[Federal Register Volume 82, Number 78 (Tuesday, April 25, 2017)]
[Proposed Rules]
[Pages 19008-19009]
[FR Doc No: 2017-08238]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2016-9488; Airspace Docket No. 16-ASO-18]

Proposed Amendment of Class E Airspace; Albany, GA

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: This action proposes to amend Class E airspace at Albany, GA,
by removing the Notice to Airmen (NOTAM) part-time status of the Class
E airspace designated as an extension to Class D airspace, at Southwest
Georgia Regional Airport. This action would amend differences between
the descriptions of Class D airspace and Class E surface areas and
their associated Class E surface area extensions.

DATES: Comments must be received on or before June 9, 2017.

ADDRESSES: Send comments on this proposal to: U.S. Department of
Transportation, Docket Operations, 1200 New Jersey Avenue SE., West
Bldg. Ground Floor, Rm. W12-140, Washington, DC 20590; Telephone: 1-
800-647-5527, or<PHONE_NUMBER>. You must identify the Docket No. FAA-
2016-9488; Airspace Docket No. 16-ASO-18, at the beginning of your
comments. You may also submit and review received comments through the
Internet at http://www.regulations.gov. You may review the public
docket containing the proposal, any comments received, and any final
disposition in person in the Dockets Office between 9:00 a.m. and 5:00
p.m., Monday through Friday, except Federal holidays.
    FAA Order 7400.11A, Airspace Designations and Reporting Points, and
subsequent amendments can be viewed on line at http://www.faa.gov/air_traffic/publications/. For further information, you can contact the
Airspace Policy Group, Federal Aviation Administration, 800
Independence Avenue SW., Washington, DC 20591; telephone:<PHONE_NUMBER>.
The Order is also available for inspection at the National Archives and
Records Administration (NARA). For information on the availability of
FAA Order 7400.11A at NARA, call<PHONE_NUMBER>, or go to http://www.archives.gov/federal_register/code_of_federal-regulations/ibr_locations.html.
    FAA Order 7400.11, Airspace Designations and Reporting Points, is
published yearly and effective on September 15.

FOR FURTHER INFORMATION CONTACT: John Fornito, Operations Support
Group, Eastern Service Center, Federal Aviation Administration, P.O.
Box 20636, Atlanta, Georgia 30320; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority
as it would amend Class E airspace designated as an extension to Class
D airspace at Southwest Georgia Regional Airport, Albany, GA.

Comments Invited

    Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments, as they may desire.
Comments that provide the factual basis supporting the views and
suggestions presented are particularly helpful in developing reasoned
regulatory decisions on the proposal. Comments are specifically invited
on the overall regulatory, aeronautical, economic, environmental, and
energy-related aspects of the proposal.
    Communications should identify both docket numbers and be submitted
in

triplicate to the address listed above. You may also submit comments
through the Internet at http://www.regulations.gov.
    Persons wishing the FAA to acknowledge receipt of their comments on
this action must submit with those comments a self-addressed stamped
postcard on which the following statement is made: ``Comments to Docket
No. FAA-2016-9488; Airspace Docket No. 16-ASO-18.'' The postcard will
be date/time stamped and returned to the commenter.
    All communications received before the specified closing date for
comments will be considered before taking action on the proposed rule.
The proposal contained in this notice may be changed in light of the
comments received. A report summarizing each substantive public contact
with FAA personnel concerned with this rulemaking will be filed in the
docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded from and
comments submitted through http://www.regulations.gov. Recently
published rulemaking documents can also be accessed through the FAA's
Web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.
    You may review the public docket containing the proposal, any
comments received, and any final disposition in person in the Dockets
Office (see the ADDRESSES section for address and phone number) between
9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal
Holidays. An informal docket may also be examined between 8:00 a.m. and
4:30 p.m., Monday through Friday, except Federal Holidays at the office
of the Eastern Service Center, Federal Aviation Administration, Room
350, 1701 Columbia Avenue, College Park, Georgia 30337.

Availability and Summary of Documents for Incorporation by Reference

    This document proposes to amend FAA Order 7400.11A, Airspace
Designations and Reporting Points, dated August 3, 2016, and effective
September 15, 2016. FAA Order 7400.11A is publicly available as listed
in the ADDRESSES section of this document. FAA Order 7400.11A lists
Class A, B, C, D, and E airspace areas, air traffic service routes, and
reporting points.

