FIXED INCOME CLEARING CORPORATION MORTGAGE-BACKED

FIXED INCOME CLEARING CORPORATION

MORTGAGE-BACKED SECURITIES DIVISION

CLEARING RULES

EFFECTIVE AS OF JUNE 21, 2024

TABLE OF CONTENTS

RULES

RULE 1 – DEFINITIONS .............................................................................................................. 5

RULE 2 – MEMBERS.................................................................................................................. 38

RULE 2A – INITIAL MEMBERSHIP REQUIREMENTS ......................................................... 39

RULE 3 – ONGOING MEMBERSHIP REQUIREMENTS ....................................................... 50

RULE 3A – CASH SETTLING BANK MEMBERS................................................................... 63

RULE 4 – CLEARING FUND AND LOSS ALLOCATION ...................................................... 67

RULE 5 – TRADE COMPARISON............................................................................................. 82

RULE 6 – TBA NETTING ........................................................................................................... 87

RULE 7 – POOL COMPARISON AND OBLIGATIONS .......................................................... 89

RULE 8 – POOL NETTING AND EXPANDED POOL NETTING SYSTEMS ....................... 92

RULE 9 – POOL SETTLEMENT WITH THE CORPORATION .............................................. 94

RULE 10 – [RESERVED] ........................................................................................................... 99

RULE 11 – CASH SETTLEMENT ............................................................................................ 100

RULE 12 – FAILS CHARGE..................................................................................................... 108

RULE 13 – PROVISIONS REGARDING THE EXPIRATION OR EXERCISE OF OPTIONS

............................................................................................................................. 110

RULE 14 – RESTRICTIONS ON ACCESS TO SERVICES .................................................... 111

RULE 15 – WIND-DOWN OF A MEMBER ............................................................................ 114

RULE 16 – INSOLVENCY OF A MEMBER ........................................................................... 116

RULE 17 – PROCEDURES FOR WHEN THE CORPORATION CEASES TO ACT ............ 118

RULE 17A – CORPORATION DEFAULT .............................................................................. 124

RULE 17B – WIND-DOWN OF THE CORPORATION ......................................................... 126

RULE 18 – CHARGES FOR SERVICES RENDERED ........................................................... 136

RULE 19 – BILLS RENDERED ................................................................................................ 137

RULE 20 – ADMISSION TO PREMISES OF THE CORPORATION, POWERS OF

ATTORNEY, ETC. ............................................................................................ 138

RULE 21 – FORMS.................................................................................................................... 139

RULE 22 – RELEASE OF CLEARING DATA ........................................................................ 140

RULE 23 – LISTS TO BE MAINTAINED ............................................................................... 141

RULE 24 – SIGNATURES ........................................................................................................ 142

RULE 25 – INSURANCE .......................................................................................................... 143

RULE 26 – FINANCIAL REPORTS AND INTERNAL ACCOUNTING CONTROL

REPORTS ........................................................................................................... 144

RULE 27 – RULE CHANGES ................................................................................................... 146

RULE 28 – HEARING PROCEDURES .................................................................................... 147

RULE 29 – GOVERNING LAW AND CAPTIONS ................................................................. 150

RULE 30 – LIMITATIONS OF LIABILITY ............................................................................ 151

RULE 31 – GENERAL PROVISIONS ...................................................................................... 154

RULE 32 – CROSS GUARANTY AGREEMENTS ................................................................. 155

RULE 33 – SUSPENSION OF RULES IN EMERGENCY CIRCUMSTANCES ................... 157

RULE 34 – ACTION BY THE CORPORATION ..................................................................... 158

RULE 35 – NOTICES ................................................................................................................ 159

RULE 36 – INTERPRETATION OF TERMS ........................................................................... 160

RULE 37 – INTERPRETATION OF RULES ........................................................................... 161

RULE 38 – DISCIPLINARY PROCEEDINGS ......................................................................... 162

RULE 39 – DTCC SHAREHOLDERS AGREEMENT ............................................................ 164

RULE 40 – MARKET DISRUPTION AND FORCE MAJEURE ............................................ 166

RULE 40A – SYSTEMS DISCONNECT: THREAT OF SIGNIFICANT IMPACT TO THE

CORPORATION’S SYSTEMS ......................................................................... 169

SCHEDULE OF CHARGES BROKER ACCOUNT GROUP ............................................ 171

SCHEDULE OF CHARGES DEALER ACCOUNT GROUP ............................................. 178

INTERPRETIVE GUIDANCE WITH RESPECT TO WATCH LIST CONSEQUENCES

............................................................................................................................. 187

INTERPRETIVE GUIDANCE WITH RESPECT TO SETTLEMENT FINALITY ........ 189

BY-LAWS AND RESTATED CERTIFICATE OF INCORPORATION .......................... 192

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 (which

shall include the 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.

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.

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.

Average RFD

The term “Average RFD” shall have the meaning given that term in Section 7 of Rule 4.

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 and/or market price volatility warrant a different approach to

determining or applying such charge in a manner consistent with achieving the

Corporation’s backtesting coverage target.

Bank Clearing Member

The term “Bank Clearing Member” shall have the meaning given that term in Section 1 of

Rule 2A.

Board or Board of Directors

The terms “Board” or “Board of Directors” mean the Board of Directors of the Fixed

Income Clearing Corporation or a committee thereof acting under delegated authority.

Broker

The term “Broker” means a Member that is in the business of buying and selling securities

as agent on behalf of Dealers.

Brokered Transaction

The term “Brokered Transaction” means any transaction calling for the delivery of an

Eligible Security the data on which has been submitted to the Corporation by Members, to

which transaction a Broker is a party.

Business Day

The term “Business Day” means any day on which the Corporation is open for business.

Cash Balance

The term “Cash Balance” means the net amount computed by the Corporation each

Business Day with respect to each Aggregated Account pursuant to Rule 11.

Cash Settlement

The term “Cash Settlement” refers to the payment each Business Day by the Corporation

to a Member or by a Member to the Corporation pursuant to Rule 11.

Cash Settling Bank Member

The term “Cash Settling Bank Member” means a bank, trust company or other entity

specified in these Rules that has qualified pursuant to the provisions of these Rules and

which is a party to an effective “Appointment of Cash Settling Bank and Cash Settling

Bank Agreement” whereby the Cash Settling Bank undertakes to perform cash settlement

services for the Member which also is a party thereto. The term “Cash Settling Bank

Member” shall be used interchangeably with the term “Cash Settling Bank”.

CET1 Capital

The term “CET1 Capital” means an entity’s common equity tier 1 capital, calculated in

accordance with such entity’s regulatory and/or statutory requirements.

CFTC

The term “CFTC” means the Commodity Futures Trading Commission.

CFTC-Recognized Clearing Organization

The term “CFTC-Recognized Clearing Organization” means a clearing organization that

is affiliated with, or designated by, a contracts market or markets trading specific futures

products, and is under the oversight of the CFTC.

Claimable Unit

The term “Claimable Unit” means (a) for CPR Claims relating to pool allocations or

substitutions for Pool Deliver Obligations that have been allocated after the Factor Release

Date following the Contractual Settlement Date, the group of pools allocated between one

Factor Release Date and the next Factor Release Date for a given TBA transaction and (b)

for CPR Claims relating to pool substitutions for Pool Deliver Obligations that are a result

of Pool Netting, the sum of a Clearing Member’s netting output generated from any given

Pool Netting cycle that has the same trade terms, including TBA CUSIP Number,

Contractual Settlement Date, price and buy/sell indicator.

Clearance Date

The term “Clearance Date” means the date on which the parties to a Transaction actually

deliver and pay for Eligible Securities as reported to the Corporation, which may be a date

other than the Contractual Settlement Date.

Clearance Difference Amount

The term “Clearance Difference Amount” means the dollar difference between the

Settlement Value of a Pool Deliver Obligation or a Pool Receive Obligation and the actual

value at which such Pool Deliver Obligation or Pool Receive Obligation was settled.

Clearing Agency

The term “Clearing Agency” shall have the meaning given it in Section 3(a)(23) of the

Exchange Act.

Clearing Fund

The term “Clearing Fund” means the Clearing Fund established by the Corporation

pursuant to these Rules, which shall be comprised of the aggregate of all Required Fund

Deposits and all other deposits, including Cross-Guaranty Repayment Deposits.

Clearing Fund Cash

The term “Clearing Fund Cash” shall have the meaning given that term in Section 3a of

Rule 4.

Clearing Member

The term “Clearing Member” means any entity admitted into membership pursuant to Rule

2A.

Clearing Organization

The term “Clearing Organization” means a Clearing Agency, Derivatives Clearing

Organization, CFTC-Recognized Clearing Organization, and/or Self-Regulatory

Organization, and any other organization performing a similar function, whether or not

regulated by the SEC or the CFTC, in which a Member is a member or participant.

Clearing System

The term “Clearing System” means the (i) System of services provided by the Corporation

to Persons that are Members thereof, including Trade Comparison, TBA Netting, Pool

Comparison, Pool Netting, and settlement, as applicable, and (ii) operations carried out by

the Corporation in the course of providing such services, as provided in these Rules.

Close of Business

The term “Close of Business” means, with respect to a Business Day, 5:00 p.m. on such

Business Day, unless otherwise determined by the Corporation as the result of delay in the

close of Fedwire.

Commodity Exchange Act

The term “Commodity Exchange Act” means the Commodity Exchange Act, as amended.

Compared Trade

The term “Compared Trade” means a trade the data on which has been compared or

deemed compared pursuant to Rule 5 or Rule 7, as applicable.

Contractual Settlement Date

The term “Contractual Settlement Date” means, in the case of a Trade-for-Trade

Transaction, Specified Pool Trade, SBO-Destined Trade, Stipulated Trade, SBON Trade

and Pool Net Settlement Position, the settlement date mutually agreed to by the parties to

the Transaction.

Controlling Management

The term “Controlling Management” shall mean the Chief Executive Officer, the Chief

Financial Officer, and the Chief Operations Officer, or their equivalents, of an applicant or

Member.

Corporate Contribution

The term “Corporate Contribution” shall have the meaning given that term in Section 7a

of Rule 4.

Corporation

The term “Corporation” means the Fixed Income Clearing Corporation, the owner of the

Mortgage-Backed Securities Division. Where these Rules refer to action taken by “the

Corporation,” the term should be understood to mean the management of the Fixed Income

Clearing Corporation, unless otherwise specified.

CPR Claim

The term “CPR Claim” shall have the meaning set forth in Section 10 of Rule 9.

Credit Risk Rating Matrix

The term “Credit Risk Rating Matrix” means a matrix of credit ratings of Members

specified in Section 11 of Rule 3. The matrix is developed by the Corporation to evaluate

the credit risk such Members pose to the Corporation and its Members and is based on

factors determined to be relevant by the Corporation from time to time, which factors are

designed to collectively reflect the financial and operational condition of a Member. These

factors include (i) quantitative factors, such as capital, assets, earnings, and liquidity, and

(ii) qualitative factors, such as management quality, market position/environment, and

capital and liquidity risk management.

Cross-Guaranty Agreement

The term “Cross-Guaranty Agreement” shall mean any netting contract, limited cross-

guaranty, or similar agreement between the Corporation and (i) any Clearing Organization,

or (ii) any other domestic or foreign clearinghouse, clearing association, clearing

corporation or similar organization.

Cross-Guaranty Beneficiary Member

The term “Cross-Guaranty Beneficiary Member” shall have the meaning given to such

term in Rule 32.

Cross-Guaranty Counterparty

The term “Cross-Guaranty Counterparty” shall mean any party, other than the Corporation,

to a Cross-Guaranty Agreement.

Cross-Guaranty Defaulting Member

The term “Cross-Guaranty Defaulting Member” shall mean a Defaulting Member on

account of which the Corporation makes or receives a Cross-Guaranty Payment.

