90 FR 65 pgs. 15013-15017 - Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Recovery and Wind-Down Plan
Type: NOTICEVolume: 90Number: 65Pages: 15013 - 15017
Pages: 15013, 15014, 15015, 15016, 15017Docket number: [Release No. 34-102755; File No. SR-FICC-2025-007]
FR document: [FR Doc. 2025-05896 Filed 4-4-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102755; File No. SR-FICC-2025-007]
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Recovery and Wind-Down Plan
April 1, 2025.
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 25, 2025, Fixed Income Clearing Corporation ("FICC") filed with the Securities and Exchange Commission ("Commission") the proposed rule change as described in Items I, II and III below, which Items have been prepared by the clearing agency. FICC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act? 3 and Rule 19b-4(f)(4) thereunder. 4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
3 ?15 U.S.C. 78s(b)(3)(A).
4 ?17 CFR 240.19b-4(f)(4).
I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change
The proposed rule change consists of amendments to the R&W Plan to reflect business and product developments that have taken place since the time it was last amended, 5 make certain changes to improve the clarity of the Plan and make other updates and technical revisions. 6
Footnotes:
5 ?See Securities Exchange Act Release Nos. 98335 (Sept. 8, 2023), 88 FR 63157 (Sept. 14, 2023) (SR-FICC-2023-013); and 91430 (Mar. 29, 2021), 86 FR 17432 (Apr. 2, 2021) (SR-FICC-2021-002).
6 ?Capitalized terms not defined herein are defined in the FICC Government Securities Division ("GSD") Rulebook (the "GSD Rules") or the FICC Mortgage-Backed Securities Division ("MBSD") Clearing Rules (the "MBSD Rules," and collectively with the GSD Rules, the "Rules"), available at www.dtcc.com/legal/rules-and-procedures, or in the Recovery & Wind-down Plan of FICC (the "R&W Plan" or "Plan").
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
The R&W Plan was adopted in August 2018? 7 and is maintained by FICC for compliance with Rule 17ad-22(e)(3)(ii) under the Act. 8 This section of the Act requires registered clearing agencies to, in short, establish, implement and maintain plans for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses. The Plan is intended to be used by the Board and FICC management in the event FICC encounters scenarios that could potentially prevent it from being able to provide its critical services to the marketplace as a going concern.
Footnotes:
7 ? See Securities Exchange Act Release Nos. 83973 (Aug. 28, 2018), 83 FR 44942 (Sept. 4, 2018) (SR-FICC-2017-021); and 83954 (Aug. 27, 2018), 83 FR 44361 (Aug. 30, 2018) (SR-FICC-2017-805).
8 ?17 CFR 240.17ad-22(e)(3)(ii). FICC is a "covered clearing agency" as defined in Rule 17ad-22(a)(5) under the Act and must comply with paragraph (e) of Rule 17ad-22.
The R&W Plan is comprised of two primary sections: (i) the "Recovery Plan," that sets out the tools and strategies to enable FICC to recover, in the event it experiences losses that exceed its prefunded resources, and (ii) the "Wind-down Plan," that describes the tools and strategies to be used to conduct an orderly wind-down of FICC's business in a manner designed to permit the continuation of FICC's critical services in the event that its recovery efforts are not successful.
[top] FICC believes that by helping to ensure that the R&W Plan reflects current business and product developments, providing additional clarity, and making necessary grammatical corrections, that the proposed rule change would help it continue to maintain the Plan in a manner that supports the continuity of
Background
The R&W Plan is managed by the Office of Recovery & Resolution Planning (referred to in the Plan as the "R&R Team") of FICC's parent company, the Depository Trust & Clearing Corporation ("DTCC"), 9 on behalf of FICC, with review and oversight by the DTCC Executive Committee and the Board. In accordance with the SEC's Approval Order covering the Plan, 10 the Board, or such committees as may be delegated authority by the Board from time to time, is required to review and approve the R&W Plan biennially and would also review and approve any changes that are proposed to the R&W Plan outside of the biennial review. FICC completed its most recent biennial review in 2024. 11 The proposed rule change reflects amendments proposed to the Plans resulting from that review, which are described in greater detail below. None of the proposed changes modify FICC's general objectives and approach with respect to its recovery and wind-down strategy as set forth under the current Plan.
