Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Fixed Income Clearing Corporation; Notice of Filings of Proposed Rule Changes, as Modified by Amendments No. 1, To Adopt the Clearing Agency Liquidity Risk Management Framework, 19120-19124 [2017-08286]
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–08285 Filed 4–24–17; 8:45 am]
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–
NASDAQ–2017–037 on the subject line.
Paper Comments
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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–
NASDAQ–2017–037, and should be
submitted on or before May 16, 2017.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2017–037. 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.,
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80489; File No. SR–DTC–
2017–004; SR–NSCC–2017–005; SR–FICC–
2017–008]
Self-Regulatory Organizations; The
Depository Trust Company; National
Securities Clearing Corporation; Fixed
Income Clearing Corporation; Notice of
Filings of Proposed Rule Changes, as
Modified by Amendments No. 1, To
Adopt the Clearing Agency Liquidity
Risk Management Framework
April 19, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 6,
2017, The Depository Trust Company
(‘‘DTC’’), National Securities Clearing
Corporation (‘‘NSCC’’), and Fixed
Income Clearing Corporation (‘‘FICC’’,
and together with DTC and NSCC, the
‘‘Clearing Agencies’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
changes. On April 13, 2017, the Clearing
Agencies filed Amendments No. 1 to the
proposed rule changes, which made
technical corrections to the Table of
Contents in the Exhibit 5s. The
proposed rule changes, as modified by
Amendments No. 1 (hereinafter,
collectively ‘‘Proposed Rule Changes’’),
are described in Items I and II below,
which Items have been prepared
primarily by the Clearing Agencies. The
Commission is publishing this notice to
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
12 15
U.S.C. 78s(b)(3)(A)(ii).
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solicit comments on the Proposed Rule
Changes from interested persons.
I. Clearing Agencies’ Statements of the
Terms of Substance of the Proposed
Rule Changes
The Proposed Rule Changes would
adopt the Clearing Agency Liquidity
Risk Management Framework
(‘‘Framework’’) of the Clearing
Agencies, described below. The
Framework would apply to both of
FICC’s divisions, the Government
Securities Division (‘‘GSD’’) and the
Mortgage-Backed Securities Division
(‘‘MBSD’’). The Framework would be
maintained by the Clearing Agencies in
compliance with Rule 17Ad–22(e)(7)(i),
(ii), and (iv) through (ix) under the Act,
as described below.3
Although the Clearing Agencies
would consider the Framework to be a
rule, the Proposed Rule Changes do not
require any changes to the Rules, Bylaws and Organization Certificate of
DTC (‘‘DTC Rules’’), the Rulebook of
GSD (‘‘GSD Rules’’), the Clearing Rules
of MBSD (‘‘MBSD Rules’’), or the Rules
& Procedures of NSCC (‘‘NSCC Rules’’),
as the Framework would be a
standalone document.4
II. Clearing Agencies’ Statements of the
Purpose of, and Statutory Basis for, the
Proposed Rule Changes
In their filings with the Commission,
the Clearing Agencies included
statements concerning the purpose of
and basis for the Proposed Rule Changes
and discussed any comments they
received on the Proposed Rule Changes.
The text of these statements may be
examined at the places specified in Item
IV below. The Clearing Agencies have
prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
(A) Clearing Agencies’ Statements of the
Purpose of, and Statutory Basis for, the
Proposed Rule Changes
1. Purpose
The Clearing Agencies are proposing
to adopt the Framework, which would
set forth the manner in which the
Clearing Agencies measure, monitor and
3 17 CFR 240.17Ad–22(e)(7)(i), (ii), and (iv)
through (ix). The Commission adopted amendments
to Rule 17Ad–22, including the addition of new
section 17Ad–22(e), on September 28, 2016. See
Securities Exchange Act Release No. 78961
(September 28, 2016), 81 FR 70786 (October 13,
2016) (S7–03–14). Each of the Clearing Agencies is
a ‘‘covered clearing agency’’ as defined in Rule
17Ad–22(a)(5), and must comply with new section
(e) of Rule 17Ad–22 by April 11, 2017.
4 Capitalized terms not defined herein are defined
in the DTC Rules, GSD Rules, MBSD Rules, or
NSCC Rules, as applicable, available at https://
dtcc.com/legal/rules-and-procedures.
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manage the liquidity risks that arise in
or are borne by each of the Clearing
Agencies, including (i) the manner in
which the Clearing Agencies would
deploy liquidity tools to meet their
settlement obligations on an ongoing
and timely basis and (ii) each applicable
Clearing Agency’s use of intraday
liquidity. The Framework would apply
to the liquidity risk management of each
of the Clearing Agencies.
The Framework would be owned and
managed by the Liquidity Product Risk
Unit (‘‘LPRU’’).5 The Framework would
outline the regulatory requirements that
apply to each Clearing Agency with
respect to liquidity risk management,
and then would describe how the
Clearing Agencies each meet those
requirements. Because the regulatory
requirements, liquidity risks, and
liquidity resources that apply to or are
available to each Clearing Agency are
different, the Framework would
separately describe the liquidity
resources and related risk management
tools available to each Clearing Agency
and, with respect to FICC, to GSD and
MBSD.
The Framework would describe each
Clearing Agency’s liquidity risk
management strategy and objectives,
which, for FICC and NSCC, is to
maintain sufficient liquid resources in
order to meet the potential amount of
funding required to settle outstanding
transactions of a defaulting Member, or
affiliated family (‘‘Affiliated Family’’) of
Members, in a timely manner.6 DTC’s
liquidity management strategy and
controls are designed to maintain
sufficient available liquid resources to
complete system-wide settlement on
each business day with a high degree of
confidence notwithstanding the failure
to settle of a Participant or Affiliated
Family of Participants. The Framework
would also state that DTC operates on
a fully collateralized basis.
The Framework would address how
each of the Clearing Agencies meets its
requirement to hold qualifying liquid
resources, as such term is defined in
Rule 17Ad–22(a)(14) under the Act,7
sufficient to meet its minimum liquidity
5 The parent company of the Clearing Agencies is
The Depository Trust & Clearing Corporation
(‘‘DTCC’’). DTCC operates on a shared services
model with respect to the Clearing Agencies. Most
corporate functions are established and managed on
an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that
provides a relevant service to a Clearing Agency.
6 FICC and NSCC refer to their participants as
‘‘Members,’’ while DTC refers to its participants as
‘‘Participants.’’ These terms are defined in the rules
of each of the Clearing Agencies. Supra note 4. In
this filing ‘‘participant’’ or ‘‘participants’’ refers to
both the Members of FICC and NSCC and the
Participants of DTC.
7 17 CFR 240.17Ad–22(a)(14).
