Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Clearing Agency Risk Management Framework, 8491-8494 [2023-02718]
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Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices
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–NYSE–2023–10 and should
be submitted on or before March 2,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–02713 Filed 2–8–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96800; File No. SR–FICC–
2023–001]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Clearing Agency Risk Management
Framework
February 3, 2023.
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 January
30, 2023, 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.
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I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change amends the
Clearing Agency Risk Management
Framework (‘‘Risk Management
Framework’’, or ‘‘Framework’’) of FICC
and its affiliates, The Depository Trust
Company (‘‘DTC’’) and National
Securities Clearing Corporation
(‘‘NSCC,’’ and together with FICC, the
‘‘CCPs’’ and the CCPs together with
52 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).
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DTC, the ‘‘Clearing Agencies’’).5
Specifically, the proposed rule change
would amend the Risk Management
Framework to (1) update the description
of the dashboards used by the Clearing
Agencies as internal performance
management tools to measure the
effectiveness of their various operations;
and (2) clarify and revise the
descriptions of certain matters within
the Framework and correct errors in
those descriptions, as further described
below. The proposed changes would
update and clarify the Risk Management
Framework but do not reflect changes to
how the Clearing Agencies comply with
the applicable requirements of Rule
17Ad–22(e), as described in greater
detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The Clearing Agencies adopted the
Risk Management Framework 6 to
provide an outline for how each of the
Clearing Agencies (i) maintains a wellfounded, clear, transparent and
enforceable legal basis for each aspect of
its activities; (ii) comprehensively
manages legal, credit, liquidity,
operational, general business,
investment, custody, and other risks
that arise in or are borne by it; (iii)
identifies, monitors, and manages risks
related to links it establishes with one
or more clearing agencies, financial
market utilities, or trading markets; (iv)
meets the requirements of its
5 See Securities Exchange Act Release Nos. 81635
(September 15, 2017), 82 FR 44224 (September 21,
2017) (File Nos. SR–DTC–2017–013; SR–FICC–
2017–016; SR–NSCC–2017–012) (‘‘Initial Filing’’)
and Securities Exchange Act Release No. 89271
(July 09, 2020), 85 FR 42933 (July 15, 2020) (File
No. SR–NSCC–2020–012); Securities Exchange Act
Release No. 89269 (July 09, 2020), 85 FR 42954
(July 15, 2020) (File No. SR–DTC–2020–009); and
Securities Exchange Act Release No. 89270 (July 09,
2020), 85 FR 42927 (July 15, 2020) (File No. SR–
FICC–2020–007) (together with the Initial Filing,
the ‘‘Framework Filings’’).
6 Supra note 5.
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8491
participants and the markets it serves
efficiently and effectively; (v) uses, or at
a minimum accommodates, relevant
internationally accepted communication
procedures and standards in order to
facilitate efficient payment, clearing and
settlement; and (vi) publicly discloses
certain information, including market
data. In this way, the Risk Management
Framework currently supports the
Clearing Agencies’ compliance with
Rules 17Ad–22(e)(1), (3), (20), (21), (22)
and (23) of the Standards,7 as described
in the Framework Filings. In addition to
setting forth the manner in which each
of the Clearing Agencies addresses these
requirements, the Risk Management
Framework also contains a section titled
‘‘Framework Ownership and Change
Management’’ that, among other
matters, describes the Framework
ownership and the required governance
process for review and approval of
changes to the Framework. In
connection with the annual review and
approval of the Framework by the Board
of Directors of each of NSCC, DTC and
FICC (each a ‘‘Board’’ and collectively,
the ‘‘Boards’’), the Clearing Agencies are
proposing to make certain revisions to
the Framework.
First, the proposed changes would
update the Risk Management
Framework to reflect a change to the
dashboards used by the Clearing
Agencies as internal performance
management tools to measure the
effectiveness of various aspects of their
operations, as described in greater detail
below.
The proposed changes would also
clarify and enhance the descriptions in
the Risk Management Framework and
correct errors in those descriptions by,
for example, (1) enhancing the
description of the Clearing Agencies
processes for management of certain
risks through risk tolerance statements;
(2) clarifying the description of the
‘‘Three Lines of Defense,’’ including but
not limited to updating the descriptions
of the ‘‘first line of defense,’’ the
‘‘second line of defense,’’ and the ‘‘third
line of defense,’’ (3) clarifying the
definition of Rules; (4) enhancing the
description of the purpose and approval
process of ‘‘Risk Management
Frameworks;’’ and (5) updating the
name of the Operational Risk
Management group and the Third Party
Risk function.
