
[Federal Register Volume 79, Number 27 (Monday, February 10, 2014)]
[Notices]
[Pages 7722-7724]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02744]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71469; File No. SR-FICC-2014-801]


Self-Regulatory Organizations; The Fixed Income Clearing 
Corporation; Notice of Filing of an Advance Notice Concerning the 
Government Security Division's Inclusion of GCF Repo[supreg] Positions 
in Its Intraday Participant Clearing Fund Requirement Calculation, and 
Its Hourly Internal Surveillance Cycles

February 4, 2014.
    Pursuant to Section 806(e)(1)(A) of the Payment, Clearing, and 
Settlement Supervision Act of 2010 (``Clearing Supervision Act'') \1\ 
and Rule 19b-4(n)(1)(i) of the Securities Exchange Act of 1934 
(``Act''),\2\ notice is hereby given that on January 10, 2014, The 
Fixed Income Clearing Corporation (``FICC'') filed with the Securities 
and Exchange Commission (``Commission'') the advance notice as 
described in Items I, II and III below, which Items have been prepared 
by FICC. The Commission is publishing this notice to solicit comments 
on the advance notice from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1)(A). The Financial Stability Oversight 
Council designated FICC a systemically important financial market 
utility on July 18, 2012. See Financial Stability Oversight Council 
2012 Annual Report, Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, FICC is 
required to comply with Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.
    \2\ 17 CFR 240.19b-4(n)(1)(i).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Advance Notice

    This advance notice is filed by the Government Securities Division 
(the ``GSD'') of FICC in connection with including GCF Repo[supreg] \3\ 
positions in its intraday (i.e., noon) participant Clearing Fund 
requirement calculation, and its hourly internal surveillance cycles. 
The model change is described in additional detail below.
---------------------------------------------------------------------------

    \3\ The GCF Repo[supreg] service enables dealers to trade 
general collateral repos, based on rate, term, and underlying 
product, throughout the day without requiring intra-day, trade-for-
trade settlement on a Deliver-versus-Payment (DVP) basis. The 
service fosters a highly liquid market for securities financing.

---------------------------------------------------------------------------

[[Page 7723]]

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, FICC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. The text of 
these statements may be examined at the places specified in Item IV 
below. FICC has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Advance Notice

    (a) GSD plans to incorporate GCF Repo positions in its intraday 
(i.e., noon) participant Clearing Fund requirement calculation, and its 
hourly internal surveillance cycles. This enhancement is intended to 
align GSD's risk management calculations and monitoring with the 
changes that have been implemented to the tri-party infrastructure by 
the Tri-Party Reform Task Force (the ``Task Force'') \4\ specifically, 
with respect to locking up of GCF Repo collateral until 3:30 p.m. (EST) 
rather than 7:45 a.m. (EST).
---------------------------------------------------------------------------

    \4\ The Tri-Party Repo Infrastructure Task Force was formed in 
September 2009 under the auspices of the Payments Risk Committee, a 
private-sector body sponsored by the Federal Reserve Bank of New 
York. The Task Force's goal is to enhance the repo market's ability 
to navigate stressed market conditions by implementing changes that 
help better safeguard the market. DTCC has worked in close 
collaboration with the Task Force on their reform initiatives.
---------------------------------------------------------------------------

    (b) The proposed change is consistent with Rule 17Ad-22 \5\ (the 
``Clearing Agency Standards'') which establishes the minimum 
requirements regarding how registered clearing agencies must maintain 
effective risk management procedures and controls. Specifically, 
consistent with Rule 17Ad-22(b)(1) \6\ and (b)(2),\7\ FICC's more 
accurate and timely calculations around and monitoring of GCF Repo 
activity will better enable FICC to respond in the event that a member 
defaults. As such, FICC believes that the proposal promotes robust risk 
management and the safety and soundness of FICC's operations, which 
reduce systemic risk and support the stability of the broader financial 
system which is consistent with the Clearing Agency Standards.\8\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.17Ad-22.
    \6\ 17 CFR 240.17Ad-22(b)(1).
    \7\ 17 CFR 240.17Ad-22(b)(2).
    \8\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statements on Comments on the 
Advance Notice Received From Members, Participants, or Others

    Written comments relating to the change have not yet been solicited 
or received. FICC will notify the Commission of any written comments 
received by FICC.

