Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Notice of Filing of Amendments No. 2 and Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Nos. 1 and 2, To Adopt the Clearing Agency Stress Testing Framework (Market Risk), 61082-61087 [2017-27705]
Download as PDF
61082
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.63
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27692 Filed 12–22–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82368; File Nos. SR–DTC–
2017–005; SR–FICC–2017–009; SR–NSCC–
2017–006]
Self-Regulatory Organizations; The
Depository Trust Company; Fixed
Income Clearing Corporation; National
Securities Clearing Corporation;
Notice of Filing of Amendments No. 2
and Order Granting Accelerated
Approval of Proposed Rule Changes,
as Modified by Amendments Nos. 1
and 2, To Adopt the Clearing Agency
Stress Testing Framework (Market
Risk)
December 19, 2017.
I. Introduction
On April 7, 2017, The Depository
Trust Company (‘‘DTC’’), Fixed Income
Clearing Corporation (‘‘FICC’’), and
National Securities Clearing Corporation
(‘‘NSCC,’’ each a ‘‘Clearing Agency,’’
and collectively, the ‘‘Clearing
Agencies’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule changes SR–DTC–2017–
005, SR–FICC–2017–009, and SR–
NSCC–2017–006, respectively, pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2
The proposed rule changes were
published for comment in the Federal
Register on April 25, 2017.3 On June 7,
2017, the Commission designated a
longer period for Commission Action on
the proposed rule changes.4 On July 19,
2017, the Clearing Agencies each filed
Amendments No. 1 to their respective
proposed rule changes. Amendments
No. 1 would clarify how the Clearing
Agencies would use scenarios to
estimate the profits and losses (‘‘P&L’’)
of a member closeout.
On July 24, 2017, the Commission
published a notice in the Federal
63 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80485
(April 19, 2017), 82 FR 19131 (April 25, 2017) (SR–
DTC–2017–005; SR–FICC–2017–009; SR–NSCC–
2017–006) (‘‘Notice’’).
4 See Securities Exchange Act Release No. 80876
(June 7, 2017), 82 FR 27091 (June 13, 2017) (SR–
DTC–2017–005; SR–FICC–2017–009; SR–NSCC–
2017–006).
ethrower on DSK3G9T082PROD with NOTICES
1 15
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
Register of filing Amendments No. 1
and order instituting proceedings under
Section 19(b)(2)(B)(i) of the Act 5 to
determine whether to approve or
disapprove the proposed rule changes.6
On October 16, 2017, the Commission
designated a longer period on the
proceedings to determine whether to
approve or disapprove the proposed
rule changes.7 On December 12, 2017,
the Clearing Agencies each filed
Amendments No. 2 to their respective
proposed rule changes (hereinafter,
‘‘Proposed Rule Changes’’).
Amendments No. 2 would clarify the
historical scenarios that the Clearing
Agency would use for stress testing. The
Commission did not receive any
comment letters on the Proposed Rule
Changes.
II. Description of the Proposed Rule
Changes
The Proposed Rule Changes would
adopt the Clearing Agency Stress
Testing Framework (Market Risk)
(‘‘Framework’’), which would set the
Clearing Agencies’ procedures for
identifying, measuring, monitoring, and
managing their credit exposures to
members. Although the Framework
would be a rule of each Clearing
Agency, the Proposed Rule Changes do
not require any changes to the Rules,
By-Laws and Organizational Certificate
of DTC (‘‘DTC Rules’’), the Rulebook of
GSD (‘‘GSD Rules’’), the Clearing Rules
of MBSD (‘‘MBSD Rules’’), or the Rules
& Procedures of NSCC (‘‘NSCC Rules’’),
as the Framework would be a
standalone document.8
In general, the Framework would
describe the stress-testing practices
adopted by the Clearing Agencies. The
Clearing Agencies designed their stress
testing to help ensure the sufficiency of
each Clearing Agency’s total prefunded5 15
U.S.C. 78s(b)(2)(B)(i).
Securities Exchange Act Release No. 81192
(July 24, 2017), 82 FR 35245 (July 28, 2017) (SR–
DTC–2017–005; SR–FICC–2017–009; SR–NSCC–
2017–006).
