82_FR_14634 82 FR 14581 - Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Describe the Intraday Mark-to-Market Charge

82 FR 14581 - Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Describe the Intraday Mark-to-Market Charge

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 53 (March 21, 2017)

Page Range14581-14586
FR Document2017-05502

Federal Register, Volume 82 Issue 53 (Tuesday, March 21, 2017)
[Federal Register Volume 82, Number 53 (Tuesday, March 21, 2017)]
[Notices]
[Pages 14581-14586]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-05502]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80253; File No. SR-FICC-2017-004]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Describe the Intraday Mark-to-Market Charge

March 15, 2017.
    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 March 7, 2017, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the Mortgage-
Backed

[[Page 14582]]

Securities Division (``MBSD'') Clearing Rules (``MBSD Rules'') \3\ in 
order to provide transparency in the MBSD Rules with respect to the 
existing intraday Mark-to-Market charge by codifying FICC's current 
practices with respect to the assessment and collection of the intraday 
Mark-to-Market charge.\4\ This charge is imposed on certain Clearing 
Members that experience an adverse intraday Mark-to-Market change that 
meets certain criteria described below. The charge is designed to 
mitigate FICC's exposure resulting from large intraday Mark-to-Market 
fluctuations to Clearing Members' portfolios that are not otherwise 
covered by Clearing Members' Required Fund Deposits.
---------------------------------------------------------------------------

    \3\ The MBSD Rules are available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms used herein and not 
otherwise defined shall have the meaning assigned to such terms in 
the MBSD Rules.
    \4\ The intraday Mark-to-Market charge is currently described in 
Section 2(a) of Rule 4 of the MBSD Rules.
---------------------------------------------------------------------------

    In order to provide transparency with respect to the existing 
intraday Mark-to-Market charge by codifying FICC's existing practices 
with respect to the charge, FICC is proposing to amend MBSD Rule 1 
(Definitions) to add the defined term ``Intraday Mark-to-Market 
Charge'' and to amend Section 2(c) of MBSD Rule 4 (Clearing Fund and 
Loss Allocation) to include the Intraday Mark-to-Market Charge.
    In addition, the proposed rule change would delete the term ``End 
of Day Charge'' from the MBSD Rules because it is no longer used, as 
further discussed below. To effectuate this change, the proposed rule 
change would delete the definition of End of Day Charge from Rule 1 
(Definitions) and would amend Section 2 of MBSD Rule 4 (Clearing Fund 
and Loss Allocation) to delete the reference to the End of Day Charge.

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
    The proposed rule change would provide transparency in the MBSD 
Rules with respect to the assessment and collection of the existing 
Intraday Mark-to-Market Charge, which FICC currently may impose on a 
Clearing Member on an intraday basis under certain circumstances 
described below. Once imposed, payment of this charge is due within one 
hour after notice from FICC to an affected Clearing Member.\5\ The 
proposed rule change would also eliminate references to the End of Day 
Charge from the MBSD Rules.
---------------------------------------------------------------------------

    \5\ MBSD Rule 4, Section 2.
---------------------------------------------------------------------------

(i) Background--The Required Fund Deposit and Mark-to-Market
    The Required Fund Deposit serves as each Clearing Member's margin. 
The objective of the Required Fund Deposit is to mitigate potential 
losses to FICC associated with liquidation of the Clearing Member's 
portfolio in the event that FICC ceases to act for a Clearing Member 
(hereinafter referred to as a ``default''). FICC determines Required 
Fund Deposit amounts using a number of component charges calculated and 
assessed daily, the largest of which is the VaR Charge that is a risk-
based margin methodology intended to capture market price risk. The 
methodology uses historical market moves to project or forecast the 
potential gains or losses on the liquidation of a defaulting Clearing 
Member's portfolio, assuming that a portfolio would take three days to 
liquidate or hedge in normal market conditions. The projected 
liquidation gains or losses are used to determine the Clearing Member's 
VaR Charge, which is calculated to cover projected liquidation losses 
at a 99 percent confidence level. The aggregate of all Clearing 
Members' Required Fund Deposits constitutes the Clearing Fund of MBSD, 
which FICC would be able to access in the event a defaulting Clearing 
Member's own Required Fund Deposit is insufficient to satisfy losses to 
FICC caused by the liquidation of that Clearing Member's portfolio.
    MBSD calculates the full suite of components that comprise the 
Required Fund Deposit and imposes the Required Fund Deposit once per 
day, at the start of the day, based on a Clearing Member's prior end-
of-day positions. Generally, the second largest component of the daily 
Required Fund Deposit is a start-of-day Mark-to-Market amount, which is 
designed to mitigate the risk arising out of the value change between 
the contract/settlement value of a Clearing Member's open positions and 
the market value at the end of the prior day.
(ii) Overview--The Intraday Mark-to-Market Charge
    During each trading day, a Clearing Member's exposure may change 
due to the settlement of existing transactions and new trade 
activities. In addition, the value of the Clearing Member's portfolio 
may change due to market influences. Normally, the start-of-day Mark-
to-Market component of the daily Required Fund Deposit covers FICC's 
exposure to a Clearing Member due to market moves and/or trading and 
settlement activity because it brings the portfolio of outstanding 
positions up to the market value at the end of the prior day. However, 
because the start-of-day Mark-to-Market component of the Required Fund 
Deposit is calculated only once daily using the prior end-of-day 
positions and prices, it does not cover a Clearing Member's exposure 
arising out of intraday changes to position and market value in the 
Clearing Member's portfolio that result in an adverse change to the 
Clearing Member's Mark-to-Market (``MTM Exposure''). FICC manages this 
intraday risk exposure by observing snapshots of Clearing Members' 
portfolios and monitoring intraday changes to each Clearing Member's 
Mark-to-Market versus the Mark-to-Market that was part of the Required 
Fund Deposit at the start of the day or, if applicable, any 
subsequently collected Mark-to-Market amount. FICC then collects an 
Intraday Mark-to-Market Charge from Clearing Members to cover 
significant risk exposures that warrant the collection of intraday 
margin, as further described below.
(iii) The Parameter Breaks
    FICC's current practice with respect to the assessment of the 
Intraday Mark-to-Market Charge entails tracking three criteria (each, a 
``Parameter Break'') for each Clearing Member. The Parameter Breaks 
help FICC determine whether a Clearing Member's MTM Exposure poses a 
risk to FICC that is significant enough to warrant an Intraday Mark-to-
Market Charge. The objective of the Parameter Breaks is to ensure that 
FICC is able to limit exposure to intraday Mark-to-Market fluctuations 
that (a) are of a large dollar amount (the ``Dollar Threshold''), (b) 
exhaust a significant portion of a Clearing Member's VaR Charge (the 
``Percentage Threshold'') and (c) are experienced by Clearing Members 
with backtesting deficiencies

[[Page 14583]]

that bring backtesting results for that Clearing Member below the 99 
percent confidence target (the ``Coverage Target''), indicating that a 
Clearing Member's activity was not sufficiently covered by margin.
1. The Dollar Threshold
    The purpose of the Dollar Threshold is to identify those Clearing 
Members whose MTM Exposures represent a large portion of the Clearing 
Fund. FICC believes that such Clearing Members pose an increased risk 
of loss to FICC because the coverage provided by the Clearing Fund, 
which is designed to cover the aggregate losses of all Clearing 
Members' portfolios, would be substantially impacted by large MTM 
Exposures. More specifically, if a Clearing Member were to default and 
the Clearing Member's Required Fund Deposit was not sufficient to 
satisfy losses to FICC caused by the liquidation of the Clearing 
Member's portfolio, FICC would be able to access the funds held by it 
in the Clearing Fund to satisfy such losses. However, because the 
Clearing Fund must be available to satisfy potential losses to FICC 
that may arise from any Clearing Member defaults, FICC would be exposed 
to a significant risk of loss if Clearing Members' MTM Exposures 
accounted for a substantial portion of the Clearing Fund. The Dollar 
Threshold is set to an amount that would ensure that the aggregate MTM 
Exposures of all of its Clearing Members at such threshold would not 
exceed 5 percent of the Clearing Fund. FICC believes that the 
availability of 95 percent of the Clearing Fund to satisfy all other 
liquidation losses arising out of a Clearing Member's default is 
sufficient to mitigate the risks posed to FICC by such losses. FICC 
assesses the sufficiency of the Dollar Threshold on an annual basis and 
may adjust the Dollar Threshold if it determines that such an 
adjustment is necessary to provide reasonable coverage. Currently, the 
Dollar Threshold is an adverse intraday Mark-to-Market change in a 
Clearing Member's portfolio that equals or exceeds $1,000,000 when 
compared to the Clearing Member's start-of-day Mark-to-Market 
requirement including, if applicable, any subsequently collected Mark-
to-Market amount.
2. The Percentage Threshold
    The purpose of the Percentage Threshold is to identify those 
Clearing Members whose MTM Exposures deplete a significant portion of 
such Clearing Members' daily VaR Charge. FICC believes that Clearing 
Members that experience such MTM Exposures pose an increased risk of 
loss to FICC because the coverage provided by the VaR Charge, which is 
designed to cover estimated losses to a portfolio over a specified time 
period at least 99 percent of the time, would be depleted by a 
significant MTM Exposure that could cause the Clearing Member's 
Required Fund Deposit to be unable to absorb further intraday losses to 
the Clearing Member's portfolio. The Percentage Threshold is designed 
to provide FICC with a reasonable cushion to allow the VaR Charge 
collected at the start of day to function as expected. More 
specifically, the VaR Charge is designed to cover potential losses over 
a three-day time period for a Clearing Member at least 99 percent of 
the time, assuming normal market conditions. When a Clearing Member's 
MTM Exposure meets or exceeds a certain percentage as compared to its 
daily VaR Charge, the value of the Clearing Member's portfolio is 
trending towards a loss outside of the expected value as determined by 
such VaR Charge. The Percentage Threshold is calculated to equal a 
percentage of the daily VaR Charge that FICC has determined would leave 
it with a sufficient amount of a Clearing Member's remaining VaR Charge 
after accounting for potential losses arising from the Clearing 
Member's MTM Exposure. FICC assesses the sufficiency of the Percentage 
Threshold on an annual basis and may adjust the Percentage Threshold if 
it determines that such an adjustment is necessary to provide 
reasonable coverage.\6\ Currently, the Percentage Threshold is an 
adverse intraday Mark-to-Market change in a Clearing Member's portfolio 
that equals or exceeds 30 percent of the VaR Charge collected as part 
of the Clearing Member's daily Required Fund Deposit.
---------------------------------------------------------------------------

