[Federal Register Volume 86, Number 114 (Wednesday, June 16, 2021)]
[Notices]
[Pages 32079-32085]
[FR Doc No: 2021-12598]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92145; File No. SR-FICC-2020-804]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of No Objection To Advance Notice To Modify the Calculation of
the MBSD VaR Floor To Incorporate a Minimum Margin Amount

June 10, 2021.
    On November 27, 2020, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
advance notice SR-FICC-2020-804 (``Advance Notice'') pursuant to
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, entitled Payment, Clearing and Settlement
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule
19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 1934
(``Exchange Act'').\3\ In the Advance Notice, FICC proposes to add a
minimum margin amount calculation to its margin methodology to enhance
FICC's margin collections as needed in response to periods of extreme
market volatility, as described more fully below. The Advance Notice
was published for public comment in the Federal Register on January 6,
2021.\4\ Upon publication of the Notice of Filing, the Commission
extended the review period of the Advance Notice for an additional 60
days because the Commission determined that the Advance Notice raised
novel and complex issues.\5\ On March 12, 2021, the Commission, by the
Division of Trading and Markets, pursuant to delegated authority,\6\
requested additional information from FICC pursuant to Section
806(e)(1)(D) of the Act.\7\ The request for information tolled the
Commission's period of review of the Advance Notice until 60 days from
the date of the Commission's receipt of the information requested from
FICC, absent an additional information request.\8\
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 90834 (December 31,
2020), 86 FR 584 (January 6, 2021) (File No. SR-FICC-2020-804)
(``Notice of Filing''). FICC also filed a related proposed rule
change with the Commission pursuant to Section 19(b)(1) of the
Exchange Act and Rule 19b-4 thereunder. 15 U.S.C. 78s(b)(1) and 17
CFR 240.19b-4, respectively. FICC seeks approval of the proposed
changes to its rules necessary to implement the Advance Notice (the
``Proposed Rule Change''). The Proposed Rule Change was published in
the Federal Register on December 10, 2020. Securities Exchange Act
Release No. 90568 (December 4, 2020), 85 FR 79541 (December 10,
2020) (SR-FICC-2020-017). On December 30, 2020, the Commission
published a notice designating a longer period of time for
Commission action and a longer period for public comment on the
Proposed Rule Change. Securities Exchange Act Release No. 90794
(December 23, 2020), 85 FR 86591 (December 30, 2020) (SR-FICC-2020-
017). On February 16, 2021, the Commission published an order
instituting proceedings to determine whether to approve or
disapprove the Proposed Rule Change. Securities Exchange Act Release
No. 91092 (February 9, 2021), 86 FR 91092 (February 16, 2021) (SR-
FICC-2020-017).
    \5\ Pursuant to Section 806(e)(1)(H) of the Act, 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 FMU with
prompt written notice of the extension. 12 U.S.C. 5465(e)(1)(H); see
also Notice of Filing, supra note 4 at 590 (explaining the
Commission's rationale for determining that the proposed changes in
the Advance Notice raised novel and complex issues because (1) the
proposed changes to FICC's margin model are a direct response by
FICC to address the unique circumstances that occurred during the
pandemic-related market volatility in March and April 2020, and (2)
the proposed changes potentially could impact the mortgage market).
    \6\ 17 CFR 200.30-3(a)(93).
    \7\ 12 U.S.C. 5465(e)(1)(D).
    \8\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); see Memorandum
from the Office of Clearance and Settlement, Division of Trading and
Markets, titled ``Commission's Request for Additional Information,''
available at https://www.sec.gov/comments/sr-ficc-2020-804/srficc2020804-8490035-229981.pdf.
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    The Commission has received comments on the changes proposed in the
Advance Notice.\9\ In addition, the

Commission received a letter from FICC responding to the comments.\10\
This publication serves as notice of no objection to the Advance
Notice.
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    \9\ Comments on the Advance Notice are available at https://www.sec.gov/comments/sr-ficc-2020-804/srficc2020804.htm. Comments on
the Proposed Rule Change are available at https://www.sec.gov/comments/sr-ficc-2020-017/srficc2020017.htm. Because the proposals
contained in the Advance Notice and the Proposed Rule Change are the
same, all comments received on the proposal were considered
regardless of whether the comments were submitted with respect to
the Advance Notice or the Proposed Rule Change.
    \10\ See Letter from Timothy J. Cuddihy, Managing Director of
Depository Trust & Clearing Corporation Financial Risk Management,
(March 5, 2021) (``FICC Letter'').
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I. The Advance Notice

A. Background

    FICC, through MBSD, serves as a central counterparty (``CCP'') and
provider of clearance and settlement services for the mortgage-backed
securities (``MBS'') markets. A key tool that FICC uses to manage its
respective credit exposures to its members is the daily collection of
margin from each member. The aggregated amount of all members' margin
constitutes the Clearing Fund, which FICC would access should a
defaulted member's own margin be insufficient to satisfy losses to FICC
caused by the liquidation of that member's portfolio.
    Each member's margin consists of a number of applicable components,
including a value-at-risk (``VaR'') charge (``VaR Charge'') designed to
capture the potential market price risk associated with the securities
in a member's portfolio. The VaR Charge is typically the largest
component of a member's margin requirement. The VaR Charge is designed
to provide an estimate of FICC's projected liquidation losses with
respect to a defaulted member's portfolio at a 99 percent confidence
level.
    To determine each member's daily VaR Charge, FICC generally uses a
model-based calculation designed to quantify the risks related to the
volatility of market prices associated with the securities in a
member's portfolio.\11\ As an alternative to this calculation, FICC
also uses a haircut-based calculation to determine the ``VaR Floor,''
which replaces the model-based calculation to become a member's VaR
Charge in the event that the VaR Floor is greater than the amount
determined by the model-based calculation.\12\ Thus, the VaR Floor
currently operates as a minimum VaR Charge.
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    \11\ The model-based calculation, often referred to as the
sensitivity VaR model, relies on historical risk factor time series
data and security-level risk sensitivity data. Specifically, for
TBAs, the model calculation incorporates the following risk factors:
(1) Key rate, which measures the sensitivity of a price change to
changes in interest rates; (2) convexity, which measures the degree
of curvature in the price/yield relationship of key interest rates;
(3) spread, which is the yield spread added to a benchmark yield
curve to discount a TBA's cash flows to match its market price; (4)
volatility, which reflects the implied volatility observed from the
swaption market to estimate fluctuations in interest rates; (5)
mortgage basis, which captures the basis risk between the prevailing
mortgage rate and a blended Treasury rate; and (6) time risk factor,
which accounts for the time value change (or carry adjustment) over
an assumed liquidation period. See Securities Exchange Act Release
No. 79491 (December 7, 2016), 81 FR 90001, 90003-04 (December 13,
2016) (File No. SR-FICC-2016-007).
    \12\ FICC uses the VaR Floor to mitigate the risk that the
model-based calculation does not result in margin amounts that
accurately reflect FICC's applicable credit exposure, which may
occur in certain member portfolios containing long and short
positions in different asset classes that share a high degree of
historical price correlation.
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    During the period of extreme market volatility in March and April
2020, FICC's current model-based calculation and the VaR Floor haircut-
based calculation generated VaR Charge amounts that were not sufficient
to mitigate FICC's credit exposure to its members' portfolios at a 99
percent confidence level. Specifically, during the period of extreme
market volatility, FICC observed that its margin collections yielded
backtesting deficiencies beyond FICC's risk tolerance.\13\ FICC states
that these deficiencies arose from a particular aspect of its margin
methodology with respect to MBS (particularly, higher coupon TBAs
\14\), i.e., that current prices may reflect higher mortgage prepayment
risk than FICC's margin methodology currently takes into account during
periods of extreme market volatility. In the Advance Notice, FICC
proposes to revise the margin methodology in its Rules \15\ and its
quantitative risk model \16\ to better address the risks posed by
member portfolios holding TBAs during such volatile market conditions.
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    \13\ Backtesting is an ex-post comparison of actual outcomes
(i.e., the actual margin collected) with expected outcomes derived
from the use of margin models. See 17 CFR 240.17Ad-22(a)(1). FICC
conducts daily backtesting to determine the adequacy of its margin
assessments. MBSD's monthly backtesting coverage ratio with respect
to margin amounts was 86.6 percent in March 2020 and 94.2 percent in
April 2020. See Notice of Filing, supra note 4 at 585.
    \14\ The vast majority of agency MBS trading occurs in a forward
market, on a ``to-be-announced'' or ``TBA'' basis. In a TBA trade,
the seller 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 MBS program, maturity, coupon rate, and the
face value of the bonds to be delivered.
    \15\ The MBSD Clearing Rules are available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
    \16\ As part of the Advance Notice, FICC filed Exhibit 5B--
Proposed Changes to the Methodology and Model Operations Document
MBSD Quantitative Risk Model (``QRM Methodology''). Pursuant to 17
CFR 240.24b-2, FICC requested confidential treatment of Exhibit 5B.
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B. Minimum Margin Amount

