
[Federal Register Volume 81, Number 81 (Wednesday, April 27, 2016)]
[Notices]
[Pages 24922-24927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09718]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77675; File No. SR-FICC-2016-001]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change Relating to the GCF 
Repo[supreg] Service

April 21, 2016.
    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 April 19, 2016, 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 and 
II below, which Items have been prepared primarily 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 change consists of amendments to the Government 
Securities Division (``GSD'') Rulebook \3\ (``GSD Rules'') in order to: 
(1) Permanently adopt the pilot program (the ``2015 Pilot Program'') 
\4\ that is currently in effect for the GCF Repo[supreg] \5\ service 
and that is scheduled to expire on June 22, 2016; (2) add clarifying 
rule changes regarding a process that is currently in effect with 
respect to the GCF Repo service and that FICC refers to as the ``net-
of-net'' settlement process; and (3) make technical changes to the GSD 
Rules. The proposed rule changes consist of changes to GSD Rule 1, GSD 
Rule 20 and the Schedule of GCF Timeframes.
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    \3\ The GSD Rulebook is available at DTCC's Web site, 
www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ Securities Exchange Act Release No. 34-75258 (June 22, 
2015), 80 FR 36879 (June 26, 2015) (SR-FICC-2015-002).
    \5\ GCF Repo is a registered trademark of FICC/DTCC.
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    Capitalized terms used herein and not otherwise defined shall have 
the meaning assigned to those terms in the GSD Rules.

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

i. Background: Description of the GCF Repo Service and History
(1) Development of the GCF Repo Service
    The GCF Repo service was developed as part of a collaborative 
effort among the Government Securities Clearing Corporation (``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.\6\ Under the intrabank 
service, Dealers \7\ could only engage in GCF Repo Transactions \8\ 
with other Dealers that cleared at the same clearing bank.
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    \6\ Securities Exchange Act Release No. 34-40623 (October 30, 
1998) 63 FR 59831 (November 5, 1998) (SR-GSCC-98-02).
    \7\ Pursuant to the GSD Rules, the term ``Dealer'' means a 
member that is a registered Government Securities Dealer. GSD Rule 
1, Definitions.
    \8\ Pursuant to the GSD Rules, the term ``GCF Repo Transaction'' 
means a Repo Transaction involving Generic CUSIP Numbers the data on 
which are submitted to the Corporation on a Locked-In-Trade basis 
pursuant to the provisions of Rule 6C, for netting and settlement by 
the Corporation pursuant to the provisions of Rule 20. GSD Rule 1, 
Definitions.
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    Currently, the GCF Repo service allows Netting Members \9\ that 
participate in the service to trade general collateral repos \10\ 
throughout the day without requiring intra-day, trade-for-trade 
settlement on a delivery-versus-payment (``DVP'') basis. The service 
allows Dealers to trade such general collateral repos, based on rate 
and term, throughout the day with Inter-Dealer Broker Netting Members 
\11\ on a blind basis. Standardized Generic CUSIP Numbers \12\ have 
been established exclusively for GCF Repo

[[Page 24923]]

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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    \9\ Pursuant to the GSD Rules, the term ``Netting Member'' means 
a Member that is a Member of the Comparison System and the Netting 
System. GSD Rule 1, Definitions.
    \10\ 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.
    \11\ Pursuant to the GSD Rules, the term ``Inter-Dealer Broker 
Netting Member'' shall have the meaning set forth in Section 2 of 
Rule 2A. GSD Rule 1, Definitions.
    \12\ Pursuant to the GSD Rules, the term ``Generic CUSIP 
Number'' means a Committee on Uniform Securities Identification 
Procedures identifying number established for a category of 
securities, as opposed to a specific security. The Corporation shall 
use separate Generic CUSIP Numbers for General Collateral Repo 
Transactions and GCF Repo Transactions. GSD Rule 1, Definitions.
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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 Dealers 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 Dealers 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 (meaning that, 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\ Therefore, at the 
end of the day, after the GCF Net Settlement Position \15\ 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 (meaning that funds are returned to the net funds 
lenders and securities are returned to the net funds borrowers).
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    \13\ 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. It should be noted that movements of cash do not present 
the same issue because the cash Fedwire is open later than the 
securities Fedwire.
    \15\ Pursuant to the GSD Rules, the term ``GCF Net Settlement 
Position'' means, on a particular Business Day as regards a Netting 
Member's GCF Repo Transaction activity in a particular Generic CUSIP 
Number, either a GCF Net Funds Lender Position or a GCF Net Funds 
Borrower Position, as the context requires. See GSD Rule 1, 
Definitions.
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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 tri-
party 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 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'').\16\ 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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    \16\ 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 the 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.\17\ 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 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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    \17\ 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'').\18\ 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.\19\
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    \18\ Securities Exchange Act Release No. 34-57652 (April 11, 
2008), 73 FR 20999 (April 17, 2008) (SR-FICC-2007-08).
    \19\ 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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ii. Annual Pilot Program, and Reasons for Adopting the Pilot Program 
Permanently
    In July 2011, FICC submitted a rule filing to the Commission (SR-
FICC-2011-05) \20\ proposing to make certain

