[Federal Register Volume 78, Number 1 (Wednesday, January 2, 2013)]
[Notices]
[Pages 100-101]
[FR Doc No: 2012-31477]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2012-D-0523]

Guidance for Industry and Food and Drug Administration Staff;
Refuse To Accept Policy for 510(k)s; Availability

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is announcing the
availability of the guidance entitled ``Refuse to Accept Policy for
510(k)s.'' The purpose of this document is to explain the procedures
and criteria FDA intends to use in determining whether a 510(k)
submission is administratively complete, which determines whether it
should be accepted for substantive review and clearance. This guidance
is applicable to 510(k)s reviewed in the Center for Devices and
Radiological Health (CDRH) and the Center for Biologics Evaluation and
Research (CBER).

DATES: Submit either electronic or written comments on this guidance at
any time. General comments on Agency guidance documents are welcome at
any time.

ADDRESSES: Submit written requests for single copies of the guidance
document entitled ``Refuse to Accept Policy for 510(k)s'' to the
Division of Small Manufacturers, International and Consumer Assistance,
Center for Devices and Radiological Health, Food and Drug
Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4613, Silver
Spring, MD 20993-0002; or Office of Communication, Outreach and
Development (HFM-40), Center for Biologics Evaluation and Research
(CBER), Food and Drug Administration, 1401 Rockville Pike, Suite 200N,
Rockville, MD 20852-1448. Send one self-addressed adhesive label to
assist that office in processing your request, or fax your request to
301-847-8149. See the SUPPLEMENTARY INFORMATION section for information
on electronic access to the guidance.
    Submit electronic comments on the guidance to http://www.regulations.gov. Submit written comments to the Division of Dockets
Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane,
rm. 1061, Rockville, MD 20852. Identify comments with the docket number
found in brackets in the heading of this document.

FOR FURTHER INFORMATION CONTACT:
Geeta Pamidimukkala, Center for Devices and Radiological Health, Food
and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 1564,
Silver Spring, MD 20993-0002,<PHONE_NUMBER>; or
Stephen Ripley, Center for Biologics Evaluation and Research (HFM-17),
Food and Drug Administration, 1401 Rockville Pike, Suite 200N,
Rockville, MD 20852-1448,<PHONE_NUMBER>.

SUPLEMENTARY INFORMATION:

I. Background

    The purpose of the 510(k) acceptance review is to make a threshold
determination whether a submission is administratively complete, which
determines whether it should be accepted for substantive review to
reach a determination regarding substantial equivalence under section
513(i) of the FD&C Act, 21 U.S.C. 360c(i). To find a device
substantially equivalent under section 513(i) of the FD&C Act, FDA must
find that it has the same intended use as the predicate device, and
either: (1) Has the same technological characteristics as the predicate
device, or (2) has different technological characteristics, as defined
at section 513(i)(1)(B), and (3) the submission contains information,
including appropriate clinical or scientific data if necessary, that
demonstrates the device is as safe and effective as the predicate and
does not raise different questions of safety and effectiveness from the
predicate.
    The purpose of this document is to explain the procedures and
criteria FDA intends to use in determining whether a 510(k) submission
is administratively complete and should be accepted for substantive
review. This guidance document provides updated information to two
existing guidance documents entitled ``Center for Devices and
Radiological Health's Premarket Notification (510(k)) Refuse to Accept
Policy'' issued on June 30, 1993 and ``510(k) Refuse to Accept
Procedures, 510(k) Memorandum K94-1'' issued on May 20, 1994. Upon
issuance as a final guidance document, this guidance will replace those
documents.
    To further focus the Agency's review resources on complete
applications, which will provide a more efficient approach to ensuring
that safe and effective medical devices reach patients as quickly as
possible, we have modified the 1993 and 1994 guidances. For example, we
have modified the 510(k) Refuse to Accept (RTA) policy to include an
early review against specific acceptance criteria and to inform the
submitter within the first 15 calendar days of receipt of the
submission if the submission is administratively complete, or if not,
to identify the missing element(s). In order to enhance the consistency
of our acceptance decisions and to help submitters better understand
the types of information FDA needs to conduct a substantive review,
this guidance, including the checklists included in the appendices,
clarifies the necessary elements and contents of a complete 510(k)
submission. These elements are applicable to all devices reviewed
through the 510(k) notification process in CDRH and CBER and have been
compiled into checklists for use by FDA review staff.
    In the Federal Register of August 13, 2012 (77 FR 48159), FDA
announced the availability of the draft guidance document. Interested
persons were invited to comment by September 27, 2012. Eleven sets of
comments were received with multiple recommendations pertaining to the
administrative processes and policies regarding 510(k) acceptance
decisions.
    A number of commenters expressed concern that the checklist
questions related to performance data implied that FDA staff would need
to conduct a level of substantive review in order to complete the
checklist. FDA has revised the language in these questions and added
further instructions to FDA staff to more specifically state that only
the presence of the information is required for acceptance, and that
the adequacy of the information should only be assessed after
acceptance and as part of the substantive review.
    Similar comments were received regarding questions in the
checklists that identified an ``analysis'' or ``discussion'' as a
criterion for acceptance. Commenters were concerned that FDA staff
would be assessing the adequacy of the ``analysis'' or ``discussion''
in order to complete the checklist. These questions have also been
modified to explain more clearly that the acceptance criterion requires
only that the ``analysis'' or ``discussion'' be present; the adequacy
of this information should be assessed during the substantive review.
    FDA received comments regarding relevant prior submissions and how
prior FDA feedback relevant to determining substantial equivalence has
been addressed in the submission under

review. It was suggested that FDA identify a particular location within
the submission for this information, noting that such information could
be found in multiple locations. The guidance has been revised to
suggest more specific locations within the submission where this
information can be provided for the ease of compiling a 510(k) and to
facilitate FDA staff's acceptance review.
    Other comments provided editorial suggestions for clarity and for
consistency with other FDA guidance documents. In response to these
comments, FDA revised the guidance document to clarify the processes
and policies as appropriate. This guidance supersedes the guidances
``Center for Devices and Radiological Health's Premarket Notification
(510(k)) Refuse to Accept Policy'' issued on June 30, 1993 and ``510(k)
Refuse to Accept Procedures, 510(k) Memorandum K94-1'' issued on May
20, 1994.

II. Significance of Guidance

    This guidance is being issued consistent with FDA's good guidance
practices regulation (21 CFR 10.115). The guidance represents the
Agency's current thinking on the refuse to accept policy for 510(k)s.
It does not create or confer any rights for or on any person and does
not operate to bind FDA or the public. An alternative approach may be
used if such approach satisfies the requirements of the applicable
statute and regulations.

III. Electronic Access

    Persons interested in obtaining a copy of the guidance may do so by
using the Internet. A search capability for all CDRH guidance documents
is available at http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/default.htm. Guidance
documents are also available at http://www.regulations.gov. To receive
``Refuse to Accept Policy for 510(k)s,'' you may either send an email
request to<EMAIL_ADDRESS>to receive an electronic copy of the
document or send a fax request to<PHONE_NUMBER> to receive a hard copy.
Please use the document number 1793 to identify the guidance you are
requesting.

IV. Paperwork Reduction Act of 1995

    This guidance refers to currently approved collections of
information found in FDA regulations. These collections of information
are subject to review by the Office of Management and Budget (OMB)
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The
collections of information in 21 CFR part 807, subpart E, have been
approved under OMB control number 0910-0120.

V. Comments

    Interested persons may submit either written comments regarding
this document to the Division of Dockets Management (see ADDRESSES) or
electronic comments to http://www.regulations.gov. It is only necessary
to send one set of comments. Identify comments with the docket number
found in brackets in the heading of this document. Received comments
may be seen in the Division of Dockets Management between 9 a.m. and 4
p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov.

