[Federal Register Volume 84, Number 200 (Wednesday, October 16, 2019)]
[Notices]
[Pages 55362-55366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22480]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87258; File No. SR-FICC-2019-004]
Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change To Amend the GSD Rulebook To
Establish a Process To Address Liquidity Needs in Certain Situations in
the GCF Repo and CCIT Services and Make Other Changes
October 9, 2019.
On August 9, 2019, 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\ proposed rule change SR-
FICC-2019-004 to make changes to how FICC processes tri-party repo
market transactions, specifically GCF Repo transactions and CCIT
transactions.\3\ The proposed rule change
[[Page 55363]]
was published for comment in the Federal Register on August 29,
2019,\4\ and the Commission has received no comments regarding the
changes proposed in the proposed rule change.\5\ For the reasons
discussed below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On August 9, 2019, FICC also filed the proposal contained in
the proposed rule change as advance notice SR-FICC-2019-801 with the
Commission pursuant to Section 806(e)(1) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010 (``Clearing
Supervision Act''), 12 U.S.C. 5465(e)(1), and Rule 19b-4(n)(1)(i) of
the Act, 17 CFR 240.19b-4(n)(1)(i). Notice of Filing of the Advance
Notice was published for comment in the Federal Register on
September 10, 2019. Securities Exchange Act Release No. 34-86876
(September 5, 2019), 84 FR 47618 (September 10, 2019) (File No. SR-
FICC-2019-801).
\4\ Securities Exchange Act Release No. 86745 (August 23, 2019),
84 FR 45608 (August 29, 2019). (``Notice of Filing'').
\5\ As the proposal contained in the proposed rule change was
also filed as an advance notice, all public comments received on the
proposal are considered regardless of whether the comments are
submitted on the proposed rule change or the advance notice.
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I. Description of the Proposed Rule Change
The proposals reflected in the proposed rule change would make
changes to how FICC's Government Securities Division (``GSD'')
processes tri-party repo transactions, specifically GCF Repo
transactions \6\ and CCIT transactions.\7\ First, the proposals would
establish new deadlines and associated late fees for FICC members to
satisfy their obligations in connection with such transactions, i.e.,
to deliver cash or securities. Second, the proposed rule change would
establish a process for FICC to access liquidity in situations where a
member with a net cash delivery obligation in GCF Repo/CCIT activity,
that is otherwise in good standing,\8\ is either (1) delayed in
satisfying its cash delivery obligation or (2) unable to satisfy, in
whole or in part, such obligation. More specifically, this process
would allow FICC to access liquidity from either (i) the GCF Clearing
Agent Bank \9\ in the form of overnight financing, which would be
subject to the GCF Clearing Agent Bank's discretion, and/or (ii) end-
of-day borrowing of Clearing Fund cash,\10\ subject to specified
limits. Further, if those liquidity sources are insufficient to cover
the affected member's outstanding cash delivery obligations, the
proposal would enable FICC to obtain additional liquidity by entering
into overnight repos with those members to whom cash is owed by the
member with the unsatisfied net cash delivery obligations. Third, the
proposed rule change would make a clarification and several technical
changes and corrections to FICC's rules.\11\
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\6\ ``GCF Repo transactions'' are tri-party repo transactions
through FICC's general collateral finance repo (``GCF Repo'')
service (``GCF Repo Service''). The GCF Repo Service enables dealers
to trade general collateral repos, based on rate, term, and
underlying product, throughout the day without requiring intra-day,
trade-for-trade settlement on a Delivery-versus-Payment basis. See
generally GCF Repo (DTCC description of the service), available at
http://www.dtcc.com/clearing-services/ficc-gov/gcf-repo (last
visited August 13, 2019).
\7\ ``CCIT'' means Centrally Cleared Institutional Triparty.
``CCIT transactions'' are tri-party repo transactions in GCF Repo
securities between members that participate in the GCF Repo Service
and CCIT members, which are institutional counterparties (other than
registered investment companies (``RICs'') under the Investment
Company Act of 1940, as amended) and are the cash lenders in the
transactions. See generally Securities Exchange Act Release No.
