FICC clarifies rules for handling indirect participant defaults
Published Date: 6/23/2025
Notice
Summary
The Fixed Income Clearing Corporation (FICC) is updating its rulebook to make it easier for everyone to understand how defaults are handled, especially when indirect participants are involved. These changes also let indirect participant activity move smoothly between intermediaries and fix some technical details. This update affects members using FICC’s Government Securities Division and aims to keep the system safer and clearer, with no immediate cost changes announced.
Analyzed Economic Effects
6 provisions identified: 5 benefits, 0 costs, 1 mixed.
New Default Rules for Agent Clearing Service
FICC is adding new provisions to GSD Rule 8 that set out how the Agent Clearing Service operates in a default. The new rules describe voluntary termination, FICC's ability to suspend or cease to act for Agent Clearing Members, how Agent Clearing Transactions are handled on suspension or default, and the possibility to transfer Executing Firm Customer activity to another Agent Clearing Member under proposed Rule 26.
Porting of Indirect Participant Activity Allowed
FICC proposes new rules that would permit the porting (transfer) of indirect participant positions and margin between intermediary Netting Members both in the normal course of business and following the default of an intermediary. FICC says this porting tool would help indirect participants manage clearing activity, intermediary relationships, and exposure to a defaulting intermediary.
Segregated Customer Margin Protections Clarified
The amended GSD Rules clarify that Segregated Customer Margin supporting Segregated Indirect Participants must be calculated on a gross, participant-by-participant basis and credited to a specific Segregated Customer Margin Custody Account to be used exclusively for those participants' U.S. Treasury transactions; temporary prefunding by the Netting Member is a limited exception. These provisions align with Note H to Rule 15c3-3a and Section 1a of Rule 4.
Executing Firm Customers Not Liable for FICC Loss Allocations
The proposed Rule 8 changes state that Executing Firm Customers shall not be obligated for loss allocations or liabilities incurred by FICC under Rule 4; such obligations would be the responsibility of an Agent Clearing Member when losses arise in connection with Agent Clearing Transactions. This aligns the loss-allocation treatment with the Sponsored Service disclosures.
Clearer Default Rules for Sponsored Service
FICC is amending GSD Rule 3A to simplify and expand how defaults of Sponsoring Members and Sponsored Members are described. The changes consolidate Sections 13–16, add more detail on how Sponsored Member Trades are settled or closed out, and add a new option to transfer Sponsored Member positions to a different Sponsoring Member pursuant to proposed Rule 26.
Filing Notes No Immediate Cost Changes
FICC filed these proposed GSD rule changes on June 6, 2025, and the filing states the updates are intended to improve clarity and safety of default management and porting without announcing immediate cost or fee changes. The proposal focuses on rules and disclosures rather than changing pricing.
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