Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Reflect Updates to the Consolidated Trade Summary, Eliminate Re-Pricing in the Foreign Security Accounting Operation and Make Other Changes, 96146-96149 [2016-31472]
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Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or such longer period up to 90
days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
BILLING CODE 2011–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2016–119 on the subject
line.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2016–119. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
18:41 Dec 28, 2016
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31473 Filed 12–28–16; 8:45 am]
IV. Solicitation of Comments
VerDate Sep<11>2014
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2016–119, and should be
submitted on or before January 19, 2017.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79655; File No. SR–NSCC–
2016–008]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Reflect
Updates to the Consolidated Trade
Summary, Eliminate Re-Pricing in the
Foreign Security Accounting Operation
and Make Other Changes
December 22, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, as
amended (‘‘Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on December 15, 2016, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the clearing
agency. The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to NSCC’s Rules &
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Procedures (‘‘Rules’’) 3 in order to (i)
reflect updates that NSCC would make
to the Consolidated Trade Summary
(referred to herein as the ‘‘CTS’’ and as
the ‘‘CTSs’’ for more than one CTS),
which is provided to Members and
contains summarized trade obligation
information, and (ii) eliminate the
practice of re-pricing in the Foreign
Security Accounting Operation. The
proposed rule change would amend the
following Rules: (i) Procedure II, Section
H (Consolidated Trade Summaries), (ii)
Procedure V, Section C (Net Balance
Orders) and Section E (Consolidated
Trade Summaries), (iii) Procedure VI,
Section A (Introduction), Section B
(Trade-for-Trade Foreign Security
Receive and Deliver Instructions), and
Section C (Netted Member-to-Member
Receive and Deliver Instructions) and
(iv) Procedure VII, Section B
(Consolidated Trade Summary), as
described in more detail below. In
addition, the proposed rule change
would make technical changes to clarify
and correct certain provisions of the
foregoing Rules, as described in greater
detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The current CTS 4 output consists of
a main file and two supplemental files
as well as an additional file that reflects
transactions in Foreign Securities.5 The
3 Capitalized terms not defined herein are defined
in the Rules, available at https://dtcc.com/∼/media/
Files/Downloads/legal/rules/nscc_rules.pdf.
4 The CTS is described in Procedure II (Trade
Comparison and Recording Service), Procedure V
(Balance Order Accounting Operation) and
Procedure VII (CNS Accounting Operation).
5 The Foreign Securities file is a transaction file
reporting Foreign Securities trades as received. The
transactions are netted in the foreign netting
process to become balance orders, which are
reported on the CTS. The current CTS reports the
netted summary records and balance orders on T+1.
The revised CTS would report Foreign Securities
trades on trade date. The revised CTS will report
both foreign and domestic netted transactions and
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CTS is issued to Members as an iterative
report three times a day: Beginning with
the main CTS, which is issued at
approximately 21:00 ET, then the first
Supplemental CTS, which is issued at
approximately 24:00 ET, and finally, the
second Supplemental CTS, which is
issued the following business day at
approximately 12:00 ET. Each iteration
of the CTS contains the same type of
summarized trade obligation
information, however, depending on the
time of day the iteration of the CTS is
issued, it may be referred to as the
‘‘Consolidated Trade Summary’’ (or
‘‘CTS’’) or a ‘‘Supplemental
Consolidated Trade Summary.’’
Furthermore, any information contained
in a prior CTS does not appear again in
any successive CTS, including any later
Supplemental CTS.6
NSCC held numerous industry
meetings in order to give Members an
open forum to express their ideas about
changes that are needed to the CTS. In
order to address the Member feedback it
received, NSCC would, with this
proposed rule change: (1) Consolidate
the file layouts into one common file
layout, (2) provide more details in the
revised CTSs, (3) discontinue a current
output format (print image) and
introduce a more user-friendly format
(referred to as comma separated value or
‘‘CSV’’) and an online query tool, (4)
simplify the terminology in the Rules by
referring to each iteration of the CTS as
the ‘‘Consolidated Trade Summary’’
(instead of the way in which the Rules
are currently drafted to refer to a
‘‘Consolidated Trade Summary’’ and a
‘‘Supplemental Consolidated Trade
Summary’’), and (5) discontinue the
Foreign Securities transaction file
because information contained in that
additional file would be reflected in the
revised CTSs, each of which is
described below.
(i) Changes to the CTS and Technical
Changes to the CTS-Related Rules
First, the proposed rule change would
consolidate the file layouts of the
current CTSs into one common file
layout that would be used for each of
the three CTSs that are issued each day.
