[Federal Register Volume 85, Number 236 (Tuesday, December 8, 2020)]
[Notices]
[Pages 79051-79060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26901]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90551; File No. SR-FICC-2020-015)


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Include Same-Day Settling 
Trades in the Risk Management, Novation, Guarantee, and Settlement 
Services of the Government Securities Division's Delivery-Versus-
Payment Service, and Make Other Changes

December 2, 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 November 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.\3\ The

[[Page 79052]]

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.
    \3\ On November 19, 2020, FICC filed this proposed rule change 
as an advance notice (SR-FICC-2020-803) with the Commission pursuant 
to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act entitled the Payment, Clearing, 
and Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and 
Rule 19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy 
of the advance notice is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
---------------------------------------------------------------------------

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 (the ``Rules'') \4\ 
in order to (i) include Same-Day Settling Trades (as defined below) in 
the risk management, Novation, guarantee, and settlement services of 
GSD's delivery-versus-payment service (``DVP Service''), (ii) provide 
that FICC would attempt to settle, on a reasonable efforts basis, any 
Same-Day Settling Trades that are compared in the timeframe specified 
by FICC in notices made available to Members from time to time \5\ to 
the extent described below, (iii) introduce an optional service that 
would allow GSD to systematically pair-off certain Members' failed 
Securities Settlement Obligations between approximately 3:32 p.m. and 
4:00 p.m., (iv) change the time of intraday funds-only settlement 
(``FOS'') processing from 3:15 p.m. to 4:30 p.m., and (v) make certain 
technical changes, as described in further detail below.
---------------------------------------------------------------------------

    \4\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \5\ The initial timeframe would be after 3:01 p.m. If the FRB 
announces an extension of the Fedwire Securities Service, FICC would 
match the duration of the extension. All times herein are ET.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

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

1. Purpose
    The proposed rule change would amend the Rules in order to (i) 
include Same-Day Settling Trades (as defined below) in the risk 
management, Novation, guarantee, and settlement services of GSD's DVP 
Service, (ii) provide that FICC would attempt to settle, on a 
reasonable efforts basis, any Same-Day Settling Trades that are 
compared in the timeframe specified by FICC in notices made available 
to Members from time to time to the extent described below, (iii) 
introduce an optional service that would allow GSD to systematically 
pair-off certain Members' failed Securities Settlement Obligations 
between approximately 3:32 p.m. and 4:00 p.m., (iv) change the time of 
intraday FOS processing from 3:15 p.m. to 4:30 p.m., and (v) make 
certain technical changes, as described in further detail below.
(i) Proposed Change To Include Same-Day Settling Trades in the Risk 
Management, Novation, Guarantee, and Settlement Services of GSD's DVP 
Service.
    GSD provides comparison, risk management, Novation, netting, 
guarantee, and settlement of netting-eligible trades executed by its 
Netting Members and Sponsored Members in the U.S. government securities 
market. In GSD's DVP Service, GSD provides these services for Repo 
Transactions.\6\ The DVP Service encompasses all non-GCF Repo activity 
(both repo and buy-sell activity). All delivery obligations are made 
against full payment.
---------------------------------------------------------------------------

    \6\ In addition to the DVP Service, GSD also provides such 
services in its GCF Repo[supreg] Service and CCIT Service. The GCF 
Repo Service and the CCIT Service are not part of this proposal. The 
GCF Repo Service is primarily governed by Rule 20 and enables 
Netting Members to trade general collateral finance repurchase 
agreement transactions based on rate, term, and underlying product 
throughout the day with Repo Brokers on a blind basis. The CCIT 
Service is governed by Rule 3B and enables tri-party repurchase 
agreement transactions in GCF Repo Securities between Netting 
Members that participate in the GCF Repo Service and institutional 
cash lenders (other than investment companies registered under the 
Investment Company Act of 1940, as amended). Rule 20 and Rule 3B, 
supra note 4.
---------------------------------------------------------------------------

    Currently, with respect to same-day starting Repo Transactions, GSD 
only risk manages, novates, nets, and settles the End Leg, except in 
instances where GSD assumes the fail on the Start Leg of a Brokered 
Repo Transaction.\7\ If a same-day starting Repo Transaction is a 
Brokered Repo Transaction and the Start Leg of such transaction fails 
to settle on its original Scheduled Settlement Date, FICC will assume 
responsibility for settlement of such Start Leg from the Repo Broker on 
the evening of the day the Start Leg was due to settle. This may 
involve the receipt of securities from the repo dealer for redelivery 
to the reverse dealer, or the settlement of the Start Leg may be 
effected by netting of the settlement obligations arising from the 
Start Leg against the settlement obligations arising from the End Leg 
of the same or another repo. FICC does so in these instances (and has 
been doing so since the inception of its blind brokered repo service) 
in order to decrease settlement risk by centralizing the settlement of 
these failed Start Legs and including them in the netting process with 
the End Legs (which already settle at FICC). The Repo Broker acts as an 
intermediary and expects to net out of every transaction and not have a 
settlement position from the settlement process. By assuming the fail, 
FICC replaces the Repo Broker so that FICC becomes the central 
counterparty for settlement of these transactions and thereby, FICC 
decreases settlement risk. In all cases where FICC assumes a fail from 
a Repo Broker, the counterparty remains responsible to FICC for its 
obligations with respect to the transaction.
---------------------------------------------------------------------------

    \7\ See Rule 19, Section 5, supra note 4. A same-day starting 
Repo Transaction consists of a Start Leg and End Leg where the 
initial Scheduled Settlement Date of the Start Leg is scheduled to 
settle on the Business Day on which it is submitted to GSD 
(typically referred to in the industry as a same-day settling start 
leg).
---------------------------------------------------------------------------

    The DVP Service did not include settlement of the Start Leg of 
same-day starting Repo Transactions at its inception, and these 
transactions have always been settled between the parties (i.e., 
outside of FICC). Recently, participants have expressed an interest in 
being able to settle the Start Leg of their same-day starting Repo 
Transactions through GSD. FICC believes that expanding its DVP Service 
in this way (hereinafter, ``Same-Day Settling Service'') could reduce 
market risk because the Start Legs as well as the End Legs of eligible 
Repo Transactions would be risk managed, novated, guaranteed, and 
settled through FICC. FICC also believes that the expansion of its DVP 
Service in this way could potentially reduce fails in the market by 
centralizing the settlement of the applicable Start Legs with FICC. 
FICC believes that this expansion of its DVP Service could increase 
settlement efficiencies and decrease settlement risk in the market and 
decrease operational risk with respect to Members. FICC believes that 
the Same-Day Settling Service could increase settlement efficiencies 
and decrease settlement risk because it would reduce the number of 
securities movements between Members by centralizing the settlement of 
the Start Legs with FICC even though the Start Legs are not netted. It 
would eliminate the number of bilateral movements because the Start 
Legs

