
[Federal Register Volume 82, Number 81 (Friday, April 28, 2017)]
[Notices]
[Pages 19771-19775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08578]



[[Page 19771]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80517; File No. SR-FICC-2017-010]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend the Mortgage-Backed 
Securities Division Rules Concerning Use of Clearing Fund for Losses, 
Liabilities or Temporary Needs for Funds Incident to the Clearance and 
Settlement Business and Make Other Related Changes

April 24, 2017.
    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 11, 2017, 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. 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 modifications to the Mortgage-
Backed Securities Division (``MBSD'') Clearing Rules (``MBSD Rules'') 
\3\ of FICC. Specifically, FICC proposes to amend Section 5 of MBSD 
Rule 4 to (i) delete language that would potentially limit FICC's 
access to MBSD Clearing Fund cash and collateral to address losses, 
liabilities, or temporary needs for funds incident to its clearance and 
settlement business and (ii) make additional changes to correct grammar 
errors, delete superfluous words and otherwise align the text of 
Section 5 of MBSD Rule 4 to the text of Section 5 of Rule 4 of FICC's 
Government Securities Division (``GSD'') Rulebook (``GSD Rules'').\4\
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    \3\ Capitalized terms used herein and not otherwise defined 
shall have the meaning assigned to such terms in the MBSD Rules, 
available at www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ See Rule 4 in the GSD Rules, available at www.dtcc.com/legal/rules-and-procedures.aspx. Capitalized terms used herein 
specifically with respect to GSD and not otherwise defined shall 
have the meaning assigned to such terms in the GSD Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change would (i) delete language that would 
potentially limit FICC's access to MBSD Clearing Fund cash and 
collateral to address losses, liabilities or temporary needs for funds 
incident to its clearance and settlement business and (ii) make 
additional changes to correct grammar errors, delete superfluous words, 
and otherwise align the text of Section 5 of MBSD Rule 4 to the text of 
Section 5 of GSD Rule 4.
    Section 5 of MBSD Rule 4 (the ``Rule'' or the ``MBSD Rule'' as used 
herein) describes the purposes for which FICC may use MBSD Clearing 
Fund deposits. The Rule is based on the parallel Section 5 of GSD Rule 
4. The Rule describes the use of Clearing Fund deposits both to satisfy 
``losses or liabilities of the Corporation'' and as collateral.\5\ The 
first category is further divided between losses or liabilities 
``arising from the failure of a Defaulting Member'' \6\ and those 
``otherwise incident to the clearance and settlement business of the 
Corporation with respect to losses or liabilities to meet unexpected or 
unusual requirements for funds that represent a small percentage of the 
Clearing Fund.'' \7\ The second category refers to Clearing Fund 
deposits serving as collateral (i) to meet FICC's temporary financing 
needs, (ii) to ensure Members' satisfaction of settlement obligations, 
and (iii) ``to meet unexpected or unusual requirements for funds that 
represent a small percentage of the Clearing Fund.'' \8\
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    \5\ MBSD Rule 4, Section 5.
    \6\ This category of losses or liabilities also includes those 
relating to failures relating to Cross-Guaranty Agreements, 
discussion of which is omitted herein for simplicity. Id.
    \7\ Id. (Emphasis added.)
    \8\ Id. (Emphasis added.)
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    Section 5 of GSD Rule 4 reflects the same two-part construction but 
does not contain the limiting language relating to ``unexpected or 
unusual requirements for funds.'' \9\ This limiting language was 
approved and became effective in 2012 when FICC introduced central 
counterparty and guaranteed settlement services for MBSD, at which time 
the entirety of the MBSD Rules were updated and replaced.\10\ Neither 
FICC's proposal nor the Commission's approval order describes the 
purpose of the limiting language.\11\
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    \9\ GSD Rule 4, Section 5.
    \10\ See Securities Exchange Act Release No. 66550 (March 9, 
2012), 77 FR 15155 (March 14, 2012) (SR-FICC-2008-01) (the ``FICC 
CCP Approval Order'') at 15155.
    \11\ See Securities Exchange Act Release No. 65899 (Dec. 6, 
2011), 76 FR 77287 (Dec. 12, 2011) (SR-FICC-2008-01) (proposed rule 
change) and FICC CCP Approval Order, id.
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    The language appears to have been drawn from the Commission's 
publication in 1980 of standards for the Commission's Division of 
Market Regulation (the ``Division'') to employ in connection with the 
registration of clearing agencies.\12\ In the 1980 Standards Release, 
the Division stated, in relevant part, that a clearing agency ``should 
have a clearing fund which . . . is limited in the purposes for which 
it may be used.'' \13\ The Division further stated that ``the rules of 
the clearing agency should limit the purposes for which the clearing 
fund may be used to protecting participants and the clearing agency (i) 
from the defaults of participants and (ii) from clearing agency losses 
(not including day-to-day operating expenses) such as losses of 
securities not covered by insurance or other resources of the clearing 
agency.'' \14\ The Division observed that some commenters opposed the 
limitation contained in clause (ii) on grounds that it could limit a 
clearing agency's access to its clearing fund in the event of a 
temporary need to cover an operating funds shortfall while a fee 
increase was being implemented or a temporary need to cover a delay in 
payment by a participant due to circumstances beyond the participant's 
control.\15\ The Division noted that the commenter expressed concern 
that the clearing agency not be forced into insolvency in such 
circumstances.\16\ The Division stated that it ``appreciate[ed] a 
clearing agency's possible need for temporary applications of a 
clearing fund in limited amounts to meet unexpected or

[[Page 19772]]

unusual requirements for funds,'' but noted that ``regular or 
substantial use of a clearing fund for such purposes, however, would be 
inappropriate.'' \17\
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    \12\ See Securities Exchange Act Release No. 16900 (June 17, 
1980), 45 FR 41920 (June 23, 1980) (the ``1980 Standards Release'').
    \13\ Id. at 41929.
    \14\ Id. (Emphasis added.)
    \15\ See id.
    \16\ See id.
    \17\ Id.
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    At the time that the Commission published the 1980 Standards 
Release, clearing agencies operated in a very different manner from how 
FICC operates today. Clearing agencies were not, for example, subject 
to requirements with respect to maintaining any particular amount of 
operating capital.\18\ Against this background, it is understandable 
that the Division could have deemed the temporary access by a clearing 
agency to a limited amount of its clearing fund to cover operating 
expense shortfalls to be acceptable.
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    \18\ The 1980 Standards Release does not include specific 
financial requirements for clearing agencies. The Division stated 
that clearing agencies should provide financial statements to their 
participants on a periodic basis and that clearing agencies should 
plan for contingencies including (in relevant part) loss of funds, 
with respect to which the Division advised that clearing agencies 
should maintain adequate insurance. See id. at 41926-27 and 41929.
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    FICC is now subject to substantially enhanced requirements. On 
September 28, 2016, the Commission adopted amendments to Rule 17Ad-22 
under the Act, including the addition of new section 17Ad-22(e), which 
specifies enhanced standards for covered clearing agencies.\19\ The new 
and enhanced standards specified in Rule 17Ad-22(e) require, among 
other things, that FICC ``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'' FICC, including ``plans 
for the recovery . . . of [FICC] necessitated by credit losses, 
liquidity shortfalls, losses from general business risk, or any other 
losses.'' \20\ Rule 17Ad-22(e) also requires FICC to maintain policies 
and procedures reasonably designed to ``[i]dentify, monitor, and manage 
[its] general business risk and hold sufficient liquid net assets 
funded by equity to cover potential general business losses so that 
[it] can continue operations and services as a going concern if those 
losses materialize.'' \21\ The above requirement includes the 
requirement that FICC maintain ``a viable plan . . . for raising 
additional equity should its equity fall below the amount required [to 
satisfy its operating capital requirement].'' \22\
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    \19\ See Securities Exchange Act Release No. 78961 (September 
28, 2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (the ``Covered 
Clearing Agency Standards Release''). FICC is a ``covered clearing 
agency'' as defined in Rule 17Ad-22(a)(5) and must comply with the 
new section (e) of Rule 17Ad-22 by April 11, 2017.
