[Federal Register Volume 85, Number 217 (Monday, November 9, 2020)]
[Notices]
[Pages 71374-71381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90322; File No. SR-FICC-2020-012]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Government Securities Division Rulebook To Clarify Which 
Funds-Only Settlement Payments and Underlying Marks Are Applicable to 
Certain Transactions, and Make Other Changes

November 3, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 71375]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 27, 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)(4) 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)(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 FICC 
Government Securities Division (``GSD'') Rulebook (``Rules'') \5\ in 
order to (i) clarify which funds-only settlement (``FOS'') payments and 
underlying ``marks'' \6\ are applicable to transactions in GSD's 
delivery-versus-payment (``DVP'') service (hereinafter ``DVP 
Transactions''),\7\ clarify which payments and underlying marks are 
applicable to GCF Repo Transactions and CCIT Transactions, and add a 
payment that is currently debited from/credited to (as applicable) 
Members that is not currently referenced in the Rules, (ii) restructure 
Section 1 of Rule 13 to list only FOS payments rather than both 
payments and some underlying marks,\8\ and (iii) make a correction and 
certain technical changes, as described in greater detail below.
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    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \6\ ``Marks'' refer to mark-to-market amounts that underlie or 
make up a FOS payment. For example, the Collateral Mark is an 
underlying component of the FOS payment known as the ``Forward Mark 
Adjustment Payment.''
    \7\ ``DVP Transactions'' refers to buy/sell transactions and 
Repo Transactions that are Direct Transactions and Brokered 
Transactions (other than GCF Repo Transactions and CCIT 
Transactions).
    \8\ Currently, Section 1 of Rule 13 references both payments and 
some of the underlying marks that make up payments. FICC wishes to 
provide clarity to this rule by limiting Section 1 to actual 
payments rather than underlying components that make up payments. 
This will be discussed in greater detail below.
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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 purpose of the proposed rule change is to amend the Rules in 
order to: (i) Clarify which FOS payments and underlying marks are 
applicable to DVP Transactions, clarify which payments and underlying 
marks are applicable to GCF Repo Transactions and CCIT Transactions, 
and add a payment that is currently debited from/credited to (as 
applicable) Members that is not currently referenced in the Rules, (ii) 
restructure Section 1 of Rule 13 to list only FOS payments rather than 
both payments and some underlying marks, and (iii) make a correction 
and certain technical changes, as described in greater detail below.
(i) Background
    FOS is FICC's twice daily process of generating a net credit or 
debit cash amount for each Member and settling those cash amounts 
between Members and FICC. FOS is a cash-pass-through process, meaning 
that those Members that are in a net debit position are obligated to 
submit payments that are then used to pay Members that are in a net 
credit position. FOS also includes certain payments that are not pass-
through payments, such as Invoice Amounts and Miscellaneous Adjustment 
Amounts.
    GSD processes FOS debit and credit payments via the Federal 
Reserve's National Settlement Service (``NSS'') twice daily at 10:00 
a.m. and 3:15 p.m.
    GSD FOS payments are set forth in Rule 13, Section 1. The FOS 
payments consist of (A) transaction adjustment payments for settlement 
purposes, (B) risk management-related amounts (such as various mark-to-
market amounts), (C) security coupon and similar amounts, and (D) other 
amounts (such as the invoice amounts). A description of these payments 
is set forth below.
(A) Transaction Adjustment Payments for Settlement Purposes
    The Transaction Adjustment Payment \9\ applies to both DVP 
Transactions and GCF Repo Transactions that are settling the following 
Business Day (i.e., the next Business Day after the Business Day on 
which the Transaction Adjustment Payment was calculated). As a central 
counterparty that performs a multilateral net process, FICC settles Net 
Settlement Positions at the System Value. The System Price is used to 
calculate the System Value. The Transaction Adjustment Payment adjusts 
the parties' original Contract Value of their pre-netted transaction to 
the Market Value \10\ of the pre-netted transaction.
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    \9\ Rule 13, Section 1(a), supra note 5. The term ``Transaction 
Adjustment Payment'' means the absolute value of the dollar 
difference between the Contract Values and the Market Values of the 
trades that comprise a Net Settlement Position or GCF Net Settlement 
Position that is scheduled to settle on the current Business Day. 
Rule 1, supra note 5.
    \10\ The term ``Market Value'' means, on a particular Business 
Day, the amount in dollars equal to: (1) As regards a trade other 
than a Repo Transaction, the System Price established by FICC for 
the underlying Eligible Netting Securities, multiplied by the par 
value of such Securities, plus accrued coupon interest that has 
accrued with regard to such Securities calculated to their Scheduled 
Settlement Date, (2) as regards a Repo Transaction other than a GCF 
Repo Transaction, the System Price established by FICC for the 
underlying Eligible Netting Securities, multiplied by the par value 
of such Securities, plus accrued coupon interest that has accrued 
with regard to such Securities calculated to that Business Day, and 
(3) as regards a GCF Repo Transaction, the principal value of the 
Transaction. Rule 1, supra note 5.
    Market Value applies to transactions, and System Value applies 
to Net Settlement Positions. Both values are derived using the 
System Price; for GCF Repo Transactions, Market Value means the 
principal value.
