[Federal Register Volume 87, Number 135 (Friday, July 15, 2022)]
[Notices]
[Pages 42524-42530]
[FR Doc No: 2022-15179]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95256; File No. SR-FICC-2022-005]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of a Proposed Rule Change to Revise the Formula Used
to Calculate the VaR Charge for Repo Interest Volatility

July 12, 2022.
    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 June 29, 2022, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the clearing agency. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    FICC is proposing to amend the GSD Methodology Document--GSD
Initial Market Risk Margin Model (``QRM Methodology Document'') \3\ in
order to revise the formula used to calculate the VaR Charge (as
defined below) for repo interest volatility and make conforming changes
to the description of this formula. In addition, FICC is proposing to
amend the QRM Methodology Document to make certain technical changes,
as described in greater detail below.\4\
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    \3\ The GSD QRM Methodology Document was filed as a confidential
exhibit in the rule filing and advance notice for GSD sensitivity
VaR. See Securities Exchange Act Release Nos. 83362 (June 1, 2018),
83 FR 26514 (June 7, 2018) (SR-FICC-2018-001) and 83223 (May 11,
2018), 83 FR 23020 (May 17, 2018) (SR-FICC-2018-801).
    \4\ Capitalized terms used herein and not defined shall have the
meaning assigned to such terms in the FICC Government Securities
Division (``GSD'') Rulebook (``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

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

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
    FICC is proposing to amend the QRM Methodology Document to revise
the formula used to calculate the VaR Charge for repo interest
volatility and make conforming changes to the description of this
formula. In addition, FICC is proposing to amend the QRM Methodology
Document to make certain technical changes.
(1) Revise the Formula Used To Calculate the VaR Charge for Repo
Interest Volatility and Make Conforming Changes
    FICC, through GSD, serves as a central counterparty (``CCP'') and
provider of clearance and settlement services for the U.S. government
securities market. A key tool that FICC uses to manage its 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 be able to 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 cover
FICC's projected liquidation losses with respect to a defaulted
Member's portfolio at a 99% confidence level.
    The VaR Charge includes a component that addresses repo interest
volatility, which the QRM Methodology Document refers to as the ``repo
interest volatility charge.'' Interest on a repurchase (``repo'')
transaction, hereinafter referred to as ``repo interest,'' is the
difference between the repurchase settlement amount and the start
amount paid on the repo inception date. In its role as a CCP in
clearing a repo transaction, FICC guarantees that the borrowers receive
their repo collateral back at the close of the repo transaction while
lenders receive the start amount paid on the repo inception date plus
repo interest. The market value of interest payments for the remaining
life of the repo trades are subject to the risk of movements of the
market repo interest rates. Since FICC guarantees the repo interest
payment to the lenders, this risk needs to be mitigated. The repo
interest volatility charge is designed to mitigate such risk, i.e., the
risk arising out of fluctuations in market repo interest rates during
the margin period of risk (``MPOR''). MPOR is currently set at 3 days
for FICC. It represents the duration of time when a CCP is exposed to
market risk post-member default, starting from the time of the last
successful margin collection to the time the market risk exposure is
effectively mitigated. The repo interest volatility charge is a small
component of the total GSD margin (currently about 3% at CCP level).
    The QRM Methodology Document contains the formula for the
calculation of the repo interest volatility charge and describes the
components and calculation thereof.
    Currently, the repo interest volatility charge is assessed through
application of a haircut schedule with a single haircut rate applied to
each risk bucket after netting short and long repo interest