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resource requirement in each relevant
currency for which it has payment
obligations owed to its Members or
Participants, as applicable. The
Framework would also describe the
manner in which each of FICC and
NSCC measures the sufficiency of their
respective qualifying liquid resources
through daily liquidity studies, across a
range of stress scenarios. With respect to
DTC, the Framework would set forth
that DTC’s structural features, including
the Collateral Monitor, Net Debit Cap,
and Participants Fund, limit the
liquidity requirements in default
scenarios.
The Framework would identify each
of the qualifying liquid resources
available to each Clearing Agency,
including both GSD and MBSD. Such
qualifying liquid resources include, for
example, (1) deposits to the Clearing
Agencies’ respective Clearing Funds, or,
for DTC, its Participants Fund, made by
participants pursuant to the respective
rules,8 (2) for DTC and NSCC, an annual
committed credit facility,9 (3) for NSCC,
its Members’ Supplemental Liquidity
Deposits,10 and (4) for GSD and MBSD,
a rule-based Capped Contingency
Liquidity Facility (‘‘CCLF’’) program.11
The Framework would also state that
the Clearing Agencies may have access
to other available resources that may not
meet the definition of qualifying liquid
resources.
The Framework would describe how
FICC and NSCC perform daily liquidity
studies to measure the sufficiency of
their available liquid resources to meet
the cash settlement obligations of their
largest Affiliated Family, in compliance
with the requirements under Rule
17Ad–22(e)(7)(vi)(A) under the Act.12
The Framework would describe the
manner in which daily liquidity studies
are performed for both FICC and NSCC,
including the assumptions used to
determine each participant’s total
8 DTC Rule 4 (Participants Fund and Participants
Investment), FICC/GSD Rule 4 (Clearing Fund and
Loss Allocation), FICC/MBSD Rule 4 (Clearing
Fund and Loss Allocation), NSCC Rule 4 (Clearing
Fund). Supra note 4.
9 See Securities Exchange Act Release No. 77750
(April 29, 2016), 81 FR 27181 (May 5, 2016) (SR–
DTC–2016–801, SR–NSCC–2016–801).
10 NSCC Rule 4A (Supplemental Liquidity
Deposits). Supra note 4.
11 MBSD Rule 17, Section 2a (Procedures for
When the Corporation Ceases to Act). Supra note
4. FICC/GSD has filed a proposed rule change and
related advance notice to adopt a CCLF program.
See Securities Exchange Act Release No. 80234
(March 14, 2017), 82 FR 14401 (March 20, 2017)
(SR–FICC–2017–002) and Securities Exchange Act
Release No. 80191 (March 9, 2017), 82 FR 13876
(March 15, 2017) (SR–FICC–2017–802). Upon
Commission approval of this proposed rule change,
FICC/GSD’s CCLF program will become a qualifying
liquid resource of FICC/GSD.
12 17 CFR 240.17Ad–22(e)(7)(vi)(A). Supra note 3.
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19121
liquidity need. The Framework would
state that FICC and NSCC liquidity
sufficiency testing is performed daily
with respect to three types of
scenarios—(1) normal market scenarios,
as a baseline reference point to assess
other stress assumptions, (2) stressed,
extreme but plausible scenarios, and (3)
the same stressed, extreme but plausible
scenarios applied under severely
adverse market conditions that could
coincide with the default of a
participant. The Framework would
describe the manner in which scenarios
reflecting these three sets of conditions
are developed and selected for testing.
The Framework would describe how
liquidity testing reporting is escalated
on at least a monthly basis, and how
these results are used to evaluate the
adequacy of the liquidity resources of
FICC or NSCC.
The Framework would describe how
the tools available to DTC under the
DTC Rules (e.g., Collateral Monitor and
Net Debit Cap) 13 allow it to regularly
test the sufficiency of liquid resources
on an intraday and end-of-day basis and
adjust to stressed circumstances during
a settlement day to protect itself and
Participants against liquidity exposure
under normal and stressed market
conditions.
The Framework would describe how
the Clearing Agencies undertake due
diligence with respect to their liquidity
providers, and conduct testing with
those providers at least annually. The
Framework would describe how the
Clearing Agencies review the limits of
outstanding investments and collateral
held (if applicable) of each Clearing
Agency’s investment counterparties,
and conduct formal reviews of the
reliability of its qualified liquid resource
providers in extreme but plausible
market conditions.
The Framework would describe how
the Clearing Agencies address
foreseeable liquidity shortfalls that
would not be covered by their existing
liquid resources, including through
modifications to those existing liquid
resources, for example, and would
describe how their existing qualified
liquid resources may be replenished.
The Framework would state that the
Clearing Agencies’ liquidity risk models
are subject to independent model
validation on at least an annual basis.
Finally, the Framework would describe
the manner in which Clearing Agency
liquidity risks are assessed and
escalated through liquidity risk
13 ‘‘Collateral Monitor’’ and ‘‘Net Debit Cap’’ are
defined in DTC Rule 1, Section 1 (Definitions), and
their calculations are further provided for in the
DTC Settlement Service Guide of the DTC Rules.
Supra note 4.
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management controls that include a
statement of risk tolerances that are
specific to liquidity risk (‘‘Liquidity
Risk Tolerance Statement’’), and an
operational risk profile of LPRU, which
contains consolidated risk and control
data. The Liquidity Risk Tolerance
Statement is reviewed by management
within the LPRU annually, and is
escalated to the Risk Committee of the
Boards for review and approval at least
annually.
2. Statutory Basis
The Clearing Agencies believe that the
Proposed Rule Changes are consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a registered clearing
agency. In particular, the Clearing
Agencies believe that the Framework is
consistent with Section 17A(b)(3)(F) of
the Act 14 and the subsections cited
below of Rule 17Ad–22(e)(7),15 each
promulgated under the Act, for the
reasons described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of the
Clearing Agencies be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions, and to assure the
safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies or for which they
are responsible.16 As described above,
the Framework would describe how the
Clearing Agencies have developed and
carry out a liquidity risk management
strategy such that, with respect to FICC
and NSCC, they maintain liquid
resources sufficient to meet the
potential amount of funding required to
settle outstanding transactions of a
defaulting Member or Affiliated Family
in a timely manner, and with respect to
DTC, it maintains sufficient available
liquid resources to complete systemwide settlement on each business day,
with a high degree of confidence and
notwithstanding the failure to settle of
the Participant or Affiliated Family of
Participants with the largest settlement
obligation. As such, the Clearing
Agencies’ liquidity risk management
strategies address the Clearing Agencies’
maintenance of sufficient liquid
resources, which allow them to
continue the prompt and accurate
clearance and settlement of securities
and can continue to assure the
safeguarding of securities and funds
which are in their custody or control or
for which they are responsible
notwithstanding the default of a
Member of an Affiliated Family.
