Minimum Margin Amount
into the VaR Floor to enhance the MBSD
VaR model performance and improve
the backtesting coverage during periods
of heightened market volatility and
economic uncertainty. FICC believes
that this proposal will increase the
margin back-testing performance during
periods of heightened market volatility
by maintaining a VaR Charge that is
appropriately calibrated to the current
market price volatility.
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(ii) Proposed Rule Change to Incorporate
the Minimum Margin Amount in the
VaR Floor
FICC is proposing to introduce a new
calculation called the ‘‘Minimum
Margin Amount’’ to complement the
existing VaR Floor calculation in the
MBSD Rules. The Minimum Margin
Amount would enhance backtesting
coverage when there are potential VaR
model performance challenges
particularly when TBA price changes
significantly exceed those implied by
the VaR model risk factors as observed
during March and April 2020.
The Minimum Margin Amount would
be defined in the MBSD Rules as a
minimum volatility calculation for
specified net unsettled positions,
calculated using the historical market
price changes of such benchmark TBA
securities determined by FICC. The
definition would state that the
Minimum Margin Amount would cover
such range of historical market price
moves and parameters as FICC from
time to time deems appropriate using a
look-back period of no less than one
year and no more than three years.
FICC would set the range of historical
market price moves and parameters
from time to time in accordance with
FICC’s model risk management practices
and governance set forth in the Clearing
Agency Model Risk Management
Framework (‘‘Model Risk Management
Framework’’).17 Under the proposed
16 MBSD’s monthly backtesting coverage ratios for
Required Fund Deposit was 86.6% in March 2020
and 94.2% in April 2020.
17 See Securities Exchange Act Release Nos.
81485 (August 25, 2017), 82 FR 41433 (August 31,
2017) (SR–DTC–2017–008; SR–FICC–2017–014;
SR–NSCC–2017–008); 84458 (October 19, 2018), 83
FR 53925 (October 25, 2018) (SR–DTC–2018–009;
SR–FICC–2018–010; SR–NSCC–2018–009) and
88911 (May 20, 2020), 85 FR 31828 (May 27, 2020)
(SR–DTC–2020–008; SR–FICC–2020–004; SR–
NSCC–2020–008) (‘‘Model Risk Management
Framework Filings’’). The Model Risk Management
Framework sets forth the model risk management
practices adopted by FICC, National Securities
Clearing Corporation, and The Depository Trust
Company. The Model Risk Management Framework
is designed to help identify, measure, monitor, and
manage the risks associated with the design,
development, implementation, use, and validation
of quantitative models. The Model Risk
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changes to the QRM Methodology, the
Minimum Margin Amount would be
computed through a dynamic haircut
method that is based on observed TBA
price moves that would provide a more
reliable estimate for the portfolio risk
level when current market conditions
deviate from historical observations.
The Minimum Margin Amount would
also improve the responsiveness of the
VaR model to a volatile market because
it would have a shorter look back period
from the VaR model.
The MBSD Rules currently define the
VaR Floor as an amount designated by
FICC that is determined by multiplying
the sum of the absolute values of a
Clearing Member’s Long Positions and
Short Positions, at market value, by a
percentage designated by FICC that is no
less than 0.05% and no greater than
0.30%.18 FICC is proposing to revise the
definition of the VaR Floor to
incorporate the Minimum Margin
Amount such that the VaR Floor would
be the greater of (i) the VaR Floor
Percentage Amount and (ii) the
Minimum Margin Amount.
The ‘‘VaR Floor Percentage Amount’’
would be an amount derived using the
current VaR Floor percentage
calculation in the MBSD Rules: an
amount designated by FICC that is
determined by multiplying the sum of
the absolute values of a Clearing
Member’s Long Positions and Short
Positions, at market value, by a
percentage designated by FICC that is no
less than 0.05% and no greater than
0.30%. As with the existing VaR Floor
percentage, FICC would determine the
percentage within this range to be
applied based on factors including but
not limited to a review performed at
least annually of the impact of the VaR
Floor parameter at different levels
within the range to the backtesting
performance and to Clearing Members’
margin charges. The VaR Floor
percentage currently in place is 0.10%.
Likewise, as with the existing VaR
Floor percentage, FICC would inform
Clearing Members of the applicable
percentage used in the VaR Floor
Percentage Amount by Important Notice
issued no later than 10 Business Days
prior to implementation of such
percentage. This rule change is not
proposing to change the VaR Floor
percentage or the manner in which this
component is calculated.
Management Framework describes (i) governance of
the Model Risk Management Framework; (ii) key
terms; (iii) model inventory procedures; (iv) model
validation procedures; (v) model approval process;
and (vi) model performance procedures.
18 See definition of VaR Charge, MBSD Rule 1,
supra note 4.
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The proposed Minimum Margin
Amount would modify the VaR Floor to
also cover circumstances where the
market price volatility implied by the
current VaR Charge calculation and the
VaR Floor Percentage Amount is lower
than market price volatility from
corresponding price changes of the
proposed TBA securities benchmarks
observed during the lookback period.
The proposed TBA securities
benchmarks to be used in to calculate
the Minimum Margin Amount in the
QRM Methodology would be Federal
National Mortgage Association (‘‘Fannie
Mae’’) and Federal Home Loan Mortgage
Corporation (‘‘Freddie Mac’’)
conventional 30-year mortgage-backed
securities (‘‘CONV30’’), Government
National Mortgage Association (‘‘Ginnie
Mae’’) 30-year mortgage-backed
securities (‘‘GNMA30’’), Fannie Mae
and Freddie Mac conventional 15-year
mortgage-backed securities
(‘‘CONV15’’), and Ginnie Mae 15-year
mortgage-backed securities
(‘‘GNMA15’’). These benchmarks were
selected because they represent the
majority of the trading volumes in the
market.19 This proposal would allow
offsetting between short and long
positions within TBA securities
benchmarks given that the TBAs
aggregated in each benchmark exhibit
similar risk profiles and can be netted
together to calculate the Minimum
Margin Amount that will cover the
observed market price changes for each
portfolio.
FICC is proposing to modify the QRM
Methodology to specify that the
Minimum Margin Amount would be
calculated per Clearing Member
portfolio as follows: (i) risk factors
would be calculated using historical
market prices of benchmark TBA
securities and (ii) each Clearing
Member’s portfolio exposure would be
calculated on a net position across all
products and for each securitization
program (i.e., CONV30, GNMA30,
CONV15 and GNMA15). The Minimum
Margin Amount would be calculated by
multiplying a ‘‘base risk factor’’
(described below) by the absolute value
of the Clearing Member’s net position
across all products, plus the sum of each
risk factor spread to the base risk factor
19 FICC plans to map 10-year and 20-year TBA to
the corresponding 15-year TBA security benchmark.
As of August 31, 2020, 20-year TBAs account for
less than 0.5%, and 10-year TBAs account for less
than 0.1%, of the positions in MBSD clearing
portfolios. In the QRM Methodology, these TBAs
are not selected as separate TBA security
benchmarks due to the limited trading volumes in
the market. FICC will continue to monitor the
position exposures in MBSD and determine if a
modification to the QRM Methodology may be
required.
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multiplied by the absolute value of its
corresponding position.
Pursuant to the QRM Methodology,
FICC calculates an outright risk factor
for GNMA30 and CONV30. The base
risk factor for a portfolio for the
Minimum Margin Amount would be
based on whether GNMA30 or CONV30
constitutes the larger absolute net
market value in each Clearing Member’s
portfolio. If GNMA30 constitute the
larger absolute net market value in the
portfolio, the base risk factor would be
equal to the outright risk factor for
GNMA30. If CONV30 constitute the
larger absolute new market value in the
portfolio, the base risk factor would be
equal to the outright risk factor for the
CONV30.20 GNMA30 and CONV30 are
used as the baseline programs for
determining the base risk factors
because those programs constitute the
majority part of the TBA market and the
majority of positions in MBSD
portfolios.
The proposed benchmark TBA
securities, historical market price moves
and parameters to be used to calculate
the Minimum Margin Amount would be
determined by FICC from time to time
in accordance with FICC’s model risk
management practices and governance
set forth in the Clearing Agency Model
Risk Management Framework.21
FICC is proposing to introduce the
Minimum Margin Amount to
complement the VaR Floor during
market conditions when the TBA prices
are driven by factors outside of those
implied by the VaR model. The
Minimum Margin Amount would use
observable TBA prices and would be
calculated with a shorter lookback
20 To illustrate the Minimum Margin Amount
calculation, consider an example where a Clearing
Member has a portfolio with a net long position
across all products of $2 billion and CONV30
constitutes the larger absolute net market value in
its portfolio as between GNMA30 and CONV30.
Assume that the outright risk factor for CONV30 is
0.0096. Further assume the Clearing Member has a
net short position of $30 million in CONV15, and
the corresponding risk factor spread to the base risk
factor is 0.006; a net short position of $500 million
in GNMA30, and the corresponding risk factor
spread is 0.005; and a net long position of $120
million in GNMA15, and the corresponding risk
factor spread is 0.007. In order to generate the
Minimum Margin Amount, FICC would multiply
the base risk factor by the absolute value of the
Clearing Member’s net position across all products,
plus the sum of each risk factor spread of the
subsequent products multiplied by absolute value
of the position for the respective product (i.e., ([base
risk factor]*ABS[portfolio net position]) +
([CONV15 spread risk factor] * ABS[CONV15 net
position]) + ([GNMA30 spread risk factor] *
ABS[GNMA30 net position]) + ([GNMA15 Spread
Risk Factor] * ABS[GNMA15 net position])). The
resulting Minimum Margin Amount would be
$22.72 million.