positions within the relevant risk bucket. Specifically, under the
current formula, the repo interest positions for a given Member
portfolio are put into different risk buckets based on (a) whether the
underlying repo trade is a generic repo trade or a special repo trade
and (b) the time to settlement of the underlying repo trade. The total
net amount of each risk bucket is calculated as the sum of the product
of repo start amount and the time to settlement of each repo interest
position in that risk bucket. If the total net amount is positive
(long), then the long repo haircut rate for that specific risk bucket
is applied to the total net amount for that specific risk bucket to
arrive at the repo interest volatility charge for that specific risk
bucket. If the total net amount is negative (short), then the short
repo haircut rate for that specific risk bucket is applied to the
absolute value of the total net amount to arrive at the repo interest
volatility charge for that specific risk bucket. The total repo
interest volatility charge for the portfolio is the sum of the repo
interest volatility charges of all of the risk buckets in the
portfolio. As such, the current formula reflects a repo interest rate
index driven approach where a single repo haircut rate is applied to
the absolute value of the total net amount of each risk bucket of repo
interest positions.\5\
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    \5\ FICC has developed its repo interest rate indices using FICC
delivery-versus-payment repo transactions.
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    In order to provide FICC with more flexibility with respect to the
calculation of the repo interest volatility charge so FICC can respond
to rapidly changing market conditions more quickly and timely, FICC is
proposing revisions to the current formula. The proposed new formula is
similar to the current formula in certain respects. For example, the
proposed new formula would continue to be repo interest rate index
driven and would use a similar mathematical calculation as the current
formula. In addition, under the proposed new formula, the repo interest
positions for a given Member portfolio would continue to be placed into
risk buckets based on (a) whether the underlying repo trade is a
generic repo trade or a special repo trade and (b) the time to
settlement of the underlying repo trade. However, unlike the current
formula, more than one repo haircut rate could apply to each risk
bucket. This is because the repo haircut rate that would be applied
would no longer be based on whether the total net amount for a specific
risk bucket is long or short. Instead, as proposed, the specific repo
haircut rate to be applied would be based on whether the individual
repo interest position in a specific risk bucket is either long or
short. Specifically, as proposed, FICC would apply a long repo haircut
rate to all the long positions and a short repo haircut rate to all the
short positions in each risk bucket. The long positions and the short
positions can offset each other within the same risk bucket but cannot
offset each other across different risk buckets. As proposed, the repo
interest volatility charge for a specific risk bucket would be the
absolute value of the sum of the product of repo start amount, time to
settlement, and repo haircut rate of the individual repo interest
positions in the risk bucket. However, as is the case with the current
formula, the total repo interest volatility charge for the portfolio
would still be the sum of the repo interest volatility charges of all
of the risk buckets in the portfolio. Doing so would provide FICC the
flexibility to use two haircuts for each risk bucket, one for long
positions and the other for short positions,\6\ thus allowing FICC to
respond to rapidly changing market conditions more quickly and timely,
particularly when the long and short repo interest positions exhibit
very different risk profiles. In turn, the proposed changes would help
better ensure that FICC calculates and collects adequate margin from
Members and lead to a better risk management practice.
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    \6\ As an initial matter, FICC would take a streamlined and
prudent approach by setting the repo haircut rates for long
positions and short positions to be the same rate, i.e., the larger
of the two rates, so that the long and short positions in a specific
risk bucket would be subject to the same repo haircut rate.
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    Based on FICC's 2020 and 2021 annual model validation reports, the
rolling 12-month backtest coverage on the sub-portfolios of repo
interest only positions had been below the 99 percent coverage target
from June 2019 to September 2020. In order to improve the backtesting
coverage, FICC is also proposing to add a repo bid/ask spread to each
repo haircut rate (one for long positions and one for short positions)
within the same risk bucket. The repo bid/ask spread would be
calculated based on the historical percentile movements of the
internally constructed repo interest rate indices. FICC is proposing to
add the repo bid/ask spread to each repo haircut rate to account for
the difference observed in the repo market between the highest rate a
repo participant is willing to pay to borrow money in a repo trade and
the lowest rate a repo participant is willing to accept to lend money
in a repo trade. FICC believes adding the repo bid/ask spread to each
of the repo haircut rates would improve backtesting coverage,
particularly with respect to sub-portfolios of repo interest only
positions.
    For example, assuming a portfolio contains two repo interest
positions, both with half a year to settlement, one position has a repo
start amount of +$1 million, and the other has a repo start amount of -
$0.8 million. In this example, the two repo interest positions have the
same time to settlement, so they would fall into the same risk bucket.
Let's further assume that for that specific risk bucket, the long repo
haircut rate is 40 bps and the short repo haircut rate is 45 bps.
    Under the current formula, we first calculate the total net amount
of the risk bucket by adding the product of repo start amount and the
time to settlement of the two repo interest positions, i.e., (+$1
million*0.5 year) + (-$0.8 million*0.5 year). As calculated, the total
net amount is +$100,000. Given that the total net amount is positive
(long), we apply the long repo haircut rate of 40 bps, i.e.,
$100,000*40 bps, and calculate the repo interest volatility charge for
the portfolio as $400.
    Under the proposed new formula, we would calculate the individual
repo interest positions and apply the applicable repo haircut rate at
the position level. Specifically, we would first calculate each repo
interest position by multiplying the repo start amount and the time to
settlement, i.e., (+$1 million*0.5 year) = +$500,000, and then apply
the applicable repo haircut rate, i.e., because +$500,000 is a long
position, we would apply the long repo haircut rate of 40 bps and
calculate the amount for that long position as $2,000. For the second
repo interest position, we would first multiply the repo start amount
(-$0.8 million) and the time to settlement (0.5 year) and get -
$400,000. Given it is a short position, we would apply the short repo
haircut rate of 45 bps and calculate the amount for that short position
as -$1,800. For the repo interest volatility charge for the portfolio,
we would take the absolute value of the sum of the two amounts
($2,000+(-$1,800)) and get $200 as the repo interest volatility charge
for the portfolio using the proposed new formula.7 8
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    \7\ As an initial matter, FICC would set the repo haircut rates
for long positions and short positions to be the same rate, i.e.,
the larger of the two rates, so that the long and short positions in
a specific risk bucket would be subject to the same repo haircut
rate. Supra note 6. Using the new proposed formula under this
approach, the repo interest volatility charge for the portfolio
would be $450. Instead of using 40 bps for long positions and 45 bps
for short positions, we would apply 45 bps (the larger of the two
rates) to both the long and short positions in the risk bucket,
i.e., (+$500,000*45 bps) and (-$400,000*45 bps), and get $2,250 and
-$1,800 as the haircut amounts, respectively. The repo interest
volatility charge for the portfolio would then be calculated by
adding $2,250 and -$1,800, i.e., $450.
    \8\ Under the proposed new formula, the repo interest volatility
charge would always be a positive number because the calculation
thereof is based on the absolute value of the sum of the relevant
amounts. For example, assuming a portfolio contains two repo
interest positions, both with half a year to settlement, one
position has a repo start amount of -$1 million, and the other has a
repo start amount of +$0.8 million. In this example, the two repo
interest positions have the same time to settlement, so they would
fall into the same risk bucket. Let's further assume that for that
specific risk bucket, the long repo haircut rate is 45 bps and the
short repo haircut rate is 40 bps. Under the proposed new formula,
we would first calculate each repo interest position by multiplying
the repo start amount and the time to settlement, i.e., (-$1
million*0.5 year) = -$500,000, and then apply the applicable repo
haircut rate, i.e., because -$500,000 is a short position, we would
apply the short repo haircut rate of 40 bps and calculate the amount
for that short position as -$2,000. For the second repo interest
position, we would first multiply the repo start amount (+$0.8
million) and the time to settlement (0.5 year) and get +$400,000.
Given it is a long position, we would apply the long repo haircut
rate of 45 bps and calculate the amount for that long position as
+$1,800. For the repo interest volatility charge for the portfolio,
we would take the absolute value of the sum of the two amounts,
i.e., abs(-$2,000+(+$1,800)) and get $200 as the repo interest
volatility charge for the portfolio using the proposed new formula.