Currently, each of the main CTS file, the
supplemental CTS file, and the Foreign
Securities file has its own individual
file layout. NSCC would consolidate
these multiple file layouts into one
common file layout in the revised CTS
file. Having one common layout in the
revised CTS would eliminate the need
the associated balance orders. By consolidating the
Foreign Securities file and CTS files, Members
would have only one file to support.
6 The trade obligation information in the CTS is
Member-specific; it is not anonymized.
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for Members to maintain coding for
multiple file layouts.
Second, the proposal would update
the CTS output file layout to provide
Members with additional transparency
and clarity regarding their trade
summary, balance orders and receive
and deliver instructions, which would
help with reconciliation. For example,
the current CTS output file layout
specifies if a security is a CNS security
or a non-CNS security but does not
further clarify the non-CNS obligations
as guaranteed or not guaranteed. Under
the proposal, the CTS output file layout
would be expanded to include a field
for the guarantee/not guarantee
designation to clearly indicate to users
whether a trade obligation is guaranteed
or not guaranteed. Other examples of
new fields that would be added include:
(1) Netting type to describe whether
netted (e.g., multilaterally netted or
bilaterally netted) or trade-for-trade
instructions resulted, and (2) a net
reason code to add clarity as to the
netting type.
Third, Members have also expressed
interest in having NSCC change the
current file format of the CTSs, which
are currently available in print image
format and machine-readable (‘‘MRO’’)
format. As a result, NSCC would
discontinue the current print image
format while maintaining the current
MRO format and would also introduce
an online query tool. The print image
format would be replaced by CSV which
can be downloaded into spreadsheet
programs. In addition to the three
iterations of the CTS that would
continue to be distributed to Members,
Members would also be able to use a
new online query tool to search
information and create their own
custom data view and custom reports.
The new online query tool would enable
users to research information that has
been previously distributed in a CTS.
Members have expressed interest in this
change in file formats and the online
query tool which allows results to be
downloaded to spreadsheet programs.
Fourth, from a Rules perspective, the
terminology in Procedure II, Section H,
Procedure V, Section E and Procedure
VII, Section B would be revised, so that
each CTS would be referred to as the
‘‘Consolidated Trade Summary’’ and
more than one CTS would be referred to
as the ‘‘Consolidated Trade
Summaries.’’ The proposed rule change
would eliminate references to alternate
terminology such as ‘‘Supplemental
Consolidated Trade Summary,’’
‘‘Supplemental Consolidated Trade
Summaries,’’ and ‘‘CTS.’’ In addition,
conforming changes would be made to
Procedure V, Section C and Procedure
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96147
VII, Section B to add phrases and terms
such as ‘‘next available,’’ ‘‘applicable’’
and ‘‘prior’’ before references to
‘‘Consolidated Trade Summary.’’
Additional technical changes would be
made to clarify that the CTS would
continue to be issued to Members three
times a day and would continue to be
non-cumulative; these changes would
apply to Procedure II, Section H,
Procedure V, Section E and Procedure
VII, Section B. Procedure VII, Section B
would also be amended to reflect the
change in output format of the
Consolidated Trade Summaries
(specifically, because the print image
format is being discontinued and the
CSV format is being introduced, the
Rules and terminology must be changed
to use terminology consistent with the
different format).
Fifth, the Foreign Securities
transaction file would be discontinued.
Information that is currently in this
additional file would be reflected in the
revised CTSs.
NSCC would continue to issue the
CTSs to Members three times a day, at
approximately the same intervals as it
does today.7 The revised CTSs would
continue to be iterative (i.e., any
information that appeared on prior CTSs
would not appear again on any
successive CTSs), and also continue to
be available in MRO format.
(ii) Discontinuation of the Re-Pricing of
Foreign Securities and Technical
Clarifications/Corrections to Procedure
VI (Foreign Security Accounting
Operation)
Based on Member feedback, NSCC is
also proposing to update the code
associated with NSCC’s Foreign
Security Accounting Operation, which
receives and processes Foreign
Securities traded over-the-counter and
settled in U.S. Dollars.8 The current
foreign netting process aggregates
Foreign Securities obligations,
bilaterally nets these obligations and
then re-prices these obligations using a
uniform Settlement Price. As further
explained below, NSCC is proposing to
no longer re-price these Foreign
Securities obligations.
By way of background, Members often
settle their Foreign Securities trades
bilaterally in the local market prior to
receiving the main CTS (which contains
netted obligations marked to market
7 The header of the CTS output file would
indicate whether the CTS is for Cycle 1 (i.e., the one
issued at approximately 21:00 ET), Cycle 2 (i.e., the
one issued at approximately 24:00 ET) or Cycle 3
(i.e., the one issued at approximately 12:00 ET on
the next business day).
8 See Procedure VI (Foreign Security Accounting
Operation).
