Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Notice of No Objection to Advance Notices To Enhance the Credit Risk Rating Matrix and Make Other Changes, 24174-24177 [2017-10689]

Download as PDF 24174 Federal Register / Vol. 82, No. 100 / Thursday, May 25, 2017 / Notices proceedings to determine whether to disapprove, the proposed rule change (File No. SR–NYSE–2017–11). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10691 Filed 5–24–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80731; File Nos. SR–DTC– 2017–801; SR–FICC–2017–804; SR–NSCC– 2017–801] Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Notice of No Objection to Advance Notices To Enhance the Credit Risk Rating Matrix and Make Other Changes May 19, 2017. On March 22, 2017, The Depository Trust Company (‘‘DTC’’), Fixed Income Clearing Corporation (‘‘FICC’’), and National Securities Clearing Corporation (‘‘NSCC,’’ each a ‘‘Clearing Agency,’’ and collectively, ‘‘Clearing Agencies’’) filed with the Securities and Exchange Commission (‘‘Commission’’), respectively advance notices SR–DTC– 2017–801, SR–FICC–2017–804, and SR– NSCC–2017–801 (collectively, the ‘‘Advance Notices’’) pursuant to section 806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) 2 under the Securities Exchange Act of 1934 (‘‘Exchange Act’’).3 The Advance Notices were published for comment in the Federal Register on April 7, 2017.4 The 6 17 CFR 200.30–3(a)(31). U.S.C. 5465(e)(1). The Financial Stability Oversight Council designated the Clearing Agencies systemically important financial market utilities on July 18, 2012. Financial Stability Oversight Council 2012 Annual Report, Appendix A, http:// www.treasury.gov/initiatives/fsoc/Documents/ 2012%20Annual%20Report.pdf. Therefore, the Clearing Agencies are required to comply with the Clearing Supervision Act and file advance notices with the Commission. 12 U.S.C. 5465(e). 2 17 CFR 240.19b–4(n)(1)(i). 3 15 U.S.C. 78s(b)(1). 4 Securities Exchange Act Release Nos. 80395 (April 7, 2017), 82 FR 17921 (April 13, 2017) (SR– NSCC–2017–801); 80396 (April 7, 2017), 82 FR 17906 (April 13, 2017) (SR–FICC–2017–804); and 80394 (April 7, 2017), 82 FR 17901 (April 13, 2017) (SR–DTC–2017–801) (‘‘Notices’’). The Clearing Agencies also filed proposed rule changes with the Commission pursuant to section 19(b)(1) of the Exchange Act and Rule 19b–4 thereunder, seeking approval of changes to their Rules necessary to implement the proposal. 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b–4, respectively. The proposed rule 1 12 VerDate Sep<11>2014 18:04 May 24, 2017 Jkt 241001 Commission received no comments to the Advance Notices. This publication serves as notice that the Commission does not object to the changes set forth in the Advance Notices. I. Description of the Advance Notices The Advance Notices consist of proposed modifications to the Rules, By-Laws and Organizational Certificate of DTC (‘‘DTC Rules’’), the Rulebook of GSD (‘‘GSD Rules’’), the Clearing Rules of MBSD (‘‘MBSD Rules’’), and the Rules & Procedures of NSCC (‘‘NSCC Rules’’) (collectively, the ‘‘Rules’’).5 The Advance Notices are proposals by the Clearing Agencies to amend the Rules to: (i) Enhance their shared credit risk rating matrix (‘‘Credit Risk Rating Matrix’’ or ‘‘CRRM’’), which was developed by the Clearing Agencies to evaluate the credit risks posed by certain Clearing Agency members to the Clearing Agencies (and by implication to all of the Clearing Agency members), as a result of providing services to such members; and (ii) make other amendments to the Rules, both related and unrelated to the CRRM, to provide more transparency and description regarding the Clearing Agencies’ current ongoing membership monitoring process, as described below. Currently, the CRRM rates the credit risk presented by members of the Clearing Agencies that are U.S. brokerdealers and U.S. banks. The CRRM assigns a credit rating based on certain quantitative factors (‘‘Credit Rating’’), which vary based upon whether the member is a broker-dealer or bank.6 The current CRRM also uses a relative scoring approach (i.e., rating changes were published for comment in the Federal Register on April 11, 2017. Securities Exchange Act Release Nos. 30383 (April 5, 2017), 82 FR 17468 (April 11, 2017) (SR–FICC–2017–006); 80382 (April 5, 2017), 82 FR 17483 (April 11, 2017) (SR–DTC– 2017–002); and 80381 (April 5, 2017), 82 FR 17475 (April 11, 2017) (SR–NSCC–2017–002). The Commission did not receive any comments on the proposed rule changes. 5 Available at http://www.dtcc.com/en/legal/ rules-and-procedures. FICC is comprised of two divisions: The Government Securities Division (‘‘GSD’’) and the Mortgage-Backed Securities Division (‘‘MBSD’’). Each division serves as a central counterparty, becoming the buyer and seller to each of their respective members’ securities transactions and guarantying settlement of those transactions, even if a member defaults. GSD provides, among other things, clearance and settlement for trades in U.S. Government debt issues. MBSD provides, among other things, clearance and settlement for trades in mortgagebacked securities. GSD and MBSD maintain separate sets of rules, margin models, and clearing funds. 6 For U.S. broker-dealers, the Clearing Agencies consider size (i.e., total excess net capital), capital, leverage, liquidity, and profitability. For U.S. banks, the Clearing Agencies consider size, capital, asset quality, earnings, and liquidity. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 participants on a curve) and relies on peer grouping of members to calculate the Credit Rating of a member. Ultimately, the ratings generated are based on a 7-point rating system, with ‘‘1’’ being the strongest Credit Rating and ‘‘7’’ being the weakest Credit Rating. Although the current CRRM does not directly consider qualitative factors, the Clearing Agencies’ credit risk staff may manually downgrade a particular member’s Credit Rating based on various qualitative factors.7 Members that receive a Credit Rating of 5, 6, or 7 are placed on the Clearing Agencies’ ‘‘Watch List,’’ as these members present a greater risk of default.8 To improve the coverage and the effectiveness of the current CRRM, the Clearing Agencies are proposing three enhancements, as discussed below. In addition to the enhancements, the Clearing Agencies also propose to make other changes to their Rules to more fully describe the Clearing Agencies’ current ongoing membership monitoring process, both related and unrelated to the CRRM, also discussed below.9 A. Proposed CRRM Enhancements Currently, the CRRM is comprised of two Credit Rating models—one for U.S. broker-dealers and one for U.S. banks. The first proposed enhancement would expand the CRRM by adding a third model that would enable the CRRM to generate Credit Ratings for members that are foreign banks or foreign trust companies that have audited financial data that is publicly available. The Credit Rating for these particular members would be based on both quantitative and qualitative factors, as indicated in the second enhancement, below. According to the Clearing Agencies, the expected benefit of this expansion and enhancement of the CRRM would be that the Clearing Agencies could better evaluate the default risk of their foreign bank or foreign trust company members. The second proposed enhancement would supplement the Clearing Agencies’ ability to manually downgrade members by incorporating 7 Quantitative factors currently considered by the Clearing Agencies include: (a) Available news reports and/or regulatory observations relating to the member; (b) member’s liquidity arrangements; and (c) material changes to the member’s organizational structure. 