80361 (April 3, 2017), 82 FR 17053, 17054 (April 7, 2017) (SR-FICC-
2017-803) (notice of filing of the advance notice regarding creating
the CCIT service).
\8\ A member in good standing is a member for which FICC has not
ceased to act for the member (in which case FICC's close-out rules
would apply) or has not restricted the member's access to services.
\9\ The GCF Clearing Agent Bank settles the repo transaction on
its books. Currently, the only GCF Clearing Agent Bank is The Bank
of New York Mellon.
\10\ The Clearing Fund is an aggregate of all members' margin
deposits to FICC designed to account for the costs associated with a
member defaulting to FICC.
\11\ The FICC GSD Rulebook (``Rules'') is available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms not
defined herein are defined in the Rules.
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A. New Deadlines and Late Fees for Satisfaction of Obligations in
GCF Repo and CCIT Transactions
1. Securities Delivery Obligations
Under FICC's current Rules, a Netting Member must meet its
securities delivery obligations in connection with its GCF Repo and/or
CCIT transactions within the timeframes established by FICC.\12\
Currently, FICC has set two deadlines by which Netting Members are
required to meet their securities delivery obligations: 4:30 p.m. and
6:00 p.m.\13\ If a Netting Member fails to satisfy a securities
delivery obligation by 4:30 p.m., it is subject to a late fee of
$500.\14\ If the Netting Member delivers the securities after the 6:00
p.m. deadline, no additional late fee applies, but FICC cannot
guarantee that it would be able to settle the transaction. Instead,
FICC will only process such late transactions if FICC is able to
contact both affected Netting Members and they agree to settle the
transaction.
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\12\ Rule 20, Section 3, supra note 11.
\13\ The close of the Fedwire Funds Service at 6:30 p.m. is the
final cutoff point at which a Netting Member's failure to deliver
securities would be deemed by FICC to result in a failed
transaction. In that scenario, the Netting Member would not be
entitled to receive the funds borrowed, and would instead owe
interest on the funds.
\14\ Fee Structure, supra note 11.
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In the proposed rule change, FICC proposes to eliminate the 6:00
p.m. deadline. The 4:30 p.m. deadline would remain in place. If a
Netting Member fails to satisfy a securities delivery obligation by
4:30 p.m., it would remain subject to the $500 late fee. But if the
Netting Member delivers the securities after 4:30 p.m., FICC would only
process the transaction if it is able to contact both affected Netting
Members and they agree to settle the transaction.
2. Cash Delivery Obligations
FICC's Rules do not currently contain a deadline for a Netting
Member's or CCIT Member's satisfaction of cash delivery obligations in
the GCF Repo and CCIT Services. FICC proposes to establish 4:30 p.m.,
or, if later, one hour after the close of the Fedwire Securities
Service reversals, as the deadline for a ``Net Funds Payor'' \15\ to
satisfy its cash delivery obligations. FICC also proposes to establish
late fees, subject to progressive increases. Specifically, the late
fees would apply as follows for occurrences within the same 30 calendar
day period: (a) $500 for the first occurrence, (b) $1,000 for the
second occurrence, (c) $2,000 for the third occurrence, and (d) $3,000
for the fourth occurrence or additional occurrences. The late fee would
not apply if FICC determines that failure to meet this timeframe is not
the fault of the Net Funds Payor.\16\
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\15\ FICC's proposal would add ``Net Funds Payor'' as a new
defined term, meaning a Netting Member or CCIT Member with cash
delivery obligations.
\16\ This determination would be made by FICC Product Management
based on input from the GCF Clearing Agent Bank, internal FICC
Operations staff and the Netting Member.