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using the uniform Settlement Prices of
such Foreign Securities). There is,
therefore, a timing mismatch between
the Members’ settlement of Foreign
Securities trades that are executed in
U.S. Dollars and the distribution of the
CTS to Members by NSCC. Currently,
NSCC re-prices these Foreign Securities
at the uniform Settlement Prices,
creating potential cash adjustments that
are not guaranteed by NSCC. For
example, assume there are 10 trades of
a Foreign Security which have been
executed at different contract prices
between Member A and Member B.
First, these 10 trades are aggregated by
NSCC so that there is a net buy
obligation and a net sell obligation
between Member A and Member B. The
Foreign Securities trades may have been
executed at different contract prices, so,
today, NSCC applies the uniform
Settlement Price to the netted buy
obligation and the netted sell obligation.
Re-pricing can create a cash adjustment
for Members; this cash adjustment is not
guaranteed by NSCC and is a concern
for Members. For example, if a
Member’s respective counterparty in a
trade becomes insolvent, then the
solvent Member is liable for the cash
adjustment because it is not guaranteed
by NSCC. With this proposed rule
change, the cash adjustment and the
associated risk due to re-pricing would
be eliminated, as requested by
Members.9
Foreign Securities would continue to
be bilaterally netted, but would no
longer be re-priced at uniform
Settlement Prices. Instead, they would
be bilaterally netted at their contract
prices to eliminate the risk of a cash
adjustment (which is not guaranteed by
NSCC) due to re-pricing.
To effectuate this proposed change,
NSCC proposes to remove language in
Procedure VI, Section C that permits
NSCC to establish a uniform Settlement
Price and calculate any related Foreign
Security Clearance Cash Adjustment
associated with the re-pricing. Unlike
the underlying Foreign Securities
transactions (which are settled in the
local markets and not at NSCC), the
payments of any Foreign Security
Clearance Cash Adjustment (whether
due to netting or re-pricing) related to
those underlying Foreign Securities
transactions are made through NSCC
9 A cash adjustment due to netting, however, is
still possible, and would continue to be not
guaranteed; this cash adjustment occurs because of
the cash differences due to the netting process. A
cash adjustment due to netting would arise, if, for
example, Member A sold 5 shares of Security X for
$20 and Member B bought 5 shares of Security X
for $10. In this case, the shares would net out to
zero, but there would be a cash adjustment of $10.
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18:41 Dec 28, 2016
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today and under the proposed rule
change, this would continue to be the
case with respect to Foreign Security
Clearance Cash Adjustments that arise
due to netting. The proposed rule
change would revise the language in
Procedure VI to clearly state that the
failure of a Member to make payment of
the Foreign Security Clearance Cash
Adjustment with NSCC will cause
NSCC to reverse all such cash
adjustment debits and credits (rather
than generally stating this would be
caused by the failure to ‘‘make
settlement with the Corporation’’). The
proposed rule change would further
clarify that neither the settlement of the
underlying transaction nor the payment
of the related Foreign Security
Clearance Cash Adjustment would be
guaranteed by NSCC (which is also the
case today).10
Additional clarifying changes to
Procedure VI include revising the
reference from ‘‘T+2’’ in Section B to
‘‘SD–1’’ because Foreign Securities
transactions are not always settled on
T+3 (according to local market
practices) and thus, are not always
compared on T+2, as Section B of
Procedure VI states. Therefore, using
Settlement Date (i.e., ‘‘SD’’) as the
reference point is more appropriate.
Furthermore, Foreign Securities
transactions are reported on the CTSs,
which are Settlement Date-based. In
addition, in Section C, ‘‘produced’’
would be revised to ‘‘reported,’’ because
‘‘reported’’ more accurately describes
what occurs today—that is, NSCC
reports the netted Member-to-Member
receive and deliver instructions. In
addition, the proposed rule change
would make the following corrections:
(i) The reference in Section C to
‘‘Foreign Security Clearing Cash
Adjustment’’ would be revised to the
correct term, ‘‘Foreign Security
Clearance Cash Adjustment’’ and (ii) the
cross-references to ‘‘Section II’’ and
‘‘Section IV’’ in Section A would be
replaced with references to ‘‘Procedure
II’’ and ‘‘Procedure IV,’’ respectively.
Implementation Timeframe
The proposed rule changes would
become effective by July 14, 2017. After
Commission approval of the proposed
rule changes, a legend would be added
to each of Procedures II, V, VI and VII
stating that there are approved but not
yet operative changes to the respective
Procedure and specifying the applicable
10 Under the proposed rule change, only a Foreign
Security Clearance Cash Adjustment due to repricing would be eliminated. A Foreign Security
Clearance Cash Adjustment due to netting is still
possible, so this Procedure is still applicable to
such Foreign Security Clearance Cash Adjustments.