[[Page 79053]]

would settle through FICC. FICC also believes that the Same-Day 
Settling Service could decrease operational risk because FICC believes 
it could decrease the number of fails of the Start Legs as there would 
be fewer counterparties involved in the settlement of the Start Legs.
    For example, assuming the following two Brokered Repo Transactions 
are executed on the same day: (i) Broker 1 executes an overnight same-
day starting repo transaction with Dealer A and Dealer B (``Brokered 
Repo 1'') and (ii) Broker 2 executes an overnight same-day starting 
repo transaction with Dealer A and Dealer B (``Brokered Repo 2'').
     Brokered Repo 1 involves: (a) A repo transaction in CUSIP 
XYZ with a par and principal of $50 million with Dealer A and (b) a 
reverse repo transaction in the same CUSIP with a par and principal of 
$50 million with Dealer B.
     Brokered Repo 2 involves: (a) A repo transaction in CUSIP 
XYZ with a par of $50 million and principal of $51 million with Dealer 
B and (b) a reverse repo transaction in CUSIP XYZ with a par of $50 
million and principal of $51 million with Dealer A.
    Today, the Start Leg of both Transactions would settle away from 
FICC. Specifically, with respect to Brokered Repo 1, today, Dealer A 
would deliver securities with a par of $50 million to Broker 1, and 
Dealer A would receive $50 million in principal (cash) from the Broker 
1. Broker 1 would then deliver securities with a par of $50 million to 
Dealer B, and Broker 1 would receive from Dealer B $50 million in 
principal (cash). With respect to Brokered Repo 2, today, Dealer B 
would deliver to Broker 2 securities with a par of $50 million and 
Dealer B would receive $51 million in principal (cash). Broker 2 would 
then deliver securities with a par of $50 million to Dealer A, and 
Broker 2 would receive $51 million in principal (cash) from Dealer A.
    Today, Brokered Repo 1 and Brokered Repo 2 are submitted to FICC 
upon execution. The Start Leg and the End Leg of each of Brokered Repo 
1 and Brokered Repo 2 are submitted for Demand Comparison to FICC by 
the Repo Brokers, who are considered Demand Trade Sources. Upon receipt 
of the trade data from the Demand Trade Source, FICC deems the trades 
compared. The dealer counterparties also submit matching trade data to 
FICC.
    Today, on the Start Date, settlement of the Start Leg would occur 
over Fedwire (or on the books of the Clearing Bank(s) between the four 
counterparties referenced above). This has the potential to cause fails 
in the marketplace if one or more counterparties fail to meet their 
settlement obligations at any point in the process. As previously 
stated, on the evening of the day the Start Leg was due to settle, FICC 
would assume the Start Leg(s) if they failed versus the Repo Broker. 
These broker fails would go into that night's netting cycle and be 
marked-to-market. Because both Brokered Repo Transactions are overnight 
trades, the Close Leg of each trade would also be included in that 
night's netting cycle.
    With this proposed expansion of the DVP Service, on Start Date, the 
Start Leg of each Brokered Repo Transaction would settle versus FICC 
upon submission of the trade data from the Demand Trade Source. The 
Repo Brokers would be removed from the settlement process. The 
settlement of the Start Leg of each Brokered Repo Transaction would 
settle over Fedwire (or on the books of FICC's Clearing Agent Bank (The 
Bank of New York Mellon) between the two dealer counterparties and FICC 
(acting as the central counterparty)).
    Specifically, with the proposed expansion of the DVP Service, with 
respect to Brokered Repo 1, Dealer A would deliver securities in CUSIP 
XYZ of $50 million par to FICC, and Dealer A would receive $50 million 
in principal (cash) from FICC. FICC would then deliver to Dealer B 
securities in CUSIP XYZ of $50 million par, and FICC would receive $50 
million in principal (cash) from Dealer B. With respect to Brokered 
Repo 2, Dealer B would deliver securities in CUSIP XYZ with a par of 
$50 million to FICC, and Dealer B would receive $51 million in 
principal (cash) from FICC. FICC would then deliver to Dealer A 
securities in CUSIP XYZ with a par of $50 million, and FICC would 
receive from Dealer A principal (cash) of $51 million.
    If these same-day settling Securities Settlement Obligations failed 
to settle on their original Scheduled Settlement Date, and Dealer A and 
Dealer B have chosen to opt into the proposed Pair-Off Service (as 
described below), FICC would pair-down the failed Securities Settlement 
Obligations, resulting in a net money difference of $1 million debit to 
Dealer A and $1 million credit to Dealer B. To complete the settlement 
process on the same day that the Same-Day Settling Trade is executed, 
the money differences would settle through intraday funds-only 
settlement (FOS). If the dealer parties have not opted into the 
proposed Pair-Off Service, the failed same-day settling Securities 
Settlement Obligations would go into the night's net and the collection 
of any money differences would occur on the following Business Day 
through the start of day FOS.
    Under Section 7 of Rule 12, if FICC has delivered Eligible Netting 
Securities to a Netting Member with a Net Long Position (Dealer B in 
our example), such Member shall be obligated to accept delivery of all 
such securities at the Settlement Value for the Receive Obligation or 
Receive Obligations that comprise such Position. If such Member fails 
to do so, it shall be obligated to pay, or to reimburse FICC for, all 
costs, expenses, and charges incurred by FICC as the result thereof, 
and it may be subject to a fine by FICC if FICC, in its sole 
discretion, determines that such failure to accept securities was done 
without good cause.\8\
---------------------------------------------------------------------------

    \8\ Rule 12, Section 7, supra note 4.
---------------------------------------------------------------------------

    In addition, in the event Dealer B's failure to pay the principal 
amount is due to financial difficulties, FICC would also have the right 
to suspend a Member from any service provided by FICC either with 
respect to a particular transaction or transactions or with respect to 
transactions generally, or prohibit or limit such Member with respect 
to access to services offered by FICC and/or to cease to act for such 
Member.\9\
---------------------------------------------------------------------------

    \9\ Rule 21 and Rule 22A, supra note 4.
---------------------------------------------------------------------------

