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Fixed Income Clearing Corporation Mortgage-Backed Securities

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Fixed Income Clearing Corporation Mortgage-Backed Securities EFFECTIVE AS OF July 19, 2021 FIXED INCOME CLEARING CORPORATION MORTGAGE-BACKED SECURITIES DIVISION CLEARING RULES TABLE OF CONTENTS RULES RULE 1 – DEFINITIONS .............................................................................................................. 5 RULE 2 - MEMBERS .................................................................................................................. 37 RULE 2A – INITIAL MEMBERSHIP REQUIREMENTS ......................................................... 38 RULE 3 - ONGOING MEMBERSHIP REQUIREMENTS ........................................................ 48 RULE 3A - CASH SETTLEMENT BANK MEMBERS............................................................. 60 RULE 4 – CLEARING FUND AND LOSS ALLOCATION ...................................................... 63 RULE 5 – TRADE COMPARISON............................................................................................. 79 RULE 6 – TBA NETTING ........................................................................................................... 84 RULE 7 – POOL COMPARISON AND OBLIGATIONS .......................................................... 86 RULE 8 – POOL NETTING AND EXPANDED POOL NETTING SYSTEMS ....................... 89 RULE 9 – POOL SETTLEMENT WITH THE CORPORATION .............................................. 91 RULE 10 – [RESERVED] ............................................................................................................ 96 RULE 11 – CASH SETTLEMENT .............................................................................................. 97 RULE 12 – FAILS CHARGE..................................................................................................... 104 RULE 13 – PROVISIONS REGARDING THE EXPIRATION OR EXERCISE OF OPTIONS ............................................................................................................................. 106 RULE 14 - RESTRICTIONS ON ACCESS TO SERVICES .................................................... 107 RULE 15 – WIND-DOWN OF A MEMBER ............................................................................ 110 RULE 16 - INSOLVENCY OF A MEMBER ............................................................................ 112 RULE 17 – PROCEDURES FOR WHEN THE CORPORATION CEASES TO ACT ............ 114 RULE 17A – CORPORATION DEFAULT .............................................................................. 119 RULE 17B – WIND-DOWN OF THE CORPORATION ......................................................... 121 RULE 18 - CHARGES FOR SERVICES RENDERED ............................................................ 131 RULE 19 - BILLS RENDERED ................................................................................................ 132 2 RULE 20 - ADMISSION TO PREMISES OF THE CORPORATION, POWERS OF ATTORNEY, ETC. ............................................................................................ 133 RULE 21 - FORMS .................................................................................................................... 134 RULE 22 - RELEASE OF CLEARING DATA ......................................................................... 135 RULE 23 - LISTS TO BE MAINTAINED ................................................................................ 136 RULE 24 - SIGNATURES ......................................................................................................... 137 RULE 25 - INSURANCE ........................................................................................................... 138 RULE 26 - FINANCIAL REPORTS AND INTERNAL ACCOUNTING CONTROL REPORTS ............................................................................................................................. 139 RULE 27 - RULE CHANGES ................................................................................................... 141 RULE 28 - HEARING PROCEDURES ..................................................................................... 142 RULE 29 – GOVERNING LAW AND CAPTIONS ................................................................. 145 RULE 30 - LIMITATIONS OF LIABILITY ............................................................................. 146 RULE 31 - GENERAL PROVISIONS....................................................................................... 149 RULE 32 - CROSS GUARANTY AGREEMENTS .................................................................. 150 RULE 33 - SUSPENSION OF RULES IN EMERGENCY CIRCUMSTANCES .................... 152 RULE 34 - ACTION BY THE CORPORATION ...................................................................... 