8 Members on the Watch List are subject to enhanced surveillance by the Clearing Agencies and additional margin charges. 9 Although each of the Clearing Agencies uses the CRRM uniformly, the description of the respective Clearing Agencies’ Rules regarding the CRRM are different. To address this issue, the Clearing Agencies propose to adopt similar Rules at each Clearing Agency. E:\FR\FM\25MYN1.SGM 25MYN1 Federal Register / Vol. 82, No. 100 / Thursday, May 25, 2017 / Notices new qualitative factors into the two existing CRRM models, as well as in the new foreign bank and trust company model.10 Instead of relying primarily on quantitative data, as do the current CRRM models, the proposed enhancement would modify the CRRM models to blend qualitative factors with quantitative factors to produce a Credit Rating for each applicable member in relation to the member’s credit risk. For U.S. banks, foreign banks, and foreign trust companies, the enhanced CRRM would use 70/30 weights between quantitative and qualitative factors to generate Credit Ratings. For U.S. brokerdealers, the weights between quantitative and qualitative factors would be 60/40. According to the Clearing Agencies, these weights were chosen by the Clearing Agencies based on the industry best practice, as well as research and sensitivity analysis conducted by the Clearing Agencies.11 The Clearing Agencies would review and adjust both the weights and the quantitative and qualitative factors as needed, based on recalibration of the CRRM. According to the Clearing Agencies, this proposed enhancement is expected to reduce the need and the frequency for them to manually override a member’s Credit Rating. The third enhancement would replace the current CRRM’s relative scoring approach (which considers other members’ Credit Ratings) with a statistical approach that would estimate the absolute probability of default of each member by ranking members based on their individual probability of default. According to the Clearing Agencies, under the current relative scoring approach, a member’s Credit Rating can be affected by changes in its peer group, even if the member’s financial condition is unchanged. They believe this issue would be addressed by the proposed statistical approach because it would eliminate any potential distortion of the rating from 10 Quantitative and qualitative factors used for each of the three models differ. The quantitative factors for foreign banks and foreign trust companies would include size, capital, leverage, liquidity, profitability, and growth. Qualitative factors would include market position and sustainability, information reporting and compliance, management quality, capital management, and business/product diversity. The added qualitative factors for U.S. broker-dealers would include market position and sustainability, management quality, capital management, liquidity management, geographic diversification, business/ product diversity, and access to alternative sources of funding. The added qualitative factors for U.S. banks would include the current business environment, regulatory compliance and litigation risk, management quality, liquidity management, and parental demands/needs. 11 Notices at 82 FR 17923, 17908, 17903. VerDate Sep<11>2014 18:04 May 24, 2017 Jkt 241001 the member’s peer group that can occur under the relative scoring approach, and therefore a member’s Credit Rating would better reflect the absolute measure of the member’s default risk. B. Proposed Other Changes Related to the CRRM The Advance Notices also contain a number of other changes to the Clearing Agencies’ Rules with respect to the CRRM. Generally, these CRRM-related changes are intended to make the Rules more clear, consistent, and current for members that rely on them. The proposed CRRM-related changes would include: • Adding both the CRRM and the Watch List to the definitions sections of the Clearing Agencies’ Rules; • Providing more description regarding the Clearing Agencies’ continuing ability to downgrade a member’s Credit Rating if the Clearing Agencies believe the factors used as part of the CRRM may not identify all risks that a member may present to the Clearing Agencies, and providing more description that any such downgrade could result in the member being placed on the Watch List and/ or being subject to enhanced surveillance; • Providing more description regarding the Clearing Agencies’ ability to place non-CRRM members on the Watch List and/or subject them to enhanced surveillance, if necessary under certain specified conditions, such as news reports and/or regulatory observations that raise reasonable concerns relating to the member and material changes to the member’s organizational structure; • Providing more description regarding, with respect to members on the Watch List, that the Clearing Agencies will (i) collect additional deposits to the clearing fund; and (ii) retain deposits in excess of the required deposits; • Providing more description regarding the Clearing Agencies’ ability to continue to monitor and review all members on an ongoing and periodic basis, and that such monitoring may include conducting reviews of news and market developments relating to these members, as well as financial reports and other public information of these members; • Providing more description regarding both members placed on the Watch List and members subject to enhanced surveillance for other reasons being subject to more thorough monitoring of their financial condition and/ or operational capability, and being required to provide more frequent financial disclosures; • Providing more description regarding thresholds for any margin ‘‘add-on charges’’ 12 not applying to Watch List 12 Add-on charges are margin requirements that are in addition to the Clearing Agencies’ primary value-at-risk margin requirement, such as an intraday charge to account for market volatility and a charge for having a concentrated position in a security. See, e.g., NSCC Procedure XV, section 1.(B), available at http://www.dtcc.com/en/legal/ rules-and-procedures. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 24175 members, but applying to non-Watch List members; and • Conforming changes to other sections of the Clearing Agencies’ Rules to use consistent terminology and to provide updated cross references. C. Proposed Other Changes Unrelated to the CRRM The Clearing Agencies also propose changes that would provide more description regarding the Clearing Agencies’ explicit authority to review additional reporting from members regarding their financial or operational condition. Such reporting could include information regarding the businesses and operations of the member and its risk management practices with respect to the Clearing Agencies’ services utilized by the member for another person (‘‘Indirect Member’’). According to the Clearing Agencies, such a review could result in the member being placed on the Watch List, and/or becoming subject to enhanced surveillance. The Clearing Agencies believe such authority would enable them to better determine whether the member and Indirect Member has sufficient financial resources and monitor compliance with the Clearing Agencies’ financial requirements on an ongoing basis. II. Discussion of Commission Findings Although the Clearing Supervision Act does not specify a standard of review for an advance notice, its stated purpose is instructive: To mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.13 Section 805(a)(2) of the Clearing Supervision Act authorizes the Commission to prescribe risk management standards for the payment, clearing, and settlement activities of designated clearing entities and financial institutions engaged in designated activities for which it is the Supervisory Agency or the appropriate financial regulator.14 Section 805(b) of the Clearing Supervision Act 15 states that the objectives and principles for the risk management standards prescribed under section 805(a) shall be to: • Promote robust risk management; • Promote safety and soundness; • Reduce systemic risks; and • Support the stability of the broader financial system. 