Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Recovery & Wind-Down Plan, 17432-17440 [2021-06774]

Download as PDF 17432 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices the cross-class server from receiving BBO and ABBO information for the classes that could be components of a Multi-Class Spread Order. The proposal will allow accurately priced Multi-Class Spread Orders to be represented in open outcry rather than being rejected inappropriately when they are submitted to PAR. The Commission notes that the Exchange has received feedback from investors indicating that the current application of the fat finger check to Multi-Class Spread Orders is too limited. In addition, the Commission notes that Multi-Class Spread Orders, which trade only on the Exchange’s floor, will continue to be subject to other safeguards, including real-time broker evaluation of floorbased pricing and other System-applied price checks that are designed to provide protection against executions at prices that may be erroneous. The Commission also notes that the Exchange will announce the implementation of the proposal to Trading Permit Holders in advance via Trade Desk Notice. For these reasons, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.24 At any time within 60 days of the filing of such 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 shall institute proceedings under Section 19(b)(2)(B) 25 of the Act to determine whether the proposed rule change should be approved or disapproved. jbell on DSKJLSW7X2PROD with NOTICES IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Jkt 253001 Paper Comments [Release No. 34–91430; File No. SR–FICC– 2021–002] • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2021–018. 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 the Exchange. 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–CBOE–2021–018, and should be submitted on or before April 23, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. BILLING CODE 8011–01–P 24 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 25 15 U.S.C. 78s(b)(2)(B). 23:04 Apr 01, 2021 SECURITIES AND EXCHANGE COMMISSION [FR Doc. 2021–06776 Filed 4–1–21; 8:45 am] Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or VerDate Sep<11>2014 • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2021–018 on the subject line. 26 17 PO 00000 CFR 200.30–3(a)(12). Frm 00084 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Recovery & Wind-Down Plan March 29, 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 23, 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. FICC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(4) thereunder.4 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 5 consists of amendments to the R&W Plan to (i) reflect business and product developments, (ii) make certain changes to improve the clarity of the Plan, (iii) remove provisions covering certain ‘‘business-as-usual’’ actions, and (iv) make certain technical corrections, 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, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4). 5 Capitalized terms not defined herein are defined in the FICC Government Securities Division (‘‘GSD’’) Rulebook (the ‘‘GSD Rules’’) or the FICC Mortgage-Backed Securities Division (‘‘MBSD’’) Clearing Rules (the ‘‘MBSD Rules,’’ and collectively with the GSD Rules, the ‘‘Rules’’), available at https://www.dtcc.com/legal/rules-and-procedures, or in the Recovery & Wind-down Plan of FICC (the ‘‘R&W Plan’’ or ‘‘Plan’’). 2 17 E:\FR\FM\02APN1.SGM 02APN1 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change would amend the R&W Plan to (i) reflect business and product developments, (ii) make certain changes to improve the clarity of the Plan, (iii) remove provisions covering certain ‘‘businessas-usual’’ actions, and (iv) make certain technical corrections. Each of the proposed revisions is further described below. Background jbell on DSKJLSW7X2PROD with NOTICES The R&W Plan was adopted in August 2018 6 and is maintained by FICC for compliance with Rule 17Ad–22(e)(3)(ii) under the Act.7 The R&W Plan sets forth the plan to be used by the Board and FICC management in the event FICC encounters scenarios that could potentially prevent it from being able to provide its critical services as a going concern. The R&W Plan is structured as a roadmap that defines the strategy and identifies the tools available to FICC to either (i) recover, in the event it experiences losses that exceed its prefunded resources (such strategies and tools referred to herein as the ‘‘Recovery Plan’’), or (ii) wind-down its business in a manner designed to permit the continuation of FICC’s critical services in the event that such recovery efforts are not successful (such strategies and tools referred to herein as the ‘‘Wind-down Plan’’). The recovery tools available to FICC are intended to address the risks of (a) uncovered losses or liquidity shortfalls resulting from the default of one or more of its Members,8 and (b) losses arising from non-default events, such as damage to FICC’s physical assets, a cyber-attack, or custody and investment losses, and the strategy for implementation of such tools. The R&W Plan also describes the strategy and framework for the orderly 6 See Securities Exchange Act Release Nos. 83973 (August 28, 2018), 83 FR 44942 (September 4, 2018) (SR–FICC–2017–021); and 83954 (August 27, 2018), 83 FR 44361 (August 30, 2018) (SR–FICC–2017– 805). 7 17 CFR 240.17Ad–22(e)(3)(ii). FICC is a ‘‘covered clearing agency’’ as defined in Rule 17Ad–22(a)(5) under the Act and must comply with paragraph (e) of Rule 17Ad–22. 8 References herein to ‘‘Members’’ refer to GSD Netting Members and MBSD Clearing Members. References herein to ‘‘Limited Members’’ refer to participants of GSD or MBSD other than GSD Netting Members and MBSD Clearing Members, including, for example, GSD Comparison-Only Members, GSD Sponsored Members, GSD CCIT Members, and MBSD EPN Users. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 wind-down of FICC and the transfer of its business in the event the implementation of the available recovery tools does not successfully return FICC to financial viability. The R&W Plan is managed and developed by FICC’s parent company, the Depository Trust & Clearing Corporation (‘‘DTCC’’),9 and is managed by the Office of Recovery & Resolution Planning (referred to in the Plan as the ‘‘R&R Team’’) on behalf of FICC, with review and oversight by the DTCC Management Committee and the Board. Proposed Amendments to the R&W Plan The Board, or such committees as may be delegated authority by the Board from time to time pursuant to its charter, is required to review and approve the R&W Plan biennially.10 In connection with the first biennial review of the Plan, FICC is proposing the revisions described in greater detail below. The proposed rule change is designed to update and enhance the clarity of the Plan to ensure it is current in the event it is ever necessary to be implemented. None of the proposed changes modify FICC’s general objectives and approach with respect to its recovery and wind-down strategy as set forth under the current Plan. A. Proposed Changes To Reflect Business or Product Developments 1. GSD Clearing Bank Update Section 2 (Business Overview) of the R&W Plan describes DTCC’s business profile and includes a summary of the services of FICC offered by each of GSD and MBSD (collectively, the ‘‘Divisions’’). Under the current Plan, the section that summarizes GSD’s services (Section 2.2) states that GSD employs the services of two clearing banks, The Bank of New York Mellon (‘‘BNY{XE ‘‘BNY’’}’’) and JPMorgan Chase Bank, N.A. (‘‘JPM’’), in which Members may instruct their clearing bank to transfer securities. The proposed rule change would delete all references in this section, and an associated footnote, to JPM as a GSD clearing bank. FICC is proposing this change because since the time the Plan was adopted, JPM exited the business of providing U.S. government clearing 9 DTCC operates on a shared service model with respect to FICC and its other affiliated clearing agencies, The Depository Trust Company{XE ‘‘NSCC’’} (‘‘DTC’’) and National Securities Clearing Corporation (‘‘NSCC’’). Most corporate functions are established and managed on an enterprise-wide basis pursuant to intercompany agreements under which it is generally DTCC that provides relevant services to FICC, DTC {XE ‘‘NSCC’’} and NSCC (collectively, the ‘‘Clearing Agencies’’). 10 Supra note 6. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 17433 services. Going forward, the Plan would refer only to BNY as GSD’s clearing bank. 2. Updates to DTCC Business Profile, Intercompany Arrangements, FMI Links and Governance FICC is proposing the following changes to the DTCC Business Profile, Intercompany Arrangements, FMI Links and Governance sections of the Plan based upon business updates that have occurred since the time the Plan was adopted. Section 2.1 (DTCC Business Profile) of the Plan describes that DTCC is a userowned and user governed holding company for a group of direct and indirect subsidiaries and joint ventures. This section includes a brief summary of each of the three subsidiaries (DTC, FICC and NSCC) that have been designated as systemically important financial market utilities (‘‘SIFMUs’’) by the Financial Stability Oversight Council. The proposed rule change would revise the introductory paragraph of this section to remove reference to joint ventures because DTCC currently has no joint ventures. Section 2.4 (Intercompany Arrangements) of the Plan currently describes how corporate support services are provided to FICC from DTCC, and to DTCC’s other subsidiaries through intercompany agreements under a shared services model. FICC is proposing to update Table 2–A (SIFMU Legal Entity Structure and Intercompany Agreements), which delineates FICC’s affiliates to reflect the name change of Omgeo Pte Ltd by removing ‘‘Omgeo Pte Ltd’’ and replacing it with the new name of this entity, ‘‘DTCC Singapore Pte. Ltd.’’ A related footnote would also be added to make clear that the services provided by DTCC Singapore Pte. Ltd. are performed through its branch office in Manila, DTCC Manila. Additionally, this section includes a separate table, Table 2–B, that lists each of the DTCC facilities utilized by the Clearing Agencies and indicates whether the facility is owned or leased by DTCC. FICC proposes to update this table to add Boston, Massachusetts as an additional location of a DTCC facility and to indicate that this facility is leased by DTCC. Currently, Section 2.5 (FMI Links) of the Plan describes some, but not all, of the key financial market infrastructures (‘‘FMIs’’) that FICC has identified as critical ‘‘links.’’ 11 In order to better 11 As defined in Rule 17Ad–22(a)(8) under the Act, a link ‘‘means, for purposes of paragraph (e)(20) of [Rule 17Ad–22], a set of contractual and E:\FR\FM\02APN1.SGM Continued 02APN1 17434 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES align with the structure of DTCC’s inventory of links maintained by DTCC’s Systemic Risk Office (‘‘SRO’’), which includes all of FICC’s link relationships, the proposed rule change would delete the current ‘‘FMI Links’’ section of the R&W Plan and replace it with a revised version of Section 2.5 that would include an overview of FICC’s link arrangements, a related footnote to the definition of a ‘‘link’’ under Rule 17Ad–22(a)(8) under the Act, and a table, (Table 2–C: Links) listing all of FICC’s FMI link arrangements. The table would list the link, the link category (i.e., CCP CrossMargining or Cross-Guaranty Arrangements), and a brief description. The proposed rule change would also add a table (Table 2–D: Schedule A Relationships) that would identify certain critical external service providers that, as determined by FICC’s management, do not meet the specified criteria of ‘‘link’’ but nevertheless are subject to the same review process as is conducted for links, referred to within FICC as ‘‘Schedule A Relationships,’’ and a related footnote. This change would align with the structure of SRO’s inventory of Schedule A Relationships. Section 4.3 (Recovery and Winddown Program Governance) of the Plan currently contains a paragraph that identifies DTCC’s ‘‘R&R Steering Group’’ as the internal group responsible for ensuring that each of the Clearing Agencies observes recovery planning requirements, and that recovery planning is integrated into the Clearing Agencies’ overall governance processes including the preparation, review, and filing of the Clearing Agencies’ R&W Plans. Pursuant to the proposed rule change, FICC would revise Section 4.3 to reflect an internal organizational name change. The proposal would change the name of the R&R Steering Group to the ‘‘Recovery and Wind-down Planning Council’’ to reflect its role as an advisory body.12 This name change would not change the composition, role or responsibilities of this internal group, which includes selected members of operational arrangements between two or more clearing agencies, financial market utilities, or trading markets that connect them directly or indirectly for the purposes of participating in settlement, cross margining, expanding their services to additional instruments or participants, or for any other purposes material to their business.’’ 17 CFR 240.17Ad–22(a)(8). 12 In accordance with DTCC’s Policy on Governance of Internal Committees and Councils, a ‘‘council’’ is defined as an advisory body that has no decision-making authority. A council may be formed by any committee or a Managing Director. Councils will share information, discuss topics, and make recommendations to its initiating committee or Managing Director. Councils report up to their initiating committee or Managing Director. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 DTCC’s Management Committee and members of DTCC’s financial and operational risk management, product management, legal and treasury/finance teams that are responsible for providing strategic guidance and direction for the recovery and wind-down program 13 and the Plan. Additionally, for purposes of clarification, the proposal would add the words ‘‘, where necessary,’’ to refer to when the council would engage with internal working groups. 3. Update to GSD’s Critical Services Section 3 (Critical Services) of the Plan defines the criteria for classifying certain of FICC’s services as ‘‘critical,’’ 14 and identifies such critical services and the rationale for their classification. The identification of FICC’s critical services is important for evaluating how the recovery tools and the wind-down strategy would facilitate and provide for the continuation of FICC’s critical services to the markets it serves. This section also includes a list of indicative non-critical services. This section includes a table (Table 3– B: GSD Critical Services) that lists each of the services, functions or activities of GSD that FICC has identified as ‘‘critical’’ based on the applicability of the criteria. There is also a table listing MBSD’s critical services (Table 3–C: MBSD Critical Services). The proposed rule change would update Table 3–B to add two services, which were implemented since the time the Plan was adopted,15 that FICC has classified as critical services. First, the proposed rule change would add the Centrally Cleared Institutional 13 In 2013, DTCC launched its Recovery & Resolution Planning Program for DTC, NSCC, and FICC as part of its continued commitment to enhancing risk management. The Office of Recovery & Resolution Planning was established to manage the program and the development of the recovery and wind-down plans for the Clearing Agencies{XE ‘‘SIFMU RWPs’’ }. 