Rule 4 and MBSD Rule 4 and to retitle its subheading to ``Excess
Clearing Fund Deposits'' to better reflect the subject matter of the
provisions. FICC is not proposing any changes to this section except to
streamline and clarify the provisions as well as to align GSD Rule 4
and MBSD Rule 4, including adding a sentence to clarify that nothing in
this section limits FICC's rights under Section 7 of GSD Rule 3 or
Section 6 of MBSD Rule 3, as applicable.
Section 11
    Current Section 11 of GSD Rule 4 and MBSD Rule 4 provides that FICC
has certain rights with respect to the Clearing Fund. FICC is proposing
to add a sentence which would make it clear that GSD Rule 4 or MBSD
Rule 4, as applicable, would govern in the event of any conflict or
inconsistency between such rule and any agreement between FICC and any
member. FICC believes that this proposed change would facilitate
members' understanding of the Rules and their obligations thereunder.
It would also align the Rules with the Rules and Procedures of NSCC so
as to provide consistent treatment for firms that are members of both
FICC and NSCC.\46\ Furthermore, in order to enhance the readability and
clarity, FICC is proposing a number of changes to streamline the
language in this section.
---------------------------------------------------------------------------

    \46\ See Section 12 of Rule 4 in NSCC's Rules and Procedures,
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
---------------------------------------------------------------------------

(ii) Other Proposed Rule Changes
    FICC is proposing changes to GSD Rule 1 (Definitions), GSD Rule 3
(Ongoing Membership Requirements), GSD Rule 3A (Sponsoring Members and
Sponsored Members), GSD Rule 3B (Centrally Cleared Institutional
Triparty Service), GSD Rule 13 (Funds-Only Settlement), GSD Rule 18
(Special Provisions for Repo Transactions), GSD Rule 21A (Wind-Down of
a Netting Member), GSD Rule 22B (Corporation Default), GSD Rule 41
(Cross Guaranty Agreements), GSD Rule 43 (Cross-Margining
Arrangements), GSD Board Interpretations and Statements of Policy, and
GSD Interpretive Guidance with Respect to Watch List Consequences. FICC
is also proposing changes to MBSD Rule 1 (Definitions), MBSD Rule 3
(Ongoing Membership Requirements), MBSD Rule 5 (Trade Comparison), MBSD
Rule 11 (Cash Settlement), MBSD Rule 17A (Corporation Default), MBSD
Rule 32 (Cross Guaranty Agreements), and MBSD Interpretive Guidance
with Respect to Watch List Consequences. FICC is proposing changes to
these Rules in order to conform them with the proposed changes to GSD
Rule 4 and MBSD Rule 4, as applicable, as well as

