[Federal Register Volume 85, Number 39 (Thursday, February 27, 2020)]
[Notices]
[Pages 11401-11406]
[FR Doc No: 2020-03914]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88262; File No. SR-FICC-2019-007]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change Regarding the Close-Out and
Funds-Only Settlement Processes Associated With the Sponsoring Member/
Sponsored Member Service

February 21, 2020.

I. Introduction

    On December 27, 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-2019-007. The proposed rule change was published for comment in
the Federal Register on January 10, 2020.\3\ The Commission did not
receive any comment letters on the proposed rule change. 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\ Securities Exchange Act Release No. 87896 (January 6, 2020),
85 FR 1354 (January 10, 2020) (SR-FICC-2019-007) (``Notice'').
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II. Description of the Proposed Rule Change

    FICC proposes to modify its Government Securities Division
(``GSD'') Rulebook (``Rules'') \4\ in order to facilitate the
submission of repurchase transactions (``repos'') with a scheduled
final settlement date beyond the next Business Day after the initial
settlement date (``term repo activity'') through the Sponsoring Member/
Sponsored Member Service (``Service'') \5\ by: (1) Providing a
mechanism by which a Sponsoring Member may cause the termination and
liquidation of a Sponsored Member's positions arising from trades
between the Sponsoring Member and its Sponsored Member that have been
novated to FICC; and (2) revising how FICC calculates the funds-only
settlement obligations of Sponsored Members and Sponsoring Members with
respect to Sponsored Member Trades that have haircuts \6\ in order to
ensure that the calculation does not result in a return of the haircuts
until final settlement. In addition, FICC proposes to make several
clarifying and technical changes to the Rules.
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    \4\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \5\ The Service is primarily governed by Rule 3A, supra note 4.
    \6\ As used herein, the term ``haircut'' refers to the amount of
collateral in excess of the value of the cash due to the Sponsored
Member client at the close leg of the Sponsored Member Trade.
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A. Background

    FICC operates two divisions, GSD and the Mortgage Backed Securities
Division (``MBSD''). GSD provides trade comparison, netting, risk
management, settlement, and central counterparty services for the U.S.
Government securities market. MBSD provides the same services for the
U.S. mortgage-backed securities market. GSD and MBSD maintain separate
sets of rules, margin models, and clearing funds. The proposed rule
change relates solely to GSD.
    Under the GSD Rules, certain FICC members are permitted to act as
``Sponsoring Members'' to sponsor into FICC membership qualified
institutional buyers as defined by Rule 144A\7\ under the Securities
Act of 1933, as amended (``Securities Act''),\8\ and certain legal
entities that, although not organized as entities specifically listed
in paragraph (a)(1)(i) of Rule 144A under the Securities Act, satisfy
the financial requirements necessary to be qualified institutional
buyers as specified in that paragraph (``Sponsored Members'').\9\
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    \7\ 17 CFR 230.144A.
    \8\ 15 U.S.C. 77a et seq.
    \9\ Rule 3A (Sponsoring Members and Sponsored Members), supra
note 4.
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    A Sponsoring Member is permitted to submit to FICC, for comparison,
novation, and netting, certain types of eligible securities
transactions between itself and its Sponsored Members (``Sponsored
Member Trades'').\10\ The Sponsoring Member is required to establish an
omnibus account at FICC for its Sponsored Members' positions arising
from such Sponsored Member Trades (``Sponsoring Member Omnibus
Account''),\11\ which is separate from the Sponsoring Member's regular
netting accounts. For operational and administrative purposes, FICC
interacts solely with the Sponsoring Member as agent for purposes of
the day-to-day satisfaction of its Sponsored Members' obligations to or
from FICC, including their securities and funds-only settlement
obligations.\12\ Additionally, for operational convenience, FICC
calculates a single Net Settlement Obligation and Fail Net Settlement
Obligation in each CUSIP for the Sponsoring Member Omnibus Account and
associated Deliver Obligations and Receive Obligations.\13\ Such
calculations do not affect the Sponsored Member's obligations, which
are calculated in a manner that is generally consistent with how FICC
calculates the obligations of its other members.\14\
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    \10\ Rule 1, definition of ``Sponsored Member Trade''; Rule 3A,
Sections 6(b) and 7(a), supra note 4. Securities Exchange Act
Release No. 85470 (March 29, 2019), 84 FR 13328 (April 4, 2019) (SR-
FICC-2018-013) expanded the definition of ``Sponsored Member Trade''
to include certain types of eligible securities transactions between
a Sponsored Member and a FICC member other than the Sponsoring
Member. However, this proposed rule change applies only to Sponsored
Member Trades between the Sponsoring Member and its Sponsored
Member.
    \11\ Rule 1, definition of ``Sponsoring Member Omnibus
Account,'' supra note 4.
    \12\ Rule 3A, Sections 5, 6, 7, 8, and 9, supra note 4.
    \13\ Rule 3A, Section 8(b), supra note 4. See also Rule 3A,
Section 7(a), supra note 4.
    \14\ Rule 3A, Section 7, supra note 4.
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    Sponsoring Members are also responsible for providing FICC with a
Sponsoring Member Guaranty, whereby the Sponsoring Member guarantees to
FICC the payment and performance by its Sponsored Members of their
obligations under the Rules.\15\ Although Sponsored Members are
principally liable to FICC for their own settlement obligations under
the Rules, the Sponsoring Member Guaranty requires the Sponsoring
Member to satisfy those settlement obligations on behalf of a Sponsored
Member if the Sponsored

