[Federal Register Volume 86, Number 3 (Wednesday, January 6, 2021)]
[Notices]
[Pages 584-591]
[FR Doc No: 2020-29251]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90834; File No. SR-FICC-2020-804]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing and Extension of the Review Period of an Advance
Notice To Modify the Calculation of the MBSD VaR Floor To Incorporate a
Minimum Margin Amount

December 31, 2020.
    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 (``Clearing
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on
November 27, 2020, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') the
advance notice SR-FICC-2020-804 (``Advance Notice'') as described in
Items I and II below, which Items have been prepared by the clearing
agency.\3\ The Commission is publishing this notice to solicit comments
on the Advance Notice from interested persons and to extend the review
period of the Advance Notice for an additional 60 days pursuant to
Section 806(e)(1)(H) of the Clearing Supervision Act.\4\
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ On November 20, 2020, FICC filed this Advance Notice as a
proposed rule change (SR-FICC-2020-017) with the Commission pursuant
to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4
thereunder, 17 CFR 240.19b-4. A copy of the proposed rule change is
available at http://www.dtcc.com/legal/sec-rule-filings.aspx
(``Proposed Rule Change'').
    \4\ 12 U.S.C. 5465(e)(1)(H).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice

    This advance notice of Fixed Income Clearing Corporation (``FICC'')
is attached [sic] 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'') \5\ to incorporate
a ``Minimum Margin Amount'' as described in greater detail below.
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    \5\ 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 proposal would necessitate changes to the Methodology and Model
Operations Document--MBSD Quantitative Risk Model (the ``QRM
Methodology''), which is attached hereto as Exhibit 5.\6\ FICC is
requesting confidential treatment of this document and has filed it
separately with the Secretary of the Commission.\7\
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    \6\ 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
Clearing Supervision Act (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).
    \7\ 17 CFR 240.24b-2.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the Advance Notice
and discussed any comments it received on the Advance Notice. 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 and B below, of the most significant aspects of such
statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to
this proposal. FICC will notify the Commission of any written comments
received by FICC.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing
Supervision Act

Description of Proposed Change
    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.\8\ Of these components, the
VaR Charge typically comprises the largest portion of a Clearing
Member's Required Fund Deposit amount.
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    \8\ 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.\9\
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    \9\ 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.\10\ The VaR Filing
amended the definition of VaR Charge to, among other things,
incorporate the VaR Floor.\11\ 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%.\12\ 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.\13\ The percentage currently designated by FICC is
0.10%.\14\
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    \10\ See VaR Filing Approval Order, supra note 5.
    \11\ The term ``VaR Floor'' is defined within the definition of
VaR Charge. See MBSD Rule 1, supra note 4.
    \12\ The VaR Floor calculation and percentages are described
within the definition of VaR Charge. See MBSD Rule 1, supra note 4.
    \13\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
    \14\ 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 \15\ 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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    \15\ 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.\16\ 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.\17\ 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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    \16\ For backtesting comparisons, FICC uses the Required Fund
Deposit amount, without regard to the actual collateral posted by
the Clearing Member.
    \17\ 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'').\18\ 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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    \18\ 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%.\19\ 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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    \19\ See definition of VaR Charge, MBSD Rule 1, supra note 4.
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    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.\20\ 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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    \20\ 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.\21\ 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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    \21\ 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.
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    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.\22\
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    \22\ See Model Risk Management Framework, supra note 17.
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    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.\23\
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    \23\ 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.
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    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.\24\ 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,\25\ 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.\26\
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    \24\ 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.
    \25\ 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.
    \26\ See Model Risk Management Framework, supra note 17.
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    The Model Risk Management Framework would also require FICC to
conduct model performance reviews of the Minimum Margin Amount
methodology.\27\ 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.\28\
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    \27\ See note 24.
    \28\ See Model Risk Management Framework, supra note 17.
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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 \29\ due to the increase in Required Fund
Deposits resulting from the Minimum Margin Amount during the Impact
Study Period.
---------------------------------------------------------------------------

    \29\ 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 no objection to the advance notice and the
approval of the related proposed rule change \30\ by the Commission.
FICC would announce the effective date of the proposed changes by
Important Notice posted to its website.
---------------------------------------------------------------------------

    \30\ Supra note 3.
---------------------------------------------------------------------------