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    The QRM Methodology Document also contains a detailed description
of the repo haircut rate calculation for all risk buckets. FICC is
proposing to eliminate this detailed description from the QRM
Methodology Document and replace it with a more general description of
the repo haircut rate calculation. FICC believes that having a more
general description would provide FICC with more flexibility to respond
to rapidly changing market conditions more quickly and timely by
enabling FICC to adjust how the repo haircut rate is calculated without
undergoing a rule filing process.\9\ By being able to quickly make
adjustments to the calculation of the repo haircut rate, FICC would be
able to better risk manage the repo interest positions. Specifically,
FICC believes this proposed change would enable FICC to make
appropriate and timely adjustments to the repo haircut rates based on
an evaluation of a number of factors, including, but not limited to,
repo interest rate volatility outlook and backtesting coverage results.
Furthermore, there are certain known data availability limitations with
respect to the current repo interest rate index. That is, the current
repo interest rate index is missing data for a volatile period, so repo
haircut rates that have been calibrated based on the current repo
interest rate index may not be sufficient if the repo market were to
experience heightened volatility. FICC believes the proposed changes
would therefore also help counterbalance potential data availability
limitation issues by enabling FICC to adjust how the repo haircut rate
is calculated more quickly and timely and thereby provide FICC with the
flexibility to respond to rapidly changing market conditions more
quickly and effectively.
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    \9\ Pursuant to Section 806(e)(1) of Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act and Rule 19b-
4(n)(1)(i) under the Act, if a change materially affects the nature
or level of risks presented by FICC, then FICC is required to file
an advance notice filing. 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-
4(n)(1)(i).
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    FICC would instead describe the detailed calculations of the repo
haircut rates in an internal standalone document. Nonetheless, any
future changes to the repo haircut rate calculations would continue to
follow DTCC's internal model governance procedure as described in the
Clearing Agency Model Risk Management Framework.\10\ In addition, the
repo haircut rates would continue to be tracked in the monthly model
parameter report.
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    \10\ The Clearing Agency Model Risk Management Framework
(``Framework'') sets forth the model risk management practices that
FICC and its affiliates The Depository Trust Company (``DTC'') and
National Securities Clearing Corporation (``NSCC,'' and together
with FICC and DTC, the ``Clearing Agencies'') follow to identify,
measure, monitor, and manage the risks associated with the design,
development, implementation, use, and validation of quantitative
models. The Framework is filed as a rule of the Clearing Agencies.
See Securities Exchange Act Release Nos. 81485 (August 25, 2017), 82
FR 41433 (August 31, 2017) (File Nos. SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008), 88911 (May 20, 2020), 85 FR 31828 (May 27,
2020) (File Nos. SR-DTC-2020-008; SR-FICC-2020-004; SR-NSCC-2020-
008), 92380 (July 13, 2021), 86 FR 38140 (July 19, 2021) (File No.
SR-FICC-2021-006), 92381 (July 13, 2021), 86 FR 38163 (July 19,
2021) (File No. SR-NSCC-2021-008) and 92379 (July 13, 2021), 86 FR
38143 (July 19, 2021) (File No. SR-DTC-2021-003).
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    Accordingly, FICC believes that revising the formula for the
calculation of the repo interest volatility charge as described above
and replacing the current specific description with a more general
description in the QRM Methodology Document would collectively provide
FICC with more flexibility and allow FICC to respond to rapidly
changing market conditions more quickly by enabling FICC to adjust how
the repo haircut rate is calculated without a rule filing. In addition,
FICC believes that the proposed changes would enable FICC to better
address the backtest coverage issue and thereby risk manage the repo
interest positions more effectively.
Impact Study
    FICC conducted an impact study for the period of January 2018 to
February 2022 (``Impact Study''). The result of the Impact Study
indicates that, at the CCP level, if the proposed changes had been in
place, the backtesting coverage ratio for the repo interest volatility
charge would have increased from approximately 98.7% to 99.2%.
    Specifically, the Impact Study shows that had the proposed changes
been in place from January 2018 to February 2022, it would have
affected 90 out of 145 (approximately 62%) portfolios of GSD Members
per day on average, and the average daily margin increase of the VaR
Charge for these Member portfolios would have been approximately $0.7
million (representing approximately 3% of their average daily VaR
Charge). For GSD, the proposed changes would have resulted in an
average daily VaR Charge increase of approximately $86 million
(representing approximately 0.8% of the average daily VaR Charge).
(2) Technical Changes
    FICC is also proposing to make certain technical changes to the QRM
Methodology Document to enhance clarity.
    FICC proposes to revise the term ``GCF Repo'' to ``repo'' in ``2.1
Market risks associated with products cleared by GSD'' and ``3.2.4 Repo
Interest Volatility Charge'' sections of the QRM Methodology Document
for clarity.
    In ``2.5.4. Repo Interest Volatility Charge'' and ``3.2.4 Repo
Interest Volatility Charge'' sections of the QRM Methodology Document,
FICC proposes to change ``inception date'' to ``repo inception date''
and ``above'' to ``in the above sections'' to enhance clarity. FICC
also proposes to clarify and update certain descriptions in the
``2.5.4. Repo Interest Volatility Charge'' and ``3.2.4 Repo Interest
Volatility Charge'' sections. For example, FICC is proposing to clarify
the description of the risk that the repo interest volatility charge is
designed to address and the repo trades that it applies to. In
addition, FICC is proposing to update the paragraphs in ``2.5.4. Repo
Interest Volatility Charge'' section describing the use of risk buckets
to reflect the current practice.
    Furthermore, FICC proposes to change ``repurchase price'' to
``repurchase settlement amount'' and ``original sale price'' to ``start
amount paid on the repo inception date'' in ``3.2.4 Repo Interest
Volatility Charge'' section for clarity. To enhance the clarity of the
QRM Methodology Document, FICC also proposes to remove a formula from