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(B) Risk Management-Related Amounts
    The risk management-related amounts apply throughout the life of a 
transaction to bring the transaction to market value (as applicable). 
These amounts therefore protect FICC and its Members from market risk 
in the event that there is a Member default and FICC must liquidate 
such transactions in the market; the closer the value of such 
transactions is to market, the smaller the amount of the loss that FICC 
would face in the liquidation of such transactions.
    The risk management-related amounts currently set forth in Section 
1 of Rule 13 are the following: (1) Forward Mark Adjustment 
Payment,\11\ (2) GCF Interest Rate Mark,\12\ (3) Interest Rate 
Mark,\13\ (4) GCF Forward Mark,\14\ and (5) Fail Mark Adjustment 
Payment.\15\ In connection with the Forward Mark Adjustment Payment, 
there is a payment that reflects ``use of funds,'' (i.e., Interest 
Adjustment Payment), as described below.
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    \11\ Rule 13, Section 1(c), supra note 5.
    \12\ Rule 13, Section 1(d), supra note 5.
    \13\ Rule 13, Section 1(e), supra note 5.
    \14\ Rule 13, Section 1(f), supra note 5.
    \15\ Rule 13, Section 1(h), supra note 5.

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[[Page 71376]]

(1) Forward Mark Adjustment Payment
    Currently, the Forward Mark Adjustment Payment applies to both DVP 
Transactions and GCF Repo Transactions.\16\ The Forward Mark Adjustment 
Payment equals the sum of 3 underlying marks (as applicable to a 
Member's Forward Net Settlement Position): (a) Collateral Mark, (b) 
Financing Mark, and (c) Interest Rate Mark. The Collateral Mark is a 
mark-to-market amount on Forward Trades (Contract Value versus Market 
Value). The Financing Mark is a mark-to-market amount on the repo rate 
of a Repo Transaction that has a start date prior to current Business 
Day. The Interest Rate Mark is a mark-to-market amount on the repo rate 
for a Forward-Starting Repo Transaction.
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    \16\ The term ``Forward Mark Adjustment Payment'' means, on a 
particular Business Day, as regards a Member's Forward Net 
Settlement Position, the sum of the Collateral Mark applicable to 
such Position, the Financing Mark applicable to such Position, and 
the Interest Rate Mark applicable to such Position. Notwithstanding 
the above, as regards an outstanding Repo Transaction where a 
request for substitution has been made but New Securities Collateral 
has not been received by FICC, the term ``Forward Mark Adjustment 
Payment'' means ``Forward Unallocated Sub Mark.'' Rule 1, supra note 
5.
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    In addition, in connection with the Forward Mark Adjustment 
Payment, there is a payment called the Interest Adjustment Payment \17\ 
that reflects ``use of funds.'' This means that FICC will charge 
overnight interest to the Member that received the Forward Mark 
Adjustment Payment as a credit and this interest amount will be paid to 
the Member that was charged the Forward Mark Adjustment Payment as a 
debit. As FICC is passing through a cash payment for risk management 
purposes, the Member who receives the cash has use of those funds, and 
the Member who was debited does not have use of those funds. Because 
the funds belong to the Member who was debited, such Member is entitled 
to, and receives, the interest income on the amount that was debited.
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    \17\ Rule 13, Section 1(g), supra note 5.
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(2) GCF Interest Rate Mark
    The GCF Interest Rate Mark \18\ is the mark-to-market amount on the 
repo rate of a GCF Repo Transaction that has started (typically 
referred to as an ``in-flight'' transaction).
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    \18\ The term ``GCF Interest Rate Mark'' means, on a particular 
Business Day as regards any GCF Repo Transaction that is not 
scheduled to settle on that day, the product of the principal value 
of the GCF Repo Transaction on the Scheduled Settlement Date for its 
End Leg multiplied by a factor equal to the absolute difference 
between the Repo Rate established by FICC for such Repo Transaction 
and its Contract Repo Rate, and then multiplied by a fraction, the 
numerator of which is the number of calendar days from the current 
day until the Scheduled Settlement Date for the End Leg of the Repo 
Transaction and the denominator of which is 360. If the Repo 
Transaction's Contract Repo Rate is greater than its System Repo 
Rate, then the GCF Interest Rate Mark shall be a positive value for 
the Reverse Repo Party, and a negative value for the Repo Party. If 
the Repo Transaction's Contract Repo Rate is less than its System 
Repo Rate, then the GCF Interest Rate Mark shall be a positive value 
for the Repo Party, and a negative value for the Reverse Repo Party. 
The term ``GCF Interest Rate Mark'' means, as regards a GCF Net 
Settlement Position, the sum of all the GCF Interest Rate Mark 
Payments on each of the GCF Repo Transactions that compose such 
position. Rule 1, supra note 5.
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(3) Interest Rate Mark
    As discussed above, the Interest Rate Mark \19\ is an underlying 
component of the Forward Mark Adjustment Payment. In addition to 
applying to DVP Transactions as stated above, the Interest Rate Mark 
also applies to GCF Repo Transactions, and is a mark-to-market amount 
on the repo rate of a forward-starting GCF Repo Transaction.