The Proposal

    The FAA is considering an amendment to Title 14, Code of Federal
Regulations (14 CFR) part 71 by removing the NOTAM part-time status of
the Class E airspace designated as an extension to a Class D surface
area at Southwest Georgia Regional Airport, Albany, GA. This action
would bring the airspace description for the airport listed in FAA
Order 7400.11A in line with the airspace hours listed in the applicable
Chart Supplement (previously called Airport/Facility Directory).
    Class E airspace designations are published in Paragraphs 6004 of
FAA Order 7400.11A, dated August 3, 2016, and effective September 15,
2016, which is incorporated by reference in 14 CFR 71.1. The Class E
airspace designation listed in this document will be published
subsequently in the Order.

Regulatory Notices and Analyses

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

Environmental Review

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

Lists of Subjects in 14 CFR Part 71

    Airspace, Incorporation by reference, Navigation (air).

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 71 as follows:

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

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

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

Sec.  71.1   [Amended]

0
2. The incorporation by reference in 14 CFR 71.1 of Federal Aviation
Administration Order 7400.11A, Airspace Designations and Reporting
Points, dated August 3, 2016, effective September 15, 2016, is amended
as follows:

Paragraph 6004 Class E Airspace Designated as an Extension to a
Class D Surface Area.

* * * * *

ASO GA E4 Albany-Southwest Georgia Regional Airport, GA [Amended]

Southwest Georgia Regional Airport, GA
    (Lat. 31[deg]32'08'' N., long. 84[deg]11'40'' W.)
Pecan VORTAC
    (Lat. 31[deg]39'19'' N., long. 84[deg]17'35'' W.)

    That airspace extending upward from the surface within 1.3 miles
each side of Pecan VORTAC 143[deg] radial, extending from the 4.2-
mile radius of Southwest Georgia Regional Airport to 1 mile
southeast of the VORTAC.

    Issued in College Park, Georgia, on April 4, 2017.
Ryan W. Almasy,
Manager, Operations Support Group, Eastern Service Center, Air Traffic
Organization.
[FR Doc. 2017-08238 Filed 4-24-17; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 78, Number 247 (Tuesday, December 24, 2013)]
[Rules and Regulations]
[Pages 77599-77601]
[FR Doc No: 2013-30336]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R05-OAR-2012-0988; FRL-9904-36-Region-5]

Approval and Promulgation of Air Quality Implementation Plans;
Indiana; Indiana State Board Requirements

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Pursuant to its authority under the Clean Air Act (CAA), EPA
is taking final action to approve state implementation plan (SIP)
submissions made by the Indiana Department of Environmental Management
(IDEM) intended to meet the state board requirements under section 128
of the CAA. The proposed rule associated with this final action was
published on August 19, 2013.

DATES: This final rule is effective on January 23, 2014.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-R05-OAR-2012-0988. All documents in the docket are listed in
the www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., Confidential Business
Information or other information whose disclosure is restricted by
statute. Certain other material, such as copyrighted material, will be
publicly-available only in hard copy. Publicly-available docket
materials are available either electronically in www.regulations.gov or
in hard copy at the U.S. Environmental Protection Agency, Region 5, Air
and Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois
60604. This facility is open from 8:30 a.m. to 4:30 p.m., Monday
through Friday, excluding Federal holidays. We recommend that you
telephone Andy Chang at<PHONE_NUMBER> before visiting the Region 5
office.

FOR FURTHER INFORMATION CONTACT: Andy Chang, Environmental Engineer,
Attainment Planning and Maintenance Section, Air Programs Branch (AR-
18J), U.S. Environmental Protection Agency, Region 5, 77 West Jackson
Boulevard, Chicago, Illinois 60604,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document whenever ``we,''
``us,'' or ``our'' is used, we mean EPA. This supplementary information
section is arranged as follows:
I. What is the background for this action?
II. What action is EPA taking?
III. Statutory and Executive Order Reviews

I. What is the background for this action?

    Under section 128 of the CAA, each SIP must contain provisions that
address two requirements: (i) That any board or body which approves
permits or enforcement orders under this chapter shall have at least a
majority of members who represent the public interest and do not derive
any significant portion of their income from persons subject to permits
and enforcement orders under this chapter, and (ii) that any potential
conflicts of interest by members of such board or body or the head of
an executive agency with similar powers be adequately disclosed. To
comply with this statutory provision, Indiana submitted the following
rules for incorporation into the SIP: IC 13-13-8-1, IC 13-13-8-2(a), IC
13-13-8-2(b), IC 13-13-8-3, IC 13-13-8-4, and IC 13-13-8-11. EPA's
August 19, 2013, proposed rulemaking

(see 78 FR 50360 at 50366) details how these rules satisfy the
applicable requirements of section 128. EPA did not receive any
comments regarding its proposal to approve Indiana's state board
provisions.