Anticipated Effect on and Management of Risk
    FICC believes that the proposed change, which consists of a
proposal to modify the calculation of the VaR Floor and the
corresponding description in the MBSD Rules to incorporate a Minimum
Margin Amount, would enable FICC to better limit its exposure to
Clearing Members arising out of the activity in their portfolios. As
stated above, the proposed charge is designed to enhance the MBSD VaR
model performance and improve the backtesting coverage during periods
of heightened market volatility and economic uncertainty. The proposed
charge would help ensure that FICC maintains an appropriate level of
margin to address its risk management needs.
    Specifically, the proposed rule change seeks to remedy potential
situations that are described above where FICC's VaR model, including
the existing VaR Floor, does not respond effectively to increased
market volatility and economic uncertainty and the VaR Charge amounts
do not achieve a 99% confidence level. Therefore, by enabling FICC to
collect margin that more accurately reflects the risk characteristics
of its Clearing Members, the proposal would enhance FICC's risk
management capabilities.
    By providing FICC with a more effective limit on its exposures, the
proposed change would also mitigate risk for Members because lowering
the risk profile for FICC would in turn lower the risk exposure that
Members may have with respect to FICC in its role as a central
counterparty. Further, the proposal is designed to meet FICC's risk
management goals and its regulatory obligations, as described below.
Consistency With the Clearing Supervision Act
    Although Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Clearing Supervision Act'') does not specify
a standard of review for an advance notice, its stated purpose is
instructive: To mitigate systemic risk in the financial system and
promote financial stability by, among other things, promoting uniform
risk management standards for systemically important financial market
utilities and strengthening the liquidity of systemically important
financial market utilities.\31\
---------------------------------------------------------------------------

    \31\ See 12 U.S.C. 5461(b).
---------------------------------------------------------------------------

    FICC believes that the proposal is consistent with the Clearing
Supervision Act, specifically with the risk management objectives and
principles of Section 805(b), and with certain of the risk management
standards adopted by the Commission pursuant to Section 805(a)(2), for
the reasons described below.
(i) Consistency With Section 805(b) of the Clearing Supervision Act
    Section 805(b) of the Clearing Supervision Act \32\ states that the
objectives and principles for the risk management standards prescribed
under Section 805(a) shall be to, among other things, promote robust
risk management, promote safety and soundness, reduce systemic risks,
and support the stability of the broader financial system. For the
reasons described below, FICC believes that the

proposed changes in this advance notice are consistent with the
objectives and principles of the risk management standards as described
in Section 805(b) of the Clearing Supervision Act.
---------------------------------------------------------------------------

    \32\ See 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

    FICC is proposing to modify the calculation of the VaR Floor and
the corresponding description in the MBSD Rules and QRM Methodology to
incorporate a Minimum Margin Amount which would enable FICC to better
limit its exposure to Clearing Members arising out of the activity in
their portfolios. FICC believes the proposed changes are consistent
with promoting robust risk management because the changes would better
enable FICC to limit its exposure to Clearing Members in the event of a
Clearing Member default by collecting adequate prefunded financial
resources to cover its potential losses resulting from the default of a
Clearing Member and the liquidation of a defaulting Clearing Member's
portfolio. Specifically, the proposed Minimum Margin Amount would
modify the VaR Floor to cover circumstances, such as market volatility
and economic uncertainty, where the current VaR Charge calculation and
the Var Floor is lower than market price volatility from corresponding
TBA securities benchmarks. The proposed changes 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
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.
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.
    For these reasons, FICC believes the proposed changes would help to
promote MBSD's robust risk management, which, in turn, is consistent
with reducing systemic risks and supporting the stability of the
broader financial system, consistent with Section 805(b) of the
Clearing Supervision Act.\33\
---------------------------------------------------------------------------

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

    FICC also believes the changes proposed in this advance notice are
consistent with promoting safety and soundness, which, in turn, is
consistent with reducing systemic risks and supporting the stability of
the broader financial system, consistent with Section 805(b) of the
Clearing Supervision Act.\34\ As described above, the proposed changes
are designed to help ensure that FICC is collecting adequate prefunded
financial resources to cover its potential losses resulting from the
default of a Clearing Member and the liquidation of a defaulting
Clearing Member's portfolio in times of market volatility and economic
uncertainty. Because the proposed changes would better position FICC to
limit its exposures to Clearing Members in the event of a Clearing
Member's default, FICC believes the proposed changes are consistent
with promoting safety and soundness, which, in turn, is consistent with
reducing systemic risks and supporting the stability of the broader
financial system.
---------------------------------------------------------------------------