13 12 U.S.C. 5461(b). U.S.C. 5464(a)(2). 15 12 U.S.C. 5464(b). 14 12 E:\FR\FM\25MYN1.SGM 25MYN1 24176 Federal Register / Vol. 82, No. 100 / Thursday, May 25, 2017 / Notices The Commission has adopted risk management standards under section 805(a)(2) of the Clearing Supervision Act 16 and section 17A of the Exchange Act (‘‘Rule 17Ad–22’’).17 Rule 17Ad–22 requires registered clearing agencies to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.18 Therefore, it is appropriate for the Commission to review proposed changes in advance notices against the objectives and principles of these risk management standards as described in section 805(b) of the Clearing Supervision Act and against Rule 17Ad– 22.19 A. Consistency With Section 805(b) of the Clearing Supervision Act As discussed below, the Commission believes that the changes proposed in the Advance Notices are consistent with section 805(b) of the Clearing Supervision Act because they: (i) Are designed to reduce systemic risk; (ii) are designed to support the stability of the financial system; (iii) are designed to promote robust risk management; and (iv) are consistent with promoting safety and soundness. When considering the CRRM enhancements in their entirety, the Commission believes that the proposal could help reduce the systemic risk presented by the Clearing Agencies, which in turn could help support the stability of the broader financial system. The Commission agrees that the proposed enhancements could enable the Clearing Agencies to (i) more effectively evaluate the credit risk presented by a distinct class of members by expanding the CRRM to foreign banks and foreign trust companies; (ii) more effectively incorporate qualitative data into the Credit Rating; and (iii) more accurately measure the absolute probability of default by rated members. Taken together, these enhancements could in turn improve the Clearing Agencies ability to determine and evaluate the credit risk presented by the various types of Clearing Agency members and ensure that, as applied to all rated members, the CRRM could be a more developed and nuanced tool for evaluating the credit risk any member presents to the Clearing Agencies. The Commission further believes that, by enhancing the Clearing Agencies’ 16 12 U.S.C. 5464(a)(2). 17 CFR 240.17Ad–22. U.S.C. 5464(b). U.S.C. 5464(b). 22 17 CFR 240.17Ad–22(e)(1); (e)(2); and (e)(3). 23 17 CFR 240.17Ad–22(e)(1). U.S.C. 5464(b). 18:04 May 24, 2017 Commission believes that these proposed changes could make the Clearing Agencies’ Rules more clear and transparent for members that rely on them, consistent with Rule 17Ad– 22(e)(1). The Commission also believes that the changes proposed in the Advance Notices are consistent with Rule 17Ad– 22(e)(3)(i) under the Exchange Act, which requires, in part, that the Clearing Agencies ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [m]aintain a sound risk management framework for comprehensively managing . . . risks that arise in or are born by [the Clearing Agencies], which includes . . . systems designed to identify, measure, monitor and manage the range of risks that arise in or are borne by [the Clearing Agencies].’’ 24 As discussed above, the CRRM is a risk measurement tool used by the Clearing Agencies to help assess the credit risk presented by their various members. The proposed enhancements to the CRRM could help the Clearing Agencies better identify and measure such risks, which in turn could help facilitate the Clearing Agencies’ management of credit, market, and liquidity risk that arises from being a central counterparty (in the case of NSCC and FICC) and central securities depository (in the case of DTC). Accordingly, the Commission believes that the proposed enhancements are designed to help effectively manage the Clearing Agencies’ risk exposures, including their credit exposure to participants, arising from their payment, clearing, and settlement processes, consistent with Rule 17Ad–22(e)(3)(i). Finally, the Commission believes that the proposal is consistent with Rule 17Ad–22(e)(18) under the Exchange Act, which requires, in part, that the Clearing Agencies ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [e]stablish objective, risk-based, and publicly disclosed criteria for participation, which . . . require participants to have sufficient financial resources and robust operational capacity to meet obligations arising from participation in the clearing agency, and monitor compliance with such participation requirements on an ongoing basis.’’ 25 As described above, the proposal would provide more description regarding the Clearing Agencies’ authority to review additional reporting from members regarding their financial or operational condition and 21 12 18 Id. VerDate Sep<11>2014 B. Consistency With Rules 17Ad– 22(e)(1), (e)(3), and (e)(18) The Commission believes that the changes proposed in the Advance Notices are consistent with Rules 17Ad– 22(e)(1), (e)(3)(i), and (e)(18) under the Exchange Act.22 The Commission believes that the changes proposed in the Advanced Notice are consistent with Rule 17Ad– 22(e)(1) under the Exchange Act, which requires, in part, that the Clearing Agencies ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [p]rovide for a well-founded, clear, transparent and enforceable legal basis for each aspect of its activities.’’ 23 As described above, the Clearing Agencies propose a number of other changes to their Rules that are designed to update them and to make them more consistent and provide greater description for members that rely on them. As such, the 20 12 17 See 19 12 ability to make distinctions across their various types of members through the CRRM, the proposed enhancements also could improve the Clearing Agencies’ ability to use their risk-management tools in a more targeted way to reduce the risk and impact of a counterparty default, which in turn also could help mitigate the risks and effects on the broader financial system that could be associated with the default of a member. Accordingly, the Commission believes that the CRRM proposal could help reduce systemic risks and support the stability of the financial system, consistent with section 805(b) of the Clearing Supervision Act.20 The Commission also believes that the CRRM proposal is designed to promote robust risk management and is consistent with promoting safety and soundness. The Commission agrees that the proposed enhancements to the CRRM could improve the Clearing Agencies’ ability to identify and measure the credit risk presented by their various members, which in turn could allow the Clearing Agencies to more effectively target their risk management tools to manage the credit, market, and liquidity risk arising from those members with the highest risk of default. Accordingly, the Commission believes that the CRRM proposal is designed to help promote robust risk management, and is consistent with promoting safety and soundness, consistent with section 805(b) of the Clearing Supervision Act.21 Jkt 241001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 24 17 25 17 E:\FR\FM\25MYN1.SGM CFR 240.17Ad–22(e)(3)(i). CFR 240.17Ad–22(e)(18). 