II. What action is EPA taking?

    For the reasons discussed in our August 19, 2013, proposed
rulemaking, EPA is taking final action to approve IDEM's submissions
addressing the state board requirements under section 128 of the CAA.
The specific rules that we are approving as satisfying these
requirements are IC 13-13-8-1, IC 13-13-8-2(a), IC 13-13-8-2(b),\1\ IC
13-13-8-3, IC 13-13-8-4, and IC 13-13-8-11. It should be noted that our
August 19, 2013, rulemaking contained proposed actions for various
additional IDEM submissions, including those addressing the CAA section
110(a)(1) and (2) ``infrastructure'' SIP requirements for the 2008
ozone and 2008 lead national ambient air quality standards, as well as
the prevention of significant deterioration of air quality provisions.
This final rulemaking, however, is limited only to the state board
requirements under section 128 of the CAA.
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    \1\ In EPA's August 19, 2013, proposed approval of Indiana's
state board provisions, we incorrectly cited this rule as IC 13-18-
8-2(b). We want to clarify that this final approval is consistent
with Indiana's submission, specifically with respect to IC 13-13-8-
2(b).
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III. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the CAA and applicable
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, EPA's role is to approve State choices,
provided that they meet the criteria of the CAA. Accordingly, this
action merely approves State law as meeting Federal requirements and
does not impose additional requirements beyond those imposed by State
law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the CAA; and
     does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this rule does not have Tribal implications as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000),
because the SIP is not approved to apply in Indian country located in
the State, and EPA notes that it will not impose substantial direct
costs on Tribal governments or preempt Tribal law.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the CAA, petitions for judicial review
of this action must be filed in the United States Court of Appeals for
the appropriate circuit by February 24, 2014. Filing a petition for
reconsideration by the Administrator of this final rule does not affect
the finality of this action for the purposes of judicial review nor
does it extend the time within which a petition for judicial review may
be filed, and shall not postpone the effectiveness of such rule or
action. Parties with objections to this direct final rule are
encouraged to file a comment in response to the parallel notice of
proposed rulemaking for this action published in the Proposed Rules
section of today's Federal Register, rather than file an immediate
petition for judicial review of this direct final rule, so that EPA can
withdraw this direct final rule and address the comment in the proposed
rulemaking. This action may not be challenged later in proceedings to
enforce its requirements. (See section 307(b)(2).)

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Reporting and recordkeeping
requirements.

    Dated: December 6, 2013.
Susan Hedman,
Regional Administrator, Region 5.
    40 CFR part 52 is amended as follows:

PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
2. In Sec.  52.770 the table in paragraph (c) is amended by adding a
new heading entitled ``State Statutes'' and entry IC 13-13-8 at the end
of the table to read as follows:

Sec.  52.770  Identification of plan.

* * * * *
    (c) * * *

                                        EPA-Approved Indiana Regulations
----------------------------------------------------------------------------------------------------------------
                                                           Indiana
         Indiana citation                 Subject         effective     EPA approval date           Notes
                                                             date
----------------------------------------------------------------------------------------------------------------
                                                  * * * * * * *

----------------------------------------------------------------------------------------------------------------
                                                 State Statutes
----------------------------------------------------------------------------------------------------------------
IC 13-13-8.......................  Environmental Rules      1/1/2013  12/24/2013, [INSERT   1, 2(a), 2(b), 3, 4,
                                    Board.                             PAGE NUMBER WHERE     and 11 only.
                                                                       THE DOCUMENT
                                                                       BEGINS].
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* * * * *
[FR Doc. 2013-30336 Filed 12-23-13; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 82, Number 18 (Monday, January 30, 2017)]
[Notices]
[Pages 8780-8784]
[FR Doc No: 2017-01895]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79868; File No. SR-FICC-2016-007]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change To Implement a Change to the
Methodology Used in the MBSD VaR Model

January 24, 2017.
    On November 23, 2016, the Fixed Income Clearing Corporation filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-FICC-2016-007 pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on December 13, 2016.\3\ The Commission did not
receive any comments on the proposed rule change. This order approves
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4. FICC also filed this proposal as an
advance notice pursuant to Section 802(e)(1) of the Payment,
Clearing, and Settlement Supervision Act of 2010 and Rule 19b-
4(n)(1) under the Act. 15 U.S.C. 5465(e)(1) and 17 CFR 240.19b-
4(n)(1). The advance notice was published for comment in the Federal
Register on December 28, 2016. See Securities Exchange Act Release
No. 79643 (December 21, 2016), 81 FR 95669 (December 28, 2016) (SR-
FICC-2016-801). The Commission did not receive any comments on the
advance notice.
    \3\ Securities Exchange Act Release No. 79491 (December 7,
2016), 81 FR 90001 (December 13, 2016) (SR-FICC-2016-007)
(``Notice'').