Finally, the proposed changes would
capitalize terms that mistakenly were
not previously capitalized but refer to a
specific term, remove an unnecessary
7 17 CFR 240.17Ad–22(e)(1), (3), (20), (21), (22)
and (23).
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citation and make certain grammatical
changes.
specific examples of such proposed
changes include:
internal audit to be in line with the
internal audit charter.
i. Proposed Amendments To Update the
Description of Performance
Measurement Tools
1. Proposed Change To Describe the
Clearing Agencies’ Assessment and
Review of Risk Tolerance Statements
Section 3 of the Framework describes
management’s responsibility to establish
risk tolerance statements for the range of
risks that arise in or are borne by the
Clearing Agencies. Section 3 also
outlines the review and approval
process for such risk tolerance
statements and the Clearing Agencies’
performance relative to those
statements. The proposed change would
clarify that the Clearing Agencies’
performance relative to those risk
tolerance statements is assessed
quarterly and is shared with senior
management and the Board Risk
Committees of the Clearing Agencies.
3. Proposed Change To Clarify the
Definition of ‘‘Rules’’
Section 3.3.2 of the Framework
includes a defined term for the ‘‘Rules’’
of the Clearing Agencies. The proposed
change would clarify that the ‘‘Rules’’
referred to for purposes of this
Framework are filed with the
Commission. Therefore, the proposed
change would update the definition of
Rules for clarification purposes and
would not substantively change the
definition.
The proposed changes would update
the Risk Management Framework to
reflect a recent change to the dashboards
that are used by the Clearing Agencies
as internal performance management
tools and address their compliance with
the requirements of Rule 17Ad–
22(e)(21).8 Section 4.3 of the Framework
identifies certain processes
implemented by the Clearing Agencies
to be efficient and effective in meeting
the requirements of their respective
participants and the markets they
serve.9 This list of processes is not
meant to be exhaustive, and the Clearing
Agencies may use other methods to
achieve their goals and meet their
regulatory requirements. The proposed
change would update the Framework to
remove reference to a process that was
previously used by the Clearing
Agencies to monitor their performance
and the review standards for such
processes.
The Clearing Agencies previously
used the DTCC Core Balanced
Scoreboard (‘‘BBS’’) to provide insight
into the effectiveness of their various
operations in meeting the needs of their
participants and the markets they serve.
The Clearing Agencies have eliminated
the BBS and now utilize multiple other
dashboards to measure the outcomes
that were previously measured by the
BBS. The elimination of the BBS is not
a material change in how the Clearing
Agencies approach risk management, as
they are simply using other methods to
continue to comply with the
requirements of Rule 17Ad–22(e)(21).10
The use of multiple dashboards allows
for a more holistic view of the
performance of the Clearing Agencies
and their subsidiaries. The proposed
change would also enhance the
descriptions of these processes by
describing the annual review of this
process and how results are tracked.
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ii. Proposed Amendment To Clarify,
Enhance, and Correct Descriptions in
the Framework
The proposed changes would improve
the clarity and comprehensiveness of
the descriptions of certain matters
within the Risk Management
Framework and correct grammatical
errors in certain descriptions. Some
8 17
CFR 240.17Ad–22(e)(21).
9 Id.
10 Supra
note 8.
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2. Proposed Changes To Clarify the
Description of the ‘‘Three Lines of
Defense’’
Section 3.1 of the Framework
describes the ‘‘three lines of defense’’
approach adopted by each of the
Clearing Agencies for identifying,
assessing, measuring, monitoring,
mitigating, and reporting the risks that
arise in or are borne by it. A proposed
change would remove the last sentence
of this Section, which states, ‘‘While the
Framework provides a general
description of the Three Lines of
Defense approach for risk management,
the Three Lines of Defense approach
may be used by the Clearing Agencies
for managing specific risks, for example
operational risk, which is addressed in
the Operational Risk Management
Framework (see Section 3 below)’’ This
sentence is unnecessarily duplicative of
the statements in Section 3.3.3 of the
Framework which provides details of
the various frameworks, separate and
apart from this Framework, used by the
Clearing Agencies to manage specific
risks and, therefore, may cause
confusion to a reader. The deletion of
the sentence would resolve any such
possible confusion, thereby clarifying
the entirety of Section 3. The Clearing
Agencies are also proposing a change to
enhance the examples provided in
Section 3.1.1 to illustrate the Clearing
Agency Business/Support Areas role as
the first line of defense in managing risk
by adding two additional examples: (a)
‘‘Defining and monitoring business risk
metrics applicable to their function;’’
and (b) ‘‘Clearly understanding and
reporting the residual, unmitigated risk
that is acceptable to their function.’’
