Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Fixed Income Clearing Corporation; Notice of Filings of Proposed Rule Changes To Adopt the Clearing Agency Securities Valuation Framework, 45106-45109 [2017-20622]

Download as PDF 45106 Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or 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 Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– BatsBZX–2017–54 on the subject line. asabaliauskas on DSKBBXCHB2PROD with NOTICES Paper Comments • 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 No. SR–BatsBZX–2017–54. 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 (http://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 18:59 Sep 26, 2017 Jkt 241001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–20625 Filed 9–26–17; 8:45 am] BILLING CODE 8011–01–P Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: VerDate Sep<11>2014 available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–BatsBZX– 2017–54 and should be submitted on or before October 18, 2017. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81667; File Nos. SR–DTC– 2017–016; SR–NSCC–2017–016; SR–FICC– 2017–020] Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Fixed Income Clearing Corporation; Notice of Filings of Proposed Rule Changes To Adopt the Clearing Agency Securities Valuation Framework September 21, 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 September 8, 2017, The Depository Trust Company (‘‘DTC’’), National Securities Clearing Corporation (‘‘NSCC’’), and Fixed Income Clearing Corporation (‘‘FICC,’’ each a ‘‘Clearing Agency,’’ and together with DTC and NSCC, the ‘‘Clearing Agencies’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes as described in Items I, II and III 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. 30 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 I. Clearing Agencies’ Statement of the Terms of Substance of the Proposed Rule Changes The proposed rule changes would adopt the Clearing Agency Securities Valuation Framework (‘‘Framework’’) 3 of the Clearing Agencies, as described below, including both of FICC’s divisions: the Government Securities Division (‘‘GSD’’) and the MortgageBacked Securities Division (‘‘MBSD’’). The Framework would be maintained by the Clearing Agencies to support their compliance with Rule 17Ad– 22(e)(4)(i) 4 under the Act and, with respect to NSCC and FICC as central counterparties (the ‘‘CCPs’’), Rule 17Ad–22(e)(6)(iv) 5 under the Act, as described below. 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.6 II. Clearing Agencies’ Statement 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. 3 Pursuant to a telephone call with the Clearing Agencies’ internal counsel on September 19, 2017, staff in the Commission’s Office of Clearance and Settlement corrected the title of the Framework from ‘‘Clearing Agency Securities Framework’’ to ‘‘Clearing Agency Securities Valuation Framework,’’ as it now reads. 4 17 CFR 240.17Ad–22(e)(4)(i). 5 17 CFR 240.17Ad–22(e)(6)(iv). Each of the Clearing Agencies is a ‘‘covered clearing agency’’ as defined in Rule 17Ad–22(a)(5), and must comply with subsection (e) of Rule 17Ad–22. As Rule 17Ad–22(e)(6)(iv) only applies to covered clearing agencies that are central counterparties, references thereto and compliance therewith apply to the CCPs only and do not apply to DTC. 6 Capitalized terms not defined herein are defined in the DTC Rules, GSD Rules, MBSD Rules, or NSCC Rules, as applicable, available at http:// dtcc.com/legal/rules-and-procedures. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices (A) Clearing Agencies’ Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes Framework would also describe the methodology for monitoring pricing data with respect to the CUSIPs. 1. Purpose Selection of Pricing Vendors Each Clearing Agency would value its applicable CUSIP prices (both end-ofday and intraday) primarily via receipt of files from third-party pricing vendors (‘‘Pricing Vendors’’).10 For most CUSIPs, Pricing Vendors would supply the Clearing Agencies with intraday pricing files for each business day on at least an hourly basis.11 Pricing Vendors would be selected by each Clearing Agency based on a review of their service, including, at a minimum, a review of Pricing Vendors’ securities coverage and a price quality check. Each Clearing Agency would perform due diligence on each Pricing Vendor prior to engagement thereof, and at least annually thereafter, to assess the reliability of such Pricing Vendor. Reliability of a Pricing Vendor would be determined by each Clearing Agency based on a range of factors, including, without limitation, whether such Pricing Vendor is able to provide accurate and timely pricing data with respect to each CUSIP. The Framework would provide that each CUSIP is assigned a primary source Pricing Vendor (‘‘Primary Pricing Vendor’’) and a secondary source Pricing Vendor (‘‘Secondary Pricing Vendor’’). In the event that the Primary Pricing Vendor becomes unavailable, unreliable, or otherwise unusable with respect to a