Order Granting a Temporary Exemption to Covered Clearing Agencies From Compliance With Rule 17Ad-22(e)(3)(ii) and Certain Requirements in Rules 17Ad-22(e)(15)(i) and (ii) Under the Securities Exchange Act of 1934, 17300-17302 [2017-07101]
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17300
Federal Register / Vol. 82, No. 67 / Monday, April 10, 2017 / Notices
ESTIMATE OF ANNUAL RESPONDENT BURDEN
Form No.
Annual
responses
Time
(minutes)
Burden
(hours)
G–139 ..........................................................................................................................................
500
60
500
Additional Information or Comments:
To request more information or to
obtain a copy of the information
collection justification, forms, and/or
supporting material, contact Dana
Hickman at (312) 751–4981 or
Dana.Hickman@RRB.GOV. Comments
regarding the information collection
should be addressed to Brian Foster,
Railroad Retirement Board, 844 North
Rush Street, Chicago, Illinois 60611–
1275 or emailed to Brian.Foster@rrb.gov.
Written comments should be received
within 60 days of this notice.
For the Board.
Martha P. Rico,
Secretary to the Board.
[FR Doc. 2017–07067 Filed 4–7–17; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80378; File No. S7–03–14]
Order Granting a Temporary
Exemption to Covered Clearing
Agencies From Compliance With Rule
17Ad–22(e)(3)(ii) and Certain
Requirements in Rules 17Ad–
22(e)(15)(i) and (ii) Under the Securities
Exchange Act of 1934
April 5, 2017.
I. Introduction
asabaliauskas on DSK3SPTVN1PROD with NOTICES
On September 28, 2016, the Securities
and Exchange Commission
(‘‘Commission’’) adopted amendments
to Rule 17Ad–22 pursuant to Section
17A of the Securities Exchange Act of
1934 (‘‘Exchange Act’’) and Title VIII of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010.1
Among other things, the amendments
added new Rule 17Ad–22(e), which
establishes an enhanced regulatory
framework for registered clearing
agencies that meet the definition of a
covered clearing agency.2 The
1 See Exchange Act Release No. 34–78961 (Sept.
28, 2016), 81 FR 70786 (Oct. 13, 2016) (‘‘CCA
Standards Adopting Release’’).
2 Under Rule 17Ad–22(a)(5), ‘‘covered clearing
agency’’ means (i) a designated clearing agency or
(ii) a clearing agency involved in activities with a
more complex risk profile for which the Commodity
Futures Trading Commission is not the supervisory
agency as defined in Section 803(8) of the Payment,
Clearing, and Settlement Supervision Act of 2010
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20:02 Apr 07, 2017
Jkt 241001
amendments to Rule 17Ad–22 became
effective on December 12, 2016, and
covered clearing agencies must be in
compliance with the amendments by
April 11, 2017.3 For the reasons
discussed below, the Commission is
using its authority under Section
17A(b)(1) of the Exchange Act to grant
covered clearing agencies a temporary
exemption from compliance with Rule
17Ad–22(e)(3)(ii) and certain
requirements in Rules 17Ad–22(e)(15)(i)
and (ii) until December 31, 2017.
II. Background
Rule 17Ad–22(e) generally requires a
covered clearing agency to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to address, among
other things, its governance
arrangements and risk management
framework.4 Rule 17Ad–22(e)(3)
requires a covered clearing agency to
establish, implement, maintain and
enforce policies and procedures
reasonably designed to maintain a
sound risk management framework for
comprehensively managing legal, credit,
liquidity, operational, general business,
investment, custody, and other risks
that arise in or are borne by the covered
clearing agency, and which, among
other things, includes plans for recovery
and orderly wind-down of the covered
clearing agency necessitated by credit
losses, liquidity shortfalls, losses from
general business risk, or any other
(‘‘Clearing Supervision Act’’). See 17 CFR
240.17Ad–22(a)(5).