``3.2.4 Repo Interest Volatility Charge'' section of the QRM
Methodology Document that is no longer used but had been included for
historical reference.
    In addition, FICC is proposing to clarify the description of the
repo interest curve in ``3.2.4 Repo Interest Volatility Charge''
section of the QRM Methodology Document, including, among other things,
the description the categories that a collateral security in a repo
trade can be designated as and how those categories are treated in the
repo interest volatility charge calculation, as well as how the repo
rate indices are constructed. FICC also proposes to add that any
changes or adjustments to the repo haircut rate calculation would need
to go through DTCC's model governance process.
    Lastly, FICC is proposing certain grammar-related technical changes
in ``2.1 Market risks associated with products cleared by GSD'' and
``3.2.4 Repo Interest Volatility Charge'' sections of the QRM
Methodology Document.
Implementation Timeframe
    Subject to approval by the Commission, FICC would implement the
proposed rule changes approximately within 30 days following such
approval and would announce the effective date of the proposed change
by an Important Notice posted to its website.
2. Statutory Basis
    FICC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, FICC believes that the
proposed changes to the Rules and the QRM Methodology Document
described above are consistent with Section 17A(b)(3)(F) of the Act,
for the reasons described below.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\12\
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    \12\ Id.
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    FICC believes that the proposed changes to the QRM Methodology
Document described in Item II.(A)1(1) above to revise the formula used
to calculate the VaR Charge for repo interest volatility and make
conforming changes to the description of this formula are designed to
assure the safeguarding of securities and funds which are in the
custody or control of FICC or for which it is responsible, consistent
with Section 17A(b)(3)(F) of the Act.\13\ As described above, FICC
believes these proposed changes would provide FICC with more
flexibility with respect to the calculation of the repo interest
volatility charge and thus allow FICC to respond to rapidly changing
market conditions more quickly and timely, particularly when the long
and short repo interest positions exhibit very different risk profiles.
FICC believes that having more flexibility with respect to this
calculation would help better ensure that FICC calculates and collects
adequate margin from Members and thereby would assure the safeguarding
of securities and funds which are in the custody and control of FICC or
for which it is responsible, consistent with Section 17A(b)(3)(F) of
the Act.\14\
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    \13\ Id.
    \14\ Id.
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    FICC believes that the proposed technical changes described in Item
II.(A)1(2) above would enhance the clarity of the QRM Methodology
Document for FICC. As the QRM Methodology Document is used by FICC Risk
Management personnel regarding the calculation of margin requirements,
it is therefore important that FICC Risk Management has a clear
description of the calculation of the margin methodology. Having a
clear description of the calculation of the margin methodology would
promote an accurate and smooth functioning of the margining process.
Having an accurate and smooth functioning of the margining process
would help better ensure that FICC calculates and collects adequate
margin from Members and thereby assure the safeguarding of securities
and funds which are in the custody and control of FICC or for which it
is responsible. As such, FICC believes that enhancing the clarity of
the QRM Methodology Document would assure the safeguarding of
securities and funds which are in the custody or control of FICC or for
which it is responsible, consistent with Section 17A(b)(3)(F) of the
Act.\15\
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    \15\ Id.
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    Rule 17Ad-22(e)(4)(i) under the Act \16\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those exposures arising from its payment, clearing, and settlement
processes by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence. FICC believes that the proposed changes in Item II.(A)1(1)
above are consistent with the requirements of Rule 17Ad-22(e)(4)(i)
under the Act.\17\ As described above, FICC believes these proposed
changes to revise the formula used to calculate the VaR Charge for repo
interest volatility would (i) provide FICC with more flexibility with
respect to the calculation of the repo interest volatility charge and
(ii) improve backtesting coverage. FICC believes that having more
flexibility with respect to the calculation of the repo interest
volatility charge would allow FICC to respond to rapidly changing
market conditions more quickly and timely. Having the ability to
respond to rapidly changing market conditions more quickly and timely
would in turn help FICC better measure, monitor, and manage its credit
exposures to participants and those exposures arising from its payment,
clearing, and settlement processes. Moreover, as the result of the
Impact Study indicates, having the proposed changes would increase the
backtesting coverage ratio for the repo interest volatility charge
beyond 99% and thereby help ensure that FICC maintains sufficient
financial resources to cover its credit exposure to each participant
fully with a high degree of confidence. Therefore, FICC believes that
the proposed changes described in Item II.(A)1(1) above are consistent
with the requirements of Rule 17Ad-22(e)(4)(i) under the Act.\18\
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    \16\ 17 CFR 240.17Ad-22(e)(4)(i).
    \17\ Id.
    \18\ Id.
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    Rule 17Ad-22(e)(6)(i) under the Act \19\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to cover, if the covered
clearing agency provides central counterparty services, its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market. FICC believes that the proposed changes
in Item II.(A)1(1) above are consistent with the requirements of Rule
17Ad-22(e)(6)(i).\20\
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    \19\ 17 CFR 240.17Ad-22(e)(6)(i).
    \20\ Id.
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    Specifically, FICC believes the proposed new formula to allow FICC
the flexibility to apply two separate repo haircut rates (one for long
positions and the other for short positions) within the same risk
bucket would enable FICC to be better equipped to respond to rapidly
changing market conditions,