    Dated: December 26, 2012.
Leslie Kux,
Assistant Commissioner for Policy.
[FR Doc. 2012-31477 Filed 12-31-12; 8:45 am]
BILLING CODE 4160-01-P


[Federal Register Volume 85, Number 238 (Thursday, December 10, 2020)]
[Notices]
[Pages 79541-79548]
[FR Doc No: 2020-27087]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90568; File No. SR-FICC-2020-017]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change To Modify the Calculation of
the MBSD VaR Floor To Incorporate a Minimum Margin Amount

December 4, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 20, 2020, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the clearing agency.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On November 27, 2020, FICC filed this proposed rule change
as an advance notice (SR-FICC-2020-804) with the Commission pursuant
to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the Payment, Clearing,
and Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and
Rule 19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy
of the advance notice is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The proposed rule change of Fixed Income Clearing Corporation
(``FICC'') is attached hereto as Exhibit 5 and consists of a proposal
to modify the calculation of the VaR Floor (as defined below) and the
corresponding description in the FICC Mortgage-Backed Securities
Division (``MBSD'') Clearing Rules (``MBSD Rules'') \4\ to incorporate
a ``Minimum Margin Amount'' as described in greater detail below.
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    \4\ Capitalized terms not defined herein are defined in the MBSD
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_mbsd_rules.pdf.
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    The proposed rule change would necessitate changes to the
Methodology and Model Operations Document--MBSD Quantitative Risk Model
(the ``QRM Methodology''), which is attached hereto as Exhibit 5.\5\
FICC is requesting confidential treatment of this document and has
filed it separately with the Secretary of the Commission.\6\
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    \5\ Because FICC requested confidential treatment, the QRM
Methodology was filed separately with the Secretary of the
Commission as part of proposed rule change SR-FICC-2016-007 (the
``VaR Filing''). See Securities Exchange Act Release No. 79868
(January 24, 2017), 82 FR 8780 (January 30, 2017) (SR-FICC-2016-007)
(``VaR Filing Approval Order''). FICC also filed the VaR Filing
proposal as an advance notice pursuant to Section 806(e)(1) of the
Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C.
5465(e)(1)) and Rule 19b-4(n)(1)(i) under the Act (17 CFR 240.19b-
4(n)(1)(i)), with respect to which the Commission issued a Notice of
No Objection. See Securities Exchange Act Release No. 79843 (January
19, 2017), 82 FR 8555 (January 26, 2017) (SR-FICC-2016-801). The QRM
Methodology has been amended following the VaR Filing Approval
Order. See Securities Exchange Act Release Nos. 85944 (May 24,
2019), 84 FR 25315 (May 31, 2019) (SR-FICC-2019-001) and 90182
(October 14, 2020) 85 FR 66630 (October 20, 2020) (SR-FICC-2020-
009).
    \6\ 17 CFR 240.24b-2.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
    The purpose of the proposed rule change is to modify the
calculation of the VaR Floor and the corresponding description in the
MBSD Rules to incorporate a Minimum Margin Amount.
    The proposed changes would necessitate changes to the QRM

Methodology. The proposed changes are described in detail below.
(i) Overview of The Required Fund Deposit and Clearing Fund Calculation
    A key tool that FICC uses to manage market risk is the daily
calculation and collection of Required Fund Deposits from Clearing
Members. The Required Fund Deposit serves as each Clearing Member's
margin. The aggregate of all Clearing Members' Required Fund Deposits
constitutes the Clearing Fund of MBSD, which FICC would access should a
defaulting Clearing Member's own Required Fund Deposit be insufficient
to satisfy losses to FICC caused by the liquidation of that Clearing
Member's portfolio.
    The objective of a Clearing Member's Required Fund Deposit is to
mitigate potential losses to FICC associated with liquidation of such
Clearing Member's portfolio in the event that FICC ceases to act for
such Clearing Member (hereinafter referred to as a ``default'').
Pursuant to the MBSD Rules, each Clearing Member's Required Fund
Deposit amount currently consists of the greater of (i) The Minimum
Charge or (ii) the sum of the following components: the VaR Charge, the
Deterministic Risk Component, a special charge (to the extent
determined to be appropriate), and, if applicable, the Backtesting
Charge, Holiday Charge and Intraday Mark-to-Market Charge.\7\ Of these
components, the VaR Charge typically comprises the largest portion of a
Clearing Member's Required Fund Deposit amount.
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    \7\ MBSD Rule 4 Section 2, supra, note 4.
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    The VaR Charge is calculated using a risk-based margin methodology
that is intended to capture the market price risk associated with the
securities in a Clearing Member's portfolio. The VaR Charge provides an
estimate of the projected liquidation losses at a 99% confidence level.
The methodology is designed to project the potential gains or losses
that could occur in connection with the liquidation of a defaulting
Clearing Member's portfolio, assuming that a portfolio would take three
days to hedge or liquidate in normal market conditions. The projected
liquidation gains or losses are used to determine the amount of the VaR
Charge, which is calculated to cover projected liquidation losses at
99% confidence level.\8\
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    \8\ Unregistered Investment Pool Clearing Members are subject to
a VaR Charge with a minimum targeted confidence level assumption of
99.5 percent. See MBSD Rule 4, Section 2(c), supra note 4.
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    On January 24, 2017, the Commission approved FICC's VaR Filing to
make certain enhancements to the MBSD value-at-risk (``VaR'') margin
calculation methodology including the VaR Charge.\9\ The VaR Filing
amended the definition of VaR Charge to, among other things,
incorporate the VaR Floor.\10\ The VaR Floor is a calculation using a
percentage of gross notional value of a Clearing Member's portfolio and
is used as an alternative to the VaR Charge amount calculated by the
VaR model for Clearing Members' portfolios where the VaR Floor
calculation is greater than the VaR model-based calculation. The VaR
Floor currently addresses the risk that the VaR model may calculate too
low a VaR Charge for certain portfolios where the VaR model applies
substantial risk offsets among long and short positions in different
classes of mortgage-backed securities that have a high degree of
historical price correlation. FICC applies the VaR Floor at the
Clearing Member portfolio level. The VaR Floor is calculated by
multiplying the market value of a Clearing Member's gross unsettled
positions by a designated percentage that is no less than 0.05% and no
greater than 0.30%.\11\ FICC informs Clearing Members of the applicable
percentage utilized by the VaR Floor by an Important Notice issued no
later than 10 Business Days prior to the implementation of such
percentage.\12\ The percentage currently designated by FICC is
0.10%.\13\
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    \9\ See VaR Filing Approval Order, supra note 5.
    \10\ The term ``VaR Floor'' is defined within the definition of
VaR Charge. See MBSD Rule 1, supra note 4.
    \11\ The VaR Floor calculation and percentages are described
within the definition of VaR Charge. See MBSD Rule 1, supra note 4.
    \12\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
    \13\ See FICC-MBSD Important Notice MBS761-19, dated November 5,
2019 (notifying Clearing Members that the designated VaR Floor
percentage is 0.10%).
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    FICC's VaR model did not respond effectively to the recent levels
of market volatility and economic uncertainty, and the VaR Charge
amounts that were calculated using the profit and loss scenarios
generated by FICC's VaR model did not achieve a 99% confidence level
for the period beginning in March 2020 through the beginning of April
2020. FICC's VaR model calculates the risk profile of each Clearing
Member's portfolio by applying certain representative risk factors to
measure the degree of responsiveness of a portfolio's value to the
changes of these risk factors. COVID-19 market volatility, borrower
protection programs, home price outlook, and the Federal Reserve Bank
of New York (``FRBNY'') authority to buy and sell mortgage-backed
securities have created uncertainty in forward rates, origination/
refinance pipelines, voluntary/involuntary mortgage prepayments, and
supply/demand dynamics that are not reflected in the FICC VaR
historical data set and the FICC VaR model incorporates this historical
data to calibrate the volatilities of the risk factors and the
correlations between risk factors. During this period, the market
uncertainty and FRBNY purchases led to market price changes that
exceeded the VaR model's projections which yielded insufficient VaR
Charges--particularly for higher coupon TBAs \14\ where current TBA
market prices may reflect higher mortgage prepayment risk than implied
by the VaR model's historical risk factor data in the lookback period.
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    \14\ The vast majority of agency mortgage-backed securities
trading occurs in a forward market, on a ``to-be-announced'' or
``TBA'' basis. In a TBA trade, the seller of MBS agrees on a sale
price, but does not specify which particular securities will be
delivered to the buyer on settlement day. Instead, only a few basic
characteristics of the securities are agreed upon, such as the
mortgage-backed security program, maturity, coupon rate and the face
value of the bonds to be delivered. This TBA trading convention
enables a heterogeneous market consisting of thousands of different
mortgage-backed security pools backed by millions of individual
mortgages to be reduced--for trading purposes--to a series of liquid
contracts.
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    In addition, the VaR Floor did not effectively address the risk
that the VaR model calculated too low a VaR Charge for all portfolios
during the recent market volatility and economic uncertainty. The VaR
Floor is currently designed specifically to account for substantial
risk offsets among long and short positions in different classes of
mortgage-backed securities that have a high degree of historical price
correlation. The recent market volatility and economic uncertainty
resulted in a variance between historical price changes and observed
market price changes resulting in TBA price changes significantly
exceeding those implied by the VaR model risk factors as indicated by
backtesting data.
    FICC employs daily backtesting to determine the adequacy of each
Clearing Member's Required Fund Deposit.\15\ FICC compares the Required
Fund Deposit for each Clearing Member with the simulated liquidation
gains/losses using the actual positions in the Clearing Member's
portfolio, and the actual historical security returns. During the
recent market volatility and economic uncertainty, the VaR Charges and
the Required Fund Deposits yielded backtesting deficiencies beyond
FICC's