7 See Securities Exchange Act Release No. 81883
(October 16, 2017), 82 FR 48858 (October 20, 2017)
(SR–DTC–2017–005; SR–FICC–2017–009; SR–
NSCC–2017–006).
8 Available at https://www.dtcc.com/en/legal/
rules-and-procedures. FICC is comprised of two
divisions: The Government Securities Division
(‘‘GSD’’) and the Mortgage-Backed Securities
Division (‘‘MBSD’’). Each division serves as a
central counterparty, becoming the buyer and seller
to each of their respective members’ securities
transactions and guarantying settlement of those
transactions, even if a member defaults. GSD
provides, among other things, clearance and
settlement for trades in U.S. Government debt
issues. MBSD provides, among other things,
clearance and settlement for trades in mortgagebacked securities. GSD and MBSD maintain
separate sets of rules, margin models, and clearing
funds. Notice, 82 FR at 19131.
6 See
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
financial resources.9 The Framework
would describe (i) the sources of each
Clearing Agency’s total prefundedfinancial resources; (ii) the Clearing
Agencies’ stress-testing methodologies;
(iii) the Clearing Agencies’ stress-testing
governance and execution processes;
and (iv) the Clearing Agencies’ modelvalidation practices.10
A. Sources of Prefunded-Financial
Resources
The Framework would outline the
prefunded-financial resources and
related stress-testing methodologies of
the Clearing Agencies. The Framework
would begin by describing the
applicable regulatory requirements,
with respect to credit risk management,
of each Clearing Agency and how the
Clearing Agencies address those
requirements.11 The Framework would
address those requirements by
describing how each Clearing Agency
maintains sufficient prefunded-financial
resources to cover fully the credit
exposures to each of their respective
members with a high degree of
confidence.12 The Framework would
also describe how the Clearing Agencies
maintain additional prefunded-financial
resources that, at a minimum, would
enable them to cover a wide range of
foreseeable stress scenarios that include,
but are not limited to, the default of the
affiliated family of members (‘‘Affiliated
Family’’) that would potentially cause
the largest aggregate credit exposure to
the Clearing Agency in extreme but
plausible market conditions (‘‘Cover
One Requirement’’).13 Because the
credit risks and prefunded-financial
resources of each Clearing Agency
differ, the Framework would describe
the prefunded-financial resources and
related stress-testing methodologies of
the Clearing Agencies separately.14
With respect to FICC and NSCC, the
Framework would describe that the
prefunded-financial resources are their
respective clearing funds, containing
deposits from their members of both
cash and eligible securities.15 The
Framework would describe that such
deposits are calculated for each
individual member pursuant to the GSD
Rules, MBSD Rules, or NSCC Rules, as
applicable, and each member’s deposit
9 Notice,
82 FR at 19132.
10 Id.
11 Id.
12 Id.
13 See
17 CFR 240.17Ad–22(e)(4)(iii).
82 FR at 19132.
15 Id. Any eligible security is subject to a haircut.
GSD Rule 4 (Clearing Fund and Loss Allocation),
MBSD Rule 4 (Clearing Fund and Loss Allocation),
and NSCC Rule 4 (Clearing Fund), supra note 8.