Therefore, the Clearing Agencies believe
the Framework, which describes how
the Clearing Agencies carry out these
strategies, is consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.17
Rule 17Ad–22(e)(7) under the Act,
which requires, in part, that each
covered clearing agency establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to, among other
things effectively measure, monitor, and
manage the liquidity risks that arise in
or are borne by the covered clearing
agency, including measuring,
monitoring, and managing its settlement
and funding flows on an ongoing and
timely basis, and its use of intraday
liquidity.18 The Clearing Agencies
believe that the Framework is designed
to meet the requirements of the
following subsections of Rule 17Ad–
22(e)(7), cited below, for the reasons
described below.19
Rule 17Ad–22(e)(7)(i) under the Act
requires that a covered clearing agency
maintain sufficient liquid resources at
the minimum in all relevant currencies
to effect same-day and, where
appropriate, intraday and multiday
settlement of payment obligations with
a high degree of confidence under a
wide range of foreseeable stress
scenarios that includes, but is not
limited to, the default of the participant
family that would generate the largest
aggregate payment obligation for the
covered clearing agency in extreme but
plausible market conditions.20 As
described above, the Framework would
describe how the Clearing Agencies
have developed and carry out a liquidity
risk management strategy such that,
with respect to FICC and NSCC, they
maintain liquid resources sufficient to
meet the potential amount of funding
required to settle outstanding
transactions of a defaulting Member or
Affiliated Family in a timely manner,
and with respect to DTC, it maintains
sufficient available liquid resources to
complete system-wide settlement on
each business day, with a high degree of
confidence and notwithstanding the
failure to settle of the Participant or
Affiliated Family of Participants with
the largest settlement obligation. The
Framework would also describe how
FICC and NSCC perform daily liquidity
studies, which are designed to measure
the sufficiency of their available liquid
resources to meet the cash settlement
21 Id.
17 Id.
14 15
U.S.C. 78q–1(b)(3)(F).
15 17 CFR 240.17Ad–22(e)(7). Supra note 3.
16 15 U.S.C. 78q–1(b)(3)(F).
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obligations of their largest Affiliated
Family in a number of scenarios,
including (1) normal market conditions,
as a baseline reference point to assess
other stress assumptions, (2) stressed,
extreme but plausible scenarios, and (3)
the same stressed, extreme but plausible
scenarios applied under severely
adverse market conditions that could
coincide with the default of a
participant. The Framework would also
describe how DTC’s risk management
tools allow DTC to regularly test the
sufficiency of its liquid resources on an
intraday and end-of-day basis and adjust
to stressed circumstances during the
settlement day to protect itself and
Participants against liquidity exposure
under normal and stressed market
conditions. The Framework would also
identify each of the qualified liquid
resources being held by the Clearing
Agencies in all relevant currencies. As
such, the Clearing Agencies believe the
Framework is consistent with Rule
17Ad–22(e)(7)(i).21
Rule 17Ad–22(e)(7)(ii) under the Act
requires that a covered clearing agency
hold qualifying liquid resources
sufficient to meet the minimum
liquidity resource requirement under
Rule 17Ad–22(e)(7)(i) in each relevant
currency for which the covered clearing
agency has payment obligations owed to
clearing members.22 As described
above, the Framework would identify
each of the resources being held by each
of the Clearing Agencies in all relevant
currencies, which meet the definition of
‘‘qualified liquid resources’’ set forth in
Rule 17Ad–22(e)(14).23 Therefore, the
Clearing Agencies believe the
Framework supports the Clearing
Agencies’ compliance with Rule 17Ad–
22(e)(7)(ii) by identifying the qualified
liquid resources, as such term is defined
in the Act, being held by each of the
Clearing Agencies.24
Rule 17Ad–22(e)(7)(iv) under the Act
requires that a covered clearing agency
undertake due diligence to confirm that
it has a reasonable basis to believe each
of its liquidity providers, whether or not
such liquidity provider is a clearing
member, has (A) sufficient information
to understand and manage the liquidity
provider’s liquidity risks; and (B) the
capacity to perform as required under
its commitments to provide liquidity to
the covered clearing agency.25 Further,
Rule 17Ad–22(e)(7)(v) under the Act
requires that a covered clearing agency
maintain and test with each liquidity
18 17
22 17
CFR 240.17Ad–22(e)(7). Supra note 3.
19 Id.
20 17
PO 00000
CFR 240.17Ad–22(e)(7)(i). Supra note 3.
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CFR 240.17Ad–22(e)(7)(ii). Supra note 3.
CFR 240.17Ad–22(e)(14). Supra note 3.
24 17 CFR 240.17Ad–22(e)(7)(ii). Supra note 3.
25 17 CFR 240.17Ad–22(e)(7)(iv). Supra note 3.
23 17
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provider, to the extent practicable, the
covered clearing agency’s procedures
and operational capacity for accessing
each type of relevant liquid resource
under Rule 17Ad–22(e)(7)(i) at least
annually.26 The Framework would
describe how the Clearing Agencies
undertake due diligence with respect to
their liquidity providers, as reasonably
necessary in order to validate each such
provider has sufficient liquid resources,
understands its liquidity obligations,
and has the capacity to perform on those
obligations. These reviews, as described
in the Framework, would also include a
credit analysis of each liquidity
provider. Further, the Framework would
describe annual testing of the DTC and
NSCC committed credit facility, which
is conducted to confirm the lenders are
operationally able to perform their
commitments and are familiar with the
drawdown process. Therefore, the
Clearing Agencies believe the
Framework is consistent with Rules
17Ad–22(e)(7)(iv) and (v) under the Act,
because it would describe the Clearing
Agencies’ due diligence practices with
respect to their liquidity providers, and
the annual testing conducted with
respect to the DTC and NSCC
committed credit facility.27
Rule 17Ad–22(e)(7)(vi) under the Act
requires that a covered clearing agency
determine the amount and regularly test
the sufficiency of the liquid resources
held for purposes of meeting the
minimum liquid resource requirement
under Rule 17Ad–22(e)(7)(i) by, at a
minimum: (A) Conducting stress testing
of its liquid resources at least once each
day using standard and predetermined
parameters and assumptions; (B)
conducting a comprehensive analysis on
at least a monthly basis of the existing
stress testing scenarios, models, and
underlying parameters and assumptions
used in evaluating liquidity needs and
resources, and considering
modifications to ensure they are
appropriate for determining the clearing
agency’s identified liquidity needs and
resources in light of current and
evolving market conditions; (C)
conducting a comprehensive analysis of
the scenarios, models, and underlying
parameters and assumptions used in
evaluating liquidity needs and resources
more frequently than monthly when the
products cleared or markets served
display high volatility or become less
liquid, when the size or concentration of
positions held by the clearing agency’s
participants increases significantly, or
in other appropriate circumstances
described in such policies and
procedures; and (D) reporting the results
of its analyses under Rule 17Ad–
22(e)(7)(vi)(B) and (C) to appropriate
decision makers at the covered clearing
agency, including but not limited to, its
risk management committee or board of
directors, and using these results to
evaluate the adequacy of and adjust its
liquidity risk management methodology,
model parameters, and any other
relevant aspects of its liquidity risk
management framework.28
As described above, the Framework
would describe the daily liquidity
studies performed by FICC and NSCC to
measure the sufficiency of its available
liquid resources, including the manner
in which these studies are performed,
and the assumptions used to determine
each participant’s total liquidity need.