risk tolerance.\16\ FICC proposes to introduce a Minimum Margin Amount
into the VaR Floor to enhance the MBSD VaR model performance and
improve the backtesting coverage during periods of heightened market
volatility and economic uncertainty. FICC believes that this proposal
will increase the margin back-testing performance during periods of
heightened market volatility by maintaining a VaR Charge that is
appropriately calibrated to the current market price volatility.
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    \15\ For backtesting comparisons, FICC uses the Required Fund
Deposit amount, without regard to the actual collateral posted by
the Clearing Member.
    \16\ MBSD's monthly backtesting coverage ratios for Required
Fund Deposit was 86.6% in March 2020 and 94.2% in April 2020.
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(ii) Proposed Rule Change to Incorporate the Minimum Margin Amount in
the VaR Floor
    FICC is proposing to introduce a new calculation called the
``Minimum Margin Amount'' to complement the existing VaR Floor
calculation in the MBSD Rules. The Minimum Margin Amount would enhance
backtesting coverage when there are potential VaR model performance
challenges particularly when TBA price changes significantly exceed
those implied by the VaR model risk factors as observed during March
and April 2020.
    The Minimum Margin Amount would be defined in the MBSD Rules as a
minimum volatility calculation for specified net unsettled positions,
calculated using the historical market price changes of such benchmark
TBA securities determined by FICC. The definition would state that the
Minimum Margin Amount would cover such range of historical market price
moves and parameters as FICC from time to time deems appropriate using
a look-back period of no less than one year and no more than three
years.
    FICC would set the range of historical market price moves and
parameters from time to time in accordance with FICC's model risk
management practices and governance set forth in the Clearing Agency
Model Risk Management Framework (``Model Risk Management
Framework'').\17\ Under the proposed changes to the QRM Methodology,
the Minimum Margin Amount would be computed through a dynamic haircut
method that is based on observed TBA price moves that would provide a
more reliable estimate for the portfolio risk level when current market
conditions deviate from historical observations. The Minimum Margin
Amount would also improve the responsiveness of the VaR model to a
volatile market because it would have a shorter look back period from
the VaR model.
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    \17\ See Securities Exchange Act Release Nos. 81485 (August 25,
2017), 82 FR 41433 (August 31, 2017) (SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008); 84458 (October 19, 2018), 83 FR 53925
(October 25, 2018) (SR-DTC-2018-009; SR-FICC-2018-010; SR-NSCC-2018-
009) and 88911 (May 20, 2020), 85 FR 31828 (May 27, 2020) (SR-DTC-
2020-008; SR-FICC-2020-004; SR-NSCC-2020-008) (``Model Risk
Management Framework Filings''). The Model Risk Management Framework
sets forth the model risk management practices adopted by FICC,
National Securities Clearing Corporation, and The Depository Trust
Company. The Model Risk Management Framework is designed to help
identify, measure, monitor, and manage the risks associated with the
design, development, implementation, use, and validation of
quantitative models. The Model Risk Management Framework describes
(i) governance of the Model Risk Management Framework; (ii) key
terms; (iii) model inventory procedures; (iv) model validation
procedures; (v) model approval process; and (vi) model performance
procedures.
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    The MBSD Rules currently define the VaR Floor as an amount
designated by FICC that is determined by multiplying the sum of the
absolute values of a Clearing Member's Long Positions and Short
Positions, at market value, by a percentage designated by FICC that is
no less than 0.05% and no greater than 0.30%.\18\ FICC is proposing to
revise the definition of the VaR Floor to incorporate the Minimum
Margin Amount such that the VaR Floor would be the greater of (i) the
VaR Floor Percentage Amount and (ii) the Minimum Margin Amount.
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    \18\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
---------------------------------------------------------------------------

    The ``VaR Floor Percentage Amount'' would be an amount derived
using the current VaR Floor percentage calculation in the MBSD Rules:
an amount designated by FICC that is determined by multiplying the sum
of the absolute values of a Clearing Member's Long Positions and Short
Positions, at market value, by a percentage designated by FICC that is
no less than 0.05% and no greater than 0.30%. As with the existing VaR
Floor percentage, FICC would determine the percentage within this range
to be applied based on factors including but not limited to a review
performed at least annually of the impact of the VaR Floor parameter at
different levels within the range to the backtesting performance and to
Clearing Members' margin charges. The VaR Floor percentage currently in
place is 0.10%.
    Likewise, as with the existing VaR Floor percentage, FICC would
inform Clearing Members of the applicable percentage used in the VaR
Floor Percentage Amount by Important Notice issued no later than 10
Business Days prior to implementation of such percentage. This rule
change is not proposing to change the VaR Floor percentage or the
manner in which this component is calculated.
    The proposed Minimum Margin Amount would modify the VaR Floor to
also cover circumstances where the market price volatility implied by
the current VaR Charge calculation and the VaR Floor Percentage Amount
is lower than market price volatility from corresponding price changes
of the proposed TBA securities benchmarks observed during the lookback
period. The proposed TBA securities benchmarks to be used in to
calculate the Minimum Margin Amount in the QRM Methodology would be
Federal National Mortgage Association (``Fannie Mae'') and Federal Home
Loan Mortgage Corporation (``Freddie Mac'') conventional 30-year
mortgage-backed securities (``CONV30''), Government National Mortgage
Association (``Ginnie Mae'') 30-year mortgage-backed securities
(``GNMA30''), Fannie Mae and Freddie Mac conventional 15-year mortgage-
backed securities (``CONV15''), and Ginnie Mae 15-year mortgage-backed
securities (``GNMA15''). These benchmarks were selected because they
represent the majority of the trading volumes in the market.\19\ This
proposal would allow offsetting between short and long positions within
TBA securities benchmarks given that the TBAs aggregated in each
benchmark exhibit similar risk profiles and can be netted together to
calculate the Minimum Margin Amount that will cover the observed market
price changes for each portfolio.
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    \19\ FICC plans to map 10-year and 20-year TBA to the
corresponding 15-year TBA security benchmark. As of August 31, 2020,
20-year TBAs account for less than 0.5%, and 10-year TBAs account
for less than 0.1%, of the positions in MBSD clearing portfolios. In
the QRM Methodology, these TBAs are not selected as separate TBA
security benchmarks due to the limited trading volumes in the
market. FICC will continue to monitor the position exposures in MBSD
and determine if a modification to the QRM Methodology may be
required.
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    FICC is proposing to modify the QRM Methodology to specify that the
Minimum Margin Amount would be calculated per Clearing Member portfolio
as follows: (i) risk factors would be calculated using historical
market prices of benchmark TBA securities and (ii) each Clearing
Member's portfolio exposure would be calculated on a net position
across all products and for each securitization program (i.e., CONV30,
GNMA30, CONV15 and GNMA15). The Minimum Margin Amount would be
calculated by multiplying a ``base risk factor'' (described below) by
the absolute value of the Clearing Member's net position across all
products, plus the sum of each risk factor spread to the base risk
factor

