[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63548-63551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22656]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96061; File No. SR-FICC-2022-007]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify and Update GSD Rules, MBSD Rules and EPN Rules

October 13, 2022.
    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 October

[[Page 63549]]

7, 2022, 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

    (a) The proposed rule change of Fixed Income Clearing Corporation 
(``FICC'') consists of modifications to the FICC Government Securities 
Division (``GSD'') Rulebook (``GSD Rules''), the FICC Mortgage-Backed 
Securities Division (``MBSD'') Clearing Rules (``MBSD Rules'') and the 
Electronic Pool Notification (``EPN'') Rules of MBSD (``EPN Rules,'' 
and together with the GSD Rules and the MBSD Rules, the ``Rules'').
    Specifically, the proposed rule change would (i) clarify GSD Rules, 
MBSD Rules and EPN Rules concerning admission to FICC premises, (ii) 
update EPN Rules related to FICC's maintenance of fidelity insurance 
bond, (iii) remove outdated EPN Rules related distribution facilities, 
and (iv) clarify GSD Rules and MBSD Rules concerning Settling Banks' 
ability to refuse to settle. The proposed changes are designed to 
clarify and update certain sections of the Rules and enhance the 
transparency of those Rules by conforming, as appropriate, provisions 
in certain sections of the Rules with similar rules of FICC's 
affiliates, as described in greater detail below.\5\
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    \5\ Capitalized terms not otherwise defined herein are defined 
in the MBSD Rules, GSD Rules, and the EPN Rules, as applicable, 
available at http://www.dtcc.com/legal/rules-and-procedures.
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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
    FICC is proposing to clarify and update the Rules and enhance the 
transparency of those Rules through modifications related to (i) 
credentials required to access the premises of FICC, (ii) FICC's 
maintenance of a fidelity insurance bond, (iii) existence of 
distribution facilities of FICC, and (iv) clarification of Settling 
Banks' and Cash Settling Banks' ability to refuse to settle for itself.
    First, the proposed changes would enhance the transparency of these 
Rules by providing participants of FICC with updated, clear 
information. Second, the proposed changes would simplify and update 
these Rules by removing information that either (a) describes internal 
processing and does not provide participants with important information 
regarding any applicable service, or (b) no longer describes FICC's 
current operations. Finally, the proposed changes would conform those 
Rules with similar rules of FICC affiliates, The Depository Trust 
Company (``DTC'') and National Securities Clearing Corporation 
(``NSCC,'' and, together with FICC and DTC, the ``Clearing Agencies''), 
where appropriate.
    The proposed changes are discussed in detail below.
(i) Admission to FICC Premises
    First, FICC is proposing to revise GSD Rule 27 (Admissions to 
Premises of the Corporation, Powers of Attorney, ETC.), MBSD Rule 20 
(Admissions to Premises of the Corporation, Powers of Attorney, ETC.) 
and EPN Rule 4 of Article III,\6\ (Admission to Premises of 
Corporation; Powers of Attorney), which provide for the approval and 
subsequent revocation of access to FICC's premises by a participant's 
employee, or a person to whom a power of attorney or other 
authorization has been given to act for a participant, in connection 
with the work of FICC. The proposed changes to these Rules would add 
information regarding the need for any representative of a participant 
to prominently display credentials to gain entry and remain on the 
premises of FICC. The proposed rule change of EPN Rule 4 of Article III 
also clarifies the need to provide FICC with immediate notice of a 
change of circumstances resulting in the revocation of such 
credentials. The proposed changes further outline FICC's processes for 
allowing participants onto FICC's premises and, therefore, enhance the 
transparency of these Rules. The proposed change would allow FICC to 
continue to monitor and ensure the safety of its employees and guests, 
while clarifying expectations for participants and representatives of 
participants while on FICC premises.
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    \6\ All references to ``Articles'' herein shall refer to 
Articles of the EPN Rules, supra note 5.
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    In addition, the proposed rule change would conform GSD Rule 27, 
MBSD Rule 20 and EPN Rule 4 of Article III with DTC Rule 17 and NSCC 
Rule 27.\7\ By conforming the descriptions in similar rules across the 
Clearing Agencies where there is no difference in FICC's processes and 
therefore no need for differing language, the proposed changes would 
improve predictability and transparency for visitors of FICC.
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    \7\ The DTC Rules and NSCC Rules are available on DTCC's public 
website, available at https://www.dtcc.com/legal/rules-and-procedures.
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(ii) Maintenance of Fidelity Bond
    Next, FICC is proposing to revise EPN Rule 6, Section 3 of Article 
V (Fidelity Bond) which currently provides for FICC's maintenance of 
fidelity bond coverage in an amount of not less than $10,000,000. FICC 
is proposing to amend this rule to replace the existing language with a 
more general description of FICC's obligation to maintain appropriate 
insurance, including fidelity bonds, related to its business, to 
provide access to such insurance policies or contracts to EPN Users and 
to notify each EPN User and the Commission of any material reduction in 
such insurance coverage. FICC is proposing to replace the current 
language of this rule with a more general description because FICC does 
not believe the current rule provides EPN Users with important 
information regarding their rights and obligations, or FICC's rights 
and obligations, in connection with this obligation to maintain 
insurance coverage. In general, FICC maintains a significantly higher 
amount of fidelity bond coverage than that required in this rule.
    In addition, the proposed changes would conform the language of EPN 
Rule 6, Section 3 of Article V with those of MBSD Rule 25, DTC Rule 14, 
and NSCC Rule 34 and GSD Rules 34.\8\ By conforming the descriptions in 
similar rules across the Clearing Agencies where there is no difference 
in FICC's processes and therefore no need for differing language, the 
proposed changes would improve predictability and transparency for 
firms that are