to make certain technical changes to these Rules, as further described
below.
Adding Defined Terms
    Specifically, FICC is proposing to add the following defined terms
to GSD Rule 1, in alphabetical order: Actual Deposit, Average RFD, CCIT
Member Termination Date, CCIT Member Voluntary Termination Notice,
Clearing Fund Cash, Corporate Contribution, Declared Non-Default Loss
Event, Defaulting Member Event, Event Period, Excess Clearing Fund
Deposit, Former Sponsored Members, Lender, Loss Allocation Cap, Loss
Allocation Notice, Loss Allocation Withdrawal Notice, Sponsored Member
Termination Date, Sponsored Member Voluntary Termination Notice,
Sponsoring Member Termination Date, Sponsoring Member Voluntary
Termination Notice, Termination Date, and Voluntary Termination Notice.
    FICC is also proposing to add the following defined terms to MBSD
Rule 1, in alphabetical order: Actual Deposit, Average RFD, Clearing
Fund Cash, Corporate Contribution, Declared Non-Default Loss Event,
Defaulting Member Event, Event Period, Excess Clearing Fund Deposit,
Lender, Loss Allocation Cap, Loss Allocation Notice, Loss Allocation
Withdrawal Notice, Termination Date, and Voluntary Termination Notice.
Technical Changes
    In addition, FICC is proposing technical changes (i) to delete the
defined term ``The Corporation'' in GSD Rule 1 and replace it with
``Corporation'' in GSD Rule 1, (ii) to correct cross-references in
Section 8 of MBSD Rule 5 and the definition of ``Legal Risk'' in GSD
Rule 1, (iii) to update references to sections that would be changed
under this proposal in Section 12 of GSD Rule 3, Sections 10 and 12(a)
of GSD Rule 3A, Section 3(f) of GSD Rule 18, GSD Rule 21A, Sections
3(a), 3(b) and 4 of GSD Rule 41, Section 6 of GSD Rule 43, GSD
Interpretive Guidance with Respect to Watch List Consequences, Sections
11, 14, and 15 of MBSD Rule 3, Section 3(b) of MBSD Rule 32, and MBSD
Interpretive Guidance with Respect to Watch List Consequences, (iv) to
update the reference to a subheading that would be changed under this
proposal in Section 7 of GSD Rule 3B, and (v) to delete a reference to
the Cross-Margining Agreement between FICC and NYPC that is no longer
in effect. FICC believes that these proposed technical changes would
ensure the Rules remain clear and accurate, which would in turn allow
Members to readily understand their obligations under the Rules.
Voluntary Termination
    FICC is also proposing changes to the voluntary termination
provisions in GSD Rule 3, GSD Rule 3A, GSD Rule 3B, and MBSD Rule 3 in
order to ensure that termination provisions in the GSD Rules and MBSD
Rules, whether voluntary or in response to a loss allocation, are
consistent with one another to the extent appropriate.
    Currently, the voluntary termination provisions in GSD Rule 3, GSD
Rule 3A, GSD Rule 3B, and MBSD Rule 3 generally provide that a member
may elect to terminate its membership by providing FICC with 10 days
written notice of such termination. Such termination will not be
effective until accepted by FICC, which shall be no later than 10
Business Days after the receipt of the notice. FICC's acceptance shall
be evidenced by a notice to FICC's members announcing the member's
termination and the effective date of the termination (``Termination
Date''), and that the terminating member will no longer be eligible to
submit transactions to FICC as of the Termination Date.\47\ This
provision also provides that a member's voluntary termination of
membership shall not affect its obligations to FICC.
---------------------------------------------------------------------------

    \47\ Account(s) of a terminating member would generally be
deactivated before the open of business on the Termination Date.
---------------------------------------------------------------------------

    Where appropriate, FICC is proposing changes to align the voluntary
termination provisions in Section 13 of GSD Rule 3, Sections 2(i) and
3(e) of GSD Rule 3A, Section 6 of GSD Rule 3B, and Section 14 of MBSD
Rule 3 with the proposed new Section 7b of GSD Rule 4 and MBSD Rule 4,
given that they all address termination of membership. Specifically, in
Section 13 of GSD Rule 3, FICC is proposing that when a GSD Member
elects to voluntarily terminate its membership by providing FICC a
written notice of such termination (``Voluntary Termination Notice''),
the GSD Member must specify in its Voluntary Termination Notice a
desired date for its withdrawal from membership; provided, however, if
the GSD Member is terminating its membership in GSD (i.e., not
terminating its membership just in the Netting System), such date shall
not be prior to the scheduled final settlement date of any remaining
obligation owed by the GSD Member to FICC as of the time such Voluntary
Termination Notice is submitted to FICC, unless otherwise approved by
FICC. FICC is proposing to delete the provision that requires a member
to provide FICC with 10 days written notice of the member's
termination; however, FICC is retaining the provision that states
termination will not be effective until accepted by FICC,\48\ which
shall be no later than 10 Business Days after the receipt of the
notice. FICC is also retaining the provision that states FICC's
acceptance shall be evidenced by a notice to FICC's members announcing
the member's termination and the Termination Date, and that the
terminating member will no longer be eligible to submit transactions to
FICC as of the Termination Date.
---------------------------------------------------------------------------

    \48\ Unlike the Voluntary Termination Notice, the Loss
Allocation Withdrawal Notice as proposed in Section 7b of GSD Rule 4
and MBSD Rule 4 does not require explicit acceptance by FICC to be
effective. FICC believes that requiring explicit acceptance of the
Loss Allocation Withdrawal Notice could complicate the loss
allocation process and potentially result in membership withdrawal
being delayed as well as detract from the objective to have FICC
know on a timely basis which members would remain subject to the
subsequent rounds of loss allocation.
---------------------------------------------------------------------------

