Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, To Modify the GSD Rules To Facilitate Access to Clearance and Settlement Services of All Eligible Secondary Market Transactions in U.S. Treasury Securities, 21362-21378 [2024-06446]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 60 (Wednesday, March 27, 2024)]
[Notices]
[Pages 21362-21378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06446]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99817; File No. SR-FICC-2024-005]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change, as Modified by Partial 
Amendment No. 1, To Modify the GSD Rules To Facilitate Access to 
Clearance and Settlement Services of All Eligible Secondary Market 
Transactions in U.S. Treasury Securities

March 21, 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 March 11, 2024, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-FICC-2024-005. On March 19, 2024, FICC filed Partial 
Amendment No. 1 to make clarifications and corrections to the proposed 
rule change.\3\ The proposed rule change, as modified by Partial 
Amendment No. 1, is described in Items I, II and III below, which Items 
have been prepared primarily by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Partial Amendment No. 1 made clarifications and corrections 
to the description of the proposed rule change and Exhibit 5. 
Specifically, as originally filed, the description of the proposed 
rule change made a reference to an incorrect section of the GSD 
Rules. Partial Amendment No. 1 corrects that reference. 
Additionally, as originally filed, the description of the proposed 
rule change and Exhibit 5 contained inconsistent references 
regarding whether FICC or its Board would be responsible for 
approving membership applications and related membership matters. 
Partial Amendment No. 1 clarifies and corrects those references. 
These clarifications and corrections have been incorporated, as 
appropriate, into the description of the proposed rule change in 
Item II below and Exhibit 5.

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[[Page 21363]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to FICC's 
Government Securities Division (``GSD'') Rulebook (``Rules'') \4\ to 
(1) re-name GSD's correspondent clearing/prime broker services as the 
Agent Clearing Service and adopt provisions that are common in agent 
clearing models; (2) update the qualifications for certain membership 
categories and rules governing the operation of GSD's access models; 
and (3) improve the transparency and clarity of the Rules in describing 
the types of memberships available to legal entities that want to 
access GSD's central clearing services and the different ways both 
Members and, indirectly, legal entities that are not Members can access 
those services, as described below.
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    \4\ Terms not defined herein are defined in the Rules, available 
at www.dtcc.com/~/media/Files/Downloads/legal/rules/
ficc_gov_rules.pdf.
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    These proposed rule changes are primarily designed to ensure that 
FICC has appropriate means to facilitate access to clearance and 
settlement services of all eligible secondary market transactions in 
U.S. Treasury securities in accordance with the requirements of Rule 
17Ad-22(e)(18)(iv)(C) under the Act,\5\ as described below.
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    \5\ 17 CFR 240.17Ad-22(e)(18)(iv)(C). See Securities Exchange 
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) 
(``Adopting Release'', and the rules adopted therein referred to 
herein as ``Treasury Clearing Rules''). FICC must implement the new 
requirements of Rule 17Ad-22(e)(18)(iv)(C) by March 31, 2025. FICC 
will file separate proposed rule changes to address other 
requirements applicable to it and adopted as part of the Treasury 
Clearing Rules.
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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
Executive Summary
    FICC is proposing rule changes designed to facilitate access to 
clearance and settlement services of all eligible secondary market 
transactions in U.S. Treasury securities in accordance with recent 
amendments to the standards for clearing agencies set forth in Rule 
17Ad-22(e) under the Act.\6\
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    \6\ 17 CFR 240.17Ad-22(e).
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    On December 13, 2023, the Commission adopted amendments to the 
standards applicable to covered clearing agencies, like FICC, that 
require such clearing agencies to have written policies and procedures 
reasonably designed to, among other things, ensure that it has 
appropriate means to facilitate access to clearance and settlement 
services of all eligible secondary market transactions in U.S. Treasury 
securities, including those of indirect participants.\7\
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    \7\ Supra note 5.
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    FICC developed the proposed rule changes following a review of its 
existing direct and indirect participation models. That review examined 
whether FICC's models provide market participants with access to FICC's 
clearance and settlement services in as flexible a means as possible, 
consistent with FICC's responsibility to provide sound risk management 
and comply with its regulatory risk management obligations under Rule 
17Ad-22(e) and other parts of the Act.\8\ Among other things, FICC 
considered whether FICC's existing policies and procedures treat 
transactions differently based on the identity of the participant 
submitting the transaction, the fact that an indirect participant is a 
party to the transaction, the method of execution of a transaction, and 
other factors, and whether any such variation of treatment was 
necessary and appropriate in light of FICC's regulatory risk management 
obligations.\9\
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    \8\ Such regulatory risk management obligations are generally 
set forth in Rule 17Ad-22(e). 17 CFR 240.17Ad-22(e).
    \9\ 17 CFR 240.17Ad-22(e).
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    As part of this review, FICC consulted with a wide range of 
stakeholders, including indirect participants, to ensure that FICC 
considered a sufficiently broad set of perspectives.\10\ These 
consultations included one-on-one conversations with existing direct 
participants and indirect participants, industry associations 
representing buy- and sell-side market participants, and market 
participants that were considering becoming but had not yet become 
participants of FICC. Another aspect of this consultation was a survey 
conducted during the first half of 2023.\11\
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    \10\ See also page 168 of the Adopting Release, available at 
https://www.sec.gov/files/rules/final/2023/34-99149.pdf (``To ensure 
that it considers a sufficiently broad set of perspectives, the U.S. 
Treasury securities CCA generally should consult with a wide-range 
of stakeholders, including indirect participants, as it seeks to 
comply with proposed rule 17ad-22(e)(18)(iv)(C).'').
    \11\ FICC discussed this survey and the key findings in a paper, 
available at https://www.dtcc.com/-/media/Files/Downloads/WhitePapers/Accessing-Potential-Expansion-US-Treasury-Clearing-White-Paper.pdf.
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    One of the key findings of this outreach was that FICC's existing 
participation models are not broadly understood among market 
participants, and a majority of current Members are unsure which of the 
available access models they prefer to use for indirect participant 
activity. In addition, FICC identified that certain instances where it 
treated transactions differently based on the identity of the 
participant submitting the transaction or the identity of the 
participant party to the transaction were not necessary to ensure sound 
risk management and comply with its regulatory risk management 
obligations. Based on the results of its review of its access models, 
FICC has concluded that certain changes to the Rules would facilitate 
greater access to clearance and settlement of secondary market 
transactions in U.S. Treasury transactions, including by indirect 
participants.
    First, as noted above, FICC's review found that many market 
participants are not familiar with the correspondent clearing/prime 
broker services. In particular, FICC found that market participants 
were not aware of the similarities between the services and other agent 
clearing models, such as those through which market participants in the 
cleared derivatives markets can execute commodity derivatives with 
third parties and then give them up to their futures commission 
merchant (``FCM'') for clearing. Market participants also did not 
appear to understand the agent clearing services as a workable ``done 
away'' model that allows indirect participants to access clearing 
through multiple direct participants.
    Therefore, FICC is proposing to provide clarity by, among other 
things, re-naming its correspondent clearing/prime brokerage services 
as a single ``Agent Clearing Service'' and deleting and replacing the 
current provisions in Rule 8 with a rule that elaborates on the 
functioning and requirements of the agent clearing service. FICC 
believes that these changes, described in greater detail below, will 
allow Netting Members and their customers to recognize the similarities 
between FICC's indirect access model and FCM agent clearing models and 
to identify the agent clearing service as a workable ``done away'' 
model.

[[Page 21364]]

    Second, FICC has concluded that certain modifications to its 
membership criteria would facilitate open access and ensure that any 
variation in the Rules' treatment of transactions or members is indeed 
necessary and appropriate to meet the minimum standards regarding 
operations, governance, and risk management set forth in the SEC's 
regulations and the Act. These proposed rule changes would update 
certain qualifications for GSD's membership categories. Currently, FICC 
imposes a number of qualification requirements that, based upon its 
review, may not be necessary or appropriate to ensure compliance with 
applicable requirements under the Act. In particular, banks wishing to 
become Sponsoring Members are categorized as Category 1 Sponsoring 
Members and must meet certain capitalization requirements, while other 
Netting Members wishing to be Sponsoring Members are categorized as 
Category 2 Sponsoring Members and are subject to financial requirements 
based on FICC's assessment of the Sponsoring Member's anticipated 
activity and risk. Additionally, in order to be a Sponsored Member, a 
firm must currently be a ``qualified institutional buyer'' as such term 
is defined by Rule 144A under the Securities Act of 1933 or satisfy the 
financial requirements necessary to be a qualified institution 
buyer.\12\ Based upon its review and general experience with the growth 
of the sponsored membership service \13\ since the current tiered 
membership qualifications were first instituted, FICC has determined 
that such requirements are no longer relevant or appropriate for the 
purposes of facilitating access to clearance and settlement 
transactions of all eligible secondary market transactions in U.S. 
Treasury securities, including those of indirect participants.
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    \12\ 17 CFR 230.144A.
    \13\ See Rule 3A, supra note 4. The service described in Rule 3A 
is referred to herein as the ``Sponsored Service''.
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    FICC's proposed rule changes would aim to address these issues by 
eliminating the two categories of Sponsoring Members, applying the 
qualifications applicable to the current Category 2 Sponsoring Members 
to all Sponsoring Members, and removing the requirement that Sponsored 
Members either be qualified institutional buyers or satisfy the 
financial requirements of such definition. FICC believes that these 
changes would eliminate differential treatment of categories of 
indirect participants and direct participants that are not necessary 
for risk management or other regulatory purposes, and otherwise act as 
a limitation upon participants' access to GSD's central clearing 
services. These changes would thus enable access to FICC's clearing and 
settlement services for a variety of direct and indirect participants 
who may not currently be able to access those services. These changes 
would also facilitate greater understanding of FICC's membership 
qualifications and thereby support FICC's continued maintenance of 
objective, risk-based and publicly disclosed participation criteria.
    Lastly, FICC has determined that providing a public road map of 
access models and simplifying certain definitions would allow both buy- 
and sell-side market participants to understand those models and 
thereby allow them to consider how to offer and price those models so 
as to ensure indirect participants can access central clearing. These 
proposed rule changes aim to achieve these goals. In particular FICC is 
proposing to amend the Rules to (a) provide a public road map of the 
different models for accessing the GSD services that are available to 
both Members and, indirectly, their customers; and (b) simplify the 
definitions of the different types of membership and other related 
definitions. FICC believes these clarifications would enhance the 
ability of market participants to understand the GSD access models that 
are available, thereby allowing them to determine how to offer and 
price FICC's currently available models to ensure that indirect 
participants can access central clearing.
Background
    FICC, through GSD, serves as a central counterparty and provides 
real-time trade matching, clearing, risk management and netting for 
cash purchases and sales of U.S. Treasury securities as well as 
repurchase and reverse repurchase transactions involving U.S. Treasury 
securities (``repos'').\14\ GSD's central counterparty services are 
available directly to entities that are approved to be Netting Members 
and indirectly to other market participants through its indirect access 
models--the Sponsored Service \15\ or correspondent clearing/prime 
broker services.\16\
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    \14\ GSD also clears and settles certain transactions on 
securities issued or guaranteed by U.S. government agencies and 
government sponsored enterprises.
    \15\ See Rule 3A, supra note 4.
    \16\ See Rule 2 (Members) (providing that FICC shall make its 
services available to entities that are approved to be Members of 
GSD); Rule 3A (Sponsoring Members and Sponsored Members) (describing 
the Sponsored Service) and Rule 8 (Executing Firm Trades) (currently 
describing the correspondent clearing/prime broker services), supra 
note 4.
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    Currently, there are different Netting Member application 
categories based upon the type of legal entity (i.e., Bank Netting 
Member, Dealer Netting Member, Inter-Dealer Broker Netting Member) and 
whether an entity is incorporated in the United States or not (i.e., a 
Foreign Netting Member). Netting Member applicants must meet both 
financial and operational minimum eligibility requirements \17\ and, as 
Members of GSD, must adhere to ongoing minimum membership 
standards.\18\ Furthermore, both the minimum eligibility requirements 
and ongoing standards vary depending on the relevant Netting Membership 
category. However, in general, all Netting Member categories may access 
the services available through GSD's Comparison System \19\ and Netting 
System.\20\
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    \17\ See Rule 2A, supra note 4.
    \18\ See Rule 3, supra note 4.
    \19\ See Rule 5, supra note 4. GSD also has a limited membership 
that permits Comparison-Only Members to participate only in its 
Comparison System. FICC does not act as a central counterparty for 
activity processed through its Comparison System and the services 
offered through its Comparison System are not guaranteed by FICC.
    \20\ See Rule 11, supra note 4.
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    Market participants may also access GSD's clearing services 
indirectly through a Netting Member. There are currently two indirect 
participation models to facilitate this--the Sponsored Service \21\ and 
the correspondent clearing/prime broker services.\22\ Each of these 
indirect participation models gives market participants different 
options to consider in accessing FICC's clearance and settlement 
services, and the benefits of its central counterparty guaranty, 
multilateral netting and centralized default management. However, the 
primary difference between the two models is that an indirect 
participant who becomes a Sponsored Member must establish an indirect, 
limited purpose membership with FICC, whereas the correspondent 
clearing/prime broker services do not require an indirect member to 
establish any relationship with FICC.
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    \21\ See Rule 3A, supra note 4.
    \22\ See Rule 8, supra note 4.
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    The Sponsored Service permits Netting Members, approved by FICC as 
``Sponsoring Members,'' to sponsor certain institutional firms, 
referred to as ``Sponsored Members'', into GSD membership.\23\ The 
Sponsoring Member is permitted to submit to FICC for