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In addition, FICC proposes to establish additional late fees that
would be imposed on Net Funds Payors that fail to meet their cash
delivery obligation by the close of the Fedwire Funds Service.\17\
These fees would be in addition to the late fees described in the
preceding paragraph, and FICC would impose both fees in the event that
a Net Funds Payor did not satisfy its cash delivery obligations by the
close of the Fedwire Funds Service. Specifically, these late fees would
apply as follows for occurrences within the same 90 calendar day
period: (a) 100 basis points on the unsatisfied cash delivery
obligation amount for the first occurrence,\18\ (b) 200 basis points on
the unsatisfied cash delivery obligation amount for the second
occurrence, (c) 300 basis points on the unsatisfied cash delivery
obligation amount for the third
[[Page 55364]]
occurrence, and (d) 400 basis points on the unsatisfied cash delivery
obligation amount for the fourth occurrence or any additional
occurrences. The late fees would not apply if FICC determines that the
failure to meet this timeframe is not primarily the fault of the Net
Funds Payor.\19\
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\17\ See Fedwire Services Operating Hours, available at https://www.frbservices.org/resources/financial-services/wires/operating-hours.html (last visited September 2, 2019).
\18\ The late fee is based on the ACT/360 day count convention,
where ``ACT'' represents the actual number of days in the period.
For example, assuming a first occurrence unsatisfied cash delivery
obligation of $100 million, the late fee would be $100 million *
100/3600000 = $2,777.78. This example uses the first occurrence
amount. This calculation would apply to the rest of the proposed
late fees in this section.
\19\ The determination would be made by FICC Product Management
based on input from the GCF Clearing Agent Bank, internal FICC
Operations staff and the Netting Member.
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B. Proposed Process To Provide Liquidity
The proposed rule change would establish a process for FICC to
access liquidity in situations where a Member with a net cash delivery
obligation in GCF Repo/CCIT activity (i.e., Net Funds Payor), that is
otherwise in good standing, is either (1) delayed in satisfying its
cash delivery obligation or (2) unable to satisfy, in whole or in part,
such obligation.\20\ Unless FICC has ceased to act for the Member (in
which case FICC's close-out rules would apply) or has restricted the
Member's access to services,\21\ the Net Funds Payor shall be permitted
to continue to submit additional tri-party repo transactions for
clearing to FICC during this process.
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\20\ Such delay could, for example, be due to operational issues
experienced by the Net Funds Payor. If a Netting Member with a
collateral obligation does not deliver its securities, FICC
considers it a fail. However, if a Netting Member or CCIT Member
with a cash delivery obligation is unable to deliver its cash (and
is in good standing), FICC has represented that it intends to employ
the proposed process. Notice of Filing, supra note 4 at 47620.
\21\ See Rule 22A, supra note 11. FICC has represented that,
before it uses the proposed process, it would first evaluate whether
to recommend to the Board's Risk Committee that FICC cease to act
for such Net Funds Payor. FICC would consider, but would not be
limited to, the following factors in its evaluation: (i) The Net
Funds Payor's current financial position, (ii) the amount of the
outstanding payment, (iii) the cause of the late payment, (iv)
current market conditions, and (v) the size of the potential
overnight reverse repurchase agreements under the GCF Repo
Allocation Waterfall MRAs (as defined below) on the GSD membership.
Notice of Filing, supra note 4 at 47620. FICC already has the
authority to cease to act for a member that does not fulfill an
obligation to FICC and will continually evaluate throughout the
proposed process whether FICC will cease to act. Id.
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Pursuant to the proposal, once FICC determines that a Net Funds
Payor is in good standing with GSD but is experiencing an issue, such
as an operational issue, that may result in a late payment, partial
payment or non-payment of its cash delivery obligation on the
settlement date, the following process would occur. First, in the case
where the Net Funds Payor only satisfies part of its cash delivery
obligation, the GCF Clearing Agent Bank would settle the cash it
received pursuant to such GCF Clearing Agent Bank's settlement
algorithm (as is done today).
Next, FICC would consider whether it would seek liquidity to cover
any of the Net Funds Payor's delivery shortfall amounts in one of the
two forms discussed. The two potential forms of liquidity would be (i)
end-of-day borrowing of Clearing Fund cash (``EOD Clearing Fund Cash'')
and/or (ii) GCF Clearing Agent Bank loans.\22\ The cash amount that
FICC would be able to access via the EOD Clearing Fund Cash and/or GCF
Clearing Agent Bank loans would then be applied to the unsatisfied cash
delivery obligations due to the Net Funds Receivers on a pro rata
basis, based upon the percentage due to each Net Fund Receiver out of
the total amount of all unsatisfied obligations.