25MYN1 Federal Register / Vol. 82, No. 100 / Thursday, May 25, 2017 / Notices the financial information of any Indirect Member. Because such authority could enable the Clearing Agencies to better determine whether the member has sufficient financial resources and monitor compliance with the Clearing Agencies’ financial requirements on an ongoing basis, the Commission believes this requirement is consistent with Rule 17Ad–22(e)(18). III. Conclusion It is therefore noticed, pursuant to section 806(e)(1)(I) of the Clearing Supervision Act,26 that the Commission does not object to these advance notice proposals (SR–DTC–2017–801, SR– FICC–2017–804, and SR–NSCC–2017– 801) and that the Clearing Agencies are authorized to implement the proposals as of the date of this notice or the date of an order by the Commission approving a proposed rule change that reflects rule changes that are consistent with the relevant advance notice proposal (SR–FICC–2017–006, SR– DTC–2017–002, SR–NSCC–2017–002), whichever is later. By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10689 Filed 5–24–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80734; File Nos. SR–DTC– 2017–002; SR–FICC–2017–006; SR–NSCC– 2017–002] Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Order Approving Proposed Rule Changes To Enhance the Credit Risk Rating Matrix and Make Other Changes May 19, 2017. On March 22, 2017, The Depository Trust Company (‘‘DTC’’), Fixed Income Clearing Corporation (‘‘FICC’’), and National Securities Clearing Corporation (‘‘NSCC,’’ each a ‘‘Clearing Agency,’’ and collectively, ‘‘Clearing Agencies’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule changes SR–DTC–2017–002, SR– FICC–2017–006, and SR–NSCC–2017– 002 (collectively, the ‘‘Proposed Rule Changes’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder.2 26 12 U.S.C. 5465(e)(1)(I). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. The Clearing Agencies also filed the Proposed Rule Changes as advance notices 1 15 VerDate Sep<11>2014 18:04 May 24, 2017 Jkt 241001 The Proposed Rule Changes were published for comment in the Federal Register on April 11, 2017.3 The Commission received no comments to the Proposed Rule Changes. This order approves the Proposed Rule Changes. I. Description of the Proposed Rule Changes The Proposed Rule Changes consist of proposed modifications to the Rules, By-Laws and Organizational Certificate of DTC (‘‘DTC Rules’’), the Rulebook of GSD (‘‘GSD Rules’’), the Clearing Rules of MBSD (‘‘MBSD Rules’’), and the Rules & Procedures of NSCC (‘‘NSCC Rules’’) (collectively, the ‘‘Rules’’).4 The Proposed Rule Changes are proposals by the Clearing Agencies to amend the Rules to: (i) Enhance their shared credit risk rating matrix (‘‘Credit Risk Rating Matrix’’ or ‘‘CRRM’’), which was developed by the Clearing Agencies to evaluate the credit risks posed by certain Clearing Agency members to the Clearing Agencies (and by implication to all of the Clearing Agency members), as a result of providing services to such members; and (ii) make other amendments to the Rules, both related and unrelated to the CRRM, to provide more transparency and description regarding the Clearing Agencies’ current ongoing membership monitoring process, as described below. Currently, the CRRM rates the credit risk presented by members of the Clearing Agencies that are U.S. brokerdealers and U.S. banks. The CRRM pursuant to Section 806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 2010 and Rule 19b–4(n)(1) under the Act. 15 U.S.C. 5465(e)(1) and 17 CFR 240.19b–4(n)(1). The advance notices were published for comment in the Federal Register on April 7, 2017. See Securities Exchange Act Release Nos. 80395 (April 7, 2017), 82 FR 17921 (April 13, 2017) (SR–NSCC–2017– 801); 80396 (April 7, 2017), 82 FR 17906 (April 13, 2017) (SR–FICC–2017–804); and 80394 (April 7, 2017), 82 FR 17901 (April 13, 2017) (SR–DTC– 2017–801). The Commission did not receive any comments on the advance notices. 3 Securities Exchange Act Release Nos. 30383 (April 5, 2017), 82 FR 17468 (April 11, 2017) (SR– FICC–2017–006); 80382 (April 5, 2017), 82 FR 17483 (April 11, 2017) (SR–DTC–2017–002); and 80381 (April 5, 2017), 82 FR 17475 (April 11, 2017) (SR–NSCC–2017–002) (‘‘Notices’’). 4 Available at http://www.dtcc.com/en/legal/ rules-and-procedures. FICC is comprised of two divisions: The Government Securities Division (‘‘GSD’’) and the Mortgage-Backed Securities Division (‘‘MBSD’’). Each division serves as a central counterparty, becoming the buyer and seller to each of their respective members’ securities transactions and guarantying settlement of those transactions, even if a member defaults. GSD provides, among other things, clearance and settlement for trades in U.S. Government debt issues. MBSD provides, among other things, clearance and settlement for trades in mortgagebacked securities. GSD and MBSD maintain separate sets of rules, margin models, and clearing funds. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 24177 assigns a credit rating based on certain quantitative factors (‘‘Credit Rating’’), which vary based upon whether the member is a broker-dealer or bank.5 The current CRRM also uses a relative scoring approach (i.e., rating participants on a curve) and relies on peer grouping of members to calculate the Credit Rating of a member. Ultimately, the ratings generated are based on a 7-point rating system, with ‘‘1’’ being the strongest Credit Rating and ‘‘7’’ being the weakest Credit Rating. Although the current CRRM does not directly consider qualitative factors, the Clearing Agencies’ credit risk staff may manually downgrade a particular member’s Credit Rating based on various qualitative factors.6 Members that receive a Credit Rating of 5, 6, or 7 are placed on the Clearing Agencies’ ‘‘Watch List,’’ as these members present a greater risk of default.7 To improve the coverage and the effectiveness of the current CRRM, the Clearing Agencies are proposing three enhancements, as discussed below. In addition to the enhancements, the Clearing Agencies also propose to make other changes to their Rules to more fully describe the Clearing Agencies’ current ongoing membership monitoring process, both related and unrelated to the CRRM, also discussed below.8 A. Proposed CRRM Enhancements Currently, the CRRM is comprised of two Credit Rating models—one for U.S. broker-dealers and one for U.S. banks. The first proposed enhancement would expand the CRRM by adding a third model that would enable the CRRM to generate Credit Ratings for members that are foreign banks or foreign trust companies that have audited financial data that is publicly available. The Credit Rating for these particular members would be based on both quantitative and qualitative factors, as indicated in the second enhancement, below. According to the Clearing 5 For U.S. broker-dealers, the Clearing Agencies consider size (i.e., total excess net capital), capital, leverage, liquidity, and profitability. For U.S. banks, the Clearing Agencies consider size, capital, asset quality, earnings, and liquidity. 6 Quantitative factors currently considered by the Clearing Agencies include: (a) Available news reports and/or regulatory observations relating to the member; (b) member’s liquidity arrangements; and (c) material changes to the member’s organizational structure. 7 Members on the Watch List are subject to enhanced surveillance by the Clearing Agencies and additional margin charges. 8 Although each of the Clearing Agencies uses the CRRM uniformly, the description of the respective Clearing Agencies’ Rules regarding the CRRM are different. To address this issue, the Clearing Agencies propose to adopt similar Rules at each Clearing Agency. E:\FR\FM\25MYN1.SGM 25MYN1