    FICC proposes to introduce a new minimum margin amount into its
margin methodology. Under the proposal, FICC would revise the existing
definition of the VaR Floor to mean the greater of (1) the current
haircut-based calculation, as described above, and (2) the proposed
minimum margin amount, which would use a dynamic haircut method based
on observed TBA price moves. Application of the minimum margin amount
would increase FICC's margin collection during periods of extreme
market volatility, particularly when TBA price changes would otherwise
significantly exceed those projected by either the model-based
calculation or the current VaR Floor calculation.
    Specifically, the minimum margin amount would serve as a minimum
VaR Charge for net unsettled positions, calculated using the historical
market price changes of certain benchmark TBA securities.\17\ FICC
proposes to calculate the minimum margin amount per member
portfolio.\18\ The proposal

would allow offsetting between short and long positions within TBA
securities programs since the TBAs aggregated in each program exhibit
similar risk profiles and can be netted together to calculate the
minimum margin amount to cover the observed market price changes for
each portfolio.
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    \17\ FICC would consider the MBSD portfolio as consisting of
four programs: 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''). Each
program would, in turn, have a default benchmark TBA security.
     FICC would map 10-year and 20-year TBAs 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. FICC states that
these TBAs were not selected as separate TBA security benchmarks due
to the limited trading volumes in the market. See Notice of Filing,
supra note 4 at 586.
    \18\ The specific calculation would involve the following: FICC
would first calculate risk factors using historical market prices of
the benchmark TBA securities. FICC would then calculate each
member's portfolio exposure on a net position across all products
and for each securitization program (i.e., CONV30, GNMA30, CONV15
and GNMA15). Finally, FICC would multiply a ``base risk factor'' by
the absolute value of the 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, to
determine the minimum margin amount.
    To determine the base risk factor, FICC would calculate an
``outright risk factor'' for GNMA30 and CONV30, which constitute the
majority of the TBA market and of positions in MBSD portfolios. For
each member's portfolio, FICC would assign the base risk factor
based on whether GNMA30 or CONV30 constitutes the larger absolute
net market value in the portfolio. If GNMA30 constitutes 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
constitutes the larger absolute net market value in the portfolio,
the base risk factor would be equal to the outright risk factor for
CONV30.
    For a detailed example of the minimum margin amount calculation,
see Notice of Filing, supra note 4 at 586-87.
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    The proposal would allow a lookback period for those historical
market price moves and parameters of between one and three years, and
FICC would set the initial lookback period for the minimum margin
amount calculation at two years.\19\ FICC states that the minimum
margin amount would improve the responsiveness of its margin
methodology during periods of market volatility because it would have a
shorter lookback period than the model-based calculation, which
reflects a ten-year lookback period.\20\
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    \19\ FICC would be permitted to adjust the lookback period
within the range in accordance with FICC's model risk management
practices and governance procedures set forth in the Clearing Agency
Model Risk Management Framework. See Securities Exchange Act Release
No. 81485 (August 25, 2017), 82 FR 41433 (August 31, 2017) (SR-DTC-
2017-008; SR-FICC-2017-014; SR-NSCC-2017-008); Securities Exchange
Act Release No. 84458 (October 19, 2018), 83 FR 53925 (October 25,
2018) (SR-DTC-2018-009; SR-FICC-2018-010; SR-NSCC-2018-009);
Securities Exchange Act Release No. 88911 (May 20, 2020), 85 FR
31828 (May 27, 2020) (SR-DTC-2020-008; SR-FICC-2020-004; SR-NSCC-
2020-008).
    \20\ Notice of Filing, supra note 4 at 586; FICC Letter at 5.
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II. Discussion and Commission Findings

    Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, the stated purpose of the Clearing
Supervision Act is instructive: To mitigate systemic risk in the
financial system and promote financial stability by, among other
things, promoting uniform risk management standards for SIFMUs and
strengthening the liquidity of SIFMUs.\21\
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    \21\ See 12 U.S.C. 5461(b).
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    Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe regulations containing risk management
standards for the payment, clearing, and settlement activities of
designated clearing entities engaged in designated activities for which
the Commission is the supervisory agency.\22\ Section 805(b) of the
Clearing Supervision Act provides the following objectives and
principles for the Commission's risk management standards prescribed
under Section 805(a): \23\
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    \22\ 12 U.S.C. 5464(a)(2).
    \23\ 12 U.S.C. 5464(b).
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     To promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk
management standards may address such areas as risk management and
default policies and procedures, among others areas.\24\
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    \24\ 12 U.S.C. 5464(c).
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    The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and Section 17A of the
Exchange Act (the ``Clearing Agency Rules'').\25\ The Clearing Agency
Rules require, among other things, each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures that are reasonably designed to meet certain minimum
requirements for its operations and risk management practices on an
ongoing basis.\26\ As such, it is appropriate for the Commission to
review advance notices against the Clearing Agency Rules and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act. As
discussed below, the Commission believes the proposals in the Advance
Notice are consistent with the objectives and principles described in
Section 805(b) of the Clearing Supervision Act \27\ and in the Clearing
Agency Rules, in particular Rule 17Ad-22(e)(4)(i) and (e)(6)(i) and
(v).\28\
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    \25\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No.
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
See also Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing
Agency Standards''). FICC is a ``covered clearing agency'' as
defined in Rule 17Ad-22(a)(5).
    \26\ Id.
    \27\ 12 U.S.C. 5464(b).
    \28\ 17 CFR 240.17Ad-22(e)(4)(i) and (e)(6)(i).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    The Commission believes that the Advance Notice is consistent with
the stated objectives and principles of Section 805(b) of the Clearing
Supervision Act.\29\ Specifically, the Commission believes that the
changes proposed in the Advance Notice are consistent with promoting
robust risk management, promoting safety and soundness, reducing
systemic risks, and supporting the broader financial system.\30\
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    \29\ 12 U.S.C. 5464(b).
    \30\ Several of the issues raised by the commenters are directed
at the Proposed Rule Change and will be addressed in that context.
These comments generally relate to the proposal's impact on
competition and its consistency with the Exchange Act. See Letter
from James Tabacchi, Chairman, Independent Dealer and Trade
Association, Mike Fratantoni, Chief Economist/Senior Vice President,
Mortgage Bankers Association (January 26, 2021) (``IDTA/MBA Letter
I'') at 2-6; Letter from Christopher A. Iacovella, Chief Executive
Officer, American Securities Association (January 28, 2021) (``ASA
Letter'') at 1-2; Letter from Christopher Killian, Managing
Director, Securities Industry and Financial Markets Association
(January 29, 2021) (``SIFMA Letter I'') at 2-4 (commenting on impact
on competition and the application of Section 17A(b)(3)(F) of the
Exchange Act). The Commission's evaluation of the Advance Notice is
conducted under the Clearing Supervision Act and, as noted above,
generally considers whether the proposal would promote robust risk
management, promote safety and soundness, reduce systemic risks, and
support the broader financial system.
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1. Promoting Robust Risk Management and Safety and Soundness
    The Commission believes that adopting the proposed minimum margin
amount would be consistent with the promotion of robust risk management
and safety and soundness at FICC. FICC proposes to add the minimum
margin amount calculation to its margin methodology to better ensure
that FICC collects sufficient margin amounts during periods of extreme
market volatility to cover the costs that FICC might incur upon
liquidating a defaulted member's portfolio.
    Specifically, FICC designed the minimum margin amount calculation
to better manage the risk of incurring costs associated with increased
volatility in a defaulted member's portfolio that contains a large
position in TBAs. As described above, during the period of extreme
market volatility in March and April 2020, FICC's margin methodology
generated margin amounts that were not sufficient to mitigate FICC's
credit exposure to its members' portfolios at a 99 percent confidence
level. The minimum margin amount would collect additional margin in
such circumstances, i.e., when the market price volatility implied by
both the current VaR Charge calculation and the current VaR Floor
calculation is lower than the market price volatility from
corresponding price changes of the proposed TBA securities benchmarks
observed during the proposed lookback period.
    The Commission believes that FICC's implementation of the minimum
margin amount would result in margin levels that better reflect the
risks and particular attributes of member portfolios holding positions
in TBAs,