    \6\ In 2014, FICC lowered the Percentage Threshold from 40 
percent to 30 percent of the VaR Charge after conducting a study 
that determined that a Percentage Threshold of 40 percent did not 
provide a sufficient cushion against potential losses.
---------------------------------------------------------------------------

3. The Coverage Target
    The purpose of the Coverage Target is to identify those Clearing 
Members that have experienced backtesting deficiencies that bring the 
results for that Clearing Member below the 99 percent confidence target 
(i.e., greater than two deficiency days in a rolling 12-month period) 
as reported in the most current month. FICC believes that such Clearing 
Members pose an increased risk of loss to FICC because such backtesting 
deficiencies demonstrate that FICC's risk-based margin model did not 
perform as expected for the Clearing Member. More specifically, FICC 
employs daily backtesting to determine the adequacy of each Clearing 
Member's Required Fund Deposit. FICC compares the Required Fund Deposit 
for each Clearing Member with the simulated liquidation gains/losses 
using the actual positions in the Clearing Member's portfolio and the 
actual historical security returns. FICC investigates the cause(s) of 
any deficiencies. As a part of this process, FICC pays particular 
attention to deficiencies that cause a Clearing Member's backtesting 
coverage to fall below the Coverage Target. Such deficiencies are 
evidence that the model used to calculate the Clearing Member's 
Required Fund Deposit did not calculate an amount sufficient to cover 
the Clearing Member's risk to FICC, as would otherwise be expected of 
the Required Fund Deposit. The Coverage Target is designed to provide 
coverage to FICC for intraday Mark-to-Market fluctuations in the 
portfolio of a Clearing Member for whom the Required Fund Deposit model 
is not performing as expected. FICC believes that a MTM Exposure for 
Clearing Members that fall below the Coverage Target may expose FICC to 
heightened risk, requiring an Intraday Mark-to-Market Charge to cover 
that risk.
(iv) Assessment and Collection of the Intraday Mark-to-Market Charge
    FICC's current practice is to review intraday snapshots of each 
Clearing Member's portfolios to determine whether the Clearing Member 
has experienced a MTM Exposure that warrants FICC assessing an Intraday 
Mark-to-Market Charge. More specifically, if a Clearing Member's MTM 
Exposure breaches all three Parameter Breaks, the Clearing Member will 
be subject to the Intraday Mark-to-Market Charge and FICC will collect 
the charge subject to waivers or changes to the amount of the 
calculated charge, as described below. However, where FICC determines 
that certain market conditions exist, including but not limited to (i) 
sudden swings in an equity index in either direction that exceed 
certain threshold amounts determined by FICC and (ii) moves in U.S. 
Treasury yields and mortgage-backed security spreads outside of 
historically observed market moves, FICC does not require that the 
Coverage Target be breached; rather, FICC imposes the Intraday Mark-to-
Market Charge if only the Dollar Threshold and Percentage Threshold are 
breached,\7\ subject to waivers and

[[Page 14584]]

changes to the amount of the calculated charge, as described below. 
Moreover, during such market conditions, the Dollar Threshold and 
Percentage Threshold may be reduced if FICC determines that such 
reduction is appropriate in order to accelerate collection of 
anticipated additional margin from Clearing Members whose portfolios 
may present relatively greater risks to FICC on an overnight basis. Any 
such reduction would not cause the Dollar Threshold to be less than 
$250,000 and the Percentage Threshold to be less than 5 percent.
---------------------------------------------------------------------------

    \7\ FICC has determined that, because a Clearing Member's 
backtesting coverage may not accurately reflect the risks posed by a 
Clearing Member under certain market conditions, Clearing Members 
with backtesting coverage that meets or exceeds the Coverage Target 
may nonetheless pose increased risk to FICC. Therefore, FICC imposes 
the Intraday Mark-to-Market Charge on Clearing Members that breach 
the Dollar Threshold and Percentage Threshold, despite the fact that 
such Members may not have breached the Coverage Target during 
certain market conditions.
---------------------------------------------------------------------------

    Irrespective of market conditions, FICC may impose the Intraday 
Mark-to-Market Charge on Clearing Members that (i) are approaching but 
have not yet breached the Percentage Threshold (but are at 20 percent 
or greater of the daily VaR Charge) and (ii) have a MTM Exposure that 
exceeds a certain dollar amount (``Surveillance Threshold'') that is 
set by FICC per Clearing Member based on the Clearing Member's internal 
Credit Risk Rating Matrix (``CRRM'') rating and/or the Clearing 
Member's Watch List status, if the Corporation determines that the size 
of such Clearing Member's Mark-to-Market change exposes the Corporation 
to increased risk. FICC links the Surveillance Thresholds to a Clearing 
Member's CRRM rating and Watch List status because a Clearing Member 
with a weaker internal rating is likely to pose a greater risk of 
default. Clearing Members with weaker internal credit ratings are 
assigned lower Surveillance Thresholds than Clearing Members with 
stronger internal credit ratings. The Surveillance Thresholds are 
intended as a tool to aid FICC in identifying Clearing Members whose 
MTM Exposures may necessitate the collection of an Intraday Mark-to-
Market Charge. The current Surveillance Thresholds are: (a) $50 million 
for Clearing Members with a CRRM rating of ``1'' or ``2'' and for non-
rated Clearing Members that are not on the Watch List; (b) $25 million 
for Clearing Members with a CRRM rating of ``3''; (c) $15 million for 
Clearing Members with a CRRM rating of ``4''; (d) $10 million for 
Clearing Members with a CRRM rating of ``5'' or ``6'' and for non-rated 
Clearing Members that are on the Watch List; and (e) $5 million for 
Clearing Members with a CRRM rating of ``7.''
    Although FICC generally collects the Intraday Mark-to-Market Charge 
under the conditions described above, FICC retains the discretion to 
waive or alter such Intraday Mark-to-Market Charge in circumstances 
where it determines that the MTM Exposure and/or the breaches of the 
Parameter Breaks do not accurately reflect FICC's risk exposure to the 
Clearing Member's intraday Mark-to-Market fluctuation (e.g., a Clearing 
Member's breach of the Coverage Target Parameter Break is based on a 
shortened backtesting look-back period and large Mark-to-Market 
fluctuations arising out of trade errors). Based on FICC's assessment 
of the impact of these circumstances and FICC's actual risk exposure to 
a Clearing Member, FICC may, in its discretion, waive or alter 
(decrease or increase) an Intraday Mark-to-Market Charge for a Clearing 
Member. Given the variability of the factors that result in breaches of 
the Parameter Breaks, FICC believes that it is important to maintain 
such discretion in order to limit the imposition of the Intraday Mark-
to-Market Charge to those Clearing Members with MTM Exposures that pose 
a significant level of risk to FICC. Such Intraday Mark-to-Market 
Charge would not reduce a Clearing Member's Required Fund Deposit below 
the amount reported at the start of day. Any increase to the Intraday 
Mark-to-Market Charge would not cause the Intraday Mark-to-Market 
Charge to be greater than two times its calculated amount.
(v) Communication With Clearing Members and Imposition of the Intraday 
Mark-to-Market Charge
    If FICC determines that FICC should collect an Intraday Mark-to-
Market Charge from a Clearing Member, FICC notifies the Clearing Member 
during the trading day of its requirement to pay the Intraday Mark-to-
Market Charge and the amount due. Affected Clearing Members are 
required to pay the amount due within one hour after FICC has provided 
the Clearing Member with notification that such payment is due (as long 
as notification is provided at least one hour prior to the close of the 
cash Fedwire operated by the Federal Reserve Bank of New York).
(vi) Proposal To Delete the End of Day Charge
    Currently, MBSD Rule 4 states that the Required Fund Deposit is 
equal to the greater of: (i) The Minimum Charge, or (ii) the End of Day 
Charge,\8\ plus the VaR Charge, the Deterministic Risk Component,\9\ 
and the special charge, if applicable. The End of Day Charge is 
comprised of the VaR Charge plus components that are identical to the 
components in the Deterministic Risk Component and is therefore 
duplicative and unnecessary. Therefore, FICC is proposing to delete the 
term and the reference to the End of Day Charge in order to help ensure 
that the MBSD Rules are accurate and clear.
---------------------------------------------------------------------------