Cross-Guaranty Payment

The term “Cross-Guaranty Payment” shall mean any payment, other than a Cross-Guaranty

Repayment, that the Corporation makes or receives pursuant to a Cross-Guaranty

Agreement.

Cross-Guaranty Repayment

The term “Cross-Guaranty Repayment” shall mean (i) any amount of a Cross-Guaranty

Payment received by the Corporation that the Corporation (A) repays to a Cross-Guaranty

Counterparty pursuant to a Cross-Guaranty Agreement or (B) pays over to a Defaulting

Member or its legal representative pursuant to a court order or judgment or (ii) any amount

of a Cross-Guaranty Payment made by the Corporation that the Corporation receives back

from a Cross-Guaranty Counterparty pursuant to a Cross-Guaranty Agreement.

Cross-Guaranty Repayment Deposit

The term “Cross-Guaranty Repayment Deposit” shall mean the deposit to the Clearing

Fund required to be made by a Cross-Guaranty Beneficiary Member pursuant to Section 4

of Rule 32.

CUSIP Number

The term “CUSIP Number” means the Committee on Uniform Securities Identification

Procedures identifying number for an Eligible Security.

Cybersecurity Confirmation

The term “Cybersecurity Confirmation” means a written document provided to the

Corporation by all Members and applicants for membership that confirms the existence of

an information system cybersecurity program and includes the representations listed

below.

Each Cybersecurity Confirmation shall (1) be on a form provided by the Corporation;

(2) be signed by a designated senior executive of the Member or applicant who is

authorized to attest to these matters; and (3) include the following representations, made

with respect to the two years prior to the date of the Cybersecurity Confirmation:

1. The Member or applicant has defined and maintains a comprehensive cybersecurity

program and framework that considers potential cyber threats that impact their

organization and protects the confidentiality, integrity and availability requirements of

their systems and information.

2. The Member or applicant has implemented and maintains a written enterprise

cybersecurity policy or policies approved by senior management or the organization’s

board of directors, and the organization’s cybersecurity framework is in alignment with

standard industry best practices and guidelines, as indicated on the form of

Cybersecurity Confirmation.

3. If using a third party service provider or service bureau(s) to connect or transact

business or to manage the connection with the Corporation, the Member or applicant

has an appropriate program to (a) evaluate the cyber risks and impact of these third-

parties, and (b) review the third-party assurance reports.

4. The cybersecurity program and framework protect the segment of the Member’s or

applicant’s system that connects to and/or interacts with the Corporation.

5. The Member or applicant has in place an established process to remediate cyber issues

identified to fulfill the Member’s or applicant’s regulatory and/or statutory

requirements.

6. The cybersecurity program’s and framework’s risk processes are updated periodically

based on a risk assessment or changes to technology, business, threat ecosystem, and/or

regulatory environment.

7. A comprehensive review of the Member’s or applicant’s cybersecurity program and

framework has been conducted by one of the following:

• The Member or applicant, if that organization has filed and maintains a current

Certification of Compliance with the Superintendent of the New York State

Department of Financial Services pursuant to 23 NYCRR 500;

• A regulator who assesses the program against a designated cybersecurity

framework or industry standard, including those that are listed on the form of the

Cybersecurity Confirmation and in an Important Notice issued by the Corporation

from time to time;

• An independent external entity with cybersecurity domain expertise, including

those that are listed on the form of the Cybersecurity Confirmation and in an

Important Notice issued by the Corporation from time to time; and

• An independent internal audit function reporting directly to the board of directors

or designated board of directors committee of the Member or applicant, such that

the findings of that review are shared with these governance bodies.

Dealer

The term “Dealer” means a Member that is in the business of buying and selling Securities

as principal, either directly or through a Broker.

Dealer Clearing Member

The term “Dealer Clearing Member” shall have the meaning set forth in Section 1 of Rule

2A.

Declared Non-Default Loss Event

The term “Declared Non-Default Loss Event” shall have the meaning given that term in

Section 7 of Rule 4.

Defaulting Member

The term “Defaulting Member” means a Member that is treated by the Corporation as

insolvent and/or for which the Corporation has ceased to act pursuant to these Rules.

Defaulting Member Event

The term “Defaulting Member Event” shall have the meaning given that term in Section 7

of Rule 4.

Delivery Date

The term “Delivery Date” means the earliest date on which pools can be delivered in

satisfaction of a trade, as per mutual agreement between buyer and seller.

Derivatives Clearing Organization or “DCO”

The term “Derivatives Clearing Organization or “DCO” shall have the meaning given such

term in Section 1a(9) of the Commodity Exchange Act.

Designated Examining Authority

The term “Designated Examining Authority” shall mean (1) in the case of a broker or dealer

registered pursuant to Section 15 or 15C of the Exchange Act that belongs to only one Self-

Regulatory Organization, such Self-Regulatory Organization, and (2) in the case of a

broker or dealer registered pursuant to Section 15 or 15C of the Exchange Act that belongs

to more than one Self-Regulatory Organization, the Self-Regulatory Organization

designated by the SEC pursuant to Section 17(d) of the Exchange Act as the entity with

responsibility for examining such broker or dealer.

Designee

The term “Designee” means a service provider designated by a Member either orally or in

writing to provide the Corporation with instructions on behalf of the Member.

The term “DK” means a statement submitted to the Corporation by a Member that the

Member “does not know” (i.e., denies the existence of) a Transaction reported to the

Member by the Corporation.

Do Not Allocate

The term “Do Not Allocate” means the process by which Clearing Members that have two

or more Trade-for-Trade Transactions and/or SBON Trades with the same Par Amount,

CUSIP Number and established date in the settlement cycle, may offset such transactions

against one another.

Do Not Allocate Transaction Adjustment Payment

The term “Do Not Allocate Transaction Adjustment Payment” means the amount equal to

the difference between the Settlement Price of the buy and sell TBA Obligation

transactions multiplied by the contractual quantity. To differentiate between a buy and sell

transaction, an indicator of -1 for a buy trade and +1 for a sell trade is multiplied by the

contractual quantity of such trade.

DTC

The term “DTC” means The Depository Trust Company.

DTC Settling Bank

The term “DTC Settling Bank” means an entity that qualifies as a settling bank under

DTC’s rules and has been approved as such by DTC.

DTCC

The term “DTCC” means The Depository Trust & Clearing Corporation.

DTCC Confidential Information

The term “DTCC Confidential Information” shall mean all non-public information

provided by DTCC and/or the Corporation that (i) is marked or otherwise identified in

writing prior to disclosure to the recipient as confidential, (ii) is designated by DTCC or

the Corporation as confidential, or (iii) the recipient knows or, under the circumstances

surrounding disclosure, ought to reasonably know is confidential.

Eligible Clearing Fund Agency Security

The term “Eligible Clearing Fund Agency Security” means a direct obligation of those U.S.

agencies or government sponsored enterprises as the Corporation may designate from time

to time, and that satisfies such criteria set forth in notices issued by the Corporation from

time to time.

Eligible Clearing Fund Mortgage-Backed Security

The term “Eligible Clearing Fund Mortgage-Backed Security” means a mortgage-backed

pass through obligation issued by those U.S. agencies or Government Sponsored

Enterprises as the Corporation may designate from time to time, and that satisfies such

criteria set forth in notices issued by the Corporation from time to time.

Eligible Clearing Fund Security

The term “Eligible Clearing Fund Security” means an unmatured bond which is either an

Eligible Clearing Fund Agency Security, an Eligible Clearing Fund Mortgage-Backed

Security or an Eligible Clearing Fund Treasury Security.

Eligible Clearing Fund Treasury Security

The term “Eligible Clearing Fund Treasury Security” means a direct obligation of the U.S.

government that satisfies the criteria set forth in notices issued by the Corporation from

time to time.

Eligible Security

The term “Eligible Security” means a Security that the Corporation has determined to be

eligible for services provided by the Corporation in any System pursuant to these Rules. A

security of an issuer that is listed on the Office of Foreign Assets Control (“OFAC”) list of

specially designated nationals distributed by the U.S. Department of the Treasury, or of an

issuer that is incorporated in a country that is on the OFAC list of countries subject to

comprehensive sanctions, shall not be an “Eligible Security”.

EPN Rules

The term “EPN Rules” means the rules of the Corporation relating to the EPN Service, as

amended from time to time.

EPN Service

The term “EPN Service” means the Corporation’s electronic pool notification service that

enables Clearing Members and EPN Users to electronically communicate pool information

to other EPN Users or the Corporation, as described in these Rules or the Corporation’s

EPN Rules.

Event Period

The term “Event Period” shall have the meaning given that term in Section 7 of Rule 4.

Excess Adjusted Net Capital

The term “Excess Adjusted Net Capital” means, as of a particular date, the amount equal

to the difference between the adjusted net capital of a Futures Commission Merchant and

the minimum adjusted net capital that such Futures Commission Merchant must have to

comply with the requirements of 17 C.F.R. Section 1.17(a)(1) or (a)(2), or any successor

rule or regulation thereto.

Excess Capital

The term “Excess Capital” means Excess Net Capital, net assets, or equity capital as

applicable to a Clearing Member based on its type of regulation.

Excess Capital Differential

The term “Excess Capital Differential” means the amount by which a Member’s VaR

Charge exceeds its Excess Capital.

Excess Capital Ratio

The term “Excess Capital Ratio” means the quotient, rounded to the nearest two decimal

places, resulting from dividing the amount of a Member’s VaR Charge by the amount of

its Excess Capital that it maintains.

Excess Clearing Fund Deposit

The term “Excess Clearing Fund Deposit” shall have the meaning given that term in

Section 10 of Rule 4

Excess Liquid Capital

The term “Excess Liquid Capital” means, as of a particular date, the amount equal to the

difference between the Liquid Capital of a Government Securities Broker or Government

Securities Dealer and the minimum Liquid Capital that such Government Securities Broker

or Government Securities Dealer must have to comply with the requirements of 17 C.F.R.

Section 402.2(a), (b) and (c), or any successor rule or regulation thereto.

Excess Net Capital

The term “Excess Net Capital” means, as of a particular date, the amount equal to the

difference between the Net Capital of a broker or dealer and the minimum Net Capital such

broker or dealer must have to comply with the requirements of SEC Rule 15c3-1(a), or any

successor rule or regulation thereto.

Exchange Act

The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Expanded Pool Net Transaction Adjustment Payment

The term “Expanded Pool Net Transaction Adjustment Payment” means the amount equal

to the difference between the System Price and the SBON Trade’s Settlement Price or

Trade-for-Trade Transaction’s Settlement Price, as applicable, multiplied by the total

current face of the pools used to satisfy such obligation, then divided by 100. To

differentiate between a buy and sell transaction, an indicator of +1 for a buy trade and -1

for a sell trade would be multiplied by the total current face of the pools used to satisfy the

obligation.

Expanded Pool Netting

The term “Expanded Pool Netting” means the netting process that captures pool allocations

when a Clearing Member has missed the deadline established by the Corporation for the

Pool Netting process.

Factor Release Date

The term “Factor Release Date” means, with respect to a pool, the date on which Fannie

Mae, Freddie Mac or Ginnie Mae, as applicable, releases the factor that represents the

percentage of the agency’s original balance that remains outstanding as of such date.

Factor Update Adjustment Payment

The term “Factor Update Adjustment Payment” means the amount equal to a factor update

that adjusts the Settlement Value of Pool Deliver Obligations or Pool Receive Obligations,

as applicable, that have settled.

Fail

The term “Fail” means a Transaction the clearance of which has not occurred or has not

been reported to the Corporation as having occurred on the Contractual Settlement Date,

or expiration date, as applicable.

Fannie Mae

The term “Fannie Mae” means the Federal National Mortgage Association.

