4. Require U.S. Treasury Securities CCAs To Change CCA Access
Provisions and Netting and Margin Practices for House and Customer
Accounts and Rule 15c3-3
    The Commission could, as an alternative to the selected policy
choice, only amend Rules 15c3-3, 17Ad-22(e)(6)(i), and 17Ad-
22(e)(18)(iv)(C). This alternative would not include implementing
changes related to the Membership Proposal, as set forth in Proposed
Rule 17Ad-22(e)(18)(iv)(A) and (B).
    This alternative would require a U.S. Treasury securities CCA to
establish, implement, maintain and enforce certain written policies and
procedures that would be reasonably designed to, as applicable,
calculate, collect, and hold margin amounts from a direct participant
for its proprietary U.S. Treasury securities positions separately and
independently from margin that would be held for an indirect
participant. Specifically, the requirement to separately and
independently hold an indirect participant's margin would apply to
margin calculated by and collected from a direct participant in
connection with its U.S. Treasury securities transactions with an
indirect participant that relies on the direct participant's services
to access the covered clearing agency's payment, clearing, or
settlement facilities.
    The alternative would also include changes to 17Ad-
22(e)(18)(iv)(C), directing FICC to, as more fully described above,
have policies and procedures, to be annually reviewed by its board of
directors, to have appropriate means to facilitate access to clearing
all eligible secondary market transactions in U.S. Treasury securities.
This alternative would also include changes to Rule 15c3-3a, to permit
margin required and on deposit at a U.S. Treasury securities CCA to be
included as a debit item in the customer reserve formula, subject to
the conditions discussed below. This new debit item would offset credit
items in the Rule 15c3-3a formula and, thereby, free up

resources that could be used to meet the margin requirements of a U.S.
Treasury securities CCA. The new debit item would be reported on a
newly created Item 15 of the Rule 15c3-3a reserve formula.
    As discussed in section IV.C.2.b, supra, the proposed amendments to
Rule 17Ad-22(e)(6)(i) should produce benefits for dealer-to-customer
trades. Because margin for a direct participant's (i.e., a dealer's)
trades that have been novated to the CCP would be calculated,
collected, and held separately and independently from those of an
indirect participant, such as a customer, the direct participant's
trades with the indirect participant that have been novated to the CCP
would be able to be netted against the direct participant's position
with other dealers. Such netting is not currently available. In
summary, the Commission expects changes in the customer reserve formula
and expanded margin offset possibilities to allow more efficient use of
margin for cleared trades relative to current market practice.
    Nonetheless, the Commission believes that this alternative is not
preferable to the proposal. Although this alternative may result in
additional central clearing of U.S Treasury security trades by reducing
some of the impediments to central clearing, the benefits are likely to
be less in the absence of the membership proposal. As previously
explained, the benefits of clearing are proportional to the number of
participants submitting their trades to the CCP: the higher the number
of participants, the greater the benefits of central clearing. Absent a
coordinated effort that induces participants to incur short-term,
private costs in order to obtain a larger, longer-term collective
benefit, which the Membership Proposal provides, the Commission
believes that the number of participants that will voluntarily make the
necessary changes to clear their transactions would be lower under this
alternative.

E. Request for Comment

    The Commission requests comment on all aspects of this initial
economic analysis, including the potential benefits and costs,
including all effects on efficiency, competition, and capital
formation; and reasonable alternatives to the proposal. We request and
encourage any interested person to submit comments regarding the
proposal, our analysis of the potential effects of the proposal, and
other matters that may have an effect on the proposal. We request that
commenters identify sources of data and information as well as provide
data and information to assist us in analyzing the economic
consequences of the proposal. We also are interested in comments on the
qualitative benefits and costs the Commission has identified and any
benefits and costs the Commission may have overlooked. In addition to
our general request for comments on the economic analysis associated
with the proposal, the Commission requests specific comment on certain
aspects of the proposal:
Baseline
     The Commission seeks input and supporting data on the size
of the U.S. Treasury securities market as a whole and additional data
on the proportion of cash and repo U.S. Treasury transactions that U.S.
Treasury securities CCA members clear and settle with the CCP and those
that they clear and settle bilaterally. In particular, what proportion
of dealer to client and dealer-to-dealer transactions are cleared?
     The Commission seeks data on U.S. Treasury securities
transactions executed by banks and other institutions that are not
members of FINRA and therefore do not have a regulatory requirement to
report their executed trades to TRACE.
     Does the current menu of clearing offerings, including
Sponsored Clearing, provide enough options for individuals and
institutions who want to participate in the U.S. Treasury Securities
market?
     What role does the market for ``when-issued'' U.S.
Treasury securities that trade prior to and on the day of the auction
currently play in risk mitigation and hedging strategies of primary
dealers? What role does this market play in price discovery?
     Should the Commission include in the scope of eligible
secondary market transactions when-issued transactions in U.S. Treasury
securities that take place prior to and on the day of the auction for
those securities? What are the potential benefits and costs of
including in the scope of eligible secondary market transaction pre-
auction and auction day when-issued transactions along with post-
auction when-issued transactions? Is there a greater contagion risk
from fails-to-deliver if the proposal's scope of eligible secondary
market transactions does not include ``when-issued'' U.S. Treasury
securities transactions that take place prior to and on the day of the
auction?
Economic Effects, Including Impact of Efficiency, Competition, and
Capital Formation
     Are there any additional costs and benefits associated
with the proposed amendments that should be included in the analysis?
What additional materials and data should be included for estimating
these costs and benefits?
     Does the economic analysis capture the relative risks
posed by various types of market participants to the functioning of
U.S. Treasury market?
     Will U.S. Treasury securities CCAs face additional costs
to managing the risk of higher volumes and increased heterogeneity of
entities that will result from the Membership proposal?
     Who requests sponsored membership? Is it the asset owner
or the investment manager? If the asset owner, how does the adviser
support sponsored membership with multiple sponsoring members? If the
investment manager sets this up, how does the asset owner change
investment managers and is more lead time required to set up a new
account with a new investment manager? Who pays for all this and what
does it cost?
     What are the operational costs to asset owners and to
advisers to centrally clear cash U.S. Treasury securities? Will there
be benefits to asset owners or to advisers? Will operational risk for
asset owners or adviser increase or decrease and why?
     What are the operational costs to asset owners and to
advisers to centrally clear repos? Will there be benefits to asset
owners or to advisers? Will operational risk for asset owners or
adviser increase or decrease and why?
     What would be the potential impact to FICC's CCLF and its
participants' obligations under that requirement? What costs may
participants incur as a result of changes to their obligations under
that requirement? Would these costs vary depending on whether or not
the entity was affiliated with a bank? Would they vary based on the
size of the entity?
     Market participants in the secondary market for U.S
Treasury securities that would be required to be centrally cleared
could incur direct costs for arranging legal agreements with every
potential counterparty. Depending on the customer there may be a large
number of such arrangements. How much does it cost to arrange such
legal agreements and how many such agreements might a market
participant need to arrange?
     Given the potential effects on competition of the proposal
if adopted, should FICC be required to review its fee structure as part
of its review required by Rule 17Ad-22(e)(18)(iv)? Within what time
frame should this review take place?
     Are there any additional impacts on dealer competition
that should be

