
[Federal Register Volume 80, Number 98 (Thursday, May 21, 2015)]
[Notices]
[Pages 29352-29357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12281]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74973; File No. SR-FICC-2015-002]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of a Proposed Rule Change to the Government Securities 
Division Rules in Connection With the Extension of the GCF Repo Service 
Pilot Program

May 15, 2015.
    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 May 7, 2015, the Fixed Income Clearing Corporation (``FICC'' or the 
``Corporation'') 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 FICC. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule changes consist of modifications to the Rulebook 
of the Government Securities Division (``GSD'') in connection with the 
extension of the GCF Repo[supreg] service \3\ pilot program.
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    \3\ GCF Repo is a registered trademark of FICC/DTCC.
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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, FICC 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. FICC 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

(i) Purpose of the Proposed Rule Change
    FICC is seeking the Commission's approval to extend the current 
pilot program (the ``2014 Pilot Program'') that is currently in effect 
for the GCF Repo[supreg] service. FICC is requesting that the 2014

[[Page 29353]]

Pilot Program be extended for one year following the Commission's 
approval of the present filing.\4\
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    \4\ If FICC determines to change the parameters of the service 
during the one-year Pilot Program extension period, it will submit a 
rule filing to the Commission. If FICC seeks to extend the Pilot 
Program beyond the one-year period or proposes to make the Pilot 
Program permanent, it will also submit a rule filing to the 
Commission.
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    By way of background, on July 12, 2011, FICC submitted a rule 
filing to the Commission (SR-FICC-2011-05) proposing to make certain 
changes to its GCF Repo service in order to comply with the 
recommendations that had been made by the Task Force on Triparty Reform 
(``TPR''), an industry group formed and sponsored by the Federal 
Reserve Bank of New York.\5\ Because the GCF Repo service operates as a 
triparty mechanism, FICC was requested to incorporate changes to the 
GCF Repo service to align the service with the other TPR recommended 
changes for the overall triparty market.
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    \5\ The main purpose of the TPR was to develop recommendations 
to address the risk presented by triparty repo transactions due to 
the current morning reversal or ``unwind'' process and to move to a 
process by which transactions are collateralized all day.
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    The rule change described in SR-FICC-2011-05 was proposed to be run 
as a pilot program for one year starting from the date on which the 
filing was approved by the Commission (the ``2011 Pilot Program'').\6\ 
Throughout 2011 and the earlier half of 2012, FICC implemented a 
portion of the rule changes that were included in SR-FICC-2011-05. As 
the expiration date of the 2011 Pilot Program approached, FICC elected 
to have certain aspects of the 2011 Pilot Program continue, however, 
FICC also proposed to make certain modifications to the 2011 Pilot 
Program. As a result, on June 8, 2012, FICC submitted a rule filing for 
the 2012 Pilot Program (SR-FICC-2012-05).\7\ On June 5, 2013, FICC then 
submitted a rule filing to extend the Pilot Program for an additional 
year (SR-FICC-2013-06).\8\ On May 5, 2014, FICC then submitted a rule 
filing to extend the Pilot Program for an additional year (SR-FICC-
2014-02).\9\ Because the latest extension is now approaching its expiry 
date, FICC is seeking the Commission's approval to extend the Pilot 
Program for an additional year while the final phase of the tri-party 
reform is put into place.\10\
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    \6\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \7\ Securities Exchange Release No. 34-67621 (August 8, 2012), 
77 FR 48572 (August 14, 2012) (SR-FICC-2012-05).
    \8\ Securities Exchange Act Release No. 34-70068 (July 30, 
2013), 78 FR 47453 (August 5, 2013) (SR-FICC-2013-06).
    \9\ Securities Exchange Act Release No. 34-72457 (June 24, 
2014), 79 FR 36856 (June 30, 2014) (SR-FICC-2014-02).
    \10\ The final phase includes the development interactive 
messages for the interbank collateral substitution automation. If 
FICC determines to change the parameters of the service during the 
one-year Pilot Program extension period, it will submit a rule 
filing to the Commission. If FICC seeks to extend the Pilot Program 
beyond the one-year period or proposes to make the Pilot Program 
permanent, it will also submit a rule filing to the Commission.