Additionally, a proposed change to
Section 3.1.3 would update the
description of the responsibilities of
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4. Enhance the Description of the
Purpose and Approval Process of ‘‘Risk
Management Frameworks’’
Section 3.3.3 describes the system of
frameworks, maintained by the Clearing
Agencies, separate and apart from this
Framework to manage a range of risks.
This Section outlines in greater detail
certain of these risk management
frameworks and their purpose. The
proposed changes to this Section 3.3.3
would enhance the description of one of
these frameworks; clarify that such
frameworks are in support of this
Framework; and clarify that such
frameworks may be approved by an
applicable Board committee as
delegated by the Boards, pursuant to the
Document Standards described in this
Framework.
5. Stating a Change to the Name of the
Vendor Risk Management Group and to
the Third-Party Risk Function Group
The Framework describes the role of
the Operational Risk Management
Group as the group that manages
incidents, and the Third-Party
Management Function manages third
party risks to the Clearing Agencies. The
proposed change would update the
Framework to reflect a change in the
name of these two groups. The
Operational Risk Management Group is
now referred to as Operational and
Technology Risk and the Third-Party
Risk Management group is now referred
to as Third Party Risk. This proposed
change would reflect a recent
organizational name change.
6. Proposed Changes To Capitalize
Defined Terms and Correct Grammatical
and Formatting Errors, Removal of
Citation
These proposed changes would fix
grammatical errors and capitalize terms
that should be defined terms in the
Framework or removes inconsistent
wording. Some of these changes
include: (i) make IOSCO a defined term
in footnote 2 for clarification purposes;
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(ii) change the word ‘‘settlement’’ to
‘‘settling’’ in Section 4.2 for consistency;
(3) remove the words ‘‘and Liquidity
Providers’’ from the heading ‘‘Risks
Related to Investment Counterparties
and Liquidity Providers’’ in Section
4.2.1 as the paragraph does not discuss
liquidity providers and (4) deletion of
footnote 21 as unnecessary.
The proposed rule change would
make additional immaterial edits to the
Framework that do not alter how the
Clearing Agencies comply with the
applicable requirements of Rule 17Ad–
22(e).
2. Statutory Basis
The Clearing Agencies believe that the
proposed changes are consistent with
Section 17A(b)(3)(F) of the Act 11 for the
reasons described below. Section
17A(b)(3)(F) of the Act requires, in part,
that the rules of a registered clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions,
and to assure the safeguarding of
securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible.12 The
proposed changes would (1) update the
Risk Management Framework to remove
reference to the BBS and include a
description of the governance around
the dashboards used by the Clearing
Agencies to measure the effectiveness of
their operations, and (2) clarify the
descriptions of certain matters within
the Framework to improve
comprehensiveness and correct errors,
as described above. By creating clearer,
updated descriptions and correcting
errors, the Clearing Agencies believe
that the proposed changes would make
the Risk Management Framework more
effective in providing an overview of the
important risk management activities of
the Clearing Agencies, as described
therein.