CUSIP, the Secondary Pricing Vendor would be designated as the replacement for the Primary Pricing Vendor with respect to such CUSIP. asabaliauskas on DSKBBXCHB2PROD with NOTICES The Clearing Agencies are proposing to adopt the Framework, which would set forth the securities valuation practices adopted by the Clearing Agencies for (i) securities eligible for clearance and settlement processing by the applicable Clearing Agency and (ii) with respect to the CCPs, eligible securities in their respective Clearing Funds (each, a ‘‘CUSIP’’). The processes and systems described in the Framework, and any policies, procedures, or other documents created to support those processes, support the Clearing Agencies’ compliance with the requirements of Rule 17Ad–22(e)(4)(i) 7 and, with respect to the CCPs, Rule 17Ad–22(e)(6)(iv).8 The Framework would be owned and managed by the head of the DTCC Securities Valuation team, on behalf of the Clearing Agencies.9 The Framework would provide that (i) any changes to the Framework must be approved by the Boards or such committee as may be delegated authority by the Boards from time to time pursuant to their charters, (ii) the head of the Securities Valuation team, or a delegate thereof, reviews the Framework at least annually, and (iii) any and all changes to the Framework are subject to regulatory review and approval. To the extent the Clearing Agencies create any policies, procedures or other documents to support the execution of the Framework, the Framework would provide that such supplemental documentation is subordinate to the Framework, is reasonably and fairly implied by the Framework, and complies in all respects with the provisions of the Framework. As described in more detail below, the Framework would describe the manner in which the Clearing Agencies identify, measure, monitor, and manage the risks related to the pricing of the CUSIPs. The Framework would set forth the methodology of the Clearing Agencies for using timely price data and for pricing CUSIPs when pricing data are not readily available or reliable. The 7 17 CFR 240.17Ad–22(e)(4)(i). CFR 240.17Ad–22(e)(6)(iv). 9 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. 8 17 VerDate Sep<11>2014 18:59 Sep 26, 2017 Jkt 241001 Monitoring and Pricing Each Clearing Agency would monitor and review each applicable Pricing Vendor’s pricing at least once each business day to determine (i) whether any CUSIP’s price has remained unchanged for an extended period, (ii) whether a CUSIP has been dropped from the Pricing Vendor’s file, and (iii) whether any other circumstances exist that may call into question the reliability of any CUSIP’s price. Each CUSIP’s end-of-day price would be date stamped and identified with its Pricing Vendor source. In the event that both Primary Pricing Vendor and Secondary Pricing Vendor become unavailable, unreliable, or otherwise unusable with respect to a CUSIP for an end-of-day price, the applicable 10 When pricing data is not available from Pricing Vendors, the price would be procured from other internal or external sources. 11 Certain CUSIPs may not be priced daily, and others may only be priced once each business day. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 45107 Clearing Agency would assign such CUSIP its last available price. Each CUSIP’s intraday price would be time and date stamped and identified with its Pricing Vendor source. In the event that both Primary Pricing Vendor and Secondary Pricing Vendor become unavailable, unreliable, or otherwise unusable with respect to a CUSIP for a specific intraday interval, the applicable Clearing Agency would assign such CUSIP its last available price. If pricing data for a CUSIP is not available from Pricing Vendors or if the last available price is deemed to be unreliable or unusable with respect to a CUSIP, the applicable Clearing Agency would establish a price for the CUSIP based on valuation models, where applicable, and in accordance with the policies and procedures that support the Framework. 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 12 as well as Rule 17Ad– 22(e)(4) (i)13 and, with respect to the CCPs, Rule 17Ad–22(e)(6)(iv) 14 promulgated under the Act, for the reasons described below. Section 17A(b)(3)(F) of the Act requires, in part, that the rules of a registered clearing agency 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 agency or for which it is responsible.15 As described above, the Framework would set forth the manner in which the Clearing Agencies identify, measure, monitor, and manage the risks related to the pricing of securities processed or otherwise held by the Clearing Agencies. The processes, systems, and controls used by the Clearing Agencies to identify, measure, monitor, and manage such risks, as described in the Framework, and the policies and procedures that support these activities, would help assure that each Clearing Agency is using reliable sources of timely price data as well as procedures and sound valuation models when pricing data are not readily available or reliable. Using reliable 12 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(4)(i). 