included in the analysis? The Commission seeks information and data on
dealer concentration over time. In particular, have there been any
changes in dealer concentration in recent years?
Reasonable Alternatives
     The Commission seeks input on the costs, benefits and
feasibility of the alternatives to the proposed rule described above.
Are there any additional benefits or costs that should be included in
the analysis of the reasonable alternatives considered?

V. Paperwork Reduction Act

A. Proposed Changes to Covered Clearing Agency Standards

    The proposed amendments to Rule 17Ad-22(e) contain ``collection of
information'' requirements within the meaning of the PRA.\499\ The
Commission is submitting the proposed collection of information to the
Office of Management and Budget (``OMB'') for review in accordance with
the PRA. For the proposed amendments to Rule 17Ad-22(e), the title of
the existing information collection is ``Clearing Agency Standards for
Operation and Governance'' (OMB Control No. 3235-0695), and that
collection would be revised by the changes in this proposal, if
adopted. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.
---------------------------------------------------------------------------

    \499\ See 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    Respondents under this rule are Treasury securities CCAs, of which
there is currently one. The Commission anticipates that one additional
entity may seek to register as a clearing agency to provide CCP
services for Treasury securities in the next three years, and so for
purposes of this proposal the Commission has assumed two respondents.
A. Proposed Amendment to Rule 17Ad-22(e)(6)
    The purpose of this collection of information is to enable a
covered clearing agency for Treasury securities to better understand
and manage the risks presented by transactions that a direct
participant may submit on behalf of its customer, i.e., an indirect
participant which relies upon the direct participant to access the
covered clearing agency. The collection is mandatory. To the extent
that the Commission receives confidential information pursuant to this
collection of information, such information would be kept confidential
subject to the provisions of applicable law.\500\
---------------------------------------------------------------------------

    \500\ See, e.g., 5 U.S.C. 552. Exemption 4 of the Freedom of
Information Act provides an exemption for trade secrets and
commercial or financial information obtained from a person and
privileged or confidential. See 5 U.S.C. 552(b)(4). Exemption 8 of
the Freedom of Information Act provides an exemption for matters
that are contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions. See 5 U.S.C. 552(b)(8).
---------------------------------------------------------------------------

    The proposed amendments to Rule 17Ad-22(e)(6) would require a
Treasury securities CCA to establish, implement, maintain, and enforce
written policies and procedures. The proposed rule amendment contains
similar provisions to existing FICC rules, specifically with respect to
its Sponsored Member program, but would also impose additional
requirements that do not appear in existing Rule 17Ad-22. As a result,
the Commission preliminarily believes that a respondent Treasury
securities CCA would incur burdens of reviewing and updating existing
policies and procedures in order to comply with the proposed amendments
to Rule 17Ad-22(e)(6) and, in some cases, may need to create new
policies and procedures.\501\ The Commission preliminarily believes
that the estimated PRA burdens for the proposed amendments to Rule
17Ad-22(e)(6) may require a respondent clearing agency to make
substantial changes to its policies and procedures. Based on the
similar policies and procedures requirements and the corresponding
burden estimates previously made by the Commission for several rules in
the Covered Clearing Agency Standards where the Commission anticipated
similar burdens,\502\ the Commission preliminarily estimates that
respondent Treasury securities CCAs would incur an aggregate one-time
burden of approximately 258 hours to review existing policies and
procedures and create new policies and procedures.\503\
---------------------------------------------------------------------------

    \501\ See supra note 126 and accompanying text (discussing
existing FICC rules for sponsored member program).
    \502\ See CCA Standards Adopting Release, supra note 26, 81 FR
at 70895-97 (discussing Rules 17Ad-22(e)(13), (15), and (18)).
Although the proposed rule amendment is with respect to Rule 17Ad-
22(e)(6), the Commission believes that these Rules present the best
overall comparison to the current proposed rule amendment, in light
of the nature of the changes needed to implement the proposal here
and what was proposed in the Covered Clearing Agency Standards.
    \503\ This figure was calculated as follows: (Assistant General
Counsel for 20 hours) + (Compliance Attorney for 40 hours) +
(Computer Operations Manager for 12 hours) + (Senior Programmer for
20 hours) + (Senior Risk Management Specialist for 25 hours) +
(Senior Business Analyst for 12 hours) = 129 hours x 2 respondent
clearing agencies = 258 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(6) would impose ongoing burdens on a
respondent Treasury securities CCA. The proposed rule would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule. Based on the similar reporting requirements and the corresponding
burden estimates previously made by the Commission for several rules in
the Covered Clearing Agency Standards where the Commission anticipated
similar burdens,\504\ the Commission preliminarily estimates that the
ongoing activities required by proposed Rule 17Ad-22(e)(6) would impose
an aggregate annual burden on respondent clearing agencies of 182
hours.\505\
---------------------------------------------------------------------------

    \504\ See CCA Standards Adopting Release, supra note 26, 81 FR
at 70893 and 70895-96 (discussing Rules 17Ad-22(e)(6) and (13)).
    \505\ This figure was calculated as follows: (Compliance
Attorney for 25 hours + Business Risk Analyst for 40 hours + Senior
Risk Management Specialist for 20 hours) = 80 hours x 2 respondent
clearing agencies = 160 hours.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Initial burden     Aggregate    Ongoing burden     Aggregate
      Name of information  collection              Type of burden            Number of      per entity    initial burden    per entity    ongoing burden
                                                                            respondents       (hours)         (hours)         (hours)         (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
17Ad-22...................................  Recordkeeping...............               2             129             258              91             182
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Proposed Amendment to Rule 17Ad-22(e)(18)(iv)
    The purpose of the collection of information under proposed Rule
17Ad-22(e)(18)(iv) is to enable a U.S. Treasury securities CCA to
ensure that its direct participants submit for clearance and
settlement, as a requirement of membership in the CCA, all eligible
secondary market transactions in U.S. Treasury securities to the U.S.
Treasury securities CCA to

