Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of a Proposed Rule Change To Revise the Clearing Agency Investment Policy, 14503-14506 [2021-05341]
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Federal Register / Vol. 86, No. 49 / Tuesday, March 16, 2021 / Notices
Reduction Act’’), the Securities and
Exchange Commission (‘‘the
Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for extension of the
previously approved collection of
information discussed below.
Rule 498 (17 CFR 230.498) under the
Securities Act of 1933 (15 U.S.C. 77a et
seq.) (‘‘Securities Act’’) permits openend management investment companies
(‘‘funds’’) to satisfy their prospectus
delivery obligations under the Securities
Act by sending or giving key
information directly to investors in the
form of a summary prospectus
(‘‘Summary Prospectus’’) and providing
the statutory prospectus on a website.
Upon an investor’s request, funds are
also required to send the statutory
prospectus to the investor. In addition,
under rule 498, a fund that relies on the
rule to meet its statutory prospectus
delivery obligations must make
available, free of charge, the fund’s
current Summary Prospectus, statutory
prospectus, statement of additional
information, and most recent annual
and semi-annual reports to shareholders
at the website address specified in the
required Summary Prospectus legend
(17 CFR 270.498(e)(1)). A Summary
Prospectus that complies with rule 498
is deemed to be a prospectus that is
authorized under Section 10(b) of the
Securities Act and Section 24(g) of the
Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.).
The purpose of rule 498 is to enable
a fund to provide investors with a
Summary Prospectus containing key
information necessary to evaluate an
investment in the fund. Unlike many
other federal information collections,
which are primarily for the use and
benefit of the collecting agency, this
information collection is primarily for
the use and benefit of investors. The
information filed with the Commission
also permits the verification of
compliance with securities law
requirements and assures the public
availability and dissemination of the
information.
Based on an analysis of fund filings,
the Commission estimates that
approximately 10,536 funds are using a
Summary Prospectus. The Commission
estimates that the annual hourly burden
per fund associated with the
compilation of the information required
on the cover page or the beginning of
the Summary Prospectus is 0.5 hours,
and estimates that the annual hourly
burden per fund to comply with the
website posting requirement is
approximately 1 hour, requiring a total
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of 1.5 hours per fund per year.1 Thus the
total annual hour burden associated
with these requirements of the rule is
approximately 15,804.2 The
Commission estimates that the annual
cost burden is approximately $18,105
per fund, for a total annual cost burden
of approximately $190,754,280.3
Estimates of the average burden hours
are made solely for the purposes of the
Paperwork Reduction Act and are not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules and forms.
Under rule 498, use of the Summary
Prospectus is voluntary, but the rule’s
requirements regarding provision of the
statutory prospectus upon investor
request are mandatory for funds that
elect to send or give a Summary
Prospectus in reliance upon rule 498.
The information provided under rule
498 will not be kept confidential. An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless it
displays a currently valid OMB control
number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to (i) www.reginfo.gov/public/do/
PRAMain and (ii) David Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission,
c/o Cynthia Roscoe, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
Dated: March 11, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
1 0.5 hours per fund + 1 hour per fund = 1.5 hours
per fund.
2 1.5 hours per fund × 10,536 fund = 15,804
hours.
3 $18,105 per fund × 10,536 fund = $190,754,280.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91292; File No. SR–FICC–
2021–001]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of a Proposed Rule Change To
Revise the Clearing Agency
Investment Policy
March 10, 2021.
