[Federal Register Volume 86, Number 49 (Tuesday, March 16, 2021)]
[Notices]
[Pages 14503-14506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05341]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91292; File No. SR-FICC-2021-001]


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

March 10, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 8, 2021, Fixed Income Clearing Corporation (``FICC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would revise the Clearing Agency 
Investment Policy (``Investment Policy'') of Fixed Income Clearing 
Corporation (``FICC'') and its affiliates, The Depository Trust Company 
(``DTC'') and National Securities Clearing Corporation (``NSCC,'' and, 
together with DTC and FICC, the ``Clearing Agencies'') in order to (1) 
enhance the methodology for determining investment limits for 
investments in bank deposits, and (2) clarify the description of 
certain investable funds of the Government Securities Division of FICC 
(``GSD''), as described in greater detail below.

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.

[[Page 14504]]

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

1. Purpose
    The Clearing Agencies are proposing to revise the Investment 
Policy, which was adopted for each clearing agency in December 2016 \3\ 
and is maintained in compliance with Rule 17Ad-22(e)(16) under the 
Act,\4\ in order to (1) enhance the methodology for determining 
investment limits for investments in bank deposits, and (2) clarify the 
description of certain investable funds of GSD, as described in greater 
detail below.
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    \3\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
    \4\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the 
Investment Policy also addresses compliance with the requirements of 
Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
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Overview of the Investment Policy
    The Investment Policy governs the management, custody and 
investment of cash deposited to the respective NSCC and FICC Clearing 
Funds, and the DTC Participants Fund,\5\ the proprietary liquid net 
assets (cash and cash equivalents) of the Clearing Agencies, and other 
funds held by the Clearing Agencies pursuant to their respective rules.
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    \5\ The respective Clearing Funds of NSCC and FICC, and the DTC 
Participants Fund are described further in the Rules & Procedures of 
NSCC (``NSCC Rules''), the DTC Rules, By-laws and Organization 
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') or the Rulebook 
of the Government Securities Division of FICC (``GSD Rules''), 
respectively, available at http://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4 
(Participants Fund and Participants Investment) of the DTC Rules, 
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule 
4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
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    The Investment Policy identifies the guiding principles for 
investments and defines the roles and responsibilities of DTCC staff in 
administering the Investment Policy pursuant to those principles. The 
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'') 
\6\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group 
Chief Risk Office (``GCRO'').\7\ Treasury is responsible for 
identifying potential counterparties to investment transactions, 
establishing and managing investment relationships with approved 
investment counterparties, and making and monitoring all investment 
transactions with respect to the Clearing Agencies. CCR is responsible 
for conducting a credit review of any potential counterparty, updating 
those reviews on a quarterly basis, and establishing an investment 
limit for each counterparty. CCR is also responsible for ongoing 
monitoring of counterparties and recommending changes to investment 
limits when appropriate.
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    \6\ Treasury is a part of the DTCC Finance Department and is 
responsible for the safeguarding, investment and disbursement of 
funds on behalf of the Clearing Agencies and in accordance with the 
principles outlined in the Investment Policy.
    \7\ Among other responsibilities, GCRO is generally responsible 
for the systems and processes designed to identify and manage 
credit, market and liquidity risks to the Clearing Agencies.
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    The Investment Policy also identifies sources of funds that may be 
invested, and the permitted investments of those funds, including the 
authority required to make such investments and the parameters of, and 
limitations on, each type of investment. Allowable investments include 
bank deposits, reverse repurchase agreements, direct obligations of the 
U.S. government, money market mutual funds, high-grade corporate debt, 
and hedge transactions. Finally, the Investment Policy defines the 
approval authority required to exceed established investment limits.
    The Investment Policy is reviewed and approved by the Boards 
annually. In connection with a recent annual review of the Investment 
Policy, the Clearing Agencies have decided to propose revisions to the 
Investment Policy in order to (1) enhance the methodology for 
determining investment limits for investments in bank deposits, and (2) 
clarify the description of certain investable funds of GSD, as 
described in greater detail below.
Proposed Enhancement to the Formula for Setting Bank Deposit Investment 
Limits
    Section 6.2.1 of the Investment Policy sets forth the investment 
limits applicable to bank deposit investments. Currently, bank deposit 
investment limits are determined based on the bank counterparty's 
external credit rating. For example, investments in a bank deposits 
with a bank counterparty with an external credit rating of AAA or Aaa 
are limited to no more than $750 million, and an investment with a bank 
counterparty with an external credit rating of BBB+ or Baa1 are limited 
to no more than $100 million.
    The Clearing Agencies are proposing to enhance the methodology for 
setting investment limits and investment caps on bank deposits with a 
particular counterparty by including a consideration of the size of the 
bank counterparty, measured as the total shareholders' equity capital, 
in this calculation. Under the proposed methodology, an investment 
limit for a bank deposit counterparty would continue to be based on the 
counterparty's credit rating, but would be the lower of (1) a 
percentage of its total shareholders' equity capital, and (2) the 
applicable dollar value that is currently in Section 6.2.1 of the 
Investment Policy. For example, investments in a bank deposits with a 
bank counterparty with an external credit rating of AAA or Aaa and 
total shareholders' equity capital of $9 billion would be limited to no 
more than $750 million, however, investments with a bank counterparty 
with the same external credit rating and total shareholders' equity 
capital of $2 billion would be limited to no more than $300 million.
    The proposed approach would permit the Clearing Agencies to take 
into account the size of a counterparty in setting investment limits 
rather than apply the same investment limits to each counterparty with 
the same credit rating without regard to the entity's size. The 
proposal is designed to mitigate the Clearing Agencies' risk exposure 
to smaller bank counterparties.
Proposed Revisions to the Description of Investable Funds of GSD
    The Clearing Agencies are also proposing to amend Section 5 of the 
Investment Policy to revise the description of investable funds of GSD, 
which are currently described as ``GSD Forward Margin.'' The proposed 
changes would refer to these funds as ``GSD Forward Mark Adjustment 
Payment,'' which is the term used in the GSD Rules to refer to these 
funds.\8\ The proposed change to clarify the term used to describe 
these funds would prevent any confusion about which funds are included 
in Section 5 and invested pursuant to the Policy.
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    \8\ See Rule 1 (Definitions) of the GSD Rules. Supra note 5.
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2. Statutory Basis
    The Clearing Agencies believe that the proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, the Clearing Agencies believe that the proposed 
modifications to the Investment Policy are consistent with Section 
17A(b)(3)(F) of the Act \9\ and Rule 17Ad-22(e)(16) under the Act,\10\ 
for the reasons described below.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(e)(16).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of each