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    \19\ The term ``Interest Rate Mark'' means, on a particular 
Business Day as regards a Forward-Starting Repo Transaction during 
its Forward-Starting Period, the product of the principal value of 
the Repo Transaction on the Scheduled Settlement Date for its Start 
Leg multiplied by a factor equal to the absolute difference between 
the System Repo Rate established by FICC for such Repo Transaction 
and its Contract Repo Rate, and then multiplied by a fraction, the 
numerator of which is the number of calendar days from the Scheduled 
Settlement Date for the Start Leg of the Repo Transaction until the 
Scheduled Settlement Date for the End Leg of the Repo Transaction 
and the denominator of which is 360. If the Repo Transaction's 
Contract Repo Rate is greater than its System Repo Rate, then the 
Interest Rate Mark shall be a positive value for the Reverse Repo 
Party, and a negative value for the Repo Party. If the Repo 
Transaction's Contract Repo Rate is less than its System Repo Rate, 
then the Interest Rate Mark shall be a positive value for the Repo 
Party, and a negative value for the Reverse Repo Party. The Interest 
Rate Mark for any Repo Transaction other than a Forward-Starting 
Repo Transaction during its Forward-Starting Period, and for any 
trade other than a Repo Transaction, shall be zero. The term 
``Interest Rate Mark'' means, as regards a Forward Net Settlement 
Position, the sum of all the Interest Rate Marks on each of the 
Forward Trades that compose such position. Rule 1, supra note 5.
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    Similar to the Interest Adjustment Payment, the Interest Rate Mark 
Adjustment Payment \20\ is the interest paid or collected for ``use of 
funds'' in connection with the sum of a Member's GCF Interest Rate Mark 
and Interest Rate Mark.
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    \20\ Rule 13, Section 1(f), supra note 5. The term ``Interest 
Rate Mark Adjustment Payment'' means, as regards the sum of a 
Netting Member's GCF Interest Rate Mark and Interest Rate Mark, the 
product of that sum multiplied by the applicable Overnight 
Investment Rate and then multiplied by a fraction, the numerator of 
which is the number of calendar days between the previous Business 
Day and the current Business Day and the denominator of which is 
360. Rule 1, supra note 5.
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(4) GCF Forward Mark
    The GCF Forward Mark \21\ is currently stated to be the sum of the 
Accrued Repo Interest-to-Date and the GCF Interest Rate Mark.
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    \21\ The term ``GCF Forward Mark'' means, on a particular 
Business Day as regards any GCF Repo Transaction that is not 
scheduled to settle on that day, the sum of the Accrued Repo 
Interest-to-Date and the GCF Interest Rate Mark on such GCF Repo 
Transaction. Rule 1, supra note 5.
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(5) Fail Mark Adjustment Payment
    The Fail Mark Adjustment Payment \22\ is a mark-to-market amount 
for obligations that were scheduled to settle and have not yet settled.
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    \22\ The term ``Fail Mark Adjustment Payment'' means the 
absolute value of the dollar difference between the Settlement Value 
of a Fail Deliver Obligation or a Fail Receive Obligation that 
constitutes all or part of a Fail Net Settlement Position on the 
current Business Day and the Settlement Value of such Fail Deliver 
Obligation or Fail Receive Obligation on the immediately previous 
Business Day. Rule 1, supra note 5.
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(C) Security Coupon and Similar Amounts
    FOS includes certain coupon and similar payments as follows: (1) 
Delivery Differential Adjustment Payment,\23\ (2) Coupon Adjustment 
Payment,\24\ and (3) Clearance Difference Amount.\25\
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    \23\ Rule 13, Section 1(b), supra note 5.
    \24\ Rule 13, Section 1(i) and Section 1(j), supra note 5.
    \25\ Rule 13, Section 1(k), supra note 5.
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    The Delivery Differential Adjustment Payment \26\ is the amount of 
the difference between the Federal Reserve's auction award price and 
FICC's System Price.
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    \26\ The term ``Delivery Differential Adjustment Payment'' means 
the absolute value of the dollar difference between the System Value 
and the Settlement Value of a Netting Member's Deliver Obligation or 
a Receive Obligation. Rule 1, supra note 5.
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    The Coupon Adjustment Payment \27\ is the amount that reflects 
coupon interest from the issuer of the security that is passed to a 
Member.
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    \27\ The term ``Coupon Adjustment Payment'' means the coupon 
payments due and owing on each Eligible Netting Security that 
comprises either a Coupon-Eligible End Leg or a Fail Net Settlement 
Position. Rule 1, supra note 5.
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    The Clearance Difference Amount \28\ is the amount of any 
differences that may occur between the amounts that are reflected in 
FICC's records versus the Clearing Agent Bank.
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    \28\ The term ``Clearance Difference Amount'' means the absolute 
value of the dollar difference between the Settlement Value of a 
Deliver Obligation or a Receive Obligation and the actual value at 
which such Deliver Obligation or Receive Obligation was settled, by 
the delivery or receipt of Eligible Netting Securities. Rule 1, 
supra note 5.
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(D) Other Amounts
    The other amounts that are part of GSD FOS are as follows: (1) 
Invoice Amount \29\ and (2) Miscellaneous Adjustment Amount.\30\
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    \29\ Rule 13, Section 1(l), supra note 5.