which the direct participants are a counterparty. This should, in turn,
help ensure that the risk presented by the eligible secondary market
transactions of that direct participant that are not centrally cleared
would not be transmitted to the U.S. Treasury securities CCA, and to
enable the CCA to identify and manage the risks posed by those
transactions that are currently not submitted for central clearing. In
addition, the purpose of this proposal is to ensure that the U.S.
Treasury securities CCA adopts policies and procedures to identify and
monitor its direct participants' submission of transactions for
clearance and settlement, including how the CCA would address a failure
to submit transactions that are required to be submitted. Finally, the
purpose of the proposal is to ensure that the CCA 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, which policies and procedures
the board of directors of such covered clearing agency reviews
annually.
    This additional collection is mandatory. To the extent that the
Commission receives confidential information pursuant to this
collection of information, such information would be kept confidential
subject to the provisions of applicable law.\506\
---------------------------------------------------------------------------

    \506\ See, e.g., 5 U.S.C. 552 et seq. Exemption 4 of the Freedom
of Information Act provides an exemption for trade secrets and
commercial or financial information obtained from a person and
privileged or confidential. See 5 U.S.C. 552(b)(4). Exemption 8 of
the Freedom of Information Act provides an exemption for matters
that are contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions. See 5 U.S.C. 552(b)(8).
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(18)(iv) would require a U.S. Treasury
securities CCA to establish, implement, maintain, and enforce written
policies and procedures, as discussed above. Because such policies and
procedures are not currently required under existing Rule 17Ad-22, the
Commission preliminarily believes that the estimated PRA burdens for
proposed Rule 17Ad-22(e)(18)(iv) would be significant and may require a
respondent clearing agency to make substantial changes to its policies
and procedures. The proposed rule amendment contains similar provisions
to existing rules, but would also impose additional requirements that
do not appear in existing Rule 17Ad-22.\507\ As a result, the
Commission preliminarily believes that a respondent U.S. Treasury
securities CCA would incur burdens of reviewing and updating existing
policies and procedures in order to comply with the provisions of
proposed Rule 17Ad-22(e)(18)(iv) and, in some cases, may need to create
new policies and procedures. Based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for several rules in the Covered
Clearing Agency Standards where the Commission anticipated similar
burdens,\508\ the Commission preliminarily estimates that respondent
Treasury securities CCAs would incur an aggregate one-time burden of
approximately 520 hours to review existing policies and procedures and
create new policies and procedures.\509\
---------------------------------------------------------------------------

    \507\ See supra note 34 and accompanying text (discussing
current FICC rules).
    \508\ See CCA Standards Adopting Release, supra note 26, 81 FR
at 70895-97 (discussing Rules 17Ad-22(e)(13), (15), and (18)). The
Commission believes that these Rules present the best comparison to
the current proposed rule amendment, in light of the nature of the
changes proposed. Although the proposed rule amendment is with
respect to Rule 17Ad-22(e)(18), the Commission believes that
considering additional rules in the Covered Clearing Agency
Standards is reasonable in light of the nature of the proposed
requirement and the changes necessary to establish and implement
that requirement, as compared to the current Commission rules and
U.S. Treasury securities CCA rules.
    \509\ This figure was calculated as follows: Assistant General
Counsel for 40 hours + Compliance Attorney for 80 hours + Computer
Operations Manager for 20 hours + Senior Risk Management Specialist
for 40 hours + Business Risk Analyst for 80 hours = 260 hours x 2
respondent clearing agencies = 520 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(18)(iv) would impose ongoing burdens on a
respondent Treasury securities CCA. The proposed rule would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule. Based on the similar reporting requirements and the corresponding
burden estimates previously made by the Commission for several rules in
the Covered Clearing Agency Standards where the Commission anticipated
similar burdens,\510\ the Commission preliminarily estimates that the
ongoing activities required by proposed Rule 17Ad-22(e)(18)(iv) would
impose an aggregate ongoing burden on respondent clearing agencies of
170 hours.\511\
---------------------------------------------------------------------------

    \510\ See supra note 502 above (discussing relevant aspects of
the Covered Clearing Agency Standards).
    \511\ This figure was calculated as follows: Compliance Attorney
for 25 hours + Business Risk Analyst for 40 hours + Senior Risk
Management Specialist for 20 hours = 85 hours x 2 respondent
clearing agencies = 170 hours.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Initial burden     Aggregate    Ongoing burden     Aggregate
      Name of information  collection              Type of burden            Number of      per entity    initial burden    per entity    ongoing burden
                                                                            respondents       (hours)         (hours)         (hours)         (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
17Ad-22(e)................................  Recordkeeping...............               2             260             520              80             170
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Request for Comment
    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
    1. Evaluate whether the proposed collections of information are
necessary for the proper performance of the Commission's functions,
including whether the information shall have practical utility;
    2. Evaluate the accuracy of the Commission's estimates of the
burdens of the proposed collections of information;
    3. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
    4. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology; and
    5. Evaluate whether the proposed rules and rule amendments would
have any effects on any other collection of information not previously
identified in this section.
    Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and

Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and should also send a copy of their comments to
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File Number S7-23-22.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, with reference
to File Number S7-23-22 and be submitted to the Securities and Exchange
Commission, Office of FOIA/PA Services, 100 F Street NE, Washington, DC
20549-2736. As OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication, a
comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication.

B. Broker-Dealers

    The proposed rule amendment to Rule 15c3-3a does not require a new
collection of information on the part of any entities subject to these
rules. Accordingly, the requirements imposed by the PRA are not
applicable to this rule amendment.