    As an example, Member A submits a Voluntary Termination Notice to
GSD on April 1st indicating its desired termination date is June 15th.
GSD would accept such termination request by issuing a notice to GSD
Members within 10 Business Days from April 1st; such notice would
provide that the effective date of Member A's GSD membership
termination is June 15th. In contrast, if Member A submits a Voluntary
Termination Notice on April 1st and indicates its desired termination
date is April 5th, GSD would either (i) accept such termination notice
by issuing a notice to GSD Members on or before April 5th, and such
notice would provide that the effective date of Member A's GSD
membership termination is April 5th or (ii) if GSD requires additional
time to process the termination, GSD would accept such termination
notice by issuing notice to GSD Members after April 5th but still
within 10 Business Days from April 1st; and such notice would provide
that the effective date of Member A's GSD membership termination as a
date after April 5th.
    The proposed change to Section 13 of GSD Rule 3 would also provide
that if any trade is submitted to FICC either by the withdrawing GSD
Member or its authorized submitter that is scheduled to settle on or
after the Termination Date, the GSD Member's Voluntary Termination
Notice would be deemed void and the GSD Member would remain subject to
the GSD Rules as if it had not given such notice. Furthermore, FICC is
proposing to add a sentence to Section 13 of GSD Rule 3 to refer GSD
Members to Section 8 of GSD Rule 4

regarding provisions on the return of a GSD Member's Clearing Fund
deposit and to specify that if an Event Period were to occur after a
Tier One Netting Member has submitted its Voluntary Termination Notice
but prior to the Termination Date, in order for such Tier One Netting
Member to benefit from its Loss Allocation Cap pursuant to Section 7 of
GSD Rule 4, the Tier One Netting Member would need to comply with the
provisions of Section 7b of GSD Rule 4 and submit a Loss Allocation
Withdrawal Notice, which notice, upon submission, would supersede and
void any pending Voluntary Termination Notice previously submitted by
the Tier One Netting Member.\49\ As an example, if an Event Period
occurs after submission of the Voluntary Termination Notice by a Tier
One Netting Member or Tier One Member, as applicable, but prior to the
Termination Date, and the Tier One Netting Member or Tier One Member,
as applicable, does not subsequently submit a Loss Allocation
Withdrawal Notice as proposed in Section 7b of GSD Rule 4 or MBSD Rule
4, as applicable, then the Tier One Netting Member or Tier One Member,
as applicable, would not benefit from its Loss Allocation Cap, i.e.,
the Tier One Netting Member or Tier One Member, as applicable, would
remain obligated for its pro rata share of losses and liabilities with
respect to any Event Period that commenced prior to the Termination
Date.
---------------------------------------------------------------------------

    \49\ Loss Allocation Caps would not apply to Tier Two Netting
Members and Tier Two Members because the loss allocation obligations
of Tier Two Netting Members and Tier Two Members are already capped
to the liquidation losses that resulted from their trading activity
with the Defaulting Member. Tier Two Netting Members and Tier Two
Members are required to pay their loss allocation obligations in
full.
---------------------------------------------------------------------------