    \30\ Rule 13, Section 1(m), supra note 5.

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[[Page 71377]]

    The Invoice Amount \31\ is a Member's billing amount.
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    \31\ The term ``Invoice Amount'' means all fee amounts due and 
owing from a Netting Member or CCIT Member, as applicable, to FICC 
on a particular Business Day. Rule 1, supra note 5.
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    The Miscellaneous Adjustment Amount \32\ is a catch-all amount, in 
case it is needed.
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    \32\ The term ``Miscellaneous Adjustment Amount'' means the net 
total of all miscellaneous funds-only amounts that, on a particular 
Business Day, are required to be paid by a Netting Member or CCIT 
Member, as applicable, to FICC and/or are entitled to be collected 
by a Member (including a CCIT Member, as applicable) from FICC. Rule 
1, supra note 5.
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(ii) Proposed Rule Changes
    The purpose of the proposed rule change is to amend the Rules in 
order to: (A) Clarify which FOS payments and underlying marks are 
applicable to DVP Transactions, clarify which payments and underlying 
marks are applicable to GCF Repo Transactions and CCIT Transactions, 
and add a payment that is currently debited from/credited to (as 
applicable) Members that is not currently referenced in the Rules, (B) 
restructure Section 1 of Rule 13 to list only FOS payments rather than 
both payments and some underlying marks, and (C) make a correction and 
certain technical changes, as described in greater detail below.
(A) Clarify Which FOS Payments and Underlying Marks are Applicable to 
DVP Transactions, Clarify Which Payments and Underlying Marks are 
Applicable to GCF Repo Transactions and CCIT Transactions, and add a 
Payment That is Currently Debited From/Credited to (as applicable) 
Members That is not Currently Referenced in the Rules
    At this time, Section 1 of Rule 13 includes references to payments 
and certain underlying marks. Some of these payments and marks as 
currently defined apply to both DVP Transactions and GCF Repo 
Transactions. In order to provide more clarity, FICC proposes to amend 
the Rules to clarify which FOS payments are applicable to DVP 
Transactions and which FOS payments are applicable to GCF Repo 
Transactions. This proposal would not change the way FICC operates or 
the payments/marks applicable to GCF Repo Transactions, but instead 
would take out defined terms from more general definitions in order to 
be more standalone. Specifically, FICC would clarify Rule 1 by amending 
certain existing defined terms, deleting certain existing defined terms 
and adding new defined terms, as described further below.
    Furthermore, FICC would amend Rule 13 to specifically list the FOS 
payments that are applicable to DVP Transactions and the FOS payments 
that are applicable to GCF Repo Transactions, as further described 
below.
DVP Transactions
    As described above, certain FOS payments and underlying marks would 
be revised to clarify that they only apply to DVP Transactions. The 
Forward Mark Adjustment Payment is a risk management-related amount 
that equals the sum of 3 underlying marks (as applicable to a Member's 
Forward Net Settlement Position): (a) Collateral Mark, (b) Financing 
Mark, and (c) Interest Rate Mark. FICC proposes to clarify that the 
Forward Mark Adjustment Payment and its underlying marks, the 
Collateral Mark, Financing Mark, and Interest Rate Mark, would apply 
only to DVP Transactions. As such, FICC proposes to revise the 
definitions of Collateral Mark, Financing Mark, Interest Rate Mark, and 
Forward Mark Adjustment Payment in Rule 1 to clarify that these terms 
do not apply to GCF Repo Transactions and CCIT Transactions.
    Furthermore, FICC is proposing to delete the defined term Interest 
Rate Mark Adjustment Payment (and its credit, debit and net 
equivalents, the Debit Interest Rate Mark Adjustment Payment, Credit 
Interest Rate Mark Adjustment Payment, and Net Interest Rate Mark 
Adjustment Payment) in Rule 1, because FICC believes it would enhance 
clarity to amend the Rules to have separate terms to describe what this 
FOS payment covers for GCF Repo Transactions and DVP Transactions. This 
FOS payment covers ``use of funds'' as described above. For DVP 
Transactions, FICC would retain Interest Adjustment Payment, as 
currently defined, for ``use of funds'' purposes. FICC would amend Rule 
1 to add the specific term GCF Interest Adjustment Payment, which would 
be applicable to GCF Repo Transactions and with respect to CCIT 
Transactions, only as stipulated in Rule 3B.
    In addition, FICC proposes to amend the definitions of Credit 
Transaction Adjustment Payment, Debit Transaction Adjustment Payment 
and Transaction Adjustment Payment in Rule 1 to state that these terms 
apply to DVP Transactions. Specifically, FICC proposes to delete the 
reference to GCF Net Settlement Position in the definition of 
Transaction Adjustment Payment, and the descriptions related to GCF Net 
Settlement Position in the definitions of Credit Transaction Adjustment 
Payment and Debit Transaction Adjustment Payment in Rule 1. The 
definition of Transaction Adjustment Payment would also be amended to 
add that it would not apply to GCF Repo Transactions and CCIT 
Transactions. FICC would delete the reference to GCF Net Settlement 
Position in Section 1(a) of Rule 13 because this Section 1(a) describes 
Transaction Adjustment Payments (which would be revised to only 
describe payments for settlement purposes for DVP Transactions). FICC 
would also add the defined term GCF Transaction Adjustment Payment to 
Rule 1, as described below.