21 See Model Risk Management Framework, supra
note 17.
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period than the VaR model so it would
be more responsive to current market
conditions. This proposal provides a
more transparent and market price
sensitive approach than alternatives,
such as a VaR model parameter
adjustment and VaR model add-on,
would provide to Clearing Members.22
The lookback period of the Minimum
Margin Amount is intended to be
shorter than the lookback period used
for the VaR model, which is 10 years,
plus, to the extent applicable, one
stressed period.23 The lookback period
of the Minimum Margin Amount would
be between one to three years.
Consistent with the VaR methodology
outlined in the QRM Methodology and
pursuant to the model performance
monitoring required under the Model
Risk Management Framework,24 the
lookback period would be analyzed to
evaluate its sensitivity and impact to the
model performance under four
distinctive market regimes, epitomized
by recent observations: (i) Calm markets
where the VaR coverage is above 99%
(e.g. 2018); (ii) moderately volatile
markets or external mortgage market
events (e.g. summer 2013; summer
2019); (iii) at the beginning of extreme
market volatility (e.g., 2007; COVID–19
in March), and (iv) post extreme market
stress and mean-reverting to ‘normal’
market conditions. The lookback
parameter in general affects (i) whether
and how the floor will be invoked; (ii)
the peak level of margin increase or the
degree of procyclicality; and (iii) how
quickly the margin will fall back to prestress levels. The lookback parameter
update is intended to be an infrequent
event and would typically happen only
when there is a market regime change.
The decision to update the lookback
parameter would be based on the abovementioned sensitivity analysis with
22 A VaR model parameter adjustment or a VaR
model add-on would be implemented by estimating
how much the VaR model should be modified to
correspond to the current market price volatility. A
parameter adjustment would be a modification to
one or more VaR model risk factors while an addon would be a percentage adjustment to the
calculated VaR.
23 FICC maintains the ability to include an
additional period of historically observed stressed
market conditions to a 10-year look-back period if
FICC observes that (1) the results of the model
performance monitoring are not within FICC’s 99th
percentile confidence level or (2) the 10-year lookback period does not contain sufficient stressed
market conditions.
24 The Model Risk Management Framework
provides that all models undergo ongoing model
performance monitoring and backtesting which is
the process of (i) evaluating an active model’s
ongoing performance based on theoretical tests, (ii)
monitoring the model’s parameters through the use
of threshold indicators, and/or (iii) backtesting
using actual historical data/realizations to test a
VaR model’s predictive power. See Model Risk
Management Framework Filings, supra note 17.
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considerations to the impacts to both
the VaR Charges and the backtesting
performance. The shorter lookback
would more accurately reflect recent
market conditions and would provide
more responsiveness to market
condition changes. The initial default
lookback period for the Minimum
Margin Amount calculation would be
two years but may be adjusted as set
forth above in accordance with FICC’s
model risk management practices and
governance set forth in the Model Risk
Management Framework.25
The Model Risk Management
Framework would also require FICC to
conduct model performance reviews of
the Minimum Margin Amount
methodology.26 Specifically, FICC
would monitor each Clearing Member’s
Required Fund Deposit and the
aggregate Clearing Fund requirements
versus the requirements calculated by
the Minimum Margin Amount. In order
to apply the risk management principles
and model performance monitoring
required under the Model Risk
Management Framework, FICC’s current
model risk management practices would
provide for a review of the robustness of
the Required Fund Deposit inclusive of
the Minimum Margin Amount by
comparing the results versus the threeday profit and loss of each Clearing
Member’s margin portfolio based on
actual market price moves. If the
backtesting results of Required Fund
Deposit inclusive of the Minimum
Margin Amount did not meet FICC’s
99% confidence level, FICC could
consider adjustments to the Minimum
Margin Amount, including changing the
look-back period (as discussed above)
and/or applying a historical stressed
period to the Minimum Margin Amount
calibration, as appropriate. Any
adjustment to the Minimum Margin
Amount calibration would be subject to
the model risk management practices
and governance process set forth in the
Model Risk Management Framework.27
A. Proposed MBSD Rule Changes
In connection with incorporating the
Minimum Margin Amount, FICC would
modify the MBSD Rules to:
• Add a definition of ‘‘Minimum
Margin Amount’’ and define it as a
minimum volatility calculation for
specified net unsettled positions of a
Clearing Member, calculated using the
historical market price changes of such
benchmark TBA securities determined
25 See Model Risk Management Framework, supra
note 17.
26 See note 24.
27 See Model Risk Management Framework, supra
note 17.
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by FICC. The definition would specify
that the Minimum Margin Amount shall
cover such range of historical market
price moves and parameters as the
Corporation from time to time deems
appropriate using a look-back period of
no less than one year and no more than
three years;
• add a definition of ‘‘VaR Floor
Percentage Amount’’ which would be
defined substantially the same as the
current calculation for the VaR Floor
percentage with non-substantive
modifications to reflect that the
calculated amount is a separate defined
term; and
• move the defined term VaR Floor
out of the definition of VaR Charge and
define it as the greater of (i) the VaR
Floor Percentage Amount and (ii) the
Minimum Margin Amount.
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B. Proposed QRM Methodology Changes
In connection with incorporating the
Minimum Margin Amount, FICC would
modify the QRM Methodology to:
• Describe how the Minimum Margin
Amount, as defined in the MBSD Rules,
would be calculated, including
• establishing CONV30, GNMA30,
CONV15 and GNMA15 as proposed
TBA securities benchmarks for purposes
of the calculation and calculating risk
factors using historical market prices of
such benchmark TBA securities;
• using a dynamic haircut method
that allows offsetting between short and
long positions within a program and
among different programs; and
• multiplying a ‘‘base risk factor’’
(based on whether GNMA30 or CONV30
constitutes the larger absolute net
market value in each Clearing Member’s
portfolio) by the absolute value of the
Clearing Member’s net position across
all products, plus the sum of each risk
factor spread to the base risk factor
multiplied by the absolute value of its
corresponding position;
• describe the developmental
evidence and impacts to backtesting
performance and margin charges
relating to Minimum Margin Amount;
and
• make certain technical changes to
the QRM Methodology to re-number
sections and tables, and update certain
section titles as necessary, to add a new
section that describes the proposed
Minimum Margin Amount and the
selection of benchmarks.
C. Impact Studies
FICC performed an impact study on
Clearing Members’ portfolios for the
period beginning February 3, 2020
through June 30, 2020 (‘‘Impact Study
Period’). If the proposed rule changes
had been in place during the Impact
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17:36 Dec 09, 2020
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Study Period compared to the existing
MBSD Rules:
• Aggregate average daily aggregate
VaR Charges would have increased by
approximately $2.2 billion or 42%; and
• aggregate average daily Backtesting
Charges would have decreased by
approximately $450 million or 53%.
Impact studies also indicated that if
the proposed rule changes had been in
place, overall margin backtesting
coverage (based on 12-month trailing
backtesting) would have increased from
approximately 99.3% to 99.6% through
January 31, 2020 and approximately
97.3% to 98.5% through June 30, 2020.
D. Impacts to Clearing Members Over
the Impact Study Period
On average, at the Clearing Member
level, the Minimum Margin Amount
would have increased the VaR Charge
by $27 million over the Impact Study
Period. The largest percent increase in
VaR Charge for any Clearing Member
would have been 146%, or $22 million.
The largest dollar increase for any
Clearing Member would have been $333
million, or 37% increase in the VaR
Charge. The top 10 Clearing Members
based on the size of their VaR Charges
would have contributed 69.3% of the
aggregate VaR Charges during the
Impact Study Period had the Minimum
Margin Amount been in place. The same
Clearing Members would have
contributed to 54% of the increase
resulting from the Minimum Margin
Amount during the Impact Study
Period.
The portfolios that would have
observed large percent increases were
largely made up with concentrations in
higher coupon TBAs and GNMA
positions. However, no Clearing
Members would have triggered the
Excess Capital Premium charge 28 due to
the increase in Required Fund Deposits
resulting from the Minimum Margin
Amount during the Impact Study
Period.
(iii) Implementation Timeframe
FICC would implement the proposed
changes no later than 20 Business Days
after the later of the approval of the
proposed rule change and no objection
to the related advance notice 29 by the
Commission. FICC would announce the
effective date of the proposed changes
by Important Notice posted to its
website.
28 Excess Capital Premium is assessed when the
Clearing Member’s VaR Charge exceeds the Excess
Capital it maintains.
29 Supra note 3.
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79545
2. Statutory Basis
FICC believes that 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 that this proposal is consistent
with Section 17A(b)(3)(F) of the Act 30
and Rules 17Ad–22(e)(4)(i) and (e)(6)(i),
each promulgated under the Act,31 for
the reasons described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the MBSD Rules
be designed to assure the safeguarding
of securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible.32 FICC
believes the proposed changes are
designed to assure the safeguarding of
securities and funds which are in its
custody or control or for which it is
responsible because they are designed to
enable FICC to better limit its exposure
to Clearing Members in the event of a
Clearing Member default, as described
below.