    Parallel changes are also being proposed to Section 2(i) of GSD
Rule 3A and Section 14 of MBSD Rule 3 with additional language in
Section 2(i) of GSD Rule 3A and Section 14 of MBSD Rule 3 making it
clear that the acceptance by FICC of a member's Voluntary Termination
Notice shall be no later than ten (10) Business Days after the receipt
of such notice from the member, in order to provide certainty to
members as well as to align these sections with the current Section 13
of GSD Rule 3.
    With respect to Section 3(e) of GSD Rule 3A and Section 6 of GSD
Rule 3B, changes similar to the ones described above in the previous
paragraph are also being proposed for Sponsored Members and CCIT
Members, except there would be no references to the return of a
member's Clearing Fund deposits and to Loss Allocation Caps because
they would not apply to these member types. In addition, FICC is
proposing a technical change in Section 6 of GSD Rule 3B to reflect a
defined term that would be changed under this proposal.
Other MBSD Proposed Rule Changes
    FICC is proposing to delete Section 15 of MBSD Rule 3 because FICC
believes that this section is akin to a loss allocation provision and
therefore would no longer be necessary under the proposed rule change,
as the scenarios envisioned by Section 15 of MBSD Rule 3 would be
governed by the proposed loss allocation provisions in MBSD Rule 4.
Other GSD Proposed Rule Changes
    Under the proposal, Section 12(c) of GSD Rule 3A would also be
revised to incorporate the concept of the Loss Allocation Cap and to
reference the applicable proposed sections in GSD Rule 4 that would
apply when a Sponsoring Member elects to terminate its status as a
Sponsoring Member.
    FICC is also proposing to delete an Interpretation of the Board of
Directors of the Government Securities Clearing Corporation (the
predecessor to GSD), which currently clarifies certain provisions of
GSD Rule 4 and the extent to which the GSD Clearing Fund and other
required deposits of GSD Netting Members may be applied to a loss or
liability incurred by FICC. FICC is proposing this deletion because
this interpretation would no longer be necessary following the proposed
rule change. This is because the proposed rule change to GSD Rule 4
would cover the extent to which the GSD Clearing Fund and other
collateral or assets of GSD Netting Members would be applied to a loss
or liability incurred by FICC.
Other GSD Proposed Rule Changes and MBSD Proposed Rule Changes
    FICC is proposing changes to Section 11 of GSD Rule 4 and MBSD Rule
4. Specifically, FICC is proposing to replace ``letters of credit''
with ``Eligible Letters of Credit,'' which is already a defined term in
the Rules. In addition, FICC is proposing to specify that a reference
to 30 days means 30 calendar days.
    FICC is proposing to delete ``Remaining Loss'' and ``Other Loss''
in Sections 12(a) and 12(b) of GSD Rule 3A, Section 5 of GSD Rule 13,
Section 4 of GSD Rule 41, Section 6 of GSD Rule 43, Section 9(o) of
MBSD Rule 11, and Section 4 of MBSD Rule 32 because these terms would
no longer be used under the proposed GSD Rule 4 and MBSD Rule 4, and to
add clarifying language that conforms to the proposed changes to GSD
Rule 4 and MBSD Rule 4.
    In addition, FICC is proposing changes to GSD Rule 22B (Corporation
Default) and MBSD Rule 17A (Corporation Default). FICC is proposing to
relocate the interpretational parenthetical in each rule to come right
after the reference to GSD Rule 22A and MBSD Rule 17. FICC is proposing
this change because, in the event of a Corporation Default, the
portfolio of each GSD Member or MBSD Member, as applicable, would be
closed out in the same way as the portfolio of a GSD Defaulting Member
or MBSD Defaulting Member, i.e., by applying the close out procedures
of GSD Rule 22A (Procedures for When the Corporation Ceases to Act) or
MBSD Rule 17 (Procedures for When the Corporation Ceases to Act), as
applicable. In addition, in the proposed GSD Rule 22B and MBSD Rule
17A, FICC is proposing to add a reference to the loss allocation
provisions of GSD Rule 4 and MBSD Rule 4 and delete references to
specific sections of GSD Rule 4 and MBSD Rule 4, because those sections
are being modified under the proposed rule change.
Member Outreach
    Beginning in August 2017, FICC conducted outreach to Members in
order to provide them with advance notice of the proposed changes. As
of the date of this filing, no written comments relating to the
proposed changes have been received in response to this outreach. The
Commission will be notified of any written comments received.
Implementation Timeframe
    Pending Commission approval, FICC expects to implement this
proposal within two (2) Business Days after approval. Members would be
advised of the implementation date of this proposal through issuance of
a FICC Important Notice.
2. Statutory Basis
    FICC believes that the proposed rule change is consistent with the
requirements of the Act, and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, FICC believes
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \50\ and Rules 17Ad-22(e)(13) and 17Ad-22(e)(23)(i),\51\
each as promulgated

