Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Methodology Documents, 8260-8264 [2024-02159]
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8260
Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices
TABLE 1—SUMMARY OF BURDEN ESTIMATES FOR RULE 11a–3
Internal burden
Wage rate
Cost of
internal burden
CURRENTLY-APPROVED BURDEN ESTIMATES
Recordkeeping Requirement .................................................
Respondents ..........................................................................
1 hour ....................................
349 funds ...............................
$63/hr. (clerk) ........................
................................................
$63
349 funds
Total ................................................................................
Notice Requirement ...............................................................
Respondents ..........................................................................
Total ................................................................................
349 hours ..............................
1 hour ....................................
2 hours ..................................
70 funds .................................
210 hours ..............................
................................................
$419/hr. (attorney) .................
$63/hr. (clerk) ........................
................................................
................................................
$21,987
$419
$126
70 funds
$38,150
Total Responses (Recordkeeping + Notice) ...........
419 .........................................
................................................
..............................
Total Burden (Recordkeeping + Notice) .................
559 hours ..............................
................................................
$60,137
ddrumheller on DSK120RN23PROD with NOTICES1
UPDATED BURDEN ESTIMATES
Recordkeeping Requirement .................................................
Respondents ..........................................................................
1 hour ....................................
345 funds ...............................
$73/hr. (clerk) ........................
................................................
$73
345 funds
Total ................................................................................
Notice Requirement ...............................................................
Respondents ..........................................................................
345 funds ...............................
1 hour ....................................
2 hours ..................................
69 funds .................................
................................................
$484/hr. (attorney) .................
$73/hr. (clerk) ........................
................................................
$25,185
$484
$146
69 funds
Total ................................................................................
207 hours ..............................
................................................
$43,470
Total Responses (Recordkeeping + Notice) ...........
Total Burden (Recordkeeping + Notice) .................
414 .........................................
552 hours ..............................
................................................
................................................
..............................
$68,655
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act, and is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules and forms.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
by April 8, 2024.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: David Bottom, Chief Information
Officer, Securities and Exchange
Commission, c/o John Pezzullo, 100 F
Street NE, Washington, DC 20549 or
send an email to: PRA_Mailbox@
sec.gov.
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Dated: February 1, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02358 Filed 2–5–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99447; File No. SR–FICC–
2024–001]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Methodology Documents
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
23, 2024, 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
primarily by the clearing agency. FICC
filed the proposed rule change pursuant
to Section 19(b)(3)(A) of the Act 3 and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
2 17
Frm 00119
Fmt 4703
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
FICC is proposing to amend the
MBSD Methodology and Model
Operations Document—MBSD
Quantitative Risk Model (‘‘MBSD QRM
Methodology Document’’),5 in order to
remove references to specific
benchmarks used to calculate the
minimum margin amount (‘‘Minimum
Margin Amount’’) 6 and the alternative
4 17
January 30, 2024.
PO 00000
Rule 19b–4(f)(4) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Sfmt 4703
CFR 240.19b–4(f)(4).
MBSD QRM Methodology was filed as a
confidential exhibit in the rule filing and advance
notice for MBSD sensitivity VaR. See Securities
Exchange Act Release Nos. 79868 (Jan. 24, 2017),
82 FR 8780 (Jan. 30, 2017) (SR–FICC–2016–007)
and 79843 (Jan. 19, 2017), 82 FR 8555 (Jan. 26,
2017) (SR–FICC–2016–801) (collectively, ‘‘MBSD
Margin Proxy Approval Order’’). The MBSD QRM
Methodology has been amended. See Securities
Exchange Act Release Nos. 85944 (May 24, 2019),
84 FR 25315 (May 31, 2019) (SR–FICC–2019–001),
90182 (Oct. 14, 2020), 85 FR 66630 (Oct. 20, 2020)
(SR–FICC–2020–009), 92303 (Jun. 30, 2021), 86 FR
35854 (Jul. 7, 2021) (SR–FICC–2020–017) (‘‘MBSD
Minimum Margin Amount Approval Order’’), 95070
(Jun. 8, 2022), 87 FR 36014 (Jun. 14, 2022) (SR–
FICC–2022–002), and 97342 (Apr. 21, 2023), 88 FR
25721 (Apr. 27, 2023) (SR–FICC–2023–003).
6 FICC has adopted a minimum margin amount
into its MBSD margin methodology. The Minimum
Margin Amount uses a dynamic haircut method
5 The
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volatility calculation (‘‘Margin Proxy’’) 7
at MBSD. FICC would replace the
references to specific benchmarks with
a more general description. FICC is also
proposing to make certain corrections
and technical changes to the GSD
Methodology Document—GSD Initial
Market Risk Margin Model 8 (‘‘GSD
QRM Methodology Document,’’ and
together with the MBSD QRM
Methodology Document, the ‘‘QRM
based on observed to-be-announced (‘‘TBA’’)
securities price moves and serves as a minimum
MBSD value-at-risk (‘‘VaR’’) charge (‘‘VaR Charge’’)
for net unsettled positions, calculated using the
historical market price changes of certain
benchmark TBA securities. See MBSD Minimum
Margin Amount Approval Order, supra note 5. As
defined in MBSD Rule 1 (Definitions), the term
‘‘TBA’’ means a contract for the purchase or sale of
mortgage-backed security to be delivered at an
agreed-upon future date because as of the
transaction date, the seller has not yet identified
certain terms of the contract, such as the pool
number and number of pools, to the buyer. Infra
note 9. The term ‘‘VaR Charge’’ is defined in MBSD
Rule 1 and means, with respect to each margin
portfolio, a calculation of the volatility of specified
net unsettled positions of a Clearing Member, as of
the time of such calculation (with respect to the
specified net unsettled positions as of the time of
such calculation). Such volatility calculations shall
be made in accordance with any generally accepted
portfolio volatility model, including, but not
limited to, any margining formula employed by any
other clearing agency registered under Section 17A
of the Act. Such calculation shall be made utilizing
such assumptions (including confidence levels) and
based on such historical data as FICC deems
reasonable, and shall cover such range of historical
volatility as FICC from time to time deems
appropriate. To the extent that the primary source
of such historical data becomes unavailable for an
extended period of time, FICC shall utilize the
Margin Proxy as an alternative volatility
calculation. In its assessment of volatility, FICC
shall calculate an additional bid-ask spread risk
charge measured by multiplying the gross market
value of each Net Unsettled Position by a basis
point charge, where the applicable basis point
charge shall be reviewed at least annually. If the
volatility calculation is lower than the VaR Floor
then the VaR Floor will be utilized as such Clearing
Member’s VaR Charge. Infra note 9.