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I. Description

    As described by FICC in the proposed rule change, FICC proposes to
change the methodology that it currently uses in the Mortgage-Backed
Securities Division's (``MBSD'') value-at-risk (``VaR'') model from one
that employs a full revaluation approach to one that would employ a
sensitivity approach.\4\ In connection with this change, FICC also
proposes to amend the MBSD Clearing Rules (``MBSD Rules'') to: (i)
Amend the definition of VaR Charge \5\ to reference an alternative
volatility calculation (``Margin Proxy'') that FICC would use in the
event that data used for the sensitivity approach is unavailable for an
extended period of time; \6\ (ii) revise the definition of VaR Charge
to include a VaR floor that FICC would use as an alternative to the
amount calculated by the proposed VaR model for portfolios where the
VaR floor would be greater than the model-based charge amount (``VaR
Floor''); (iii) eliminate two components from the Required Fund Deposit
\7\ calculation that would no longer be necessary following
implementation of the proposed VaR Charge; and (iv) change the
margining approach that FICC may use for certain securities with
inadequate historical pricing data from one that calculates charges
using a historic index volatility model to one that would use a haircut
method.
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    \4\ The proposed sensitivity approach methodology would be
reflected in the Methodology and Model Operations Document--MBSD
Quantitative Risk Model (``QRM Methodology''). FICC requested
confidential treatment of the QRM Methodology and filed it
separately with the Secretary of the Commission, pursuant to Rule
24b-2 under the Act. See 17 CFR 240.24b-2.
    \5\ The term ``VaR Charge'' means, with respect to each margin
portfolio, a calculation of the volatility of specified net
unsettled positions of an MBSD clearing member, as of the time of
such calculation. See MBSD Rule 1.
    \6\ Details of the Margin Proxy methodology would be reflected
in the QRM Methodology.
    \7\ The term ``Required Fund Deposit'' means the amount an MBSD
clearing member is required to deposit to the Clearing Fund pursuant
to MBSD Rule 4. See MBSD Rule 1 and MBSD Rule 4 Section 2.
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A. 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 MBSD clearing
members (``Clearing Members'').\8\ The Required Fund Deposit serves as
each Clearing Member's margin. The aggregate of all Clearing Members'
Required Fund Deposits constitutes the Clearing Fund \9\ 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.
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    \8\ The term ``Clearing Member'' means any entity admitted into
membership pursuant to MBSD Rule 2A. See MBSD Rule 1.
    \9\ The term ``Clearing Fund'' means the Clearing Fund
established by FICC pursuant to MBSD Rules, which shall be comprised
of the aggregate of all Required Fund Deposits and all other
deposits, including cross-guaranty repayment deposits. See MBSD Rule
1.
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    According to FICC, 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 (i.e., a ``default'').\10\
Pursuant to MBSD Rules, each Clearing Member's Required Fund Deposit
amount consists of multiple components. Of all of the components, the
VaR Charge comprises the largest portion of a Clearing Member's
Required Fund Deposit amount.
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    \10\ See Notice, 81 FR at 90002.
---------------------------------------------------------------------------

    Generally, 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. More
specifically, FICC calculates the VaR Charge using a methodology
referred to as the full revaluation approach. The full revaluation
approach uses a historical simulation method to fully re-price each
security in a Clearing Member's portfolio. According to FICC, 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.\11\ 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 a
99 percent confidence level.\12\
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    \11\ Id.
    \12\ The 99 percent confidence level does not apply to
unregistered investment pool clearing members, which are subject to
a VaR Charge with a higher minimum targeted confidence level
assumption of 99.5 percent.
---------------------------------------------------------------------------

    If FICC determines that a security's price history is incomplete
and the market price risk cannot be calculated by the VaR model, then
FICC applies the Margin Proxy until such security's trading history and
pricing reflects market risk factors that can be appropriately
calibrated from the security's historical data.\13\
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    \13\ See MBSD Rule 4 Section 2(c).
---------------------------------------------------------------------------