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Background: Description of the GCF Repo Service and History
(1) Creation of the GCF Repo Service
    The GCF Repo service allows GSD dealer members to trade general 
collateral repos \11\ throughout the day without requiring intra-
day[sic], trade-for-trade settlement on a delivery-versus-payment 
(``DVP'') basis. The service allows the dealers to trade such general 
collateral repos, based on rate and term, throughout the day with 
inter-dealer broker netting members on a blind basis. Standardized, 
generic CUSIP numbers have been established exclusively for GCF Repo 
processing and are used to specify the acceptable type of underlying 
Fedwire book-entry eligible collateral, which includes Treasuries, 
Agencies and certain mortgage-backed securities.
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    \11\ A general collateral repo is a repo in which the underlying 
securities collateral is nonspecific, general collateral whose 
identification is at the option of the seller. This is in contrast 
to a specific collateral repo.
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    The GCF Repo service was developed as part of a collaborative 
effort among GSCC (FICC's predecessor), its two clearing banks (The 
Bank of New York Mellon (``BNY'') and JPMorgan Chase Bank, National 
Association (``Chase''), and industry representatives. GSCC introduced 
the GCF Repo service on an intra-clearing bank basis in 1998.\12\ Under 
the intrabank service, dealers could only engage in GCF Repo 
transactions with other dealers that cleared at the same clearing bank.
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    \12\ See Securities Exchange Act Release No. 34-40623 (October 
30, 1998) 63 FR 59831 (November 5, 1998) (SR-GSCC-98-02).
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(2) Creation of the Interbank Version of the GCF Repo Service
    In 1999, GSCC expanded the GCF Repo service to permit dealer 
participants to engage in GCF Repo trading on an inter-clearing bank 
basis, meaning that dealers using different clearing banks could enter 
into GCF Repo transactions (on a blind brokered basis).\13\ Because 
dealer members that participate in the GCF Repo service do not all 
clear at the same clearing bank, introducing the service as an 
interbank service necessitated the establishment of a mechanism to 
permit after-hours movements of securities between the two clearing 
banks to deal with the fact that GSCC would likely have unbalanced net 
GCF securities and cash positions within each clearing bank (that is, 
it is likely that at the end of GCF Repo processing each business day, 
the dealers in one clearing bank will be net funds borrowers, while the 
dealers at the other clearing bank will be net funds lenders). To 
address this issue, GSCC and its clearing banks established, and the 
Commission approved, a legal mechanism by which securities would 
``move'' across the clearing banks without the use of the securities 
Fedwire.\14\ (Movements of cash do not present the same issue because 
the cash Fedwire is open later than the securities Fedwire.) Therefore, 
at the end of the day, after the GCF net results are produced, 
securities are pledged via a tri-party-like mechanism and the interbank 
cash component is moved via Fedwire. In the morning, the pledges are 
unwound, that is, funds are returned to the net funds lenders and 
securities are returned to the net funds borrowers.
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    \13\ See Securities Exchange Act Release No. 34-41303 (April 16, 
1999) 64 FR 20346 (April 26, 1999) (SR-GSCC-99-01).
    \14\ See id. for a detailed description of the clearing bank and 
FICC accounts needed to effect the after-hour movement of 
securities.
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    The following simplified example illustrates the manner in which 
the GCF Repo services works on an interbank basis:
    Assume that Dealer B clears at BNY and Dealer C clears at Chase. 
Further assume that: (i) Outside of FICC, Dealer B engages in a 
triparty repo transaction with Party X to obtain funds and seeks to 
invest such funds via a GCF Repo transaction, (ii) outside of FICC, 
Dealer C engages in a DVP repo with Party Y to buy securities and seeks 
to finance these securities via a GCF Repo transaction, and (iii) 
Dealer B and Dealer C enter into a GCF Repo transaction (on a blind 
basis via a GCF Repo broker) and submit the trade details to FICC.
    At the end of ``Day 1'', GCF Repo collateral must be allocated, 
i.e., Dealer B must receive the securities. However, the securities 
that Dealer B is to receive are at Chase and the securities Fedwire is 
closed. The after-hours movement mechanism permits the securities to be 
``sent'' to Dealer B as follows: FICC will instruct Chase to allocate 
to a special FICC clearance account at Chase securities in an amount 
equal to the net short securities position.
    FICC has established on its own books and records two ``securities 
accounts'' as defined in Article 8 of the New York