multiplied by the absolute value of its corresponding position.
    Pursuant to the QRM Methodology, FICC calculates an outright risk
factor for GNMA30 and CONV30. The base risk factor for a portfolio for
the Minimum Margin Amount would be based on whether GNMA30 or CONV30
constitutes the larger absolute net market value in each Clearing
Member's portfolio. If GNMA30 constitute the larger absolute net market
value in the portfolio, the base risk factor would be equal to the
outright risk factor for GNMA30. If CONV30 constitute the larger
absolute new market value in the portfolio, the base risk factor would
be equal to the outright risk factor for the CONV30.\20\ GNMA30 and
CONV30 are used as the baseline programs for determining the base risk
factors because those programs constitute the majority part of the TBA
market and the majority of positions in MBSD portfolios.
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    \20\ To illustrate the Minimum Margin Amount calculation,
consider an example where a Clearing Member has a portfolio with a
net long position across all products of $2 billion and CONV30
constitutes the larger absolute net market value in its portfolio as
between GNMA30 and CONV30. Assume that the outright risk factor for
CONV30 is 0.0096. Further assume the Clearing Member has a net short
position of $30 million in CONV15, and the corresponding risk factor
spread to the base risk factor is 0.006; a net short position of
$500 million in GNMA30, and the corresponding risk factor spread is
0.005; and a net long position of $120 million in GNMA15, and the
corresponding risk factor spread is 0.007. In order to generate the
Minimum Margin Amount, FICC would multiply the base risk factor by
the absolute value of the Clearing Member's net position across all
products, plus the sum of each risk factor spread of the subsequent
products multiplied by absolute value of the position for the
respective product (i.e., ([base risk factor]*ABS[portfolio net
position]) + ([CONV15 spread risk factor] * ABS[CONV15 net
position]) + ([GNMA30 spread risk factor] * ABS[GNMA30 net
position]) + ([GNMA15 Spread Risk Factor] * ABS[GNMA15 net
position])). The resulting Minimum Margin Amount would be $22.72
million.
---------------------------------------------------------------------------

    The proposed benchmark TBA securities, historical market price
moves and parameters to be used to calculate the Minimum Margin Amount
would be determined by FICC from time to time in accordance with FICC's
model risk management practices and governance set forth in the
Clearing Agency Model Risk Management Framework.\21\
---------------------------------------------------------------------------

    \21\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------

    FICC is proposing to introduce the Minimum Margin Amount to
complement the VaR Floor during market conditions when the TBA prices
are driven by factors outside of those implied by the VaR model. The
Minimum Margin Amount would use observable TBA prices and would be
calculated with a shorter lookback period than the VaR model so it
would be more responsive to current market conditions. This proposal
provides a more transparent and market price sensitive approach than
alternatives, such as a VaR model parameter adjustment and VaR model
add-on, would provide to Clearing Members.\22\
---------------------------------------------------------------------------

    \22\ A VaR model parameter adjustment or a VaR model add-on
would be implemented by estimating how much the VaR model should be
modified to correspond to the current market price volatility. A
parameter adjustment would be a modification to one or more VaR
model risk factors while an add-on would be a percentage adjustment
to the calculated VaR.
---------------------------------------------------------------------------

    The lookback period of the Minimum Margin Amount is intended to be
shorter than the lookback period used for the VaR model, which is 10
years, plus, to the extent applicable, one stressed period.\23\ The
lookback period of the Minimum Margin Amount would be between one to
three years. Consistent with the VaR methodology outlined in the QRM
Methodology and pursuant to the model performance monitoring required
under the Model Risk Management Framework,\24\ the lookback period
would be analyzed to evaluate its sensitivity and impact to the model
performance under four distinctive market regimes, epitomized by recent
observations: (i) Calm markets where the VaR coverage is above 99%
(e.g. 2018); (ii) moderately volatile markets or external mortgage
market events (e.g. summer 2013; summer 2019); (iii) at the beginning
of extreme market volatility (e.g., 2007; COVID-19 in March), and (iv)
post extreme market stress and mean-reverting to `normal' market
conditions. The lookback parameter in general affects (i) whether and
how the floor will be invoked; (ii) the peak level of margin increase
or the degree of procyclicality; and (iii) how quickly the margin will
fall back to pre-stress levels. The lookback parameter update is
intended to be an infrequent event and would typically happen only when
there is a market regime change. The decision to update the lookback
parameter would be based on the above-mentioned sensitivity analysis
with considerations to the impacts to both the VaR Charges and the
backtesting performance. The shorter lookback would more accurately
reflect recent market conditions and would provide more responsiveness
to market condition changes. The initial default lookback period for
the Minimum Margin Amount calculation would be two years but may be
adjusted as set forth above in accordance with FICC's model risk
management practices and governance set forth in the Model Risk
Management Framework.\25\
---------------------------------------------------------------------------

    \23\ FICC maintains the ability to include an additional period
of historically observed stressed market conditions to a 10-year
look-back period if FICC observes that (1) the results of the model
performance monitoring are not within FICC's 99th percentile
confidence level or (2) the 10-year look-back period does not
contain sufficient stressed market conditions.
    \24\ The Model Risk Management Framework provides that all
models undergo ongoing model performance monitoring and backtesting
which is the process of (i) evaluating an active model's ongoing
performance based on theoretical tests, (ii) monitoring the model's
parameters through the use of threshold indicators, and/or (iii)
backtesting using actual historical data/realizations to test a VaR
model's predictive power. See Model Risk Management Framework
Filings, supra note 17.
    \25\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------

    The Model Risk Management Framework would also require FICC to
conduct model performance reviews of the Minimum Margin Amount
methodology.\26\ Specifically, FICC would monitor each Clearing
Member's Required Fund Deposit and the aggregate Clearing Fund
requirements versus the requirements calculated by the Minimum Margin
Amount. In order to apply the risk management principles and model
performance monitoring required under the Model Risk Management
Framework, FICC's current model risk management practices would provide
for a review of the robustness of the Required Fund Deposit inclusive
of the Minimum Margin Amount by comparing the results versus the three-
day profit and loss of each Clearing Member's margin portfolio based on
actual market price moves. If the backtesting results of Required Fund
Deposit inclusive of the Minimum Margin Amount did not meet FICC's 99%
confidence level, FICC could consider adjustments to the Minimum Margin
Amount, including changing the look-back period (as discussed above)
and/or applying a historical stressed period to the Minimum Margin
Amount calibration, as appropriate. Any adjustment to the Minimum
Margin Amount calibration would be subject to the model risk management
practices and governance process set forth in the Model Risk Management
Framework.\27\
---------------------------------------------------------------------------