B. Proposed Changes to the VaR Charge Calculation

    According to FICC, during the volatile market period that occurred
during the second and third quarters of 2013, FICC's full revaluation
approach did not respond effectively to the levels of market volatility
at that time, and the model did not achieve a 99 percent confidence
level.\14\ This prompted FICC to employ the Margin Proxy--a
supplemental risk charge to ensure that each Clearing Member's VaR
Charge would achieve a minimum 99 percent confidence level.\15\
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    \14\ See Notice, 81 FR at 90002-03.
    \15\ The Margin Proxy is currently used to provide supplemental
coverage to the VaR Charge; however, under this proposed change, the
Margin Proxy would only be used as an alternative volatility
calculation in the event that the requisite data used for the
sensitivity approach is unavailable for an extended period of time.
---------------------------------------------------------------------------

    FICC reviewed the existing model's deficiencies, examined the root
causes of the deficiencies, and considered options that would remediate
the model weaknesses. As a result of this review, FICC now proposes to
change MBSD's methodology for calculating the VaR Charge by: (i)
Replacing the full revaluation approach with the sensitivity approach;
(ii) using the Margin Proxy as an alternative volatility calculation in
the event that the data used for the sensitivity approach is
unavailable for an extended period of time; and (iii) establishing a
VaR Floor to address a circumstance where the proposed VaR model yields
a VaR Charge amount that is lower than 5 basis points of the market
value of a Clearing Member's gross unsettled positions.\16\
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    \16\ Assuming the market value of gross unsettled positions of
$500,000,000, the VaR Floor calculation would be .0005 multiplied by
$500,000,000 = $250,000. If the VaR model charge is less than
$250,000, then the VaR Floor calculation of $250,000 would be set as
the VaR Charge.
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(i) Proposed Sensitivity Approach
    FICC's current full revaluation method uses valuation algorithms to
fully re-price each security in a Clearing Member's portfolio over a
range of historically simulated scenarios. While there are benefits to
this method, according to FICC, its deficiencies are that it requires
significant historical market data inputs, calibration of various model
parameters, and extensive quantitative support for price
simulations.\17\ FICC believes that the proposed sensitivity approach
would address these deficiencies because it would leverage external
vendor expertise in supplying the market risk