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 March 8,
2021, 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. 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 would
revise the Clearing Agency Investment
Policy (‘‘Investment Policy’’) of Fixed
Income Clearing Corporation (‘‘FICC’’)
and its affiliates, The Depository Trust
Company (‘‘DTC’’) and National
Securities Clearing Corporation
(‘‘NSCC,’’ and, together with DTC and
FICC, the ‘‘Clearing Agencies’’) in order
to (1) enhance the methodology for
determining investment limits for
investments in bank deposits, and (2)
clarify the description of certain
investable funds of the Government
Securities Division of FICC (‘‘GSD’’), as
described in greater detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
[FR Doc. 2021–05376 Filed 3–15–21; 8:45 am]
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14503
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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 86, No. 49 / Tuesday, March 16, 2021 / Notices
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The Clearing Agencies are proposing
to revise the Investment Policy, which
was adopted for each clearing agency in
December 2016 3 and is maintained in
compliance with Rule 17Ad–22(e)(16)
under the Act,4 in order to (1) enhance
the methodology for determining
investment limits for investments in
bank deposits, and (2) clarify the
description of certain investable funds
of GSD, as described in greater detail
below.
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Overview of the Investment Policy
The Investment Policy governs the
management, custody and investment of
cash deposited to the respective NSCC
and FICC Clearing Funds, and the DTC
Participants Fund,5 the proprietary
liquid net assets (cash and cash
equivalents) of the Clearing Agencies,
and other funds held by the Clearing
Agencies pursuant to their respective
rules.
The Investment Policy identifies the
guiding principles for investments and
defines the roles and responsibilities of
DTCC staff in administering the
Investment Policy pursuant to those
principles. The Investment Policy is coowned by DTCC’s Treasury group
(‘‘Treasury’’) 6 and the Counterparty
Credit Risk team (‘‘CCR’’) within
DTCC’s Group Chief Risk Office
(‘‘GCRO’’).7 Treasury is responsible for
identifying potential counterparties to
investment transactions, establishing
3 See Securities Exchange Act Release No. 79528
(December 12, 2016), 81 FR 91232 (December 16,
2016) (SR–DTC–2016–007, SR–FICC–2016–005,
SR–NSCC–2016–003).
4 17 CFR 240.17Ad–22(e)(16). As discussed in
this filing, the Investment Policy also addresses
compliance with the requirements of Rule 17Ad–
22(e)(3). 17 CFR 240.17Ad–22(e)(3).
5 The respective Clearing Funds of NSCC and
FICC, and the DTC Participants Fund are described
further in the Rules & Procedures of NSCC (‘‘NSCC
Rules’’), the DTC Rules, By-laws and Organization
Certificate (‘‘DTC Rules’’), the Clearing Rules of the
Mortgage-Backed Securities Division of FICC
(‘‘MBSD Rules’’) or the Rulebook of the Government
Securities Division of FICC (‘‘GSD Rules’’),
respectively, available at https://dtcc.com/legal/
rules-and-procedures. See Rule 4 (Clearing Fund) of
the NSCC Rules, Rule 4 (Participants Fund and
Participants Investment) of the DTC Rules, Rule 4
(Clearing Fund and Loss Allocation) of the GSD
Rules and Rule 4 (Clearing Fund and Loss
Allocation) of the MBSD Rules.
6 Treasury is a part of the DTCC Finance
Department and is responsible for the safeguarding,
investment and disbursement of funds on behalf of
the Clearing Agencies and in accordance with the
principles outlined in the Investment Policy.
7 Among other responsibilities, GCRO is generally
responsible for the systems and processes designed
to identify and manage credit, market and liquidity
risks to the Clearing Agencies.
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and managing investment relationships
with approved investment
counterparties, and making and
monitoring all investment transactions
with respect to the Clearing Agencies.
CCR is responsible for conducting a
credit review of any potential
counterparty, updating those reviews on
a quarterly basis, and establishing an
investment limit for each counterparty.
CCR is also responsible for ongoing
monitoring of counterparties and
recommending changes to investment
limits when appropriate.
The Investment Policy also identifies
sources of funds that may be invested,
and the permitted investments of those
funds, including the authority required
to make such investments and the
parameters of, and limitations on, each
type of investment. Allowable
investments include bank deposits,
reverse repurchase agreements, direct
obligations of the U.S. government,
money market mutual funds, high-grade
corporate debt, and hedge transactions.