    \34\ Id.
---------------------------------------------------------------------------

(ii) Consistency With 805(a)(2) of the Clearing Supervision Act
    Section 805(a)(2) of the Clearing Supervision Act \35\ authorizes
the Commission to prescribe risk management standards for the payment,
clearing and settlement activities of designated clearing entities,
like FICC, and financial institutions engaged in designated activities
for which the Commission is the supervisory agency or the appropriate
financial regulator. The Commission has adopted risk management
standards under Section 805(a)(2) of the Clearing Supervision Act \36\
and Section 17A of the Securities Exchange Act of 1934 (the ``Act'')
\37\ (the risk management standards are referred to as the ``Covered
Clearing Agency Standards'').\38\
---------------------------------------------------------------------------

    \35\ See 12 U.S.C. 5464(a)(2).
    \36\ See 12 U.S.C. 5464(a)(2).
    \37\ See 15 U.S.C. 78q-1.
    \38\ See 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    The Covered Clearing Agency Standards require registered clearing
agencies to establish, implement, maintain, and enforce written
policies and procedures that are reasonably designed to be consistent
with the minimum requirements for their operations and risk management
practices on an ongoing basis.\39\ FICC believes that this proposal is
consistent with Rules 17Ad-22(e)(4)(i) and (e)(6)(i), each promulgated
under the Act,\40\ for the reasons described below.
---------------------------------------------------------------------------

    \39\ Id.
    \40\ 17 CFR 240.17Ad-22(e)(4), (e)(6) and (e)(23)(ii).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(i) under the Act \41\ 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.\42\
---------------------------------------------------------------------------

    \41\ See 17 CFR 240.17Ad-22(e)(4)(i).
    \42\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) under the Act \43\ 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.\44\
---------------------------------------------------------------------------

    \43\ See 17 CFR 240.17Ad-22(e)(6)(i).
    \44\ Id.
---------------------------------------------------------------------------

III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action

    The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date that the proposed change was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received,\45\ unless extended as described below. The clearing agency
shall not implement the proposed change if the Commission has any
objection to the proposed change.\46\
---------------------------------------------------------------------------

    \45\ 12 U.S.C. 5465(e)(1)(G).
    \46\ 12 U.S.C. 5465(e)(1)(F).
---------------------------------------------------------------------------

    Pursuant to Section 806(e)(1)(H) of the Clearing Supervision
Act,\47\ the Commission may extend the review period of an advance
notice for an additional 60 days, if the changes proposed in the
advance notice raise novel or complex issues, subject to the Commission
providing the clearing agency with prompt written notice of the
extension.
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 5465(e)(1)(H).
---------------------------------------------------------------------------

    Here, as the Commission has not requested any additional
information, the date that is 60 days after FICC filed the Advance
Notice with the Commission is January 26, 2021. However, the Commission
is extending the review period of the Advance Notice for an additional
60 days under Section 806(e)(1)(H) of the Clearing Supervision Act \48\
because the Commission finds the Advance Notice is both novel and
complex, as discussed below.
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

    The Commission believes that the changes proposed in the Advance
Notice raise novel and complex issues. Specifically, FICC developed
this proposal as a direct response to lessons learned during the
pandemic-related market volatility experienced in March and April 2020.
As noted above, the TBA price changes significantly exceeded those
implied by the VaR model risk factors, which resulted in insufficient
VaR Charges during that time period. Moreover, because of the variance
between historical price changes and the observed market price changes
in March and April 2020, the current VaR Floor did not effectively
address the risk that the margin model calculated too low a VaR Charge
for all portfolios during that time period. Therefore, FICC has
developed the proposal described in the Advance Notice to provide a
more reliable estimate for the portfolio risk level when current market
conditions deviate from historical observations, as occurred in March
and April 2020. Determining the appropriate method to address this
particular set of circumstances in the context of FICC's VaR Model
presents novel and complex issues.
    Moreover, the Commission understands that comments likely would
assert that the changes to FICC's risk management practices described
in the Advance Notice would have a significant and lasting impact on
the market participants in the mortgage market.\49\ Currently, there is
the

potential for additional economic uncertainty in the mortgage market
due to, among other things, uncertainty associated with the effects of
the Federal Reserve Bank of New York asset purchases of MBS and CARES
Act mortgage forbearance programs.\50\ The Commission believes that the
potential impact on the mortgage market arising from this proposal also
presents novel and complex issues.
---------------------------------------------------------------------------