including in times of increased market price volatility such as what
occurred in March and April 2020. Accordingly, the Commission believes
that the proposal is consistent with promoting robust risk management
because the minimum margin amount would enable FICC to better manage
the relevant risks.
    Further, the Commission has reviewed and analyzed FICC's analyses
regarding how the proposal would improve FICC's backtesting coverage,
which demonstrate that the proposal would result in less credit
exposure for FICC to its members. By helping to ensure that FICC
collects margin amounts sufficient to manage the risk associated with
its members' portfolios holding large TBA positions during periods of
extreme market volatility, the proposed minimum margin amount would
help limit FICC's exposure in a member default scenario. The proposal
would generally provide FICC with additional resources to manage
potential losses arising out of a member default. Such an increase in
FICC's available financial resources would decrease the likelihood that
losses arising out of a member default would exceed FICC's prefunded
resources and threaten the safety and soundness of FICC's ongoing
operations. Accordingly, the Commission believes that the proposal is
also consistent with promoting safety and soundness at FICC.
2. Reducing Systemic Risks and Supporting the Stability of the Broader
Financial System
    The Commission believes that the proposed minimum margin amount is
consistent with reducing systemic risks and supporting the stability of
the broader financial system. As discussed above, FICC would access its
Clearing Fund should a defaulted member's own margin be insufficient to
satisfy losses caused by the liquidation of the member's portfolio.
FICC proposes to add the minimum margin amount calculation to its
margin methodology to collect additional margin from members to cover
such costs, and thereby better manage the potential costs of
liquidating a defaulted member's portfolio. This could reduce the
possibility that FICC would need to mutualize among the non-defaulting
members a loss arising out of the close-out process. Reducing the
potential for loss mutualization could, in turn, reduce the potential
resultant effects on non-defaulting members, their customers, and the
broader market arising out of a member default. Accordingly, the
Commission believes that adoption of the proposed minimum margin amount
by FICC is consistent with the reduction of systemic risk and
supporting the stability of the broader financial system.
    One commenter argues that the proposed minimum margin amount is not
necessary because despite FICC's March-April 2020 backtesting
deficiencies, there were no failures that caused broader systemic
problems.\31\ Another commenter argues that the proposed minimum margin
amount is not necessary because mid-sized broker/dealers do not present
significant risks to the broader financial system.\32\ The Commission
disagrees with these comments, as they do not take into account FICC's
regulatory requirements with respect to maintaining sufficient
financial resources. As discussed more fully below, the standard under
Rule 17Ad-22(e)(4) is not merely for FICC to maintain sufficient
financial resources to avoid failures or systemic issues, but to cover
its credit exposure to each participant fully with a high degree of
confidence.\33\ During periods of extreme market volatility, FICC has
demonstrated that adding the minimum margin amount to its margin
methodology would better enable FICC to manage its credit exposures to
members by assessing appropriate margin charges. The Commission has
reviewed and analyzed FICC's backtesting data, and agrees that the data
demonstrate that the minimum margin amount would result in better
backtesting coverage and, therefore, less credit exposure of FICC to
its members. Accordingly, the Commission believes that the proposed
minimum margin amount would enable FICC to better manage its credit
risks resulting from periods of extreme market volatility. Morevoer, as
discussed here, the proposal should help FICC to contain the effects of
a member default from spreading to other members and more broadly to
other market participants, consistent with the objectives of reducing
systemic risks and supporting the stability of the broader financial
system.
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    \31\ See SIFMA Letter I at 2.
    \32\ See IDTA/MBA Letter I at 3.
    \33\ 17 CFR 240.17Ad-22(e)(4)(i).
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    For the reasons stated above, the Commission believes the changes
proposed in the Advance Notice are consistent with Section 805(b) of
the Clearing Supervision Act.\34\
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    \34\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(4)(i)

    Rule 17Ad-22(e)(4)(i) requires that FICC 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 arising from its payment,
clearing, and settlement processes, including by maintaining sufficient
financial resources to cover its credit exposure to each participant
fully with a high degree of confidence.\35\
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    \35\ 17 CFR 240.17Ad-22(e)(4)(i).
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    Several commenters question whether FICC has adequately
demonstrated that the proposal in the Advance Notice is consistent with
Rule 17Ad-22(e)(4)(i) under the Act, arguing that there are more
effective methods that FICC could use to mitigate the relevant risks.
Three commenters argue that the model-based calculation is well-suited
to address FICC's credit risk in volatile market conditions, and
instead of adding the minimum margin amount to its margin methodology,
FICC should enhance this calculation to address periods of extreme
market volatility such as occurred in March and April 2020.\36\
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    \36\ See IDTA/MBA Letter I at 4-5; ASA Letter at 1; SIFMA Letter
I at 2-3; SIFMA Letter II at 1-2.
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    In response to these comments, FICC explains that enhancing the
model-based calculation would not be an effective approach towards
mitigating the risk resulting from periods of extreme market
volatility. Although the model-based calculation takes into account
risk factors typical to TBAs, the extreme market volatility of March
and April 2020 was caused by other factors (e.g., changes in the
Federal Reserve purchase program) affecting the TBA markets, yet such
factors are not accounted for in the model-based calculation.\37\ To
further demonstrate why the minimum margin amount is necessary, FICC
relies upon the results of recent backtesting analyses demonstrating
that its existing VaR Charge calculations did not respond effectively
to the March and April 2020 levels of market volatility and economic
uncertainty such that FICC's margin collections during that period did
not meet its 99 percent confidence level.\38\
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    \37\ See FICC Letter at 2-3.
    \38\ See FICC Letter at 3.
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    The Commission believes that the proposal in the Advance Notice is
consistent with Rule 17Ad-22(e)(4)(i) under the Exchange Act.\39\ As
described above, FICC's current VaR Charge calculations resulted in
margin amounts that were not sufficient to mitigate FICC's credit
exposure to its members' portfolios at FICC's targeted confidence level
during periods of extreme market volatility, particularly when TBA
price changes significantly exceeded those implied by the VaR model
risk factors.