    FICC proposes to include the following transactions in the risk 
management, Novation, guarantee, and settlement services of GSD's DVP 
Service: (i) A Start Leg of a Netting Member's Repo Transaction where 
the Scheduled Settlement Date of the Start Leg is the current Business 
Day, (ii) an As-Of Trade of a Netting Member where the Scheduled 
Settlement Date of the Start Leg is the previous Business Day and the 
End Leg is the current Business Day or thereafter,\10\ and (iii) a 
Sponsored

[[Page 79054]]

Member Trade within the meaning of section (b) of that definition that 
meets the requirements of either (i) or (ii) above (hereinafter, 
collectively, ``Same-Day Settling Trades''). Same-Day Settling Trades 
would not go through FICC's netting process. This is because GSD 
netting occurs the night before the Scheduled Settlement Date for such 
transactions, and these Same-Day Settling Trades would not be submitted 
for settlement until after this time.
---------------------------------------------------------------------------

    \10\ FICC has added As-Of Trades in this proposal in order to 
reasonably include as many variations of Same-Day Settling Trades as 
possible. This addition of As-Of Trades in this proposal covers 
scenarios in which a Member submits a DVP repo transaction for 
comparison on the day after the Scheduled Settlement Date for the 
Start Leg (i.e., where a trade compares on the day after the 
Scheduled Settlement Date of the Start Leg). Members may 
occasionally need to submit As-Of Trades due to human or operational 
errors.
    Although this scenario is not frequently observed, FICC believes 
that inclusion of these transactions in the Novation and settlement 
process under this proposal would provide Members with consistent 
processing in terms of settlement of their FICC-cleared DVP Repo 
Transactions, irrespective of whether those transactions are 
submitted as As-Of Trades or Same-Day Settling Trades.
    Under this proposal, from an operational and risk management 
perspective, As-Of Trades would be risk managed and settled in the 
same manner as all other eligible Same-Day Settling Trades. FICC 
would settle both the Start Leg and the End Leg of an As-Of Trade on 
a bilateral basis between FICC and the Member that submitted the 
trade. The End Leg of an As-Of Trade would not be netted unless the 
Scheduled Settlement Date of the End Leg is later than the current 
Business Day that the trade was submitted.
    For purposes of clarity, Securities Settlement Obligations 
generated for the purposes of settlement of the Start Leg and End 
Leg of an As-Of Trade that is eligible for settlement under this 
proposal would be generated based on the Scheduled Settlement Date 
(i.e. contractual settlement date) for each leg of the As-Of Trade. 
However, the generation of such obligation(s) on the Scheduled 
Settlement Date for each leg of an As-Of Trade does not mean that 
such obligation(s) would actually settle on such date.
    Today, the Start Leg of an As-Of Trade settles outside of FICC, 
and if the Scheduled Settlement Date of the End Leg is the current 
Business Day, the End Leg would also settle outside of FICC.
    Under this proposal, if an As-Of Trade is an overnight repo that 
is submitted on the current Business Day (so the Start Date would be 
as of the prior Business Day) and the Scheduled Settlement Date of 
its End Leg is the current Business Day, then FICC would settle each 
leg independently at Contract Value with the Member.
    If an As-Of Trade is a term repo that is submitted on the 
current Business Day (so the Start Leg would be as of the prior 
Business Day) and the Scheduled Settlement Date of the End Leg is 
the next Business Day or thereafter, then the End Leg would go into 
the netting process and would settle at System Value. For As-Of 
Trades that are term repos, FICC would settle the Start Legs at 
Contract Value.
---------------------------------------------------------------------------

    Same-Day Settling Trades would settle on a trade-for-trade basis at 
Contract Value unless such Same-Day Settling Trades fail to settle. 
Because Same-Day Settling Trades are not netted, they would settle at 
Contract Value (not at System Value). In the event that such Same-Day 
Settling Trades fail to settle, they would be netted for settlement on 
the next Business Day as is the case for current Securities Settlement 
Obligations that fail to settle. If such Same-Day Settling Trades fail 
to settle, the trade would be netted at Contract Value versus System 
Value, which all other Fail Deliver Obligations and Fail Receive 
Obligations would be netted at. Same-Day Settling Trades that fail to 
settle are netted with other transactions that fail in that security 
(i.e., the process for netting fails of Same-Day Settling Trades would 
remain the same). Those obligations that fail to settle would be 
subject to the fails charge (either a debit or a credit), the accrual 
of which would be included in the Member's monthly invoice.\11\
---------------------------------------------------------------------------

    \11\ Rule 11, Section 14, supra note 4.
---------------------------------------------------------------------------

    The Start Leg of an As-Of Trade (overnight and term) and a same-day 
starting repo (overnight and term) would settle at Contract Value. The 
End Leg of an As-Of Trade that is an overnight repo would settle at 
Contract Value. Both the Start Leg and End Leg of an As-Of Trade that 
is an overnight repo are Same-Day Settling Trades and, therefore, would 
settle at the Contract Value. Similarly, the Start Leg of a same-day 
starting repo (overnight or term) is also a Same-Day Settling Trade and 
would settle at Contract Value.
    The End Leg of an As-Of Trade that is a term repo, same-day 
starting repo that is an overnight repo, and same-day starting repo 
that is a term repo would settle at System Value. The End Leg of an As-
Of Trade that is a term repo, the End Legs of a same-day starting repo 
(overnight and term), and the Start Legs and End Legs of a forward 
starting repo (overnight and term) would settle at System Value because 
these legs would go through FICC's netting process.
    Below is a chart that describes whether the Start Legs and End Legs 
of As-Of Trades, same-day starting repos, and forward starting repos 
would settle at Contract Value or System Value:

----------------------------------------------------------------------------------------------------------------
               Trade type                        Start leg settles at                 End leg settles at
----------------------------------------------------------------------------------------------------------------
As-of Overnight Trade..................  Contract Value.....................  Contract Value.
As-Of Term Trade.......................  Contract Value.....................  System Value.
Same-Day Starting Overnight Repo.......  Contract Value.....................  System Value.
Same-Day Starting Term Repo............  Contract Value.....................  System Value.
Forward Starting Overnight Repo........  System Value.......................  System Value.
Forward Starting Term Repo.............  System Value.......................  System Value.
----------------------------------------------------------------------------------------------------------------