VI. Small Business Regulatory Enforcement Fairness Act

    Under the Small Business Regulatory Enforcement Fairness Act of
1996,\512\ a rule is ``major'' if it has resulted, or is likely to
result in: an annual effect on the economy of $100 million or more; a
major increase in costs or prices for consumers or individual
industries; or significant adverse effects on competition, investment,
or innovation. The Commission requests comment on whether the proposed
rules and rule amendments would be a ``major'' rule for purposes of the
Small Business Regulatory Enforcement Fairness Act. In addition, the
Commission solicits comment and empirical data on: the potential effect
on the U.S. economy on annual basis; any potential increase in costs or
prices for consumer or individual industries; and any potential effect
on competition, investment, or innovation.
---------------------------------------------------------------------------

    \512\ Pubic Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') requires the Commission,
in promulgating rules, to consider the impact of those rules on small
entities.\513\ Section 603(a) of the Administrative Procedure Act,\514\
as amended by the RFA, generally requires the Commission to undertake a
regulatory flexibility analysis of all proposed rules to determine the
impact of such rulemaking on ``small entities.'' \515\ Section 605(b)
of the RFA states that this requirement shall not apply to any proposed
rule which, if adopted, would not have a significant economic impact on
a substantial number of small entities.\516\
---------------------------------------------------------------------------

    \513\ See 5 U.S.C. 601 et seq.
    \514\ 5 U.S.C. 603(a).
    \515\ Section 601(b) of the RFA permits agencies to formulate
their own definitions of ``small entities.'' See 5 U.S.C. 601(b).
The Commission has adopted definitions for the term ``small entity''
for the purposes of rulemaking in accordance with the RFA. These
definitions, as relevant to this proposed rulemaking, are set forth
in Rule 0-10, 17 CFR 240.0-10.
    \516\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Clearing Agencies

    The proposed amendments to Rule 17Ad-22 would apply to covered
clearing agencies, which would include registered clearing agencies
that provide the services of a central counterparty or central
securities depository.\517\ For the purposes of Commission rulemaking
and as applicable to the proposed amendments to Rule 17Ad-22, a small
entity includes, when used with reference to a clearing agency, a
clearing agency that (i) compared, cleared, and settled less than $500
million in securities transactions during the preceding fiscal year,
(ii) had less than $200 million of funds and securities in its custody
or control at all times during the preceding fiscal year (or at any
time that it has been in business, if shorter), and (iii) is not
affiliated with any person (other than a natural person) that is not a
small business or small organization.\518\
---------------------------------------------------------------------------

    \517\ 17 CFR 240.17AD-22(a)(5).
    \518\ See 17 CFR 240.0-10(d).
---------------------------------------------------------------------------

    Based on the Commission's existing information about the clearing
agencies currently registered with the Commission, the Commission
preliminarily believes that such entities exceed the thresholds
defining ``small entities'' set out above. While other clearing
agencies may emerge and seek to register as clearing agencies, the
Commission preliminarily does not believe that any such entities would
be ``small entities'' as defined in Exchange Act Rule 0-10.\519\ In any
case, clearing agencies can only become subject to the new requirements
under proposed Rule 17Ad-22(e) should they meet the definition of a
covered clearing agency, as described above. Accordingly, the
Commission preliminarily believes that any such registered clearing
agencies will exceed the thresholds for ``small entities'' set forth in
Exchange Act Rule 0-10.
---------------------------------------------------------------------------

    \519\ See 17 CFR 240.0-10(d). The Commission based this
determination on its review of public sources of financial
information about registered clearing agencies and lifecycle event
service providers for OTC derivatives.
---------------------------------------------------------------------------

B. Broker-Dealers

    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes a broker-dealer that: (1) had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the date
in the prior fiscal year as of which its audited financial statements
were prepared pursuant to Rule 17a-5(d) under the Exchange Act, or, if
not required to file such statements, a broker-dealer with total
capital (net worth plus subordinated liabilities) of less than $500,000
on the last day of the preceding fiscal year (or in the time that it
has been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or
small organization.\520\ Under the standards adopted by the Small
Business Administration, small entities in the finance and insurance
industry include the following: (1) for entities in credit
intermediation and related activities, firms with $175 million or less
in assets; (2) for non-depository credit intermediation and certain
other activities, firms with $7 million or less in annual receipts; (3)
for entities in financial investments and related activities, firms
with $7 million or less in annual receipts; (4) for insurance carriers
and entities in related activities, firms with $7 million or less in
annual receipts; and (5) for funds, trusts, and other financial
vehicles, firms with $7 million or less in annual receipts.
---------------------------------------------------------------------------

    \520\ See 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

    The proposed rule amendment to Rule 15c3-3a would permit margin
required and on deposit at a covered clearing agency providing central
counterparty services for Treasury securities to be included by broker-
dealers as a debit in the customer or PAB reserve formula. Only
carrying broker-dealers will be impacted by the proposed rule
amendment. This is because only carrying broker-dealers are required to
maintain a customer or PAB reserve account and may collect customer
margin.
    Based on FOCUS Report data, the Commission estimates that as of
December 31, 2021, there were approximately 744 broker-dealers that
were ``small'' for the purposes of Rule 0-10. Of these, the Commission
estimates that there are less than ten broker-dealers that are carrying
broker-

dealers (i.e., can carry customer or PAB margin accounts and extend
credit). However, based on December 31, 2021, FOCUS Report data, none
of these small carrying broker-dealers carried debit balances. This
means that any ``small'' carrying firms are not extending margin credit
to their customers, and therefore, the proposed rule amendment likely
would not apply to them. Therefore, while the Commission believes that
some small broker-dealers could be affected by the proposed amendment,
the amendment will not have a significant impact on a substantial
number of small broker-dealers.

C. Certification

    For the reasons described above, the Commission certifies that the
proposed amendments to Rules 17Ad-22 and 15c3-3a would not have a
significant economic impact on a substantial number of small entities
for purposes of the RFA. The Commission requests comment regarding this
certification. The Commission requests that commenters describe the
nature of any impact on small entities, including clearing agencies and
broker-dealers, and provide empirical data to support the extent of the
impact.

Statutory Authority

    The Commission is proposing amendments to Rule 17Ad-22 under the
Commission's rulemaking authority set forth in section 17A of the
Exchange Act, 15 U.S.C. 78q-1. Pursuant to the Exchange Act, 15 U.S.C.
78a et seq., and particularly, sections 15 and 23(a) (15 U.S.C. 78o and
78w(a)), thereof, the Commission is proposing to amend Sec.  240.15c3-
3a under the Exchange Act.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Amendments

    In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Section 240.17Ad-22 is also issued under 12 U.S.C. 5461 et seq.
* * * * *
0
2. Revise Sec.  240.15c3-3a to read as follows:

Sec.  240.15c3-3a   Exhibit A-Formula for determination of customer and
PAB account reserve requirements of brokers and dealers under Sec.
240.15c3-3.

Sec.  240.15c3-3a  Exhibit A-Formula for determination of customer and
PAB account reserve requirements of brokers and dealers under Sec.
240.15c3-3.