Finally, the Investment Policy defines
the approval authority required to
exceed established investment limits.
The Investment Policy is reviewed
and approved by the Boards annually.
In connection with a recent annual
review of the Investment Policy, the
Clearing Agencies have decided to
propose revisions to the Investment
Policy in order to (1) enhance the
methodology for determining
investment limits for investments in
bank deposits, and (2) clarify the
description of certain investable funds
of GSD, as described in greater detail
below.
Proposed Enhancement to the Formula
for Setting Bank Deposit Investment
Limits
Section 6.2.1 of the Investment Policy
sets forth the investment limits
applicable to bank deposit investments.
Currently, bank deposit investment
limits are determined based on the bank
counterparty’s external credit rating. For
example, investments in a bank deposits
with a bank counterparty with an
external credit rating of AAA or Aaa are
limited to no more than $750 million,
and an investment with a bank
counterparty with an external credit
rating of BBB+ or Baa1 are limited to no
more than $100 million.
The Clearing Agencies are proposing
to enhance the methodology for setting
investment limits and investment caps
on bank deposits with a particular
counterparty by including a
consideration of the size of the bank
counterparty, measured as the total
shareholders’ equity capital, in this
calculation. Under the proposed
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methodology, an investment limit for a
bank deposit counterparty would
continue to be based on the
counterparty’s credit rating, but would
be the lower of (1) a percentage of its
total shareholders’ equity capital, and
(2) the applicable dollar value that is
currently in Section 6.2.1 of the
Investment Policy. For example,
investments in a bank deposits with a
bank counterparty with an external
credit rating of AAA or Aaa and total
shareholders’ equity capital of $9 billion
would be limited to no more than $750
million, however, investments with a
bank counterparty with the same
external credit rating and total
shareholders’ equity capital of $2 billion
would be limited to no more than $300
million.
The proposed approach would permit
the Clearing Agencies to take into
account the size of a counterparty in
setting investment limits rather than
apply the same investment limits to
each counterparty with the same credit
rating without regard to the entity’s size.
The proposal is designed to mitigate the
Clearing Agencies’ risk exposure to
smaller bank counterparties.
Proposed Revisions to the Description of
Investable Funds of GSD
The Clearing Agencies are also
proposing to amend Section 5 of the
Investment Policy to revise the
description of investable funds of GSD,
which are currently described as ‘‘GSD
Forward Margin.’’ The proposed
changes would refer to these funds as
‘‘GSD Forward Mark Adjustment
Payment,’’ which is the term used in the
GSD Rules to refer to these funds.8 The
proposed change to clarify the term
used to describe these funds would
prevent any confusion about which
funds are included in Section 5 and
invested pursuant to the Policy.
2. Statutory Basis
The Clearing Agencies believe that the
proposed rule changes are consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a registered clearing
agency. In particular, the Clearing
Agencies believe that the proposed
modifications to the Investment Policy
are consistent with Section 17A(b)(3)(F)
of the Act 9 and Rule 17Ad–22(e)(16)
under the Act,10 for the reasons
described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of each
8 See Rule 1 (Definitions) of the GSD Rules. Supra
note 5.
9 15 U.S.C. 78q–1(b)(3)(F).
10 17 CFR 240.17Ad–22(e)(16).
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Federal Register / Vol. 86, No. 49 / Tuesday, March 16, 2021 / Notices
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of the Clearing Agencies be designed to
assure the safeguarding of securities and
funds that are in the custody or control
of each of the Clearing Agencies or for
which they are responsible.11 The
investment guidelines and governance
procedures set forth in the Investment
Policy are designed to safeguard funds
that are in the custody or control of the
Clearing Agencies or for which they are
responsible. Such protections include,
for example, following a prudent and
conservative investment philosophy
that places the highest priority on
maximizing liquidity and risk
avoidance. The Clearing Agencies
believe the proposed change to consider
the size of a bank counterparty in setting
its bank deposit investment limits
would allow it to adhere to these
guidelines by minimizing the risk posed
by smaller counterparties, measured by
their shareholders’ equity capital.