153 RULE 35 - NOTICES ................................................................................................................. 154 RULE 36 - INTERPRETATION OF TERMS ........................................................................... 155 RULE 37 - INTERPRETATION OF RULES ............................................................................ 156 RULE 38 - DISCIPLINARY PROCEEDINGS ......................................................................... 157 RULE 39 – DTCC SHAREHOLDERS AGREEMENT ............................................................ 159 RULE 40 – MARKET DISRUPTION AND FORCE MAJEURE ............................................ 161 SCHEDULE OF HAIRCUTS FOR ELIGIBLE CLEARING FUND SECURITIES ........ 164 SCHEDULE OF CHARGES BROKER ACCOUNT GROUP ............................................ 166 SCHEDULE OF CHARGES DEALER ACCOUNT GROUP ............................................. 173 3 INTERPRETIVE GUIDANCE WITH RESPECT TO WATCH LIST CONSEQUENCES ............................................................................................................................. 182 INTERPRETIVE GUIDANCE WITH RESPECT TO SETTLEMENT FINALITY ........ 184 BY-LAWS AND RESTATED CERTIFICATE OF INCORPORATION .......................... 188 4 RULE 1 – DEFINITIONS* Unless the context requires otherwise, the terms defined in this Rule shall, for all purposes of these Rules, have the meanings herein specified. Account The term “Account” means any account maintained by the Corporation on behalf of a Clearing Member. An Account maintained for a Member acting as a Dealer is referred to as a “Dealer Account,” and an Account maintained for a Member acting as a Broker is referred to as a “Broker Account.” Acknowledgement Cutoff Time The term “Acknowledgement Cutoff Time” shall have the meaning given to that term in Section 9(b) of Rule 11. Actual Deposit The term “Actual Deposit” shall have the meaning given that term in Section 4 of Rule 4. Affiliate The term “Affiliate” shall have the meaning given that word in SEC Rule 405, promulgated under the authority of the Securities Act of 1933. Aggregated Account The term “Aggregated Account” means either a single Account linked to an aggregate ID or a set of Accounts linked to an aggregate ID for the processing of Transactions in the Clearing System. Pursuant to these Rules, Members’ Cash Settlement obligations and Mark-to-Market requirements are calculated on a net basis at the aggregate ID level. Applicant Questionnaire The term “Applicant Questionnaire” means the questionnaire required in Rule 2A to be completed and delivered to the Corporation by each applicant to become a Clearing Member. Appropriate Regulatory Agency The term “Appropriate Regulatory Agency” shall have the meaning given that term in Section 3(a)(34)(C) of the Exchange Act. * All products and services provided by the Corporation referenced in these Rules are either registered trademarks or servicemarks of, or trademarks or servicemarks of, The Depository Trust & Clearing Corporation or its affiliates. Other names of companies, products or services appearing in these Rules are the trademarks or servicemarks of their respective owners. 5 Average RFD The term “Average RFD” shall have the meaning given that term in Section 7 of Rule 4. Back-up Stress Testing Calculation The term “Back-up Stress Testing Calculation” means, with respect to each Clearing Member’s portfolio, a back-up method for calculating the stress profits and losses of each portfolio when the vendor fails to provide data to the Corporation. The Corporation shall (1) calculate each Clearing Member’s portfolio net exposures in four securitization programs,1 (2) calculate the historical stress return for each securitization program as the three-day price return for each securitization program index for each scenario date, and (3) calculate each Clearing Member’s stress profits and losses as the sum of the products of the net exposure of each securitization program and the stress return value for each securitization program. The Corporation shall use publicly available indices as the data source for the stress return calculations. Backtesting Charge The term “Backtesting Charge” means an additional charge that may be added to a Clearing Member’s VaR Charge to mitigate exposures to the Corporation caused by settlement risks that may not be adequately captured by the Corporation’s portfolio volatility model. The Backtesting Charge may apply to Clearing Members that have 12-month trailing backtesting coverage below the 99 percent backtesting coverage target. The Backtesting Charge shall generally be equal to the Clearing Member’s third largest deficiency that occurred during the previous 12 months. The Corporation may in its discretion adjust such charge if the Corporation determines that circumstances particular to a Clearing Member’s settlement activity
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