As described in the Framework
Filings, the risk management functions
described in the Risk Management
Framework allow the Clearing Agencies
to continue to promote the prompt and
accurate clearance and settlement of
securities transactions and continue to
assure the safeguarding of securities and
funds which are in their custody or
control or for which they are
responsible notwithstanding the default
of a member of an affiliated family. The
proposed changes to improve the clarity
and accuracy of the descriptions of risk
management functions within the
Framework would assist the Clearing
Agencies in carrying out these risk
11 15
management functions. Therefore, the
Clearing Agencies believe these
proposed changes are consistent with
the requirements of Section 17A(b)(3)(F)
of the Act.13
(B) Clearing Agency’s Statement on
Burden on Competition
The Clearing Agencies do not believe
that the proposed changes to the
Framework described above would have
any impact, or impose any burden, on
competition. As described above, the
proposed rule change would improve
the comprehensiveness of the
Framework by creating clearer, updated
descriptions and correcting errors,
thereby making the Risk Management
Framework more effective in providing
an overview of the important risk
management activities of the Clearing
Agencies. As such, the Clearing
Agencies do not believe that the
proposed rule change would have any
impact on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
FICC has not received or solicited any
written comments relating to this
proposal. If any written comments are
received, they will be publicly filed as
an Exhibit 2 to this filing, as required by
Form 19b–4 and the General
Instructions thereto.
Persons submitting comments are
cautioned that, according to Section IV
(Solicitation of Comments) of the
Exhibit 1A in the General Instructions to
Form 19b–4, the Commission does not
edit personal identifying information
from comment submissions.
Commenters should submit only
information that they wish to make
available publicly, including their
name, email address, and any other
identifying information.
All prospective commenters should
follow the Commission’s instructions on
how to submit comments, available at
https://www.sec.gov/regulatory-actions/
how-to-submitcomments. General
questions regarding the rule filing
process or logistical questions regarding
this filing should be directed to the
Main Office of the Commission’s
Division of Trading and Markets at
tradingandmarkets@sec.gov or 202–
551–5777.
FICC reserves the right not to respond
to any comments received.
U.S.C. 78q–1(b)(3)(F).
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13 Id.
16:28 Feb 08, 2023
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) 14 of the Act and paragraph
(f) 15 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.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FICC–2023–001 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2023–001. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
14 15
12 Id.
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
09FEN1
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Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices
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–
2023–001 and should be submitted on
or before March 2, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–02718 Filed 2–8–23; 8:45 am]
BILLING CODE 8011–01–P
The proposed rule change was
published for comment in the Federal
Register on June 17, 2022.3 On July 20,
2022, FINRA consented to extend until
September 15, 2022, the time period in
which the Commission must approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change.4 On September 15, 2022,
FINRA responded to the comment
letters received in response to the
Notice.5 On September 15, 2022, the
Commission issued an order instituting
proceedings to determine whether to
approve or disapprove the proposed
rule change.6 On November 25, 2022,
FINRA responded to the comment
letters received in response to the Order
Instituting Proceedings.7 On November
25, 2022, FINRA consented to extend
the time period in which the
Commission must approve or
disapprove the proposed rule change to
February 10, 2023.8 This order approves
the proposed rule change.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96798; File No. SR–FINRA–
2022–015]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Amend
FINRA Rule 8312 (FINRA BrokerCheck
Disclosure) To Release Information on
BrokerCheck Relating to Firm
Designation as a Restricted Firm
February 3, 2023.
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I. Introduction
On June 3, 2022, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend FINRA Rule 8312
(FINRA BrokerCheck Disclosure) to
release information on BrokerCheck as
to whether a particular member firm
(hereinafter referred to as ‘‘member
firm’’ or ‘‘firm’’) or former member firm
is currently designated as a ‘‘Restricted
Firm’’ pursuant to FINRA Rule 4111
(Restricted Firm Obligations) and
FINRA Rule 9561 (Procedures for
Regulating Activities Under Rule 4111).
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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3 See Exchange Act Release No. 95092 (June 13,
2022), 87 FR 36551 (June 17, 2022) (File No. SR–
FINRA–2022–015) (‘‘Notice’’). The Notice is
available at https://www.sec.gov/rules/sro/finra/
2022/34-95092.pdf.
4 See letter from Michael Garawski, Associate
General Counsel, FINRA, to Daniel Fisher, Branch
Chief, Division of Trading and Markets,
Commission, dated July 20, 2021. This letter is
available at https://www.finra.org/sites/default/
files/2022-07/sr-finra-2022-015-extension1.pdf.
5 See letter from Michael Garawski, Associate
General Counsel, FINRA, to Vanessa Countryman,
Secretary, Commission, dated September 15, 2022
(‘‘FINRA September 15 Letter’’). The FINRA
September 15 Letter is available at https://
www.sec.gov/comments/sr-finra-2022-015/
srfinra2022015-20143024-308848.pdf. Comments
received on the proposed rule change are available
at https://www.sec.gov/comments/sr-finra-2022015/srfinra2022015.htm.