7 FICC has adopted procedures that would govern
in the event that the vendor fails to provide risk
analytics data used by FICC to calculate the MBSD
VaR Charge. These procedures include the
application of the Margin Proxy, which would be
applied as an alternative volatility calculation for
the MBSD VaR Charge (subject to the VaR Floor, as
defined in MBSD Rule 1, infra note 9) if FICC
determines that the data disruption would extend
beyond five (5) business days. See MBSD Margin
Proxy Approval Order, supra note 5.
8 The GSD QRM Methodology Document was
filed as a confidential exhibit in the rule filing and
advance notice for GSD sensitivity VaR. See
Securities Exchange Act Release Nos. 83362 (Jun. 1,
2018), 83 FR 26514 (Jun. 7, 2018) (SR–FICC–2018–
001) and 83223 (May 11, 2018), 83 FR 23020 (May
17, 2018) (SR–FICC–2018–801). The GSD QRM
Methodology has been subsequently amended. See
Securities Exchange Act Release Nos. 85944 (May
24, 2019), 84 FR 25315 (May 31, 2019) (SR–FICC–
2019–001), 90182 (Oct. 14, 2020), 85 FR 66630 (Oct.
20, 2020) (SR–FICC–2020–009), 93234 (Oct. 1,
2021), 86 FR 55891 (Oct. 7, 2021) (SR–FICC–2021–
007), 95605 (Aug. 25, 2022), 87 FR 53522 (Aug. 31,
2022) (SR–FICC–2022–005), and 97342 (Apr. 21,
2023), 88 FR 25721 (Apr. 27, 2023) (SR–FICC–
2023–003).
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Methodology Documents’’) and a
clarification to the MBSD QRM
Methodology Document, as described in
greater detail below.9
FICC is requesting confidential
treatment of the QRM Methodology
Documents and has filed them
separately with the Secretary of the
Commission.10
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The purpose of this rule filing is to
amend the QRM Methodology
Documents to remove references to
specific benchmarks used for the
Minimum Margin Amount and Margin
Proxy at MBSD. FICC would replace
these references to specific benchmarks
with a more general description. FICC is
also proposing to make certain
corrections and technical changes to the
GSD QRM Methodology Document and
a clarification to the MBSD QRM
Methodology Document.
Replacing References to Specific
Benchmarks for Minimum Margin
Amount and Margin Proxy of MBSD
With a More General Description in the
MBSD QRM Methodology Document
The MBSD QRM Methodology
Document provides the methodology by
which FICC calculates the MBSD VaR
Charge. The MBSD QRM Methodology
Document specifies model inputs,
parameters and assumptions, among
other information. With respect to
Minimum Margin Amount and Margin
Proxy, the MBSD QRM Methodology
Document refers to the specific
benchmarks that are in use. FICC is
9 Capitalized terms used herein and not defined
shall have the meaning assigned to such terms in
the FICC’s Government Securities Division (‘‘GSD’’)
Rulebook (‘‘GSD Rules’’) and FICC’s MortgageBacked Securities Division (‘‘MBSD’’) Clearing
Rules (‘‘MBSD Rules’’, and together with the GSD
Rules, the ‘‘Rules’’), available at www.dtcc.com/
legal/rules-and-procedures.aspx.
10 17 CFR 240.24b–2.
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8261
proposing to remove the specific
benchmark references and replace them
with a more general description in order
to provide FICC with more flexibility in
updating the benchmarks. This is
because FICC has observed that vendors
may from time to time modify, suspend
or discontinue benchmarks.11 Such
occurrences do not happen frequently,
however, because the references to the
specific benchmarks are currently
codified in the MBSD QRM
Methodology Document, any changes or
updates to the benchmarks would
require a proposed rule change to be
filed with the Commission. In order to
provide FICC with more flexibility in
updating the benchmarks to timely
reflect changes and/or updates, FICC is
proposing to replace references to
specific benchmarks in the MBSD QRM
Methodology Document with a more
general description.
Specifically, with respect to the
Minimum Margin Amount calculation,
FICC is proposing to remove the specific
references to default benchmark TBA
programs from the MBSD QRM
Methodology and replacing it with
language that FICC would designate
daily benchmark TBA for each of the
CONV30, CONV15, GNMA30, and
GNMA15 programs based on the TBA
with the largest gross settlement amount
in the program. Similarly, with respect
to the Margin Proxy calculation, FICC is
proposing to remove the specific
references to default benchmark TBAs
as well as the corresponding reference
current coupons and replacing them
with language that FICC would
designate daily benchmark TBAs for
each of the CONV30, CONV15,
GNMA30, and GNMA15 programs based
on the TBA coupon rate closest to or
identical with the then current coupon
rate. By replacing references to specific
benchmarks in the MBSD QRM
Methodology Document with a more
general description, FICC would no
longer need to submit subsequent rule
filings to make updates or changes to
these benchmarks unless such changes
require an advance notice.12
11 For example, one of the benchmarks specified
in the MBSD QRM Methodology Document for the
GNMA program is GNMA I (i.e., MTGEGNSF Index
from Bloomberg for GNMA I 30-Year current
coupons), which is used to calculate the Margin
Proxy; however, FICC has recently learned that
GNMA I is no longer available due to diminishing
trading volume. Accordingly, following the
implementation of these proposed changes, FICC
plans to replace GNMA I with GNMA II (i.e.,
MTGEG2SF Index from Bloomberg for GNMA II 30Year current coupons) in the calculation of Margin
Proxy.
12 Pursuant to Section 806(e)(1) of Title VIII of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act and Rule 19b–4(n)(1)(i) under the
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Nonetheless, as part of the key model
construct, benchmarks are reviewed at
least annually through FICC’s model
validation process, and any changes to
the benchmarks would continue to be
subject to DTCC’s internal model
governance process as described in the
Clearing Agency Model Risk
Management Framework.13
Under the proposal, FICC would
delete references to specific benchmarks
from the Minimum Margin Amount and
the Margin Proxy sections of the MBSD
QRM Methodology Document. With
respect to the calculation of the
Minimum Margin Amount, the MBSD
QRM Methodology Document would
provide that the risk factors are
calculated based on the applicable
benchmark TBA for each program,14
and each day, the benchmark TBA is
designated by FICC based on the TBA
with the largest gross settlement amount
in the program. Similarly, the MBSD
QRM Methodology Document would
also provide that in calculating the
Margin Proxy, the risk factors are
calculated based on the benchmark TBA
for each program,15 and each day, the
benchmark TBA is designated by FICC
based on the TBA coupon rate closest to
or identical with the then current
coupon rate.