    \8\ The ``End of Day Charge'' means with respect to each 
Clearing Member, the calculation equaling: (i) The VaR Charge; plus 
(ii) the Mark-to-Market Debit; minus (iii) the Mark-to-Market 
Credit; plus (iv) a cash obligation item debit; minus (v) a cash 
obligation item credit; plus or minus (vi) accrued principal and 
interest. See MBSD Rule 1, supra note 3.
    \9\ The ``Deterministic Risk Component'' means with respect to 
the margin portfolio of a Clearing Member, the calculation equaling: 
(i) The Mark-to-Market Debit; minus (ii) the Mark-to-Market Credit; 
plus (iii) a cash obligation item debit; minus (iv) a cash 
obligation item credit; plus or minus (v) accrued principal and 
interest. See MBSD Rule 1, supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as 
amended (the ``Act''), requires, in part, that the MBSD Rules promote 
the prompt and accurate clearance and settlement of securities 
transactions.\10\ The proposed rule changes with respect to the 
Intraday Mark-to-Market Charge would provide transparency in the MBSD 
Rules regarding the existing Intraday Mark-to-Market Charge by 
codifying FICC's current practices with respect to the assessment and 
collection of the charge. In addition, the proposed rule change 
associated with the deletion of the End of Day Charge would delete 
provisions that are not used to ensure that the MBSD Rules remain 
accurate and clear. Collectively, the proposed changes would ensure 
that the MBSD Rules remain transparent, accurate and clear, which would 
enable all stakeholders to readily understand their rights and 
obligations in connection with MBSD's clearance and settlement of 
securities transactions. Therefore, FICC believes that the 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(b)(1) under the Act requires a clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to measure its credit exposures to its 
participants at least once a day and limit its exposures to potential 
losses from defaults by its participants under normal market 
conditions, so that the operations of the clearing agency would not be 
disrupted and non-defaulting participants would not be exposed to 
losses that they

[[Page 14585]]

cannot anticipate or control.\11\ FICC's Intraday Mark-to-Market Charge 
is calculated and imposed to cover credit exposures estimated by FICC 
based on significant intraday Mark-to-Market changes to a Clearing 
Member's portfolio, as well as the Clearing Member's trailing 12-month 
backtesting results, with the goal of ensuring that FICC is not exposed 
to increased risk from large intraday Mark-to-Market changes to the 
Clearing Member's portfolio. Therefore, FICC believes that management 
of its credit exposures to Clearing Members through this charge is 
consistent with Rule 17Ad-22(b)(1) under the Act.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17Ad-22(b)(1).
---------------------------------------------------------------------------

    Rule 17Ad-22(b)(2) under the Act requires a clearing agency to 
maintain and enforce written policies and procedures reasonably 
designed to use margin requirements to limit its credit exposures to 
participants under normal market conditions.\12\ When applicable, the 
Intraday Mark-to-Market Charge is a component of a Clearing Member's 
Required Fund Deposit, or margin, and is intended to maintain coverage 
of FICC's credit exposures to such Clearing Member at a confidence 
level of at least 99 percent. The Intraday Mark-to-Market Charge 
therefore limits FICC's exposures to Clearing Members under normal 
market conditions. Moreover, by incorporating the Intraday Mark-to-
Market Charge into the MBSD Rules more clearly, the proposed change 
demonstrates that FICC has rule provisions that are reasonably designed 
to use margin requirements to limit its credit exposures to its 
Clearing Members under normal market conditions. Therefore, FICC 
believes that the proposed rule change is also consistent with Rule 
17Ad-22(b)(2) under the Act.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(b)(2).
---------------------------------------------------------------------------

    The proposed rule changes with respect to the Intraday Mark-to-
Market Charge have also been designed to be consistent with Rules 17Ad-
22(e)(4) and (e)(6) under the Act, which were recently adopted by the 
U.S. Securities and Exchange Commission (``Commission'').\13\ Rule 
17Ad-22(e)(4) will require FICC 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.\14\ The proposed rule change codifies MBSD's 
practices associated with the Intraday Mark-to-Market Charge, which 
address the identification, measurement, monitoring and management of 
credit exposures that may arise from intraday changes that occur to a 
Clearing Member's portfolio because of settlement of existing 
transactions and new trade activities. Moreover, by incorporating the 
Intraday Mark-to-Market Charge into the MBSD Rules more clearly, the 
proposed change would enable FICC to have rule provisions that are 
reasonably designed to effectively identify, measure, monitor, and 
manage its credit exposures to Clearing Members and those exposures 
arising from its payment, clearing, and settlement processes, which 
FICC believes is consistent with Rule 17Ad-22(e)(4).
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(4) and (6). The Commission adopted 
amendments to Rule 17Ad-22, including the addition of new section 
17Ad-22(e), on September 28, 2016. See Exchange Act Release No. 34-
78961 (September 28, 2016), 81 FR 70786 (October 13, 2016) (S7-03-
14). FICC is a ``covered clearing agency'' as defined in Rule 17Ad-
22(a)(5) and must comply with new section (e) of Rule 17Ad-22 by 
April 11, 2017. Id.
    \14\ 17 CFR 240.17Ad-22(e)(4).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6) will require FICC 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 is monitored by management 
on an ongoing basis and regularly reviewed, tested, and verified.\15\ 
The Intraday Mark-to-Market Charge is a risk-based margining system 
with parameters that are regularly reviewed by FICC. Therefore, FICC 
believes the proposed rule change is consistent with Rule 17Ad-
22(e)(6).
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(6).
---------------------------------------------------------------------------

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

    FICC does not believe that the proposed rule change associated with 
the Intraday Mark-to-Market Charge would impact competition.\16\ The 
proposed rule change would increase the transparency of the MBSD Rules 
with respect to this existing charge by codifying FICC's current 
practices with respect to the assessment and imposition of the charge. 
As such, FICC believes that the proposed rule change will not impact 
Clearing Members or have any impact on competition.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    FICC does not believe that the proposed rule change to delete the 
End of Day Charge would impact competition. Changes to the applicable 
provisions would not impact Clearing Members because the End of Day 
Charge is not used by MBSD in the calculation of a Clearing Member's 
Required Fund Deposit. As such, FICC believes that the deletion of 
these provisions will not impact competition.

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

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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-2017-004 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-2017-004. 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

[[Page 14586]]

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 
the filing also will be available for inspection and copying at the 
principal office of FICC and on DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-FICC-2017-004 and should be submitted on or before April 11, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05502 Filed 3-20-17; 8:45 am]
BILLING CODE 8011-01-P



                                                                                  Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices                                                   14581