14 The criteria that is used to identify a FICC service or function as critical includes consideration as to whether (1) there is a lack of alternative providers or products; (2) failure of the service could impact FICC’s ability to perform its central counterparty services through either Division; (3) failure of the service could impact FICC’s ability to perform its multilateral netting services through either Division and, as such, could impact the volume of transactions; (4) failure of the service could impact FICC’s ability to perform its book-entry delivery and settlement services through either Division and, as such, could impact transaction costs; (5) failure of the service could impact FICC’s ability to perform its cash payment processing services through either Division and, as such, could impact the flow of liquidity in the U.S. financial markets; and (6) the service is interconnected with other participants and processes within the U.S. financial system (for example, with other FMIs, settlement banks, and broker-dealers). 15 Supra note 6. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 Triparty (‘‘CCIT’’) service.16 The text of the description of this service would state that the CCIT service extends central counterparty (‘‘CCP’’) services and guarantee of completion of eligible trades to tri-party repo transactions between GSD dealer members and eligible tri-party money lenders. In the column that delineates the determinants for the classification of CCIT as a critical service, it would denote by check marks that this is because of (i) a lack of alternative providers and products, (ii) a failure/disruption of CCP services (impact on credit availability), and (iii) a failure/disruption of cash payment processing services (impact on credit and liquidity). Second, the sponsored membership service 17 would be added as a critical service. The text of the description would state that sponsored membership offers eligible GSD Netting Members the ability to engage in FICC-cleared cash lending and cash borrowing transactions in U.S. Treasury and agency securities and outright purchases and sales of such securities. Sponsoring Members facilitate their sponsored clients’ GSD trading activity and act as processing agents on their behalf for all operational functions, including trade submission and settlement with the CCP. In the column that delineates the determinants for the classification of sponsored membership as a critical service, it would denote by check marks that this is because of (i) a lack of alternative providers and products, (ii) a failure/ disruption of CCP services (impact on credit availability), (iii) a failure/ disruption of multilateral netting services (impact on liquidity) (iv) a failure/disruption of cash payment processing services (impact on credit and liquidity), and (v) a failure/ disruption of cash payment processing services (impact on credit and liquidity). Also, the proposed rule change would enhance the current description of the GSD critical service, GSD RTTM®, by adding as the first sentence, ‘‘Provides a common electronic platform for collecting and matching trade data, enabling the parties to trade, monitor and manage the status of their trade activity in real-time.’’ B. Proposal To Make Certain Clarifications to the R&W Plan 1. Business Overview/MBSD Services As described above, Section 2 (Business Overview) of the R&W Plan 16 See GSD Rule 3B (Centrally Cleared Institutional Triparty Service), supra note 5. 17 See GSD Rule 3A (Sponsoring Members and Sponsored Members), supra note 5. E:\FR\FM\02APN1.SGM 02APN1 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices describes DTCC’s business profile and includes a summary of the services of FICC offered by each of the Divisions. In Section 2.3 (MBSD), pursuant to the proposed rule change, FICC would clarify and enhance the readability of the paragraph under the heading ‘‘Trade Comparison/RTTM®.’’ 18 First, at the beginning of the second sentence, the proposed rule change would add the term ‘‘SBOD trades’’ 19 to the list of trades that are guaranteed and novated at the time of comparison.20 Second, FICC would delete the last sentence of this paragraph,21 and replace it with the following two new sentences that more fully describe how and when settlement obligations are established between an MBSD Clearing Member and FICC, ‘‘Once trade-for-trade destined transactions and stipulated trades are matched and allocated through MBSD, settlement obligations are established between the Member and FICC, however, these trades do not enter the ‘‘TBA Netting’’ process. Once specified pool trades are matched through MBSD, settlement obligations are established between the Member and FICC.’’ This new language would be re-ordered to be the second and third sentences in this paragraph in order to enhance flow and readability. Additionally, the parenthetical in the first sentence ‘‘(i.e., a report)’’ that is currently after the words ‘‘transaction output’’ would be deleted as redundant and not necessary to be included. jbell on DSKJLSW7X2PROD with NOTICES 2. Member Default Losses Through the Crisis Continuum Section 5 (Member Default Losses through the Crisis Continuum) of the Plan is comprised of multiple subsections that identify the risk management surveillance, tools, and governance that FICC may employ across an increasing stress environment, referred to as the ‘‘Crisis Continuum.’’ 22 18 See MBSD Rule 5 (Trade Comparison), supra note 5. 19 Under the Plan, ‘‘SBOD trades’’ refers to settlement balance order destined trades. 20 In this regard, pursuant to the proposed rule change, the sentence would state, ‘‘SBOD_t trades, trade-for-trade transactions, specified pool trades and stipulated trades are guaranteed and novated at the time of comparison.’’ 21 Currently, the last sentence of this paragraph states, ‘‘Once trade-for-trade transactions, stipulated trades, and specified pool trades are matched by MBSD, settlement obligations are established between the Member and MBSD as these trades do not enter the TBA Netting process.’’ Further, pursuant to MBSD Rule 1 (Definitions), the term ‘‘TBA Netting’’ means the service provided to MBSD Clearing Members, as applicable, and the operations carried out by FICC in the course of providing such service in accordance with MBSD Rule 6 (TBA Netting), supra note 5. 22 As set forth in the Recovery Plan, the phases of the ‘‘Crisis Continuum’’ include (1) a stable VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 This section currently identifies, among other things, the tools that can be employed by each Division to mitigate losses, and mitigate or minimize liquidity needs, as the market environment becomes increasingly stressed. As more fully described below, the proposed rule change would clarify certain language. Section 5.2.1 (Stable Market Phase) describes FICC’s risk management activities with respect to each Division in the normal course of business. These activities include (i) the routine monitoring of margin adequacy through daily evaluation of backtesting and stress testing results that review the adequacy of FICC’s margin calculations, and escalation of those results to internal and Board committees and (ii) routine monitoring of liquidity adequacy through review of daily liquidity studies that measure sufficiency of available liquidity resources to meet cash settlement obligations of the Member that would generate the largest aggregate payment obligation. Further, under the heading ‘‘Market Risk Monitoring and Stable Market Indicators,’’ this section states that the amount of Clearing Fund required from each Member is determined principally by Value-at-Risk (‘‘VaR’’) calculations,23 and that in order to ensure the VaR model accurately reflects market conditions and provides adequate protection against market risk, FICC evaluates several factors on an ongoing basis. The proposed rule change would remove the following factor as one of those evaluated because it is no longer part of FICC’s model calculation, ‘‘Implied volatility to assess whether a potential increase in market price volatility may not be fully incorporated in the historical price moves.’’ 24 The elimination of the language regarding implied volatility provides a more accurate representation of the risk market phase, (2) a stressed market phase, (3) a phase commencing with FICC’s decision to cease to act for a Member or Affiliated Family, and (4) a recovery phase. 23 As described in the Plan, for each Division, the amount of Clearing Fund required from each Member is determined principally by VaR calculations, which are based on the potential price-change volatility of unsettled positions according to FICC’s risk-based margin model. 24 The remaining factors set forth in the Plan that FICC evaluates to ensure that the VaR model accurately reflects market conditions and provides adequate protection against market risk are: (i) Backtesting and other model performance monitoring to assess the robustness of the Clearing Fund requirements, and (ii) stress testing based on real historical and hypothetical scenarios to assess the margin adequacy under extreme but plausible market conditions. The Clearing Fund formulas for each Division are described in GSD Rule 4 and MBSD Rule 4, supra note 5. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 17435 model calculation. Consistent with the above, FICC would also remove the paragraph in this section that states that implied market price volatility as measured by benchmarks such as the VIX index does not indicate material changes in market price volatility are expected. Section 5.2.4 (Recovery Corridor and Recovery Phase) outlines the early warning indicators to be used by FICC to evaluate its options and potentially prepare to enter the ‘‘Recovery Phase,’’ which phase refers to the actions to be taken by FICC to restore its financial resources and avoid a wind-down of its business. Included in this section are descriptions of potential stress events that could lead to recovery, and several early warning indicators and metrics that FICC has established to evaluate its options and potentially prepare to enter the Recovery Phase. These indicators, which are referred to in the Recovery Plan as recovery corridor indicators (‘‘Corridor Indicators’’),25 are calibrated against FICC’s financial resources and are designed to give FICC the ability to replenish financial resources, typically through business as usual (‘‘BAU’’) tools applied prior to entering the Recovery Phase. Section 5.2.4 also includes language that requires FICC management to review the Corridor Indicators and the related metrics at least annually and modify these metrics as necessary in light of observations from simulation of Member defaults and other analyses. In order to more closely align with the biennial cycle of DTCC’s multi-member closeout simulation exercise, the proposed rule change would shift the timing of management’s review of the Corridor Indicators and related metrics from annually to biennially. FICC believes this change is necessary for consistency with the cycle of the multimember closeout simulation, in which the Corridor Indicators and metrics are assessed as part of the simulation exercise. There is a table in Section 5.2.4 (Table 5–B: Loss Waterfall Tools) that delineates the tools that comprise FICC’s loss allocation waterfall (with respect to each Division) as set forth under the Rules.26 This table has four columns (‘‘Order,’’ ‘‘Tool,’’ ‘‘Relevant Rules,’’ and ‘‘Responsible Body/ Personnel’’) and is organized by the 25 The majority of the Corridor Indicators, as identified in the Recovery Plan, relate directly to conditions that may require FICC to adjust its strategy for hedging and liquidating a defaulting Member’s portfolio, and any such changes would include an assessment of the status of the Corridor Indicators. 26 GSD Rule 4 and MBSD Rule 4, supra note 5. E:\FR\FM\02APN1.SGM 02APN1 17436 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices order in which the liquidity resources are to be applied by FICC. Within Table 5–B, Corporate Contribution is the first entry under the column labeled ‘‘Tool.’’ Currently, the narrative for this entry includes a description of Corporate Contribution and delineates that in the event of a cease to act, before applying the applicable Division’s Clearing Fund deposits of Members (other than the Defaulting Member) to cover any resulting loss, FICC will apply the Corporate Contribution.27 The proposed rule change would revise the current text of the definition of Corporate Contribution in Table 5–B in order to more closely align with how this term is defined under each Division’s Rule 4. Specifically, pursuant to the proposed rule change the definition of Corporate Contribution would be revised to state, ‘‘The Corporate Contribution is an amount equal to 50% of the amount calculated by FICC in respect of its General Business Risk Capital Requirement for losses that occur over any rolling 12 month period.’’ 28 Similarly, the sentence directly above the definition of Corporate Contribution would be revised to remove the words ‘‘applying the applicable Division’s Clearing Fund Deposits of’’ and replace them with ‘‘charging Members of the applicable Division on a pro rata basis.’’ With respect to the second entry in Table 5–B, ‘‘Loss Allocation,’’ the descriptive text in the ‘‘Responsible Body/Personnel’’ column would be revised to more closely align with the same language contained in each Division’s Rule 4. The revised text would state, ‘‘Members will be obligated to fund loss allocation on the second Business Day after the Corporation issues any such notice and to continue to fully fund their Required Deposits to the extent of any shortfalls.’’ Additionally, in the ‘‘Tool’’ column for Loss Allocation, the term ‘‘nondefaulting Members’’ would be replaced with ‘‘non-Defaulting Members’’ because Defaulting Member is a defined term in the Rules. jbell on DSKJLSW7X2PROD with NOTICES 27 Id. 28 Pursuant to GSD Rule 4 and MBSD Rule 4, supra note 5, for any loss allocation pursuant to Section 7 of GSD Rule 4 and MBSD Rule 4, as applicable, whether arising out of or relating to a Defaulting Member Event or a Declared Non-Default Loss Event, FICC’s corporate contribution to losses or liabilities that are incurred by FICC with respect to an Event Period (‘‘Corporate Contribution’’) shall be an amount that is equal to fifty (50) percent of the amount calculated by FICC in respect of its General Business Risk Capital Requirement as of the end of the calendar quarter immediately preceding the Event Period. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 3. Non-Default Losses Section 6 (Non-Default Losses) of the Plan outlines how FICC would address losses that result other than from a Member default. This section provides a roadmap to other documents that describe these events in greater detail and outlines FICC’s approach to monitoring losses that could result from a non-default event. This section also includes a description of GSD Rule 50 and MBSD Rule 40 (Market Disruption and Force Majeure), referred to in the Plan as the ‘‘Force Majeure Rules,’’ 29 which pertain to how FICC addresses extraordinary events that occur outside the control of FICC and its Members. As more fully described below, the proposed rule change would clarify certain language. Section 6.4 (Resources to Cover NonDefault Losses) provides that FICC maintains two categories of financial resources to cover losses and expenses arising from non-default risks or events: (i) Liquid Net Assets Funded by Equity (‘‘LNA’’), including, pursuant to each Division’s Rule 4, the required Corporate Contribution,30 and (ii) lossallocation charges to Members in accordance with the provisions of each Division’s Rule 4.31 Following an overview of the four buckets of LNA which can be applied towards nondefault losses,32 there is a paragraph under the heading ‘‘Loss Allocation to Members, backed by the Clearing Fund’’ that provides that non-default losses could be allocated among Members as provided in each Division’s Rule 4. There is sentence that describes the timeframe in which such losses charged to Members are required to be paid. Currently, this sentence states that losses are to be paid by Members ‘‘within 2 business days of the date of receipt of a notice of a loss allocation 29 Supra note 6. Securities Exchange Act Release Nos. 84427 (October 15, 2018), 83 FR 53131 (October 19, 2018) (SR–FICC–2018–009); and 89363 (July 21, 2020), 85 FR 45276 (July 27, 2020) (SR–FICC–2020– 008) (filings amending the Clearing Agency Policy on Capital Requirements (the ‘‘Capital Policy’’) and the Clearing Agency Capital Replenishment Plan (the ‘‘Capital Plan’’)). The initial Capital Policy and Capital Plan were approved by the Commission in 2017—see Securities Exchange Act Release No. 81105 (July 7, 2017), 82 FR 32399 (July 13, 2017) (SR–DTC–2017–003, SR–NSCC–2017–004, SR– FICC–2017–007). 31 GSD Rule 4 and MBSD Rule 4, supra note 5. 32 As set forth in the Plan, FICC maintains the following four buckets of LNA which can be applied towards a non-default loss: (i) General Business Risk Capital as determined in the Capital Policy, supra, note 30, (ii) the Corporate Contribution, (iii) a ‘‘Buffer,’’ as described in the Capital Policy, and (iv) excess LNA, which refers to any available LNA held at FICC above the required amounts for General Business Risk Capital, the Corporate Contribution, and Buffer. 30 See PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 charge. . . .’’ However, this is not the same language used to describe this timing in each Division’s Rule 4. In order to be consistent with the language formulation set out in each Division’s Rule 4, the proposed rule change would revise this sentence to state, ‘‘Losses charged to Members are required to be paid by Members on the second business day after the Corporation issues any such notice of a loss allocation charge and, if not timely paid by any Member, the Corporation may treat that Member as having failed to satisfy its obligation and apply the Clearing Fund deposit of that Member to satisfy its loss allocation obligation.’’ 33 Section 6.6 (Market Disruption and Force Majeure Rule) describes the Force Majeure Rules. The Force Majeure Rules were adopted at the same time as the Plan 34 and provide an additional resiliency tool designed to mitigate the risks caused by market disruption events and thereby minimize the risk of financial loss that may result from such events. The proposed rule change would remove the following phrase after the reference to the Force Majeure Rule in the first paragraph of this section, ‘‘, adopted in conjunction with this Plan,’’ because it is not necessary as both the Plan and the Force Majeure Rule are no longer newly adopted. In addition, to remain consistent with the usage of ‘‘Force Majeure’’ and ‘‘Market Disruption Event’’ throughout this section, FICC would conform all references to the defined terms ‘‘Force Majeure’’ and ‘‘Market Disruption Event,’’ so that they appear as capitalized terms. The proposed rule change would also make revisions to the second paragraph of Section 6. First, for purposes of clarity and readability, the following text would be removed from the beginning of the second sentence: ‘‘Most FMIs have rules designed to deal with force majeure or market disruption events, and.’’ Second, the reference to ‘‘Superstorm Sandy’’ would be removed from the last sentence of this paragraph along with the related footnote that references Superstorm Sandy as an example of circumstances in which FICC needed to fashion a work-around necessitated by a force majeure event. FICC believes inclusion of references to Superstorm Sandy are outdated and no longer necessary to be included in the Plan. 33 GSD Rule 4 and MBSD Rule 4, supra note 5. note 6. 34 Supra E:\FR\FM\02APN1.SGM 02APN1 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES C. Remove Provisions Covering Certain ‘‘Business-as-Usual’’ Actions Section 8.6 (Actions and Preparation) of the Plan sets forth the legal framework and strategy for the orderly wind-down of FICC if the use of the recovery tools described in the Recovery Plan do not successfully return FICC to financial viability. This section includes an overview of the actions and preparations to be taken by FICC and DTCC in connection with executing the wind-down portions of the Plan. Section 8.6.1 (Business-as-Usual Actions) describes those actions that FICC or DTCC may take to prepare for winddown in the period before FICC experiences financial distress. Under the current plan, the Businessas-Usual Actions are (i) educating the Board to keep them informed of the Plan and the actions the Board would need to take to implement it, (ii) engaging in discussions with key linked FMIs as to the key elements of FICC’s wind-down strategy and the expected actions of the respective link parties should a winddown be implemented, (iii) developing and maintaining an index of internal data that includes the critical, ancillary, and non-critical services that FICC provides to its membership, the support FICC receives from DTCC and from its other affiliates, key third-party vendors, key personnel, FICC assets and liabilities, and agreements and arrangements FICC has with liquidity providers and with other FMIs, (iv) developing administrative wind-down guidance that identifies key Board and management actions that would be taken during the Recovery Phase and ‘‘Runway Period’’ 35 prior to FICC’s failure, and in connection with its Chapter 11 proceedings, and (v) preparing constituent documents for the Failover Entity 36 and evaluating capitalization options. Pursuant to the proposed rule change, FICC would remove the Business-asUsual Actions section (currently Section 8.6.1) in its entirety because each of the actions outlined have either been completed or would be addressed in FICC’s internal procedures going forward. This includes certain documents necessary to effect the wind35 The Wind-down Plan identifies the time period leading up to a decision to wind-down FICC as the ‘‘Runway Period.’’ 36 As set forth in Section 8.4.1 (General Objectives and Approach) of the Plan, in the event that no viable or preferable third-party transferee timely commits to acquire the business and services of FICC, the transfer will be effectuated to a failover entity created for that purpose (referred to as the ‘‘Failover Entity’’), that would be owned by a trust held, to the extent of the value of the Failover Entity attributed to FICC’s transferred business and services, for the benefit of FICC’s bankruptcy estate. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 down aspects of the Plan that were in the process of being finalized when the Plan was adopted and have since been completed. Since adoption of the Plan,37 FICC has completed all necessary internal documentation, including DTCC’s internal wind-down guidance, the constituent documentation for the Failover Entity, and the evaluation of FICC’s capitalization options. Further, the other actions included in this section (e.g., maintaining an index of non-critical services, educating the Board on the Plans) would be addressed, going forward, in DTCC’s Recovery & Resolution Planning Procedures maintained by the R&R Team.38 As a result of this proposed change, current Section 8.6.2 (Recovery and Runway Period Actions) would be renumbered as Section 8.6.1. Also, consistent with the proposed removal of Business-as-Usual Actions that have been completed, the proposed rule change would remove from the first sentence of proposed Section 8.6.1 (current Section 8.6.2), the words ‘‘Among other things, the guidance would provide’’ and replace them with ‘‘The DTCC Clearing Agency Winddown Guidance developed in connection with this Plan provides.’’ D. Technical Revisions The proposal would also make several technical changes and corrections to the Plan. FICC believes that these proposed changes would not substantively alter the meaning of the applicable sections and would improve the overall readability and clarity of the Plan. Specifically, FICC is proposing to make the following changes and corrections: 1. In Section 1.3 (Summary), in the list of topics covered under the Plan (a) in the sixth bullet point, delete ‘‘participant’’ and replace it with ‘‘Member,’’ and (b) in the seventh bullet point, add ‘‘Recovery Corridor and’’ prior to the words ‘‘Recovery Phase’’ to correctly state the full name of this section of the Plan. 2. In Section 1.4 (Conventions): • In the fourth paragraph, delete the words ‘‘conjunction with’’ and replace them with ‘‘support of,’’ and delete the words ‘‘also adopted’’ and replace them 37 Supra note 6. R&R Team is responsible for maintaining the DTCC ‘‘Office of Recovery & Resolution Planning Procedures’’ document. The purpose of these procedures is to communicate roles and responsibilities, and procedures for the documentation of the R&W Plans covering each of the Clearing Agencies, in compliance with applicable rules and regulations. These procedures also describe the biennial closeout simulation exercise whereby the Plans for each clearing agency are tested through the simulation of a multi-member default. 38 The PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 17437 with ‘‘maintains.’’ Accordingly, under the proposed rule change this paragraph would state, ‘‘In support of this Plan, each Division of FICC maintains (i) a Market Disruption and Force Majeure Rule (the ‘‘Force Majeure Rules’’) and (ii) a Wind-down of the Corporation Rule (the ‘‘Wind-down Rules’’), each as described herein.’’ • In the last sentence of this section, delete ‘‘CCIT’’ and replace it with the full name of this GSD service, the ‘‘Centrally Cleared Institutional Triparty (‘‘CCIT’’) Service.’’ 3. In Section 2.1 (DTCC Business Profile), under the heading ‘‘DTCC SIFMU Subsidiaries’’: • In the description of NSCC, add the word ‘‘netting,’’ after the word ‘‘clearing’’; and after the words ‘‘exchange traded,’’ delete ‘‘fund (‘‘ETF’’)’’ and replace it with ‘‘products (‘‘ETPs’’).’’ • In the description of GSD, add the word ‘‘netting,’’ after the word ‘‘clearing’’; and add the modifier ‘‘fixed rate’’ before the words ‘‘federal agency notes, bonds and zero-coupon securities.’’ • In the description of MBSD, delete the modifier ‘‘To-Be-Announced (‘‘TBA’’)’’ before the phrase ‘‘passthrough MBS issued by Ginnie Mae, Freddie Mac and Fannie Mae.’’ 4. In Section 2.2 (GSD), in the last sentence of the first paragraph, add ‘‘/CCIT’’ after ‘‘GCF Repo®.’’ 5. In Section 2.3 (MBSD), in the paragraph under the heading ‘‘EPN Allocation,’’ in the last sentence, delete the word ‘‘their’’ before the word ‘‘MBSD.’’ 6. In Section 3.1 (Introduction), correct a typographical error in subsection (c) by replacing ‘‘An’’ with ‘‘A’’ at the beginning of the sentence. 7. In Section 3.2 (Criteria Used to Determine Criticality), in the second sentence that currently states, ‘‘Each service was assessed for criticality to determine the potential systemic impact from a service disruption,’’ add the word ‘‘resulting’’ after the word ‘‘impact.’’ 8. In Table 3–A (Critical Services Criterial Determinants), delete criteria determinant number 4 ‘‘Failure/ Disruption of Book-Entry Delivery/ Settlement Services’’ in its entirety because it applies to the DTC Recovery & Wind-down Plan and was included in the FICC Plan in error. As a result of this deletion, the proposed rule change would also (a) move up the numbering of the criteria determinants that are currently numbers 5 and 6, so that they E:\FR\FM\02APN1.SGM 02APN1 17438 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES are numbers 4 and 5 respectively 39 and (b) remove the column in Table 3–A designated for criteria determinant number 6. 9. In Section 4.1 (DTCC and SIFMU Governance Structure), (a) in the last sentence of the second paragraph, correct a typographical error by replacing ‘‘NSCC’’ with ‘‘FICC’’ and (b) in the third paragraph, which lists each of the Board committees, delete ‘‘Board’’ before the words ‘‘Risk Committee.’’ Additionally, in the footnote in this section that provides the citation of a previous proposed rule change covering the Clearing Agency Risk Management Framework, add a reference to FICC’s amended filing published July 9, 2020. 10. In Section 4.2, in the paragraph under the heading ‘‘Member Default Losses,’’ in the second sentence add ‘‘credit/market and liquidity’’ before the phrase ‘‘loss scenarios throughout the Crisis Continuum (as hereinafter defined).’’ 11. In Section 5.1 (Introduction), in the fourth paragraph, capitalize the word ‘‘board.’’ Under the heading ‘‘Market Risk Management,’’ in the last sentence of the second paragraph, replace the words ‘‘Cross-Guaranty Agreements’’ with ‘‘clearing agency cross-guaranty agreements’’ because Cross-Guaranty Agreements is not a defined term in the Plan. For purposes of clarity and readability, the proposed rule change would also shift to Section 4.1 the footnote currently included in Section 5.1 regarding each Division’s Rules covering a ‘‘cease to act,’’ insolvency of a Member and associated actions.40 Additionally, in the footnote included in this section that provides the citation to a previous proposed rule change covering the Clearing Agency Liquidity Risk Management Framework, add a reference to FICC’s amended filing published December 11, 2020. 12. In Section 5.2.3 (Member Default Phase): • Under the heading ‘‘Market Risk Monitoring,’’ (a) in the second sentence of the second paragraph, remove the capitalization from the first instance of the word ‘‘Monitoring’’ and (b) in the footnotes included in this section, replace ‘‘defaulting Member’’ with ‘‘Defaulting Member.’’ 39 Pursuant to the proposed rule change, criteria determinant numbers 4 and 5 would be (i) No. 4: Failure/Disruption of Cash Payment Processing Services (Impact on Credit and Liquidity), and (ii) No. 5: Interconnectedness with U.S. Financial System. 40 See GSD Rule 21 (Restrictions on Access to Services) and MBSD Rule 14 (Restrictions on Access to Services), and GSD Rule 22 (Insolvency of a Member) and MBSD Rule 16 (Insolvency of a Member), supra note 5. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 • Under the heading ‘‘Liquidity Risk Monitoring,’’ (a) in the fourth bullet point, replace ‘‘defaulting Member’’ with ‘‘Defaulting Member,’’ (b) in the sixth bullet point, replace ‘‘defaulting member’’ with ‘‘Defaulting Member,’’ and (c) in the parenthetical at the end of the last bullet point, delete the words, ‘‘in the Event of Member Defaults.’’ • Additionally, for consistency and to correct the same typographical error, the proposed rule change would capitalize the words ‘‘Defaulting Member’’ throughout the Plan wherever this term is referenced. 13. In Section 5.2.4 (Recovery Corridor and Recovery Phase), (a) in the first sentence of the first paragraph, make bold the words ‘‘Recovery Corridor’’ and (b) in the second sentence of the first paragraph, after the words ‘‘The ‘‘Recovery Phase’’ relates to the actions taken by FICC to,’’ add the phrase ‘‘restore its financial resources and.’’ 14. In Table 5–A (Corridor Indicators) the proposed rule change would make the following typographical corrections: • In the entry for ‘‘Hedge Effectiveness,’’ in the third sentence of the column titled ‘‘Measures,’’ delete the words ‘‘generally assessed’’ and replace them with ‘‘most relevant.’’ • In the entry for ‘‘Uncommitted Repo Agreements,’’ in the column titled ‘‘Measures,’’ delete ‘‘16,’’ and replace it with ‘‘a number of’’ after the phrase ‘‘FICC has entered into Master Repurchase agreements with.’’ • In the entry for ‘‘FICC ceases to act for additional Members,’’ in the first sentence of the column titled ‘‘Status,’’ under the heading ‘‘Improvement Indicator metric,’’ add the words, ‘‘cease to act determinations,’’ after the words ‘‘No expected additional.’’ • In the entry for ‘‘Loss Allocation,’’ in the first sentence of the column titled ‘‘Measures,’’ add the word ‘‘Defaulting’’ before the word ‘‘Member’s.’’ 15. In Section 5.3 (Liquidity Shortfalls), in the last sentence of the first paragraph, add the words ‘‘market risk’’ before the word ‘‘losses.’’ 16. In Table 5–C, which lists the tools that can be used to address liquidity shortfalls, in the entry for ‘‘Execute dollar rolls or coupon swaps for mortgage backed positions in GSD and MBSD,’’ in the column titled ‘‘Relevant Rules/Documents,’’ in the first sentence of the third paragraph, after the phrase ‘‘These options may provide,’’ delete the word ‘‘options’’ and replace it with the words ‘‘a course of action.’’ 17. In Section 5.5 (Governance Within the Crisis Continuum), in the first sentence of the second paragraph, delete PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 the word ‘‘invoked’’ and replace it with the word ‘‘commenced.’’ 18. In Section 6.3 (Risk Mitigation), in the footnote that includes the citation to a previous proposed rule change covering the Clearing Agency Operational Risk Management Framework, add a reference to FICC’s amended filing published December 16, 2020. 19. In Section 6.4 (Resources to Cover Non-Default Losses), under the heading ‘‘Liquid Net Assets Funded by Equity,’’ at the end of the first sentence, add a new footnote for the citation to previous proposed rule changes covering the Capital Plan and Capital Policy. 20. In Section 6.6 (Market Disruption and Force Majeure Rule): • In the second bullet point of the third paragraph remove the quotation marks from the words ‘‘Market Disruption Event’’ and delete the parenthetical ‘‘(as defined in the Force Majeure Rules)’’ because Market Disruption Event was defined earlier in this section. • In the second sentence of the fourth paragraph, for purposes of reflecting present tense, delete the word ‘‘would’’ before the word ‘‘operate.’’ • In the first sentence of the second paragraph: Æ For purposes of reflecting present tense and to improve readability, (a) remove the word ‘‘currently’’ after ‘‘exigent circumstances’’ and (b) remove the words ‘‘are designed to’’ and Æ in order to correct a typographical error, insert the word ‘‘and’’ in between ‘‘its membership’’ and ‘‘to mitigate.’’ 21. In Table 7–A (Recovery Tool Characteristics), add a period to the end of each sentence. 22. In Section 7.1 (Comprehensiveness), remove the capitalization from the words ‘‘Critical Services.’’ 23. In Section 7.2 (Effectiveness), under the heading ‘‘Reliability,’’ for the purpose of correcting typographical errors, (a) move the second footnote, currently at the end of the last sentence, to the end of the last sentence of the introductory paragraph of Section 7.2 and (b) in the text of the other footnote that currently reads, ‘‘See, for example, DTCC Whitepaper, CCP Resiliency and Resources, pg. 2, section 2 (June 2015),’’ remove ‘‘, section 2.’’ 24. In Section 7.5 (Minimize Negative Impact), in the second sentence, correct the spelling of the word ‘‘protocols.’’ 25. In Section 8.2.1 (Potential Scenarios), in the second sentence of the third paragraph, replace ‘‘enhancements to the loss allocation process are’’ with ‘‘the loss allocation process is.’’ Accordingly, under the proposed rule E:\FR\FM\02APN1.SGM 02APN1 jbell on DSKJLSW7X2PROD with NOTICES Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices change this sentence would state, ‘‘As noted above, the loss allocation process is designed to ensure that the full Division Clearing Fund can be applied to Division losses arising from successive Member defaults that occur during an ‘‘Event Period’’, and there can be successive rounds of loss allocations to address losses arising with respect to a given Event Period.’’ 26. In Section 8.4.1 (General Objectives and Approach), in the second paragraph, delete the words ‘‘have been amended to’’ after the words ‘‘the Rules of each Division’’ in order to more clearly reflect the fact that the Winddown of the Corporation Rules 41 were adopted. 27. In Section 8.4.2 (Critical Services and FMI Link Arrangements): • In the paragraph under the heading ‘‘Clearing Banks(s),’’ delete the parenthetical ‘‘(assuming JPM has exited the business).’’ • In the paragraph under the heading ‘‘Cross-Margining Agreement,’’ (a) in the third sentence, delete the word ‘‘transfer’’ and replace with ‘‘assignment’’ and (b) in the last sentence, delete the word ‘‘we’’ and replace it with ‘‘FICC.’’ 28. In Section 8.4.4 (Rules Adopted in Connection with the Wind-down Plan), in the first sentence under the heading ‘‘Certain Ex Ante Matters,’’ add the word ‘‘a’’ before the second instance of the word ‘‘Transferee.’’ 29. In proposed Section 8.6.1 (currently Section 8.6.2) (Recovery and Runway Period Actions), capitalize the word ‘‘chapter’’ in two places where ‘‘chapter 11’’ is not capitalized. 30. In Section 8.7 (Costs and Time to Effectuate Plan), (a) in the second sentence of the fifth paragraph, delete the word ‘‘of’’ between the words ‘‘detailed’’ and ‘‘analysis’’ and (b) at the end of the last sentence of this section, delete the phrase ‘‘, as provided in the Capital Requirements Policy.’’ As a result, under the proposed rule change, this sentence would state, ‘‘The estimated wind-down costs amount will be reviewed and approved by the Board annually.’’ Also, in the footnote in this section that refers to Section 5 of the Plan, correct the title of that section to state, ‘‘Member Default Losses through the Crisis Continuum.’’ 31. In Appendix 1 (Defined Terms), add each of the new defined terms based on the addition of such terms to the Plan, and delete the defined terms that were removed based on the deletion of these terms from the Plan. 2. Statutory Basis FICC believes that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a registered clearing agency. In particular, FICC believes that the amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of the Act 42 and Rule 17Ad–22(e)(3)(ii) under the Act 43 for the reasons described below. Section 17A(b)(3)(F) of the Act requires, in part, that the rules of FICC be designed to promote the prompt and accurate clearance and settlement of securities transactions.44 The Recovery Plan serves to promote the prompt and accurate clearance and settlement of securities transactions by providing FICC with a roadmap for actions it may employ to mitigate losses, and monitor and, as needed, stabilize, FICC’s financial condition, which would allow it to continue its critical clearance and settlement services in stress situations. The Recovery Plan is designed to identify the actions and tools FICC may use to address and minimize losses to both FICC and its membership and provide FICC’s management and the Board with guidance in this regard by identifying the indicators and governance around the use and application of such tools to enable them to address stress situations in a manner most appropriate for the circumstances. Further, the Wind-down Plan establishes a framework for the transfer and orderly wind-down of FICC’s business, and establishes clear mechanisms for the transfer of FICC’s critical services and membership. By doing so, the Wind-down Plan is designed to facilitate the continuity of FICC’s critical services and enable Members and Limited Members to maintain access to FICC’s services through the transfer of its membership in the event FICC defaults or the Winddown Plan is triggered by the Board. As described above, the proposed rule change would update the R&W Plan to (i) reflect business and product developments, (ii) make certain clarifications, (iii) remove provisions covering certain ‘‘business-as-usual’’ actions, and (iv) make certain technical corrections. By helping to ensure that the R&W Plan reflects current business and product developments, and providing additional clarity regarding the framework for the transfer and orderly wind-down of FICC’s business, FICC believes that the proposed rule change would help it continue to 42 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(3)(ii). 44 15 U.S.C. 78q–1(b)(3)(F). maintain the Plan in a manner that supports the continuity of FICC’s critical services and enables its Members and Limited Members to maintain access to FICC’s services through the transfer of its membership in the event FICC defaults or the Winddown Plan is ever triggered by the Board. Further, by facilitating the continuity of its critical clearance and settlement services, FICC believes the Plan and the proposed rule change would continue to promote the prompt and accurate clearance and settlement of securities transactions. Therefore, FICC believes the proposed amendments to the R&W Plan are consistent with the requirements of Section 17A(b)(3)(F) of the Act. Rule 17Ad–22(e)(3)(ii) under the Act requires FICC to establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by the covered clearing agency, which includes plans for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses.45 The R&W Plan is designed to comply with Rule 17Ad–22(e)(3)(ii) and is consistent with the Act because it provides plans for the recovery and orderly wind-down of FICC necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses. Specifically, the Recovery Plan defines the risk management activities, stress conditions and indicators, and tools that FICC may use to address stress scenarios that could eventually prevent it from being able to provide its critical services as a going concern. Through the framework of the Crisis Continuum, the Recovery Plan addresses measures that FICC may take to address risks of credit losses and liquidity shortfalls, and other losses that could arise from a Member default. The Recovery Plan also addresses the management of general business risks and other non-default risks that could lead to losses. The Wind-down Plan would be triggered by a determination by the Board that recovery efforts have not been, or are unlikely to be, successful in returning FICC to viability as a going concern. Once triggered, the Wind-down Plan sets forth clear mechanisms for the transfer of FICC’s membership and business, and is designed to facilitate 43 17 41 Supra note 6. VerDate Sep<11>2014 23:04 Apr 01, 2021 Jkt 253001 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 17439 45 17 E:\FR\FM\02APN1.SGM CFR 240.17Ad–22(e)(3)(ii). 02APN1 17440 Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices continued access to FICC’s critical services and to minimize market impact of the transfer. By establishing the framework and strategy for the execution of the transfer and winddown of FICC in order to facilitate continuous access to its critical services, the Wind-down Plan establishes a plan for the orderly wind-down of FICC. As described above, the proposed rule change would update the R&W Plan to (i) reflect business and product developments, (ii) make certain clarifications, (iii) remove provisions covering certain ‘‘business-as-usual’’ actions, and (iv) make certain technical corrections. By ensuring that material provisions of the Plan are current, clear, and technically correct, FICC believes that the proposed amendments are designed to support the maintenance of the Plan for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses, and, as such, meets the requirements of Rule 17Ad–22(e)(3)(ii) under the Act.46 Therefore, the proposed changes would help FICC to maintain the Plan in a way that continues to be consistent with the requirements of Rule 17Ad–22(e)(3)(ii). jbell on DSKJLSW7X2PROD with NOTICES (B) Clearing Agency’s Statement on Burden on Competition FICC does not believe that the proposed rule change would have any impact, or impose any burden, on competition. FICC does not anticipate that the proposal would affect its dayto-day operations under normal circumstances, or in the management of a typical Member default scenario or non-default event. The R&W Plan was developed and documented in order to satisfy applicable regulatory requirements, as discussed above. The proposal is intended to enhance and update the Plan to ensure it is clear and remains current in the event it is ever necessary to be implemented. The proposed revisions would not effect any changes to the overall structure or operation of the Plan or FICC’s recovery and wind-down strategy as set forth under the current Plan. As such, FICC believes the proposal would 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 FICC has not received or solicited any written comments relating to this proposal. FICC will notify the Commission of any written comments received by FICC. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) 47 of the Act and paragraph (f) 48 of Rule 19b–4 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 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–2021–002 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–2021–002. 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 47 15 46 Id. VerDate Sep<11>2014 48 17 23:04 Apr 01, 2021 Jkt 253001 PO 00000 U.S.C 78s(b)(3)(A). CFR 240.19b–4(f). Frm 00092 Fmt 4703 Sfmt 4703 Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FICC and on DTCC’s website (https://dtcc.com/legal/sec-rulefilings.aspx). All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FICC– 2021–002 and should be submitted on or before April 23, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–06774 Filed 4–1–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91428; File No. SR–NSCC– 2021–004] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Recovery & Wind-Down Plan March 29, 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 23, 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. NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) 3 of the Act and Rule 19b–4(f)(4) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 49 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4). 1 15 E:\FR\FM\02APN1.SGM 02APN1

