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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices
obligations. For a non-defaulting member to whom FICC has a payment obligation disrupted by a member default, a CCLF repo would extinguish and replace the original trade that gave rise to FICCs payment obligation.
FICC determines the total size of the CCLF based on FICCs potential cash settlement obligations that would result from the default of the member including affiliates presenting the largest liquidity need to FICC over a specified look-back period, plus an additional liquidity buffer. Under the proposal in the Advance Notice, FICC
would not change the method by which it determines the total size of the CCLF.
FICC uses a tiered approach to allocate the total size of the CCLF
among its members to arrive at the amount of each members CCLF
obligation. FICC allocates $15 billion of the total size of the CCLF among all members.40 FICC allocates the remainder of the total size of the CCLF
among members that generate liquidity needs above the $15 billion threshold based on the frequency that such members generate daily liquidity needs over $15 billion across supplemental liquidity tiers in $5 billion increments.
Specifically, FICC calculates a dollar amount for the CCLF obligation applicable to each supplemental liquidity tier. FICC allocates the CCLF
obligation for each supplemental liquidity tier to members on a pro-rata basis corresponding to the number of times each member generates liquidity needs within each supplemental liquidity tier.41

Member to the extent the Sponsoring Member runs a matched book of Sponsored Member trades. This is because to determine a Sponsoring Members CCLF obligation, FICC nets all of the positions recorded in the Sponsoring Members omnibus account regardless of whether they relate to the same Sponsored Member and separately nets all of the positions in the Sponsoring Members netting account.42
As a result, to the extent a Sponsoring Member enters into perfectly offsetting Sponsored Member trades i.e., the matched book scenario, the settlement obligations of those trades net out in the omnibus account and the netting account, with no resulting CCLF
obligation for the Sponsoring Member.
However, if a Sponsoring Member enters into a Sponsored Member trade without entering into an offsetting transaction, the Sponsoring Member is subject to CCLF obligations for the position of its Sponsored Member recorded in its omnibus account as well as its own position arising from the Sponsored Member trade recorded in its netting account. Although the positions in the Sponsoring Members omnibus account and netting account offset each other, FICC does not currently net such positions for CCLF purposes because CCLF allocations are determined at the participant account level.43 FICC
believes the foregoing scenario should not contribute to the Sponsoring Members CCLF obligation because, as described above in Section I.B, such offsetting obligations do not present liquidity risk to FICC.

2. Current CCLF Allocation Methodology for the Sponsored Service Currently, FICC does not impose a CCLF obligation on a Sponsoring
3. Proposed CCLF Allocation Methodology for the Sponsored Service As described above, trades between a Sponsoring Member and its Sponsored Member do not independently create liquidity risk for FICC, and, therefore, FICC believes that such trades should
40 FICC has determined that $15 billion is an appropriate amount for allocation to all members because the average members liquidity need from 20152016 was approximately $7 billion, with a majority of members approximately 85 percent having liquidity needs less than $15 billion. See Securities Exchange Act Release No. 82090
November 15, 2017, 82 FR 55427, 55430
November 21, 2017 SRFICC2017002.
41 For example, a member that generates daily liquidity needs in the $15$20 billion supplemental liquidity tier would incur a pro-rata share for the $15$20 billion supplemental liquidity tier only.
Another member that generates daily liquidity needs in the $20$25 billion supplemental liquidity tier would incur a pro-rata share for both the $15
$20 and $20$25 billion supplemental liquidity tiers. A third member that generates daily liquidity needs in the $65$70 billion supplemental liquidity tier would incur a pro-rata share for every supplemental liquidity tier. Each members pro-rata share is based on the frequency with which the member generates daily liquidity needs in each supplemental liquidity tier. See Securities Exchange Act Release No. 80234 March 14, 2017, 82 FR 14401, 1440405 March 20, 2017 SR
FICC2017002.

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42 See Rule 3A, Section 8b and Rule 22A, Section 2ab, supra note 4.
43 This limitation on offset is consistent with FICCs approach of not offsetting the positions of two accounts of the same member for CCLF
purposes. However, FICC notes an important difference between Sponsored Member trades and other FICC repo activity. See Notice of Filing, supra note 5 at 29842. Specifically, as mentioned above in Section I.A.2., the Sponsored Service requires a Sponsoring Member to maintain an omnibus account that is separate from its netting account. In contrast, for all other repo activity, members have the option to collapse all of their activity into a single participant account in order to achieve a similar netting benefit. Sponsoring Members do not have that option with respect to their Sponsored Member trades. Therefore, FICC believes this proposed change is necessary to ensure that a Sponsoring Members CCLF obligations are calculated in a manner that more closely aligns with the liquidity risk associated with Sponsored Member trades. Id.

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not affect the Sponsoring Members CCLF obligation. To ensure that a Sponsoring Members CCLF obligation is calculated to reflect the lack of liquidity risk to FICC associated with Sponsored Member trades, FICC
proposes to take into account, for CCLF
calculation purposes, any offsetting settlement obligations between a Sponsoring Members netting account and its omnibus account. This proposed change would ensure that all Sponsored Member trades, whether perfectly offset by other Sponsored Member trades i.e., the matched book scenario or not, would be recognized for CCLF purposes as not affecting FICCs liquidity risk.
This proposed change would also apply to trades in the new Sponsored GC
Service.44
Although, as noted above, the proposal in the Advance Notice would not affect the method by which FICC
determines the total CCLF amount, FICCs proposal to net offsetting trades between a Sponsoring Member and its Sponsored Member for CCLF
calculation purposes would affect the allocation of CCLF obligations over $15
billion to other members. Specifically, as described above, under the current Rules, if a Sponsoring Member enters into a Sponsored Member trade without entering into an offsetting transaction, the Sponsoring Member is subject to CCLF obligations for the position of its Sponsored Member recorded in its omnibus account as well as its own position arising from the Sponsored Member trade recorded in its netting account. Under the proposal, the Sponsoring Member would not incur CCLF obligations for such transactions.
Therefore, a Sponsoring Members peak daily liquidity is currently higher than it would be under the proposal. This, in turn, may decrease the frequency with which a Sponsoring Members daily peak liquidity reaches into higher supplemental liquidity tiers. As a result, 44 For Sponsored GC Trades, this proposed change would ensure that FICC applies an appropriate CCLF obligation to a Sponsoring Member in the event a Sponsored GC Clearing Agent Bank allocates to a Sponsored GC Trade a different security than the security that underlies an offsetting Sponsored Member Trade. For example, a Sponsoring Member may enter into a Sponsored GC Trade on a Generic CUSIP Number and a separate offsetting Sponsored Member trade in a specific CUSIP Number. Although the specific CUSIP Number might also be an eligible security under the Generic CUSIP Number underlying the Sponsored GC Trade, the Sponsored GC Clearing Agent Bank could allocate to the Sponsored GC
Trade a different eligible CUSIP Number from the list of eligible securities. FICCs proposed change would offset these positions across the Sponsoring Members netting account and omnibus account to ensure that the CCLF obligation applicable to the Sponsoring Member accurately reflects the liquidity risk associated with those positions.

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