Act, if a change materially affects the nature or level
of risks presented by FICC, then FICC is required
to file an advance notice filing. 12 U.S.C. 5465(e)(1)
and 17 CFR 240.19b¶4(n)(1)(i).
13 The Clearing Agency Model Risk Management
Framework (‘‘Framework’’) sets forth the model risk
management practices that FICC and its affiliates
The Depository Trust Company (‘‘DTC’’) and
National Securities Clearing Corporation (‘‘NSCC,’’
and together with FICC and DTC, the ‘‘Clearing
Agencies’’) follow to identify, measure, monitor,
and manage the risks associated with the design,
development, implementation, use, and validation
of quantitative models. The Framework is filed as
a rule of the Clearing Agencies. See Securities
Exchange Act Release Nos. 81485 (Aug. 25, 2017),
82 FR 41433 (Aug. 31, 2017) (SR–DTC–2017–008;
SR–FICC–2017–014; SR–NSCC–2017–008), 88911
(May 20, 2020), 85 FR 31828 (May 27, 2020) (SR–
DTC–2020–008; SR–FICC–2020–004; SR–NSCC–
2020–008), 92380 (Jul. 13, 2021), 86 FR 38140 (Jul.
19, 2021) (SR–FICC–2021–006), 92381 (Jul. 13,
2021), 86 FR 38163 (Jul. 19, 2021) (SR–NSCC–2021–
008), 92379 (Jul. 13, 2021), 86 FR 38143 (Jul. 19,
2021) (SR–DTC–2021–013), 94271 (Feb. 17, 2022),
87 FR 10411 (Feb. 24, 2022) (SR–FICC–2022–001),
94272 (Feb. 17, 2022) 87 FR 10419 (Feb. 24, 2022)
(SR–NSCC–2022–001), 94273 (Feb. 17, 2022), 87 FR
10395 (Feb. 24, 2022) (SR–DTC–2022–001), 97890
(Jul. 13, 2023), 88 FR 46287 (Jul. 19, 2023) (SR–
FICC–2023–008), 97892 (Jul. 13, 2023), 88 FR 46232
(Jul. 19, 2023) (SR–NSCC–2023–006), and 97891
(Jul. 13, 2023), 88 FR 46336 (Jul. 19, 2023) (SR–
DTC–2023–006).
14 In calculating the Minimum Margin Amount
and the Margin Proxy, FICC partitions each MBSD
member portfolio into four programs—CONV30,
GNMA30, CONV15, and GNMA15.
15 Id.
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Certain Corrections and Technical
Changes to the GSD QRM Methodology
Document and a Clarification to the
MBSD QRM Methodology Document
FICC is proposing to make certain
corrections and technical changes to the
GSD QRM Methodology Document and
a clarification to the MBSD QRM
Methodology Document, as described in
detail below.
(1) GSD QRM Methodology Document
FICC is proposing to make certain
corrections and technical changes to the
GSD QRM Methodology Document.
Specifically, FICC would correct two
typographical errors—one in the
description of market risks associated
with products cleared by GSD, and the
other in the description of key
assumptions for Blackout Period
Exposure. FICC would also correct two
grammatical errors—one in the
description of market risks associated
with products cleared by GSD and the
other in the description of certain
factors for VaR determination.
Appendix 4 (Related Methodology for
MBSD Sensitivity VaR) to the GSD QRM
Methodology Document currently
includes certain sections from the
MBSD QRM Methodology Document
with slightly different numbering
sequences. In order to eliminate
duplicity and prevent potential
inconsistency with the MBSD QRM
Methodology Document, FICC is
proposing certain technical changes to
remove Appendix 4 (Related
Methodology for MBSD Sensitivity VaR)
from the GSD QRM Methodology
Document and update references thereto
to directly refer to the relevant section
name(s) in the MBSD QRM
Methodology Document. FICC is also
proposing an update to the reference of
the MBSD QRM Methodology Document
in the Bibliography section by removing
the date from the title of the document.
Removing the date from the title of this
document in the Bibliography section of
the MBSD QRM Methodology Document
would help this reference from
becoming stale or outdated as the MBSD
QRM Methodology gets updated from
time to time.
(2) MBSD QRM Methodology Document
FICC is proposing to make a
clarification to the MBSD QRM
Methodology Document. Specifically, in
the section of the MBSD QRM
Methodology Document that describes
the calculation of Margin Proxy, FICC
would add a sentence that describes
FICC’s current practice when the
current coupon rate used to determine
the benchmark is missing, unavailable,
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or deemed unreliable. Specifically, the
additional sentence would provide that
if the current coupon rate is missing,
unavailable, or deemed unreliable for a
particular program, then FICC would
use the latest available coupon rate to
determine the benchmark TBA or obtain
the current coupon rate from an
alternative source.
Impact Study
FICC has conducted an impact study
for the period from June 2022 to May
2023 (‘‘Impact Study’’) assessing the
change with respect to the Margin
Proxy.16 The result of the Impact Study
indicates that, if FICC had replaced
GNMA I (i.e., MTGEGNSF Index from
Bloomberg for GNMA I 30-Year current
coupons) with GNMA II (i.e.,
MTGEG2SF Index from Bloomberg for
GNMA II 30-Year current coupons)
when calculating the Margin Proxy
during the Impact Study period, the
MBSD backtesting coverage ratio with
respect to the Margin Proxy would
largely remain unchanged, with a 0.1%
decrease in coverage ratio.
Specifically, if FICC had replaced
GNMA I with GNMA II when
calculating the MBSD Margin Proxy
during the Impact Study period, the
average daily aggregate Margin Proxy
would have decreased $16.3 million (or
approximately 0.29% of the average
daily aggregate Margin Proxy). The
average daily decrease in Margin Proxy
per portfolio would have been
approximately $213,000 (or
approximately 0.29% of the average
daily Margin Proxy per portfolio), with
the largest daily dollar decrease of
approximately $4.1 million (0.59% of
the Margin Proxy for that day) and the
largest percentage decrease of 2.07% (or
approximately $1,900 decrease in
Margin Proxy).
2. Statutory Basis
FICC believes this proposal is
consistent with the requirements of the
Act, and the rules and regulations
thereunder applicable to a registered
clearing agency. Specifically, FICC
16 There is no anticipated impact from this
proposal with respect to the Minimum Margin
Amount from Jun. 2022 to May 2023. This is
because under the proposal, with respect to the
Minimum Margin Amount, GNMA I TBAs would be
added as a potential benchmark TBA in addition to
the currently existing default benchmark TBAs, i.e.,
GNMA II TBAs; however, since 2022, GNMA II
TBAs have consistently exceeded GNMA I TBAs in
terms of position exposures at MBSD, therefore,
based on the gross settlement amounts, irrespective
of the addition of GNMA I TBAs as a potential
benchmark TBA, the benchmark TBA designated by
FICC would still have been GNMA II TBAs.