Agencies

[Federal Register Volume 82, Number 100 (Thursday, May 25, 2017)]
[Notices]
[Pages 24174-24177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10689]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80731; File Nos. SR-DTC-2017-801; SR-FICC-2017-804; SR-
NSCC-2017-801]


Self-Regulatory Organizations; The Depository Trust Company; 
Fixed Income Clearing Corporation; National Securities Clearing 
Corporation; Notice of No Objection to Advance Notices To Enhance the 
Credit Risk Rating Matrix and Make Other Changes

May 19, 2017.
    On March 22, 2017, The Depository Trust Company (``DTC''), Fixed 
Income Clearing Corporation (``FICC''), and National Securities 
Clearing Corporation (``NSCC,'' each a ``Clearing Agency,'' and 
collectively, ``Clearing Agencies'') filed with the Securities and 
Exchange Commission (``Commission''), respectively advance notices SR-
DTC-2017-801, SR-FICC-2017-804, and SR-NSCC-2017-801 (collectively, the 
``Advance Notices'') pursuant to section 806(e)(1) of the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities 
Exchange Act of 1934 (``Exchange Act'').\3\ The Advance Notices were 
published for comment in the Federal Register on April 7, 2017.\4\ The 
Commission received no comments to the Advance Notices. This 
publication serves as notice that the Commission does not object to the 
changes set forth in the Advance Notices.
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    \1\ 12 U.S.C. 5465(e)(1). The Financial Stability Oversight 
Council designated the Clearing Agencies systemically important 
financial market utilities on July 18, 2012. Financial Stability 
Oversight Council 2012 Annual Report, Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, the Clearing Agencies are 
required to comply with the Clearing Supervision Act and file 
advance notices with the Commission. 12 U.S.C. 5465(e).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78s(b)(1).
    \4\ Securities Exchange Act Release Nos. 80395 (April 7, 2017), 
82 FR 17921 (April 13, 2017) (SR-NSCC-2017-801); 80396 (April 7, 
2017), 82 FR 17906 (April 13, 2017) (SR-FICC-2017-804); and 80394 
(April 7, 2017), 82 FR 17901 (April 13, 2017) (SR-DTC-2017-801) 
(``Notices''). The Clearing Agencies also filed proposed rule 
changes with the Commission pursuant to section 19(b)(1) of the 
Exchange Act and Rule 19b-4 thereunder, seeking approval of changes 
to their Rules necessary to implement the proposal. 15 U.S.C. 
78s(b)(1) and 17 CFR 240.19b-4, respectively. The proposed rule 
changes were published for comment in the Federal Register on April 
11, 2017. Securities Exchange Act Release Nos. 30383 (April 5, 
2017), 82 FR 17468 (April 11, 2017) (SR-FICC-2017-006); 80382 (April 
5, 2017), 82 FR 17483 (April 11, 2017) (SR-DTC-2017-002); and 80381 
(April 5, 2017), 82 FR 17475 (April 11, 2017) (SR-NSCC-2017-002). 
The Commission did not receive any comments on the proposed rule 
changes.
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I. Description of the Advance Notices