[[Page 63550]]

participants with multiple Clearing Agencies.
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    \8\ Id.
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(iii) Distribution Facilities
    FICC is also proposing to change the EPN Rules by deleting EPN Rule 
20 of Article V (Distribution Facilities) because it does not currently 
maintain such facilities and has no plans to do so. Therefore, this 
proposed change would reflect FICC's current processes and improve the 
clarity the EPN Rules.
    EPN Rule 20 of Article V currently states that FICC may, if it 
deems necessary, establish distribution facilities ``for the 
distribution of papers, documents and other material incidental to the 
ordinary course of business'' to be used by EPN Users. To FICC's 
knowledge, FICC has not utilized such option and based on current FICC 
processes and procedures, FICC does not believe it would be necessary 
to establish such facilities in the future. As such, the proposed 
change would not impede any EPN Users from engaging in the services or 
have an adverse impact on such firms.
(iv) Settlement by Settling Banks and Cash Settling Banks
    Lastly, FICC is proposing to revise GSD Rule 13, Section 5(b) 
(Funds-Only Settlement Amount Payment Process) and MBSD Rule 11, 
Section 9(b) (Cash Settlement) to clarify that a Settling Bank and a 
Cash Settling Bank, respectively, may not refuse to settle for itself.
    GSD Rule 13, Section 5(b) currently provides that Funds-Only 
Settling Banks must acknowledge to FICC by a certain time their 
intention to either settle their Net Funds-Only Settlement Figures or 
their refusal to settle for one or more Netting Members. MBSD Rule 11, 
Section 9(b) currently provides that Cash Settling Banks must 
acknowledge to FICC by a certain time their intention to either settle 
their Total Debit Cash Balance Figures and Total Credit Cash Balance 
Figures or their refusal to settle for one or more particular Member.
    The proposed change to these rules, would clarify that a Settling 
Bank and a Cash Settling Bank cannot refuse to settle for itself. The 
proposed change would codify a longstanding practice and understanding 
among participants of the Clearing Agencies. As Netting Members and 
Members have an ongoing responsibility to settle their own obligations, 
a Netting Member or Member who serves as a Settling Bank or Cash 
Settling Bank, respectively, would carry the same responsibility on its 
own behalf. More specifically, GSD Rule 13, Section 5(e) states that if 
the Funds-Only Settling Bank does not acknowledge, or sends a refusal 
regarding, the Netting Member's Funds-Only Settlement Amount that is a 
debit or if the Funds-Only Settling Bank acknowledges the amount but 
then does not settle the payment, the Netting Member shall remain 
obligated, pursuant to the Rules, to pay such Amount by the payment 
deadline.\9\ MBSD Rule 11, Section 9(e) states that if the Cash 
Settling Bank does not acknowledge, or sends a refusal regarding, the 
Member's Cash Settlement amount that is a debit or if the Cash Settling 
Bank acknowledges the amount but then does not settle the payment, the 
Member shall remain obligated, pursuant to the Rules, to pay such Cash 
Settlement amount by the payment deadline.\10\ Therefore, if Settling 
Bank or a Cash Settling Bank is a Netting Member or a Member, 
respectively, it would be subject, as a Netting Member or Member, to 
the obligation to settle on its own behalf pursuant to the obligations 
of Netting Members and Member under the Rules cited above. While a 
Settling Bank and Cash Settling Bank may refuse to settle for another 
participant that has engaged it as a settling bank, in which case, the 
participant's obligation to settle on its own behalf would be 
triggered, it cannot refuse to settle for itself.
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    \9\ See supra note 5.
    \10\ Id.
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    The proposed change would clarify and increase transparency of 
these Rules. In addition, the proposed change would conform GSD Rule 
13, Section 5(b) and MBSD Rule 11, Section 9(b) with DTC Rule 9D and 