Agencies

[Federal Register Volume 86, Number 62 (Friday, April 2, 2021)]
[Notices]
[Pages 17432-17440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06774]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91430; File No. SR-FICC-2021-002]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Recovery & Wind-Down Plan

March 29, 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 23, 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. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(4) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ consists of amendments to the R&W Plan 
to (i) reflect business and product developments, (ii) make certain 
changes to improve the clarity of the Plan, (iii) remove provisions 
covering certain ``business-as-usual'' actions, and (iv) make certain 
technical corrections, as described in greater detail below.
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    \5\ Capitalized terms not defined herein are defined in the FICC 
Government Securities Division (``GSD'') Rulebook (the ``GSD 
Rules'') or the FICC Mortgage-Backed Securities Division (``MBSD'') 
Clearing Rules (the ``MBSD Rules,'' and collectively with the GSD 
Rules, the ``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures, or in the Recovery & Wind-down Plan of FICC 
(the ``R&W Plan'' or ``Plan'').
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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,

[[Page 17433]]

and C below, of the most significant aspects of such statements.

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

1. Purpose
    The proposed rule change would amend the R&W Plan to (i) reflect 
business and product developments, (ii) make certain changes to improve 
the clarity of the Plan, (iii) remove provisions covering certain 
``business-as-usual'' actions, and (iv) make certain technical 
corrections. Each of the proposed revisions is further described below.
Background
    The R&W Plan was adopted in August 2018 \6\ and is maintained by 
FICC for compliance with Rule 17Ad-22(e)(3)(ii) under the Act.\7\ The 
R&W Plan sets forth the plan to be used by the Board and FICC 
management in the event FICC encounters scenarios that could 
potentially prevent it from being able to provide its critical services 
as a going concern. The R&W Plan is structured as a roadmap that 
defines the strategy and identifies the tools available to FICC to 
either (i) recover, in the event it experiences losses that exceed its 
prefunded resources (such strategies and tools referred to herein as 
the ``Recovery Plan''), or (ii) wind-down its business in a manner 
designed to permit the continuation of FICC's critical services in the 
event that such recovery efforts are not successful (such strategies 
and tools referred to herein as the ``Wind-down Plan''). The recovery 
tools available to FICC are intended to address the risks of (a) 
uncovered losses or liquidity shortfalls resulting from the default of 
one or more of its Members,\8\ and (b) losses arising from non-default 
events, such as damage to FICC's physical assets, a cyber-attack, or 
custody and investment losses, and the strategy for implementation of 
such tools. The R&W Plan also describes the strategy and framework for 
the orderly wind-down of FICC and the transfer of its business in the 
event the implementation of the available recovery tools does not 
successfully return FICC to financial viability.
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    \6\ See Securities Exchange Act Release Nos. 83973 (August 28, 
2018), 83 FR 44942 (September 4, 2018) (SR-FICC-2017-021); and 83954 
(August 27, 2018), 83 FR 44361 (August 30, 2018) (SR-FICC-2017-805).
    \7\ 17 CFR 240.17Ad-22(e)(3)(ii). FICC is a ``covered clearing 
agency'' as defined in Rule 17Ad-22(a)(5) under the Act and must 
comply with paragraph (e) of Rule 17Ad-22.
    \8\ References herein to ``Members'' refer to GSD Netting 
Members and MBSD Clearing Members. References herein to ``Limited 
Members'' refer to participants of GSD or MBSD other than GSD 
Netting Members and MBSD Clearing Members, including, for example, 
GSD Comparison-Only Members, GSD Sponsored Members, GSD CCIT 
Members, and MBSD EPN Users.
---------------------------------------------------------------------------

    The R&W Plan is managed and developed by FICC's parent company, the 
Depository Trust & Clearing Corporation (``DTCC''),\9\ and is managed 
by the Office of Recovery & Resolution Planning (referred to in the 
Plan as the ``R&R Team'') on behalf of FICC, with review and oversight 
by the DTCC Management Committee and the Board.
---------------------------------------------------------------------------

    \9\ DTCC operates on a shared service model with respect to FICC 
and its other affiliated clearing agencies, The Depository Trust 
Company{XE ``NSCC''{time}  (``DTC'') and National Securities 
Clearing Corporation (``NSCC''). Most corporate functions are 
established and managed on an enterprise-wide basis pursuant to 
intercompany agreements under which it is generally DTCC that 
provides relevant services to FICC, DTC {XE ``NSCC''{time}  and NSCC 
(collectively, the ``Clearing Agencies'').
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Proposed Amendments to the R&W Plan
    The Board, or such committees as may be delegated authority by the 
Board from time to time pursuant to its charter, is required to review 
and approve the R&W Plan biennially.\10\ In connection with the first 
biennial review of the Plan, FICC is proposing the revisions described 
in greater detail below. The proposed rule change is designed to update 
and enhance the clarity of the Plan to ensure it is current in the 
event it is ever necessary to be implemented. None of the proposed 
changes modify FICC's general objectives and approach with respect to 
its recovery and wind-down strategy as set forth under the current 
Plan.
---------------------------------------------------------------------------

    \10\ Supra note 6.
---------------------------------------------------------------------------

A. Proposed Changes To Reflect Business or Product Developments
1. GSD Clearing Bank Update
    Section 2 (Business Overview) of the R&W Plan describes DTCC's 
business profile and includes a summary of the services of FICC offered 
by each of GSD and MBSD (collectively, the ``Divisions''). Under the 
current Plan, the section that summarizes GSD's services (Section 2.2) 
states that GSD employs the services of two clearing banks, The Bank of 
New York Mellon (``BNY{XE ``BNY''{time} '') and JPMorgan Chase Bank, 
N.A. (``JPM''), in which Members may instruct their clearing bank to 
transfer securities. The proposed rule change would delete all 
references in this section, and an associated footnote, to JPM as a GSD 
clearing bank. FICC is proposing this change because since the time the 
Plan was adopted, JPM exited the business of providing U.S. government 
clearing services. Going forward, the Plan would refer only to BNY as 
GSD's clearing bank.
2. Updates to DTCC Business Profile, Intercompany Arrangements, FMI 
Links and Governance
    FICC is proposing the following changes to the DTCC Business 
Profile, Intercompany Arrangements, FMI Links and Governance sections 
of the Plan based upon business updates that have occurred since the 
time the Plan was adopted.
    Section 2.1 (DTCC Business Profile) of the Plan describes that DTCC 
is a user-owned and user governed holding company for a group of direct 
and indirect subsidiaries and joint ventures. This section includes a 
brief summary of each of the three subsidiaries (DTC, FICC and NSCC) 
that have been designated as systemically important financial market 
utilities (``SIFMUs'') by the Financial Stability Oversight Council. 
The proposed rule change would revise the introductory paragraph of 
this section to remove reference to joint ventures because DTCC 
currently has no joint ventures.
    Section 2.4 (Intercompany Arrangements) of the Plan currently 
describes how corporate support services are provided to FICC from 
DTCC, and to DTCC's other subsidiaries through intercompany agreements 
under a shared services model. FICC is proposing to update Table 2-A 
(SIFMU Legal Entity Structure and Intercompany Agreements), which 
delineates FICC's affiliates to reflect the name change of Omgeo Pte 
Ltd by removing ``Omgeo Pte Ltd'' and replacing it with the new name of 
this entity, ``DTCC Singapore Pte. Ltd.'' A related footnote would also 
be added to make clear that the services provided by DTCC Singapore 
Pte. Ltd. are performed through its branch office in Manila, DTCC 
Manila. Additionally, this section includes a separate table, Table 2-
B, that lists each of the DTCC facilities utilized by the Clearing 
Agencies and indicates whether the facility is owned or leased by DTCC. 
FICC proposes to update this table to add Boston, Massachusetts as an 
additional location of a DTCC facility and to indicate that this 
facility is leased by DTCC.
    Currently, Section 2.5 (FMI Links) of the Plan describes some, but 
not all, of the key financial market infrastructures (``FMIs'') that 
FICC has identified as critical ``links.'' \11\ In order to better

[[Page 17434]]

align with the structure of DTCC's inventory of links maintained by 
DTCC's Systemic Risk Office (``SRO''), which includes all of FICC's 
link relationships, the proposed rule change would delete the current 
``FMI Links'' section of the R&W Plan and replace it with a revised 
version of Section 2.5 that would include an overview of FICC's link 
arrangements, a related footnote to the definition of a ``link'' under 
Rule 17Ad-22(a)(8) under the Act, and a table, (Table 2-C: Links) 
listing all of FICC's FMI link arrangements. The table would list the 
link, the link category (i.e., CCP Cross-Margining or Cross-Guaranty 
Arrangements), and a brief description. The proposed rule change would 
also add a table (Table 2-D: Schedule A Relationships) that would 
identify certain critical external service providers that, as 
determined by FICC's management, do not meet the specified criteria of 
``link'' but nevertheless are subject to the same review process as is 
conducted for links, referred to within FICC as ``Schedule A 
Relationships,'' and a related footnote. This change would align with 
the structure of SRO's inventory of Schedule A Relationships.
---------------------------------------------------------------------------

    \11\ As defined in Rule 17Ad-22(a)(8) under the Act, a link 
``means, for purposes of paragraph (e)(20) of [Rule 17Ad-22], a set 
of contractual and operational arrangements between two or more 
clearing agencies, financial market utilities, or trading markets 
that connect them directly or indirectly for the purposes of 
participating in settlement, cross margining, expanding their 
services to additional instruments or participants, or for any other 
purposes material to their business.'' 17 CFR 240.17Ad-22(a)(8).
---------------------------------------------------------------------------

    Section 4.3 (Recovery and Wind-down Program Governance) of the Plan 
currently contains a paragraph that identifies DTCC's ``R&R Steering 
Group'' as the internal group responsible for ensuring that each of the 
Clearing Agencies observes recovery planning requirements, and that 
recovery planning is integrated into the Clearing Agencies' overall 
governance processes including the preparation, review, and filing of 
the Clearing Agencies' R&W Plans. Pursuant to the proposed rule change, 
FICC would revise Section 4.3 to reflect an internal organizational 
name change. The proposal would change the name of the R&R Steering 
Group to the ``Recovery and Wind-down Planning Council'' to reflect its 
role as an advisory body.\12\ This name change would not change the 
composition, role or responsibilities of this internal group, which 
includes selected members of DTCC's Management Committee and members of 
DTCC's financial and operational risk management, product management, 
legal and treasury/finance teams that are responsible for providing 
strategic guidance and direction for the recovery and wind-down program 
\13\ and the Plan. Additionally, for purposes of clarification, the 
proposal would add the words ``, where necessary,'' to refer to when 
the council would engage with internal working groups.
---------------------------------------------------------------------------

    \12\ In accordance with DTCC's Policy on Governance of Internal 
Committees and Councils, a ``council'' is defined as an advisory 
body that has no decision-making authority. A council may be formed 
by any committee or a Managing Director. Councils will share 
information, discuss topics, and make recommendations to its 
initiating committee or Managing Director. Councils report up to 
their initiating committee or Managing Director.
    \13\ In 2013, DTCC launched its Recovery & Resolution Planning 
Program for DTC, NSCC, and FICC as part of its continued commitment 
to enhancing risk management. The Office of Recovery & Resolution 
Planning was established to manage the program and the development 
of the recovery and wind-down plans for the Clearing Agencies{XE 
``SIFMU RWPs'' {time} .
---------------------------------------------------------------------------

3. Update to GSD's Critical Services
    Section 3 (Critical Services) of the Plan defines the criteria for 
classifying certain of FICC's services as ``critical,'' \14\ and 
identifies such critical services and the rationale for their 
classification. The identification of FICC's critical services is 
important for evaluating how the recovery tools and the wind-down 
strategy would facilitate and provide for the continuation of FICC's 
critical services to the markets it serves. This section also includes 
a list of indicative non-critical services.
---------------------------------------------------------------------------

    \14\ The criteria that is used to identify a FICC service or 
function as critical includes consideration as to whether (1) there 
is a lack of alternative providers or products; (2) failure of the 
service could impact FICC's ability to perform its central 
counterparty services through either Division; (3) failure of the 
service could impact FICC's ability to perform its multilateral 
netting services through either Division and, as such, could impact 
the volume of transactions; (4) failure of the service could impact 
FICC's ability to perform its book-entry delivery and settlement 
services through either Division and, as such, could impact 
transaction costs; (5) failure of the service could impact FICC's 
ability to perform its cash payment processing services through 
either Division and, as such, could impact the flow of liquidity in 
the U.S. financial markets; and (6) the service is interconnected 
with other participants and processes within the U.S. financial 
system (for example, with other FMIs, settlement banks, and broker-
dealers).
---------------------------------------------------------------------------

    This section includes a table (Table 3-B: GSD Critical Services) 
that lists each of the services, functions or activities of GSD that 
FICC has identified as ``critical'' based on the applicability of the 
criteria. There is also a table listing MBSD's critical services (Table 
3-C: MBSD Critical Services). The proposed rule change would update 
Table 3-B to add two services, which were implemented since the time 
the Plan was adopted,\15\ that FICC has classified as critical 
services.
---------------------------------------------------------------------------

    \15\ Supra note 6.
---------------------------------------------------------------------------