particularly when the long and short repo interest positions exhibit
very different risk profiles. FICC believes having this flexibility
would help lead to a better risk management practice because it would
enable FICC to refine its calculation of the repo interest volatility
charge in response to fast changing market conditions. Being able to
refine its calculation of the repo interest volatility charge in
response to fast changing market conditions would help FICC cover its
credit exposures to its participants by allowing FICC to continue to
produce margin levels commensurate with the risks and particular
attributes of each relevant product, portfolio, and market. Therefore,
FICC believes this proposed change is consistent with Rule 17Ad-
22(e)(6)(i) under the Act.\21\
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    \21\ Id.
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    Similarly, FICC believes that the proposed changes to replace the
current detailed description of the repo haircut rate calculation for
all risk buckets with a more general description, as described above,
would also provide FICC with more flexibility to respond to rapidly
changing market conditions more quickly and timely because FICC would
be able to make adjustments to the repo haircut rate calculation
without a rule filing. Having this flexibility would enable FICC to
better risk manage the repo interest positions because FICC would then
be able to make appropriate and timely adjustments to the repo haircut
rates, as described above. Furthermore, as described above, FICC
believes these proposed changes would also help counterbalance
potential data availability limitation issues by enabling FICC to
adjust how the repo haircut rate is calculated more quickly and timely.
Being able to adjust its calculation of the repo haircut rate quickly
and timely would help FICC cover its credit exposures to its
participants by allowing FICC to continue to produce margin levels
commensurate with the risks and particular attributes of each relevant
product, portfolio, and market. Therefore, FICC believes this proposed
change is consistent with Rule 17Ad-22(e)(6)(i) under the Act.\22\
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    \22\ Id.
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    Rule 17Ad-22(e)(6)(v) under the Act \23\ requires a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to cover, if the covered
clearing agency provides central counterparty services, its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum, uses an appropriate method for measuring
credit exposure that accounts for relevant product risk factors and
portfolio effects across products. FICC believes that the proposed
changes in Item II.(A)1(1) above are consistent with the requirements
of Rule 17Ad-22(e)(6)(v).\24\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(6)(v).
    \24\ Id.
---------------------------------------------------------------------------