Therefore, there is no anticipated impact from this
proposal on the Minimum Margin Amount from
Jun. 2022 to May 2023.
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believes that the proposed changes to
the QRM Methodology Documents
described above are consistent with
Section 17A(b)(3)(F) of the Act, for the
reasons described below.17
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of a
clearing agency be designed to assure
the safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible.18
FICC believes that amending the
MBSD QRM Methodology Document to
remove references to specific
benchmarks used for the calculation of
Minimum Margin Amount and Margin
Proxy and replace them with a more
general description as described above
would enhance clarity and consistency
for FICC. Specifically, the proposed
changes would help ensure that the
MBSD QRM Methodology Document
(which has been filed confidentially)
remains aligned with the slate of
available benchmarks as it evolves over
time. FICC believes that enhancing
clarity and consistency with respect to
changes to the aforementioned
benchmarks would help ensure that
FICC calculates and collects adequate
margin from its Clearing Members.
Collecting adequate margin from its
Clearing Members would help FICC
mitigate potential losses associated with
liquidating a Clearing Member’s
portfolio in the event of Clearing
Member default. Therefore, in the event
of Clearing Member default, the
proposed changes would help to ensure
that FICC’s operations would not be
disrupted and non-defaulting Clearing
Members would not be exposed to
losses they cannot anticipate or control.
In this way, the proposed changes to the
aforementioned benchmarks would help
assure the safeguarding of securities and
funds which are in the custody or
control of FICC or for which it is
responsible, consistent with Section
17A(b)(3)(F) of the Act.19
FICC believes that the proposed
changes, which constitute certain
corrections and technical changes to the
GSD QRM Methodology Document and
a clarification to the MBSD QRM
Methodology Document, would enhance
the clarity and accuracy of the QRM
Methodology Documents for FICC. The
QRM Methodology Documents are used
by FICC risk management personnel
regarding the calculation of margin
requirements. Having clear and accurate
QRM Methodology Documents would
help facilitate the accurate and smooth
17 15
functioning of the margining process at
FICC. The changes referenced in this
paragraph would promote such clarity
and accuracy. This would in turn allow
FICC risk management to charge
members an appropriate level of margin.
As such, FICC believes that enhancing
the clarity and accuracy of the QRM
Methodology Documents would assure
the safeguarding of securities and funds
which are in the custody or control of
FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of
the Act.20
(B) Clearing Agency’s Statement on
Burden on Competition
FICC believes that the proposed
changes to amend the MBSD QRM
Methodology Document to remove
references to specific benchmarks used
for the calculation of Minimum Margin
Amount and Margin Proxy and replace
them with a more general description as
described above could have an impact
on competition. Specifically, FICC
believes that the proposed changes
could burden competition because
changes to the benchmarks could
potentially result in larger Required
Fund Deposit amounts for some
members than the amounts currently
calculated. This is because the proposed
changes would provide FICC the
flexibility to timely update benchmarks
without a rule filing, which in turn
could lead to either higher or lower
haircut rates being used when
calculating the Minimum Margin
Amount and/or Margin Proxy. Using
higher haircut rates when calculating
the Minimum Margin Amount and/or
Margin Proxy could result in larger
Required Fund Deposit amounts for
some members than the amounts
currently calculated.
When the proposal results in a larger
Required Fund Deposit for members, the
proposed changes could burden
competition for members that have
lower operating margin or higher cost of
capital compared to other members.
Whether such burden on competition
would be significant would depend on
each member’s financial status and the
specific risks presented by each
member’s portfolio(s). Regardless of
whether the burden on competition
would be significant, FICC believes that
any burden on competition imposed by
the proposed changes would be both
necessary and appropriate in
furtherance of FICC’s efforts to mitigate
risks and meet the requirements of the
Act,21 as described in this filing and
further below.
U.S.C. 78q–1(b)(3)(F).
20 Id.
19 Id.
21 15
VerDate Sep<11>2014
18:15 Feb 05, 2024
FICC believes the above-described
burden on competition that may be
created by the proposed changes to
amend the MBSD QRM Methodology
Document to remove references to
specific benchmarks used in the
calculation of the Minimum Margin
Amount and Margin Proxy and replace
them with a more general description
would be necessary in furtherance of the
Act.22 As stated above, these proposed
changes would provide FICC with more
flexibility in updating these benchmarks
without a rule filing. As such, the
proposed changes would enhance
clarity and consistency for FICC by
helping to ensure that the MBSD QRM
Methodology Document (which has
been filed confidentially) stays aligned
with the slate of available benchmarks
as it evolves over time. FICC believes
that enhancing clarity and consistency
for FICC with respect to changes to the
aforementioned benchmarks would help
ensure that FICC calculates and collects
adequate margin from its Clearing
Members and would thereby assure the
safeguarding of securities and funds
which are in the custody or control of
FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of
the Act.23
FICC also believes that the abovedescribed burden on competition that
could be created by the proposed
changes to amend the MBSD QRM
Methodology Document to remove
references to specific benchmarks used
for the calculation of Minimum Margin
Amount and Margin Proxy and replace
them with a more general description
would be appropriate in furtherance of
the Act.24 FICC believes these proposed
changes would be appropriate in
furtherance of the Act because they have
been designed to assure the safeguard of
securities and funds which are in the
custody or control of FICC or for which
it is responsible. The proposal achieves
this purpose by providing FICC
additional flexibility when updating
aforementioned benchmarks, thus
ensuring that the MBSD QRM
Methodology Document (which has
been filed confidentially) remains
aligned with the slate of available
benchmarks as it evolves over time.
Having a clear MBSD QRM
Methodology Document would help
facilitate the accurate and smooth
functioning of the margining process at
FICC and thereby assure the
safeguarding of securities and funds
which are in the custody or control of
FICC or for which it is responsible,
22 Id.
18 Id.
Jkt 262001
PO 00000
23 15
U.S.C. 78q–1(b)(3)(I).
Frm 00122
Fmt 4703
Sfmt 4703
8263
24 15
E:\FR\FM\06FEN1.SGM
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1(b)(3)(I).