Therefore, the Clearing Agencies believe
the proposed change would allow the
Clearing Agencies to continue to operate
the Investment Policy pursuant to a
prudent and conservative investment
philosophy that assures the
safeguarding of securities and funds that
are in their custody and control, or for
which they are responsible.
Additionally, the proposed change to
align the description of investable funds
of GSD with the description of these
funds in the GSD Rules would clarify
the funds that are subject to the Policy
and, thereby, improve the effectiveness
of the Investment Policy and allow the
Investment Policy to continue to be
administered in alignment with the
investment guidelines and governance
procedures set forth therein. Given that
such guidelines and governance
procedures are designed to safeguard
funds that are in the custody or control
of the Clearing Agencies or for which
they are responsible, the Clearing
Agencies believe the proposed changes
are consistent with the requirements of
Section 17A(b)(3)(F) of the Act.12
Rule 17Ad–22(e)(16) under the Act
requires the Clearing Agencies to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to safeguard the
Clearing Agencies’ own and their
participants’ assets, minimize the risk of
loss and delay in access to these assets,
and invest such assets in instruments
with minimal credit, market, and
liquidity risks.13 The Clearing Agencies
11 15
U.S.C. 78q–1(b)(3)(F).
12 Id.
13 When the Investment Policy was implemented,
the Clearing Agencies were subject to the
requirements of subsection (d) of Rule 17Ad–22 and
the Investment Policy was designed to meet the
requirements of Rule 17Ad–22(d)(3). See supra note
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believe that the Investment Policy
follows a prudent and conservative
investment philosophy, placing the
highest priority on maximizing liquidity
and avoiding risk of loss, by setting
appropriate investment limits and
creating clear guidelines. As originally
implemented, the Investment Policy
was designed to meet the requirements
of Rule 17Ad–22(e)(16) under the Act.14
For the reasons stated above, the
Clearing Agencies believe that the
proposed revisions would both
strengthen the risk management
objectives of the Investment Policy and
improve the clarity of the Policy and,
therefore, make the Investment Policy
more effective in governing the
management, custody, and investment
of funds of and held by the Clearing
Agencies. In this way, the proposed
changes would better allow the Clearing
Agencies to maintain this document in
a way that is designed to meet the
requirements of Rule 17Ad–22(e)(16).
Therefore, the Clearing Agencies believe
the proposed revisions would be
consistent with the requirements of Rule
17Ad–22(e)(16) under the Act.15
(B) Clearing Agency’s Statement on
Burden on Competition
Each of the Clearing Agencies believes
that none of the proposed revisions to
the Investment Policy would have any
impact, or impose any burden, on
competition. The Investment Policy
applies equally to allowable
investments of Clearing Fund and
Participants Fund deposits, as
applicable, of each member of the
Clearing Agencies, and establishes a
uniform policy at the Clearing Agencies.
The proposed changes to the Investment
Policy would not affect any changes on
the fundamental purpose or operation of
this document and, as such, would also
not have any impact, or impose any
burden, on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
The Clearing Agencies have not
solicited or received any written
comments relating to this proposal. The
Clearing Agencies will notify the
Commission of any written comments
received by the Clearing Agencies.
3; 17 CFR 240.17Ad–22(d). The Commission
subsequently adopted Rule 17Ad–22(e) and
amended Rule 17Ad–22(d) such that the Clearing
Agencies became subject to the new requirements
of Rule 17Ad–22(e) and are no longer subject to the
requirements of Rule 17Ad–22(d). Id.
14 17 CFR 240.17Ad–22(e)(16).
15 Id.
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14505
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.