    First, the proposed rule change would add the Centrally Cleared 
Institutional Triparty (``CCIT'') service.\16\ The text of the 
description of this service would state that the CCIT service extends 
central counterparty (``CCP'') services and guarantee of completion of 
eligible trades to tri-party repo transactions between GSD dealer 
members and eligible tri-party money lenders. In the column that 
delineates the determinants for the classification of CCIT as a 
critical service, it would denote by check marks that this is because 
of (i) a lack of alternative providers and products, (ii) a failure/
disruption of CCP services (impact on credit availability), and (iii) a 
failure/disruption of cash payment processing services (impact on 
credit and liquidity).
---------------------------------------------------------------------------

    \16\ See GSD Rule 3B (Centrally Cleared Institutional Triparty 
Service), supra note 5.
---------------------------------------------------------------------------

    Second, the sponsored membership service \17\ would be added as a 
critical service. The text of the description would state that 
sponsored membership offers eligible GSD Netting Members the ability to 
engage in FICC-cleared cash lending and cash borrowing transactions in 
U.S. Treasury and agency securities and outright purchases and sales of 
such securities. Sponsoring Members facilitate their sponsored clients' 
GSD trading activity and act as processing agents on their behalf for 
all operational functions, including trade submission and settlement 
with the CCP. In the column that delineates the determinants for the 
classification of sponsored membership as a critical service, it would 
denote by check marks that this is because of (i) a lack of alternative 
providers and products, (ii) a failure/disruption of CCP services 
(impact on credit availability), (iii) a failure/disruption of 
multilateral netting services (impact on liquidity) (iv) a failure/
disruption of cash payment processing services (impact on credit and 
liquidity), and (v) a failure/disruption of cash payment processing 
services (impact on credit and liquidity).
---------------------------------------------------------------------------

    \17\ See GSD Rule 3A (Sponsoring Members and Sponsored Members), 
supra note 5.
---------------------------------------------------------------------------

    Also, the proposed rule change would enhance the current 
description of the GSD critical service, GSD RTTM[supreg], by adding as 
the first sentence, ``Provides a common electronic platform for 
collecting and matching trade data, enabling the parties to trade, 
monitor and manage the status of their trade activity in real-time.''
B. Proposal To Make Certain Clarifications to the R&W Plan
1. Business Overview/MBSD Services
    As described above, Section 2 (Business Overview) of the R&W Plan

[[Page 17435]]

describes DTCC's business profile and includes a summary of the 
services of FICC offered by each of the Divisions.
    In Section 2.3 (MBSD), pursuant to the proposed rule change, FICC 
would clarify and enhance the readability of the paragraph under the 
heading ``Trade Comparison/RTTM[supreg].'' \18\ First, at the beginning 
of the second sentence, the proposed rule change would add the term 
``SBOD trades'' \19\ to the list of trades that are guaranteed and 
novated at the time of comparison.\20\ Second, FICC would delete the 
last sentence of this paragraph,\21\ and replace it with the following 
two new sentences that more fully describe how and when settlement 
obligations are established between an MBSD Clearing Member and FICC, 
``Once trade-for-trade destined transactions and stipulated trades are 
matched and allocated through MBSD, settlement obligations are 
established between the Member and FICC, however, these trades do not 
enter the ``TBA Netting'' process. Once specified pool trades are 
matched through MBSD, settlement obligations are established between 
the Member and FICC.'' This new language would be re-ordered to be the 
second and third sentences in this paragraph in order to enhance flow 
and readability. Additionally, the parenthetical in the first sentence 
``(i.e., a report)'' that is currently after the words ``transaction 
output'' would be deleted as redundant and not necessary to be 
included.
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    \18\ See MBSD Rule 5 (Trade Comparison), supra note 5.
    \19\ Under the Plan, ``SBOD trades'' refers to settlement 
balance order destined trades.
    \20\ In this regard, pursuant to the proposed rule change, the 
sentence would state, ``SBOD_ trades, trade-for-trade transactions, 
specified pool trades and stipulated trades are guaranteed and 
novated at the time of comparison.''
    \21\ Currently, the last sentence of this paragraph states, 
``Once trade-for-trade transactions, stipulated trades, and 
specified pool trades are matched by MBSD, settlement obligations 
are established between the Member and MBSD as these trades do not 
enter the TBA Netting process.'' Further, pursuant to MBSD Rule 1 
(Definitions), the term ``TBA Netting'' means the service provided 
to MBSD Clearing Members, as applicable, and the operations carried 
out by FICC in the course of providing such service in accordance 
with MBSD Rule 6 (TBA Netting), supra note 5.
---------------------------------------------------------------------------

2. Member Default Losses Through the Crisis Continuum
    Section 5 (Member Default Losses through the Crisis Continuum) of 
the Plan is comprised of multiple subsections that identify the risk 
management surveillance, tools, and governance that FICC may employ 
across an increasing stress environment, referred to as the ``Crisis 
Continuum.'' \22\ This section currently identifies, among other 
things, the tools that can be employed by each Division to mitigate 
losses, and mitigate or minimize liquidity needs, as the market 
environment becomes increasingly stressed. As more fully described 
below, the proposed rule change would clarify certain language.
---------------------------------------------------------------------------

    \22\ As set forth in the Recovery Plan, the phases of the 
``Crisis Continuum'' include (1) a stable market phase, (2) a 
stressed market phase, (3) a phase commencing with FICC's decision 
to cease to act for a Member or Affiliated Family, and (4) a 
recovery phase.
---------------------------------------------------------------------------

    Section 5.2.1 (Stable Market Phase) describes FICC's risk 
management activities with respect to each Division in the normal 
course of business. These activities include (i) the routine monitoring 
of margin adequacy through daily evaluation of backtesting and stress 
testing results that review the adequacy of FICC's margin calculations, 
and escalation of those results to internal and Board committees and 
(ii) routine monitoring of liquidity adequacy through review of daily 
liquidity studies that measure sufficiency of available liquidity 
resources to meet cash settlement obligations of the Member that would 
generate the largest aggregate payment obligation. Further, under the 
heading ``Market Risk Monitoring and Stable Market Indicators,'' this 
section states that the amount of Clearing Fund required from each 
Member is determined principally by Value-at-Risk (``VaR'') 
calculations,\23\ and that in order to ensure the VaR model accurately 
reflects market conditions and provides adequate protection against 
market risk, FICC evaluates several factors on an ongoing basis.
---------------------------------------------------------------------------

    \23\ As described in the Plan, for each Division, the amount of 
Clearing Fund required from each Member is determined principally by 
VaR calculations, which are based on the potential price-change 
volatility of unsettled positions according to FICC's risk-based 
margin model.
---------------------------------------------------------------------------

    The proposed rule change would remove the following factor as one 
of those evaluated because it is no longer part of FICC's model 
calculation, ``Implied volatility to assess whether a potential 
increase in market price volatility may not be fully incorporated in 
the historical price moves.'' \24\ The elimination of the language 
regarding implied volatility provides a more accurate representation of 
the risk model calculation. Consistent with the above, FICC would also 
remove the paragraph in this section that states that implied market 
price volatility as measured by benchmarks such as the VIX index does 
not indicate material changes in market price volatility are expected.
---------------------------------------------------------------------------

    \24\ The remaining factors set forth in the Plan that FICC 
evaluates to ensure that the VaR model accurately reflects market 
conditions and provides adequate protection against market risk are: 
(i) Backtesting and other model performance monitoring to assess the 
robustness of the Clearing Fund requirements, and (ii) stress 
testing based on real historical and hypothetical scenarios to 
assess the margin adequacy under extreme but plausible market 
conditions. The Clearing Fund formulas for each Division are 
described in GSD Rule 4 and MBSD Rule 4, supra note 5.
---------------------------------------------------------------------------

    Section 5.2.4 (Recovery Corridor and Recovery Phase) outlines the 
early warning indicators to be used by FICC to evaluate its options and 
potentially prepare to enter the ``Recovery Phase,'' which phase refers 
to the actions to be taken by FICC to restore its financial resources 
and avoid a wind-down of its business. Included in this section are 
descriptions of potential stress events that could lead to recovery, 
and several early warning indicators and metrics that FICC has 
established to evaluate its options and potentially prepare to enter 
the Recovery Phase. These indicators, which are referred to in the 
Recovery Plan as recovery corridor indicators (``Corridor 
Indicators''),\25\ are calibrated against FICC's financial resources 
and are designed to give FICC the ability to replenish financial 
resources, typically through business as usual (``BAU'') tools applied 
prior to entering the Recovery Phase.
---------------------------------------------------------------------------

    \25\ The majority of the Corridor Indicators, as identified in 
the Recovery Plan, relate directly to conditions that may require 
FICC to adjust its strategy for hedging and liquidating a defaulting 
Member's portfolio, and any such changes would include an assessment 
of the status of the Corridor Indicators.
---------------------------------------------------------------------------

    Section 5.2.4 also includes language that requires FICC management 
to review the Corridor Indicators and the related metrics at least 
annually and modify these metrics as necessary in light of observations 
from simulation of Member defaults and other analyses. In order to more 
closely align with the biennial cycle of DTCC's multi-member closeout 
simulation exercise, the proposed rule change would shift the timing of 
management's review of the Corridor Indicators and related metrics from 
annually to biennially. FICC believes this change is necessary for 
consistency with the cycle of the multi-member closeout simulation, in 
which the Corridor Indicators and metrics are assessed as part of the 
simulation exercise.
    There is a table in Section 5.2.4 (Table 5-B: Loss Waterfall Tools) 
that delineates the tools that comprise FICC's loss allocation 
waterfall (with respect to each Division) as set forth under the 
Rules.\26\ This table has four columns (``Order,'' ``Tool,'' ``Relevant 
Rules,'' and ``Responsible Body/Personnel'') and is organized by the

[[Page 17436]]

order in which the liquidity resources are to be applied by FICC. 
Within Table 5-B, Corporate Contribution is the first entry under the 
column labeled ``Tool.'' Currently, the narrative for this entry 
includes a description of Corporate Contribution and delineates that in 
the event of a cease to act, before applying the applicable Division's 
Clearing Fund deposits of Members (other than the Defaulting Member) to 
cover any resulting loss, FICC will apply the Corporate 
Contribution.\27\
---------------------------------------------------------------------------

    \26\ GSD Rule 4 and MBSD Rule 4, supra note 5.
    \27\ Id.
---------------------------------------------------------------------------

    The proposed rule change would revise the current text of the 
definition of Corporate Contribution in Table 5-B in order to more 
closely align with how this term is defined under each Division's Rule 
4. Specifically, pursuant to the proposed rule change the definition of 
Corporate Contribution would be revised to state, ``The Corporate 
Contribution is an amount equal to 50% of the amount calculated by FICC 
in respect of its General Business Risk Capital Requirement for losses 
that occur over any rolling 12 month period.'' \28\ Similarly, the 
sentence directly above the definition of Corporate Contribution would 
be revised to remove the words ``applying the applicable Division's 
Clearing Fund Deposits of'' and replace them with ``charging Members of 
the applicable Division on a pro rata basis.''
---------------------------------------------------------------------------

    \28\ Pursuant to GSD Rule 4 and MBSD Rule 4, supra note 5, for 
any loss allocation pursuant to Section 7 of GSD Rule 4 and MBSD 
Rule 4, as applicable, whether arising out of or relating to a 
Defaulting Member Event or a Declared Non-Default Loss Event, FICC's 
corporate contribution to losses or liabilities that are incurred by 
FICC with respect to an Event Period (``Corporate Contribution'') 
shall be an amount that is equal to fifty (50) percent of the amount 
calculated by FICC in respect of its General Business Risk Capital 
Requirement as of the end of the calendar quarter immediately 
preceding the Event Period.
---------------------------------------------------------------------------

    With respect to the second entry in Table 5-B, ``Loss Allocation,'' 
the descriptive text in the ``Responsible Body/Personnel'' column would 
be revised to more closely align with the same language contained in 
each Division's Rule 4. The revised text would state, ``Members will be 
obligated to fund loss allocation on the second Business Day after the 
Corporation issues any such notice and to continue to fully fund their 
Required Deposits to the extent of any shortfalls.'' Additionally, in 
the ``Tool'' column for Loss Allocation, the term ``non-defaulting 
Members'' would be replaced with ``non-Defaulting Members'' because 
Defaulting Member is a defined term in the Rules.
3. Non-Default Losses
    Section 6 (Non-Default Losses) of the Plan outlines how FICC would 
address losses that result other than from a Member default. This 
section provides a roadmap to other documents that describe these 
events in greater detail and outlines FICC's approach to monitoring 
losses that could result from a non-default event. This section also 
includes a description of GSD Rule 50 and MBSD Rule 40 (Market 
Disruption and Force Majeure), referred to in the Plan as the ``Force 
Majeure Rules,'' \29\ which pertain to how FICC addresses extraordinary 
events that occur outside the control of FICC and its Members. As more 
fully described below, the proposed rule change would clarify certain 
language.
---------------------------------------------------------------------------

    \29\ Supra note 6.
---------------------------------------------------------------------------