[[Page 29354]]

Uniform Commercial Code, one in the name of Chase (``FICC Account for 
Chase'') and one in the name of BNY (``FICC Account for BNY''). The 
FICC Account for Chase is comprised of the securities in FICC's special 
clearance account maintained by BNY (``FICC Special Clearance Account 
at BNY for Chase''), and the FICC Account for BNY is comprised of the 
securities in FICC's special clearance account maintained by Chase 
(``FICC Special Clearance Account at Chase for BNY'').\15\ The 
establishment of these securities accounts by FICC in the name of the 
clearing banks enables the bank that is in the net long securities 
position to ``receive'' securities by pledge after the close of the 
securities Fedwire. Once the clearing bank has ``received'' the 
securities by pledge, it can credit them by book-entry to a FICC GCF 
Repo account at that clearing bank and then to the dealers that clear 
at that bank that are net long the securities in connection with GCF 
Repo trades.
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    \15\ FICC has appointed Chase as its agent to maintain FICC's 
books and records with respect to the BNY securities account, and 
FICC has appointed BNY as its agent to maintain FICC's books and 
records with respect to the Chase securities account.
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    In our example, Chase, as agent for FICC, will transmit to BNY a 
description of the securities in the FICC Special Clearance Account at 
Chase for BNY. Based on this description, BNY will transfer funds equal 
to the funds borrowed position to the FICC GCF Repo account at Chase. 
Upon receipt of the funds by Chase, Chase will release any liens it may 
have on the FICC Special Clearance Account at Chase for BNY, and FICC 
will release any liens it may have on FICC Account for BNY (both of 
these accounts being comprised of the same securities). BNY will credit 
the securities in the FICC Account for BNY to FICC's GCF Repo account 
at BNY, and BNY will further credit these securities to Dealer B, who, 
as noted, is in a net long securities position. In the morning of ``Day 
2,'' all securities and funds movements occurring on Day 1, are 
reversed (``unwind'').
(3) Issues With Morning Unwind Process
    In 2003, FICC shifted the GCF Repo service back to intrabank status 
only.\16\ By that time, the service had grown significantly in 
participation and volume. However, with the increase in use of the 
interbank service, certain payments systems risk issues arose from the 
inter-bank[sic] funds settlements related to the service, namely, the 
large interbank funds movement in the morning. FICC shifted the service 
back to intrabank status to enable management to study the issues 
presented and identify a satisfactory solution for bringing the service 
back to interbank status.
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    \16\ See Securities Exchange Act Release No. 34-48006 (June 10, 
2003), 66 FR 35745 (June 16, 2003) (SR-FICC-2003-04).
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(4) The NFE Filing and Restoration of Service to Interbank Status
    In 2007, FICC submitted a rule filing to address the issues raised 
by the interbank morning funds movement and return the GCF Repo service 
to interbank status (the ``2007 NFE Filing'').\17\ The 2007 NFE Filing 
addressed these issues by using a hold against a dealer's ``net free 
equity'' (``NFE'') at the clearing bank to collateralize its GCF Repo 
cash obligation to FICC on an intraday basis.\18\
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    \17\ See Securities Exchange Act Release No. 34-57652 (April 11, 
2008), 73 FR 20999 (April 17, 2008) (SR-FICC-2007-08).
    \18\ NFE is a methodology that clearing banks use to determine 
whether an account holder (such as a dealer) has sufficient 
collateral to enter a specific transaction. NFE allows the clearing 
bank to place a limit on its customer's activity by calculating a 
value on the customer's balances at the bank. Bank customers have 
the ability to monitor their NFE balance throughout the day.
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    The 2007 NFE Filing replaced the Day 2 morning unwind process with 
an alternate process, which is currently in effect. Specifically, in 
lieu of making funds payments, the interbank dealers grant to FICC a 
security interest in their NFE-related collateral equal to their 
prorated share of the total interbank funds amount. FICC, in turn, 
grants to the other clearing bank (that was due to receive the funds) a 
security interest in the NFE-related collateral to support the debit in 
the FICC account at the clearing bank. The debit in the FICC account 
(``Interbank Cash Amount Debit'') occurs because the dealers who are 
due to receive funds in the morning must receive those funds at that 
time in return for their release of collateral. The debit in the FICC 
account at the clearing bank gets satisfied during the end of day GCF 
Repo settlement process. Specifically, that day's new activity yields a 
new interbank funds amount that will move at end of day--however, this 
amount gets netted with the amount that would have been due in the 
morning, thus further reducing the interbank funds movement. The NFE 
holds are released when the interbank funds movement is made at end of 
day. The 2007 NFE Filing did not involve any changes to the after-hours 
movement of securities occurring at the end of the day on Day 1. Using 
our simplified example:

    On the morning of Day 2, Dealer C who needs to return funds in 
the unwind, instead of returning the funds in the morning, grants to 
FICC a security interest in Dealer C's NFE-related collateral equal 
to its funds movement (we have assumed only one GCF Repo transaction 
took place in this simplified example). FICC, in turn, grants BNY 
(that was due to receive the funds) a security interest in the NFE-
related collateral to support the debit in the FICC account at BNY. 
As noted above, the debit in FICC's account at BNY arises because, 
under the current processing, Dealer B must receive its funds during 
the morning unwind. The FICC debit is then satisfied during the end 
of day GCF Repo settlement process.

    As part of the 2007 NFE Filing, FICC imposed certain additional 
risk management measures with respect to the GCF Repo service. First, 
FICC imposed a collateral premium (called ``GCF Premium Charge'') on 
the GCF Repo portion of the Clearing Fund deposits of all GCF 
participants to further protect FICC in the event of an intra-day[sic] 
default of a GCF Repo participant. FICC requires GCF Repo participants 
to submit a quarterly ``snapshot'' of their holdings by asset type to 
enable Risk Management staff to determine the appropriate Clearing Fund 
premium. Members who do not submit this required information by the 
deadlines established by FICC are subject to fine and an increased 
Clearing Fund premium, as with all other instances of late submission 
of required information.
    Second, the 2007 NFE Filing addressed the situation where FICC 
becomes concerned about the volume of interbank GCF Repo activity. Such 
a concern might arise, for example, if market events were to cause 
dealers to turn to the GCF Repo service for increased funding at levels 
beyond normal processing. The 2007 NFE Filing provides FICC with the 
discretion to institute risk mitigation and appropriate disincentive 
measures in order to bring GCF Repo levels to a comfortable level from 
a risk management perspective.\19\
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    \19\ Specifically, the 2007 NFE Filing introduced the term ``GCF 
Repo Event'', which will be declared by FICC if either of the 
following occurs: (i) The GCF interbank funds amount exceeds five 
times the average interbank funds amount over the previous ninety 
days for three consecutive days; or (ii) the GCF interbank funds 
amount exceeds fifty percent of the amount of GCF Repo collateral 
pledged for three consecutive days. FICC reviews these figures on a 
semi-annual basis to determine whether they remain adequate. FICC 
also has the right to declare a GCF Repo Event in any other 
circumstances where it is concerned about GCF Repo volumes and 
believes it is necessary to declare a GCF Repo Event in order to 
protect itself and its members. FICC will inform its members about 
the declaration of the GCF Repo Event via important notice. FICC 
will also inform the Commission about the declaration of the GCF 
Repo Event.