[[Page 21365]]

comparison, novation and netting certain types of eligible transactions 
either between itself and its Sponsored Members (i.e., ``done with''), 
or between the Sponsored Members and other third-party Netting Members 
(i.e., ``done away''). For operational and administrative purposes, a 
Sponsored Member appoints its Sponsoring Member to act as processing 
agent with respect to the Sponsored Member's satisfaction of its 
securities and funds-only settlement obligations.
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    \23\ See Rule 3A, supra note 4. An entity that chooses to become 
a Sponsoring Member still retains its status as a Netting Member and 
can continue to submit any non-Sponsored Member activity to FICC as 
such.
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    A Sponsored Member is a GSD member and the legal counterparty to 
FICC for any submitted transactions. However, the Sponsoring Member 
unconditionally guarantees to FICC the Sponsored Member's performance 
under a Sponsoring Member Guaranty, which guarantees to FICC the 
payment and performance of a Sponsored Member's obligations to FICC. 
Therefore, FICC relies on the financial resources of the Sponsoring 
Member in relying upon the Sponsoring Member Guaranty. If a Sponsoring 
Member fails to perform under the Sponsoring Member Guaranty, FICC may 
cease to act for the Sponsoring Member both as a Sponsoring Member as 
well as a Netting Member.
    Netting Members may also submit to FICC eligible activity on behalf 
of their customers through the correspondent clearing/prime broker 
services. Here, the Netting Member is referred to as the ``Submitting 
Member'' and the customer is referred to as the ``Executing Firm''.\24\ 
Unlike the Sponsored Service, FICC has no relationship with the 
Executing Firm and all obligations (i.e., margin and settlement) under 
the Rules remain with the Submitting Member. Executing Firms may 
execute trades with any Netting Member, including their submitting 
Netting Member, or a customer of any other Netting Member in clearing. 
In addition, Submitting Members have the option of either netting 
Executing Firm activity with other activity they submit to FICC (i.e., 
Submitting Member proprietary activity) or segregating Executing Firm 
activity in separate accounts. In all cases, however, the Submitting 
Member must identify the relevant Executing Firm(s) on the FICC 
transaction submission file.
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    \24\ See Rule 8, supra note 4. There are no operational 
differences between the current correspondent clearing service and 
the prime broker service. FICC provides a report to prime brokers 
that identifies margin calculation for their customers transactions 
and does not provide such report to Members using the correspondent 
clearing service. FICC would provide consistent reporting to all 
Agent Clearing Members under the proposal.
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Summary of Proposed Rule Changes
    First, FICC is proposing to re-name GSD's existing correspondent 
clearing/prime broker services as the Agent Clearing Service, which 
would continue to allow Netting Members to submit, on behalf of their 
customers, transactions to FICC for novation. As such, this proposal 
would provide that for a Netting Member to continue to offer its 
customers access to GSD's services via the current correspondent 
clearing/prime broker services, it must apply to use the Agent Clearing 
Service by becoming an Agent Clearing Member.
    This proposed change would improve the transparency of the Rules 
regarding the availability of this service to both Netting Members and, 
indirectly, their customers. This proposed change would enhance the 
ability of indirect participants to identify the correspondent 
clearing/prime broker services as a workable ``done away'' model that 
allows indirect participants to access clearing through multiple direct 
participants. Under these proposed rule changes, FICC would require 
Netting Members (in their new capacity as Agent Clearing Members) to 
process and record their customers' activity in separate ``Agent 
Clearing Member Omnibus Accounts'' to facilitate FICC's ability to 
monitor and, ultimately, risk manage that activity appropriately. These 
proposed changes would also provide that a Netting Member must apply to 
use the Agent Clearing Service and, as an Agent Clearing Member, shall 
be required, pursuant to the existing ongoing membership requirements 
in the Rules, to provide FICC with information regarding the customers 
for which it is acting. This information sharing would allow FICC to 
better identify and manage the risks posed by these indirect 
participants and would support FICC's compliance with the requirements 
of Rule 17Ad-22(e)(18)(iii) under the Act to monitor compliance with 
its participation requirements on an ongoing basis.\25\
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    \25\ 17 CFR 240.17Ad-22(e)(18)(iii).
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    Second, the proposed rule changes would update certain 
qualifications for GSD's membership categories. These proposed rule 
changes would (a) eliminate the two Sponsoring Member categories and 
apply to all Sponsoring Members the qualifications applicable to the 
current Category 2 Sponsoring Members; (b) remove the requirement that 
Sponsored Members either be ``qualified institutional buyers'' as such 
term is defined by Rule 144A under the Securities Act of 1933,\26\ or 
satisfy the financial requirements of such definition; (c) clarify the 
eligibility criteria for non-U.S. Netting Member applicants; and (d) 
describe how FICC may consider Netting Member applicants that do not 
qualify under an existing Netting Member category. These proposed 
changes would support FICC's continued maintenance of objective, risk-
based and publicly disclosed participation criteria and, therefore, 
facilitate open access to GSD's clearing services. The proposed rule 
changes would also improve the clarity of the Rules regarding the ways 
Members can access its services, while updating certain qualifications 
for membership.
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    \26\ 17 CFR 230.144A.
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    Third, FICC is proposing to further disclose to the public, through 
the Rules, the criteria and related requirements for how both Members 
and, indirectly, legal entities that are not Members, can access GSD's 
clearing services. These proposed rule changes would simplify and, 
therefore, clarify the criteria and related descriptions of the 
different models for accessing GSD's services by (a) providing to both 
Members and, indirectly, their customers a public road map of the 
different membership types, Netting Member categories and models for 
accessing GSD's services; and (b) simplifying the definitions of the 
different types of membership and other related definitions, and 
clarifying the eligibility criteria for different categories of Netting 
Members. These simplifications and clarifications, in turn, should 
enhance the ability of market participants, and in particular indirect 
participants, to understand and evaluate the comparative tradeoffs of 
using GSD's central clearing services depending on the relevant access 
model.
    Finally, the proposed rule changes would make other technical 
corrections and updates to the Rules, as described below.
Description of Proposed Rule Changes
1. Re-Name the Correspondent Clearing/Prime Broker Services as the 
Agent Clearing Service
    The proposed rule changes would re-name and consolidate the 
existing correspondent clearing/prime broker services into a single 
Agent Clearing Service and adopt additional provisions governing the 
use of this service. The proposed changes would provide market 
participants with an understanding of the operation of this service, 
the rights and obligations of the

[[Page 21366]]

firms that access the GSD facilities through this participation model, 
and how this service otherwise replaces and continues the access and 
functions currently available under the correspondent clearing/prime 
services. To these ends, the proposed rule changes would primarily 
amend Rule 8, which currently describes the correspondent clearing/
prime broker services, to describe the Agent Clearing Service with more 
specificity. This new terminology and specificity are intended to 
demonstrate how this particular GSD access model operates similarly to 
the way market participants in the cleared derivatives markets can 
execute derivatives with third parties and then give them up to their 
FCM for clearing. Thus, the proposed changes to Rule 8 described herein 
are designed to be comparable to the terms of FCM-style agent clearing 
models.\27\
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    \27\ Many of the provisions that are being proposed to be added 
to Rule 8 are similar to provisions recently adopted to Rule 2D 
(Agent Clearing Members) of the Rules & Procedures of FICC's 
affiliate, National Securities Clearing Corporation (``NSCC''), 
available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf. In developing the agent clearing model, NSCC 
solicited input from market participants, including agent lenders, 
brokers, institutional firms, and critical third parties, such as 
matching service providers and books and records service providers. 
See id.
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    As described above, the existing correspondent clearing/prime 
broker services permit Submitting Members to submit activity to FICC 
for clearing on behalf of their customers, the Executing Firms. To do 
this, a Submitting Member must establish a relationship with one or 
more Executing Firms and provide FICC with notice of each customer 
confirming the Executing Firm relationship. However, in contrast with 
the Sponsored Service, FICC has no relationship with the Executing 
Firms.
    Submitting Members are not currently required to, but can, 
segregate the Executing Firm activity in their submissions to FICC. In 
all instances, Submitting Members are responsible to FICC for all 
obligations, financial or otherwise, for that Executing Firm activity. 
While both Executing Firm activity and other Submitting Member activity 
(i.e., Submitting Member proprietary activity) are generally processed 
in the same manner by FICC, Executing Member trade data must include an 
executing firm symbol for identification purposes.
    While the proposed rule changes would change the terms used and 
otherwise enhance FICC's disclosures regarding the operation of the 
historical correspondent clearing/prime broker access models, most of 
the changes entailed by the shift to a single Agent Clearing Service 
would not alter in practice how Netting Members and their customers use 
this model to access GSD's services. Like the correspondent clearing/
prime broker models, the Agent Clearing Service would the continue 
prior models' facilitation of agent-style trading by allowing Netting 
Members, which would be referred to in the Rules as ``Agent Clearing 
Members'' for this purpose, to act as processing agent and credit 
intermediary for their customers in clearing, to be referred to as 
``Executing Firm Customers'' under the proposed changes.
    As described below, the proposal also entails changes that would 
provide FICC with the ability to monitor activity submitted through 
this indirect access model, thereby managing the risks that this 
activity could present to FICC and the GSD membership. For example, as 
described in greater detail below, FICC would require that Netting 
Members (including Netting Members who are Submitting Members today) 
submit an application to become Agent Clearing Members and provide 
additional information regarding each Executing Firm Customer beyond 
what is required for Executing Firms today, such as a Legal Entity 
Identifier (``LEI''). Agent Clearing Members would also be required to 
submit activity on behalf of their customers through separate Agent 
Clearing Member Omnibus Accounts, as opposed to the optional segregated 
submission approach provided for today. For both initial and ongoing 
membership purposes, the proposal would require Agent Clearing Members 
to provide FICC with information related to their use of the Agent 
Clearing Service, as may be requested by FICC from time to time, as 
described in greater detail below.
a. Rule 8--Agent Clearing Service
    Rule 8 currently describes the correspondent clearing/prime broker 
services at a high level. The proposed rule changes would delete and 
replace Rule 8 with a more detailed description of the correspondent 
clearing/prime broker services as a single Agent Clearing Service. 
These proposed changes would provide Netting Members and other market 
participants with a clearer description of the operation of this 
service and a better understanding of the availability of this indirect 
access model, as described below.
(i) Section 1--General
    The proposed changes to Section 1 of Rule 8 would provide a general 
overview of the purpose and availability of the Agent Clearing Service. 
The proposed rule changes would update the information currently in 
Section 1 of Rule 8 to replace updated defined terms and to correctly 
identify the Members and other parties who can participate in this 
indirect model (i.e., replace ``Submitting Member'' with ``Agent 
Clearing Member'').
(ii) Section 2--Agent Clearing Member Qualifications and Application 
Process
    Section 2 would provide that a Netting Member, other than an Inter-
Dealer Broker Netting Member, shall be eligible to apply to become an 
Agent Clearing Member. Inter-Dealer Broker Netting Members are 
currently not permitted to use the existing correspondent clearing/
prime broker services because, pursuant to Section 8(e) of Rule 3, 
these firms are required to limit their business to acting exclusively 
as a Brokers, and therefore this limitation continues to apply.\28\
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    \28\ This limitation that Inter-Dealer Broker Netting Members 
are not eligible to use the existing correspondent clearing/prime 
broker services is currently in the definition of ``Submitting 
Member'' in Rule 1 and would be moved to this Section 2 of Rule 8. 
Supra note 4.
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    Section 2 would also provide that an applicant to be an Agent 
Clearing Member shall complete and deliver to FICC an application and 
any other information that FICC may request. FICC currently does not 
require a Netting Member to apply, or provide any additional 
information, to FICC to use the correspondent clearing/prime broker 
services. To strengthen its ability to identify, monitor and manage the 
material risks that indirect participants may present through their 
access to GSD's clearing services, FICC is proposing to require that 
Netting Members apply to be Agent Clearing Members by completing and 
submitting an application to FICC. Section 2 of Rule 8 would specify 
that the application would require information about the applicant's 
customers, past and/or projected volumes of applicant customer 
activity, and the applicant's controls for monitoring and mitigating 
risks, including customer risks. Section 2 would also state that an 
applicant must provide any other information that FICC reasonably 
requests for purposes of this initial application process.
    In certain instances, FICC may find that a firm seeking to be an 
Agent Clearing Member may present risks that require further analysis 
and consideration by FICC before granting Agent Clearing Member status. 
Therefore, Section 2 of Rule 8 would introduce a new provision 
providing that FICC may require a firm to be a