Member defaults and fails to perform its settlement obligations.\16\
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    \15\ Section 2(c) of Rule 3A states: ``Each Netting Member to
become a Sponsoring Member shall also sign and deliver to [FICC] a
Sponsoring Member Guaranty. . . .'' A ``Sponsoring Member Guaranty''
is defined in Rule 1 as ``a guaranty . . . that a Sponsoring Member
delivers to [FICC] whereby the Sponsoring Member guarantees to
[FICC] the payment and performance by its Sponsored Members of their
obligations under [the] Rules, including, without limitation, all of
the securities and funds-only settlement obligations of its
Sponsored Members under [the] Rules.'' Rule 1; Rule 3A, Section
2(c), supra note 4.
    \16\ Id.
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    Although the Rules currently permit Sponsoring Members to submit
term repo activity within the Service,\17\ most of the Sponsored Member
Trades submitted to FICC by Sponsoring Members have a scheduled
settlement date of the next Business Day after the initial settlement
date (i.e., overnight repo). FICC believes that certain provisions of
the Rules discourage the submission of term repo activity within the
Service, as discussed more fully below.
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    \17\ Rule 3A, Section 5, supra note 4.
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B. Termination and Liquidation of Defaulting Sponsored Member Positions

    The Rules governing the termination and liquidation of a defaulting
member provide that if FICC ceases to act for a member (including a
Sponsored Member), FICC will close-out the defaulting member's
positions by (i) establishing a Final Net Settlement Position for each
Eligible Netting Security with a distinct CUSIP equal to the net of all
outstanding Deliver Obligations and Receive Obligations of the member
in respect of the security, and (ii) taking market action to liquidate
such Final Net Settlement Position.\18\
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    \18\ Rule 22A, Section 2(b); Rule 3A, Sections 13(c) and 15(b),
supra note 4.
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    The Rules require a Sponsoring Member to advise FICC of
circumstances that would require FICC to cease to act for a Sponsored
Member.\19\ Under the current Rules, FICC has the exclusive ability to
terminate and liquidate a Sponsored Member's positions, even though the
relevant Sponsoring Member is responsible for the Sponsored Member's
payment and performance in respect of such positions.\20\ The current
Rules do not allow a Sponsoring Member to terminate or liquidate any
Sponsored Member Trades.\21\ FICC states that the inability of
Sponsoring Members to terminate and liquidate Sponsored Member Trades
is inconsistent with comparable intermediated relationships.\22\ FICC
states that in the context of such other intermediated relationships,
the intermediary is typically permitted to terminate and liquidate the
positions of a client that the intermediary guarantees if an event of
default or other similar circumstance occurs under the agreement
between the intermediary and the client.\23\ In such scenarios, the
intermediary's ability to terminate and liquidate its client's
positions is not dependent on a third party's determination that a
certain circumstance or event has occurred.\24\ Instead, the
intermediary and the client bilaterally agree to the circumstances and
events that give rise to an event of default allowing the intermediary
to terminate or liquidate the guaranteed positions.\25\
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    \19\ Rule 3A, Section 15(a), supra note 4.
    \20\ Rule 3A, Section 13(c) and 15(b), supra note 4.
    \21\ Id.
    \22\ Notice, supra note 3 at 1355.
    \23\ Id.
    \24\ Id.
    \25\ Id.
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    FICC states that the inability of a Sponsoring Member to terminate
and liquidate its defaulting Sponsored Member's positions discourages
term repo activity within the Service.\26\ Specifically, under the
current Rules, when a Sponsored Member defaults, FICC currently
controls the termination and liquidation of the Sponsored Member's
positions.\27\ As such, during the time it would take FICC to terminate
and liquidate the Sponsored Member's positions, the Sponsoring Member
would effectively be forced to extend credit to the defaulting
Sponsored Member under the Sponsored Member Guaranty if the positions
involved term repo activity. Such a scenario could cause the Sponsoring
Member to incur additional capital requirements until such time as FICC
terminates and liquidates the Sponsored Member's positions.\28\
Additionally, since FICC currently controls the termination and
liquidation of the Sponsored Member's positions, FICC sets the
applicable price, timing, and types of liquidation or hedging
transactions. However, the Sponsoring Member would also likely enter
into one or more transactions with third parties to hedge its own
performance obligations under the Sponsoring Member Guaranty.
Therefore, the Sponsoring Member would be exposed to potential risks
associated with pricing and timing differences between its actions and
those taken by FICC in the aftermath of a Sponsored Member default.
FICC believes that these circumstances discourage Sponsoring Members
from engaging in term repo activity within the Service.\29\
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    \26\ Id.
    \27\ Rule 3A, Section 13(c) and 15(b), supra note 4.
    \28\ Id.
    \29\ Notice, supra note 3 at 1355-56.
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    In order to encourage and facilitate term repo activity within the
Service, FICC proposes to amend the Rules to allow a Sponsoring Member
to terminate and liquidate a defaulting Sponsored Member's positions
arising from Sponsored Member Trades.\30\ Specifically, in the event
(i) a Sponsoring Member triggers the termination of a Sponsored
Member's positions, or (ii) FICC ceases to act for the Sponsored Member
and the Sponsoring Member does not continue to perform the obligations
of the Sponsored Member, both the Sponsored Member's positions and the
Sponsoring Member's corresponding positions arising from the Sponsored
Member Trades would be terminated. The Sponsoring Member would
calculate a net liquidation value of such terminated positions (i.e.,
Final Net Settlement Positions), whose liquidation values would be paid
either to or by the Sponsored Member by or to the Sponsoring
Member.\31\ The Final Net Settlement Position would equal the net of
all outstanding Deliver Obligations and Receive Obligations of the
Sponsored Member or Sponsoring Member with respect to each security
with a distinct CUSIP number.
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    \30\ The proposal would only cover Sponsored Member Trades
between a Sponsored Member and its Sponsoring Member. See supra note
9. Additionally, the proposal would not cover scenarios in which
FICC has ceased to act for the relevant Sponsoring Member or in the
event of a FICC default. Such scenarios would be governed by current
Rules 22A and 22B, respectively. Notice, supra note 3 at 1356-57.
    \31\ FICC intended that the proposal for the Sponsoring Member
to establish the Final Net Settlement Position would align with
current Rule 22A, which provides for FICC to establish the Final Net
Settlement Position when it ceases to act for a member.
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    The Sponsoring Member would liquidate the Final Net Settlement
Positions by establishing a ``Sponsored Member Liquidation Amount'' and
a ``Sponsoring Member Liquidation Amount,'' which would be identical
to, but in the opposite direction of, each other.\32\ If a Sponsored
Member Liquidation Amount is due to FICC, the Sponsoring Member would
be obligated to pay such Sponsored Member Liquidation Amount to FICC
under the Sponsoring Member Guaranty, and this obligation would
automatically be set off against the obligation of FICC to pay the
corresponding Sponsoring Member Liquidation Amount to the Sponsoring
Member. By virtue of such setoff, the Sponsored Member's obligation to
FICC would be discharged, as would FICC's obligation to the Sponsoring
Member. The Sponsoring Member may, however, have a reimbursement claim
against the Sponsored Member in an amount equal