FATCA

The term “FATCA” means (i) the provisions of sections 1471 through 1474 of the Internal

Revenue Code of 1986, as amended, (the “Code”) that were implemented as part of The

Foreign Account Tax Compliance Act (or any amendment thereto or successor sections

thereof), and the related Treasury Regulations or other official interpretations thereof, as

in effect from time to time, and (ii) the provisions of any intergovernmental agreement to

implement The Foreign Account Tax Compliance Act as in effect from time to time

between the United States and the jurisdiction of the FFI Member’s (or applicant’s)

residency.

FATCA Certification

The term “FATCA Certification” means an executed copy of the relevant tax form required

by the Internal Revenue Service under FATCA, as in effect from time to time, that each

Member (or applicant to become such) shall provide from time to time to the Corporation

as set forth under these Rules.

FATCA Compliance Date

The term “FATCA Compliance Date” shall mean, as applicable, either (i) January 1, 2014,

with respect to any FFI Member approved for membership by the Corporation on January

1, 2014 or thereafter (or, if the commencement of all FATCA withholding with respect to

such FFI Members is delayed beyond January 1, 2014 under FATCA, two calendar months

plus one day before such delayed effective date), or (ii) May 1, 2014, with respect to any

FFI Member approved for membership by the Corporation at any time prior to January 1,

2014 (or, if the commencement of all FATCA withholding with respect to such FFI

Members is delayed beyond July 1, 2014 under FATCA, two calendar months plus one

day before such delayed effective date).

FATCA Compliant

The term “FATCA Compliant” or “FATCA Compliance” means, with respect to an FFI

Member, that such FFI Member has qualified under such procedures promulgated by the

Internal Revenue Service as are in effect from time to time to establish exemption from

withholding under FATCA such that the Corporation will not be required to withhold under

FATCA either (i) on “gross proceeds from the sale or other disposition of any property of

a type which can produce interest or dividends from sources within the United States”

within the meaning of Code section 1473(1)(A)(ii), as may be amended or re-codified from

time to time, or (ii) on interest, dividends, etc. from sources within the United States within

the meaning of Code section 1473(1)(A)(i), as may be amended or re-codified from time

to time, in each case, paid to such FFI Member.

Federal Funds Rate

The term “Federal Funds Rate” means, for each Business Day, the rate reported as such in

a publicly available source. If there is a dispute as to the Federal Funds Rate for a particular

Business Day, it shall be settled by reference to the rate set forth in H. 15(519) for such

Business Day opposite the caption “Federal Funds (Effective).” For this purpose, “H.

15(519)” means the weekly statistical release designated as such, or any successor

publication, published by the Board of Governors of the Federal Reserve System.

FFI Member

The term “FFI Member” means any Person that is treated as a non-U.S. entity for U.S.

federal income tax purposes. For the avoidance of doubt, FFI Member includes any

Member that is a U.S. branch of an entity that is treated as a non-U.S. entity for U.S. federal

income tax purposes.

Fedwire

The term “Fedwire” means the Federal Reserve Wire Transfer System for securities

movements or for funds-only movements, as the context requires.

Financial Statements

The term “Financial Statements” means a balance sheet, statement of income and statement

of changes in financial position and statement of changes in owner’s equity, in each case

with accompanying notes.

FOMC

The term “FOMC” means the Federal Open Market Committee as described on the

website of the FRB.

Foreign Member

The term “Foreign Member” means a Foreign Person that is a Member. A Bank Clearing

Member that participates in the Corporation through a branch or agency located in the U.S.

which is regulated by a U.S. and/or state regulatory authority shall not be deemed to be a

Foreign Member for purposes of the Corporation’s Rules and procedures.

Foreign Person

The term “Foreign Person” means a Person that is organized or established under the laws

of a country other than the United States and does not include a Bank Clearing Member

that participates in the corporation through a branch or agency located in the U.S. which is

regulated by a U.S. and/or state regulatory authority.

FRB

The term “FRB” means the Board of Governors of the Federal Reserve System and each

Federal Reserve Bank, as appropriate.

Freddie Mac

The term “Freddie Mac” means the Federal Home Loan Mortgage Corporation.

Fully Compared

The term “Fully Compared” means that trade input submitted by a Broker matches trade

input submitted by each Dealer on whose behalf the Broker is acting in accordance with

the Net Position Match Mode.

Futures Commission Merchant

The term “Futures Commission Merchant” shall have the meaning set forth in the

definitions section of the Commodity Exchange Act, except that no entity shall be deemed

to be a Futures Commission Merchant for purposes of these Rules unless it is registered as

such with the CFTC.

Ginnie Mae

The term “Ginnie Mae” means the Government National Mortgage Association.

Government Securities Broker

The term “Government Securities Broker” shall have the meaning given that term in

Section 3(a)(43) of the Exchange Act, unless otherwise provided in these Rules.

Government Securities Dealer

The term “Government Securities Dealer” shall have the meaning given that term in

Section 3(a)(44) of the Exchange Act, unless otherwise provided in these Rules.

Government Securities Division

The term “Government Securities Division” means the division of the Fixed Income

Clearing Corporation that provides clearing and other services related to transactions in

U.S. Government securities and certain mortgage-backed securities.

Government Securities Division Funds-Only Settling Bank Member

The term “Government Securities Division Funds-Only Settling Bank Member” means an

entity that qualifies as a funds-only settling bank member under the rules of the

Government Securities Division and has been approved as such by the Corporation.

Government Securities Division Member

The term “Government Securities Division Member” means a member who utilizes the

services of the Government Securities Division.

Government Securities Issuer

The term “Government Securities Issuer” means an entity that issues “government

securities”, as that term is defined in subparagraphs (A), (B) and (C) of Section 3(a)(42) of

the Exchange Act.

Government Securities Issuer Clearing Member

The term “Government Securities Issuer Clearing Member” shall have the meaning given

that term in Section 1 of Rule 2A.

Government Sponsored Enterprise

The term “Government Sponsored Enterprise” shall mean Fannie Mae, Ginnie Mae,

Federal Home Loan Banks, or Freddie Mac.

Guaranteed/Novated Obligations

The term “Guaranteed/Novated Obligations” means obligations to deliver or receive a

Security satisfying certain TBA criteria determined by the Corporation and the payment

obligations related thereto.

Holiday

The term “Holiday” means, with respect to the Holiday Charge, any day on which the

Corporation is closed, but the day is not observed as a holiday by the Securities Industry

and Financial Markets Association and the bond markets are open.

Holiday Charge

The term “Holiday Charge” means an additional charge that may be added to Clearing

Members’ VaR Charge on the Business Day prior to a Holiday. The Holiday Charge

approximates the exposure that a Clearing Member’s trading activity on the applicable

Holiday could pose to the Corporation. Since the Corporation cannot collect margin on the

Holiday, the Holiday Charge is due on the Business Day prior to the Holiday.

The methodology for calculating a Holiday Charge shall be determined by the Corporation

in advance of each applicable Holiday. The Holiday Charge approximates each Clearing

Member’s Required Fund Deposit to address the exposure such Clearing Member’s trading

activity on the applicable Holiday could pose to the Corporation. The Corporation shall

have the discretion to calculate the Holiday Charge based on its assessment of market

conditions at the time the Holiday Charge is calculated (such as, for example, significant

market occurrences that could impact market price volatility). The Corporation shall

inform Clearing Members of the methodology it will use to calculate the Holiday Charge

by an Important Notice issued no later than 10 Business Days prior to the day on which the

applicable Holiday Charge is applied. Examples of potential methodologies for the

Holiday Charge may include, but shall not be limited to, time scaling of the VaR Charge

or a stress scenario that reflects potential market price volatility on the Holiday.

Indemnified Person

The term “Indemnified Person” shall have the meaning given to that term in Section 8 of

Rule 3.

Insurance Company

The term “Insurance Company” shall have the meaning given that term in Section 2(a)(17)

of the Investment Company Act of 1940, as amended.

Insurance Company Clearing Member

The term “Insurance Company Clearing Member” shall have the meaning given that term

in Section 1 of Rule 2A.

Insured Credit Union

The term “Insured Credit Union” shall have the meaning given to that term in Federal

Credit Union Act.

Insured Credit Union Clearing Member

The term “Insured Credit Union Clearing Member” shall have the meaning given that term

in Section 1 of Rule 2A.

Interactive Submission Method

The term “Interactive Submission Method” means a trade submission method that is used

to submit data on individual trades to the Corporation immediately after trade execution

pursuant to communications links, formats, timeframes, and deadlines established by the

Corporation for such purpose.

Inter-Dealer Broker

The term “Inter-Dealer Broker” means a Person which is in the business of buying and

selling securities as agent on behalf of dealers and is registered under Section 15 or Section

15C of the Exchange Act.

Inter-Dealer Broker Clearing Member

The term “Inter-Dealer Broker Clearing Member” shall have the meaning given that term

in Section 1 of Rule 2A.

Interested Person

The term “Interested Person” means a Member or an applicant for membership.

Intraday Mark-to-Market Charge

The term “Intraday Mark-to-Market Charge” means an additional charge that is collected

from a Clearing Member (unless waived or altered by the Corporation per subsection (d)

below) to mitigate the Corporation’s exposures that may arise due to intraday changes in

the size, composition and constituent security prices of such Member’s portfolio. The

Intraday Mark-to-Market Charge equals the difference between Mark-to-Market amounts

already included in the Clearing Member’s Cash Settlement amounts and such Clearing

Member’s current portfolio marked to the most recently observed System Price for such

positions. The following apply with respect to the Intraday Mark-to-Market Charge:

(a) The Intraday Mark-to-Market Charge applies to Clearing Members that experience

an adverse intraday Mark-to-Market change that equals or exceeds (x) a certain

threshold dollar amount (but not less than $1,000,000) as determined by the

Corporation from time to time as compared to the Clearing Member’s start-of-day

Mark-to-Market requirement including, if applicable, any subsequently collected

Mark-to-Market amount, and (y) a certain threshold percentage (but not less than 10

percent) as determined by the Corporation from time to time as compared to the daily

VaR Charge (each of (x) and (y), a “Parameter” for purposes of this definition).

(b) If certain market conditions occur, the Corporation may reduce the threshold dollar

amount in Parameter (x) above (but not to less than $250,000) and the threshold

percentage in Parameter (y) above (but not to less than 5 percent) in applying the

Intraday Mark-to-Market Charge to Clearing Members whose portfolios may present

relatively greater risks to the Corporation on an overnight basis due to such market

conditions. Examples of market conditions that the Corporation may consider with

respect to applying this subsection (b) may include, but shall not be limited to, the

occurrence of sudden large swings in an equity index in either direction and moves

in U.S. Treasury yields and mortgage-backed security spreads outside of historically

observed market moves.

or may decrease or increase the amount of the Intraday Mark-to-Market Charge, in

circumstances where the Corporation determines that the adverse change to the

Clearing Member’s Mark-to-Market and/or the breaches of the Parameters referred

to in subsection (a) or as adjusted pursuant to subsection (b) or (c) do not accurately

reflect the Corporation’s risk exposure to the Clearing Member’s intraday Mark-to-

Market fluctuation. Examples of circumstances that the Corporation may consider

with respect to the determination in the previous sentence, may include, but shall not

be limited to, large Mark-to-Market fluctuations arising out of trade errors. Any

decrease to such Intraday Mark-to-Market Charge shall not reduce the Clearing

Member’s Required Fund Deposit below the amount reported to the Clearing

Member at the start of day. Any increase to the Intraday Mark-to-Market Charge

shall not cause the Intraday Mark-to-Market Charge to be greater than two times its

calculated amount.

Intraday VaR Charge

The term “Intraday Var Charge” means an additional charge that is collected from a

Clearing Member if the difference of (i) a Clearing Member’s VaR Charge collected

pursuant to Rule 4 and (ii) such Clearing Member’s intraday VaR calculations exceeds a

certain percentage threshold and dollar amount determined by FICC from time to time

based on its regular review of margining methodologies.