                                                  be issued unless the Commission orders                    Funds 2 in excess of the limits in                     any provision of section 12(d)(1) if the
                                                  a hearing. Interested persons may                         sections 12(d)(1)(A) and (C) of the Act                exemption is consistent with the public
                                                  request a hearing by writing to the                       and (b) the Underlying Funds that are                  interest and the protection of investors.
                                                  Commission’s Secretary and serving                        registered open-end investment                         Section 17(b) of the Act authorizes the
                                                  applicants with a copy of the request,                    companies or series thereof, their                     Commission to grant an order
                                                  personally or by mail. Hearing requests                   principal underwriters and any broker                  permitting a transaction otherwise
                                                  should be received by the Commission                      or dealer registered under the Securities              prohibited by section 17(a) if it finds
                                                  by 5:30 p.m. on April 10, 2017 and                        Exchange Act of 1934 to sell shares of                 that (a) the terms of the proposed
                                                  should be accompanied by proof of                         the Underlying Fund to the Fund of                     transaction are fair and reasonable and
                                                  service on the applicants, in the form of                 Funds in excess of the limits in section               do not involve overreaching on the part
                                                  an affidavit, or, for lawyers, a certificate              12(d)(1)(B) of the Act.3 Applicants also               of any person concerned; (b) the
                                                  of service. Pursuant to Rule 0–5 under                    request an order of exemption under                    proposed transaction is consistent with
                                                  the Act, hearing requests should state                    sections 6(c) and 17(b) of the Act from                the policies of each registered
                                                  the nature of the writer’s interest, any                  the prohibition on certain affiliated                  investment company involved; and (c)
                                                  facts bearing upon the desirability of a                  transactions in section 17(a) of the Act               the proposed transaction is consistent
                                                  hearing on the matter, the reason for the                 to the extent necessary to permit the                  with the general purposes of the Act.
                                                  request, and the issues contested.                        Underlying Funds to sell their shares to,              Section 6(c) of the Act permits the
                                                  Persons who wish to be notified of a                      and redeem their shares from, the Funds                Commission to exempt any persons or
                                                  hearing may request notification by                       of Funds.4 Applicants state that such                  transactions from any provision of the
                                                  writing to the Commission’s Secretary.                    transactions will be consistent with the               Act if such exemption is necessary or
                                                  ADDRESSES: Secretary, U.S. Securities
                                                                                                            policies of each Fund of Funds and each                appropriate in the public interest and
                                                                                                            Underlying Fund and with the general                   consistent with the protection of
                                                  and Exchange Commission, 100 F Street
                                                                                                            purposes of the Act and will be based                  investors and the purposes fairly
                                                  NE., Washington, DC 20549–1090.
                                                                                                            on the net asset values of the                         intended by the policy and provisions of
                                                  Applicants: Allianz Funds Multi-
                                                                                                            Underlying Funds.                                      the Act.
                                                  Strategy Trust and Allianz Global                            2. Applicants agree that any order
                                                  Investors U.S. LLC, 1633 Broadway,                                                                                 For the Commission, by the Division of
                                                                                                            granting the requested relief will be                  Investment Management, pursuant to
                                                  New York, New York 10019; and George                      subject to the terms and conditions                    delegated authority.
                                                  B. Raine, Ropes & Gray LLP, Prudential                    stated in the application. Such terms
                                                  Tower, 800 Boylston St., Boston, MA                                                                              Eduardo A. Aleman,
                                                                                                            and conditions are designed to, among                  Assistant Secretary.
                                                  02148.                                                    other things, help prevent any potential               [FR Doc. 2017–05507 Filed 3–20–17; 8:45 am]
                                                  FOR FURTHER INFORMATION CONTACT:                          (i) undue influence over an Underlying
                                                                                                                                                                   BILLING CODE 8011–01–P
                                                  Mark N. Zaruba, Senior Counsel, at                        Fund that is not in the same ‘‘group of
                                                  (202) 551–6878, or Robert Shapiro,                        investment companies’’ as the Fund of
                                                  Branch Chief, at (202) 551–6821                           Funds through control or voting power,                 SECURITIES AND EXCHANGE
                                                  (Division of Investment Management,                       or in connection with certain services,                COMMISSION
                                                  Chief Counsel’s Office).                                  transactions, and underwritings, (ii)
                                                                                                            excessive layering of fees, and (iii)                  [Release No. 34–80253; File No. SR–FICC–
                                                  SUPPLEMENTARY INFORMATION: The                                                                                   2017–004]
                                                  following is a summary of the                             overly complex fund structures, which
                                                  application. The complete application                     are the concerns underlying the limits
                                                                                                                                                                   Self-Regulatory Organizations; Fixed
                                                  may be obtained via the Commission’s                      in sections 12(d)(1)(A), (B), and (C) of
                                                                                                                                                                   Income Clearing Corporation; Notice of
                                                  Web site by searching for the file                        the Act.
                                                                                                               3. Section 12(d)(1)(J) of the Act                   Filing and Immediate Effectiveness of
                                                  number, or for an applicant using the                                                                            a Proposed Rule Change To Describe
                                                                                                            provides that the Commission may
                                                  Company name box, at http://                                                                                     the Intraday Mark-to-Market Charge
                                                                                                            exempt any person, security, or
                                                  www.sec.gov/search/search.htm, or by
                                                                                                            transaction, or any class or classes of                March 15, 2017.
                                                  calling (202) 551–8090.
                                                                                                            persons, securities, or transactions, from                Pursuant to Section 19(b)(1) of the
                                                  Summary of the Application                                                                                       Securities Exchange Act of 1934
                                                                                                               2 Certain of the Underlying Funds have obtained
                                                    1. Applicants request an order to                                                                              (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                            exemptions from the Commission necessary to
                                                  permit (a) a Fund 1 (each a ‘‘Fund of                     permit their shares to be listed and traded on a       notice is hereby given that on March 7,
                                                  Funds’’) to acquire shares of Underlying                  national securities exchange at negotiated prices      2017, Fixed Income Clearing
                                                                                                            and, accordingly, to operate as an exchange-traded     Corporation (‘‘FICC’’) filed with the
                                                                                                            fund (‘‘ETF’’).                                        Securities and Exchange Commission
                                                     1 Applicants request that the order apply to each         3 Applicants do not request relief for Funds of
                                                  existing and future series of the Trust and to each       Funds to invest in reliance on the order in business   (‘‘Commission’’) the proposed rule
                                                  existing and future registered open-end investment        development companies and registered closed-end        change as described in Items I, II and III
                                                  company or series thereof that is advised by the          investment companies that are not listed and traded    below, which Items have been prepared
                                                  Applying Manager or its successor or by any other         on a national securities exchange.
                                                  investment adviser controlling, controlled by or             4 A Fund of Funds generally would purchase and
                                                                                                                                                                   by the clearing agency. The Commission
                                                  under common control with the Applying Manager            sell shares of an Underlying Fund that operates as
                                                                                                                                                                   is publishing this notice to solicit
                                                  or its successor and is part of the same ‘‘group of       an ETF through secondary market transactions           comments on the proposed rule change
                                                  investment companies’’ as the Trust (each, a              rather than through principal transactions with the    from interested persons.
                                                  ‘‘Fund’’). For purposes of the requested order,           Underlying Fund. Applicants nevertheless request
                                                  ‘‘successor’’ is limited to an entity that results from   relief from section 17(a) to permit a Fund of Funds    I. Clearing Agency’s Statement of the
mstockstill on DSK3G9T082PROD with NOTICES




                                                  a reorganization into another jurisdiction or a           to purchase or redeem shares from the ETF. A Fund      Terms of Substance of the Proposed
                                                  change in the type of business organization. For          of Funds will purchase and sell shares of an
                                                  purposes of the request for relief, the term ‘‘group      Underlying Fund that is a closed-end fund through
                                                                                                                                                                   Rule Change
                                                  of investment companies’’ means any two or more           secondary market transactions at market prices            The proposed rule change consists of
                                                  registered investment companies, including closed-        rather than through principal transactions with the
                                                  end investment companies and business
                                                                                                                                                                   amendments to the Mortgage-Backed
                                                                                                            closed-end fund. Accordingly, applicants are not
                                                  development companies, that hold themselves out           requesting section 17(a) relief with respect to
                                                                                                                                                                     1 15   U.S.C. 78s(b)(1).
                                                  to investors as related companies for purposes of         transactions in shares of closed-end funds
                                                  investment and investor services.                         (including business development companies).              2 17   CFR 240.19b–4.



                                             VerDate Sep<11>2014    16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00081   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM       21MRN1


                                                  14582                         Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices

                                                  Securities Division (‘‘MBSD’’) Clearing                 (A) Clearing Agency’s Statement of the                which is designed to mitigate the risk
                                                  Rules (‘‘MBSD Rules’’) 3 in order to                    Purpose of, and Statutory Basis for, the              arising out of the value change between
                                                  provide transparency in the MBSD                        Proposed Rule Change                                  the contract/settlement value of a
                                                  Rules with respect to the existing                                                                            Clearing Member’s open positions and
                                                                                                          1. Purpose
                                                  intraday Mark-to-Market charge by                                                                             the market value at the end of the prior
                                                  codifying FICC’s current practices with                    The proposed rule change would                     day.
                                                                                                          provide transparency in the MBSD
                                                  respect to the assessment and collection                                                                      (ii) Overview—The Intraday Mark-to-
                                                                                                          Rules with respect to the assessment
                                                  of the intraday Mark-to-Market charge.4                                                                       Market Charge
                                                                                                          and collection of the existing Intraday
                                                  This charge is imposed on certain                       Mark-to-Market Charge, which FICC                        During each trading day, a Clearing
                                                  Clearing Members that experience an                     currently may impose on a Clearing                    Member’s exposure may change due to
                                                  adverse intraday Mark-to-Market change                  Member on an intraday basis under                     the settlement of existing transactions
                                                  that meets certain criteria described                   certain circumstances described below.                and new trade activities. In addition, the
                                                  below. The charge is designed to                        Once imposed, payment of this charge                  value of the Clearing Member’s portfolio
                                                  mitigate FICC’s exposure resulting from                 is due within one hour after notice from              may change due to market influences.
                                                  large intraday Mark-to-Market                           FICC to an affected Clearing Member.5                 Normally, the start-of-day Mark-to-
                                                  fluctuations to Clearing Members’                       The proposed rule change would also                   Market component of the daily Required
                                                  portfolios that are not otherwise covered               eliminate references to the End of Day                Fund Deposit covers FICC’s exposure to
                                                  by Clearing Members’ Required Fund                      Charge from the MBSD Rules.                           a Clearing Member due to market moves
                                                  Deposits.                                                                                                     and/or trading and settlement activity
                                                                                                          (i) Background—The Required Fund
                                                     In order to provide transparency with                                                                      because it brings the portfolio of
                                                                                                          Deposit and Mark-to-Market
                                                                                                                                                                outstanding positions up to the market
                                                  respect to the existing intraday Mark-to-                  The Required Fund Deposit serves as                value at the end of the prior day.
                                                  Market charge by codifying FICC’s                       each Clearing Member’s margin. The                    However, because the start-of-day Mark-
                                                  existing practices with respect to the                  objective of the Required Fund Deposit                to-Market component of the Required
                                                  charge, FICC is proposing to amend                      is to mitigate potential losses to FICC               Fund Deposit is calculated only once
                                                  MBSD Rule 1 (Definitions) to add the                    associated with liquidation of the                    daily using the prior end-of-day
                                                  defined term ‘‘Intraday Mark-to-Market                  Clearing Member’s portfolio in the event              positions and prices, it does not cover
                                                  Charge’’ and to amend Section 2(c) of                   that FICC ceases to act for a Clearing                a Clearing Member’s exposure arising
                                                  MBSD Rule 4 (Clearing Fund and Loss                     Member (hereinafter referred to as a                  out of intraday changes to position and
                                                  Allocation) to include the Intraday                     ‘‘default’’). FICC determines Required                market value in the Clearing Member’s
                                                  Mark-to-Market Charge.                                  Fund Deposit amounts using a number                   portfolio that result in an adverse
                                                     In addition, the proposed rule change                of component charges calculated and                   change to the Clearing Member’s Mark-
                                                                                                          assessed daily, the largest of which is               to-Market (‘‘MTM Exposure’’). FICC
                                                  would delete the term ‘‘End of Day
                                                                                                          the VaR Charge that is a risk-based                   manages this intraday risk exposure by
                                                  Charge’’ from the MBSD Rules because
                                                                                                          margin methodology intended to                        observing snapshots of Clearing
                                                  it is no longer used, as further discussed              capture market price risk. The                        Members’ portfolios and monitoring
                                                  below. To effectuate this change, the                   methodology uses historical market                    intraday changes to each Clearing
                                                  proposed rule change would delete the                   moves to project or forecast the                      Member’s Mark-to-Market versus the
                                                  definition of End of Day Charge from                    potential gains or losses on the                      Mark-to-Market that was part of the
                                                  Rule 1 (Definitions) and would amend                    liquidation of a defaulting Clearing                  Required Fund Deposit at the start of the
                                                  Section 2 of MBSD Rule 4 (Clearing                      Member’s portfolio, assuming that a                   day or, if applicable, any subsequently
                                                  Fund and Loss Allocation) to delete the                 portfolio would take three days to                    collected Mark-to-Market amount. FICC
                                                  reference to the End of Day Charge.                     liquidate or hedge in normal market                   then collects an Intraday Mark-to-
                                                  II. Clearing Agency’s Statement of the                  conditions. The projected liquidation                 Market Charge from Clearing Members
                                                                                                          gains or losses are used to determine the             to cover significant risk exposures that
                                                  Purpose of, and Statutory Basis for, the
                                                                                                          Clearing Member’s VaR Charge, which                   warrant the collection of intraday
                                                  Proposed Rule Change
                                                                                                          is calculated to cover projected                      margin, as further described below.
                                                    In its filing with the Commission, the                liquidation losses at a 99 percent
                                                                                                                                                                (iii) The Parameter Breaks
                                                  clearing agency included statements                     confidence level. The aggregate of all
                                                  concerning the purpose of and basis for                 Clearing Members’ Required Fund                          FICC’s current practice with respect to
                                                                                                          Deposits constitutes the Clearing Fund                the assessment of the Intraday Mark-to-
                                                  the proposed rule change and discussed
                                                                                                          of MBSD, which FICC would be able to                  Market Charge entails tracking three
                                                  any comments it received on the
                                                                                                          access in the event a defaulting Clearing             criteria (each, a ‘‘Parameter Break’’) for
                                                  proposed rule change. The text of these                                                                       each Clearing Member. The Parameter
                                                                                                          Member’s own Required Fund Deposit
                                                  statements may be examined at the                                                                             Breaks help FICC determine whether a
                                                                                                          is insufficient to satisfy losses to FICC
                                                  places specified in Item IV below. The                                                                        Clearing Member’s MTM Exposure
                                                                                                          caused by the liquidation of that
                                                  clearing agency has prepared                                                                                  poses a risk to FICC that is significant
                                                                                                          Clearing Member’s portfolio.
                                                  summaries, set forth in sections A, B,                     MBSD calculates the full suite of                  enough to warrant an Intraday Mark-to-
                                                  and C below, of the most significant                    components that comprise the Required                 Market Charge. The objective of the
                                                  aspects of such statements.                             Fund Deposit and imposes the Required                 Parameter Breaks is to ensure that FICC
                                                                                                          Fund Deposit once per day, at the start               is able to limit exposure to intraday
mstockstill on DSK3G9T082PROD with NOTICES