[[Page 24924]]

changes to its GCF Repo service in order to comply with the 
recommendations that had been made by the Tri-party Repo Infrastructure 
Reform Task Force (``TPR''),\21\ an industry group formed and sponsored 
by the Federal Reserve Bank of New York to advance tri-party repo 
reform recommendations.\22\ Because the GCF Repo service operates as a 
tri-party 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 tri-party market. In SR-FICC-2011-05, FICC 
proposed the following rule changes with respect to the GCF Repo 
service to address the TPR's Recommendations:
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    \20\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \21\ Information about the Federal Reserve's Tri-party Repo 
Infrastructure Reform is available via http://www.newyorkfed.org/banking/tpr_infr_reform.html.
    \22\ The main purpose of the TPR was to develop recommendations 
to address the risk presented by tri-party repo transactions due to 
the morning reversal or ``unwind'' process and to move to a process 
by which transactions are collateralized all day. The TPR's efforts 
shall hereinafter be referred to as ``Tri-party Reform.''
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    (1) (a) To move the Day 2 unwind from 7:30 a.m. to 3:30 p.m., (b) 
to move the NFE process from morning to a time established by the 
Corporation as announced by notice to all members, (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.; and
    (2) To establish rules for intraday GCF Repo collateral 
substitutions.
    The rule changes described in SR-FICC-2011-05 were 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'').\23\ 
Throughout 2011 and the earlier half of 2012, FICC implemented the 
changes referred to in paragraphs (1)(c) and (1)(d) above. On June 8, 
2012, FICC submitted a rule filing to continue the 2011 Pilot Program, 
with certain modifications (the ``2012 Pilot Program'').\24\ 
Specifically, the 2012 Pilot Program adopted the following additional 
changes: (1) The cut-off time for GCF Repo trade submissions was moved 
from 3:35 p.m. to 3:00 p.m.; (2) the 3:45 p.m. cut-off time for Dealer 
affirmation or disaffirmation was moved from 3:45 p.m. to 3:00 p.m.; 
(3) Rule 20 Section 3 was amended 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''; (4) Rule 20 Section 3 was amended to provide that all 
requests for GCF Repo securities collateral substitutions must be 
submitted by the GCF Repo securities collateral provider by the 
applicable deadline on Day 2 (the ``substitution deadline''); (5) Rule 
20 Section 7 was amended to change references to the term ``Security'' 
to ``security'' to conform to the use of ``security'' throughout the 
rule; and (6) a defined term for ``GCF Collateral Excess Account'' was 
introduced into the GSD Rules. For the next 3 years after that, FICC 
submitted and the Commission approved rule filings to extend the pilot 
while the industry was implementing Tri-Party Reform and adapting to 
the changes brought about by Tri-Party Reform.\25\
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    \23\ Securities Exchange Act Release No. 34-65213 (August 29, 
2011), 76 FR 54824 (September 2, 2011) (SR-FICC-2011-05).
    \24\ Securities Exchange Release No. 34-67621 (August 8, 2012), 
77 FR 48572 (August 14, 2012) (SR-FICC-2012-05).
    \25\ Securities Exchange Act Release No. 34-70068 (July 30, 
2013), 78 FR 47453 (August 5, 2013) (SR-FICC-2013-06); Securities 
Exchange Act Release No. 34-72457 (June 24, 2014), 79 FR 36856 (June 
30, 2014) (SR-FICC-2014-02); and Securities Exchange Act Release No. 
34-75258 (June 22, 2015), 80 FR 36879 (SR-FICC-2015-002).
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    FICC is seeking the Commission's approval to permanently adopt the 
