The Fixed Income Clearing Corporation (FICC), a key clearing agency for fixed-income securities, filed a proposed rule change on November 25, 2025, with the Securities and Exchange Commission (SEC). Effective immediately under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, the change amends rules for its Mortgage-Backed Securities Division (MBSD) and Government Securities Division (GSD). It establishes standards for designating members, limited members, and settling banks required to participate in annual testing of FICC's recovery and wind-down plan. This move addresses new SEC mandates aimed at bolstering the resilience of covered clearing agencies amid potential financial stresses. The filing, published in the Federal Register on December 9, 2025, underscores FICC's efforts to ensure operational continuity in extreme scenarios, potentially affecting how market participants prepare for disruptions in the multitrillion-dollar fixed-income markets.
Background on FICC and Recovery Planning
FICC operates as a subsidiary of the Depository Trust & Clearing Corporation (DTCC) and provides central clearing services for U.S. Treasury securities, agency debt, and mortgage-backed securities. Its role is critical in mitigating counterparty risk and facilitating efficient settlement. The proposed rule change builds on existing requirements under MBSD Rule 3 and GSD Rule 3, which already mandate operational testing for business continuity and disaster recovery. Now, it extends similar standards to recovery and wind-down testing, driven by SEC Rule 17ad-26, adopted in October 2024.
SEC Rule 17ad-26 requires covered clearing agencies like FICC to maintain plans for recovery from severe losses and orderly wind-down if necessary. A key element, outlined in subsection (a)(8), mandates annual testing of these plans, including participation from members and, where practicable, other stakeholders. FICC's recovery and wind-down plan was updated and approved by the SEC in June 2025 to comply with this rule. The current filing operationalizes that by embedding testing requirements directly into FICC's rulebooks.
Historically, clearing agencies have faced scrutiny following events like the 2008 financial crisis, which highlighted vulnerabilities in over-the-counter markets. Legal precedents, such as the Dodd-Frank Act's Title VII, emphasized central clearing to reduce systemic risk. Political forces, including regulatory pushes from the SEC under various administrations, have shaped these frameworks. For instance, the 2024 adopting release for Rule 17ad-26 cited the need for resilience against credit losses, liquidity shortfalls, and operational failures, reflecting ongoing debates in Congress and among industry groups about balancing innovation with stability.
Key Elements of the Proposed Rule Change
The amendments specify that FICC will designate participants for annual recovery and wind-down plan testing based on defined standards. These include factors such as account structure, affiliated family structure, business model, operational details, and size in terms of trading and settlement activity. The terms 'Members,' 'Limited Members,' and 'Settling Banks' are defined as in MBSD Rule 17B and GSD Rule 22D, focusing on entities most impacted by a potential FICC wind-down.
FICC retains authority to determine the scope of testing and reporting of results, with participants required to comply within specified timeframes. The filing states that FICC will provide information on participant selection and testing elements to relevant stakeholders. This approach mirrors existing business continuity testing but targets recovery scenarios, such as default management or orderly liquidation.
In the filing, FICC explains: 'The proposed rule change is intended to provide consistency with the RWP Testing requirements of Rule 17ad-26 promulgated under the Act by the Commission.' It references the SEC's adopting release, which emphasizes testing to ensure plans are implementable. No immediate burdens are noted, as participants already engage in similar operational tests.
Perspectives and Implications
From a regulatory perspective, the change aligns FICC with broader SEC goals for systemic risk management, as seen in rules like 17ad-22(e)(3)(ii), which requires sound risk frameworks including recovery plans. Industry groups, such as the Securities Industry and Financial Markets Association (SIFMA), have generally supported enhanced testing, viewing it as a safeguard for market stability. However, smaller members might see added compliance costs, though FICC asserts no significant burden on competition, given existing testing obligations.
Short-term implications include improved preparedness among designated participants, potentially through simulations of default or liquidity crises. This could reveal gaps in FICC's processes, allowing refinements before real-world application. Long-term, it may influence how clearing agencies globally approach resilience, especially amid evolving threats like cyberattacks or economic downturns. Critics from a free-market viewpoint might argue it imposes unnecessary regulatory layers, while proponents highlight benefits in preventing cascading failures, as evidenced by the 2020 market volatility during the COVID-19 pandemic.
The filing notes the rule becomes operative on December 15, 2025, matching the SEC's compliance deadline for Rule 17ad-26. This timeline reflects coordinated regulatory implementation, with potential for public comments to shape final outcomes.
In summary, FICC's proposed rule change establishes a structured framework for annual testing of its recovery and wind-down plan, ensuring compliance with SEC Rule 17ad-26. Key takeaways include defined standards for participant selection and FICC's authority over testing scope. Looking ahead, potential next steps involve FICC conducting its first full test cycle, incorporating feedback from participants and regulators. Ongoing challenges may include adapting to emerging risks, such as technological disruptions, and balancing testing rigor with operational efficiency. Debates could center on expanding stakeholder involvement or harmonizing with international standards, like those from the Committee on Payments and Market Infrastructures.
