8011-01P
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100402; File No. SR-FICC-2024-008]
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order
Approving Proposed Rule Change to Modify the GSD Rules and MBSD Rules to
Update Certain Member Requirements Under CCLF
June 21, 2024.
I.

INTRODUCTION
On May 8, 2024, Fixed Income Clearing Corporation (“FICC”) filed with the

Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (“Act”)1 and Rule 19b-4 thereunder,2 the proposed
rule change SR-FICC-2024-008 (“Proposed Rule Change”) to amend FICC’s
Government Securities Division (“GSD”) Rulebook (“GSD Rules”) and MortgageBacked Securities Division (“MBSD”) Clearing Rules (“MBSD Rules,” and collectively
with the GSD Rules, the “Rules”)3 to update certain member requirements concerning
FICC’s Capped Contingency Liquidity Facility (“CCLF”). The proposed rule change was
published for comment in the Federal Register on May 20, 2024.4 The Commission has
received no comments on the proposed rule change. For the reasons discussed below, the
Commission is approving the Proposed Rule Change.

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

Terms not defined herein are defined in the GSD Rules and MBSD Rules, as
applicable, available at www.dtcc.com/legal/rules-and-procedures.

See Securities Exchange Act Release No. 100137 (May 14, 2024), 89 FR 43938
(May 20, 2024) (File No. SR-FICC-2024-008) (“Notice of Filing”).

II.

BACKGROUND
FICC is a central counterparty (“CCP”), which means it interposes itself as the

buyer to every seller and seller to every buyer for the financial transactions it clears.
FICC’s GSD provides CCP services for the U.S. Government securities market, and
FICC’s MBSD provides CCP services for the U.S. mortgage-backed securities markets.5
As such, FICC is exposed to the risk that one or more of its members may fail to make a
payment or to deliver securities.
The CCLF is a rules-based committed liquidity resource designed to enable FICC
to meet its cash settlement obligations in the event of a default of the member (including
the member’s family of affiliated members) to which FICC has the largest exposure in
extreme but plausible market conditions.6 FICC would declare a Capped Contingency
Liquidity Facility Event (“CCLF Event”) to activate the CCLF if, upon a member default,
FICC determines that its non-CCLF liquidity resources would not generate sufficient
cash to satisfy FICC’s payment obligations to its non-defaulting members.7 During a
CCLF Event, members would be called upon to enter into repo transactions (as cash
lenders) with FICC (as cash borrower) up to a pre-determined capped dollar amount,

GSD and MBSD maintain separate sets of rules, margin models, and clearing
funds.

FICC designed the CCLF to meet the regulatory requirement for a covered
clearing agency to measure, monitor, and manage its liquidity risk by maintaining
sufficient liquid resources to effect same-day settlement of payment obligations in
the event of a default of the participant family that would generate the largest
aggregate payment obligation for the clearing agency in extreme but plausible
market conditions. See Securities Exchange Act Release No. 82090 (Nov. 15,
2017), 82 FR 55427, 55430 (Nov. 21, 2017) (SR-FICC-2017-002); see 17 CFR
240.17Ad-22(e)(7)(i); GSD Rule 22A, Section 2a, and MBSD Rule 17, Section
2a, supra note 3.

GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

thereby providing FICC with sufficient liquidity to meet its payment obligations.8 In
simple terms, a CCLF repo is equivalent to a non-defaulting member financing FICC’s
payment obligation under the original trade, thereby providing FICC with time to
liquidate the securities underlying the original trade.
FICC determines the total size of the CCLF based on FICC’s potential cash
settlement obligations that would result from the default of the member (including affiliates)
presenting the largest liquidity need to FICC over a specified look-back period, plus an
additional liquidity buffer.9 FICC uses a tiered approach to allocate the total size of the

CCLF among its members to arrive at the maximum amount of each member’s CCLF
obligation (referred to at MBSD as the “Defined Capped Liquidity Amount”, and at GSD
as the “Individual Total Amount”).10
FICC calculates a dollar amount for the CCLF obligation applicable to each
supplemental liquidity tier.11 FICC allocates the CCLF obligation for each supplemental
liquidity tier to members on a pro-rata basis corresponding to the number of times each
member generates liquidity needs within each supplemental liquidity tier.12 However,

GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

For example, a member that generates daily liquidity needs in the $15-$20 billion
supplemental liquidity tier would incur a pro-rata share for the $15-$20 billion
supplemental liquidity tier only. Another member that generates daily liquidity
needs in the $20-$25 billion supplemental liquidity tier would incur a pro-rata
share for both the $15-$20 and $20-$25 billion supplemental liquidity tiers. A
third member that generates daily liquidity needs in the $65-$70 billion
supplemental liquidity tier would incur a pro-rata share for every supplemental
liquidity tier. Each member’s pro-rata share is based on the frequency with which
the member generates daily liquidity needs in each supplemental liquidity tier. See

FICC also has the authority to reset a member’s CCLF obligation amount as FICC
determines from time to time, referred to as an ad hoc resizing.13
III.