    The proposed Same-Day Settling Service would be voluntary for 
Inter-Dealer Broker Netting Members and Non-IDB Repo Brokers with 
Segregated Repo Accounts (collectively, ``Repo Brokers''). Because Repo 
Brokers tend to provide a suite of services to their clients where 
facilitating the settlement of a Same-Day Settling Trade is one of 
those services, FICC did not want to cause any disruption to Repo 
Brokers and their clients by bifurcating the existing set of services 
whereby FICC does the settlement of the Same-Day Settling Trade and the 
Repo Broker continues to provide the rest of their existing services to 
their clients. FICC believes that providing optionality will allow Repo 
Brokers and their clients to determine how and when a Repo Broker 
should participate in the proposed Same-Day Settling Service. GSD would 
discontinue assuming fails for Repo Brokers who choose to participate 
in this proposed Same-Day Settling Service, because such assumption 
would be replaced by the FICC Novation that would occur upon comparison 
of the Same-Day Settling Trades. As described above, today, FICC 
assumes the fails for Repo Brokers (and has been doing so since the 
inception of its blind brokered repo service) in order to decrease 
risk. By assuming the fail, FICC removes the Repo Broker, who acts as 
an intermediary and who expects to net out of every transaction and not 
have a settlement position, from the settlement process. In all cases 
where FICC assumes a fail from a Repo Broker, the counterparty remains 
responsible for its obligations with respect to the transaction.
    The proposed Same-Day Settling Service would be mandatory for all 
other Netting Members and for Sponsored Members who execute 
transactions with Netting Members other than their Sponsoring Member 
because GSD must have a balanced set (both a Repo and a Reverse Repo) 
on all transactions. Specifically, if a Member (other than a Repo 
Broker \12\) that is a party to a Same-Day Settling Trade could choose 
to opt out of the Same-Day Settling Service, FICC would not be able to 
create equal and opposite Securities Settlement Obligations for the two 
counterparties, which would require them to settle away from FICC. This

[[Page 79055]]

would create uncertainty among Members as to who to settle their 
transactions with (i.e., FICC or bilaterally outside of FICC). By 
requiring these Members to participate, Members would have certainty 
that their compared transactions would settle with FICC as their 
settlement counterparty.
---------------------------------------------------------------------------

    \12\ Repo Brokers submit a side for each of their two 
counterparties. Therefore, if a Repo Broker participates in the 
proposed Same-Day Settling Service, then FICC would settle the two 
trades (i.e., a Receive Obligation and a Deliver Obligation with the 
two counterparties). However, if a Repo Broker does not participate 
in the proposed Same-Day Settling Service, the two trades would 
settle away from FICC as they do today (except in the instance of a 
broker fail where FICC would assume the broker fails).
---------------------------------------------------------------------------

    To implement these changes, FICC is proposing to revise Rule 1 by: 
(1) Adding a new definition for ``Same-Day Settling Trade'' and (2) 
revising the definitions of ``Deliver Obligation,'' ``Receive 
Obligation,'' ``Settlement Value,'' and ``System Value.''
    ``Same-Day Settling Trade'' would mean (i) a Start Leg of a Netting 
Member's Repo Transaction where the Scheduled Settlement Date of the 
Start Leg is the current Business Day, (ii) an As-Of Trade of a Netting 
Member where the Scheduled Settlement Date of the Start Leg is the 
previous Business Day and the End Leg is the current Business Day or 
thereafter, or (iii) a Sponsored Member Trade within the meaning of 
subsection (b) of that definition \13\ that meets the requirements of 
either (i) or (ii) above.
---------------------------------------------------------------------------

    \13\ ``Sponsored Member Trade'' means a transaction that 
satisfies the requirements of Section 5 of Rule 3A and that is (a) 
between a Sponsored Member and its Sponsoring Member or (b) between 
a Sponsored Member and a Netting Member. Rule 1, supra note 4.
---------------------------------------------------------------------------

    The definitions of Deliver Obligation and Receive Obligation would 
be amended to include references to Same-Day Settling Trades. 
Similarly, the definition of Settlement Value would be amended to 
specify that, with respect to a Deliver Obligation or a Receive 
Obligation for a Same-Day Settling Trade, Settlement Value means the 
Contract Value for such obligation. In addition, FICC would amend the 
definition of System Value to exclude Same-Day Settling Trades because 
Same-Day Settling Trades would settle at the Contract Value (not the 
System Value). Members are currently settling their Same-Day Settling 
Trades at the Contract Value, so FICC would not be changing the way 
such Members are settling these transactions, consistent with what is 
occurring today.
    FICC would revise Section 8(c) of Rule 3A to reference new Section 
11 of Rule 12 (described below).
    In addition, FICC would amend Section 5 of Rule 5 to provide that 
settlement of Same-Day Settling Trades would be processed as per new 
Section 11 of Rule 12. This proposed addition is needed in that 
provision of Rule 5 because the prior sentence (that is, the current 
last sentence of that section) addresses the current process where 
trades that are not netted and settled with FICC are settled between 
the parties to the trades; with this proposal, Same-Day Settling Trades 
would be settled with FICC even though they are not netted.
    FICC would revise Section 8 of Rule 5 to address the Novation and 
guaranty of Same-Day Settling Trades in a new subsection (b). 
Specifically, language would be added that each Same-Day Settling Trade 
that becomes a Compared Trade and was entered into in good faith would 
be novated to FICC, and that FICC would guarantee the settlement of 
each such Compared Trade at the time at which the comparison of such 
trade occurs pursuant to Rules 6A and 6B, as applicable. Such Novation 
would consist of the termination of the deliver, receive, and related 
payment obligations between the Netting Members and their replacement 
with identical obligations to and from FICC in accordance with the 
Rules.
    FICC would amend Section 2 of Rule 11 to state that Same-Day 
Settling Trades would not be netted. As explained above, in GSD's DVP 
Service netting takes place the night before the Scheduled Settlement 
Date; Same-Day Settling Trades would settle after the net is run 
(unless a settlement fail occurs). Because they will not be netted, 
Same-Day Settling Trades would settle on a trade-for-trade basis at 
Contract Value with FICC on their Scheduled Settlement Date unless such 
Same-Day Settling Trades fail to settle. If a Same-Day Settling Trade 
fails to settle, such Same-Day Settling Trade would be netted for 
settlement on the next Business Day as is the current process for 
Securities Settlement Obligations that fail to settle. Those that fail 
to settle would be subject to the fails charge.
    FICC would amend Rule 11B to add a new subsection that would 
describe that FICC would guarantee the settlement of any Same-Day 
Settling Trade provided that certain requirements are met. 
Specifically, the data on such Same-Day Settling Trade must be 
submitted for Bilateral or Demand Comparison at the time that the 
comparison of such trade occurs pursuant to Rules 6A or 6B, 
respectively. Rules 6A and 6B discuss Bilateral Comparison and Demand 
Comparison, respectively. In order for FICC to settle the trades, the 
trades must be novated. In order to novate the trades, they must first 
be compared.
    FICC would amend Rule 12 to add a section (new Section 11) stating 
that Same-Day Settling Trades must also meet the requirements of new 
Section 11(ii) of Rule 12 (which is a proposed section pursuant to this 
filing) and the trade must have been entered into in good faith. 
Proposed Section 11(ii) would state that a Same-Day Settling Trade 
would be eligible for settlement with FICC if it meets all of the 
following requirements: (a) The Same-Day Settling Trade is a Compared 
Trade, (b) the data on the Same-Day Settling Trade are listed on a 
Report that has been made available to Netting Members, (c) (i) the End 
Leg of the Same-Day Settling Trade meets the eligibility requirements 
for netting in Rule 11, or (ii) the Repo Transaction is an As-Of Trade 
and its End Leg settles on the current Business Day or thereafter, and 
(d) the underlying securities are Eligible Netting Securities.
    In addition, notwithstanding the above, a Same-Day Settling Trade 
eligible for settlement to which an Executing Firm is a party, the data 
on which has been submitted to FICC on behalf of such Executing Firm by 
a Submitting Member that is a Netting Member, would not be settled if 
the Submitting Member has provided FICC with notice that it does not 
wish to have trades submitted by it on behalf of that Executing Firm be 
settled through the Comparison System. Also notwithstanding the above, 
a trade would not be settled if either Submitting Member had submitted 
data on a side of the trade on behalf of an Executing Firm whose trades 
it had provided FICC with notice pursuant to the Rules that it did not 
wish to be settled. Pursuant to Section 1 of Rule 8, a Submitting 
Member must submit to FICC for comparison and/or netting data on any 
transaction calling for the delivery of Eligible Securities between an 
Executing Firm on whose behalf it is acting pursuant to these Rules and 
either another Member of the Netting System, Comparison System or 
another Executing Firm on whose behalf it or another Member is acting 
pursuant to these Rules. Therefore, a Same-Day Settling Trade submitted 
by such Submitting Member will be eligible to settle through the 
proposed Same-Day Settling Service unless the Submitting Member has 
provided notice to FICC in advance that it does not wish to have such 
trades settled through the Comparison System. This provision in 
proposed Section 11 of Rule 12 that discusses the eligibility for 
settlement through the Same-Day Settling Service would also align with 
FICC's current rule on the eligibility for netting in Section 2 of Rule 
11.\14\
---------------------------------------------------------------------------