    \49\ See Letter from Kelli McMorrow, Head of Government Affairs,
American Securities Association, dated December 18, 2020, to Vanessa
Countryman, Secretary, Commission, available at https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017-8173139-227003.pdf (``ASA
Letter''); Letter from Pete Mills, Senior Vice President, Mortgage
Bankers Association, dated December 17, 2020, to Jay Clayton,
Chairman, Commission, available at https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017-8155338-226778.pdf (``MBA Letter'');
Letter from Christopher Killian, Managing Director, Securities
Industry and Financial Markets Association, dated December 16, 2020,
to Vanessa Countryman, Secretary, Commission, available at https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017-8154310-226759.pdf (``SIFMA Letter''); Letter from Curtis Richins, President
& CEO, Mortgage Capital Trading, Inc., dated December 15, 2020, to
Vanessa Countryman, Secretary, Commission, available at https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017-8156568-226839.pdf (``MCT Letter''); and Letter from James Tabacchi,
Chairman, Independent Dealer and Trader Association, dated December
10, 2020, to Vanessa Countryman, Secretary, Commission, available at
https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017-8127766-226454.pdf (``IDTA Letter''). In addition, commenters stated that
the Commission should expect to receive additional comments that
will assert substantive issues with the proposal. Id. Because the
proposals contained in the Advance Notice and Proposed Rule Change
raise the same substantive issues, supra note 3, the Commission
considers all public comments received on the proposal regardless of
whether the comments were submitted to the Advance Notice or the
Proposed Rule Change.
    \50\ See generally Agency MBS Historical Operational Results and
Planned Purchase Amounts, https://www.newyorkfed.org/markets/ambs/ambs_schedule; Consumer Finance Protection Bureau information site,
https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/.
---------------------------------------------------------------------------

    Accordingly, pursuant to Section 806(e)(1)(H) of the Clearing
Supervision Act,\51\ the Commission is extending the review period of
the Advance Notice to March 27, 2021, which is the date by which the
Commission shall notify the clearing agency of any objection regarding
the Advance Notice, unless the Commission requests further information
for consideration of the Advance Notice (SR-FICC-2020-804).\52\
---------------------------------------------------------------------------

    \51\ 12 U.S.C. 5465(e)(1)(H).
    \52\ This extension extends the time periods under Sections
806(e)(1)(E) and (G) of the Clearing Supervision Act. 12 U.S.C.
5465(e)(1)(E) and (G).
---------------------------------------------------------------------------

    The clearing agency shall post notice on its website of proposed
changes that are implemented.
    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 Advance
Notice is consistent with the Clearing Supervision 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-2020-804 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-2020-804. 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 Advance Notice that are filed with the
Commission, and all written communications relating to the Advance
Notice 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-2020-804 and should be submitted on
or before January 29, 2021.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29251 Filed 1-5-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: July 13, 2010 (Volume 75, Number 133)]
[Notices]
[Page 39959-39960]
[DOCID:fr13jy10-97]

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Internal Agency Docket No. FEMA-1921-DR; Docket ID FEMA-2010-0002]

Minnesota; Major Disaster and Related Determinations

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice.

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

SUMMARY: This is a notice of the Presidential declaration of a major
disaster for the State of Minnesota (FEMA-1921-DR), dated July 2, 2010,
and related determinations.

DATES: Effective Date: July 2, 2010.

