Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance the Process for Submitting and Accepting ETF Creations and Redemptions, 57791-57799 [2017-26319]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 234 (Thursday, December 7, 2017)]
[Notices]
[Pages 57791-57799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26319]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82193; File No. SR-NSCC-2017-019]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Enhance the 
Process for Submitting and Accepting ETF Creations and Redemptions

December 1, 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 November 29, 2017, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to the Rules & 
Procedures (``Rules'') \3\ of NSCC to introduce two additional cycles 
(referred to herein as the ``intraday cycle'' and the ``supplemental 
cycle'') during which exchange-traded fund (``ETF'') agents \4\ could 
submit creation and redemption instructions, as described in greater 
detail below. The intraday cycle would span from 12:30 a.m. ET to 2:00 
p.m. ET. The supplemental cycle would span from 9:00 p.m. ET to 11:30 
p.m. ET. The introduction of the intraday cycle would enable NSCC to 
receive, on an intraday basis, creation and redemption instructions 
that are marked as-of a prior trade date. Furthermore, with the 
introduction of the intraday cycle, NSCC would be able to receive 
creation and redemption instructions for same-day settlement until the 
designated cut-off time of 11:30 a.m. ET. The introduction of the 
supplemental cycle would enable ETF agents to submit any creation and 
redemption instructions later than the current established cut-off time 
designated by NSCC of 8:00 p.m. ET. With the introduction of the 
additional cycles, NSCC would also revise the current input file and 
output files to include additional information, such as a reversal/
correction indicator and the time of the transaction, as further 
described below.
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    \3\ Capitalized terms not defined herein are defined in the 
Rules, available at https://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
    \4\ ETF agents are referred to as ``Index Receipt Agents'' in 
the Rules. Section 4 of Rule 7 states that, for purposes of the 
Rules, an Index Receipt Agent shall be a Member which has entered 
into an Index Receipt Authorization Agreement as required by NSCC 
from time to time. See Rule 1 and Rule 7, Sec. 4, supra note 3.
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    In addition, NSCC proposes to make a technical correction to 
clarify that next-day settling creation and redemption instructions are 
no longer processed differently than other instructions when they are 
submitted to NSCC, as further described below.
    NSCC also proposes to introduce an automated threshold value 
reasonability check that would pend submissions of creation and 
redemption instructions on clearing-eligible ETFs that exceed certain 
thresholds versus the most recent closing price, as further described 
below.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
(i) Current Processes
    Outside of NSCC, ETF sponsors \5\ have processes and/or technology 
platforms that allow them to bilaterally agree to create or redeem ETF 
shares with ETF authorized participants \6\ intraday and these results 
are recorded by ETF agents on the ETF agents' technology platforms. 
These processes are not uniformly automated and may involve users 
manually entering data that is eventually submitted to NSCC within the 
standardized create-and-redeem input file. As is the case with any 
manually entered data, there is the risk

[[Page 57792]]