Legal Risk

The term “Legal Risk” shall have the meaning given that term in Section 2 of Rule 4.

Lender

The term “Lender” shall have the meaning given that term in Section 11 of Rule 4.

Liquid Capital

The term “Liquid Capital” means, as of a particular date, the amount equal to the liquid

capital of a Government Securities Broker or Government Securities Dealer as defined in

17 C.F.R. Section 402.2(d), or any successor rule or regulation thereto.

Long Position

The term “Long Position” means a Member’s obligations with respect to the purchase of

an Eligible Security or an Option Contract, as determined pursuant to these Rules.

Loss Allocation Cap

The term “Loss Allocation Cap” shall have the meaning given that term in Section 7 of

Rule 4.

Loss Allocation Notice

The term “Loss Allocation Notice” shall have the meaning given that term in Section 7 of

Rule 4.

Loss Allocation Withdrawal Notice

The term “Loss Allocation Withdrawal Notice” shall have the meaning given that term in

Section 7b of Rule 4.

Margin Liquidity Adjustment Charge or MLA Charge

The terms “Margin Liquidity Adjustment Charge” or “MLA Charge” mean, with respect

to each Margin Portfolio, an additional charge applied to net unsettled positions of a

Member. The MLA Charge shall be calculated daily and shall be included in each

Member’s Required Fund Deposit.

For purposes of calculating this charge, net unsettled positions in TBA transactions,

Specified Pool Trades and Stipulated Trades shall be included in one mortgage-backed

securities asset group, which may be further categorized into subgroups by mortgage pool

types.

The asset groups and subgroups shall be set forth in a schedule that is published on the

Corporation’s website. It shall be the Member’s responsibility to retrieve the schedule.

The Corporation will provide Members with at a minimum 5 Business Days advance notice

of any change to the schedule via an Important Notice.

The Corporation shall first calculate a measurement of market impact cost for net unsettled

positions in each asset group/subgroup by using the directional market impact cost, which

is a function of the net unsettled positions’ net directional market value. The net directional

market value and the gross market value shall be divided by the average daily volumes of

the securities in that asset group/subgroup over a lookback period.

The calculated market impact cost for net unsettled positions in each asset group/subgroup

shall be compared to a portion of the VaR Charge that is allocated to that asset

group/subgroup. If the ratio of the calculated market impact cost to a portion of the VaR

Charge is greater than a threshold, to be determined by the Corporation from time to time,

an MLA Charge will be applied to that asset group/subgroup. If the ratio of these two

amounts is equal to or less than this threshold, the MLA Charge will not be applied to that

asset group/subgroup.

When applicable, an MLA Charge for each asset group/subgroup would be calculated as a

proportion of the product of (1) the amount by which the ratio of the calculated market

impact cost to a portion of the VaR Charge allocated to that asset group/subgroup exceeds

the threshold, and (2) a portion of the VaR Charge allocated to that asset group/subgroup.

Each applicable MLA Charge for each asset group/subgroup shall be added together to

result in one total MLA Charge.

The Corporation may apply a downward adjusting scaling factor based on the ratio of the

calculated market impact cost to a portion of the VaR Charge to result in a final MLA

Charge, where a higher ratio would trigger a larger downward adjustment of the MLA

Charge and a lower ratio would trigger no downward adjustment of the MLA Charge.

Margin Proxy

The term “Margin Proxy” means, with respect to each margin portfolio, an alternative

volatility calculation for specified net unsettled positions of a Clearing Member, calculated

using the historical market price changes of such benchmark TBA securities determined

by the Corporation. The Margin Proxy would be applied by the Corporation as an

alternative to the model-based volatility calculation of the VaR Charge for each Clearing

Member’s margin portfolio. The Margin Proxy shall cover such range of historical market

price moves and parameters as the Corporation from time to time deems appropriate.

Margin Transaction Adjustment Payment

The term “Margin Transaction Adjustment Payment” means the TBA Transaction

Adjustment Payment amount calculated by the Corporation for each Transaction to be

collected or paid prior to the Contractual Settlement Date.

Margin Transaction Adjustment Payment Return

The term “Margin Transaction Adjustment Payment Return” means the return of Margin

Transaction Adjustment Payment for each Transaction that was collected or paid during

the prior Cash Settlement.

Margin Transaction Adjustment Payment Return Interest

The term “Margin Transaction Adjustment Payment Return Interest” means the overnight

interest that accrued on the Margin Transaction Adjustment Payment for each Transaction

that was collected or paid during the prior Cash Settlement.

Mark Return

The term “Mark Return” means the return of Mark-to-Market for each Transaction, and

principal and interest related payments for each Fail, that was collected or paid during the

prior Cash Settlement.

Mark Return Interest

The term “Mark Return Interest” means the overnight interest that accrued on the Mark

Return for each Transaction that was collected or paid during the prior Cash Settlement.

Mark-to-Market

The term “Mark-to-Market” means the aggregate amount of a Member’s profits and losses

calculated by the Corporation pursuant to Rule 4.

Member

The term “Member” means any entity accepted into membership in the Mortgage-Backed

Securities Division.

Minimum Charge

The term “Minimum Charge” means the minimum amount of required deposit to the

Clearing Fund with respect to each margin portfolio of a Clearing Member.

Minimum Margin Amount

The term “Minimum Margin Amount” means a minimum volatility calculation for

specified net unsettled positions of a Clearing Member, calculated using the historical

market price changes of such benchmark TBA securities determined by the Corporation.

The Minimum Margin Amount shall cover such range of historical market price moves and

parameters as the Corporation from time to time deems appropriate using a look-back

period of no less than one year and no more than three years.

Miscellaneous Adjustment Amount

The term “Miscellaneous Adjustment Amount” means the net total of all miscellaneous

cash-only amounts that, on a particular Business Day, are required to be paid by a Clearing

Member to the Corporation and/or are entitled to be collected by a Clearing Member from

the Corporation.

Mortgage-Backed Securities Division or MBSD

The term “Mortgage-Backed Securities Division” or “MBSD” means the division of the

Fixed Income Clearing Corporation that provides services related to mortgage-backed

securities Transactions.

Multiple Batch Submission Method

The term “Multiple Batch Submission Method” means a trade submission method that is

used to submit multiple batches of trade data to the Corporation throughout the day

pursuant to communications links, formats, timeframes, and deadlines established by the

Corporation for such purpose.

NCUA

The term “NCUA” means the National Credit Union Administration.

Net Assets

The term “Net Assets” shall mean the difference between the total assets and the total

liabilities of a Clearing Member.

Net Capital

The term “Net Capital” means, as of a particular date, the amount equal to the net capital

of a broker or dealer as defined in SEC Rule 15c3-1(c)(2), or any successor rule or

regulation thereto.

Net Position Match Mode

The term “Net Position Match Mode” refers to a method establishing parameters for the

comparison of Transactions involving a Broker.

Net Worth

The term “Net Worth” means, as of a particular date, the amount equal to the excess of the

assets of a Person over the liabilities of such Person, computed in accordance with

generally accepted accounting principles, including liabilities that are subordinated to the

claims of creditors pursuant to a satisfactory subordination agreement, as defined in

Appendix D of 17 C.F.R. Section 240.15c3-1d or in 17 C.F.R. Section 402.2(d), as

applicable.

Non-Member

The term “Non-Member” means any Person that is not a Member.

Novation

The term “Novation” means the termination of deliver, receive and related payment

obligations between Members and the replacement of such obligations with the

Guaranteed/Novated Obligations to and from the Corporation, pursuant to these Rules.

NSS

The term “NSS” means the National Settlement Service of the FRB.

Off-the-Market Transaction

The term “Off-the-Market Transaction” means any of the following:

(1) A single Transaction that is:

(i) greater than $1 million in Par Amount; and

(ii) executed at a contract price that is either higher or lower (by a percentage

amount determined by the Corporation based on factors such as market

conditions) than the System Price for the underlying Eligible Security on

trade date;

(2) A pattern of Transactions that, if looked at as a single transaction, would be

encompassed by subsection (1) of this definition.

Officer of the Corporation

The term “Officer of the Corporation” means the Chairman of the Board, President,

Managing Director, Executive Director, Secretary, Assistant Secretary, Treasurer, or

Assistant Treasurer of the Corporation.

Open Commitment Report

The term “Open Commitment Report” means the Report furnished by the Corporation to

Members reflecting Members’ open commitments in the Clearing System.

Option Contract

The term “Option Contract” means an option to sell or buy a specified amount of Eligible

Securities by or on a specified date to or from the other party to the contract against

payment of the Strike Price. Upon exercise, a “Call Option Contract” entitles the purchaser

to buy, and obligates the seller (writer) to sell, Eligible Securities for the Strike Price,

whereas a “Put Option Contract” entitles the purchaser to sell, and obligates the seller

(writer) to buy, Eligible Securities for the Strike Price.

Original Contra-Side Member

The term “Original Contra-Side Member” means a Member with whom a Member has

entered into a contract for the purchase or sale of an Eligible Security or an Option

Contract.

Par Amount

The term “Par Amount” means, for Trade-for-Trade Transactions, Stipulated Trades and

SBON Trades, Option Contracts and Pool Deliver and Pool Receive Obligations, the

current face value of a Security to be delivered on the Contractual Settlement Date. With

respect to Specified Pool Trades, “Par Amount” shall mean the original face value of a

Security to be delivered on the Contractual Settlement Date.

Partially Compared

The term “Partially Compared” means that trade input submitted by a Broker matches trade

input submitted by one but not both of the Dealers on whose behalf the Broker is acting in

accordance with the Net Position Match Mode.

Person

The term “Person” means a partnership, corporation, limited liability company or other

organization, entity, or individual.

Pool Comparison

The term “Pool Comparison” means the service provided to Clearing Members, as

applicable, and the operations carried out by the Corporation in the course of providing

such service, in accordance with Rule 7.

Pool Deliver Obligation

The term “Pool Deliver Obligation” means a Clearing Member’s obligation to deliver

Eligible Securities to the Corporation at the appropriate Settlement Value either in

satisfaction of all or part of a Pool Net Short Position.

Pool Net Long Position

The term “Pool Net Long Position” means, with respect to each type of Eligible Security,

the amount of Eligible Securities that a Clearing Member is obligated, pursuant to Rules 8

and 9, to receive from the Corporation.

Pool Net Price

The term “Pool Net Price” means the Settlement Price, not including accrued interest,

established by the Corporation during the Pool Netting process for each Eligible Security.

Pool Net Settlement Position

The term “Pool Net Settlement Position” means either a Pool Net Short Position or a Pool

Net Long Position, as the context requires.

Pool Net Short Position

The term “Pool Net Short Position” means, with respect to each type of Eligible Security,

the amount of Eligible Securities that a Clearing Member is obligated, pursuant to Rules 8

and 9, to deliver to the Corporation.

Pool Netting

The term “Pool Netting” means the service provided to Clearing Members, as applicable,

and the operations carried out by the Corporation in the course of providing such service

in accordance with Rule 8.

Pool Receive Obligation

The term “Pool Receive Obligation” means a Clearing Member’s obligation to receive

Eligible Securities from the Corporation at the appropriate Settlement Value either in

satisfaction of all or part of a Pool Net Long Position.

Pool Settlement Position

The term “Pool Settlement Position” means either a Pool Receive Obligation or a Pool

Deliver Obligation, as the context requires.

Purchase and Sale Report

The term “Purchase and Sale Report” means the Report furnished by the Corporation

reflecting a Member’s Compared Trades in Eligible Securities.

Registered Clearing Agency

The term “Registered Clearing Agency” means a Clearing Agency that is registered as such

with the SEC.

