[Federal Register Volume 85, Number 65 (Friday, April 3, 2020)]
[Notices]
[Pages 19044-19047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06955]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88512; File No. SR-FICC-2020-003]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Revise the Clearing Agency Investment Policy

March 30, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 26, 2020, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. FICC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would revise the Clearing Agency 
Investment Policy (``Investment Policy'') of FICC and its affiliates, 
The Depository Trust Company (``DTC'') and National Securities Clearing 
Corporation (``NSCC,'' and together with DTC and FICC, the ``Clearing 
Agencies'') in order to (1) include the proceeds of the issuance of 
term debt by NSCC as part of the description of ``Default Liquidity 
Funds'' within the section for ``Investable Funds''; (2) clarify the 
allowable investments for DTC's Participants Fund; \5\ and (3) enhance 
the description of collateral that may be posted in connection with 
investments in reverse repurchase agreements; as described in greater 
detail below.
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    \5\ The respective Clearing Funds of NSCC and FICC, and the DTC 
Participants Fund are described in the Rules & Procedures of NSCC 
(``NSCC Rules''), the DTC Rules, By-laws and Organization 
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') and the Rulebook 
of the Government Securities Division of FICC (``GSD Rules''), 
respectively, available at http://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4 
(Participants Fund and Participants Investment) of the DTC Rules, 
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule 
4 (Clearing Fund and Loss Allocation) of the MBSD 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 Clearing Agencies are proposing to revise the Investment 
Policy, which was adopted for each clearing agency in December 2016 \6\ 
and is maintained in compliance with Rule 17Ad-22(e)(16) under the 
Act,\7\ in order to (1) include the proceeds of the issuance of term 
debt by NSCC as part of the description of ``Default Liquidity Funds'' 
within the section for ``Investable Funds''; (2) clarify the allowable 
investments for DTC's Participants Fund; and (3) enhance the 
description of collateral that may be posted in connection with 
investments in reverse repurchase

[[Page 19045]]