Adding the minimum margin amount calculation to its margin methodology
should better enable FICC to collect margin amounts that are sufficient
to mitigate FICC's credit exposure to its members' portfolios.
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    \39\ 17 CFR 240.17Ad-22(e)(4)(i).
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    In reaching this conclusion, the Commission thoroughly reviewed and
analyzed the (1) Advance Notice, including the supporting exhibits that
provided confidential information on the calculation of the proposed
minimum margin amount, impact analyses (including detailed information
regarding the impact of the proposed change on the portfolio of each
FICC member over various time periods), and backtesting coverage
results, (2) comments received, and (3) the Comission's own
understanding of the performance of the current margin methodology,
with which the Commission has experience from its general supervision
of FICC, compared to the proposed margin methodology.\40\ Specifically,
as discussed above, the Commission has considered the results of FICC's
backtesting coverage analyses, which indicate that the current margin
methodology results in backtesting coverage that does not meet FICC's
targeted confidence level. The analyses also indicate that the minimum
margin amount would result in improved backtesting coverage towards
meeting FICC's targeted coverage level. FICC's backtesting data shows
that if the minimum margin amount 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.\41\
Therefore, the proposal would provide FICC with a more precise margin
calculation, thereby enabling FICC to manage its credit exposures to
members by maintaining sufficient financial resources to cover such
exposures fully with a high degree of confidence.
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    \40\ In addition, because the proposals contained in the Advance
Notice and the Proposed Rule Change are the same, all information
submitted by FICC was considered regardless of whether the
information submitted with respect to the Advance Notice or the
Proposed Rule Change. See supra note 9.
    \41\ See Notice of Filing, supra note 4 at 588.
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    In response to the comments regarding enhancing the model-based
calculation instead of adding the minimum margin amount, the Commission
believes that FICC's model-based calculation takes into account risk
factors that are typical TBA attributes, whereas the extreme market
volatility of March and April 2020 was caused by other external factors
that are less subject to modeling. Thus, the commenters' preferred
approach is not a viable alternative that would allow for consideration
of such factors.\42\
---------------------------------------------------------------------------

    \42\ This Commission also notes that Section 19(b)(2)(C) of the
Act directs the Commission to approve a proposed rule change of a
self-regulatory organization if the change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. 15 U.S.C. 78s(b)(2)(C). Therefore,
the Commission is required to approve the proposal unless the
existence of alternatives identified by commenters renders the
proposal inconsistent with the Act. The Commission does not believe
this threshold has been met.
---------------------------------------------------------------------------

    Accordingly, for the reasons discussed above, the Commission
believes that the proposed minimum margin amount is reasonably designed
to enable FICC to effectively identify, measure, monitor, and manage
its credit exposure to members, consistent with Rule 17Ad-
22(e)(4)(i).\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 240.17Ad-22(e)(4)(i).
---------------------------------------------------------------------------

C. Consistency With Rules 17Ad-22(e)(6)(i) and (iii)

    Rules 17Ad-22(e)(6)(i) and (iii) require that FICC 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,
and calculates margin sufficient to cover its potential future exposure
to participants.\44\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17Ad-22(e)(6)(i) and (iii).
---------------------------------------------------------------------------

    One commenter suggests that the minimum margin amount would be
inefficient and ineffective at collecting margin amounts commensurate
with the risks presented by the securities in member portfolios.\45\
Several commenters argue that the proposed minimum margin amount
calculation would produce sudden and persistent spikes in margin
requirements.\46\ One commenter argues that the minimum margin amount
would effectively replace FICC's existing model-based calculation with
one likely to produce procyclical results by increasing margin
requirements at times of increased market volatility.\47\ One commenter
suggests the March-April 2020 market volatility was so unique that FICC
need not adjust its margin methodology to account for a future similar
event.\48\
---------------------------------------------------------------------------

    \45\ See id.
    \46\ See IDTA/MBA Letter I at 5; ASA Letter at 2; SIFMA Letter I
at 3-4.
    \47\ See IDTA/MBA Letter I at 5.
    \48\ See SIFMA Letter I at 3.
---------------------------------------------------------------------------

    In addition, one commenter argues that the proposed minimum margin
amount is inconsistent with Rule 17Ad-22(e)(6)(i) because the minimum
margin amount calculation is not reasonably designed to mitigate future
risk due to its reliance on historical price movements that will not
generate margin requirements that equate to future protections against
market volatility.\49\ Two commenters argue that the proposed minimum
margin amount calculation is not reasonably designed to mitigate future
risks because the calculation relies on historical price movements,
which will not necessarily generate margin amounts that will protect
against future periods of market volatility.\50\ One commenter argues
that the MMA is not necessary despite the March and April 2020
backtesting deficiencies because there were no failures or other events
that caused systemic issues.\51\
---------------------------------------------------------------------------

    \49\ See IDTA/MBA Letter I at 4.
    \50\ See IDTA/MBA Letter I at 5; SIFMA Letter I at 2.
    \51\ See SIFMA Letter I at 2.
---------------------------------------------------------------------------

    Several commenters speculate that since the minimum margin amount
is typically larger than the model-based calculation, the minimum
margin amount will likely become the predominant calculation for
determining a member's VaR Charge.\52\ One commenter argues that
instead of the minimum margin amount, FICC should consider adding
concentration charges to its margin methodology to address the relevant
risks.\53\
---------------------------------------------------------------------------

    \52\ See IDTA/MBA Letter I at 4-5; ASA Letter at 1; SIFMA Letter
I at 2-3.
    \53\ See IDTA/MBA Letter I at 5.
---------------------------------------------------------------------------

    In response, FICC states that any increased margin requirements
resulting from the proposed minimum margin amount during periods of
extreme market volatility would appropriately reflect the relevant
risks presented to FICC by member portfolios holding large TBA
positions.\54\ FICC also states that the minimum margin amount's
reliance on observed price volatility with a shorter lookback period
will provide margin that responds quicker during market volatility to
limit FICC's exposures.\55\ FICC also notes that the margin increases
that the minimum margin amount would have imposed following the March-
April 2020 market volatility would not have persisted at such high
levels indefinitely.\56\
---------------------------------------------------------------------------

    \54\ See FICC Letter at 5-6.
    \55\ See id.
    \56\ See id.
---------------------------------------------------------------------------

    In addition, regarding whether the minimum margin amount will
likely become the predominant calculation for determining a member's
VaR Charge,

FICC states that as the period of extreme market volatility stabilized
and the model-based calculation recalibrated to current market
conditions, the average daily VaR Charge increase decreased from $2.2
billion (i.e., 42%) to $838 million (i.e., 7%) during the fourth
quarter of 2020.\57\ Regarding concentration charges, FICC states that
concentration charges and the minimum margin amount address separate
and distinct types of risk.\58\ Whereas the minimum margin amount is
designed to cover the risk of market price volatility, concentration
charges (e.g., FICC's recently approved Margin Liquidity Adjustment
Charge \59\) are designed to mitigate the risk to FICC of incurring
additional market impact cost from liquidating a directionally
concentrated portfolio.\60\
---------------------------------------------------------------------------

    \57\ See FICC Letter at 5.
    \58\ See FICC Letter at 7-8.
    \59\ See Securities Exchange Act Release No. 90182 (October 14,
2020), 85 FR 66630 (October 20, 2020) (SR-FICC-2020-009).
    \60\ See FICC Letter at 7-8.
---------------------------------------------------------------------------

    The Commission believes that the proposal is consistent with Rule
17Ad-22(e)(6)(i). Implementing the proposed minimum margin amount would
result in margin requirements that reflect the risks such holdings
present to FICC better than FICC's current margin methodology. In
reaching this conclusion and considering the comments above, the
Commission thoroughly reviewed and analyzed the (1) Advance Notice,
including the supporting exhibits that provided confidential
information on the calculation of the proposed minimum margin amount,
impact analyses, and backtesting coverage results, (2) comments
received, and (3) the Commission's own understanding of the performance
of the current margin methodology, with which the Commission has
experience from its general supervision of FICC, compared to the
proposed margin methodology. Based on its review and analysis of these
materials, including the effect that the minimum margin amount would
have on FICC's backtesting coverage, the Commission believes that the
proposed minimum margin amount is designed to consider, and collect
margin commensurate with, the market risk presented by member
portfolios holding TBA positions, specifically during periods of market
volatility such as what occurred in March and April 2020. For the same
reasons, the Commission disagrees with the comments suggesting that the
minimum margin amount calculation is not designed to effectively and
efficiently collect margin sufficient to mitigate the risks presented
by the securities.
    In response to comments regarding the sudden and persistent
increases in margin that could arise from the minimum margin amount,
the Commission acknowledges that, for some member portfolios in certain
market conditions, application of the minimum margin amount calculation
would result in an increase in the member's margin requirement based on
the potential exposures arising from the TBA positions. The Commission
notes that, by design, the minimum margin amount should respond more
quickly to heightened market volatility because of its use of
historical price data over a relatively short lookback period, as
opposed to the model-based calculation which relies on risk factors and
uses a longer lookback period.
    The Commission also observes, however, based on its review and
analysis of FICC's confidential data and analyses, that the increase in
margin requirements generated by the minimum margin amount as compared
to the other calculations would generally only apply during periods of
high market volatility and for a time period thereafter.\61\ The
frequency with which the minimum margin amount would constitute a
majority of members' margin requirements decreases as markets become
less volatile, and therefore, is not expected to persist
indefinitely.\62\ The Commission believes that including the minimum
margin amount as a potential method of determining a member's margin
requirement is appropriate, in light of the potential exposures that
could arise in a time of heightened market volatility and the need for
FICC to cover those exposures. Therefore, the Commission believes that
the proposal would provide FICC with a margin calculation better
designed to enable FICC to cover its credit exposures to its members by
enhancing FICC's risk-based margin system to produce margin levels
commensurate with, the risks and particular attributes of TBAs during
periods of extreme market volatility.
---------------------------------------------------------------------------