Registered Clearing Agency Member

The term “Registered Clearing Agency Member” shall have the meaning given that term

in Section 1 of Rule 2A.

Registered Investment Company

The term “Registered Investment Company” means an investment company as such term

is defined in Section 3 of the Investment Company Act of 1940, as amended.

Registered Investment Company Clearing Member

The term “Registered Investment Company Clearing Member” shall have the meaning

given that term in Section 1of Rule 2A.

Registered Securities Dealer

The “Registered Securities Dealer” means a dealer registered with the SEC under Section

15 or 15 C of the Exchange Act.

Report

The term “Report” means any document, record, or other output prepared by the

Corporation and made available to a Member in any format (including, but not limited to,

machine-readable and print-image formats) or medium (including, but not limited to, print

copy, magnetic tape, video display terminal, and interactive message formats) that provides

information to such Member with regard to the services provided by, or the operations of,

the Corporation.

Reportable Event

The term “Reportable Event” means an event that would effect a change in control of a

Clearing Member or could have a substantial impact on such Member’s business and/or

financial condition, including, but not limited to: (a) material organizational changes

including mergers, acquisitions, changes in corporate form, name changes, changes in the

ownership of a Member or its Affiliates, and material changes in management, (b) material

changes in business lines, including new business lines undertaken, and (c) status as a

defendant in litigation which could reasonably impact the Member’s financial condition or

ability to conduct business.

Required Attestation

The term “Required Attestation” has the meaning assigned in Section 2a(e) of Rule 17.

Required Fund Deposit

The term “Required Fund Deposit” means the amount of each Clearing Member’s required

deposit to the Clearing Fund as determined by the Corporation pursuant to Section 2 of

Rule 4 and other applicable Rules.

Required Fund Deposit Deadline

The term “Required Fund Deposit Deadline” means the deadline set forth by the

Corporation for such purpose in its procedures, unless the Corporation has issued a notice

extending such deadline pursuant to these Rules.

Rules

The term “Rules” means these Rules of the Mortgage-Backed Securities Division.

SBO

The term “SBO” means the settlement balance orders that constitute the net positions of a

Clearing Member as a result of the TBA Netting process. The resulting transactions from

this TBA Netting process are identified as SBON Trades.

SBO-Destined Trade

The term “SBO-Destined Trade” means a TBA transaction in the Clearing System intended

for TBA Netting in accordance with the provisions of these Rules.

SBO Net Open Position

The term “SBO Net Open Position” means any SBO-Destined Trade that cannot be offset

pursuant to these Rules.

SBON Trade

The term “SBON Trade” means a settlement balance order that offsets an SBO Net Open

Position pursuant to these Rules. A Member which has one or more “Long SBON Trades”

in a particular CUSIP number is a net purchaser with respect to that CUSIP number, as the

case may be; a Member which has one or more “Short SBON Trades” is a net seller. SBON

Trades settle directly with the Corporation.

SEC

The term “SEC” means the Securities and Exchange Commission.

Securities Industry and Financial Markets Association

The term “Securities Industry and Financial Markets Association” (“SIFMA”) means the

Securities Industry and Financial Markets Association or any successor organization.

Security

The term “Security” shall have the meaning given that term in the Exchange Act and the

rules and regulations thereunder. The term “Securities” shall mean more than one Security.

Self-Regulatory Organization

The term “Self-Regulatory Organization” shall have the meaning given that term in Section

3(a)(26) of the Exchange Act. For purposes of these Rules, the term “Self-Regulatory

Organization” shall also include foreign equivalents of those entities listed in Section

3(a)(26).

Settlement Agent

The term “Settlement Agent” means the bank or trust company that the Corporation may,

from time to time, designate to act as its agent for purposes of interfacing with NSS for

Cash Settlement pursuant to these Rules (and as referenced in the Federal Reserve Banks

Operating Circular 12).

Settlement Price

The term “Settlement Price” means (a) in the case of a Trade-for-Trade Transaction,

Specified Pool Trade, Stipulated Trade or SBO-Destined Trade, the Contractual settlement

price agreed to by the parties; (b) in the case of an SBON Trade and unallocated TBAs that

go through the process for determining the TBA Reprice Transaction Adjustment Payment,

the System Price; and (c) in the case of a Pool Deliver or Pool Receive Obligation, the Pool

Net Price.

Settlement Value

The term “Settlement Value” means the amount in dollars equal to the Par Amount of each

Eligible Security that comprises a Specified Pool Trade, a Pool Deliver Obligation, or a

Pool Receive Obligation, multiplied by the Settlement Price plus interest that has accrued

with regard to each such Eligible Security up to the Business Day for which such dollar

amount is calculated.

The term “Settlement Value” means the amount in dollars equal to the Par Amount of each

Eligible Security that comprises a Trade-for-Trade Transaction, an SBO-Destined Trade,

a Stipulated Trade, or an SBON Trade, multiplied by the Settlement Price.

Short Position

The term “Short Position” means a Member’s obligations with respect to the sale of an

Eligible Security or an Option Contract, as determined pursuant to these Rules.

SIFMA Guidelines

The term “SIFMA Guidelines” means the guidelines for good delivery of Mortgage-

Backed Securities as promulgated from time to time by the Securities Industry and

Financial Markets Association, available at https://www.sifma.org/resources/general/tba-

market-governance/ under “Uniform Practices Manual.”

Single Batch Submission Method

The term “Single Batch Submission Method” means a trade submission method that is used

to submit a single batch of trade data to the Corporation at end of day pursuant to

communications links, formats, timeframes, and deadlines established by the Corporation for

such purpose.

Specified Pool Trade

The term “Specified Pool Trade” means a trade in which all required pool data, including

the pool number to be delivered on the Contractual Settlement Date, are agreed upon by

Members at the time of execution.

Statutory Disqualification

The term “Statutory Disqualification” shall have the meaning given that term in Section

3(a)(39) of the Exchange Act.

Stipulated Trade

The term “Stipulated Trade” means a trade in which allocated pools on the Contractual

Settlement Date must satisfy certain trade parameters that are agreed upon by Clearing

Members at the time of execution.

Strike Price

The term “Strike Price” means the price at which an option granted pursuant to an Option

Contract may be exercised.

System

The term “System” means a set of specific services provided by the Corporation to

Members which elect and are qualified to avail themselves of such services. The term

encompasses the Clearing System, and any other System established from time to time.

System Price

The term “System Price” means the price for any trade or any Pool Deliver or Pool Receive

Obligation not including accrued interest, established by the Corporation on each Business

Day, based on current market information, for each Eligible Security.

System Value

The term “System Value” means the amount in dollars equal to the current face of each

Eligible Security that comprises any trade or any Pool Deliver or Pool Receive Obligation

multiplied by the System Price, plus, when applicable, interest that has accrued with regard

to each such Eligible Security up to the Business Day for which such dollar amount is

calculated.

TBA Netting

The term “TBA Netting” means the service provided to Clearing Members, as applicable,

and the operations carried out by the Corporation in the course of providing such service

in accordance with Rule 6.

TBA or To-Be-Announced

The term “TBA” or “To-Be-Announced” means a contract for the purchase or sale of a

mortgage-backed security to be delivered at an agreed-upon future date because as of the

transaction date, the seller has not yet identified certain terms of the contract, such as the

pool number and number of pools, to the buyer.

TBA Obligations

The term “TBA Obligations” means SBO-Destined obligations, SBON Trades and Trade-

for-Trade Transactions.

TBA Reprice Transaction Adjustment Payment

The term “TBA Reprice Transaction Adjustment Payment” means the amount equal to the

difference between the TBA Obligation’s Settlement Price and the System Price,

multiplied by the unallocated contractual quantity, and then divided by 100. To

differentiate between a buy and sell transaction, an indicator of -1 for a sell trade and +1

for a buy trade is multiplied by the unallocated pool’s contractual quantity.

TBA Transaction Adjustment Payment

The term “TBA Transaction Adjustment Payment” means the amount equal to the

difference between the SBO-Destined Trade’s Settlement Price and the System Price,

multiplied by the contractual quantity of such trade, and then divided by 100. To

differentiate between the buyer and seller of the transaction, an indicator of -1 for the buy

trade and +1 for the sell trade is multiplied by the contractual quantity of such trade.

Termination Date

The term “Termination Date” shall have the meaning given that term in Section 14 of

Rule 3.

Tier 1 RBC Ratio

The term “Tier 1 RBC Ratio” means the ratio of an entity’s tier 1 capital to its total risk-

weighted assets, calculated in accordance with such entity’s regulatory and/or statutory

requirements.

Tier One Member

The term “Tier One Member” means a Clearing Member whose membership category has

been designated as such by the Corporation pursuant to Rule 2A for loss allocation

purposes.

Tier Two Member

The term “Tier Two Member” means a Clearing Member whose membership category has

been designated as such by the Corporation pursuant to Rule 2A for loss allocation

purposes.

TMPG

The term “TMPG” means the Treasury Market Practices Group as described on the website

of the Federal Reserve Bank of New York.

Total Credit Cash Balance Figures

The term “Total Credit Cash Balance Figure” means the sum of the Cash Balances which

are credits of the Members for which a Cash Settling Bank Member is acting.

Total Debit Cash Balance Figure

The term “Total Debit Cash Balance Figure” means the sum of the Cash Balances which

are debits of the Members for which a Cash Settling Bank Member is acting.

Trade Comparison

The term “Trade Comparison” means the service provided to Clearing Members and the

operations carried out by the Corporation in the course of providing such service, in

accordance with Rule 5.

Trade-for-Trade Transaction

The term “Trade-for-Trade Transaction” means a TBA Transaction submitted to the

Corporation intended for Pool Netting and Expanded Pool Netting, but not intended for

TBA Netting in accordance with the provisions of these Rules.

Transaction

The term “Transaction” means a trade that is eligible for processing by the Corporation in

accordance with these Rules.

UMBS

The term “UMBS” means a single-class mortgage-backed security backed by fixed-rate

mortgage loans on one to four unit (single-family) properties issued by either Fannie Mae

or Freddie Mac which has the same characteristics (such as payment delay, pooling

prefixes and minimum pool submission amounts) regardless of whether Fannie Mae or

Freddie Mac is the issuer.

Unmatched Margin Report

The term “Unmatched Margin Report” means the Report furnished by the Corporation to

Dealers listing Transactions involving Brokers that have the uncompared side of a partially

matched trade and that will be included in the calculation of the Dealer’s Required Fund

Deposit.

Unregistered Investment Pool

The term “Unregistered Investment Pool” means an entity primarily engaged in the

business of investing, reinvesting, or trading securities that holds a pool of securities and/or

other assets that meets the following criteria: (i) it is not registered as an investment

company under the Investment Company Act of 1940, (ii) it does not register its securities

offerings under the Securities Act of 1933, (iii) satisfies minimum net asset requirements

and (iv) it has an investment advisor that is domiciled in the U.S. and that is registered with

the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Unregistered Investment Pool Clearing Member

The term “Unregistered Investment Pool Clearing Member” shall have the meaning given

that term in Section 1 of Rule 2A.

VaR Charge

The term “VaR Charge” means, with respect to each margin portfolio, a calculation of the

volatility of specified net unsettled positions of a Clearing Member, as of the time of such

calculation (with respect to the specified net unsettled positions as of the time of such

calculation). Such volatility calculations shall be made in accordance with any generally

accepted portfolio volatility model, including, but not limited to, any margining formula

employed by any other clearing agency registered under Section 17A of the Exchange Act.

Such calculation shall be made utilizing such assumptions (including confidence levels)

and based on such historical data as the Corporation deems reasonable, and shall cover

such range of historical volatility as the Corporation from time to time deems appropriate.