6 See Exchange Act Release No. 95791 (September
15, 2022), 87 FR 57731 (September 21, 2022) (File
No. SR–FINRA–2022–015) (‘‘Order Instituting
Proceedings’’). The Order Instituting Proceedings is
available at https://www.sec.gov/rules/sro/finra/
2022/34-95791.pdf.
7 See letter from Michael Garawski, Associate
General Counsel, FINRA, to Vanessa Countryman,
Secretary, Commission, dated November 25, 2022
(‘‘FINRA November 25 Letter’’). The FINRA
November 25 Letter is available at https://
www.sec.gov/comments/sr-finra-2022-015/
srfinra2022015-20151669-320145.pdf.
8 See letter from Michael Garawski, Associate
General Counsel, FINRA, to Daniel Fisher, Branch
Chief, Division of Trading and Markets,
Commission, dated November 25, 2022. This letter
is available at https://www.finra.org/sites/default/
files/2022-11/sr-finra-2022-015-extension2.pdf.
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II. Description of the Proposed Rule
Change
A. Background
1. FINRA Rules 4111 (Restricted Firm
Obligations) and 9561 (Procedures for
Regulating Activities Under Rule 4111)
FINRA Rule 4111 established an
annual process to designate member
firms as ‘‘Restricted Firms’’ when the
member firms present a high degree of
risk to the investing public, based on
numeric thresholds of firm-level and
individual-level disclosure events, and
then impose on such member firms a
‘‘Restricted Deposit Requirement’’ 9 or,
in addition or in the alternative,
conditions or restrictions on the
member firm’s operations that are
necessary or appropriate to protect
investors and the public interest.10 The
rule is designed to protect investors and
the public interest by strengthening the
tools available to FINRA to address the
risks posed by member firms with a
significant history of misconduct.11 It
creates incentives for member firms to
change behaviors and activities, either
to avoid being designated or redesignated as a Restricted Firm.12
FINRA Rule 9561 established
expedited proceedings that: (1) provide
member firms an opportunity to request
a hearing with FINRA’s Office of
Hearing Officers to approve or withdraw
any and all of the requirements,
conditions, or restrictions imposed by
FINRA’s Department of Member
Regulation (the ‘‘Department’’) under
FINRA Rule 4111; 13 and (2) enables
9 See FINRA Rule 4111(i)(15) (definition of
‘‘Restricted Deposit Requirement’’). A firm subject
to a Restricted Deposit Requirement will be
required to establish a Restricted Deposit Account
and deposit in that account cash or qualified
securities with an aggregate value that is not less
than the member’s Restricted Deposit Requirement.
See FINRA Rule 4111(a); 4111(i)(14) (definition of
‘‘Restricted Deposit Account’’).
10 See Exchange Act Release No. 92525 (July 30,
2021), 86 FR 42925 (August 5, 2021) (Order
Approving File No. SR–FINRA–2020–041, as
Modified by Amendment Nos. 1 and 2) and
Exchange Act Release No. 92525 (July 30, 2021), 86
FR 49589 (September 3, 2021) (Order Approving
File No. SR–FINRA–2020–041) (Correction)
(collectively, ‘‘FINRA Rule 4111 Order’’).
11 See FINRA Rule 4111 Order, 86 FR 42926.
12 See id. at 42926 and 42932.
13 See FINRA Rule 9559(n)(6) (stating that ‘‘[i]n
any action brought under Rule 9561(a), the Hearing
Officer may approve or withdraw any and all of the
Rule 4111 Requirements, or remand the matter to
the department that issued the notice for further
consideration of specified matters, but may not
modify any of the Rule 4111 Requirements imposed
by the notice or impose any other requirements,
obligations or restrictions available under Rule
4111. In any action brought under Rule 9561(b), the
Hearing Officer may approve or withdraw the
suspension or cancellation of membership, and may
impose any other fitting sanction.’’); see also FINRA
Rule 4111 Order, 86 FR 42928 notes 55 and 65.
E:\FR\FM\09FEN1.SGM
09FEN1
]]>Agencies
[Federal Register Volume 88, Number 27 (Thursday, February 9, 2023)]
[Notices]
[Pages 8491-8494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02718]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96800; File No. SR-FICC-2023-001]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Clearing Agency Risk Management Framework
February 3, 2023.