FOR FURTHER INFORMATION CONTACT: Peggy Miller, Recovery Directorate,
Federal Emergency Management Agency, 500 C Street, SW., Washington, DC
20472,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: Notice is hereby given that, in a letter
dated July 2, 2010, the President issued a major disaster declaration
under the authority of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act, 42 U.S.C. 5121 et seq. (the ``Stafford
Act''), as follows:

    I have determined that the damage in certain areas of the State
of Minnesota resulting from severe storms, tornadoes, and flooding
during the period of June 17-26, 2010, is of sufficient severity and
magnitude to warrant a major disaster declaration under the Robert
T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C.
5121 et seq. (the ``Stafford Act''). Therefore, I declare that such
a major disaster exists in the State of Minnesota.
    In order to provide Federal assistance, you are hereby
authorized to allocate from funds available for these purposes such
amounts as you find necessary for Federal disaster assistance and
administrative expenses.
    You are authorized to provide Public Assistance in the
designated areas and Hazard Mitigation throughout the State.
Consistent with the requirement that Federal assistance is
supplemental, any Federal funds provided under the Stafford Act for
Public Assistance and Hazard Mitigation will be limited to 75
percent of the total eligible costs.
    Further, you are authorized to make changes to this declaration
for the approved assistance to the extent allowable under the
Stafford Act.

    The Federal Emergency Management Agency (FEMA) hereby gives notice
that pursuant to the authority vested in the Administrator, under
Executive Order 12148, as amended, Lawrence Sommers, of FEMA is
appointed to act as the Federal Coordinating Officer for this major
disaster.
    The following areas of the State of Minnesota have been designated
as adversely affected by this major disaster:

    Faribault, Freeborn, Olmsted, Otter Tail, Polk, Steele, and
Wadena Counties for Public Assistance.
    All counties within the State of Minnesota are eligible to apply
for assistance under the Hazard Mitigation Grant Program.

The following Catalog of Federal Domestic Assistance Numbers (CFDA)
are to be used for reporting and drawing funds: 97.030, Community
Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling;
97.033, Disaster Legal Services; 97.034, Disaster Unemployment
Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048,
Disaster Housing Assistance to Individuals and Households In
Presidentially Declared Disaster Areas; 97.049, Presidentially
Declared Disaster Assistance--Disaster Housing Operations for
Individuals and Households; 97.050, Presidentially Declared Disaster
Assistance to Individuals and Households--Other Needs; 97.036,
Disaster Grants--Public Assistance (Presidentially Declared
Disasters); 97.039, Hazard Mitigation Grant.

W. Craig Fugate,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2010-17036 Filed 7-12-10; 8:45 am]
BILLING CODE 9111-23-P


[Federal Register Volume 87, Number 140 (Friday, July 22, 2022)]
[Notices]
[Pages 43841-43842]
[FR Doc No: 2022-15717]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings #1

    Take notice that the Commission received the following electric
rate filings:

    Docket Numbers: ER14-1480-001.
    Applicants: KMC Thermo, LLC.
    Description: KMC Thermo, LLC submits supplemental information to
its May 31, 2022, Informational Filing Pursuant to Schedule 2 of PJM.
    Filed Date: 7/13/22.
    Accession Number: 20220713-5213.
    Comment Date: 5 p.m. ET 7/27/22.

    Docket Numbers: ER22-1917-001.
    Applicants: Midcontinent Independent System Operator, Inc., Ameren
Transmission Company of Illinois.
    Description: Tariff Amendment: Midcontinent Independent System
Operator, Inc. submits tariff filing per 35.17(b): 2022-07-18_SA 3826
ATXI-AECI Substitute TIA to be effective 5/21/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5096.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2388-000.
    Applicants: Mississippi Power Company.
    Description: Sec.  205(d) Rate Filing: MRA 30 Rate Case Filing to
be effective 7/15/2022.
    Filed Date: 7/15/22.
    Accession Number: 20220715-5164.
    Comment Date: 5 p.m. ET 8/5/22.