To the extent that the primary source of such historical data becomes unavailable for an

extended period of time, the Corporation shall utilize the Margin Proxy as an alternative

volatility calculation. In its assessment of volatility, the Corporation shall calculate an

additional bid-ask spread risk charge measured by multiplying the gross market value of

each Net Unsettled Position by a basis point charge, where the applicable basis point charge

shall be reviewed at least annually. If the volatility calculation is lower than the VaR Floor

then the VaR Floor will be utilized as such Clearing Member’s VaR Charge.

VaR Floor

The term “VaR Floor” means, with respect to each margin portfolio, the greater of (i) the

VaR Floor Percentage Amount and (ii) the Minimum Margin Amount.

VaR Floor Percentage Amount

The term “VaR Floor Percentage Amount” means the sum of the absolute values of Long

Positions and Short Positions, at market value, multiplied by a percentage designated by

the Corporation that is no less than 0.05% and no greater than 0.30%. The Corporation

shall determine the percentage within this range to be applied based on factors including

but not limited to a review performed at least annually of the impact of the VaR Floor

parameter at different levels within the range to the backtesting performance and to

Clearing Members’ margin charges. The Corporation shall inform Clearing Members of

the applicable percentage utilized by the VaR Floor by an Important Notice issued no later

than 10 Business Days prior to the implementation of such percentage.

Variance Transaction Adjustment Payment

The term “Variance Transaction Adjustment Payment” means the amount equal to the

difference between the SBON Trade’s Settlement Price or the Trade-for-Trade

Transaction’s Settlement Price, as applicable, and the System Price, multiplied by the

difference between the TBA Obligation and the allocated pools used in satisfaction of such

trade, and then divided by 100. To differentiate between a buy and sell transaction, an

indicator of -1 for a buy trade and +1 for a sell trade would be multiplied by the total

variance amount.

Voluntary Termination Notice

The term “Voluntary Termination Notice” shall have the meaning given that term in

Section 14 of Rule 3.

Watch List

The term “Watch List” means, at any time and from time to time, the list of Members

whose credit ratings derived from the Credit Risk Rating Matrix are 6 or 7, as well as

Members that, based on the Corporation’s consideration of relevant factors, including those

set forth in Section 11(d) of Rule 3, are deemed by the Corporation to pose a heightened

risk to the Corporation and its Members.

Well Capitalized

The term “Well Capitalized” shall have the meaning given that term in the capital adequacy

rules and regulations of the Federal Deposit Insurance Corporation.

Being placed on the Watch List may result in Clearing Fund-related consequences as well as other consequences

under these Rules. Please refer to the Interpretive Guidance with Respect to Watch List Consequences in this

rulebook.

RULE 2 – MEMBERS

(a) The Corporation may make its services, or certain of its services, available to

Persons which (i) apply for membership to the Corporation for the use of its services, (ii) meet the

eligibility, qualifications and standards specified in these Rules, (iii) are approved by the

Corporation or the Board, as applicable, and (iv) if required, have contributed to the Clearing Fund

as provided in Rule 4.

(b) The Corporation shall have the following membership types:

(i) Clearing Members

(ii) Cash Settling Bank Members

With respect to item (ii) above, Cash Settling Bank Members shall be governed by

Rule 3A.

the Corporation. Except for Brokers effecting Brokered Transactions which have Fully Compared,

a Member which processes, compares, settles or carries out through the Clearing System any

Contract or other Transaction for another Member, or a partnership, corporation or other

organization, entity or person who is not a Member (hereinafter a non-Member), shall, so far as

the rights of the Corporation and of other Members are concerned, be liable as principal. A non-

Member who processes, compares, settles or carries out Contracts or Transactions through a

Member shall not possess any of the rights or benefits of a Member.

(d) All Clearing Members are required to be members of the Corporation’s EPN

Service.

RULE 2A – INITIAL MEMBERSHIP REQUIREMENTS

Section 1 – Eligibility for Membership: Clearing Members

Eligibility for each category of Clearing Member shall be as follows:

(a) Bank Clearing Member – A Person shall be eligible to apply to become a Bank

Clearing Member if it is a bank or trust company chartered as such under the laws of the United

States, or a State thereof, or is a bank or trust company established or chartered under the laws of

a non-U.S. jurisdiction and participates in the Corporation through its U.S. branch or agency. A

bank or trust company that is admitted to membership in the Clearing System pursuant to these

Rules, and whose membership in the Clearing System has not been terminated, shall be a Bank

Clearing Member.

(b) Dealer Clearing Member – A Person shall be eligible to apply to become a Dealer

Clearing Member if it is a Registered Securities Dealer and is not a bank or trust company. A

Registered Securities Dealer that is admitted to membership in the Clearing System pursuant to

these Rules, and whose membership in the Clearing System has not been terminated, shall be a

Dealer Clearing Member.

become an Inter-Dealer Broker Clearing Member if it is an Inter-Dealer Broker. An Inter-Dealer

Broker that is admitted to membership in the Clearing System pursuant to these Rules, and whose

membership in the Clearing System has not been terminated, shall be an Inter-Dealer Broker

Clearing Member.

(d) Unregistered Investment Pool Clearing Member – A Person shall be eligible to

apply to become an Unregistered Investment Pool Clearing Member if it is an Unregistered

Investment Pool. An Unregistered Investment Pool that has been admitted into membership in the

Clearing System pursuant to these rules, and whose membership in the Clearing System has not

been terminated, shall be an Unregistered Investment Pool Clearing Member.

(e) Government Securities Issuer Clearing Member – A Person shall be eligible to

apply to become a Government Securities Issuer Clearing Member if it is a Government Securities

Issuer or a Government Sponsored Enterprise. A Government Securities Issuer or a Government

Sponsored Enterprise that is admitted to membership in the Clearing System pursuant to these

Rules and whose membership in the Clearing System has not been terminated, shall be a

Government Securities Issuer Clearing Member.

(f) Insurance Company Clearing Member – A Person shall be eligible to apply to

become an Insurance Company Clearing Member if it is an Insurance Company in good standing

with its primary regulator. An Insurance Company that is admitted to membership in the Clearing

System pursuant to these Rules, and whose membership in the Clearing System has not been

terminated, shall be an Insurance Company Clearing Member.

(g) Registered Clearing Agency Member – A Person shall be eligible to apply to

become a Registered Clearing Agency Member if it is a Registered Clearing Agency in good

standing with its primary regulator. A Registered Clearing Agency that is admitted to membership

in the Clearing System pursuant to these Rules, and whose membership in the Clearing System

has not been terminated, shall be a Registered Clearing Agency Member.

(h) Insured Credit Union Clearing Member – A Person shall be eligible to apply to

become an Insured Credit Union Clearing Member if it is an Insured Credit Union in good standing

with its primary regulator. An Insured Credit Union that is admitted to membership in the Clearing

System pursuant to these Rules and whose membership in the Clearing System has not been

terminated, shall be an Insured Credit Union Clearing Member.

(i) Registered Investment Company Clearing Member – A Person shall be eligible to

apply to become a Registered Investment Company Clearing Member if it is a Registered

Investment Company. A Registered Investment Company that is admitted to membership in the

Clearing System pursuant to these Rules, and whose membership in the Clearing System has not

been terminated, shall be a Registered Investment Company Clearing Member.

(j) Other – The Corporation shall make its services available to Persons in such other

categories as the Corporation may from time to time determine, subject to approval of such

categories and their minimum membership standards by the SEC.

Applicants in categories (a) through (h) above that are admitted into membership in the

Clearing System shall be Tier One Members. Applicants in category (i) above that are admitted

into membership in the Clearing System shall be Tier Two Members. With respect to applicants

in category (j), the Corporation shall make a determination as to whether such applicant shall be a

Tier One Member or Tier Two Member.

If any Person in categories (a) through (j) above is a Foreign Person, then it shall be eligible

to become a Clearing Member if the Corporation, in its sole discretion, has determined that such

Person maintains a presence in the United States, either directly or through a suitable agent, that

both has available individuals fluent in English who are knowledgeable in the Foreign Person’s

business and can assist the Corporation’s representatives as necessary, and ensures that the Foreign

Person will be able to meet its data submission, settlement, and other obligations to the Corporation

as a Member in a timely manner. The Foreign Person applying to become a Clearing Member

must represent and certify to the Corporation that it is in compliance with the financial reporting

and responsibility standards of its home country and, if it is a regulated entity, that it is regulated

in its home country by a financial regulatory authority in the areas of maintenance of relevant

books and records, regular inspections and examinations, and minimum capital standards, and

make such other representations, certifications or assurances as the Corporation deems necessary

to address jurisdictional and tax concerns. Without limiting the generality of the foregoing, the

Corporation shall require each applicant that shall be an FFI Member to certify and periodically

recertify to the Corporation that it is FATCA Compliant under such procedures as are set forth

under FATCA, unless such requirements have been explicitly waived in writing by the

Corporation, provided, however, that no such waiver will be issued if it shall cause the Corporation

to be obligated to withhold under FATCA on gross proceeds from the sale or other disposition of

any property. In addition, as part of its membership application, each applicant that shall be an FFI

Member must agree that it shall indemnify the Corporation for any loss, liability or expense

sustained by the Corporation as a result of its failing to be FATCA Compliant. The Corporation

shall determine, in its sole discretion, which category of membership set forth above the Foreign

Person shall be for purposes of these Rules. Except as with respect to FATCA, a Bank Clearing

Member that participates in the Corporation through its U.S. branch or agency shall not be deemed

a Foreign Member for purposes of these Rules and the Corporation’s procedures, unless otherwise

stated by the Corporation.

Section 2 – Membership Qualifications and Standards for Clearing Members

Subject to the limitations set forth in this Rule 2A, the Board may approve an application

to become a Clearing Member by a Person that is eligible to apply to become a Clearing Member

pursuant to this Rule upon a determination that such applicant meets the following requirements:

(a) Operational Capability – The applicant must be able to satisfactorily communicate

with the Corporation, fulfill anticipated commitments to and meet the operational requirements of

the Corporation with necessary promptness and accuracy, and conform to any condition and

requirement that the Corporation reasonably deems necessary for its protection or that of its

Members. The applicant agrees that it must fulfill, within the timeframes established by the

Corporation, operational testing requirements (the scope of such testing to be determined by the

Corporation in its sole discretion) and related reporting requirements (such as reporting test results

to the Corporation in a manner specified by the Corporation) that may be imposed by the

Corporation to ensure the continuing operational capability of the applicant. Each applicant must

have the successful completion of network and connectivity testing at the current FICC standards

(the scope of such testing to be determined by the Corporation in its sole discretion).

(b) Fees – The applicant agrees to make, and has sufficient financial ability to make,

all anticipated fee payments required to be made to the Corporation that may be set forth in these

Rules.

Corporation that it is in compliance (as an applicant) with the capital requirements imposed by its

Designated Examining Authority, Appropriate Regulatory Agency, or other examining authority

or regulator, and any other Self-Regulatory Organizations to which it is subject by statute,

regulation or agreement.