    Specifically, FICC believes the proposed new formula to allow FICC
the flexibility to apply two separate repo haircut rates (one for long
positions and the other for short positions) within the same risk
bucket would enable FICC to be better equipped to respond to rapidly
changing market conditions, particularly when the long and short repo
interest positions exhibit very different risk profiles. FICC believes
having this flexibility would help lead to a better risk management
practice because it would enable FICC to refine its calculation of the
repo interest volatility charge in response to fast changing market
conditions. Being able to refine its calculation of the repo interest
volatility charge in response to fast changing market conditions would
help FICC cover its credit exposures to its participants by allowing
FICC to continue to produce margin levels commensurate with relevant
product risk factors and portfolio effects across products. Therefore,
FICC believes this proposed change is consistent with Rule 17Ad-
22(e)(6)(v) under the Act.\25\
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

    Similarly, FICC believes that the proposed changes to replace the
current detailed description of the repo haircut rate calculation for
all risk buckets with a more general description, as described above,
would also provide FICC with more flexibility to respond to rapidly
changing market conditions more quickly and timely because FICC would
be able to make adjustments to the repo haircut rate calculation
without a rule filing. Having this flexibility would enable FICC to
better risk manage the repo interest positions because FICC would then
be able to make appropriate and timely adjustments to the repo haircut
rates, as described above. Furthermore, as described above, FICC
believes these proposed changes would also help counterbalance
potential data availability limitation issues by enabling FICC to
adjust how the repo haircut rate is calculated more quickly and timely.
Being able to adjust its calculation of the repo haircut rate quickly
and timely would help FICC cover its credit exposures to its
participants by allowing FICC to continue to product margin levels
commensurate with relevant product risk factors and portfolio effects
across products. Therefore, FICC believes this proposed change is
consistent with Rule 17Ad-22(e)(6)(v) under the Act.\26\
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