    \14\ Rule 8, Section 1, supra note 4.
---------------------------------------------------------------------------

    Proposed Section 11 of Rule 12 would also state that, 
notwithstanding the above, FICC may, in its sole discretion, exclude 
any Same-Day Settling Trade or

[[Page 79056]]

Same-Day Settling Trades from the Comparison System, by Netting Member 
or by Eligible Netting Security. For example, if a trade was submitted 
to the Comparison System because of an operational error or 
technological error and the client is unable to delete such trade, then 
FICC may exclude such trade from the Comparison System. In addition, 
with respect to Repo Transactions, if the Start Leg is excluded, then 
the corresponding End Leg would also be excluded. This provision of the 
new Section 11 of Rule 12 that discusses the eligibility for settlement 
through the Same-Day Settling Service would also align with FICC's 
current rule on the eligibility for netting in Section 2 of Rule 11.
    In addition to the above, in the new Section 11 of Rule 12, FICC 
would describe the settlement of Same-Day Settling Trades with FICC, 
including eligibility requirements for settlement and how the Deliver 
Obligations and Receive Obligations related to such transactions must 
be satisfied. FICC would also describe that if a novated Same-Day 
Settling Trade becomes uncompared or is cancelled pursuant to the 
Rules, the Novation and FICC's guaranty of settlement of such 
transaction would no longer apply, cancelling the deliver, receive, and 
related payment obligations between FICC and the applicable Members, 
created by such Novation. Furthermore, FICC would state that in the 
event that such transaction is cancelled after the satisfaction of the 
deliver, receive, and related payment obligations between FICC and the 
applicable Netting Members, FICC would establish reverse Securities 
Settlement Obligations in the form of a Receive Obligation or a Deliver 
Obligation for the amount of the Contract Value of the Same-Day 
Settling Trades that have become uncompared or cancelled between FICC 
and the applicable Members. If such Receive Obligation or Deliver 
Obligation fails to settle, then such obligations would be netted at 
Contract Value for settlement on the next Business Day. Those that fail 
to settle would be subject to the fails charge (either a debit or 
credit), the accrual of which would be included in the Member's monthly 
invoice.
    FICC would make clear that Sections 6 (Finance Costs), 7 
(Obligation to Receive Securities), 8 (Obligation to Facilitate 
Financing) and 9 (Relationship with Clearing Banks) of Rule 12 would be 
applicable in connection with the settlement of Same-Day Settling 
Trades with FICC.\15\ These sections are part of GSD's securities 
settlement rule and do not require any changes to accommodate the 
settlement of Same-Day Settling Trades.
---------------------------------------------------------------------------

    \15\ Section 6 (Financing Costs) addresses situations where if a 
Netting Member with a Net Short Position delivers eligible Netting 
Securities to FICC and FICC is unable, because the delivery was made 
near the close of Fedwire or for any other reason, to redeliver such 
securities on the same Business Day to a Netting Member or Members 
with Net Long Positions in such securities and, as a result, FICC 
incurs costs, expenses, or charges related to financing such 
securities (the ``financing costs''), then the Netting Members, as a 
group, shall be obligated to pay, or to reimburse FICC, for such 
financing costs. Section 7 (Obligation to Receive Securities) covers 
the obligation of Members to accept delivery of securities regarding 
their Receive Obligations. Section 8 (Obligation to Facilitate 
Financing) sets forth FICC's ability to obtain financing necessary 
for the provision of securities settlement services contemplated by 
the Rules. Section 9 (Relationship with Clearing Banks) makes clear 
that no improper or unauthorized action, or failure to act, by a 
clearing bank acting on behalf of a Netting Member shall excuse or 
otherwise affect the obligations of a Netting Member to FICC 
pursuant to the Rules. Rule 12, supra note 4.
---------------------------------------------------------------------------