attributes,\18\ which would then be incorporated by FICC into its model
to calculate the VaR Charge.\19\
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    \17\ See Notice, 81 FR at 90003.
    \18\ The risk factors that would be incorporated into MBSD's
proposed VaR methodology are key rate, convexity, spread,
volatility, mortgage basis and time, as more fully described in the
Notice. See Notice, 81 FR at 90003.
    \19\ FICC states that by leveraging external vendor expertise,
FICC would not need to develop such expertise in-house to supply the
market risk attributes that would then be incorporated by FICC into
its model to calculate the VaR Charge. See Notice, 81 FR at 90004.
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    Because data quality is an important component of calculating the
VaR Charge, FICC would conduct independent data checks to verify the
accuracy and consistency of the data feed received from the vendor.
According to FICC, it has reviewed a description of the vendor's
calculation methodology and the manner in which the market data is used
to calibrate the vendor's models, and it states that it understands and
is comfortable with the vendor's controls, governance process, and data
quality standards.\20\ Additionally, FICC would conduct an independent
review of the vendor's release of a new version of the model. To the
extent that the vendor changes its model and methodologies that produce
the risk factors and risk sensitivities, FICC would review the effects
(if any) of these changes on FICC's proposed sensitivity approach.
Moreover, according to FICC, it does not believe that engaging the
vendor would present a conflict of interest to FICC because the vendor
is not an existing Clearing Member nor are any of the vendor's
affiliates existing Clearing Members.\21\ To the extent that the vendor
or any of its affiliates submit an application to become a Clearing
Member, FICC states that it will negotiate an appropriate information
barrier with the applicant in an effort to prevent a conflict of
interest from arising.\22\
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    \20\ See Notice, 81 FR at 90003.
    \21\ See Notice, 81 FR at 90004.
    \22\ The Commission understands that FICC will address any
potential conflicts of interest.
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    According to FICC, the sensitivity approach would provide three key
benefits.\23\ First, the sensitivity approach would incorporate both
historical data and current risk factor sensitivities while the full
revaluation approach is calibrated with only historical data. According
to FICC, the integration of both observed risk factor changes and
current market conditions would enable the model to more effectively
respond to current market price moves that may not be reflected in the
historical price moves.\24\ FICC performed backtesting to validate the
performance of the proposed model and determine the impact on the VaR
Charge. According to FICC, the backtesting results and impact study
show that the sensitivity approach provides better coverage on volatile
days and a material improvement in margin coverage, while not
significantly increasing the overall Clearing Fund.\25\ FICC believes
that the proposed sensitivity approach would be more responsive to
changing market dynamics and would not negatively impact FICC or its
Clearing Members.\26\
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    \23\ See Notice, 81 FR at 90004.
    \24\ Id.
    \25\ Id.
    \26\ Id.
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    Second, FICC states that the proposed sensitivity approach would
provide more transparency to Clearing Members. Since Clearing Members
typically use risk factor analysis for their own risk and financial
reporting, these Clearing Members would have comparable data and
analysis to assess the variation in their VaR Charges based on changes
in the market value of their portfolios. Therefore, Clearing Members
would be able to simulate the VaR Charge to a closer degree than under
the existing VaR model.
    Third, FICC states that the proposed sensitivity approach would
better provide FICC with the ability to increase the look-back period
used to generate the risk scenarios from one year to 10 years plus an
additional stressed period, as determined necessary by FICC.\27\ The
extended look-back period would be used to ensure that the historical
simulation is inclusive of stressed market periods. While FICC could
extend the one-year look-back period in the existing full revaluation
approach to a 10-year look-back period, performance of the existing
model could deteriorate if current market conditions are materially
different than indicated in the historical data. Additionally, since
the full revaluation method requires FICC to maintain in-house complex
pricing models and mortgage prepayment models, enhancing these models
to extend the look-back period to include 10-years of historical data
would involve significant model development.
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    \27\ Under the proposed model, the 10-year look-back period
would include the 2008/2009 financial crisis scenario. To the extent
that an equally or more stressed market period does not occur when
the 2008/2009 financial crisis period is phased out from the 10-year
look-back period (e.g., from September 2018 onward), FICC would
continue to include the 2008/2009 financial crisis scenario in its
historical scenarios. However, if an equally or more stressed market
period emerges in the future, FICC may choose not to augment its 10-
year historical scenarios with those from the 2008/2009 financial
crisis. On an annual basis, FICC would assess whether an additional
stressed period should be included. This assessment would include a
review of: (i) The largest moves in the dominating market risk
factor of the proposed VaR model; (ii) the impact analyses resulting
from the removal and/or addition of a stressed period; and (iii) the
backtesting results of the proposed look-back period.
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(ii) Proposed Margin Proxy
    In connection with FICC's proposal to source data for the proposed
sensitivity approach from an external vendor, FICC is also proposing
procedures that would govern in the event that the vendor fails to
provide sensitivity data and risk factor data. If the vendor fails to
provide any data or a significant portion of the data timely, FICC
would use the most recently available data on the first day that such
data disruption occurs.\28\ If it is determined that the vendor will
resume providing data within five business days, management would
determine whether the VaR Charge should continue to be calculated by
using the most recently available data along with an extended look-back
period or whether the Margin Proxy should be invoked, as described
below. If it is determined that the data disruption will extend beyond
five business days, the Margin Proxy would be applied.
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    \28\ FICC states it has existing policies and procedures in
accordance with Regulation Systems Compliance and Integrity
(``SCI''), 17 CFR 242.1001(c)(1) (``Regulation SCI''), to determine
whether a disruption to, or significant downgrade of, the normal
operation of FICC's risk management system has occurred as defined
under Regulation SCI. In the event that the vendor fails to provide
the requisite sensitivity data and risk factor data, the responsible
SCI personnel at FICC would determine whether an SCI event has
occurred, and FICC would fulfill its obligations with respect to the
SCI event.
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    FICC would calculate the Margin Proxy on a daily basis, and the
Margin Proxy method would be subject to monthly performance review.
FICC would monitor the performance of the calculation on a monthly
basis to ensure that it could be used in the circumstance described
above. Specifically, FICC would monitor each Clearing Member's Required
Fund Deposit and the aggregate Clearing Fund requirements versus the
requirements calculated by Margin Proxy. FICC would also backtest the
Margin Proxy results versus the three-day profit and loss based on
actual market price moves. If FICC observes material differences
between the Margin Proxy calculations and the aggregate Clearing Fund
requirement calculated using the proposed VaR model, or if the Margin
Proxy's backtesting results do not meet FICC's 99 percent confidence
level, management may recommend remedial actions, such as increasing
the look-back

period and/or applying an appropriate historical stressed period to the
Margin Proxy calibration.
(iii) Proposed Change To Establish a VaR Floor
    FICC proposes to amend the definition of VaR Charge to include a
VaR Floor. The VaR Floor would be used as an alternative to the amount
calculated by the proposed model for portfolios where the VaR Floor
would be greater than the model-based charge amount. FICC's proposal to
establish a VaR Floor seeks to address the risk that the proposed 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. According to FICC,
because this high degree of historical price correlation may not apply
in future changing market conditions,\29\ it is prudent to apply a VaR
Floor that is based upon the market value of the gross unsettled
positions in the Clearing Member's portfolio to protect FICC against
such risk in the event that FICC is required to liquidate a large
mortgage-backed securities portfolio in stressed market conditions.
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    \29\ According to FICC, for example, and without limitation,
certain classes of mortgage-backed securities may have highly
correlated historical price returns despite having different
coupons. However, if future mortgage market conditions were to
generate substantially greater prepayment activity for some but not
all such classes, these historical correlations could break down,
leading to model-generated offsets that would not adequately capture
a portfolio's risk.
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C. Proposed Change To Eliminate the Coverage Charge and the Margin
Requirement Differential