    \61\ FICC provided this data as part of its response to the
Commission's Request for Additional Information in connection with
the Advance Notice. Pursuant to 17 CFR 240.24b-2, FICC requested
confidential treatment of its RFI response. See also FICC Letter at
5.
    \62\ See FICC Letter at 5.
---------------------------------------------------------------------------

    In response to the comments regarding the potential procyclical
nature of the minimum margin amount calculation and whether it is
appropriate for the margin methodology to take into account such
extreme market events, the Commission notes that as a general matter,
margin floors generally operate to reduce procyclicality by preventing
margin levels from falling too low. Moreover, despite the commenters'
procyclicality concerns, the Commission understands that the purpose of
the minimum margin amount is to ensure that FICC collects sufficient
margin in times of heightened market volatility, which means that FICC
would, by design, collect additional margin at such times if the
minimum margin amount applies. The Commission believes that, because
heightened market volatility may lead to increased credit exposure for
FICC, it is reasonable for FICC's margin methodology to collect
additional margin at such times and to be responsive to market activity
of this nature.
    In response to the comment that the proposed minimum margin amount
is not necessary because the March and April 2020 market volatility did
not cause the failure of FICC members or otherwise cause broader
systemic problems, the Commission disagrees. Similar to the
Commission's analysis above in Section II.B., the relevant standard is
not merely for FICC to maintain sufficient financial resources to avoid
failures or systemic issues, but for FICC to cover its credit exposures
to members with a risk-based margin system that produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market.\63\ During periods of extreme market
volatility, FICC has demonstrated that adding the minimum margin amount
to its margin methodology would better enable FICC to manage its credit
exposures to members by producing margin charges commensurate with the
applicable risks. The Commission has reviewed and analyzed FICC's
backtesting data, and agrees that the data demonstrate that the minimum
margin amount would result in better backtesting coverage and,
therefore, less credit exposure of FICC to its members. Accordingly,
the Commission believes that the proposed minimum margin amount would
enable FICC to better manage its credit risks resulting from periods of
extreme market volatility.
---------------------------------------------------------------------------

    \63\ 17 CFR 240.17Ad-22(e)(6)(i).
---------------------------------------------------------------------------

    In response to the comments regarding the minimum margin amount
calculation's reliance on historical price movements, the Commission
does not agree that Rules 17Ad-22(e)(6)(i) and (iii) preclude FICC from
implementing a margin methodology that relies, at least in part, on
historical price movements or that FICC's margin methodology must

generate margin requirements that ``equate to future protections
against market volatility.'' FICC's credit exposures are reasonably
measured both by events that have actually happened as well as events
that could potentially occur in the future. For this reason, a risk-
based margin system is necessary for FICC to cover its potential future
exposure to members.\64\ Potential future exposure is, in turn, defined
as the maximum exposure estimated to occur at a future point in time
with an established single-tailed confidence level of at least 99
percent with respect to the estimated distribution of future
exposure.\65\ Thus, to be consistent with its regulatory requirements,
FICC must consider potential future exposure, which includes, among
other things, losses associated with the liquidation of a defaulted
member's portfolio.
---------------------------------------------------------------------------

    \64\ See 17 CFR 240.17Ad-22(e)(6)(iii) (requiring 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, calculates margin sufficient to
cover its potential future exposure to participants in the interval
between the last margin collection and the close out of positions
following a participant default).
    \65\ 17 CFR 240.17Ad-22(a)(13).
---------------------------------------------------------------------------

    In response to the comments regarding enhancing the model-based
calculation instead of adding the minimum margin amount, the Commission
believes that, as FICC stated in its response, the inputs to FICC's
model-based calculation include risk factors that are typical TBA
attributes, whereas the extreme market volatility of March and April
2020, which affected the TBA markets, was caused by other external
factors that are less subject to modeling. Accordingly, the Commission
believes that FICC would more effectively cover its exposure during
such periods by including the minimum margin amount as an alternative
margin component based the price volatility in each member's portfolio
using observable TBA benchmark prices, using a relatively short
lookback period.\66\
---------------------------------------------------------------------------

    \66\ See FICC Letter at 3.
---------------------------------------------------------------------------

    In response to the comments regarding whether the minimum margin
amount will likely become the predominant calculation for determining a
member's VaR Charge, the Commission disagrees. For example, the average
daily VaR Charge increase from February 3, 2020 through June 30, 2020
would have been approximately $2.2 billion or 42%, but as the model-
based calculation took into account the current market conditions, the
average daily increase during Q4 of 2020 would have been approximately
$838 million or 7%.\67\
---------------------------------------------------------------------------

    \67\ See FICC Letter at 5. The Commission's conclusion is also
based upon information that FICC submitted confidentially regarding
member-level impact of the proposal from February through December
2020.
---------------------------------------------------------------------------

    Finally, in response to the comments regarding concentration
charges, the Division states that there is a distinction between
concentration charges and the VaR Charge in that they are generally
designed to mitigate different risks. Whereas the VaR Charge is
designed to cover the risk of market price volatility, concentration
charges are typically designed to mitigate the risk of incurring
additional market impact cost from liquidating a directionally
concentrated portfolio.\68\
---------------------------------------------------------------------------

    \68\ See Securities Exchange Act Release No. 34-90182 (October
14, 2020), 85 FR 66630 (October 20, 2020).
---------------------------------------------------------------------------

    Accordingly, the Commission believes that adding the minimum margin
amount to FICC's margin methodology would be consistent with Rules
17Ad-22(e)(6)(i) and (iii) because this new margin calculation should
better enable FICC to establish a risk-based margin system that
considers and produces relevant margin levels commensurate with the
risks (including potential future exposure) associated with liquidating
member portfolios in a default scenario, including volatility in the
TBA market.\69\
---------------------------------------------------------------------------

    \69\ 17 CFR 240.17Ad-22(e)(6)(i) and (iii).
---------------------------------------------------------------------------

III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to
Advance Notice (SR-FICC-2020-804) and that FICC is authorized to
implement the proposed change as of the date of this notice or the date
of an order by the Commission approving proposed rule change SR-FICC-
2020-017, whichever is later.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12598 Filed 6-15-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: June 7, 2010 (Volume 75, Number 108)]
[Rules and Regulations]
[Page 32093-32094]
[DOCID:fr07jn10-3]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 73

[Docket No. FAA-2010-0557; Airspace Docket No. 10-AWP-6]
RIN 2120-AA66

Revision of Restricted Area R-2504; Camp Roberts, CA

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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

SUMMARY: This action revises Restricted Area R-2504, Camp Roberts, CA,
by subdividing the area of R-2504 to create R-2504A and R-2504B.
Together, R-2504A and R-2504B will occupy the same lateral and vertical
dimensions of the existing R-2504. The FAA is taking this action in
response to a request from the United States (U.S.) Army. This action
will fulfill Department of Defense training requirements while freeing
unused airspace for use by nonparticipating civil aircraft, and allows
the U.S. Army to activate only that portion of the airspace necessary
to contain their operations.

DATES: Effective date 0901 UTC, September 23, 2010.

FOR FURTHER INFORMATION CONTACT: Ken McElroy, Airspace and Rules Group,
Office of System Operations Airspace and AIM, Federal Aviation
Administration, 800 Independence Avenue, SW., Washington, DC 20591;
telephone:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

History

    In May 2009, the FAA Western Service Center, Operations Support
Group in conjunction with the U.S. Army conducted a Special Use
Airspace (SUA) review at Camp Roberts, CA. It was determined that the
existing airspace was not being used efficiently and the U.S. Army
requested the FAA take action to subdivide R-2504. This action is in
response to that request.