    Furthermore, because the proposed Same-Day Settling Service would 
be voluntary for Repo Brokers, FICC would amend Section 5 of Rule 19 
and Sections IV.A.5, IV.A.6, and IV.B.3 of the Fee Structure to state 
that the applicable section would only apply to Repo Brokers that do 
not elect to settle Same-Day Settling Trades with FICC. This is because 
these sections address the assumption of certain Start Legs by GSD that 
would be replaced by GSD's Novation, guaranty, and settlement of Same-
Day Settling Trades of those Repo Brokers that elect to participate in 
the proposed service.
(ii) Proposed Change To Provide That FICC Would Attempt To Settle Same-
Day Settling Trades That Are Compared in the Timeframe Specified by 
FICC in Notices Made Available to Members From Time to Time on a 
Reasonable Efforts Basis
    Today, Members occasionally execute Same-Day Settling Trades after 
the close of the Fedwire Securities Service. These Same-Day Settling 
Trades are settled between the Members (outside of FICC) as long as 
both parties to the trade settle such trades within the same Clearing 
Bank.
    In order to accommodate this practice, FICC proposes to provide the 
proposed Same-Day Settling Service to late-day compared Same-Day 
Settling Trades (i.e., those Same-Day Settling Trades that are compared 
after 3:01 p.m.\16\). FICC would attempt to settle, on a reasonable 
efforts basis, such trades that are compared in the timeframe specified 
by FICC in notices made available to Members from time to time, 
provided (i) FICC is able to contact the counterparties to the trade 
and FICC's Clearing Agent Bank and (ii) FICC's Clearing Agent Bank and 
the counterparties to the trade agree to settle such trade. The 
foregoing sentence would only apply to Same-Day Settling Trades of 
Members that clear at FICC's Clearing Agent Bank. Reasonable efforts 
basis would mean that FICC would attempt to contact the counterparties 
to the trade and FICC's Clearing Agent Bank to confirm they agree to 
settle such trade. Specifically, FICC would continue to process 
securities movements between FICC's account at FICC's Clearing Agent 
Bank and Members' accounts at FICC's Clearing Agent Bank, on a 
reasonable efforts basis, in the timeframe specified by FICC in notices 
made available to Members from time to time, provided that (i) FICC is 
able to contact FICC's Clearing Agent Bank and (ii) FICC's Clearing 
Agent Bank and the counterparties to the trade agree to settle such 
trade.\17\
---------------------------------------------------------------------------

    \16\ As described above, if the FRB announces an extension of 
the Fedwire Securities Service, FICC would match the duration of the 
extension.
    \17\ Initially, this would apply to Same-Day Settling Trades 
that are compared after 3:01 p.m. until 5 p.m.
---------------------------------------------------------------------------

    For those Members that do not have accounts at FICC's Clearing 
Agent Bank, FICC would attempt to settle, on a reasonable efforts 
basis, Same-Day Settling Trades that are compared after the time 
specified by FICC in notices made available to Members from time to 
time during the reversal period of the Fedwire Securities Service,\18\ 
provided (i) FICC is able to contact FICC's Clearing Agent Bank, (ii) 
FICC is able to contact the counterparties to the trade to confirm that 
they agree to settle the trade, and (iii) FICC's Clearing Agent Bank, 
the Member's Clearing Agent Bank, and the Federal Reserve Bank of New 
York each permit settlement of the trade (Fedwire must be open for 
settlement). Reasonable efforts basis would mean that FICC would 
attempt to contact the counterparties to the trade and FICC's Clearing 
Agent Bank to confirm that they agree to settle such trade.
---------------------------------------------------------------------------

    \18\ Initially, this time would be after 3:01 p.m. until 3:30 
p.m. If the FRB announces an extension for the reversal period of 
the Fedwire Securities Service, FICC would match the duration of the 
extension for the reversal period. The Fedwire Securities Services 
closes at 3:30 p.m. for transfer reversals. See Fedwire[supreg] and 
National Securities Service, Federal Reserve Bank of New York (March 
2015), available at https://www.newyorkfed.org/aboutthefed/fedpoint/fed43.html and Fedwire Securities Service, Board of Governors of the 
Federal Reserve System (July 31, 2014), available at https://www.federalreserve.gov/paymentsystems/fedsecs_about.htm.
---------------------------------------------------------------------------

    To implement this proposed rule change, FICC would include 
provisions in newly added Section 11 of Rule 12.

[[Page 79057]]

(iii) Proposed Change To Introduce an Optional Service That Would Allow 
GSD to Systematically Pair-Off Certain Members' Failed Securities 
Settlement Obligations Between Approximately 3:32 p.m. and 4:00 p.m.
    FICC also proposes to introduce an optional service for Netting 
Members (other than Repo Brokers) and for Sponsored Member Trades 
(other than those between the Sponsored Member and its Sponsoring 
Member) whereby GSD would systematically pair-off such Members' failed 
Securities Settlement Obligations between approximately 3:32 p.m. and 
4:00 p.m.
    The failed Securities Settlement Obligations could include (i) 
Receive Obligations and Deliver Obligations resulting from the previous 
night's net and (ii) obligations that were created intraday in order to 
settle a Right of Substitution or a Same-Day Settling Trade. Fails that 
occur go into the net that evening.\19\
---------------------------------------------------------------------------

    \19\ Fails occur because one party does not have the inventory 
to settle with the other party on the scheduled date.
---------------------------------------------------------------------------