14 17 CFR 240.17Ad–22(e)(6)(iv). 15 15 U.S.C. 78q–1(b)(3)(F). 13 17 E:\FR\FM\27SEN1.SGM 27SEN1 asabaliauskas on DSKBBXCHB2PROD with NOTICES 45108 Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices sources of timely price data as well as procedures and sound valuation models when pricing data are not readily available or reliable (i) with respect to the CCPs, would improve their margin system accuracy and (ii) with respect to DTC, is essential for the daily settlement of securities transactions in a fully collateralized system. Since margin and collateral play key roles in the applicable Clearing Agency’s risk management process, having accurate margin system and collateral valuation would assist the Clearing Agencies to continue the prompt and accurate clearance and settlement of securities transactions and continue to assure the safeguarding of securities and funds which are in their custody or control or for which they are responsible. Therefore, the Clearing Agencies believe the Framework is consistent with the requirements of Section 17A(b)(3)(F) of the Act.16 Rule 17Ad–22(e)(4)(i) under the Act requires that each covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by maintaining sufficient financial resources to cover its credit exposure to each participant with a high degree of confidence.17 The Framework would describe how the Clearing Agencies identify, measure, monitor, and manage the risks related to the pricing of securities processed or otherwise held by the Clearing Agencies. The processes, systems, and controls used by the Clearing Agencies to identify, measure, monitor, and manage such risks, as described in the Framework, and the policies and procedures that support these activities, would help assure that each Clearing Agency is using (i) reliable sources of timely price data when pricing securities processed or otherwise held by the applicable Clearing Agency and (ii) procedures and sound valuation models when pricing data are not readily available or reliable. When pricing securities, using reliable sources of timely price data as well as procedures and sound valuation models when pricing data are not readily available or reliable is essential to each Clearing Agency’s ability to effectively identify, measure, monitor and manage its credit exposure to participants and those arising from its payment, clearing, and settlement processes by maintaining sufficient financial resources to cover its credit exposure to each participant with a high degree of confidence. Therefore, the Clearing Agencies believe the Framework is consistent with the requirements of Rule 17Ad–22(e)(4)(i).18 Rule 17Ad–22(e)(6)(iv) under the Act requires that each covered clearing agency that is a central counterparty establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, uses reliable sources of timely price data and uses procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable.19 The Framework would describe how the CCPs identify, measure, monitor, and manage the risks related to the pricing of securities processed or otherwise held by the CCPs. The processes, systems, and controls used by the CCPs to identify, measure, monitor, and manage such risks, as described in the Framework, and the policies and procedures that support these activities, would help assure that each CCP is using reliable sources of timely price data as well as procedures and sound valuation models when pricing data are not readily available or reliable. Specifically, the Framework would set forth the methodology for pricing securities processed or otherwise held by each CCP, including monitoring pricing data with respect to the securities eligible for clearance and settlement processing by the CCP and for eligible securities held in its Clearing Fund. In addition, the Framework would describe how each CCP would price securities when pricing data are not readily available or reliable. By setting forth how the CCPs would use timely price data when pricing securities and how each CCP would price securities when pricing data are not readily available or reliable, the CCPs believe the Framework is consistent with the requirements of Rule 17Ad–22(e)(6)(iv).20 (B) Clearing Agencies’ Statement 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 some of the existing securities valuation practices that the Clearing Agencies employ, which have been designed to assist the Clearing 18 Id. 16 Id. 17 17 19 17 CFR 240.17Ad–22(e)(4)(i). VerDate Sep<11>2014 18:59 Sep 26, 2017 CFR 240.17Ad–22(e)(6)(iv). 