rule changes associated with the 2015 Pilot Program, which expires on 
June 22, 2016. In addition, FICC is also seeking to add a clarification 
to the GSD Rules to reflect the net-of-net settlement process in the 
GCF Repo service, as further explained below. The net-of-net settlement 
clarification is also a result of Tri-Party Reform and reflects current 
practice at the GSD. FICC would like to permanently adopt these changes 
because there is no longer a need to keep extending the pilot. The rule 
changes associated with the pilot have been in place since 2011 with 
certain additional modifications that were made in connection with the 
2012 Pilot Program, and Netting Members are accustomed to them; this is 
also the case with the net-of-net settlement changes, which came into 
effect when the clearing banks implemented this process in 2014 and 
2015. This change required no operational changes on the part of FICC; 
however, FICC is proposing to make changes to the GSD Rules in an 
effort to ensure that the Rules reflect the current net-of-net 
settlement process. Any future changes that arise as a result of Tri-
Party Reform will constitute stand-alone rule changes and are not 
expected to affect the rule changes covered in this present filing.
    In addition to the above, FICC is also proposing to amend the GSD 
Rules to include technical clean-up changes to the GSD Rules.
iii. The Manner in Which the Proposed Rule Change Will Affect GSD 
Netting Members
    FICC does not believe that the permanent adoption of the rule 
changes associated with the 2015 Pilot Program will affect Netting 
Members because the proposed rule changes have been in place since the 
approval of the 2011 and 2012 pilot-related filings.\26\ In addition, 
FICC does not believe that the inclusion of the rule changes associated 
with the net-of-net settlement will affect Netting Members because 
these changes are also in effect and reflect current practice.
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    \26\ See footnotes 23 and 24 above.
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    The proposed technical changes will not affect Netting Members 
because they do not change the existing meaning of the GSD Rules.
    These rule changes are as follows:
(1) Proposed Change Regarding the Morning Unwind and Related Rule 
Changes
    At the beginning of the Tri-Party Reform effort, the TPR 
recommended that the daily unwind \27\ for all tri-party 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 banks' intraday 
exposure to the Dealers. Because the GCF Repo service is essentially a 
tri-party 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 of GCF Timeframes was deleted and the language therein was 
moved to a new time of 3:30 p.m. Because the net-of-net settlement 
process has now replaced the unwind, as further described below, FICC 
is further amending the language for the 3:30 p.m. time slot to reflect 
the net-of-net settlement process.
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    \27\ See footnote 22 above.
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    At the same time as the change to the time of the unwind needed to 
be made, GSD was also required to make an additional change to its 
processes in conjunction with the move of the unwind to 3:30 p.m. As 
noted above, the NFE process works in conjunction with the unwind. The 
process utilizes a hold against a Netting Member's NFE at the clearing 
bank to collateralize the Netting Member's GCF Repo cash obligation to 
FICC on an intraday basis. As part of Tri-Party Reform, because the 
unwind moved from the morning to 3:30 p.m. and because the NFE process 
was tied to the moment of the unwind, the NFE process also was required 
to move to coincide with the new time. As part of

