Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend and Restate the Cross-Margining Agreement Between FICC and CME

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 May 9, 2025, Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“SEC” or “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.

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

The FICC is proposing a rule change related to its cross-margining arrangement (the “Cross-Margining Arrangement”) with the Chicago Mercantile Exchange Inc. (“CME”). The proposed rule change consists of a proposed Second Amended and Restated Cross-Margining Agreement (the “Second A&R Agreement”) between FICC and CME (CME, collectively FICC and CME are referred to herein as the “Clearing Organizations” or “Parties”). The proposed Second A&R Agreement would replace the current Amended and Restated Cross-Margining Agreement between the Parties (the “Existing Agreement”) ^[3] in its entirety and would be incorporated into the FICC Government Securities Division (“GSD”) Rulebook (“GSD Rules”). The ( printed page 22539) proposed rule change does not require any changes to the text of the GSD Rules.^[4 5]

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

Executive Summary

Generally, the purpose of the Cross-Margining Arrangement is to enable FICC and CME to recognize for margin purposes the offsetting risk of positions maintained by a member (or a member and its Affiliate) at the two Clearing Organizations in circumstances when the Clearing Organizations can look to all of those positions (and all associated margin) for performance of the member's obligations. In particular, the Cross-Margining Arrangement allows the Clearing Organizations to consider the net risk of a participant's eligible positions at FICC and CME when setting margin requirements for such positions.^[6] Any resulting margin reductions create capital efficiencies for participating members and incentivize such members to maintain portfolios that present lower overall risk. It also facilitates the ability of clearing members and their indirect participant affiliates to access central clearing by ensuring that their margin obligations are commensurate to the risks of their portfolios.

Pursuant to the terms of the Existing Agreement, a joint clearing member of the Clearing Organizations (a “Joint Clearing Member”) that participates in the Cross-Margining Arrangement may designate any of its accounts at FICC (except its Sponsoring Member Omnibus Account) to be cross-margined with a cross-margining account on the books of CME (each such account, a “Cross-Margining Account”). In addition, a Joint Clearing Member may include in a Cross-Margining Account both its proprietary positions and those of an affiliate, as long as the affiliate is not a customer under certain rules of the SEC and its account on the records of the Joint Clearing Member is a “proprietary account” within the meaning of 17 CFR 1.3 (an “Eligible Affiliate”).

On December 13, 2023, the SEC amended Rule 17ad-22 to require FICC to mandate that Netting Members submit for the clearance and settlement of eligible secondary market transactions (the “U.S. Treasury Clearing Rule”) and to require FICC to calculate, collect, and hold margin for transactions in U.S. Treasury securities that a Netting Member submits to FICC on behalf of an indirect participant, including an affiliate of the Netting Member, separately and independently from margin for the Netting Member's proprietary positions in U.S. Treasury securities (“Separate Margining Requirement”).^[7]

FICC has adopted amendments to the GSD Rules to implement the Separate Margining Requirement (the “Separate Margining Amendments”).^[8] These amendments went into effect on March 24, 2025.^[9] Under the Separate Margining Amendments, a Netting Member will need to ensure that transactions it submits to FICC for the benefit of an indirect participant are recorded in an Indirect Participants Account, such as an Agent Clearing Member Omnibus Account, rather than in one of the Netting Member's Proprietary Accounts.^[10] At the same time, the regulations promulgated by the Commodity Futures Trading Commission (“CFTC”) applicable to the positions that a Joint Clearing Member maintains at CME for an Eligible Affiliate require that such positions be maintained in the Joint Clearing Member's house account in which the Joint Clearing Member may also maintain its own proprietary positions.^[11]

The purpose of the proposed Second A&R Agreement is to make certain technical changes that are designed to account for this difference in account structure so that an Eligible Affiliate of a Joint Clearing Member that accesses FICC's clearing services and the Cross-Margining Arrangement through a Joint Clearing Member will continue to be able to participate in the Cross-Margining Arrangement in accordance with the Separate Margining Requirement and Separate Margining Amendments.