The Rule

    This action amends Title 14 Code of Federal Regulations (14 CFR)
part 73 by revising R-2504, Camp Roberts, CA, dividing the area into
two sub areas; R-2504A from the surface to but not including 6,000 feet
mean sea level (MSL); and R-2504B from 6,000 MSL to 15,000 feetMSL.
Together, R-2504A and R-2504B will occupy the same lateral and vertical
dimensions of the existing R-2504. This action permits greater access
to airspace by both Visual Flight Rules and Instrument Flight Rules
aircraft during periods of activation of R-2504A and R-2504B. Since
there are no changes to the boundaries, time of designation, or
activities conducted within the affected restricted areas, notice and
public procedures under 5 U.S.C. 533(b) are unnecessary.
    Section 73.25 of Title 14 CFR part 73 was republished in FAA Order
7400.8S, effective February 16, 2010.
    The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation: (1) Is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under Department of Transportation (DOT) Regulatory Policies and
Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant
preparation of a regulatory evaluation as the anticipated impact is so
minimal. Since this is a routine matter that will only affect air
traffic procedures and air navigation, it is certified that this rule,
when promulgated, will not have a significant economic impact on a
substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
    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 the
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 amends a restricted area for Camp Roberts, California.

Environmental Review

    The FAA has determined that this action qualifies for categorical
exclusion under the National Environmental Policy Act in accordance
with FAA Order 1050.1E, ``Environmental Impacts: Policies and
Procedures,'' paragraph 311d. This airspace action is not expected to
cause any potentially significant environmental impacts, and no
extraordinary circumstances exist that warrant preparation of an
environmental assessment.

List of Subjects in 14 CFR Part 73

    Airspace, Prohibited areas, Restricted areas.

Adoption of the Amendment

0
In consideration of the foregoing, the Federal Aviation Administration
amends 14 CFR part 73 as follows:

PART 73--SPECIAL USE AIRSPACE

0
1. The authority citation for part 73 continues to read as follows:

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

Sec.  73.25  [Amended]

0
2. Sec.  73.25 is amended as follows:
* * * * *

R-2504 Camp Roberts, CA [Remove]

R-2504 A Camp Roberts, CA [New]

    Boundaries. Beginning at lat. 35[deg]42'18'' N., long.
120[deg]47'59'' W.; to lat. 35[deg]42'18'' N., long. 120[deg]47'24''
W.; to lat. 35[deg]42'58'' N., long. 120[deg]45'37'' W.; to lat.
35[deg]46'38'' N., long. 120[deg]44'42'' W.; to lat. 35[deg]47'18'' N.,
long. 120[deg]44'49'' W.; to lat. 35[deg]47'54'' N., long.
120[deg]45'53'' W.; to lat. 35[deg]49'10'' N., long. 120[deg]45'44''
W.; to lat. 35[deg]51'00'' N., long. 120[deg]46'29'' W.; to lat.
35[deg]51'11'' N., long. 120[deg]47'59'' W.; to lat. 35[deg]48'50'' N.,
long. 120[deg]50'02'' W.; to lat. 35[deg]46'00'' N., long.
120[deg]49'59'' W.; to lat. 35[deg]44'03'' N., long. 120[deg]48'12''
W.; to lat. 35[deg]43'08'' N., long. 120[deg]49'04'' W.; to lat.
35[deg]42'44'' N., long. 120[deg]48'52'' W.; to the point of beginning.
    Designated altitudes. Surface to but not including 6,000 feet MSL.
    Time of designation. 0600 to 2400 PST, daily.
    Controlling agency. FAA, Oakland ARTCC.
    Using agency. Commander, Camp Roberts, CA.
* * * * *

R-2504 B Camp Roberts, CA [New]

    Boundaries. Beginning at lat. 35[deg]42'18'' N., long.
120[deg]47'59'' W.; to lat. 35[deg]42'18'' N., long. 120[deg]47'24''
W.; to lat. 35[deg]42'58'' N., long. 120[deg]45'37'' W.; to lat.
35[deg]46'38'' N., long. 120[deg]44'42'' W.; to lat. 35[deg]47'18'' N.,
long. 120[deg]44'49'' W.; to lat. 35[deg]47'54'' N., long.
120[deg]45'53'' W.; to lat. 35[deg]49'10'' N., long. 120[deg]45'44''
W.; to lat. 35[deg]51'00'' N., long. 120[deg]46'29'' W.; to lat.
35[deg]51'11'' N., long. 120[deg]47'59'' W.; to lat. 35[deg]48'50'' N.,
long. 120[deg]50'02'' W.; to lat. 35[deg]46'00'' N., long.
120[deg]49'59'' W.; to lat. 35[deg]44'03'' N., long. 120[deg]48'12''
W.; to lat. 35[deg]43'08'' N., long. 120[deg]49'04'' W.; to lat.
35[deg]42'44'' N., long. 120[deg]48'52'' W.; to the point of beginning.
    Designated altitudes. 6,000 feet MSL to 15,000 feet MSL.

    Time of designation. 0600 to 2400 PST, daily.
    Controlling agency. FAA, Oakland ARTCC.
    Using agency. Commander, Camp Roberts, CA.

    Issued in Washington, DC, on May 27, 2010.
Kenneth McElroy,
Acting Manager, Airspace and Rules Group.
[FR Doc. 2010-13607 Filed 6-4-10; 8:45 am]
BILLING CODE P


[Federal Register Volume 80, Number 94 (Friday, May 15, 2015)]
[Notices]
[Page 27947]
[FR Doc No: 2015-11775]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP15-296-000]

Tallgrass Interstate Gas Transmission, LLC; Notice of Request
Under Blanket Authorization

    Take notice that on April 29, 2015, Tallgrass Interstate Gas
Transmission, LLC (Tallgrass), 4200 West 115th Street, Suite 350,
Leawood, Kansas 66211-2609 filed a prior notice request pursuant to
sections 157.205, 157.208 and 157.213 of the Commission's regulations
under the Natural Gas Act for authorization to convert the HS-18
observation well in its Huntsman Storage Facility, located in Cheyenne
County, Nebraska to an injection and withdrawal well and to construct
and operate certain appurtenant pipeline measurement facilities
necessary to connect the converted well to the storage facility, all as
more fully set forth in the application which is on file with the
Commission and open to public inspection. The project will have no
impact on the certificated parameters of the Huntsman Storage Facility.
    The filing may also be viewed on the Web at http://www.ferc.gov
using the ``eLibrary'' link. Enter the docket number excluding the last
three digits in the docket number field to access the document. For
assistance, contact FERC at<EMAIL_ADDRESS>or call toll-
free,<PHONE_NUMBER> or TTY,<PHONE_NUMBER>.
    Any questions regarding this Application should be directed to
David Haag, Vice President of Regulatory, Tallgrass Interstate Gas
Transmission, LLC, 370 Van Gordon Street, Lakewood, Colorado 80228-
1519, by phone at<PHONE_NUMBER>.
    Any person may, within 60 days after the issuance of the instant
notice by the Commission, file pursuant to Rule 214 of the Commission's
Procedural Rules (18 CFR 385.214) a motion to intervene or notice of
intervention. Any person filing to intervene or the Commission's staff
may, pursuant to section 157.205 of the Commission's Regulations under
the NGA (18 CFR 157.205) file a protest to the request. If no protest
is filed within the time allowed therefore, the proposed activity shall
be deemed to be authorized effective the day after the time allowed for
protest. If a protest is filed and not withdrawn within 30 days after
the time allowed for filing a protest, the instant request shall be
treated as an application for authorization pursuant to section 7 of
the NGA.
    Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9,
within 90 days of this Notice the Commission staff will either:
Complete its environmental assessment (EA) and place it into the
Commission's public record (eLibrary) for this proceeding; or issue a
Notice of Schedule for Environmental Review. If a Notice of Schedule
for Environmental Review is issued, it will indicate, among other
milestones, the anticipated date for the Commission staff's issuance of
the final environmental impact statement (FEIS) or EA for this
proposal. The filing of the EA in the Commission's public record for
this proceeding or the issuance of a Notice of Schedule for
Environmental Review will serve to notify federal and state agencies of
the timing for the completion of all necessary reviews, and the
subsequent need to complete all federal authorizations within 90 days
of the date of issuance of the Commission staff's FEIS or EA.
    Persons who wish to comment only on the environmental review of
this project should submit an original and two copies of their comments
to the Secretary of the Commission. Environmental commenter's will be
placed on the Commission's environmental mailing list, will receive
copies of the environmental documents, and will be notified of meetings
associated with he Commission's environmental review process.
Environmental commenter's will not be required to serve copies of filed
documents on all other parties. However, the non-party commentary, will
not receive copies of all documents filed by other parties or issued by
the Commission (except for the mailing of environmental documents
issued by the Commission) and will not have the right to seek court
review of the Commission's final order.
    The Commission strongly encourages electronic filings of comments,
protests, and interventions via the internet in lieu of paper. See 18
CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web
site (www.ferc.gov) under the ``e-Filing'' link. Persons unable to file
electronically should submit original and 5 copies of the protest or
intervention to the Federal Energy Regulatory Commission, 888 First
Street NE., Washington, DC 20426.