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2011 Pilot Program--Proposed Changes to the GCF Repo Service To 
Implement the TPR's Recommendations
    In SR-FICC-2011-05, FICC proposed the following rule changes with 
respect to the GCF Repo service to address the TPR's Recommendations:
    (1)(a) To move the Day 2 unwind from 7:30 a.m. to 3:30 p.m., (b) to 
move the NFE process \20\ from morning to a time established by the 
Corporation as announced by notice to all members,\21\ (c) to move the 
cut-off time of GCF Repo submissions from 3:35 p.m. to 3:00 p.m., and 
(d) to move the cut-off time for dealer affirmation or disaffirmation 
from 3:45 p.m. to 3:00 p.m.
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    \20\ No other changes are being proposed to the NFE process that 
was in place by the 2007 NFE Filing; the risk management measures 
that were put in place by the 2007 NFE Filing remain in place with 
the present proposal.
    \21\ SR-FICC-2011-05 noted that the possible time range would be 
8 a.m. to 1 p.m. to coincide with the collateral substitution 
mechanism that was being developed between FICC and its clearing 
banks. In rule filing SR-FICC-2012-05, FICC clarified that the 8:00 
a.m. to 1:00 p.m. proposed time range in SR-FICC-2011-05 referred to 
the clearing bank hold on the FICC interest in the NFE (i.e., as 
part of the NFE process, FICC grants to the other clearing bank 
(that was due to receive the funds) a security interest in the NFE--
related collateral to support the debit in the FICC account at the 
clearing bank). At present, given the move of the NFE process (as 
discussed in more detail below), this proposed time range has now 
moved from 8:00 a.m. to 3:30 p.m.
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    (2) To establish rules for intraday GCF Repo collateral 
substitutions (i.e., SR-FICC-2011-05 stated that with respect to 
interbank GCF Repo transactions, the substitution process will only 
permit cash as an initial matter to accommodate current processing 
systems, however, as noted below, the substitution process will permit 
cash and/or securities).
    During the term of the 2011 Pilot Program, FICC implemented the 
proposed changes referred to in subsections 1(c) and 1(d) above and 
during the term of the 2012 Pilot Program, FICC implemented the 
proposed changes referred to in subsections 1(a), 1(b) and 2 above.
(1) Proposed Change Regarding the Morning Unwind and Related Rule 
Changes
    The TPR recommended that the Day 2 unwind for all triparty 
transactions be moved from the morning to 3:30 p.m. The TPR made this 
recommendation in order to achieve the benefit of reducing the clearing 
banks' intraday exposure to the dealers. As stated, because the GCF 
Repo service is essentially a triparty mechanism, the TPR requested 
that FICC accommodate this time change. For the GSD rules, this 
necessitated a change to the GSD's ``Schedule of GCF Timeframes.'' 
Specifically, the 7:30 a.m. time in the Schedule was deleted and the 
language therein was moved to a new time of 3:30 p.m.
    Because the Day 2 unwind moved from the morning to 3:30 p.m. and 
because the NFE process established by the 2007 NFE Filing is tied to 
the moment of the unwind, the NFE process also was required to move. 
During 2012, when the systems processing for the tri-party reform 
effort continued on the part of the clearing banks, the unwind moved to 
3:30 p.m. and the funds continued to move between the two clearing 
banks at 5:00 p.m.; the NFE hold which applies to dealers moved to 
between 3:30 p.m. and 5:00 p.m. Because the NFE process is a legal 
process and not an operational process, it is not reflected on the 
Schedule of GCF Timeframes and therefore no change to the Schedule was 
required to accommodate the move of the NFE process. A change was 
needed in Section 3 of GSD Rule 20 to delete the reference to the 
``morning'' timeframe on Day 2 with respect to the NFE process and to 
add language referencing ``at the time established by the 
Corporation.''
(2) Proposed Change Regarding Intraday GCF Repo Securities Collateral 
Substitutions
    As a result of the time change of the unwind (i.e., the reversal on 
Day 2 of collateral allocations established by FICC for each netting 
member's GCF net funds borrower positions and GCF net funds lender 