In addition, Rule 17Ad–22(a)(6) defines
‘‘designated clearing agency’’ to mean a clearing
agency registered with the Commission under
Section 17A of the Exchange Act that is designated
systemically important by the Financial Stability
Oversight Council pursuant to the Clearing
Supervision Act and for which the Commission is
the supervisory agency as defined in Section 803(8)
of the Clearing Supervision Act. Rule 17Ad–22(a)(4)
defines ‘‘clearing agency involved in activities with
a more complex risk profile’’ to mean a clearing
agency registered with the Commission under
Section 17A of the Exchange Act that: (i) Provides
central counterparty (‘‘CCP’’) services for securitybased swaps; (ii) has been determined by the
Commission to be involved in activities with a more
complex risk profile at the time of its initial
registration; or (iii) is subsequently determined by
the Commission to be involved in activities with a
more complex risk profile pursuant to Rule 17Ab2–
2(b) under the Exchange Act. See 17 CFR
240.17Ad–22(a)(4), (6).
3 See CCA Standards Adopting Release at 70848.
4 See id. at 70792.
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
losses.5 In adopting Rule 17Ad–
22(e)(3)(ii), the Commission stated its
belief that recovery and wind-down
plans, and material changes thereto,
would constitute a proposed rule
change under Section 19(b) of the
Exchange Act and, for designated
clearing agencies, an advance notice
under the Clearing Supervision Act,
subjecting them to Commission review
and public comment.6
In addition, Rule 17Ad–22(e)(15)
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to identify,
monitor, and manage the covered
clearing agency’s general business risk
and hold sufficient liquid net assets
funded by equity to cover potential
general business losses so that the
covered clearing agency can continue
operations and services as a going
concern if those losses materialize,
including, among other things, by (i)
determining the amount of liquid net
assets funded by equity based upon its
general business risk profile and the
length of time required to achieve a
recovery or orderly wind-down, as
appropriate, of its critical operations
and services if such action is taken and
(ii) holding liquid net assets funded by
equity equal to the greater of either (x)
six months of its current operating
expenses or (y) the amount determined
by the board of directors to be sufficient
to ensure a recovery or orderly winddown of critical operations and services
of the covered clearing agency, as
contemplated by the recovery and winddown plans established under Rule
17Ad–22(e)(3)(ii).7
III. Discussion
A. Background and Exemptive Request
As noted in the CCA Standards
Adopting Release, the Commission
believes that, taken together, the
policies and procedures requirements
related to recovery and wind-down
plans in Rules 17Ad–22(e)(3)(ii) and
(15) should help ensure that a covered
clearing agency is able to remain
resilient in times of market stress and to
sustain its operations for sufficient time
to achieve orderly wind-down if such
5 17
CFR 240.17Ad–22(e)(3)(ii).
CCA Standards Adopting Release at 70809.
7 17 CFR 240.17Ad–22(e)(15)(i), (ii).
6 See
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Federal Register / Vol. 82, No. 67 / Monday, April 10, 2017 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
action is necessary.8 Unlike some other
aspects of Rule 17Ad–22(e), until now
recovery and wind-down plans have not
been part of the Commission’s
regulatory framework for registered
clearing agencies.9
Since the adoption of Rule 17Ad–
22(e), Commission staff has been aware
of the ongoing development of recovery
and wind-down plans by covered
clearing agencies in anticipation of the
April 11, 2017 compliance date.
Nevertheless, the development of
recovery and wind-down plans
continues to present novel and complex
questions, and one entity, on behalf of
its three subsidiaries that are covered
clearing agencies, has requested that the
Commission provide a temporary
exemption from compliance until
December 31, 2017 so that the clearing
agencies can finalize their recovery and
wind-down plans.10 The entity states its
view that recovery and wind-down
plans are an important new input into
industry efforts to manage systemic risk
that must be carefully designed to
address concerns unique to each
covered clearing agency and its
members.11 The entity asserts that the
topic of recovery and wind-down
remains under active discussion in the
industry, that a substantial amount of
work remains to be completed, and that
it would be prudent to provide for a
longer period of time for consultation
concerning the relevant documents and
filings under the Rule 19b–4 and
advance notice processes related to
recovery and wind-down plans.12 The
entity believes, in particular, that
covered clearing agencies, their
members, and other interested persons
would benefit from further thought
development concerning whether and
how the plans should address the
continued provision of critical
operations and services in the event that
recovery tools fail. The entity
8 See CCA Standards Adopting Release at 70868,
70876.