    FICC proposes to eliminate two components of the Required Fund
Deposit--the Coverage Charge \30\ and the Margin Requirement
Differential (``MRD'') \31\--that FICC believes would become
unnecessary with the proposed changes to the VaR Charge. Both
components are based on historical portfolio activity, which may not be
indicative of a Clearing Member's current risk profile, but were
determined by FICC to be appropriate to address potential shortfalls in
margin charges under the existing VaR model.
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    \30\ The Coverage Charge is an additional charge to help bring a
Clearing Member's margin coverage to a targeted confidence level by
preemptively increasing the Required Fund Deposit by an amount
calculated to forecast potential deficiencies in the margin
coverage. See MBSD Rule 1.
    \31\ The MRD is designed to help mitigate the risks posed to
FICC by day-over-day fluctuations in a Clearing Member's portfolio.
It does this by forecasting future changes in a Clearing Member's
portfolio based on a historical look-back of each portfolio over a
given time period. See MBSD Rule 4 Section 2.
---------------------------------------------------------------------------

    According to FICC, as part of the development and assessment of the
sensitivity approach for the proposed VaR model, FICC obtained an
independent validation of the proposed model by an external party,
backtested the model's performance and analyzed the impact of the
margin changes. Results of the analysis indicated that the proposed
sensitivity approach would be more responsive to changing market
dynamics and a Clearing Member's portfolio composition coverage than
the existing model. The model validation and backtesting analysis also
demonstrated that the proposed sensitivity model would provide
sufficient margin coverage on a standalone basis. Because testing and
validation of MBSD's proposed VaR model show a material improvement in
margin coverage, FICC believes that the Coverage Charge and MRD
components are no longer necessary.

D. Proposed Change To Replace the Historic Index Volatility Model With
a Haircut Method

    According to FICC, occasionally, portfolios contain classes of
securities that reflect market price changes not consistently related
to historical risk factors. The value of these securities is often
uncertain because the securities' market volume varies widely, which
limits their price histories. Since the volume and price information
for such securities is not robust, a historical simulation approach
would not generate VaR Charge amounts that adequately reflect the risk
profile of such securities. Currently, MBSD Rule 4 provides that FICC
may use a historic index volatility model to calculate the VaR
component of the Required Fund Deposit for these classes of
securities.\32\ FICC is proposing to amend MBSD Rule 4 to replace the
historic index volatility model with a haircut method. FICC believes
that the haircut method would better capture the risk profile of these
securities because the lack of adequate historical data makes it
difficult to map such securities to a historic index volatility model.
---------------------------------------------------------------------------

    \32\ See MBSD Rule 4 Section 2(c).
---------------------------------------------------------------------------

    FICC proposes to calculate the component of the Required Fund
Deposit applicable to these securities by applying a fixed haircut
level to the gross market value of the positions. FICC has selected an
initial haircut of one percent based on its analysis of a five-year
historical study of three-day returns during a period that such
securities were traded. This percentage would be reviewed annually or
more frequently if market conditions warrant and updated, if necessary,
to ensure sufficient coverage.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \33\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to such
organization.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change described above
is consistent with the Act, in particular Section 17A(b)(3)(F) of the
Act,\34\ and Rules 17Ad-22(b)(1) \35\ and (b)(2) under the Act.\36\
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    \34\ 15 U.S.C. 78q-1(b)(3)(F).
    \35\ 17 CFR 240.17Ad-22(b)(1).
    \36\ 17 CFR 240.17Ad-22(b)(2).
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    Section 17A(b)(3)(F) of the Act \37\ requires that the rules of a
registered clearing agency must be designed to, among other things,
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible. As discussed above, FICC is proposing a number of changes
to the way it calculates its Required Fund Deposits--a key tool that
FICC uses to mitigate potential losses to FICC associated with
liquidating a Clearing Member's portfolio in the event of Clearing
Member default. The Commission believes that the proposed changes are
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC 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 Clearing Member default.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    First, FICC proposes to implement the sensitivity approach to its
VaR Charge calculation. The change would enable FICC to better limit
its exposure to Clearing Members by correcting deficiencies in MBSD's
existing VaR methodology by leveraging an external vendor's expertise
in supplying market risk attributes used to calculate the VaR Charge in
the proposed sensitivity approach. In turn, the sensitivity approach
would enable FICC to view and respond more effectively to market
volatility by allowing FICC to attribute market price moves to various
risk factors such as key rates. Second, the proposal to implement the
Margin Proxy as a back-up methodology to the