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section or sections that would be
amended by the proposed rule change.
The legend would state that such
changes would be operative by July 14,
2017, but if such changes become
operative before July 14, 2017, NSCC
would notify Members by Important
Notice 30 days before the actual
implementation date. The legend would
also state that underlined and boldface
text indicates new text and
strikethrough and boldface text
indicates deleted text. Additionally, the
legend would include a reference to the
file number of the proposed rule change
and would state that once operative, the
legend would automatically be removed
from the Rules, and the formatting of the
text of the changes in the applicable
section or sections would automatically
be revised to reflect that these changes
have become operative.
2. Statutory Basis
Section 17A(b)(3)(F) of the Securities
Exchange Act of 1934, as amended
(‘‘Act’’) requires, in part, that the Rules
be designed to promote the prompt and
accurate clearance and settlement of
securities transactions and to protect
investors and the public interest.11
NSCC believes that the proposed rule
changes are consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
NSCC, in particular Section
17(A)(b)(3)(F), because NSCC believes
that the proposed rule changes would
promote the prompt and accurate
clearance and settlement of securities
transactions in furtherance of the Act.12
Specifically, by updating the CTS to
provide more details and information in
one common file layout, the proposal
would provide Members with more
transparency and clarity regarding their
trade obligations, which would help
with reconciliation (including, for
example, reconciliation of trades for
settlement). Furthermore, Members
would continue to receive the CTS three
times a day, but would receive the CTS
in a more user-friendly format (i.e., CSV)
in addition to the current MRO format.
With the new online query tool,
Members would also be able to access
trade obligation information that has
been distributed in prior CTSs and
customize searches of trade obligation
information according to their needs.
Therefore, NSCC believes that these
changes to the CTS would make it a
more effective tool for Members to
manage their trade obligations and any
associated risks, facilitating the
protection of investors and the public
11 15
U.S.C. 78q–1(b)(3)(F).
12 Id.
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interest from such risks and also
promoting the prompt and accurate
clearance of securities transactions.
NSCC believes that the proposed rule
changes associated with the Foreign
Security Accounting Operation also
would promote the prompt and accurate
clearance and settlement of securities
transactions in furtherance of the Act.13
Specifically, the proposed rule change
would address the timing mismatch
between the receipt of the CTS by
Members and the settlement of Foreign
Securities trades in the local markets by
Members by discontinuing the practice
of re-pricing Foreign Securities at the
uniform Settlement Prices. This change
also would eliminate the possibility of
a cash adjustment due to re-pricing and
the associated risk that a solvent
Member could be liable for the cash
adjustment if its counterparty defaults
because the cash adjustment is not
guaranteed by NSCC. Therefore, NSCC
believes that the proposed rule change
would promote the prompt and accurate
clearance and settlement of securities
transactions in furtherance of the Act.14
Additionally, the proposed rule
changes to (i) revise the CTS-related
terminology and to make the
conforming language changes to the
affected provisions in the Rules
associated with the CTS and (ii) correct
certain Rules, which have been
described in detail above, would
provide technical accuracy and
additional clarity to Members, thereby
also promoting the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.15
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC does not believe that the
proposed rule changes associated with
the CTS would impose any burden on
competition that is not necessary or
appropriate in furtherance of the Act, as
described above.16 While the proposed
rule changes relating to the CTS would
require Members to make technological
changes and thereby incur costs in
doing so that may burden the Member
competitively, the proposed rule
changes have been structured to better
meet the needs of Members.
Specifically, the proposed rule changes
associated with the CTS would meet
Members’ needs by revising the
terminology in the Rules to be simpler,
modifying the layout of the CTS to be
clearer, and providing users with more
13 Id.
14 Id.
15 Id.
16 15
U.S.C. 78q–1(b)(3)(I).
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information and transparency. In
addition to continuing to receive the
CTSs three times a day, Members would
be able to access CTS information by
using the online query tool. Moreover,
the proposed rule changes associated
with the CTS are appropriate in that
such changes reflect Members’ feedback.
Consequently, NSCC believes that any
burden on competition derived from the
proposed rule changes would be
necessary and appropriate in support of
the beneficial objectives of the
improvements in the CTS, which would
be made in furtherance of the Act, as
described above. Moreover, NSCC
believes any such burden on
competition derived from the proposed
rule changes would not be significant
because Members have requested these
changes and were involved in
developing the business requirements.
NSCC does not believe that the
proposed changes associated with the
Foreign Security Accounting Operation
would have any impact on competition.