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–2021–001 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2021–001. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
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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–
2021–001 and should be submitted on
or before April 6, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05341 Filed 3–15–21; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of a
Proposed Rule Change To Revise the
Clearing Agency Investment Policy
March 10, 2021.
jbell on DSKJLSW7X2PROD with NOTICES
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 March 8,
2021, National Securities Clearing
Corporation (‘‘NSCC’’) 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. 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 would
revise the Clearing Agency Investment
Policy (‘‘Investment Policy’’) of National
Securities Clearing Corporation
(‘‘NSCC’’) and its affiliates, The
Depository Trust Company (‘‘DTC’’) and
Fixed Income Clearing Corporation
(‘‘FICC,’’ and together with DTC and
NSCC, the ‘‘Clearing Agencies’’) in order
to (1) enhance the methodology for
determining investment limits for
investments in bank deposits, and (2)
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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.
1. Purpose
[Release No. 34–91293; File No. SR–NSCC–
2021–003]
1 15
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
SECURITIES AND EXCHANGE
COMMISSION
16 17
clarify the description of certain
investable funds of the Government
Securities Division of FICC (‘‘GSD’’), as
described in greater detail below.
The Clearing Agencies are proposing
to revise the Investment Policy, which
was adopted for each clearing agency in
December 2016 3 and is maintained in
compliance with Rule 17Ad–22(e)(16)
under the Act,4 in order to (1) enhance
the methodology for determining
investment limits for investments in
bank deposits, and (2) clarify the
description of certain investable funds
of GSD, as described in greater detail
below.
Overview of the Investment Policy
The Investment Policy governs the
management, custody and investment of
cash deposited to the respective NSCC
and FICC Clearing Funds, and the DTC
Participants Fund,5 the proprietary
liquid net assets (cash and cash
equivalents) of the Clearing Agencies,
and other funds held by the Clearing
3 See Securities Exchange Act Release No. 79528
(December 12, 2016), 81 FR 91232 (December 16,
2016) (SR–DTC–2016–007, SR–FICC–2016–005,
SR–NSCC–2016–003).
4 17 CFR 240.17Ad–22(e)(16). As discussed in
this filing, the Investment Policy also addresses
compliance with the requirements of Rule 17Ad–
22(e)(3). 17 CFR 240.17Ad–22(e)(3).
5 The respective Clearing Funds of NSCC and
FICC, and the DTC Participants Fund are described
further in the Rules & Procedures of NSCC (‘‘NSCC
Rules’’), the DTC Rules, By-laws and Organization
Certificate (‘‘DTC Rules’’), the Clearing Rules of the
Mortgage-Backed Securities Division of FICC
(‘‘MBSD Rules’’) or the Rulebook of the Government
Securities Division of FICC (‘‘GSD Rules’’),
respectively, available at https://dtcc.com/legal/
rules-and-procedures. See Rule 4 (Clearing Fund) of
the NSCC Rules, Rule 4 (Participants Fund and
Participants Investment) of the DTC Rules, Rule 4
(Clearing Fund and Loss Allocation) of the GSD
Rules and Rule 4 (Clearing Fund and Loss
Allocation) of the MBSD Rules.
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Agencies pursuant to their respective
rules.
The Investment Policy identifies the
guiding principles for investments and
defines the roles and responsibilities of
DTCC staff in administering the
Investment Policy pursuant to those
principles. The Investment Policy is coowned by DTCC’s Treasury group
(‘‘Treasury’’) 6 and the Counterparty
Credit Risk team (‘‘CCR’’) within
DTCC’s Group Chief Risk Office
(‘‘GCRO’’).7 Treasury is responsible for
identifying potential counterparties to
investment transactions, establishing
and managing investment relationships
with approved investment
counterparties, and making and
monitoring all investment transactions
with respect to the Clearing Agencies.
CCR is responsible for conducting a
credit review of any potential
counterparty, updating those reviews on
a quarterly basis, and establishing an
investment limit for each counterparty.
CCR is also responsible for ongoing
monitoring of counterparties and
recommending changes to investment
limits when appropriate.