06FEN1
8264
Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices
consistent with Section 17A(b)(3)(F) of
the Act.25
FICC does not believe the proposed
corrections and technical changes to the
GSD QRM Methodology Document and
the proposed clarification to the MBSD
QRM Methodology Document described
above would have any impact on
competition. These proposed changes
would enhance QRM Methodology
Documents by providing additional
clarity and accuracy. The proposed
changes referenced above would not
advantage or disadvantage any
particular member of FICC or unfairly
inhibit access to FICC’s services. FICC
therefore does not believe these
proposed changes would have any
impact, or impose any burden, on
competition.
ddrumheller on DSK120RN23PROD with NOTICES1
(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 additional 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
www.sec.gov/regulatory-actions/how-tosubmit-comments. General questions
regarding the rule filing process or
logistical questions regarding this filing
should be directed to the Main Office of
the SEC’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.
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) 26 of the Act and paragraph
(f) 27 of Rule 19b–4 thereunder. At any
25 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78s(b)(3)(A).
27 17 CFR 240.19b–4(f).
26 15
VerDate Sep<11>2014
18:15 Feb 05, 2024
Jkt 262001
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–2024–001 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–2024–001. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of 10
a.m. and 3 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). Do
not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–FICC–2024–001 and
should be submitted on or before
February 27, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02159 Filed 2–5–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
35122; File No. 812–15490]
Diameter Credit Company, et al.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
(‘‘Order’’) under sections 17(d) and 57(i)
of the Investment Company Act of 1940
(the ‘‘Act’’) and rule 17d–1 under the
Act to permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
Summary of Application: Applicants
request an order to permit certain
business development companies
(‘‘BDCs’’) and closed-end management
investment companies to co-invest in
portfolio companies with each other and
with certain affiliated investment
entities.
Applicants: Diameter Credit
Company, Diameter Principal Finance
LLC, Diameter Principal Finance
Partnership LP, Diameter Capital
Partners LP, Diameter CLO Advisors
LLC, Diameter Master Fund LP,
Diameter Dislocation Master Fund LP,
Diameter Dislocation Master Fund II LP,
DCMALT LP, DCP IG Fund LP,
Diameter Credit Funding I, Ltd.,
Diameter Credit Funding II, Ltd.,
Diameter Credit Funding III, Ltd.,
Diameter Credit Funding IV, Ltd.,
Diameter Capital CLO 1 Ltd., Diameter
Capital CLO 2 Ltd., Diameter Capital
CLO 3 Ltd., Diameter Capital CLO 4
Ltd., Diameter Capital CLO 5 Ltd.
Filing Dates: The application was
filed on July 25, 2023, and amended on
October 31, 2023.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
28 17
E:\FR\FM\06FEN1.SGM
CFR 200.30–3(a)(12).
06FEN1
]]>Agencies
[Federal Register Volume 89, Number 25 (Tuesday, February 6, 2024)]
[Notices]
[Pages 8260-8264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02159]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99447; File No. SR-FICC-2024-001]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Methodology Documents
January 30, 2024.
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 23, 2024, 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 primarily 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).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
FICC is proposing to amend the MBSD Methodology and Model
Operations Document--MBSD Quantitative Risk Model (``MBSD QRM
Methodology Document''),\5\ in order to remove references to specific
benchmarks used to calculate the minimum margin amount (``Minimum
Margin Amount'') \6\ and the alternative
[[Page 8261]]
volatility calculation (``Margin Proxy'') \7\ at MBSD. FICC would
replace the references to specific benchmarks with a more general
description. FICC is also proposing to make certain corrections and
technical changes to the GSD Methodology Document--GSD Initial Market
Risk Margin Model \8\ (``GSD QRM Methodology Document,'' and together
with the MBSD QRM Methodology Document, the ``QRM Methodology
Documents'') and a clarification to the MBSD QRM Methodology Document,
as described in greater detail below.\9\
---------------------------------------------------------------------------
\5\ The MBSD QRM Methodology was filed as a confidential exhibit
in the rule filing and advance notice for MBSD sensitivity VaR. See
Securities Exchange Act Release Nos. 79868 (Jan. 24, 2017), 82 FR
8780 (Jan. 30, 2017) (SR-FICC-2016-007) and 79843 (Jan. 19, 2017),
82 FR 8555 (Jan. 26, 2017) (SR-FICC-2016-801) (collectively, ``MBSD
Margin Proxy Approval Order''). The MBSD QRM Methodology has been
amended. See Securities Exchange Act Release Nos. 85944 (May 24,
2019), 84 FR 25315 (May 31, 2019) (SR-FICC-2019-001), 90182 (Oct.
14, 2020), 85 FR 66630 (Oct. 20, 2020) (SR-FICC-2020-009), 92303
(Jun. 30, 2021), 86 FR 35854 (Jul. 7, 2021) (SR-FICC-2020-017)
(``MBSD Minimum Margin Amount Approval Order''), 95070 (Jun. 8,
2022), 87 FR 36014 (Jun. 14, 2022) (SR-FICC-2022-002), and 97342
(Apr. 21, 2023), 88 FR 25721 (Apr. 27, 2023) (SR-FICC-2023-003).
\6\ FICC has adopted a minimum margin amount into its MBSD
margin methodology. The Minimum Margin Amount uses a dynamic haircut
method based on observed to-be-announced (``TBA'') securities price
moves and serves as a minimum MBSD value-at-risk (``VaR'') charge
(``VaR Charge'') for net unsettled positions, calculated using the
historical market price changes of certain benchmark TBA securities.
See MBSD Minimum Margin Amount Approval Order, supra note 5. As
defined in MBSD Rule 1 (Definitions), the term ``TBA'' means a
contract for the purchase or sale of mortgage-backed security to be
delivered at an agreed-upon future date because as of the
transaction date, the seller has not yet identified certain terms of
the contract, such as the pool number and number of pools, to the
buyer. Infra note 9. The term ``VaR Charge'' is defined in MBSD Rule
1 and means, with respect to each margin portfolio, a calculation of
the volatility of specified net unsettled positions of a Clearing
Member, as of the time of such calculation (with respect to the
specified net unsettled positions as of the time of such
calculation). Such volatility calculations shall be made in
accordance with any generally accepted portfolio volatility model,
including, but not limited to, any margining formula employed by any
other clearing agency registered under Section 17A of the Act. Such
calculation shall be made utilizing such assumptions (including
confidence levels) and based on such historical data as FICC deems
reasonable, and shall cover such range of historical volatility as
FICC from time to time deems appropriate. To the extent that the
primary source of such historical data becomes unavailable for an
extended period of time, FICC shall utilize the Margin Proxy as an
alternative volatility calculation. In its assessment of volatility,
FICC shall calculate an additional bid-ask spread risk charge
measured by multiplying the gross market value of each Net Unsettled
Position by a basis point charge, where the applicable basis point
charge shall be reviewed at least annually. If the volatility
calculation is lower than the VaR Floor then the VaR Floor will be
utilized as such Clearing Member's VaR Charge. Infra note 9.