positions on Day 1) to 3:30 p.m., the provider of GCF Repo securities 
collateral in a GCF Repo transaction on Day 1 no longer has possession 
of such securities at the beginning of Day 2. Therefore, during Day 2 
prior to the unwind of the Day 1 collateral allocations, the provider 
of GCF Repo securities collateral (in our simple example, Dealer C) 
needs a substitution mechanism for the return of its posted GCF Repo 
securities collateral in order to make securities deliveries for 
utilization of such securities in its business activities. (In our 
example, Dealer C may need to return the securities to Party Y 
depending upon the terms of their transaction.) In the 2012 Pilot 
Program, FICC established a substitution process for this purpose in 
conjunction with its clearing banks. The language for the substitution 
mechanism was added to Section 3 of GSD Rule 20. It provides that all 
requests for substitution for the GCF Repo securities collateral must 
be submitted by the provider of the GCF Repo securities collateral 
(i.e., Dealer C) by the applicable deadline on Day 2 (the 
``substitution deadline'').\22\
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    \22\ As noted in SR-FICC-2012-05, FICC will establish such 
deadline prior to the implementation of the changes to this service 
in conjunction with the clearing banks and the Federal Reserve in 
light of market circumstances. As noted in Important Notice 
GOV088.12, once delivery has been made to GSD on the new obligations 
for that business day, no substitutions will be permitted for the 
remainder of the day.
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Substitutions on Intrabank GCF Repos
    If the GCF Repo transaction is between dealer counterparties 
effecting the transaction through the same clearing bank (i.e., on an 
intra-clearing bank basis and in our example Dealer C and other dealers 
clearing at Chase), on Day 2 such clearing bank will process each 
substitution request of the provider of GCF Repo securities collateral 
(i.e., Dealer C) submitted prior to the substitution deadline promptly 
upon receipt of such request. The return of the GCF Repo securities 
collateral in exchange for cash and/or eligible securities of 
equivalent value can be effected by simple debits and credits to the 
accounts of the GCF Repo dealer counterparties at the clearing agent 
bank (i.e., in our example, Chase). Eligible securities for this 
purpose will be the same as what is currently permitted under the GSD 
rules for collateral allocations, namely, Comparable Securities,\23\ 
(ii) Other Acceptable Securities,\24\ or (iii) U.S. Treasury bills, 
notes or bonds maturing in a time frame no greater than that of the 
securities that have been traded (except where such traded securities 
are U.S. Treasury bills, substitution may be with Comparable Securities 
and/or cash only).
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    \23\ The GSD rules define ``Comparable Securities'' as follows: 
The term ``Comparable Securities'' means, with respect to a security 
or securities that are represented by a particular Generic CUSIP 
Number, any other security or securities that are represented by the 
same Generic CUSIP Number.
    \24\ The GSD rules define ``Other Acceptable Securities'' as 
follows:
    The term ``Other Acceptable Securities'' means, with respect to: 
(an) adjustable-rate mortgage-backed security or securities issued 
by Ginnie Mae, any fixed-rate mortgage-backed security or securities 
issued by Ginnie Mae, or (an) adjustable-rate mortgage-backed 
security or securities issued by either Fannie Mae or Freddie Mac: 
(a) Any fixed-rate mortgage-backed security or securities issued by 
Fannie Mae and Freddie Mac, (b) any fixed-rate mortgage-backed 
security or securities issued by Ginnie Mae, or (c) any adjustable-
rate mortgage-backed security or securities issued by Ginnie Mae.
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Substitutions on Interbank GCF Repos
    For a GCF Repo that was processed on an interbank basis and to 
accommodate a potential substitution request, FICC initiates a debit of 
the securities in the account of the lender through the FICC GCF Repo 
accounts at the clearing bank of the lender and the FICC GCF Repo