The key changes reflected in the proposed Second A&R Agreement set forth below are principally those necessary to enable Eligible Affiliates to continue participating in the Cross-Margining Arrangement in accordance with the Separate Margining Requirement and Separate Margining Amendments. They consist of:

• A requirement for any Joint Clearing Member that wishes to subject the eligible positions of an Eligible Affiliate (a “Participating Affiliate”) to the Cross-Margining Arrangement to cause such positions, to the extent cleared at FICC, to be recorded in an Agent Clearing Member Omnibus Account, which account must contain exclusively the positions of the Joint Clearing Member's Eligible Affiliates.
• Changes to reflect the role of a Participating Affiliate as a principal on the FICC-cleared eligible positions that are subject to the Cross-Margining Arrangement and recorded in an Agent Clearing Member Omnibus Account. These changes include adjustments to ( printed page 22540) descriptions of payment and transfer obligations to make clear that they may be owed by or to an Eligible Affiliate in the case of FICC-cleared eligible positions. They also include provisions to preserve the ability of the Clearing Organizations to look to the positions a Joint Clearing Member carries for a Participating Affiliate and all associated margin to satisfy the Joint Clearing Member's obligations to the Clearing Organizations in relation to Cross-Margining Accounts.

Clarifications to ensure that the use of the Cross-Margining Arrangement by Participating Affiliates does not affect the claims of any non-participating customers of a Joint Clearing Member under applicable Customer Protection Regimes (as defined below). In addition to the foregoing changes, the proposed Second A&R Agreement would contain revisions to extend from 30 days to 180 days the notice period in which FICC or CME may provide written notice to the other party of its election to terminate the proposed Second A&R Agreement.^[12] Although this proposed change is not necessary to enable Eligible Affiliates to participate in the Cross-Margining Arrangement in accordance with the Separate Margining Requirement, the Parties believe this adjustment would provide FICC and CME with the necessary time needed to unwind the Cross-Margining Arrangement if that ever becomes necessary.

These changes would not otherwise affect the functioning of the Cross-Margining Arrangement, including the calculation of margin reductions and default management, under the Existing Agreement.

In addition, the Existing Agreement is supplemented by a Service Level Agreement (“SLA”) between FICC and CME. FICC and CME will make edits to the SLA as necessary to ensure conformance with the proposed Second A&R Agreement.^[13]

A. The Proposed Second A&R Agreement

Overview

As noted above, FICC proposes to enter into the proposed Second A&R Agreement with CME. The proposed amendments to the Existing Agreement are designed to permit an Eligible Affiliate to have its positions cross-margined pursuant to the Cross-Margining Arrangement consistent with Separate Margining Requirement and the Separate Margining Amendments. FICC believes that such amendments would promote the maintenance of lower risk and more balanced portfolios and facilitate the access of indirect participants to central clearing in accordance with Rule 17ad-22.

1. Proposal To Ensure Compliance With Separate Margining Requirement

In order to facilitate an Eligible Affiliate's participation in the Cross-Margining Arrangement consistent with the Separate Margining Requirement and the Separate Margining Amendments, the proposed Second A&R Agreement would continue to permit a Joint Clearing Member to subject eligible positions cleared for an Eligible Affiliate to the Cross-Margining Arrangement but would require any such positions cleared at FICC to be recorded in an Agent Clearing Member Omnibus Account. More specifically, the proposed Second A&R Agreement would contain a new clause providing that in the event transactions or positions maintained in an Account are not the proprietary transactions or positions of the Cross-Margining Participant,^[14] then such transactions or positions and margin therefore may only be maintained in a Cross-Margining Account at FICC if (i) the transactions, positions and margin are maintained by the Cross-Margining Participant for an Eligible Affiliate, and (ii) the Account in which the transactions and positions in FICC Eligible Products are recorded is an Agent Clearing Member Omnibus Account ^[15] that contains exclusively the transactions and positions of the Eligible Affiliate(s).^[16] In order to ensure these conditions (the “Separate Margining Conditions”) are satisfied, the proposed Second A&R Agreement would add certain provisions to the Cross-Margining Agreement (Common Member) attached as Appendix A to the proposed Second A&R Agreement (the “Common Member Agreement”), which all Joint Clearing Members would be required to execute with the Clearing Organizations. Those provisions would consist of representations by the Joint Clearing Member to the Clearing Organizations that the Separate Margining Conditions are met.^[17]

