SEC opens proceedings on FICC's proposed Guaranty Fund for Treasury clearing

The Securities and Exchange Commission instituted proceedings on 5 Nov to decide whether to approve Fixed Income Clearing Corporation’s proposal to create a Guaranty Fund at its Government Securities Division (GSD). The order, Release No. 34-106834, was published in the Federal Register on 10 Nov. The Commission said institution of proceedings “does not indicate that the Commission has reached any conclusions with respect to any of the issues involved”. Further comments are due by 1 Dec, with rebuttals by 15 Dec.

FICC filed the proposed rule change, SR-FICC-2026-008, on 24 Jul and Partial Amendment No. 1 on 4 Aug. The Commission published the filing on 11 Aug and later extended its review, on 15 Sep. FICC also filed a related advance notice, SR-FICC-2026-802. The Commission has already received comments on the substance of the proposal, including letters from the Alternative Investment Management Association, SIFMA AMG, the Independent Dealer and Trader Association, Curvature Securities, ISDA and the Futures Industry Association, and DTCC.

What FICC would change

GSD is the CCP for US government securities, including repurchase and reverse repurchase transactions. It already collects risk-based margin into a Clearing Fund, which “currently operates as GSD’s default fund” and is designed to cover potential losses from the failure of the member or member family to which FICC has the largest credit exposure.

The proposal would add a separate Guaranty Fund, “designed to cover losses that may arise due to a Member default or a non-default loss event and enable FICC to support bankruptcy remote treatment for its Clearing Fund deposits”. New GSD Rule 4A would, among other things:

• size the fund from daily historical and hypothetical stress testing, at an amount sufficient to cover the stress-test deficiency that could arise from “the default of the two Netting Member Affiliated Families that would potentially cause the largest aggregate credit exposure for FICC in extreme but plausible market conditions (a “Cover 2 Standard” or “Cover 2 Requirement”)”
• require that “all deposits to the Guaranty Fund must be made in cash”
• give FICC “the authority to resize the Guaranty Fund on an intramonth basis if stress test deficiencies breach certain thresholds”

The Clearing Fund would be recast. The proposal would amend GSD Rule 4 and the Margin Component Schedule to “support bankruptcy remote treatment for Clearing Fund deposits” and to “exclude the Clearing Fund from loss mutualization”. FICC “would no longer have the authority to “borrow” Clearing Fund deposits of non-defaulting Members to provide liquidity to FICC to meet its settlement obligations”. It would instead have authority to exchange a member’s cash Clearing Fund deposit for US Treasury securities for that purpose. Fixed minimum Required Fund Deposit amounts would be eliminated, with the associated minimum cash composition requirements adjusted.

Loss allocation would move from Section 7 of Rule 4 into a new Rule 4C. The Guaranty Fund would be brought into the loss-allocation waterfalls and the Clearing Fund would stay out of mutualisation. FICC would “eliminate the concept of Tier One Netting Members and Tier Two Members and exclude CCIT Members and Registered Investment Company Netting Members from loss allocation”. It would also “adopt a new five-day “cooling off period”” for defaulting-member and declared non-default loss events, and “impose an assessment cap on loss allocation during each cooling-off period equal to two times (or 200 percent of) the Member’s Guaranty Fund requirement for each Event Period in lieu of the existing loss allocation rounds system”.

The Commission is examining the filing against Section 17A of the Exchange Act and several covered-clearing-agency standards in Rule 17ad-22, including those on credit risk, margin, liquidity, access and public disclosure.

Why it matters

Analysis. This is a redesign of GSD’s default resources, not a routine rule clean-up, and it lands as the Treasury clearing mandate approaches. Cash transactions are due to come into scope on 31 Dec 2026 and eligible repo on 30 Jun 2027 (our report). A larger, more mixed membership would be sharing default risk at a CCP whose present Clearing Fund is built on a Cover 1 concept.

If the proposal is approved, members would post cash to a mutualised Cover 2 Guaranty Fund and keep margin in a Clearing Fund that is meant to be bankruptcy-remote and outside loss mutualisation. The end of FICC’s ability to “borrow” non-defaulting members’ Clearing Fund deposits, and the new power to swap cash margin for Treasuries, would change the liquidity toolkit available on a stress day. The five-day cooling-off period and the 200 per cent assessment cap would also give firms a clearer, and tighter, bound on successive loss-allocation calls.

Those are balance-sheet, legal-entity and playbook questions for every netting member, not only for the largest dealer families. Firms will want to model two deposit calculations, the cash-only Guaranty Fund, the loss of fixed minimum Required Fund Deposits, and what an intramonth resize or a non-default loss event would do to funding. The comment file already shows both sell-side and buy-side interest. The next date that matters is 1 Dec.

What we are watching

• The comment letters and rebuttals filed in the proceedings, and any further amendment from FICC.
• How the Commission treats the related advance notice, SR-FICC-2026-802.
• Whether the review is completed before the 31 Dec cash-clearing compliance date.

Sources

• Release No. 34-106834 (SR-FICC-2026-008), U.S. Securities and Exchange Commission, 5 Nov 2026 (Federal Register, 10 Nov 2026)
• Release No. 34-106053 (SR-FICC-2026-008), U.S. Securities and Exchange Commission, 6 Aug 2026
• Comments on SR-FICC-2026-008, U.S. Securities and Exchange Commission