[[Page 21367]]

Netting Member for a period of time prior to applying for Agent 
Clearing Member status.
(iii) Section 3--Executing Firm Customer Relationships
    Section 3 of Rule 8 would describe how an Agent Clearing Member may 
establish a relationship with an Executing Firm Customer under the 
Agent Clearing Service.
    First, Section 3 would define an Executing Firm Customer as an 
entity for which an Agent Clearing Member submits transactions to FICC 
pursuant to the requirements of Rule 8.
    Second, Section 3 would identify the information that an Agent 
Clearing Member must provide to FICC for each of its Executing Firm 
Customers. Currently, Section 3 of Rule 8 requires that the Submitting 
Member provide FICC with a notice of each customer that the Submitting 
Member intends to submit trades on behalf of, and requires that such 
notice (1) be provided to FICC not less than 3 Business Days prior to 
the commencement of the Member's initial data submission on behalf of 
each such Executing Firm, and (2) include ``the types of eligible 
transactions that will be submitted for Comparison System and/or 
Netting System processing.'' \29\
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    \29\ Supra note 4.
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    Under the proposed rules, FICC would no longer require that the 
customer notice include the types of transactions that would be 
submitted because it would accept any Agent Clearing Transactions 
submitted on behalf of an Executing Firm Customer, pursuant to Section 
4 of Rule 8, described below. Instead, FICC is proposing to require 
that Agent Clearing Members provide the following information from each 
Executing Firm Customer: (1) the name and executing firm symbol of the 
Executing Firm Customer; (2) written authorization from the Executing 
Firm Customer to act on its behalf; (3) a LEI for the Executing Firm 
Customer; \30\ (4) confirmation that the Executing Firm Customer and 
the Agent Clearing Member have entered into an agreement that binds the 
Executing Firm Customer to the applicable provisions of the Rules, as 
would be required by Section 3, described below; and (v) confirmation 
that the Executing Firm Customer understands, acknowledges and agrees 
to each of the Executing Firm Customer Acknowledgments set forth in, 
and as would be required by Section 6 of Rule 8, described in greater 
detail below.
---------------------------------------------------------------------------

    \30\ Rule 1 defines a Legal Entity Identifier as ``a 20-
character reference code to uniquely identify legally distinct 
entities that engage in financial transactions. The Legal Entity 
Identifier is based on the ISO 17442 standard developed by the 
International Organization for Standardization and satisfies the 
standards implemented by the Global Legal Entity Identifier 
Foundation.'' Supra note 4.
---------------------------------------------------------------------------

    The requirement that Agent Clearing Members provide FICC with a 
written authorization from its Executing Firm Customers, which FICC 
collects today pursuant to Section 3 of Rule 8, enables FICC to confirm 
that an agent clearing relationship exists between the Agent Clearing 
Member and the Executing Firm Customer. This requirement would be 
expanded to permit FICC to collect other information regarding the 
Executing Firm Customer and its agent clearing relationship with the 
Agent Clearing Members. Consistent with this change, FICC would 
therefore no longer accept trade data on behalf of an Executing Firm 
customer if it has not yet received the required written 
authorization.\31\
---------------------------------------------------------------------------

    \31\ For this purpose, FICC is also proposing to remove a 
statement from Section 4 of Rule 8 that FICC may accept data ``on 
behalf of an Executing Firm even though a written notice . . . has 
not been received. . . .'' See supra note 4.
---------------------------------------------------------------------------

    The proposed rules would require that the above-specified 
information be provided in a form acceptable to FICC no later than 3 
Business Days prior to the commencement of the Agent Clearing Member's 
initial data submission on behalf of an Executing Firm Customer. This 
timeframe, currently in Rule 8, provides FICC with the ability to 
confirm on a timely basis that the information provided is complete and 
accurate and to update its systems to reflect the agent clearing 
relationship. Additionally, to facilitate the ability of Agent Clearing 
Members to submit trades on behalf of their Executing Firm Customers as 
quickly as possible, FICC would provide to Agent Clearing Members a 
standardized Executing Firm Customer information form. By requiring 
each Executing Firm Customer to complete and execute this standardized 
form, FICC would be able to ensure that the required information is 
provided in a form acceptable to it, while also ensuring that such 
information is consistent and comprehensive across all Executing Firm 
Customers.
    In addition to requiring that it receive a LEI for each Executing 
Firm Customer when a relationship is established in the Agent Clearing 
Service, Section 3 would also require that each Agent Clearing Member 
maintain, on ongoing basis, a current LEIs for each of its Executing 
Firm Customers. Each Agent Clearing Member would also be required to 
indemnify FICC for any losses, liabilities, expenses and legal actions 
that could arise as a result of that Agent Clearing Member's failure to 
meet these requirements. The proposed requirement that Agent Clearing 
Members both provide and maintain a current LEI on file with FICC for 
each of its Executing Firm Customers and provide an indemnification 
related to this requirement are identical to existing requirements on 
Netting Members and Sponsoring Members, with respect to their Sponsored 
Members.\32\
---------------------------------------------------------------------------

    \32\ Applicants to be Netting Members are also required to (i) 
provide FICC with a LEI as part of their application under Section 5 
of Rule 2A, (ii) maintain a current LEI on file with FICC at all 
times under Section 2 of Rule 3, and (iii) indemnify FICC for any 
losses, liabilities, expenses and legal actions incurred as a result 
of its failure to maintain a current LEI on file with FICC under 
Section 2 of Rule 3. Supra note 4. Under Section 2(d) of Rule 3A, 
Sponsoring Members have an identical obligation to (i) provide FICC 
with a LEI for each of its Sponsored Members when onboarding those 
Sponsored Members, (ii) maintain a current LEI for each of its 
Sponsored Members on file with FICC at all times, and (iii) 
indemnify FICC from any losses resulting from a failure to adhere to 
these requirements. Id.
---------------------------------------------------------------------------

    As noted above, Section 3 of Rule 8 would require that an agreement 
between the Agent Clearing Member and the Executing Firm Customer bind 
the latter to the applicable provisions of the Rules. However, beyond 
this specific requirement the proposed changes would also acknowledge 
such an agreement may otherwise be on any terms and conditions mutually 
agreed to by the parties and confirm that the Rules do not prohibit any 
reimbursement or other payments sharing arrangements that may be 
established between those parties, away from FICC.
    Finally, Section 3 would provide that Agent Clearing Members may, 
but are not required to, provide to FICC a written notice that it will 
no longer submit trades on behalf of an Executing Firm Customer. 
Section 3 of Rule currently requires Submitting Members to provide such 
notice to FICC. However, FICC does not see a need to mandate such 
notice because an Agent Clearing Member that terminates its agent 
clearing relationship with a customer may just cease to submit trades 
to FICC for processing. In any case, if an Agent Clearing Member 
chooses to submit such written notice to FICC, FICC would remove that 
relationship from its systems.
(iv) Section 4--Agent Clearing Transactions
    Section 4 of Rule 8 would define Agent Clearing Transactions as 
transactions that are eligible to be submitted by an Agent Clearing 
Member on behalf of its Executing Firm

[[Page 21368]]

Customers. The existing scope of this definition would not change and 
would continue to exclude ``Netting Eligible Auction Purchases'', 
``Brokered Transactions'', ``GCF Repo Transactions'' and ``CCIT 
Transactions'', as such terms are defined in the Rules.\33\
---------------------------------------------------------------------------

    \33\ GCF Repo Transactions and CCIT Transactions are currently 
excluded due to system limitations, and Brokered Transactions are 
necessarily excluded because Inter-Dealer Broker Netting Members are 
not permitted to act as Agent Clearing Members, as discussed above. 
The exclusion of Netting Eligible Auction Purchases is driven by the 
specific processing rules applicable to auctions that are external 
to FICC. The laws and regulations applicable to U.S. Treasury 
auctions are available at https://treasurydirect.gov/laws-and-regulations/.
---------------------------------------------------------------------------

(v) Section 5--Rights and Obligations of Agent Clearing Members
    Section 5 of Rule 8 would specify the rights and obligations of 
Agent Clearing Members, expanding on the provisions currently provided 
in Section 4 of Rule 8.\34\ These provisions would provide that Agent 
Clearing Members have the right to submit Agent Clearing Transactions 
to FICC for clearing, subject to the applicable requirements set forth 
in the Rules, including, for example, the requirement that all such 
activity comply in all material respects with applicable laws. Section 
5 would define the role of the Agent Clearing Members as processing 
agents of Executing Firm Customers and establish that Agent Clearing 
Members are liable to FICC for all obligations arising in connection 
with their Agent Clearing Transactions in the same manner as if the 
Agent Clearing Member had executed those trades. These proposed changes 
would also clarify that where an entity is both an Agent Clearing 
Member and a Netting Member, the obligations of that entity to satisfy 
all of the applicable obligations under the Rules and any other 
relevant arrangements with FICC across both types of membership apply 
comprehensively. Therefore, Section 5 would state that Agent Clearing 
Members' obligations to FICC in their capacity as Netting Members, both 
under the Rules and under any agreements between the Agent Clearing 
Member and FICC, also apply to them in their capacity as Agent Clearing 
Members, to their Agent Clearing Transactions and to their Agent 
Clearing Member Omnibus Accounts. The proposed changes to Section 5 
would also explicitly clarify that FICC has no liability or obligations 
to any Executing Firm Customer.
---------------------------------------------------------------------------

    \34\ Section 4 of Rule 8 currently provides, ``A Submitting 
Member shall have the same rights, and incur the same 
responsibilities, as regards trade data by it to the Corporation on 
behalf of an Executing Firm as it does, pursuant to these Rules, 
regarding data submitted to the Corporation on its own trades.'' 
Supra note 4.
---------------------------------------------------------------------------

    Section 5 of Rule 8 would also provide for FICC's authority to 
obtain information from Agent Clearing Members on an ongoing basis. For 
example, this section would require Agent Clearing Members to provide 
FICC with information or reports that it may request pursuant to the 
existing, ongoing membership requirements in Section 2 of Rule 3, 
including information or reports related to their Agent Clearing 
Transactions.\35\ In addition, FICC would have the right to request 
information that is similar to the information requested for Agent 
Clearing Member applications, for example, information regarding its 
customers, past and/or projected volumes of its customer activity, and 
its controls for monitoring and mitigating risks, including risks 
presented by those customers. These annual and ad hoc due diligence 
requests are key to FICC's ability to identify, monitor and manage the 
risks its Members may present to it and the broader GSD membership. The 
proposed changes would therefore support FICC's authority to request 
information from Agent Clearing Members regarding their Executing Firm 
Customers and their use of the Agent Clearing Service. By collecting 
this information at both the application process and through its 
regular due diligence requests, FICC would be able to identify, 
monitor, and, therefore, manage the risks posed by its Members' use of 
this service and the indirect participants.
---------------------------------------------------------------------------

    \35\ Section 2 of Rule 3 currently provides that, ``Each Netting 
Member shall submit to the Corporation the reports, financial or 
other information set forth [in this Section 2] and such other 
reports, financial and other information as the Corporation from 
time to time may reasonably require.'' Supra note 4.
---------------------------------------------------------------------------

(vi) Section 6--Executing Firm Customer Acknowledgements
    Next, Section 6 of Rule 8 would include specific Executing Firm 
Customer acknowledgements with respect to their participation in the 
Agent Clearing Service. Because Executing Firm Customers would continue 
to have no relationship to FICC, the proposed changes to Section 6 
would provide that Agent Clearing Members are responsible for affirming 
that their Executing Firm Customers understand, acknowledge and agree 
to the provisions in this Section of Rule 8. As noted above, the 
standardized authorization form that Agent Clearing Members would be 
required to provide to FICC would confirm that this requirement has 
been satisfied.
    Like other proposed changes to Rule 8, these additions to Section 6 
are common in other agent clearing models and, therefore, would be 
familiar to market participants looking to use the Agent Clearing 
Service.\36\ These acknowledgements would include, for example, 
confirmation that the Agent Clearing Service is governed by the Rules, 
that FICC may deal exclusively with Agent Clearing Members and is not 
obligated to deal directly with Executing Firm Customers. The 
acknowledgements would also clarify that FICC does not have any 
obligations or liability to Executing Firm Customers.
---------------------------------------------------------------------------