These changes do not require Members
to make any coding changes or incur
costs. Members would continue to
accept output from NSCC associated
with their activity in the Foreign
Security Accounting Operation as they
do today with the difference being that
this output would no longer reflect the
re-pricing discussed in detail above.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
NSCC has not received or solicited
any written comments relating to this
proposal. NSCC will notify the
Commission of any written comments it
receives.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
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96149
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form
(https://www.sec.gov/rules/sro.shtml);
or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2016–008 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–NSCC–2016–008. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of NSCC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2016–008 and should be submitted on
or before January 19, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31472 Filed 12–28–16; 8:45 am]
BILLING CODE 8011–01–P
17 17
E:\FR\FM\29DEN1.SGM
CFR 200.30–3(a)(12).
29DEN1
Agencies
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Notices]
[Pages 96146-96149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31472]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79655; File No. SR-NSCC-2016-008]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Reflect
Updates to the Consolidated Trade Summary, Eliminate Re-Pricing in the
Foreign Security Accounting Operation and Make Other Changes
December 22, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, as amended (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is
hereby given that on December 15, 2016, National Securities Clearing
Corporation (``NSCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the
clearing agency. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to NSCC's Rules &
Procedures (``Rules'') \3\ in order to (i) reflect updates that NSCC
would make to the Consolidated Trade Summary (referred to herein as the
``CTS'' and as the ``CTSs'' for more than one CTS), which is provided
to Members and contains summarized trade obligation information, and
(ii) eliminate the practice of re-pricing in the Foreign Security
Accounting Operation. The proposed rule change would amend the
following Rules: (i) Procedure II, Section H (Consolidated Trade
Summaries), (ii) Procedure V, Section C (Net Balance Orders) and
Section E (Consolidated Trade Summaries), (iii) Procedure VI, Section A
(Introduction), Section B (Trade-for-Trade Foreign Security Receive and
Deliver Instructions), and Section C (Netted Member-to-Member Receive
and Deliver Instructions) and (iv) Procedure VII, Section B
(Consolidated Trade Summary), as described in more detail below. In
addition, the proposed rule change would make technical changes to
clarify and correct certain provisions of the foregoing Rules, as
described in greater detail below.
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\3\ Capitalized terms not defined herein are defined in the
Rules, available at https://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The current CTS \4\ output consists of a main file and two
supplemental files as well as an additional file that reflects
transactions in Foreign Securities.\5\ The
[[Page 96147]]
CTS is issued to Members as an iterative report three times a day:
Beginning with the main CTS, which is issued at approximately 21:00 ET,
then the first Supplemental CTS, which is issued at approximately 24:00
ET, and finally, the second Supplemental CTS, which is issued the
following business day at approximately 12:00 ET. Each iteration of the
CTS contains the same type of summarized trade obligation information,
however, depending on the time of day the iteration of the CTS is
issued, it may be referred to as the ``Consolidated Trade Summary'' (or
``CTS'') or a ``Supplemental Consolidated Trade Summary.'' Furthermore,
any information contained in a prior CTS does not appear again in any
successive CTS, including any later Supplemental CTS.\6\
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\4\ The CTS is described in Procedure II (Trade Comparison and
Recording Service), Procedure V (Balance Order Accounting Operation)
and Procedure VII (CNS Accounting Operation).
\5\ The Foreign Securities file is a transaction file reporting
Foreign Securities trades as received. The transactions are netted
in the foreign netting process to become balance orders, which are
reported on the CTS. The current CTS reports the netted summary
records and balance orders on T+1. The revised CTS would report
Foreign Securities trades on trade date. The revised CTS will report
both foreign and domestic netted transactions and the associated
balance orders. By consolidating the Foreign Securities file and CTS
files, Members would have only one file to support.
\6\ The trade obligation information in the CTS is Member-
specific; it is not anonymized.
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NSCC held numerous industry meetings in order to give Members an
open forum to express their ideas about changes that are needed to the
CTS. In order to address the Member feedback it received, NSCC would,
with this proposed rule change: (1) Consolidate the file layouts into
one common file layout, (2) provide more details in the revised CTSs,
(3) discontinue a current output format (print image) and introduce a
more user-friendly format (referred to as comma separated value or
``CSV'') and an online query tool, (4) simplify the terminology in the
Rules by referring to each iteration of the CTS as the ``Consolidated
Trade Summary'' (instead of the way in which the Rules are currently
drafted to refer to a ``Consolidated Trade Summary'' and a
``Supplemental Consolidated Trade Summary''), and (5) discontinue the
Foreign Securities transaction file because information contained in
that additional file would be reflected in the revised CTSs, each of
which is described below.