The Investment Policy also identifies
sources of funds that may be invested,
and the permitted investments of those
funds, including the authority required
to make such investments and the
parameters of, and limitations on, each
type of investment. Allowable
investments include bank deposits,
reverse repurchase agreements, direct
obligations of the U.S. government,
money market mutual funds, high-grade
corporate debt, and hedge transactions.
Finally, the Investment Policy defines
the approval authority required to
exceed established investment limits.
The Investment Policy is reviewed
and approved by the Boards annually.
In connection with a recent annual
review of the Investment Policy, the
Clearing Agencies have decided to
propose revisions to the Investment
Policy in order to (1) enhance the
methodology for determining
investment limits for investments in
bank deposits, and (2) clarify the
description of certain investable funds
of GSD, as described in greater detail
below.
6 Treasury is a part of the DTCC Finance
Department and is responsible for the safeguarding,
investment and disbursement of funds on behalf of
the Clearing Agencies and in accordance with the
principles outlined in the Investment Policy.
7 Among other responsibilities, GCRO is generally
responsible for the systems and processes designed
to identify and manage credit, market and liquidity
risks to the Clearing Agencies.
E:\FR\FM\16MRN1.SGM
16MRN1
]]>Agencies
[Federal Register Volume 86, Number 49 (Tuesday, March 16, 2021)]
[Notices]
[Pages 14503-14506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05341]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91292; File No. SR-FICC-2021-001]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of a Proposed Rule Change To Revise the Clearing
Agency Investment Policy
March 10, 2021.
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 March 8, 2021, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would revise the Clearing Agency
Investment Policy (``Investment Policy'') of Fixed Income Clearing
Corporation (``FICC'') and its affiliates, The Depository Trust Company
(``DTC'') and National Securities Clearing Corporation (``NSCC,'' and,
together with DTC and FICC, the ``Clearing Agencies'') in order to (1)
enhance the methodology for determining investment limits for
investments in bank deposits, and (2) clarify the description of
certain investable funds of the Government Securities Division of FICC
(``GSD''), as described in greater detail below.
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.
[[Page 14504]]
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The Clearing Agencies are proposing to revise the Investment
Policy, which was adopted for each clearing agency in December 2016 \3\
and is maintained in compliance with Rule 17Ad-22(e)(16) under the
Act,\4\ in order to (1) enhance the methodology for determining
investment limits for investments in bank deposits, and (2) clarify the
description of certain investable funds of GSD, as described in greater
detail below.
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\3\ See Securities Exchange Act Release No. 79528 (December 12,
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
\4\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the
Investment Policy also addresses compliance with the requirements of
Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
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Overview of the Investment Policy
The Investment Policy governs the management, custody and
investment of cash deposited to the respective NSCC and FICC Clearing
Funds, and the DTC Participants Fund,\5\ the proprietary liquid net
assets (cash and cash equivalents) of the Clearing Agencies, and other
funds held by the Clearing Agencies pursuant to their respective rules.
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\5\ The respective Clearing Funds of NSCC and FICC, and the DTC
Participants Fund are described further in the Rules & Procedures of
NSCC (``NSCC Rules''), the DTC Rules, By-laws and Organization
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') or the Rulebook
of the Government Securities Division of FICC (``GSD Rules''),
respectively, available at https://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4
(Participants Fund and Participants Investment) of the DTC Rules,
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule
4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
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The Investment Policy identifies the guiding principles for
investments and defines the roles and responsibilities of DTCC staff in
administering the Investment Policy pursuant to those principles. The
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'')
\6\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group
Chief Risk Office (``GCRO'').\7\ Treasury is responsible for
identifying potential counterparties to investment transactions,
establishing and managing investment relationships with approved
investment counterparties, and making and monitoring all investment
transactions with respect to the Clearing Agencies. CCR is responsible
for conducting a credit review of any potential counterparty, updating
those reviews on a quarterly basis, and establishing an investment
limit for each counterparty. CCR is also responsible for ongoing
monitoring of counterparties and recommending changes to investment
limits when appropriate.