under the Act, for the reasons described below.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78q-1(b)(3)(F).
    \51\ 17 CFR 240.17Ad-22(e)(13) and (e)(23)(i).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the Rules be designed
to promote the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds which are in the custody or control of each Division or for
which it is responsible.\52\ The proposed rule changes to (1) modify
the calculation and application of FICC's corporate contribution, (2)
introduce an Event Period, (3) introduce the concept of ``rounds'' (and
accompanying Loss Allocation Notices) and apply this concept to the
timing of loss allocation payments and the member withdrawal process in
connection with the loss allocation process, and (4) implement a
revised ``look-back'' period to calculate a member's loss allocation
obligation and its Loss Allocation Cap, taken together, are intended to
enhance the overall resiliency of each Division's loss allocation
process.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    By modifying the calculation of FICC's corporate contribution, FICC
would apply a mandatory fixed percentage of its General Business Risk
Capital Requirement (as compared to the current Rules which provide for
``up to'' a percentage of retained earnings), which would provide
greater transparency and accessibility to members as to how much FICC
would contribute in the event of a loss or liability. By modifying the
application of FICC's corporate contribution to apply to Declared Non-
Default Loss Events, in addition to Defaulting Member Events, on a
mandatory basis, FICC would expand the application of its corporate
contribution beyond losses and liabilities from member defaults, which
would better align the interests of FICC with those of its respective
Division's members by stipulating a mandatory application of the
Corporate Contribution to a Declared Non-Default Loss Event prior to
any allocation of the loss among Tier One Netting Members or Tier One
Members, as applicable. Taken together, these proposed rule changes
would enhance the overall resiliency of each Division's loss allocation
process by enhancing the calculation and application of FICC's
Corporate Contribution, which is one of the key elements of each
Division's loss allocation process. Moreover, by providing greater
transparency and accessibility to members, as stated above, the
proposed rule changes regarding the Corporate Contribution, including
the proposed replenishment period and proposed allocation of FICC
Corporate Contribution between Divisions, would allow members to better
assess the adequacy of each Division's loss allocation process.
    By introducing the concept of an Event Period, FICC would be able
to group Defaulting Member Events and Declared Non-Default Loss Events
occurring in a period of ten (10) Business Days for purposes of
allocating losses to members. FICC believes that the Event Period would
provide a defined structure for the loss allocation process to
encompass potential sequential Defaulting Member Events or Declared
Non-Default Loss Events that are likely to be closely linked to an
initial event and/or market dislocation episode. Having this structure
would enhance the overall resiliency of FICC's loss allocation process
because FICC would be better equipped to address losses that may arise
from multiple Defaulting Member Events and/or Declared Non-Default Loss
Events that arise in quick succession. Moreover, the proposed Event
Period structure would provide certainty for members concerning their
maximum exposure to mutualized losses with respect to such events.
    By introducing the concept of ``rounds'' (and accompanying Loss
Allocation Notices) and applying this concept to the timing of loss
allocation payments and the member withdrawal process in connection
with the loss allocation process, FICC would (i) set forth a defined
amount that it would allocate to members during each round (i.e., the
round cap), (ii) advise members of loss allocation obligation
information as well as round information through the issuance of Loss
Allocation Notices, and (iii) provide members with the option to limit
their loss allocation exposure after the issuance of the first Loss
Allocation Notice in each round. These proposed rule changes would
enhance the overall resiliency of FICC's loss allocation process
because they would enable FICC to continue the loss allocation process
in successive rounds until all of FICC's losses are allocated and
enable FICC to identify continuing members for purposes of calculating
subsequent loss allocation obligations in successive rounds. Moreover,
the proposed rule changes would define for members a clear manner and
process in which they could cap their loss allocation exposure to FICC.
    By implementing a revised ``look-back'' period to calculate a
member's loss allocation obligations and its Loss Allocation Cap, FICC
would be able to capture a full calendar quarter of the member's
activities and smooth out the impact from any abnormalities and/or
arbitrariness that may have occurred. By determining a member's loss
allocation obligations based on the average of its Required Fund
Deposit over a look-back period and its Loss Allocation Cap based on
the greater of its Required Fund Deposit or the average thereof over a
look-back period, FICC would be able to calculate a member's pro rata
share of losses and liabilities based on the amount of risk that the
member brings to FICC. These proposed rule changes would enhance the
overall resiliency of each Division's loss allocation process because
they would align a member's loss allocation obligation and its Loss
Allocation Cap with the amount of risk that the member brings to FICC.
    Taken together, the foregoing proposed rule changes would establish
a stronger (for all the reasons discussed above) and clearer loss
allocation process for each Division, which FICC believes would allow
each Division to take timely action to address losses. The ability to
timely address losses would allow each Division to continue to meet its
clearance and settlement obligations, especially in circumstances that
may involve a series of substantially contemporaneous loss events.
Therefore, FICC believes that these proposed rule changes would promote
the prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.
    By deleting certain vague and imprecise limiting language that
could be interpreted as impairing FICC's ability to access the MBSD
Clearing Fund to cover losses and liabilities incident to its clearance
and settlement business outside the context of an MBSD Defaulting
Member Event, as well as to cover certain liquidity needs, the proposed
rule change to amend FICC's permitted use of MBSD Clearing Fund would
enhance FICC's ability to ensure that it can continue its operations
and clearance and settlement services in an orderly manner in the event
that it would be necessary or appropriate for FICC to access MBSD
Clearing Fund deposits to address losses, liabilities or liquidity
needs to meet its settlement obligations. Therefore, FICC believes that
this proposed rule change would promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.
    Rule 17Ad-22(e)(13) under the Act requires, in part, that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to ensure each