[[Page 14505]]

of the Clearing Agencies be designed to assure the safeguarding of 
securities and funds that are in the custody or control of each of the 
Clearing Agencies or for which they are responsible.\11\ The investment 
guidelines and governance procedures set forth in the Investment Policy 
are designed to safeguard funds that are in the custody or control of 
the Clearing Agencies or for which they are responsible. Such 
protections include, for example, following a prudent and conservative 
investment philosophy that places the highest priority on maximizing 
liquidity and risk avoidance. The Clearing Agencies believe the 
proposed change to consider the size of a bank counterparty in setting 
its bank deposit investment limits would allow it to adhere to these 
guidelines by minimizing the risk posed by smaller counterparties, 
measured by their shareholders' equity capital. Therefore, the Clearing 
Agencies believe the proposed change would allow the Clearing Agencies 
to continue to operate the Investment Policy pursuant to a prudent and 
conservative investment philosophy that assures the safeguarding of 
securities and funds that are in their custody and control, or for 
which they are responsible.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Additionally, the proposed change to align the description of 
investable funds of GSD with the description of these funds in the GSD 
Rules would clarify the funds that are subject to the Policy and, 
thereby, improve the effectiveness of the Investment Policy and allow 
the Investment Policy to continue to be administered in alignment with 
the investment guidelines and governance procedures set forth therein. 
Given that such guidelines and governance procedures are designed to 
safeguard funds that are in the custody or control of the Clearing 
Agencies or for which they are responsible, the Clearing Agencies 
believe the proposed changes are consistent with the requirements of 
Section 17A(b)(3)(F) of the Act.\12\
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    \12\ Id.
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    Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to safeguard the Clearing Agencies' own 
and their participants' assets, minimize the risk of loss and delay in 
access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\13\ The Clearing Agencies 
believe that the Investment Policy follows a prudent and conservative 
investment philosophy, placing the highest priority on maximizing 
liquidity and avoiding risk of loss, by setting appropriate investment 
limits and creating clear guidelines. As originally implemented, the 
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\14\
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    \13\ When the Investment Policy was implemented, the Clearing 
Agencies were subject to the requirements of subsection (d) of Rule 
17Ad-22 and the Investment Policy was designed to meet the 
requirements of Rule 17Ad-22(d)(3). See supra note 3; 17 CFR 
240.17Ad-22(d). The Commission subsequently adopted Rule 17Ad-22(e) 
and amended Rule 17Ad-22(d) such that the Clearing Agencies became 
subject to the new requirements of Rule 17Ad-22(e) and are no longer 
subject to the requirements of Rule 17Ad-22(d). Id.
    \14\ 17 CFR 240.17Ad-22(e)(16).
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    For the reasons stated above, the Clearing Agencies believe that 
the proposed revisions would both strengthen the risk management 
objectives of the Investment Policy and improve the clarity of the 
Policy and, therefore, make the Investment Policy more effective in 
governing the management, custody, and investment of funds of and held 
by the Clearing Agencies. In this way, the proposed changes would 
better allow the Clearing Agencies to maintain this document in a way 
that is designed to meet the requirements of Rule 17Ad-22(e)(16). 
Therefore, the Clearing Agencies believe the proposed revisions would 
be consistent with the requirements of Rule 17Ad-22(e)(16) under the 
Act.\15\
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    \15\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

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

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FICC-2021-001 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-2021-001. 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

[[Page 14506]]

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-2021-001 and should be submitted on 
or before April 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05341 Filed 3-15-21; 8:45 am]
BILLING CODE 8011-01-P