                                                    3 The MBSD Rules are available at http://
                                                                                                          of the day, based on a Clearing                       Mark-to-Market fluctuations that (a) are
                                                  www.dtcc.com/legal/rules-and-procedures.                Member’s prior end-of-day positions.                  of a large dollar amount (the ‘‘Dollar
                                                  Capitalized terms used herein and not otherwise
                                                                                                          Generally, the second largest component               Threshold’’), (b) exhaust a significant
                                                  defined shall have the meaning assigned to such
                                                  terms in the MBSD Rules.                                of the daily Required Fund Deposit is a               portion of a Clearing Member’s VaR
                                                    4 The intraday Mark-to-Market charge is currently     start-of-day Mark-to-Market amount,                   Charge (the ‘‘Percentage Threshold’’)
                                                  described in Section 2(a) of Rule 4 of the MBSD                                                               and (c) are experienced by Clearing
                                                  Rules.                                                    5 MBSD   Rule 4, Section 2.                         Members with backtesting deficiencies


                                             VerDate Sep<11>2014   16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00082   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1


                                                                                Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices                                                    14583

                                                  that bring backtesting results for that                 because the coverage provided by the                  Required Fund Deposit. FICC compares
                                                  Clearing Member below the 99 percent                    VaR Charge, which is designed to cover                the Required Fund Deposit for each
                                                  confidence target (the ‘‘Coverage                       estimated losses to a portfolio over a                Clearing Member with the simulated
                                                  Target’’), indicating that a Clearing                   specified time period at least 99 percent             liquidation gains/losses using the actual
                                                  Member’s activity was not sufficiently                  of the time, would be depleted by a                   positions in the Clearing Member’s
                                                  covered by margin.                                      significant MTM Exposure that could                   portfolio and the actual historical
                                                                                                          cause the Clearing Member’s Required                  security returns. FICC investigates the
                                                  1. The Dollar Threshold
                                                                                                          Fund Deposit to be unable to absorb                   cause(s) of any deficiencies. As a part of
                                                     The purpose of the Dollar Threshold                  further intraday losses to the Clearing               this process, FICC pays particular
                                                  is to identify those Clearing Members                   Member’s portfolio. The Percentage                    attention to deficiencies that cause a
                                                  whose MTM Exposures represent a large                   Threshold is designed to provide FICC                 Clearing Member’s backtesting coverage
                                                  portion of the Clearing Fund. FICC                      with a reasonable cushion to allow the                to fall below the Coverage Target. Such
                                                  believes that such Clearing Members                     VaR Charge collected at the start of day              deficiencies are evidence that the model
                                                  pose an increased risk of loss to FICC                  to function as expected. More                         used to calculate the Clearing Member’s
                                                  because the coverage provided by the                    specifically, the VaR Charge is designed              Required Fund Deposit did not calculate
                                                  Clearing Fund, which is designed to                     to cover potential losses over a three-               an amount sufficient to cover the
                                                  cover the aggregate losses of all Clearing              day time period for a Clearing Member                 Clearing Member’s risk to FICC, as
                                                  Members’ portfolios, would be                           at least 99 percent of the time, assuming             would otherwise be expected of the
                                                  substantially impacted by large MTM                     normal market conditions. When a                      Required Fund Deposit. The Coverage
                                                  Exposures. More specifically, if a                      Clearing Member’s MTM Exposure                        Target is designed to provide coverage
                                                  Clearing Member were to default and                     meets or exceeds a certain percentage as              to FICC for intraday Mark-to-Market
                                                  the Clearing Member’s Required Fund                     compared to its daily VaR Charge, the                 fluctuations in the portfolio of a
                                                  Deposit was not sufficient to satisfy                   value of the Clearing Member’s portfolio              Clearing Member for whom the
                                                  losses to FICC caused by the liquidation                is trending towards a loss outside of the             Required Fund Deposit model is not
                                                  of the Clearing Member’s portfolio, FICC                expected value as determined by such                  performing as expected. FICC believes
                                                  would be able to access the funds held                  VaR Charge. The Percentage Threshold                  that a MTM Exposure for Clearing
                                                  by it in the Clearing Fund to satisfy such              is calculated to equal a percentage of the            Members that fall below the Coverage
                                                  losses. However, because the Clearing                   daily VaR Charge that FICC has                        Target may expose FICC to heightened
                                                  Fund must be available to satisfy                       determined would leave it with a                      risk, requiring an Intraday Mark-to-
                                                  potential losses to FICC that may arise                 sufficient amount of a Clearing                       Market Charge to cover that risk.
                                                  from any Clearing Member defaults,                      Member’s remaining VaR Charge after
                                                  FICC would be exposed to a significant                                                                        (iv) Assessment and Collection of the
                                                                                                          accounting for potential losses arising
                                                  risk of loss if Clearing Members’ MTM                                                                         Intraday Mark-to-Market Charge
                                                                                                          from the Clearing Member’s MTM
                                                  Exposures accounted for a substantial                   Exposure. FICC assesses the sufficiency                  FICC’s current practice is to review
                                                  portion of the Clearing Fund. The Dollar                of the Percentage Threshold on an                     intraday snapshots of each Clearing
                                                  Threshold is set to an amount that                      annual basis and may adjust the                       Member’s portfolios to determine
                                                  would ensure that the aggregate MTM                     Percentage Threshold if it determines                 whether the Clearing Member has
                                                  Exposures of all of its Clearing Members                that such an adjustment is necessary to               experienced a MTM Exposure that
                                                  at such threshold would not exceed 5                    provide reasonable coverage.6 Currently,              warrants FICC assessing an Intraday
                                                  percent of the Clearing Fund. FICC                      the Percentage Threshold is an adverse                Mark-to-Market Charge. More
                                                  believes that the availability of 95                    intraday Mark-to-Market change in a                   specifically, if a Clearing Member’s
                                                  percent of the Clearing Fund to satisfy                 Clearing Member’s portfolio that equals               MTM Exposure breaches all three
                                                  all other liquidation losses arising out of             or exceeds 30 percent of the VaR Charge               Parameter Breaks, the Clearing Member
                                                  a Clearing Member’s default is sufficient               collected as part of the Clearing                     will be subject to the Intraday Mark-to-
                                                  to mitigate the risks posed to FICC by                  Member’s daily Required Fund Deposit.                 Market Charge and FICC will collect the
                                                  such losses. FICC assesses the                                                                                charge subject to waivers or changes to
                                                  sufficiency of the Dollar Threshold on                  3. The Coverage Target
                                                                                                                                                                the amount of the calculated charge, as
                                                  an annual basis and may adjust the                         The purpose of the Coverage Target is              described below. However, where FICC
                                                  Dollar Threshold if it determines that                  to identify those Clearing Members that               determines that certain market
                                                  such an adjustment is necessary to                      have experienced backtesting                          conditions exist, including but not
                                                  provide reasonable coverage. Currently,                 deficiencies that bring the results for               limited to (i) sudden swings in an equity
                                                  the Dollar Threshold is an adverse                      that Clearing Member below the 99                     index in either direction that exceed
                                                  intraday Mark-to-Market change in a                     percent confidence target (i.e., greater              certain threshold amounts determined
                                                  Clearing Member’s portfolio that equals                 than two deficiency days in a rolling 12-             by FICC and (ii) moves in U.S. Treasury
                                                  or exceeds $1,000,000 when compared                     month period) as reported in the most                 yields and mortgage-backed security
                                                  to the Clearing Member’s start-of-day                   current month. FICC believes that such                spreads outside of historically observed
                                                  Mark-to-Market requirement including,                   Clearing Members pose an increased                    market moves, FICC does not require
                                                  if applicable, any subsequently                         risk of loss to FICC because such                     that the Coverage Target be breached;
                                                  collected Mark-to-Market amount.                        backtesting deficiencies demonstrate                  rather, FICC imposes the Intraday Mark-
                                                                                                          that FICC’s risk-based margin model did               to-Market Charge if only the Dollar
                                                  2. The Percentage Threshold                             not perform as expected for the Clearing              Threshold and Percentage Threshold are
                                                     The purpose of the Percentage                        Member. More specifically, FICC
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                                                                                breached,7 subject to waivers and
                                                  Threshold is to identify those Clearing                 employs daily backtesting to determine
                                                  Members whose MTM Exposures                             the adequacy of each Clearing Member’s                  7 FICC has determined that, because a Clearing