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\22\ FICC has represented that it would not prioritize accessing
these two sources of potential liquidity because FICC's decision to
use either or both sources would be considered on a case-by-case
basis, taking into consideration factors such as the specific
circumstances at issue (i.e., the time of day and the size of the
shortfall), availability of a bank loan, market conditions (i.e.,
whether there are stress events occurring in the market), commercial
considerations (i.e., the current loan rates), and ease of
operational execution. Notice of Filing, supra note 4 at 47620.
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If FICC were to use GCF Clearing Agent Bank loans to provide
liquidity, any overnight financing from the GCF Clearing Agent Bank
would be subject to the GCF Clearing Agent Bank's discretion because
FICC's overnight financing arrangements with its GCF Clearing Agent
Bank are uncommitted. As such, the financing would be secured by FICC's
pledge of Clearing Fund securities subject to the GCF Clearing Agent
Bank's current haircut schedule.\23\ If FICC were to use EOD Clearing
Fund Cash to provide liquidity, such use would be subject to certain
internal limitations. Specifically, GSD would establish a cap on the
amount of EOD Clearing Fund Cash that may be used for this purpose to
the lesser of $1 billion or 20 percent of available Clearing Fund Cash.
Any resulting costs incurred by FICC in accessing EOD Clearing Fund
Cash and/or GCF Clearing Agent Bank loans would be debited from the Net
Funds Payor whose shortfall caused the liquidity need.
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\23\ See Rule 4, Section 5, supra note 11.
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Finally, to the extent that the amount of liquidity FICC obtains
via the Clearing Fund cash and overnight financing arrangement (if any)
is insufficient to cover the outstanding cash delivery obligations, the
relevant Net Funds Receivers would be required under FICC's Rules to
enter into overnight repurchase agreements with FICC on the Generic
CUSIP Number for which such Net Funds Payor failed to fulfill its cash
delivery obligation. This arrangement would be done pursuant to the
``GCF Repo Allocation Waterfall MRA,'' which is a committed financing
arrangement that would be added as part of this proposal to the binding
terms of FICC's rulebook.\24\ The amount FICC would seek to obtain via
this committed facility would be the remaining unsettled amount per Net
Funds Receiver, thus satisfying the outstanding amount of the Net Funds
Payor's cash delivery obligations.\25\ The associated overnight
interest of the reverse repurchase agreement would be debited from the
Net Funds Payor that did not satisfy its cash delivery obligation and
credited to the affected Net Funds Receivers in the funds-only
settlement process as a Miscellaneous Adjustment Amount.\26\
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\24\ Such reverse repurchase agreements would be entered into
pursuant to the terms of a 1996 SIFMA Master Repurchase Agreement
(available at http://www.sifma.org/services/standard-forms-and-documentation/mra,-gmra,-msla-and-msftas/), which would be
incorporated into the Rules, subject to specific changes set forth
in the Rules.
\25\ FICC represents that these reverse repurchase agreements
would be at a market rate, which would be the overnight par weighted
average rate at the Generic CUSIP Number level. Notice of Filing,
supra note 4 at 47621.
\26\ See Rule 13, Section 1(m) and Rule 3B, Section 13(a)(ii),
supra note 11.
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Any resulting costs, such as financing costs, incurred by the Net
Funds Receivers would be debited from the Net Funds Payor whose
shortfall caused the need for the reverse repurchase agreement. A Net
Funds Receiver requesting compensation in this regard would need to
submit a formal claim to FICC. Upon review and approval by FICC, the
Net Funds Receiver would receive a credit that would be processed in
the funds-only settlement process as a Miscellaneous Adjustment
Amount.\27\ The debit of the Net Funds Payor would be processed in the
same way.
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\27\ Id.
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C. Clarification, Technical Changes and Corrections
FICC also proposes to make certain clarifying, technical changes,
and corrections both to reflect the changes proposed in this proposed
rule change and to revise certain aspects of the Rules that FICC has
determined to be inaccurate or incorrect as related to the GCF Repo
Service. These changes include adding particular parentheticals,
changes to titles of sections, corrections to refer to the title of the
Fedwire Securities Service, updating references and descriptions,
adding new defined terms, and updating
[[Page 55365]]
certain defined terms. These changes are described in detail in the
Notice of Filing.\28\
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\28\ Notice of Filing, supra note 4 at 47622.