20 Id. Jkt 241001 PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 Agencies in using reliable sources of timely price data as well as procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable. The proposed rule changes would not effectuate any changes to the Clearing Agencies’ processes described therein as they currently apply to their respective members or participants. (C) Clearing Agencies’ Statement 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– DTC–2017–016, SR–NSCC–2017–016, or SR–FICC–2017–020 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–2017–016, SR–NSCC– 2017–016, or SR–FICC–2017–020. One of these file numbers should be included on the subject line if email is used. To help the Commission process E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Notices and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://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 (http://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– 2017–016, SR–NSCC–2017–016, or SR– FICC–2017–020, and should be submitted on or before October 18, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–20622 Filed 9–26–17; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #15308 and #15309; ILLINOIS Disaster Number IL–00050] Administrative Declaration of a Disaster for the State of ILLINOIS Physical Loan Application Deadline Date: 11/14/2017. Economic Injury (EIDL) Loan Application Deadline Date: 06/15/2018. SMALL BUSINESS ADMINISTRATION Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. Administrative Declaration of a Disaster for the State of Wisconsin ADDRESSES: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416, (202) 205–6734. FOR FURTHER INFORMATION CONTACT: This is a notice of an Administrative declaration of a disaster for the State of ILLINOIS dated 09/15/2017. Incident: Severe Storms and Flooding. Incident Period: 07/19/2017 through 07/31/2017. DATES: Issued on 09/15/2017. asabaliauskas on DSKBBXCHB2PROD with NOTICES The number assigned to this disaster for physical damage is 15308 6 and for economic injury is 15309 0. The States which received an EIDL Declaration # are Illinois, Wisconsin. (Catalog of Federal Domestic Assistance Number 59008) Dated: September 15, 2017. Linda E. McMahon, Administrator. [FR Doc. 2017–20703 Filed 9–26–17; 8:45 am] 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:59 Sep 26, 2017 BILLING CODE 8025–01–P Jkt 241001 U.S. Small Business Administration. ACTION: Notice. AGENCY: PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 SUMMARY: Percent 2.500 AGENCY: SUMMARY: [Disaster Declaration #15310 and #15311; WISCONSIN Disaster Number WI–00061] This is a notice of an Administrative declaration of a disaster for the State of Wisconsin dated 09/18/ 2017. Incident: Heavy Rains and Flash SUPPLEMENTARY INFORMATION: Notice is Flooding. hereby given that as a result of the Incident Period: 07/19/2017 through Administrator’s disaster declaration, 07/23/2017. applications for disaster loans may be DATES: Issued on 09/18/2017. filed at the address listed above or other Physical Loan Application Deadline locally announced locations. Date: 11/17/2017. The following areas have been Economic Injury (EIDL) Loan determined to be adversely affected by Application Deadline Date: 06/18/2018. the disaster: ADDRESSES: Submit completed loan applications to: U.S. Small Business Primary Counties: Stephenson. Administration, Processing and Contiguous Counties: Disbursement Center, 14925 Kingsport Illinois: Carroll, Jo Daviess, Ogle, Road, Fort Worth, TX 76155. Winnebago. FOR FURTHER INFORMATION CONTACT: Wisconsin: Green, Lafayette. A. Escobar, Office of Disaster Assistance, U.S. Small Business The Interest Rates are: Administration, 409 3rd Street SW., Percent Suite 6050, Washington, DC 20416, (202) 205–6734. For Physical Damage: SUPPLEMENTARY INFORMATION: Notice is Homeowners with Credit Available Elsewhere ...................... 3.500 hereby given that as a result of the Administrator’s disaster declaration, Homeowners without Credit Available Elsewhere .............. 1.750 applications for disaster loans may be Businesses with Credit Availfiled at the address listed above or other able Elsewhere ...................... 6.610 locally announced locations. Businesses without Credit The following areas have been Available Elsewhere .............. 3.305 determined to be adversely affected by Non-Profit Organizations with the disaster: Credit Available Elsewhere ... 2.500 Primary Counties: La Crosse, Non-Profit Organizations withTrempealeau out Credit Available Elsewhere ..................................... 2.500 Contiguous Counties: For Economic Injury: ................ Wisconsin: Buffalo, Eau Claire, Businesses & Small Agricultural Jackson, Monroe, Vernon Cooperatives without Credit Minnesota: Houston, Winona Available Elsewhere .............. 3.305 The Interest Rates are: Non-Profit Organizations without Credit Available Elsewhere ..................................... U.S. Small Business Administration. ACTION: Notice. 45109 For Physical Damage: Homeowners with Credit Available Elsewhere ...................... Homeowners without Credit Available Elsewhere .............. Businesses with Credit Available Elsewhere ...................... Businesses without Credit Available Elsewhere .............. Non-Profit Organizations with Credit Available Elsewhere ... Non-Profit Organizations without Credit Available Elsewhere ..................................... For Economic Injury: E:\FR\FM\27SEN1.SGM 27SEN1 3.500 1.750 6.610 3.305 2.500 2.500