    Coupon Adjustment Payment, Clearance Difference Amount and Delivery 
Differential Adjustment Payment currently apply only to DVP 
Transactions. As such, FICC proposes to revise the definitions of 
Coupon Adjustment Payment, Coupon-Eligible End Leg, Fail Mark 
Adjustment Payment, and Clearance Difference Amount (and its credit and 
debit equivalents, Credit Clearance Difference Amount and Debit 
Clearance Difference Amount), and Delivery Differential Adjustment 
Payment to clarify that these terms do not apply to GCF Repo 
Transactions and CCIT Transactions.\33\
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    \33\ As described above, the term ``Coupon Adjustment Payment'' 
means the coupon payments due and owing on each Eligible Netting 
Security that comprises either a Coupon-Eligible End Leg or a Fail 
Net Settlement Position. Rule 1, supra note 5.
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    FICC also proposes to add a new defined term, Redemption Adjustment 
Payment (and its credit, debit and net equivalents, Credit Redemption 
Adjustment Payment, Debit Redemption Adjustment Payment, and Net 
Redemption Adjustment Payment) to Rule 1 to reflect an amount that is 
currently being debited from/credited to Members today. For a Net 
Settlement Position, the Redemption Adjustment Payment means the 
difference between the Redemption Value (as defined below and in the 
proposed rule change) and the Settlement Value due and owing on each 
Eligible Netting Security that comprises such position. For the End Leg 
of a Repo Transaction, the Redemption Adjustment Payment means the 
difference between the Maturity Value and the Contract Value due and 
owing on each Eligible Netting Security that comprises such 
Transaction. If the Redemption Adjustment Payment is a positive value, 
it would be a Credit Redemption Adjustment Payment. If the Redemption 
Adjustment Payment is a negative value, it would be a Debit Redemption 
Adjustment Payment. Net Redemption Adjustment Payment would mean the 
absolute dollar value difference on a

[[Page 71378]]

particular Business Day for a Netting Member between the total of all 
Credit Redemption Adjustment Payments and the total of all Debit 
Redemption Adjustment Payments.\34\
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    \34\ If the total of all of the Credit Redemption Adjustment 
Payments is greater than all of the Debit Redemption Adjustment 
Payments, then the Net Redemption Adjustment Payment would be a 
positive dollar amount owing from FICC to the Member. If the total 
of all the Credit Redemption Adjustment Payments is less than the 
total of all of the Debit Redemption Adjustment Payments, then the 
Net Redemption Adjustment Payment would be a negative dollar amount 
owing from the Member to FICC.
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    FICC also proposes to add the defined term Redemption Value to Rule 
1, which would mean, as regards a Net Settlement Position or a Deliver 
Obligation, the principal amount paid to the holder of such position or 
obligation in redeeming Eligible Netting Securities at the maturity for 
such securities.
GCF Repo Transactions and CCIT Transactions
    Furthermore, FICC proposes to add certain defined terms associated 
with FOS that would be applicable only to GCF Repo Transactions and 
CCIT Transactions.
    Specifically, FICC proposes to add GCF Forward Mark Adjustment 
Payment (and its credit, debit and net equivalents, Credit GCF Forward 
Mark Adjustment Payment, Debit GCF Forward Mark Adjustment Payment, and 
Net GCF Forward Mark Adjustment Payment) to Rule 1. These proposed 
terms would only be applicable to GCF Repo Transactions.
    FICC also proposes to add GCF Transaction Adjustment Payment (and 
its credit, debit, and net equivalents, Credit GCF Transaction 
Adjustment Payment, Debit GCF Transaction Adjustment Payment, and Net 
GCF Transaction Adjustment Payment) to Rule 1. These proposed terms 
would be applicable to both GCF Repo Transactions and CCIT 
Transactions.
    In addition, FICC proposes to add the following terms to Rule 1, 
which would be applicable to GCF Repo Transactions and with respect to 
CCIT Transactions, only as stipulated in Rule 3B: (1) GCF Forward 
Starting Interest Rate Mark, and (2) GCF Interest Adjustment Payment 
(and its credit, debit and net equivalents, Credit GCF Interest 
Adjustment Payment, Debit GCF Interest Adjustment Payment, and Net GCF 
Interest Adjustment Payment).
GCF Forward Mark and GCF Forward Mark Adjustment Payment
    While GCF Forward Mark is referenced in Rule 13, Section 1(f) and 
is defined to be the sum of Accrued Repo Interest-to-Date and GCF 
Interest Rate Mark, FICC believes that Section 1 of Rule 13 should be 
clarified to reference an actual payment (the proposed ``GCF Forward 
Mark Adjustment Payment'') that represents the payment of this mark 
(which is discussed below). FICC also proposes to revise the definition 
of GCF Forward Mark in Rule 1 to include the new defined term GCF 
Forward Starting Interest Rate Mark. FICC is currently collecting the 
amount represented by the proposed GCF Forward Starting Interest Rate 
Mark, and the addition of this reference to the definition of GCF 
Forward Mark is not a substantive change.