to the Sponsored Member Liquidation Amount.\33\
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    \32\ Therefore, if FICC were to owe the Sponsored Member
Liquidation Amount to the Sponsored Member, the Sponsoring Member
would owe the Sponsoring Member Liquidation Amount to FICC. By the
same token, if the Sponsored Member were to owe the Sponsored Member
Liquidation Amount to FICC, FICC would owe the Sponsoring Member the
Sponsoring Member Liquidation Amount. In all instances, FICC would
owe and be owed the same amount of money. Notice, supra note 3 at
1357.
    \33\ Such reimbursement claim would not be governed by the
Rules, but instead, would be subject to the terms of the bilateral
agreement between the Sponsoring Member and Sponsored Member. Id.
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    If a Sponsored Member Liquidation Amount were owed by FICC to the
Sponsored Member, the Sponsoring Member would satisfy that obligation
by transferring the Sponsored Member Liquidation Amount to the account
at the Funds-Only Settling Member Bank at which the Sponsoring Member
maintains Funds-Only Settlement Amounts related to its Sponsored Member
Omnibus Account. To the extent the Sponsoring Member makes such a
transfer, it would discharge FICC's obligation to transfer the
Sponsored Member Liquidation Amount to the Sponsored Member and the
Sponsoring Member's corresponding obligation to transfer the Sponsoring
Member Liquidation Amount to FICC. FICC would not, as a practical
matter, be involved in the settlement of the foregoing liquidating
transactions (i.e., FICC would not need to take any market action),
because the termination of the Sponsored Member's positions and the
corresponding Sponsoring Member's positions would leave FICC flat.
    The proposal also provides that the Sponsoring Member would
indemnify FICC for any claim by a Sponsored Member arising out of the
Sponsoring Member's calculation of the net liquidation value. Finally,
the proposal includes a provision that a Sponsoring Member may take a
security interest in FICC's obligations to the Sponsored Member. Such
security interest would not impose new obligations on FICC, but could
allow the Sponsoring Member to direct FICC to submit payments due to
the Sponsored Member to the Sponsoring Member, so that the Sponsoring
Member can apply such amounts to the Sponsored Member's unsatisfied
obligations to the Sponsoring Member. The proposal would also provide
that FICC's security interest in the Sponsored Member's assets \34\
would be subordinated to the Sponsoring Member's security interest.
However, as noted above, if a Sponsored Member Liquidation Amount is
due to FICC, the Sponsoring Member would be obligated to pay such
Sponsored Member Liquidation Amount to FICC under the Sponsoring Member
Guaranty, and this obligation would automatically be set off against
the obligation of FICC to pay the corresponding Sponsoring Member
Liquidation Amount to the Sponsoring Member. As such, the Sponsored
Member's obligation to FICC would be discharged (as would FICC's
obligation to the Sponsoring Member), and FICC would not need to look
to the Sponsored Member or its assets for performance in respect of the
terminated positions.
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    \34\ Under the current Rules, each Sponsored Member grants to
FICC a security interest in all assets and property placed by the
Sponsored Member in the possession of FICC in order to secure the
obligations of the Sponsored Member to FICC. Rule 3A, Section 8(g),
supra note 4. This security interest provides FICC with credit
support in the event that it must terminate and liquidate the
Sponsored Member's positions and assert a claim against the
Sponsored Member. Notice, supra note 3 at 1358.
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    FICC believes that the proposal to provide Sponsoring Members with
the ability to terminate and liquidate a defaulting Sponsored Member's
positions would remove the potential risks to Sponsoring Members
described above stemming from the exclusive ability of FICC to
terminate and liquidate the Sponsored Member's positions under the
current Rules. With this new ability, in the context of a Sponsored
Member default involving term repo activity, the Sponsoring Member
would control the termination and liquidation of the Sponsored Member's
positions. In contrast to the current Rules, the Sponsoring Member
would not be compelled to shoulder risks and extend credit to its
defaulting Sponsored Member during the time it would otherwise take
FICC to terminate and liquidate the Sponsored Member's positions.
Therefore, FICC believes that the proposal would encourage and
facilitate term repo activity within the Service.\35\
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    \35\ Notice, supra note 3 at 1356.
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C. Haircuts on Sponsored Member Trades

