[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
[Notices]
[Pages 40723-40727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14491]



[[Page 40723]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89193; File No. SR-FICC-2020-006]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Provide for a Passive 
Acknowledgement Process and Make Other Changes

June 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 June 19, 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. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the FICC 
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') and 
the FICC Mortgage-Backed Securities Division (``MBSD'' and together 
with GSD, each, a ``Division'') Clearing Rules (``MSBD Rules,'' and 
together with the GSD Rules, ``Rules'') \3\ in order to (i) provide for 
a passive acknowledgement process whereby any settling bank that does 
not timely acknowledge that it will settle its Funds-Only (Cash) 
Settlement Figures (as defined below) with FICC (i.e., acknowledge its 
intention to pay to or collect from FICC), or notify the Settlement 
Agent (as defined below) of its refusal to settle for one or more 
members \4\ for which it is the designated Funds-Only Settling Bank or 
Cash Settling Bank (collectively, ``FICC Settling Banks'') and has not 
otherwise been in contact with the Settlement Agent, would be deemed to 
have acknowledged its Funds-Only (Cash) Settlement Figures, (ii) codify 
FICC's discretion to exclude a FICC Settling Bank's balance from the 
FRB's National Settlement Service (``NSS'') file in certain 
circumstances, and (iii) make certain technical and conforming changes.
---------------------------------------------------------------------------

    \3\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \4\ The use of ``members'' here refers to any participant that 
is required to appoint a Funds-Only Settling Bank or Cash Settling 
Bank, which includes GSD Netting Members, GSD CCIT Members, GSD 
Sponsoring Members, and MBSD Clearing Members. References 
hereinafter to the term ``members'' shall be used for ease of 
reference. See GSD Rule 13, Section 4(a) and MBSD Rule 3A, Section 
(a), supra note 3.
---------------------------------------------------------------------------

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 purpose of this proposed rule change is to (i) provide for a 
passive acknowledgement process whereby any FICC Settling Bank that 
does not timely acknowledge that it will settle its Funds-Only (Cash) 
Settlement Figures (as defined below) with FICC (i.e., acknowledge its 
intention to pay to or collect from FICC), or notify the Settlement 
Agent (as defined below) of its refusal to settle for one or more 
members for which it is the designated FICC Settling Bank and has not 
otherwise been in contact with the Settlement Agent, would be deemed to 
have acknowledged its Funds-Only (Cash) Settlement Figures, (ii) codify 
FICC's discretion to exclude a FICC Settling Bank's balance from the 
NSS file in certain circumstances, and (iii) make certain conforming 
technical and conforming changes.
Background
    Each Division provides a standardized, automated method for 
settling funds-only and cash settlement obligations, respectively, 
between each Division and its respective members' FICC Settling Banks. 
The funds-only settlement service of GSD and the cash settlement 
service of MBSD eliminate manual processing and reduce costs by 
aggregating, for GSD, the funds-only settlement payments and, for MSBD, 
the cash settlement payments due to or from a member, and then, 
automatically debiting or crediting such member's account at its FICC 
Settling Bank. Settlement is effected via the NSS.\5\
---------------------------------------------------------------------------

    \5\ GSD Rule 13, Section 5(i) and MBSD Rule 11, Section 9(i), 
supra note 3.
---------------------------------------------------------------------------

Current Process
    Each member must designate a FICC Settling Bank to settle its 
funds-only (cash) obligations with FICC. Today, on each business day, 
as applicable, GSD and MBSD each calculates either a Funds-Only 
Settlement Amount or Cash Balance figure, respectively, for each 
member, and reports to its members and their respective FICC Settling 
Banks, a Net Funds-Only Settlement Figure \6\ (for GSD) and either a 
Total Debit Cash Balance Figure \7\ or a Total Credit Cash Balance 
Figure \8\ (for MBSD) (collectively, ``Funds-Only (Cash) Settlement 
Figures'').\9\ The Depository Trust Company (``DTC'') acts as 
Settlement Agent (``Settlement Agent'') \10\ for FICC's funds-only 
(cash) settlement process. Once the FICC Settling Banks receive their 
Funds-Only (Cash) Settlement Figures from the Settlement Agent, the 
FICC Settling Banks must submit either their (1) acknowledgement that 
they will settle their Funds-Only (Cash) Settlement Figures with FICC 
or (2) refusal to settle such amounts on behalf of one or more of their 
respective members.\11\ This