    \36\ See supra note 27.
---------------------------------------------------------------------------

(vii) Section 7--Agent Clearing Transactions Processing Rules
    Finally, Section 7 of Rule 8 would describe certain rules regarding 
the processing of Agent Clearing Transactions.
    First, Section 7 would provide that Agent Clearing Transactions 
would be recorded in accounts maintained by FICC on behalf of the Agent 
Clearing Member, defined as ``Agent Clearing Member Omnibus Accounts''. 
This proposed requirement would facilitate FICC's ability to identify, 
monitor and manage the risks that this activity may present. Currently, 
the existing correspondent clearing/prime broker services gives Netting 
Members discretion in choosing whether to record their customer 
activity in an account that is separate from their Netting Member 
account. Under this aspect of the proposal, that discretion would be 
removed by the new requirement under Section 7 that all Agent Clearing 
Transactions include an executing firm symbol that identifies the 
Executing Firm Customer. Section 7 would relatedly provide that Agent 
Clearing Transactions that do not contain an executing firm symbol be 
rejected by FICC.\37\ Therefore, the proposed rule change would remove 
language currently in Section 2 of Rule 8 that states, if the Executing 
Firm is not

[[Page 21369]]

included on the trade data submitted to FICC, then FICC would process 
the trades as if it was not a customer trade. While this new mandatory 
approach would enable FICC to track and monitor distinct Executing Firm 
Customer activity, for risk management purposes Agent Clearing Members 
would have the option to net all of that activity in the same Agent 
Clearing Member Omnibus Account.\38\
---------------------------------------------------------------------------

    \37\ FICC is proposing to remove a statement currently in 
Section 5 of Rule 8 that says, ``The Corporation, in its sole 
discretion, may decline to accept trade data involving one or more 
Executing Firms, either generally for all trade data submitted to 
the Corporation or by Submitting Member.'' This statement addresses 
FICC's right to reject a trade if it does not meet trade submission 
criteria. The proposed changes to Rule 8 would address this right, 
making this statement no longer necessary. For example, as noted 
above, Section 2 would provide that FICC shall not act upon an 
instruction regarding an Executing Firm Customer until it obtains an 
authorization from that Executing Firm Customer and, as noted here, 
Section 7 would provide that FICC would reject any trade that does 
not include an executing firm symbol.
    \38\ Contemporaneously with this proposed rule change, FICC will 
propose additional rule changes to address how Agent Clearing 
Members and Sponsoring Members may elect to maintain separate 
accounts for clearing activity that satisfy the requirements 
described in Note H to Rule 15c3-3a, as it has been amended. See 15 
U.S.C. 78s(b)(1). Such proposed rule changes would support FICC's 
compliance with the requirements of Rule 17Ad-22(c)(6)(i), as 
adopted by the Treasury Clearing Rules. Supra note 5. See also 17 
CFR 240.15c3-3a.
---------------------------------------------------------------------------

    Second, Section 7 would state that Agent Clearing Transactions 
would continue to be processed in the same way that FICC processes 
other transactions through the GSD netting, clearing and settlement 
systems, unless exceptions to that processing are specifically 
identified in Rule 8.
    Third, Section 7 would include a description of how Agent Clearing 
Transactions are processed when the optional field identifying the 
contra-party is either omitted or does not match on the transaction 
file. Specifically, the Agent Clearing Transaction would be compared 
based on the executing firm symbol. This information is currently 
applicable to activity processed through the correspondent clearing/
prime broker services and would be moved from Rule 10 to Rule 8.
    Fourth, the proposed rule changes would move into Section 7 
provisions from Section 2 of Rule 11, which describes the Netting 
System, and Section 11 of Rule 12, which describes processing of Same-
Day Settling Trades.\39\ These provisions are currently applicable to 
transactions processed through the correspondent clearing/prime broker 
services and would continue to be applicable to Agent Clearing 
Transactions. Specifically, both provisions permit an Agent Clearing 
Member to notify FICC if it does not want Agent Clearing Transactions 
of a particular Executing Firm Customer to be netted and settled, in 
which case the transaction would only be compared through the 
Comparison System.
---------------------------------------------------------------------------

    \39\ See definition of ``Same-Day Settling Trades'' in Rule 1, 
supra note 4. Same-Day Settling Trades are not netted prior to 
settlement so are settled through the Comparison System, as 
described in this provision.
---------------------------------------------------------------------------

    Fifth, Section 7 would state that if a loss is allocated to Members 
pursuant to Section 7 of Rule 4, the Agent Clearing Member, as 
principal, would be responsible for satisfying the loss allocation 
obligations that are calculated for its Executing Firm Customers. 
Section 7 would also provide that the Clearing Fund obligations 
applicable to an Agent Clearing Members' Agent Clearing Transactions 
would be calculated separately from the obligations calculated with 
respect to other activity of the Agent Clearing Member. However, FICC 
would have the right to apply any Clearing Fund deposits of an Agent 
Clearing Member to any obligations of that Member (including in their 
capacity as a Netting Member). As a substantive matter, the above two 
changes do not vary from how FICC calculates and applies loss 
allocation or Clearing Fund requirements under the correspondent 
clearing and prime broker services today. Therefore, these changes 
function more as conforming and clarifying disclosures with respect to 
these matters for Netting Members in their new capacity as Agent 
Clearing Members.\40\
---------------------------------------------------------------------------

    \40\ As noted above, FICC will propose changes to this section 
under a separate proposal to address the calculation, collection and 
application of Clearing Fund requirements under the Rules for 
certain, designated accounts. Supra note 38.
---------------------------------------------------------------------------

    Sixth and finally, Section 7 would include and clarify a provision 
that is currently in Section 6 of Rule 8 notifying Agent Clearing 
Members that the comparison output provided by FICC would identify the 
Executing Firm Customer for any Agent Clearing Transactions.
(viii) Other Rule Changes To Address Agent Clearing Service
    The proposed changes would also amend Rule 1 to replace several 
definitions: ``Submitting Member'' with ``Agent Clearing Member'' and 
``Executing Firm'' with ``Executing Firm Customer''. The Rule 1 changes 
would also add new definitions for ``Agent Clearing Member Omnibus 
Account'' and ``Agent Clearing Transactions''. The proposed changes 
would also correct the definition of ``GCF Counterparty'' to remove a 
reference to a Submitting Member acting for an Executing Firm because, 
as noted above, Agent Clearing Transactions do not include GCF Repo 
Transactions, and, as such, Agent Clearing Members cannot be GCF 
Counterparties.
    The proposed rule changes would amend other Rules to reflect these 
updated defined terms or remove descriptions of how this service 
operates where those descriptions have been moved and restated in Rule 
8. Revisions to other Rules include (i) Rule 2, to include Agent 
Clearing Members as an additional type of membership available to 
Netting Members, as described in greater detail below; (ii) Rules 5, 
6A, 11 and 18, to replace references to ``Executing Firms'' with 
``Executing Firm Customers'' and replace references to ``Submitting 
Member'' with ``Agent Clearing Member''; (iii) Rule 6C, to correct an 
incorrect statement in this Rule by removing a parenthetical that 
indicates GCF Counterparties could be Submitting Members for Executing 
Firms, because the definition of Agent Clearing Transactions excludes 
GCF Repo Transactions, as such term is defined in the Rules; (iv) 
Section 2 of Rule 11 and Section 11 of Rule 12 to remove statements 
that would be moved into Section 7 of Rule 8, as described above; (v) 
Rule 15, to remove Section 1, which would be addressed in Section 5 of 
Rule 8; (vi) Rule 24, to address the responsibility of Agent Clearing 
Members to pay all fees that are related to the Agent Clearing Member 
activity that is submitted pursuant to Rule 8, including any expenses 
that are incurred directly or indirectly by such Member; (vii) the 
Schedule of Required Data Submissions, to correct statements in this 
Schedule and clarify that Agent Clearing Members are required to 
include an executing firm symbol on the submission of all Agent 
Clearing Transactions; and (viii) the Fee Structure, to remove an 
incorrect statement from Section I(G) that indicates GCF Counterparties 
could be Members submitting trades for non-Members, because the 
definition of Agent Clearing Transactions excludes GCF Repo 
Transactions, as such term is defined in the Rules and to revise 
Section VI to address fees applicable to Agent Clearing Members to use 
the revised defined terms.
2. Update Certain Membership Qualifications To Facilitate Access to 
GSD's Services
    FICC is proposing changes to certain membership qualifications that 
would improve FICC's ability to service a wide variety of market 
participants for both direct and indirect membership. These proposed 
changes are designed to facilitate open access to the clearance and 
settlement services offered by GSD and, therefore, would support FICC's 
compliance with the Treasury Clearing Rules.
a. Eliminate the Separate Categories of Sponsoring Members
    FICC is proposing to eliminate the separate categories of 
Sponsoring Members and apply the standards

[[Page 21370]]

applicable to Category 2 Sponsoring Members to all Sponsoring Members.
    When FICC established the Sponsored Service in 2005, it limited 
Sponsoring Member eligibility to only Bank Netting Members that met the 
criteria set out in Rule 3A.\41\ In 2019, FICC expanded Sponsoring 
Member eligibility to also include Tier One Netting Members, other than 
Inter-Dealer Broker Netting Members, or Non-IDB Repo Brokers with 
respect to activity in its Segregated Repo Account.\42\ At that time, 
FICC established two categories of Sponsoring Members--Category 1 
Sponsoring Members are Bank Netting Members that meet the eligibility 
criteria described in Section 2(a) of Rule 3A, and Category 2 
Sponsoring Members are all other eligible Netting Members.\43\
---------------------------------------------------------------------------

    \41\ Securities Exchange Act Release No. 51896 (June 21, 2005), 
70 FR 36981 (June 27, 2005) (SR-FICC-2004-22).
    \42\ See Securities Exchange Act Release No. 85470 (Mar. 29, 
2019) 84 FR 13328 (Apr. 4, 2019) (SR-FICC-2018-013) (creating two 
categories of Netting Members to be eligible to be Sponsoring 
Members, expanding the eligibility of the service to other types of 
Netting Members in addition to Bank Netting Members).
    \43\ See id. See also Rule 3A, Section 2, supra note 4.
---------------------------------------------------------------------------

    While Bank Netting Members are subject to certain capitalization 
requirements as Sponsoring Member applicants,\44\ Category 2 Sponsoring 
Member applicants are instead subject to financial requirements that 
are greater than the financial requirements applicable in their 
capacity as Netting Members.\45\ Moreover, these increased financial 
requirements do not solely relate to an applicant's capitalization, but 
instead are based on the applicant's anticipated use of the Sponsoring 
Service in relation to their financial condition. Thus, this tiered 
category structure created differing applicant criteria based on the 
type of entity seeking Sponsoring Member status.
---------------------------------------------------------------------------

    \44\ Under Section 2(a) of Rule 3A, Bank Netting Members 
applying to be a Sponsoring Member must (i) have equity capital of 
at least $5 billion, (ii) be ``Well-Capitalized'', as such term is 
defined in the Rules, and (iii) have a bank holding company that is 
registered under the Bank Holding Company Act of 1954, as amended 
and that such bank holding company also be ``Well Capitalized''. 
``Well Capitalized'' is defined in Rule 1 to have the meaning given 
that term in the capital adequacy rules and regulations of the 
Federal Deposit Insurance Corporation. Supra note 4.
    \45\ See Section 2(b)(ii) of Rule 3A, supra note 4.
---------------------------------------------------------------------------

    This differentiated approach continues for ongoing Sponsoring 
Member requirements. For example, a Category 1 Sponsoring Member may be 
subject to an increase in its Required Fund Deposit, as calculated 
pursuant to Section 2(h) of Rule 3A, if it fails to meet the applicable 
capitalization requirements.\46\ Alternatively, Section 2(h) of Rule 3A 
provides that Category 2 Sponsoring Members may be subject to a limit 
on the activity that they can submit through the Sponsoring Service if 
their VaR Charges, as calculated and collected pursuant to Rule 4, 
exceed their Netting Member Capital.\47\
---------------------------------------------------------------------------

    \46\ Supra note 4.
    \47\ A ``VaR Charge'' is a component of the Required Fund 
Deposit and defined in Rule 1, and ``Netting Member Capital'' is 
defined in Rule 1 to mean ``Net Capital, net assets or equity 
capital as applicable, to a Netting Member based on its type of 
regulation''. Supra note 4.
---------------------------------------------------------------------------

    The Sponsored Service has continued to grow since its 
implementation. As discussed above, FICC has conducted a review of its 
access models to consider whether (i) its existing policies and 
procedures treat transactions differently based on the identity of the 
participant submitting the transaction, the fact that an indirect 
participant is a party to the transaction, the method of execution, and 
other factors, and (ii) this variation of treatment continues to be 
necessary and appropriate in furtherance of the requirements under Rule 
17Ad-22(e) and other parts of the Act applicable to FICC.\48\ In light 
of this review and the general experience FICC has acquired in 
overseeing the expansion of the Sponsored Service membership, FICC 
believes that now is the appropriate time to make further enhancements 
so that this service can facilitate broader access to clearance and 
settlement services for eligible secondary market transactions in U.S. 
Treasury securities, including those of indirect participants who may 
seek to use the Sponsored Service as Sponsored Members. Therefore, FICC 
believes it is appropriate to eliminate the two categories of 
Sponsoring Members and make all Sponsoring Members subject to the same 
eligibility and ongoing requirements that are currently applicable to 
Category 2 Sponsoring Members. In practice, this proposed rule change 
would therefore affect only Bank Netting Members that are or will apply 
to be Sponsoring Members by removing the above-mentioned capitalization 
requirements and instead applying to such Members (and therefore all 
Sponsoring Members) the activity limits and financial condition factors 
used today for Category 2 Sponsoring Members. More broadly, the 
proposal would create applicant and ongoing Sponsoring Membership 
parity among all Sponsoring Members and applicants, which in turn 
should give indirect participants a wider range of Sponsoring Members 
to consider should they choose to access GSD's central clearing 
services via this particular indirect access model. At the same time, 
the preservation and broader application of activity limits and 
financial condition monitoring will allow FICC to continue to manage 
the risks that could be presented by any activity cleared through the 
Sponsored Service.
---------------------------------------------------------------------------

    \48\ See 17 CFR 240.17Ad-22(e). See supra note 11.
---------------------------------------------------------------------------

    First, the proposed changes would eliminate the capitalization 
requirements that Bank Netting Members must meet to be eligible 
Sponsoring Members applicants. This proposed change would therefore put 
Bank Netting Member applicants on equal footing with other types of 
Sponsoring Member applicants and would expand the availability of the 
Sponsored Service to additional Bank Netting Members. However, FICC 
does not believe this proposed change would increase the risks 
presented to it by Bank Netting Members' participation in the Sponsored 
Service as Sponsoring Members because FICC would continue to manage 
those risks through other existing risk management tools. For example, 
rather than apply capitalization requirements to every Bank Netting 
Member applicant, FICC would continue to have the authority, as it does 
today for other types of applicants, to impose greater and additional 
financial requirements on a Bank Netting Member applicant based on 
information available through the Sponsoring Member application and 
ongoing surveillance of the applicant as a Netting Member.\49\ FICC is 
also able to use the Excess Capital Premium to manage instances where a 
Sponsoring Member presents heightened default risk because of lower 
capital levels.\50\ Finally, as described more below, the proposal 
would impose upon Bank Netting Members the same activity limit used for 
other types of Sponsoring Members today, thereby giving FICC an 
additional risk management tool to address any risks that may arise 
because of a Bank Netting Member's capital levels.
---------------------------------------------------------------------------

    \49\ See Rule 3A, Section 2(b)(ii) (describing the factors that 
FICC may consider when determining whether to impose additional 
financial requirements on a Sponsoring Member), supra note 4. For 
the purposes of illustration only, such financial requirements could 
include, without limitation, additional reporting requirements, 
including reporting of parent company financials, or a higher 
minimum deposit to the Clearing Fund.
    \50\ See Rule 3, Section 14 (the Excess Capital Premium is an 
additional Clearing Fund deposit that may be required if a Member's 
capital levels drop below a threshold relative to its other margin 
requirements), supra note 4.
---------------------------------------------------------------------------

    Second, the proposed changes would eliminate FICC's right to 
increase the Required Fund Deposit of a Category 1 Sponsoring Member if 
it fails to meet the capitalization requirements, instead relying upon 
an activity limit under the

[[Page 21371]]

circumstances described in Section 2(h) of Rule 3A on all Sponsoring 
Members (including, as discussed above, those that are Bank Netting 
Members).\51\ The activity limit, which currently only applies to 
Category 2 Sponsoring Members, restricts a Sponsoring Member from 
submitting additional activity into its Sponsoring Member Omnibus 
Account(s) if its capital levels exceed the sum of its VaR Charge 
component of the Clearing Fund.\52\ Based upon its experience with the 
activity limit tool since it was first applied in 2019, FICC believes 
the activity limit has been an appropriate and effective risk 
management measure for its Sponsoring Members, and will continue to 
operate as such with the expanded application to Bank Netting Members. 
As noted earlier, Sponsoring Members are unconditionally liable to FICC 
for the obligations of its Sponsored Members under the Sponsoring 
Member Guaranty, and FICC relies on the financial resources of the 
Sponsoring Members to ensure that their funds and securities settlement 
obligations will still be met if the Sponsored Members default. 
Therefore, the activity limit aligns more neatly with this risk by 
giving FICC the proactive ability to mitigate Sponsoring Member 
exposures in prohibiting concerning participants from continuing to 
submit activity that they may not be able to cover. Like the changes to 
the eligibility requirements discussed above, this proposed change 
would also harmonize the conditions of membership across all types of 
Sponsoring Members, thereby increasing the potential pool of Sponsoring 
Member applicants to the benefit of both direct and indirect 
participants seeking expanded access to GSD's central clearing 
services.
---------------------------------------------------------------------------

    \51\ See Rule 3A, Section 2(h), supra note 4.
    \52\ See id. See supra note 42.
---------------------------------------------------------------------------

    To implement these proposed changes, FICC would make the following 
changes to the Rules: (1) delete the definitions of ``Category 1 
Sponsoring Member'' and ``Category 2 Sponsoring Member'' from Rule 1; 
(2) revise the definition of ``Sponsoring Member'' in Rule 1 to remove 
reference to the two categories; and (3) amend Section 2(a), (b) and 
(h) of Rule 3A to remove the capitalization eligibility requirements 
currently applicable to Category 1 Sponsoring Members and clarify that 
the Category 2 Sponsoring Member eligibility requirements apply to all 
applicants to be a Sponsoring Member.
b. Remove the QIB Requirement Applicable to Sponsored Members
    FICC is proposing to remove the eligibility requirement that 
Sponsored Members either be ``qualified institutional buyers'' as such 
term is defined by Rule 144A under the Securities Act of 1933, or 
otherwise satisfy the financial requirements of such definition.\53\ As 
noted above, FICC has progressively expanded the eligibility of both 
Sponsoring Members and Sponsored Members to facilitate greater access 
to this indirect participation model and based on its experience over 
time with the Sponsored Service believes this change is now 
appropriate.\54\ Upon implementation of this proposal, the only 
qualification for a Person (as such term is defined in Rule 1) \55\ 
applying to be a Sponsored Member would be that it is sponsored by at 
least one Sponsoring Member. Therefore, this proposed change would make 
the Sponsored Service available to additional market participants, 
thereby facilitating those firms with access to GSD's clearing 
services. Expanding eligibility to become a Sponsored Member supports 
the goals of the Treasury Clearing Rules to facilitate increased 
central clearing of transactions involving U.S. Treasury 
securities.\56\
---------------------------------------------------------------------------

    \53\ 17 CFR 230.144A. See Rule 3A, Section 3(a), supra note 4.
    \54\ See Securities Exchange Act Release No. 80563 (May 1, 
2017), 82 FR 21284 (May 5, 2017) (SR-FICC-2017-003) (removing a 
requirement that a Sponsored Member be a registered investment 
company, as such term is defined in Rules). See also supra note 42.
    \55\ Supra note 4.
    \56\ See page 12 of the Adopting Release (referring to the 
revisions to Rule 17Ad-22(e)(18) as being designed to ``bring the 
benefits of central clearing to more transactions involving U.S. 
Treasury securities, thereby reducing the overall systemic risk in 
the market''). Supra note 5.
---------------------------------------------------------------------------

    FICC believes that making this change is appropriate because, as 
described above, FICC risk manages the Sponsored Service primarily at 
the Sponsoring Member level, not the Sponsored Member level. For 
example, a Sponsoring Member is responsible under Section 10 of Rule 3A 
for posting to FICC the Required Fund Deposit for its sponsored 
activity and, while Sponsored Members are principally liable to FICC 
for their settlement obligations, the Sponsoring Member is also 
required under Section 2 of Rule 3A to provide a guaranty to FICC for 
such obligations.\57\ This means that, in the event one or more 
Sponsored Members does not satisfy its settlement obligations, FICC is 
able to invoke the Sponsoring Member Guaranty. Finally, pursuant to 
Section 2(d) of Rule 3A and Section 2 of Rule 3, Sponsoring Members may 
be required to provide to FICC reports or other information that FICC 
may require, including, for example, responses to annual or ad hoc due 
diligence requests.\58\ As described above, FICC utilizes these due 
diligence requests to identify, monitor and manage the risks Sponsoring 
Members and their Sponsored Members may present to it. Where FICC 
identifies risks, whether via the due diligence process or otherwise, 
as discussed previously FICC will be able to impose on a Sponsoring 
Member supplemental financial requirements, an Excess Capital Premium 
charge (where applicable), and activity limits. Therefore, FICC 
believes that its existing risk management practices with respect to 
the Sponsored Service, which do not directly rely on the QIB 
requirement, continue to facilitate effective risk management of 
exposures created through the Sponsored Service.
---------------------------------------------------------------------------

    \57\ See supra note 4.
    \58\ See supra note 4.
---------------------------------------------------------------------------

    To implement this proposed change, FICC would amend Section 3(a) of 
Rule 3A to remove the requirement that a Sponsored Member be either a 
``qualified institutional buyer'' as defined by Rule 144A under the 
Securities Act of 1933 as amended, or otherwise satisfy the financial 
requirements of that definition.\59\
---------------------------------------------------------------------------

    \59\ 17 CFR 230.144A.
---------------------------------------------------------------------------

c. Clarify the Eligibility Criteria for Non-U.S. and Other Applicants 
To Be Netting Members
    FICC is proposing to revise the Rules addressing Netting Member 
eligibility criteria for applicants that are either (1) not 
incorporated or formed in the United States, currently referred to in 
the Rules as ``Foreign Persons,'' \60\ and (2) applicants, including 
Foreign Persons, that do not meet the eligibility criteria of one of 
the categories of Netting Member.
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    \60\ ``Foreign Person'' is currently defined in Rule 1 to mean 
``a Person that is organized or established under the laws of a 
country other than the United States and does not include a foreign 
Bank Netting Member which is not deemed to be a Foreign Member 
pursuant to the definition of that term.'' Supra note 4. Proposed 
revisions to simplify this defined term would not change it 
substantively.
---------------------------------------------------------------------------

    (i) Foreign Person Applicants. FICC is proposing to improve the 
transparency of the Rules regarding the eligibility of Foreign Persons 
to become Netting Members. In connection with these proposed changes, 
the proposal would eliminate the category for ``Foreign Netting 
Member'' and simplify the related defined terms.