    In some Sponsored Member Trades, a Sponsoring Member may choose to
post to its Sponsored Member client a haircut. Similarly in some
circumstances, a Sponsoring Member may choose to collect a haircut from
its Sponsored Member client to mitigate the Sponsoring Member's
exposure under the Sponsoring Member Guaranty. In both scenarios, the
intent of the parties is for the haircut recipient to retain the
haircut for the duration of the Sponsored Member Trade, which, in the
context of term repo activity, would be the scheduled final settlement
date beyond the next Business Day after the initial settlement date.
FICC states that Sponsoring Members and Sponsored Members might have
accounting considerations that would favor facilitating the posting of
haircuts through FICC's systems.\36\ However, under the current Rules
regarding FICC's funds-only settlement process, a Sponsored Member or
Sponsoring Member that received a haircut at the Start Leg of a
Sponsored Member Trade would be required to transfer an amount of cash
equal to the haircut (plus or minus any interim mark-to-market
movements) on the next Business Day after the Start Leg has
settled.\37\ Specifically, FICC's standard funds-only settlement
process involves marking to market twice each Business Day all
positions associated with term repo activity, including any Sponsored
Member Trade with a Close Leg that is scheduled to occur two or more
Business Days after the settlement of the Start Leg.\38\ FICC
calculates a ``Collateral Mark'' equal to the absolute value of the
difference between (i) a Sponsored Member Trade's Contract Value (i.e.,
the dollar value at which it is due to finally settle), and (ii) its
Market Value (i.e., FICC's system price of the securities underlying
the transaction). This Collateral Mark is incorporated into the
calculation of certain of the Funds-Only Settlement Amounts
payable.\39\ When the Market Value exceeds the Contract Value, the
Collateral Mark is negative for, and thus payable by, the party with a
Net Short Position (i.e., the party required to deliver securities at
final settlement). Therefore, the purpose of the haircut would be
frustrated because if the haircut is returned before final settlement
of a Sponsored Member Trade, the party that was supposed to retain the
haircut for the duration of that trade would cease to be over-
collateralized, thus defeating the contractual intent of the parties.
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    \36\ Notice, supra note 3 at 1358.
    \37\ Rule 13, supra note 4.
    \38\ Id.
    \39\ Id.
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    FICC proposes to amend the Rules to ensure that haircuts in the
scenario described above are not returned until final settlement.
Specifically, FICC would amend Section 9(a) of Rule 3A to provide that,
if the parties to a Sponsored Member Trade agree for such Sponsored
Member Trade to have a haircut, then any Funds-Only Settlement Amount
applicable to such Sponsored Member Trade that includes a Collateral
Mark would be calculated without regard for the Collateral Mark. Such
Collateral Mark would be replaced by either a ``Haircut Deficit'' or
``Haircut Surplus.'' A Haircut Deficit would exist if the amount by
which the Market Value as of the settlement date of the Start Leg
exceeded the Contract Value of the Close Leg (the ``Initial Haircut'')
is

greater than the amount by which the Market Value as of the time of
measurement exceeds the Contract Value of the Close Leg (the ``Current
Haircut''). Any Haircut Deficit would be payable by the party with a
Net Long Position. A ``Haircut Surplus'' would exist if the Current
Haircut exceeds the Initial Haircut, and any Haircut Surplus would be
payable by the party with a Net Short Position. FICC would also amend
Section 9(a) of Rule 3A to make clear that any Initial Haircut would be
as agreed between the parties to the Sponsored Member Trade, and that
FICC would not be under any obligation to verify the parties' agreement
with respect to any Initial Haircut, and its calculation of the Initial
Haircut would be conclusive and binding on the parties.
    FICC believes that the proposed changes described above would
enable a Sponsoring Member and its Sponsored Member who intend for one
of those two parties to remain over-collateralized for the duration of
a Sponsored Member Trade to transfer a haircut between each other and
allow such haircut to remain with the intended party until final
settlement of the Sponsored Member Trade.\40\ As such, the proposal
would encourage and facilitate term repo activity within the Service.
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    \40\ Notice, supra note 3 at 1359.
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D. Clarifications and Technical Changes