The Required Fund Deposits are made
up of risk-based components (as margin)
that are calculated and assessed daily to
limit FICC’s credit exposures to Clearing
Members. FICC is proposing changes to
the MBSD Rules and QRM Methodology
that are designed to more effectively
measure and address risk characteristics
in situations where the risk factors used
in the VaR method do not adequately
predict TBA prices. The proposed
changes above would adjust the VaR
Floor to help ensure that FICC collects
adequate margin from its Clearing
Members, particularly in periods of high
market volatility and economic
uncertainty. During these periods, the
existing VaR model has been shown to
be inadequate based on backtesting
performances. Backtesting percentages
covering such periods indicate the risk
that VaR Charges will be insufficient to
manage risk in the event of a Clearing
Member’s default. FICC pays particular
attention to Clearing Members with
backtesting deficiencies that bring the
results for that Clearing Member below
the 99% confidence target to determine
if there is an identifiable cause of repeat
backtesting deficiencies. During the
recent period of market volatility and
economic uncertainty, there were
numerous repeated backtesting
deficiencies. The Minimum Margin
Amount, to be defined in the MBSD
Rules and further incorporated in the
QRM Methodology as described herein,
is a proposed targeted response to
enhance the MBSD VaR model
30 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4), (e)(6) and (e)(23)(ii).
32 15 U.S.C. 78q–1(b)(3)(F).
31 17
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performance and improve the
backtesting coverage during periods of
heightened market volatility and
economic uncertainty.
As a result of the recent market
volatility and economic uncertainty,
FICC’s VaR model did not achieve a
99% confidence level for all Clearing
Members in March and April 2020. The
Minimum Margin Amount is intended
to allow the VaR Charge to be more
responsive during market conditions
when the VaR model projections do not
closely correspond with observed
market price changes. Backtesting
studies indicate that aggregate average
daily aggregate VaR Charges would have
increased by approximately $2.2 billion
or 42%, average aggregate daily
Backtesting Charges would have
decreased by approximately $450
million or 53% during the Impact Study
Period and the overall margin
backtesting coverage (based on 12month trailing backtesting) would have
improved from approximately 97.3% to
98.5% through June 30, 2020 if the
Minimum Margin Amount calculation
had been in place. Improving the overall
backtesting coverage level would help
FICC ensure that it maintains an
appropriate level of margin to address
its risk management needs.
The use of the Minimum Margin
Amount would reduce risk by allowing
FICC to calculate the exposure in each
portfolio using the risk spread based on
observed TBA price moves of TBA
positions within each portfolio. As
reflected by backtesting studies during
the Impact Study Period, using observed
market prices of such benchmark TBA
securities to set risk exposure would
provide a more reliable estimate than
the FICC VaR historical data set for the
portfolio risk level when current market
conditions deviate from historical
observations. This proposal would
allow offsetting between short and long
positions within TBA securities
benchmarks given that the TBAs
aggregated in each benchmark exhibit
similar risk profiles and can be netted
together to calculate the Minimum
Margin Amount that will cover the
observed market price changes for each
portfolio. Adding the Minimum Margin
Amount to the VaR Floor would help to
ensure that the risk exposure during
periods of market volatility and
economic uncertainty is adequately
captured in the VaR Charges. FICC
believes that would help to ensure that
FICC continues to accurately calculate
and assess margin and in turn, collect
sufficient margin from its Clearing
Members and better enable FICC to limit
its exposures that could be incurred
when liquidating a portfolio.
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17:36 Dec 09, 2020
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FICC believes the proposed technical
changes to the QRM Methodology
described above would enhance the
clarity of the QRM Methodology for
FICC. Having a clear and accurate
methodology document, which
describes how the Minimum Margin
Amount would be calculated and the
selection of benchmarks, that the
Minimum Margin Amount would be
included within the calculation of the
VaR Charges and the developmental
evidence and impacts to backtesting
performance and margin charges, would
help to ensure that FICC continues to
accurately calculate and assess margin
and in turn, collect sufficient margin
from its Clearing Members and better
enable FICC to limit its exposures that
could be incurred when liquidating a
portfolio.
By better enabling FICC to limit its
exposure to Clearing Members, the
proposed changes to the MBSD Rules
and QRM Methodology are designed to
better ensure that, in the event of a
Clearing Member default, FICC would
have adequate margin from the
defaulting Clearing Member and nondefaulting Clearing Members would not
be exposed to losses they cannot
anticipate or control. Therefore, the
proposed changes would be designed to
assure the safeguarding of securities and
funds which are in the custody or
control of FICC or for which it is
responsible, consistent with Section
17A(b)(3)(F) of the Act.33
Rule 17Ad–22(e)(4)(i) under the Act 34
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to effectively
identify, measure, monitor, and manage
its credit exposures to participants and
those exposures arising from its
payment, clearing, and settlement
processes by maintaining sufficient
financial resources to cover its credit
exposure to each participant fully with
a high degree of confidence. As
described above, FICC believes that the
proposed changes would enable it to
better identify, measure, monitor, and,
through the collection of Clearing
Members’ Required Fund Deposits,
manage its credit exposures to Clearing
Members by maintaining sufficient
resources to cover those credit
exposures fully with a high degree of
confidence. More specifically, as
indicated by backtesting studies,
implementation of a Minimum Margin
Amount by changing the MBSD Rules
and QRM Methodology as described
herein would allow FICC to limit its
33 Id.
34 See
PO 00000
credit exposures to Clearing Members in
the event that the current VaR model
yields too low a VaR Charge for such
portfolios and improve backtesting
performance. As indicated by the
backtesting studies, aggregate average
daily aggregate VaR Charges would have
increased by approximately $2.2 billion
or 42%, average aggregate daily
Backtesting Charges would have
decreased by approximately $450
million or 53% during the Impact Study
Period and the overall margin
backtesting coverage (based on 12month trailing backtesting) would have
improved from approximately 97.3% to
98.5% through June 30, 2020 if the
Minimum Margin Amount calculation
had been in place. By identifying and
providing for appropriate VaR Charges,
adding the Minimum Margin Amount to
the VaR Floor would help to ensure that
the risk exposure during periods of
market volatility and economic
uncertainty is adequately identified,
measured and monitored. As a result,
FICC believes that the proposal would
enhance FICC’s ability to effectively
identify, measure and monitor its credit
exposures and would enhance its ability
to maintain sufficient financial
resources to cover its credit exposure to
each participant fully with a high degree
of confidence, consistent with the
requirements of Rule 17Ad–22(e)(4)(i) of
the Act.35
Rule 17Ad–22(e)(6)(i) under the Act 36
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market. FICC believes that the proposed
changes to adjust the VaR Floor to
include the Minimum Margin Amount
by changing the MBSD Rules and QRM
Methodology as described herein are
consistent with the requirements of Rule
17Ad–22(e)(6)(i) cited above. The
Required Fund Deposits are made up of
risk-based components (as margin) that
are calculated and assessed daily to
limit FICC’s credit exposures to Clearing
Members. FICC is proposing changes
that are designed to more effectively
measure and address risk characteristics
in situations where the risk factors used
in the VaR method do not adequately
predict TBA prices. As reflected in
backtesting studies, FICC believes the
proposed changes would appropriately
35 Id.
17 CFR 240.17Ad–22(e)(4)(i).
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36 See
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limit FICC’s credit exposure to Clearing
Members in the event that the VaR
model yields too low a VaR Charge in
such situations. Such backtesting
studies indicate that aggregate average
daily aggregate VaR Charges would have
increased by approximately $2.2 billion
or 42%, aggregate average daily
Backtesting Charges would have
decreased by approximately $450
million or 53% during the Impact Study
Period and the overall margin
backtesting coverage (based on 12month trailing backtesting) would have
improved from approximately 97.3% to
98.5% through June 30, 2020 if the
Minimum Margin Amount calculation
had been in place. By identifying and
providing for appropriate VaR Charges,
adding the Minimum Margin Amount to
the VaR Floor would help to ensure that
margin levels are commensurate with
the risk exposure of each portfolio
during periods of market volatility and
economic uncertainty. The proposed
changes would therefore allow FICC to
continue to produce margin levels
commensurate with the risks and
particular attributes of each relevant
product, portfolio, and market. As such,
FICC believes that the proposed changes
are consistent with the requirements of
Rule 17Ad–22(e)(6)(i) of the Act.37
(B) Clearing Agency’s Statement on
Burden on Competition
FICC believes the proposed rule
changes to modify the VaR Floor to
incorporate a Minimum Margin Amount
as described above could impose a
burden on competition. As a result of
the incorporation of the Minimum
Margin Amount, Clearing Members may
experience increases in their Required
Fund Deposits. An impact study during
the Impact Study Period indicates that
on average each Clearing Member would
have had an increase in VaR Charge of
approximately 42%. Impact studies also
indicate that the proposed changes
could impact each Clearing Member in
a different manner compared to other
Clearing Members depending on the
products in such Clearing Member’s
portfolio. Clearing Members with higher
percentages of higher coupon TBAs in
their portfolios, are more likely to be
impacted by the proposed changes.
Such increases could burden Clearing
Members that have lower operating
margins or higher costs of capital than
other Clearing Members. It is not clear
whether the burden on competition
would necessarily be significant because
it would depend on whether the
affected Clearing Members were
similarly situated in terms of business
37 Id.
VerDate Sep<11>2014
type and size. Regardless of whether the
burden on competition is significant,
FICC believes that any burden on
competition would be necessary and
appropriate in furtherance of the
purposes of the Act.
Specifically, FICC believes that the
proposed rule changes would be
necessary in furtherance of the Act, as
described in this filing and further
below. FICC believes that the above
described burden on competition that
may be created by the proposed changes
to incorporate a Minimum Margin
Amount in the VaR Floor is necessary,
because the MBSD Rules must be
designed to assure the safeguarding of
securities and funds that are in FICC’s
custody or control or which it is
responsible, consistent with Section
17A(b)(3)(F). As described above, FICC
believes that the use of the Minimum
Margin Amount would reduce risk by
allowing FICC to calculate the exposure
in each portfolio using the risk spread
based on observed TBA price moves of
TBA positions within each portfolio and
provide a more reliable estimate than
the FICC VaR historical data set for the
portfolio risk level when current market
conditions deviate from historical
observations. Accurately calculating and
assessing margin and in turn, collecting
sufficient margin from its Clearing
Members would better enable FICC to
limit its exposures that could be
incurred when liquidating a portfolio.