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

    FICC believes that the proposed changes described in Item
II.(A)1(1) above may have an impact on competition because these
changes could result in Members being assessed a higher margin than
they would have been assessed using the current formula in calculation
of the repo interest volatility charge. FICC believes that the proposed
change could burden competition by potentially increasing these
Members' operating costs. Nonetheless, FICC believes any burden on
competition imposed by the proposed changes described in Item
II.(A)1(1) would not be significant and, regardless of whether such
burden on competition could be deemed significant, would be necessary
and appropriate, as permitted by Section 17A(b)(3)(I) of the Act for
the reasons described in this filing and further below.\27\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC believes any burden on competition imposed by the proposed
changes described in Item II.(A)1(1) would not be significant. As the
result of the Impact Study indicates, had the proposed changes been in
place, approximately 62% of the GSD Member portfolios would have had an
increase of approximately 3% in their average daily VaR Charge, and at
a GSD level the increase would have been approximately 0.8% of the
average daily VaR Charge.
    However, even if the burden on competition imposed by the proposed
changes described in Item II.(A)1(1) were deemed significant, FICC
believes that any such burden on competition would be necessary
because, as described above, the proposed changes would provide FICC
with more flexibility with respect to the calculation of the repo
interest volatility charge and allow FICC to respond to rapidly
changing market conditions more quickly and timely, particularly when
the long and short repo interest positions exhibit very different risk
profiles. Having more flexibility with respect to this calculation
would thus help better ensure that FICC calculates and collects
adequate margin from Members and thereby assure the safeguarding of
securities and funds which are in the custody and control of FICC or
for which it is responsible,

consistent with Section 17A(b)(3)(F) of the Act.\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78q-1(b)(3)(F)
---------------------------------------------------------------------------

    In addition, FICC believes the proposed changes described in Item
II.(A)1(1) are necessary to support FICC's compliance with Rules 17ad-
22(e)(4)(i), (e)(6)(i), and (e)(6)(v) under the Act. Specifically, as
described above, FICC believes these proposed changes would provide
FICC with more flexibility with respect to the calculation of the repo
interest volatility charge. Having more flexibility with respect to the
calculation of the repo interest volatility charge would allow FICC to
respond to rapidly changing market conditions more quickly and timely.
Having the ability to respond to rapidly changing market conditions
more quickly and timely would in turn help FICC better measure,
monitor, and manage its credit exposures to participants and those
exposures arising from its payment, clearing, and settlement processes,
consistent with the requirements of Rules 17ad-22(e)(4)(i) under the
Act.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 240.17Ad-22(e)(4)(i).
---------------------------------------------------------------------------

    FICC also believes these proposed changes would enable FICC to be
better equipped to respond to rapidly changing market conditions,
particularly when the long and short repo interest positions exhibit
very different risk profiles. FICC believes having this flexibility
would help lead to a better risk management practice because it would
enable FICC to refine its calculation of the repo interest volatility
charge in response to fast changing market conditions. Being able to
refine its calculation of the repo interest volatility charge in
response to fast changing market conditions would help FICC cover its
credit exposures to its participants, consistent with the requirements
of Rule 17Ad-22(e)(6)(i) and (e)(6)(v) under the Act.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17Ad-22(e)(6)(i) and (e)(6)(v).
---------------------------------------------------------------------------

    FICC also believes that any burden on competition imposed by the
proposed changes described in Item II.(A)1(1) would be appropriate in
furtherance of the Act because these proposed changes have been
specifically designed to assure the safeguarding of securities and
funds which are in the custody and control of FICC or for which it is
responsible, as required by Section 17A(b)(3)(F) of the Act. As
described above, FICC believes these proposed changes would help better
ensure that FICC calculates and collects adequate margin from Member,
thus enable FICC to produce margin levels more commensurate with the
risks it faces as a CCP. Accordingly, FICC believes these proposed
changes are appropriately designed to meet its risk management goals
and regulatory obligations.
    FICC believes that the proposed changes described in Item
II.(A)1(1) above may also promote competition because these changes
could also result in Members being assessed a lower margin than they
would have been assessed using the current calculation of the repo
interest volatility charge, and thereby could potentially lower
operating costs for Members.\31\
---------------------------------------------------------------------------