    FICC proposes to make several clarifications and technical changes
to Rule 3A. First, FICC would add a parenthetical to Section 8(c) to
clarify that the operational netting provisions of Section 8(b) do not
substantively modify a Sponsored Member's obligations to FICC. Section
8(b) provides that, for operational convenience, FICC calculates a
single Net Settlement Position and Fail Net Settlement Position in each
CUSIP for the Sponsoring Member's Sponsoring Member Omnibus
Account.\41\ Section 8(c), in turn, provides that each Sponsored Member
shall satisfy its allocable portion of the Deliver Obligations and
Receive Obligations established for the Sponsoring Member Omnibus
Account.\42\ Neither Section 8(b) nor Section 8(c) modifies the
obligations of any Sponsored Member; rather, those provisions are
simply designed for operational convenience. Each Sponsored Member
still remains responsible for its Deliver Obligations Receive
Obligations to and from FICC, which are calculated in accordance with
Rule 3A, Section 7.\43\ The Sponsored Member's allocable portion of the
Deliver Obligations and Receive Obligations of the Sponsoring Member
Omnibus Account will always equal its Deliver Obligations and Receive
Obligations to and from FICC, as calculated under Rule 3A, Section
7.\44\ Therefore, in order to eliminate doubt regarding the extent of
the Sponsored Member's obligations upon a termination and liquidation
of a Sponsored Member's positions under the proposed rule change, FICC
proposes to add a parenthetical to Section 8(c) to clarify that a
Sponsored Member's allocable portion of the obligations established for
the Sponsoring Member Omnibus Account are the obligations of the
Sponsored Member, as calculated in Rule 3A, Section 7.
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    \41\ Rule 3A, Section 8(b), supra note 4.
    \42\ Rule 3A, Section 8(c), supra note 4.
    \43\ Rule 3A, Section 7, supra note 4.
    \44\ Id.
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    Second, FICC would add language at the end of Sections 8(c) and
9(b) to clarify that, if a Sponsoring Member satisfies the net Deliver
Obligations and Receive Obligations or the net Funds-Only Settlement
Amount obligations of its Sponsoring Member Omnibus Account (including
through the proposed setoff described above) before the Sponsoring
Member receives corresponding performance from the Sponsored Member,
such satisfaction would constitute performance by the Sponsoring Member
under the Sponsoring Member Guaranty with respect to the relevant
Sponsored Member's allocable portion of the Sponsoring Member Omnibus
Account Deliver Obligations and Receive Obligations or Funds-Only
Settlement Amount obligations. If a termination and liquidation were to
occur, the Sponsoring Member would be required to perform on behalf of
the Sponsored Member under the Sponsoring Member Guaranty. The added
language at the end of Sections 8(c) and 9(b) is designed to ensure
that, when the Sponsoring Member effects such performance, it would be
entitled to reimbursement from the Sponsored Member.
    Third, in connection with the proposed changes to Rule 3A, Section
9 regarding haircuts, FICC would make certain re-lettering and
grammatical changes for clarity and readability. Finally, FICC would
revise proposed Rule 3A, Section 9(c) to clarify that the Sponsored
Member is responsible for satisfying the allocable portion of the
Funds-Only Settlement Amount calculated for the Sponsoring Member
Omnibus Account.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \45\ 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) of the Act,\46\ and Rule 17Ad-22(e)(21)
promulgated under the Act,\47\ for the reasons described below.
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    \45\ 15 U.S.C. 78s(b)(2)(C).
    \46\ 15 U.S.C. 78q-1(b)(3)(F).
    \47\ 17 CFR 240.17Ad-22(e)(21).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    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. . .
.'' \48\
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    \48\ 15 U.S.C. 78q-1(b)(3)(F).
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    As stated above in Section II.B., under the current Rules, FICC has
the exclusive ability to terminate and liquidate a defaulting Sponsored
Member's positions; the current Rules do not allow a Sponsoring Member
to terminate and liquidate any Sponsored Member Trades. The inability
on the part of Sponsoring Members to terminate and liquidate its
defaulting Sponsored Member's positions discourages term repo activity
within the Service because during the time it would take FICC to
terminate and liquidate the Sponsored Member's positions, the
Sponsoring Member would effectively be forced to extend credit to the
defaulting Sponsored Member under the Sponsored Member Guaranty. In
such a scenario, the Sponsoring Member could incur additional capital
requirements until FICC completes the termination and liquidation of
the Sponsored Member's positions. Additionally, since under the current
Rules, FICC sets the applicable price, timing, and types of liquidation
or hedging transactions, the Sponsoring Member would be exposed to
potential risks associated with pricing and timing differences between
its own hedging transactions and those taken by FICC in the aftermath
of a Sponsored Member default. To avoid exposing Sponsoring

Members to the foregoing risks, FICC proposes to amend the Rules to
provide a mechanism whereby Sponsoring Members would control the
termination and liquidation of their defaulting Sponsored Members'
positions. By providing Sponsoring Members with greater ability to
manage their risks associated with Sponsored Member Trades, the
proposal would encourage Sponsoring Members to submit more term repo
Sponsored Member Trades to FICC within the Service. Increasing the
number of trades centrally-cleared by FICC would promote the prompt and
accurate clearance and settlement of securities transactions because
securities transactions that might otherwise be conducted bilaterally
would benefit from FICC's risk management and guarantee of settlement.
Accordingly, the Commission finds that FICC's proposal to provide a
mechanism for Sponsoring Members to terminate and liquidate their
defaulting Sponsored Members' positions should promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\49\
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    \49\ Id.
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    As stated above in Section II.C., Sponsored Member Trades may
involve a haircut from either the Sponsoring Member or the Sponsored
Member. In the context of term repo activity, the intent of both the
Sponsoring Member and the Sponsored Member is for the haircut recipient
to retain the haircut until the scheduled final settlement date.
However, the current Rules require the haircut to be returned before
final settlement of the Sponsored Member Trade, which creates
inefficiencies that discourage term repo activity within the Service.
FICC proposes to amend the Rules to ensure that such haircuts are not
returned until final settlement. As a result, the proposal would
encourage and facilitate more term repo activity within the Service.
Increasing the number of trades centrally-cleared by FICC would promote
the prompt and accurate clearance and settlement of securities
transactions because securities transactions that might otherwise be
conducted bilaterally would benefit from FICC's risk management and
guarantee of settlement. Accordingly, the Commission finds that FICC's
proposal to ensure that such haircuts with respect to Sponsored Member
Trades are not returned until final settlement should promote the
prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\50\
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    \50\ Id.
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    As stated above in Section II.D., FICC proposes several
clarifications and technical changes to Rule 3A. FICC states that these
changes are designed to enhance clarity and transparency regarding the
Service.\51\ Having transparent and clear Rule provisions regarding the
Service should enable members to better understand the operation of the
Service, and should also provide members with increased predictability
and certainty regarding their rights and obligations. Such increased
predictability and certainty regarding their rights and obligations may
encourage Sponsoring Members to submit a greater number of securities
transactions to be centrally-cleared by FICC. Increasing the number of
trades centrally-cleared by FICC would promote the prompt and accurate
clearance and settlement of securities transactions because securities
transactions that might otherwise be conducted bilaterally would
benefit from FICC's risk management and guarantee of settlement.
Accordingly, the Commission finds that FICC's proposed clarifications
and technical changes should promote the prompt and accurate clearance
and settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\52\
---------------------------------------------------------------------------