                                                  deplete a significant portion of such                                                                         Member’s backtesting coverage may not accurately
                                                  Clearing Members’ daily VaR Charge.                        6 In 2014, FICC lowered the Percentage Threshold   reflect the risks posed by a Clearing Member under
                                                                                                          from 40 percent to 30 percent of the VaR Charge       certain market conditions, Clearing Members with
                                                  FICC believes that Clearing Members                     after conducting a study that determined that a       backtesting coverage that meets or exceeds the
                                                  that experience such MTM Exposures                      Percentage Threshold of 40 percent did not provide    Coverage Target may nonetheless pose increased
                                                  pose an increased risk of loss to FICC                  a sufficient cushion against potential losses.                                                  Continued




                                             VerDate Sep<11>2014   16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00083   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1


                                                  14584                         Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices

                                                  changes to the amount of the calculated                 the conditions described above, FICC                  VaR Charge, the Deterministic Risk
                                                  charge, as described below. Moreover,                   retains the discretion to waive or alter              Component,9 and the special charge, if
                                                  during such market conditions, the                      such Intraday Mark-to-Market Charge in                applicable. The End of Day Charge is
                                                  Dollar Threshold and Percentage                         circumstances where it determines that                comprised of the VaR Charge plus
                                                  Threshold may be reduced if FICC                        the MTM Exposure and/or the breaches                  components that are identical to the
                                                  determines that such reduction is                       of the Parameter Breaks do not                        components in the Deterministic Risk
                                                  appropriate in order to accelerate                      accurately reflect FICC’s risk exposure               Component and is therefore duplicative
                                                  collection of anticipated additional                    to the Clearing Member’s intraday Mark-               and unnecessary. Therefore, FICC is
                                                  margin from Clearing Members whose                      to-Market fluctuation (e.g., a Clearing               proposing to delete the term and the
                                                  portfolios may present relatively greater               Member’s breach of the Coverage Target                reference to the End of Day Charge in
                                                  risks to FICC on an overnight basis. Any                Parameter Break is based on a shortened               order to help ensure that the MBSD
                                                  such reduction would not cause the                      backtesting look-back period and large                Rules are accurate and clear.
                                                  Dollar Threshold to be less than                        Mark-to-Market fluctuations arising out
                                                  $250,000 and the Percentage Threshold                   of trade errors). Based on FICC’s                     2. Statutory Basis
                                                  to be less than 5 percent.                              assessment of the impact of these                        Section 17A(b)(3)(F) of the Securities
                                                     Irrespective of market conditions,                   circumstances and FICC’s actual risk                  Exchange Act of 1934, as amended (the
                                                  FICC may impose the Intraday Mark-to-                   exposure to a Clearing Member, FICC                   ‘‘Act’’), requires, in part, that the MBSD
                                                  Market Charge on Clearing Members                       may, in its discretion, waive or alter                Rules promote the prompt and accurate
                                                  that (i) are approaching but have not yet               (decrease or increase) an Intraday Mark-              clearance and settlement of securities
                                                  breached the Percentage Threshold (but                  to-Market Charge for a Clearing Member.               transactions.10 The proposed rule
                                                  are at 20 percent or greater of the daily               Given the variability of the factors that             changes with respect to the Intraday
                                                  VaR Charge) and (ii) have a MTM                         result in breaches of the Parameter                   Mark-to-Market Charge would provide
                                                  Exposure that exceeds a certain dollar                  Breaks, FICC believes that it is                      transparency in the MBSD Rules
                                                  amount (‘‘Surveillance Threshold’’) that                important to maintain such discretion in              regarding the existing Intraday Mark-to-
                                                  is set by FICC per Clearing Member                      order to limit the imposition of the                  Market Charge by codifying FICC’s
                                                  based on the Clearing Member’s internal                 Intraday Mark-to-Market Charge to those               current practices with respect to the
                                                  Credit Risk Rating Matrix (‘‘CRRM’’)                    Clearing Members with MTM Exposures                   assessment and collection of the charge.
                                                  rating and/or the Clearing Member’s                     that pose a significant level of risk to              In addition, the proposed rule change
                                                  Watch List status, if the Corporation                   FICC. Such Intraday Mark-to-Market                    associated with the deletion of the End
                                                  determines that the size of such Clearing               Charge would not reduce a Clearing                    of Day Charge would delete provisions
                                                  Member’s Mark-to-Market change                          Member’s Required Fund Deposit below                  that are not used to ensure that the
                                                  exposes the Corporation to increased                    the amount reported at the start of day.              MBSD Rules remain accurate and clear.
                                                  risk. FICC links the Surveillance                       Any increase to the Intraday Mark-to-                 Collectively, the proposed changes
                                                  Thresholds to a Clearing Member’s                       Market Charge would not cause the                     would ensure that the MBSD Rules
                                                  CRRM rating and Watch List status                       Intraday Mark-to-Market Charge to be                  remain transparent, accurate and clear,
                                                  because a Clearing Member with a                        greater than two times its calculated                 which would enable all stakeholders to
                                                  weaker internal rating is likely to pose                amount.                                               readily understand their rights and
                                                  a greater risk of default. Clearing                                                                           obligations in connection with MBSD’s
                                                  Members with weaker internal credit                     (v) Communication With Clearing
                                                                                                          Members and Imposition of the Intraday                clearance and settlement of securities
                                                  ratings are assigned lower Surveillance                                                                       transactions. Therefore, FICC believes
                                                  Thresholds than Clearing Members with                   Mark-to-Market Charge
                                                                                                                                                                that the proposed rule changes would
                                                  stronger internal credit ratings. The                      If FICC determines that FICC should                promote the prompt and accurate
                                                  Surveillance Thresholds are intended as                 collect an Intraday Mark-to-Market                    clearance and settlement of securities
                                                  a tool to aid FICC in identifying Clearing              Charge from a Clearing Member, FICC                   transactions, consistent with Section
                                                  Members whose MTM Exposures may                         notifies the Clearing Member during the               17A(b)(3)(F) of the Act.
                                                  necessitate the collection of an Intraday               trading day of its requirement to pay the                Rule 17Ad–22(b)(1) under the Act
                                                  Mark-to-Market Charge. The current                      Intraday Mark-to-Market Charge and the                requires a clearing agency to establish,
                                                  Surveillance Thresholds are: (a) $50                    amount due. Affected Clearing Members                 implement, maintain and enforce
                                                  million for Clearing Members with a                     are required to pay the amount due                    written policies and procedures
                                                  CRRM rating of ‘‘1’’ or ‘‘2’’ and for non-              within one hour after FICC has provided               reasonably designed to measure its
                                                  rated Clearing Members that are not on                  the Clearing Member with notification                 credit exposures to its participants at
                                                  the Watch List; (b) $25 million for                     that such payment is due (as long as                  least once a day and limit its exposures
                                                  Clearing Members with a CRRM rating                     notification is provided at least one                 to potential losses from defaults by its
                                                  of ‘‘3’’; (c) $15 million for Clearing                  hour prior to the close of the cash                   participants under normal market
                                                  Members with a CRRM rating of ‘‘4’’; (d)                Fedwire operated by the Federal                       conditions, so that the operations of the
                                                  $10 million for Clearing Members with                   Reserve Bank of New York).                            clearing agency would not be disrupted
                                                  a CRRM rating of ‘‘5’’ or ‘‘6’’ and for
                                                                                                          (vi) Proposal To Delete the End of Day                and non-defaulting participants would
                                                  non-rated Clearing Members that are on
                                                                                                          Charge                                                not be exposed to losses that they
                                                  the Watch List; and (e) $5 million for
                                                  Clearing Members with a CRRM rating                       Currently, MBSD Rule 4 states that
                                                  of ‘‘7.’’                                               the Required Fund Deposit is equal to                 principal and interest. See MBSD Rule 1, supra note
                                                                                                                                                                3.
                                                     Although FICC generally collects the
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                          the greater of: (i) The Minimum Charge,                  9 The ‘‘Deterministic Risk Component’’ means
                                                  Intraday Mark-to-Market Charge under                    or (ii) the End of Day Charge,8 plus the              with respect to the margin portfolio of a Clearing
                                                                                                                                                                Member, the calculation equaling: (i) The Mark-to-
                                                  risk to FICC. Therefore, FICC imposes the Intraday        8 The ‘‘End of Day Charge’’ means with respect to   Market Debit; minus (ii) the Mark-to-Market Credit;
                                                  Mark-to-Market Charge on Clearing Members that          each Clearing Member, the calculation equaling: (i)   plus (iii) a cash obligation item debit; minus (iv) a
                                                  breach the Dollar Threshold and Percentage              The VaR Charge; plus (ii) the Mark-to-Market Debit;   cash obligation item credit; plus or minus (v)
                                                  Threshold, despite the fact that such Members may       minus (iii) the Mark-to-Market Credit; plus (iv) a    accrued principal and interest. See MBSD Rule 1,
                                                  not have breached the Coverage Target during            cash obligation item debit; minus (v) a cash          supra note 3.
                                                  certain market conditions.                              obligation item credit; plus or minus (vi) accrued       10 15 U.S.C. 78q–1(b)(3)(F).