    Docket Numbers: ER22-2389-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Sec.  205(d) Rate Filing: 3719 Chilocco Wind Farm GIA
Cancellation to be effective 7/5/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5013.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2390-000.
    Applicants: American Illuminating Company, LLC.
    Description: Tariff Amendment: Cancellation of Market Based Rate
Tariff to be effective 7/19/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5024.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2391-000.
    Applicants: Pedricktown Cogeneration Company LP.
    Description: Tariff Amendment: Notice of Cancellation to be
effective 7/19/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5067.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2392-000.
    Applicants: Arlington Solar, LLC.
    Description: Sec.  205(d) Rate Filing: Arlington Solar, LLC First
Amendment SFA with Arlington Solar II & III to be effective 9/17/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5073.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2393-000.
    Applicants: Northern Indiana Public Service Company LLC.
    Description: Sec.  205(d) Rate Filing: TDSIC WVPA CIAC Agreement to
be effective 7/29/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5088.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2394-000.
    Applicants: Midcontinent Independent System Operator, Inc.,
American Transmission Company LLC.
    Description: Sec.  205(d) Rate Filing: Midcontinent Independent
System Operator, Inc. submits tariff filing per 35.13(a)(2)(iii: 2022-
07-18_SA 3866 ATC-Whitetail E&P (J1374) to be effective 7/19/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5103.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2395-000.
    Applicants: PacifiCorp.
    Description: Sec.  205(d) Rate Filing: BPA NITSA--(Idaho Falls
Power) Rev 6 to be effective 7/1/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5107.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2396-000.
    Applicants: Sapphire Sky Wind Energy LLC.
    Description: Sec.  205(d) Rate Filing: Revised Market-Based Rate
Tariff Filing to be effective 9/17/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5133.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2397-000.
    Applicants: Number Three Wind LLC.
    Description: Sec.  205(d) Rate Filing: Revised Market-Based Rate
Tariff Filing to be effective 9/17/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5134.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2398-000.
    Applicants: New England Power Company.
    Description: Sec.  205(d) Rate Filing: 2022-07-18 Filing TSA-NEP-
110 Schedule 20A Phase I/II HVDC-TF Service Agreement to be effective
12/31/9998.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5135.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2399-000.
    Applicants: Phobos Solar, LLC.
    Description: Baseline eTariff Filing: Phobos Solar, LLC MBR Tariff
to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5136.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2400-000.
    Applicants: PGR 2021 Lessee 11, LLC.
    Description: Baseline eTariff Filing: PGR 2021 Lessee 11, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5137.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2401-000.
    Applicants: Cabin Creek Solar, LLC.
    Description: Baseline eTariff Filing: Cabin Creek Solar, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5140.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2402-000.
    Applicants: NSTAR Electric Company.
    Description: Compliance filing: Park City Wind LLC--Settlement
Transmission Support Agreement to be effective 3/3/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5141.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2403-000.
    Applicants: PGR 2021 Lessee 12, LLC.
    Description: Baseline eTariff Filing: PGR 2021 Lessee 12, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5143.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2404-000.
    Applicants: Gunsight Solar, LLC.
    Description: Baseline eTariff Filing: Gunsight Solar, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5144.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2405-000.
    Applicants: PGR 2021 Lessee 15, LLC.
    Description: Baseline eTariff Filing: PGR 2021 Lessee 15, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5145.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2406-000.

    Applicants: Allora Solar, LLC.
    Description: Baseline eTariff Filing: Allora Solar, LLC MBR Tariff
to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5146.
    Comment Date: 5 p.m. ET 8/8/22.

    Docket Numbers: ER22-2407-000.
    Applicants: PGR 2021 Lessee 19, LLC.
    Description: Baseline eTariff Filing: PGR 2021 Lessee 19, LLC MBR
Tariff to be effective 8/31/2022.
    Filed Date: 7/18/22.
    Accession Number: 20220718-5147.
    Comment Date: 5 p.m. ET 8/8/22.

    The filings are accessible in the Commission's eLibrary system
(https://elibrary.ferc.gov/idmws/search/fercgensearch.asp) by querying
the docket number.
    Any person desiring to intervene or protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00
p.m. Eastern time on the specified comment date. Protests may be
considered, but intervention is necessary to become a party to the
proceeding.
    eFiling is encouraged. More detailed information relating to filing
requirements, interventions, protests, service, and qualifying
facilities filings can be found at: https://www.ferc.gov/docs-filing/efiling/filing-req.pdf. For other information, call<PHONE_NUMBER>
(toll free). For TTY, call<PHONE_NUMBER>.

    Dated: July 18, 2022.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2022-15717 Filed 7-21-22; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 78, Number 16 (Thursday, January 24, 2013)]
[Proposed Rules]
[Pages 5148-5149]
[FR Doc No: 2013-01379]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 25

[Docket No. FAA-2012-1332; Notice No. 25-12-19-SC]

Special Conditions: Embraer S.A., Model EMB-550 Airplanes; Flight
Envelope Protection: General Limiting Requirements

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed special conditions.