that incorrectly calculated figures may be entered into the transaction 
fields. Furthermore, errors made in certain ETF eligibility reference 
data (e.g., creation unit size) could also result in incorrectly valued 
contracts if the incorrect ETF eligibility reference data was used to 
calculate the creation or redemption orders. As such, if there are 
incorrect values in certain ETF eligibility reference data or if there 
are incorrect figures in the transaction fields, then NSCC members 
(``Members'') may be impacted as their Clearing Fund requirement is 
calculated using these mis-valued transactions.
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    \5\ ETF sponsors are issuers of ETFs.
    \6\ ETF authorized participants are (1) broker/dealers that have 
authorized participant agreements with ETF sponsors and/or (2) 
broker/dealers that are full-service Members pursuant to Rule 2 with 
an established ETF trading relationship with an ETF agent that is 
representing the ETF. See Rule 2, supra note 3.
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    Currently, there is one cycle during which ETF agents can submit 
the input file to NSCC. This cycle is known as the primary cycle and it 
spans from 2:00 p.m. ET until 8:00 p.m. ET. Errors that are made within 
an ETF sponsor's or ETF agent's processes and subsequently submitted to 
NSCC each business evening (by the cut-off time designated by NSCC of 
8:00 p.m. ET) may pass undetected by NSCC's ETF processes. As a result, 
the Universal Trade Capture system \7\ will record a contract value to 
settle versus the ETF shares that may be materially different than the 
value upon which the ETF sponsor and ETF authorized participant had 
intended to settle. Upon receipt of the order instruction to create and 
redeem shares each evening, NSCC risk management's systems will 
calculate a mark-to-market charge for both the ETF agent's and the ETF 
authorized participant's daily Clearing Fund requirement.\8\ All debit 
mark-to-market charges must be satisfied in accordance with the process 
outlined below.
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    \7\ See Rule 7 (Comparison and Trade Recording Operation) and 
Procedure II (Trade Comparison and Recording Service), supra note 3.
    \8\ NSCC's Clearing Fund addresses potential Member exposure 
through a number of risk-based component charges (such as margin) 
calculated and assessed daily. Each of the component charges 
collectively constitute a Member's Required Deposit. The objective 
of the Required Deposit is to mitigate potential losses to NSCC 
associated with liquidation of the Member's portfolio in the event 
that NSCC ceases to act for a Member (hereinafter referred to as a 
``default''). The aggregate of all Members' Required Deposits 
constitutes the Clearing Fund, which NSCC would be able to access 
should a defaulting Member's own Required Deposit be insufficient to 
satisfy losses to NSCC caused by the liquidation of that Member's 
portfolio.
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    Each morning (no later than 7:05 a.m. ET), the daily Clearing Fund 
requirement is calculated and distributed to Members. Members, 
including ETF agents and ETF authorized participants, must satisfy 
their daily Clearing Fund requirement deficits (if any) to NSCC by 
10:00 a.m. ET. As described above, if erroneous transactions were 
submitted to NSCC the previous day, then the daily Clearing Fund 
requirement deficit (which is due the next morning) may be impacted by 
these erroneous transactions. The daily Clearing Fund requirement 
deficit may be impacted because, today, ETF agents can only submit 
instructions, including any instructions that are intended to correct 
erroneous instructions, during the primary cycle. In other words, ETF 
agents currently do not have an opportunity to submit correcting orders 
to NSCC until the next primary cycle (from 2:00 p.m. ET until 8:00 p.m. 
ET), which is after the time at which Members must satisfy their daily 
Clearing Fund requirement deficits. As such, today, a Member that is 
impacted by a mis-valued creation or redemption order is required to 
post its Clearing Fund requirement (which would be based on the mis-
valued order) to NSCC prior to the point when ETF agents can submit an 
offsetting instruction to NSCC. This offsetting instruction would 
otherwise have relieved the Member of such requirement because it would 
have corrected the mis-valued order.
(ii) Overview of Proposal
    As described in more detail below, NSCC is proposing to enhance the 
process for submitting and accepting ETF creations and redemptions. 
NSCC is proposing to introduce two cycles (the intraday cycle and the 
supplemental cycle) during which ETF agents would be able to submit 
creations and redemptions, including as-of instructions, reversals, and 
corrections.\9\
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    \9\ An as-of instruction is an instruction that is submitted 
with a trade date as of an earlier trade date. As-of reversal 
instructions and as-of corrections are types of as-of instructions. 
An as-of reversal instruction is an instruction that is submitted 
with a trade date as of an earlier trade date that reverses an 
instruction that has already been processed by NSCC. Reversals and 
corrections are submitted on the same business day as the incorrect 
instruction whereas as-of reversal instructions and as-of correction 
instructions are submitted on a business day after the date on which 
the incorrect instruction was submitted (but they would have the 
same trade date as the incorrect instruction).
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    As described above, the intraday cycle would span from 12:30 a.m. 
ET to 2:00 p.m. ET. and the supplemental cycle would span from 9:00 
p.m. ET to 11:30 p.m. ET. NSCC would inform Members by Important Notice 
of any changes to the times of any cycle. The introduction of the 
intraday cycle would enable NSCC, on an intraday basis, to receive 
creation and redemption instructions that are marked as-of a prior 
trade date. Furthermore, with the introduction of the intraday cycle, 
NSCC would be able to receive creation and redemption instructions for 
same-day settlement until the designated cut-off time of 11:30 a.m. ET. 
The introduction of the supplemental cycle would enable ETF agents to 
submit any creation and redemption instructions later than the current 
established cut-off time designated by NSCC of 8:00 p.m. ET. With the 
introduction of the additional cycles, NSCC would include additional 
information, such as a reversal/correction indicator and the time of 
transaction, within its existing input file and output files (clearing 
records and reports) identifying submissions processed during the two 
new cycles. As further described below, the additional cycles proposed 
herein would provide ETF sponsors and ETF agents with an opportunity 
and the flexibility to address mis-valued creation and redemption 
orders prior to the time by which Members would be required to satisfy 
any daily Clearing Fund requirement deficits.
    In addition, NSCC proposes to make a technical correction to 
clarify that next-day settling instructions are no longer processed 
differently than other instructions when they are submitted to NSCC. 
The purpose of this technical correction is to remove repetitive 
language regarding next-day settling instructions. NSCC believes that 
simplifying this provision would help Members better understand the 
processing of next-day settling creates and redeems as well as enhance 
accuracy and clarity, as further described below.
    NSCC also proposes to introduce an automated threshold value 
reasonability check that would pend submissions of creation and 
redemption instructions on clearing-eligible ETFs that exceed certain 
thresholds versus the most recent closing price. NSCC believes it would 
be beneficial for ETF agents to have an opportunity to review and 
confirm certain potentially mis-valued transactions that have been 
submitted to NSCC before such transactions are processed by NSCC (i.e., 
before the potentially mis-valued transactions would be able to have an 
impact on Members' daily Clearing Fund requirements), as further 
described below.
    Details regarding the foregoing proposed rule changes are included 
in sections (iii) to (v) below.
(iii) Additional Cycles
    Currently, ETF agents are only able to submit ETF creation and 
redemption instructions in the standardized input file during one cycle 
(the primary cycle) each day. As described above, NSCC is proposing to 
add two cycles: (1) The

[[Page 57793]]