    The Advance Notices consist of proposed modifications to the Rules, 
By-Laws and Organizational Certificate of DTC (``DTC Rules''), the 
Rulebook of GSD (``GSD Rules''), the Clearing Rules of MBSD (``MBSD 
Rules''), and the Rules & Procedures of NSCC (``NSCC Rules'') 
(collectively, the ``Rules'').\5\ The Advance Notices are proposals by 
the Clearing Agencies to amend the Rules to: (i) Enhance their shared 
credit risk rating matrix (``Credit Risk Rating Matrix'' or ``CRRM''), 
which was developed by the Clearing Agencies to evaluate the credit 
risks posed by certain Clearing Agency members to the Clearing Agencies 
(and by implication to all of the Clearing Agency members), as a result 
of providing services to such members; and (ii) make other amendments 
to the Rules, both related and unrelated to the CRRM, to provide more 
transparency and description regarding the Clearing Agencies' current 
ongoing membership monitoring process, as described below.
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    \5\ Available at http://www.dtcc.com/en/legal/rules-and-procedures. FICC is comprised of two divisions: The Government 
Securities Division (``GSD'') and the Mortgage-Backed Securities 
Division (``MBSD''). Each division serves as a central counterparty, 
becoming the buyer and seller to each of their respective members' 
securities transactions and guarantying settlement of those 
transactions, even if a member defaults. GSD provides, among other 
things, clearance and settlement for trades in U.S. Government debt 
issues. MBSD provides, among other things, clearance and settlement 
for trades in mortgage-backed securities. GSD and MBSD maintain 
separate sets of rules, margin models, and clearing funds.
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    Currently, the CRRM rates the credit risk presented by members of 
the Clearing Agencies that are U.S. broker-dealers and U.S. banks. The 
CRRM assigns a credit rating based on certain quantitative factors 
(``Credit Rating''), which vary based upon whether the member is a 
broker-dealer or bank.\6\ The current CRRM also uses a relative scoring 
approach (i.e., rating participants on a curve) and relies on peer 
grouping of members to calculate the Credit Rating of a member. 
Ultimately, the ratings generated are based on a 7-point rating system, 
with ``1'' being the strongest Credit Rating and ``7'' being the 
weakest Credit Rating. Although the current CRRM does not directly 
consider qualitative factors, the Clearing Agencies' credit risk staff 
may manually downgrade a particular member's Credit Rating based on 
various qualitative factors.\7\ Members that receive a Credit Rating of 
5, 6, or 7 are placed on the Clearing Agencies' ``Watch List,'' as 
these members present a greater risk of default.\8\
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    \6\ For U.S. broker-dealers, the Clearing Agencies consider size 
(i.e., total excess net capital), capital, leverage, liquidity, and 
profitability. For U.S. banks, the Clearing Agencies consider size, 
capital, asset quality, earnings, and liquidity.
    \7\ Quantitative factors currently considered by the Clearing 
Agencies include: (a) Available news reports and/or regulatory 
observations relating to the member; (b) member's liquidity 
arrangements; and (c) material changes to the member's 
organizational structure.
    \8\ Members on the Watch List are subject to enhanced 
surveillance by the Clearing Agencies and additional margin charges.
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    To improve the coverage and the effectiveness of the current CRRM, 
the Clearing Agencies are proposing three enhancements, as discussed 
below. In addition to the enhancements, the Clearing Agencies also 
propose to make other changes to their Rules to more fully describe the 
Clearing Agencies' current ongoing membership monitoring process, both 
related and unrelated to the CRRM, also discussed below.\9\
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    \9\ Although each of the Clearing Agencies uses the CRRM 
uniformly, the description of the respective Clearing Agencies' 
Rules regarding the CRRM are different. To address this issue, the 
Clearing Agencies propose to adopt similar Rules at each Clearing 
Agency.
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A. Proposed CRRM Enhancements

    Currently, the CRRM is comprised of two Credit Rating models--one 
for U.S. broker-dealers and one for U.S. banks. The first proposed 
enhancement would expand the CRRM by adding a third model that would 
enable the CRRM to generate Credit Ratings for members that are foreign 
banks or foreign trust companies that have audited financial data that 
is publicly available. The Credit Rating for these particular members 
would be based on both quantitative and qualitative factors, as 
indicated in the second enhancement, below. According to the Clearing 
Agencies, the expected benefit of this expansion and enhancement of the 
CRRM would be that the Clearing Agencies could better evaluate the 
default risk of their foreign bank or foreign trust company members.
    The second proposed enhancement would supplement the Clearing 
Agencies' ability to manually downgrade members by incorporating

[[Page 24175]]

new qualitative factors into the two existing CRRM models, as well as 
in the new foreign bank and trust company model.\10\ Instead of relying 
primarily on quantitative data, as do the current CRRM models, the 
proposed enhancement would modify the CRRM models to blend qualitative 
factors with quantitative factors to produce a Credit Rating for each 
applicable member in relation to the member's credit risk. For U.S. 
banks, foreign banks, and foreign trust companies, the enhanced CRRM 
would use 70/30 weights between quantitative and qualitative factors to 
generate Credit Ratings. For U.S. broker-dealers, the weights between 
quantitative and qualitative factors would be 60/40. According to the 
Clearing Agencies, these weights were chosen by the Clearing Agencies 
based on the industry best practice, as well as research and 
sensitivity analysis conducted by the Clearing Agencies.\11\ The 
Clearing Agencies would review and adjust both the weights and the 
quantitative and qualitative factors as needed, based on recalibration 
of the CRRM. According to the Clearing Agencies, this proposed 
enhancement is expected to reduce the need and the frequency for them 
to manually override a member's Credit Rating.
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    \10\ Quantitative and qualitative factors used for each of the 
three models differ. The quantitative factors for foreign banks and 
foreign trust companies would include size, capital, leverage, 
liquidity, profitability, and growth. Qualitative factors would 
include market position and sustainability, information reporting 
and compliance, management quality, capital management, and 
business/product diversity. The added qualitative factors for U.S. 
broker-dealers would include market position and sustainability, 
management quality, capital management, liquidity management, 
geographic diversification, business/product diversity, and access 
to alternative sources of funding. The added qualitative factors for 
U.S. banks would include the current business environment, 
regulatory compliance and litigation risk, management quality, 
liquidity management, and parental demands/needs.
    \11\ Notices at 82 FR 17923, 17908, 17903.
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    The third enhancement would replace the current CRRM's relative 
scoring approach (which considers other members' Credit Ratings) with a 
statistical approach that would estimate the absolute probability of 
default of each member by ranking members based on their individual 
probability of default. According to the Clearing Agencies, under the 
current relative scoring approach, a member's Credit Rating can be 
affected by changes in its peer group, even if the member's financial 
condition is unchanged. They believe this issue would be addressed by 
the proposed statistical approach because it would eliminate any 
potential distortion of the rating from the member's peer group that 
can occur under the relative scoring approach, and therefore a member's 
Credit Rating would better reflect the absolute measure of the member's 
default risk.