    \26\ See note 24.
    \27\ See Model Risk Management Framework, supra note 17.
---------------------------------------------------------------------------

A. Proposed MBSD Rule Changes
    In connection with incorporating the Minimum Margin Amount, FICC
would modify the MBSD Rules to:
     Add a definition of ``Minimum Margin Amount'' and define
it as a minimum volatility calculation for specified net unsettled
positions of a Clearing Member, calculated using the historical market
price changes of such benchmark TBA securities determined

by FICC. The definition would specify that the Minimum Margin Amount
shall cover such range of historical market price moves and parameters
as the Corporation from time to time deems appropriate using a look-
back period of no less than one year and no more than three years;
     add a definition of ``VaR Floor Percentage Amount'' which
would be defined substantially the same as the current calculation for
the VaR Floor percentage with non-substantive modifications to reflect
that the calculated amount is a separate defined term; and
     move the defined term VaR Floor out of the definition of
VaR Charge and define it as the greater of (i) the VaR Floor Percentage
Amount and (ii) the Minimum Margin Amount.

B. Proposed QRM Methodology Changes

    In connection with incorporating the Minimum Margin Amount, FICC
would modify the QRM Methodology to:
     Describe how the Minimum Margin Amount, as defined in the
MBSD Rules, would be calculated, including
     establishing CONV30, GNMA30, CONV15 and GNMA15 as proposed
TBA securities benchmarks for purposes of the calculation and
calculating risk factors using historical market prices of such
benchmark TBA securities;
     using a dynamic haircut method that allows offsetting
between short and long positions within a program and among different
programs; and
     multiplying a ``base risk factor'' (based on whether
GNMA30 or CONV30 constitutes the larger absolute net market value in
each Clearing Member's portfolio) by the absolute value of the Clearing
Member's net position across all products, plus the sum of each risk
factor spread to the base risk factor multiplied by the absolute value
of its corresponding position;
     describe the developmental evidence and impacts to
backtesting performance and margin charges relating to Minimum Margin
Amount; and
     make certain technical changes to the QRM Methodology to
re-number sections and tables, and update certain section titles as
necessary, to add a new section that describes the proposed Minimum
Margin Amount and the selection of benchmarks.
C. Impact Studies
    FICC performed an impact study on Clearing Members' portfolios for
the period beginning February 3, 2020 through June 30, 2020 (``Impact
Study Period'). If the proposed rule changes had been in place during
the Impact Study Period compared to the existing MBSD Rules:
     Aggregate average daily aggregate VaR Charges would have
increased by approximately $2.2 billion or 42%; and
     aggregate average daily Backtesting Charges would have
decreased by approximately $450 million or 53%.
    Impact studies also indicated that if the proposed rule changes had
been in place, overall margin backtesting coverage (based on 12-month
trailing backtesting) would have increased from approximately 99.3% to
99.6% through January 31, 2020 and approximately 97.3% to 98.5% through
June 30, 2020.

D. Impacts to Clearing Members Over the Impact Study Period

    On average, at the Clearing Member level, the Minimum Margin Amount
would have increased the VaR Charge by $27 million over the Impact
Study Period. The largest percent increase in VaR Charge for any
Clearing Member would have been 146%, or $22 million. The largest
dollar increase for any Clearing Member would have been $333 million,
or 37% increase in the VaR Charge. The top 10 Clearing Members based on
the size of their VaR Charges would have contributed 69.3% of the
aggregate VaR Charges during the Impact Study Period had the Minimum
Margin Amount been in place. The same Clearing Members would have
contributed to 54% of the increase resulting from the Minimum Margin
Amount during the Impact Study Period.
    The portfolios that would have observed large percent increases
were largely made up with concentrations in higher coupon TBAs and GNMA
positions. However, no Clearing Members would have triggered the Excess
Capital Premium charge \28\ due to the increase in Required Fund
Deposits resulting from the Minimum Margin Amount during the Impact
Study Period.
---------------------------------------------------------------------------

    \28\ Excess Capital Premium is assessed when the Clearing
Member's VaR Charge exceeds the Excess Capital it maintains.
---------------------------------------------------------------------------

(iii) Implementation Timeframe
    FICC would implement the proposed changes no later than 20 Business
Days after the later of the approval of the proposed rule change and no
objection to the related advance notice \29\ by the Commission. FICC
would announce the effective date of the proposed changes by Important
Notice posted to its website.
---------------------------------------------------------------------------

    \29\ Supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    FICC believes that this proposal is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, FICC believes
that this proposal is consistent with Section 17A(b)(3)(F) of the Act
\30\ and Rules 17Ad-22(e)(4)(i) and (e)(6)(i), each promulgated under
the Act,\31\ for the reasons described below.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ 17 CFR 240.17Ad-22(e)(4), (e)(6) and (e)(23)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the MBSD
Rules be designed to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible.\32\ FICC believes the proposed changes are designed
to assure the safeguarding of securities and funds which are in its
custody or control or for which it is responsible because they are
designed to enable FICC to better limit its exposure to Clearing
Members in the event of a Clearing Member default, as described below.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Required Fund Deposits are made up of risk-based components (as
margin) that are calculated and assessed daily to limit FICC's credit
exposures to Clearing Members. FICC is proposing changes to the MBSD
Rules and QRM Methodology that are designed to more effectively measure
and address risk characteristics in situations where the risk factors
used in the VaR method do not adequately predict TBA prices. The
proposed changes above would adjust the VaR Floor to help ensure that
FICC collects adequate margin from its Clearing Members, particularly
in periods of high market volatility and economic uncertainty. During
these periods, the existing VaR model has been shown to be inadequate
based on backtesting performances. Backtesting percentages covering
such periods indicate the risk that VaR Charges will be insufficient to
manage risk in the event of a Clearing Member's default. FICC pays
particular attention to Clearing Members with backtesting deficiencies
that bring the results for that Clearing Member below the 99%
confidence target to determine if there is an identifiable cause of
repeat backtesting deficiencies. During the recent period of market
volatility and economic uncertainty, there were numerous repeated
backtesting deficiencies. The Minimum Margin Amount, to be defined in
the MBSD Rules and further incorporated in the QRM Methodology as
described herein, is a proposed targeted response to enhance the MBSD
VaR model