agreements; as described in greater detail below.
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    \6\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
    \7\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the 
Investment Policy also addresses compliance with the requirements of 
Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
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Overview of the Investment Policy
    The Investment Policy governs the management, custody and 
investment of cash deposited to the respective NSCC and FICC Clearing 
Funds, and the DTC Participants Fund, the proprietary liquid net assets 
(cash and cash equivalents) of the Clearing Agencies, and other funds 
held by the Clearing Agencies pursuant to their respective rules.
    The Investment Policy identifies the guiding principles for 
investments and defines the roles and responsibilities of DTCC staff in 
administering the Investment Policy pursuant to those principles. The 
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'') 
\8\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group 
Chief Risk Office (``GCRO'').\9\ Treasury is responsible for 
identifying potential counterparties to investment transactions, 
establishing and managing investment relationships with approved 
investment counterparties, and making and monitoring all investment 
transactions with respect to the Clearing Agencies. CCR is responsible 
for conducting a credit review of any potential counterparty, updating 
those reviews on a quarterly basis, and establishing an investment 
limit for each counterparty.
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    \8\ Treasury is a part of the DTCC Finance Department and is 
responsible for the safeguarding, investment and disbursement of 
funds on behalf of the Clearing Agencies and in accordance with the 
principles outlined in the Investment Policy.
    \9\ Among other responsibilities, GCRO is generally responsible 
for the systems and processes designed to identify and manage 
credit, market and liquidity risks to the Clearing Agencies.
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    The Investment Policy also identifies sources of funds that may be 
invested, and the permitted investments of those funds, including the 
authority required to make such investments and the parameters of, and 
limitations on, each type of investment. Allowable investments include 
bank deposits, reverse repurchase agreements, direct obligations of the 
U.S. government, money market mutual funds, high-grade corporate debt, 
and hedge transactions. Finally, the Investment Policy defines the 
approval authority required to exceed established investment limits.
Proposed Revisions to the Investment Policy
    The Investment Policy is reviewed and approved by the Boards 
annually. In connection with the most recent annual review of the 
Investment Policy and in order to reflect recent changes to NSCC's 
default liquidity funds, the Clearing Agencies have decided to propose 
certain revisions and updates. These proposed revisions, described in 
greater detail below, are designed to update the Investment Policy and 
help ensure that it reflects the Clearing Agencies' practices related 
to investments of funds.
1. Include Additional NSCC Default Liquidity in Table of Investable 
Funds
    First, the Clearing Agencies are proposing to amend the table of 
investable funds in Section 5 of the Investment Policy to include 
proceeds from the issuance of term debt by NSCC in the description of 
NSCC's default liquidity funds.
    This table identifies the sources of investable funds that are 
invested by the Clearing Agencies, and groups these sources of funds 
into separate categories. One of the categories of investable funds is 
the default liquidity funds of NSCC, which is currently described as 
including the proceeds from the issuance of commercial paper and 
extendible notes. NSCC recently proposed to raise additional prefunded 
default liquidity through the periodic issuance and private placement 
of term debt.\10\ The investment of these funds would be governed by 
the Investment Policy.
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    \10\ See Securities Exchange Act Release No. 88146 (February 7, 
2020), 85 FR 8046 (February 12, 2020) (SR-NSCC-2019-802).
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    The proposed change to the Investment Policy would include proceeds 
from the issuance of term debt in this category of ``Investable Funds'' 
to reflect the recent effectiveness of NSCC's proposal.\11\
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    \11\ Id.
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2. Clarify Allowable Investments for DTC's Participants Fund
    Second, the Clearing Agencies are proposing to make two revisions 
to the Investment Policy to clarify how DTC's Participants Fund may be 
invested. It has historically been DTC's practice to invest its 
Participants Fund in cash deposit accounts only, so that the funds are 
available for same-day access and settlement.
    The Clearing Agencies are proposing to update the Investment Policy 
to more clearly reflect this practice. First, the Clearing Agencies are 
proposing to amend the table of allowable investments in Section 6.1 of 
the Investment Policy to include a separate column to identify the DTC 
Participants Fund, and show these funds as being available for 
investment only in bank deposits, including DTC's cash deposit account 
at the Federal Reserve Bank of New York. Currently, the DTC 
Participants Fund is included in the same column as the NSCC and FICC 
Clearing Funds, which may also be invested in other investment types. 
Therefore, as currently written, this table indicates that DTC's 
Participants Fund may also be invested in those other investment types. 
The proposed change to create a separate column for DTC's Participants 
Fund would more clearly identify the allowable investments of these 
funds.
    Also, the Clearing Agencies are proposing to amend Section 6.2.1 of 
the Investment Policy, which describes the limits on investments in 
bank deposits, to explicitly state that DTC's Participants Fund may 
only be invested in demand deposit, savings or checking bank accounts 
that provide same day access to funds. This proposed change would 
clearly identify the limits on investments of DTC's Participants Fund 
in certain types of bank deposits.
    The proposed changes would improve the Investment Policy by more 
clearly identifying DTC's practice with respect to the investment of 
its Participants Fund deposits.
3. Enhance Description of Collateral Related To Reverse Repurchase 
Agreements
    Finally, the Clearing Agencies are proposing to amend Section 6.2.2 
of the Investment Policy, which describes investment limits on 
investments in reverse repurchase agreements. The proposed changes 
would include additional detail to more clearly describe the collateral 
that may be posted by a counterparty in connection with these 
investments and to identify the required haircuts on such collateral.
    More specifically, in these arrangements, where the Clearing 
Agencies are the purchaser of securities, the counterparty to the 
transaction delivers to the custodian collateral (either securities or 
cash). Currently, the Investment Policy states that securities posted 
as collateral must have a market value equal to 102% or greater of the 
cash invested. The proposed changes to the Investment Policy would 
further state that U.S. Treasury securities, U.S. agency securities and 
agency mortgage-backed securities posted as collateral must have a two 
percent haircut; and cash posted as collateral shall have no haircut, 
because cash does not carry any associated market risk that could lead 
to a change in collateral value.
    The proposed changes would improve the Investment Policy by more 
clearly describing the limits applicable to these types of investments.

[[Page 19046]]