The Framework would describe the
manner in which scenarios are
developed and selected for testing, and
how FICC and NSCC continuously
evaluate these scenarios to affirm that
they continue to be appropriate, and to
determine if they should be modified.
The Framework would also describe
how liquidity testing reporting is
escalated on at least a monthly basis to
the management committee responsible
for oversight of risk management
matters, and how these results are used
to evaluate the adequacy of the liquidity
resources of FICC or NSCC. With respect
to DTC, the Framework would describe
how DTC relies on the tools available
under the DTC Rules (e.g., the Net Debit
Cap and the Collateral Monitor) to
regularly test the sufficiency of the
liquid resources on an intraday and endof-day basis and adjust to stressed
circumstances during a settlement day
to protect DTC and Participants against
liquidity exposure under normal and
stressed market conditions. Therefore,
the Clearing Agencies believe the
Framework is consistent with Rule
17Ad–22(e)(7)(vi) under the Act.29
Rule 17Ad–22(e)(7)(vii) under the Act
requires that a covered clearing agency
perform a model validation of its
liquidity risk models not less than
annually or more frequently as may be
contemplated by the covered clearing
agency’s risk management framework
established pursuant to Rule 17Ad–
22(e)(3).30 The Framework would
describe how the Clearing Agencies’
liquidity risk models are subject to
independent model validations on at
least an annual basis. As such, the
Clearing Agencies believe the
Framework is consistent with Rule
17Ad–22(e)(7)(vii).31
Rule 17Ad–22(e)(7)(viii) under the
Act requires that a covered clearing
agency address foreseeable liquidity
shortfalls that would not be covered by
the covered clearing agency’s liquid
resources and seek to avoid unwinding,
revoking, or delaying the same-day
settlement of payment obligations.32 As
described above, the Framework would
describe how each of the Clearing
Agencies addresses a foreseeable same
day liquidity shortfall through, for
example, modification to its existing
liquid resources. For example, DTC may
address a liquidity shortfall through
appropriate adjustment to the Net Debit
Cap reductions, as provided under the
DTC Rules.33 Therefore, the Clearing
Agencies believe the Framework is
consistent with Rule 17Ad–22(e)(7)(viii)
under the Act because it would describe
how each of the Clearing Agencies
would address foreseeable liquidity
shortfalls.34
Rule 17Ad–22(e)(7)(ix) under the Act
requires that a covered clearing agency
describe the covered clearing agency’s
process to replenish any liquid
resources that the clearing agency may
employ during a stress event.35 The
Framework would describe how the
Clearing Agencies’ qualified liquid
resources may be replenished in
accordance with the respective rules of
the Clearing Agencies. For example, the
Framework would describe how the
Clearing Agencies may use proceeds
that may be available from the
liquidation of a defaulting participant’s
portfolio (including the sale of collateral
used to secure a borrowing) to repay
liquidity borrowings, thus replenishing
the relevant Clearing Agency’s liquid
resources. Therefore, the Clearing
Agencies believe the Framework is
consistent with Rule 17Ad–22(e)(7)(ix)
under the Act because it would describe
the Clearing Agencies’ process for
replenishing liquid resources as
permitted under their respective rules.36
(B) Clearing Agencies’ Statements on
Burden on Competition
None of the Clearing Agencies believe
that the Framework would have any
impact, or impose any burden, on
competition because the Proposed Rule
Changes reflect the existing framework
that the Clearing Agencies employ to
manage liquidity risk, and would not
effectuate any changes to the Clearing
31 Id.
32 17
CFR 240.17Ad–22(e)(7)(viii). Supra note 3.
note 13.
34 17 CFR 240.17Ad–22(e)(7)(viii). Supra note 3.
35 17 CFR 240.17Ad–22(e)(7)(ix). Supra note 3.
36 Id.
33 Supra
26 17
27 17
CFR 240.17Ad–22(e)(7)(v). Supra note 3.
CFR 240.17Ad–22(e)(7)(iv) and (v). Supra
17:42 Apr 24, 2017
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CFR 240.17Ad–22(e)(7)(vi). Supra note 3.
29 Id.
30 17
note 3.
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Federal Register / Vol. 82, No. 78 / Tuesday, April 25, 2017 / Notices
Agencies’ liquidity risk management
tools as they currently apply to their
respective Members or Participants.
(C) Clearing Agencies’ Statements on
Comments on the Proposed Rule
Changes Received From Members,
Participants, or Others
The Clearing Agencies have not
solicited or received any written
comments relating to this proposal. The
Clearing Agencies will notify the
Commission of any written comments
received by the Clearing Agencies.
III. Date of Effectiveness of the
Proposed Rule Changes, 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 clearing agency consents, the
Commission will:
(A) by order approve or disapprove
such Proposed Rule Changes, or
(B) institute proceedings to determine
whether the Proposed Rule Changes
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
Changes are consistent with the Act.
Comments may be submitted by any of
the following methods:
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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–
DTC–2017–004, SR–NSCC–2017–005, or
SR–FICC–2017–008 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–DTC–2017–004, SR–NSCC–
2017–005, or SR–FICC–2017–008. One
of these file numbers 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
VerDate Sep<11>2014
17:42 Apr 24, 2017
Jkt 241001
with respect to the Proposed Rule
Changes that are filed with the
Commission, and all written
communications relating to the
Proposed Rule Changes 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 the Clearing Agencies, 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–DTC–
2017–004, SR–NSCC–2017–005, or SR–
FICC–2017–008, and should be
submitted on or before May 16, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–08286 Filed 4–24–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80483; File No. SR-Phlx2017–31]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Transaction Fees at
Section VIII
April 19, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on April 10,
2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
37 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
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 the
Exchange’s transaction fees at Section
VIII (NASDAQ PSX Fees) to provide an
additional credit tier for displayed
quotes and orders on NASDAQ PSX
(‘‘PSX’’) in securities that are listed on
exchanges other than The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) or the
New York Stock Exchange LLC
(‘‘NYSE’’).