    GSD would look at each Member's failing activity on a per CUSIP 
basis and pair-off their Receive Obligations and Deliver Obligations 
irrespective of the settlement amounts on those obligations; this could 
result in money differences. This proposed process would be structured 
so that the net par result of the pair-offs would be zero. 
Specifically, the proposed pair-off process (``Pair-Off Service'') 
would consist of the matching and the offset of a participating 
Member's Fail Deliver Obligations and Fail Receive Obligations in equal 
par amounts of the same Eligible Netting Security. The participating 
Member would receive a debit or credit Pair-Off Adjustment Amount 
(which FICC may initially collect as a Miscellaneous Adjustment 
Amount), as applicable, of the difference in the Settlement Values of 
the applicable Fail Deliver Obligations and Fail Receive Obligations in 
the intraday funds-only settlement process. The proposed Pair-Off 
Service would start at approximately 3:32 p.m. The proposed rule change 
would provide FICC with the discretion to suspend or delay the Pair-Off 
Service in the event of an operational or market event. For example, 
FICC may delay the Pair-Off Service if the FRB extends Fedwire because 
extending the Fedwire would enable trades to potentially settle instead 
of fail. FICC believes that suspending the Pair-Off Service would not 
adversely affect Members because failed obligations would go into the 
net as they do today, and would continue to be risk-managed.
    The proposed Pair-Off Service would allow the participating Member 
to settle their cash obligations today; the settlement process would be 
completed on the same day (via intraday FOS) rather than on the next 
day (via start of day FOS). As noted in the example in Item II(A)1(i) 
above, if these obligations failed to settle, and Dealer A and Dealer B 
have chosen to opt into the proposed Pair-Off Service, FICC would pair-
down the failed obligations, resulting in a net money difference of $1 
million debit to Dealer A and $1 million credit to Dealer B. To 
complete the settlement process on the same day that the trade is 
executed, the money differences would settle through intraday funds-
only settlement. The alternative to the proposed Pair-Off Service is to 
let the failed obligations go into the net and collect any money 
differences on the following Business Day through the start of day FOS.
    To implement the proposed Pair-Off Service, FICC would revise Rules 
1, 3A, and 12. Specifically, FICC would amend Rule 1 by adding two 
definitions, ``Pair-Off Service'' and ``Pair-Off Adjustment Payment.'' 
FICC would initially collect this amount as a Miscellaneous Adjustment 
Amount. Then, following development by FICC, this amount would be 
collected as a ``Pair-Off Adjustment Payment.''
    FICC would also revise Rule 12 to describe the proposed Pair-Off 
Service, which would be a voluntary automated process. The proposed 
Pair-Off Service would consist of the matching and offset of a 
participating Netting Member's Fail Deliver Obligations and Fail 
Receive Obligations in equal par amounts in the same Eligible Netting 
Security. The participating Netting Member would receive either a debit 
or credit Pair-Off Adjustment Payment, as applicable, of the difference 
in the Settlement Values of the applicable Fail Deliver Obligations and 
Fail Receive Obligations in the FOS process under Rule 13. Any 
Securities Settlement Obligations remaining after the pair-off of 
eligible obligations would constitute a Fail Net Settlement Position.
    Rule 12 would also state that FICC would have the discretion to 
suspend the Pair-Off Service on any Business Day due to FRB extensions 
and/or system or operational issues. FICC would notify Members of any 
such extension.
    FICC would also revise Section 8 of Rule 3A to state that with 
respect to Section 1 of Rule 12, the optional Pair-Off Service would be 
available to Sponsored Member Trades within the meaning of section (b) 
of that definition.
(iv) Proposed Change To Change the Time of Intraday FOS Processing From 
3:15 p.m. to 4:30 p.m.
    FICC proposes to change the time of intraday FOS processing from 
3:15 p.m. to 4:30 p.m. because FICC proposes to start the proposed 
Pair-Off Service at approximately 3:32 p.m. and would provide Funds-
Only Settling Banks with their intraday net FOS figures by 4:00 p.m. 
for acknowledgment by 4:30 p.m.. The proposed rule change would also 
provide that such time may be extended due to FRB extensions and/or 
system or operational issues. Moving this processing time from 3:15 
p.m. to 4:30 p.m. would enable FICC to settle any net money differences 
that arise from the proposed Pair-Off Service.
    To implement this change, FICC would amend the Schedule of 
Timeframes by deleting the 3:15 p.m. time and the related description, 
and adding a 4:30 p.m. time and a description that would state that 
intraday FOS debits and credits would be executed via the FRB's 
National Settlement Service for Netting Members.
(v) Proposed Technical Changes
    FICC also proposes to make certain technical changes. Because a 
subsection would be added to Section 8 of Rule 5 to describe the 
comparison, Novation, and guarantee of Same-Day Settling Trades (as 
described in detail above), FICC would also renumber subsections that 
follow the proposed section for consistency and accuracy.
Implementation Timeframe
    FICC would implement the proposed rule changes within 90 days after 
the later of the approval of the proposed rule change and no objection 
to the related advance notice \20\ by the Commission. FICC would 
announce the effective date of the proposed changes by Important Notice 
posted to its website.
---------------------------------------------------------------------------

    \20\ Supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of 
the Act. Specifically, FICC believes this proposal is consistent with 
Section 17A(b)(3)(F) of the Act,\21\ which requires, in part, that the 
rules of a registered clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions, and 
to assure the safeguarding of securities and funds

[[Page 79058]]

which are in the custody or control of the clearing agency or for which 
it is responsible, for the reasons described below.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    FICC believes that the proposed changes described in Items 
II(A)1(i) and II(A)1(ii) above would promote the prompt and accurate 
clearance and settlement of securities transactions because these 
proposed changes could increase settlement efficiencies in most 
instances. FICC believes these proposed changes could increase 
settlement efficiencies in most instances because Members would have 
one settlement counterparty, FICC, with respect to these transactions. 
As described above, specifically, FICC believes that the Same-Day 
Settling Service could increase settlement efficiencies and decrease 
settlement risk because it would reduce the number of securities 
movements between Members by centralizing the settlement of the Start 
Legs with FICC even though the Start Legs are not netted. The Same-Day 
Settling Service would eliminate the number of bilateral movements 
because the Start Legs would settle through FICC. FICC also believes 
that the Same-Day Settling Service could decrease operational risk 
because FICC believes it could decrease the number of fails of the 
Start Legs as there would be fewer counterparties involved in the 
settlement of the Start Legs. As such, FICC believes these proposed 
changes would promote the prompt and accurate settlement of securities 
transactions, consistent with Section 17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

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

    FICC also believes that the proposed changes described in Item 
II(A)1(iii) above to introduce an optional service whereby GSD would 
systematically pair-off certain Members' failed Securities Settlement 
Obligations between approximately 3:32 p.m. and 4:00 p.m. would promote 
the prompt and accurate clearance and settlement of securities 
transactions and would assure the safeguarding of securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible. As described above, each day, GSD would pair-off 
each applicable Member's failing activity (on a per CUSIP basis). The 
pair-off of the Receive Obligations and Deliver Obligations could 
result in money differences because the pair-off would be irrespective 
of the settlement amounts on these Receive Obligations and Deliver 
Obligations. The proposed process would be structured so that the net 
par result of the pair-offs would be zero. FICC believes that the 
settlement of these failed obligations and the corresponding money 
differences would reduce settlement risk to FICC because the settlement 
process would be completed on the same day (via intraday FOS) rather 
than on the next day (via start of day FOS). As such, because FICC 
believes the proposed changes described in Item II(A)1(iii) above would 
enable the settlement process to be completed on the same day (via 
intraday FOS) rather than on the next day (via start of day FOS) and 
would reduce settlement risk, FICC believes these proposed changes 
would promote the prompt and accurate clearance and settlement of 
securities transactions and would assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible., consistent with Section 17A(b)(3)(F) of 
the Act.\23\
---------------------------------------------------------------------------

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

    FICC believes that the proposed changes described in Item 
II(A)1(iv) above to change the time of intraday FOS processing from 
3:15 p.m. to 4:30 p.m. would assure the safeguarding of securities and 
funds which are in the custody or control of the clearing agency or for 
which it is responsible. Specifically, changing the processing time 
from 3:15 p.m. to 4:30 p.m. would facilitate the proposed optional 
Pair-Off Service. The proposed change to move the processing time from 
3:15 p.m. to 4:30 p.m. would enable FICC to settle any net money 
differences that arise from the proposed optional Pair-Off Service on 
the same day, and facilitate the proposed optional Pair-Off Service, 
which, as stated above, could reduce market risk to FICC. As such, FICC 
believes the proposed changes described in Item II(A)1(iv) above would 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible, consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed technical changes described in Item 
II(A)1(v) above would promote the prompt and accurate clearance and 
settlement of securities transactions by ensuring that the Rules remain 
clear and accurate to Members. 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 settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\25\
---------------------------------------------------------------------------

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

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

    FICC does not believe that the proposed changes described in Items 
II(A)1(i) and II(A)1(ii) above would have any impact on competition 
because although FICC does not settle Same-Day Settling Trades today 
(with the exception of same-day settling Start Legs of Brokered Repo 
Transactions that fail to settle), as described above, such Same-Day 
Settling Trades are still required to be settled in the market.\26\ The 
proposal would result in a settlement instruction change in where such 
trades settle. This would be no different than any counterparty 
changing their settlement instructions, which is commonplace in the 
market today. In addition, while FICC's risk management, Novation and 
guarantee would apply to Same-Day Settling Trades, FICC does not 
believe that this would have any impact on competition because the 
Members are subject to the same risk management processes and obtain 
the benefits of Novation and the FICC guarantee with their existing 
activity that is submitted to FICC today. Furthermore, Repo Brokers 
would have the option to participate in this proposed expansion of the 
DVP Service and, as such, would no longer need to settle such 
transactions. Such Repo Brokers would not be required to participate, 
and if they choose not to participate, they would continue to settle 
such trades outside of GSD. Because Repo Brokers tend to provide a 
suite of services to their clients where facilitating the settlement of 
a Same-Day Settling Trade is one of those services, FICC does not want 
to cause any disruption to Repo Brokers and their clients by 
bifurcating the existing set of services whereby FICC does the 
settlement of the Same-Day Settling Trade and Repo Brokers continue to 
provide the rest of their existing services to their clients. FICC 
believes that providing optionality will allow Repo Brokers and their 
clients to determine how and when a Repo Broker should participate in 
the proposed Same-Day Settling Service. Therefore, FICC does not 
believe that the proposed changes described in Items II(A)1(i) and 
II(A)1(ii) would have any impact on competition.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC does not believe that the proposed optional Pair-Off Service 
described in Item II(A)1(iii) above would have any impact on 
competition because, as described above, it would be voluntary.\27\ 
Members who do not wish to participate in the proposed Pair-Off

[[Page 79059]]

Service can choose not to do so; Members would be able to determine for 
themselves whether or not to use the proposed Pair-Off Service. As 
such, FICC does not believe that the proposed optional Pair-Off Service 
would have any impact on competition.
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

    FICC believes that the proposed change described in Item II(A)1(iv) 
above to change the time of intraday FOS processing from 3:15 p.m. to 
4:30 p.m. may impose a burden on competition \28\ because those Members 
who are due to receive credits would receive those credits later in the 
day than they do today. However, FICC does not believe that the 
proposed rule change would result in a significant burden on 
competition given that a Member's debits and credits vary from day to 
day. Therefore, a Member may be owed a credit one day and then may have 
to pay a debit another day. Furthermore, with the proposed change, 
while those Members who are due to receive credits would receive them 
later in the day than they do today, those Members who are due to pay 
debits would be paying such debits later in the day.
---------------------------------------------------------------------------

    \28\ Id.
---------------------------------------------------------------------------

    Regardless of whether the potential burden on competition discussed 
in the previous paragraph is significant, FICC believes that any 
resulting burden on competition that may be created by the proposed 
rule change described in Item II(A)1(iv) would be necessary and 
appropriate in furtherance of the purposes of the Act, as permitted by 
Section 17A(b)(3)(I) of the Act.\29\
---------------------------------------------------------------------------

    \29\ Id.
---------------------------------------------------------------------------

    FICC believes that any burden on competition that may be created by 
the proposed rule change would be necessary in furtherance of the 
purposes of the Act because, as described above, the Rules must be 
designed to assure the safeguarding of securities and funds that are in 
FICC's custody or control or for which it is responsible.\30\ The 
proposed rule change described in Item II(A)1(iv) above would 
facilitate the proposed optional Pair-Off Service because it would 
enable FICC to settle any net money differences that arise from the 
proposed optional Pair-Off Service on the same Business Day. Therefore, 
the proposed rule change is designed to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible, consistent with Section 
17A(b)(3)(F) of the Act.\31\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ Id.
---------------------------------------------------------------------------

    FICC also believes that any burden on competition that may be 
created by the proposed rule change described in Item II(A)1(iv) above 
would be appropriate in furtherance of the proposes of the Act.\32\ 
FICC believes changing the time of intraday FOS processing from 3:15 
p.m. to 4:30 p.m. is appropriate because, as described above, this 
proposed change would facilitate the Pair-Off Service, which would run 
at 3:32 p.m. After the Pair-Off Service runs, FICC would need time to 
implement its daily FOS procedures, and FICC believes this proposed 
change reflects the shortest amount of time in which FICC would be able 
to do so. Specifically, FICC proposes to provide the Funds-Only 
Settling Banks with their intraday net FOS figures by 4:00 p.m. for 
acknowledgment by 4:30 p.m. As such, the proposed change to move the 
time of intraday FOS processing from 3:15 p.m. to 4:30 p.m. would 
enable FICC to settle any net money differences that arise from the 
proposed optional Pair-Off Service on the same day and facilitate the 
proposed optional Pair-Off Service.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC does not believe that that the proposed technical changes 
described in Item II(A)1(v) above would have an impact on competition. 
These proposed technical changes would provide additional clarity, 
consistency, and accuracy within the Rules and would not affect 
Members' rights and obligations. As such, FICC believes that these 
proposed rule changes would not have an 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

    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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

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-2020-015 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-2020-015. 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-2020-015 and should be submitted on 
or before December 29, 2020.


[[Page 79060]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26901 Filed 12-7-20; 8:45 am]
BILLING CODE 8011-01-P