intraday cycle, which would span from 12:30 a.m. ET to 2:00 p.m. ET and 
(2) the supplemental cycle, which would span from 9:00 p.m. ET to 11:30 
p.m. ET. With the introduction of the additional cycles, NSCC would 
continue to maintain its current deadline of 8:00 p.m. ET for the 
submission of the input file during the primary cycle on trade date. 
NSCC believes that maintaining the same deadline that it does today 
would help ensure that the existing end of day reconciliation processes 
conducted by ETF agents and ETF authorized participants continue to be 
conducted in a timely manner and would also help prevent unnecessary 
delays to the end of day reconciliation processes. Any late 
instructions that are submitted to NSCC between 8:00 p.m. ET and 9:00 
p.m. ET would be held until 9:00 p.m. ET and then processed at 9:00 
p.m. ET (during the supplemental cycle). Therefore, upon 
implementation, NSCC's ETF primary market clearing process could 
receive any type of creation and redemption instructions (such as 
reversals, corrections, and as-of instructions) in the standardized 
input file from ETF agents from 12:30 a.m. ET to 11:30 p.m. ET each 
business day. Furthermore, Members would have the option, but would not 
be required, to submit creation and redemption instructions in the 
standardized input file during the two additional cycles.
    As described above, the introduction of the intraday cycle would 
enable NSCC to receive, on an intraday basis, creation and redemption 
instructions that are marked as-of a prior trade date. Furthermore, 
with the introduction of the intraday cycle, NSCC would be able to 
receive creation and redemption instructions for same-day settlement 
until the designated cut-off time of 11:30 a.m. ET. Today, if an ETF 
agent submits a creation and redemption instruction for same-day 
settlement during the existing primary cycle to NSCC, it would be 
rejected because NSCC is unable to process such instructions; there is 
no functionality today to support this. The cut-off time of 11:30 a.m. 
ET would align the deadline for same-day settling creation and 
redemption instructions with the 11:30 a.m. ET deadline for other same-
day settling non-ETF activity.\10\ NSCC believes aligning these 
deadlines would streamline the processing of same-day settling items 
for NSCC and its Members. ETF agents and ETF sponsors (and any third 
party service providers they use) may have to make coding changes in 
order for an ETF agent to submit a same-day settling instruction, and 
these potential coding changes would be different than the coding 
changes related to the enhanced input and output files described below. 
Under the proposal, NSCC would reject any creation and redemption 
instructions for same-day settlement that are not received by NSCC by 
the designated cut-off time instead of assigning them a new settlement 
date. This would preserve the option to settle such same-day settling 
creation and redemption instructions outside of NSCC, which is an 
option that ETF agents currently have.
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    \10\ For example, same-day settling corporate bond trades and 
transactions in municipal securities are subject to the 11:30 a.m. 
ET deadline.
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    In addition, as described above, the introduction of the 
supplemental cycle would allow late submissions (i.e., instructions 
received by NSCC after the designated deadline of 8:00 p.m. ET for the 
primary cycle) to be processed without delaying the existing ETF 
agents' and ETF authorized participants' end-of-day reconciliation 
processes. Furthermore, today, any extensions for the submission of 
late instructions are done manually. The introduction of the 
supplemental cycle would remove the need for manual extensions to the 
existing deadline of 8:00 p.m. ET for the primary cycle because 
instructions received by NSCC after such deadline of 8:00 p.m. ET would 
be held and processed during the proposed supplemental cycle, which 
would begin at 9:00 p.m. ET.
    NSCC believes the introduction of the intraday cycle and the 
supplemental cycle would provide ETF agents with the flexibility and 
opportunity to submit (i) creation and redemption instructions that 
would either reverse or correct erroneous creation and redemption 
instructions that have been previously processed by NSCC (i.e., 
reversals and corrections) or (ii) as-of instructions (e.g., as-of 
reversal instructions and as-of correction instructions) that would be 
intended to correct erroneous creation and redemption instructions that 
have been previously processed by NSCC, in both cases, earlier than 
they are able to today.\11\ Specifically, ETF agents would have an 
opportunity to submit these reversals, corrections, and as-of 
instructions prior to the time by which Members would be required to 
satisfy any Clearing Fund requirement deficits. This would help ensure 
that their Clearing Fund requirement has been calculated based on 
transactions that they intended to submit.
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    \11\ Supra note 9.
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    For example, assume an ETF agent submits a creation and redemption 
instruction today (on trade date (``T'')) with a settlement date in 2 
days (``T+2'') and this instruction has been accepted by NSCC. Assume 
that, on the next day (``T+1''), the ETF agent realizes the creation 
and redemption instruction that it submitted on T is incorrect. With 
this proposal, generally, the ETF agent would be able to submit an as-
of reversal instruction on T+1, during the intraday cycle, prior to the 
point when the Members would be required to post margin. As described 
above, Members must satisfy their daily Clearing Fund requirement 
deficits (if any) to NSCC by 10:00 a.m. ET. Because this as-of reversal 
instruction was received by NSCC during the intraday cycle on T+1 by 
the designated cut-off time in this scenario, it would offset the 
incorrect instruction submitted on T, and thus the incorrect 
instruction would no longer have an impact on Members' daily Clearing 
Fund requirement. Furthermore, this as-of reversal would have a trade 
date of T (not T+1). As such, Members would avoid posting margin that 
would have been inclusive of the erroneous transaction because they 
would now have an earlier opportunity to correct such erroneous 
transactions. The ETF agent could then also submit on T+1 an as-of 
correction instruction (which would also have a trade date as of T 
rather than T+1) in order for NSCC to receive the correct instruction 
that the ETF agent had intended to submit on T.
    NSCC believes that subdividing the day into multiple cycles (i.e., 
the intraday cycle, the primary cycle, and the supplemental cycle), as 
proposed, would prevent unnecessary coding changes to the existing 
standardized input file that ETF agents submit to NSCC and the output 
files distributed by NSCC to ETF agents and ETF authorized 
participants. ETF agents currently submit creation and redemption 
instructions to NSCC using a standardized electronic input file. As 
described above, NSCC would add additional information, such as the 
reversal/correction indicator and the time of transaction, to the input 
file. The format of the input file would be revised to accommodate the 
additional information. Because the format of the input file would be 
changed, ETF agents, ETF sponsors and any third party service providers 
they may use would be required to make coding changes to their systems 
to submit the standardized input file during any of the cycles. 
Although ETF agents would not be required to submit input files during 
all of the cycles, they would still be required to make coding changes 
to

[[Page 57794]]