9 As discussed in CCA Standards Adopting
Release, certain requirements in Rule 17Ad–22(e)
contain requirements substantially similar to those
in Rule 17Ad–22(d) or reflect current practices at
registered clearing agencies. Certain other
requirements in Rule 17Ad–22(e) contain
provisions that are similar to those in Rule 17Ad–
22(d) but would also impose additional
requirements not found in Rule 17Ad–22(d). A few
requirements have no comparable requirement
under Rule 17Ad–22(d) and therefore may require
more extensive changes to policies and procedures
or other additional steps to achieve compliance. See
id. at 70891.
10 See letter from Michael C. Bodson, President
and Chief Executive Officer, The Depository Trust
& Clearing Corporation, Feb. 15, 2017, https://
www.sec.gov/comments/s7-03-14/s70314-1594398132354.pdf.
11 See id. at 1.
12 See id. at 2.
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20:02 Apr 07, 2017
Jkt 241001
emphasizes that additional time is
necessary because of the complexity of
the planning process, the need for
further discussion and consultation, and
the advisability of conducting
appropriate member outreach prior to
the submission of formal filings under
the Rule 19b–4 and advance notice
processes.13
B. Exemptive Relief
Section 17A(b)(1) of the Exchange Act
provides that the Commission, by order
and upon its own motion, may
conditionally or unconditionally
exempt any clearing agency or class of
clearing agencies from any provisions of
Section 17A or the rules and regulations
thereunder if the Commission finds that
such exemption is consistent with the
public interest, the protection of
investors, and the purposes of Section
17A, including the prompt and accurate
clearance and settlement of securities
transactions and the safeguarding of
securities and funds.14
Recognizing that the reasons stated by
the entity may apply to covered clearing
agencies generally, the Commission
believes that all covered clearing
agencies would benefit from additional
time to finalize the development of their
recovery and wind-down plans. As
noted above, unlike some other aspects
of Rule 17Ad–22(e), recovery and winddown plans continue to present novel
and complex questions. The recovery
and wind-down plans described in Rule
17Ad–22(e)(3)(ii) are new requirements
not previously included in the
Commission’s regulatory framework for
clearing agencies, and the topics of
recovery and wind-down remain under
active discussion in the industry. The
Commission believes that providing
additional time to develop recovery and
wind-down plans will facilitate further
discussion, consultation, and member
outreach by the covered clearing
agencies that could help resolve the
novel and complex questions presented.
This in turn would help promote the
development of plans that
comprehensively address how a covered
clearing agency could continue to
provide critical operations and services
in the event that recovery tools fail and
that are consistent with the policies and
procedures requirements of Rule 17Ad–
22(e)(3)(ii). Therefore, the Commission
finds that a temporary exemption from
compliance with Rule 17Ad–22(e)(3)(ii)
until December 31, 2017 is consistent
with the public interest, the protection
of investors, and the purposes of Section
17A of the Exchange Act.
13 See
14 15
PO 00000
id.
U.S.C. 78q–1(b)(1).
Frm 00124
Fmt 4703
Sfmt 4703
17301
In addition, compliance with certain
aspects of Rule 17Ad–22(e)(15) depends
in part on a covered clearing agency
having established recovery and winddown plans under Rule 17Ad–
22(e)(3)(ii). Specifically, these include
the following: (i) The requirement in
Rule 17Ad–22(e)(15)(i) for policies and
procedures for determining the amount
of liquid net assets funded by equity
based upon the length of time required
to achieve a recovery or orderly winddown, as appropriate, of its critical
operations and services if such action is
taken (‘‘RWP clause’’); and (ii) clause (y)
of Rule 17Ad–22(e)(15)(ii) requiring
policies and procedures for holding
liquid net assets funded by equity equal
to the amount determined by the board
of directors to be sufficient to ensure a
recovery or orderly wind-down of
critical operations and services of the
covered clearing agency, as
contemplated by the plans established
under Rule 17Ad–22 (e)(3)(ii). The
Commission therefore finds that a
temporary exemption from compliance
with these subsections of Rule 17Ad–
22(e)(15) until December 31, 2017 is
consistent with the public interest, the
protection of investors, and the
purposes of Section 17A of the
Exchange Act.