------------------------------------------------------------------------
                                            Credits           Debits
------------------------------------------------------------------------
1. Free credit balances and other                  XXX   ...............
 credit balances in customers'
 security accounts. (See Note A)......
2. Monies borrowed collateralized by               XXX   ...............
 securities carried for the accounts
 of customers (See Note B)............
3. Monies payable against customers'               XXX   ...............
 securities loaned (See Note C).......
4. Customers' securities failed to                 XXX   ...............
 receive (See Note D).................
5. Credit balances in firm accounts                XXX   ...............
 which are attributable to principal
 sales to customers...................
6. Market value of stock dividends,                XXX   ...............
 stock splits and similar
 distributions receivable outstanding
 over 30 calendar days................
7. Market value of short security                  XXX   ...............
 count differences over 30 calendar
 days old.............................
8. Market value of short securities                XXX   ...............
 and credits (not to be offset by
 longs or by debits) in all suspense
 accounts over 30 calendar days.......
9. Market value of securities which                XXX   ...............
 are in transfer in excess of 40
 calendar days and have not been
 confirmed to be in transfer by the
 transfer agent or the issuer during
 the 40 days..........................
10. Debit balances in customers' cash   ...............             XXX
 and margin accounts excluding
 unsecured accounts and accounts
 doubtful of collection. (See Note E).
11. Securities borrowed to effectuate   ...............             XXX
 short sales by customers and
 securities borrowed to make delivery
 on customers' securities failed to
 deliver..............................
12. Failed to deliver of customers'     ...............             XXX
 securities not older than 30 calendar
 days.................................
13. Margin required and on deposit      ...............             XXX
 with the Options Clearing Corporation
 for all option contracts written or
 purchased in customer accounts. (See
 Note F)..............................
14. Margin required and on deposit      ...............             XXX
 with a clearing agency registered
 with the Commission under section 17A
 of the Act (15 U.S.C. 78q-1) or a
 derivatives clearing organization
 registered with the Commodity Futures
 Trading Commission under section 5b
 of the Commodity Exchange Act (7
 U.S.C. 7a-1) related to the following
 types of positions written, purchased
 or sold in customer accounts: (1)
 security futures products and (2)
 futures contracts (and options
 thereon) carried in a securities
 account pursuant to an SRO portfolio
 margining rule (See Note G)..........
15. Margin required and on deposit      ...............             XXX
 with a clearing agency registered
 with the Commission under section 17A
 of the Act (15 U.S.C. 78q-1)
 resulting from the following types of
 transactions in U.S. Treasury
 securities in customer accounts that
 have been cleared, settled, and
 novated by the clearing agency: (1)
 purchases and sales of U.S. Treasury
 securities; and (2) U.S. Treasury
 securities repurchase and reverse
 repurchase agreements (See Note H)...
                                       ---------------------------------
    Total credits.....................  ...............  ...............
    Total debits......................  ...............  ...............
16. Excess of total credits (sum of     ...............             XXX
 items 1-9) over total debits (sum of
 items 10-15) required to be on
 deposit in the ``Reserve Bank
 Account'' (Sec.   240.15c3-3(e)). If
 the computation is made monthly as
 permitted by this section, the
 deposit must be not less than 105
 percent of the excess of total
 credits over total debits............
------------------------------------------------------------------------