(i) Changes to the CTS and Technical Changes to the CTS-Related Rules
First, the proposed rule change would consolidate the file layouts
of the current CTSs into one common file layout that would be used for
each of the three CTSs that are issued each day. Currently, each of the
main CTS file, the supplemental CTS file, and the Foreign Securities
file has its own individual file layout. NSCC would consolidate these
multiple file layouts into one common file layout in the revised CTS
file. Having one common layout in the revised CTS would eliminate the
need for Members to maintain coding for multiple file layouts.
Second, the proposal would update the CTS output file layout to
provide Members with additional transparency and clarity regarding
their trade summary, balance orders and receive and deliver
instructions, which would help with reconciliation. For example, the
current CTS output file layout specifies if a security is a CNS
security or a non-CNS security but does not further clarify the non-CNS
obligations as guaranteed or not guaranteed. Under the proposal, the
CTS output file layout would be expanded to include a field for the
guarantee/not guarantee designation to clearly indicate to users
whether a trade obligation is guaranteed or not guaranteed. Other
examples of new fields that would be added include: (1) Netting type to
describe whether netted (e.g., multilaterally netted or bilaterally
netted) or trade-for-trade instructions resulted, and (2) a net reason
code to add clarity as to the netting type.
Third, Members have also expressed interest in having NSCC change
the current file format of the CTSs, which are currently available in
print image format and machine-readable (``MRO'') format. As a result,
NSCC would discontinue the current print image format while maintaining
the current MRO format and would also introduce an online query tool.
The print image format would be replaced by CSV which can be downloaded
into spreadsheet programs. In addition to the three iterations of the
CTS that would continue to be distributed to Members, Members would
also be able to use a new online query tool to search information and
create their own custom data view and custom reports. The new online
query tool would enable users to research information that has been
previously distributed in a CTS. Members have expressed interest in
this change in file formats and the online query tool which allows
results to be downloaded to spreadsheet programs.
Fourth, from a Rules perspective, the terminology in Procedure II,
Section H, Procedure V, Section E and Procedure VII, Section B would be
revised, so that each CTS would be referred to as the ``Consolidated
Trade Summary'' and more than one CTS would be referred to as the
``Consolidated Trade Summaries.'' The proposed rule change would
eliminate references to alternate terminology such as ``Supplemental
Consolidated Trade Summary,'' ``Supplemental Consolidated Trade
Summaries,'' and ``CTS.'' In addition, conforming changes would be made
to Procedure V, Section C and Procedure VII, Section B to add phrases
and terms such as ``next available,'' ``applicable'' and ``prior''
before references to ``Consolidated Trade Summary.'' Additional
technical changes would be made to clarify that the CTS would continue
to be issued to Members three times a day and would continue to be non-
cumulative; these changes would apply to Procedure II, Section H,
Procedure V, Section E and Procedure VII, Section B. Procedure VII,
Section B would also be amended to reflect the change in output format
of the Consolidated Trade Summaries (specifically, because the print
image format is being discontinued and the CSV format is being
introduced, the Rules and terminology must be changed to use
terminology consistent with the different format).
Fifth, the Foreign Securities transaction file would be
discontinued. Information that is currently in this additional file
would be reflected in the revised CTSs.
NSCC would continue to issue the CTSs to Members three times a day,
at approximately the same intervals as it does today.\7\ The revised
CTSs would continue to be iterative (i.e., any information that
appeared on prior CTSs would not appear again on any successive CTSs),
and also continue to be available in MRO format.
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\7\ The header of the CTS output file would indicate whether the
CTS is for Cycle 1 (i.e., the one issued at approximately 21:00 ET),
Cycle 2 (i.e., the one issued at approximately 24:00 ET) or Cycle 3
(i.e., the one issued at approximately 12:00 ET on the next business
day).
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(ii) Discontinuation of the Re-Pricing of Foreign Securities and
Technical Clarifications/Corrections to Procedure VI (Foreign Security
Accounting Operation)
Based on Member feedback, NSCC is also proposing to update the code
associated with NSCC's Foreign Security Accounting Operation, which
receives and processes Foreign Securities traded over-the-counter and
settled in U.S. Dollars.\8\ The current foreign netting process
aggregates Foreign Securities obligations, bilaterally nets these
obligations and then re-prices these obligations using a uniform
Settlement Price. As further explained below, NSCC is proposing to no
longer re-price these Foreign Securities obligations.
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\8\ See Procedure VI (Foreign Security Accounting Operation).
