[Federal Register Volume 90, Number 40 (Monday, March 3, 2025)]
[Notices]
[Pages 11079-11081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03350]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102486; File No. S7-23-22]
Order Granting Temporary Exemptive Relief, Pursuant to Sections
17A and 36(a) of the Securities Exchange Act of 1934, From Certain
Aspects of Rule 17ad-22(e)(6)(i) and Section 19(g)(1) of the Securities
Exchange Act of 1934
I. Introduction
On December 13, 2023, the Securities and Exchange Commission
(``Commission'' or ``SEC'') adopted, among other things, the amendments
to Rule 17ad-22(e)(6)(i) (the ``Margin Separation Requirement'') under
the Securities Exchange Act of 1934 (``Exchange Act''). The Margin
Separation Requirement requires that a covered clearing agency
providing
[[Page 11080]]
central counterparty services for U.S. Treasury securities (``U.S.
Treasury securities CCA'') establish, implement, maintain and enforce
written policies and procedures reasonably designed to calculate,
collect, and hold margin amounts from a direct participant for its
proprietary positions in U.S. Treasury securities separately and
independently from margin calculated and collected from that direct
participant in connection with U.S. Treasury securities transactions by
an indirect participant that relies on the services provided by the
direct participant to access the U.S. Treasury securities CCA's
payment, clearing, or settlement facilities. The Adopting Release
established March 31, 2025, as the date by which proposed rule changes
regarding Rule 17ad-22(e)(6)(i) must be effective.\1\
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\1\ Exchange Act Release No. 34-99149 (Dec. 13, 2023), 89 FR
2714, 2771 (Jan. 16, 2024) (``Adopting Release''). The Commission
approved such proposed rule changes by the Fixed Income Clearing
Corporation (``FICC'') in November 2024. See Self-Regulatory
Organizations; Fixed Income Clearing Corporation; Order Approving a
Proposed Rule Change, as Modified by Partial Amendment No. 1, to
Modify the GSD Rules to Facilitate Access to Clearance and
Settlement of All Eligible Secondary Market Transactions in U.S.
Treasury Securities, Exchange Act Release No. 34-101694 (Nov. 21,
2024), 89 FR 93784 (Nov. 27, 2024) (SR-FICC-2024-005); Self-
Regulatory Organizations; Fixed Income Clearing Corporation; Order
Approving Proposed Rule Change to Amend the Clearing Agency Risk
Management Framework, Exchange Act Release No. 34-101685 (Nov. 21,
2024), 83 FR 93689 (Nov. 27, 2024) (SR-FICC-2024-006); Self-
Regulatory Organizations; Fixed Income Clearing Corporation; Order
Approving Proposed Rule Change, as Modified by Partial Amendment No.
1, to Modify the GSD Rules (i) Regarding the Separate Calculation,
Collection and Holding of Margin for Proprietary Transactions and
That for Indirect Participant Transactions, and (ii) to Address the
Conditions of Note H to Rule 15c3-3a, Exchange Act Release No. 34-
101695 (Nov. 21, 2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-
007).
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II. Discussion and Exemptive Relief
Since the Margin Separation Requirement was adopted, Commission
staff has been working with market participants, including the current
U.S. Treasury securities CCA and applicants to become U.S. Treasury
securities CCAs, to address certain operational questions relating to
implementation of these rules. As part of these efforts, Commission
staff has become aware, through telephonic meetings and letters, that
certain market participants believe that certain relief regarding
implementation of the Margin Separation Requirement would be
appropriate.
In this regard, a group of trade associations representing
different types of market participants submitted a letter requesting
that the Commission, with respect to the March 31, 2025 deadline
related to Rule 17ad-22(e)(6)(i), allow FICC to proceed with
implementing the changes set forth in the proposed rule changes that
the Commission has approved, but that the Commission should also permit
FICC in its capacity as a self-regulatory organization to forbear from
enforcing those requirements for any of its members until March 31,
2026.\2\
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\2\ See Letter from the Securities Industry and Financial
Markets Association (``SIFMA''), SIFMA's Asset Management Group,
Managed Funds Association, Futures Industry Association (``FIA''),
FIA Principal Traders Group, International Swaps and Derivatives
Association, Alternative Investment Management Association, and The
Institute of International Bankers (collectively, the
``Associations''), dated Jan. 24, 2025, at 5 (``Associations'
Letter''), available at, e.g., https://www.sifma.org/wp-content/uploads/2025/01/SIFMA-Extension-Request-US-Treasury-Clearing-Mandate-FINAL-Clean.pdf; see also Letter from the Investment Company
Institute, dated Feb. 21, 2025, at 1 (incorporating the
Associations' Letter and the recommendations therein by reference).
See also supra note 1.
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The Associations stated that such an approach would acknowledge
that not all market participants currently clearing indirect
participant activity at FICC are now ready to be able to make the
necessary, legal, operational, and risk management changes in time for
complying with FICC's new rules and procedures by March 31, 2025, but
that some market participants are expected to be ready and able to
start using FICC's new services and risk management capabilities on or
sometime around March 31, 2025, and that population will continue to
grow.\3\ The Associations stated that this approach would help both
maintain progress on achieving orderly implementation of the Treasury
clearing rules, while also preserving momentum for achieving critical
related initiatives.\4\
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\3\ See Associations' Letter, supra note 2, at 5.
\4\ See id.