[[Page 40724]]

acknowledgement or refusal submission occurs through a designated 
terminal system.\12\ If all of the FICC Settling Banks submit 
acknowledgements of their intent to settle, then the Settlement Agent 
will submit the requisite file to the FRB for processing through the 
NSS.
---------------------------------------------------------------------------

    \6\ Net Funds-Only Settlement Figure means the net amount of the 
Funds-Only Settlement Amounts of the Netting Members for which a 
Funds-Only Settling Bank Member is acting. GSD Rule 1, supra note 3.
    \7\ Total Debit Cash Balance Figure means the sum of the Cash 
Balances which are debits of the Members for which a Cash Settling 
Bank Member is acting. MSBD Rule 1, supra note 3.
    \8\ Total Credit Cash Balance Figures means the sum of the Cash 
Balances which are credits of the Members for which a Cash Settling 
Bank Member is acting. MSBD Rule 1, supra note 3.
    \9\ For GSD, Funds-Only Settlement Amounts reflect: (i) Changes 
in the value of securities when they are marked to market, (ii) cash 
adjustments related to securities trades, (iii) the pass-through of 
coupon payments for term repos or trade obligations that cross a 
coupon date, and (iv) other items, such as billing invoices. GSD 
Rule 13, Section 1, supra note 3. For MBSD, Cash Settlement amounts 
reflect: (i) the TBA Transaction Adjustment Payment, (ii) Net Pool 
Transaction Adjustment Payment, (iii) principal and interest 
payments for failing net pool settlement obligations (to the extent 
that they are not handled by the FedWire Securities Service 
Automated Claims Adjustment Process), and (iv) other items, such as 
Factor Update Adjustments and billing invoices. MBSD Rule 11, 
Section 7, supra note 3.
    \10\ DTC Settlement Operations act as the Settlement Agent for 
GSD and MBSD. ``Settlement Agent'' means the bank or trust company 
that FICC may, from time to time, designate to act as its agent for 
purposes of interfacing with NSS for funds-only settlement pursuant 
to GSD Rule 13 (for GSD) and for Cash Settlement pursuant to MBSD 
Rule 11. GSD Rule 1 and MBSD Rule 1, supra note 3.
    \11\ Currently, a FICC Settling Bank that settles only for 
itself may not refuse to settle for itself and, therefore, may opt 
out of the requirement to acknowledge its Funds-Only (Cash) 
Settlement Figures. GSD Rule 13, Section 5(b) and MBSD Rule 11, 
Section 9, supra note 3. The passive acknowledgement proposal, 
explained in Item 3(a)(i) below, would not apply to such FICC 
Settling Banks that have chosen to opt out, as further explained 
below.
    \12\ GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b), 
supra note 3.
---------------------------------------------------------------------------

    If a FICC Settling Bank notifies the Settlement Agent that the FICC 
Settling Bank refuses to pay the Funds-Only (Cash) Settlement Figure 
for a member, then FICC will exclude that member's amount and the 
Settlement Agent will provide the FICC Settling Bank with a new Funds-
Only (Cash) Settlement Figure that no longer includes the excluded 
member's amount. The FICC Settling Bank must then immediately send a 
message to the Settlement Agent acknowledging the new amount.\13\ The 
Settlement Agent will then submit the requisite file to the FRB for 
processing through the NSS.
---------------------------------------------------------------------------

    \13\ GSD Rule 13, Section 5(c) and MBSD Rule 11, Section 9(c), 
supra note 3.
---------------------------------------------------------------------------