DESCRIPTION OF THE PROPOSED RULE CHANGE
First, FICC proposes to modify the MBSD Rules concerning CCLF to require a

Clearing Member to provide regular attestations that it has incorporated the maximum
amount that it could be required to fund during a CCLF event into its liquidity plans.
FICC also proposes to modify the GSD Rules to provide further clarity around GSD’s
existing attestation requirement. Second, FICC proposes to modify both the MBSD and
GSD Rules to require that a Clearing Member provide certain acknowledgements to
FICC regarding its understanding of and ability to meet its CCLF obligations. Third,
FICC proposes to modify MBSD Rules to provide Clearing Members with additional
clarity and transparency regarding the liquidity funding reports provided by FICC to
Clearing Members concerning their CCLF obligations.
A. Required Attestations
FICC proposes to modify MBSD Rules to require Clearing Members to provide
FICC with regular attestations that the Clearing Member has incorporated their Defined
Capped Liquidity Amount into their liquidity plans. Clearing Members must provide
these attestations to FICC on at least an annual basis or upon demand by FICC. The
Required Attestation would need to be signed by two of the Clearing Member’s officers
and include certifications that (1) the officers have read and understand the MBSD Rules;
(2) the Defined Capped Liquidity Amount has been incorporated into the Clearing
Member’s liquidity planning; (3) the officers understand the Defined Capped Liquidity

Securities Exchange Act Release No. 80234 (Mar. 14, 2017), 82 FR 14401,
14404-05 (Mar. 20, 2017) (SR-FICC-2017-002); MBSD Rule 17, Section 2a,
supra note 3; GSD Rule 22A, Section 2a, supra note 3.
GSD Rule 22A, Section 2a, supra note 3; MBSD Rule 17, Section 2a, supra note
3.

Amount may be changed by FICC with appropriate notice; (4) such changes to the
Defined Capped Liquidity Amount will be incorporated by the Clearing Member into its
liquidity planning; and (5) the Clearing Member shall continuously reassess its liquidity
plans to ensure the ability to meet the Defined Capped Liquidity Amount in the event of a
CCLF Event. FICC states that the new requirement for MBSD Clearing Members to
provide Required Attestations will strengthen the CCLF program and is consistent with
an existing requirement in the GSD Rules for GSD Netting Members.14
Additionally, FICC would modify the GSD Rules concerning required attestations
for GSD Netting Members to clarify that the regular interval for attestations is on at least
an annual basis. FICC states that this clarification would align the required regular
interval for attestations at GSD with the proposed MBSD Rules concerning Required
Attestations, and that it is consistent with current practice, in which GSD Netting
Members are required to provide their Required Attestations on at least an annual basis.15
B. CCLF Acknowledgements
FICC proposes to modify the MBSD Rules and GSD Rules to require MBSD
Clearing Members and GSD Netting Members to provide written acknowledgments to
FICC concerning their understanding of and ability to meet their CCLF obligations, from
time to time, as determined by FICC.16 FICC states that the proposed modifications

See Notice of Filing, supra note 4, at 43939.

Id.

One example when such written acknowledgements would be required to be
provided by MBSD Clearing Members and GSD Netting Members to FICC is
when a CCLF obligation increased by an amount that exceeded certain thresholds
established by FICC following an ad hoc resizing of the CCLF, as discussed in
note 13 supra. In this situation, FICC would require a written acknowledgement
from MBSD Clearing Members and GSD Netting Members confirming their
ability to meet the increased CCLF obligation. FICC would inform MBSD
Clearing Members and GSD Netting Members of any such requirements,
including specific thresholds, by Important Notice. See Notice of Filing, supra
note 4, at 43939.

would strengthen the CCLF program by ensuring MBSD Clearing Members and GSD
Members understand their CCLF obligations as required by FICC.17
C. Liquidity Funding Report
FICC proposes to modify the MBSD Rules to provide clarity and transparency
about the liquidity funding reports FICC currently provides each day to MBSD Clearing
Members and the information contained in those reports. Specifically, FICC proposes to
amend the MBSD Rules to explicitly state that FICC will provide Clearing Members with
liquidity funding reports each Business Day that include information concerning the
Clearing Member’s Defined Capped Liquidity Amount and other historical CCLF
information. As amended, the MBSD Rules would state that the information provided in
the liquidity funding reports by FICC to MBSD Clearing Members is for informational
purposes only. FICC states that the clarity and transparency provided by these proposed
modifications to MBSD Rules is consistent with the information concerning liquidity
funding reports already provided to GSD Netting Members under GSD Rules.18
IV.

DISCUSSION AND COMMISSION FINDINGS
Section 19(b)(2)(C) of the Act19 directs the Commission to approve a proposed

rule change of a self-regulatory organization if it finds that such proposed rule change is
consistent with the requirements of the Act and rules and regulations thereunder
applicable to such organization. After carefully considering the Proposed Rule Change,
the Commission finds that the Proposed Rule Change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to FICC. In particular, the

Id.

Id.