    \51\ Notice, supra note 3 at 1360.
    \52\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(21) Under the Act

    Rule 17Ad-22(e)(21) under the Act requires that each covered
clearing agency, such as FICC, ``establish, implement, maintain and
enforce written policies and procedures reasonably designed to . . . be
efficient and effective in meeting the requirements of its participants
and the markets it serves. . . .'' \53\
---------------------------------------------------------------------------

    \53\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    As stated above in Section II.B., the current Rules do not allow a
Sponsoring Member to terminate and liquidate any Sponsored Member
Trades. The inability on the part of Sponsoring Members to terminate
and liquidate its defaulting Sponsored Member's positions discourages
term repo activity within the Service because during the time it would
take FICC to terminate and liquidate the Sponsored Member's positions,
the Sponsoring Member would effectively be forced to extend credit to
the defaulting Sponsored Member under the Sponsored Member Guaranty. In
such a scenario, the Sponsoring Member could incur additional capital
requirements until FICC completes the termination and liquidation of
the Sponsored Member's positions. Additionally, since under the current
Rules, FICC sets the applicable price, timing, and types of liquidation
or hedging transactions, the Sponsoring Member would be exposed to
potential risks associated with pricing and timing differences between
its own hedging transactions and those taken by FICC in the aftermath
of a Sponsored Member default. To avoid exposing Sponsoring Members to
the foregoing risks, FICC proposes to amend the Rules to provide a
mechanism whereby Sponsoring Members would control the termination and
liquidation of their defaulting Sponsored Members' positions. By
providing Sponsoring Members with greater ability to manage their risks
associated with Sponsored Member Trades, the proposal would enhance
FICC's Rules in a manner that meets the needs of Sponsoring Members and
Sponsored Members.
    Additionally, as stated above in Section II.C., the current Rules
require haircuts with respect to term repo Sponsored Member Trades to
be returned before final settlement, which discourages term repo
activity within the Service. FICC proposes to amend the Rules to ensure
that such haircuts are not returned until final settlement. As a
result, the proposal would encourage and facilitate term repo activity
within the Service by ensuring that haircuts with respect to Sponsored
Member Trades are not returned until final settlement in a manner
consistent with the intent of the Sponsoring Member and Sponsored
Member. For the reasons described in this Section III.B., the
Commission finds FICC's proposals to (i) provide a mechanism for
Sponsoring Members to terminate and liquidate their defaulting
Sponsored Members' positions, and (ii) ensure that haircuts with
respect to term repo Sponsored Member Trades are not returned until
final settlement would constitute policies and procedures reasonably
designed to be efficient and effective in meeting the requirements of
FICC's members and the relevant markets FICC serves, consistent with
Rule 17Ad-22(e)(21) under the Act.\54\
---------------------------------------------------------------------------

    \54\ Id.
---------------------------------------------------------------------------

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 Act \55\ and the rules and regulations promulgated
thereunder.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\56\ that proposed rule change SR-FICC-2019-007, be, and hereby is,
approved.\57\
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(2).
    \57\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
    \58\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03914 Filed 2-26-20; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 239 (Thursday, December 12, 2019)]
[Proposed Rules]
[Pages 67880-67881]
[FR Doc No: 2019-26607]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

========================================================================

Federal Register / Vol. 84, No. 239 / Thursday, December 12, 2019 /
Proposed Rules

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2019-0908; Airspace Docket No. 19-ASW-14]
RIN 2120-AA66

Proposed Amendment of Class E Airspace; Shawnee, OK

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: This action proposes to amend Class E airspace extending
upward from 700 feet above the surface at Chandler Regional Airport,
Chandler, OK, and Cushing Municipal Airport, Cushing, OK, which are
contained within the Shawnee, OK, airspace legal description. The FAA
is proposing this action as the result of the decommissioning of the
Tilghman and Cushing non-directional beacons (NDB), which provided
navigation information for the instrument procedures at these airports.

DATES: Comments must be received on or before January 27, 2020.

ADDRESSES: Send comments on this proposal to the U.S. Department of
Transportation, Docket Operations, West Building Ground Floor, Room
W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590; telephone
(202) 366-9826, or<PHONE_NUMBER>. You must identify FAA Docket No.
FAA-2019-0908/Airspace Docket No. 19-ASW-14 at the beginning of your
comments. You may also submit comments through the internet at https://www.regulations.gov. You may review the public docket containing the
proposal, any comments received, and any final disposition in person in
the Dockets Office between 9:00 a.m. and 5:00 p.m., Monday through
Friday, except federal holidays.
    FAA Order 7400.11D, Airspace Designations and Reporting Points, and
subsequent amendments can be viewed online at https://www.faa.gov/air_traffic/publications/. For further information, you can contact the
Airspace Policy Group, Federal Aviation Administration, 800
Independence Avenue SW, Washington, DC 20591; telephone: (202) 267-
8783. The Order is also available for inspection at the National
Archives and Records Administration (NARA). For information on the
availability of FAA Order 7400.11D at NARA, email<EMAIL_ADDRESS>or go to https://www.archives.gov/federal-register/cfr/ibr-locations.html.