Agencies

[Federal Register Volume 82, Number 186 (Wednesday, September 27, 2017)]
[Notices]
[Pages 45106-45109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20622]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81667; File Nos. SR-DTC-2017-016; SR-NSCC-2017-016; SR-
FICC-2017-020]


Self-Regulatory Organizations; The Depository Trust Company; 
National Securities Clearing Corporation; Fixed Income Clearing 
Corporation; Notice of Filings of Proposed Rule Changes To Adopt the 
Clearing Agency Securities Valuation Framework

September 21, 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 September 8, 2017, The Depository Trust Company (``DTC''), National 
Securities Clearing Corporation (``NSCC''), and Fixed Income Clearing 
Corporation (``FICC,'' each a ``Clearing Agency,'' and together with 
DTC and NSCC, the ``Clearing Agencies''), filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule changes as 
described in Items I, II and III 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.
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I. Clearing Agencies' Statement of the Terms of Substance of the 
Proposed Rule Changes

    The proposed rule changes would adopt the Clearing Agency 
Securities Valuation Framework (``Framework'') \3\ of the Clearing 
Agencies, as described below, including 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 to support their compliance with Rule 17Ad-
22(e)(4)(i) \4\ under the Act and, with respect to NSCC and FICC as 
central counterparties (the ``CCPs''), Rule 17Ad-22(e)(6)(iv) \5\ under 
the Act, as described below.
---------------------------------------------------------------------------

    \3\ Pursuant to a telephone call with the Clearing Agencies' 
internal counsel on September 19, 2017, staff in the Commission's 
Office of Clearance and Settlement corrected the title of the 
Framework from ``Clearing Agency Securities Framework'' to 
``Clearing Agency Securities Valuation Framework,'' as it now reads.
    \4\ 17 CFR 240.17Ad-22(e)(4)(i).
    \5\ 17 CFR 240.17Ad-22(e)(6)(iv). Each of the Clearing Agencies 
is a ``covered clearing agency'' as defined in Rule 17Ad-22(a)(5), 
and must comply with subsection (e) of Rule 17Ad-22. As Rule 17Ad-
22(e)(6)(iv) only applies to covered clearing agencies that are 
central counterparties, references thereto and compliance therewith 
apply to the CCPs only and do not apply to DTC.
---------------------------------------------------------------------------

    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.\6\
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    \6\ Capitalized terms not defined herein are defined in the DTC 
Rules, GSD Rules, MBSD Rules, or NSCC Rules, as applicable, 
available at http://dtcc.com/legal/rules-and-procedures.
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II. Clearing Agencies' Statement 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.

[[Page 45107]]