B. Proposed Other Changes Related to the CRRM

    The Advance Notices also contain a number of other changes to the 
Clearing Agencies' Rules with respect to the CRRM. Generally, these 
CRRM-related changes are intended to make the Rules more clear, 
consistent, and current for members that rely on them. The proposed 
CRRM-related changes would include:

     Adding both the CRRM and the Watch List to the 
definitions sections of the Clearing Agencies' Rules;
     Providing more description regarding the Clearing 
Agencies' continuing ability to downgrade a member's Credit Rating 
if the Clearing Agencies believe the factors used as part of the 
CRRM may not identify all risks that a member may present to the 
Clearing Agencies, and providing more description that any such 
downgrade could result in the member being placed on the Watch List 
and/or being subject to enhanced surveillance;
     Providing more description regarding the Clearing 
Agencies' ability to place non-CRRM members on the Watch List and/or 
subject them to enhanced surveillance, if necessary under certain 
specified conditions, such as news reports and/or regulatory 
observations that raise reasonable concerns relating to the member 
and material changes to the member's organizational structure;
     Providing more description regarding, with respect to 
members on the Watch List, that the Clearing Agencies will (i) 
collect additional deposits to the clearing fund; and (ii) retain 
deposits in excess of the required deposits;
     Providing more description regarding the Clearing 
Agencies' ability to continue to monitor and review all members on 
an ongoing and periodic basis, and that such monitoring may include 
conducting reviews of news and market developments relating to these 
members, as well as financial reports and other public information 
of these members;
     Providing more description regarding both members 
placed on the Watch List and members subject to enhanced 
surveillance for other reasons being subject to more thorough 
monitoring of their financial condition and/or operational 
capability, and being required to provide more frequent financial 
disclosures;
     Providing more description regarding thresholds for any 
margin ``add-on charges'' \12\ not applying to Watch List members, 
but applying to non-Watch List members; and
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    \12\ Add-on charges are margin requirements that are in addition 
to the Clearing Agencies' primary value-at-risk margin requirement, 
such as an intraday charge to account for market volatility and a 
charge for having a concentrated position in a security. See, e.g., 
NSCC Procedure XV, section 1.(B), available at http://www.dtcc.com/en/legal/rules-and-procedures.
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     Conforming changes to other sections of the Clearing 
Agencies' Rules to use consistent terminology and to provide updated 
cross references.

C. Proposed Other Changes Unrelated to the CRRM

    The Clearing Agencies also propose changes that would provide more 
description regarding the Clearing Agencies' explicit authority to 
review additional reporting from members regarding their financial or 
operational condition. Such reporting could include information 
regarding the businesses and operations of the member and its risk 
management practices with respect to the Clearing Agencies' services 
utilized by the member for another person (``Indirect Member''). 
According to the Clearing Agencies, such a review could result in the 
member being placed on the Watch List, and/or becoming subject to 
enhanced surveillance. The Clearing Agencies believe such authority 
would enable them to better determine whether the member and Indirect 
Member has sufficient financial resources and monitor compliance with 
the Clearing Agencies' financial requirements on an ongoing basis.

II. Discussion of Commission Findings

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive: To 
mitigate systemic risk in the financial system and promote financial 
stability by, among other things, promoting uniform risk management 
standards for systemically important financial market utilities and 
strengthening the liquidity of systemically important financial market 
utilities.\13\ Section 805(a)(2) of the Clearing Supervision Act 
authorizes the Commission to prescribe risk management standards for 
the payment, clearing, and settlement activities of designated clearing 
entities and financial institutions engaged in designated activities 
for which it is the Supervisory Agency or the appropriate financial 
regulator.\14\ Section 805(b) of the Clearing Supervision Act \15\ 
states that the objectives and principles for the risk management 
standards prescribed under section 805(a) shall be to:
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    \13\ 12 U.S.C. 5461(b).
    \14\ 12 U.S.C. 5464(a)(2).
    \15\ 12 U.S.C. 5464(b).

     Promote robust risk management;
     Promote safety and soundness;
     Reduce systemic risks; and
     Support the stability of the broader financial system.


[[Page 24176]]