    The GCF Forward Mark Adjustment Payment would apply only to GCF 
Repo Transactions and would mean, on a particular Business Day, as 
regards a Member's Forward Net Settlement Position, the payment as it 
relates to the Member's GCF Forward Mark. If the GCF Forward Mark 
Adjustment Payment is a positive value, it would be a Credit GCF 
Forward Mark Adjustment Payment. If the GCF Forward Mark Adjustment 
Payment is a negative value, then it would be a Debit GCF Forward Mark 
Adjustment Payment. Net GCF Forward Mark Adjustment Payment would mean 
the absolute value of the dollar difference on a particular Business 
Day for a Netting Member between the total of all Credit GCF Forward 
Mark Adjustment Payments and the total of all of the Debit GCF Forward 
Mark Adjustment Payments.\35\
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    \35\ If the total of all of the Credit GCF Forward Mark 
Adjustment Payments is greater than the total of all of the Debit 
GCF Forward Mark Adjustment Payments, then the Net GCF Forward Mark 
Adjustment Payment would be a positive dollar amount owing from FICC 
to the Member. If the total of all of the Credit GCF Forward Mark 
Adjustment Payments is less than the total of all of the Debit GCF 
Forward Mark Adjustment Payments, then the Net GCF Forward Mark 
Adjustment Payment would be a negative dollar amount owing from the 
Member to FICC.
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GCF Forward Starting Interest Rate Mark
    GCF Forward Starting Interest Rate Mark would be applicable only to 
GCF Repo Transactions and with respect to CCIT Transactions, only as 
stipulated in Rule 3B, and would be the equivalent term to Interest 
Rate Mark for DVP Transactions. Like Interest Rate Mark for DVP 
Transactions, this would be a mark (or underlying component) of a FOS 
payment. Specifically, this mark would be part of the GCF Forward Mark, 
which is a FOS payment that is applicable to Forward-Starting Repo 
Transactions that are GCF Repo Transactions.
GCF Interest Adjustment Payment
    FICC also proposes to add the defined term GCF Interest Adjustment 
Payment (and its credit, debit and net equivalents, the Credit GCF 
Interest Adjustment Payment, Debit GCF Interest Adjustment Payment, and 
Net GCF Interest Adjustment Payment) to Rule 1. This term would be 
applicable to GCF Repo Transactions and with respect to CCIT 
Transactions, as stipulated in Rule 3B, and would be the equivalent 
term to Interest Adjustment Payment for DVP Transactions.
GCF Transaction Adjustment Payment
    The current definition of Transaction Adjustment Payment covers 
both FOS payments applicable to DVP Transactions and those that are 
applicable to GCF Repo Transactions. In order to enhance clarity, as 
described above, FICC would distinguish between the FOS payments that 
are applicable to DVP Transactions and those that are applicable to GCF 
Repo Transactions. Specifically, as described above, FICC would add the 
defined term GCF Transaction Adjustment Payment (and its credit, debit 
and net equivalents, the Credit GCF Transaction Adjustment Payment, 
Debit GCF Transaction Adjustment Payment, and Net GCF Transaction 
Adjustment Payment) to Rule 1.
    GCF Transaction Adjustment Payment would mean, as regards a Netting 
Member, the total repo interest on the Netting Member's GCF Repo 
Transactions and CCIT Transactions, as applicable, for which the 
Scheduled Settlement Date for the End Leg of such transactions is the 
next Business Day.
    If the GCF Transaction Adjustment Payment is a positive value, it 
would be a Credit GCF Transaction Adjustment Payment. If the GCF 
Transaction Adjustment Payment is a negative value, it would be a Debit 
GCF Transaction Adjustment Payment. Net GCF Transaction Adjustment 
Payment would mean, on a particular Business Day, the absolute value of 
the dollar difference between the total of all Credit GCF Transaction 
Adjustment Payments and the total of all Debit GCF Transaction 
Adjustment Payments for a Netting Member.\36\
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    \36\ If the total of all of the Credit GCF Transaction 
Adjustment Payments is greater than the total of all of the Debit 
GCF Transaction Adjustment Payments, then the Net GCF Transaction 
Adjustment Payment would be a positive dollar amount owing from FICC 
to the Member. If the total of all of the Credit GCF Transaction 
Adjustment Payments is less than the total of all of the Debit GCF 
Transaction Adjustment Payments, then the Net GCF Transaction 
Adjustment Payments would be a negative dollar amount owing from the 
Member to FICC.

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[[Page 71379]]

    FICC would also amend the definition of Transaction Adjustment 
Payment so that it would be applicable only to DVP Transactions, as 
described above.
Forward-Starting Period and Forward-Starting Repo Transaction
    FICC also proposes to clarify that the definitions of Forward-
Starting Period and Forward-Starting Repo Transaction in Rule 1 include 
CCIT Transactions. As such, FICC would amend the definitions of 
Forward-Starting Period and Forward-Starting Repo Transaction in Rule 1 
to reference CCIT Transactions.