The text of the proposed rule change
is available on the Exchange’s Web
site at https://
nasdaqphlx.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
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
Exchange 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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to provide an additional credit
tier for displayed quotes and orders on
PSX in securities listed on exchanges
other than Nasdaq or NYSE (‘‘Tape B
securities’’) that are priced at $1 and
above.3
Currently, the Exchange provides two
credits for providing liquidity through
PSX. First, the Exchange provides a
credit for displayed quotes and orders,
with the amount of the credit
determined by the member’s
3 Tape C securities are those that are listed on the
Exchange [sic], Tape A securities are those that are
listed on NYSE, and Tape B securities are those that
are listed on exchanges other than Nasdaq or NYSE.
The Exchange initially filed the proposed pricing
changes on April 3, 2017 (SR–Phlx–2017–28). On
April 10, 2017, the Exchange withdrew that filing
and submitted this filing.
E:\FR\FM\25APN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 78 (Tuesday, April 25, 2017)]
[Notices]
[Pages 19120-19124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08286]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80489; File No. SR-DTC-2017-004; SR-NSCC-2017-005; SR-
FICC-2017-008]
Self-Regulatory Organizations; The Depository Trust Company;
National Securities Clearing Corporation; Fixed Income Clearing
Corporation; Notice of Filings of Proposed Rule Changes, as Modified by
Amendments No. 1, To Adopt the Clearing Agency Liquidity Risk
Management Framework
April 19, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 6, 2017, The Depository Trust Company (``DTC''), National
Securities Clearing Corporation (``NSCC''), and Fixed Income Clearing
Corporation (``FICC'', and together with DTC and NSCC, the ``Clearing
Agencies''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes. On April 13, 2017, the
Clearing Agencies filed Amendments No. 1 to the proposed rule changes,
which made technical corrections to the Table of Contents in the
Exhibit 5s. The proposed rule changes, as modified by Amendments No. 1
(hereinafter, collectively ``Proposed Rule Changes''), are described in
Items I and II below, which Items have been prepared primarily by the
Clearing Agencies. The Commission is publishing this notice to solicit
comments on the Proposed Rule Changes from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agencies' Statements of the Terms of Substance of the
Proposed Rule Changes
The Proposed Rule Changes would adopt the Clearing Agency Liquidity
Risk Management Framework (``Framework'') of the Clearing Agencies,
described below. The Framework would apply to both of FICC's divisions,
the Government Securities Division (``GSD'') and the Mortgage-Backed
Securities Division (``MBSD''). The Framework would be maintained by
the Clearing Agencies in compliance with Rule 17Ad-22(e)(7)(i), (ii),
and (iv) through (ix) under the Act, as described below.\3\
---------------------------------------------------------------------------
\3\ 17 CFR 240.17Ad-22(e)(7)(i), (ii), and (iv) through (ix).
The Commission adopted amendments to Rule 17Ad-22, including the
addition of new section 17Ad-22(e), on September 28, 2016. See
Securities Exchange Act Release No. 78961 (September 28, 2016), 81
FR 70786 (October 13, 2016) (S7-03-14). Each of the Clearing
Agencies is a ``covered clearing agency'' as defined in Rule 17Ad-
22(a)(5), and must comply with new section (e) of Rule 17Ad-22 by
April 11, 2017.
---------------------------------------------------------------------------
Although the Clearing Agencies would consider the Framework to be a
rule, the Proposed Rule Changes do not require any changes to the
Rules, By-laws and Organization Certificate of DTC (``DTC Rules''), the
Rulebook of GSD (``GSD Rules''), the Clearing Rules of MBSD (``MBSD
Rules''), or the Rules & Procedures of NSCC (``NSCC Rules''), as the
Framework would be a standalone document.\4\
---------------------------------------------------------------------------
\4\ Capitalized terms not defined herein are defined in the DTC
Rules, GSD Rules, MBSD Rules, or NSCC Rules, as applicable,
available at https://dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
II. Clearing Agencies' Statements of the Purpose of, and Statutory
Basis for, the Proposed Rule Changes
In their filings with the Commission, the Clearing Agencies
included statements concerning the purpose of and basis for the
Proposed Rule Changes and discussed any comments they received on the
Proposed Rule Changes. The text of these statements may be examined at
the places specified in Item IV below. The Clearing Agencies have
prepared summaries, set forth in sections A, B, and C below, of the
most significant aspects of such statements.
(A) Clearing Agencies' Statements of the Purpose of, and Statutory
Basis for, the Proposed Rule Changes
1. Purpose
The Clearing Agencies are proposing to adopt the Framework, which
would set forth the manner in which the Clearing Agencies measure,
monitor and
[[Page 19121]]
manage the liquidity risks that arise in or are borne by each of the
Clearing Agencies, including (i) the manner in which the Clearing
Agencies would deploy liquidity tools to meet their settlement
obligations on an ongoing and timely basis and (ii) each applicable
Clearing Agency's use of intraday liquidity. The Framework would apply
to the liquidity risk management of each of the Clearing Agencies.
The Framework would be owned and managed by the Liquidity Product
Risk Unit (``LPRU'').\5\ The Framework would outline the regulatory
requirements that apply to each Clearing Agency with respect to
liquidity risk management, and then would describe how the Clearing
Agencies each meet those requirements. Because the regulatory
requirements, liquidity risks, and liquidity resources that apply to or
are available to each Clearing Agency are different, the Framework
would separately describe the liquidity resources and related risk
management tools available to each Clearing Agency and, with respect to
FICC, to GSD and MBSD.
---------------------------------------------------------------------------
\5\ The parent company of the Clearing Agencies is The
Depository Trust & Clearing Corporation (``DTCC''). DTCC operates on
a shared services model with respect to the Clearing Agencies. Most
corporate functions are established and managed on an enterprise-
wide basis pursuant to intercompany agreements under which it is
generally DTCC that provides a relevant service to a Clearing
Agency.
---------------------------------------------------------------------------
The Framework would describe each Clearing Agency's liquidity risk
management strategy and objectives, which, for FICC and NSCC, is to
maintain sufficient liquid resources in order to meet the potential
amount of funding required to settle outstanding transactions of a
defaulting Member, or affiliated family (``Affiliated Family'') of
Members, in a timely manner.\6\ DTC's liquidity management strategy and
controls are designed to maintain sufficient available liquid resources
to complete system-wide settlement on each business day with a high
degree of confidence notwithstanding the failure to settle of a
Participant or Affiliated Family of Participants. The Framework would
also state that DTC operates on a fully collateralized basis.