    Dated: May 11, 2015.
Kimberly D. Bose,
Secretary.
[FR Doc. 2015-11775 Filed 5-14-15; 8:45 am]
 BILLING CODE 6717-01-P


[Federal Register Volume 81, Number 4 (Thursday, January 7, 2016)]
[Notices]
[Pages 817-819]
[FR Doc No: 2015-33308]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76809; File No. SR-NASDAQ-2015-160]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, To Amend the By-Laws of Nasdaq, Inc.

December 31, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 21, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
On December 29, 2015, the Exchange filed Amendment No. 1 to the
proposal.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 amends and replaces the original filing in
its entirety. In Amendment No. 1, the Exchange, among other things,
clarified the operation of the current and proposed provisions of
the By-Laws of Nasdaq, Inc. and how the proposed rule change would
operate in conjunction with the Listing Rules of The NASDAQ Stock
Market. See infra, note 5.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing this proposed rule change with respect to
amendments of the By-Laws (the ``By-Laws'') of its parent corporation,
Nasdaq, Inc. (``Nasdaq'' or the ``Company''), to revise the
requirements regarding Director classifications. This Amendment No. 1
to SR-NASDAQ-2015-160 amends and replaces the original filing in its
entirety. The proposed amendments will be implemented on a date
designated by the Company following approval by the Commission. The
text of the proposed rule change is available on the Exchange's Web
site at http://nasdaq.cchwallstreet.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Company is proposing amendments to certain provisions of its
By-Laws that relate to Director \4\ classifications.\5\ Specifically,
the Company proposes to revise Section 4.3 of the By-Laws to state that
it may, rather than shall, include at least one, but no more than two,
Issuer Directors on its Board. In addition, the Company proposes to
revise Section 4.7 of the By-Laws to clarify the procedures when a
Director's classification changes between annual meetings of
stockholders.
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    \4\ ``Director'' means a member of the Company's Board of
Directors. See Article I(j) of the By-Laws.
    \5\ The provisions of the Company's By-Laws that relate to
Director classifications are completely distinct from the Listing
Rules of The NASDAQ Stock Market. Therefore, the proposed amendments
do not affect in any way the Company's obligation, as an issuer
listed on The NASDAQ Stock Market, to comply with the Listing Rules,
and the Company will continue to comply with the Listing Rules,
including provisions relating to corporate governance, following the
effectiveness of the proposed By-Law amendments.
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i. Section 4.3
    Currently, the Company's By-Laws require that all of the Company's
Directors be classified as: (i) Industry Directors; \6\ (ii) Non-
Industry Directors,\7\ which are further classified as either Issuer
Directors \8\ or Public Directors; \9\ or (iii) Staff Directors.\10\
Section 4.3 of the By-Laws includes composition requirements for the
Board based on these classifications. Specifically, the number of Non-
Industry Directors on the Board must equal or exceed the number of
Industry Directors. In addition, the Board must include at least two
Public Directors and at least one, but no more than two, Issuer
Directors. Finally, the Board shall