their systems because one standardized input file would be submitted to 
NSCC.
    To avoid changing the format of the output files (and thereby 
minimizing the coding changes that ETF agents, ETF authorized 
participants and any third service providers that they use may have to 
make to their systems), the additional information that would be 
included in the output files, such as the reversal/correction indicator 
and the time of transaction, would either be appended to the output 
files or would appear in fields in the output files that are currently 
reserved and do not contain any information. NSCC expects that the 
coding changes (if any) would be minimal. ETF agents would be 
responsible for communicating these changes to their clients (ETF 
sponsors) or any third party service providers that they utilize. 
Furthermore, NSCC would continue to distribute all existing output 
files during the primary cycle and would also distribute output files 
during the additional cycles. NSCC believes this proposal would enhance 
efficiency because NSCC would be able to distribute the output files 
multiple times per day and Members would have the option to submit the 
input file multiple times per day.
    As described above, while these proposed changes to the input file 
would require that ETF agents and ETF sponsors (and any third party 
service providers that they utilize) make coding changes to their 
systems and the proposed changes to the output files may require ETF 
agents and ETF authorized participants (and any third party service 
providers that they utilize) to make some coding changes, NSCC believes 
that the changes to the input file and output files would be beneficial 
to ETF agents and ETF authorized participants. As described above, the 
current standardized input file does not contain a field that would 
indicate whether an instruction is a reversal or a correction. In 
addition, the output files that NSCC distributes to ETF agents and ETF 
authorized participants do not indicate whether an instruction is a 
reversal or a correction. ETF authorized participants are locked in to 
the creation or redemption order by the submitting ETF agent upon 
receipt and validation by NSCC. While the ETF authorized participant 
will have agreed to the creation or redemption on trade date, the 
submitting ETF agent may issue a reversal and/or correction 
automatically in certain circumstances, thereby locking the ETF 
authorized participant into the reversal and/or correction. ETF 
authorized participants have requested that they have the ability to 
differentiate new orders from reversals or corrections in the output 
files that they receive from NSCC. With this proposal, as described 
above, NSCC would provide the functionality to enable the submitting 
ETF agent to indicate whether an instruction is a reversal or 
correction as well as the time of the transaction in the input file and 
this additional information would appear in the output files 
distributed by NSCC. NSCC believes the additional information that 
would be provided in these files could help Members and any of their 
third party service providers with reconciliation of their transactions 
by enabling ETF agents and ETF authorized participants to easily 
understand if an instruction is a new instruction, a reversal or a 
correction.
    To implement the proposed changes described above, NSCC proposes to 
revise Section F.2 of Procedure II (Trade Comparison and Recording 
Service) of the Rules. Section F.2 of Procedure II (Trade Comparison 
and Recording Service) of the Rules currently provides that, on trade 
date, by such time as established by NSCC from time to time, an ETF 
agent may submit index creation and redemption instructions along with 
other specified information. To enhance clarity, NSCC would add 
``during the additional cycles'' to the provision stating that, on T, 
by such time as established by NSCC from time to time, an Index Receipt 
agent may submit to NSCC, index receipt creation and redemption 
instructions and their scheduled settlement date. Furthermore, NSCC 
would add that from time to time, NSCC will inform Members of the time 
period for each cycle (the intraday cycle, the primary cycle, and the 
supplemental cycle) applicable to creation/redemption input.
    NSCC would inform Members of the designated cut-off times by 
Important Notice. Under the proposed rule change, Section F.2 of 
Procedure II (Trade Comparison and Recording Service) of the Rules 
would be revised to state that an ETF agent may submit as-of index 
creation and redemption instructions, but only if such as-of data is 
received (instead of submitted) by the cut-off time designated by NSCC 
from time to time. As described above, the introduction of the intraday 
cycle would enable NSCC to receive, on an intraday basis, creation and 
redemption instructions that are marked as-of a prior trade date. 
Furthermore, Section F.2 of Procedure II (Trade Comparison and 
Recording Service) of the Rules would be revised to state that same-day 
settling creates and redeems are required to be received by such cut-
off time on Settlement Date. In addition, Section F.2 of Procedure II 
(Trade Comparison and Recording Service) of the Rules would be revised 
to specifically include that as-of index creation and redemption 
instructions for same-day settlement received by NSCC after the cut-off 
time, designated by NSCC from time to time, will be rejected. As 
described above, creation and redemption instructions for same-day 
settlement must be received by NSCC by the designated cut-off time of 
11:30 a.m. ET.
    In addition, NSCC is proposing to revise Section G of Procedure II 
(Trade Recording and Comparison Service) and Section B of Procedure VII 
(CNS Accounting Operation) of the Rules to expressly state that any 
Index Receipts for same-day settlement that are received by NSCC after 
the applicable cut-off time will not be assigned a new settlement date 
and will be rejected. Section G of Procedure II (Trade Recording and 
Comparison Service) and Section B of Procedure VII (CNS Accounting 
Operation) of the Rules currently provide that trades that are received 
after the established cut-off time will be assigned a new settlement 
date. As such, NSCC believes these proposed rule changes would clarify 
that, in the case of Index Receipts for same-day settlement, any 
creation and redemption instructions for same-day settlement that are 
received after the applicable cut-off time will not be assigned a new 
settlement date and will be rejected.
(iv) Technical Correction for ETF Next-Day Settling Create and Redeems
    NSCC is also proposing to make a technical correction to clarify 
that next-day settling instructions are no longer processed differently 
when they are submitted to NSCC, as further described below. The 
purpose of this technical correction is to remove repetitive language 
regarding next-day settling instructions. NSCC believes that 
simplifying this provision would help Members better understand the 
processing of next-day settling creates and redeems as well as enhance 
accuracy and clarity.
    Today, post-implementation of the accelerated trade guaranty,\12\ 
NSCC no longer processes next-day settling instructions differently 
than other instructions when they are submitted to NSCC.\13\ The 
accelerated trade guaranty rule filing, among other things, accelerated 
NSCC's trade guaranty from midnight of T+1 to the point of trade

[[Page 57795]]