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After considering this request, the Commission is providing a
temporary exemption to Rule 17ad-22(e)(6)(i), pursuant to Sections
17A(b)(1) and 36(a) of the Exchange Act, until September 30, 2025, to
avoid market disruption and ensure that direct participants of the
covered clearing agency currently clearing for indirect participants
are ready to make the legal, operational, and risk management changes
to meet that requirement. Under Section 17A(b)(1) of the Exchange Act,
the Commission, by rule or order, upon its own motion or upon
application, may conditionally or unconditionally exempt any clearing
agency or security or any class of clearing agencies or securities from
any provisions of this section or the rules or regulations thereunder,
if the Commission finds that such exemption is consistent with the
public interest, the protection of investors, and the purposes of this
section, including the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and
funds.\5\ In addition, Section 36(a) of the Exchange Act authorizes the
Commission, by rule, regulation or order, to exempt, either
conditionally or unconditionally, any person, security or transaction,
or any class or classes of persons, securities, or transactions, from
any provision or provisions of the Exchange Act or any rule or
regulation thereunder, to the extent that such exemption is necessary
or appropriate in the public interest, and is consistent with the
protection of investors.\6\
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\5\ 15 U.S.C. 78q-1(b)(1).
\6\ 15 U.S.C. 78mm.
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The Commission is using its authority under Section 17A and Section
36 of the Exchange Act to provide a temporary exemption to U.S.
Treasury securities CCAs from enforcement of any written policies or
procedures regarding Rule 17ad-22(e)(6)(i) for six months, until
September 30, 2025.\7\ This temporary exemption would also apply to a
U.S. Treasury securities CCA's obligations under Section 19(g)(1)(C) of
the Exchange Act, solely regarding the enforcement of any rules
regarding Rule 17ad-22(e)(6)(i).\8\ Pursuant to this temporary
exemption, a U.S. Treasury securities CCA is not required to enforce
its policies and procedures regarding the Margin Separation Requirement
for six months. However, this temporary exemption does not affect the
requirement for a U.S. Treasury securities CCA to establish, implement,
and maintain such policies and procedures for its direct participants
to comply with, for those participants who are prepared to do so.
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\7\ The Commission is also issuing a final rule extending the
compliance dates applicable to the requirements of Rule 17ad-
22(e)(18)(iv)(A) and (B). See Extension of Compliance Dates for
Standards for Covered Clearing Agencies for U.S. Treasury Securities
and Application of the Broker-Dealer Customer Protection Rule With
Respect to U.S. Treasury Securities, Exchange Act Release No. 34-
102487 (Feb. 25, 2025).
\8\ Section 19(g)(1)(C) of the Exchange Act requires, among
other things, that a registered clearing agency, which includes a
U.S. Treasury securities CCA, enforce compliance with its own rules
by its participants. 15 U.S.C. 78s(g)(1)(C).
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The Commission finds such exemption to be in the public interest
and consistent with the protection of investors and the purpose of
Sections 17A and 36 of the Exchange Act, including the prompt and
accurate clearance and settlement of securities transactions and the
safeguarding of
[[Page 11081]]
securities and funds because it will allow U.S. Treasury securities
CCAs to implement the separation of house and customer margin.
Separation of house and customer margin should reduce the risks
presented to a U.S. Treasury securities CCA, ensuring that it has
sufficient margin to cover its exposures to its participants, which
should, in turn, reduce the potential risk to the U.S. Treasury
securities CCA from such transactions, while still providing additional
time for any direct participants who require more time to facilitate
that separation.\9\
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\9\ See Adopting Release, supra note 1, 89 FR at 2753.
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Finally, the Commission is not issuing any temporary exemptions for
Rule 17ad-22(e)(18)(iv)(C) (regarding access) and Rule 15c3-3
(regarding the broker-dealer customer protection rule). Although these
rules also have a March 31, 2025, compliance date, no market
participant is obligated to use a particular access model or to
segregate its margin. If a direct participant of a U.S. Treasury
securities CCA determines to offer certain access models or segregated
margin accounts, the CCA would be obligated to enforce those rules
regarding such models or accounts against the relevant participant, and
the direct participant must comply with those rules.\10\
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\10\ For example, the rule amendments in the Adopting Release
permit broker-dealers to include a debit in the customer reserve
formula equal to the amount of margin required and on deposit at a
U.S. Treasury securities CCA, subject to the conditions in Note H to
Rule 15c3-3a. Each of the conditions in Note H must be met for a
broker-dealer to include the debit in the formula. These conditions
include the requirement that the U.S. Treasury securities CCA adopts
rules designed to protect and segregate the margin, and the U.S.
Treasury securities CCA and broker-dealer are in compliance with
those rules. See 17 CFR 240.15c3-3a, Note H and Adopting Release,
supra note 1, 89 FR at 2760-68.
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III. Conclusion
Accordingly, it is ordered, pursuant to Sections 17A and 36 of the
Exchange Act, that the Commission grants the temporary exemptive
relief, as set forth in this Order, to U.S. Treasury securities CCAs
from enforcing their written policies and procedures related to Rule
17ad-22(e)(6)(i), and also from the provisions of Section 19(g)(1)(C)
of the Exchange Act solely regarding the enforcement of any rules
regarding Rule 17ad-22(e)(6)(i), for a period of six months, until
September 30, 2025.
By the Commission.
Dated: February 25, 2025.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-03350 Filed 2-28-25; 8:45 am]
BILLING CODE 8011-01-P