Division has the authority and operational capacity to take timely
action to contain losses and continue to meet its obligations.\53\ As
described above, the proposed rule changes to (1) modify the
calculation and application of FICC's corporate contribution, (2)
introduce an Event Period, (3) introduce the concept of ``rounds'' (and
accompanying Loss Allocation Notices) and apply this concept to the
timing of loss allocation payments and the member withdrawal process in
connection with the loss allocation process, and (4) implement a
revised ``look-back'' period to calculate a member's loss allocation
obligation and its Loss Allocation Cap, taken together, are designed to
enhance the resiliency of each Division's loss allocation process.
Having a resilient loss allocation process would help ensure that each
Division can effectively and timely address losses relating to or
arising out of either the default of one or more members or one or more
non-default loss events, which in turn would help each Division contain
losses and continue to meet its clearance and settlement obligations.
Therefore, FICC believes that the proposed rule changes to enhance the
resiliency of each Division's loss allocation process are consistent
with Rule 17Ad-22(e)(13) under the Act.
---------------------------------------------------------------------------

    \53\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(i) under the Act requires FICC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to publicly disclose all relevant rules and
material procedures, including key aspects of each Division's default
rules and procedures.\54\ The proposed rule changes to (i) align the
loss allocation rules of the DTCC Clearing Agencies, (ii) improve the
overall transparency and accessibility of the provisions in the Rules
governing loss allocation and (iii) make conforming and technical
changes, would not only ensure that each Division's loss allocation
rules are, to the extent practicable and appropriate, consistent with
the loss allocation rules of other DTCC Clearing Agencies, but also
would help to ensure that each Division's loss allocation rules are
transparent and clear to members. Aligning the loss allocation rules of
the DTCC Clearing Agencies would provide consistent treatment, to the
extent practicable and appropriate, especially for firms that are
participants of two or more DTCC Clearing Agencies. Having transparent
and clear loss allocation rules would enable members to better
understand the key aspects of each Division's default rules and
procedures and provide members with increased predictability and
certainty regarding their exposures and obligations. As such, FICC
believes that the proposed rule changes to align the loss allocation
rules of the DTCC Clearing Agencies as well as to improve the overall
transparency and accessibility of each Division's loss allocation rules
are consistent with Rule 17Ad-22(e)(23)(i) under the Act.
---------------------------------------------------------------------------