By virtue of these changes, in no circumstance would any proprietary securities positions of the Joint Clearing Member at FICC (or any proprietary margin securing those positions) be incorporated into or netted against FICC's calculation of the margin requirement applicable to the positions the Joint Clearing Member carries for its Eligible Affiliates.

2. Proposals To Address the Role of Participating Affiliates as Principal

Under the GSD Rules, when an Agent Clearing Member clears an Agent Clearing Member Transaction for an Executing Firm Customer, it “acts solely as agent.” ^[18] Accordingly, an Executing Firm Customer, such as a Participating Affiliate, is a principal on such transaction. The proposed Second A&R Agreement would include changes to reflect the role of a Participating Affiliate as principal on the Eligible Positions recorded in an Agent Clearing Member Omnibus Account. In particular, the proposed Second A&R Agreement would adjust a number of defined terms, including “Cross-Margin VM Gain,” “Cross-Margin VM Loss,” ( printed page 22541) “Liquidation Cost,” “Margin,” “Other VM Gain,” “Other VM Loss,” “Variation Margin,” ^[19] as well as the provisions of Section 7 relating to the termination of a Cross-Margining Participant to recognize that payment or delivery obligations may be owed by or to an Eligible Participant, rather than by or to the Joint Clearing Member.^[20]

In addition, the proposed Second A&R Agreement would include a number of additions to the Common Member Agreement to ensure that, as is the case with the Existing Agreement, FICC and CME would be able to look to the entirety of a Participating Affiliate's Eligible Positions and all associated margin to satisfy the obligations arising from the Joint Clearing Member's Cross-Margining Accounts at FICC and CME. In particular, the proposed Second A&R Agreement would require each Joint Clearing Member to agree in the Common Member Agreement, as agent for each of its Participating Affiliates, that each such Participating Affiliate (i) unconditionally promises to pay any amounts owing in respect of the Cross-Margining Accounts established for such Participating Affiliate (each, an “Affiliate Account”), (ii) agrees that it is jointly and severally liable for any payment obligation in respect of any Cross-Margining Account of the Joint Clearing Member, in an amount up to the liquidation value of the positions maintained for the Participating Affiliate in any Affiliate Account and, without duplication, the value realized on any margin or other collateral held for any such account, and (iii) agrees it is bound by the GSD Rules and the CME rules as applicable to a Participating Affiliate and by the provisions of the proposed Second A&R Agreement and Common Member Agreement.^[21]

In order to ensure the effectiveness of these agreements by a Joint Clearing Member on behalf of its Participating Affiliates, each Joint Clearing Member would represent and warrant in the Common Member Agreement that it has full power and authority to bind each of its Participating Affiliates to the foregoing terms and that before permitting an Eligible Affiliate to be a Participating Affiliate it will have obtained such Participating Affiliate's written consent to such terms.^[22] The proposed Common Member Agreement would require each Joint Clearing Member to provide such written consent to the Clearing Organizations upon their request.^[23]

Furthermore, the proposed Second A&R Agreement would include revisions to the security interest language in the Common Member Agreement so that the obligations secured include those of the Participating Affiliate, and that the Joint Clearing Member grants the security interest on behalf of itself and each Participating Affiliate.^[24]

These proposed changes to the Common Member Agreement would ensure that, if a Joint Clearing Member defaults and FICC makes payment to CME pursuant to the cross-guarantee set forth in the proposed Second A&R Agreement,^[25] FICC would be able to set off and apply to its claim for reimbursement the positive liquidation value of each Participating Affiliate's positions and the margin securing such positions.^[26]