sensitivity approach would enable FICC to better limit its exposure to
Clearing Members by helping ensure that FICC could continue to
calculate each Clearing Member's VaR Charge in the event that FICC
experiences a data disruption with the vendor that supplies the
sensitivity data. Third, FICC's proposal to implement the VaR Floor is
designed to enable FICC to better limit its exposure to Clearing
Members in the event that the proposed sensitivity VaR model calculates
too low of a VaR Charge for portfolios where the model applies
substantial offsets from certain offsetting long and short positions.
Fourth, the proposed change to implement a haircut method for
securities with inadequate historical pricing data would enable FICC to
better limit its exposure to Clearing Members by better capturing the
risk profile of the securities. Finally, FICC's proposal to remove the
Coverage Charge and MRD components would enable FICC to remove
unnecessary components from the Clearing Fund calculation that may not
be indicative of a Clearing Member's current risk profile.
    By better limiting exposure to Clearing Members, the proposed
changes are designed to ensure that, in the event of Clearing Member
default, MBSD's operations would not be disrupted and non-defaulting
Clearing Members would not be exposed to losses that they cannot
anticipate or control. In this way, the proposed rules are designed to
assure the safeguarding of securities and funds which are in the
custody or control of FICC or for which it is responsible and are
therefore consistent with Section 17A(b)(3)(F) of the Act.\38\
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    \38\ Id.
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    Rule 17Ad-22(b)(1) under the Act \39\ requires a registered
clearing agency that performs central counterparty services to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to, among other things, limit its
exposures to potential losses from defaults by its participants under
normal market conditions so that the operations of the clearing agency
would not be disrupted and non-defaulting participants would not be
exposed to losses that they cannot anticipate or control. FICC's
proposal would enable FICC to better limit its exposure to potential
losses from defaults by its Clearing Members under normal market
conditions. As discussed above, the sensitivity approach would enable
FICC to view and respond more effectively to market volatility. The
Margin Proxy would help manage data disruption. The VaR Floor would
ensure FICC collects at least a minimum VaR Charge. The haircut method
would better capture the risk profile of securities with inadequate
historical pricing data. Finally, removing the Coverage Charge and MRD
would help ensure the Clearing Fund calculation would not include
unnecessary components that may not be indicative of a Clearing
Member's current risk profile. By better limiting its exposures to
potential losses from defaults by its participants under normal market
conditions, the proposed changes are designed to ensure that the
operations of the clearing agency would not be disrupted and non-
defaulting participants would not be exposed to losses that they cannot
anticipate or control. Therefore, the Commission believes this proposal
is consistent with Rule 17Ad-22(b)(1) under the Act.\40\
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    \39\ 17 CFR 240.17Ad-22(b)(1).
    \40\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(b)(2) under the Act \41\ requires a registered
clearing agency that performs central counterparty services to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to, among other things, use margin
requirements to limit its credit exposures to participants under normal
market conditions and use risk-based models and parameters to set
margin requirements. The Required Fund Deposits are the margin
requirements that FICC collects to limit its credit exposures to
participants under normal market conditions. Additionally, FICC's
proposed changes use a risk-based model (i.e., the sensitivity
approach) and parameters (e.g., the VaR Floor and Margin Proxy) to set
margin requirements. The proposed changes are designed to improve
FICC's margin requirements to better limit FICC's credit exposures to
Clearing Members, in the event of default, under normal market
conditions. Therefore, the Commission believes this proposal is
consistent with Rule 17Ad-22(b)(2) under the Act.\42\
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    \41\ 17 CFR 240.17Ad-22(b)(2).
    \42\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act and the
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\43\ that the proposed rule change (SR-FICC-2016-007) be, and it
hereby is, approved as of the date of this order or the date of a
notice by the Commission authorizing FICC to implement FICC's advance
notice proposal (SR-FICC-2016-801) that is consistent with this
proposed rule change, whichever is later.\44\
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    \43\ 15 U.S.C. 78s(b)(2).
    \44\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01895 Filed 1-27-17; 8:45 am]
 BILLING CODE 8011-01-P