\7\ FICC has adopted procedures that would govern in the event
that the vendor fails to provide risk analytics data used by FICC to
calculate the MBSD VaR Charge. These procedures include the
application of the Margin Proxy, which would be applied as an
alternative volatility calculation for the MBSD VaR Charge (subject
to the VaR Floor, as defined in MBSD Rule 1, infra note 9) if FICC
determines that the data disruption would extend beyond five (5)
business days. See MBSD Margin Proxy Approval Order, supra note 5.
\8\ The GSD QRM Methodology Document was filed as a confidential
exhibit in the rule filing and advance notice for GSD sensitivity
VaR. See Securities Exchange Act Release Nos. 83362 (Jun. 1, 2018),
83 FR 26514 (Jun. 7, 2018) (SR-FICC-2018-001) and 83223 (May 11,
2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801). The GSD QRM
Methodology has been subsequently amended. See Securities Exchange
Act Release Nos. 85944 (May 24, 2019), 84 FR 25315 (May 31, 2019)
(SR-FICC-2019-001), 90182 (Oct. 14, 2020), 85 FR 66630 (Oct. 20,
2020) (SR-FICC-2020-009), 93234 (Oct. 1, 2021), 86 FR 55891 (Oct. 7,
2021) (SR-FICC-2021-007), 95605 (Aug. 25, 2022), 87 FR 53522 (Aug.
31, 2022) (SR-FICC-2022-005), and 97342 (Apr. 21, 2023), 88 FR 25721
(Apr. 27, 2023) (SR-FICC-2023-003).
\9\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the FICC's Government Securities
Division (``GSD'') Rulebook (``GSD Rules'') and FICC's Mortgage-
Backed Securities Division (``MBSD'') Clearing Rules (``MBSD
Rules'', and together with the GSD Rules, the ``Rules''), available
at www.dtcc.com/legal/rules-and-procedures.aspx.
---------------------------------------------------------------------------
FICC is requesting confidential treatment of the QRM Methodology
Documents and has filed them separately with the Secretary of the
Commission.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 240.24b-2.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this rule filing is to amend the QRM Methodology
Documents to remove references to specific benchmarks used for the
Minimum Margin Amount and Margin Proxy at MBSD. FICC would replace
these references to specific benchmarks with a more general
description. FICC is also proposing to make certain corrections and
technical changes to the GSD QRM Methodology Document and a
clarification to the MBSD QRM Methodology Document.
Replacing References to Specific Benchmarks for Minimum Margin Amount
and Margin Proxy of MBSD With a More General Description in the MBSD
QRM Methodology Document
The MBSD QRM Methodology Document provides the methodology by which
FICC calculates the MBSD VaR Charge. The MBSD QRM Methodology Document
specifies model inputs, parameters and assumptions, among other
information. With respect to Minimum Margin Amount and Margin Proxy,
the MBSD QRM Methodology Document refers to the specific benchmarks
that are in use. FICC is proposing to remove the specific benchmark
references and replace them with a more general description in order to
provide FICC with more flexibility in updating the benchmarks. This is
because FICC has observed that vendors may from time to time modify,
suspend or discontinue benchmarks.\11\ Such occurrences do not happen
frequently, however, because the references to the specific benchmarks
are currently codified in the MBSD QRM Methodology Document, any
changes or updates to the benchmarks would require a proposed rule
change to be filed with the Commission. In order to provide FICC with
more flexibility in updating the benchmarks to timely reflect changes
and/or updates, FICC is proposing to replace references to specific
benchmarks in the MBSD QRM Methodology Document with a more general
description.
---------------------------------------------------------------------------
\11\ For example, one of the benchmarks specified in the MBSD
QRM Methodology Document for the GNMA program is GNMA I (i.e.,
MTGEGNSF Index from Bloomberg for GNMA I 30-Year current coupons),
which is used to calculate the Margin Proxy; however, FICC has
recently learned that GNMA I is no longer available due to
diminishing trading volume. Accordingly, following the
implementation of these proposed changes, FICC plans to replace GNMA
I with GNMA II (i.e., MTGEG2SF Index from Bloomberg for GNMA II 30-
Year current coupons) in the calculation of Margin Proxy.
---------------------------------------------------------------------------
Specifically, with respect to the Minimum Margin Amount
calculation, FICC is proposing to remove the specific references to
default benchmark TBA programs from the MBSD QRM Methodology and
replacing it with language that FICC would designate daily benchmark
TBA for each of the CONV30, CONV15, GNMA30, and GNMA15 programs based
on the TBA with the largest gross settlement amount in the program.
Similarly, with respect to the Margin Proxy calculation, FICC is
proposing to remove the specific references to default benchmark TBAs
as well as the corresponding reference current coupons and replacing
them with language that FICC would designate daily benchmark TBAs for
each of the CONV30, CONV15, GNMA30, and GNMA15 programs based on the
TBA coupon rate closest to or identical with the then current coupon
rate. By replacing references to specific benchmarks in the MBSD QRM
Methodology Document with a more general description, FICC would no
longer need to submit subsequent rule filings to make updates or
changes to these benchmarks unless such changes require an advance
notice.\12\
[[Page 8262]]
Nonetheless, as part of the key model construct, benchmarks are
reviewed at least annually through FICC's model validation process, and
any changes to the benchmarks would continue to be subject to DTCC's
internal model governance process as described in the Clearing Agency
Model Risk Management Framework.\13\
---------------------------------------------------------------------------
\12\ Pursuant to Section 806(e)(1) of Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act and Rule 19b-
4(n)(1)(i) under the Act, if a change materially affects the nature
or level of risks presented by FICC, then FICC is required to file
an advance notice filing. 12 U.S.C. 5465(e)(1) and 17 CFR
240.19b]4(n)(1)(i).
\13\ The Clearing Agency Model Risk Management Framework
(``Framework'') sets forth the model risk management practices that
FICC and its affiliates The Depository Trust Company (``DTC'') and
National Securities Clearing Corporation (``NSCC,'' and together
with FICC and DTC, the ``Clearing Agencies'') follow to identify,
measure, monitor, and manage the risks associated with the design,
development, implementation, use, and validation of quantitative
models. The Framework is filed as a rule of the Clearing Agencies.
