8011-01P
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100399; File No. SR-FICC-2024-005]
Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order
Instituting Proceedings to Determine Whether to Approve or Disapprove a
Proposed Rule Change, as Modified by Partial Amendment No. 1, to Modify the
GSD Rules to Facilitate Access to Clearance and Settlement of All Eligible
Secondary Market Transactions in U.S. Treasury Securities
June 21, 2024.
I.

Introduction
On March 11, 2024, Fixed Income Clearing Corporation (“FICC”) filed with the

Securities and Exchange Commission (“Commission”) the proposed rule change SRFICC-2024-005 pursuant to Section 19(b) of the Securities Exchange Act of 1934
(“Exchange Act”)1 and Rule 19b-42 thereunder to modify FICC’s Government Securities
Division (“GSD”) Rulebook (“GSD Rules”) to facilitate access to clearance and
settlement services of all eligible secondary market transactions in U.S. Treasury
securities.3 On March 19, 2024, FICC filed Partial Amendment No. 1 to make
clarifications and corrections4 to the proposed rule change. The proposed rule change, as

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

17 CFR 240.19b-4.

See Notice of Filing supra note 5, at 89 FR 21363.

Partial Amendment No. 1 made clarifications and corrections to the description of
the proposed rule change and Exhibit 5. Specifically, as originally filed, the
description of the proposed rule change made a reference to an incorrect section
of the GSD Rulebook. Partial Amendment No. 1 corrects that reference.
Additionally, as originally filed, the description of the proposed rule change and
Exhibit 5 contained inconsistent references regarding whether FICC or its Board
would be responsible for approving membership applications and related
membership matters. Partial Amendment No. 1 clarifies and corrects those
references. These clarifications and corrections have been incorporated, as

modified by Partial Amendment No. 1, is referred to herein as the “Proposed Rule
Change.” The Proposed Rule Change was published for public comment in the Federal
Register on March 27, 2024.5 The Commission has received comments regarding the
substance of the changes proposed in the Proposed Rule Change.6
On May 1, 2024, pursuant to Section 19(b)(2) of the Exchange Act,7 the
Commission designated a longer period within which to approve, disapprove, or institute
proceedings to determine whether to approve or disapprove the Proposed Rule Change.8
The Commission is instituting proceedings, pursuant to Section 19(b)(2)(B) of the
Exchange Act,9 to determine whether to approve or disapprove the Proposed Rule
Change.
II.

Summary of the Proposed Rule Change
A.

Background

FICC, through GSD, serves as a central counterparty and provides real-time trade
matching, clearing, risk management and netting for cash purchases and sales of U.S.
Treasury securities as well as repurchase and reverse repurchase transactions involving
U.S. Treasury securities. Currently, FICC is the sole provider of clearance and settlement
services for U.S. Treasury securities.

appropriate, into the description of the proposed rule change in this order
instituting proceedings.
Securities Exchange Act Release No. 99817 (March 21, 2024), 89 FR 21362
(March 27, 2024) (File No. SR-FICC-2024-005) (“Notice of Filing”).

Comments on the Proposed Rule Change are available at
https://www.sec.gov/comments/sr-ficc-2024-005/srficc2024005.htm.

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

Securities Exchange Act Release No. 100031 (Apr. 25, 2024), 89 FR 35269 (May
1, 2024) (File No. SR-FICC-2023-005).

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

On December 13, 2023, the Commission adopted amendments to the standards
applicable to covered clearing agencies, such as FICC,10 requiring each such clearing
agency for U.S. Treasury securities to have written policies and procedures reasonably
designed to, among other things, ensure that it has appropriate means to facilitate access
to clearance and settlement services of all eligible secondary market transactions in U.S.
Treasury securities, including those of the clearing agency’s direct and indirect
participants.11
GSD’s central counterparty services are currently available directly to entities that
are approved under the GSD Rules12 to be Netting Members.13
Currently, there are different Netting Member application categories based upon
the type of legal entity (i.e., Bank Netting Member, Dealer Netting Member, Inter-Dealer
Broker Netting Member) and whether an entity is incorporated in the United States or not
(i.e., a Foreign Netting Member). Netting Member applicants must meet both financial
and operational minimum eligibility requirements14 and, as GSD Members, must adhere

A “covered clearing agency” is, among other things, a registered clearing agency
that provides the services of a central counterparty, and a central counterparty is a
clearing agency that interposes itself between the counterparties to securities
transactions, acting functionally as the buyer to every seller and the seller to every
buyer. 17 CFR 240.17Ad-22(a); see also 15 U.S.C. 78c(a)(23) (defining a
clearing agency). FICC is a clearing agency registered with the Commission
under Section 17A of the Exchange Act (15 U.S.C. 78q-1), and it acts as a central
counterparty.