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\6\ Treasury is a part of the DTCC Finance Department and is
responsible for the safeguarding, investment and disbursement of
funds on behalf of the Clearing Agencies and in accordance with the
principles outlined in the Investment Policy.
\7\ Among other responsibilities, GCRO is generally responsible
for the systems and processes designed to identify and manage
credit, market and liquidity risks to the Clearing Agencies.
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The Investment Policy also identifies sources of funds that may be
invested, and the permitted investments of those funds, including the
authority required to make such investments and the parameters of, and
limitations on, each type of investment. Allowable investments include
bank deposits, reverse repurchase agreements, direct obligations of the
U.S. government, money market mutual funds, high-grade corporate debt,
and hedge transactions. Finally, the Investment Policy defines the
approval authority required to exceed established investment limits.
The Investment Policy is reviewed and approved by the Boards
annually. In connection with a recent annual review of the Investment
Policy, the Clearing Agencies have decided to propose revisions to the
Investment Policy in order to (1) enhance the methodology for
determining investment limits for investments in bank deposits, and (2)
clarify the description of certain investable funds of GSD, as
described in greater detail below.
Proposed Enhancement to the Formula for Setting Bank Deposit Investment
Limits
Section 6.2.1 of the Investment Policy sets forth the investment
limits applicable to bank deposit investments. Currently, bank deposit
investment limits are determined based on the bank counterparty's
external credit rating. For example, investments in a bank deposits
with a bank counterparty with an external credit rating of AAA or Aaa
are limited to no more than $750 million, and an investment with a bank
counterparty with an external credit rating of BBB+ or Baa1 are limited
to no more than $100 million.
The Clearing Agencies are proposing to enhance the methodology for
setting investment limits and investment caps on bank deposits with a
particular counterparty by including a consideration of the size of the
bank counterparty, measured as the total shareholders' equity capital,
in this calculation. Under the proposed methodology, an investment
limit for a bank deposit counterparty would continue to be based on the
counterparty's credit rating, but would be the lower of (1) a
percentage of its total shareholders' equity capital, and (2) the
applicable dollar value that is currently in Section 6.2.1 of the
Investment Policy. For example, investments in a bank deposits with a
bank counterparty with an external credit rating of AAA or Aaa and
total shareholders' equity capital of $9 billion would be limited to no
more than $750 million, however, investments with a bank counterparty
with the same external credit rating and total shareholders' equity
capital of $2 billion would be limited to no more than $300 million.
The proposed approach would permit the Clearing Agencies to take
into account the size of a counterparty in setting investment limits
rather than apply the same investment limits to each counterparty with
the same credit rating without regard to the entity's size. The
proposal is designed to mitigate the Clearing Agencies' risk exposure
to smaller bank counterparties.
Proposed Revisions to the Description of Investable Funds of GSD
The Clearing Agencies are also proposing to amend Section 5 of the
Investment Policy to revise the description of investable funds of GSD,
which are currently described as ``GSD Forward Margin.'' The proposed
changes would refer to these funds as ``GSD Forward Mark Adjustment
Payment,'' which is the term used in the GSD Rules to refer to these
funds.\8\ The proposed change to clarify the term used to describe
these funds would prevent any confusion about which funds are included
in Section 5 and invested pursuant to the Policy.
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\8\ See Rule 1 (Definitions) of the GSD Rules. Supra note 5.
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2. Statutory Basis
The Clearing Agencies believe that the proposed rule changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a registered clearing agency. In
particular, the Clearing Agencies believe that the proposed
modifications to the Investment Policy are consistent with Section
17A(b)(3)(F) of the Act \9\ and Rule 17Ad-22(e)(16) under the Act,\10\
for the reasons described below.
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ 17 CFR 240.17Ad-22(e)(16).