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By way of background, Members often settle their Foreign Securities
trades bilaterally in the local market prior to receiving the main CTS
(which contains netted obligations marked to market
[[Page 96148]]
using the uniform Settlement Prices of such Foreign Securities). There
is, therefore, a timing mismatch between the Members' settlement of
Foreign Securities trades that are executed in U.S. Dollars and the
distribution of the CTS to Members by NSCC. Currently, NSCC re-prices
these Foreign Securities at the uniform Settlement Prices, creating
potential cash adjustments that are not guaranteed by NSCC. For
example, assume there are 10 trades of a Foreign Security which have
been executed at different contract prices between Member A and Member
B. First, these 10 trades are aggregated by NSCC so that there is a net
buy obligation and a net sell obligation between Member A and Member B.
The Foreign Securities trades may have been executed at different
contract prices, so, today, NSCC applies the uniform Settlement Price
to the netted buy obligation and the netted sell obligation. Re-pricing
can create a cash adjustment for Members; this cash adjustment is not
guaranteed by NSCC and is a concern for Members. For example, if a
Member's respective counterparty in a trade becomes insolvent, then the
solvent Member is liable for the cash adjustment because it is not
guaranteed by NSCC. With this proposed rule change, the cash adjustment
and the associated risk due to re-pricing would be eliminated, as
requested by Members.\9\
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\9\ A cash adjustment due to netting, however, is still
possible, and would continue to be not guaranteed; this cash
adjustment occurs because of the cash differences due to the netting
process. A cash adjustment due to netting would arise, if, for
example, Member A sold 5 shares of Security X for $20 and Member B
bought 5 shares of Security X for $10. In this case, the shares
would net out to zero, but there would be a cash adjustment of $10.
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Foreign Securities would continue to be bilaterally netted, but
would no longer be re-priced at uniform Settlement Prices. Instead,
they would be bilaterally netted at their contract prices to eliminate
the risk of a cash adjustment (which is not guaranteed by NSCC) due to
re-pricing.
To effectuate this proposed change, NSCC proposes to remove
language in Procedure VI, Section C that permits NSCC to establish a
uniform Settlement Price and calculate any related Foreign Security
Clearance Cash Adjustment associated with the re-pricing. Unlike the
underlying Foreign Securities transactions (which are settled in the
local markets and not at NSCC), the payments of any Foreign Security
Clearance Cash Adjustment (whether due to netting or re-pricing)
related to those underlying Foreign Securities transactions are made
through NSCC today and under the proposed rule change, this would
continue to be the case with respect to Foreign Security Clearance Cash
Adjustments that arise due to netting. The proposed rule change would
revise the language in Procedure VI to clearly state that the failure
of a Member to make payment of the Foreign Security Clearance Cash
Adjustment with NSCC will cause NSCC to reverse all such cash
adjustment debits and credits (rather than generally stating this would
be caused by the failure to ``make settlement with the Corporation'').
The proposed rule change would further clarify that neither the
settlement of the underlying transaction nor the payment of the related
Foreign Security Clearance Cash Adjustment would be guaranteed by NSCC
(which is also the case today).\10\
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\10\ Under the proposed rule change, only a Foreign Security
Clearance Cash Adjustment due to re-pricing would be eliminated. A
Foreign Security Clearance Cash Adjustment due to netting is still
possible, so this Procedure is still applicable to such Foreign
Security Clearance Cash Adjustments.
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Additional clarifying changes to Procedure VI include revising the
reference from ``T+2'' in Section B to ``SD-1'' because Foreign
Securities transactions are not always settled on T+3 (according to
local market practices) and thus, are not always compared on T+2, as
Section B of Procedure VI states. Therefore, using Settlement Date
(i.e., ``SD'') as the reference point is more appropriate. Furthermore,
Foreign Securities transactions are reported on the CTSs, which are
Settlement Date-based. In addition, in Section C, ``produced'' would be
revised to ``reported,'' because ``reported'' more accurately describes
what occurs today--that is, NSCC reports the netted Member-to-Member
receive and deliver instructions. In addition, the proposed rule change
would make the following corrections: (i) The reference in Section C to
``Foreign Security Clearing Cash Adjustment'' would be revised to the
correct term, ``Foreign Security Clearance Cash Adjustment'' and (ii)
the cross-references to ``Section II'' and ``Section IV'' in Section A
would be replaced with references to ``Procedure II'' and ``Procedure
IV,'' respectively.
Implementation Timeframe
The proposed rule changes would become effective by July 14, 2017.
After Commission approval of the proposed rule changes, a legend would
be added to each of Procedures II, V, VI and VII stating that there are
approved but not yet operative changes to the respective Procedure and
specifying the applicable section or sections that would be amended by
the proposed rule change. The legend would state that such changes
would be operative by July 14, 2017, but if such changes become
operative before July 14, 2017, NSCC would notify Members by Important
Notice 30 days before the actual implementation date. The legend would
also state that underlined and boldface text indicates new text and
strikethrough and boldface text indicates deleted text. Additionally,
the legend would include a reference to the file number of the proposed
rule change and would state that once operative, the legend would
automatically be removed from the Rules, and the formatting of the text
of the changes in the applicable section or sections would
automatically be revised to reflect that these changes have become
operative.