FOR FURTHER INFORMATION CONTACT: Jeffrey Claypool, Federal Aviation
Administration, Operations Support Group, Central Service Center, 10101
Hillwood Parkway, Fort Worth, TX 76177; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority
as it would amend the Class E airspace extending upward from 700 feet
above the surface at Chandler Regional Airport, Chandler, OK, and
Cushing Municipal Airport, Cushing, OK, to support instrument flight
rule operations at these airports.

Comments Invited

    Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments, as
they may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify both docket numbers and be submitted in
triplicate to the address listed above. Commenters wishing the FAA to
acknowledge receipt of their comments on this notice must submit with
those comments a self-addressed, stamped postcard on which the
following statement is made: ``Comments to Docket No. FAA-2019-0908/
Airspace Docket No. 19-ASW-14.'' The postcard will be date/time stamped
and returned to the commenter.
    All communications received before the specified closing date for
comments will be considered before taking action on the proposed rule.
The proposal contained in this notice may be changed in light of the
comments received. A report summarizing each substantive public contact
with FAA personnel concerned with this rulemaking will be filed in the
docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded through the
internet at https://www.regulations.gov. Recently published rulemaking
documents can also be accessed through the FAA's web page at https://www.faa.gov/air_traffic/publications/airspace_amendments/.
    You may review the public docket containing the proposal, any
comments received, and any final disposition in person in the Dockets
Office (see the ADDRESSES section for the address and phone number)
between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal
holidays. An informal docket may also be examined during normal
business hours at the Federal Aviation Administration, Air Traffic
Organization, Central Service Center, Operations Support Group, 10101
Hillwood Parkway, Fort Worth, TX 76177.

Availability and Summary of Documents for Incorporation by Reference

    This document proposes to amend FAA Order 7400.11D, Airspace
Designations and Reporting Points, dated August 8, 2019, and effective
September 15, 2019. FAA Order 7400.11D is publicly available as listed
in the ADDRESSES section of this document. FAA Order 7400.11D lists
Class A, B, C, D, and E airspace areas,

air traffic service routes, and reporting points.

The Proposal

    The FAA is proposing an amendment to Title 14 Code of Federal
Regulations (14 CFR) part 71 by:
    Removing the city associated with Seminole Municipal Airport,
Seminole, OK, contained within the Shawnee, OK, airspace legal
description, from the airspace legal description to comply with changes
to FAA Order 7400.2M, Procedures for Handling Airspace Matters;
    Amending the Class E airspace area extending upward from 700 feet
above the surface at Chandler Regional Airport, Chandler, OK, by
removing the Tilghman NDB and associated extension from the airspace
legal description;
    And amending the Class E airspace area extending upward from 700
feet above the surface at Cushing Municipal Airport, Cushing, OK, by
removing the Cushing NDB and associated extension from the airspace
legal description.
    These actions are the result of airspace reviews caused by the
decommissioning of the Tilghman and Cushing NDBs, which provided
navigation information for the instrument procedures at these airports.
    Class E airspace designations are published in paragraph 6005 of
FAA Order 7400.11D, dated August 8, 2019, and effective September 15,
2019, which is incorporated by reference in 14 CFR 71.1. The Class E
airspace designations listed in this document will be published
subsequently in the Order.
    FAA Order 7400.11, Airspace Designations and Reporting Points, is
published yearly and effective on September 15.

Regulatory Notices and Analyses

    The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current, is
non-controversial and unlikely to result in adverse or negative
comments. It, therefore: (1) Is not a ``significant regulatory action''
under Executive Order 12866; (2) is not a ``significant rule'' under
DOT Regulatory Policies and Procedures (44 FR 11034; February 26,
1979); and (3) does not warrant preparation of a regulatory evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule, when promulgated, would not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.

Environmental Review

    This proposal will be subject to an environmental analysis in
accordance with FAA Order 1050.1F, ``Environmental Impacts: Policies
and Procedures'' prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

    Airspace, Incorporation by reference, Navigation (air).

The Proposed Amendment

    Accordingly, pursuant to the authority delegated to me, the Federal
Aviation Administration proposes to amend 14 CFR part 71 as follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

0
1. The authority citation for 14 CFR part 71 continues to read as
follows:

     Authority:  49 U.S.C. 106(f), 106(g); 40103, 40113, 40120; E.O.
10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  71.1  [Amended]

0
2. The incorporation by reference in 14 CFR 71.1 of FAA Order 7400.11D,
Airspace Designations and Reporting Points, dated August 8, 2019, and
effective September 15, 2019, is amended as follows:

Paragraph 6005 Class E Airspace Areas Extending Upward From 700
Feet or More Above the Surface of the Earth.