See Securities Exchange Act Release Nos. 81485 (Aug. 25, 2017), 82
FR 41433 (Aug. 31, 2017) (SR-DTC-2017-008; SR-FICC-2017-014; SR-
NSCC-2017-008), 88911 (May 20, 2020), 85 FR 31828 (May 27, 2020)
(SR-DTC-2020-008; SR-FICC-2020-004; SR-NSCC-2020-008), 92380 (Jul.
13, 2021), 86 FR 38140 (Jul. 19, 2021) (SR-FICC-2021-006), 92381
(Jul. 13, 2021), 86 FR 38163 (Jul. 19, 2021) (SR-NSCC-2021-008),
92379 (Jul. 13, 2021), 86 FR 38143 (Jul. 19, 2021) (SR-DTC-2021-
013), 94271 (Feb. 17, 2022), 87 FR 10411 (Feb. 24, 2022) (SR-FICC-
2022-001), 94272 (Feb. 17, 2022) 87 FR 10419 (Feb. 24, 2022) (SR-
NSCC-2022-001), 94273 (Feb. 17, 2022), 87 FR 10395 (Feb. 24, 2022)
(SR-DTC-2022-001), 97890 (Jul. 13, 2023), 88 FR 46287 (Jul. 19,
2023) (SR-FICC-2023-008), 97892 (Jul. 13, 2023), 88 FR 46232 (Jul.
19, 2023) (SR-NSCC-2023-006), and 97891 (Jul. 13, 2023), 88 FR 46336
(Jul. 19, 2023) (SR-DTC-2023-006).
---------------------------------------------------------------------------
Under the proposal, FICC would delete references to specific
benchmarks from the Minimum Margin Amount and the Margin Proxy sections
of the MBSD QRM Methodology Document. With respect to the calculation
of the Minimum Margin Amount, the MBSD QRM Methodology Document would
provide that the risk factors are calculated based on the applicable
benchmark TBA for each program,\14\ and each day, the benchmark TBA is
designated by FICC based on the TBA with the largest gross settlement
amount in the program. Similarly, the MBSD QRM Methodology Document
would also provide that in calculating the Margin Proxy, the risk
factors are calculated based on the benchmark TBA for each program,\15\
and each day, the benchmark TBA is designated by FICC based on the TBA
coupon rate closest to or identical with the then current coupon rate.
---------------------------------------------------------------------------
\14\ In calculating the Minimum Margin Amount and the Margin
Proxy, FICC partitions each MBSD member portfolio into four
programs--CONV30, GNMA30, CONV15, and GNMA15.
\15\ Id.
---------------------------------------------------------------------------
Certain Corrections and Technical Changes to the GSD QRM Methodology
Document and a Clarification to the MBSD QRM Methodology Document
FICC is proposing to make certain corrections and technical changes
to the GSD QRM Methodology Document and a clarification to the MBSD QRM
Methodology Document, as described in detail below.
(1) GSD QRM Methodology Document
FICC is proposing to make certain corrections and technical changes
to the GSD QRM Methodology Document. Specifically, FICC would correct
two typographical errors--one in the description of market risks
associated with products cleared by GSD, and the other in the
description of key assumptions for Blackout Period Exposure. FICC would
also correct two grammatical errors--one in the description of market
risks associated with products cleared by GSD and the other in the
description of certain factors for VaR determination.
Appendix 4 (Related Methodology for MBSD Sensitivity VaR) to the
GSD QRM Methodology Document currently includes certain sections from
the MBSD QRM Methodology Document with slightly different numbering
sequences. In order to eliminate duplicity and prevent potential
inconsistency with the MBSD QRM Methodology Document, FICC is proposing
certain technical changes to remove Appendix 4 (Related Methodology for
MBSD Sensitivity VaR) from the GSD QRM Methodology Document and update
references thereto to directly refer to the relevant section name(s) in
the MBSD QRM Methodology Document. FICC is also proposing an update to
the reference of the MBSD QRM Methodology Document in the Bibliography
section by removing the date from the title of the document. Removing
the date from the title of this document in the Bibliography section of
the MBSD QRM Methodology Document would help this reference from
becoming stale or outdated as the MBSD QRM Methodology gets updated
from time to time.
(2) MBSD QRM Methodology Document
FICC is proposing to make a clarification to the MBSD QRM
Methodology Document. Specifically, in the section of the MBSD QRM
Methodology Document that describes the calculation of Margin Proxy,
FICC would add a sentence that describes FICC's current practice when
the current coupon rate used to determine the benchmark is missing,
unavailable, or deemed unreliable. Specifically, the additional
sentence would provide that if the current coupon rate is missing,
unavailable, or deemed unreliable for a particular program, then FICC
would use the latest available coupon rate to determine the benchmark
TBA or obtain the current coupon rate from an alternative source.
Impact Study
FICC has conducted an impact study for the period from June 2022 to
May 2023 (``Impact Study'') assessing the change with respect to the
Margin Proxy.\16\ The result of the Impact Study indicates that, if
FICC had replaced GNMA I (i.e., MTGEGNSF Index from Bloomberg for GNMA
I 30-Year current coupons) with GNMA II (i.e., MTGEG2SF Index from
Bloomberg for GNMA II 30-Year current coupons) when calculating the
Margin Proxy during the Impact Study period, the MBSD backtesting
coverage ratio with respect to the Margin Proxy would largely remain
unchanged, with a 0.1% decrease in coverage ratio.
---------------------------------------------------------------------------
\16\ There is no anticipated impact from this proposal with
respect to the Minimum Margin Amount from Jun. 2022 to May 2023.
This is because under the proposal, with respect to the Minimum
Margin Amount, GNMA I TBAs would be added as a potential benchmark
TBA in addition to the currently existing default benchmark TBAs,
i.e., GNMA II TBAs; however, since 2022, GNMA II TBAs have
consistently exceeded GNMA I TBAs in terms of position exposures at
MBSD, therefore, based on the gross settlement amounts, irrespective
of the addition of GNMA I TBAs as a potential benchmark TBA, the
benchmark TBA designated by FICC would still have been GNMA II TBAs.
Therefore, there is no anticipated impact from this proposal on the
Minimum Margin Amount from Jun. 2022 to May 2023.
---------------------------------------------------------------------------
Specifically, if FICC had replaced GNMA I with GNMA II when
calculating the MBSD Margin Proxy during the Impact Study period, the
average daily aggregate Margin Proxy would have decreased $16.3 million
(or approximately 0.29% of the average daily aggregate Margin Proxy).
