Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update a Definition and Certain Provisions Related to Components of GSD's Funds-Only Settlement

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-104480; File No. SR-FICC-2025-026]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update a Definition and Certain Provisions Related to Components of GSD's Funds-Only Settlement</SUBJECT> <DATE>December 22, 2025.</DATE> Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)  <SU>1</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>2</SU> <FTREF/> notice is hereby given that on December 19, 2025, 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. FICC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act  <SU>3</SU> <FTREF/> and Rule 19b-4(f)(4) thereunder. <SU>4</SU> <FTREF/> The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  17 CFR 240.19b-4. </FTNT> <FTNT> <SU>3</SU>  15 U.S.C. 78s(b)(3)(A). </FTNT> <FTNT> <SU>4</SU>  17 CFR 240.19b-4(f)(4). </FTNT> <HD SOURCE="HD1">I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change</HD> The proposed rule change consists of amendments to FICC's Government Securities Division (“GSD”) Rulebook (“Rules”)  <SU>5</SU> <FTREF/> to (1) update the definition of “Overnight Investment Rate” to reflect that such rate is applicable to cash held by FICC in connection with funds-only settlement; (2) change the frequency of GCF Interest Adjustment Payments and Interest Adjustment Payments to monthly, rather than daily, in certain circumstances; and (3) remove an outdated reference from a statement in Rule 13. <FTNT> <SU>5</SU>  Terms not defined herein are defined in the Rules, <E T="03">available at http://www.dtcc.com/legal/rules-and-procedures.</E> </FTNT> <HD SOURCE="HD1">II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> 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. <HD SOURCE="HD2">(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> <HD SOURCE="HD3">1. Purpose</HD> FICC is proposing changes to the Rules that would update a definition and certain provisions related to the components of GSD's funds-only settlement, or “FOS.” Specifically, the proposed changes would update and clarify the definition of Overnight Investment Rate, which is the interest rate used in the calculation of two components of FOS, the GCF Interest Adjustment Payment and the Interest Adjustment Payment. The proposed changes would also update the frequency of GCF Interest Adjustment Payments and Interest Adjustment Payments to monthly, rather than daily, in certain circumstances. Finally, the proposed changes would remove an outdated reference from a statement in Rule 13, which was retained in the Rules in error. These proposed changes would update, clarify and correct the Rules related to FOS, providing Netting Members with a clearer understanding of these provisions and their rights thereunder. <HD SOURCE="HD3">Overview of Funds-Only Settlement</HD> FOS is a twice-daily process of generating a net credit or debit cash amount for each Netting Member and settling those cash amounts between Netting Members and FICC. FOS is described in Rule 13 and is a cash pass-through process, meaning Netting Members who are in a debit position submit payments that are then used to pay Netting Members in a credit position. <SU>6</SU> <FTREF/> <FTNT> <SU>6</SU>  Rule 13 (Funds-Only Settlement), <E T="03">id.</E> </FTNT> Twice each Business Day, each Netting Member must pay (or is entitled to collect) an aggregate Funds-Only Settlement Amount across all CUSIPs in which it has outstanding positions. The main components of this amount include, among other payments, a mark-to-market amount for every Net Settlement Position, a mark-to-market amount for every Forward Net Settlement Position, fail marks for obligations that were scheduled to settle and have not yet settled, coupon payments and other adjustments. <SU>7</SU> <FTREF/> <FTNT> <SU>7</SU>  Each component of FOS is described in Rule 13 (Funds-Only Settlement), <E T="03">id.