    The deadline for FICC Settling Banks to acknowledge or refuse is 30 
minutes prior to the time at which debits and credits are executed via 
the NSS.\14\ If a FICC Settling Bank does not acknowledge or refuse by 
this time, the Settlement Agent will use the most recent contact 
information available to contact the FICC Settling Bank. If the 
Settlement Agent is unable to contact the FICC Settling Bank or does 
not receive a response from the FICC Settling Bank as to the 
acknowledgement or refusal, FICC needs to determine whether to request 
an NSS extension while also determining whether to remove the FICC 
Settling Bank's Funds-Only (Cash) Settlement Figure from the NSS file.
---------------------------------------------------------------------------

    \14\ For GSD, the NSS execution times are 10:00 a.m. and 3:15 
p.m.; for MBSD, these times are 10:00 a.m. and 2:45 p.m. GSD 
Schedule of Timeframes, supra note 3, and MBSD Processing Schedule 
and Timeframes, available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.
---------------------------------------------------------------------------

    Today, failure of a FICC Settling Bank to timely respond to the 
Settlement Agent after posting of final settlement figures creates 
uncertainty with respect to timely completion of settlement at FICC. 
This is because today, FICC is not permitted under the Rules to submit 
the NSS file (through the Settlement Agent) unless all FICC Settling 
Banks in the file have acknowledged. FICC must therefore determine 
whether it should remove the Funds-Only (Cash) Settlement Figure of the 
unresponsive FICC Settling Bank from the NSS file in order to allow the 
processing of the rest of the NSS file for the other FICC Settling 
Banks that are part of the NSS file. If FICC does not remove the Funds-
Only (Cash) Settlement Figure of the unresponsive FICC Settling Bank 
from the NSS file, then the NSS file cannot be created and the funds-
only (cash) settlement cannot be completed for the other FICC Settling 
Banks that are part of the NSS file. As such, today, FICC may need to 
remove the Funds-Only (Cash) Settlement Figure of the unresponsive FICC 
Settling Bank from the NSS file in order to submit the NSS file and 
complete the funds-only (cash) settlement for the other FICC Settling 
Banks that are part of the NSS file, thus potentially delaying 
settlement of the NSS file. Such potential delay would arise from the 
time needed to remove the figure of the unresponsive FICC Settling Bank 
and then re-establish the NSS file. Moreover, with respect to the 
members who were using the particular FICC Settling Bank, FICC would 
need to settle individually with those members via the Fedwire Funds 
Service, which also presents the possibility of a delay because of the 
time it might take to complete this process individually with each 
affected member. To date, FICC has not had to perform the process of 
removing a FICC Settling Bank from the NSS file.
    The proposed passive acknowledgement process that is discussed in 
Item 3(a)(i) below is aimed at addressing the situation discussed above 
where a FICC Settling Bank is unresponsive and cannot be reached. This 
would allow FICC to submit the NSS file (through the Settlement Agent) 
for NSS processing more timely, and thereby allow the funds-only (cash) 
settlement to be completed for the other FICC Settling Banks that are 
part of the NSS file.
    Even with the implementation of the proposed passive 
acknowledgement process discussed in Item 3(a)(i) below, FICC must 
retain the discretion to remove the Funds-Only (Cash) Settlement Figure 
of a FICC Settling Bank from the NSS file.\15\ In other words, 
currently, FICC may remove the FICC Settling Bank's figure from the NSS 
file in the situation where a FICC Settling Bank is unresponsive and 
cannot be reached. Under the proposal, the need for FICC to do so would 
arise in the event that a FICC Settling Bank advises the Settlement 
Agent that it cannot yet determine whether to acknowledge or refuse. In 
such a circumstance, passive acknowledgement would not apply (as 
described below); however, as it gets closer to the NSS processing 
time, FICC may need to remove the FICC Settling Bank's Funds-Only 
(Cash) Settlement Figure from the NSS file in order to allow funds-only 
(cash) settlement to be completed for the other FICC Settling Banks 
that are part of the NSS file and have affirmatively acknowledged their 
figure. FICC is proposing to codify its ability to remove the Funds-
Only (Cash) Settlement Figure of the FICC Settling Bank from the NSS 
file. As FICC would be codifying this current practice with this 
proposed rule change, this proposed rule change would not change the 
current settlement process of FICC Settling Banks that are excluded 
from the NSS file. This proposed change is discussed in Item 3(a)(ii) 
below.
---------------------------------------------------------------------------