performance and improve the backtesting coverage during periods of
heightened market volatility and economic uncertainty.
    As a result of the recent market volatility and economic
uncertainty, FICC's VaR model did not achieve a 99% confidence level
for all Clearing Members in March and April 2020. The Minimum Margin
Amount is intended to allow the VaR Charge to be more responsive during
market conditions when the VaR model projections do not closely
correspond with observed market price changes. Backtesting studies
indicate that aggregate average daily aggregate VaR Charges would have
increased by approximately $2.2 billion or 42%, average aggregate daily
Backtesting Charges would have decreased by approximately $450 million
or 53% during the Impact Study Period and the overall margin
backtesting coverage (based on 12-month trailing backtesting) would
have improved from approximately 97.3% to 98.5% through June 30, 2020
if the Minimum Margin Amount calculation had been in place. Improving
the overall backtesting coverage level would help FICC ensure that it
maintains an appropriate level of margin to address its risk management
needs.
    The use of the Minimum Margin Amount would reduce risk by allowing
FICC to calculate the exposure in each portfolio using the risk spread
based on observed TBA price moves of TBA positions within each
portfolio. As reflected by backtesting studies during the Impact Study
Period, using observed market prices of such benchmark TBA securities
to set risk exposure would provide a more reliable estimate than the
FICC VaR historical data set for the portfolio risk level when current
market conditions deviate from historical observations. This proposal
would allow offsetting between short and long positions within TBA
securities benchmarks given that the TBAs aggregated in each benchmark
exhibit similar risk profiles and can be netted together to calculate
the Minimum Margin Amount that will cover the observed market price
changes for each portfolio. Adding the Minimum Margin Amount to the VaR
Floor would help to ensure that the risk exposure during periods of
market volatility and economic uncertainty is adequately captured in
the VaR Charges. FICC believes that would help to ensure that FICC
continues to accurately calculate and assess margin and in turn,
collect sufficient margin from its Clearing Members and better enable
FICC to limit its exposures that could be incurred when liquidating a
portfolio.
    FICC believes the proposed technical changes to the QRM Methodology
described above would enhance the clarity of the QRM Methodology for
FICC. Having a clear and accurate methodology document, which describes
how the Minimum Margin Amount would be calculated and the selection of
benchmarks, that the Minimum Margin Amount would be included within the
calculation of the VaR Charges and the developmental evidence and
impacts to backtesting performance and margin charges, would help to
ensure that FICC continues to accurately calculate and assess margin
and in turn, collect sufficient margin from its Clearing Members and
better enable FICC to limit its exposures that could be incurred when
liquidating a portfolio.
    By better enabling FICC to limit its exposure to Clearing Members,
the proposed changes to the MBSD Rules and QRM Methodology are designed
to better ensure that, in the event of a Clearing Member default, FICC
would have adequate margin from the defaulting Clearing Member and non-
defaulting Clearing Members would not be exposed to losses they cannot
anticipate or control. Therefore, the proposed changes would be
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(i) under the Act \34\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those exposures arising from its payment, clearing, and settlement
processes by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence. As described above, FICC believes that the proposed changes
would enable it to better identify, measure, monitor, and, through the
collection of Clearing Members' Required Fund Deposits, manage its
credit exposures to Clearing Members by maintaining sufficient
resources to cover those credit exposures fully with a high degree of
confidence. More specifically, as indicated by backtesting studies,
implementation of a Minimum Margin Amount by changing the MBSD Rules
and QRM Methodology as described herein would allow FICC to limit its
credit exposures to Clearing Members in the event that the current VaR
model yields too low a VaR Charge for such portfolios and improve
backtesting performance. As indicated by the backtesting studies,
aggregate average daily aggregate VaR Charges would have increased by
approximately $2.2 billion or 42%, average aggregate daily Backtesting
Charges would have decreased by approximately $450 million or 53%
during the Impact Study Period and the overall margin backtesting
coverage (based on 12-month trailing backtesting) would have improved
from approximately 97.3% to 98.5% through June 30, 2020 if the Minimum
Margin Amount calculation had been in place. By identifying and
providing for appropriate VaR Charges, adding the Minimum Margin Amount
to the VaR Floor would help to ensure that the risk exposure during
periods of market volatility and economic uncertainty is adequately
identified, measured and monitored. As a result, FICC believes that the
proposal would enhance FICC's ability to effectively identify, measure
and monitor its credit exposures and would enhance its ability to
maintain sufficient financial resources to cover its credit exposure to
each participant fully with a high degree of confidence, consistent
with the requirements of Rule 17Ad-22(e)(4)(i) of the Act.\35\
---------------------------------------------------------------------------

    \34\ See 17 CFR 240.17Ad-22(e)(4)(i).
    \35\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) under the Act \36\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to cover its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market. FICC believes that the proposed changes
to adjust the VaR Floor to include the Minimum Margin Amount by
changing the MBSD Rules and QRM Methodology as described herein are
consistent with the requirements of Rule 17Ad-22(e)(6)(i) cited above.
The Required Fund Deposits are made up of risk-based components (as
margin) that are calculated and assessed daily to limit FICC's credit
exposures to Clearing Members. FICC is proposing changes that are
designed to more effectively measure and address risk characteristics
in situations where the risk factors used in the VaR method do not
adequately predict TBA prices. As reflected in backtesting studies,
FICC believes the proposed changes would appropriately

limit FICC's credit exposure to Clearing Members in the event that the
VaR model yields too low a VaR Charge in such situations. Such
backtesting studies indicate that aggregate average daily aggregate VaR
Charges would have increased by approximately $2.2 billion or 42%,
aggregate average daily Backtesting Charges would have decreased by
approximately $450 million or 53% during the Impact Study Period and
the overall margin backtesting coverage (based on 12-month trailing
backtesting) would have improved from approximately 97.3% to 98.5%
through June 30, 2020 if the Minimum Margin Amount calculation had been
in place. By identifying and providing for appropriate VaR Charges,
adding the Minimum Margin Amount to the VaR Floor would help to ensure
that margin levels are commensurate with the risk exposure of each
portfolio during periods of market volatility and economic uncertainty.
The proposed changes would therefore allow FICC to continue to produce
margin levels commensurate with the risks and particular attributes of
each relevant product, portfolio, and market. As such, FICC believes
that the proposed changes are consistent with the requirements of Rule
17Ad-22(e)(6)(i) of the Act.\37\
---------------------------------------------------------------------------

    \36\ See 17 CFR 240.17Ad-22(e)(6)(i).
    \37\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition
    FICC believes the proposed rule changes to modify the VaR Floor to
incorporate a Minimum Margin Amount as described above could impose a
burden on competition. As a result of the incorporation of the Minimum
Margin Amount, Clearing Members may experience increases in their
Required Fund Deposits. An impact study during the Impact Study Period
indicates that on average each Clearing Member would have had an
increase in VaR Charge of approximately 42%. Impact studies also
indicate that the proposed changes could impact each Clearing Member in
a different manner compared to other Clearing Members depending on the
products in such Clearing Member's portfolio. Clearing Members with
higher percentages of higher coupon TBAs in their portfolios, are more
likely to be impacted by the proposed changes. Such increases could
burden Clearing Members that have lower operating margins or higher
costs of capital than other Clearing Members. It is not clear whether
the burden on competition would necessarily be significant because it
would depend on whether the affected Clearing Members were similarly
situated in terms of business type and size. Regardless of whether the
burden on competition is significant, FICC believes that any burden on
competition would be necessary and appropriate in furtherance of the
purposes of the Act.
    Specifically, FICC believes that the proposed rule changes would be
necessary in furtherance of the Act, as described in this filing and
further below. FICC believes that the above described burden on
competition that may be created by the proposed changes to incorporate
a Minimum Margin Amount in the VaR Floor is necessary, because the MBSD
Rules must be designed to assure the safeguarding of securities and
funds that are in FICC's custody or control or which it is responsible,
consistent with Section 17A(b)(3)(F). As described above, FICC believes
that the use of the Minimum Margin Amount would reduce risk by allowing
FICC to calculate the exposure in each portfolio using the risk spread
based on observed TBA price moves of TBA positions within each
portfolio and provide a more reliable estimate than the FICC VaR
historical data set for the portfolio risk level when current market
conditions deviate from historical observations. Accurately calculating
and assessing margin and in turn, collecting sufficient margin from its
Clearing Members would better enable FICC to limit its exposures that
could be incurred when liquidating a portfolio. By better enabling FICC
to limit its exposure to Clearing Members, the proposed changes to the
MBSD Rules and QRM Methodology are designed to better ensure that, in
the event of a Clearing Member default, FICC would have adequate margin
from the defaulting Clearing Member and non-defaulting Clearing Members
would not be exposed to losses they cannot anticipate or control.
Therefore, the proposed changes would be designed to assure the
safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible, consistent with Section
17A(b)(3)(F) of the Act.
    FICC also believes these proposed changes are necessary to support
FICC's compliance with Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i)
under the Act,\38\ which require FICC to establish, implement, maintain
and enforce written policies and procedures reasonably designed to (x)
effectively identify, measure, monitor, and manage its credit exposures
to participants and those arising from its payment, clearing, and
settlement processes, including by maintaining sufficient financial
resources to cover its credit exposure to each participant fully with a
high degree of confidence and (y) cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
---------------------------------------------------------------------------

