On December 13, 2023, the Commission adopted rules (the “Final Rules”) under the Securities Exchange Act of 1934 to amend the standards applicable to covered clearing agencies for U.S. Treasury securities. The Final Rules require, among other things, that such covered clearing agencies 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 on behalf of indirect participants.[1] In the Adopting Release, the Commission took a time-limited position that if investment companies registered under the Investment Company Act of 1940 (“1940 Act”) (“registered funds”) use a framework described in the Adopting Release to post margin at the Fixed Income Clearing Corporation (“FICC”), a subsidiary of the Depository Trust and Clearing Corporation, it would not provide a basis for enforcement action under Section 17(f) of the 1940 Act.
Specifically, the Commission took the position that, for a period of five years beginning on the effective date of the Final Rules,[2] if a registered fund’s cash and/or securities are placed and maintained in the custody of FICC for purposes of meeting FICC’s margin deposit requirements that may be imposed for eligible secondary market transactions in connection with the fund’s participation in the Sponsored Program,[3] it would not provide a basis for enforcement action under Section 17(f) of the 1940 Act so long as the provision of margin is consistent with certain conditions (the “FICC registered fund margin framework”).[4]
On November 21, 2024, the Commission approved certain proposed amendments to the FICC Rules, including changes related to, among other things, the separate calculation, collection, and holding of margin for proprietary transactions of direct participants and indirect participant transactions.[5] In the staff’s view, the FICC’s rules, as currently amended, would allow a registered fund’s margin to be posted at FICC consistent with the FICC registered fund margin framework.The staff’s view applies equally to tri-party and bilateral repurchase agreement transactions.
Source: SEC
DTCC Comments On SEC Action On FICC Rule Filings
The Depository Trust & Clearing Corporation (DTCC) issued the following statement:
“We are pleased that the SEC took action to approve FICC’s rule filings related to access models and segregated accounts & margin. With these approvals, we are now ready to advance our implementation efforts with the industry, in preparation for next year’s deadlines.
We’re also appreciative of all of the comments and perspectives that the industry has shared with us on a range of matters, including default management, done away and porting. Additional work remains as we get ready for implementation, and we are committed to ensuring we deliver the best solutions with the best value for the industry.
The expansion of US Treasury clearing is a significant industry-wide effort that promises to deliver critical benefits to the industry, including increased transparency and reduced risk. We will continue to work closely with our clients and key stakeholders on ensuring safe, smooth and successful implementations in 2025 and 2026.”
Background – Links to SEC Approvals:
Segregated Accounts & Margin: https://www.sec.gov/files/rules/sro/ficc/2024/34-101695.pdf
Access Models: 34-101694.pdf (sec.gov)
Source: SEC