comparison and validation for bilateral submissions or to the point of 
trade validation for locked-in submissions. In addition, it also 
removed language that permitted NSCC to delay processing and reporting 
of next day settling index receipts until the applicable margin on 
these transactions is paid. The risk associated with next-day settling 
index receipts (i.e., NSCC attaches a guaranty to them at the time of 
validation, prior to the collection of margin reflecting such trades), 
which was previously mitigated with the delay in processing, is now, 
with the approval of the accelerated trade guaranty rule filing, 
mitigated by the addition of certain components to NSCC's Clearing Fund 
formula (as described in greater detail in the accelerated trade 
guaranty rule filing).\14\ As such, with the implementation of the 
accelerated trade guaranty, next-day settling index receipts (with a 
Settlement Date of T+1) are no longer treated differently than regular-
way instructions (i.e., those with a Settlement Date of T+2), and 
therefore, NSCC believes the language stating ``next day settling 
creates and redeems required to be submitted by such cut-off time on 
T'' in Section F.2 of Procedure II of the Rules is repetitive and 
proposes to delete it. NSCC believes this proposed change to remove 
repetitive language regarding next-day settling creates and redeems 
would enhance clarity and accuracy as well as help Members better 
understand the processing of next-day settling creates and redeems.
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    \12\ See Securities Exchange Act Release No. 79598 (December 19, 
2016), 81 FR 94462 (December 23, 2016) (SR-NSCC-2016-005).
    \13\ Id.
    \14\ Id.
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(v) Automated Threshold Value Reasonability Check
    NSCC is proposing to introduce an automated threshold value 
reasonability check that would pend certain potentially mis-valued 
transactions (whether due to mistakes in manual entry or otherwise) 
that exceed thresholds established by NSCC. As described above, the 
additional cycles proposed herein would provide ETF sponsors and ETF 
agents with an opportunity and the flexibility to address mis-valued 
creation and redemption orders prior to the time by which Members would 
be required to satisfy any daily Clearing Fund requirement deficits. 
However, as further described below, NSCC believes it would also be 
beneficial for ETF agents to have an opportunity to review and confirm 
certain transactions that they have submitted to NSCC before such 
transactions are processed by NSCC (i.e., before they are processed and 
therefore before they would be able to have an impact on Members' daily 
Clearing Fund requirements).
    The proposal would introduce an automated threshold value 
reasonability check, which would enable NSCC to assign a status of 
pended to certain potentially mis-valued transactions while preserving 
them for reinstatement. If the automated threshold value reasonability 
check identifies an out-of-bound transaction (as described in detail 
below), it would assign the transaction a status of pended. NSCC would 
send notifications to the submitting ETF agent by email and through the 
output files on an automated basis. Internal NSCC operations would also 
be notified. If the submitting ETF agent would like the pended 
transaction to continue through NSCC processing, then the submitting 
ETF agent would be required to confirm that such transaction should be 
released. Such confirmation must be received by NSCC by a specified 
time (i.e., by the end of the supplemental cycle). If the submitting 
ETF agent does not respond by the specified time or responds that the 
transaction should be rejected, then NSCC would reject the transaction 
and it would not continue through to processing.
    This automated threshold value reasonability check would apply to 
all submissions of creation and redemption instructions on clearing-
eligible ETFs. Automated threshold value reasonability checks would be 
performed using the most recently available closing price from the 
primary listing marketplace as compared to the per-share value for 
every individual creation or redemption instruction that is submitted. 
Per-share values that exceed established thresholds as compared to the 
most recently available closing price would be marked as pended by NSCC 
and would be assigned a pended status while awaiting confirmation for 
reinstatement (or rejection) by the submitting ETF agent.
    NSCC believes this proposed enhancement to the ETF clearing process 
(in concert with existing controls \15\ and expanded processing with 
respect to as-of instructions (including as-of reversal instructions 
and as-of correction instructions), reversals, and corrections) would 
mitigate the risks associated with potentially mis-valued transactions 
described above. As an example, assume an in-kind ETF creation 
instruction \16\ is received by NSCC from an ETF agent versus a 
component-based basket at 8:00 p.m. on T. Currently, NSCC assigns 
contract values on the underlying components based on (1) the basket 
components previously provided on T-1 or intraday on T, (2) customized 
instructions received on the order instruction on T (if any), and (3) 
the closing market prices on the component securities. Then, NSCC takes 
the total settlement value of the underlying components and adds the 
cash component value specified on the order instruction (received on 
T). When added to the cash component, NSCC determines that the total 
settlement value of the ETF ``ABC'' equals $100,000,000 to settle 
versus 1,000,000 shares of ETF ticker ``ABC'' to be created. With this 
proposal, the automated threshold value reasonability check would 
determine that the derived price per share of this creation order on 
``ABC'' equals $100 ($100,000,000/1,000,000 = $100). The reasonability 
check would compare this derived ``contract price'' to the most 
recently available closing market price from the primary listing 
marketplace for ``ABC'' for the trade date specified on the 
instruction. It would determine that the last close for ``ABC'' was 
$48.50 per share.
---------------------------------------------------------------------------

    \15\ For example, one of the existing controls will reject an 
order if the total settlement value is negative.
    \16\ As used herein, in-kind creation or redemption instruction 
refers to an ETF create or redeem order that is placed versus a 
component-based basket rather than a cash-based basket. An 
instruction on a component-based basket results in contracts on the 
ETF as well as the underlying securities (the underlying components) 
that comprise the basket. An instruction on a cash-based basket 
results in a contract on the ETF versus a cash settlement; the cash 
settlement represents the value of the underlying securities, and 
contracts are not issued on the underlying components.
---------------------------------------------------------------------------

    The reasonability check would recognize that the creation order 
derived ``contract price'' represents a greater than 100% variance from 
the most recent market close. The reasonability check would flag the 
order instruction prior to any contracts being generated, segregating 
it from all of the other orders received by the submitting ETF agent. 
This order would be assigned a status of pended. The submitting ETF 
agent would be notified by NSCC of the pended status via email 
notification and outputs generated by the ETF process. The email 
notification would be sent to the designated contact(s) specified in 
the ETF application by the submitting ETF agent and would provide 
explicit instructions of what has occurred, what actions must be taken, 
and what would occur if no action is taken. NSCC anticipates that one 
of the following scenarios would then ensue: (1) The submitting ETF 
agent would do nothing and allow the instruction to be rejected

[[Page 57796]]

by the end of the supplemental cycle, (2) the submitting ETF agent 
would formally instruct NSCC via email to reinstate the pended order 
instruction and allow it to continue processing, or (3) the submitting 
ETF agent would provide NSCC with instructions to reject the pended 
order instruction. If NSCC does not receive instructions from the 
submitting ETF agent by the end of the supplemental cycle (11:30 p.m. 
ET), then NSCC would permanently assign the order instruction a status 
of rejected. In any case, the submitting ETF agent would receive 
confirmation, on the final supplemental cycle ETF clearing outputs, 
that the order instruction has either been marked as accepted or 
rejected.
    Regarding the automated threshold value reasonability check, NSCC 
proposes to establish the following threshold values initially:
     For ETFs with a Current Market Price equal to or greater 
than $3.00: ETF contract value/calculated effective price per share is 
greater than or equal to a 98% variance from the market closing price 
from the trade date provided on the order.
     For ETFs with a Current Market Price less than $3.00: ETF 
contract value/calculated effective price per share is greater than or 
equal to a 98% variance from the market closing price from the trade 
date provided on the order.
    Initially, NSCC would set the same price range for the threshold 
band of equal to or greater than $3.00 and the threshold band of less 
than $3.00. NSCC is proposing to establish these initial threshold 
values as shown above because NSCC believes these initial threshold 
values would only flag the most extreme value differences, whether 
overvalued or undervalued, and therefore, would likely avoid excessive 
manual trade reconciliation efforts by ETF agents. NSCC believes that 
setting the initial threshold value at 98% would capture overvalued and 
undervalued transactions while not being an excessively narrow control. 
Setting controls that are excessively narrow versus the closing market 
price on the trade date that is specified on the instruction would 
likely result in excessive manual trade reconciliation efforts. In 
other words, NSCC believes that this would result in a greater number 
of transactions that would be pended and therefore would need to be 
confirmed by ETF agents. NSCC believes excessive manual trade 
reconciliation efforts would be undesirable, especially if many 
transactions were pended in the evening on trade date after the ETF 
agent trading applications have closed for the day. NSCC believes that 
it is likely that some ETF agents would have to escalate internally to 
determine whether the flagged transactions should be accepted or 
rejected.
    NSCC would retain the flexibility and discretion to adjust the 
price range and the threshold values described above. NSCC may consider 
market conditions and feedback from Members and internal stakeholders 
when determining whether and what adjustments would be made. NSCC 
believes that adjustments to price ranges or threshold values may be 
needed in two cases: (1) If requested by Members and/or NSCC internal 
stakeholders and (2) in response to a future market event. In the first 
possible use case, NSCC may make such adjustments if Members and/or 
NSCC internal stakeholders request that the thresholds be re-
established so that they are closer to the ETF's closing market price 
than the initial setting. Adjusting the thresholds to make them 
narrower versus the ETF's closing market price (so that the threshold 
check would be triggered at smaller value differences) may prevent 
unnecessary reversals and margining on orders that contain errors. 
Internal NSCC stakeholders consisting of product management, risk 
management and operations management would collectively determine if an 
adjustment to price ranges or threshold values is needed. NSCC product 
management would make the final decision as to whether and what 
adjustment would be made. Operations would effectuate the actual 
adjustments because they would have the entitlements to do so. In the 
second possible use case, NSCC may make such adjustments in response to 
a future market event that results in a significant number of ETFs 
trading at market prices below the initial price range setting of 
$3.00. This could result in the need to update the threshold setting. 
NSCC would notify Members of any adjustment via Important Notice. NSCC 
expects that changes to either setting would be rare.
    NSCC proposes to revise Procedure II, Section F.2 of the Rules to 
reflect the introduction of this automated threshold value 
reasonability check. It would provide that NSCC would perform 
reasonability checks on creation and redemption transaction data 
submitted by ETF agents to NSCC on each business day and that any 
transaction data that exceeds thresholds established by NSCC would be 
pended. It would also provide that NSCC would notify ETF agents of any 
pended transactions. ETF agents would then be required to confirm if 
such pended transactions should be accepted and such confirmation must 
be provided in the form and within the timeframe required by NSCC. In 
addition, if ETF agents fail to provide such confirmation, the pended 
transaction data would be rejected. The proposed rule change would also 
provide that NSCC may, in its sole discretion, adjust the thresholds 
and that NSCC may consider feedback from Members and market conditions.
2. Statutory Basis
    NSCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act.\17\ Section 17A(b)(3)(F) of the Act 
requires, in part, that the Rules be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\18\ NSCC 
believes the proposed enhancements to the process for submitting and 
accepting ETF creation and redemption transactions (i.e., introduction 
of the additional cycles, enabling NSCC to receive same-day settling 
creation and redemption instructions until the applicable cut-off time, 
and introduction of the automated threshold value reasonability check) 
would promote the prompt and accurate clearance and settlement of 
securities transactions by providing ETF agents with an opportunity to 
address transactions with errors prior to the point at which they would 
be required to post their Clearing Fund requirement, as further 
described below. In addition, NSCC believes that removing the 
repetitive language regarding next-day settling creates and redeems in 
Procedure II, Section F.2 of the Rules would also promote the prompt 
and accurate clearance and settlement of securities transactions by 
clarifying the Rules, which NSCC believes would enable stakeholders to 
better understand their rights and obligations regarding next-day 
settling creates and redeems, as further described below.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ Id.
---------------------------------------------------------------------------

    Specifically, with the introduction of the additional cycles, even 
in circumstances where an erroneous transaction proceeds through NSCC's 
processes, ETF agents would have an opportunity to address the 
erroneous transactions before Members would be required to satisfy any 
Clearing Fund requirement deficits that would be due to those erroneous 
transactions. Specifically, the introduction of the additional cycles 
would enable NSCC to receive offsetting corrections from ETF agents 
intraday that would relieve the Member of the related Clearing Fund 
requirement deficit, which is not

[[Page 57797]]

possible today. Today, there is only one cycle of submission of such 
activity (the primary cycle which runs from 2:00 p.m. ET until 8:00 
p.m. ET) and Members are required to satisfy their daily Clearing Fund 
requirement by the next morning (10:00 a.m. ET). The proposed 
enhancements described above would enable ETF agents to confirm whether 
or not potentially erroneous transactions should proceed through NSCC's 
processes and NSCC to receive offsetting corrections intraday in 
circumstances where erroneous transactions have been submitted, thereby 
minimizing the potential impact that such erroneous transactions may 
have to Members' daily Clearing Fund requirement deficit. Therefore, 
NSCC believes the introduction of the additional cycles would promote 
the prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\19\
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    Furthermore, NSCC believes that the proposed change enabling NSCC 
to receive creation and redemption instructions for same-day settlement 
until the applicable cut-off time of 11:30 a.m. ET would promote the 
prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act \20\ because it would allow transactions that cannot be 
processed by NSCC today to be processed. This proposed change would 
enable these same-day settling instructions to receive the benefits of 
NSCC processing. Specifically, NSCC would be able to receive same-day 
settling instructions by the designated cut-off time to correct an 
erroneous instruction that has already been processed. This would 
enable Members to receive the benefit of offsetting their erroneous 
transactions (which today, they would have to do outside of NSCC) and 
thereby address any potential impact to their Clearing Fund requirement 
prior to the time by which they would be required to satisfy any 
Clearing Fund requirement deficit. Furthermore, these same-day settling 
instructions, whether intended to be corrections or otherwise, would 
also receive the benefit of being guaranteed by NSCC. In addition, they 
would receive the benefit of netting reversals and corrections with 
other primary and secondary market activity. NSCC believes that by 
allowing the foregoing transactions that cannot be processed by NSCC 
today to be processed and thereby allowing Members to address erroneous 
transactions along with the other benefits of NSCC processing described 
above, the proposed change would promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
the requirements of Section 17A(b)(3)(F) of the Act.\21\
---------------------------------------------------------------------------

    \20\ Id.
    \21\ Id.
---------------------------------------------------------------------------

    In addition, NSCC believes that by pending potentially erroneous 
transactions with the automated threshold value reasonability check 
before they would be allowed to proceed through NSCC's processes, the 
potential impact to Members' daily Clearing Fund requirement deficit 
would be minimized. It would also help to ensure that Members are 
subject to Clearing Fund requirements for intended activity and not 
erroneous activity because Members would be required to confirm that 
such activity should proceed through the NSCC's systems. Therefore, 
NSCC believes the introduction of the automated threshold value 
reasonability check would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with the requirements 
of Section 17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

    \22\ Id.
---------------------------------------------------------------------------

    NSCC also believes the proposed change to remove the repetitive 
language regarding next-day settling creates and redeems in Procedure 
II, Section F.2 of the Rules would promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
the requirements of Section 17A(b)(3)(F) of the Act \23\ because it 
would ensure that the Rules remain accurate and clear. NSCC believes 
that maintaining accurate and clear Rules would enable all stakeholders 
to continue to readily understand their respective rights and 
obligations regarding NSCC's clearance and settlement of securities 
transactions. When stakeholders better understand their rights and 
obligations regarding NSCC's clearance and settlement of securities 
transactions, then they can act in accordance with the Rules, which 
NSCC believes would promote the prompt and accurate clearance and 
settlement of securities transactions by NSCC. Post-implementation of 
the accelerated trade guaranty,\24\ NSCC no longer processes next-day 
settling instructions differently than other instructions when they are 
submitted to NSCC. As such, NSCC believes that simplifying Procedure 
II, Section F.2 of the Rules (by removing the repetitive language 
described above) would enable all stakeholders to better understand 
their respective rights and obligations regarding NSCC's clearance and 
settlement of securities transactions (specifically, of next-day 
settling creates and redeems) and thus would enable them to continue to 
act in accordance with the Rules. Therefore, NSCC believes this 
proposed rule change would promote the prompt and accurate clearance 
and settlement of securities transactions by NSCC, consistent with the 
requirements Section 17A(b)(3)(F) of the Act.\25\
---------------------------------------------------------------------------

    \23\ Id.
    \24\ Supra note 12.
    \25\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC believes that the proposed changes to introduce additional 
cycles (i.e., the intraday cycle and the supplemental cycle) may impose 
a burden on competition by requiring ETF agents, ETF sponsors, and 
potentially, third party service providers utilized by ETF agents or 
ETF sponsors to make enhancements to their processes (e.g., coding 
changes) in order to send the enhanced input file to NSCC during any of 
the cycles, including the current primary cycle. The format of the 
input file would be revised to incorporate additional information, 
namely, a reversal/correction indicator and the time of the 
transaction. The format of the output files would not change, but the 
output files would be revised to reflect this additional information 
(which would either be appended or appear in current fields that do not 
contain any information). ETF agents, ETF sponsors and any third party 
service providers might need to make some enhancements (e.g., coding 
changes) to process the output files. However, NSCC believes that any 
burden on competition that may result from the proposed change to 
introduce additional cycles would not be significant and would be 
necessary and appropriate in furtherance of the purposes of the Act for 
the reasons described below.\26\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    NSCC believes that any burden on competition that may result from 
the proposed change to introduce additional cycles is necessary in 
furtherance of the Act because it would enable Members to better manage 
mis-valued transactions due to operational errors and thereby minimize 
any potential impact to their daily Clearing Fund requirement. NSCC 
also believes that any related burden on competition would be necessary 
in furtherance of the Act because NSCC would be able to receive as-of 
instructions, reversals and corrections

[[Page 57798]]

during the additional cycles, thereby enabling ETF agents to address 
erroneous transactions prior to the point at which Members would be 
required to post their Clearing Fund requirement (which they are unable 
to do today). This would help ensure that Members would be subject to 
Clearing Fund requirements for intended activity and not erroneous 
activity. Furthermore, ETF agents would be able to provide additional 
information, such as whether a transaction is a reversal or a 
correction and the time of the transaction, in the enhanced input file. 
NSCC believes the enhancements to the input file are required because 
the format of the input file would be changed in order to incorporate 
additional information, such as the reversal/correction indicator. The 
enhanced output files would also contain this additional information. 
As such, NSCC believes that the enhanced input and output files would 
increase clarity and transparency and thus help with reconciliation of 
transactions because Members would have more details regarding their 
transactions.
    NSCC believes that any related burden on competition from the 
introduction of the additional cycles would be appropriate in 
furtherance of the Act because subdividing the day into multiple cycles 
would minimize the functional changes to the existing input and output 
files. NSCC would revise the input file and the output files in a 
manner that would minimize the potential enhancements (e.g., coding 
changes) that ETF agents, ETF authorized participants, ETF sponsors, 
and any third party service providers would be required to make. The 
additional information would be included in the output files--either by 
appending the information or having it appear in fields that are 
currently reserved and do not contain any information--which would 
prevent any unnecessary functional changes. NSCC believes the changes 
that would be made to the input file and output files described above 
would result in the least amount of coding changes or other 
enhancements that ETF agents, ETF authorized participants, ETF 
sponsors, and third service party providers would be required to make 
and therefore, any burden on competition from the introduction of the 
additional cycles would be appropriate in furtherance of the Act.
    NSCC also believes that any related burden on competition from the 
introduction of the additional cycles would not be significant because 
any enhancements that would be required to submit the input file and 
the enhancements that may be needed to process the output files would 
be minimal, as further described above. As such, NSCC believes that any 
burden on competition derived from these proposed change to introduce 
additional cycles would be necessary and appropriate, as permitted by 
Section 17A(b)(3)(I) of the Act for the reasons described above.\27\
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

    Similarly, NSCC believes the proposed change to introduce the 
automated threshold value reasonability check may impose a burden on 
competition by potentially adding an additional step for the submitting 
ETF agents once a transaction is submitted to NSCC for processing. 
Specifically, NSCC would pend certain potentially mis-valued 
transactions and then submitting ETF agents would have to confirm 
whether or not the pended transaction should be processed by NSCC. NSCC 
believes that any burden on competition that may result from the 
proposed change to introduce an automated threshold value reasonability 
check would not be significant and would be necessary and appropriate 
in furtherance of the Act. NSCC believes that any related burden on 
competition from the introduction of the automated threshold value 
reasonability check would not be significant because NSCC believes the 
burden of reconciliation described above would be minimal. Furthermore, 
as described above, the initial values of the automated threshold value 
reasonability check would be set to only flag the most extreme value 
differences and therefore, avoid excessive manual reconciliation 
efforts. NSCC believes that any related burden on competition is 
necessary in furtherance of the Act because the automated threshold 
reasonability check would help ensure that Members are subject to 
Clearing Fund requirements for intended activity and not erroneous 
activity by enabling NSCC to pend certain potentially mis-valued 
transactions that could have an impact on a Member's Clearing Fund 
requirement. NSCC believes any related burden on competition is 
appropriate in furtherance of the Act because NSCC would establish the 
initial threshold values so that NSCC would only flag the most extreme 
value differences, thereby avoiding excessive manual trade 
reconciliation. Furthermore, submitting ETF agents would have an 
opportunity to confirm whether or not any pended transactions should 
proceed to processing, and if they do not respond by the established 
deadline, then the pended transactions would be rejected. As such, NSCC 
believes that any burden on competition derived from the proposed 
change to introduce an automated threshold value reasonability check 
would not be significant and would be necessary and appropriate, as 
permitted by Section 17A(b)(3)(I) of the Act for the reasons described 
above.\28\
---------------------------------------------------------------------------

    \28\ Id.
---------------------------------------------------------------------------

    At the same time, NSCC also believes that the proposed changes to 
introduce additional cycles and the automated threshold value 
reasonability check may relieve any burden on, or otherwise promote 
competition, by providing Members with a more efficient system for 
discovering and addressing potentially erroneous transactions before 
such transactions can impact Members' Clearing Fund requirement. By 
discovering and addressing potentially mis-valued transactions earlier, 
Members may be able to avoid posting additional Clearing Fund for 
unintended transactions. Furthermore, the introduction of the 
additional cycles means that Members would have more opportunities than 
during the current primary cycle (from 2:00 p.m. ET to 8:00 p.m. ET) to 
enter into and submit create and redeem instructions to NSCC as well as 
submit reversals or corrections. NSCC believes these improvements may 
encourage Members to submit more instructions to NSCC for processing or 
submit instructions that they would have otherwise settled outside of 
NSCC. Therefore, NSCC believes that the proposed changes to introduce 
additional cycles and the automated threshold reasonability check may 
also relieve any burden on, or otherwise promote competition.
    Similarly, NSCC believes that the proposed change to allow 
instructions for same-day settlement that are received by NSCC by the 
designated cut-off time may relieve any burden on, or otherwise promote 
competition by providing Members with a means to address erroneous 
transactions intraday, prior to the point where they would have to 
satisfy any Clearing Fund requirement deficits that may be due to such 
erroneous transactions. This proposed change would increase the 
efficiency of the systems for addressing erroneous transactions because 
it would allow NSCC to receive reversals or corrections earlier than 
NSCC is able to receive today. NSCC believes this improvement may also 
encourage Members to submit more instructions to NSCC for processing or 
submit instructions that they would have otherwise settled outside of 
NSCC. Furthermore, as described below, it would also allow NSCC to 
align the

[[Page 57799]]

deadline for same-day settling instructions with the deadline for other 
same-day settling non-ETF activity and streamline the processing of 
same-day settling items for NSCC and its Members.
    At the same time, NSCC believes that allowing instructions for 
same-day settlement that are received by NSCC by the designated cut-off 
time may impose a burden on competition because ETF agents and ETF 
sponsors (and third party service providers they use) may have to make 
coding changes; these potential coding changes would be different than 
the coding changes related to the enhanced input and output files 
described above. However, NSCC believes that any burden on competition 
that may result from this proposed change would be necessary and 
appropriate in furtherance of the Act.\29\ As described above, under 
the proposal, NSCC would be able to receive creation and redemption 
instructions for same-day settlement until the designated cut-off time 
of 11:30 a.m. ET. NSCC believes this proposed change would be necessary 
in furtherance of the Act because it would allow NSCC to align this 
deadline for same-day settling instructions with the deadline for other 
same-day settling non-ETF activity and would streamline the processing 
of same-day settling items for both NSCC and its Members.\30\ 
Furthermore, NSCC believes this proposed change would be appropriate in 
furtherance of the Act because any same-day settling instructions that 
are not received by the designated cut-off time could still be settled 
outside of NSCC (which is what happens today). Because same-day 
settling instructions that are received after the deadline would not be 
assigned a new settlement date under the proposal, Members would still 
be able to settle these same-day settling instructions that day, 
outside of NSCC. Therefore, NSCC believes that any burden on 
competition derived from the proposed change to allow instructions for 
same-day settlement that are received by NSCC by the designated cut-off 
time would be necessary and appropriate as permitted by Section 
17A(b)(3)(I) of the Act.\31\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78q-1(b)(3)(I).
    \30\ Supra note 10.
    \31\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    In addition, regarding next-day settling creates and redeems, NSCC 
believes that the proposed technical correction to remove the language 
stating that next-day settling creates and redeems are required to be 
submitted by such cut-off time on T would not have any impact or impose 
any burden on competition. Post-implementation of the accelerated trade 
guaranty,\32\ NSCC no longer processes next-day settling instructions 
differently than other instructions when they are submitted to NSCC. As 
such, NSCC believes that deleting this repetitive language would 
promote clarity and accuracy and enable Members to readily understand 
how such instructions are processed when submitted to NSCC.
---------------------------------------------------------------------------

    \32\ Supra note 12.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received or solicited any written comments relating to 
this proposal. NSCC will notify the Commission of any written comments 
received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2017-019 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-NSCC-2017-019. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of NSCC and on 
DTCC's Web site (https://dtcc.com/legal/sec-rule-filings.aspx). All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSCC-2017-019 and should be 
submitted on or before December 28, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26319 Filed 12-6-17; 8:45 am]
BILLING CODE 8011-01-P