    \20\ 17 CFR 240.17Ad-22(e)(3).
    \21\ 17 CFR 240.17Ad-22(e)(15). The capital requirement set 
forth in Rule 17Ad-22(e)(15) is equal to, at a minimum, six months 
of FICC's current operating expenses. 17 CFR 240.17Ad-22(e)(15)(ii).
    \22\ 17 CFR 240.17Ad-22(e)(15)(iii).
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    FICC proposes to delete the language in Section 5 of MBSD Rule 4 
that limits certain uses by FICC of the MBSD Clearing Fund to 
``unexpected or unusual'' requirements for funds that represent a 
``small percentage'' of the MBSD Clearing Fund because (i) the first 
instance of the limiting language could impair FICC's access to the 
MBSD Clearing Fund as one tool (among many) that FICC could employ in 
order to manage non-default risks, so that it can withstand or recover 
from such risks and continue operations and services as a going concern 
while implementing its viable plan for raising additional capital, and 
(ii) the effect of the second instance of the limiting language is 
confusing and unclear.
    Although, as noted above, FICC's original objective in including 
the limiting language when it revised the MBSD Rules is not clear, the 
comments described in the 1980 Standards Release suggests two examples 
for which such language could have been intended: (i) Limiting FICC's 
use of the MBSD Clearing Fund should an MBSD member experience an 
operational problem that caused a temporary delay in payment and (ii) 
limiting FICC's use of the MBSD Clearing Fund should FICC suffer an 
operating funds shortfall to the point that FICC's viability as a going 
concern became temporarily impaired.\23\
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    \23\ See 1980 Standards Release, supra note 12, at 41929.
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    The first example, however, is inconsistent with FICC's broad and 
unlimited access to the MBSD Clearing Fund to satisfy ``losses or 
liabilities . . . arising from the failure of a Defaulting Member . . 
.'' and to use Clearing Fund deposits as collateral ``to meet its 
temporary financing needs'' with respect to securities settlement.\24\ 
Additionally, FICC believes that both examples would represent a 
misreading of the objective of this discussion in the 1980 Standards 
Release, in which the Division stated that a clearing agency's rules 
should provide that it may access its clearing fund to cover clearing 
agency losses, in addition to losses caused by a participant default, 
in an unrestricted manner ``but not including day-to-day operating 
expenses.'' \25\ In other words, it appears that the Division believed, 
at the time when the 1980 Standards Release was published, that a 
clearing agency should be permitted to access its clearing fund on a 
temporary basis to cover even short-term day-to-day operating losses if 
such use was necessary to avoid ``going out of business'' and such use 
was neither ``regular'' nor ``substantial.'' \26\ FICC notes that it 
would be extraordinarily unlikely for it to access the MBSD Clearing 
Fund for such a purpose at the present time, because, as noted above, 
FICC is now subject to a requirement that it hold, at a minimum, 
capital equal to six months of operating expenses.\27\ To summarize, 
the limiting language as currently included in the Rule would not be 
effective to limit FICC's use of the MBSD Clearing Fund to address a 
temporary operational issue that caused a delay in payment by a 
participant, nor does FICC believe such limitation would have been 
intended. While the language would be effective to limit to small 
amounts FICC's access to MBSD Clearing Fund deposits to cover temporary 
shortfalls in funds needed to meet day-to-day operating expenses, the 
utility of such a restriction has been eliminated by the new capital 
requirements to which FICC is subject.
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    \24\ MBSD Rule 4, Section 5.
    \25\ See 1980 Standards Release, supra note 12, at 41929.
    \26\ Id.
    \27\ On April 6, 2017, FICC submitted a proposed rule change to 
adopt a Clearing Agency Policy on Capital Requirements and a 
Clearing Agency Capital Replenishment Plan in connection with its 
compliance with Rule 17Ad-22(e)(15). See SR-FICC-2017-007 (the 
``FICC Capital Plan PRC''), which was filed with the Commission but 
has not yet been published in the Federal Register. A copy of the 
proposed rule change is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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    FICC is concerned, however, that the limiting language could be 
interpreted to prevent FICC from accessing MBSD Clearing Fund deposits 
as a tool to address an unexpected short-term need for funds that would 
allow FICC to continue operations and services as a going concern while 
it implements other tools available to it, because such use may be 
deemed to be either ``satisfaction of losses or liabilities of FICC,'' 
even if the use of deposits is temporary, or the use of deposits as 
collateral is to meet ``temporary financing needs'' (see discussion 
below), both of which are impacted by the limiting language in the 
Rule. There are many tools that are available to FICC to address such a 
need for funds, which tools are described in the FICC Capital Plan PRC. 
The tools directly available to FICC include increasing fees or 
decreasing expenses, and FICC's parent company, The

[[Page 19773]]

Depository Trust & Clearing Corporation (``DTCC''),\28\ may also 
implement tools available to it to raise capital that may be 
contributed to FICC.\29\ While the FICC Capital Plan PRC does not 
contemplate recourse to either the GSD Clearing Fund or the MBSD 
Clearing Fund as a formal tool for capital replenishment, FICC believes 
that it would be imprudent to limit FICC's ability to employ this tool, 
particularly on a temporary basis, and it is clear that this was not 
the Division's objective when it discussed the underlying concerns in 
the 1980 Standards Release. Finally, FICC notes that FICC's access to 
GSD Clearing Fund deposits is not so limited. While FICC believes that 
its use of either the MBSD Clearing Fund or the GSD Clearing Fund for 
such purposes would be extraordinarily unlikely, the distinction 
between the two rules creates an appearance of inequity between MBSD 
Members and GSD Netting Members.
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    \28\ DTCC operates on a shared services model with respect to 
FICC and its other subsidiaries. Most corporate functions are 
established and managed on an enterprise-wide basis pursuant to 
intercompany agreements.
    \29\ See FICC Capital Plan PRC, supra note 27, at 8.
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    FICC also proposes to delete the second instance of the limiting 
language and otherwise amend the ``collateral'' portion of Section 5 of 
MBSD Rule 4, for the reasons described above, to the extent that the 
second instance of the limiting language that appears in the Rule would 
limit FICC's ability to pledge MBSD Clearing Fund deposits that are in 
the form of securities in order to meet temporary financing needs for 
purposes otherwise permitted by the Rule as FICC proposes to amend it. 
Section 5 of MBSD Rule 4 states that the MBSD Clearing Fund also may be 
used to provide FICC

a source of collateral both [sic] to meet its temporary financing 
needs (through an appropriate financing method determined by the 
Corporation in its sole discretion) for any financing that is 
obtained by the Corporation to hold securities pending settlement, 
to ensure the satisfaction of Members' settlement obligations and to 
meet unexpected or unusual requirements for funds that represent a 
small percentage of the Clearing Fund.\30\
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    \30\ MBSD Rule 4, Section 5.

This section of the Rule identifies that the MBSD Clearing Fund is a 
source of collateral for FICC to meet ``temporary financing needs'' 
(i.e., where FICC may pledge the assets as collateral to a lender to 
FICC) and to ensure that Members perform to FICC (i.e., where Members 
have pledged collateral to FICC as surety against their own default). 
This understanding of the construction of the Rule is clear from 
comparison to Section 5 of GSD Rule 4, which also uses the word 
``both,'' but where only the temporary financing example and the member 
surety example follow.\31\ It is reasonable to believe that the second 
instance of the limiting language in the MBSD Rule was simply intended 
to make clear that, to the extent FICC was permitted to use the MBSD 
Clearing Fund to address a particular loss or liability ``otherwise 
incident to the clearance and settlement business,'' FICC was also 
permitted to use MBSD Clearing Fund deposits as collateral to address 
``temporary financing needs'' for the same purpose. If so, the same 
rationale for deleting the limiting language that is described above 
would apply.
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    \31\ GSD Rule 4, Section 5.
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    Finally, with respect to both instances of the limiting language in 
the Rule, FICC is concerned that scenarios that previously may have 
been fairly described as generating ``unexpected or unusual 
requirements for funds'' may no longer be fairly described as 
``unexpected'' or ``unusual'' given the expectations described in the 
Covered Clearing Agency Standards Release that covered clearing 
agencies contemplate and plan for such scenarios.\32\
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    \32\ See Covered Clearing Agency Standards Release, supra note 
19, at 70810 and 70836.
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    Consequently, FICC proposes to delete the limiting language in both 
places where it appears in MBSD Rule 4, Section 5, because the original 
purpose of the language is unclear, and potential applications of the 
limiting language may not have been intended or would not be, as a 
prudential matter, appropriate today. FICC also believes that, because 
of the uncertain intent of the language and the inherent ambiguity of 
terms such as ``unexpected or unusual,'' FICC's use of MBSD Clearing 
Fund deposits to address needs that are ``otherwise incident to [its] 
clearance and settlement business'' could be subject to legal 
challenges. FICC believes that the limiting language could impair 
FICC's compliance with Rule 17Ad-22(e)(3)(ii), pursuant to which FICC 
is preparing a recovery plan that provides for FICC's management of a 
broad range of risks such that it can continue to provide critical 
clearance and settlement operations and services even if such risks 
materialize.\33\ FICC also believes that, because of its unclear 
purpose and the ambiguity of its terms, the limiting language could 
also impair FICC's compliance with Rule 17Ad-22(e)(1), pursuant to 
which FICC is required to ``establish, implement, maintain and enforce 
written policies and procedures reasonably designed to . . . [p]rovide 
for a well-founded, clear, transparent and enforceable legal basis for 
each of its activities in all relevant jurisdictions.'' \34\
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    \33\ The Commission issued a temporary exemption from compliance 
with the recovery and wind-down plan requirements of Rule 17Ad-
22(e)(3) and (e)(15) until December 31, 2017. Securities Exchange 
Act Release No. 80378 (April 5, 2017) (File No. S7-03-14).
    \34\ 17 CFR 240.17Ad-22(e)(1).
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    FICC also proposes to amend Section 5 of MBSD Rule 4 to make 
additional changes that would align the Rule to Section 5 of GSD Rule 4 
(where applicable), remove superfluous words and correct grammar errors 
and sentence construction ambiguities in the paragraph of the Rule that 
FICC proposes to amend in order to delete the limiting language 
discussed above. The first instance of the limiting language modifies 
the phrase ``otherwise incident to the clearance and settlement 
business'' with the phrase ``with respect to losses and liabilities to 
meet unexpected or unusual requirements for funds . . . .'' FICC 
proposes that, upon deleting this phrase, ``otherwise incident to the 
clearance and settlement business of the Corporation'' would be 
followed immediately by ``including losses and liabilities arising 
other than from such failure of such Member,'' which would align the 
amended MBSD Rule to Section 5 of GSD Rule 4 but would not otherwise 
change the extent of FICC's authority if the limiting language was 
deleted. FICC also proposes to replace the word ``provide'' with the 
word ``providing'' because ``providing'' would be grammatically correct 
where the sentence construction is that the use of MBSD Clearing Fund 
deposits ``shall be limited to . . . satisfaction of losses or 
liabilities . . . and to [providing] the Corporation with a source of 
collateral.'' Next, FICC proposes to add to the clause referring to 
temporary financing needs the modifier ``including, without 
limitation,'' and delete the parenthetical modifier ``(through an 
appropriate financing method determined by the Corporation in its sole 
discretion) for'' that currently precedes the reference to ``financing 
that is obtained by the Corporation to hold securities pending 
settlement.'' This change would delete a superfluous parenthetical 
clause and align the amended MBSD Rule to Section 5 of GSD Rule 4. 
Finally, FICC proposes to delete a comma and add the word ``and'' 
before the phrase ``to ensure the satisfaction of Members' settlement 
obligations,'' because these changes would be grammatically

[[Page 19774]]

necessary upon deletion of the second instance of the limiting 
language. FICC also believes it is reasonable and appropriate to align 
the language of Section 5 of MBSD Rule 4 to Section 5 of GSD Rule 4, 
because it would avoid any question whether Section 5 of MBSD Rule 4 
should be interpreted differently from Section 5 of GSD Rule 4. FICC 
does not believe that these sections should be interpreted differently, 
except as necessary with respect to differences that are specific to 
the services and defined terminology of each division.
2. Statutory Basis
    FICC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to FICC. In particular, FICC believes that the proposed 
rule change is consistent with Section 17A(b)(3)(F) \35\ of the Act and 
Rule 17Ad-22(e) under the Act,\36\ for the reasons described below.
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    \35\ 15 U.S.C. 78q-1(b)(3)(F).
    \36\ 17 CFR 240.17Ad-22(e).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\37\ The proposed 
rule change would enhance FICC's prompt and accurate clearance and 
settlement of securities transactions because it would enhance FICC's 
ability to ensure that it can continue its operations and services as a 
going concern in the unlikely event that it would be necessary or 
appropriate for FICC to access MBSD Clearing Fund deposits to address 
losses, liabilities or temporary financing needs incident to its 
clearance and settlement business. Additionally, the more technical 
aspects of the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions by 
removing potentially ambiguous language, correcting grammar errors, and 
deleting superfluous text in Section 5 of MBSD Rule 4, which changes 
would enhance the clarity of the Rule. The proposed rule change would 
also promote the prompt and accurate clearance and settlement of 
securities transactions by aligning Section 5 of MBSD Rule 4 to Section 
5 of GSD Rule 4, which would reduce the risk of legal challenges to 
FICC's use of MBSD Clearing Fund deposits based upon the argument that 
differences between the two rules indicate that Section 5 of MBSD Rule 
4 should be interpreted differently from Section 5 of GSD Rule 4.
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    \37\ 15 U.S.C. 78q-1(b)(3)(F).
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    FICC also believes that the proposed rule change is consistent Rule 
17Ad-22(e)(1) and (3). Rule 17Ad-22(e)(1) requires FICC to ``establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to . . . [p]rovide for a well-founded, clear, 
transparent and enforceable legal basis for each of its activities in 
all relevant jurisdictions.'' \38\ As described above, FICC believes 
that the proposed rule change to eliminate the limiting language 
described above would reduce the risk of legal challenges to FICC's 
ability to access MBSD Clearing Fund deposits under scenarios in which 
FICC believes that such limitation was not intended or in which such 
limitation would not be appropriate, as a prudential matter, in light 
of the enhanced standards to which FICC is now subject. The more 
technical aspects of the proposed rule change would also reduce the 
risk of legal challenges to FICC's actions that could be based upon 
grammar errors or differences between Section 5 of MBSD Rule 4 and 
Section 5 of GSD Rule 4. Rule 17Ad-22(e)(3) 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'' FICC, including ``plans for 
the recovery . . . of [FICC] necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.'' 
\39\ The proposed rule change would enhance FICC's compliance with Rule 
17Ad-22(e)(3) by enhancing and clarifying FICC's ability to access MBSD 
Clearing Fund deposits as one tool that it may employ in order to 
address losses, liabilities or temporary needs for funds incident to 
its clearance and settlement business. In particular, FICC believes 
that enhancing and clarifying FICC's ability to access MBSD Clearing 
Fund deposits in this manner and making the related more technical 
changes to Section 5 of MBSD Rule 4 would enhance FICC's comprehensive 
management of legal and operational risks, consistent with Rule 17Ad-
22(e)(3)(i).\40\ FICC also believes that enhancing and clarifying 
FICC's ability to access MBSD Clearing Fund deposits to address such 
risks would enhance FICC's ability to establish and maintain 
appropriate recovery and orderly wind-down plans, as required by Rule 
17Ad-22(e)(3)(ii),\41\ by enhancing and clarifying one tool that FICC 
may employ in order to address such risks.
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    \38\ 17 CFR 240.17Ad-22(e)(1).
    \39\ 17 CFR 240.17Ad-22(e)(3).
    \40\ 17 CFR 240.17Ad-22(e)(3)(i). See also Covered Clearing 
Agency Standards Release, supra note 19, at 70810 (discussing 
guidelines that a covered clearing agency should consider with 
respect to its comprehensive risk management framework).
    \41\ 17 CFR 240.17Ad-22(e)(3)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that the proposed rule change to delete the limiting 
language in Section 5 of MBSD Rule 4 could have an impact upon 
competition. Specifically, as a result of the proposed rule change 
FICC's ability to access MBSD Clearing Fund deposits with respect to 
certain non-default losses would be expanded and clarified. Although 
FICC believes it is extraordinarily unlikely that FICC would find it 
necessary or appropriate to employ this tool in lieu of other tools 
that are available to FICC, if FICC were to access MBSD Clearing Fund 
deposits for this purpose, and such use became a loss or liability that 
was allocated to MBSD Members pursuant to Section 5 and Section 7 of 
MBSD Rule 4, such allocation could have a different financial impact 
upon MBSD Members than would be imposed by use of another tool that 
FICC could employ to address the underlying loss, liability, or 
temporary needs for funds incident to its clearance and settlement 
business. Accordingly, FICC believes that the proposed rule change to 
delete the limiting language in Section 5 of MBSD Rule 4 could burden 
competition. However, FICC does not believe that this aspect of the 
proposed rule changes would impose a significant burden on competition, 
both because it is extraordinarily unlikely that FICC would employ this 
tool and because FICC's access to MBSD Clearing Fund deposits for these 
purposes would, if employed, likely replace (possibly temporarily) 
alternative tools such as fee increases or capital-raising tools 
available to DTCC that would also have a financial impact on MBSD 
Members.
    FICC believes that the above described potential burden on 
competition would be necessary and appropriate in furtherance of the 
Act, specifically Section 17A(b)(3)(F) of the Act,\42\ because, as 
described above, the proposed rule change would enhance FICC's prompt 
and accurate clearance and settlement of securities transactions by 
enhancing FICC's ability to ensure that it can continue its operations 
and services as a going concern, in the

[[Page 19775]]

unlikely event that it would be necessary or appropriate for FICC to 
access MBSD Clearing Fund deposits to address losses, liabilities or 
temporary financing needs incident to its clearance and settlement 
business. FICC also believes that the proposed rule change to delete 
the limiting language in Section 5 of MBSD Rule 4 is necessary and 
appropriate in furtherance of the Act because it would (i) reduce the 
risk of legal challenges to FICC's ability to access MBSD Clearing Fund 
deposits under scenarios in which FICC believes that such limitation 
was not intended or in which, FICC believes, such limitation would not 
be appropriate, thereby supporting FICC's compliance with Rule 17Ad-
22(e)(1),\43\ (ii) enhance FICC's comprehensive management of legal and 
operational risks, thereby supporting FICC's compliance with Rule 17Ad-
22(e)(3)(i),\44\ and (iii) enhance FICC's ability to establish and 
maintain appropriate recovery and orderly wind-down plans, thereby 
supporting FICC's compliance with Rule 17Ad-22(e)(3)(ii).\45\
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    \42\ 15 U.S.C. 78q-1(b)(3)(F).
    \43\ 17 CFR 240.17Ad-22(e)(1).
    \44\ 17 CFR 240.17Ad-22(e)(3)(i).
    \45\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    FICC does not believe the additional changes to correct grammar 
errors, delete superfluous words and otherwise align the text of 
Section 5 of MBSD Rule 4 to the text of Section 5 of GSD Rule 4 would 
have any impact upon competition, because these proposed rule changes 
would enhance the clarity and grammatical accuracy of the Rule and 
therefore would not have an impact on MBSD members or impose any other 
potential 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. 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 such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2017-010 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-2017-010. 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 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 Web site (http://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-2017-010 and should be 
submitted on or before May 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08578 Filed 4-27-17; 8:45 am]
BILLING CODE 8011-01-P