    \15\ This practice is currently not codified in the GSD Rules 
and MBSD Rules.
---------------------------------------------------------------------------

(i) Proposed Change To Introduce Passive Acknowledgement Process for 
FICC Settling Banks
Proposed Passive Acknowledgement Process
    FICC proposes to establish an ``Acknowledgement Cutoff Time'' after 
which FICC would apply the passive acknowledgement process if it is 
unable to reach the FICC Settling Bank.
    The Acknowledgement Cutoff Time would be defined as the later of: 
(i) 30 Minutes after the FICC Settling Banks have been notified that 
such payment is due or (ii) 30 minutes prior to the times established 
by FICC \16\ for the execution of funds-only (cash) settlement debits 
and credits via NSS.
---------------------------------------------------------------------------

    \16\ These times are currently 10:00 a.m. and 3:15 p.m. for GSD, 
and 10:00 a.m. and 2:45 p.m. for MBSD.
---------------------------------------------------------------------------

    If a FICC Settling Bank does not submit either (1) an 
acknowledgement that it will settle the Funds-Only (Cash) Settlement 
Figure with FICC or (2) a refusal to pay the Funds-Only (Cash) 
Settlement Figure by the ``Acknowledgement Cutoff Time'' and has not 
been in contact with the Settlement Agent, then the Settlement Agent 
would attempt to contact the FICC Settling Bank. If the Settlement 
Agent is able to contact the FICC Settling Bank and it notifies the 
Settlement Agent that the FICC Settling Bank cannot, at that time, 
submit its acknowledgement or refusal to pay its Funds-Only (Cash) 
Settlement Figure and that it needs more time, then the FICC Settling 
Bank would not be deemed to have acknowledged that it will settle such 
Funds-Only (Cash) Settlement Figure with FICC. However,

[[Page 40725]]

if the FICC Settling Bank cannot be reached, then the FICC Settling 
Bank would be deemed to have acknowledged that it will settle such 
Funds-Only (Cash) Settlement Figure with FICC.
    The passive acknowledgement process described herein would also 
apply in situations where a FICC Settling Bank is provided with a new 
Funds-Only (Cash) Settlement Figure after such FICC Settling Bank's 
refusal to pay the Funds-Only (Cash) Settlement Figure for one or more 
members.
    FICC would also revise the Rules to state that each FICC Settling 
Bank must ensure that it maintains accurate contact details with the 
Settlement Agent so that the Settlement Agent may contact the FICC 
Settling Bank regarding this settlement process and any settlement 
issues.
Proposed Changes to GSD Rule 13, Section 5 and MBSD Rule 11, Section 9
    The proposed passive acknowledgement process will require changes 
to Section 5 of GSD Rule 13 and Section 9 of MBSD Rule 11. 
Specifically, FICC proposes to amend Section 5(b) of GSD Rule 13 to 
replace ``by the applicable deadline'' with ``By the Acknowledgement 
Cutoff Time,'' and move this phrase to the start of the first sentence. 
Section 5(b) would be further amended to add a sentence stating what 
the Acknowledgement Cutoff Time would be, that is the later of (i) 30 
minutes after the Funds-Only Settling Bank has been notified that such 
payment is due, or (ii) 30 minutes prior to the payment deadlines 
established by FICC. FICC also proposes to add a phrase at the end of 
Section 5(b) that would apply to Funds-Only Settling Banks that settle 
solely for their own accounts to state that if they choose to opt out 
of having to acknowledge their Funds-Only Settlement Amounts, new 
subsections (k) and (l) (described below) would not apply to them.\17\ 
The same changes would be made to Section 9(b) of MBSD Rule 11.
---------------------------------------------------------------------------