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 January 30, 2023, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change amends the Clearing Agency Risk Management
Framework (``Risk Management Framework'', or ``Framework'') of FICC and
its affiliates, The Depository Trust Company (``DTC'') and National
Securities Clearing Corporation (``NSCC,'' and together with FICC, the
``CCPs'' and the CCPs together with DTC, the ``Clearing Agencies'').\5\
Specifically, the proposed rule change would amend the Risk Management
Framework to (1) update the description of the dashboards used by the
Clearing Agencies as internal performance management tools to measure
the effectiveness of their various operations; and (2) clarify and
revise the descriptions of certain matters within the Framework and
correct errors in those descriptions, as further described below. The
proposed changes would update and clarify the Risk Management Framework
but do not reflect changes to how the Clearing Agencies comply with the
applicable requirements of Rule 17Ad-22(e), as described in greater
detail below.
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\5\ See Securities Exchange Act Release Nos. 81635 (September
15, 2017), 82 FR 44224 (September 21, 2017) (File Nos. SR-DTC-2017-
013; SR-FICC-2017-016; SR-NSCC-2017-012) (``Initial Filing'') and
Securities Exchange Act Release No. 89271 (July 09, 2020), 85 FR
42933 (July 15, 2020) (File No. SR-NSCC-2020-012); Securities
Exchange Act Release No. 89269 (July 09, 2020), 85 FR 42954 (July
15, 2020) (File No. SR-DTC-2020-009); and Securities Exchange Act
Release No. 89270 (July 09, 2020), 85 FR 42927 (July 15, 2020) (File
No. SR-FICC-2020-007) (together with the Initial Filing, the
``Framework Filings'').
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The Clearing Agencies adopted the Risk Management Framework \6\ to
provide an outline for how each of the Clearing Agencies (i) maintains
a well-founded, clear, transparent and enforceable legal basis for each
aspect of its activities; (ii) comprehensively manages legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by it; (iii) identifies,
monitors, and manages risks related to links it establishes with one or
more clearing agencies, financial market utilities, or trading markets;
(iv) meets the requirements of its participants and the markets it
serves efficiently and effectively; (v) uses, or at a minimum
accommodates, relevant internationally accepted communication
procedures and standards in order to facilitate efficient payment,
clearing and settlement; and (vi) publicly discloses certain
information, including market data. In this way, the Risk Management
Framework currently supports the Clearing Agencies' compliance with
Rules 17Ad-22(e)(1), (3), (20), (21), (22) and (23) of the
Standards,\7\ as described in the Framework Filings. In addition to
setting forth the manner in which each of the Clearing Agencies
addresses these requirements, the Risk Management Framework also
contains a section titled ``Framework Ownership and Change Management''
that, among other matters, describes the Framework ownership and the
required governance process for review and approval of changes to the
Framework. In connection with the annual review and approval of the
Framework by the Board of Directors of each of NSCC, DTC and FICC (each
a ``Board'' and collectively, the ``Boards''), the Clearing Agencies
are proposing to make certain revisions to the Framework.
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\6\ Supra note 5.
\7\ 17 CFR 240.17Ad-22(e)(1), (3), (20), (21), (22) and (23).
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First, the proposed changes would update the Risk Management
Framework to reflect a change to the dashboards used by the Clearing
Agencies as internal performance management tools to measure the
effectiveness of various aspects of their operations, as described in
greater detail below.
The proposed changes would also clarify and enhance the
descriptions in the Risk Management Framework and correct errors in
those descriptions by, for example, (1) enhancing the description of
the Clearing Agencies processes for management of certain risks through
risk tolerance statements; (2) clarifying the description of the
``Three Lines of Defense,'' including but not limited to updating the
descriptions of the ``first line of defense,'' the ``second line of
defense,'' and the ``third line of defense,'' (3) clarifying the
definition of Rules; (4) enhancing the description of the purpose and
approval process of ``Risk Management Frameworks;'' and (5) updating
the name of the Operational Risk Management group and the Third Party
Risk function.