    \31\ The proposed changes described in Item II.(A)1(1) could
result in Members being assessed a lower margin than they would have
been assessed using the current calculation of the repo interest
volatility charge. As illustrated by the example in Item II.(A)1(1)
above, when using the current formula, the repo interest volatility
charge for the portfolio in the example is $400, but when using the
proposed new formula, the repo interest volatility charge for the
portfolio is reduced to $200 instead.
---------------------------------------------------------------------------

    With respect to the proposed changes described in Item II.(A)1(2)
above to make technical changes to the QRM Methodology Document, FICC
does not believe these proposed changes would have any impact on
competition because these proposed changes would only enhance the
clarity of the QRM Methodology Document, which would promote an
accurate and smooth functioning of the margining process at FICC and
would not affect the substantive rights of Members.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to
this proposal. If any additional written comments are received, they
will be publicly filed as an Exhibit 2 to this filing, as required by
Form 19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
    All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
SEC's Division of Trading and Markets at [email protected] or
202-551-5777.
    FICC reserves the right not to respond to any comments 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 (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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 protected]. Please include
File Number SR-FICC-2022-005 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FICC-2022-005. 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-2022-005
and should be submitted on or before August 5, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15179 Filed 7-14-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 189 (Friday, September 30, 2022)]
[Notices]
[Page 59412]
[FR Doc No: 2022-21287]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 1517-028]

Monroe City; Notice of Intent To File License Application, Filing
of Pre-Application Document, and Approving Use of the Traditional
Licensing Process

    a. Type of Filing: Notice of Intent to File License Application and
Request to Use the Traditional Licensing Process (TLP).
    b. Project No.: 1517-028.
    c. Dated Filed: July 29, 2022.
    d. Submitted By: Monroe City.
    e. Name of Project: Upper Monroe Hydroelectric Project.
    f. Location: The Upper Monroe Project is located on First Lefthand
Fork of Monroe, Shingle, and Serviceberry Creeks in Sevier County,
Utah. The project is located almost entirely on federal land within the
Fishlake National Forest.
    g. Filed Pursuant to: 18 CFR 5.3 of the Commission's regulations.
    h. Applicant Contact: Jenna Jorgensen, Environmental Coordinator,
Jones & DeMille Engineering, 1535 S 100 W, Richfield, UT 84701, (435)
896-8266, [email protected].
    i. FERC Contact: Everard Baker at<PHONE_NUMBER> or
[email protected].
    j. Monroe City filed its request to use the TLP on July 29, 2022,
and provided public notice of its request on July 27, 2022. In a letter
dated September 26, 2022, the Director of the Division of Hydropower
Licensing approved Monroe City's request to use the Traditional
Licensing Process.
    k. With this notice, we are initiating informal consultation with
the U.S. Fish and Wildlife Service and/or NOAA Fisheries under section
7 of the Endangered Species Act and the joint agency regulations
thereunder at 50 CFR, part 402; and NOAA Fisheries under section 305(b)
of the Magnuson-Stevens Fishery Conservation and Management Act and
implementing regulations at 50 CFR 600.920. We are also initiating
consultation with the Utah State Historic Preservation Officer, as
required by section 106, National Historic Preservation Act, and the
implementing regulations of the Advisory Council on Historic
Preservation at 36 CFR 800.2.
    l. With this notice, we are designating Monroe City as the
Commission's non-federal representative for carrying out informal
consultation, pursuant to section 7 of the Endangered Species Act and
section 305(b) of the Magnuson-Stevens Fishery Conservation and
Management Act; and consultation pursuant to section 106 of the
National Historic Preservation Act.
    m. The applicant filed a Pre-Application Document (PAD; including a
proposed process plan and schedule) with the Commission, pursuant to 18
CFR 5.6 of the Commission's regulations.
    n. A copy of the PAD may be viewed on the Commission's website
(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 Online Support at
[email protected],<PHONE_NUMBER> (toll free), or (202) 502-
8659 (TTY).
    o. The applicant states its unequivocal intent to submit an
application for a subsequent license for Project No. 1517. Pursuant to
18 CFR 16.8, 16.9, and 16.10 each application for a subsequent license
and any competing license applications must be filed with the
Commission at least 24 months prior to the expiration of the existing
license. All applications for license for this project must be filed by
July 31, 2025.
    p. Register online at https://ferconline.ferc.gov/eSubscription.aspx to be notified via email of new filing and issuances
related to this or other pending projects. For assistance, contact FERC
Online Support.

    Dated: September 26, 2022.
Kimberly D. Bose,
Secretary.
[FR Doc. 2022-21287 Filed 9-29-22; 8:45 am]
BILLING CODE 6717-01-P