By better enabling FICC to limit its
exposure to Clearing Members, the
proposed changes to the MBSD Rules
and QRM Methodology are designed to
better ensure that, in the event of a
Clearing Member default, FICC would
have adequate margin from the
defaulting Clearing Member and nondefaulting Clearing Members would not
be exposed to losses they cannot
anticipate or control. Therefore, the
proposed changes would be designed to
assure the safeguarding of securities and
funds which are in the custody or
control of FICC or for which it is
responsible, consistent with Section
17A(b)(3)(F) of the Act.
FICC also believes these proposed
changes are necessary to support FICC’s
compliance with Rules 17Ad–22(e)(4)(i)
and Rule 17Ad–22(e)(6)(i) under the
Act,38 which require FICC to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to (x) effectively
identify, measure, monitor, and manage
its credit exposures to participants and
those arising from its payment, clearing,
and settlement processes, including by
maintaining sufficient financial
38 17
17:36 Dec 09, 2020
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PO 00000
CFR 240.17Ad–22(e)(4)(i), (e)(6)(i).
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79547
resources to cover its credit exposure to
each participant fully with a high degree
of confidence and (y) cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market.
As described above, FICC believes
that implementing the Minimum Margin
Amount into the VaR Floor would allow
FICC to more effectively measure and
address risk characteristics in situations
where the risk factors used in the VaR
method do not adequately predict TBA
prices, particularly in periods of high
volatility and economic uncertainty.
FICC’s existing VaR model did not
respond effectively to the recent levels
of market volatility and economic
uncertainty, and the VaR Charge
amounts that were calculated using the
profit and loss scenarios generated by
FICC’s VaR model did not achieve a
99% confidence level beginning in midMarch 2020. In addition, the VaR Floor
did not effectively address the risk that
the VaR model calculated too low a VaR
Charge for all portfolios. As reflected in
backtesting studies during the Impact
Study Period, FICC believes the
proposed changes would appropriately
cover FICC’s credit exposure to Clearing
Members with a high degree of
confidence in the event that the VaR
model yields too low a VaR Charge in
such situations. The proposed rule
changes would limit FICC’s exposure to
Clearing Members by ensuring that each
Clearing Member has an appropriate
minimum VaR Charge in the event that
the VaR model yields too low a VaR
Charge for such portfolios. By
identifying and providing for
appropriate VaR Charges, adding the
Minimum Margin Amount to the VaR
Floor would help to ensure that margin
levels are commensurate with the risk
exposure of each portfolio during
periods of market volatility and
economic uncertainty. Therefore, FICC
believes that these proposed changes
would allow FICC to effectively
identify, measure, monitor, and manage
its credit exposures to Clearing
Members and better limit FICC’s credit
exposures to Clearing Members by
maintaining sufficient financial
resources to cover its credit exposure to
each Clearing Member fully with a high
degree of confidence and producing
margin levels commensurate with, the
risks and particular attributes of each
relevant product and portfolio,
consistent with the requirements of
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Rules 17Ad–22(e)(4)(i) and Rule 17Ad–
22(e)(6)(i) under the Act. 39
FICC also believes that the above
described burden on competition that
could be created by the proposed
changes would be appropriate in
furtherance of the Act because such
changes have been appropriately
designed to assure the safeguarding of
securities and funds which are in the
custody or control of FICC or for which
it is responsible, as described in detail
above. The proposed change to
incorporate the Minimum Margin
Amount would enable FICC to produce
margin levels more commensurate with
the risks and particular attributes of
each Clearing Member’s portfolio. Any
increase in Required Fund Deposit as a
result of such proposed changes for a
particular Clearing Member would be in
direct relation to the specific risks
presented by such Clearing Members’
portfolio, and each Clearing Member’s
Required Fund Deposit would continue
to be calculated with the same
parameters and at the same confidence
level. Therefore, Clearing Members with
portfolios that present similar risks,
regardless of the type of Clearing
Member, would have similar impacts on
their Required Fund Deposit amounts.
In addition, the proposed changes
would improve the risk-based margining
methodology that FICC employs to set
margin requirements and better limit
FICC’s credit exposures to its Clearing
Members. Impact studies indicate that
the proposed methodology would result
in backtesting coverage that more
appropriately addresses the risks
presented by each portfolio. Therefore,
because the proposed changes are
designed to provide FICC with a more
appropriate and complete measure of
the risks presented by Clearing
Members’ portfolios, FICC believes the
proposals are appropriately designed to
meet its risk management goals and its
regulatory obligations.
Therefore, FICC does not believe that
the proposed changes would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the Act.40
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(C) Clearing Agency’s Statement on
Comments on the Proposed Rule Change
Received From Members, Participants,
or Others
Written comments relating to the
proposed rule changes have not been
solicited or received. FICC will notify
the Commission of any written
comments received by FICC.
39 Id.
40 15.U.S.C.
78q–1(b)(3)(I).
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17:36 Dec 09, 2020
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III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the 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 rule-comments@
sec.gov. Please include File Number SR–
FICC–2020–017 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–2020–017. 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,
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
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–
2020–017 and should be submitted on
or before December 31, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27087 Filed 12–9–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90569; File No. SRCboeBZX–2020–088]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Fee Schedule To Update the Add
Volume Tiers, To Eliminate the
Remove Volume Tier, and To Eliminate
Unused Fee Codes
December 4, 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 December
2, 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
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’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the fee schedule. The text of
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
1 15
E:\FR\FM\10DEN1.SGM
10DEN1
]]>Agencies
[Federal Register Volume 85, Number 238 (Thursday, December 10, 2020)]
[Notices]
[Pages 79541-79548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90568; File No. SR-FICC-2020-017]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Modify the Calculation of
the MBSD VaR Floor To Incorporate a Minimum Margin Amount
December 4, 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 20, 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 by the clearing agency.\3\ 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\ On November 27, 2020, FICC filed this proposed rule change
as an advance notice (SR-FICC-2020-804) with the Commission pursuant
to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the Payment, Clearing,
and Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and
Rule 19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy
of the advance notice is available at https://www.dtcc.com/legal/sec-rule-filings.aspx.
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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 attached hereto as Exhibit 5 and consists of a proposal
to modify the calculation of the VaR Floor (as defined below) and the
corresponding description in the FICC Mortgage-Backed Securities
Division (``MBSD'') Clearing Rules (``MBSD Rules'') \4\ to incorporate
a ``Minimum Margin Amount'' as described in greater detail below.
---------------------------------------------------------------------------
\4\ Capitalized terms not defined herein are defined in the MBSD
Rules, available at https://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_mbsd_rules.pdf.
---------------------------------------------------------------------------
The proposed rule change would necessitate changes to the
Methodology and Model Operations Document--MBSD Quantitative Risk Model
(the ``QRM Methodology''), which is attached hereto as Exhibit 5.\5\
FICC is requesting confidential treatment of this document and has
filed it separately with the Secretary of the Commission.\6\
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\5\ Because FICC requested confidential treatment, the QRM
Methodology was filed separately with the Secretary of the
Commission as part of proposed rule change SR-FICC-2016-007 (the
``VaR Filing''). See Securities Exchange Act Release No. 79868
(January 24, 2017), 82 FR 8780 (January 30, 2017) (SR-FICC-2016-007)
(``VaR Filing Approval Order''). FICC also filed the VaR Filing
proposal as an advance notice pursuant to Section 806(e)(1) of the
Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C.
5465(e)(1)) and Rule 19b-4(n)(1)(i) under the Act (17 CFR 240.19b-
4(n)(1)(i)), with respect to which the Commission issued a Notice of
No Objection. See Securities Exchange Act Release No. 79843 (January
19, 2017), 82 FR 8555 (January 26, 2017) (SR-FICC-2016-801). The QRM
Methodology has been amended following the VaR Filing Approval
Order. See Securities Exchange Act Release Nos. 85944 (May 24,
2019), 84 FR 25315 (May 31, 2019) (SR-FICC-2019-001) and 90182
(October 14, 2020) 85 FR 66630 (October 20, 2020) (SR-FICC-2020-
009).
\6\ 17 CFR 240.24b-2.
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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
The purpose of the proposed rule change is to modify the
calculation of the VaR Floor and the corresponding description in the
MBSD Rules to incorporate a Minimum Margin Amount.
The proposed changes would necessitate changes to the QRM
[[Page 79542]]
Methodology. The proposed changes are described in detail below.
(i) Overview of The Required Fund Deposit and Clearing Fund Calculation
A key tool that FICC uses to manage market risk is the daily
calculation and collection of Required Fund Deposits from Clearing
Members. The Required Fund Deposit serves as each Clearing Member's
margin. The aggregate of all Clearing Members' Required Fund Deposits
constitutes the Clearing Fund of MBSD, which FICC would access should a
defaulting Clearing Member's own Required Fund Deposit be insufficient
to satisfy losses to FICC caused by the liquidation of that Clearing
Member's portfolio.
The objective of a Clearing Member's Required Fund Deposit is to
mitigate potential losses to FICC associated with liquidation of such
Clearing Member's portfolio in the event that FICC ceases to act for
such Clearing Member (hereinafter referred to as a ``default'').