Finally, the proposed changes would capitalize terms that
mistakenly were not previously capitalized but refer to a specific
term, remove an unnecessary
[[Page 8492]]
citation and make certain grammatical changes.
i. Proposed Amendments To Update the Description of Performance
Measurement Tools
The proposed changes would update the Risk Management Framework to
reflect a recent change to the dashboards that are used by the Clearing
Agencies as internal performance management tools and address their
compliance with the requirements of Rule 17Ad-22(e)(21).\8\ Section 4.3
of the Framework identifies certain processes implemented by the
Clearing Agencies to be efficient and effective in meeting the
requirements of their respective participants and the markets they
serve.\9\ This list of processes is not meant to be exhaustive, and the
Clearing Agencies may use other methods to achieve their goals and meet
their regulatory requirements. The proposed change would update the
Framework to remove reference to a process that was previously used by
the Clearing Agencies to monitor their performance and the review
standards for such processes.
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\8\ 17 CFR 240.17Ad-22(e)(21).
\9\ Id.
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The Clearing Agencies previously used the DTCC Core Balanced
Scoreboard (``BBS'') to provide insight into the effectiveness of their
various operations in meeting the needs of their participants and the
markets they serve. The Clearing Agencies have eliminated the BBS and
now utilize multiple other dashboards to measure the outcomes that were
previously measured by the BBS. The elimination of the BBS is not a
material change in how the Clearing Agencies approach risk management,
as they are simply using other methods to continue to comply with the
requirements of Rule 17Ad-22(e)(21).\10\ The use of multiple dashboards
allows for a more holistic view of the performance of the Clearing
Agencies and their subsidiaries. The proposed change would also enhance
the descriptions of these processes by describing the annual review of
this process and how results are tracked.
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\10\ Supra note 8.
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ii. Proposed Amendment To Clarify, Enhance, and Correct Descriptions in
the Framework
The proposed changes would improve the clarity and
comprehensiveness of the descriptions of certain matters within the
Risk Management Framework and correct grammatical errors in certain
descriptions. Some specific examples of such proposed changes include:
1. Proposed Change To Describe the Clearing Agencies' Assessment and
Review of Risk Tolerance Statements
Section 3 of the Framework describes management's responsibility to
establish risk tolerance statements for the range of risks that arise
in or are borne by the Clearing Agencies. Section 3 also outlines the
review and approval process for such risk tolerance statements and the
Clearing Agencies' performance relative to those statements. The
proposed change would clarify that the Clearing Agencies' performance
relative to those risk tolerance statements is assessed quarterly and
is shared with senior management and the Board Risk Committees of the
Clearing Agencies.
2. Proposed Changes To Clarify the Description of the ``Three Lines of
Defense''
Section 3.1 of the Framework describes the ``three lines of
defense'' approach adopted by each of the Clearing Agencies for
identifying, assessing, measuring, monitoring, mitigating, and
reporting the risks that arise in or are borne by it. A proposed change
would remove the last sentence of this Section, which states, ``While
the Framework provides a general description of the Three Lines of
Defense approach for risk management, the Three Lines of Defense
approach may be used by the Clearing Agencies for managing specific
risks, for example operational risk, which is addressed in the
Operational Risk Management Framework (see Section 3 below)'' This
sentence is unnecessarily duplicative of the statements in Section
3.3.3 of the Framework which provides details of the various
frameworks, separate and apart from this Framework, used by the
Clearing Agencies to manage specific risks and, therefore, may cause
confusion to a reader. The deletion of the sentence would resolve any
such possible confusion, thereby clarifying the entirety of Section 3.
The Clearing Agencies are also proposing a change to enhance the
examples provided in Section 3.1.1 to illustrate the Clearing Agency
Business/Support Areas role as the first line of defense in managing
risk by adding two additional examples: (a) ``Defining and monitoring
business risk metrics applicable to their function;'' and (b) ``Clearly
understanding and reporting the residual, unmitigated risk that is
acceptable to their function.'' Additionally, a proposed change to
Section 3.1.3 would update the description of the responsibilities of
internal audit to be in line with the internal audit charter.
3. Proposed Change To Clarify the Definition of ``Rules''
Section 3.3.2 of the Framework includes a defined term for the
``Rules'' of the Clearing Agencies. The proposed change would clarify
that the ``Rules'' referred to for purposes of this Framework are filed
with the Commission. Therefore, the proposed change would update the
definition of Rules for clarification purposes and would not
substantively change the definition.