Rule 3B
    In addition, FICC proposes to revise Section 13(b) of Rule 3B, 
which describes the FOS payments that apply to Netting Members with 
respect to their CCIT Transactions. In Section 13(b)(i) of Rule 3B, 
Transaction Adjustment Payment would be revised to the new proposed 
term GCF Transaction Adjustment Payment. As described above, with 
respect to CCIT Transactions and GCF Repo Transactions, GCF Transaction 
Adjustment Payment would be the equivalent term to Transaction 
Adjustment Payment for DVP Transactions. GCF Transaction Adjustment 
Payment, like Transaction Adjustment Payment, would describe payments 
for settlement purposes.
    Similarly, the references in Section 13(b)(iii) of Rule 3B to 
Interest Rate Mark would be revised to GCF Forward Starting Interest 
Rate Mark. GCF Forward Starting Interest Rate Mark would apply only to 
GCF Repo Transactions and with respect to CCIT Transactions, as 
stipulated in Rule 3B, and would be equivalent to the current defined 
term Interest Rate Mark (which, as described above, would be amended to 
clarify that it only applies to DVP Transactions). Like Interest Rate 
Mark for DVP Transactions, GCF Forward Starting Interest Rate Mark 
would be an underlying mark of a FOS payment, the proposed GCF Forward 
Mark Adjustment Payment. GCF Forward Mark Adjustment Payment is a FOS 
payment for risk management-related amounts and is applicable to 
Forward-Starting Repo Transactions that are a GCF Repo Transactions. As 
described above, the definition of GCF Forward Mark would be revised to 
include GCF Forward Starting Interest Rate Mark, so it would state 
that, on a particular Business Day as regards any GCF Repo Transaction 
that is not scheduled to settle on that day, the sum of the Accrued 
Repo Interest-to-Date, the GCF Forward Starting Interest Rate Mark and 
the GCF Interest Rate Mark on such GCF Repo Transaction.
    Furthermore, in Section 13(b)(iv) of Rule 3B, FICC would revise the 
reference from Interest Rate Mark Adjustment Payment to GCF Interest 
Adjustment Payment and would add that the GCF Interest Adjustment 
Payment is as it relates to (ii) and (iii) of Section 13(b) of Rule 3B. 
Current Section 13(b)(ii) of Rule 3B specifies that Netting Members are 
obligated to pay debits but are not entitled to collect credits for GCF 
Interest Rate Mark with respect to their CCIT Transactions. As 
described above, Section 13(b)(iii) of Rule 3B would be revised to 
reference the GCF Forward Starting Interest Rate Mark rather than the 
Interest Rate Mark. Netting Members would be obligated to pay debits 
but would not be entitled to collect credits for the GCF Forward 
Starting Interest Rate Mark with respect to their CCIT Transactions. As 
described above, GCF Interest Adjustment Payment would be added as a 
new defined term and would be equivalent to the current defined term, 
Interest Adjustment Payment (which would apply only to DVP 
Transactions). As described above, FICC is proposing to delete the term 
Interest Rate Mark Adjustment Payment because this payment would be 
covered by the new defined term GCF Interest Adjustment Payment (which 
would apply to GCF Repo Transactions and with respect to CCIT 
Transactions, only as stipulated in Rule 3B) and the current defined 
term, Interest Adjustment Payment (which would apply only to DVP 
Transactions).
(B) Restructure Section 1 of Rule 13 To List Only FOS Payments Rather 
Than Both Payments and Some Underlying Marks
    FICC believes it would enhance clarity and consistency in Rule 13 
to only list the FOS payments in Section 1 of Rule 13 (and not the 
underlying marks). Currently, Section 1 of Rule 13 lists both FOS 
payments and some underlying marks. Specifically, Sections 1(d), (e), 
and (f) of Rule 13 lists the GCF Interest Rate Mark, the Interest Rate 
Mark, Debit Interest Rate Marks, Debit GCF Forward Marks and Credit 
Interest Rate Marks and Credit GCF Forward Marks, which are underlying 
marks of FOS payments. As such, FICC proposes to delete current 
Sections 1(d), (e), and (f) of Rule 13.
    FICC also proposes to amend Rule 13 by adding the new proposed FOS 
payment, Redemption Adjustment Payment, as proposed Section 1(h).
    FICC also proposes to amend Rule 13 by adding the new proposed FOS 
payments that are applicable to GCF Repo Transactions (GCF Transaction 
Adjustment Payment, GCF Forward Mark Adjustment Payment, and GCF 
Interest Adjustment Payment) as proposed Sections 1(j), (k), and (l).
(C) A Correction and Certain Technical Changes
    FICC is proposing to make corrections to the definition of Forward 
Trade to reflect FICC's practice. FICC is correcting that a Repo 
Transaction may be a Forward Trade (the current definition excludes 
Repo Transactions in error). In addition, FICC is also adding a 
sentence to make clear that if the Forward Trade is a Repo Transaction, 
the Start Leg and the End Leg would be considered separate trades. FICC 
is making a correction to provide that a Forward Trade is a trade whose 
Scheduled Settlement Date is one or more Business Days after the date 
it is submitted to FICC (not two or more Business Days as is currently 
stated in the definition). These corrections are necessary to ensure 
that the definition of Forward Trade reflects current practice. 