(d) Disqualification Criteria – The Corporation has received no substantial information

which would reasonably and adversely reflect on the applicant or its Controlling Management to

such an extent that the applicant should be denied access to the services of the Corporation. The

Corporation shall determine whether any of the following criteria should be the basis for denial of

the membership application:

(i) the applicant is subject to Statutory Disqualification as defined in Section

3(a)(39) of the Securities Exchange Act of 1934, or an order of similar effect issued by a

Federal or State banking authority, or other examining authority or regulator, including a

non-U.S. examining authority or regulator;

(ii) the applicant or its Controlling Management has been responsible for:

(A) making a misstatement of a material fact or has omitted to state a material fact to the

Corporation in connection with its application to become a Member or thereafter, or

(B) fraudulent acts or a violation of the Securities Act of 1933, the Exchange Act, the

Government Securities Act of 1986, the Investment Company Act, the Investment Advisers

Act or any rule or regulation promulgated thereunder;

(iii) the applicant or its Controlling Management has been convicted within the

ten years preceding the filing of the application or at any time thereafter of (A) any criminal

offense involving the purchase, sale or delivery of any security, or bribery, or burglary, or

conspiracy to commit any offense referred to in this subparagraph (iii), (B) the larceny,

theft, robbery, embezzlement, extortion, fraudulent conversion, fraudulent concealment,

forgery or misappropriation of funds, securities or other property, (C) any violation of

Sections 1341, 1342 or 1343 of Title 18, United States Code, or (D) any other criminal

offense involving breach of fiduciary obligation, or arising out of the conduct of business

as a broker, dealer, investment company, adviser or underwriter, bank, trust company,

fiduciary, insurance company or other financial institution;

(iv) the applicant or its Controlling Management has been permanently or

temporarily enjoined or prohibited by order, judgment or decree of any court or other

governmental authority of competent jurisdiction from acting as, or as a Person associated

with or as an affiliated Person or employee of, a broker, dealer, investment company,

advisor or underwriter, bank, trust company, fiduciary, insurance company, or other

financial institution, or from engaging in or continuing any conduct or practice in

connection with any such activity, or in connection with the purchase, sale or delivery of

any security, and the enforcement of such injunction or prohibition has not been stayed; or

(v) the applicant has been expelled or suspended from or had its participation

terminated by a national securities association or exchange registered under the Exchange

Act, a self-regulatory organization as defined in Section 3(a)(26) of the Exchange Act, or

a corporation that engages in clearance and settlement activities or a securities depository,

or has been barred or suspended from being associated with any member of such an

exchange, association, organization, corporation, or securities depository.

In addition to items (a) through (d) above, the Corporation shall retain the right to deny

membership to an applicant if the Corporation becomes aware of any factor or circumstance about

the applicant or its Controlling Management which may impact the suitability of that particular

applicant as a Member of the Corporation. Further, applicants are required to inform the

Corporation as to any member of its Controlling Management that is or becomes subject to

Statutory Disqualification (as defined in Section 3(a)(39) of the Exchange Act).

(e) Financial Responsibility – The applicant shall:

(i) have sufficient financial ability to make anticipated required deposits to the

Clearing Fund as provided for in Rule 4 and anticipated Cash Settlement amounts as

provided for in Rule 11, and to meet all of its other obligations to the Corporation in a

timely manner; and

(ii) satisfy the following minimum financial requirements:

(A) Bank Clearing Member

(1) If the applicant is a bank or a trust company chartered under

the laws of the United States, or a State thereof, applying to

become a Bank Clearing Member, it must (i) have CET1

Capital of at least $500 million and (ii) be Well Capitalized;

and

(2) If the applicant is a bank or trust company established or

chartered under the laws of a non-U.S. jurisdiction and

applying to become a Bank Clearing Member through its

U.S. branch or agency, it must (i) have CET1 Capital of at

least $500 million, (ii) comply with the minimum capital

requirements (including, but not limited to, any capital

conservation buffer, countercyclical buffer, and any

domestic systemically important bank (D-SIB) or global

systemically important bank (G-SIB) buffer, if applicable)

and capital ratios required by its home country regulator, or,

if greater, with such minimum capital requirements or ratios

required by the Basel Committee on Banking Supervision,

and (iii) provide an attestation for itself, its parent bank and

its parent bank holding company (as applicable) detailing the

minimum capital requirements (including, but not limited to,

any capital conservation buffer, countercyclical buffer, and

any D-SIB or G-SIB buffer, if applicable) and capital ratios

required by their home country regulator.

(B) Dealer Clearing Member – If the applicant is registered with the

SEC pursuant to Section 15 or 15C of the Exchange Act and is

applying to become a Dealer Clearing Member, it must have

(1) Net Worth of at least $25 million, and (2) Excess Net Capital or

an equivalent to Excess Net Capital (e.g., Excess Liquid Capital or

Excess Adjusted Net Capital), depending on what the applicant is

required to report on its regulatory filings, of at least $10 million.

registered with the SEC pursuant to Section 15 or 15C of the

Exchange Act and is applying to become an Inter-Dealer Broker

Clearing Member, it must have (1) Net Worth of at least $25 million,

and (2) Excess Net Capital or an equivalent to Excess Net Capital

(e.g., Excess Liquid Capital or Excess Adjusted Net Capital),

depending on what the applicant is required to report on its

regulatory filings, of at least $10 million.

(D) Unregistered Investment Pool Clearing Member

1) If the applicant is applying to become an Unregistered

Investment Pool Clearing Member, it must have an

investment advisor domiciled in the United States and

registered with the SEC. An applicant that is an Unregistered

Investment Pool must have Net Assets of at least $250

million. An Unregistered Investment Pool that does not

meet such Net Assets requirement, but has Net Assets of at

least $100 million, shall be eligible for membership if the

Unregistered Investment Pool’s investment advisor advises

an existing Member and has assets under management of at

least $1.5 billion; and

(2) In addition to the above, applicants that are Unregistered

Investment Pools must obtain at least a “medium” rating on

a qualitative assessment performed by the Corporation in

which the Corporation will assess certain factors of the

applicant, such as management, capital, strategy, risk profile,

internal controls, and any other factors deemed relevant by

the Corporation. The Corporation shall perform the

assessment of each factor at the level at which the

responsibility for such factor exists at the applicant (e.g., at

the Unregistered Investment Pool level, at the level of the

Unregistered Investment Pool’s investment advisor or other

service provider, or some combination thereof).

(E) Government Securities Issuer Clearing Member – If the applicant is

applying to become a Government Securities Issuer Clearing

Member, it must have equity capital of at least $100 million.

(F) Insured Credit Union Clearing Member – If the applicant is applying

to become an Insured Credit Union Clearing Member, it must have

equity capital of at least $100 million and be “well capitalized” as

defined by the NCUA under 12 C.F.R. Part 702.

(G) Registered Investment Company Clearing Member – If the applicant

is applying to become a Registered Investment Company Clearing

Member, it must have Net Assets of at least $100 million.

(H) Foreign Member – If the applicant applying to become a Clearing

Member is a Foreign Person, it must, at a minimum, satisfy its home

country regulator’s minimum financial requirements, in addition to

the following:

(1) In the case of a Foreign Person that is a broker or dealer (and

not applying to become a Dealer Clearing Member or Inter-

Dealer Broker Clearing Member), it must have total equity

capital of at least $25 million; and

(2) In the case of a Foreign Person that is a bank or trust

company established or chartered under the laws of a non-

U.S. jurisdiction (and not applying to become a Bank

Clearing Member through a U.S. branch or agency), it must

(i) have CET1 Capital of at least $500 million, (ii) comply

with the minimum capital requirements (including, but not

limited to, any capital conservation buffer, countercyclical

buffer, and any D-SIB or G-SIB buffer, if applicable) and

capital ratios required by its home country regulator, or, if

greater, with such minimum requirements or ratios required

by the Basel Committee on Banking Supervision and (iii)

provide an attestation for itself and its parent bank holding

company detailing the minimum capital requirements

(including, but not limited to, any capital conservation

buffer, countercyclical buffer, and any D-SIB or G-SIB

buffer, if applicable) and capital ratios required by their

home country regulator.

The Corporation may, based on information provided by or

concerning an applicant that is a Foreign Person, also assign

minimum financial requirements for the applicant based on (i) how

closely the applicant resembles an existing category of Clearing

Member and (ii) the applicant’s risk profile, which assigned

minimum financial requirements will be promptly communicated

to, and discussed with, the applicant.

(I) Other – If the applicant is not otherwise addressed in this Section

2(e)(ii), it must be in compliance with its regulator’s minimum

financial requirements. The Corporation may, based on information

provided by or concerning an applicant, also assign minimum

financial requirements for the applicant based on (i) how closely the

applicant resembles an existing category of Clearing Member and

(ii) the applicant’s risk profile, which assigned minimum financial

requirements will be promptly communicated to, and discussed

with, the applicant.

The foregoing financial responsibility standards are only the minimum requirements. The

Board, based upon the level of the anticipated positions and obligations of the applicant, the

anticipated risk associated with the volume and types of Transactions the applicant proposes to

process through the Corporation, and the overall financial condition of the applicant, may, in its

sole discretion, impose heightened or different financial responsibility standards on any applicant.

If an applicant does not itself satisfy the required minimum financial responsibility standards, the

Board may include for such purposes the financial resources of the parent company of the applicant

(including in the case of an applicant that is a U.S. branch or agency, its parent bank), if the parent

company has delivered to the Corporation a guaranty, satisfactory in form and substance to the

Board, of the obligations of the applicant to the Corporation.

(f) Business History – The applicant must have an established, profitable business

history of a minimum of six months or personnel with sufficient operational background and

experience to ensure, in the judgment of the Board, the ability of the firm to conduct its business.

Section 3 – Application Documents

Each applicant to become a Clearing Member shall, as required by the Corporation from

time to time, complete and deliver to the Corporation an Applicant Questionnaire in such form as

may be prescribed by the Corporation. An applicant seeking membership in the Clearing System

shall also deliver to the Corporation the financial reports, other reports, opinions and other

information as the Corporation requires.

As part of its membership application, each applicant (as determined by the Corporation

with regard to membership type) shall complete and deliver to the Corporation (1) a FATCA

Certification, and (2) a Cybersecurity Confirmation.

If the Corporation determines that a legal opinion, or update thereto, submitted by an

applicant indicates that the Corporation could be subject to Legal Risk as defined in Rule 4 with

respect to such applicant, the Corporation shall have the right to take, and/or require the applicant

to take, appropriate action(s) to mitigate such Legal Risk, including, but not limited to, requiring

the applicant to post additional Clearing Fund as set forth in Rule 4.

Section 4 – Evaluation of Applicant

An application to become any type of Clearing Member shall first be reviewed by the

Corporation. The Corporation shall recommend approval or disapproval of the application to the

Board. Except as otherwise provided in this Rule 2A, Board approval of an application for

membership shall constitute approval only of the type of membership specifically applied for.

In evaluating a membership application, the Corporation may:

(i) contact the applicant’s Designated Examining Authority, Appropriate Regulatory

Agency, primary regulatory authority, (the insurance regulator in the company’s

state of domicile in the case of an Insurance Company), or other examining

authority or regulator, or any Self-Regulatory Organization of which the applicant

is a Member and request from such authority or organization any records, reports,

or other information that, in their judgment, may be relevant to the application;

(ii) examine the books, records, and operational procedures of, and inspect the premises

of, the applicant as they may be related to the business to be conducted through the

Corporation; and

(iii) take such other evidence or make such other inquiries as is necessary, including

sworn or unsworn testimony, to ascertain relevant facts bearing upon the

applicant’s qualifications.

The Board shall approve an application to become a Clearing Member pursuant to this Rule

only upon a determination that the applicant meets such standards of financial responsibility and

operational capability as are set forth in this Rule. In addition, with regard to any applicant that

shall be an FFI Member, such applicant must be FATCA Compliant.

Notwithstanding that an application to become a Clearing Member shall have been

approved by the Board or the Corporation, as applicable, if a material change in condition of the

applicant occurs which in the judgment of the Board or the Corporation could bring into question

the applicant’s ability to perform as a Member, and such material change becomes known to the

Corporation prior to the applicant’s commencing use of the Corporation’s services, the

Corporation shall have the right to stay commencement by the applicant of use of the Corporation’s

services until a reconsideration by the Board or the Corporation of the applicant’s financial

responsibility and operational capability can be completed. As a result of such reconsideration,

the Board may determine to withdraw approval of an application to become a Member or condition

the approval upon the furnishing of additional information or assurances.