include no more than one Staff Director, unless the Board consists of
ten or more Directors, in which case, the Board shall include no more
than two Staff Directors.
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    \6\ ``Industry Director'' or ``Industry committee member'' means
a Director (excluding any Staff Directors) or committee member who
(1) is, or within the last year was, or has an immediate family
member who is, or within the last year was, a member of a Self-
Regulatory Subsidiary; (2) is, or within the last year was, employed
by a member or a member organization of a Self-Regulatory
Subsidiary; (3) has an immediate family member who is, or within the
last year was, an executive officer of a member or a member
organization of a Self-Regulatory Subsidiary; (4) has within the
last year received from any member or member organization of a Self-
Regulatory Subsidiary more than $100,000 per year in direct
compensation, or received from such members or member organizations
in the aggregate an amount of direct compensation that in any one
year is more than 10 percent of the Director's annual gross
compensation for such year, excluding in each case director and
committee fees and pension or other forms of deferred compensation
for prior service (provided such compensation is not contingent in
any way on continued service); or (5) is affiliated, directly or
indirectly, with a member or member organization of a Self-
Regulatory Subsidiary. See Article I(m) of the By-Laws. A ``Self-
Regulatory Subsidiary'' is any subsidiary of the Company that is a
self-regulatory organization as defined under Section 3(a)(26) of
the Act. See Article I(s) of the By-Laws. Currently, the term
``Self-Regulatory Subsidiary'' encompasses NASDAQ OMX BX, Inc.
(``BX''), the Exchange, NASDAQ OMX PHLX LLC (``Phlx''), Boston Stock
Exchange Clearing Corporation (``BSECC'') and the Stock Clearing
Corporation of Philadelphia (``SCCP'').
    \7\ ``Non-Industry Director'' or ``Non-Industry committee
member'' means a Director (excluding any Staff Director) or
committee member who is (1) a Public Director or Public committee
member; (2) an Issuer Director or Issuer committee member; or (3)
any other individual who would not be an Industry Director or
Industry committee member. See Article I(q) of the By-Laws.
    \8\ ``Issuer Director'' or ``Issuer committee member'' means a
Director (excluding any Staff Director) or committee member who is
an officer or employee of an issuer of securities listed on a
national securities exchange operated by any Self-Regulatory
Subsidiary, excluding any Director or committee member who is a
director of such an issuer but is not also an officer or employee of
such an issuer. See Article I(o) of the By-Laws.
    \9\ ``Public Director'' or ``Public committee member'' means a
Director or committee member who (1) is not an Industry Director or
Industry committee member, (2) is not an Issuer Director or Issuer
committee member, and (3) has no material business relationship with
a member or member organization of a Self- Regulatory Subsidiary,
the Company or its affiliates, or the Financial Industry Regulatory
Authority, Inc. and its affiliates. See Article I(r) of the By-Laws.
    \10\ ``Staff Director'' means an officer of the Company that is
serving as a Director. See Article I(t) of the By-Laws.
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    The Company proposes to amend Section 4.3 of the By-Laws to state
that the Board may, rather than shall, include one, but no more than
two, Issuer Directors. With this change, the Company intends to give
itself the option, but not the requirement, to include one or two
Issuer Directors on its Board. Issuer Directors bring to the Board the
perspective of an officer or employee of companies listed on The NASDAQ
Stock Market. While the Company highly values the views of its listed
companies, it does not believe that it is strictly necessary to have an
Issuer Director on its own Board to represent those views. Within the
overall governance structure of the Company and its subsidiaries,
issues relating to listed companies are generally the province of
NASDAQ and its Board of Directors, rather than the Company and its
Board of Directors. The Company is a holding company for over 100
subsidiaries that provide both regulated and unregulated products and
services across the globe, while NASDAQ is the Company subsidiary that,
among other things, provides listing services on The NASDAQ Stock
Market. The Company's Board generally focuses on the overall strategic
direction of the Company, while NASDAQ's Board generally focuses on
issues relevant specifically to The NASDAQ Stock Market, including
issues affecting listed companies. Furthermore, NASDAQ's Board includes
issuer representation, as required by its By-Laws.\11\ Finally, if the
Company's Board ever does address issues relating to listed companies,
its Directors are experienced and capable enough to handle those issues
without specifically having an Issuer Director on the Board.\12\
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    \11\ See Article III, Section 2 of NASDAQ's By-Laws.
    \12\ Currently, three of the Company's eleven Directors are also
directors of companies listed on The NASDAQ Stock Market or another
national securities exchange. These Directors do not qualify as
Issuer Directors because they are not specifically officers or
employees of listed companies; however, as directors of such
companies, they are familiar with corporate governance topics and
other issues confronted by listed companies.
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    Therefore, it is not strictly necessary to have an officer or
employee of a listed company on the Company's Board of Directors, and
accordingly, the Company proposes to amend its By-Laws to give itself
the option, but not the requirement, to include an Issuer Director on
its Board.
ii. Section 4.7
    As required by Section 4.13(h)(iii) of the By-Laws, the Company's
Corporate Secretary certifies to the Nominating & Governance Committee
of the Company's Board on an annual basis the classification of each
Director following a review of information relating to the
classifications collected from the Directors. This certification
usually occurs in connection with the Company's annual meeting of
stockholders, and at the same time, Directors are elected to serve on
various Board committees, all of which have compositional requirements
relating to the classifications.\13\ However, Directors'
classifications may change from time to time following the annual
meeting due to various changes in personal circumstances (e.g., a
retirement or job change). Directors are required to report to the
Corporate Secretary any change in the information used as the basis of
their classification.\14\
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    \13\ See Section 4.13 of the By-Laws.
    \14\ See Section 4.13(h)(iii) of the By-Laws.
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    Section 4.7 of the By-Laws addresses potential disqualifications of
Directors due to a classification change. Under this section, the term
of office of a Director shall terminate immediately upon a
determination by the Board, by a majority vote of the remaining
Directors, that: (a) The Director no longer satisfies the
classification for which the Director was elected; and (b) the
Director's continued service would violate the Board compositional
requirements. Section 4.7 also states that if a Director position
becomes vacant because of such disqualification, and the remaining term
of office is not more than six months, the By-Laws do not require an
immediate replacement.
    The Company has observed two potential weaknesses relating to the
disqualification procedures as currently drafted. First, Section 4.7 of
the By-Laws does not address a situation where a Director's
classification has changed, but the Board believes that it is in the
best interests of the Company and its stockholders for such Director to
remain on the Board. Second, the By-Laws could be read to contemplate
that the Company must immediately cure any deficiencies in Board or
committee composition that may occur because of a change in a Director
or committee member's classification because otherwise the Board would
not meet all of the compositional requirements set forth in Section 4.3
of the By-Laws.\15\ It would be extremely disruptive to the Board, its
committees and the Company to add, remove, disqualify or replace a
Director between annual meetings of stockholders simply because the
Director no longer has the same classification he or she had at the
time of the annual meeting. In addition, the selection of nominees to
the Company's Board is an extremely complex process, managed by the
Board's Nominating & Governance Committee, that takes almost the full
year between annual meetings of stockholders. The Nominating &
Governance Committee considers possible candidates suggested by Board
members, industry groups, stockholders, senior management and/or a
third-party search firm engaged from time-to-time to assist in
identifying and evaluating qualified candidates. In evaluating
candidates for nomination to the Board, the Nominating & Governance
Committee reviews the skills, qualifications, characteristics and
experience desired for the Board as a whole and for its individual
members, with the objective of having a Board that reflects diverse
backgrounds and senior level experience in the areas of global
business, finance, legal and regulatory, technology and marketing. The
Nominating & Governance Committee evaluates each individual candidate
in the context of the Board as a whole, with the objective of
maintaining a group of Directors that can further the success of
Nasdaq's business, while representing the interests of stockholders,
employees and the communities in which the company operates. Because
the nominee selection process is so long and complex, the Board cannot
act quickly to replace a Director whose classification has changed, and
it is not in the best interests of the Company's stockholders for the
Board to be forced to take such an action when the Director otherwise
provides valuable service to the Board.
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    \15\ But see Kurz v. Holbrook, 989 A.2d 140, 156-57 (Del.Ch.
2010) (holding that a by-law cannot disqualify a director who was
duly qualified at the time of election during the middle of his or
her term), rev'd on other grounds sub nom Crown EMAK P'ners, LLC v.
Kurz, 992 A.2d 377 (Del. 2010); see also Klaassen v. Allegro
Development Corp., 2013 WL 5739680, at *23 (Del. Ch. Oct. 11, 2013)
(noting that director qualifications are applied at the front-end of
the director's term when such director is elected and qualified),
aff'd 106 A.3d 1035 (Del. 2014).
---------------------------------------------------------------------------

    The Company therefore proposes to amend Section 4.7 of the By-Laws
to provide that the Board may elect to defer until the next annual
meeting of stockholders a determination regarding a change in a
Director's classification and such Director's continued service on the
Board.\16\ Further, if the Board

makes such an election, neither the Board nor any committee shall be
deemed to be in violation of Section 4.3 of the By-Laws, which relates
to Board composition, or Section 4.13 of the By-Laws, which relates to
committee composition. This will give the Board the option to retain
Directors whose classification has changed, but whose continued service
is otherwise beneficial to the Board, the Company and its stockholders.
This also will prevent the significant disruption that would occur if
the Board had to replace a Director between annual meetings of
stockholders and allow the Board to continue to make informed,
deliberate decisions regarding Director nominees, rather than force it
to act quickly in a way that is not in the best interest of the
Company's stockholders.
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    \16\ The intent of the amendment is to allow the Board a
deferral until the next annual meeting when it can nominate a slate
of directors with classifications sufficient to satisfy the
requirements of Section 4.3 of the By-Laws for election by the
Company's stockholders. Assuming due election of the Board's
nominees, the Board therefore will comply with Section 4.3 of the
By-Laws immediately after the next annual meeting.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    First, the Company is proposing an amendment to Section 4.3 of the
By-Laws to state that it may, rather than shall, include at least one,
but no more than two, Issuer Directors on its Board. The Exchange
believes that this change will protect investors and the public
interest by allowing the Company's Nominating & Governance Committee to
select nominees for the Company's Board based on the overall strategic
needs of the Board, the Company and its stockholders without forcing
the Board to fill one slot with an officer or director of a listed
company (i.e., an Issuer Director). The Exchange notes that the Company
would still have the option to include Issuer Directors on the Board,
and the Exchange believes the views of listed companies are well-
represented on the Board without the explicit participation of an
Issuer Director.\19\
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    \19\ See note 12, supra.
---------------------------------------------------------------------------

    Second, the Company is proposing an amendment to Section 4.7 of the
By-Laws to provide that the Board may elect to defer until the next
annual meeting of stockholders a determination regarding a change in a
Director's classification and such Director's continued service on the
Board. Further, if the Board makes such an election, neither the Board
nor any committee shall be deemed to be in violation of Section 4.3 of
the By-Laws, which relates to Board composition, or Section 4.13 of the
By-Laws, which relates to committee composition. The Exchange believes
that this change will protect investors and the public interest by
clarifying the disqualification provisions in the Company's By-Laws,
which are currently ambiguous. In addition, the change will prevent the
significant disruption that would occur if the Board were forced to
replace an otherwise valuable director between annual meetings.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Because the proposed rule change relates to the governance of the
Company and not to the operations of the Exchange, the Exchange does
not believe that the proposed rule change will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days of such
date (i) as the Commission may designate if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as
to which the Exchange consents, the Commission shall: (a) By order
approve or disapprove such proposed rule change, or (b) institute
proceedings to determine whether the proposed rule change should be
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2015-160 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-160. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site 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 such filing also will be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2015-
160, and should be submitted on or before January 28, 2016.

For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33308 Filed 1-6-16; 8:45 am]
BILLING CODE 8011-01-P