(C) Advance Notice Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

Description of Change
(i) Overview
    GSD plans to incorporate GCF Repo positions in its intraday (i.e., 
noon) participant Clearing Fund requirement calculation, and its hourly 
internal surveillance cycles. This enhancement is intended to align 
GSD's risk management calculations and monitoring with the changes that 
have been implemented to the tri-party infrastructure by the Task 
Force.
    Historically, the GCF Repo collateral had been unwound by 
approximately 7:45 a.m. (all times are New York time). In connection 
with the Task Force's tri-party reform, GCF Repo collateral now remains 
locked up until 3:30 p.m., with substitutions permitted intraday at the 
times established by each clearing bank. Because the GCF Repo 
collateral was unwound at 7:45 a.m., the current production system does 
not include GCF Repo collateral in the GSD intraday Clearing Fund 
requirement calculation, and its hourly surveillance cycles. To account 
for the risk associated with the GCF Repo positions, GSD's margin 
requirements currently apply a ``higher of'' standard, which means that 
the margin calculation takes the higher of the prior night's core 
charge \9\ (which includes GCF Repo collateral) or the current day's 
noon core charge (which does not \10\ include GCF Repo collateral). 
However, now that the collateral is locked-up until 3:30 p.m., the 
intraday Clearing Fund requirements and hourly surveillance 
calculations will be based on the actual locked-up GCF Repo collateral. 
In the ordinary course of business, the ``higher of'' standard will not 
apply. However, this standard will remain available in the event that 
one or both clearing banks do not provide intraday GCF Repo position 
data because such clearing bank, as applicable, is unable to provide 
the data.
---------------------------------------------------------------------------

    \9\ The core charge consists primarily of Value-at-Risk, the 
Implied Volatility Charge (also known as the Augmented Volatility 
Multiplier) and the Coverage Component.
    \10\ Since GCF collateral is excluded, only DVP positions are 
included in the noon core charge.
---------------------------------------------------------------------------

    In connection with this initiative, FICC will have an extended 
member parallel period of at least 6 weeks during which GCF Repo 
participants will be able to view their production and test 
requirements on a daily basis. This will allow members to assess the 
impact of the change in margining for the mid-day cycle and potentially 
adjust their GCF Repo activity prior to implementation of the change.
Anticipated Effect on and Management of Risks
    FICC believes that the proposed changes will improve its risk 
management by providing a more accurate and timely view of member 
positions and their corresponding exposures.
    This enhancement is intended to align GSD's risk management 
calculations and monitoring with the changes that have been implemented 
to the tri-party infrastructure by the Task Force.
    Prior to implementation of the proposed changes, several steps were 
and/or will be taken to prepare for the changes and to prepare members 
for the changes. These steps include internal review of the data 
available in the test environment, customer outreach and the parallel 
period for members.
    FICC believes it is important to incorporate the proposed changes 
in its risk management process as soon as possible because such changes 
will allow GSD to use more accurate position information in its margin 
calculations. Because FICC's risk engine has not yet incorporated the 
locked-up GCF Repo positions in intraday risk calculations, FICC cannot 
at this time provide a specific estimate of the impact of this 
enhancement.
    FICC believes that the proposed changes will better reflect the 
actual risk in its members' portfolios. For members who participate in 
the GCF Repo service, this change will impact their Clearing Fund 
requirements. However, because of the parallel period, members will 
have time to review the possible impact and potentially modify their 
settlement and trading activity to align with the changes to the 
intraday margin calculation. FICC's parallel period will cover at least 
six weeks to give customers ample time to review the impact and 
consider changes to their portfolios.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The designated clearing agency may implement this change if it has 
not

[[Page 7724]]

received an objection to the proposed change within 60 days of the 
later of (i) the date that the Commission receives notice of the 
proposed change, or (ii) the date the Commission receives any further 
information it requests for consideration of the notice. The designated 
clearing agency shall not implement this change if the Commission has 
any objection.
    The Commission may, during the 60-day review period, extend the 
review period for an additional 60 days for proposed changes that raise 
novel or complex issues, subject to the Commission providing the 
designated clearing agency with prompt written notice of the extension. 
The designated clearing agency may implement a change in less than 60 
days from the date of receipt of the notice of proposed change by the 
Commission, or the date the Commission receives any further information 
it requested, if the Commission notifies the designated clearing agency 
in writing that it does not object to the proposed change and 
authorizes the designated clearing agency to implement the change on an 
earlier date, subject to any conditions imposed by the Commission.
    The designated clearing agency shall post notice on its Web site of 
proposed changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2014-801 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

All submissions should refer to File Number SR-FICC-2014-801. 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 of submission. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the advance notice that are 
filed with the Commission, and all written communications relating to 
the advance notice 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 Web site viewing and 
printing in the Commission's Public Reference Room 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 FICC's Web site at http://www.dtcc.com/~/media/
Files/Downloads/legal/rule-filings/2014/ficc/SR-FICC-2014-801-advance-
notice.ashx. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FICC-2014-801 and should be submitted on or before March 3, 2014.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02744 Filed 2-7-14; 8:45 am]
BILLING CODE 8011-01-P