15 U.S.C. 78s(b)(2)(C).

Commission finds that the Proposed Rule Change is consistent with Section
17A(b)(3)(F)20 of the Act and Rule 17Ad-22(e)(7) each promulgated under the Act.21
A.

Consistency with Section 17A(b)(3)(F) of the Act

Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency, such
as FICC, be designed to, among other things, promote the prompt and accurate clearance
and settlement of securities transactions.22
As stated above in Section II, the CCLF is a key tool in FICC’s ability to meet its
cash settlement obligations in the event of a default of the member (including the
member’s family of affiliated members) to which FICC has the largest exposure in
extreme but plausible market conditions. The Proposed Rule Change would modify the
Rules by requiring MBSD Clearing Members and GSD Netting Members to provide
attestations and acknowledgements to FICC that they understand their CCLF obligations,
incorporate such obligations into their liquidity planning, and continually reassess their
understating of and ability to meet their CCLF obligations.23 Requiring attestations on at
least an annual basis and written acknowledgements from MBSD Clearing Members and
GSD Netting Members to FICC should enhance the overall design and efficacy of the
CCLF, which is a key tool in FICC’s ability to meet its cash settlement obligations in the
event of a member default and a CCLF event is declared by FICC. The Proposed Rule
Change should further improve the ability of FICC to rely on the CCLF and MBSD
Clearing Members and GSD Netting Members as liquidity providers during a CCLF

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

17 CFR 240.17Ad-22(e)(7).

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

See Notice of Filing, supra note 4, at 43940.

event, and, in turn, enable FICC to use the CCLF to meet its settlement obligations in the
event of a member’s default.
By doing so, the Proposed Rule Change should better ensure that, in the event of a
member default, FICC’s operation of its critical clearance and settlement services would not
be disrupted because of insufficient financial resources. Accordingly, the Commission finds

that the Proposed Rule Change should help FICC continue providing prompt and accurate
clearance and settlement of securities transactions, consistent with Section 17A(b)(3)(F)
of the Act.24
Further, the proposed clarifying changes should help to ensure that the Rules are
clear to MBSD Clearing Members and GSD Netting Members concerning their
understanding of and obligations during a CCLF Event. When members better understand
their rights and obligations, members are more likely to act in accordance with the Rules,
which should promote the prompt and accurate clearance and settlement of securities
transactions, consistent with Section17A(b)(3)(F) of the Act.25
For these reasons, the Commission believes that the Proposed Rule Change is
designed to promote the prompt and accurate clearance and settlement of securities
transactions consistent with Section 17A(b)(3)(F) of the Act.26
B.

Consistency with Rule 17Ad-22(e)(7)

Rule 17Ad-22(e)(7) under the Act requires a covered clearing agency, such as
FICC, to establish, implement, maintain, and enforce written policies and procedures
reasonably designed to effectively measure, monitor, and manage the liquidity risk that

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

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

Id.

arises in or is borne by the covered clearing agency.27 As described above in Section II,
FICC proposes to modify the Rules to require certain attestations and acknowledgements
from MBSD Clearing Members and GSD Netting Members concerning their CCLF
obligations.
The Commission believes that the Proposed Rule Change described above is
consistent with the requirements of Rule 17Ad-22(e)(7). By requiring certain attestations
and acknowledgements by MBSD Clearing Members and GSD Netting Members, the
Proposed Rule Change is designed to improve the operation of the CCLF as a reliable
form of liquid resources upon the default of a member to which FICC has the largest
exposure in extreme but plausible conditions. Moreover, by requiring attestations on at
least an annual basis and certifications from two officers that the MBSD Clearing
Members and GSD Netting Members are continually reassessing their CCLF obligations,
the Proposed Rule Change improves the reliability of the CCLF and enhances due
diligence of its liquidity providers. Further, requiring written acknowledgements from
MBSD Clearing Members and GSD Netting Members from time to time and following
an ad hoc resizing of the CCLF ensures that MBSD Clearing Members and GSD Netting
Members will continually assess their ability to meet their CCLF obligations during a
CCLF event, which also improves the reliability of the CCLF. As a result, the required
attestations and written acknowledgements included in the Proposed Rule Change by
FICC should enhance FICC’s ability to measure, monitor, and manage their liquidity risk
concerning their CCLF obligations.
For these reasons, the Commission believes that the Proposed Rule Change is
consistent with Rule 17Ad-22(e)(7) under the Act.28

17 CFR 240.17Ad-22(e)(7).

17 CFR 240.17Ad-22(e)(7).

IV.

CONCLUSION
On the basis of the foregoing, the Commission finds that the Proposed Rule

Change is consistent with the requirements of the Act and in particular with the
requirements of Section 17A of the Act29 and the rules and regulations promulgated
thereunder.
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act30 that
proposed rule change SR-FICC-2024-008, be, and hereby is, APPROVED.31
For the Commission, by the Division of Trading and Markets, pursuant to
delegated authority.32
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14067 Filed: 6/26/2024 8:45 am; Publication Date: 6/27/2024]

15 U.S.C. 78q-1.

15 U.S.C. 78s(b)(2).

In approving the Proposed Rule Change, the Commission considered its impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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