Notes Regarding the Customer Reserve Bank Account Computation

    Note A. Item 1 must include all outstanding drafts payable to
customers which have been applied against free credit balances or
other credit balances and must also include checks drawn in excess
of bank balances per the records of the broker or dealer.
    Note B. Item 2 must include the amount of options-related or
security futures product-related Letters of Credit obtained by a
member of a registered clearing agency or a derivatives clearing
organization which are collateralized by customers' securities, to
the extent of the member's margin requirement at the registered
clearing agency or derivatives clearing organization. Item 2 must
also include the amount of Letters of Credit which are
collateralized by customers' securities and related to other futures
contracts (and options thereon) carried in a securities account
pursuant to an SRO portfolio margining rule. Item 2 must include the
market value of customers' U.S. Treasury securities on deposit at a
``qualified clearing agency'' as defined in Note H below.
    Note C. Item 3 must include in addition to monies payable
against customers' securities loaned the amount by which the market
value of securities loaned exceeds the collateral value received
from the lending of such securities.
    Note D. Item 4 must include in addition to customers' securities
failed to receive the amount by which the market value of securities
failed to receive and outstanding more than thirty (30) calendar
days exceeds their contract value.
    Note E. (1) Debit balances in margin accounts must be reduced by
the amount by which a specific security (other than an exempted
security) which is collateral for margin accounts exceeds in
aggregate value 15 percent of the aggregate value of all securities
which collateralize all margin accounts receivable; provided,
however, the required reduction must not be in excess of the amounts
of the debit balance required to be excluded because of this
concentration rule. A specified security is deemed to be collateral
for a margin account only to the extent it represents in value not
more than 140 percent of the customer debit balance in a margin
account.
    (2) Debit balances in special omnibus accounts, maintained in
compliance with the requirements of Section 7(f) of Regulation T (12
CFR 220.7(f)) or similar accounts carried on behalf of another
broker or dealer, must be reduced by any deficits in such accounts
(or if a credit, such credit must be increased) less any calls for
margin, mark to the market, or other required deposits which are
outstanding five business days or less.
    (3) Debit balances in customers' cash and margin accounts
included in the formula under Item 10 must be reduced by an amount
equal to 1 percent of their aggregate value.
    (4) Debit balances in cash and margin accounts of household
members and other persons related to principals of a broker or
dealer and debit balances in cash and margin accounts of affiliated
persons of a broker or dealer must be excluded from the Reserve
Formula, unless the broker or dealer can demonstrate that such debit
balances are directly related to credit items in the formula.
    (5) Debit balances in margin accounts (other than omnibus
accounts) must be reduced by the amount by which any single
customer's debit balance exceeds 25 percent (to the extent such
amount is greater than $50,000) of the broker-dealer's tentative net
capital (i.e., net capital prior to securities haircuts) unless the
broker or dealer can demonstrate that the debit balance is directly
related to credit items in the Reserve Formula. Related accounts
(e.g., the separate accounts of an individual, accounts under common
control or subject to cross guarantees) will be deemed to be a
single customer's accounts for purposes of this provision. If the
registered national securities exchange or the registered national
securities association having responsibility for examining the
broker or dealer (``designated examining authority'') is satisfied,
after taking into account the circumstances of the concentrated
account including the quality, diversity, and marketability of the
collateral securing the debit balances or margin accounts subject to
this provision, that the concentration of debit balances is
appropriate, then such designated examining authority may grant a
partial or plenary exception from this provision. The debit balance
may be included in the reserve formula computation for five business
days from the day the request is made.
    (6) Debit balances in joint accounts, custodian accounts,
participation in hedge funds or limited partnerships or similar type
accounts or arrangements that include both assets of a person or
persons who would be excluded from the definition of customer
(``noncustomer'') and assets of a person or persons who would be
included in the definition of customer must be included in the
Reserve Formula in the following manner: if the percentage ownership
of the non-customer is less than 5 percent then the entire debit
balance shall be included in the formula; if such percentage
ownership is between 5 percent and 50 percent then the portion of
the debit balance attributable to the non-customer must be excluded
from the formula unless the broker or dealer can demonstrate that
the debit balance is directly related to credit items in the
formula; or if such percentage ownership is greater than 50 percent,
then the entire debit balance must be excluded from the formula
unless the broker or dealer can demonstrate that the debit balance
is directly related to credit items in the formula.
    Note F. Item 13 must include the amount of margin required and
on deposit with the Options Clearing Corporation to the extent such
margin is represented by cash, proprietary qualified securities and
letters of credit collateralized by customers' securities.
    Note G. (a) Item 14 must include the amount of margin required
and on deposit with a clearing agency registered with the Commission
under section 17A of the Act (15 U.S.C. 78q-1) or a derivatives
clearing organization registered with the Commodity Futures Trading
Commission under section 5b of the Commodity Exchange Act (7 U.S.C.
7a-1) for customer accounts to the extent that the margin is
represented by cash, proprietary qualified securities, and letters
of credit collateralized by customers' securities.
    (b) Item 14 will apply only if the broker or dealer has the
margin related to security futures products, or futures (and options
thereon) carried in a securities account pursuant to an approved SRO
portfolio margining program on deposit with:
    (1) A registered clearing agency or derivatives clearing
organization that:
    (i) Maintains security deposits from clearing members in
connection with regulated options or futures transactions and
assessment power over member firms that equal a combined total of at
least $2 billion, at least $500 million of which must be in the form
of security deposits. For the purposes of this Note G, the term
``security deposits'' refers to a general fund, other than margin
deposits or their equivalent, that consists of cash or securities
held by a registered clearing agency or derivative clearing
organization; or
    (ii) Maintains at least $3 billion in margin deposits; or
    (iii) Does not meet the requirements of paragraphs (b)(1)(i)
through (b)(1)(iii) of this Note G, if the Commission has
determined, upon a written request for exemption by or for the
benefit of the broker or dealer, that the broker or dealer may
utilize such a registered clearing agency or derivatives clearing
organization. The Commission may, in its sole discretion, grant such
an exemption subject to such conditions as are appropriate under the
circumstances, if the Commission determines that such conditional or
unconditional exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors; and
    (2) A registered clearing agency or derivatives clearing
organization that, if it holds funds or securities deposited as
margin for security futures products or futures in a portfolio
margin account in a bank, as defined in section 3(a)(6) of the Act
(15 U.S.C. 78c(a)(6)), obtains and preserves written notification
from the bank at which it holds such funds and securities or at
which such funds and securities are held on its behalf. The written
notification will state that all funds and/or securities deposited
with the bank as margin (including customer security futures
products and futures in a portfolio margin account), or held by the
bank and pledged to such registered clearing agency or derivatives
clearing agency as margin, are being held by the bank for the
exclusive benefit of clearing members of the registered clearing
agency or derivatives clearing organization (subject to the interest
of such registered clearing agency or derivatives clearing
organization therein), and are being kept separate from any other
accounts maintained by the registered clearing agency or derivatives
clearing organization with the bank. The written notification also
will provide that such funds and/or securities will at no time be
used directly or indirectly as security for a loan to the registered
clearing agency or derivatives clearing organization by the bank,
and will be subject to no right, charge, security interest, lien, or
claim of any kind in favor of the bank or any