[[Page 24925]]

the pilot, the necessary rule change was made to the paragraph in 
Section 3 of GSD Rule 20 that addresses the NFE process to delete the 
reference to the ``morning'' timeframe and to replace it with general 
language referencing ``at the time established by the Corporation.'' 
Because the net-of-net settlement process has now replaced the unwind, 
as further described below, FICC is further amending the language in 
the NFE paragraph to reflect the net-of-net settlement process by 
deleting the reference to ``Day 2'' and replacing it with ``a 
particular Business Day.''
    The change to the time of the unwind also necessitated a change to 
the cut-off time for GCF Repo trade submissions in the Schedule of GCF 
Timeframes to an earlier time of 3:00 p.m. in order to allow FICC time 
to submit files to the clearing banks which, in turn, provide files to 
Netting Members by 3:30 p.m. This permits Netting Members to have a 
complete picture of their positions as the unwind (now the net-of-net) 
occurs at 3:30 p.m. In addition, the 3:45 p.m. cut-off for Dealer 
affirmation or disaffirmation in the Schedule of GCF Timeframes was 
moved to 3:00 p.m. so that the new 3:00 p.m. cut-off for submissions 
also became the cut-off for Dealer affirmations and disaffirmations.
(2) Proposed Change Regarding Intraday GCF Repo Securities Collateral 
Substitutions
    As a result of moving the time change of the unwind (which is now 
the net-of-net settlement process) to 3:30 p.m., the provider of the 
GCF Repo securities collateral needs a substitution mechanism for the 
return of its posted collateral in order to make securities deliveries 
for utilization of such securities in its business activities. The 2015 
Pilot Program rule filing (and the previous pilot filings) added a 
paragraph to Section 3 of Rule 20 to accommodate intraday substitution 
of collateral. In this filing FICC is further amending this paragraph 
in Section 3 of Rule 20 to delete ``During Day 2'' and replace it with 
``On any Business Day'' to accommodate the net-of-net settlement 
process.
    If the GCF Repo Transaction is between Netting Member 
counterparties effecting the transaction through the same clearing bank 
(i.e., intrabank), such clearing bank will process each substitution 
request of the provider of GCF Repo securities collateral submitted 
prior to the substitution deadline. Netting Members are able to 
substitute GCF Repo collateral during the day until such time as their 
new requirement for that day is fully satisfied and delivered to GSD. 
For a GCF Repo Transaction that was processed on an interbank basis, 
FICC initiates a debit of the securities in the account of the lender 
through the FICC GCF Repo account at the clearing bank of the lender 
and the FICC GCF Repo account at the clearing bank of the borrower. 
This movement is done so that a borrower who elects to substitute 
collateral will have access to the collateral for which it is 
substituting. This is reflected in the Schedule of GCF Repo Timeframes 
as the timeframe of 7:30 a.m. through 2:30 p.m. Once the debit has 
settled, borrowers can submit substitution requests until the 
substitution deadline.
(3) Proposed Changes Regarding the Net-of-Net Settlement Process
    As stated above, as part of the Tri-party Reform effort, GCF Repo 
Transactions are no longer unwound in the sense of having a reversal of 
the activity of the previous day. Instead, new obligations and 
entitlements are netted with the previous day's obligations and 
entitlements, thereby requiring settlement of only the differential 
between the previous day's activity and the new activity. To 
illustrate, consider the scenario in which a Netting Member has on a 
Business Day a $100 million delivery obligation to FICC, and on the 
following Business Day, the same Netting Member has a $110 million 
delivery obligation to FICC in the same Generic CUSIP Number. Prior to 
the net-of-net implementation, to unwind the first Business Day's 
transaction, FICC would have returned the $100 million on the second 
Business Day, and the Netting Member would have also been required to 
deliver the $110 million on that Business Day to FICC. However, after 
net-of-net implementation, on the second Business Day, FICC's return of 
$100 million to the Netting Member is netted against the Netting 
Member's obligation to deliver $110 million to FICC, such that the 
Netting Member is only required to deliver the additional $10 million 
to FICC.
    The net-of-net settlement process was implemented by the clearing 
banks in 2014-2015 and it became FICC's practice at that time. Thus, 
FICC is proposing to revise the references in Rule 20 to accurately 
reflect the net-of-net settlement process.
    Some of the proposed rule changes necessary to reflect the net-of-
net settlement process have already been discussed above. In addition 
to the changes in this regard discussed above, FICC is proposing to 
delete the ``Day 1/Day 2'' terminology in Section 3 of GSD Rule 20, 
delete terminology pertaining to ``reversal'' of obligations, and 
insert terminology regarding ``netting'' of obligations.
(4) Proposed Changes Regarding the Technical Changes
    The technical clean-up changes will not affect Netting Members 
because these changes do not change the meaning of the GSD Rules as 
they apply to such Members.
iv. Any Significant Problems Known to FICC That Netting Members Are 
Likely To Have in Complying With the Proposed Rule Change
    FICC does not believe that Netting Members will have problems in 
complying with the proposed rule changes that permanently adopt the 
2015 Pilot and the net-of-net settlement process because these changes 
are already in effect and reflect current practice. In addition, FICC 
is not aware of any problems that Netting Members have in complying 
with these provisions today. FICC does not believe that Netting Members 
will have a problem complying with the technical changes because they 
do not change the manner in which the Rules apply to such Members.
v. Detailed Description of the Proposed Rule Changes in Exhibit 5
    The proposed rule changes are as follows:
(1) Proposed Changes to Rule 1
    The term ``GCF Collateral Excess Account'' means an account 
established by a GCF Custodian Bank in the name of the Corporation to 
hold securities it credits to the GCF Securities Account the 
Corporation establishes for another GCF Clearing Agent Bank.
(2) Proposed Changes to Rule 20 Section 3
    (a) References to ``Day 1'' and ``Day 2'' are proposed to be 
replaced with references to ``particular'' or ``next'' Business Days in 
order to accommodate the net-of-net settlement clarification. 
Additional drafting changes are reflected, where necessary, to add 
clarity to this change.
    (b) A new paragraph has been added to reflect the collateral 
substitution process.
    (c) The second sentence of the fifth paragraph has been moved to 
the end of the paragraph for ease of reading. This change also 
necessitates the deletion of the last sentence of the existing 
paragraph, which reads as follows: ``subject to the provisions of the 
second sentence of this paragraph''.