17 CFR 240.17Ad-22(e)(18)(iv)(C). See Securities Exchange Act Release No.
99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) (“Adopting Release”, and the
rules adopted therein referred to herein as “Treasury Clearing Rules”). FICC must
implement the new requirements of Rule 17Ad-22(e)(18)(iv)(C) by March 31,
2025. FICC will file separate proposed rule changes to address other requirements
applicable to it and adopted as part of the Treasury Clearing Rules.

The GSD Rules are available at
https://www.dtcc.com/~/media/Files/Downloads/legal/rules/ficc_gov_rules.pdf.
Terms not otherwise defined herein are defined in the GSD Rules.

See Rule 2, supra note 12.

See Rule 2A, supra note 12.

to ongoing minimum membership standards.15 Furthermore, both the minimum eligibility
requirements and ongoing standards vary depending on the relevant Netting Membership
category. However, in general, all Netting Member categories may access the services
available through GSD’s Comparison System16 and Netting System.17
Market participants may also access GSD’s clearing services indirectly through a
Netting Member. There are currently two indirect participation models to facilitate this –
the Sponsored Service18 and the correspondent clearing / prime broker services.19 Each of
these indirect participation models gives market participants different options to consider
in accessing FICC’s clearance and settlement services. The primary difference between
the two models is that an indirect participant who becomes a Sponsored Member must
establish an indirect, limited purpose GSD membership, whereas the correspondent
clearing / prime broker services do not require an indirect member to establish any
relationship with GSD.
The Sponsored Service permits Netting Members, approved under the GSD Rules
as “Sponsoring Members,” to sponsor certain institutional firms, referred to as
“Sponsored Members,” into GSD membership. The Sponsoring Member is permitted to
submit to FICC for comparison, novation, and netting certain types of eligible
transactions either between itself and its Sponsored Members (i.e., “done with”), or
between the Sponsored Members and other third-party Netting Members (i.e., “done
away”). For operational and administrative purposes, a Sponsored Member appoints its
See Rule 3, supra note 12.

See Rule 5, supra note 12. GSD also has a limited membership that permits
Comparison-Only Members to participate only in its Comparison System. FICC
does not act as a central counterparty for activity processed through its
Comparison System and the services offered through its Comparison System are
not guaranteed by FICC.

See Rule 11, supra note 12.

See Rule 3A, supra note 12.

See Rule 8, supra note 12.

Sponsoring Member to act as processing agent with respect to the Sponsored Member’s
satisfaction of its securities and funds-only settlement obligations.20
A Sponsored Member is a GSD Member and the legal counterparty to FICC for
any submitted transactions.21 However, the Sponsoring Member unconditionally
guarantees to FICC the Sponsored Member’s performance under a Sponsoring Member
Guaranty, which guarantees to FICC the payment and performance of a Sponsored
Member’s obligations to FICC.22 Therefore, FICC relies on the financial resources of the
Sponsoring Member in relying upon the Sponsoring Member Guaranty. If a Sponsoring
Member fails to perform under the Sponsoring Member Guaranty, FICC may cease to act
for the Sponsoring Member both as a Sponsoring Member as well as a Netting Member.
Netting Members may also submit to FICC eligible activity on behalf of their
customers through the correspondent clearing / prime broker services. Currently, the
Netting Member is referred to as the “Submitting Member” and the customer is referred
to as the “Executing Firm.”23 Unlike the Sponsored Service, FICC has no relationship
with the Executing Firm, and all obligations (i.e., margin and settlement) under the GSD
Rules remain with the Submitting Member. Executing Firms may execute trades with any
Netting Member, including their submitting Netting Member (i.e., “done with”
transactions), or a customer of any other Netting Member in clearing (i.e., “done away”

See Rule 3A, supra note 12. An entity that chooses to become a Sponsoring
Member retains its status as a Netting Member and can continue to submit any
non-Sponsored Member activity to FICC as such.