2. Statutory Basis
    The Clearing Agencies believe that the proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, the Clearing Agencies believe that the proposed 
modifications to the Investment Policy are consistent with Section 
17A(b)(3)(F) of the Act \12\ and Rule 17Ad-22(e)(16) under the Act,\13\ 
for the reasons described below.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(16).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of each of the Clearing Agencies be designed to assure the safeguarding 
of securities and funds which are in the custody or control of each of 
the Clearing Agencies or for which they are responsible.\14\ The 
investment guidelines and governance procedures set forth in the 
Investment Policy are designed to safeguard funds which are in the 
custody or control of the Clearing Agencies or for which they are 
responsible. Such protections include, for example, following a prudent 
and conservative investment philosophy that places the highest priority 
on maximizing liquidity and risk avoidance. The Clearing Agencies 
believe each of these proposed changes would help facilitate the 
effective execution of the Investment Policy pursuant to the guiding 
principles set forth therein. Therefore, the Clearing Agencies believe 
the proposed changes would allow the Clearing Agencies to continue to 
operate the Investment Policy pursuant to a prudent and conservative 
investment philosophy that assures the safeguarding of securities and 
funds which are in their custody and control, or for which they are 
responsible.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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    First, the proposed change to include proceeds from NSCC's issuance 
of term debt in the table of ``Investable Funds'' would make 
investments of these funds subject to the guidelines and restrictions 
set forth in the Investment Policy, and, therefore, would assure the 
safeguarding of these funds.
    Second, the proposed changes to clarify the allowable investments 
for DTC's Participants Fund and enhance the description of restrictions 
applicable to investments in reverse repurchase agreements would 
improve the clarity and accuracy of the Investment Policy. By creating 
clearer descriptions, the Clearing Agencies believe these proposed 
changes would make the Investment Policy more effective in governing 
the management, custody, and investment of funds of and held by the 
Clearing Agencies.
    For the reasons described above, the Clearing Agencies believe the 
proposed changes would improve the effectiveness of the Investment 
Policy and allow the Investment Policy to continue to be administered 
in alignment with the investment guidelines and governance procedures 
set forth therein. Given that such guidelines and governance procedures 
are designed to safeguard funds which are in the custody or control of 
the Clearing Agencies or for which they are responsible, the Clearing 
Agencies believe the proposed changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\15\
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    \15\ Id.
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    Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to safeguard the Clearing Agencies' own 
and their participants' assets, minimize the risk of loss and delay in 
access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\16\
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    \16\ When the Investment Policy was implemented, the Clearing 
Agencies were subject to the requirements of subsection (d) of Rule 
17Ad-22 under the Act, and the Investment Policy was designed to 
meet the requirements of Rule 17Ad-22(d)(3). See supra note 6; 17 
CFR 240.17Ad-22(d). The Commission subsequently adopted Rule 17Ad-
22(e) and amended Rule 17Ad-22(d) such that the Clearing Agencies 
became subject to the new requirements of Rule 17Ad-22(e) and are no 
longer subject to the requirements of Rule 17Ad-22(d). 17 CFR 
240.17Ad-22(e).
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    The Clearing Agencies believe that the Investment Policy follows a 
prudent and conservative investment philosophy, placing the highest 
priority on maximizing liquidity and avoiding risk of loss, by 
requiring the segregation of funds of each Clearing Agency and of types 
of funds of each Clearing Agency, using external credit ratings in the 
evaluation of counterparties, and establishing investment limits by 
counterparty as well as investment type. As originally implemented, the 
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\17\
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    \17\ Id.
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    For the reasons stated above, the Clearing Agencies believe that 
each of the proposed revisions would improve the clarity and 
comprehensiveness of the Investment Policy and, therefore, make the 
Investment Policy more effective in governing the management, custody, 
and investment of funds of and held by the Clearing Agencies. In this 
way, the proposed changes would better allow the Clearing Agencies to 
maintain this document in a way that is designed to meet the 
requirements of Rule 17Ad-22(e)(16). Therefore, the Clearing Agencies 
believe the proposed revisions would be consistent with the 
requirements of Rule 17Ad-22(e)(16) under the Act.\18\
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    \18\ 17 CFR 240.17Ad-22(e)(16).
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(B) Clearing Agency's Statement on Burden on Competition

    Each of the Clearing Agencies believes that none of the proposed 
revisions to the Investment Policy would have any impact, or impose any 
burden, on competition. The Investment Policy applies equally to 
allowable investments of FICC and NSCC Clearing Funds and DTC 
Participants Fund deposits, as applicable, of each member of the 
Clearing Agencies, and establishes a uniform policy at the Clearing 
Agencies. The proposed changes to the Investment Policy would not 
affect any changes on the fundamental purpose or operation of this 
document and, as such, would also not have any impact, or impose any 
burden, on competition.

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

    The Clearing Agencies have not solicited or received any written 
comments relating to this proposal. The Clearing Agencies will notify 
the Commission of any written comments received by the Clearing 
Agencies.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and 
Rule 19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of

[[Page 19047]]

the purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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-2020-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2020-003. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FICC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FICC-2020-003 and should be submitted on 
or before April 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06955 Filed 4-2-20; 8:45 am]
BILLING CODE 8011-01-P