14 Notice,
E:\FR\FM\26DEN1.SGM
26DEN1
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
would be referred to in the Framework
as its ‘‘Required Deposit.’’ 16
With respect to DTC, the Framework
would describe that its prefundedfinancial resources are cash deposits to
its Participants Fund.17 The Framework
would also describe that DTC may use
its risk management control, the
Collateral Monitor, to monitor and
assure that the settlement obligations of
each member are fully collateralized.18
B. Stress-Testing Methodology
The Framework would describe the
stress-testing methodologies that the
Clearing Agencies use to test the
sufficiency of their total prefundedfinancial resources against the Cover
One Requirement. The Framework
would state that the stress testing is
designed to identify potential
weaknesses in the methodologies used
to calculate members’ Required Deposits
and to determine collateral haircuts.19
The Framework would describe in
detail the three key components of the
development of stress-testing
methodologies:
1. Risk Identification. The Clearing
Agencies would identify the principal
credit-risk drivers that are
representative and specific to each
Clearing Agency’s clearing and/or
collateral portfolio under stressed
market conditions.20
2. Scenario Development. The
Clearing Agencies would construct
comprehensive and relevant sets of
extreme but plausible historical and
hypothetical stress scenarios for the
identified risk drivers.21 The
Framework would describe how the
Clearing Agencies would develop and
select both historical and hypothetical
scenarios that reflect stressed market
conditions.22 Historical scenarios would
be based on stressed market conditions
that occurred on specific dates in the
past.23 In contrast, hypothetical stress
scenarios would be theoretical market
conditions.24
3. Risk Measurement and
Aggregation. The Clearing Agencies
would calculate the risk metrics of each
Clearing Agency’s actual portfolio to
estimate the P&L of a close out over a
ethrower on DSK3G9T082PROD with NOTICES
16 Id.
17 Id. DTC Rule 4 (Participants Fund and
Participants Investment). Supra note 8.
18 Notice, 82 FR at 19132. ‘‘Collateral Monitor’’ is
defined in DTC Rule 1, Section 1 (Definitions), and
its calculation is further provided for in the DTC
Settlement Service Guide of the DTC Rules. Supra
note 8.
19 Id.
20 Id.
21 Id.
22 Id.
23 Notice, 82 FR at 19133.
24 Id.
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
suitable stressed period of risk,
deficiencies, and coverage ratios.25 The
Framework would describe how the
Clearing Agencies would develop P&L
estimation methodologies, and how they
would calculate risk metrics that are
applicable to such methodologies under
the chosen stress-testing scenarios.26
The Clearing Agencies could use a
number of P&L methodologies for stresstesting purposes, including risk
sensitivity, index mapping, and actual
or approximate historical shock
approaches.27
The Framework would further
describe the stress-testing methodology
by stating that the Clearing Agencies
would calculate member stress
deficiencies,28 Affiliated Family
deficiencies,29 and Cover One Ratios
daily.30
The Framework would further state
that FICC and NSCC would consider
non-Cover-One Ratio coverages, such as
comparing member stress deficiencies
against such member’s known financial
resources (e.g., equity capital base), to
keep abreast of potential financial
vulnerabilities facing such member.31
Additionally, the Framework would
state that DTC would also test the
adequacy of its collateral haircuts by
measuring the amount of stress losses
that exceed the haircut applied to the
collateral securities (i.e., ‘‘Haircut
Deficiency’’).32
Moreover, the Framework would state
that the Clearing Agencies measure both
specific and generic wrong-way risk for
each Clearing Agency’s members and
Affiliated Families.33 To measure
specific wrong-way risk, for each given
Member and its Affiliated Family and
each given scenario, the securities
issued by the Affiliated Family would
be subject to shocks that reflect the
default of a Member’s Affiliated Family.
To measure general wrong-way risk, the
25 Id.
26 Id.
27 Id.
28 The Framework would define ‘‘member stress
deficiency’’ for each scenario as, with respect to
FICC and NSCC, the stress loss exceeding the
applicable member’s Required Deposits. The
Framework would define ‘‘member stress
deficiency’’ for each scenario at DTC as the shortfall
of a member’s Collateral Monitor. Id.
29 The Framework would define ‘‘Affiliated
Family deficiency’’ as the aggregate of all member
stress deficiencies within the applicable Affiliated
Family. Id.
30 The Framework would define ‘‘Cover One
Ratio’’ as the ratio of Affiliated Family deficiency
over the total value of the relevant Clearing
Agency’s clearing fund (or, for DTC, the
Participants Fund), excluding the value of the
applicable Affiliated Family’s Required Deposits.
Id.
31 Id.
32 Id.
33 Id.
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
61083
Framework would apply historical
scenarios during the 2008 financial
crisis to securities issued by the
Affiliated Family as well as securities
issued by the non-Affiliated Family.
The Framework would also describe
the reverse stress-testing analysis that is
performed by FICC and NSCC on at least
a semi-annual basis.34 The analysis
would provide another means for FICC
and NSCC, as central counterparties, to
test the sufficiency of the Clearing
Agencies’ respective prefunded
financial resources.35 In conducting
reverse stress-testing, FICC and NSCC
would utilize scenarios of multiple
defaults, extreme market shocks, or
shocks for other risk factors, which
would cause those Clearing Agencies, as
applicable, to exhaust all of their
respective prefunded financial
resources.36
C. Stress-Testing Governance and
Execution Process
The Framework would describe the
Clearing Agencies’ stress-testing
governance and execution processes.
Stress testing would be conducted daily
for each of the Clearing Agencies, and
stress-testing risk metrics also would be
generated each day.37 The Cover One
Ratios and member stress deficiencies
would be monitored against preestablished thresholds.38 Breaches of
these pre-established thresholds would
initially be subject to more detailed
studies to identify any potential impact
to the applicable Clearing Agencies’
Cover One Requirement.39 The
Framework would describe that, to the
extent such studies indicate a potential
impact to a Clearing Agency’s Cover
One Requirement, the threshold breach
would be escalated internally and
analyzed to determine if (i) there is a
need to adjust the stress-testing
methodology, or (ii) the threshold
breach indicates an issue with a
particular member.40 Based on that
analysis, the Clearing Agencies would
determine the appropriate course of
action.41
D. Model Validation
The Framework would describe the
process the Clearing Agencies would
use to validate their stress-testing
34 Id.
35 Id.
36 Id.
37 Id.
38 According to the Clearing Agencies, riskthreshold levels are chosen to assist each Clearing
Agency in achieving a high degree of confidence
that its Cover One Requirement is met daily. Id.
39 Id.
40 Id.
41 Id.
E:\FR\FM\26DEN1.SGM
26DEN1
61084
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
procedures. The Clearing Agencies
would each conduct a comprehensive
analysis of their respective daily stresstesting results, existing scenario sets
(including any changes to such
scenarios for the period since the last
review), and the performance of the
stress-testing methodologies along with
key underlying parameters and
assumptions.42 The analysis would be
performed at least monthly and would
be conducted to assess whether each
Clearing Agency’s stress-testing
components appropriately determine
the sufficiency of the Clearing Agency’s
prefunded-financial resources.43 The
Framework would state that such
analysis may occur more frequently
than monthly if, for example, (i) the
products cleared or markets served by a
Clearing Agency display high volatility
or become less liquid, or (ii) the size or
concentration of positions held by the
applicable Clearing Agency’s members
increases significantly.44
The Framework would state that the
results of the analysis are reviewed
monthly by the DTCC Enterprise Stress
Testing Council.45 The Framework
would also state that daily stress-testing
results are summarized and reported
monthly to the DTCC Risk Management
Committee.46 Finally, the Framework
would state that stress-testing
methodologies and related models are
subject to independent model validation
on at least an annual basis.47
ethrower on DSK3G9T082PROD with NOTICES
E. Notice of Filing of Amendments No.
2
As proposed, the Framework did not
specify the historical scenarios the
Clearing Agencies would use in their
stress testing. The Clearing Agencies
filed Amendments No. 2 to clarify that,
at a minimum, the Clearing Agencies
would use certain specific historical
scenarios.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and rules
and regulations thereunder applicable to
such organization.48 After carefully
considering the Proposed Rule Changes,
the Commission finds that the Proposed
Rule Changes are consistent with the
42 Id.
43 Id.
44 Id.
requirements of the Act and the rules
and regulations thereunder applicable to
the Clearing Agencies. In particular, the
Commission believes the proposal is
consistent with Section 17A(b)(3)(F) of
the Act,49 as well as Rule 17Ad–22(e)(4)
thereunder.50
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of a
registered clearing agency be designed
to promote prompt and accurate
clearance and settlement, and assure the
safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies or for which they
are responsible.51
As described above, the Framework
would describe (i) the sources of each
Clearing Agency’s total prefundedfinancial resources; (ii) the Clearing
Agencies’ stress-testing methodologies;
(iii) the Clearing Agencies’ stress-testing
governance and execution processes;
and (iv) the Clearing Agencies’ modelvalidation practices. Moreover, the
Framework would describe the Clearing
Agencies’ stress testing practices in a
clear and comprehensive manner.