    As described above, FICC believes that implementing the Minimum
Margin Amount into the VaR Floor would allow FICC to more effectively
measure and address risk characteristics in situations where the risk
factors used in the VaR method do not adequately predict TBA prices,
particularly in periods of high volatility and economic uncertainty.
FICC's existing VaR model did not respond effectively to the recent
levels of market volatility and economic uncertainty, and the VaR
Charge amounts that were calculated using the profit and loss scenarios
generated by FICC's VaR model did not achieve a 99% confidence level
beginning in mid-March 2020. In addition, the VaR Floor did not
effectively address the risk that the VaR model calculated too low a
VaR Charge for all portfolios. As reflected in backtesting studies
during the Impact Study Period, FICC believes the proposed changes
would appropriately cover FICC's credit exposure to Clearing Members
with a high degree of confidence in the event that the VaR model yields
too low a VaR Charge in such situations. The proposed rule changes
would limit FICC's exposure to Clearing Members by ensuring that each
Clearing Member has an appropriate minimum VaR Charge in the event that
the VaR model yields too low a VaR Charge for such portfolios. By
identifying and providing for appropriate VaR Charges, adding the
Minimum Margin Amount to the VaR Floor would help to ensure that margin
levels are commensurate with the risk exposure of each portfolio during
periods of market volatility and economic uncertainty. Therefore, FICC
believes that these proposed changes would allow FICC to effectively
identify, measure, monitor, and manage its credit exposures to Clearing
Members and better limit FICC's credit exposures to Clearing Members by
maintaining sufficient financial resources to cover its credit exposure
to each Clearing Member fully with a high degree of confidence and
producing margin levels commensurate with, the risks and particular
attributes of each relevant product and portfolio, consistent with the
requirements of

Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under the Act. \39\
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

    FICC also believes that the above described burden on competition
that could be created by the proposed changes would be appropriate in
furtherance of the Act because such changes have been appropriately
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible, as
described in detail above. The proposed change to incorporate the
Minimum Margin Amount would enable FICC to produce margin levels more
commensurate with the risks and particular attributes of each Clearing
Member's portfolio. Any increase in Required Fund Deposit as a result
of such proposed changes for a particular Clearing Member would be in
direct relation to the specific risks presented by such Clearing
Members' portfolio, and each Clearing Member's Required Fund Deposit
would continue to be calculated with the same parameters and at the
same confidence level. Therefore, Clearing Members with portfolios that
present similar risks, regardless of the type of Clearing Member, would
have similar impacts on their Required Fund Deposit amounts. In
addition, the proposed changes would improve the risk-based margining
methodology that FICC employs to set margin requirements and better
limit FICC's credit exposures to its Clearing Members. Impact studies
indicate that the proposed methodology would result in backtesting
coverage that more appropriately addresses the risks presented by each
portfolio. Therefore, because the proposed changes are designed to
provide FICC with a more appropriate and complete measure of the risks
presented by Clearing Members' portfolios, FICC believes the proposals
are appropriately designed to meet its risk management goals and its
regulatory obligations.
    Therefore, FICC does not believe that the proposed changes would
impose any burden on competition that is not necessary or appropriate
in furtherance of the Act.\40\
---------------------------------------------------------------------------

    \40\ 15.U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
    Written comments relating to the proposed rule changes have not
been solicited or received. FICC will notify the Commission of any
written comments received by FICC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.
    The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FICC-2020-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-FICC-2020-017. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2020-017 and should be submitted on
or before December 31, 2020.
---------------------------------------------------------------------------

    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27087 Filed 12-9-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 25 (Wednesday, February 6, 2019)]
[Proposed Rules]
[Pages 2137-2138]
[FR Doc No: 2019-01338]

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 10

[Docket No. DOT-OST-2017-0028]
RIN 2105-AE76

Maintenance of and Access to Records Pertaining to Individuals

AGENCY: Office of the Secretary (OST), U.S. Department of
Transportation (DOT).

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: In accordance with the Privacy Act of 1974, the Department of
Transportation proposes to add a system of records relating to aviation
consumer protection to the list of Department of Transportation Privacy
Act Systems of Records that are exempt from one or more provisions of
the Privacy Act. The Department is proposing to exempt this system of
records, titled Aviation Consumer Complaint Application Online System,
to protect records compiled for investigations and inquiries into
alleged Federal civil rights and consumer protection misconduct by
airlines and air travel companies. This exemption was initially
proposed on February 28, 2005 and the Department did not receive any
comments on the proposed rule. Nonetheless, given the time that has
passed since the original Notice of Proposed Rulemaking, the Department
is issuing this Notice of Proposed Rulemaking for comment. The current
system of records notice indicates that an exemption applies to this
system; however, the Department is updating the system of records
notice to specify the basis of the exemption. This rulemaking conforms
the Department of Transportation's regulations on Maintenance and
Access to Records Pertaining to Individuals to the applicable System of
Records Notices (SORNs) to current Department of Transportation
practice.

DATES: Submit comments on or before April 8, 2019.

ADDRESSES: You may file comments identified by the docket number DOT-
OST-2017-0028 by any of the following methods:
    [cir] Federal Rulemaking Portal: Go to http://www.regulations.gov
and follow the online instructions for submitting comments.
    [cir] Mail: Docket Management Facility, U.S. Department of
Transportation, 1200 New Jersey Ave. SE, West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
    [cir] Hand Delivery or Courier: West Building Ground Floor, Room
W12-140, 1200 New Jersey Ave. SE, between 9:00 a.m. and 5:00 p.m. ET,
Monday through Friday, except Federal holidays.
    [cir]  Fax:<PHONE_NUMBER>.
    Instructions: You must include the agency name and docket number
DOT-OST-2017-0028 or the Regulatory Identification Number (RIN) for the
rulemaking at the beginning of your comment. All comments received will
be posted without change to http://www.regulations.gov, including any
personal information provided.
    Privacy Act: Anyone is able to search the electronic form of all
comments received in any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.) You may review DOT's
system of records notice for dockets in the Federal Register notice
published on January 17, 2008 (73 FR 3316-3317).
    Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov or to the street
address listed above. Follow the online instructions for accessing the
docket.