---------------------------------------------------------------------------
\6\ FICC and NSCC refer to their participants as ``Members,''
while DTC refers to its participants as ``Participants.'' These
terms are defined in the rules of each of the Clearing Agencies.
Supra note 4. In this filing ``participant'' or ``participants''
refers to both the Members of FICC and NSCC and the Participants of
DTC.
---------------------------------------------------------------------------
The Framework would address how each of the Clearing Agencies meets
its requirement to hold qualifying liquid resources, as such term is
defined in Rule 17Ad-22(a)(14) under the Act,\7\ sufficient to meet its
minimum liquidity resource requirement in each relevant currency for
which it has payment obligations owed to its Members or Participants,
as applicable. The Framework would also describe the manner in which
each of FICC and NSCC measures the sufficiency of their respective
qualifying liquid resources through daily liquidity studies, across a
range of stress scenarios. With respect to DTC, the Framework would set
forth that DTC's structural features, including the Collateral Monitor,
Net Debit Cap, and Participants Fund, limit the liquidity requirements
in default scenarios.
---------------------------------------------------------------------------
\7\ 17 CFR 240.17Ad-22(a)(14).
---------------------------------------------------------------------------
The Framework would identify each of the qualifying liquid
resources available to each Clearing Agency, including both GSD and
MBSD. Such qualifying liquid resources include, for example, (1)
deposits to the Clearing Agencies' respective Clearing Funds, or, for
DTC, its Participants Fund, made by participants pursuant to the
respective rules,\8\ (2) for DTC and NSCC, an annual committed credit
facility,\9\ (3) for NSCC, its Members' Supplemental Liquidity
Deposits,\10\ and (4) for GSD and MBSD, a rule-based Capped Contingency
Liquidity Facility (``CCLF'') program.\11\ The Framework would also
state that the Clearing Agencies may have access to other available
resources that may not meet the definition of qualifying liquid
resources.
---------------------------------------------------------------------------
\8\ DTC Rule 4 (Participants Fund and Participants Investment),
FICC/GSD Rule 4 (Clearing Fund and Loss Allocation), FICC/MBSD Rule
4 (Clearing Fund and Loss Allocation), NSCC Rule 4 (Clearing Fund).
Supra note 4.
\9\ See Securities Exchange Act Release No. 77750 (April 29,
2016), 81 FR 27181 (May 5, 2016) (SR-DTC-2016-801, SR-NSCC-2016-
801).
\10\ NSCC Rule 4A (Supplemental Liquidity Deposits). Supra note
4.
\11\ MBSD Rule 17, Section 2a (Procedures for When the
Corporation Ceases to Act). Supra note 4. FICC/GSD has filed a
proposed rule change and related advance notice to adopt a CCLF
program. See Securities Exchange Act Release No. 80234 (March 14,
2017), 82 FR 14401 (March 20, 2017) (SR-FICC-2017-002) and
Securities Exchange Act Release No. 80191 (March 9, 2017), 82 FR
13876 (March 15, 2017) (SR-FICC-2017-802). Upon Commission approval
of this proposed rule change, FICC/GSD's CCLF program will become a
qualifying liquid resource of FICC/GSD.
---------------------------------------------------------------------------
The Framework would describe how FICC and NSCC perform daily
liquidity studies to measure the sufficiency of their available liquid
resources to meet the cash settlement obligations of their largest
Affiliated Family, in compliance with the requirements under Rule 17Ad-
22(e)(7)(vi)(A) under the Act.\12\ The Framework would describe the
manner in which daily liquidity studies are performed for both FICC and
NSCC, including the assumptions used to determine each participant's
total liquidity need. The Framework would state that FICC and NSCC
liquidity sufficiency testing is performed daily with respect to three
types of scenarios--(1) normal market scenarios, as a baseline
reference point to assess other stress assumptions, (2) stressed,
extreme but plausible scenarios, and (3) the same stressed, extreme but
plausible scenarios applied under severely adverse market conditions
that could coincide with the default of a participant. The Framework
would describe the manner in which scenarios reflecting these three
sets of conditions are developed and selected for testing. The
Framework would describe how liquidity testing reporting is escalated
on at least a monthly basis, and how these results are used to evaluate
the adequacy of the liquidity resources of FICC or NSCC.
---------------------------------------------------------------------------
\12\ 17 CFR 240.17Ad-22(e)(7)(vi)(A). Supra note 3.
---------------------------------------------------------------------------
The Framework would describe how the tools available to DTC under
the DTC Rules (e.g., Collateral Monitor and Net Debit Cap) \13\ allow
it to regularly test the sufficiency of liquid resources on an intraday
and end-of-day basis and adjust to stressed circumstances during a
settlement day to protect itself and Participants against liquidity
exposure under normal and stressed market conditions.
---------------------------------------------------------------------------
\13\ ``Collateral Monitor'' and ``Net Debit Cap'' are defined in
DTC Rule 1, Section 1 (Definitions), and their calculations are
further provided for in the DTC Settlement Service Guide of the DTC
Rules. Supra note 4.
---------------------------------------------------------------------------
The Framework would describe how the Clearing Agencies undertake
due diligence with respect to their liquidity providers, and conduct
testing with those providers at least annually. The Framework would
describe how the Clearing Agencies review the limits of outstanding
investments and collateral held (if applicable) of each Clearing
Agency's investment counterparties, and conduct formal reviews of the
reliability of its qualified liquid resource providers in extreme but
plausible market conditions.
The Framework would describe how the Clearing Agencies address
foreseeable liquidity shortfalls that would not be covered by their
existing liquid resources, including through modifications to those
existing liquid resources, for example, and would describe how their
existing qualified liquid resources may be replenished. The Framework
would state that the Clearing Agencies' liquidity risk models are
subject to independent model validation on at least an annual basis.
Finally, the Framework would describe the manner in which Clearing
Agency liquidity risks are assessed and escalated through liquidity
risk
[[Page 19122]]
management controls that include a statement of risk tolerances that
are specific to liquidity risk (``Liquidity Risk Tolerance
Statement''), and an operational risk profile of LPRU, which contains
consolidated risk and control data. The Liquidity Risk Tolerance
Statement is reviewed by management within the LPRU annually, and is
escalated to the Risk Committee of the Boards for review and approval
at least annually.
2. Statutory Basis
The Clearing Agencies believe that the Proposed Rule Changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a registered clearing agency. In
particular, the Clearing Agencies believe that the Framework is
consistent with Section 17A(b)(3)(F) of the Act \14\ and the
subsections cited below of Rule 17Ad-22(e)(7),\15\ each promulgated
under the Act, for the reasons described below.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(e)(7). Supra note 3.