The average daily decrease in Margin Proxy per portfolio would have
been approximately $213,000 (or approximately 0.29% of the average
daily Margin Proxy per portfolio), with the largest daily dollar
decrease of approximately $4.1 million (0.59% of the Margin Proxy for
that day) and the largest percentage decrease of 2.07% (or
approximately $1,900 decrease in Margin Proxy).
2. Statutory Basis
FICC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, FICC
[[Page 8263]]
believes that the proposed changes to the QRM Methodology Documents
described above are consistent with Section 17A(b)(3)(F) of the Act,
for the reasons described below.\17\
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\18\
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\18\ Id.
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FICC believes that amending the MBSD QRM Methodology Document to
remove references to specific benchmarks used for the calculation of
Minimum Margin Amount and Margin Proxy and replace them with a more
general description as described above would enhance clarity and
consistency for FICC. Specifically, the proposed changes would help
ensure that the MBSD QRM Methodology Document (which has been filed
confidentially) remains aligned with the slate of available benchmarks
as it evolves over time. FICC believes that enhancing clarity and
consistency with respect to changes to the aforementioned benchmarks
would help ensure that FICC calculates and collects adequate margin
from its Clearing Members. Collecting adequate margin from its Clearing
Members would help FICC mitigate potential losses associated with
liquidating a Clearing Member's portfolio in the event of Clearing
Member default. Therefore, in the event of Clearing Member default, the
proposed changes would help to ensure that FICC's operations would not
be disrupted and non-defaulting Clearing Members would not be exposed
to losses they cannot anticipate or control. In this way, the proposed
changes to the aforementioned benchmarks would help assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\19\
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\19\ Id.
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FICC believes that the proposed changes, which constitute certain
corrections and technical changes to the GSD QRM Methodology Document
and a clarification to the MBSD QRM Methodology Document, would enhance
the clarity and accuracy of the QRM Methodology Documents for FICC. The
QRM Methodology Documents are used by FICC risk management personnel
regarding the calculation of margin requirements. Having clear and
accurate QRM Methodology Documents would help facilitate the accurate
and smooth functioning of the margining process at FICC. The changes
referenced in this paragraph would promote such clarity and accuracy.
This would in turn allow FICC risk management to charge members an
appropriate level of margin. As such, FICC believes that enhancing the
clarity and accuracy of the QRM Methodology Documents would assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.\20\
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\20\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
FICC believes that the proposed changes to amend the MBSD QRM
Methodology Document to remove references to specific benchmarks used
for the calculation of Minimum Margin Amount and Margin Proxy and
replace them with a more general description as described above could
have an impact on competition. Specifically, FICC believes that the
proposed changes could burden competition because changes to the
benchmarks could potentially result in larger Required Fund Deposit
amounts for some members than the amounts currently calculated. This is
because the proposed changes would provide FICC the flexibility to
timely update benchmarks without a rule filing, which in turn could
lead to either higher or lower haircut rates being used when
calculating the Minimum Margin Amount and/or Margin Proxy. Using higher
haircut rates when calculating the Minimum Margin Amount and/or Margin
Proxy could result in larger Required Fund Deposit amounts for some
members than the amounts currently calculated.
When the proposal results in a larger Required Fund Deposit for
members, the proposed changes could burden competition for members that
have lower operating margin or higher cost of capital compared to other
members. Whether such burden on competition would be significant would
depend on each member's financial status and the specific risks
presented by each member's portfolio(s). Regardless of whether the
burden on competition would be significant, FICC believes that any
burden on competition imposed by the proposed changes would be both
necessary and appropriate in furtherance of FICC's efforts to mitigate
risks and meet the requirements of the Act,\21\ as described in this
filing and further below.
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\21\ 15 U.S.C. 78q-1(b)(3)(I).
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FICC believes the above-described burden on competition that may be
created by the proposed changes to amend the MBSD QRM Methodology
Document to remove references to specific benchmarks used in the
calculation of the Minimum Margin Amount and Margin Proxy and replace
them with a more general description would be necessary in furtherance
of the Act.\22\ As stated above, these proposed changes would provide
FICC with more flexibility in updating these benchmarks without a rule
filing. As such, the proposed changes would enhance clarity and
consistency for FICC by helping to ensure that the MBSD QRM Methodology
Document (which has been filed confidentially) stays aligned with the
slate of available benchmarks as it evolves over time. FICC believes
that enhancing clarity and consistency for FICC with respect to changes
to the aforementioned benchmarks would help ensure that FICC calculates
and collects adequate margin from its Clearing Members and would
thereby assure the safeguarding of securities and funds which are in
the custody or control of FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of the Act.\23\
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\22\ Id.
\23\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC also believes that the above-described burden on competition
that could be created by the proposed changes to amend the MBSD QRM
Methodology Document to remove references to specific benchmarks used
for the calculation of Minimum Margin Amount and Margin Proxy and
replace them with a more general description would be appropriate in
furtherance of the Act.\24\ FICC believes these proposed changes would
be appropriate in furtherance of the Act because they have been
designed to assure the safeguard of securities and funds which are in
the custody or control of FICC or for which it is responsible. The
proposal achieves this purpose by providing FICC additional flexibility
when updating aforementioned benchmarks, thus ensuring that the MBSD
QRM Methodology Document (which has been filed confidentially) remains
aligned with the slate of available benchmarks as it evolves over time.
Having a clear MBSD QRM Methodology Document would help facilitate the
accurate and smooth functioning of the margining process at FICC and
thereby assure the safeguarding of securities and funds which are in
the custody or control of FICC or for which it is responsible,
[[Page 8264]]
consistent with Section 17A(b)(3)(F) of the Act.\25\
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\24\ 15 U.S.C. 78q-1(b)(3)(I).
\25\ 15 U.S.C. 78q-1(b)(3)(F).
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FICC does not believe the proposed corrections and technical
changes to the GSD QRM Methodology Document and the proposed
clarification to the MBSD QRM Methodology Document described above
would have any impact on competition. These proposed changes would
enhance QRM Methodology Documents by providing additional clarity and
accuracy. The proposed changes referenced above would not advantage or
disadvantage any particular member of FICC or unfairly inhibit access
to FICC's services. FICC therefore does not believe these proposed
changes would 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. If any additional 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 www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding
the rule filing process or logistical questions regarding this filing
should be directed to the Main Office of the SEC'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) \26\ of the Act and paragraph (f) \27\ 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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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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-2024-001 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-2024-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 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). Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-FICC-2024-001 and should be submitted on
or before February 27, 2024.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02159 Filed 2-5-24; 8:45 am]
BILLING CODE 8011-01-P
