FICC Proposes Self-Reporting and Disciplinary Requirements

The Fixed Income Clearing Corporation ("FICC") proposed restructuring its rulebook and clarifying obligations for clearing members to clear trades in U.S. government securities.

In the proposed rulemaking, FICC said the purpose is to amend the Depository Trust Company ("DTC") Operational Arrangements ("Necessary for Securities to Become and Remain Eligible for DTC Services"). On compliance, the proposal would rely on member self-reporting - obligating members to notify FICC of non-compliance - and FICC's existing authority to review members' books and records. It would also add disciplinary measures, including a fine and notice to regulators, with the fine waived for members that self-report and fix the lapse within a set time. FICC said the proposal would consolidate these rules in what is now rule 5 in FICC's rulebook.

Specifically, as to trades that are required to be cleared FICC set the following rules:

Prohibition Against Pre-Netting

• Trade-by-Trade Submission: All trade data must be submitted individually, with original terms unaltered.
• No Compression: Members may not summarize, compress, or combine trades before submitting them to FICC.

Self-Reporting of Non-Compliance

• 30-Day Notice: Netting Members must notify FICC in writing within 30 calendar days of learning they are out of compliance.
• Required Details: Approximate duration of non-compliance; remediation steps and expected timeline; and the name and contact information of the Controlling Management member overseeing the issue.

Information Sharing and Inspections

• Netting Members must agree to Submit Reports: Provide any reasonably requested reports, trade data, or compliance policies.
• Netting Members must agree to Allow Inspections: Permit FICC to inspect their books and records.
• Netting Members must agree to Authorize Regulatory Sharing: Allow FICC to obtain relevant information directly from the member's Designated Examining Authority (DEA) or Appropriate Regulatory Agency (ARA).

Consolidated Bank Memberships

• Single Entity Rule: A bank and its branches are one legal entity and must operate under a single Bank Netting Membership, not separate affiliate memberships.