The Commission is not granting relief
from the April 11, 2017 compliance date
for any other provision of the
amendments to Rule 17Ad–22. In
particular, the Commission notes that
the temporary exemption from
compliance does not apply to either of
the following: (i) The requirement in
Rule 17Ad–22(e)(15)(i) for policies and
procedures for determining the amount
of liquid net assets funded by equity
based upon its general business risk
profile; or (ii) clause (x) of Rule 17Ad–
22(e)(15)(ii) requiring policies and
procedures for holding liquid net assets
funded by equity equal to six months of
the covered clearing agency’s current
operating expenses. Accordingly, as of
the April 11, 2017 compliance date for
the amendments to Rule 17Ad–22, a
covered clearing agency is required to
have policies and procedures for
determining the amount of liquid net
assets funded by equity based upon its
general business risk profile pursuant to
Rule 17Ad–22(e)(15)(i) and for holding
liquid net assets funded by equity equal
to six months of the covered clearing
agency’s current operating expenses
pursuant to clause (x) of Rule 17Ad–
22(e)(15)(ii), regardless of whether the
covered clearing agency has met the
condition for obtaining relief under this
temporary exemption.
As a condition to obtaining relief
under the temporary exemption, a
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17302
Federal Register / Vol. 82, No. 67 / Monday, April 10, 2017 / Notices
covered clearing agency must notify the
Commission in writing of its intent to
rely upon the temporary exemption no
later than April 11, 2017.
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
IV. Conclusion
The Commission hereby grants,
pursuant to Section 17A(b)(1) of the
Exchange Act, covered clearing agencies
a temporary exemption from
compliance with Rule 17Ad–22(e)(3)(ii),
the RWP clause of Rule 17Ad–
22(e)(15)(i), and clause (y) of Rule
17Ad–22(e)(15)(ii) until December 31,
2017, subject to the condition contained
in this order.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–07101 Filed 4–7–17; 8:45 am]
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80375; File No. SR–
NYSEMKT–2017–16]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing of Proposed
Rule Change Amending Rule 36—
Equities To Permit Exchange Floor
Brokers To Use Non-Exchange
Provided Telephones on the Floor
April 4, 2017.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
22, 2017, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 36—Equities to permit Exchange
Floor brokers to use non-Exchange
provided telephones on the Floor and
make related changes modeled on the
rules governing telephone use on the
Exchange’s options trading floor and on
the options trading floor of its affiliate
NYSE Arca, Inc. The proposed rule
change is available on the Exchange’s
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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20:02 Apr 07, 2017
Jkt 241001
1. Purpose
The Exchange proposes to amend
Rule 36—Equities (Communication
Between Exchange and Members’
Offices) (‘‘Rule 36’’) to permit Exchange
Floor brokers to use non-Exchange
provided telephones on the Floor (the
‘‘Floor’’) 4 and make related changes
modeled on the rules governing
telephone use on the Exchange’s options
trading floor and on the options trading
floor of its affiliate NYSE Arca, Inc.
(‘‘NYSE Arca’’).