</E> </FTNT> The settlement ultimately occurs through the National Settlement Service (“NSS”), a payment system operated by the Federal Reserve System (“FRS”). <SU>8</SU> <FTREF/> Cash debits and credits are paid out by Funds-Only Settling Bank Members, who are appointed by Netting Members. The individual debits and credits of each Netting Member using the same Funds-Only Settling Bank Member are totaled. Once the net debits and credits are approved by Funds-Only Settling Bank Members, the New York Federal Reserve Bank debits or credits each Funds-Only Settling Bank Member. Funds-Only Settling Bank Members then debit or credit the account of each Netting Member for which it settles. Funds transfers become final at the time the funds are moved through NSS. <FTNT> <SU>8</SU>  NSS is a settlement service operated by the Federal Reserve Banks available to depository institutions that settle for participants in clearinghouses, financial exchanges and other clearing and settlement groups. Settlement agents, acting on behalf of those depository institutions in a settlement arrangement, electronically submit settlement files to the Federal Reserve Banks. Files are processed on receipt, and entries are automatically posted to the depository institutions' Federal Reserve Bank accounts. FICC's affiliate, The Depository Trust Company, maintains an account at the New York Federal Reserve Bank and acts as agent for FICC for FOS. </FTNT> <HD SOURCE="HD3">Proposed Changes to the Definition of Overnight Investment Rate</HD> The Rules define Overnight Investment Rate as the interest rate earned by FICC on the investment of the portion of the cash deposited to its Clearing Fund that is invested overnight. However, this term is currently only used in the definitions of two components of FOS—the GCF Interest Adjustment Payment and the Interest Adjustment Payment—and is not used in reference to FICC's deposits of cash that Netting Members may deposit to satisfy their Required Fund Deposits to the Clearing Fund. <SU>9</SU> <FTREF/> <FTNT> <SU>9</SU>   <E T="03">See</E> Rule 1 (Definitions) (defined terms for “GCF Interest Adjustment Payment” and “Interest Adjustment Payment”) and Section 3a of Rule 4 (Clearing Fund and Loss Allocation) (which describes the investment of cash deposits to the Clearing Fund without reference to the Overnight Investment Rate, <E T="03">supra</E> note 5. </FTNT> Therefore, FICC is proposing to correct and clarify the definition of Overnight Investment Rate to mean the interest rate earned by FICC on the investment of cash held by FICC in connection with certain FOS debits that are invested overnight. The proposed change would correct the definition of this term, making the Rules clearer in describing the related components of FOS. <HD SOURCE="HD3">Proposed Changes to Frequency of Certain FOS Component Processing</HD> The components of FOS credit and debit payments are described in Section 1 of Rule 13, and Netting Members are required to make such credit and debit payments “one or more times each Business Day”. <SU>10</SU> <FTREF/> As stated above, in practice, FOS credit and debits are currently processed twice each Business Day. <FTNT> <SU>10</SU>  Section 1 of Rule 13, <E T="03">id.</E> </FTNT> Because FOS is a pass-through process, if FICC debits a Netting Member for one component of FOS but does not have an equivalent credit to pay to another Netting Member, then FICC must hold and invest the cash amount it has debited overnight, until it can pay that amount to a Netting Member the next Business Day. This may occur in connection with the credit and debit payments of the Debit Forward Mark Adjustment Payments and the corresponding Credit Forward Mark Adjustment Payment, or with the Debit GCF Forward Mark Adjustment Payments and the corresponding Credit GCF Forward Mark Adjustment Payment. <SU>11</SU> <FTREF/> <FTNT> <SU>11</SU>   <E T="03">See</E> Rule 1 (Definitions) (defined terms for “Debit Forward Mark Adjustment Payment”, “Credit Forward Mark Adjustment Payment”, “Debit GCF Forward Mark Adjustment Payment” and “Credit GCF Forward Mark Adjustment Payment”) and Rule 13, Sections 1(d) and (l), <E T="03">id.</E> </FTNT> The interest rate that FICC earns on such investments is the Overnight Investment Rate. The Interest Adjustment Payment and GCF Interest Adjustment Payment are components of FOS related to the overnight interest earned on such investments and, as noted above, may be assessed by FICC on the Debit Forward Mark Adjustment Payment, Credit Forward Mark Adjustment Payment, Debit GCF Forward Mark Adjustment Payment, and Credit GCF Forward Mark Adjustment Payment amounts. Historically, FICC has deposited amounts related to these FOS components at commercial banks that have paid interest on a daily basis, allowing FICC to pay its portion of the GCF Interest Adjustment Payment and the Interest Adjustment Payment components of FOS on a daily basis, within the time ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 21k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━