Pursuant to the MBSD Rules, each Clearing Member's Required Fund
Deposit amount currently consists of the greater of (i) The Minimum
Charge or (ii) the sum of the following components: the VaR Charge, the
Deterministic Risk Component, a special charge (to the extent
determined to be appropriate), and, if applicable, the Backtesting
Charge, Holiday Charge and Intraday Mark-to-Market Charge.\7\ Of these
components, the VaR Charge typically comprises the largest portion of a
Clearing Member's Required Fund Deposit amount.
---------------------------------------------------------------------------
\7\ MBSD Rule 4 Section 2, supra, note 4.
---------------------------------------------------------------------------
The VaR Charge is calculated using a risk-based margin methodology
that is intended to capture the market price risk associated with the
securities in a Clearing Member's portfolio. The VaR Charge provides an
estimate of the projected liquidation losses at a 99% confidence level.
The methodology is designed to project the potential gains or losses
that could occur in connection with the liquidation of a defaulting
Clearing Member's portfolio, assuming that a portfolio would take three
days to hedge or liquidate in normal market conditions. The projected
liquidation gains or losses are used to determine the amount of the VaR
Charge, which is calculated to cover projected liquidation losses at
99% confidence level.\8\
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\8\ Unregistered Investment Pool Clearing Members are subject to
a VaR Charge with a minimum targeted confidence level assumption of
99.5 percent. See MBSD Rule 4, Section 2(c), supra note 4.
---------------------------------------------------------------------------
On January 24, 2017, the Commission approved FICC's VaR Filing to
make certain enhancements to the MBSD value-at-risk (``VaR'') margin
calculation methodology including the VaR Charge.\9\ The VaR Filing
amended the definition of VaR Charge to, among other things,
incorporate the VaR Floor.\10\ The VaR Floor is a calculation using a
percentage of gross notional value of a Clearing Member's portfolio and
is used as an alternative to the VaR Charge amount calculated by the
VaR model for Clearing Members' portfolios where the VaR Floor
calculation is greater than the VaR model-based calculation. The VaR
Floor currently addresses the risk that the VaR model may calculate too
low a VaR Charge for certain portfolios where the VaR model applies
substantial risk offsets among long and short positions in different
classes of mortgage-backed securities that have a high degree of
historical price correlation. FICC applies the VaR Floor at the
Clearing Member portfolio level. The VaR Floor is calculated by
multiplying the market value of a Clearing Member's gross unsettled
positions by a designated percentage that is no less than 0.05% and no
greater than 0.30%.\11\ FICC informs Clearing Members of the applicable
percentage utilized by the VaR Floor by an Important Notice issued no
later than 10 Business Days prior to the implementation of such
percentage.\12\ The percentage currently designated by FICC is
0.10%.\13\
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\9\ See VaR Filing Approval Order, supra note 5.
\10\ The term ``VaR Floor'' is defined within the definition of
VaR Charge. See MBSD Rule 1, supra note 4.
\11\ The VaR Floor calculation and percentages are described
within the definition of VaR Charge. See MBSD Rule 1, supra note 4.
\12\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
\13\ See FICC-MBSD Important Notice MBS761-19, dated November 5,
2019 (notifying Clearing Members that the designated VaR Floor
percentage is 0.10%).
---------------------------------------------------------------------------
FICC's VaR model did not respond effectively to the recent levels
of market volatility and economic uncertainty, and the VaR Charge
amounts that were calculated using the profit and loss scenarios
generated by FICC's VaR model did not achieve a 99% confidence level
for the period beginning in March 2020 through the beginning of April
2020. FICC's VaR model calculates the risk profile of each Clearing
Member's portfolio by applying certain representative risk factors to
measure the degree of responsiveness of a portfolio's value to the
changes of these risk factors. COVID-19 market volatility, borrower
protection programs, home price outlook, and the Federal Reserve Bank
of New York (``FRBNY'') authority to buy and sell mortgage-backed
securities have created uncertainty in forward rates, origination/
refinance pipelines, voluntary/involuntary mortgage prepayments, and
supply/demand dynamics that are not reflected in the FICC VaR
historical data set and the FICC VaR model incorporates this historical
data to calibrate the volatilities of the risk factors and the
correlations between risk factors. During this period, the market
uncertainty and FRBNY purchases led to market price changes that
exceeded the VaR model's projections which yielded insufficient VaR
Charges--particularly for higher coupon TBAs \14\ where current TBA
market prices may reflect higher mortgage prepayment risk than implied
by the VaR model's historical risk factor data in the lookback period.
---------------------------------------------------------------------------
\14\ The vast majority of agency mortgage-backed securities
trading occurs in a forward market, on a ``to-be-announced'' or
``TBA'' basis. In a TBA trade, the seller of MBS agrees on a sale
price, but does not specify which particular securities will be
delivered to the buyer on settlement day. Instead, only a few basic
characteristics of the securities are agreed upon, such as the
mortgage-backed security program, maturity, coupon rate and the face
value of the bonds to be delivered. This TBA trading convention
enables a heterogeneous market consisting of thousands of different
mortgage-backed security pools backed by millions of individual
mortgages to be reduced--for trading purposes--to a series of liquid
contracts.
---------------------------------------------------------------------------
In addition, the VaR Floor did not effectively address the risk
that the VaR model calculated too low a VaR Charge for all portfolios
during the recent market volatility and economic uncertainty. The VaR
Floor is currently designed specifically to account for substantial
risk offsets among long and short positions in different classes of
mortgage-backed securities that have a high degree of historical price
correlation. The recent market volatility and economic uncertainty
resulted in a variance between historical price changes and observed
market price changes resulting in TBA price changes significantly
exceeding those implied by the VaR model risk factors as indicated by
backtesting data.
FICC employs daily backtesting to determine the adequacy of each
Clearing Member's Required Fund Deposit.\15\ FICC compares the Required
Fund Deposit for each Clearing Member with the simulated liquidation
gains/losses using the actual positions in the Clearing Member's
portfolio, and the actual historical security returns. During the
recent market volatility and economic uncertainty, the VaR Charges and
the Required Fund Deposits yielded backtesting deficiencies beyond
FICC's
[[Page 79543]]
risk tolerance.\16\ FICC proposes to introduce a Minimum Margin Amount
into the VaR Floor to enhance the MBSD VaR model performance and
improve the backtesting coverage during periods of heightened market
volatility and economic uncertainty. FICC believes that this proposal
will increase the margin back-testing performance during periods of
heightened market volatility by maintaining a VaR Charge that is
appropriately calibrated to the current market price volatility.
---------------------------------------------------------------------------
\15\ For backtesting comparisons, FICC uses the Required Fund
Deposit amount, without regard to the actual collateral posted by
the Clearing Member.
\16\ MBSD's monthly backtesting coverage ratios for Required
Fund Deposit was 86.6% in March 2020 and 94.2% in April 2020.
---------------------------------------------------------------------------
(ii) Proposed Rule Change to Incorporate the Minimum Margin Amount in
the VaR Floor
FICC is proposing to introduce a new calculation called the
``Minimum Margin Amount'' to complement the existing VaR Floor
calculation in the MBSD Rules. The Minimum Margin Amount would enhance
backtesting coverage when there are potential VaR model performance
challenges particularly when TBA price changes significantly exceed
those implied by the VaR model risk factors as observed during March
and April 2020.
The Minimum Margin Amount would be defined in the MBSD Rules as a
minimum volatility calculation for specified net unsettled positions,
calculated using the historical market price changes of such benchmark
TBA securities determined by FICC. The definition would state that the
Minimum Margin Amount would cover such range of historical market price
moves and parameters as FICC from time to time deems appropriate using
a look-back period of no less than one year and no more than three
years.
FICC would set the range of historical market price moves and
parameters from time to time in accordance with FICC's model risk
management practices and governance set forth in the Clearing Agency
Model Risk Management Framework (``Model Risk Management
Framework'').\17\ Under the proposed changes to the QRM Methodology,
the Minimum Margin Amount would be computed through a dynamic haircut
method that is based on observed TBA price moves that would provide a
more reliable estimate for the portfolio risk level when current market
conditions deviate from historical observations. The Minimum Margin
Amount would also improve the responsiveness of the VaR model to a
volatile market because it would have a shorter look back period from
the VaR model.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release Nos. 81485 (August 25,
2017), 82 FR 41433 (August 31, 2017) (SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008); 84458 (October 19, 2018), 83 FR 53925
(October 25, 2018) (SR-DTC-2018-009; SR-FICC-2018-010; SR-NSCC-2018-
009) and 88911 (May 20, 2020), 85 FR 31828 (May 27, 2020) (SR-DTC-
2020-008; SR-FICC-2020-004; SR-NSCC-2020-008) (``Model Risk
Management Framework Filings''). The Model Risk Management Framework
sets forth the model risk management practices adopted by FICC,
National Securities Clearing Corporation, and The Depository Trust
Company. The Model Risk Management Framework is designed to help
identify, measure, monitor, and manage the risks associated with the
design, development, implementation, use, and validation of
quantitative models. The Model Risk Management Framework describes
(i) governance of the Model Risk Management Framework; (ii) key
terms; (iii) model inventory procedures; (iv) model validation
procedures; (v) model approval process; and (vi) model performance
procedures.
---------------------------------------------------------------------------
The MBSD Rules currently define the VaR Floor as an amount
designated by FICC that is determined by multiplying the sum of the
absolute values of a Clearing Member's Long Positions and Short
Positions, at market value, by a percentage designated by FICC that is
no less than 0.05% and no greater than 0.30%.\18\ FICC is proposing to
revise the definition of the VaR Floor to incorporate the Minimum
Margin Amount such that the VaR Floor would be the greater of (i) the
VaR Floor Percentage Amount and (ii) the Minimum Margin Amount.