                                             VerDate Sep<11>2014   16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00084   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1


                                                                                Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices                                            14585

                                                  cannot anticipate or control.11 FICC’s                  its credit exposures to participants and              deletion of these provisions will not
                                                  Intraday Mark-to-Market Charge is                       those exposures arising from its                      impact competition.
                                                  calculated and imposed to cover credit                  payment, clearing, and settlement
                                                                                                                                                                (C) Clearing Agency’s Statement on
                                                  exposures estimated by FICC based on                    processes.14 The proposed rule change
                                                                                                                                                                Comments on the Proposed Rule
                                                  significant intraday Mark-to-Market                     codifies MBSD’s practices associated
                                                                                                                                                                Change Received From Members,
                                                  changes to a Clearing Member’s                          with the Intraday Mark-to-Market
                                                  portfolio, as well as the Clearing                      Charge, which address the                             Participants, or Others
                                                  Member’s trailing 12-month backtesting                  identification, measurement, monitoring                 FICC has not received any written
                                                  results, with the goal of ensuring that                 and management of credit exposures                    comments relating to this proposal.
                                                  FICC is not exposed to increased risk                   that may arise from intraday changes                  FICC will notify the Commission of any
                                                  from large intraday Mark-to-Market                      that occur to a Clearing Member’s                     written comments received.
                                                  changes to the Clearing Member’s                        portfolio because of settlement of                    III. Date of Effectiveness of the
                                                  portfolio. Therefore, FICC believes that                existing transactions and new trade                   Proposed Rule Change, and Timing for
                                                  management of its credit exposures to                   activities. Moreover, by incorporating                Commission Action
                                                  Clearing Members through this charge is                 the Intraday Mark-to-Market Charge into
                                                  consistent with Rule 17Ad–22(b)(1)                      the MBSD Rules more clearly, the                         The foregoing rule change has become
                                                  under the Act.                                          proposed change would enable FICC to                  effective pursuant to Section 19(b)(3)(A)
                                                     Rule 17Ad–22(b)(2) under the Act                     have rule provisions that are reasonably              of the Act and paragraph (f) of Rule
                                                  requires a clearing agency to maintain                  designed to effectively identify,                     19b–4 thereunder. At any time within
                                                  and enforce written policies and                        measure, monitor, and manage its credit               60 days of the filing of the proposed rule
                                                  procedures reasonably designed to use                   exposures to Clearing Members and                     change, the Commission summarily may
                                                  margin requirements to limit its credit                 those exposures arising from its                      temporarily suspend such rule change if
                                                  exposures to participants under normal                  payment, clearing, and settlement                     it appears to the Commission that such
                                                  market conditions.12 When applicable,                   processes, which FICC believes is                     action is necessary or appropriate in the
                                                  the Intraday Mark-to-Market Charge is a                 consistent with Rule 17Ad–22(e)(4).                   public interest, for the protection of
                                                  component of a Clearing Member’s                           Rule 17Ad–22(e)(6) will require FICC               investors, or otherwise in furtherance of
                                                  Required Fund Deposit, or margin, and                   to establish, implement, maintain and                 the purposes of the Act.
                                                  is intended to maintain coverage of                     enforce written policies and procedures               IV. Solicitation of Comments
                                                  FICC’s credit exposures to such Clearing                reasonably designed to cover its credit
                                                  Member at a confidence level of at least                exposures to its participants by                        Interested persons are invited to
                                                  99 percent. The Intraday Mark-to-                       establishing a risk-based margin system               submit written data, views and
                                                  Market Charge therefore limits FICC’s                   that is monitored by management on an                 arguments concerning the foregoing,
                                                  exposures to Clearing Members under                     ongoing basis and regularly reviewed,                 including whether the proposed rule
                                                  normal market conditions. Moreover, by                  tested, and verified.15 The Intraday                  change is consistent with the Act.
                                                  incorporating the Intraday Mark-to-                     Mark-to-Market Charge is a risk-based                 Comments may be submitted by any of
                                                  Market Charge into the MBSD Rules                       margining system with parameters that                 the following methods:
                                                  more clearly, the proposed change                       are regularly reviewed by FICC.                       Electronic Comments
                                                  demonstrates that FICC has rule                         Therefore, FICC believes the proposed
                                                  provisions that are reasonably designed                 rule change is consistent with Rule                     • Use the Commission’s Internet
                                                  to use margin requirements to limit its                 17Ad–22(e)(6).                                        comment form (http://www.sec.gov/
                                                  credit exposures to its Clearing                                                                              rules/sro.shtml); or
                                                  Members under normal market                             (B) Clearing Agency’s Statement on                      • Send an email to rule-comments@
                                                  conditions. Therefore, FICC believes                    Burden on Competition                                 sec.gov. Please include File Number SR–
                                                  that the proposed rule change is also                      FICC does not believe that the                     FICC–2017–004 on the subject line.
                                                  consistent with Rule 17Ad–22(b)(2)                      proposed rule change associated with                  Paper Comments
                                                  under the Act.                                          the Intraday Mark-to-Market Charge
                                                     The proposed rule changes with                                                                               • Send paper comments in triplicate
                                                                                                          would impact competition.16 The
                                                  respect to the Intraday Mark-to-Market                                                                        to Secretary, Securities and Exchange
                                                                                                          proposed rule change would increase
                                                  Charge have also been designed to be                                                                          Commission, 100 F Street NE.,
                                                                                                          the transparency of the MBSD Rules
                                                  consistent with Rules 17Ad–22(e)(4)                                                                           Washington, DC 20549.
                                                                                                          with respect to this existing charge by
                                                  and (e)(6) under the Act, which were                    codifying FICC’s current practices with               All submissions should refer to File
                                                  recently adopted by the U.S. Securities                 respect to the assessment and                         Number SR–FICC–2017–004. This file
                                                  and Exchange Commission                                 imposition of the charge. As such, FICC               number should be included on the
                                                  (‘‘Commission’’).13 Rule 17Ad–22(e)(4)                  believes that the proposed rule change                subject line if email is used. To help the
                                                  will require FICC to establish,                         will not impact Clearing Members or                   Commission process and review your
                                                  implement, maintain and enforce                         have any impact on competition.                       comments more efficiently, please use
                                                  written policies and procedures                            FICC does not believe that the                     only one method. The Commission will
                                                  reasonably designed to effectively                      proposed rule change to delete the End                post all comments on the Commission’s
                                                  identify, measure, monitor, and manage                  of Day Charge would impact                            Internet Web site (http://www.sec.gov/
                                                                                                          competition. Changes to the applicable                rules/sro.shtml). Copies of the
                                                    11 17  CFR 240.17Ad–22(b)(1).                         provisions would not impact Clearing                  submission, all subsequent
                                                    12 17  CFR 240.17Ad–22(b)(2).                                                                               amendments, all written statements
mstockstill on DSK3G9T082PROD with NOTICES




                                                     13 17 CFR 240.17Ad–22(e)(4) and (6). The
                                                                                                          Members because the End of Day Charge
                                                                                                          is not used by MBSD in the calculation                with respect to the proposed rule
                                                  Commission adopted amendments to Rule 17Ad–
                                                  22, including the addition of new section 17Ad–         of a Clearing Member’s Required Fund                  change that are filed with the
                                                  22(e), on September 28, 2016. See Exchange Act          Deposit. As such, FICC believes that the              Commission, and all written
                                                  Release No. 34–78961 (September 28, 2016), 81 FR                                                              communications relating to the
                                                  70786 (October 13, 2016) (S7–03–14). FICC is a                                                                proposed rule change between the
                                                                                                            14 17 CFR 240.17Ad–22(e)(4).
                                                  ‘‘covered clearing agency’’ as defined in Rule
                                                  17Ad–22(a)(5) and must comply with new section            15 17 CFR 240.17Ad–22(e)(6).                        Commission and any person, other than
                                                  (e) of Rule 17Ad–22 by April 11, 2017. Id.                16 15 U.S.C. 78q–1(b)(3)(I).                        those that may be withheld from the