Footnotes:
9 ?DTCC operates on a shared service model with respect to FICC and its other affiliated clearing agencies, National Securities Clearing Corporation ("NSCC") and The Depository Trust Company ("DTC"). Most corporate functions are established and managed on an enterprise-wide basis pursuant to intercompany agreements under which it is generally DTCC that provides relevant services to FICC, NSCC and DTC (collectively, the "Clearing Agencies").
10 ? Supra note 7.
11 ?Upon the effective date of recently adopted SEC Rule 17ad-26(9), FICC will be updating its procedures to require review and approval of the Plan by the Board at least every 12 months or following material changes to FICC's operations that would significantly affect the viability or execution of the Plan.
A. Proposed Amendments to the R&W Plan
FICC is proposing the changes to the following sections of the Plan based upon business updates and product developments that have occurred since the Plan was last amended. 12
Footnotes:
12 ? Supra note 2.
Section 2.2 (GSD) describes the cross-margining arrangement that GSD has established with the Chicago Mercantile Exchange (the "CME"). 13 Based on enhancements made to the arrangement that became effective in 2024, 14 FICC proposes to delete the existing description and replace it with the following, "In this arrangement, GSD and CME will each treat a participant's relevant products as a single portfolio to independently calculate the margin requirements to determine the more conservative percentage of margin savings that would be applied to a Cross-Margining Account. FICC and CME would then compare their respective margin savings percentages with one another, and, if the lesser of such margin savings percentage exceeds the maximum margin offset threshold agreed by the Clearing Organizations, each Clearing Organization would reduce the Cross-Margining Participant's margin reduction.
Footnotes:
13 ? See GSD Rule 43 (Cross Margining Arrangements), supra note 6.
14 ? See Securities Exchange Act Release No. 98327 (Sept. 8, 2023); 88 FR 63185 (Sept. 14, 2023) (SR-FICC-2023-010).
Section 2.4 (Intercompany Arrangements) describes how corporate support services are provided to FICC from DTCC and DTCC's other subsidiaries, through intercompany agreements under a shared services model. This section includes a table, (Facilities, Table 2-B), that lists each of the DTCC facilities utilized by the Clearing Agencies and indicates whether the facility is owned or leased. FICC proposes to update this table to add Hyderabad, India as an additional facility location that is leased by DTCC, which site is expected to be operational by the end of 2024. In addition, for purposes of clarity, the proposed rule change would update the table to make clear that the owner of the Tampa, Florida location is DTCC.
Section 2.5 (FMI Links)? 15 describes some of the key financial market infrastructures ("FMIs"), both domestic and foreign, that FICC has identified as critical "links."? 16 This section of the Plan also identifies the group within DTCC that is responsible for maintaining the inventory of links and that has set forth a set of practices and protocols for managing and reviewing the various risks and controls associated with clearing agency links. Based on a change to the name of this internal group from "the DTCC Systemic Risk Office ("SRO") to the "Emerging and Systemic Risk ("ESR") team," the proposed rule change would replace all references to "SRO" with "ESR." The reference to the "Chief Systemic Risk Officer ("CSRO")" would be replaced with "Operational Risk management." Also, for the same reason, the reference in the first sentence of this section to the "DTCC Systemic Risk Office ("SRO") Clearing Agency Links-Risk Review Procedures" would be changed to the "Clearing Agency Links-Risk Review Procedures." Additionally, for purposes of consistency, in other sections of the Plan where a reference is made to "linked FMIs," which are Sections 1.3, 3.2, 7.3, 8.4.2 and 8.4.5., it would be replaced with "Clearing Agency Links."
Footnotes:
15 ?For purposes of consistency, under the proposed rule change all references to "FMI Links" would be revised to refer to these as "Clearing Agency Links."
16 ?As defined in Rule 17ad-22(a)(8) under the Act, a link "means, for purposes of paragraph (e)(20) of Rule 17ad-22, a set of contractual and operational arrangements between two or more clearing agencies, financial market utilities, or trading markets that connect them directly or indirectly for the purposes of participating in settlement, cross margining, expanding their services to additional instruments or participants, or for any other purposes material to their business." 17 CFR 240.17ad-22(a)(8).
In addition to the relationships that meet the definition of a "link," this section of the Plan describes a list of other relationships that management designates from time to time as 'Schedule A Relationships."? 17 For purposes of clarity, the proposed rule change would revise the description of the Federal Reserve Bank-U.S., Treasury Auction Takedown Service, which is a Schedule A Relationship. The revised description would state that, "As part of the auction takedown process, GSD receives securities awarded from the Members' winning bids directly from the Federal Reserve Bank ("FRB") into GSD's auction account at BNY. GSD then redelivers to Members based on the results of the netting process."
Footnotes:
17 ?Schedule A Relationships are contractual or operational arrangements between a DTCC registered clearing agency and one or more other entities or systems that management determines meet certain criteria ( e.g., they satisfy some, but not all, aspects of the regulatory definition of "link.")
[top] Section 3 (Critical Services) defines the criteria for classifying certain of FICC's services as "critical,"? 18 and identifies such critical services and the rationale for their classification. The identification of FICC's critical services is important for evaluating how the recovery tools and the wind-down strategy would facilitate and provide for the continuation of FICC's critical
Footnotes:
18 ?The criteria that is used to identify a FICC service or function as critical includes consideration as to whether (1) there is a lack of alternative providers or products; (2) the inability of FICC to act as a central counterparty through either Division would increase Members' credit risk and disrupt their ability to initiate new transactions.; (3) The failure or disruption of the multilateral netting performed by each FICC Division could materially and negatively impact the volume of financial transactions and the liquidity of the U.S. Fixed Income markets; and (4) the service is interconnected with other participants and processes within the U.S. financial system (for example, with other FMIs, settlement banks, broker-dealers, and exchanges).
There are two tables (Table 3-B: GSD Critical Services and Table 3-C: MBSD Critical Services) that lists each of the services, functions or activities that FICC has identified as "critical" based on the applicability of the criteria. For purposes of consolidation and consistency with the naming conventions, and broader description of these services to those set forth in DTCC's enterprise service catalogue (the "ESC"), which is used by FICC's internal stakeholders, the proposed rule change would (i) make changes to the names and descriptions of certain critical services, and (ii) remove some rows in the respective table that are currently designated as separate critical services and list them instead as material components of a more broadly described critical service(s). These proposed changes are described in more detail below:
Table 3-B: GSD Critical Services
(i) The separate row for "GSD RTTM®," which is the common electronic platform that is used to provide all of FICC's Critical Services, would be deleted and moved under the row for the "GSD Delivery-versus Payment (DVP) Service," as a material component of that service. "GSD RTTM® would also be identified in the row for the "GSD GCF Repo® Service" as being used to provide that service.
(ii) The row for "GSD DVP Cash/Repo Services" would be renamed "GSD Delivery-versus Payment (DVP) Service," and the following separate rows would be deleted and moved to be identified as material components of this service: "GSD Auction Takedown," "GSD Netting and Settlement," "GSD Automated Funds Only Settlement Service," and "GSD Repo Collateral Substitution Service."
(iii) The row for "GSD GCF Repo® Service" would be modified to remove all references to the "DTCC GCF Repo® Index" because it is not a critical service nor a material component of this service. In addition, "GSD Automated Funds Only Settlement Service," would be identified as a material component of this service.
Table 3-C: MBSD Critical Services
(i) The row for "MBSD RTTM®" would be renamed "MBSD Clearing, Netting and Settlement Services." A broader description of this service would be added to this row and the current description of "MBSD RTTM® would be retained.
(ii) The separate rows for "MBSD TBA Netting," "MBSD Pool Netting and Settlement," and "MBSD Automated Funds Only Settlement Services" would be deleted and moved under "MBSD Clearing, Netting and Settlement Services" as material components of this service.
Section 5.2.4 (Recovery Corridor and Recovery Phase) outlines the early warning indicators to be used by FICC to evaluate its options and potentially prepare to enter the "Recovery Phase," which phase refers to the actions to be taken by FICC to restore its financial resources and avoid a wind-down of its business. This section contains descriptions of potential stress events that could lead to recovery, and several early warning indicators and metrics that FICC has established to evaluate its options and potentially prepare to enter the Recovery Phase. These indicators, which are referred to in the Recovery Plan as recovery corridor indicators ("Corridor Indicators" or "Indicator(s)"), 19 are calibrated against FICC's financial resources and are designed to give FICC the ability to replenish financial resources, typically through business-as-usual tools applied prior to entering the Recovery Phase. Included in this section is a table (Table 5-A: Corridor Indicators) that identifies for each Indicator (i) how it is measured, (ii) the basis for the evaluation of the status of the Indicator, (iii) the type of metrics used for determining the status of the deterioration or improvement of the Indicator, and (iv) "Corridor Actions & Escalation," which are those steps that may be taken to improve the status of the Indicator and the management escalations required to authorize those steps. The proposed rule change would make the following clarifications to Table 5-A.
Footnotes:
19 ?The majority of the Corridor Indicators, as identified in the Recovery Plan, relate directly to conditions that may require FICC to adjust its strategy for hedging and liquidating a defaulting Member's portfolio, and any such changes would include an assessment of the status of the Corridor Indicators.
First, for purposes of additional clarity, in the row that describes the "Uncommitted Repo Agreements" Indicator, a reference to "including inter-dealer brokers" would be added to the sentence that describes the types of Members with whom FICC has entered into Master Repurchase Agreements. Second, the row for the "Capped Contingency Liquidity Facility (CCLF®)"? 20 Indicator, would be clarified to describe that CCLF® is in place as a FICC "Qualifying Liquid Resource" and that FICC may declare a CCLF® Event to address FICC's liquidity needs.
Footnotes:
20 ?Participation in the CCLF facility is a membership requirement for all full-service FICC Members. Members must attest to their ability to participate in the CCLF facility. Daily reports provide Members with information on their current and potential future commitments. FICC may also seek to obtain a loan from its clearing bank(s) at the discretion of such bank(s). See GSD Rule 22A, Section 2a and MBSD Rule 17, Section 2a, supra note 6.
Section 5.3 (Liquidity Shortfalls) describes that there is interaction between market and liquidity actions on FICC's overall risk exposures. Table 5-C of the Plan sets out the tools that are intended to address foreseeable liquidity shortfalls that would not be covered by FICC's existing liquid resources, including modifications to those existing liquid resources, for example, and how FICC's existing qualifying liquid resources may be replenished. These tools can be used as appropriate during the Crisis Continuum to address liquidity shortfalls if they arise and certain actions that may have the effect of reducing liquidity needs. For purposes of clarity, the entry in Table 5-C for "Non-Qualifying Liquid Resources," would be revised to state that FICC would utilize existing Master Repurchase Agreements, and alternatively, FICC could pursue financing arrangements such as commercial bank loans. In addition, to better reflect its purpose, the name of the entry for "Uncommitted repos" would be changed to "Uncommitted Master Repurchase Agreements" and the description would note that FICC could seek new additional Master Repurchase Agreement counterparties for uncommitted repurchase agreements.
B. Other Updates, Clarifications and Technical Revisions
FICC is also proposing to make other updates and technical revisions to the Plan. These technical revisions would, for example, make grammatical corrections, update the names of certain FICC internal groups, and clarify the description of internal organizations, without changing the substantive statements being revised.
[top] For example, in Section 4.1 (DTCC and SIFMU Governance Structure), for purposes of reflecting organizational updates and internal name changes, FICC proposes to make the following changes, (i) revise the number of Board committees from six to seven, (ii) revise
FICC believes the proposed updates and technical revisions would improve the clarity and accuracy of the Plan and, therefore, would help facilitate the execution of Plan, if necessary.
2. Statutory Basis
FICC believes that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a registered clearing agency. In particular, FICC believes that the amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of the Act? 21 and Rule 17ad-22(e)(3)(ii) under the Act? 22 for the reasons described below.