    \17\ Proposed subsections (k) and (l) describe the proposed 
passive acknowledgement process. As described above, if a FICC 
Settling Bank that settles solely for its own account opts to not to 
acknowledge its own Funds-Only Settlement Figure, the passive 
acknowledgement process would not apply to such FICC Settling Banks 
because such FICC Settling Banks cannot refuse to settle for their 
own accounts. For operational convenience, FICC Settling Banks may 
choose to not acknowledge their own Funds-Only Settlement Figure 
because they cannot refuse to settle for their own accounts. 
Therefore, proposed subsections (k) and (l) would not apply to such 
FICC Settling Banks.
---------------------------------------------------------------------------

    FICC proposes to amend Section 5(c) of GSD Rule 13 to delete the 
word ``immediately'' and to state that new subsection (k) would apply 
with respect to the new Net Funds-Only Settlement Figures of the Funds-
Only Settling Bank that sent refusal messages. Similar changes would be 
made to Section 9(c) of MBSD Rule 11.
    FICC proposes to amend Section 5 of GSD Rule 13 to add new 
subsection (i). Proposed subsection (i) would provide that the 
Settlement Agent uses the most recent contact information provided by 
the Funds-Only Settling Bank to the Settlement Agent. Proposed 
subsection (i) would also include a requirement that each Funds-Only 
Settling Bank maintains up-to-date and accurate contact details with 
the Settlement Agent on an ongoing basis. A similar subsection (i) 
would be added to Section 9 of MBSD Rule 11.
    FICC proposes to amend Section 5 of GSD Rule 13 to add new 
subsection (l). Proposed subsection (l) would provide that the 
Settlement Agent would attempt to contact the Funds-Only Settling Bank 
if no acknowledgement or notice of refusal to settle on behalf of one 
or more Netting Members for which it is designated as the Funds-Only 
Settling Bank is received by the Acknowledgement Cutoff Time. If (i) 
the Settlement Agent is able to contact the Funds-Only Settling Bank 
and (ii) the Funds-Only Settling Bank notifies the Settlement Agent 
that it cannot, at that time, acknowledge or refuse their Net Funds-
Only Settlement Figure, then the Funds-Only Settling Bank will not be 
deemed to have acknowledged its Net Funds-Only Settlement Figure. If 
the Funds-Only Settling Bank cannot be reached, the Funds-Only Settling 
Bank will be deemed to have acknowledged its Net Funds-Only Settlement 
Figure. FICC would also state that this proposed subsection (l) would 
not apply to a Funds-Only Settling Bank that settles solely for its own 
account and opts not to acknowledge its Net Funds-Only Settlement 
Figure. A similar subsection (l) would be added to Section 9 of MBSD 
Rule 11.
(ii) Proposed Change To Allow FICC To Exclude FICC Settling Bank 
Balance From NSS File
    The proposed rule change would provide that if (1) passive 
acknowledgement does not apply because the FICC Settling Bank has 
notified the Settlement Agent that it cannot yet acknowledge or refuse 
its Funds-Only (Cash) Settlement Figure and (2) the payment deadline 
established by FICC is approaching, then FICC would have the ability to 
exclude the FICC Settling Bank's Funds-Only (Cash) Settlement Figure 
from the NSS file. This would allow funds-only (cash) settlement to be 
completed for the other FICC Settling Banks that are part of the NSS 
file. As described above, as it gets closer to the payment deadline, 
FICC may need to remove the FICC Settling Bank's Funds-Only (Cash) 
Settlement Figure from the NSS file in order to allow funds-only (cash) 
settlement to be completed for the other FICC Settling Banks that are 
part of the NSS file. As FICC would be codifying its current practice 
with this proposed rule change, this proposed change would not change 
the current settlement process of FICC Settling Banks that are excluded 
from the NSS file.
    This proposed change is reflected in the second paragraph of new 
subsections (l) of Section 5 of GSD Rule 13 and Section 9 of MBSD Rule 
11.
(iii) Proposed Technical and Conforming Changes
    FICC proposes to make certain technical changes. Specifically, to 
enhance clarity, FICC proposes to move current subsection (d) in GSD 
Rule 13, Section 5 to become proposed subsection (h) of GSD Rule 13, 
Section 5. In addition, FICC proposes to move current subsection (d) in 
MBSD Rule 11, Section 9 to become proposed subsection (h) of MBSD Rule 
11, Section 9.
    FICC also proposes to make certain conforming changes. For example, 
FICC proposes to revise the subsection numbers in GSD Rule 13, Section 
5 and MSBD Rule 11, Section 9 because subsections were either proposed 
to be moved (as described in the preceding paragraph) or added. As 
another conforming change, FICC proposes to revise GSD Rule 1 and MBSD 
Rule 1 to add a new defined term (``Acknowledgement Cutoff Time'').
    FICC proposes to replace the first two references to Corporation 
with Settlement Agent in GSD Rule 13, Section 5(c). Similarly, FICC 
proposes to replace the reference to Corporation with Settlement Agent 
in MBSD Rule 11, Section 9(c). FICC believes these proposed changes 
would enhance accuracy and clarity when describing who the FICC 
Settling Banks must sent a message to. In addition, in current 
subsection (j) (which is proposed to become subsection (m)) of Section 
5 of GSD Rule 13, FICC would replace language regarding the 
``Corporation's Operations area'' with the ``Settlement Agent'' and 
would use the newly defined term ``Acknowledgement Cutoff Time.'' 
Similar changes would be made to current subsection (j) (which is 
proposed to become subsection (m)) of Section 9 of MBSD Rule 11.