Background
Overview of Rule 36 Requirements
Rule 36 governs the establishment of
telephone or electronic communications
between the Floor and any other
location, which requires Exchange
approval. Supplementary Material .20,
.21 and .23 to Rule 36 outline the
conditions under which Floor brokers
are permitted to use Exchange
authorized and provided portable
telephones with the approval of the
Exchange. The Exchange adopted these
provisions of Rule 36 in 2008 when it
was acquired by NYSE Euronext.5
Pursuant to Rule 36.20(a), with
Exchange approval, Floor brokers may
4 Rule 6—Equities defines the Floor as the trading
Floor of the Exchange and the premises
immediately adjacent thereto, such as the various
entrances and lobbies of the 11 Wall Street, 18 New
Street, 8 Broad Street, 12 Broad Street and 18 Broad
Street Buildings, and also means the telephone
facilities available in these locations.
5 See Securities Exchange Act Release No. 58705
(October 1, 2008), 73 FR 58995 (October 8, 2008)
(SR–Amex–2008–63). The Exchange’s Rule 36 was
modeled on the New York Stock Exchange LLC’s
(the ‘‘NYSE’’) version of Rule 36. See id., 73 FR at
58996 & n.24.
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
maintain a telephone line or use
Exchange authorized and provided
portable phones, which permit a nonmember off the Floor to communicate
with a member or member organization
on the Floor. Subject to the exception
contained in Rule 36.23, discussed
below, Rule 36.20(a) expressly prohibits
the use of a portable telephone on the
Floor other than one authorized and
issued by the Exchange.6
The use of Exchange authorized and
issued portable phones is governed by
Rule 36.21, which provides that when
using an Exchange authorized and
provided portable phone, a Floor broker:
(i) May engage in direct voice
communications from the point of sale on the
Floor to an off-Floor location;
(ii) may provide status and oral execution
reports as to orders previously received, as
well as ‘‘market look’’ observations as
historically have been routinely transmitted
from a broker’s booth location;
(iii) must comply with Exchange Rule
123(e)—Equities;
(iv) must comply with all other rules,
policies, and procedures of both the
Exchange and the federal securities law,
including the record retention requirements,
as set forth in Exchange Rule 440—Equities
and SEC Rules 17a–3 and 17a–4; 7 and
(v) may not use call-forwarding or
conference calling. Exchange authorized and
provided portable phones used by Floor
brokers shall not have these capabilities.
Rule 36.21(b) further provides that
Floor brokers and their member
organizations must implement
procedures designed to deter anyone
calling their portable phones from using
caller ID block or other means to
conceal the phone number from which
a call is being made. Members and
member organizations are required to
make and retain records demonstrating
compliance with such procedures.
Rule 36.21(c) provides that Floor
brokers may not use an Exchange
authorized and issued portable phone
used to trade equities while on the
NYSE Amex Options Trading Floor.
Rule 36.23 provides that,
notwithstanding any other provision of
Rule 36, members and employees of
member organizations may use personal
portable communications devices
outside the Trading Floor 8 consistent
6 The last sentence of Rule 36.20(a) provides that
the Exchange will approve the maintenance of
telephone lines only at the booth location of a
member or member organization.
7 See 17 CFR 240.17a–3; 17 CFR 240.17a–4.
8 Rule 6A—Equities defines the Trading Floor as
the restricted-access physical areas designated by
the Exchange for the trading of securities,
commonly known as the Main Room and the
Buttonwood Room but does not include the areas
in the Buttonwood Room designated by the
Exchange for the trading of its listed options
securities, which, for the purposes of the
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]]>Agencies
[Federal Register Volume 82, Number 67 (Monday, April 10, 2017)]
[Notices]
[Pages 17300-17302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07101]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80378; File No. S7-03-14]
Order Granting a Temporary Exemption to Covered Clearing Agencies
From Compliance With Rule 17Ad-22(e)(3)(ii) and Certain Requirements in
Rules 17Ad-22(e)(15)(i) and (ii) Under the Securities Exchange Act of
1934
April 5, 2017.