Footnotes:
21 ?15 U.S.C. 78q-1(b)(3)(F).
22 ?17 CFR 240.17ad-22(e)(3)(ii).
Section 17A(b)(3)(F) of the Act requires, in part, that the rules of FICC be designed to promote the prompt and accurate clearance and settlement of securities transactions. As described above, the proposed rule change would update the R&W Plan to reflect business and product developments and make certain technical corrections. By helping to ensure that the R&W Plan reflects current business and product developments, and providing additional clarity, FICC believes that the proposed rule change would help it continue to maintain the Plan in a manner that supports the continuity of FICC's critical services and enables its Participants and Pledgees to maintain access to FICC's services through the transfer of its membership in the event FICC defaults or the Wind-down Plan is ever triggered by the Board. Further, by facilitating the continuity of its critical clearance and settlement services, FICC believes the Plan and the proposed rule change would continue to promote the prompt and accurate clearance and settlement of securities transactions. Therefore, FICC believes the proposed amendments to the R&W Plan are consistent with the requirements of Section 17A(b)(3)(F) of the Act.
Rule 17ad-22(e)(3)(ii) under the Act requires FICC to establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by the covered clearing agency, which includes plans for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses. 23
Footnotes:
23 ? Id.
Specifically, the Recovery Plan defines the risk management activities, stress conditions and indicators, and tools that FICC may use to address stress scenarios that could eventually prevent it from being able to provide its critical services as a going concern. Through the framework of the Crisis Continuum, the Recovery Plan addresses measures that FICC may take to address risks of credit losses and liquidity shortfalls, and other losses that could arise from a Participant default. The Recovery Plan also addresses the management of general business risks and other non-default risks that could lead to losses. The Wind-down Plan would be triggered by a determination by the Board that recovery efforts have not been, or are unlikely to be, successful in returning FICC to viability as a going concern. Once triggered, the Wind-down Plan sets forth clear mechanisms for the transfer of FICC's membership and business and is designed to facilitate continued access to FICC's critical services and to minimize market impact of the transfer. By establishing the framework and strategy for the execution of the transfer and wind-down of FICC in order to facilitate continuous access to its critical services, the Wind-down Plan establishes a plan for the orderly wind-down of FICC.
As described above, the proposed rule change would update the R&W Plan to reflect business and product developments and make certain technical corrections. By ensuring that material provisions of the Plan are current, clear, and technically correct, FICC believes that the proposed amendments are designed to support the maintenance of the Plan for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses, and, as such, meets the requirements of Rule 17ad-22(e)(3)(ii) under the Act. 24 Therefore, the proposed changes would help FICC to maintain the Plan in a way that continues to be consistent with the requirements of Rule 17ad-22(e)(3)(ii).
Footnotes:
24 ? Id.
(B) Clearing Agency's Statement on Burden on Competition
[top] FICC does not believe that the proposed rule change would have any impact, or impose any burden, on competition. FICC does not anticipate that the proposal would affect its day-to-day operations under normal circumstances, or in the management of a typical Member default scenario or non-default event. The R&W Plan was developed and documented in order to satisfy applicable regulatory requirements, as discussed above. The proposal is intended to enhance and update the Plan to ensure it is clear and remains current in the event it is ever necessary to be implemented. The proposed revisions would not affect any changes to the overall structure or operation of the Plan or FICC's recovery and wind-down strategy as set forth under the current Plan. As such, FICC believes the proposal would not have any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
FICC has not received or solicited any written comments relating to this proposal. If any written comments are received, FICC will amend this filing to publicly file such comments as an Exhibit 2 to this filing, as required by Form 19b-4 and the General Instructions thereto.
Persons submitting written 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 Commission's Division of Trading and Markets at tradingandmarkets@sec.gov or 202-551-5777.
FICC reserves the right to not respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-FICC-2025-007 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-2025-007. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FICC and on DTCC's website ( https://dtcc.com/legal/sec-rule-filings.aspx ). 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-2025-007 and should be submitted on or before April 28, 2025.
Footnotes:
25 ?17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 25
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05896 Filed 4-4-25; 8:45 am]
BILLING CODE 8011-01-P