3. Proposals Relating to Customer Protection

The proposed Second A&R Agreement would include provisions to ensure that, consistent with the Existing Agreement, the use of the Cross-Margining Arrangement by Participating Affiliates would not affect the customer protections available to any non-participating customers of the Joint Clearing Member under the Securities Investor Protection Act (“SIPA”), the stockbroker liquidation provisions of Subchapter III of Chapter 7 of the Bankruptcy Code, the commodity broker liquidation provisions of Subchapter IV of Chapter 7 of the Bankruptcy Code, or the Commodity Futures Trading Commission's Part 190 regulations thereunder (collectively, the “Customer Protection Regimes”). In order to accomplish this, the proposed Second A&R Agreement would limit the scope of Eligible Affiliates to entities that are Non-Customers,^[27] which the proposed Second A&R Agreement would define as “any Affiliate of the Clearing Member (i) that is not a `customer' of the Clearing Member within the meaning of Securities Investor Protection Act, Subchapter III of Chapter 7 of the U.S. Bankruptcy Code, or Rule 15c3-3 as promulgated under the Act ^[28] and (ii) whose Eligible Positions in CME Eligible Products are carried in a Proprietary Account of the Clearing Member.” ^[29]

In addition, the proposed Second A&R Agreement would require that each Affiliate Account be limited to the positions of Non-Customers (or in the case of an Affiliate Account at CME, the Joint Clearing Member's proprietary positions) and any margin posted to FICC in relation to such an account would not be subject to segregation. It would achieve this by requiring a Joint Clearing Member to represent in the Common Member Agreement that any Participating Affiliate is a Non-Customer, that any Cross-Margining Account (whether at CME or FICC) includes exclusively the positions of Non-Customers or the Joint Clearing Member, and that any margin posted to FICC in relation to an Eligible Affiliate account is not subject to segregation under the Rules.^[30] These proposed changes are designed to ensure that no Participating Affiliate would have a claim under any Customer Protection Regime in relation to its Affiliate Account or Eligible Positions that could disrupt the priority rights of any customers of a Joint Clearing Member under those regimes to segregated pools of property.

4. Proposal To Extend the Termination Notification Period

The proposed Second A&R Agreement would revise Sections 15(a) and (b) of the Existing Agreement (Termination) to extend the prior written notification period for either party to terminate the Cross-Margining Arrangement from 30 days to 180 days.^[31] While this proposed ( printed page 22542) change is not required to facilitate the principal purpose of the proposed Second A&R Agreement, which is to allow Eligible Affiliates to participate in the Cross-Margining Arrangement consistently with the Separate Margining Requirement and Separate Margining Amendments, it would provide for a more effective timeframe for the Parties to unwind the Cross-Margining Arrangement, which would benefit FICC as well as all Cross-Margining Participants, including any Eligible Affiliates, where applicable.

B. Implementation of the Proposal

As noted above, the principal purpose of the proposed Second A&R Agreement is to allow Eligible Affiliates to participate in cross-margining in a manner consistent with the Separate Margining Requirement and the Separate Margining Amendments. The proposed Second A&R Agreement would therefore not become effective and replace the Existing Agreement until the latest of (i) the date both the SEC approves this proposed rule change and the CFTC approves CME's proposed rule change and (ii) a date agreed to by FICC and CME.^[32] No later than two (2) business days following the date of the Commission's approval of this proposed rule change, FICC would add a legend to the proposed Second A&R Agreement to state that the specified changes are approved but not yet operative. The legend would also include the file number of the approved proposed rule change, and would state that once operative, the legend would automatically be removed from the proposed Second A&R Agreement. FICC would issue an important notice to members providing notice of the specific operative date at least two weeks prior to such date.

2. Statutory Basis

FICC believes that the proposed rule change is consistent with Section 17A of the Act ^[33] and the rules thereunder applicable to FICC.

Section 17A(b)(3)(F) of the Act, requires, in part, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.^[34] FICC believes that the proposed rule change would assure the safeguarding of securities and funds which are in its custody or control for which it is responsible for a number of reasons.

First, the proposed rule change would create a framework through which Eligible Affiliates may engage in cross-margining consistent with the Separate Margining Requirement and Separate Margining Amendments.^[35] As the Commission recently found, those rule changes should allow FICC to better identify and measure the unique risk profiles of each Netting Member and indirect participant, enhancing FICC's ability to calculate and collect sufficient margin from each Netting Member and indirect participant to cover potential losses from a Netting Member or indirect participant default, thereby reducing the likelihood that FICC, Netting Members, or indirect participants would incur losses resulting from a default. As a result, the changes should limit FICC's risk to a Netting Member or indirect participant default and thereby enhance its ability to safeguard securities and funds in its control and for which it is responsible.^[36]

Cross-margining likewise reduces the likelihood of FICC, its Netting Members, or its indirect participants incurring a loss on account of a default by aligning each participant's margin requirements with the risk of such participant's positions. Such alignment serves to incentivize the participant to maintain portfolios that present lower risk, which in turn serves to reduce the risk of such participant's default and FICC's exposure thereto. Accordingly, by allowing an Eligible Affiliate to engage in cross-margining activity in a way that is consistent with the Separate Margining Requirement and the Separate Margining Amendments, the proposed rule change would serve to promote both the risk-reducing effects of the Separate Margining Requirements and the Separate Margining Amendments and those of cross-margining. They would thus serve to enhance FICC's ability to safeguard the securities and funds in its control or for which it is responsible.

Second, the proposed rule change would ensure that FICC and CME can continue to look to the entirety of a Participating Affiliate's cross-margined positions and all associated margin to satisfy the obligations arising from the Joint Clearing Member's Cross-Margining Accounts at FICC and CME.^[37] The Existing Agreement currently allows FICC and CME to apply to a Joint Clearing Member's obligations arising from its Cross-Margining Accounts, any of the positions forming part of the Joint Clearing Member's Cross-Margining Accounts, and any associated margin, including positions carried by the Joint Clearing Member for an affiliate. By retaining the ability of FICC and CME to look to those positions and associated margin to satisfy a Joint Clearing Member's obligations, the proposed rule change would ensure that allowing Participating Affiliates to participate in cross-margining in accordance with FICC's revised account structure would not increase FICC's or CME's risk exposure in relation to the Cross-Margining Arrangement. Accordingly, the proposed rule change would serve to limit FICC's risk related to a default of a Joint Clearing Member or its Participating Affiliate and thereby enhance FICC's ability to safeguard funds and securities.

Third, the proposed rule change would include provisions to ensure that the participation of Participating Affiliates would not disrupt the claims of any non-participating customers of a Joint Clearing Member under the Customer Protection Regimes for the return of their funds or securities held at FICC. More specifically, the proposed rule change would require that an Affiliate Account contains positions carried for Participating Affiliates, such positions must be positions of Non-Customers that have not elected margin segregation.^[38] By doing so, the proposed rule change would ensure that neither Participating Affiliates nor others whose positions are carried in Affiliate Accounts are eligible to make claims under the Customer Protection Regimes that could reduce the property available to satisfy any veritable customer claims against a Joint Clearing Member. Accordingly, it would ensure that funds and securities in FICC's control or custody that are held for customers remain safeguarded for those customers to the same extent as would be the case in the absence of the Cross-Margining Arrangement.

Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions.^[39] For the reasons set out below, FICC believes that the proposed rule change would remove impediments to and perfect the mechanism of a national system for the prompt and accurate ( printed page 22543) clearance and settlement of securities transactions.

First, the proposed rule change would permit Eligible Affiliates to continue participating in the Cross-Margining Arrangement in accordance with the Separate Margining Requirement. By doing so, the proposed rule change would serve to maintain the incentives for Joint Clearing Members and their Eligible Affiliates to submit transactions for central clearing. Specifically, the proposed rule change would continue to allow Joint Clearing Members and Participating Affiliates to benefit from margin efficiencies and savings that arise from cross-margining and that serve to reduce the costs of Eligible Affiliates to access FICC's clearance and settlement services and the costs of Joint Clearing Members to facilitate such access. Therefore, the proposed rule change would continue encouraging market participants to submit more Treasury securities transactions to be cleared at FICC. The maintenance of such incentives to submit transactions for clearance and settlement at FICC would promote the diversity and scope of market participants able to utilize FICC's multilateral netting, trade guaranty and centralized default management services, which would help reduce the aggregate costs that would be incurred by market participants to engage in securities transactions. Therefore, the proposed rule change would serve to promote prompt and accurate clearance and settlement of securities transactions.^[40]

Second, the proposed rule change would include clarifying changes to reflect the role of a Participating Affiliate as a principal. These changes would improve public understanding of how the Cross-Margining Arrangement works and make it easier for Eligible Affiliates to consider the benefits and risks of participating in the Cross-Margining Arrangement, thereby improving the ability of Joint Clearing Members and Eligible Affiliates to access FICC's clearance and settlement systems.^[41]

Given the foregoing, FICC believes that the proposed rule change is designed to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions.^[42]

Rule 17ad-22(e)(6)(i) under the Act requires that a covered clearing agency establish a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market and, if the covered clearing agency provides central counterparty services for U.S. Treasury securities, calculates, collects, and holds margin amounts from a direct participant for its proprietary positions in 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 covered clearing agency's payment, clearing, or settlement facilities.^[43] FICC believes that the proposed rule change would ensure the satisfaction of this Separate Margining Requirement. This is because the proposed Second A&R Agreement would require that the FICC-cleared eligible positions of a Participating Affiliate be carried in an Agent Clearing Member Omnibus Account.^[44] Accordingly, the proposed rule change would ensure that the FICC-cleared positions of a Participating Affiliate are never netted against any FICC-cleared positions of its Joint Clearing Member in FICC's calculation of margin requirements.

Rule 17ad-22(e)(4)(i) under the Act requires that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by maintaining sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.^[45] FICC believes that the proposed rule change would ensure that FICC continues to effectively measure and manage its credit exposure to participants by maintaining sufficient financial resources to cover its exposure thereto with a high degree of confidence. This is because the proposed rule change, as discussed above, would include changes to the Common Member Agreement to ensure that FICC can continue to look to all of the positions a Joint Clearing Member carries in a Cross-Margining Account at FICC or CME, and all associated margin, to satisfy that Joint Clearing Member's obligations in relation to a Cross-Margining Account, even when those positions are carried for a Participating Affiliate.^[46] By doing so, the proposed rule change would ensure that the Separate Margining Requirement and FICC's implementing rules thereof do not reduce the scope of resources that FICC can rely upon to satisfy cross-margining exposures.

Rule 17ad-22(e)(23)(ii) under the Act requires that a covered clearing agency establish written policies and procedures providing sufficient information to enable participants to identify and evaluate the risks, fees, and other material costs they incur by participating in the covered clearing agency.^[47] As described above, the proposed rule change would include clarifications regarding the types of indirect participants eligible to participate in the Cross-Margining Agreement and the role of Participating Affiliates as principals.^[48] The proposed rule change would also include express language making clear that a Participating Affiliate's positions recorded in a Cross-Margining Account, and all associated margin, may be used to satisfy the Joint Clearing Member's obligations in relation to its Cross-Margining Accounts.^[49] These changes would accordingly provide clarity to market participants to enable them to evaluate the risks and costs of participating in the Cross-Margining Arrangement in accordance with Rule 17ad-22(e)(23)(ii).

Rule 17ad-22(e)(18)(iv)(C) under the Act requires, among other things, that a covered clearing agency that provides central counterparty services for transactions in U.S. Treasury securities ensure that it has appropriate means to facilitate access to clearance and settlement services of all eligible secondary market transactions in U.S. Treasury securities, including those of indirect participants. As described above, the proposed rule change would ensure that Eligible Affiliates would continue to be able to participate in the Cross-Margining Arrangement consistent with the Separate Margining Requirement and incentivize market participates, including indirect participants that are Eligible Affiliates, to submit more eligible secondary market transactions in U.S. Treasury securities for clearing under the Cross-Margining Arrangement in light of the ( printed page 22544) margin efficiency. Therefore, the proposed rule change would continue to facilitate access to clearance and settlement services of all eligible secondary market transactions in U.S. Treasury securities, including those of indirect participants.^[50]

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

FICC believes that the proposed rule change to replace the Existing Agreement with the proposed Second A&R Agreement would promote competition by ensuring Eligible Affiliates' continued access to the Cross-Margining Arrangement.

The proposed Second A&R Agreement would ensure that Eligible Affiliates can continue to participate in the Cross-Margining Arrangement consistent with the Separate Margining Requirement. Such undisrupted access would allow Eligible Affiliates to remain on a level playing field with other market participants, such as Joint Clearing Members and Cross-Margining Affiliates, which will continue to be eligible to participate in the Cross-Margining Arrangement for their proprietary positions in accordance with the Separate Margining Requirement and Separate Margining Amendments. Accordingly, the proposed rule change would ensure that the advent of the Separate Margining Requirement and the adoption of the Separate Margining Amendments do not place Eligible Affiliates at an undue competitive disadvantage relative to Joint Clearing Members or Cross-Margining Affiliates by depriving the former, but not the latter, of the ability to cross-margin.

Although the proposed rule change would not extend cross-margining to indirect participants that do not satisfy the definition of Eligible Affiliates, that does not represent a change. Such indirect participants are currently unable to participate in cross-margining due to the account structures, customer protection arrangements, and regulatory approvals that would be necessary to allow such participation. The proposed rule change would not change that, but would merely preserve the status quo of allowing Eligible Affiliates to participate in cross-margining and remain competitive with Joint Clearing Members and Cross-Margining Affiliates.

While the proposed rule change would clarify the scope of what constitutes a Non-Customer and thus the scope of Eligible Participants, FICC does not believe that this change represents a material modification of the market participants that are able to engage in cross-margining. Rather, this change simply aims to clarify what is currently the case, ( i.e., that Eligible Participants do not include entities eligible for the Customer Protection Regimes). Accordingly, FICC does not believe this change would materially affect competition.

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

FICC has not received or solicited any written comments relating to this proposal. If any written comments are received, they will be publicly filed as an Exhibit 2 to this filing, as required by Form 19b-4 and the General Instructions thereto.

Persons submitting comments are cautioned that, according to Section IV (Solicitation of Comments) of the Exhibit 1A in the General Instructions to Form 19b-4, the Commission does not edit personal identifying information from comment submissions. Commenters should submit only information that they wish to make available publicly, including their name, email address, and any other identifying information.

All prospective commenters should follow the Commission's instructions on How to Submit a Comment, available at www.sec.gov/​rules-regulations/​how-submit-comment. General questions regarding the rule filing process or logistical questions regarding this filing should be directed to the Main Office of the Commission's Division of Trading and Markets at [email protected] or 202-551-5777.

FICC reserves the right to not respond to any comments received.

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

Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) by order approve or disapprove such proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

• Use the Commission's internet comment form (https://www.sec.gov/​rules/​sro.shtml); or
• Send an email to[email protected]. Please include file number SR-FICC-2025-014 on the subject line.

Paper Comments

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

May 21, 2025.

All submissions should refer to file number SR-FICC-2025-014. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/​rules/​sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FICC and on DTCC's website ( www.dtcc.com/​legal/​sec-rule-filings). Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to File Number SR-FICC-2025-014 and should be submitted on or before June 18, 2025.