I. Introduction
On September 28, 2016, the Securities and Exchange Commission
(``Commission'') adopted amendments to Rule 17Ad-22 pursuant to Section
17A of the Securities Exchange Act of 1934 (``Exchange Act'') and Title
VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010.\1\ Among other things, the amendments added new Rule 17Ad-
22(e), which establishes an enhanced regulatory framework for
registered clearing agencies that meet the definition of a covered
clearing agency.\2\ The amendments to Rule 17Ad-22 became effective on
December 12, 2016, and covered clearing agencies must be in compliance
with the amendments by April 11, 2017.\3\ For the reasons discussed
below, the Commission is using its authority under Section 17A(b)(1) of
the Exchange Act to grant covered clearing agencies a temporary
exemption from compliance with Rule 17Ad-22(e)(3)(ii) and certain
requirements in Rules 17Ad-22(e)(15)(i) and (ii) until December 31,
2017.
---------------------------------------------------------------------------
\1\ See Exchange Act Release No. 34-78961 (Sept. 28, 2016), 81
FR 70786 (Oct. 13, 2016) (``CCA Standards Adopting Release'').
\2\ Under Rule 17Ad-22(a)(5), ``covered clearing agency'' means
(i) a designated clearing agency or (ii) a clearing agency involved
in activities with a more complex risk profile for which the
Commodity Futures Trading Commission is not the supervisory agency
as defined in Section 803(8) of the Payment, Clearing, and
Settlement Supervision Act of 2010 (``Clearing Supervision Act'').
See 17 CFR 240.17Ad-22(a)(5).
In addition, Rule 17Ad-22(a)(6) defines ``designated clearing
agency'' to mean a clearing agency registered with the Commission
under Section 17A of the Exchange Act that is designated
systemically important by the Financial Stability Oversight Council
pursuant to the Clearing Supervision Act and for which the
Commission is the supervisory agency as defined in Section 803(8) of
the Clearing Supervision Act. Rule 17Ad-22(a)(4) defines ``clearing
agency involved in activities with a more complex risk profile'' to
mean a clearing agency registered with the Commission under Section
17A of the Exchange Act that: (i) Provides central counterparty
(``CCP'') services for security-based swaps; (ii) has been
determined by the Commission to be involved in activities with a
more complex risk profile at the time of its initial registration;
or (iii) is subsequently determined by the Commission to be involved
in activities with a more complex risk profile pursuant to Rule
17Ab2-2(b) under the Exchange Act. See 17 CFR 240.17Ad-22(a)(4),
(6).
\3\ See CCA Standards Adopting Release at 70848.
---------------------------------------------------------------------------
II. Background
Rule 17Ad-22(e) generally requires a covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to address, among other things, its
governance arrangements and risk management framework.\4\ Rule 17Ad-
22(e)(3) requires a covered clearing agency to establish, implement,
maintain and enforce policies and procedures reasonably designed to
maintain a sound risk management framework for comprehensively managing
legal, credit, liquidity, operational, general business, investment,
custody, and other risks that arise in or are borne by the covered
clearing agency, and which, among other things, includes plans for
recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\5\ In adopting Rule 17Ad-
22(e)(3)(ii), the Commission stated its belief that recovery and wind-
down plans, and material changes thereto, would constitute a proposed
rule change under Section 19(b) of the Exchange Act and, for designated
clearing agencies, an advance notice under the Clearing Supervision
Act, subjecting them to Commission review and public comment.\6\
---------------------------------------------------------------------------
\4\ See id. at 70792.
\5\ 17 CFR 240.17Ad-22(e)(3)(ii).
\6\ See CCA Standards Adopting Release at 70809.
---------------------------------------------------------------------------
In addition, Rule 17Ad-22(e)(15) requires a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to identify, monitor, and manage the
covered clearing agency's general business risk and hold sufficient
liquid net assets funded by equity to cover potential general business
losses so that the covered clearing agency can continue operations and
services as a going concern if those losses materialize, including,
among other things, by (i) determining the amount of liquid net assets
funded by equity based upon its general business risk profile and the
length of time required to achieve a recovery or orderly wind-down, as
appropriate, of its critical operations and services if such action is
taken and (ii) holding liquid net assets funded by equity equal to the
greater of either (x) six months of its current operating expenses or
(y) the amount determined by the board of directors to be sufficient to
ensure a recovery or orderly wind-down of critical operations and
services of the covered clearing agency, as contemplated by the
recovery and wind-down plans established under Rule 17Ad-
22(e)(3)(ii).\7\
---------------------------------------------------------------------------
\7\ 17 CFR 240.17Ad-22(e)(15)(i), (ii).
---------------------------------------------------------------------------
III. Discussion
A. Background and Exemptive Request
As noted in the CCA Standards Adopting Release, the Commission
believes that, taken together, the policies and procedures requirements
related to recovery and wind-down plans in Rules 17Ad-22(e)(3)(ii) and
(15) should help ensure that a covered clearing agency is able to
remain resilient in times of market stress and to sustain its
operations for sufficient time to achieve orderly wind-down if such
[[Page 17301]]
action is necessary.\8\ Unlike some other aspects of Rule 17Ad-22(e),
until now recovery and wind-down plans have not been part of the
Commission's regulatory framework for registered clearing agencies.\9\
---------------------------------------------------------------------------
\8\ See CCA Standards Adopting Release at 70868, 70876.
\9\ As discussed in CCA Standards Adopting Release, certain
requirements in Rule 17Ad-22(e) contain requirements substantially
similar to those in Rule 17Ad-22(d) or reflect current practices at
registered clearing agencies. Certain other requirements in Rule
17Ad-22(e) contain provisions that are similar to those in Rule
17Ad-22(d) but would also impose additional requirements not found
in Rule 17Ad-22(d). A few requirements have no comparable
requirement under Rule 17Ad-22(d) and therefore may require more
extensive changes to policies and procedures or other additional
steps to achieve compliance. See id. at 70891.
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Since the adoption of Rule 17Ad-22(e), Commission staff has been
aware of the ongoing development of recovery and wind-down plans by
covered clearing agencies in anticipation of the April 11, 2017
compliance date. Nevertheless, the development of recovery and wind-
down plans continues to present novel and complex questions, and one
entity, on behalf of its three subsidiaries that are covered clearing
agencies, has requested that the Commission provide a temporary
exemption from compliance until December 31, 2017 so that the clearing
agencies can finalize their recovery and wind-down plans.\10\ The
entity states its view that recovery and wind-down plans are an
important new input into industry efforts to manage systemic risk that
must be carefully designed to address concerns unique to each covered
clearing agency and its members.\11\ The entity asserts that the topic
of recovery and wind-down remains under active discussion in the
industry, that a substantial amount of work remains to be completed,
and that it would be prudent to provide for a longer period of time for
consultation concerning the relevant documents and filings under the
Rule 19b-4 and advance notice processes related to recovery and wind-
down plans.\12\ The entity believes, in particular, that covered
clearing agencies, their members, and other interested persons would
benefit from further thought development concerning whether and how the
plans should address the continued provision of critical operations and
services in the event that recovery tools fail. The entity emphasizes
that additional time is necessary because of the complexity of the
planning process, the need for further discussion and consultation, and
the advisability of conducting appropriate member outreach prior to the
submission of formal filings under the Rule 19b-4 and advance notice
processes.\13\
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\10\ See letter from Michael C. Bodson, President and Chief
Executive Officer, The Depository Trust & Clearing Corporation, Feb.
15, 2017, https://www.sec.gov/comments/s7-03-14/s70314-1594398-132354.pdf.
\11\ See id. at 1.
\12\ See id. at 2.
\13\ See id.
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B. Exemptive Relief
Section 17A(b)(1) of the Exchange Act provides that the Commission,
by order and upon its own motion, may conditionally or unconditionally
exempt any clearing agency or class of clearing agencies from any
provisions of Section 17A or the rules and regulations thereunder if
the Commission finds that such exemption is consistent with the public
interest, the protection of investors, and the purposes of Section 17A,
including the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and
funds.\14\
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\14\ 15 U.S.C. 78q-1(b)(1).