[[Page 40726]]

    FICC also proposes to change the reference from ``DTC'' to ``the 
Settlement Agent'' in GSD Rule 13, proposed Section 5(n) and MBSD Rule 
11, proposed Section 9(n) for consistency and clarity.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, FICC believes this proposal 
is consistent with Section 17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\19\ By way of background, the funds-only 
(cash) settlement process at FICC reflects debits and credits of 
payments (such as mark-to-market) that are associated with securities 
transactions that will ultimately be subject to securities settlement. 
FICC believes that failure by a FICC Settling Bank to timely 
acknowledge that it will settle its Funds-Only (Cash) Settlement Figure 
with FICC or to refuse to pay its Funds-Only (Cash) Settlement Figure 
creates uncertainty with respect to the timely completion of funds-only 
(cash) settlement at FICC. FICC believes that the introduction of the 
proposed passive acknowledgement process described in Item 3(a)(i) 
above would help promote the prompt and accurate clearance and 
settlement of securities transactions in circumstances where a FICC 
Settling Bank has not responded by the Acknowledgement Cutoff Time and 
cannot be reached by the Settlement Agent. In such circumstances, as 
described above, FICC would deem that such FICC Settling Bank has 
acknowledged that it will settle its Funds-Only (Cash) Settlement 
Figures. This would enable FICC to submit the NSS file (through the 
Settlement Agent) as is for processing in a timely manner, and thereby 
enhance certainty with respect to the timely completion of settlement. 
Timely completion of such settlement at FICC for as many members as 
possible promotes the prompt and accurate clearance and settlement of 
securities transactions as a general matter, because the funds-only 
(cash) settlement process at FICC involves debits and credits, such as 
the mark-to-market on securities transactions that will ultimately be 
subject to securities settlement. As such, FICC believes the proposed 
change to introduce the passive acknowledgement process described in 
Item 3(a)(i) above is designed to promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.\20\
---------------------------------------------------------------------------

    \19\ Id.
    \20\ Id.
---------------------------------------------------------------------------