                                             VerDate Sep<11>2014   16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00085   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM   21MRN1


                                                  14586                          Federal Register / Vol. 82, No. 53 / Tuesday, March 21, 2017 / Notices

                                                  public in accordance with the                           Priority Customer complex order rebate                    Customer complex orders in the
                                                  provisions of 5 U.S.C. 552, will be                     for orders in the NASDAQ 100 Index                        complex order book or trade with quotes
                                                  available for Web site viewing and                      option (‘‘NDX’’) and in the Mini Nasdaq                   and orders on the regular order book.6
                                                  printing in the Commission’s Public                     100 Index option (‘‘MNX’’); (ii) increase                 Rebates are tiered based on a member’s
                                                  Reference Room, 100 F Street NE.,                       the Non-Priority Customer License                         ADV executed during a given month as
                                                  Washington, DC 20549 on official                        Surcharge for Index Options for NDX                       follows: 0 to 14,999 contracts (‘‘Tier 1’’),
                                                  business days between the hours of                      and MNX options, and (iii) waive the                      15,000 to 44,999 contracts (‘‘Tier 2’’),
                                                  10:00 a.m. and 3:00 p.m. Copies of the                  Marketing Fees for NDX and MNX, as                        45,000 to 59,999 contracts (‘‘Tier 3’’),
                                                  filing also will be available for                       described further below.                                  60,000 to 74,999 contracts (‘‘Tier 4’’),
                                                  inspection and copying at the principal                    The text of the proposed rule change                   75,000 to 99,999 contracts (‘‘Tier 5’’),
                                                  office of FICC and on DTCC’s Web site                   is available on the Exchange’s Web site                   100,000 to 124,999 contracts (‘‘Tier 6’’),
                                                  (http://dtcc.com/legal/sec-rule-                        at www.ise.com, at the principal office                   125,000 to 224,999 contracts (‘‘Tier 7’’),
                                                  filings.aspx). All comments received                    of the Exchange, and at the                               and 225,000 or more contracts (‘‘Tier
                                                  will be posted without change; the                      Commission’s Public Reference Room.                       8’’). In Non-Select Symbols,7 including
                                                  Commission does not edit personal                       II. Self-Regulatory Organization’s                        NDX and MNX, the rebate is $0.40 per
                                                  identifying information from                            Statement of the Purpose of, and                          contract for Tier 1, $0.60 per contract for
                                                  submissions. You should submit only                     Statutory Basis for, the Proposed Rule                    Tier 2, $0.70 per contract for Tier 3,
                                                  information that you wish to make                       Change                                                    $0.75 per contract for Tier 4, $0.75 per
                                                  available publicly. All submissions                                                                               contract for Tier 5, $0.80 per contract for
                                                  should refer to File Number SR–FICC–                       In its filing with the Commission, the                 Tier 6, $0.81 per contract for Tier 7, and
                                                  2017–004 and should be submitted on                     Exchange included statements                              $0.85 per contract for Tier 8. The
                                                  or before April 11, 2017.                               concerning the purpose of and basis for                   Exchange now proposes to add note 4 to
                                                                                                          the proposed rule change and discussed                    Section II of the Schedule of Fees to
                                                    For the Commission, by the Division of
                                                  Trading and Markets, pursuant to delegated              any comments it received on the                           provide that no Priority Customer
                                                  authority.17                                            proposed rule change. The text of these                   complex order rebates will be paid for
                                                  Eduardo A. Aleman,                                      statements may be examined at the                         orders in NDX or MNX.
                                                  Assistant Secretary.
                                                                                                          places specified in Item IV below. The
                                                                                                          Exchange has prepared summaries, set                      Increase Non-Priority Customer License
                                                  [FR Doc. 2017–05502 Filed 3–20–17; 8:45 am]
                                                                                                          forth in sections A, B, and C below, of                   Surcharge for Index Options for NDX
                                                  BILLING CODE 8011–01–P
                                                                                                          the most significant aspects of such                      and MNX
                                                                                                          statements.                                                 The purpose of the second proposed
                                                  SECURITIES AND EXCHANGE                                 A. Self-Regulatory Organization’s                         change is to raise revenue for the
                                                  COMMISSION                                              Statement of the Purpose of, and                          Exchange by increasing the Non-Priority
                                                                                                          Statutory Basis for, the Proposed Rule                    Customer License Surcharge for options
                                                  [Release No. 34–80249; File No. SR–ISE–
                                                  2017–23]                                                Change                                                    on NDX and MNX. Currently, a number
                                                                                                                                                                    of Non-Select Symbols are index
                                                                                                          1. Purpose                                                options that are traded on the Exchange
                                                  Self-Regulatory Organizations;
                                                  International Securities Exchange,                         The purpose of the proposed rule                       pursuant to license agreements for
                                                  LLC; Notice of Filing and Immediate                     change is to: (i) Eliminate the Priority                  which the Exchange charges license
                                                  Effectiveness of Proposed Rule                          Customer complex order rebate for                         surcharges. The Exchange charges the
                                                  Change To Amend the Exchange’s                          orders in NDX and MNX; (ii) increase                      following license surcharges for all
                                                  Schedule of Fees                                        the Non-Priority Customer License                         orders other than Priority Customer
                                                                                                          Surcharge for Index Options for NDX                       orders: $ 0.10 per contract for options
                                                  March 15, 2017.                                         and MNX, and (iii) waive marketing fees                   on BKX, and $ 0.22 per contract for
                                                     Pursuant to Section 19(b)(1) of the                  for NDX and MNX.3 The Exchange notes                      options on NDX and MNX. The license
                                                  Securities Exchange Act of 1934                         that both NDX and MNX are                                 surcharge fees, which are charged by the
                                                  (‘‘Act’’),1 and Rule 19b–4 thereunder,2                 transitioning to be exclusively listed on                 Exchange to defray the licensing costs,
                                                  notice is hereby given that on March 10,                the Exchange and its affiliated markets                   are charged in addition to transaction
                                                  2017, the International Securities                      in 2017.4                                                 fees. The Exchange is now proposing to
                                                  Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’)                                                                           amend Section IV.B of the Schedule of
                                                  filed with the Securities and Exchange                  Eliminate Rebate for Priority Customer
                                                                                                          Complex Orders in Non-Select Symbols                      Fees to increase the Non-Priority
                                                  Commission (‘‘SEC’’ or ‘‘Commission’’)                                                                            Customer License Surcharge for Index
                                                  the proposed rule change as described                   for Orders in NDX and MNX
                                                                                                                                                                    Options for NDX and MNX from $ 0.22
                                                  in Items I and II, below, which Items                     Currently, the Exchange provides                        per contract to $ 0.25 per contract.
                                                  have been prepared by the Exchange.                     rebates to Priority Customer 5 complex
                                                  The Commission is publishing this                       orders that trade with non-Priority                       Waive the Marketing Fee for NDX and
                                                  notice to solicit comments on the                                                                                 MNX Options
                                                  proposed rule change from interested                       3 The Exchange initially filed the proposed
                                                                                                                                                                     Currently, the Exchange administers a
                                                  persons.                                                pricing change on March 1, 2017 (SR–ISE–2017–
                                                                                                          21). On March 10, 2017, the Exchange withdrew
                                                                                                                                                                    Marketing Fee program that helps
                                                  I. Self-Regulatory Organization’s                       that filing and submitted this filing.                    Market Makers establish Marketing Fee
                                                                                                             4 The Exchange and its affiliates will exclusively
                                                  Statement of the Terms of Substance of
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                          list NDX and MNX in the near future upon                     6 These rebates are provided per contract per leg
                                                  the Proposed Rule Change                                expiration of open expiries in these products on          if the order trades with non-Priority Customer
                                                     The Exchange proposes to amend the                   other markets.                                            orders in the complex order book, or trades with
                                                                                                             5 A ‘‘Priority Customer’’ is a person or entity that   quotes and orders on the regular order book.
                                                  Schedule of Fees to: (i) Eliminate the
                                                                                                          is not a broker/dealer in securities, and does not           7 ‘‘Select Symbols’’ are options overlying all

                                                                                                          place more than 390 orders in listed options per day      symbols listed on the ISE that are in the Penny Pilot
                                                    17 17 CFR 200.30–3(a)(12).                            on average during a calendar month for its own            Program. ‘‘Non-Select Symbols’’ are options
                                                    1 15 U.S.C. 78s(b)(1).                                beneficial account(s), as defined in ISE Rule             overlying all symbols, excluding Select Symbols.
                                                    2 17 CFR 240.19b–4.                                   100(a)(37A).                                              NDX and MNX are Non-Select Symbols.



                                             VerDate Sep<11>2014   16:47 Mar 20, 2017   Jkt 241001   PO 00000   Frm 00086   Fmt 4703   Sfmt 4703   E:\FR\FM\21MRN1.SGM      21MRN1



Document Created: 2017-03-21 01:09:43
Document Modified: 2017-03-21 01:09:43
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 14581 

2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR