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.
This Statement represents the views of the Division of Investment Management. This Statement is not a rule, regulation or statement of the Commission, and the Commission has neither approved nor disapproved its content. This Statement, like all staff statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
[1] 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, Release No. 34-99149 (Dec. 13, 2023) (“Adopting Release”). FICC has submitted to the Commission proposed amendments to the Government Securities Division Rulebook (“FICC Rules”) as required by the Final Rules. See Release No. 34-99817; File No. SR-FICC-2024-005 (Mar. 21, 2024); Release No. 34-99844; File No. SR-FICC-2024-007 (Mar. 22, 2024); and Release No. 34-100417; File No. SR-FICC-2024-009 (June 25, 2024). The Commission issued orders under Rule 19b-4 on November 21, 2024, approving FICC’s proposed amendments in File No. SR-FICC-2024-005 and File No. SR-FICC-2024-007. FICC’s proposed amendments in File No. SR-FICC-2024-009, which are still under consideration by the Commission, do not form a basis for the staff views reflected in this Statement.
[2] See generally Adopting Release at n.149 and associated discussion (noting that this period was intended to provide time for market participants to consider other potential frameworks for the posting of registered fund margin to satisfy FICC’s margin deposit requirements and to gain insight into the merits of such frameworks). This Statement does not limit the ability of market participants to continue to consider alternate frameworks, which may include margin posting, and staff welcomes engagement with market participants as they consider such frameworks.
[3] FICC refers to the Sponsored Program as the “Sponsored Service.” See Rule 3A of FICC Rules.
[4] See Adopting Release at pp. 51-53. The Commission also took a related position, subject to certain conditions, with respect to a registered fund’s cash and/or securities placed and maintained with a sponsoring member that is a member of a national securities exchange. See Adopting Release at pp. 54-55. This Statement does not address that related Commission position.
[5] See 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, Release No. 34-101695 (Nov. 21, 2024); see also Adopting Release.
