SEC Charges FICC With Inadequate Risk Management Policies

Fixed Income Clearing Corporation (“FICC”) Agrees To Pay $8 Million Penalty To Settle SEC Charges 

On October 29, 2021, the Securities and Exchange Commission announced that FICC, a clearing agency, has agreed to pay an $8 million penalty to settle SEC charges that it failed to have adequate risk management policies within its Government Securities Division.   

According to the SEC’s order, FICC acts as the sole registered clearing agency for transactions in U.S. government securities.  FICC substitutes itself for both sides of every transaction that it clears, guaranteeing those transactions and making itself the buyer for every seller and the seller for every buyer.  A failure by FICC to manage risk could result, according to the SEC, in significant costs not only to FICC and its participants, but also to other market participants or the broader U.S. financial system.

The SEC’s order found that between April 2017 and November 2018, FICC failed to comply with rules requiring it to have reasonably designed policies and procedures for holding sufficient qualifying liquid resources to meet the financial obligations created by the potential failure of a large participant. 

According to the order, FICC did not conduct required analysis of the reliability of its liquidity arrangements, and it failed to conduct required due diligence of its liquidity providers.  The SEC’s order also found that in 2015 and 2016, FICC failed to adhere to rules requiring it to have reasonably designed policies and procedures for maintaining and periodically reviewing its margin coverage.  According to the order, FICC failed to correct two erroneous assumptions that inflated its coverage even though both errors had been flagged as deficiencies by the SEC’s Division of Examinations.

The SEC’s order found that FICC, a wholly-owned subsidiary of The Depository Trust & Clearing Corporation, violated the Covered Clearing Agency Standards promulgated by the SEC under the Securities Exchange Act of 1934.  Without admitting or denying the SEC’s findings, FICC agreed to a censure and the $8 million penalty, as well as to cease and desist from future violations of the charged provisions.  FICC also agreed to retain an independent compliance consultant to assess its compliance efforts.


Kehoe Law Firm, P.C.