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SUMMARY: This action proposes special conditions for the Embraer S.A.
Model EMB-550 airplane. This airplane will have a novel or unusual
design feature(s), specifically new control architecture and a full
digital flight control system which provides flight envelope
protections. The applicable airworthiness regulations do not contain
adequate or appropriate safety standards for this design feature. These
proposed special conditions contain the additional safety standards
that the Administrator considers necessary to establish a level of
safety equivalent to that established by the existing airworthiness
standards.

DATES: Send your comments on or before March 11, 2013.

ADDRESSES: Send comments identified by docket number FAA-2012-1332
using any of the following methods:
     Federal eRegulations Portal: Go to http://www.regulations.gov/ and follow the online instructions for sending
your comments electronically.
     Mail: Send comments to Docket Operations, M-30, U.S.
Department of Transportation (DOT), 1200 New Jersey Avenue SE., Room
W12-140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Take comments to Docket
Operations in Room W12-140 of the West Building Ground Floor at 1200
New Jersey Avenue SE., Washington, DC, between 8 a.m. and 5 p.m.,
Monday through Friday, except federal holidays.
     Fax: Fax comments to Docket Operations at<PHONE_NUMBER>.
    Privacy: The FAA will post all comments it receives, without
change, to http://www.regulations.gov/, including any personal
information the commenter provides. Using the search function of the
docket web site, anyone can find and read the electronic form of all
comments received into any FAA docket, including the name of the
individual sending the comment (or signing the comment for an
association, business, labor union, etc.). DOT's complete Privacy Act
Statement can be found in the Federal Register published on April 11,
2000 (65 FR 19477-19478), as well as at http://DocketsInfo.dot.gov/.
    Docket: Background documents or comments received may be read at
http://www.regulations.gov/ at any time. Follow the online instructions
for accessing the docket or go to the Docket Operations in Room W12-140
of the West Building Ground Floor at 1200 New Jersey Avenue SE.,
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday,
except federal holidays.

FOR FURTHER INFORMATION CONTACT: Joe Jacobsen, FAA, Airplane and Flight
Crew Interface Branch, ANM-111, Transport Airplane Directorate,
Aircraft Certification Service, 1601 Lind Avenue SW., Renton,
Washington 98057-3356; telephone<PHONE_NUMBER>; facsimile<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite interested people to take part in this rulemaking by
sending written comments, data, or views. The most helpful comments
reference a specific portion of the special conditions, explain the
reason for any recommended change, and include supporting data.
    We will consider all comments we receive on or before the closing
date for comments. We may change these special conditions based on the
comments we receive.

Background

    On May 14, 2009, Embraer S.A. applied for a type certificate for
their new Model EMB-550 airplane. The Model EMB-550 airplane is the
first of a new family of jet airplanes designed for corporate flight,
fractional, charter, and private owner operations. The aircraft has a
conventional configuration with low wing and T-tail empennage. The
primary structure is metal with composite empennage and control
surfaces. The Model EMB-550 airplane is designed for 8 passengers, with
a maximum of 12 passengers. It is equipped with two Honeywell HTF7500-E
medium bypass ratio turbofan engines mounted on aft fuselage pylons.
Each engine produces approximately 6,540 pounds of thrust for normal
takeoff. The primary flight controls consist of hydraulically powered
fly-by-wire elevators, aileron and rudder, controlled by the pilot or
copilot sidestick.
    Embraer S.A. has developed comprehensive flight envelope protection
features integral to the electronic flight control system design. These
flight envelope protection features include limitations on angle-of-
attack, normal load factor, bank angle, pitch angle, and speed. To
accomplish this flight-envelope-limiting, a significant change (or
multiple changes) occurs in the control laws of the electronic flight
control system as the limit is approached or exceeded. When failure
states occur in the electronic flight control system, flight envelope
protection features can likewise either be modified, or in some cases,
eliminated. The current regulations were not written with these
comprehensive flight-envelope-limiting systems in mind.