person claiming through the bank. This provision, however, will not
prohibit a registered clearing agency or derivatives clearing
organization from pledging customer funds or securities as
collateral to a bank for any purpose that the rules of the
Commission or the registered clearing agency or derivatives clearing
organization otherwise permit; and
    (3) A registered clearing agency or derivatives clearing
organization establishes, documents, and maintains:
    (i) Safeguards in the handling, transfer, and delivery of cash
and securities;
    (ii) Fidelity bond coverage for its employees and agents who
handle customer funds or securities. In the case of agents of a
registered clearing agency or derivatives clearing organization, the
agent may provide the fidelity bond coverage; and
    (iii) Provisions for periodic examination by independent public
accountants; and
    (iv) A derivatives clearing organization that, if it is not
otherwise registered with the Commission, has provided the
Commission with a written undertaking, in a form acceptable to the
Commission, executed by a duly authorized person at the derivatives
clearing organization, to the effect that, with respect to the
clearance and settlement of the customer security futures products
and futures in a portfolio margin account of the broker or dealer,
the derivatives clearing organization will permit the Commission to
examine the books and records of the derivatives clearing
organization for compliance with the requirements set forth in Sec.
240.15c3-3a, Note G (b)(1) through (3).
    (c) Item 14 will apply only if a broker or dealer determines, at
least annually, that the registered clearing agency or derivatives
clearing organization with which the broker or dealer has on deposit
margin related to securities future products or futures in a
portfolio margin account meets the conditions of this Note G.
    Note H. (a) Item 15 must include the amount of margin required
and on deposit with a clearing agency registered with the Commission
under section 17A of the Act (15 U.S.C. 78q-1) that clears, settles,
and novates transactions in U.S. Treasury securities (``qualified
clearing agency'') to the extent that the margin is in the form of
cash or U.S. Treasury securities and is being used to margin U.S.
Treasury securities positions of the customers of the broker or
dealer that are cleared, settled, and novated by the qualified
clearing agency.
    (b) Item 15 will apply only if the cash and U.S. Treasury
securities required and on deposit at the qualified clearing agency:
    (1) Are, in the case of cash, owed by the broker or dealer to
the customer of the broker or dealer or, in the case of U.S.
Treasury securities, held in custody by the broker or dealer for the
customer of the broker or dealer and were delivered by the broker or
dealer to the qualified clearing agency to meet a margin requirement
resulting from that customer's U.S. Treasury securities positions
cleared, settled, and novated at the qualified clearing agency and
not for any other customer's or the broker's or dealer's U.S.
Treasury securities positions cleared, settled, and novated at the
qualified clearing agency;
    (2) Are treated in accordance with rules of the qualified
clearing agency that impose the following requirements and the
qualified clearing agency and broker or dealer are in compliance
with the requirements of the rules (as applicable);
    (i) Rules requiring the qualified clearing agency to calculate a
separate margin amount for each customer of the broker or dealer and
the broker or dealer to deliver that amount of margin for each
customer on a gross basis;
    (ii) Rules limiting the qualified clearing agency from investing
cash delivered by the broker or dealer to margin U.S. Treasury
security transactions of the customers of the broker or dealer or
cash realized through using U.S. Treasury securities delivered by
the broker or dealer for that purpose in any asset other than U.S.
Treasury securities with a maturity of one year or less;
    (iii) Rules requiring that the cash and U.S. Treasury securities
used to margin the U.S. Treasury securities positions of the
customers of the broker or dealer be held in an account of the
broker or dealer at the qualified clearing agency that is segregated
from any other account of the broker or dealer at the qualified
clearing agency and that is:
    (A) Used exclusively to clear, settle, novate, and margin U.S.
Treasury securities transactions of the customers of the broker or
dealer;
    (B) Designated ``Special Clearing Account for the Exclusive
Benefit of the Customers of [name of broker or dealer]'';
    (C) Subject to a written notice of the qualified clearing agency
provided to and retained by the broker or dealer that the cash and
U.S. Treasury securities in the account are being held by the
qualified clearing agency for the exclusive benefit of the customers
of the broker or dealer in accordance with the regulations of the
Commission and are being kept separate from any other accounts
maintained by the broker or dealer or any other clearing member at
the qualified clearing agency; and
    (D) Subject to a written contract between the broker or dealer
and the qualified clearing agency which provides that the cash and
U.S. Treasury securities in the account are not available to cover
claims arising from the broker or dealer or any other clearing
member defaulting on an obligation to the qualified clearing agency
or subject to any other right, charge, security interest, lien, or
claim of any kind in favor of the qualified clearing agency or any
person claiming through the qualified clearing agency, except a
right, charge, security interest, lien, or claim resulting from a
cleared U.S. Treasury securities transaction of a customer of the
broker or dealer effected in the account;
    (iv) Rules requiring the qualified clearing agency to hold the
customer cash and U.S. Treasury securities used to margin the U.S.
Treasury securities positions of the customers of the broker or
dealer itself or in an account of the clearing agency at a U.S.
Federal Reserve Bank or a ``bank,'' as that term is defined in
section 3(a)(6) of the Act (15 U.S.C. 78c(a)(6)), that is insured by
the Federal Deposit Insurance Corporation, and that the account at
the U.S. Federal Reserve Bank or bank must be:
    (A) Segregated from any other account of the qualified clearing
agency or any other person at the U.S. Federal Reserve Bank or bank
and used exclusively to hold cash and U.S. Treasury securities to
meet current margin requirements of the qualified clearing agency
resulting from positions in U.S. Treasury securities of the
customers of the broker or dealer members of the qualified clearing
agency;
    (B) Subject to a written notice of the U.S. Federal Reserve Bank
or bank provided to and retained by the qualified clearing agency
that the cash and U.S. Treasury securities in the account are being
held by the U.S. Federal Reserve Bank or bank pursuant to Sec.
240.15c3-3 and are being kept separate from any other accounts
maintained by the qualified clearing agency or any other person at
the U.S. Federal Reserve Bank or bank; and
    (C) Subject to a written contract between the qualified clearing
agency and the U.S. Federal Reserve Bank or bank which provides that
the cash and U.S. Treasury securities in the account are subject to
no right, charge, security interest, lien, or claim of any kind in
favor of the U.S. Federal Reserve Bank or bank or any person
claiming through the U.S. Federal Reserve Bank or bank; and
    (v) Rules requiring systems, controls, policies, and procedures
to return cash and U.S. Treasury securities to the broker or dealer
that are no longer needed to meet a current margin requirement
resulting from positions in U.S. Treasury securities of the
customers of the broker or dealer no later than the close of the
next business day after the day the cash and U.S. Treasury
securities are no longer needed for this purpose; and
    (3) The Commission has approved rules of the qualified clearing
agency that meet the conditions of this Note H and has published
(and not subsequently withdrawn) a notice that brokers or dealers
may include a debit in the customer reserve formula when depositing
customer cash or U.S. Treasury securities to meet a margin
requirement of the qualified clearing agency resulting from
positions in U.S. Treasury securities of the customers of the broker
or dealer.

Notes Regarding the PAB Reserve Bank Account Computation

    Note 1. Broker-dealers should use the formula in Exhibit A for
the purposes of computing the PAB reserve requirement, except that
references to ``accounts,'' ``customer accounts, or ``customers''
will be treated as references to PAB accounts.
    Note 2. Any credit (including a credit applied to reduce a
debit) that is included in the computation required by Sec.
240.15c3-3 with respect to customer accounts (the ``customer reserve
computation'') may not be included as a credit in the computation
required by Sec.  240.15c3-3 with respect to PAB accounts (the ``PAB
reserve computation'').
    Note 3. Note E(1) to Sec.  240.15c3-3a does not apply to the PAB
reserve computation.
    Note 4. Note E(3) to Sec.  240.15c3-3a which reduces debit
balances by 1 percent does not apply to the PAB reserve computation.
    Note 5. Interest receivable, floor brokerage, and commissions
receivable of another broker or dealer from the broker or dealer