    The Commission has adopted risk management standards under section 
805(a)(2) of the Clearing Supervision Act \16\ and section 17A of the 
Exchange Act (``Rule 17Ad-22'').\17\ Rule 17Ad-22 requires registered 
clearing agencies to establish, implement, maintain, and enforce 
written policies and procedures that are reasonably designed to meet 
certain minimum requirements for their operations and risk management 
practices on an ongoing basis.\18\ Therefore, it is appropriate for the 
Commission to review proposed changes in advance notices against the 
objectives and principles of these risk management standards as 
described in section 805(b) of the Clearing Supervision Act and against 
Rule 17Ad-22.\19\
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    \16\ 12 U.S.C. 5464(a)(2).
    \17\ See 17 CFR 240.17Ad-22.
    \18\ Id.
    \19\ 12 U.S.C. 5464(b).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    As discussed below, the Commission believes that the changes 
proposed in the Advance Notices are consistent with section 805(b) of 
the Clearing Supervision Act because they: (i) Are designed to reduce 
systemic risk; (ii) are designed to support the stability of the 
financial system; (iii) are designed to promote robust risk management; 
and (iv) are consistent with promoting safety and soundness.
    When considering the CRRM enhancements in their entirety, the 
Commission believes that the proposal could help reduce the systemic 
risk presented by the Clearing Agencies, which in turn could help 
support the stability of the broader financial system. The Commission 
agrees that the proposed enhancements could enable the Clearing 
Agencies to (i) more effectively evaluate the credit risk presented by 
a distinct class of members by expanding the CRRM to foreign banks and 
foreign trust companies; (ii) more effectively incorporate qualitative 
data into the Credit Rating; and (iii) more accurately measure the 
absolute probability of default by rated members. Taken together, these 
enhancements could in turn improve the Clearing Agencies ability to 
determine and evaluate the credit risk presented by the various types 
of Clearing Agency members and ensure that, as applied to all rated 
members, the CRRM could be a more developed and nuanced tool for 
evaluating the credit risk any member presents to the Clearing 
Agencies.
    The Commission further believes that, by enhancing the Clearing 
Agencies' ability to make distinctions across their various types of 
members through the CRRM, the proposed enhancements also could improve 
the Clearing Agencies' ability to use their risk-management tools in a 
more targeted way to reduce the risk and impact of a counterparty 
default, which in turn also could help mitigate the risks and effects 
on the broader financial system that could be associated with the 
default of a member. Accordingly, the Commission believes that the CRRM 
proposal could help reduce systemic risks and support the stability of 
the financial system, consistent with section 805(b) of the Clearing 
Supervision Act.\20\
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    \20\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

    The Commission also believes that the CRRM proposal is designed to 
promote robust risk management and is consistent with promoting safety 
and soundness. The Commission agrees that the proposed enhancements to 
the CRRM could improve the Clearing Agencies' ability to identify and 
measure the credit risk presented by their various members, which in 
turn could allow the Clearing Agencies to more effectively target their 
risk management tools to manage the credit, market, and liquidity risk 
arising from those members with the highest risk of default. 
Accordingly, the Commission believes that the CRRM proposal is designed 
to help promote robust risk management, and is consistent with 
promoting safety and soundness, consistent with section 805(b) of the 
Clearing Supervision Act.\21\
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    \21\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

B. Consistency With Rules 17Ad-22(e)(1), (e)(3), and (e)(18)

    The Commission believes that the changes proposed in the Advance 
Notices are consistent with Rules 17Ad-22(e)(1), (e)(3)(i), and (e)(18) 
under the Exchange Act.\22\
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    \22\ 17 CFR 240.17Ad-22(e)(1); (e)(2); and (e)(3).
---------------------------------------------------------------------------

    The Commission believes that the changes proposed in the Advanced 
Notice are consistent with Rule 17Ad-22(e)(1) under the Exchange Act, 
which requires, in part, that the Clearing Agencies ``establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to . . . [p]rovide for a well-founded, clear, 
transparent and enforceable legal basis for each aspect of its 
activities.'' \23\ As described above, the Clearing Agencies propose a 
number of other changes to their Rules that are designed to update them 
and to make them more consistent and provide greater description for 
members that rely on them. As such, the Commission believes that these 
proposed changes could make the Clearing Agencies' Rules more clear and 
transparent for members that rely on them, consistent with Rule 17Ad-
22(e)(1).
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    The Commission also believes that the changes proposed in the 
Advance Notices are consistent with Rule 17Ad-22(e)(3)(i) under the 
Exchange Act, which requires, in part, that the Clearing Agencies 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to . . . [m]aintain a sound risk 
management framework for comprehensively managing . . . risks that 
arise in or are born by [the Clearing Agencies], which includes . . . 
systems designed to identify, measure, monitor and manage the range of 
risks that arise in or are borne by [the Clearing Agencies].'' \24\ As 
discussed above, the CRRM is a risk measurement tool used by the 
Clearing Agencies to help assess the credit risk presented by their 
various members. The proposed enhancements to the CRRM could help the 
Clearing Agencies better identify and measure such risks, which in turn 
could help facilitate the Clearing Agencies' management of credit, 
market, and liquidity risk that arises from being a central 
counterparty (in the case of NSCC and FICC) and central securities 
depository (in the case of DTC). Accordingly, the Commission believes 
that the proposed enhancements are designed to help effectively manage 
the Clearing Agencies' risk exposures, including their credit exposure 
to participants, arising from their payment, clearing, and settlement 
processes, consistent with Rule 17Ad-22(e)(3)(i).
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    \24\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    Finally, the Commission believes that the proposal is consistent 
with Rule 17Ad-22(e)(18) under the Exchange Act, which requires, in 
part, that the Clearing Agencies ``establish, implement, maintain and 
enforce written policies and procedures reasonably designed to . . . 
[e]stablish objective, risk-based, and publicly disclosed criteria for 
participation, which . . . require participants to have sufficient 
financial resources and robust operational capacity to meet obligations 
arising from participation in the clearing agency, and monitor 
compliance with such participation requirements on an ongoing basis.'' 
\25\ As described above, the proposal would provide more description 
regarding the Clearing Agencies' authority to review additional 
reporting from members regarding their financial or operational 
condition and

[[Page 24177]]

the financial information of any Indirect Member. Because such 
authority could enable the Clearing Agencies to better determine 
whether the member has sufficient financial resources and monitor 
compliance with the Clearing Agencies' financial requirements on an 
ongoing basis, the Commission believes this requirement is consistent 
with Rule 17Ad-22(e)(18).
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    \25\ 17 CFR 240.17Ad-22(e)(18).
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III. Conclusion

    It is therefore noticed, pursuant to section 806(e)(1)(I) of the 
Clearing Supervision Act,\26\ that the Commission does not object to 
these advance notice proposals (SR-DTC-2017-801, SR-FICC-2017-804, and 
SR-NSCC-2017-801) and that the Clearing Agencies are authorized to 
implement the proposals as of the date of this notice or the date of an 
order by the Commission approving a proposed rule change that reflects 
rule changes that are consistent with the relevant advance notice 
proposal (SR-FICC-2017-006, SR-DTC-2017-002, SR-NSCC-2017-002), 
whichever is later.
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    \26\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10689 Filed 5-24-17; 8:45 am]
BILLING CODE 8011-01-P