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of each
[[Page 14505]]
of the Clearing Agencies be designed to assure the safeguarding of
securities and funds that are in the custody or control of each of the
Clearing Agencies or for which they are responsible.\11\ The investment
guidelines and governance procedures set forth in the Investment Policy
are designed to safeguard funds that are in the custody or control of
the Clearing Agencies or for which they are responsible. Such
protections include, for example, following a prudent and conservative
investment philosophy that places the highest priority on maximizing
liquidity and risk avoidance. The Clearing Agencies believe the
proposed change to consider the size of a bank counterparty in setting
its bank deposit investment limits would allow it to adhere to these
guidelines by minimizing the risk posed by smaller counterparties,
measured by their shareholders' equity capital. Therefore, the Clearing
Agencies believe the proposed change would allow the Clearing Agencies
to continue to operate the Investment Policy pursuant to a prudent and
conservative investment philosophy that assures the safeguarding of
securities and funds that are in their custody and control, or for
which they are responsible.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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Additionally, the proposed change to align the description of
investable funds of GSD with the description of these funds in the GSD
Rules would clarify the funds that are subject to the Policy and,
thereby, improve the effectiveness of the Investment Policy and allow
the Investment Policy to continue to be administered in alignment with
the investment guidelines and governance procedures set forth therein.
Given that such guidelines and governance procedures are designed to
safeguard funds that are in the custody or control of the Clearing
Agencies or for which they are responsible, the Clearing Agencies
believe the proposed changes are consistent with the requirements of
Section 17A(b)(3)(F) of the Act.\12\
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\12\ Id.
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Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to safeguard the Clearing Agencies' own
and their participants' assets, minimize the risk of loss and delay in
access to these assets, and invest such assets in instruments with
minimal credit, market, and liquidity risks.\13\ The Clearing Agencies
believe that the Investment Policy follows a prudent and conservative
investment philosophy, placing the highest priority on maximizing
liquidity and avoiding risk of loss, by setting appropriate investment
limits and creating clear guidelines. As originally implemented, the
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\14\
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\13\ When the Investment Policy was implemented, the Clearing
Agencies were subject to the requirements of subsection (d) of Rule
17Ad-22 and the Investment Policy was designed to meet the
requirements of Rule 17Ad-22(d)(3). See supra note 3; 17 CFR
240.17Ad-22(d). The Commission subsequently adopted Rule 17Ad-22(e)
and amended Rule 17Ad-22(d) such that the Clearing Agencies became
subject to the new requirements of Rule 17Ad-22(e) and are no longer
subject to the requirements of Rule 17Ad-22(d). Id.
\14\ 17 CFR 240.17Ad-22(e)(16).
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For the reasons stated above, the Clearing Agencies believe that
the proposed revisions would both strengthen the risk management
objectives of the Investment Policy and improve the clarity of the
Policy and, therefore, make the Investment Policy more effective in
governing the management, custody, and investment of funds of and held
by the Clearing Agencies. In this way, the proposed changes would
better allow the Clearing Agencies to maintain this document in a way
that is designed to meet the requirements of Rule 17Ad-22(e)(16).
Therefore, the Clearing Agencies believe the proposed revisions would
be consistent with the requirements of Rule 17Ad-22(e)(16) under the
Act.\15\
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\15\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Each of the Clearing Agencies believes that none of the proposed
revisions to the Investment Policy would have any impact, or impose any
burden, on competition. The Investment Policy applies equally to
allowable investments of Clearing Fund and Participants Fund deposits,
as applicable, of each member of the Clearing Agencies, and establishes
a uniform policy at the Clearing Agencies. The proposed changes to the
Investment Policy would not affect any changes on the fundamental
purpose or operation of this document and, as such, would also not have
any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
The Clearing Agencies have not solicited or received any written
comments relating to this proposal. The Clearing Agencies will notify
the Commission of any written comments received by the Clearing
Agencies.
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.
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-2021-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2021-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for
[[Page 14506]]
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-2021-001 and should be submitted on
or before April 6, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05341 Filed 3-15-21; 8:45 am]
BILLING CODE 8011-01-P