    Section 6.4 (Resources to Cover Non-Default Losses) provides that 
FICC maintains two categories of financial resources to cover losses 
and expenses arising from non-default risks or events: (i) Liquid Net 
Assets Funded by Equity (``LNA''), including, pursuant to each 
Division's Rule 4, the required Corporate Contribution,\30\ and (ii) 
loss-allocation charges to Members in accordance with the provisions of 
each Division's Rule 4.\31\ Following an overview of the four buckets 
of LNA which can be applied towards non-default losses,\32\ there is a 
paragraph under the heading ``Loss Allocation to Members, backed by the 
Clearing Fund'' that provides that non-default losses could be 
allocated among Members as provided in each Division's Rule 4. There is 
sentence that describes the timeframe in which such losses charged to 
Members are required to be paid. Currently, this sentence states that 
losses are to be paid by Members ``within 2 business days of the date 
of receipt of a notice of a loss allocation charge. . . .'' However, 
this is not the same language used to describe this timing in each 
Division's Rule 4. In order to be consistent with the language 
formulation set out in each Division's Rule 4, the proposed rule change 
would revise this sentence to state, ``Losses charged to Members are 
required to be paid by Members on the second business day after the 
Corporation issues any such notice of a loss allocation charge and, if 
not timely paid by any Member, the Corporation may treat that Member as 
having failed to satisfy its obligation and apply the Clearing Fund 
deposit of that Member to satisfy its loss allocation obligation.'' 
\33\
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release Nos. 84427 (October 15, 
2018), 83 FR 53131 (October 19, 2018) (SR-FICC-2018-009); and 89363 
(July 21, 2020), 85 FR 45276 (July 27, 2020) (SR-FICC-2020-008) 
(filings amending the Clearing Agency Policy on Capital Requirements 
(the ``Capital Policy'') and the Clearing Agency Capital 
Replenishment Plan (the ``Capital Plan'')). The initial Capital 
Policy and Capital Plan were approved by the Commission in 2017--see 
Securities Exchange Act Release No. 81105 (July 7, 2017), 82 FR 
32399 (July 13, 2017) (SR-DTC-2017-003, SR-NSCC-2017-004, SR-FICC-
2017-007).
    \31\ GSD Rule 4 and MBSD Rule 4, supra note 5.
    \32\ As set forth in the Plan, FICC maintains the following four 
buckets of LNA which can be applied towards a non-default loss: (i) 
General Business Risk Capital as determined in the Capital Policy, 
supra, note 30, (ii) the Corporate Contribution, (iii) a ``Buffer,'' 
as described in the Capital Policy, and (iv) excess LNA, which 
refers to any available LNA held at FICC above the required amounts 
for General Business Risk Capital, the Corporate Contribution, and 
Buffer.
    \33\ GSD Rule 4 and MBSD Rule 4, supra note 5.
---------------------------------------------------------------------------

    Section 6.6 (Market Disruption and Force Majeure Rule) describes 
the Force Majeure Rules. The Force Majeure Rules were adopted at the 
same time as the Plan \34\ and provide an additional resiliency tool 
designed to mitigate the risks caused by market disruption events and 
thereby minimize the risk of financial loss that may result from such 
events. The proposed rule change would remove the following phrase 
after the reference to the Force Majeure Rule in the first paragraph of 
this section, ``, adopted in conjunction with this Plan,'' because it 
is not necessary as both the Plan and the Force Majeure Rule are no 
longer newly adopted. In addition, to remain consistent with the usage 
of ``Force Majeure'' and ``Market Disruption Event'' throughout this 
section, FICC would conform all references to the defined terms ``Force 
Majeure'' and ``Market Disruption Event,'' so that they appear as 
capitalized terms.
---------------------------------------------------------------------------

    \34\ Supra note 6.
---------------------------------------------------------------------------

    The proposed rule change would also make revisions to the second 
paragraph of Section 6. First, for purposes of clarity and readability, 
the following text would be removed from the beginning of the second 
sentence: ``Most FMIs have rules designed to deal with force majeure or 
market disruption events, and.'' Second, the reference to ``Superstorm 
Sandy'' would be removed from the last sentence of this paragraph along 
with the related footnote that references Superstorm Sandy as an 
example of circumstances in which FICC needed to fashion a work-around 
necessitated by a force majeure event. FICC believes inclusion of 
references to Superstorm Sandy are outdated and no longer necessary to 
be included in the Plan.

[[Page 17437]]

C. Remove Provisions Covering Certain ``Business-as-Usual'' Actions
    Section 8.6 (Actions and Preparation) of the Plan sets forth the 
legal framework and strategy for the orderly wind-down of FICC if the 
use of the recovery tools described in the Recovery Plan do not 
successfully return FICC to financial viability. This section includes 
an overview of the actions and preparations to be taken by FICC and 
DTCC in connection with executing the wind-down portions of the Plan. 
Section 8.6.1 (Business-as-Usual Actions) describes those actions that 
FICC or DTCC may take to prepare for wind-down in the period before 
FICC experiences financial distress.
    Under the current plan, the Business-as-Usual Actions are (i) 
educating the Board to keep them informed of the Plan and the actions 
the Board would need to take to implement it, (ii) engaging in 
discussions with key linked FMIs as to the key elements of FICC's wind-
down strategy and the expected actions of the respective link parties 
should a wind-down be implemented, (iii) developing and maintaining an 
index of internal data that includes the critical, ancillary, and non-
critical services that FICC provides to its membership, the support 
FICC receives from DTCC and from its other affiliates, key third-party 
vendors, key personnel, FICC assets and liabilities, and agreements and 
arrangements FICC has with liquidity providers and with other FMIs, 
(iv) developing administrative wind-down guidance that identifies key 
Board and management actions that would be taken during the Recovery 
Phase and ``Runway Period'' \35\ prior to FICC's failure, and in 
connection with its Chapter 11 proceedings, and (v) preparing 
constituent documents for the Failover Entity \36\ and evaluating 
capitalization options.
---------------------------------------------------------------------------

    \35\ The Wind-down Plan identifies the time period leading up to 
a decision to wind-down FICC as the ``Runway Period.''
    \36\ As set forth in Section 8.4.1 (General Objectives and 
Approach) of the Plan, in the event that no viable or preferable 
third-party transferee timely commits to acquire the business and 
services of FICC, the transfer will be effectuated to a failover 
entity created for that purpose (referred to as the ``Failover 
Entity''), that would be owned by a trust held, to the extent of the 
value of the Failover Entity attributed to FICC's transferred 
business and services, for the benefit of FICC's bankruptcy estate.
---------------------------------------------------------------------------

    Pursuant to the proposed rule change, FICC would remove the 
Business-as-Usual Actions section (currently Section 8.6.1) in its 
entirety because each of the actions outlined have either been 
completed or would be addressed in FICC's internal procedures going 
forward. This includes certain documents necessary to effect the wind-
down aspects of the Plan that were in the process of being finalized 
when the Plan was adopted and have since been completed. Since adoption 
of the Plan,\37\ FICC has completed all necessary internal 
documentation, including DTCC's internal wind-down guidance, the 
constituent documentation for the Failover Entity, and the evaluation 
of FICC's capitalization options. Further, the other actions included 
in this section (e.g., maintaining an index of non-critical services, 
educating the Board on the Plans) would be addressed, going forward, in 
DTCC's Recovery & Resolution Planning Procedures maintained by the R&R 
Team.\38\ As a result of this proposed change, current Section 8.6.2 
(Recovery and Runway Period Actions) would be renumbered as Section 
8.6.1. Also, consistent with the proposed removal of Business-as-Usual 
Actions that have been completed, the proposed rule change would remove 
from the first sentence of proposed Section 8.6.1 (current Section 
8.6.2), the words ``Among other things, the guidance would provide'' 
and replace them with ``The DTCC Clearing Agency Wind-down Guidance 
developed in connection with this Plan provides.''
---------------------------------------------------------------------------

    \37\ Supra note 6.
    \38\ The R&R Team is responsible for maintaining the DTCC 
``Office of Recovery & Resolution Planning Procedures'' document. 
The purpose of these procedures is to communicate roles and 
responsibilities, and procedures for the documentation of the R&W 
Plans covering each of the Clearing Agencies, in compliance with 
applicable rules and regulations. These procedures also describe the 
biennial closeout simulation exercise whereby the Plans for each 
clearing agency are tested through the simulation of a multi-member 
default.
---------------------------------------------------------------------------

D. Technical Revisions
    The proposal would also make several technical changes and 
corrections to the Plan. FICC believes that these proposed changes 
would not substantively alter the meaning of the applicable sections 
and would improve the overall readability and clarity of the Plan. 
Specifically, FICC is proposing to make the following changes and 
corrections:
    1. In Section 1.3 (Summary), in the list of topics covered under 
the Plan (a) in the sixth bullet point, delete ``participant'' and 
replace it with ``Member,'' and (b) in the seventh bullet point, add 
``Recovery Corridor and'' prior to the words ``Recovery Phase'' to 
correctly state the full name of this section of the Plan.
    2. In Section 1.4 (Conventions):
     In the fourth paragraph, delete the words ``conjunction 
with'' and replace them with ``support of,'' and delete the words 
``also adopted'' and replace them with ``maintains.'' Accordingly, 
under the proposed rule change this paragraph would state, ``In support 
of this Plan, each Division of FICC maintains (i) a Market Disruption 
and Force Majeure Rule (the ``Force Majeure Rules'') and (ii) a Wind-
down of the Corporation Rule (the ``Wind-down Rules''), each as 
described herein.''
     In the last sentence of this section, delete ``CCIT'' and 
replace it with the full name of this GSD service, the ``Centrally 
Cleared Institutional Triparty (``CCIT'') Service.''
    3. In Section 2.1 (DTCC Business Profile), under the heading ``DTCC 
SIFMU Subsidiaries'':
     In the description of NSCC, add the word ``netting,'' 
after the word ``clearing''; and after the words ``exchange traded,'' 
delete ``fund (``ETF'')'' and replace it with ``products (``ETPs'').''
     In the description of GSD, add the word ``netting,'' after 
the word ``clearing''; and add the modifier ``fixed rate'' before the 
words ``federal agency notes, bonds and zero-coupon securities.''
     In the description of MBSD, delete the modifier ``To-Be-
Announced (``TBA'')'' before the phrase ``pass-through MBS issued by 
Ginnie Mae, Freddie Mac and Fannie Mae.''
    4. In Section 2.2 (GSD), in the last sentence of the first 
paragraph, add ``/CCIT'' after ``GCF Repo[supreg].''
    5. In Section 2.3 (MBSD), in the paragraph under the heading ``EPN 
Allocation,'' in the last sentence, delete the word ``their'' before 
the word ``MBSD.''
    6. In Section 3.1 (Introduction), correct a typographical error in 
subsection (c) by replacing ``An'' with ``A'' at the beginning of the 
sentence.
    7. In Section 3.2 (Criteria Used to Determine Criticality), in the 
second sentence that currently states, ``Each service was assessed for 
criticality to determine the potential systemic impact from a service 
disruption,'' add the word ``resulting'' after the word ``impact.''
    8. In Table 3-A (Critical Services Criterial Determinants), delete 
criteria determinant number 4 ``Failure/Disruption of Book-Entry 
Delivery/Settlement Services'' in its entirety because it applies to 
the DTC Recovery & Wind-down Plan and was included in the FICC Plan in 
error. As a result of this deletion, the proposed rule change would 
also (a) move up the numbering of the criteria determinants that are 
currently numbers 5 and 6, so that they

[[Page 17438]]

are numbers 4 and 5 respectively \39\ and (b) remove the column in 
Table 3-A designated for criteria determinant number 6.
---------------------------------------------------------------------------

    \39\ Pursuant to the proposed rule change, criteria determinant 
numbers 4 and 5 would be (i) No. 4: Failure/Disruption of Cash 
Payment Processing Services (Impact on Credit and Liquidity), and 
(ii) No. 5: Interconnectedness with U.S. Financial System.
---------------------------------------------------------------------------

    9. In Section 4.1 (DTCC and SIFMU Governance Structure), (a) in the 
last sentence of the second paragraph, correct a typographical error by 
replacing ``NSCC'' with ``FICC'' and (b) in the third paragraph, which 
lists each of the Board committees, delete ``Board'' before the words 
``Risk Committee.'' Additionally, in the footnote in this section that 
provides the citation of a previous proposed rule change covering the 
Clearing Agency Risk Management Framework, add a reference to FICC's 
amended filing published July 9, 2020.
    10. In Section 4.2, in the paragraph under the heading ``Member 
Default Losses,'' in the second sentence add ``credit/market and 
liquidity'' before the phrase ``loss scenarios throughout the Crisis 
Continuum (as hereinafter defined).''
    11. In Section 5.1 (Introduction), in the fourth paragraph, 
capitalize the word ``board.'' Under the heading ``Market Risk 
Management,'' in the last sentence of the second paragraph, replace the 
words ``Cross-Guaranty Agreements'' with ``clearing agency cross-
guaranty agreements'' because Cross-Guaranty Agreements is not a 
defined term in the Plan. For purposes of clarity and readability, the 
proposed rule change would also shift to Section 4.1 the footnote 
currently included in Section 5.1 regarding each Division's Rules 
covering a ``cease to act,'' insolvency of a Member and associated 
actions.\40\ Additionally, in the footnote included in this section 
that provides the citation to a previous proposed rule change covering 
the Clearing Agency Liquidity Risk Management Framework, add a 
reference to FICC's amended filing published December 11, 2020.
---------------------------------------------------------------------------

    \40\ See GSD Rule 21 (Restrictions on Access to Services) and 
MBSD Rule 14 (Restrictions on Access to Services), and GSD Rule 22 
(Insolvency of a Member) and MBSD Rule 16 (Insolvency of a Member), 
supra note 5.
---------------------------------------------------------------------------