[[Page 21372]]

    Currently, a Foreign Person applying to be a Netting Member must 
meet the eligibility criteria for a distinct Netting Member category, 
``Foreign Netting Members.'' In contrast with the eligibility approach 
used for other Netting Member categories, the eligibility criteria for 
Foreign Netting Members in Section 3(a)(v) of Rule 2A do not specify or 
reference eligible types of legal entities. However, Section 
4(b)(ii)(E) of Rule 2A does provide for minimum financial requirements 
and includes specific criteria for brokers, dealers and banks. This 
Section also provides FICC with the authority to set minimum financial 
requirements for other types of legal entities applying to be a Foreign 
Netting Member.
    Section 3(b) of Rule 2A currently states that an entity can only be 
one category of Netting Member at a time.\61\ A Foreign Person that, 
for example, is the foreign equivalent to a Registered Investment 
Company \62\ would apply to be a Foreign Netting Member, and would be 
subject to the eligibility criteria, other membership qualifications, 
and ongoing minimum membership standards that are applicable to Foreign 
Netting Members. However, the Rules also contain specific eligibility 
criteria, other membership qualifications, and ongoing minimum 
membership standards for Registered Investment Company Netting Members. 
Thus, in this example it is unclear whether the applicant entity would 
only be subject to the Foreign Netting Member standards or would also 
have to satisfy the Registered Investment Company Netting Member 
standards. This ambiguity can have meaningful implications. For 
example, Registered Investment Company Netting Members are excluded 
from the requirement that Netting Members purchase common shares of The 
Depository Trust & Clearing Corporation, pursuant to Rule 49.\63\ If a 
Registered Investment Company that is a Foreign Person applied, and was 
approved, to be a Foreign Netting Member, it would not be clear if this 
exclusion from Rule 49 should be applicable to this Foreign Netting 
Member applicant.
---------------------------------------------------------------------------

    \61\ Supra note 4.
    \62\ ``Registered Investment Company'' is currently defined in 
Rule 1 to mean ``an Investment Company that is registered as such 
with the SEC'', where an ``Investment Company is currently defined 
in Rule 1 to have ``the meaning given that term in Section 3 of the 
Investment Company Act of 1940, as amended.'' Supra note 4. Proposed 
revisions to simplify this defined term would not change it 
substantively.
    \63\ Supra note 4.
---------------------------------------------------------------------------

    To address these instances of ambiguity, the proposed rule changes 
would eliminate the category of ``Foreign Netting Member'' and would 
expand the qualifications for each category of Netting Member to 
include the foreign equivalent of the same legal entity types, as 
determined by FICC in its sole discretion. For example, the 
qualifications to be an Insurance Company Netting Member would continue 
to include an insurance company, as such term is defined in Section 
2(a)(17) of the Investment Company Act of 1940, as amended,\64\ and 
would now also include an equivalent of such an entity in a non-U.S. 
jurisdiction, as determined by FICC in its sole discretion and meets 
the qualifications applicable to a Foreign Person in Rule 2A. In making 
the determination of whether a Foreign Person is an equivalent legal 
entity to the domestic legal entities that qualify for a category of 
Netting Member, FICC would consider, for example, the applicant's 
business model and its regulatory framework and designated examining 
authority.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 80a-2(a)(17).
---------------------------------------------------------------------------

    Thus, the proposal would then provide that a Foreign Person shall 
be eligible to apply to become a Netting Member if either (1) it 
qualifies for one of the existing categories of Netting Member, or (2) 
FICC determines that the applicant may apply in the same way as an 
applicant that does not qualify under an existing category of Netting 
Member, as described in greater detail below.
    Foreign Persons that are eligible to apply to be a Netting Member 
would be subject to both the minimum membership standards of the 
applicable Netting Member category as well as the eligibility criteria 
currently applicable to Foreign Netting Members, currently set forth in 
Section 3(a)(v) of Rule 2A.\65\ The proposed changes would also provide 
that, where an applicable Netting Member category is subject to 
membership qualifications that are inconsistent with the qualifications 
applicable to a Foreign Person, then the standards applicable to a 
Foreign Person shall apply. In some cases, this approach may lead to an 
outcome where a Foreign Person applicant remains subject to home 
jurisdiction requirements that are different from the requirements 
applicable to other Netting Members. FICC believes that this outcome is 
nevertheless acceptable because, as discussed further below in the 
section about Other Applicants, the Rules would still provide that FICC 
will continue to apply the membership standards that were designed 
specifically to address the risks that may be presented when an 
applicant is not domiciled in the U.S. and whose primary regulator is 
not U.S.-based.
---------------------------------------------------------------------------

    \65\ See Rule 2A, Section 3(a)(v) (providing that a person may 
be eligible to apply to be a Foreign Netting Member if it ``(i) has 
a home country regulator that has entered into a memorandum of 
understanding with the SEC regarding the sharing or exchange of 
information, and (ii) maintains a presence in the United States, 
either directly or through a suitable agent, that both has available 
individuals fluent in English who are knowledgeable in the Foreign 
Person's business and can assist the Corporation's representatives 
as necessary, and ensures that the Foreign Person will be able to 
meet its data submission, settlement, and other obligations to the 
Corporation as a Member in a timely manner.'') and Section 
4(b)(ii)(E) (specifying the minimum financial requirements for an 
applicant to be a Foreign Netting Member).
---------------------------------------------------------------------------

    In this way, the proposed changes would clarify that Foreign 
Persons may be eligible to be direct participants of FICC under any of 
the existing categories of Netting Members and, therefore, would 
facilitate access to GSD's clearance and settlement services through 
direct membership with FICC to these market participants.
    To implement these proposed changes, FICC would amend the 
qualifications of each Netting Member category listed in Section 3(a) 
to include a foreign equivalent of the currently eligible legal entity 
types. The proposed changes would also move the eligibility criteria 
for Foreign Netting Members from Section 3(a)(v) of Rule 2A to a 
revised Section 3(b)(i) of Rule 2A. The proposed changes would remove 
the definitions of ``Foreign Member'' and ``Foreign Netting Member'' 
and revise the definition of ``Foreign Person'' in Rule 1. References 
to Foreign Netting Member would also be removed or replaced, as 
appropriate, in Section 4(b)(ii)(E) of Rule 2A and in Sections 2(f), 
8(g) and 12(b)(i)(C) of Rule 3.
    Because the defined term ``Foreign Member'' is currently only used 
in two places in the Rules, the proposed change to remove this term 
would simplify the Rules. Reference to ``Foreign Member'' would be 
removed from the definition of ``Foreign Person'' in the revisions to 
this definition described below. The other reference to ``Foreign 
Member'' in Section 7(g) of Rule 2A would be replaced with ``a Member 
that is a Foreign Person''.
    In connection with these proposed changes, FICC is also proposing 
to move requirements that Foreign Persons applying to be a Netting 
Member and other applicants that are referred to as ``FFI Members'' 
\66\ make certain financial representations and

[[Page 21373]]

certifications. These requirements would be moved from Section 3(a)(v) 
of Rule 2A to Section 5(c) of Rule 2A, which currently describes 
membership application documents, where such certifications would be 
included. This proposed change would improve the clarity of the Rules 
by including this membership requirement in the same place as similar 
membership requirements.
---------------------------------------------------------------------------

    \66\ ``FFI Members'' are defined as ``any Person that is treated 
as a non-U.S. entity for U.S. federal income tax purposes. For the 
avoidance of doubt, FFI Member includes any Member that is a U.S. 
branch of an entity that is treated as a non-U.S. entity for U.S. 
federal income tax purposes.'' Supra note 4.
---------------------------------------------------------------------------

    Finally, FICC is proposing to remove the requirement that an entity 
can only be one category of Netting Member at a time, but would retain 
the statement that, if an applicant qualified for multiple Netting 
Member categories, FICC would determine the category of Netting Member 
for which that applicant would be considered. This statement would be 
included in Section 3(a) of Rule 2A, just prior to the list of 
qualifications for each category of Netting Member.
    (ii) Other Applicants. The proposed rule changes would provide a 
framework for FICC to consider an applicant, including a Foreign 
Person, to be a Netting Member if that applicant does not meet the 
eligibility criteria of one of the existing Netting Member categories. 
The intent behind these proposed changes is to facilitate FICC's 
ability to provide access to GSD's clearing services to a broader and 
more diverse range of market participants in a timely and efficient 
manner and, therefore, would support FICC's compliance with its 
requirement to facilitate access to its clearance and settlement 
services.\67\
---------------------------------------------------------------------------

    \67\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
---------------------------------------------------------------------------

    Section 3(a) of Rule 2A lists each category of Netting Member, 
which are defined by different types of eligible legal entities, for 
example, Bank Netting Members, Dealer Netting Members and Futures 
Commission Merchant Netting Members. FICC does not have the authority 
to consider applicants to be a Netting Member if the applicant does not 
meet the eligibility criteria of one of these Netting Member 
categories. Therefore, FICC is proposing to expand its authority to 
consider any applicant, including Foreign Persons, to be a Netting 
Member. FICC believes it is both appropriate and consistent with its 
requirements to facilitate access to its services to allow other legal 
entity types to apply to be a Netting Member.
    The proposed rule change would first require that an applicant 
demonstrate to FICC that its business and capabilities are such that it 
could reasonably expect material benefit from direct access to FICC's 
services.\68\ An applicant would demonstrate this through its responses 
to the application questionnaire and other initial application 
materials. Next, the proposed rule would provide that FICC would apply 
minimum membership standards to an applicant that it deems reasonable 
and appropriate. Such minimum standards would be developed by FICC 
based on information provided by or concerning the applicant and the 
applicant's risk profile. Such information would include, for example, 
(i) the applicant's business model, (ii) its regulatory framework and 
designated examining authority, (iii) its organizational structure and 
risk management framework, and (iv) its anticipated use of the 
Corporation's services. By describing the factors and information that 
FICC would consider in developing the applicant minimum standards, the 
proposed changes would require that FICC develop and apply minimum 
membership standards that are both objective and risk-based.
---------------------------------------------------------------------------

    \68\ This proposed change would harmonize the Rules with the 
rules of NSCC, which includes the same language. See Addendum B, 
Section 1(A)(vi) of NSCC's Rules and Procedures, which provides 
that, if an applicant does not qualify as one of the legal entity 
types specified in that rule, it may qualify if it ``has 
demonstrated to the Board of Directors that its business and 
capabilities are such that it could reasonably expect material 
benefit from direct access to [NSCC's] services.'' Supra note 27.
---------------------------------------------------------------------------

    These rule changes would be added to new Section 3(b)(ii) of Rule 
2A, following the proposed changes regarding applicants that are 
Foreign Persons, described above. In connection with these changes, the 
proposal would move a statement that any additional categories of 
Netting Member, including the applicable eligibility criteria and 
minimum membership standards, would be subject to approval of the 
Commission from Section 3(a)(x) to a new Section 3(c).
    As noted above, these proposed changes would support FICC's 
compliance with its requirement to facilitate access to its clearance 
and settlement services. Following the adoption of the Treasury 
Clearing Rules, additional market participants will need to access FICC 
clearance and settlement services, either as direct Netting Members or 
as indirect participants. FICC cannot reliably predict which types of 
legal entities will apply for direct membership or predict the risk 
profiles of those entities in order to preemptively develop applicable 
qualifications and membership standards. Therefore, the proposed rule 
change would provide FICC with the necessary flexibility to consider 
any potential applicants, including legal entities that do not fit into 
its current Netting Member categories, through a framework that is 
consistent with the rules of its affiliate, NSCC.
    On an annual basis, FICC will review and conduct an assessment of 
GSD's access models, in compliance with the requirements of Rule 17Ad-
22(e)(18)(iv)(C) under the Act.\69\ In connection with this annual 
assessment, FICC would review the types and number of legal entities 
that have applied to be a Netting Member under the proposed provision 
over the prior 12 months. Based on that review, FICC would determine 
whether it would be appropriate to adopt, through a proposed rule 
change, a new category of Netting Member and the applicable 
qualifications and membership standards. FICC would address this annual 
review in its proposed amendments to the Clearing Agency Risk 
Management Framework, where the annual review of GSD access models 
would also be addressed.\70\
---------------------------------------------------------------------------

    \69\ 17 CFR 240.17Ad-22(e)(18)(iv)(C). Contemporaneously with 
this proposed rule change, FICC and its affiliates, NSCC and The 
Depository Trust Company, are proposing changes to the Clearing 
Agency Risk Management Framework to provide for the annual 
assessment and subsequent review of GSD's access models by the 
Board, as required by Rule 17Ad-22(e)(18)(iv)(C). See supra note 5.
    \70\ Id.
---------------------------------------------------------------------------

3. Improve Clarity of Public Disclosures Regarding Access Models and 
Membership Categories
    The proposed revisions to the Rules would also simplify and, 
therefore, improve the transparency and clarity of how FICC discloses 
to the public its criteria and other requirements for GSD's different 
participation models and membership categories. Collectively, these 
proposed changes would improve market participants' understanding 
regarding the availability and the comparative tradeoffs across these 
services and, therefore, facilitate increased access to those services.
a. Create a Public Road Map for Access Models and Membership Types in 
Rule 2
    First, the proposed changes would revise Rule 2 to provide a public 
road map for the types of available memberships and the different 
participation models. Rule 2 currently describes how FICC makes its 
services available to entities that are approved for membership, lists 
the different membership types (i.e., Comparison-Only Members, Netting 
Members, Sponsoring Members) and identifies the different categories of 
Netting Member

[[Page 21374]]

(i.e., Dealer Netting Member, Bank Netting Member, Inter-Dealer Broker 
Netting Member). This Rule also references some of the other Rules that 
govern certain memberships and addresses the liability of Members for 
activity they process through FICC on behalf of entities that are not 
Members.
    The proposed changes would expand Rule 2 significantly to outline 
the various participation models available to market participants that 
allow for both direct and indirect access to GSD's clearance and 
settlement services. This outline would include descriptions of the 
services available to each membership type and provide a public road 
map for where those services are described in other Rules. These 
proposed changes are designed to address one of the key findings from 
FICC's outreach to market participants, that its various participation 
models are not well understood.\71\
---------------------------------------------------------------------------