See Rule 3A, section 7 (describing novation of Sponsored Member Trades) and 2
(identifying membership types), supra note 12.

See Rules 3A (describing the operation of the Sponsoring Member Guaranty) and
1 (defining the Sponsoring Member Guaranty), supra note 12.

See Rule 8, supra note 12. There are no operational differences between the
current correspondent clearing service and the prime broker service. FICC
provides a report to prime brokers that identifies margin calculation for their
customers transactions and does not provide such report to Members using the
correspondent clearing service. FICC would provide consistent reporting to all
Agent Clearing Members under the proposal.

transactions). Additionally, Submitting Members have the option of either netting
Executing Firm activity with other activity they submit to FICC (i.e., Submitting Member
proprietary activity) or segregating Executing Firm activity in separate accounts. In all
cases, however, the Submitting Member must identify the relevant Executing Firm(s) on
the FICC transaction submission file.
B.

Proposed Changes

First, FICC proposes to re-name GSD’s existing correspondent clearing / prime
broker services the “Agent Clearing Service,” which would continue to allow Netting
Members to submit, on behalf of their customers, transactions to FICC for novation.
FICC believes that this proposed change would improve the transparency of the GSD
Rules regarding the availability and operations of this service to both Netting Members
and, indirectly, their customers.24 FICC also believes this proposed change would
enhance the ability of indirect participants to identify the correspondent clearing / prime
broker services as a workable “done away” model that allows indirect participants to
access clearing through multiple direct participants.25
FICC would require Agent Clearing Members to process and record their
customers’ activity in separate “Agent Clearing Member Omnibus Accounts” to facilitate
FICC’s ability to monitor and, ultimately, risk manage that activity appropriately. FICC
would also require Agent Clearing Members to provide FICC with certain customer
information, pursuant to the existing ongoing membership requirements in the GSD
Rules. FICC believes this information sharing would better enable FICC to identify and
manage the risks posed by such indirect participants and would support FICC’s

See Notice of Filing supra note 5, at 89 FR 21365.

See id.

compliance with the requirements of Rule 17ad-22(e)(18)(iii) under the Exchange Act to
monitor compliance with its participation requirements on an ongoing basis.26
Second, FICC proposes to update certain qualifications for GSD’s membership
categories. These proposed rule changes would (1) eliminate the current two Sponsoring
Member categories and apply to all Sponsoring Members the qualifications applicable to
the current Category 2 Sponsoring Members, (2) remove the requirement that Sponsored
Members either be “qualified institutional buyers” as such term is defined by Rule 144A
under the Securities Act of 1933,27 or satisfy the financial requirements of such
definition, (3) clarify the eligibility criteria for non-U.S. Netting Member applicants, and
(4) describe how FICC may consider Netting Member applicants that do not qualify
under an existing Netting Member category. FICC believes these proposed changes
would support FICC’s continued maintenance of objective, risk-based and publicly
disclosed participation criteria and, therefore, facilitate open access to GSD’s clearing
services.28
Finally, FICC proposes changes to the GSD Rules designed to describe the
criteria and related requirements regarding direct and indirect access to GSD’s clearing
services. FICC believes these proposed changes should enhance the ability of market
participants, and in particular indirect participants, to understand and evaluate the
comparative tradeoffs of using GSD’s central clearing services depending on the relevant
access model.29
III.

Proceedings to Determine Whether to Approve or Disapprove the Proposed
Rule Change and Grounds for Disapproval Under Consideration

See id.; 17 CFR 240.17Ad-22(e)(18)(iii).

17 CFR 230.144A.

See Notice of Filing supra note 5, at 89 FR 21365.

See id.