[[Page 24926]]

    (d) The seventh paragraph has been amended to delete the reference 
to ``the morning of Day 2'' and replace such reference with ``a 
particular Business Day at a time established by the Corporation. . . 
.'' This change reflects that the NFE process is no longer in the 
morning and also further accommodates the net-of-net settlement 
clarification.
(3) Proposed Change to Rule 20 Section 7
    Rule 20 Section 7 is proposed to be amended to reflect the 
following technical clean-up changes:
    (a) The term ``Security'' has been changed to ``security'' in order 
to conform to the use of ``security'' throughout this section.
    (b) The term ``GCF Collateral Excess Account'' was inadvertently 
not included in the Rules thus, it is being introduced in this section 
in order to add clarity. This term is defined in Rule 1 as ``the 
account established by a GCF Custodian Bank in the name of the 
Corporation to hold securities it credits to the GCF Securities Account 
the Corporation establishes for another GCF Clearing Bank.''
(4) Proposed Changes to the Schedule of GCF Timeframes
    The Schedule of GCF Timeframes is proposed to be amended as 
follows:
    (a) To delete the 7:30 a.m. deadline for the return of collateral 
and replace it with a 3:30 p.m. time at which the net-of-net settlement 
process occurs.
    (b) To add the 7:30 a.m. through 2:30 p.m. timeframe for the 
facilitation of interbank collateral substitutions.
    (c) To change the cut-off time for GCF Repo Transaction submission 
from 3:35 p.m. to 3:00 p.m. and to also make 3:00 p.m. the deadline for 
Dealer trade affirmation or disaffirmation and to state that all 
unaffirmed trades will be automatically affirmed by FICC, that FICC 
will notify banks and Dealers of final positions and that collateral 
allocations begin.
    (d) To delete the 3:45 p.m. deadline (all of whose processes are 
now referenced at the 3:00 p.m. timeframe).
2. Statutory Basis
    This proposed rule change is designed to: (1) Permanently adopt the 
rules in the 2015 Pilot Program; (2) incorporate language into the GSD 
Rules to reflect the net-of-net settlement process; and (3) make 
technical changes to the GSD Rules. The 2015 Pilot Program has already 
been approved by the Commission as consistent with the Act.\28\ The 
rules adopted in the 2015 Pilot Program were intended to advance the 
TPR's Tri-Party Reform recommendations to make the tri-party repo 
industry safer by moving the morning unwind process to the afternoon in 
an effort to ensure that such transactions are collateralized all day, 
thereby limiting the amount of intraday credit that is extended by 
clearing banks during the day. Permanently adopting these rules will 
serve to minimize systemic risk and bring certainty to market 
participants. Accordingly, the permanent adoption the 2015 Pilot 
Program rules will help to protect investors and the public interest, 
and help to assure the safeguarding of securities and funds which are 
in FICC's custody or control or for which FICC is responsible, 
consistent with Section 17A(b)(3)(F) of the Exchange Act.\29\ 
Permanently adopting these rules will also avoid the need for FICC to 
renew the pilot program annually.
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    \28\ Securities Exchange Act Release No. 34-75258 (June 22, 
2015), 80 FR 36879 (June 26, 2015) (SR-FICC-2015-002); 15 U.S.C. 78a 
et seq.
    \29\ 15 U.S.C. 78q-1(b)(3)(F).
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    Codifying the net-of-net settlement process in the GSD Rules 
constitutes no change to FICC's current operations because the net-of-
net settlement process was implemented by the clearing banks in 2014-
2015. Changing the GSD Rules to reflect the net-of-net settlement 
process will eliminate obsolete language from the GSD Rules. Similarly, 
the technical changes proposed in this filing will make non-substantive 
corrections that will clarify the GSD Rules. Accordingly, the changes 
related to the net-of-net settlement process and the technical changes 
to the GSD Rules will provide for a more well-founded and transparent 
legal framework for FICC's activities, consistent with Exchange Act 
Rule 17Ad-22(d)(1).\30\
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    \30\ 17 CFR 240.17Ad-22(d)(1).
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 (B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule change would impose 
any burden on competition. The proposed changes apply to all Netting 
Members participating in the GCF Repo service and reflect industry 
reform efforts that apply to similar transactions outside of FICC.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments on the proposed rule change 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-2016-001 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2016-001. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official

[[Page 24927]]

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-2016-001 
and should be submitted on or before May 18, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-09718 Filed 4-26-16; 8:45 am]
 BILLING CODE 8011-01-P