---------------------------------------------------------------------------
\18\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
---------------------------------------------------------------------------
The ``VaR Floor Percentage Amount'' would be an amount derived
using the current VaR Floor percentage calculation in the MBSD Rules:
an amount designated by FICC that is determined by multiplying the sum
of the absolute values of a Clearing Member's Long Positions and Short
Positions, at market value, by a percentage designated by FICC that is
no less than 0.05% and no greater than 0.30%. As with the existing VaR
Floor percentage, FICC would determine the percentage within this range
to be applied based on factors including but not limited to a review
performed at least annually of the impact of the VaR Floor parameter at
different levels within the range to the backtesting performance and to
Clearing Members' margin charges. The VaR Floor percentage currently in
place is 0.10%.
Likewise, as with the existing VaR Floor percentage, FICC would
inform Clearing Members of the applicable percentage used in the VaR
Floor Percentage Amount by Important Notice issued no later than 10
Business Days prior to implementation of such percentage. This rule
change is not proposing to change the VaR Floor percentage or the
manner in which this component is calculated.
The proposed Minimum Margin Amount would modify the VaR Floor to
also cover circumstances where the market price volatility implied by
the current VaR Charge calculation and the VaR Floor Percentage Amount
is lower than market price volatility from corresponding price changes
of the proposed TBA securities benchmarks observed during the lookback
period. The proposed TBA securities benchmarks to be used in to
calculate the Minimum Margin Amount in the QRM Methodology would be
Federal National Mortgage Association (``Fannie Mae'') and Federal Home
Loan Mortgage Corporation (``Freddie Mac'') conventional 30-year
mortgage-backed securities (``CONV30''), Government National Mortgage
Association (``Ginnie Mae'') 30-year mortgage-backed securities
(``GNMA30''), Fannie Mae and Freddie Mac conventional 15-year mortgage-
backed securities (``CONV15''), and Ginnie Mae 15-year mortgage-backed
securities (``GNMA15''). These benchmarks were selected because they
represent the majority of the trading volumes in the market.\19\ This
proposal would allow offsetting between short and long positions within
TBA securities benchmarks given that the TBAs aggregated in each
benchmark exhibit similar risk profiles and can be netted together to
calculate the Minimum Margin Amount that will cover the observed market
price changes for each portfolio.
---------------------------------------------------------------------------
\19\ FICC plans to map 10-year and 20-year TBA to the
corresponding 15-year TBA security benchmark. As of August 31, 2020,
20-year TBAs account for less than 0.5%, and 10-year TBAs account
for less than 0.1%, of the positions in MBSD clearing portfolios. In
the QRM Methodology, these TBAs are not selected as separate TBA
security benchmarks due to the limited trading volumes in the
market. FICC will continue to monitor the position exposures in MBSD
and determine if a modification to the QRM Methodology may be
required.
---------------------------------------------------------------------------
FICC is proposing to modify the QRM Methodology to specify that the
Minimum Margin Amount would be calculated per Clearing Member portfolio
as follows: (i) risk factors would be calculated using historical
market prices of benchmark TBA securities and (ii) each Clearing
Member's portfolio exposure would be calculated on a net position
across all products and for each securitization program (i.e., CONV30,
GNMA30, CONV15 and GNMA15). The Minimum Margin Amount would be
calculated by multiplying a ``base risk factor'' (described below) by
the absolute value of the Clearing Member's net position across all
products, plus the sum of each risk factor spread to the base risk
factor
[[Page 79544]]
multiplied by the absolute value of its corresponding position.
Pursuant to the QRM Methodology, FICC calculates an outright risk
factor for GNMA30 and CONV30. The base risk factor for a portfolio for
the Minimum Margin Amount would be based on whether GNMA30 or CONV30
constitutes the larger absolute net market value in each Clearing
Member's portfolio. If GNMA30 constitute the larger absolute net market
value in the portfolio, the base risk factor would be equal to the
outright risk factor for GNMA30. If CONV30 constitute the larger
absolute new market value in the portfolio, the base risk factor would
be equal to the outright risk factor for the CONV30.\20\ GNMA30 and
CONV30 are used as the baseline programs for determining the base risk
factors because those programs constitute the majority part of the TBA
market and the majority of positions in MBSD portfolios.
---------------------------------------------------------------------------
\20\ To illustrate the Minimum Margin Amount calculation,
consider an example where a Clearing Member has a portfolio with a
net long position across all products of $2 billion and CONV30
constitutes the larger absolute net market value in its portfolio as
between GNMA30 and CONV30. Assume that the outright risk factor for
CONV30 is 0.0096. Further assume the Clearing Member has a net short
position of $30 million in CONV15, and the corresponding risk factor
spread to the base risk factor is 0.006; a net short position of
$500 million in GNMA30, and the corresponding risk factor spread is
0.005; and a net long position of $120 million in GNMA15, and the
corresponding risk factor spread is 0.007. In order to generate the
Minimum Margin Amount, FICC would multiply the base risk factor by
the absolute value of the Clearing Member's net position across all
products, plus the sum of each risk factor spread of the subsequent
products multiplied by absolute value of the position for the
respective product (i.e., ([base risk factor]*ABS[portfolio net
position]) + ([CONV15 spread risk factor] * ABS[CONV15 net
position]) + ([GNMA30 spread risk factor] * ABS[GNMA30 net
position]) + ([GNMA15 Spread Risk Factor] * ABS[GNMA15 net
position])). The resulting Minimum Margin Amount would be $22.72
million.
---------------------------------------------------------------------------
The proposed benchmark TBA securities, historical market price
moves and parameters to be used to calculate the Minimum Margin Amount
would be determined by FICC from time to time in accordance with FICC's
model risk management practices and governance set forth in the
Clearing Agency Model Risk Management Framework.\21\
---------------------------------------------------------------------------
\21\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------
FICC is proposing to introduce the Minimum Margin Amount to
complement the VaR Floor during market conditions when the TBA prices
are driven by factors outside of those implied by the VaR model. The
Minimum Margin Amount would use observable TBA prices and would be
calculated with a shorter lookback period than the VaR model so it
would be more responsive to current market conditions. This proposal
provides a more transparent and market price sensitive approach than
alternatives, such as a VaR model parameter adjustment and VaR model
add-on, would provide to Clearing Members.\22\
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\22\ A VaR model parameter adjustment or a VaR model add-on
would be implemented by estimating how much the VaR model should be
modified to correspond to the current market price volatility. A
parameter adjustment would be a modification to one or more VaR
model risk factors while an add-on would be a percentage adjustment
to the calculated VaR.
---------------------------------------------------------------------------
The lookback period of the Minimum Margin Amount is intended to be
shorter than the lookback period used for the VaR model, which is 10
years, plus, to the extent applicable, one stressed period.\23\ The
lookback period of the Minimum Margin Amount would be between one to
three years. Consistent with the VaR methodology outlined in the QRM
Methodology and pursuant to the model performance monitoring required
under the Model Risk Management Framework,\24\ the lookback period
would be analyzed to evaluate its sensitivity and impact to the model
performance under four distinctive market regimes, epitomized by recent
observations: (i) Calm markets where the VaR coverage is above 99%
(e.g. 2018); (ii) moderately volatile markets or external mortgage
market events (e.g. summer 2013; summer 2019); (iii) at the beginning
of extreme market volatility (e.g., 2007; COVID-19 in March), and (iv)
post extreme market stress and mean-reverting to `normal' market
conditions. The lookback parameter in general affects (i) whether and
how the floor will be invoked; (ii) the peak level of margin increase
or the degree of procyclicality; and (iii) how quickly the margin will
fall back to pre-stress levels. The lookback parameter update is
intended to be an infrequent event and would typically happen only when
there is a market regime change. The decision to update the lookback
parameter would be based on the above-mentioned sensitivity analysis
with considerations to the impacts to both the VaR Charges and the
backtesting performance. The shorter lookback would more accurately
reflect recent market conditions and would provide more responsiveness
to market condition changes. The initial default lookback period for
the Minimum Margin Amount calculation would be two years but may be
adjusted as set forth above in accordance with FICC's model risk
management practices and governance set forth in the Model Risk
Management Framework.\25\
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\23\ FICC maintains the ability to include an additional period
of historically observed stressed market conditions to a 10-year
look-back period if FICC observes that (1) the results of the model
performance monitoring are not within FICC's 99th percentile
confidence level or (2) the 10-year look-back period does not
contain sufficient stressed market conditions.
\24\ The Model Risk Management Framework provides that all
models undergo ongoing model performance monitoring and backtesting
which is the process of (i) evaluating an active model's ongoing
performance based on theoretical tests, (ii) monitoring the model's
parameters through the use of threshold indicators, and/or (iii)
backtesting using actual historical data/realizations to test a VaR
model's predictive power. See Model Risk Management Framework
Filings, supra note 17.
\25\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------
The Model Risk Management Framework would also require FICC to
conduct model performance reviews of the Minimum Margin Amount
methodology.\26\ Specifically, FICC would monitor each Clearing
Member's Required Fund Deposit and the aggregate Clearing Fund
requirements versus the requirements calculated by the Minimum Margin
Amount. In order to apply the risk management principles and model
performance monitoring required under the Model Risk Management
Framework, FICC's current model risk management practices would provide
for a review of the robustness of the Required Fund Deposit inclusive
of the Minimum Margin Amount by comparing the results versus the three-
day profit and loss of each Clearing Member's margin portfolio based on
actual market price moves. If the backtesting results of Required Fund
Deposit inclusive of the Minimum Margin Amount did not meet FICC's 99%
confidence level, FICC could consider adjustments to the Minimum Margin
Amount, including changing the look-back period (as discussed above)
and/or applying a historical stressed period to the Minimum Margin
Amount calibration, as appropriate. Any adjustment to the Minimum
Margin Amount calibration would be subject to the model risk management
practices and governance process set forth in the Model Risk Management
Framework.\27\
---------------------------------------------------------------------------
\26\ See note 24.