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Recognizing that the reasons stated by the entity may apply to
covered clearing agencies generally, the Commission believes that all
covered clearing agencies would benefit from additional time to
finalize the development of their recovery and wind-down plans. As
noted above, unlike some other aspects of Rule 17Ad-22(e), recovery and
wind-down plans continue to present novel and complex questions. The
recovery and wind-down plans described in Rule 17Ad-22(e)(3)(ii) are
new requirements not previously included in the Commission's regulatory
framework for clearing agencies, and the topics of recovery and wind-
down remain under active discussion in the industry. The Commission
believes that providing additional time to develop recovery and wind-
down plans will facilitate further discussion, consultation, and member
outreach by the covered clearing agencies that could help resolve the
novel and complex questions presented. This in turn would help promote
the development of plans that comprehensively address how a covered
clearing agency could continue to provide critical operations and
services in the event that recovery tools fail and that are consistent
with the policies and procedures requirements of Rule 17Ad-
22(e)(3)(ii). Therefore, the Commission finds that a temporary
exemption from compliance with Rule 17Ad-22(e)(3)(ii) until December
31, 2017 is consistent with the public interest, the protection of
investors, and the purposes of Section 17A of the Exchange Act.
In addition, compliance with certain aspects of Rule 17Ad-22(e)(15)
depends in part on a covered clearing agency having established
recovery and wind-down plans under Rule 17Ad-22(e)(3)(ii).
Specifically, these include the following: (i) The requirement in Rule
17Ad-22(e)(15)(i) for policies and procedures for determining the
amount of liquid net assets funded by equity based upon the length of
time required to achieve a recovery or orderly wind-down, as
appropriate, of its critical operations and services if such action is
taken (``RWP clause''); and (ii) clause (y) of Rule 17Ad-22(e)(15)(ii)
requiring policies and procedures for holding liquid net assets funded
by equity equal to the amount determined by the board of directors to
be sufficient to ensure a recovery or orderly wind-down of critical
operations and services of the covered clearing agency, as contemplated
by the plans established under Rule 17Ad-22 (e)(3)(ii). The Commission
therefore finds that a temporary exemption from compliance with these
subsections of Rule 17Ad-22(e)(15) until December 31, 2017 is
consistent with the public interest, the protection of investors, and
the purposes of Section 17A of the Exchange Act.
The Commission is not granting relief from the April 11, 2017
compliance date for any other provision of the amendments to Rule 17Ad-
22. In particular, the Commission notes that the temporary exemption
from compliance does not apply to either of the following: (i) The
requirement in Rule 17Ad-22(e)(15)(i) for policies and procedures for
determining the amount of liquid net assets funded by equity based upon
its general business risk profile; or (ii) clause (x) of Rule 17Ad-
22(e)(15)(ii) requiring policies and procedures for holding liquid net
assets funded by equity equal to six months of the covered clearing
agency's current operating expenses. Accordingly, as of the April 11,
2017 compliance date for the amendments to Rule 17Ad-22, a covered
clearing agency is required to have policies and procedures for
determining the amount of liquid net assets funded by equity based upon
its general business risk profile pursuant to Rule 17Ad-22(e)(15)(i)
and for holding liquid net assets funded by equity equal to six months
of the covered clearing agency's current operating expenses pursuant to
clause (x) of Rule 17Ad-22(e)(15)(ii), regardless of whether the
covered clearing agency has met the condition for obtaining relief
under this temporary exemption.
As a condition to obtaining relief under the temporary exemption, a
[[Page 17302]]
covered clearing agency must notify the Commission in writing of its
intent to rely upon the temporary exemption no later than April 11,
2017.
IV. Conclusion
The Commission hereby grants, pursuant to Section 17A(b)(1) of the
Exchange Act, covered clearing agencies a temporary exemption from
compliance with Rule 17Ad-22(e)(3)(ii), the RWP clause of Rule 17Ad-
22(e)(15)(i), and clause (y) of Rule 17Ad-22(e)(15)(ii) until December
31, 2017, subject to the condition contained in this order.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07101 Filed 4-7-17; 8:45 am]
BILLING CODE 8011-01-P