    \54\ 17 CFR 240.17Ad-22(e)(23)(i).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC does not believe that the proposed rule changes to enhance the
resiliency of each Division's loss allocation process would impact
competition.\55\ As described above, the proposed rule changes to (1)
modify the calculation and application of FICC's corporate
contribution, (2) introduce an Event Period, (3) introduce the concept
of ``rounds'' (and accompanying Loss Allocation Notices) and apply this
concept to the timing of loss allocation payments and the member
withdrawal process in connection with the loss allocation process, and
(4) implement a revised ``look-back'' period to calculate a member's
loss allocation obligation and its Loss Allocation Cap, taken together,
are intended to enhance the overall resiliency of each Division's loss
allocation process, and would apply equally to all members. While the
proposed rule changes would amend the manner in which FICC's corporate
contribution and loss allocation are calculated and applied, such
proposed rule changes would maintain FICC's current core loss
allocation waterfall in the case of a loss relating to or arising out
of the default of a member for whom FICC has ceased to act following
application of the defaulting member's resources, i.e., FICC's
corporate contribution and loss allocation among members. With respect
to a loss or liability arising from a non-default loss event, the
proposed rule changes clarify FICC's contribution to such loss and
liability, but, as with losses and liabilities arising from a member
default event, the proposed rule changes would maintain the loss
mutualization requirement under the current GSD Rules and MBSD Rules.
While the calculation of the loss obligations associated with non-
default losses would change under the proposal, the FICC Divisions
would maintain this aspect of the loss allocation waterfall (i.e., loss
mutualization among members for non-default losses). Based on the
foregoing, FICC believes that these proposed rule changes to enhance
the resiliency of each Division's loss allocation process would not
have any impact on competition.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC does not believe the proposed rule change to delete certain
vague and imprecise limiting language regarding FICC's use of MBSD
Clearing Fund would impact competition.\56\ This proposed rule change
would enhance FICC's ability to ensure that it can continue its
operations and clearance and settlement services in an orderly manner
in the event that it would be necessary or appropriate for FICC to
access MBSD Clearing Fund deposits to address losses, liabilities or
liquidity needs to meet its settlement obligations. In the event that
it would be necessary or appropriate for FICC to access MBSD Clearing
Fund deposits, FICC's use of MBSD Clearing Fund deposits would remain
subject to the parameters in the proposed rule that limit FICC's use of
MBSD Clearing Fund, i.e., (A) to secure each MBSD Member's performance
of obligations to FICC, (B) to provide liquidity to FICC to meet its
settlement obligations, and (C) for certain investments. FICC does not
believe that FICC's utilization of MBSD Clearing Fund under these
parameters would impact competition. Specifically, FICC does not
believe that using MBSD Clearing Fund to secure each MBSD Member's
performance of obligations to FICC and for certain investments would
have an impact on the MBSD Members because the fund and/or investments
are still being held by FICC. With respect to FICC's use of MBSD
Clearing Fund pursuant to parameter (B), FICC believes that there may
be an impact on MBSD Members if FICC uses the MBSD Clearing Fund for
more than 30 calendar days. This is because FICC would then consider
the amount of MBSD Clearing Fund used but not yet repaid as a loss to
the MBSD Clearing Fund incurred as a result of a Defaulting Member
Event and immediately allocate such loss in accordance with the
proposal. However, because loss allocation among the MBSD Members would
be based on the Average RFDs of those MBSD Members, any loss allocation
among MBSD Members would affect MBSD Members in proportion to the
amount of risks they bring to FICC, as represented by their Average
RFDs. Based on the foregoing, FICC does not believe that the proposed
deletion of the limiting language regarding FICC's use of MBSD Clearing
Fund would have any impact on competition.
---------------------------------------------------------------------------

    \56\ Id.
---------------------------------------------------------------------------

    FICC also does not believe that the proposed rule changes to (i)
align the

loss allocation rules of the DTCC Clearing Agencies, (ii) increase the
transparency and accessibility of provisions in the Rules governing
loss allocation, and (iii) make conforming and technical changes, would
impact competition.\57\ These changes would apply equally to all
members. Alignment of the loss allocation rules of the DTCC Clearing
Agencies are intended to increase the consistency of the Rules with the
rules of other DTCC Clearing Agencies in order to provide consistent
treatment, to the extent practicable and appropriate, especially for
firms that are participants of two or more DTCC Clearing Agencies.
Having transparent and accessible provisions in the Rules governing
loss allocation are intended to improve the readability and clarity of
the Rules regarding the loss allocation process. Making conforming and
technical changes to ensure the Rules remain clear and accurate would
facilitate members' understanding of the Rules and their obligations
thereunder. As such, FICC believes that these proposed rule changes
would not have any impact on competition.
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    \57\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    Written comments relating to this proposed rule change have not
been solicited or received. FICC will notify the Commission of any
written comments received by FICC.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing. 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 protected]. Please include
File Number SR-FICC-2017-022 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-FICC-2017-022. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the Proposed Rule Change that are filed with
the Commission, and all written communications relating to the Proposed
Rule Change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2017-022 and should be submitted on
or before August 3, 2018.
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    \58\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15366 Filed 7-18-18; 8:45 am]
 BILLING CODE 8011-01-P