\27\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------
A. Proposed MBSD Rule Changes
In connection with incorporating the Minimum Margin Amount, FICC
would modify the MBSD Rules to:
Add a definition of ``Minimum Margin Amount'' and define
it as a minimum volatility calculation for specified net unsettled
positions of a Clearing Member, calculated using the historical market
price changes of such benchmark TBA securities determined
[[Page 79545]]
by FICC. The definition would specify that the Minimum Margin Amount
shall cover such range of historical market price moves and parameters
as the Corporation from time to time deems appropriate using a look-
back period of no less than one year and no more than three years;
add a definition of ``VaR Floor Percentage Amount'' which
would be defined substantially the same as the current calculation for
the VaR Floor percentage with non-substantive modifications to reflect
that the calculated amount is a separate defined term; and
move the defined term VaR Floor out of the definition of
VaR Charge and define it as the greater of (i) the VaR Floor Percentage
Amount and (ii) the Minimum Margin Amount.
B. Proposed QRM Methodology Changes
In connection with incorporating the Minimum Margin Amount, FICC
would modify the QRM Methodology to:
Describe how the Minimum Margin Amount, as defined in the
MBSD Rules, would be calculated, including
establishing CONV30, GNMA30, CONV15 and GNMA15 as proposed
TBA securities benchmarks for purposes of the calculation and
calculating risk factors using historical market prices of such
benchmark TBA securities;
using a dynamic haircut method that allows offsetting
between short and long positions within a program and among different
programs; and
multiplying a ``base risk factor'' (based on whether
GNMA30 or CONV30 constitutes the larger absolute net market value in
each Clearing Member's portfolio) by the absolute value of the Clearing
Member's net position across all products, plus the sum of each risk
factor spread to the base risk factor multiplied by the absolute value
of its corresponding position;
describe the developmental evidence and impacts to
backtesting performance and margin charges relating to Minimum Margin
Amount; and
make certain technical changes to the QRM Methodology to
re-number sections and tables, and update certain section titles as
necessary, to add a new section that describes the proposed Minimum
Margin Amount and the selection of benchmarks.
C. Impact Studies
FICC performed an impact study on Clearing Members' portfolios for
the period beginning February 3, 2020 through June 30, 2020 (``Impact
Study Period'). If the proposed rule changes had been in place during
the Impact Study Period compared to the existing MBSD Rules:
Aggregate average daily aggregate VaR Charges would have
increased by approximately $2.2 billion or 42%; and
aggregate average daily Backtesting Charges would have
decreased by approximately $450 million or 53%.
Impact studies also indicated that if the proposed rule changes had
been in place, overall margin backtesting coverage (based on 12-month
trailing backtesting) would have increased from approximately 99.3% to
99.6% through January 31, 2020 and approximately 97.3% to 98.5% through
June 30, 2020.
D. Impacts to Clearing Members Over the Impact Study Period
On average, at the Clearing Member level, the Minimum Margin Amount
would have increased the VaR Charge by $27 million over the Impact
Study Period. The largest percent increase in VaR Charge for any
Clearing Member would have been 146%, or $22 million. The largest
dollar increase for any Clearing Member would have been $333 million,
or 37% increase in the VaR Charge. The top 10 Clearing Members based on
the size of their VaR Charges would have contributed 69.3% of the
aggregate VaR Charges during the Impact Study Period had the Minimum
Margin Amount been in place. The same Clearing Members would have
contributed to 54% of the increase resulting from the Minimum Margin
Amount during the Impact Study Period.
The portfolios that would have observed large percent increases
were largely made up with concentrations in higher coupon TBAs and GNMA
positions. However, no Clearing Members would have triggered the Excess
Capital Premium charge \28\ due to the increase in Required Fund
Deposits resulting from the Minimum Margin Amount during the Impact
Study Period.
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\28\ Excess Capital Premium is assessed when the Clearing
Member's VaR Charge exceeds the Excess Capital it maintains.
---------------------------------------------------------------------------
(iii) Implementation Timeframe
FICC would implement the proposed changes no later than 20 Business
Days after the later of the approval of the proposed rule change and no
objection to the related advance notice \29\ by the Commission. FICC
would announce the effective date of the proposed changes by Important
Notice posted to its website.
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\29\ Supra note 3.
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2. Statutory Basis
FICC believes that 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
that this proposal is consistent with Section 17A(b)(3)(F) of the Act
\30\ and Rules 17Ad-22(e)(4)(i) and (e)(6)(i), each promulgated under
the Act,\31\ for the reasons described below.
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\30\ 15 U.S.C. 78q-1(b)(3)(F).
\31\ 17 CFR 240.17Ad-22(e)(4), (e)(6) and (e)(23)(ii).
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Section 17A(b)(3)(F) of the Act requires, in part, that the MBSD
Rules be designed to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible.\32\ FICC believes the proposed changes are designed
to assure the safeguarding of securities and funds which are in its
custody or control or for which it is responsible because they are
designed to enable FICC to better limit its exposure to Clearing
Members in the event of a Clearing Member default, as described below.
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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The Required Fund Deposits are made up of risk-based components (as
margin) that are calculated and assessed daily to limit FICC's credit
exposures to Clearing Members. FICC is proposing changes to the MBSD
Rules and QRM Methodology that are designed to more effectively measure
and address risk characteristics in situations where the risk factors
used in the VaR method do not adequately predict TBA prices. The
proposed changes above would adjust the VaR Floor to help ensure that
FICC collects adequate margin from its Clearing Members, particularly
in periods of high market volatility and economic uncertainty. During
these periods, the existing VaR model has been shown to be inadequate
based on backtesting performances. Backtesting percentages covering
such periods indicate the risk that VaR Charges will be insufficient to
manage risk in the event of a Clearing Member's default. FICC pays
particular attention to Clearing Members with backtesting deficiencies
that bring the results for that Clearing Member below the 99%
confidence target to determine if there is an identifiable cause of
repeat backtesting deficiencies. During the recent period of market
volatility and economic uncertainty, there were numerous repeated
backtesting deficiencies. The Minimum Margin Amount, to be defined in
the MBSD Rules and further incorporated in the QRM Methodology as
described herein, is a proposed targeted response to enhance the MBSD
VaR model
[[Page 79546]]
performance and improve the backtesting coverage during periods of
heightened market volatility and economic uncertainty.
As a result of the recent market volatility and economic
uncertainty, FICC's VaR model did not achieve a 99% confidence level
for all Clearing Members in March and April 2020. The Minimum Margin
Amount is intended to allow the VaR Charge to be more responsive during
market conditions when the VaR model projections do not closely
correspond with observed market price changes. Backtesting studies
indicate that aggregate average daily aggregate VaR Charges would have
increased by approximately $2.2 billion or 42%, average aggregate daily
Backtesting Charges would have decreased by approximately $450 million
or 53% during the Impact Study Period and the overall margin
backtesting coverage (based on 12-month trailing backtesting) would
have improved from approximately 97.3% to 98.5% through June 30, 2020
if the Minimum Margin Amount calculation had been in place. Improving
the overall backtesting coverage level would help FICC ensure that it
maintains an appropriate level of margin to address its risk management
needs.
The use of the Minimum Margin Amount would reduce risk by allowing
FICC to calculate the exposure in each portfolio using the risk spread
based on observed TBA price moves of TBA positions within each
portfolio. As reflected by backtesting studies during the Impact Study
Period, using observed market prices of such benchmark TBA securities
to set risk exposure would provide a more reliable estimate than the
FICC VaR historical data set for the portfolio risk level when current
market conditions deviate from historical observations. This proposal
would allow offsetting between short and long positions within TBA
securities benchmarks given that the TBAs aggregated in each benchmark
exhibit similar risk profiles and can be netted together to calculate
the Minimum Margin Amount that will cover the observed market price
changes for each portfolio. Adding the Minimum Margin Amount to the VaR
Floor would help to ensure that the risk exposure during periods of
market volatility and economic uncertainty is adequately captured in
the VaR Charges. FICC believes that would help to ensure that FICC
continues to accurately calculate and assess margin and in turn,
collect sufficient margin from its Clearing Members and better enable
FICC to limit its exposures that could be incurred when liquidating a
portfolio.
FICC believes the proposed technical changes to the QRM Methodology
described above would enhance the clarity of the QRM Methodology for
FICC. Having a clear and accurate methodology document, which describes
how the Minimum Margin Amount would be calculated and the selection of
benchmarks, that the Minimum Margin Amount would be included within the
calculation of the VaR Charges and the developmental evidence and
impacts to backtesting performance and margin charges, would help to
ensure that FICC continues to accurately calculate and assess margin
and in turn, collect sufficient margin from its Clearing Members and
better enable FICC to limit its exposures that could be incurred when
liquidating a portfolio.
By better enabling FICC to limit its exposure to Clearing Members,
the proposed changes to the MBSD Rules and QRM Methodology are designed
to better ensure that, in the event of a Clearing Member default, FICC
would have adequate margin from the defaulting Clearing Member and non-
defaulting Clearing Members would not be exposed to losses they cannot
anticipate or control. Therefore, the proposed changes would be
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of the Act.\33\
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\33\ Id.