2. Statutory Basis
Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as
amended (``Act'') requires, in part, that the Rules be designed to
promote the prompt and accurate clearance and settlement of securities
transactions and to protect investors and the public interest.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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NSCC believes that the proposed rule changes are consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to NSCC, in particular Section 17(A)(b)(3)(F), because NSCC
believes that the proposed rule changes would promote the prompt and
accurate clearance and settlement of securities transactions in
furtherance of the Act.\12\ Specifically, by updating the CTS to
provide more details and information in one common file layout, the
proposal would provide Members with more transparency and clarity
regarding their trade obligations, which would help with reconciliation
(including, for example, reconciliation of trades for settlement).
Furthermore, Members would continue to receive the CTS three times a
day, but would receive the CTS in a more user-friendly format (i.e.,
CSV) in addition to the current MRO format. With the new online query
tool, Members would also be able to access trade obligation information
that has been distributed in prior CTSs and customize searches of trade
obligation information according to their needs. Therefore, NSCC
believes that these changes to the CTS would make it a more effective
tool for Members to manage their trade obligations and any associated
risks, facilitating the protection of investors and the public
[[Page 96149]]
interest from such risks and also promoting the prompt and accurate
clearance of securities transactions.
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\12\ Id.
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NSCC believes that the proposed rule changes associated with the
Foreign Security Accounting Operation also would promote the prompt and
accurate clearance and settlement of securities transactions in
furtherance of the Act.\13\ Specifically, the proposed rule change
would address the timing mismatch between the receipt of the CTS by
Members and the settlement of Foreign Securities trades in the local
markets by Members by discontinuing the practice of re-pricing Foreign
Securities at the uniform Settlement Prices. This change also would
eliminate the possibility of a cash adjustment due to re-pricing and
the associated risk that a solvent Member could be liable for the cash
adjustment if its counterparty defaults because the cash adjustment is
not guaranteed by NSCC. Therefore, NSCC believes that the proposed rule
change would promote the prompt and accurate clearance and settlement
of securities transactions in furtherance of the Act.\14\
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\13\ Id.
\14\ Id.
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Additionally, the proposed rule changes to (i) revise the CTS-
related terminology and to make the conforming language changes to the
affected provisions in the Rules associated with the CTS and (ii)
correct certain Rules, which have been described in detail above, would
provide technical accuracy and additional clarity to Members, thereby
also promoting the prompt and accurate clearance and settlement of
securities transactions, consistent with Section 17A(b)(3)(F) of the
Act.\15\
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\15\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule changes associated
with the CTS would impose any burden on competition that is not
necessary or appropriate in furtherance of the Act, as described
above.\16\ While the proposed rule changes relating to the CTS would
require Members to make technological changes and thereby incur costs
in doing so that may burden the Member competitively, the proposed rule
changes have been structured to better meet the needs of Members.
Specifically, the proposed rule changes associated with the CTS would
meet Members' needs by revising the terminology in the Rules to be
simpler, modifying the layout of the CTS to be clearer, and providing
users with more information and transparency. In addition to continuing
to receive the CTSs three times a day, Members would be able to access
CTS information by using the online query tool. Moreover, the proposed
rule changes associated with the CTS are appropriate in that such
changes reflect Members' feedback. Consequently, NSCC believes that any
burden on competition derived from the proposed rule changes would be
necessary and appropriate in support of the beneficial objectives of
the improvements in the CTS, which would be made in furtherance of the
Act, as described above. Moreover, NSCC believes any such burden on
competition derived from the proposed rule changes would not be
significant because Members have requested these changes and were
involved in developing the business requirements.
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\16\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC does not believe that the proposed changes associated with the
Foreign Security Accounting Operation would have any impact on
competition. These changes do not require Members to make any coding
changes or incur costs. Members would continue to accept output from
NSCC associated with their activity in the Foreign Security Accounting
Operation as they do today with the difference being that this output
would no longer reflect the re-pricing discussed in detail above.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has not received or solicited any written comments relating to
this proposal. NSCC will notify the Commission of any written comments
it receives.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form
(https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NSCC-2016-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2016-008. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of NSCC and on
DTCC's Web site (https://dtcc.com/legal/sec-rule-filings.aspx). All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NSCC-2016-008 and should be
submitted on or before January 19, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31472 Filed 12-28-16; 8:45 am]
BILLING CODE 8011-01-P