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II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \29\ 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
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) \30\ of the Act and Rule 17Ad-22(e)(7)
thereunder.\31\
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\29\ 15 U.S.C. 78s(b)(2)(C).
\30\ 15 U.S.C. 78q-1(b)(3)(F)
\31\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency, such as FICC, be designed to promote the prompt
and accurate clearance and settlement of securities transactions.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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1. New Deadlines and Late Fees for Satisfaction of Obligations in GCF
Repo and CCIT Transactions
FICC has represented that Netting Members generally meet their
securities delivery obligations by the current 4:30 p.m. securities
allocation deadline. However, according to FICC, because of the
interconnectivity between the GCF Repo market within FICC and the tri-
party repo market outside of FICC, in which obligations to deliver
securities collateral typically occur after collateral allocations at
FICC, the securities collateral that is used to settle GCF Repo
positions may subsequently be used by Netting Members to complete tri-
party repo transactions. Therefore, settling GCF Repo Service
transactions earlier in the day reduces the likelihood that an
operational issue may result in a failed or incomplete tri-party repo
transaction outside of FICC. When a Netting Member depends on the
proceeds from the GCF Repo Service transaction to satisfy its cash
obligations in its tri-party repo transactions outside of FICC, the
Netting Member could default on its obligations and transmit losses to
other market participants.
The Commission believes that the proposed new deadlines (i.e., 4:30
p.m. for securities delivery obligations, and 4:30 p.m., or one hour
after the close of the Fedwire Securities Service, whichever is later,
for cash delivery obligations), as well as the associated late fees,
should lower the potential operational risk that could arise from
delayed GCF Repo settlements and should help FICC manage the risk of
delayed settlement. The Commission believes that these measures should
incentivize Netting Members and CCIT Members to meet their cash
delivery obligations on a timely basis, which, in turn, should help
FICC reduce its overall settlement risk. As such, the Commission
believes that the proposed deadlines and late fees would be consistent
with promoting the prompt and accurate clearance and settlement of
securities transactions as required under Section 17A(b)(3)(F) of the
Act.\33\
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\33\ Id.
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2. Proposed Process To Provide Liquidity
As described in Section I.B above, the proposed rule change would
also establish a process for FICC to access liquidity in situations
where a Member with a cash delivery obligation in GCF Repo/CCIT
activity, that is otherwise in good standing, is either (1) delayed in
satisfying its cash delivery obligation or (2) unable to satisfy, in
whole or in part, such obligation. The Commission believes that
establishing a process for FICC to access liquidity in these particular
circumstances is designed to provide FICC with additional sources of
liquidity and, therefore, an improved ability to manage its liquidity
risk in the event that a Netting Member cannot meet its cash delivery
obligations. In addition, the proposed process for FICC to access
liquidity in these particular circumstances should help decrease the
risk of unsettled obligations and belated settlement due to a lack of
liquidity and, therefore, avoid the potential impact that a sudden
liquidity demand could have on FICC and its Members. As such, the
proposed rule change should help ensure that, in the event of these
particular circumstances, FICC's operations would not be disrupted and
Clearing Members would not be exposed to losses that they cannot
anticipate or control because FICC would be able to access additional
liquidity resources to complete settlement. As such, the Commission
believes that these changes should promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\34\
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\34\ Id.
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3. Clarification, Technical Changes and Corrections
As described in Section I.C above, the proposed rule change also
includes certain clarifications, technical changes, and corrections to
FICC's Rules both to reflect the changes proposed in this proposed rule
change and to revise certain aspects of the Rules that FICC has
determined to be inaccurate or incorrect as related to the GCF Repo
Service. The proposed changes are designed to provide clear and
coherent Rules regarding GCF Repo transactions for Netting Members and
CCIT Members, which should, in turn, help Netting Members and CCIT
Members better understand and remain compliant with the Rules. As such,
the Commission believes that the proposed clarifications, technical
changes, and corrections to FICC's Rules would promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\35\
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\35\ Id.