Specifically, the definition of Forward Trade must be consistent with 
the definition of Forward Net Settlement Position, which is made up of 
a Member's Forward Trades. The definition of Forward Net Settlement 
Position provides that the Scheduled Settlement Date of a Forward Trade 
is one or more Business Days in the future, it includes Repo 
Transactions, and provides the Start and End Legs shall constitute 
separate positions. These are the items that FICC is proposing to 
correct in the definition of Forward Trade. These corrections to the 
definition of Forward Trade are relevant to the FOS process because 
under FICC's current process, a Forward Mark Adjustment Payment is 
applied to Forward Trades that are T+1 trades.
    FICC is also proposing to make certain technical changes, such as 
conforming grammatical changes, capitalizing defined terms, renumbering 
sections, and reordering a list. For example, in Rule 1, FICC proposes 
to make a conforming grammatical change to add ``and a'' in the 
definition of Forward-Starting Period because a reference to CCIT 
Transaction would be added. As another example, because FICC is adding 
a new defined term, Redemption Value, in Rule 1, FICC proposes to 
capitalize the references to redemption value in the definition of 
Maturity Value and System Value.
    In addition, certain paragraphs would be deleted or added in Rule 
13, so FICC proposes to make conforming technical changes to renumber 
these paragraphs accordingly.

[[Page 71380]]

    FICC would also make conforming changes to Section 2 of Rule 13, 
which currently states that the Funds-Only Settlement Amount of each 
Netting Member is determined by calculating the net total, for a 
particular Business Day, of the payments and underlying marks set forth 
in that section. FICC proposes to delete the following terms: The Net 
Interest Rate Mark Adjustment Payment, the GCF Interest Rate Mark, and 
the Interest Rate Mark. FICC would add the new proposed terms, Net GCF 
Transaction Adjustment Payment, Net GCF Forward Mark Adjustment 
Payment, Net GCF Interest Adjustment Payment, and Net Redemption 
Adjustment Payment.
    In order to enhance clarity and consistency, FICC proposes to 
reorder the list of payments that make up the Funds-Only Settlement 
Amount in Section 2 of Rule 13. Currently, the Net Coupon Adjustment 
Payment and the Net Clearance Difference Amount are listed as items (i) 
and (j) in the second paragraph of Section 2 of Rule 13. FICC proposes 
to move the Net Coupon Adjustment Payment to new item (f) and the Net 
Clearance Difference Amount to new item (g) to be consistent with the 
order in which these payments appear in Section 1 of Rule 13. FICC 
would also make a conforming change to renumber the subsections in 
Section 2 of Rule 13 accordingly.
    In addition, FICC is proposing to delete the reference to the term 
``Clearing Fund Funds-Only Settlement Amount'' from the definition of 
Opening Balance in Rule 1, because this is an outdated Clearing Fund 
component that should have been deleted when GSD moved to a VaR-based 
Clearing Fund methodology. FICC is also proposing to clarify the 
definition by deleting ``on a given Business Day'' and ``of the 
previous Business Day'' from the definition of Opening Balance and 
adding ``immediately prior'' before processing cycle because, as 
described above, FOS occurs twice daily. As such, the Opening Balance 
of the intraday FOS would be the amount reported to the Member during 
the morning FOS cycle.
2. Statutory Basis
    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.\37\
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    \37\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to (i) clarify which FOS payments and 
underlying marks are applicable to DVP Transactions, clarify which 
payments and underlying marks are applicable to GCF Repo Transactions 
and CCIT Transactions, and add a payment that is currently debited 
from/credited to (as applicable) Members that is not currently 
referenced in the Rules, (ii) restructure Section 1 of Rule 13 to list 
only FOS payments rather than both payments and some underlying marks, 
and (iii) make a correction and certain technical changes to the Rules 
would help to ensure that the Rules are accurate and clear to 
participants. When participants better understand their rights and 
obligations regarding the Rules, such participants are more likely to 
act in accordance with the Rules, which FICC believes would promote the 
prompt and accurate clearance and settlement of securities 
transactions. As such, FICC believes that the proposed changes are 
consistent with Section 17A(b)(3)(F) of the Act.\38\
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    \38\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe the proposed rule changes to (i) clarify 
which FOS payments and underlying marks are applicable to DVP 
Transactions, clarify which payments and underlying marks are 
applicable to GCF Repo Transactions and CCIT Transactions, and add a 
payment that is currently debited from/credited to (as applicable) 
Members that is not currently referenced in the Rules, (ii) restructure 
Section 1 of Rule 13 to list only FOS payments rather than both 
payments and some underlying marks, and (iii) make a correction and 
certain technical changes would impact competition. The proposed rule 
changes would help to ensure that the Rules remain clear and accurate. 
In addition, the changes would facilitate participants' understanding 
of the Rules and their obligations thereunder. These changes would not 
affect FICC's operations or the rights and obligations of the 
membership. As such, FICC believes the proposed rule changes would not 
have any impact 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \39\ of the Act and paragraph (f) \40\ of Rule 19b-4 
thereunder. 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 the purposes of the Act.
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    \39\ 15 U.S.C 78s(b)(3)(A).
    \40\ 17 CFR 240.19b-4(f).
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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-2020-012 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-2020-012. 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

[[Page 71381]]

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-2020-012 
and should be submitted on or before November 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24785 Filed 11-6-20; 8:45 am]
BILLING CODE 8011-01-P