(excluding clearing deposits) that are otherwise allowable assets
under Sec.  240.15c3-1 need not be included in the PAB reserve
computation, provided the amounts have been clearly identified as
payables on the books of the broker or dealer. Commissions
receivable and other receivables of another broker or dealer from
the broker or dealer that are otherwise non-allowable assets under
Sec.  240.15c3-1 and clearing deposits of another broker or dealer
may be included as ``credit balances'' for purposes of the PAB
reserve computation, provided the commissions receivable and other
receivables are subject to immediate cash payment to the other
broker or dealer and the clearing deposit is subject to payment
within 30 days.
    Note 6. Credits included in the PAB reserve computation that
result from the use of securities held for a PAB account (``PAB
securities'') that are pledged to meet intra-day margin calls in a
cross-margin account established between the Options Clearing
Corporation and any regulated derivatives clearing organization may
be reduced to the extent that the excess margin held by the other
clearing corporation in the cross-margin relationship is used the
following business day to replace the PAB securities that were
previously pledged. In addition, balances resulting from a portfolio
margin account that are segregated pursuant to Commodity Futures
Trading Commission regulations need not be included in the PAB
Reserve Bank Account computation.
    Note 7. Deposits received prior to a transaction pending
settlement which are $5 million or greater for any single
transaction or $10 million in aggregate may be excluded as credits
from the PAB reserve computation if such balances are placed and
maintained in a separate PAB Reserve Bank Account by 12 p.m. Eastern
Time on the following business day. Thereafter, the money
representing any such deposits may be withdrawn to complete the
related transactions without performing a new PAB reserve
computation.
    Note 8. A credit balance resulting from a PAB reserve
computation may be reduced by the amount that items representing
such credits are swept into money market funds or mutual funds of an
investment company registered under the Investment Company Act of
1940 on or prior to 10 a.m. Eastern Time on the deposit date
provided that the credits swept into any such fund are not subject
to any right, charge, security interest, lien, or claim of any kind
in favor of the investment company or the broker or dealer. Any
credits that have been swept into money market funds or mutual funds
must be maintained in the name of a particular broker or for the
benefit of another broker.
    Note 9. Clearing deposits required to be maintained at
registered clearing agencies may be included as debits in the PAB
reserve computation to the extent the percentage of the deposit,
which is based upon the clearing agency's aggregate deposit
requirements (e.g., dollar trading volume), that relates to the
proprietary business of other brokers and dealers can be identified.
However, Note H to Item 15 of Sec.  240.15c3-3a applies with respect
to margin delivered to a U.S. Treasury securities clearing agency.
    Note 10. A broker or dealer that clears PAB accounts through an
affiliate or third party clearing broker must include these PAB
account balances and the omnibus PAB account balance in its PAB
reserve computation.
0
3. Amend Sec.  240.17Ad-22 by:
0
a. In paragraph (a):
0
i. Removing the second-level paragraph designations, and
0
ii. Inserting in alphabetical order definitions for ``Central bank'',
``Eligible secondary market transaction'', ``International financial
institution'', ``Sovereign entity'', and ``U.S. Treasury security''.
0
b. Revising paragraphs (e)(6)(i) and (e)(18).
    The revisions and additions read as follows:

Sec.  240.17Ad-22   Standards for clearing agencies.

    (a) * * *
    Central bank means a reserve bank or monetary authority of a
central government (including the Board of Governors of the Federal
Reserve System or any of the Federal Reserve Banks) and the Bank for
International Settlements.
* * * * *
    Eligible secondary market transaction refers to a secondary market
transaction in U.S. Treasury securities of a type accepted for clearing
by a registered covered clearing agency that is:
    (i) A repurchase or reverse repurchase agreement collateralized by
U.S. Treasury securities, in which one of the counterparties is a
direct participant; or
    (ii) A purchase or sale, between a direct participant and
    (A) Any counterparty, if the direct participant of the covered
clearing agency brings together multiple buyers and sellers using a
trading facility (such as a limit order book) and is a counterparty to
both the buyer and seller in two separate transactions;
    (B) Registered broker-dealer, government securities broker, or
government securities dealer;
    (C) A hedge fund, that is, any private fund (other than a
securitized asset fund):
    (1) With respect to which one or more investment advisers (or
related persons of investment advisers) may be paid a performance fee
or allocation calculated by taking into account unrealized gains (other
than a fee or allocation the calculation of which may take into account
unrealized gains solely for the purpose of reducing such fee or
allocation to reflect net unrealized losses);
    (2) That may borrow an amount in excess of one-half of its net
asset value (including any committed capital) or may have gross
notional exposure in excess of twice its net asset value (including any
committed capital); or
    (3) That may sell securities or other assets short or enter into
similar transactions (other than for the purpose of hedging currency
exposure or managing duration); or
    (D) An account at a registered broker-dealer, government securities
dealer, or government securities broker where such account may borrow
an amount in excess of one-half of the net value of the account or may
have gross notional exposure of the transactions in the account that is
more than twice the net value of the account; except that
    (iii) any purchase or sale transaction in U.S. Treasury securities
or repurchase or reverse repurchase agreement collateralized by U.S.
Treasury securities in which one counterparty is a central bank, a
sovereign entity, an international financial institution, or a natural
person shall be excluded from the definition set forth in this section
of an eligible secondary market transaction.
* * * * *
    International financial institution means the African Development
Bank; African Development Fund; Asian Development Bank; Banco
Centroamericano de Integraci[oacute]n Econ[oacute]mica; Bank for
Economic Cooperation and Development in the Middle East and North
Africa; Caribbean Development Bank; Corporaci[oacute]n Andina de
Fomento; Council of Europe Development Bank; European Bank for
Reconstruction and Development; European Investment Bank; European
Investment Fund; European Stability Mechanism; Inter-American
Development Bank; Inter-American Investment Corporation; International
Bank for Reconstruction and Development; International Development
Association; International Finance Corporation; International Monetary
Fund; Islamic Development Bank; Multilateral Investment Guarantee
Agency; Nordic Investment Bank; North American Development Bank; and
any other entity that provides financing for national or regional
development in which the U.S. Government is a shareholder or
contributing member.
* * * * *
    Sovereign entity means a central government (including the U.S.
Government), or an agency, department, or ministry of a central
government.
* * * * *

    U.S. Treasury security means any security issued by the U.S.
Department of the Treasury.
* * * * *
    (e) * * *
    (6) * * *
    (i) Considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market, and, if the covered clearing agency provides central
counterparty services for U.S. Treasury securities, calculates,
collects, and holds margin amounts from a direct participant for its
proprietary positions in Treasury securities separately and
independently from margin calculated and collected from that direct
participant in connection with U.S. Treasury securities transactions by
an indirect participant that relies on the services provided by the
direct participant to access the covered clearing agency's payment,
clearing, or settlement facilities;
* * * * *
    (18) Establish objective, risk-based, and publicly disclosed
criteria for participation, which
    (i) Permit fair and open access by direct and, where relevant,
indirect participants and other financial market utilities,
    (ii) Require participants to have sufficient financial resources
and robust operational capacity to meet obligations arising from
participation in the clearing agency,
    (iii) Monitor compliance with such participation requirements on an
ongoing basis, and
    (iv) When the covered clearing agency provides central counterparty
services for transactions in U.S. Treasury securities,
    (A) Require that any direct participant of such covered clearing
agency submit for clearance and settlement all of the eligible
secondary market transactions to which such direct participant is a
counterparty;
    (B) Identify and monitor its direct participants' submission of
transactions for clearing as required in paragraph (e)(18)(iv)(A) of
this section, including how the covered clearing agency would address a
failure to submit transactions in accordance with paragraph
(e)(18)(iv)(A) of this section; and
    (C) 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, which policies and procedures board of directors of such
covered clearing agency reviews annually.
* * * * *

    By the Commission.
    Dated: September 14, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-20288 Filed 10-24-22; 8:45 am]
BILLING CODE 8011-01-P