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account at the clearing bank of the borrower (``Interbank Movement''). 
This Interbank Movement is done so that a borrower who elects to 
substitute collateral will have access to the collateral for which it 
is substituting. The Interbank Movement occurs in the morning, though 
the clearing banks and FICC have the capability to have the Interbank 
Movement occur at any point during the day up until 2:30 p.m. During 
the 2012 Pilot Program, FICC and the clearing banks implemented a 
change to unwind the intrabank GCF Repo transactions at 3:30 p.m.
    In the example above, the GCF Repo securities collateral will be 
debited from the securities account of the receiver of the collateral 
(i.e., Dealer B) at its clearing bank (i.e., BNY), and from the FICC 
Account for BNY. If a substitution request is received by the clearing 
bank (i.e., Chase) of the provider of GCF Repo securities collateral, 
prior to the substitution deadline at a time specified in FICC's 
procedures,\25\ that clearing bank will process the substitution 
request by releasing the GCF Repo securities collateral from the FICC 
GCF Repo account at Chase and crediting it to the account of the 
provider of GCF Repo securities collateral (i.e., Dealer C). All cash 
and/or securities substituted for the GCF Repo securities collateral 
being released will be credited to FICC's GCF Repo account at the 
clearing bank (i.e., Chase).
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    \25\ Rule filing SR-FICC-2012-05 noted that this timeframe would 
also be established in consultation with the clearing banks and the 
Federal Reserve. At that time, the parties were considering whether 
to have the substitution process be accomplished in two batches 
during the day depending upon the time of submission of the 
notifications for substitution. The clearing banks, however, 
developed a real-time substitution mechanism for both tri-party and 
GCF collateral making batch processing unnecessary.
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    Simultaneously, with the debit of the GCF Repo securities 
collateral from the account at the clearing bank (i.e., BNY) of the 
original receiver of GCF Repo securities collateral (i.e., Dealer B), 
for purposes of making payment to the original receiver of securities 
collateral (i.e., Dealer B), such clearing bank will effect a cash 
debit equal to the value of the securities collateral in FICC's GCF 
Repo account at such clearing bank and will credit the account of the 
original receiver of securities collateral (i.e., Dealer B) at such 
clearing bank with such cash amount. (This is because when Dealer B is 
debited the securities, Dealer B must receive the funds.) In order to 
secure FICC's obligation to repay the balance in FICC's GCF Repo 
account at such clearing bank (i.e., BNY), FICC will grant to such 
clearing bank a security interest in the cash and/or securities 
substituted for the GCF securities collateral in FICC's GCF repo 
account at the other clearing bank (i.e., Chase).
    Using the example from above, assume the Dealer C submits a 
substitution notification--it requires the securities collateral that 
has been pledged to Dealer B and will substitute cash and/or 
securities. BNY will debit the securities from Dealer B's account and 
the relevant liens will be released so that the securities are in 
FICC's account at Chase. Chase will credit the securities to Dealer C's 
account and the cash and/or securities that Dealer C uses for its 
collateral substitution will be credited by Chase to FICC's account at 
Chase. From Dealer B's perspective, when BNY debits the securities from 
Dealer B's account, Dealer B is supposed to receive the funds--but as 
noted, the funds are at Chase. BNY will credit the funds to Dealer B's 
account and debit FICC's account at BNY.
    At this point in our example, FICC is running a credit at Chase and 
a debit at BNY. In order to secure FICC's debit at BNY, FICC will grant 
a security interest in the funds in the FICC account at Chase.
    For substitutions that occur with respect to GCF Repo transactions 
that were processed on an inter-clearing bank basis, FICC and the 
clearing banks permit cash and/or securities for the substitutions. The 
proposed rule change provided FICC with flexibility in this regard by 
referring to FICC's procedures.
    As noted above, each of the above-referenced changes were approved 
in connection with SR-FICC-2011-05,\26\ SR-FICC-2012-05 \27\ and SR-
FICC-2013-06.\28\ FICC proposes to extend the pilot program reflecting 
these changes for an additional one year. The changes referenced above 
are reflected in Exhibit 5.
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    \26\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011) 76 FR 54824 (September 2, 2011).
    \27\ Securities Exchange Act Release No. 34-67277 (June 20, 
2012) 77 FR 38108 (June 26, 2012).
    \28\ Securities Exchange Act Release No. 34-70068 (July 30, 
2013) 78 FR 47453 (August 5, 2013).
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(ii) Statutory Basis for the Proposed Rule Change
    The proposed rule change is consistent with the Securities and 
Exchange Act of 1934, as amended (the ``Act'') and the rules and 
regulations promulgated thereunder because it will align the GCF Repo 
service with recommendations being made by the TPR to address risks in 
the triparty market overall and therefore will serve to further 
safeguard the securities and funds for which FICC is responsible.

B. Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule change will have any 
negative 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

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

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 the 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 (http://www.sec.gov/rules/sro.shtml) or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2015-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FICC-2015-002. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements

[[Page 29357]]

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 Web site 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 such filings 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/legal/sec-rule-filings.aspx.
    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-2015-002 
and should be submitted on or before June 11, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12281 Filed 5-20-15; 8:45 am]
BILLING CODE 8011-01-P