(A) Clearing Agencies' Statement 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 securities valuation practices adopted by the 
Clearing Agencies for (i) securities eligible for clearance and 
settlement processing by the applicable Clearing Agency and (ii) with 
respect to the CCPs, eligible securities in their respective Clearing 
Funds (each, a ``CUSIP''). The processes and systems described in the 
Framework, and any policies, procedures, or other documents created to 
support those processes, support the Clearing Agencies' compliance with 
the requirements of Rule 17Ad-22(e)(4)(i) \7\ and, with respect to the 
CCPs, Rule 17Ad-22(e)(6)(iv).\8\ The Framework would be owned and 
managed by the head of the DTCC Securities Valuation team, on behalf of 
the Clearing Agencies.\9\
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    \7\ 17 CFR 240.17Ad-22(e)(4)(i).
    \8\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \9\ 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 provide that (i) any changes to the Framework 
must be approved by the Boards or such committee as may be delegated 
authority by the Boards from time to time pursuant to their charters, 
(ii) the head of the Securities Valuation team, or a delegate thereof, 
reviews the Framework at least annually, and (iii) any and all changes 
to the Framework are subject to regulatory review and approval.
    To the extent the Clearing Agencies create any policies, procedures 
or other documents to support the execution of the Framework, the 
Framework would provide that such supplemental documentation is 
subordinate to the Framework, is reasonably and fairly implied by the 
Framework, and complies in all respects with the provisions of the 
Framework.
    As described in more detail below, the Framework would describe the 
manner in which the Clearing Agencies identify, measure, monitor, and 
manage the risks related to the pricing of the CUSIPs. The Framework 
would set forth the methodology of the Clearing Agencies for using 
timely price data and for pricing CUSIPs when pricing data are not 
readily available or reliable. The Framework would also describe the 
methodology for monitoring pricing data with respect to the CUSIPs.
Selection of Pricing Vendors
    Each Clearing Agency would value its applicable CUSIP prices (both 
end-of-day and intraday) primarily via receipt of files from third-
party pricing vendors (``Pricing Vendors'').\10\ For most CUSIPs, 
Pricing Vendors would supply the Clearing Agencies with intraday 
pricing files for each business day on at least an hourly basis.\11\ 
Pricing Vendors would be selected by each Clearing Agency based on a 
review of their service, including, at a minimum, a review of Pricing 
Vendors' securities coverage and a price quality check. Each Clearing 
Agency would perform due diligence on each Pricing Vendor prior to 
engagement thereof, and at least annually thereafter, to assess the 
reliability of such Pricing Vendor. Reliability of a Pricing Vendor 
would be determined by each Clearing Agency based on a range of 
factors, including, without limitation, whether such Pricing Vendor is 
able to provide accurate and timely pricing data with respect to each 
CUSIP.
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    \10\ When pricing data is not available from Pricing Vendors, 
the price would be procured from other internal or external sources.
    \11\ Certain CUSIPs may not be priced daily, and others may only 
be priced once each business day.
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    The Framework would provide that each CUSIP is assigned a primary 
source Pricing Vendor (``Primary Pricing Vendor'') and a secondary 
source Pricing Vendor (``Secondary Pricing Vendor''). In the event that 
the Primary Pricing Vendor becomes unavailable, unreliable, or 
otherwise unusable with respect to a CUSIP, the Secondary Pricing 
Vendor would be designated as the replacement for the Primary Pricing 
Vendor with respect to such CUSIP.
Monitoring and Pricing
    Each Clearing Agency would monitor and review each applicable 
Pricing Vendor's pricing at least once each business day to determine 
(i) whether any CUSIP's price has remained unchanged for an extended 
period, (ii) whether a CUSIP has been dropped from the Pricing Vendor's 
file, and (iii) whether any other circumstances exist that may call 
into question the reliability of any CUSIP's price.
    Each CUSIP's end-of-day price would be date stamped and identified 
with its Pricing Vendor source. In the event that both Primary Pricing 
Vendor and Secondary Pricing Vendor become unavailable, unreliable, or 
otherwise unusable with respect to a CUSIP for an end-of-day price, the 
applicable Clearing Agency would assign such CUSIP its last available 
price.
    Each CUSIP's intraday price would be time and date stamped and 
identified with its Pricing Vendor source. In the event that both 
Primary Pricing Vendor and Secondary Pricing Vendor become unavailable, 
unreliable, or otherwise unusable with respect to a CUSIP for a 
specific intraday interval, the applicable Clearing Agency would assign 
such CUSIP its last available price.
    If pricing data for a CUSIP is not available from Pricing Vendors 
or if the last available price is deemed to be unreliable or unusable 
with respect to a CUSIP, the applicable Clearing Agency would establish 
a price for the CUSIP based on valuation models, where applicable, and 
in accordance with the policies and procedures that support the 
Framework.
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 \12\ as well as Rule 
17Ad-22(e)(4) (i)\13\ and, with respect to the CCPs, Rule 17Ad-
22(e)(6)(iv) \14\ promulgated under the Act, for the reasons described 
below.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(4)(i).
    \14\ 17 CFR 240.17Ad-22(e)(6)(iv).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a registered clearing agency 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 agency or for which it is 
responsible.\15\ As described above, the Framework would set forth the 
manner in which the Clearing Agencies identify, measure, monitor, and 
manage the risks related to the pricing of securities processed or 
otherwise held by the Clearing Agencies. The processes, systems, and 
controls used by the Clearing Agencies to identify, measure, monitor, 
and manage such risks, as described in the Framework, and the policies 
and procedures that support these activities, would help assure that 
each Clearing Agency is using reliable sources of timely price data as 
well as procedures and sound valuation models when pricing data are not 
readily available or reliable. Using reliable