4. Enhance the Description of the Purpose and Approval Process of
``Risk Management Frameworks''
Section 3.3.3 describes the system of frameworks, maintained by the
Clearing Agencies, separate and apart from this Framework to manage a
range of risks. This Section outlines in greater detail certain of
these risk management frameworks and their purpose. The proposed
changes to this Section 3.3.3 would enhance the description of one of
these frameworks; clarify that such frameworks are in support of this
Framework; and clarify that such frameworks may be approved by an
applicable Board committee as delegated by the Boards, pursuant to the
Document Standards described in this Framework.
5. Stating a Change to the Name of the Vendor Risk Management Group and
to the Third-Party Risk Function Group
The Framework describes the role of the Operational Risk Management
Group as the group that manages incidents, and the Third-Party
Management Function manages third party risks to the Clearing Agencies.
The proposed change would update the Framework to reflect a change in
the name of these two groups. The Operational Risk Management Group is
now referred to as Operational and Technology Risk and the Third-Party
Risk Management group is now referred to as Third Party Risk. This
proposed change would reflect a recent organizational name change.
6. Proposed Changes To Capitalize Defined Terms and Correct Grammatical
and Formatting Errors, Removal of Citation
These proposed changes would fix grammatical errors and capitalize
terms that should be defined terms in the Framework or removes
inconsistent wording. Some of these changes include: (i) make IOSCO a
defined term in footnote 2 for clarification purposes;
[[Page 8493]]
(ii) change the word ``settlement'' to ``settling'' in Section 4.2 for
consistency; (3) remove the words ``and Liquidity Providers'' from the
heading ``Risks Related to Investment Counterparties and Liquidity
Providers'' in Section 4.2.1 as the paragraph does not discuss
liquidity providers and (4) deletion of footnote 21 as unnecessary.
The proposed rule change would make additional immaterial edits to
the Framework that do not alter how the Clearing Agencies comply with
the applicable requirements of Rule 17Ad-22(e).
2. Statutory Basis
The Clearing Agencies believe that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act \11\ for the reasons
described below. Section 17A(b)(3)(F) of the Act requires, in part,
that the rules of a registered clearing agency be designed to promote
the prompt and accurate clearance and settlement of securities
transactions, and to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible.\12\ The proposed changes would (1) update the Risk
Management Framework to remove reference to the BBS and include a
description of the governance around the dashboards used by the
Clearing Agencies to measure the effectiveness of their operations, and
(2) clarify the descriptions of certain matters within the Framework to
improve comprehensiveness and correct errors, as described above. By
creating clearer, updated descriptions and correcting errors, the
Clearing Agencies believe that the proposed changes would make the Risk
Management Framework more effective in providing an overview of the
important risk management activities of the Clearing Agencies, as
described therein.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ Id.
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As described in the Framework Filings, the risk management
functions described in the Risk Management Framework allow the Clearing
Agencies to continue to promote the prompt and accurate clearance and
settlement of securities transactions and continue to assure the
safeguarding of securities and funds which are in their custody or
control or for which they are responsible notwithstanding the default
of a member of an affiliated family. The proposed changes to improve
the clarity and accuracy of the descriptions of risk management
functions within the Framework would assist the Clearing Agencies in
carrying out these risk management functions. Therefore, the Clearing
Agencies believe these proposed changes are consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\13\
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\13\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
The Clearing Agencies do not believe that the proposed changes to
the Framework described above would have any impact, or impose any
burden, on competition. As described above, the proposed rule change
would improve the comprehensiveness of the Framework by creating
clearer, updated descriptions and correcting errors, thereby making the
Risk Management Framework more effective in providing an overview of
the important risk management activities of the Clearing Agencies. As
such, the Clearing Agencies do not believe that the proposed rule
change would have any impact on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submitcomments. General questions
regarding the rule filing process or logistical questions regarding
this filing should be directed to the Main Office of the Commission's
Division of Trading and Markets at [email protected] or 202-
551-5777.
FICC reserves the right not to respond to any comments received.
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) \14\ of the Act and paragraph (f) \15\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f).
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The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FICC-2023-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2023-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public
[[Page 8494]]
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-2023-001
and should be submitted on or before March 2, 2023.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02718 Filed 2-8-23; 8:45 am]
BILLING CODE 8011-01-P