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of the Clearing Agencies be designed to promote the prompt and accurate
clearance and settlement of securities transactions, and to assure the
safeguarding of securities and funds which are in the custody or
control of the Clearing Agencies or for which they are responsible.\16\
As described above, the Framework would describe how the Clearing
Agencies have developed and carry out a liquidity risk management
strategy such that, with respect to FICC and NSCC, they maintain liquid
resources sufficient to meet the potential amount of funding required
to settle outstanding transactions of a defaulting Member or Affiliated
Family in a timely manner, and with respect to DTC, it maintains
sufficient available liquid resources to complete system-wide
settlement on each business day, with a high degree of confidence and
notwithstanding the failure to settle of the Participant or Affiliated
Family of Participants with the largest settlement obligation. As such,
the Clearing Agencies' liquidity risk management strategies address the
Clearing Agencies' maintenance of sufficient liquid resources, which
allow them to continue the prompt and accurate clearance and settlement
of securities and can continue to assure the safeguarding of securities
and funds which are in their custody or control or for which they are
responsible notwithstanding the default of a Member of an Affiliated
Family. Therefore, the Clearing Agencies believe the Framework, which
describes how the Clearing Agencies carry out these strategies, is
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7) under the Act, which requires, in part, that
each covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to, among other
things effectively measure, monitor, and manage the liquidity risks
that arise in or are borne by the covered clearing agency, including
measuring, monitoring, and managing its settlement and funding flows on
an ongoing and timely basis, and its use of intraday liquidity.\18\ The
Clearing Agencies believe that the Framework is designed to meet the
requirements of the following subsections of Rule 17Ad-22(e)(7), cited
below, for the reasons described below.\19\
---------------------------------------------------------------------------
\18\ 17 CFR 240.17Ad-22(e)(7). Supra note 3.
\19\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(i) under the Act requires that a covered
clearing agency maintain sufficient liquid resources at the minimum in
all relevant currencies to effect same-day and, where appropriate,
intraday and multiday settlement of payment obligations with a high
degree of confidence under a wide range of foreseeable stress scenarios
that includes, but is not limited to, the default of the participant
family that would generate the largest aggregate payment obligation for
the covered clearing agency in extreme but plausible market
conditions.\20\ As described above, the Framework would describe how
the Clearing Agencies have developed and carry out a liquidity risk
management strategy such that, with respect to FICC and NSCC, they
maintain liquid resources sufficient to meet the potential amount of
funding required to settle outstanding transactions of a defaulting
Member or Affiliated Family in a timely manner, and with respect to
DTC, it maintains sufficient available liquid resources to complete
system-wide settlement on each business day, with a high degree of
confidence and notwithstanding the failure to settle of the Participant
or Affiliated Family of Participants with the largest settlement
obligation. The Framework would also describe how FICC and NSCC perform
daily liquidity studies, which are designed to measure the sufficiency
of their available liquid resources to meet the cash settlement
obligations of their largest Affiliated Family in a number of
scenarios, including (1) normal market conditions, as a baseline
reference point to assess other stress assumptions, (2) stressed,
extreme but plausible scenarios, and (3) the same stressed, extreme but
plausible scenarios applied under severely adverse market conditions
that could coincide with the default of a participant. The Framework
would also describe how DTC's risk management tools allow DTC to
regularly test the sufficiency of its liquid resources on an intraday
and end-of-day basis and adjust to stressed circumstances during the
settlement day to protect itself and Participants against liquidity
exposure under normal and stressed market conditions. The Framework
would also identify each of the qualified liquid resources being held
by the Clearing Agencies in all relevant currencies. As such, the
Clearing Agencies believe the Framework is consistent with Rule 17Ad-
22(e)(7)(i).\21\
---------------------------------------------------------------------------
\20\ 17 CFR 240.17Ad-22(e)(7)(i). Supra note 3.
\21\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(ii) under the Act requires that a covered
clearing agency hold qualifying liquid resources sufficient to meet the
minimum liquidity resource requirement under Rule 17Ad-22(e)(7)(i) in
each relevant currency for which the covered clearing agency has
payment obligations owed to clearing members.\22\ As described above,
the Framework would identify each of the resources being held by each
of the Clearing Agencies in all relevant currencies, which meet the
definition of ``qualified liquid resources'' set forth in Rule 17Ad-
22(e)(14).\23\ Therefore, the Clearing Agencies believe the Framework
supports the Clearing Agencies' compliance with Rule 17Ad-22(e)(7)(ii)
by identifying the qualified liquid resources, as such term is defined
in the Act, being held by each of the Clearing Agencies.\24\
---------------------------------------------------------------------------
\22\ 17 CFR 240.17Ad-22(e)(7)(ii). Supra note 3.
\23\ 17 CFR 240.17Ad-22(e)(14). Supra note 3.
\24\ 17 CFR 240.17Ad-22(e)(7)(ii). Supra note 3.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(iv) under the Act requires that a covered
clearing agency undertake due diligence to confirm that it has a
reasonable basis to believe each of its liquidity providers, whether or
not such liquidity provider is a clearing member, has (A) sufficient
information to understand and manage the liquidity provider's liquidity
risks; and (B) the capacity to perform as required under its
commitments to provide liquidity to the covered clearing agency.\25\
Further, Rule 17Ad-22(e)(7)(v) under the Act requires that a covered
clearing agency maintain and test with each liquidity
[[Page 19123]]
provider, to the extent practicable, the covered clearing agency's
procedures and operational capacity for accessing each type of relevant
liquid resource under Rule 17Ad-22(e)(7)(i) at least annually.\26\ The
Framework would describe how the Clearing Agencies undertake due
diligence with respect to their liquidity providers, as reasonably
necessary in order to validate each such provider has sufficient liquid
resources, understands its liquidity obligations, and has the capacity
to perform on those obligations. These reviews, as described in the
Framework, would also include a credit analysis of each liquidity
provider. Further, the Framework would describe annual testing of the
DTC and NSCC committed credit facility, which is conducted to confirm
the lenders are operationally able to perform their commitments and are
familiar with the drawdown process. Therefore, the Clearing Agencies
believe the Framework is consistent with Rules 17Ad-22(e)(7)(iv) and
(v) under the Act, because it would describe the Clearing Agencies' due
diligence practices with respect to their liquidity providers, and the
annual testing conducted with respect to the DTC and NSCC committed
credit facility.\27\
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\25\ 17 CFR 240.17Ad-22(e)(7)(iv). Supra note 3.
\26\ 17 CFR 240.17Ad-22(e)(7)(v). Supra note 3.
\27\ 17 CFR 240.17Ad-22(e)(7)(iv) and (v). Supra note 3.