    \71\ See supra note 11.
---------------------------------------------------------------------------

    Section 1 of Rule 2 would be revised to include a statement that 
GSD's services may be available directly or indirectly through either 
the Sponsored Service or a relationship with an Agent Clearing Member.
    Section 1 of Rule 2 would be revised to remove a reference to 
FICC's Board of Directors approving membership applications. As 
provided in Rule 44, action by the Corporation may include action by 
the Board or by another authorized person as may be designated by the 
Board from time to time. This proposed change would permit the Board to 
either retain the authority to approve these applications or authorize 
management to do so, consistent with Rule 44 and the Board's authority 
under the FICC By-laws. Specifically, the Board's authority to empower 
management with certain responsibilities originates in the FICC By-
laws, which have been filed as a rule of FICC.\72\ The FICC By-laws 
document the responsibilities of the Board in electing and appointing 
officers of FICC and prescribing and assigning to those officers their 
respective powers, authority and duties.\73\ This revision would 
simplify the statement in Rule 2, consistent with Rule 44. Section 2 
would list the different memberships that have direct access to GSD's 
services, which include Netting Members, CCIT Members, Funds-Only 
Settling Bank Members and Comparison-Only Members. Separate subsections 
would describe each of these membership types, including a general 
description of the types of firms that would qualify for these 
membership types and where those qualifications are described with more 
specificity in the Rules. These subsections would also generally 
describe which of GSD's services are available to each membership type 
and would identify the Rules where those available services are 
described in more detail. The subsection describing Netting Members 
would also include a description of the additional ways Netting Members 
may use GSD's services, as Agent Clearing Members in connection with 
the use of the Agent Clearing Service and Sponsoring Members in 
connection with the participation in the Sponsored Service.\74\
---------------------------------------------------------------------------

    \72\ See Securities Exchange Act Release Nos. 54173 (July 19, 
2006), 71 FR 42890 (July 28, 2006) (SR-DTC-2006-10, SR-FICC-2006-09, 
and SR-NSCC-2006-08); 82917 (Mar. 20, 2018), 83 FR 12982 (Mar. 26, 
2018) (SR-FICC-2018-002).
    \73\ See Sections 3.2 through 3.9 of the FICC By-laws, available 
at www.dtcc.com/~/media/Files/Downloads/legal/rules/FICC-By-
Laws.pdf.
    \74\ See Rule 8 and Rule 3A, respectively, supra note 4.
---------------------------------------------------------------------------

    In connection with these changes, the proposal would also move a 
statement regarding the designation of different categories of Netting 
Members as either Tier One Netting Member or Tier Two Member from Rule 
2A and move it to Rule 2.\75\ Rule 2A describes eligibility criteria 
for different membership types and these designations are not 
eligibility criteria, but relate to how FICC's loss allocation 
provisions, described in Rule 4, apply to a Netting Member.\76\ This 
proposed change would make these designations easy to locate by Netting 
Members or market participants considering a direct membership by 
including them in the Rule where the different membership types are 
described.
---------------------------------------------------------------------------

    \75\ ``Tier One Netting Member'' and ``Tier Two Member'' are 
defined in Rule 1, supra note 4.
    \76\ Supra note 4.
---------------------------------------------------------------------------

    Section 3 of Rule 2 would be revised to describe FICC's two 
indirect participation models that are available to Sponsored Members 
utilizing the Sponsored Service and Executing Firm Customers utilizing 
the Agent Clearing Service. Like the other sections of the revised Rule 
2, this Section 3 would clarify how a market participant may utilize 
one of these models to access FICC's clearance and settlement services 
as an indirect participant and would include a reference to the Rules 
that describe these indirect access models with more specificity.
    The proposed changes would revise the existing statements in Rule 2 
that describe the liability of Members who submit activity to FICC on 
behalf of entities that are not Members. These proposed changes would 
not alter that liability, but would improve the clarity of these 
statements, specifically by replacing reference to Members as being 
``liable in principal'' to ``fully liable for the performance of all 
obligations, financial or otherwise . . . .'' This change would 
restate, without changing, the responsibility of Members with respect 
to activity submitted to FICC on behalf of other entities. By better 
explaining the Member's obligations and replacing the reference to 
principal liability, the proposed change would address any confusion 
regarding the Member's responsibility for a transaction away from FICC.
b. Simplify Definitions of Membership Categories and Other Related 
Definitions
    The proposed rule changes would simplify the definitions of the 
different types of GSD membership, including the categories of Netting 
Members, and enhance the disclosures regarding eligibility 
qualifications for membership categories. By improving these statements 
and public disclosures in the Rules, the proposed changes would clarify 
the availability of different membership types and, therefore, improve 
the understanding of market participants regarding the availability of 
a direct clearing membership and of indirect participants in 
determining which of GSD's indirect, intermediated access models they 
prefer to use.
    Simplify Definitions of Netting Member Categories. Currently, the 
definitions of each category of Netting Member in Rule 1 refer to 
Section 3 of Rule 2A, where the qualifications for each category of 
Netting Member are described. Each subsection of Section 2 of Rule 2A 
includes a statement that defines each category of Netting Member as an 
entity that is admitted to membership in the Netting System as that 
category of Netting Member pursuant to the applicable qualifications 
and whose membership has not been terminated. The proposed rule changes 
would move these definitions of each category of Netting Member from 
Rule 2A to the defined terms in Rule 1. By moving the terms into Rule 
1, the proposed change would simplify the descriptions of eligibility 
criteria in Section 3 of Rule 2A.
    These proposed rule changes would also remove defined terms that 
are used only once in the Rules and replace the uses of those defined 
terms with the actual definitions. Some of these defined terms are used 
in the criteria for different categories of Netting Member. For 
example, the Rules include a definition of ``Inter-Dealer Broker'', and

[[Page 21375]]

this defined term is only used once in the Rules, in the qualifications 
to be an Inter-Dealer Broker Netting Member in Section 3 of Rule 2A. 
Therefore, the proposed changes would remove this defined term from the 
Rules and use the definition of an Inter-Dealer Broker in the 
eligibility criteria for that category of Netting Member, in Section 
3(a)(iii) of Rule 2A. Similar changes would be made in connection with 
the relevant defined terms and eligibility criteria for Government 
Securities Issuer Netting Member and Insurance Company Netting Member. 
These proposed changes would provide clearer descriptions of the 
qualifications for different categories of Netting Member in Rule 2A, 
and would not require a reader to refer back to the definitions in Rule 
1 to understand those qualifications.
    Other examples of these proposed changes include deleting the 
defined terms for ``Registered Broker'' and ``Registered Government 
Securities Broker'', which are both only used in the definition of 
``Broker'', and instead use the definitions of these terms in the 
definition of Broker. FICC is proposing to make similar changes to the 
definition of ``Dealer'' which currently includes the only uses of the 
defined terms for ``Registered Dealer'' and ``Registered Government 
Securities Dealer''.
    The proposed changes would update the eligibility criteria for 
Futures Commission Merchant Netting Members to clarify that an 
applicant for this category of Netting Member must be a member, and 
subject to the regulatory supervision, of the National Futures 
Association. The Rules currently require that an applicant to this 
Netting Member category be a Futures Commission Merchant, as such term 
is defined in the Commodity Exchange Act and that it be registered with 
the Commodity Futures Trading Commission (``CFTC'').\77\ Because any 
Futures Commission Merchant that is registered with the CFTC is also 
required to be a member of the National Futures Association,\78\ the 
proposed rule change would just clarify, but would not add to, the 
qualifications for this category of membership.
---------------------------------------------------------------------------

    \77\ 7 U.S.C. 1(a)(28).
    \78\ 17 CFR 170.15(a).
---------------------------------------------------------------------------

    Finally, the proposed rule changes would state in the introduction 
of Section 3(a) of Rule 2A that applicants can only be one category of 
Netting Member and that FICC would determine the appropriate category 
for applicants that meet the eligibility criteria for multiple 
categories. This limitation is currently in Section 3(b) of Rule 2A, at 
the end of the list of categories of Netting Member. The proposed 
change would move this requirement more prominently to the top of this 
Section.
    Simplify Other Defined Terms. In connection with, and related to, 
the proposed changes described above to simplify the definitions of the 
different categories of Netting Member, the proposed rule changes would 
also revise other defined terms to improve the clarity and transparency 
of the Rules.
    The proposed changes would revise the defined term for ``CCIT 
Member'' and move a statement in this definition that Registered 
Investment Companies are not eligible to be CCIT Members to Section 2 
of Rule 3B, where the rest of the eligibility and qualifications for 
CCIT Members are described. Similarly, the proposed changes would move 
a statement from the definition of ``Funds-Only Settling Bank Member'', 
describing a requirement that these members be party to certain 
agreements, to Section 4 of Rule 13, where the requirements applicable 
to these members are described. These proposed changes would improve 
the transparency of the Rules by including all of the qualifications 
applicable to these different membership types in the same places in 
the Rules.
4. Other Corrections and Clarifications to the Rules
    The proposed rule changes would make other revisions to correct, 
clarify and conform provisions of the Rules to improve their accuracy 
in describing GSD's services and improve the transparency of the Rules.
    First, the proposed rule changes would revise the definition of 
``Person'' to clarify that this term was not intended to include 
individuals (i.e., natural persons). The proposed changes would also 
remove the defined term for ``Non-Member'' and replace this term in the 
Rules to use more descriptive terms appropriate to the context where 
the term is used. For example, Rule 15 would be revised to replace 
reference to ``Non-Member'' with the term ``customer'' in describing 
activity submitted to FICC by Repo Brokers. The proposed changes would 
also make immaterial, technical changes to simplify the definition of 
``Member'' in Rule 1.
    Finally, the proposed rule changes would amend the definition of 
``Sponsoring Member'' in Rule 1, the first sentence of Section 4 of 
Rule 2A and Section 2 of Rule 3A to replace reference to the Board as 
being responsible for approving membership applications and related 
membership matters with reference to the Corporation, consistent with 
Rule 44. These changes would conform to the proposed changes being made 
to Rule 2, described above, to permit the Board to either retain the 
authority to approve these applications or authorize management to do 
so, consistent with Rule 44 and the FICC By-laws.
Implementation Timeframe
    Subject to approval by the Commission, FICC expects to implement 
the proposal by no later than March 31, 2025, and would announce the 
effective date of the proposed change by an Important Notice posted to 
FICC's website.
2. Statutory Basis
    FICC believes the proposed changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. In particular, FICC 
believes the proposed rule changes are consistent with Section 
17A(b)(3)(F) of the Act,\79\ and Rules 17Ad-22(e)(18)(iii), 
(e)(18)(iv)(C), (e)(19) and (e)(23)(ii), each promulgated under the 
Act,\80\ for the reasons described below.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78q-1(b)(3)(F).
    \80\ 17 CFR 240.17Ad-22(e)(18)(iii), (e)(18)(iv)(C), (e)(19), 
and (e)(23)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the rules of FICC be 
designed, among other things, to promote the prompt and accurate 
clearance and settlement of securities transactions, as well as to 
foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions.\81\ As described 
in greater detail below, the proposed changes to redefine the 
correspondent clearing/prime broker services as the Agent Clearing 
Service and the other proposed changes to the disclosures in the Rules 
regarding membership types and access models would clarify and improve 
public understanding of the ways a market participant may access FICC's 
clearance and settlement systems, thereby facilitating increased access 
to those systems. The proposed changes to eliminate the two categories 
of Sponsoring Members, remove the QIB requirement for Sponsored 
Members, and clarify the framework for both Foreign Persons and other 
applicants to be Netting Members would facilitate broader access to 
FICC's clearance and settlement systems.
---------------------------------------------------------------------------

    \81\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The collective impact of these proposed changes would be to permit 
an increase in diversity and scope of