The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the
Exchange Act to determine whether the Proposed Rule Change should be approved or
disapproved.30 Institution of proceedings is appropriate at this time in view of the legal
and policy issues raised by the Proposed Rule Change. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect to any of the
issues involved. Rather, the Commission seeks and encourages interested persons to
comment on the Proposed Rule Change, which would provide the Commission with
arguments to support the Commission’s analysis as to whether to approve or disapprove
the Proposed Rule Change.
Pursuant to Section 19(b)(2)(B) of the Exchange Act,31 the Commission is
providing notice of the grounds for disapproval under consideration. The Commission is
instituting proceedings to allow for additional analysis of, and input from commenters
with respect to, the Proposed Rule Change’s consistency with Section 17A of the
Exchange Act32 and the rules thereunder, including the following provisions:
•

Section 17A(b)(3)(F) of the Exchange Act,33 which requires, among other things,
that the rules of a clearing agency are designed to promote the prompt and
accurate clearance and settlement of securities transactions, as well as to foster
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions; and, in general, to protect investors and the
public interest;

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

Id.

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

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

•

Rule 17ad-22(e)(18)(i) under the Exchange Act,34 which requires that a covered
clearing agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to establish objective, risk-based, and publicly
disclosed criteria for participation, which permit fair and open access by direct
and, where relevant, indirect participants and other financial market utilities;

•

Rule 17ad-22(e)(18)(ii) under the Exchange Act,35 which requires that a covered
clearing agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to establish objective, risk-based, and publicly
disclosed criteria for participation, which require participants to have sufficient
financial resources and robust operational capacity to meet obligations arising
from participation in the clearing agency;

•

Rule 17ad-22(e)(18)(iv)(C) under the Exchange Act,36 which requires that a
covered clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to establish objective, risk-based,
and publicly disclosed criteria for participation, which, when the covered clearing
agency provides central counterparty services in transactions in U.S. Treasury
securities, ensure that it has appropriate means to facilitate access to clearance and
settlement services of all eligible secondary market transactions in U.S. Treasury
securities, including those of indirect participants;

•

Rule 17ad-22(e)(19) under the Exchange Act,37 which requires that a covered
clearing agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to identify, monitor, and manage the material

17 CFR 240.17ad-22(e)(18)(iii).

17 CFR 240.17ad-22(e)(18)(iii).

17 CFR 240.17ad-22(e)(18)(iv)(C).

17 CFR 240.17ad-22(e)(19).

risks to the covered clearing agency arising from arrangements in which firms that
are indirect participants in the covered clearing agency rely on the services
provided by direct participants to access the covered clearing agency’s payment,
clearing, or settlement facilities; and
•

Rule 17ad-22(e)(23)(ii) under the Exchange Act,38 which requires that a covered
clearing agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide sufficient information to enable
participants to identify and evaluate the risks, fees, and other material costs they
incur by participating in the covered clearing agency.
The Commission asks that the commenters address the sufficiency of FICC’s

statements in support of the Proposed Rule Change, which are set forth in the Notice of
Filing, in addition to any other comments they may wish to submit about the Proposed
Rule Change. In particular, the Commission seeks comment on the following questions
and asks commenters to submit data where appropriate to support their views.
1. What are commenters’ views on whether the changes in the Proposed Rule
Change are consistent with Rule 17ad-22(e)(18)(iv)(C), i.e., that it is
reasonably designed to ensure that FICC has appropriate means to
facilitate access to clearance and settlement services of all eligible
secondary market transactions covered by Rule 17ad-22(e)(18)(iv)(A),
including the transactions of indirect participants? With respect to how the
proposed rule change addresses “done with” and “done away” transactions
of indirect participants (as those transactions were described in part II.A
above), what are commenters’ views about whether that proposed

17 CFR 240.17ad-22(e)(23)(ii).

approach is consistent with Rule 17ad-22(e)(18)(iv)(c) and Section
17A(b)(3) of the Exchange Act?
2. As suggested by commenters, should the proposed rule change be revised
to include additional requirements for the proposed change to meet Rule
17ad-22(e)(18)(iv)(C)’s requirement that the proposed rule facilitate
access to clearance and settlement of all eligible secondary market
transaction of all eligible secondary market transactions covered by Rule
17ad-22(e)(18)(iv)(A), including the transactions of indirect participants?
3. For example, in terms of additional requirements, what are commenters’
views on whether FICC needs to include a porting mechanism (i.e., a
process at FICC to transfer a customer’s positions from one direct
participant to another, particularly in the event of the default of the direct
participant submitting the customer’s positions)39 in order for the rules to
facilitate access to clearance and settlement services?
4. In addition, what are commenters’ views on whether changes to particular
clearing models at FICC are necessary for the rules to facilitate access to
clearance and settlement services? Which clearing model(s) (i.e.,
Sponsored or Agent Clearing Programs), and which margin
configuration(s), (i.e., segregated and/or net), are the most appropriate
place to make such requirements?40