* * * * *

ASW OK E5 Shawnee, OK [Amended]

Shawnee Regional Airport, OK
    (Lat. 35[deg]21'26'' N, long. 96[deg]56'34'' W)
Seminole Municipal Airport, OK
    (Lat. 35[deg]16'28'' N, long. 96[deg]40'31'' W)
Prague Municipal Airport, OK
    (Lat. 35[deg]28'51'' N, long. 96[deg]43'08'' W)
Chandler Regional Airport, OK
    (Lat. 35[deg]43'27'' N, long. 96[deg]49'13'' W)
Cushing Municipal Airport, OK
    (Lat. 35[deg]57'00'' N, long. 96[deg]46'24'' W)
Cushing Regional Hospital Heliport, OK, Point In Space Coordinates
    (Lat. 35[deg]58'41'' N, long. 96[deg]45'27'' W)

    That airspace extending upward from 700 feet above the surface
within a 7-mile radius of Shawnee Regional Airport, and within a
6.6-mile radius of Seminole Municipal Airport, and within a 6.3-mile
radius of Prague Municipal Airport, and within a 6.4-mile radius of
Chandler Regional Airport, and within a 6.5-mile radius of Cushing
Municipal Airport, and that airspace within a 6-mile radius of the
Point In Space serving Cushing Regional Hospital Heliport.

    Issued in Fort Worth, Texas, on December 4, 2019.
Steve Szukala,
Acting Manager, Operations Support Group, ATO Central Service Center.
[FR Doc. 2019-26607 Filed 12-11-19; 8:45 am]
 BILLING CODE 4910-13-P


[Federal Register Volume 83, Number 94 (Tuesday, May 15, 2018)]
[Proposed Rules]
[Pages 22438-22439]
[FR Doc No: 2018-10239]

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 63

[EPA-HQ-OAR-2003-0194; FRL-9977-74-OAR]
RIN 2060-AT70

National Emission Standards for Hazardous Air Pollutants: Leather
Finishing Operations Residual Risk and Technology Review

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule; reopening of comment period.

-----------------------------------------------------------------------

SUMMARY: On March 14, 2018, the Environmental Protection Agency (EPA)
proposed a rule titled, ``National Emission Standards for Hazardous Air
Pollutants: Leather Finishing Operations Residual Risk and Technology
Review.'' The EPA is reopening the comment period on the proposed rule
that closed on April 30, 2018. The EPA is taking this action because
the supporting document--Analysis of Demographic Factors for
Populations Living Near Leather Finishing Operations--was inadvertently
not included in the docket for this proposed rule. As this analysis is
now available to the public, the EPA has reopened the comment period
for an additional 30 days.

DATES: The public comment period for the proposed rule published in the
Federal Register on March 14, 2018 (83 FR 11314), is reopened. Written
comments must be received on or before June 14, 2018.

ADDRESSES: Comments. Submit your comments, identified by Docket ID No.
EPA-HQ-OAR-2003-0194, at http://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from Regulations.gov. Regulations.gov is our
preferred method of receiving comments. However, other submission
formats are also accepted:
     Email: [email protected]. Include Docket ID No. EPA-
HQ-OAR-2003-0194 in the subject line of the message.
     Fax:<PHONE_NUMBER>. Attention Docket ID No. EPA-HQ-OAR-
2003-0194.
     Mail: To ship or send mail via the United States Postal
Service, use the following address: U.S. Environmental Protection
Agency, EPA Docket Center, Docket ID No. EPA-HQ-OAR-2003-0194, Mail
Code 28221T, 1200 Pennsylvania Avenue NW, Washington, DC 20460.
     Hand/Courier Delivery: Use the following Docket Center
address if you are using express mail, commercial delivery, hand
delivery, or courier: EPA Docket Center, EPA WJC West Building, Room
3334, 1301 Constitution Avenue NW, Washington, DC 20004. Delivery
verification signatures will be available only during regular business
hours.
    Do not submit electronically any information you consider to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. If you need to include CBI as part
of your comment, please visit https://www2.epa.gov/dockets/commenting-epa-dockets for instructions.
    The EPA may publish any comment received to its public docket.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. The EPA
will generally not consider comments or comment contents located
outside of the primary submission (i.e., on the Web, cloud, or other
file sharing system).
    For additional submission methods, the full EPA public comment
policy, information about CBI or multimedia submissions, and general
guidance on making effective comments, please visit https://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: For questions about this proposed
action, contact Mr. Bill Schrock, Natural Resources Group, Sector
Policies and Programs Division (E143-03), Office of Air Quality
Planning and Standards, U.S. Environmental Protection Agency, Research
Triangle Park, North Carolina 27711; telephone number:<PHONE_NUMBER>;
fax number:<PHONE_NUMBER>; and email address: [email protected].
For specific information regarding the risk modeling methodology,
contact Matthew Woody, Health and Environmental Impacts Division (C539-
02), Office of Air Quality Planning and Standards, U.S. Environmental
Protection Agency, Research Triangle Park, North Carolina 27711;
telephone number:<PHONE_NUMBER>; fax number:<PHONE_NUMBER>; and email
address: [email protected]. For information about the applicability
of the National Emission Standards for Hazardous Air Pollutants to a
particular entity, contact John Cox, Office of Enforcement and
Compliance Assurance, U.S. Environmental Protection Agency, EPA WJC
South Building (Mail Code 2227A), 1200 Pennsylvania Avenue NW,
Washington, DC 20460; telephone number:<PHONE_NUMBER>; and email
address: [email protected].

SUPPLEMENTARY INFORMATION: To allow for additional time for
stakeholders to provide comments, the EPA has decided to reopen the
public comment period until June 14, 2018.

    Dated: May 07, 2018.
Panagiotis Tsirigotis,
Director, Office of Air Quality Planning and Standards.
[FR Doc. 2018-10239 Filed 5-14-18; 8:45 am]
BILLING CODE 6560-50-P