Notwithstanding the provisions of this Rule, the Board or the Corporation may determine,

after considering the facts and circumstances pertaining to an applicant, not to apply one or more

of the qualifications or standards set forth in these Rules. If the Board determines that such

qualification or standard shall not apply, it shall determine what, if any, limitation or restriction

shall be placed on such applicant. Limitations and restrictions shall bear a reasonable relationship

to the qualification or standard not applied to such applicant and may include, but are not limited

to, an increased Clearing Fund requirement or a limitation on the applicant’s activities to be

processed through the Corporation. Such determination shall only be made if the Board concludes

that not applying such qualification or standard, and imposing such limitation or restriction, would

not be against the best interests of the Corporation and its Members. In making such a

determination, the Board may require the applicant to provide additional information or

assurances. If the Board imposes a limitation or restriction pursuant to this provision, the

Corporation shall promptly notify the SEC.

The Board may deny an application to become a Member upon the Corporation’s

determination that it does not have adequate personnel, space, data processing capacity or other

operational capability at that time to perform its services for the applicant without impairing the

ability of the Corporation to provide services for its existing Members, to assure the prompt,

accurate and orderly processing and settlement of securities Transactions or to otherwise carry out

its functions; provided, however, that any such applications which are denied pursuant to this

paragraph shall be approved as promptly as the capabilities of the Corporation permit.

Upon the Board’s denial of an application to become a Member pursuant to this Rule, the

Corporation shall (1) furnish the applicant with a concise written statement setting forth the

specific grounds under consideration upon which any such denial may be based and shall notify

the applicant of its right to request a hearing, such request to be filed by the applicant with the

Corporation pursuant to Rule 28, “Hearing Procedures” and (2) notify the SEC and the applicant’s

Appropriate Regulatory Agency that the Board has denied the applicant’s application for

membership.

Section 5 – Member Agreement

Each Clearing Member agrees:

(a) to abide by these Rules and to be bound by all the provisions thereof;

(b) to pay to the Corporation in a timely manner the compensation provided for by

these Rules for services rendered and such costs and fines as may be imposed in accordance with

these Rules for the failure to comply therewith;

occurring subsequent to the time such amendment takes effect as fully as though such amendment

were now a part of these Rules;

(d) to continue to be bound by the Rules of the Corporation, notwithstanding that it

may have terminated its membership, as to all matters and Transactions occurring while it was a

Member;

(e) to deliver to the Corporation or the settlement counterparty, as applicable, or

receive from the Corporation or the settlement counterparty, as applicable, the securities

underlying all trades that have been reported by the Corporation and all monies related thereto, in

accordance with these Rules , and pay or deliver to the Corporation in a timely manner all amounts

due pursuant to Rule 4 with regard to its Required Fund Deposit and any loss or liability allocated

to it;

(f) that the determination of the Board as to any questions arising with regard to any

payment, charge, fee, deposit, or fine to which it may be subject shall be final and conclusive,

except as may be otherwise provided in these Rules; and

(g) to any other terms and conditions deemed by the Corporation to be necessary in

order to protect itself and its Members, including all agreements, opinions of counsel, and legal

and other documentation required by the Corporation.

These Rules and the procedures adopted from time to time by the Corporation shall be

deemed incorporated in each contract processed through the Corporation. To the extent that the

terms contained in any other agreement between Members are inconsistent with the provisions of

these Rules or the procedures, these Rules and the Corporation’s procedures shall be controlling.

Section 6 – Confidentiality

Any non-public information furnished to the Corporation pursuant to this Rule shall be

held in confidence as may be required under the laws, rules and regulations applicable to the

Corporation that relate to the confidentiality of records. Each applicant and Member shall maintain

DTCC Confidential Information in confidence to the same extent and using the same means it uses

to protect its own confidential information, but no less than a reasonable standard of care and shall

not use DTCC Confidential Information or disclose DTCC Confidential Information to any third

party except as necessary to perform such applicant’s or Member’s obligations under these Rules

or as otherwise required by applicable law. Each applicant and Member acknowledges that a

breach of its confidentiality obligations under these Rules may result in serious and irreparable

harm to the Corporation and/or DTCC for which there is no adequate remedy at law. In the event

of such a breach by the applicant or Member, the Corporation and/or DTCC shall be entitled to

seek any temporary or permanent injunctive or other equitable relief in addition to any monetary

damages hereunder.

RULE 3 – ONGOING MEMBERSHIP REQUIREMENTS

Section 1 – Requirements

The eligibility, qualifications and standards set forth in Rule 2A in respect of an applicant

shall continue to be met upon an applicant’s admission as a Member and at all times while a

Member. In addition, each Member shall comply with the ongoing requirements set forth below.

Section 2 – Reports by Clearing Members

Each Clearing Member shall submit to the Corporation the reports and other information set

forth below and such other reports and information as the Corporation from time to time may

reasonably require. Unless specifically set forth below, the time periods prescribed by the

Corporation are set forth in the form of notices posted at the Corporation’s website and/or

distributed by the Corporation from time to time. It shall be the Member’s responsibility to retrieve

all notices daily from the website.

(a) a copy of the Member’s annual audited Financial Statements for each fiscal year,

certified without qualification by the Member’s independent certified public accountants and

prepared in accordance with generally accepted accounting principles;

(b) if the Member is a broker or dealer registered under Section 15 of the Exchange

Act or a Government Securities Broker or Government Securities Dealer registered under Section

15C of the Exchange Act, (i) a copy of the Member’s Financial and Operational Combined

Uniform Single Report (“FOCUS Report”) or Report on Finances and Operations of Government

Securities Brokers and Dealers (“FOGS Report”), as the case may be, submitted to its Designated

Examining Authority, and (ii) any supplemental reports required to be filed with the SEC pursuant

to Exchange Act Rule 17a-11 or 17 C.F.R. Section 405.3;

Consolidated Report of Condition and Income (“Call Report”) submitted to its Appropriate

Regulatory Agency and, to the extent not contained within such Call Reports (or to the extent that

Call Reports are not required to be filed), information containing each of the Member’s capital

levels and ratios, as such levels and ratios are required to be provided to the Member’s Appropriate

Regulatory Agency (or, if such Member’s Appropriate Regulatory Agency does not require such

information, as would be required to be provided, if such Member’s Appropriate Regulatory

Agency were the Board of Governors of the Federal Reserve System);

(d) if the Member is a broker, dealer or bank established or organized under the laws

of a non-U.S. jurisdiction and subject to regulation by its home country regulator in such

jurisdiction, a copy of any reports submitted to such home country regulator;

(e) if the Member is a Foreign Member other than one that is a broker, dealer or bank

subject to regulation by its home country regulator in such jurisdiction, financial information as

requested by the Corporation;

(f) if the Member is an Unregistered Investment Pool, a copy of the monthly certified

statements of assets and liabilities on standard form signed by the Chief Financial Officer or

equivalent of such Unregistered Investment Pool;

(g) if the Member does not fall within clauses (b) through (f) above, copies of the

Member’s unaudited financial information as specified by the Corporation for each quarter; and

(h) for any Member that has satisfied the financial requirements imposed by the

Corporation pursuant to these Rules by means of a guaranty of its obligations by a parent company

(including, in the case of a Member that is a U.S. branch or agency, its parent bank), Financial

Statements and/or the reports or information of its parent company meeting the requirements

specified in subparagraphs (a) through (g) of this Section 2, as applicable.

Moreover, any Member that has provided to the SEC any notice required pursuant to

paragraph (e) of Exchange Act Rule 15c3-1 shall notify the Corporation of the provision of such

notice, and shall furnish the Corporation with a copy of such notice, by the Close of Business on

the day that it so provides such notice to the SEC.

With respect to subsections (a) and (g) above, the Corporation may accept, in its sole

discretion, consolidated Financial Statements or financial information prepared at a parent level.

In addition to the above, Clearing Members must submit to the Corporation, concurrently

with their submission to the relevant regulator or similar authority, copies of any regulatory

notifications required to be made when a Member’s capital levels or other financial requirements

fall below prescribed levels. In addition, Members must submit to the Corporation, concurrently

with their submission to the applicable regulator or similar authority, copies of such filings as

determined by the Corporation from time to time which Members are required to file pursuant to

the Sarbanes-Oxley Act of 2002, and any amendments thereunder.

In furtherance of the preceding paragraph, a Member that is a bank or trust company

established or chartered under the laws of a non-U.S. jurisdiction (including a Bank Clearing

Member that is a U.S. branch or agency) must (i) provide, no less than annually and upon request

by the Corporation, an attestation for itself, its parent bank and its parent bank holding company

(as applicable) detailing the minimum capital requirements (including, but not limited to, any

capital conservation buffer, countercyclical buffer, and any D-SIB or G-SIB buffer, if applicable)

and capital ratios required by their home country regulator and (ii) notify the Corporation:

(a) within two Business Days of any of their capital requirements (including, but not limited to,

any capital conservation buffer, countercyclical buffer, and any D-SIB or G-SIB buffer, if

applicable) or capital ratios falling below any minimum required by their home country regulator;

and (b) within 15 calendar days of any such minimum capital requirement or capital ratio changing.

Moreover, Foreign Members that are regulated by their home country regulator and Bank

Clearing Members that are U.S. branches or agencies of non-U.S. banks or trust companies must

submit to the Corporation, concurrently with their submission to the relevant regulator or similar

authority, copies of any regulatory notifications required to be made when an entity does not

comply with the financial reporting and responsibility standards set by their home country

regulator. Foreign Members that are regulated by their home country regulator and Bank Clearing

Members that are U.S. branches or agencies of non-U.S. banks or trust companies must also notify

the Corporation in writing within 2 Business Days of becoming subject to a disciplinary action by

their home country regulator.

At the request of the Corporation, if the Corporation is alerted to a change in circumstances

or an issue of law that brings into question the reliability of a legal opinion submitted by a Foreign

Clearing Member, such Member shall provide to the Corporation at the Corporation’s request an

update of the legal opinion and/or a written status report on the Corporation’s rights under the

relevant non-domestic law prior to the time at which an update of the legal opinion would be due

pursuant to these Rules. The Foreign Clearing Member shall provide such update and/or status

report in the format and within the timeframe requested by the Corporation.

If the Corporation determines that a legal opinion, or update thereto, submitted by a

Member, indicates that the Corporation could be subject to Legal Risk (as defined in Rule 4) with

respect to such Member, the Corporation shall have the right to take, and/or require the Member

to take, appropriate action(s) to mitigate such Legal Risk, including, but not limited to, requiring

the Member to post additional Clearing Fund as set forth in Rule 4.

In addition to all of the above, each Member shall complete and deliver to the Corporation

a Cybersecurity Confirmation at least every two years, on a date that is set by the Corporation and

following notice that is provided no later than 180 calendar days prior to such due date.

In addition, each Member shall maintain or upgrade their network technology, or

communications technology or protocols on the systems that connect to the Corporation to the

version being required and within the time periods as provided by Important Notice posted to the

Corporation’s website.

Notwithstanding anything to the contrary in this Rule, if a Member qualifies for more than

one category of Clearing System membership, the Corporation, in its sole discretion, may require

that such Member provide those reports and other financial or other information required to be

provided to the Corporation by Members of any of those membership categories for which such

Member qualifies.

All information provided to the Corporation shall be in English (and if translated into

English, the translation must be a fair and accurate English translation).

A Member that fails to submit the above listed information or upgrade their network

technology, or communications technology or protocols on the systems that connect to the

Corporation to the version being required within the timeframes required by guidelines issued by

the Corporation from time to time and in the manner requested, shall:

(i) be subject to a fine by the Corporation; and

(ii) until the required information is submitted to the Corporation, have a Clearing Fund

deposit equal to the greater of either the sum of the normal calculation of its

Required Fund Deposit plus $1,000,000, or 125 percent of the normal calculation

of its Required Fund Deposit.

Section 3 – Confidentiality