NSCC Rule 55, which state in clearer terms that settling banks cannot 
refuse to settle on its own behalf.
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 and to protect investors and the public 
interest.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    FICC believes the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions by FICC, 
consistent with the requirements of the Act, in particular Section 
17A(b)(3)(F), cited above.\12\ Specifically, the proposed rule changes 
concerning Admission to FICC's Premises and Settlement by Settling 
Banks and Cash Settling Banks would update and clarify these Rules by 
codifying settled processes and provide transparency thereby allowing 
participants to conduct their business more efficiently and effectively 
in accordance with the Rules, which FICC believes would promote the 
prompt and accurate clearance and settlement of securities 
transactions. The proposed rule change regarding Distribution 
Facilities would remove an outdated rule related to inactive services 
in reference to distribution facilities. This proposed change is 
designed to improve the accuracy, clarity, and transparency of the 
Rules and thereby allow participants to conduct their business more 
efficiently and effectively in accordance with the Rules, which FICC 
believes would promote the prompt and accurate clearance and settlement 
of securities transactions. The proposed rule change related to FICC's 
Maintenance of Fidelity Bond is designed to simplify and update this 
rule by removing information that describes internal processes and does 
not provide participants with important information regarding FICC's 
maintenance of appropriate insurance coverage.
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    \12\ Id.
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    By updating, clarifying and improving the transparency of the 
Rules, the proposed changes would allow participants to better 
understand their rights and obligations under the Rules. As such, FICC 
believes the proposed rule changes would promote the prompt and 
accurate clearance and settlement of securities transactions and 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 the requirements of Section 17A(b)(3)(F).\13\
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    \13\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule changes would have any 
impact on competition, because the proposed changes to (1) enhance 
transparency of the Rules, (2) change language that does not provide 
participants with important information regarding any service, (3) 
update the Rules to reflect current practice, and (4) conform the Rules 
across FICC's divisions and the Clearing Agencies, where appropriate, 
would not materially alter the respective rights or obligations of FICC 
or its participants. These proposed changes would allow participants to 
better understand FICC's internal processes by adding information to 
the Rules, update the Rules by removing services that are not provided 
and establish conformity across FICC's divisions and Clearing Agencies, 
where applicable. As such,

[[Page 63551]]

the proposed changes would not impede participants from engaging in the 
services or have an adverse impact on any participants. Therefore, 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. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submitcomments. General questions 
regarding the rule filing process or logistical questions regarding 
this filing should be directed to the Main Office of the Commission's 
Division of Trading and Markets at [email protected] or 202-
551-5777.
    FICC reserves the right not to respond to any comments received.

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) \14\ of the Act and paragraph (f) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 [email protected]. Please include 
File Number SR-FICC-2022-007 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-2022-007. 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-2022-007 and should be submitted on 
or before November 9, 2022.

    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,
Deputy Secretary.
[FR Doc. 2022-22656 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P