FOR FURTHER INFORMATION CONTACT: Claire Barrett, Departmental Chief
Privacy Officer, Office of the Chief Information Officer, U.S.
Department of Transportation, 1200 New Jersey Avenue SE, Washington, DC
20590 or<EMAIL_ADDRESS>or<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Privacy Act of 1974, 5 U.S.C. 552a,
requires that agencies tell the public when they maintain information
about a person in a file that may be retrieved to that person's name or
some other identifying particular. A group of these files is a ``system
of records,'' and the existence of each system must be published in a
``system of records notice'' (SORN). An Agency wishing to exempt
portions of some systems of records from certain provisions of the
Privacy Act must notify the public of that exemption in both the SORN
and in an exemption rule. This proposed rulemaking clarifies that
portions of the Aviation Consumer Complaint Application Online System
are not subject to some access and notification provisions of the
Privacy Act. Exempting the systems from these requirements is necessary
to protect the public's interest in fair and accurate investigations.
    In 2005, the DOT established the Aviation Consumer Complaint
Application Online System to monitor consumer comments regarding
airlines and air travel companies and to determine the extent to which
these entities are in compliance with Federal aviation civil rights and
consumer protection regulations. The records contain the inquiries,
opinions, and compliments of individuals, as well as complaints of
discrimination based on physical handicap, race, religion, etc. Thus,
records may complaints containing alleged violations of Federal law and
regulations, which can lead to civil and criminal investigations by the
Department of Transportation. Consequently, the records should be
treated as other law enforcement systems as some information needs to
remain confidential for these investigative purposes.
    This proposed rulemaking would exempt certain records maintained by
the Aviation Consumer Complaint Application Online System from the
access and notification provisions of the Privacy Act. An exemption
from these requirements would be necessary to: Avoid disclosure of
aviation compliance inquiry techniques; protect the confidential
information of confidential informants and third parties; prevent
unwarranted invasions of another individual's privacy; and support
DOT's ability to obtain information relevant to resolving an aviation
compliance concern. DOT may take administrative or other appropriate
action within the scope of its respective legal authority in response
to an aviation compliance concern. Thus, an aviation compliance inquiry
is comprised of records compiled for law enforcement purposes falling
under the subsection (k)(2) exemption (5 U.S.C. 552a(k)(2)) making it
applicable to this system of records.
    In appropriate circumstances, where compliance with the request
would not appear to interfere with or adversely affect the conduct of
an aviation compliance inquiry or result in the unauthorized disclosure
of confidential information, OST may opt to waive these exemptions. In
addition, some information may be available under the Freedom of
Information Act, 5 U.S.C. 552 (FOIA). Any request for information from
this system under the FOIA would be assessed on a case-by-case basis to
determine what, if any, information could be released consistent with
section (b)(2) of the Privacy Act, 5 U.S.C. 552a(b)(2).
    DOT identifies a system of records that is exempt from one or more
provisions of the Privacy Act (pursuant to 5 U.S.C. 552a (k)) both in
the SORN published in the Federal Register for public comment and in an
Appendix to DOT's regulations implementing the Privacy Act (49 CFR part
10, Appendix).

This rule would exempt records in the Aviation Consumer Complaint
Application Online System of records from subsection (d) (Access to
Records) of the Privacy Act to the extent that records consist of
investigatory material compiled for law enforcement purposes in
accordance with 5 U.S.C. 552a(k)(2).

Regulatory Analysis and Notices

A. Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures

    The DOT has considered the impact of this proposed rulemaking
action under Executive Orders 12866 and 13563 (January 18, 2011,
``Improving Regulation and Regulatory Review''), and the DOT's
regulatory policies and procedures (44 FR 11034; February 26, 1979).
The DOT has determined that this action would not constitute a
significant regulatory action within the meaning of Executive Order
12866 and within the meaning of DOT regulatory policies and procedures.
This rule has not been reviewed by the Office of Management and Budget.
There would be no costs associated with this rule.

B. Executive Order 13771 (Reducing Regulation and Controlling
Regulatory Costs)

    This proposed rule is not expected to be an Executive Order 13771
regulatory action because this proposed rule is not significant under
Executive Order 12866.

C. Regulatory Flexibility Act

    The DOT has evaluated the effect this change would have on small
entities and does not believe that this rule would impose any costs on
small entities because the reporting requirements themselves would not
change and because the rule applies only to information on individuals
that is maintained by the Federal Government or that is already
publicly available. Therefore, I hereby certify that this proposal
would not have a significant economic impact on a substantial number of
small entities.

C. National Environmental Policy Act

    The DOT has analyzed the environmental impacts of this proposed
action pursuant to the National Environmental Policy Act of 1969 (42
U.S.C. 4321 et seq.) and has determined preliminarily that it is
categorically excluded pursuant to DOT Order 5610.1C, Procedures for
Considering Environmental Impacts (44 FR 56420, Oct. 1, 1979).
Categorical exclusions are actions identified in an agency's NEPA
implementing procedures that do not normally have a significant impact
on the environment and therefore do not require either an environmental
assessment (EA) or environmental impact statement (EIS). See 40 CFR
1508.4. In analyzing the applicability of a categorical exclusion, the
agency must also consider whether extraordinary circumstances are
present that would warrant the preparation of an EA or EIS. Id.
Paragraph 3.C.5 of DOT Order 5610.1C incorporates by reference the
categorical exclusions for all DOT Operating Administrations. This
action is covered by the categorical exclusion listed in the Federal
Highway
    Administration's implementing procedures, ``[promulgation of rules,
regulations, and directives.'' 23 CFR 771.117(c)(20). The purpose of
this rulemaking is to amend the Appendix to DOT's Privacy Act
regulations. The DOT does not anticipate any environmental impacts, and
there are no extraordinary circumstances present in connection with
this rulemaking.

E. Executive Order 13132 (Federalism)

    This proposed action has been analyzed in accordance with the
principles and criteria contained in Executive Order 13132, Federalism,
dated August 4, 1999, and it has been determined that it would not have
a substantial direct effect on, or sufficient Federalism implications
for, the States, nor would it limit the policymaking discretion of the
States. Therefore, the preparation of a Federalism Assessment is not
necessary.

F. Executive Order 13084 (Consultation and Coordination With Indian
Tribal Governments)

    This action has been analyzed in accordance with the principles and
criteria contained in Executive Order 13084 (``Consultation and
Coordination with Indian Tribal Governments''). Because it would not
have an effect on Indian Tribal Governments, the funding and
consultation requirements of Executive Order 13084 do not apply.

G. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.). Federal agencies must obtain approval from the Office of
Management and Budget for each collection of information they conduct,
sponsor, or require through regulations. The DOT has determined that
this action would not contain a collection of information requirement
for the purposes of the PRA.

H. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub.
L. 104-4, 109 Stat. 48, March 22, 1995) requires Federal agencies to
assess the effects of certain regulatory actions on State, local, and
tribal governments; and the private sector. The UMRA requires a written
statement of economic and regulatory alternatives for proposed and
final rules that contain Federal mandates. A ``Federal mandate'' is a
new or additional enforceable duty, imposed on any State, local, or
tribal Government; or the private sector. If any Federal mandate causes
those entities to spend, in aggregate, $143.1 million or more in any
one year (adjusted for inflation), an UMRA analysis is required. This
proposed rule would not impose Federal mandates on any State, local, or
tribal governments; or the private sector.

List of Subjects in 49 CFR Part 10

    Penalties, Privacy.

    In consideration of the foregoing, DOT proposes to amend part 10 of
title 49, Code of Federal Regulations, as follows:

PART 10--MAINTENANCE OF AND ACCESS TO RECORDS PERTAINING TO
INDIVIDUALS

0
1. The authority citation for part 10 continues to read as follows:

    Authority: 5 U.S.C. 552a; 49 U.S.C. 322.

0
2. Amend the Appendix to Part 10 by: a. In Part II, adding a new
subsection H.

APPENDIX TO PART 10--EXEMPTIONS

Part II. Specific Exemptions

* * * * *
    H. The following systems of records are exempt from subsection (d)
(Access to records) of the Privacy Act, 5 U.S.C. 552a, to the extent
that they contain investigatory material compiled for law enforcement
purposes, in accordance with 5 U.S.C. 552a(k)(2).
    I. Aviation Consumer Complaint Application Online System,
maintained by the Office of the Assistant General Counsel for Aviation
Enforcement and Proceedings in the Office of the Secretary (DOT/OST
102).
    This exemption is justified because granting an individual access
to investigative records could interfere with the overall law
enforcement process by revealing a sensitive investigative technique,
or confidential sources or information.

    Issued in Washington DC on December 21, 2018.
Elaine L. Chao,
Secretary.
[FR Doc. 2019-01338 Filed 2-5-19; 8:45 am]
 BILLING CODE 4910-9X-P