[[Page 21376]]

market participants able to utilize FICC's central counterparty 
services, which can reduce the costs of securities transactions through 
FICC's multilateral netting, its trade guaranty and centralized default 
management, and mitigate and manage counterparty risks. Therefore, the 
proposed changes would support FICC's compliance with Section 
17A(b)(3)(F) of the Act by promoting the prompt and accurate clearance 
and settlement of securities through expanded access to its clearance 
and settlement systems.\82\ In making changes that clarify, simplify, 
and potentially expand the universe of intermediaries and access models 
that are available to market participants, including indirect 
participants, the proposed changes also would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions.
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    \82\ Id.
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    Rule 17Ad-22(e)(18)(iii) under the Act requires that FICC monitor 
compliance with its participant requirements on an ongoing basis.\83\ 
The proposed rule changes would allow FICC to assess the risk profiles 
of its Netting Members, in their capacity as Agent Clearing Members, 
through the information Netting Members would provide when they apply 
to use the Agent Clearing Service and through the subsequent due 
diligence requests. The collection of this information, which would 
include, for example, information regarding the controls the Agent 
Clearing Member has in place to monitor and mitigate its risks, would 
allow FICC to monitor its Members' compliance with the requirements of 
participating in the Agent Clearing Service. The proposed rule changes 
to eliminate the two categories of Sponsoring Member would expand 
FICC's ability to set appropriate activity limits to all Sponsoring 
Members. The activity limits allow FICC to monitor the activity and, 
therefore, the risks that this activity may present to FICC. Therefore, 
these proposed rule changes support FICC's compliance with the 
requirements of Rule 17Ad-22(e)(18)(iii).\84\
---------------------------------------------------------------------------

    \83\ 17 CFR 240.17Ad-22(e)(18)(iii).
    \84\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(18)(iv)(C) under the Act requires, among other 
things, that FICC, as a covered clearing agency that provides central 
counterparty services for transactions in U.S. Treasury securities, 
ensure that it has appropriate means to facilitate access to clearance 
and settlement services of all eligible secondary market transactions 
in U.S. Treasury securities, including those of indirect 
participants.\85\
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    \85\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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    FICC has conducted a review of its existing access models that, as 
described above, included consideration of whether FICC's existing 
policies and procedures treat transactions differently based on the 
identity of the participant submitting the transaction, the fact that 
an indirect participant is a party to the transaction, the method of 
execution, and other factors and that included a survey of market 
participants.\86\ Following this review, FICC believes that its 
existing direct and indirect participation models provide market 
participants with appropriate means to access its clearance and 
settlement services, including indirect participants. As described 
below, the proposed rule changes would clarify and, therefore, improve 
market participants' understanding of these participation models. 
Certain proposed changes would expand the availability of participation 
to more, and a wider variety of, market participants. Collectively, the 
proposed changes are designed to support FICC's continued compliance 
with the requirements of Rule 17Ad-22(e)(18)(iv)(C) under the Act by 
enhancing the Rules in describing various means for accessing its 
clearance and settlement services, including those of indirect 
participants.
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    \86\ Supra note 11.
---------------------------------------------------------------------------

    The proposed changes to re-name the correspondent clearing/prime 
broker services to a single Agent Clearing Service would better 
disclose to the public, through the Rules, the operation and 
availability of this indirect participation model, and the rights and 
obligations of both Netting Members that use this service and their 
customers, who use this service to indirectly access central clearing 
at FICC. As described above, the proposed changes to Rule 8 would more 
clearly define the service through a number of additional disclosures. 
Among other things, the proposed changes would describe how a Netting 
Member can apply to use this service as an Agent Clearing Member, 
specify the rights and obligations of Agent Clearing Members in their 
use of this service and define the transactions that are eligible to be 
cleared and settled through this service, in addition to addressing 
other key aspects of the service.
    In this way, the proposed changes would provide a framework for 
Agent Clearing Members, their customers, and other market participants 
regarding how to access FICC's clearance and settlement services. By 
making these public disclosures clearer and more detailed, the proposed 
changes would improve market participants' understanding of the 
operation, availability, and comparative tradeoffs of this service, 
thereby facilitating access to FICC's clearance and settlement services 
for Executing Firm Customers as indirect participants.
    The proposed rule changes to update the eligibility criteria for 
both direct and indirect membership are also designed to improve the 
availability of GSD membership to more, and a wider variety of, market 
participants. By eliminating the two categories of Sponsoring Members, 
FICC would apply the same eligibility criteria and conditions for 
continued membership to all Sponsoring Members, without applying 
different standards based on the identity of the participant. This 
proposed rule change would also make more Bank Netting Members eligible 
to apply to be a Sponsoring Member, improving access to this indirect 
participation model by expanding the potential universe of Sponsoring 
Member intermediaries. The proposal to eliminate the QIB requirement 
for Sponsored Members would permit market participants that did not 
meet this eligibility criteria to participate in FICC's Sponsored 
Service and, therefore, access its clearance and settlement systems as 
indirect participants. The proposed changes to provide a framework for 
how additional Netting Member applicants, including Foreign Persons, 
may be eligible to apply to be Netting Members would allow additional 
market participants to be considered for direct membership. These rule 
changes clarify the process FICC would follow in considering an 
applicant for direct membership and, therefore, facilitate broader 
access to clearance and settlement services.
    Finally, by revising the Rules to include a roadmap for the 
different categories of membership and various participation models, 
and to clarify and simplify the descriptions of membership types, these 
proposed rule changes, like the changes described above, would improve 
market participants' understanding of the available means for accessing 
FICC's clearance and settlement services.
    As described above, while FICC is not proposing to materially 
change its existing access models, it is proposing to further disclose 
to the public, through the Rules, the criteria and related requirements 
for how both Members and, indirectly, legal entities that are not 
Members, can access GSD's services through these participation models. 
By doing so, the proposed changes would

[[Page 21377]]

lead to better understanding of the available methods for accessing 
FICC's clearance and settlement systems, including by indirect 
participants in support of its compliance with Rule 17Ad-
22(e)(18)(iv)(C).\87\
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    \87\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(19) under the Act requires that FICC identify, 
monitor, and manage the material risks to the covered clearing agency 
arising from arrangements in which firms that are indirect participants 
in the covered clearing agency rely on the services provided by direct 
participants to access the covered clearing agency's payment, clearing, 
or settlement facilities.\88\
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    \88\ 17 CFR 240.17Ad-22(e)(19).
---------------------------------------------------------------------------

    The proposed rule changes would describe the various ways FICC 
would identify, monitor and manage the risks that may be presented to 
it through the Agent Clearing Service. When a Netting Member applies to 
use this service as an Agent Clearing Member, FICC would first collect 
information through an application, which would include information 
regarding its customers, past and/or projected volumes of its customer 
activity, and its controls for monitoring and mitigating risks, 
including risks presented by those customers. FICC would also continue 
to require Agent Clearing Members to identify their Executing Firm 
Customers, provide FICC with a current LEI for any customers, and 
confirm such customers' agent clearing relationship with the Agent 
Clearing Member before submitting trades on their behalf. The proposed 
rule changes to Rule 8 would also affirm FICC's existing authority to 
request reports and other information from Netting Members, in their 
capacity as Agent Clearing Member, through annual and ongoing due 
diligence requests. As described above, these information requests are, 
and would continue to be, an important tool for FICC to identify and 
monitor the risks that arise from these indirect participation 
arrangements. As described above, FICC uses these risk profiles to 
determine when to take further risk management measures available under 
its Rules to manage any risks a Member may pose to it.
    In this way, these proposed changes would support FICC's compliance 
with Rule 17Ad-22(e)(19) and the requirement that it identify, monitor, 
and manage the material risks that may arise from the Agent Clearing 
Service.\89\
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    \89\ Id.
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    Rule 17Ad-22(e)(23)(ii) under the Act requires that FICC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for providing sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in FICC.\90\ As described in 
detail above, the proposed rule changes are collectively designed to 
improve the public disclosures, in the Rules, describing the different 
types of membership, different categories of Netting Member and 
different participation models available to market participants.
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    \90\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

    By revising Rule 8 to describe the Agent Clearing Service with 
greater clarity and specificity, the proposed rule changes would 
provide both Agent Clearing Members and their Executing Firm Customers 
with sufficient information regarding the rights and obligations of all 
parties using this service. By defining the process by which a Netting 
Member may apply to use the Agent Clearing Service, the operation of 
that service, and the rights and obligations of Agent Clearing Members, 
these additional disclosures would provide market participants with 
sufficient information to evaluate the risks, fees, and other costs 
they may incur through participation in this service.
    For example, the proposed rule changes would specify in Section 5 
of Rule 8 that the Agent Clearing Member is fully liable for the 
performance of all obligations, financial or otherwise, to FICC arising 
in connection with Agent Clearing Transactions. The proposed rule 
changes would also provide, in Section 3 of Rule 8, that nothing in the 
Rules prohibit an Agent Clearing Member from seeking reimbursement from 
an Executing Firm Customer for payments made by the Agent Clearing 
Member under the Rules, or as otherwise may be agreed between the Agent 
Clearing Member and the Executing Firm Customer.
    The proposed rule changes to clarify the descriptions of the 
criteria and related requirements for how both Members and, indirectly, 
legal entities that are not Members, can access GSD's services also 
would support FICC's compliance with the requirements of Rule 17Ad-
22(e)(23). These proposed rule changes would simplify and, therefore, 
clarify the criteria and related descriptions of the different models 
for accessing GSD's services. As described above, the proposed changes 
include adding a public road map for the different models for accessing 
GSD's services, simplifying the definitions of the different types of 
membership, and clarifying the eligibility criteria for different 
categories of Netting Members. These proposed changes are designed to 
enhance the ability of market participants to understand GSD's access 
models that are available, thereby allowing them to determine, whether 
as direct or indirect participants, how to access, offer, and price 
those models to obtain access to central clearing. In this way, the 
proposed rule changes would support FICC's continued compliance with 
the requirements of Rule 17Ad-22(e)(23).

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

    FICC believes that the proposed rule changes described in this 
filing would promote competition by improving market participants' 
understanding of the different membership categories and various models 
for accessing its clearance and settlement services.
    As stated above, while some of the proposed changes include 
enhancements to membership qualifications and use of indirect access 
models, in general, the proposed rule changes would not materially 
change how market participants can access GSD's services today. The 
proposed application process and ongoing due diligence requests that 
would be applicable to Agent Clearing Members are not currently 
required for use of the existing correspondent clearing/prime broker 
services. The proposed application process could prohibit a Netting 
Member from using the Agent Clearing Service if FICC determines, based 
on the information provided in the application, that the applicant does 
not, for example, have the proper risk management controls in place to 
submit trades to FICC on behalf of its customers. This could create a 
competitive disadvantage between such applicant and other Netting 
Members that are approved to use the Agent Clearing Service. The 
proposed due diligence requests could result in additional risk 
management measures, such as increased reporting obligations or 
Clearing Fund deposits, if FICC deems such measures appropriate to 
mitigate risks that are identified through the course of such due 
diligence. Such risk management measures could also create a 
competitive disadvantage between the Agent Clearing Members that are 
subject to those measures and those that are not.
    However, FICC believes the application process and the due 
diligence information requests are important tools for FICC to identify 
and monitor the risks that arise from these indirect participation 
arrangements. FICC believes these proposed changes

[[Page 21378]]

are appropriate in allowing FICC to assess the risk profiles of its 
Netting Members either as applicants or in their capacity as Agent 
Clearing Members through the information they would provide when they 
elect to use the Agent Clearing Service and the subsequent due 
diligence requests. FICC also believes these proposed measures are 
necessary for it to comply with its requirements under Rule 17Ad-
22(e)(19) under the Act, as described above.\91\
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    \91\ 17 CFR 240.17Ad-22(e)(19).
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    By providing Members and other market participants with more 
information regarding these different access models, the proposed 
changes would collectively promote competition by facilitating greater 
access to FICC's services by contemplating a more diverse and wider 
scope of market participants who could serve as intermediaries, thereby 
increasing the potential range of avenues by which indirect 
participants can seek to access GSD's clearing services. The proposed 
rule changes to eliminate the two categories of Sponsoring Members 
would also promote competition by applying the same eligibility 
criteria and ongoing risk management conditions to all Sponsoring 
Members. This proposed change and the proposal to eliminate the QIB 
requirement for Sponsored Members would promote competition further by 
permitting additional firms to participate in the Sponsored Service as 
either Sponsoring Members or Sponsored Members, respectively. The 
proposed rule changes to provide a clear framework for how Foreign 
Persons can apply to be Netting Members and for how FICC may consider 
applicants, including Foreign Persons, that do not meet the eligibility 
criteria for an existing category of Netting Member. As such, these 
proposed rule changes would facilitate greater access to FICC's 
clearance and settlement systems and promote competition in the 
relevant markets.
    FICC does not believe the proposal to make technical corrections 
and other clarification changes to the Rules would impact competition. 
These changes are being proposed to ensure the clarity and accuracy of 
the Rules. They would not change FICC's current practices or affect 
Members' rights and obligations. As such, FICC believes the proposal to 
make technical, clarifying and conforming changes would not 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 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FICC-2024-005 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-2024-005. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(dtcc.com/legal/sec-rule-filings). 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-2024-005 and should be submitted on or before April 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\92\
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    \92\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06446 Filed 3-26-24; 8:45 am]
BILLING CODE 8011-01-P