Type Certification Basis

    Under the provisions of Title 14, Code of Federal Regulations (14
CFR) 21.17, Embraer S.A. must show that the Model EMB-550 airplane
meets the applicable provisions of part 25, as amended by Amendments
25-1 through 25-127 thereto.
    If the Administrator finds that the applicable airworthiness
regulations (i.e., 14 CFR part 25) do not contain adequate or
appropriate safety standards for the Model EMB-550 airplane because of
a novel or unusual design feature, special conditions are prescribed
under the provisions of Sec.  21.16.
    Special conditions are initially applicable to the model for which
they are issued. Should the type certificate for that model be amended
later to

include any other model that incorporates the same or similar novel or
unusual design feature, the special conditions would also apply to the
other model under Sec.  21.101.
    In addition to the applicable airworthiness regulations and special
conditions, the Model EMB-550 airplane must comply with the fuel vent
and exhaust emission requirements of 14 CFR part 34 and the noise
certification requirements of 14 CFR part 36 and the FAA must issue a
finding of regulatory adequacy under Sec.  611 of Public Law 92-574,
the ``Noise Control Act of 1972.''
    The FAA issues special conditions, as defined in 14 CFR 11.19, in
accordance with Sec.  11.38, and they become part of the type-
certification basis under Sec.  21.17(a)(2).

Novel or Unusual Design Features

    The Model EMB-550 airplane will incorporate the following novel or
unusual design features: New control architecture and a full digital
flight control system which provides comprehensive flight envelope
protections.

Discussion

    The applicable airworthiness regulation in this instance is 14 CFR
25.143. The purpose of Sec.  25.143 is to verify that any operational
maneuvers conducted within the operational envelope can be accomplished
smoothly with average piloting skill and without exceeding any
structural limits. The pilot should be able to predict the airplane
response to any control input. During the course of the flight test
program, the pilot determines compliance with Sec.  25.143 through
primarily qualitative methods. During flight test, the pilot should
evaluate all of the following:
     The interface between each protection function,
     Transitions from one mode to another,
     The aircraft response to intentional dynamic maneuvering,
whenever applicable, through dedicated maneuvers,
     General controllability assessment,
     High speed characteristics, and
     High angle-of-attack.
    Section Sec.  25.143, however, does not adequately ensure that the
novel or unusual features of the Model EMB-550 airplane will have a
level of safety equivalent to that of existing standards. This special
condition is therefore required to accommodate the the flight-envelope-
limiting systems in the Model EMB-550 airplane. The additional safety
standards in this special condition will ensure a level of safety
equivalent to that of existing standards.

Applicability

    As discussed above, these special conditions are applicable to the
Model EMB-550 airplane. Should Embraer S.A. apply at a later date for a
change to the type certificate to include another model incorporating
the same novel or unusual design feature, the special conditions would
apply to that model as well.

Conclusion

    This action affects only certain novel or unusual design features
on one model of airplanes. It is not a rule of general applicability.

List of Subjects in 14 CFR Part 25

    Aircraft, Aviation safety, Reporting and recordkeeping
requirements.

    The authority citation for these special conditions is as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701, 44702, 44704.

The Proposed Special Conditions

    Accordingly, the Federal Aviation Administration (FAA) proposes the
following special conditions as part of the type certification basis
for Embraer S.A. Model EMB-550 airplanes.
    1. General Limiting Requirements:
    a. Onset characteristics of each envelope protection feature must
be smooth, appropriate to the phase of flight and type of maneuver, and
not in conflict with the ability of the pilot to satisfactorily change
airplane flight path, speed, or attitude as needed.
    b. Limit values of protected flight parameters (and if applicable,
associated warning thresholds) must be compatible with the following:
    i. Airplane structural limits,
    ii. Required safe and controllable maneuvering of the airplane, and
    iii. Margins to critical conditions. Unsafe flight characteristics/
conditions must not result if dynamic maneuvering, airframe and system
tolerances (both manufacturing and in-service), and non-steady
atmospheric conditions, in any appropriate combination and phase of
flight, can produce a limited flight parameter beyond the nominal
design limit value.
    c. The airplane must be responsive to intentional dynamic
maneuvering to within a suitable range of the parameter limit. Dynamic
characteristics such as damping and overshoot must also be appropriate
for the flight maneuver and limit parameter in question.
    d. When simultaneous envelope limiting is engaged, adverse coupling
or adverse priority must not result.
    2. Failure States: Electronic flight control system failures
(including sensor) must not result in a condition where a parameter is
limited to such a reduced value that safe and controllable maneuvering
is no longer available. The crew must be alerted by suitable means if
any change in envelope limiting or maneuverability is produced by
single or multiple failures of the electronic flight control system not
shown to be extremely improbable.

    Issued in Renton, Washington, on December 19, 2012.
K.C. Yanamura,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2013-01379 Filed 1-23-13; 8:45 am]
BILLING CODE 4910-13-P