[[Page 45108]]

sources of timely price data as well as procedures and sound valuation 
models when pricing data are not readily available or reliable (i) with 
respect to the CCPs, would improve their margin system accuracy and 
(ii) with respect to DTC, is essential for the daily settlement of 
securities transactions in a fully collateralized system. Since margin 
and collateral play key roles in the applicable Clearing Agency's risk 
management process, having accurate margin system and collateral 
valuation would assist the Clearing Agencies to continue the prompt and 
accurate clearance and settlement of securities transactions and 
continue to assure the safeguarding of securities and funds which are 
in their custody or control or for which they are responsible. 
Therefore, the Clearing Agencies believe the Framework is consistent 
with the requirements of Section 17A(b)(3)(F) of the Act.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ Id.
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    Rule 17Ad-22(e)(4)(i) under the Act requires that each covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes by 
maintaining sufficient financial resources to cover its credit exposure 
to each participant with a high degree of confidence.\17\ The Framework 
would describe how the Clearing Agencies identify, measure, monitor, 
and manage the risks related to the pricing of securities processed or 
otherwise held by the Clearing Agencies. The processes, systems, and 
controls used by the Clearing Agencies to identify, measure, monitor, 
and manage such risks, as described in the Framework, and the policies 
and procedures that support these activities, would help assure that 
each Clearing Agency is using (i) reliable sources of timely price data 
when pricing securities processed or otherwise held by the applicable 
Clearing Agency and (ii) procedures and sound valuation models when 
pricing data are not readily available or reliable. When pricing 
securities, using reliable sources of timely price data as well as 
procedures and sound valuation models when pricing data are not readily 
available or reliable is essential to each Clearing Agency's ability to 
effectively identify, measure, monitor and manage its credit exposure 
to participants and those arising from its payment, clearing, and 
settlement processes by maintaining sufficient financial resources to 
cover its credit exposure to each participant with a high degree of 
confidence. Therefore, the Clearing Agencies believe the Framework is 
consistent with the requirements of Rule 17Ad-22(e)(4)(i).\18\
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    \17\ 17 CFR 240.17Ad-22(e)(4)(i).
    \18\ Id.
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    Rule 17Ad-22(e)(6)(iv) under the Act requires that each covered 
clearing agency that is a central counterparty establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to cover its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum, uses 
reliable sources of timely price data and uses procedures and sound 
valuation models for addressing circumstances in which pricing data are 
not readily available or reliable.\19\ The Framework would describe how 
the CCPs identify, measure, monitor, and manage the risks related to 
the pricing of securities processed or otherwise held by the CCPs. The 
processes, systems, and controls used by the CCPs to identify, measure, 
monitor, and manage such risks, as described in the Framework, and the 
policies and procedures that support these activities, would help 
assure that each CCP is using reliable sources of timely price data as 
well as procedures and sound valuation models when pricing data are not 
readily available or reliable. Specifically, the Framework would set 
forth the methodology for pricing securities processed or otherwise 
held by each CCP, including monitoring pricing data with respect to the 
securities eligible for clearance and settlement processing by the CCP 
and for eligible securities held in its Clearing Fund. In addition, the 
Framework would describe how each CCP would price securities when 
pricing data are not readily available or reliable. By setting forth 
how the CCPs would use timely price data when pricing securities and 
how each CCP would price securities when pricing data are not readily 
available or reliable, the CCPs believe the Framework is consistent 
with the requirements of Rule 17Ad-22(e)(6)(iv).\20\
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    \19\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \20\ Id.
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(B) Clearing Agencies' Statement 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 some of the existing securities valuation 
practices that the Clearing Agencies employ, which have been designed 
to assist the Clearing Agencies in using reliable sources of timely 
price data as well as procedures and sound valuation models for 
addressing circumstances in which pricing data are not readily 
available or reliable. The proposed rule changes would not effectuate 
any changes to the Clearing Agencies' processes described therein as 
they currently apply to their respective members or participants.

(C) Clearing Agencies' Statement 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-DTC-2017-016, SR-NSCC-2017-016, or SR-FICC-2017-020 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-2017-016, SR-NSCC-
2017-016, or SR-FICC-2017-020. One of these file numbers should be 
included on the subject line if email is used. To help the Commission 
process

[[Page 45109]]

and review your comments more efficiently, please use only one method. 
The Commission will post all comments on the Commission's Internet Web 
site (http://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 
(http://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-2017-016, SR-NSCC-2017-016, or SR-
FICC-2017-020, and should be submitted on or before October 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20622 Filed 9-26-17; 8:45 am]
 BILLING CODE 8011-01-P