    FICC also believes that the proposal to codify FICC's ability to 
exclude a FICC Settling Bank's balance from the NSS file described in 
Item 3(a)(ii) above is designed the promote the prompt and accurate 
clearance and settlement of securities transactions.\21\ If a FICC 
Settling Bank notifies the Settlement Agent that it cannot yet 
acknowledge or refuse, FICC would not be able to submit the NSS file 
(through the Settlement Agent) with that FICC Settling Bank's Funds-
Only (Cash) Settlement Figure included. If the FICC Settling Bank does 
not ultimately respond with either an acknowledgement or refusal, then 
FICC must have the ability to exclude such FICC Settling Bank's Funds-
Only (Cash) Settlement Figure from the NSS file. In this way, funds-
only (cash) settlement can be completed for all other members. 
Therefore, FICC believes the proposed changes described in Item 
3(a)(ii) above is designed to promote the prompt and accurate clearance 
and settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

    \21\ Id.
    \22\ Id.
---------------------------------------------------------------------------

    FICC also believes that the proposed rule changes to make the 
technical and conforming changes, as described in Item 3(a)(iii) above, 
are designed to promote the prompt and accurate clearance and 
settlement of securities transactions by ensuring that the Rules remain 
clear and accurate to members and that members understand the funds-
only settlement service and cash settlement service. Having clear and 
accurate Rules would facilitate members' understanding of those rules 
and provide members with increased predictability and certainty 
regarding their obligations. As such, FICC believes these proposed 
changes would promote the prompt and accurate clearance and settlement 
of securities, consistent with Section 17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule changes described in 
Item 3(a)(i) above to introduce the passive acknowledgement process for 
FICC Settling Banks would have any impact on competition,\24\ because 
the proposed passive acknowledgement process would not have an impact 
on the FICC Settling Banks' current ability to timely acknowledge their 
Funds-Only (Cash) Settlement Figures, as it is intended to address 
situations where a FICC Settling Bank is not responding and cannot be 
reached. Moreover, as described above, FICC would continue to maintain 
flexibility and allow a FICC Settling Bank to request extra time if the 
FICC Settling Bank cannot affirmatively submit its (1) acknowledgement 
that it will settle its Funds-Only (Cash) Settlement Figure with FICC 
or (2) refusal to pay its Funds-Only (Cash) Settlement Figure, as long 
as the Settlement Agent is notified at or before the Acknowledgement 
Cutoff Time. If a FICC Settling Bank notifies the Settlement Agent that 
the FICC Settling Bank cannot, at that time, submit its acknowledgement 
that it will settle its Funds-Only (Cash) Settlement Figures with FICC 
or its refusal to pay its Funds-Only (Cash) Settlement Figures, then 
the FICC Settling Bank would not be deemed to have acknowledged that it 
will settle such Funds-Only (Cash) Settlement Figures with FICC. 
Therefore, FICC believes that the proposed passive acknowledgement 
process described in Item 3(a)(i) above would not have any impact on 
competition.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC also does not believe that the proposed changes to exclude a 
FICC Settling Bank's balance from the NSS file, as described in Item 
3(a)(ii) above, would have any impact on competition \25\ because this 
proposal, if invoked, would require the affected FICC Settling Bank to 
send payment to FICC by wire, which is an alternate form of payment 
already available to the FICC Settling Banks. FICC believes that ready 
availability of a reasonable payment alternative would result in the 
rights and obligations of the FICC Settling Banks not being adversely 
affected. As such, FICC does not believe that the proposed changes to 
exclude a FICC Settling Bank's balance from the NSS file, as described 
in Item 3(a)(ii) above, would have any impact on competition.
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

    FICC also does not believe that the proposed rule changes to make 
the technical and conforming changes described in Item 3(a)(iii) above 
would have an impact on competition.\26\ These changes would simply 
provide additional clarity within the Rules and not affect members' 
rights and obligations.
---------------------------------------------------------------------------

    \26\ Id.

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

[[Page 40727]]

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

    Written comments relating to the proposed rule change have not 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 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-2020-006 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-2020-006. 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-2020-006 and should be submitted on 
or before July 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14491 Filed 7-6-20; 8:45 am]
BILLING CODE 8011-01-P