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Rule 17Ad-22(e)(7)(vi) under the Act requires that a covered
clearing agency determine the amount and regularly test the sufficiency
of the liquid resources held for purposes of meeting the minimum liquid
resource requirement under Rule 17Ad-22(e)(7)(i) by, at a minimum: (A)
Conducting stress testing of its liquid resources at least once each
day using standard and predetermined parameters and assumptions; (B)
conducting a comprehensive analysis on at least a monthly basis of the
existing stress testing scenarios, models, and underlying parameters
and assumptions used in evaluating liquidity needs and resources, and
considering modifications to ensure they are appropriate for
determining the clearing agency's identified liquidity needs and
resources in light of current and evolving market conditions; (C)
conducting a comprehensive analysis of the scenarios, models, and
underlying parameters and assumptions used in evaluating liquidity
needs and resources more frequently than monthly when the products
cleared or markets served display high volatility or become less
liquid, when the size or concentration of positions held by the
clearing agency's participants increases significantly, or in other
appropriate circumstances described in such policies and procedures;
and (D) reporting the results of its analyses under Rule 17Ad-
22(e)(7)(vi)(B) and (C) to appropriate decision makers at the covered
clearing agency, including but not limited to, its risk management
committee or board of directors, and using these results to evaluate
the adequacy of and adjust its liquidity risk management methodology,
model parameters, and any other relevant aspects of its liquidity risk
management framework.\28\
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\28\ 17 CFR 240.17Ad-22(e)(7)(vi). Supra note 3.
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As described above, the Framework would describe the daily
liquidity studies performed by FICC and NSCC to measure the sufficiency
of its available liquid resources, including the manner in which these
studies are performed, and the assumptions used to determine each
participant's total liquidity need. The Framework would describe the
manner in which scenarios are developed and selected for testing, and
how FICC and NSCC continuously evaluate these scenarios to affirm that
they continue to be appropriate, and to determine if they should be
modified. The Framework would also describe how liquidity testing
reporting is escalated on at least a monthly basis to the management
committee responsible for oversight of risk management matters, and how
these results are used to evaluate the adequacy of the liquidity
resources of FICC or NSCC. With respect to DTC, the Framework would
describe how DTC relies on the tools available under the DTC Rules
(e.g., the Net Debit Cap and the Collateral Monitor) to regularly test
the sufficiency of the liquid resources on an intraday and end-of-day
basis and adjust to stressed circumstances during a settlement day to
protect DTC and Participants against liquidity exposure under normal
and stressed market conditions. Therefore, the Clearing Agencies
believe the Framework is consistent with Rule 17Ad-22(e)(7)(vi) under
the Act.\29\
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\29\ Id.
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Rule 17Ad-22(e)(7)(vii) under the Act requires that a covered
clearing agency perform a model validation of its liquidity risk models
not less than annually or more frequently as may be contemplated by the
covered clearing agency's risk management framework established
pursuant to Rule 17Ad-22(e)(3).\30\ The Framework would describe how
the Clearing Agencies' liquidity risk models are subject to independent
model validations on at least an annual basis. As such, the Clearing
Agencies believe the Framework is consistent with Rule 17Ad-
22(e)(7)(vii).\31\
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\30\ 17 CFR 240.17Ad-22(e)(7)(vii). Supra note 3.
\31\ Id.
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Rule 17Ad-22(e)(7)(viii) under the Act requires that a covered
clearing agency address foreseeable liquidity shortfalls that would not
be covered by the covered clearing agency's liquid resources and seek
to avoid unwinding, revoking, or delaying the same-day settlement of
payment obligations.\32\ As described above, the Framework would
describe how each of the Clearing Agencies addresses a foreseeable same
day liquidity shortfall through, for example, modification to its
existing liquid resources. For example, DTC may address a liquidity
shortfall through appropriate adjustment to the Net Debit Cap
reductions, as provided under the DTC Rules.\33\ Therefore, the
Clearing Agencies believe the Framework is consistent with Rule 17Ad-
22(e)(7)(viii) under the Act because it would describe how each of the
Clearing Agencies would address foreseeable liquidity shortfalls.\34\
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\32\ 17 CFR 240.17Ad-22(e)(7)(viii). Supra note 3.
\33\ Supra note 13.
\34\ 17 CFR 240.17Ad-22(e)(7)(viii). Supra note 3.
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Rule 17Ad-22(e)(7)(ix) under the Act requires that a covered
clearing agency describe the covered clearing agency's process to
replenish any liquid resources that the clearing agency may employ
during a stress event.\35\ The Framework would describe how the
Clearing Agencies' qualified liquid resources may be replenished in
accordance with the respective rules of the Clearing Agencies. For
example, the Framework would describe how the Clearing Agencies may use
proceeds that may be available from the liquidation of a defaulting
participant's portfolio (including the sale of collateral used to
secure a borrowing) to repay liquidity borrowings, thus replenishing
the relevant Clearing Agency's liquid resources. Therefore, the
Clearing Agencies believe the Framework is consistent with Rule 17Ad-
22(e)(7)(ix) under the Act because it would describe the Clearing
Agencies' process for replenishing liquid resources as permitted under
their respective rules.\36\
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\35\ 17 CFR 240.17Ad-22(e)(7)(ix). Supra note 3.
\36\ Id.
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(B) Clearing Agencies' Statements on Burden on Competition
None of the Clearing Agencies believe that the Framework would have
any impact, or impose any burden, on competition because the Proposed
Rule Changes reflect the existing framework that the Clearing Agencies
employ to manage liquidity risk, and would not effectuate any changes
to the Clearing
[[Page 19124]]
Agencies' liquidity risk management tools as they currently apply to
their respective Members or Participants.
(C) Clearing Agencies' Statements on Comments on the Proposed Rule
Changes Received From Members, Participants, or Others
The Clearing Agencies have not solicited or received any written
comments relating to this proposal. The Clearing Agencies will notify
the Commission of any written comments received by the Clearing
Agencies.
III. Date of Effectiveness of the Proposed Rule Changes, 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 clearing agency consents, the Commission will:
(A) by order approve or disapprove such Proposed Rule Changes, or
(B) institute proceedings to determine whether the Proposed Rule
Changes 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
Changes are 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-DTC-2017-004, SR-NSCC-2017-005, or SR-FICC-2017-008 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-DTC-2017-004, SR-NSCC-
2017-005, or SR-FICC-2017-008. One of these file numbers 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 Changes that are filed with the
Commission, and all written communications relating to the Proposed
Rule Changes 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 the Clearing Agencies, 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-DTC-2017-004, SR-NSCC-2017-
005, or SR-FICC-2017-008, and should be submitted on or before May 16,
2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08286 Filed 4-24-17; 8:45 am]
BILLING CODE 8011-01-P