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B. Consistency With Rule 17Ad-22(e)(7)(i)
Rule 17Ad-22(e)(7) requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity. Specifically, Rule 17Ad-22(e)(7)(i) requires
policies and procedures for maintaining sufficient liquid resources at
the minimum in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of foreseeable
stress scenarios that includes, but is not limited to, the default of
the participant family that would generate the largest aggregate
payment obligation for the covered clearing agency in extreme but
plausible market conditions.\36\
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\36\ 17 CFR 240.17Ad-22(e)(7)(i).
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As described above, the proposed process for FICC to access
liquidity in the event that Netting Members will be delayed in
satisfying or cannot satisfy
[[Page 55366]]
their cash delivery obligations is designed to help ensure that FICC
has sufficient liquid resources available in such circumstances.
Moreover, for any outstanding liquidity obligations after the
utilization of EOD Clearing Fund cash and/or overnight financing with
the GCF Clearing Agent Bank, any transactions pursuant to the GCF Repo
Allocation Waterfall MRA would be sized based on the actual liquidity
need presented in a particular situation, which would help FICC
maintain sufficient liquid resources to settle the cash delivery
obligations of a Netting Member. Therefore, the Commission believes
that adoption of the proposed changes is consistent with Rule 17Ad-
22(e)(7)(i).\37\
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\37\ Id.
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C. Consistency With Rule 17Ad-22(e)(7)(ii)
Rule 17Ad-22(e)(7)(ii) requires policies and procedures for holding
qualifying liquid resources sufficient to meet the minimum liquidity
resource requirement under 17Ad-22(e)(7)(i) in each relevant currency
for which the covered clearing agency has payment obligations owed to
clearing members.\38\ Rule 17Ad-22(a)(14) defines qualifying liquid
resources to include, among other things, assets that are readily
available and convertible into cash through prearranged funding
arrangements, such as committed arrangements without material adverse
change provisions, including repurchase agreements.\39\
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\38\ 17 CFR 240.17Ad-22(e)(7)(ii).
\39\ 17 CFR 240.17Ad-22(a)(14).
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As described above, the proposed process for FICC to access
liquidity in the event that Netting Members will be delayed in
satisfying or cannot satisfy their cash delivery obligations includes,
in part, the GCF Repo Allocation Waterfall MRA. This agreement would be
a committed arrangement that is a repurchase agreement and all
transactions entered into pursuant to the GCF Repo Allocation Waterfall
MRA are designed to be readily available to meet the cash delivery
obligations owed to Netting Members. This arrangement therefore
constitutes a qualifying liquid resource, as defined in Rule 17Ad-
22(a)(14), and the Commission believes, therefore, that adoption of the
proposed changes is consistent with Rule 17Ad-22(e)(7)(ii).\40\
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\40\ 17 CFR 240.17Ad-22(e)(7)(ii).
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D. Consistency With Rule 17Ad-22(e)(7)(viii)
Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity by, at a minimum, addressing foreseeable
liquidity shortfalls that would not be covered by the covered clearing
agency's liquid resources and seek to avoid unwinding, revoking, or
delaying the same-day settlement of payment obligations.\41\
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\41\ 17 CFR 240.17Ad-22(e)(7)(viii).
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The proposed process for FICC to access liquidity when Netting
Members are delayed in satisfying or cannot satisfy their cash delivery
obligations provides FICC with a process to address liquidity
shortfalls which may arise in such circumstances and allow FICC to
complete settlement on a timely basis. Therefore, this proposed process
should help to avoid unwinding, revoking, or delaying same-day
settlement obligations. The Commission believes, therefore, that
adoption of the proposed changes are consistent with Rule 17Ad-
22(e)(7)(viii).\42\
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\42\ Id.
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III. 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 Act \43\ and
the rules and regulations promulgated thereunder.
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\43\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\44\ that proposed rule change SR-FICC-2019-004, be, and hereby is,
Approved.\45\
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\44\ 15 U.S.C. 78s(b)(2).
\45\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\46\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22480 Filed 10-15-19; 8:45 am]
BILLING CODE 8011-01-P