See, e.g., Letter from Robert Toomey, Head of Capital Markets, Managing
Director/Associate General Counsel, Securities Industry and Financial Markets
Association (May 22, 2024), at 4; Letter from Katherine Darras, General Counsel,
International Swaps and Derivatives Association (Apr. 17, 2024) at 5 (stating that
FICC should include a porting mechanism or process in its Rules), available at
https://www.sec.gov/comments/sr-ficc-2024-005/srficc2024005.htm.

See, e.g., Letter from Jennifer W. Han, Executive Vice President, Chief Counsel
and Head of Regulatory Affairs, MFA, at 7 (Apr. 17, 2024) stating that FICC
should, with respect to a direct participant that offers clearing services to an

5. Are there other steps FICC must take for the proposed rule change to
facilitate those transactions consistent with Section 17A of the Exchange
Act, including, but not limited to, Section 17A(b)(3)(E)?
IV.

Procedure: Request for Written Comments
The Commission requests that interested persons provide written submissions of

their views, data, and arguments with respect to the issues identified above, as well as any
other concerns they may have with the Proposed Rule Change. In particular, the
Commission invites the written views of interested persons concerning whether the
Proposed Rule Change is consistent with Section 17A(b)(3)(F)41 and Rules 17ad22(e)(18)(iii), (e)(18)(iv)(C), (e)(19), and (e)(23)(ii)42 of the Exchange Act, or any other
provision of the Exchange Act, or the rules and regulations thereunder. Although there do
not appear to be any issues relevant to approval or disapproval that would be facilitated
by an oral presentation of views, data, and arguments, the Commission will consider,
pursuant to Rule 19b-4(g) under the Exchange Act,43 any request for an opportunity to
make an oral presentation.44

indirect participant, require the direct participant to allow, but not require, the
direct participant to post or finance its own margin for the transactions it clears at
FICC, and, if the indirect participant chooses to post or finance its own margin,
require the direct participant to accept done-away transactions executed by the
indirect participant with third parties), available at
https://www.sec.gov/comments/sr-ficc-2024-007/srficc2024007-4616911208034.pdf.
15 U.S.C. 78q-1(b)(3)(F).

17 CFR 240.17Ad-22(e)(18)(iii), 17 CFR 240.17Ad-22(e)(18)(iv)(C), 17 CFR
240.17Ad-22(e)(19), and 17 CFR 240.17Ad-22(e)(23)(ii).

17 CFR 240.19b-4(g).

Section 19(b)(2) of the Exchange Act grants to the Commission flexibility to
determine what type of proceeding—either oral or notice and opportunity for
written comments—is appropriate for consideration of a particular proposal by a
self-regulatory organization. See Securities Acts Amendments of 1975, Senate
Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).

The Commission asks that commenters address the sufficiency of FICC’s
statements in support of the Proposed Rule Change, which are set forth in the Notice of
Filing45 in addition to any other comments they may wish to submit about the Proposed
Rule Change.
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 e-mail to rule-comments@sec.gov. Please include file number SR-FICC2024-005 on the subject line.

Paper Comments:
•

Send paper comments in triplicate to Secretary, Securities and Exchange
Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-FICC-2024-005. This file number

should be included on the subject line if e-mail 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
(https://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 a.m. and 3

See Notice of Filing, supra note 5.

p.m. Copies of such filing also will be available for inspection and copying at the principal
office of FICC and on FICC’s website (www.dtcc.com/legal/sec-rule-filings).
Do not include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We may redact in part
or withhold entirely from publication submitted material that is obscene or subject to
copyright protection.
All submissions should refer to File Number SR-FICC-2024-005 and should be
submitted on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION
IN THE FEDERAL REGISTER]. Rebuttal comments should be submitted by [INSERT
DATE 35 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to
delegated authority.46
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14068 Filed: 6/26/2024 8:45 am; Publication Date: 6/27/2024]

17 CFR 200.30-3(a)(31).