    12. In Section 5.2.3 (Member Default Phase):
     Under the heading ``Market Risk Monitoring,'' (a) in the 
second sentence of the second paragraph, remove the capitalization from 
the first instance of the word ``Monitoring'' and (b) in the footnotes 
included in this section, replace ``defaulting Member'' with 
``Defaulting Member.''
     Under the heading ``Liquidity Risk Monitoring,'' (a) in 
the fourth bullet point, replace ``defaulting Member'' with 
``Defaulting Member,'' (b) in the sixth bullet point, replace 
``defaulting member'' with ``Defaulting Member,'' and (c) in the 
parenthetical at the end of the last bullet point, delete the words, 
``in the Event of Member Defaults.''
     Additionally, for consistency and to correct the same 
typographical error, the proposed rule change would capitalize the 
words ``Defaulting Member'' throughout the Plan wherever this term is 
referenced.
    13. In Section 5.2.4 (Recovery Corridor and Recovery Phase), (a) in 
the first sentence of the first paragraph, make bold the words 
``Recovery Corridor'' and (b) in the second sentence of the first 
paragraph, after the words ``The ``Recovery Phase'' relates to the 
actions taken by FICC to,'' add the phrase ``restore its financial 
resources and.''
    14. In Table 5-A (Corridor Indicators) the proposed rule change 
would make the following typographical corrections:
     In the entry for ``Hedge Effectiveness,'' in the third 
sentence of the column titled ``Measures,'' delete the words 
``generally assessed'' and replace them with ``most relevant.''
     In the entry for ``Uncommitted Repo Agreements,'' in the 
column titled ``Measures,'' delete ``16,'' and replace it with ``a 
number of'' after the phrase ``FICC has entered into Master Repurchase 
agreements with.''
     In the entry for ``FICC ceases to act for additional 
Members,'' in the first sentence of the column titled ``Status,'' under 
the heading ``Improvement Indicator metric,'' add the words, ``cease to 
act determinations,'' after the words ``No expected additional.''
     In the entry for ``Loss Allocation,'' in the first 
sentence of the column titled ``Measures,'' add the word ``Defaulting'' 
before the word ``Member's.''
    15. In Section 5.3 (Liquidity Shortfalls), in the last sentence of 
the first paragraph, add the words ``market risk'' before the word 
``losses.''
    16. In Table 5-C, which lists the tools that can be used to address 
liquidity shortfalls, in the entry for ``Execute dollar rolls or coupon 
swaps for mortgage backed positions in GSD and MBSD,'' in the column 
titled ``Relevant Rules/Documents,'' in the first sentence of the third 
paragraph, after the phrase ``These options may provide,'' delete the 
word ``options'' and replace it with the words ``a course of action.''
    17. In Section 5.5 (Governance Within the Crisis Continuum), in the 
first sentence of the second paragraph, delete the word ``invoked'' and 
replace it with the word ``commenced.''
    18. In Section 6.3 (Risk Mitigation), in the footnote that includes 
the citation to a previous proposed rule change covering the Clearing 
Agency Operational Risk Management Framework, add a reference to FICC's 
amended filing published December 16, 2020.
    19. In Section 6.4 (Resources to Cover Non-Default Losses), under 
the heading ``Liquid Net Assets Funded by Equity,'' at the end of the 
first sentence, add a new footnote for the citation to previous 
proposed rule changes covering the Capital Plan and Capital Policy.
    20. In Section 6.6 (Market Disruption and Force Majeure Rule):
     In the second bullet point of the third paragraph remove 
the quotation marks from the words ``Market Disruption Event'' and 
delete the parenthetical ``(as defined in the Force Majeure Rules)'' 
because Market Disruption Event was defined earlier in this section.
     In the second sentence of the fourth paragraph, for 
purposes of reflecting present tense, delete the word ``would'' before 
the word ``operate.''
     In the first sentence of the second paragraph:
    [cir] For purposes of reflecting present tense and to improve 
readability, (a) remove the word ``currently'' after ``exigent 
circumstances'' and (b) remove the words ``are designed to'' and
    [cir] in order to correct a typographical error, insert the word 
``and'' in between ``its membership'' and ``to mitigate.''
    21. In Table 7-A (Recovery Tool Characteristics), add a period to 
the end of each sentence.
    22. In Section 7.1 (Comprehensiveness), remove the capitalization 
from the words ``Critical Services.''
    23. In Section 7.2 (Effectiveness), under the heading 
``Reliability,'' for the purpose of correcting typographical errors, 
(a) move the second footnote, currently at the end of the last 
sentence, to the end of the last sentence of the introductory paragraph 
of Section 7.2 and (b) in the text of the other footnote that currently 
reads, ``See, for example, DTCC Whitepaper, CCP Resiliency and 
Resources, pg. 2, section 2 (June 2015),'' remove ``, section 2.''
    24. In Section 7.5 (Minimize Negative Impact), in the second 
sentence, correct the spelling of the word ``protocols.''
    25. In Section 8.2.1 (Potential Scenarios), in the second sentence 
of the third paragraph, replace ``enhancements to the loss allocation 
process are'' with ``the loss allocation process is.'' Accordingly, 
under the proposed rule

[[Page 17439]]

change this sentence would state, ``As noted above, the loss allocation 
process is designed to ensure that the full Division Clearing Fund can 
be applied to Division losses arising from successive Member defaults 
that occur during an ``Event Period'', and there can be successive 
rounds of loss allocations to address losses arising with respect to a 
given Event Period.''
    26. In Section 8.4.1 (General Objectives and Approach), in the 
second paragraph, delete the words ``have been amended to'' after the 
words ``the Rules of each Division'' in order to more clearly reflect 
the fact that the Wind-down of the Corporation Rules \41\ were adopted.
---------------------------------------------------------------------------

    \41\ Supra note 6.
---------------------------------------------------------------------------

    27. In Section 8.4.2 (Critical Services and FMI Link Arrangements):
     In the paragraph under the heading ``Clearing Banks(s),'' 
delete the parenthetical ``(assuming JPM has exited the business).''
     In the paragraph under the heading ``Cross-Margining 
Agreement,'' (a) in the third sentence, delete the word ``transfer'' 
and replace with ``assignment'' and (b) in the last sentence, delete 
the word ``we'' and replace it with ``FICC.''
    28. In Section 8.4.4 (Rules Adopted in Connection with the Wind-
down Plan), in the first sentence under the heading ``Certain Ex Ante 
Matters,'' add the word ``a'' before the second instance of the word 
``Transferee.''
    29. In proposed Section 8.6.1 (currently Section 8.6.2) (Recovery 
and Runway Period Actions), capitalize the word ``chapter'' in two 
places where ``chapter 11'' is not capitalized.
    30. In Section 8.7 (Costs and Time to Effectuate Plan), (a) in the 
second sentence of the fifth paragraph, delete the word ``of'' between 
the words ``detailed'' and ``analysis'' and (b) at the end of the last 
sentence of this section, delete the phrase ``, as provided in the 
Capital Requirements Policy.'' As a result, under the proposed rule 
change, this sentence would state, ``The estimated wind-down costs 
amount will be reviewed and approved by the Board annually.'' Also, in 
the footnote in this section that refers to Section 5 of the Plan, 
correct the title of that section to state, ``Member Default Losses 
through the Crisis Continuum.''
    31. In Appendix 1 (Defined Terms), add each of the new defined 
terms based on the addition of such terms to the Plan, and delete the 
defined terms that were removed based on the deletion of these terms 
from the Plan.
2. Statutory Basis
    FICC believes that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
registered clearing agency. In particular, FICC believes that the 
amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of 
the Act \42\ and Rule 17Ad-22(e)(3)(ii) under the Act \43\ for the 
reasons described below.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78q-1(b)(3)(F).
    \43\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of FICC be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\44\ The Recovery Plan serves to 
promote the prompt and accurate clearance and settlement of securities 
transactions by providing FICC with a roadmap for actions it may employ 
to mitigate losses, and monitor and, as needed, stabilize, FICC's 
financial condition, which would allow it to continue its critical 
clearance and settlement services in stress situations. The Recovery 
Plan is designed to identify the actions and tools FICC may use to 
address and minimize losses to both FICC and its membership and provide 
FICC's management and the Board with guidance in this regard by 
identifying the indicators and governance around the use and 
application of such tools to enable them to address stress situations 
in a manner most appropriate for the circumstances. Further, the Wind-
down Plan establishes a framework for the transfer and orderly wind-
down of FICC's business, and establishes clear mechanisms for the 
transfer of FICC's critical services and membership. By doing so, the 
Wind-down Plan is designed to facilitate the continuity of FICC's 
critical services and enable Members and Limited Members to maintain 
access to FICC's services through the transfer of its membership in the 
event FICC defaults or the Wind-down Plan is triggered by the Board.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As described above, the proposed rule change would update the R&W 
Plan to (i) reflect business and product developments, (ii) make 
certain clarifications, (iii) remove provisions covering certain 
``business-as-usual'' actions, and (iv) make certain technical 
corrections. By helping to ensure that the R&W Plan reflects current 
business and product developments, and providing additional clarity 
regarding the framework for the transfer and orderly wind-down of 
FICC's business, FICC believes that the proposed rule change would help 
it continue to maintain the Plan in a manner that supports the 
continuity of FICC's critical services and enables its Members and 
Limited Members to maintain access to FICC's services through the 
transfer of its membership in the event FICC defaults or the Wind-down 
Plan is ever triggered by the Board. Further, by facilitating the 
continuity of its critical clearance and settlement services, FICC 
believes the Plan and the proposed rule change would continue to 
promote the prompt and accurate clearance and settlement of securities 
transactions. Therefore, FICC believes the proposed amendments to the 
R&W Plan are consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.
    Rule 17Ad-22(e)(3)(ii) under the Act requires FICC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by the covered clearing agency, which includes plans for the 
recovery and orderly wind-down of the covered clearing agency 
necessitated by credit losses, liquidity shortfalls, losses from 
general business risk, or any other losses.\45\ The R&W Plan is 
designed to comply with Rule 17Ad-22(e)(3)(ii) and is consistent with 
the Act because it provides plans for the recovery and orderly wind-
down of FICC necessitated by credit losses, liquidity shortfalls, 
losses from general business risk, or any other losses.
---------------------------------------------------------------------------

    \45\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    Specifically, the Recovery Plan defines the risk management 
activities, stress conditions and indicators, and tools that FICC may 
use to address stress scenarios that could eventually prevent it from 
being able to provide its critical services as a going concern. Through 
the framework of the Crisis Continuum, the Recovery Plan addresses 
measures that FICC may take to address risks of credit losses and 
liquidity shortfalls, and other losses that could arise from a Member 
default. The Recovery Plan also addresses the management of general 
business risks and other non-default risks that could lead to losses. 
The Wind-down Plan would be triggered by a determination by the Board 
that recovery efforts have not been, or are unlikely to be, successful 
in returning FICC to viability as a going concern. Once triggered, the 
Wind-down Plan sets forth clear mechanisms for the transfer of FICC's 
membership and business, and is designed to facilitate

[[Page 17440]]

continued access to FICC's critical services and to minimize market 
impact of the transfer. By establishing the framework and strategy for 
the execution of the transfer and wind-down of FICC in order to 
facilitate continuous access to its critical services, the Wind-down 
Plan establishes a plan for the orderly wind-down of FICC.
    As described above, the proposed rule change would update the R&W 
Plan to (i) reflect business and product developments, (ii) make 
certain clarifications, (iii) remove provisions covering certain 
``business-as-usual'' actions, and (iv) make certain technical 
corrections. By ensuring that material provisions of the Plan are 
current, clear, and technically correct, FICC believes that the 
proposed amendments are designed to support the maintenance of the Plan 
for the recovery and orderly wind-down of the covered clearing agency 
necessitated by credit losses, liquidity shortfalls, losses from 
general business risk, or any other losses, and, as such, meets the 
requirements of Rule 17Ad-22(e)(3)(ii) under the Act.\46\ Therefore, 
the proposed changes would help FICC to maintain the Plan in a way that 
continues to be consistent with the requirements of Rule 17Ad-
22(e)(3)(ii).
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

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

    FICC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition. FICC does not anticipate 
that the proposal would affect its day-to-day operations under normal 
circumstances, or in the management of a typical Member default 
scenario or non-default event. The R&W Plan was developed and 
documented in order to satisfy applicable regulatory requirements, as 
discussed above. The proposal is intended to enhance and update the 
Plan to ensure it is clear and remains current in the event it is ever 
necessary to be implemented. The proposed revisions would not effect 
any changes to the overall structure or operation of the Plan or FICC's 
recovery and wind-down strategy as set forth under the current Plan. As 
such, FICC believes the proposal would 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

    FICC has not received or solicited any written comments relating to 
this proposal. FICC will notify the Commission of any written comments 
received by FICC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \47\ of the Act and paragraph (f) \48\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \47\ 15 U.S.C 78s(b)(3)(A).
    \48\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form
    (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2021-002 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-2021-002. 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-2021-002 and should be submitted on 
or before April 23, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
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    \49\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06774 Filed 4-1-21; 8:45 am]
BILLING CODE 8011-01-P
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