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Rule 17Ad-22(e)(4)(i) under the Act \34\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those exposures arising from its payment, clearing, and settlement
processes by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence. As described above, FICC believes that the proposed changes
would enable it to better identify, measure, monitor, and, through the
collection of Clearing Members' Required Fund Deposits, manage its
credit exposures to Clearing Members by maintaining sufficient
resources to cover those credit exposures fully with a high degree of
confidence. More specifically, as indicated by backtesting studies,
implementation of a Minimum Margin Amount by changing the MBSD Rules
and QRM Methodology as described herein would allow FICC to limit its
credit exposures to Clearing Members in the event that the current VaR
model yields too low a VaR Charge for such portfolios and improve
backtesting performance. As indicated by the backtesting studies,
aggregate average daily aggregate VaR Charges would have increased by
approximately $2.2 billion or 42%, average aggregate daily Backtesting
Charges would have decreased by approximately $450 million or 53%
during the Impact Study Period and the overall margin backtesting
coverage (based on 12-month trailing backtesting) would have improved
from approximately 97.3% to 98.5% through June 30, 2020 if the Minimum
Margin Amount calculation had been in place. By identifying and
providing for appropriate VaR Charges, adding the Minimum Margin Amount
to the VaR Floor would help to ensure that the risk exposure during
periods of market volatility and economic uncertainty is adequately
identified, measured and monitored. As a result, FICC believes that the
proposal would enhance FICC's ability to effectively identify, measure
and monitor its credit exposures and would enhance its ability to
maintain sufficient financial resources to cover its credit exposure to
each participant fully with a high degree of confidence, consistent
with the requirements of Rule 17Ad-22(e)(4)(i) of the Act.\35\
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\34\ See 17 CFR 240.17Ad-22(e)(4)(i).
\35\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(6)(i) under the Act \36\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to cover its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market. FICC believes that the proposed changes
to adjust the VaR Floor to include the Minimum Margin Amount by
changing the MBSD Rules and QRM Methodology as described herein are
consistent with the requirements of Rule 17Ad-22(e)(6)(i) cited above.
The Required Fund Deposits are made up of risk-based components (as
margin) that are calculated and assessed daily to limit FICC's credit
exposures to Clearing Members. FICC is proposing changes that are
designed to more effectively measure and address risk characteristics
in situations where the risk factors used in the VaR method do not
adequately predict TBA prices. As reflected in backtesting studies,
FICC believes the proposed changes would appropriately
[[Page 79547]]
limit FICC's credit exposure to Clearing Members in the event that the
VaR model yields too low a VaR Charge in such situations. Such
backtesting studies indicate that aggregate average daily aggregate VaR
Charges would have increased by approximately $2.2 billion or 42%,
aggregate average daily Backtesting Charges would have decreased by
approximately $450 million or 53% during the Impact Study Period and
the overall margin backtesting coverage (based on 12-month trailing
backtesting) would have improved from approximately 97.3% to 98.5%
through June 30, 2020 if the Minimum Margin Amount calculation had been
in place. By identifying and providing for appropriate VaR Charges,
adding the Minimum Margin Amount to the VaR Floor would help to ensure
that margin levels are commensurate with the risk exposure of each
portfolio during periods of market volatility and economic uncertainty.
The proposed changes would therefore allow FICC to continue to produce
margin levels commensurate with the risks and particular attributes of
each relevant product, portfolio, and market. As such, FICC believes
that the proposed changes are consistent with the requirements of Rule
17Ad-22(e)(6)(i) of the Act.\37\
---------------------------------------------------------------------------
\36\ See 17 CFR 240.17Ad-22(e)(6)(i).
\37\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
FICC believes the proposed rule changes to modify the VaR Floor to
incorporate a Minimum Margin Amount as described above could impose a
burden on competition. As a result of the incorporation of the Minimum
Margin Amount, Clearing Members may experience increases in their
Required Fund Deposits. An impact study during the Impact Study Period
indicates that on average each Clearing Member would have had an
increase in VaR Charge of approximately 42%. Impact studies also
indicate that the proposed changes could impact each Clearing Member in
a different manner compared to other Clearing Members depending on the
products in such Clearing Member's portfolio. Clearing Members with
higher percentages of higher coupon TBAs in their portfolios, are more
likely to be impacted by the proposed changes. Such increases could
burden Clearing Members that have lower operating margins or higher
costs of capital than other Clearing Members. It is not clear whether
the burden on competition would necessarily be significant because it
would depend on whether the affected Clearing Members were similarly
situated in terms of business type and size. Regardless of whether the
burden on competition is significant, FICC believes that any burden on
competition would be necessary and appropriate in furtherance of the
purposes of the Act.
Specifically, FICC believes that the proposed rule changes would be
necessary in furtherance of the Act, as described in this filing and
further below. FICC believes that the above described burden on
competition that may be created by the proposed changes to incorporate
a Minimum Margin Amount in the VaR Floor is necessary, because the MBSD
Rules must be designed to assure the safeguarding of securities and
funds that are in FICC's custody or control or which it is responsible,
consistent with Section 17A(b)(3)(F). As described above, FICC believes
that the use of the Minimum Margin Amount would reduce risk by allowing
FICC to calculate the exposure in each portfolio using the risk spread
based on observed TBA price moves of TBA positions within each
portfolio and provide a more reliable estimate than the FICC VaR
historical data set for the portfolio risk level when current market
conditions deviate from historical observations. Accurately calculating
and assessing margin and in turn, collecting sufficient margin from its
Clearing Members would better enable FICC to limit its exposures that
could be incurred when liquidating a portfolio. By better enabling FICC
to limit its exposure to Clearing Members, the proposed changes to the
MBSD Rules and QRM Methodology are designed to better ensure that, in
the event of a Clearing Member default, FICC would have adequate margin
from the defaulting Clearing Member and non-defaulting Clearing Members
would not be exposed to losses they cannot anticipate or control.
Therefore, the proposed changes would be designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.
FICC also believes these proposed changes are necessary to support
FICC's compliance with Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i)
under the Act,\38\ which require FICC to establish, implement, maintain
and enforce written policies and procedures reasonably designed to (x)
effectively identify, measure, monitor, and manage its credit exposures
to participants and those arising from its payment, clearing, and
settlement processes, including by maintaining sufficient financial
resources to cover its credit exposure to each participant fully with a
high degree of confidence and (y) cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market.
---------------------------------------------------------------------------
\38\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
---------------------------------------------------------------------------
As described above, FICC believes that implementing the Minimum
Margin Amount into the VaR Floor would allow FICC to more effectively
measure and address risk characteristics in situations where the risk
factors used in the VaR method do not adequately predict TBA prices,
particularly in periods of high volatility and economic uncertainty.
FICC's existing VaR model did not respond effectively to the recent
levels of market volatility and economic uncertainty, and the VaR
Charge amounts that were calculated using the profit and loss scenarios
generated by FICC's VaR model did not achieve a 99% confidence level
beginning in mid-March 2020. In addition, the VaR Floor did not
effectively address the risk that the VaR model calculated too low a
VaR Charge for all portfolios. As reflected in backtesting studies
during the Impact Study Period, FICC believes the proposed changes
would appropriately cover FICC's credit exposure to Clearing Members
with a high degree of confidence in the event that the VaR model yields
too low a VaR Charge in such situations. The proposed rule changes
would limit FICC's exposure to Clearing Members by ensuring that each
Clearing Member has an appropriate minimum VaR Charge in the event that
the VaR model yields too low a VaR Charge for such portfolios. By
identifying and providing for appropriate VaR Charges, adding the
Minimum Margin Amount to the VaR Floor would help to ensure that margin
levels are commensurate with the risk exposure of each portfolio during
periods of market volatility and economic uncertainty. Therefore, FICC
believes that these proposed changes would allow FICC to effectively
identify, measure, monitor, and manage its credit exposures to Clearing
Members and better limit FICC's credit exposures to Clearing Members by
maintaining sufficient financial resources to cover its credit exposure
to each Clearing Member fully with a high degree of confidence and
producing margin levels commensurate with, the risks and particular
attributes of each relevant product and portfolio, consistent with the
requirements of
[[Page 79548]]
Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under the Act. \39\
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
FICC also believes that the above described burden on competition
that could be created by the proposed changes would be appropriate in
furtherance of the Act because such changes have been appropriately
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible, as
described in detail above. The proposed change to incorporate the
Minimum Margin Amount would enable FICC to produce margin levels more
commensurate with the risks and particular attributes of each Clearing
Member's portfolio. Any increase in Required Fund Deposit as a result
of such proposed changes for a particular Clearing Member would be in
direct relation to the specific risks presented by such Clearing
Members' portfolio, and each Clearing Member's Required Fund Deposit
would continue to be calculated with the same parameters and at the
same confidence level. Therefore, Clearing Members with portfolios that
present similar risks, regardless of the type of Clearing Member, would
have similar impacts on their Required Fund Deposit amounts. In
addition, the proposed changes would improve the risk-based margining
methodology that FICC employs to set margin requirements and better
limit FICC's credit exposures to its Clearing Members. Impact studies
indicate that the proposed methodology would result in backtesting
coverage that more appropriately addresses the risks presented by each
portfolio. Therefore, because the proposed changes are designed to
provide FICC with a more appropriate and complete measure of the risks
presented by Clearing Members' portfolios, FICC believes the proposals
are appropriately designed to meet its risk management goals and its
regulatory obligations.
Therefore, FICC does not believe that the proposed changes would
impose any burden on competition that is not necessary or appropriate
in furtherance of the Act.\40\
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\40\ 15.U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to the proposed rule changes have not
been solicited or received. 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the 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-2020-017 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-2020-017. 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-2020-017 and should be submitted on
or before December 31, 2020.
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\41\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27087 Filed 12-9-20; 8:45 am]
BILLING CODE 8011-01-P