Therefore, the Framework could help
improve the Clearing Agencies’ ability
to determine and evaluate the credit risk
presented by Clearing Agencies’
members by testing (i) the sufficiency of
their credit resources in a variety of
extreme but plausible scenarios, and (ii)
the potential losses to the Clearing
Agencies from a participant default.
The improved ability to evaluate
credit risk could enable the Clearing
Agencies to deploy their riskmanagement tools more effectively to
manage the credit and market presented
by such members. Through such
preparation, the Framework could
decrease the possibility of a member
default. By enabling the Clearing
Agencies to use their risk-management
tools to monitor its credit and market
more effectively, the proposed
Framework is designed to help mitigate
the risk that the Clearing Agencies and
their non-defaulting members would
suffer a loss from a member default.
Therefore, the Commission finds that
the proposed rule changes are designed
to help promote prompt and accurate
clearance and settlement, and assure the
safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies or for which they
45 Id.
46 Id.
49 15
47 Id.
50 17
48 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4).
51 15 U.S.C. 78q–1(b)(3)(F).
U.S.C. 78s(b)(2)(C).
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
are responsible, consistent with Section
17A(b)(3)(F) of the Act.52
B. Consistency With Rule 17Ad–
22(e)(4)(i), (iii), (iv), (v), and (vi)
Rule 17Ad–22(e)(4) under the Act
requires, in part, that the Clearing
Agencies establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
effectively identify, measure, monitor,
and manage their credit exposures to
participants and those arising from its
payment, clearing, and settlement
processes.53 Specifically, Rule 17Ad–
22(e)(4)(i) under the Act requires that a
covered clearing agency maintain
sufficient financial resources to cover its
credit exposure to each participant fully
with a high degree of confidence.54 As
described above, the descriptions in the
Framework, both individually and
collectively, are designed by the
Clearing Agencies to evaluate the credit
exposure presented by many of the
Clearing Agencies’ members. The
Clearing Agencies would construct
comprehensive and relevant sets of
extreme but plausible historical and
hypothetical stress scenarios for the
identified risk drivers.55 The Clearing
Agencies would also calculate the risk
metrics of each Clearing Agency’s actual
portfolio to estimate the P&L of
resolving a participant default over a
suitable stressed period of risk,
deficiencies, and coverage ratios. Thus,
the Framework would help the Clearing
Agencies to determine the financial
resources necessary to cover their credit
exposure, as applicable, with a high
degree of confidence, consistent with
Rule 17Ad–22(e)(4)(i).56
Rule 17Ad–22(e)(4)(iii) under the Act
requires that, to the extent not already
maintained pursuant to Rule 17Ad–
22(e)(4)(i) under the Act, the Clearing
Agencies maintain additional financial
resources that, at minimum, enable
them to cover a wide range of
foreseeable stress scenarios that include,
but are not limited to, the default of the
participant family that would
potentially cause the largest aggregate
credit exposure for the covered clearing
agency in extreme but plausible market
conditions.57
As described above, the Framework
would describe how the Clearing
Agencies have developed and carried
out a credit-risk management strategy to
(i) maintain prefunded financial
52 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4).
54 17 CFR 240.17Ad–22(e)(4)(i).
55 Id.
56 Id.
57 17 CFR 240.17Ad–22(e)(4)(iii).
53 17
E:\FR\FM\26DEN1.SGM
26DEN1
ethrower on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
resources to comply with a Cover One
Requirement; (ii) test the sufficiency;
(iii) provide governance for the testing;
and (iv) validate the testing models for
the requirement. The Framework would
also describe how each Clearing Agency
tests the sufficiency of its prefunded
resources daily to support compliance
with this requirement. Such testing
could better enable the Clearing
Agencies to determine their respective
Cover One Requirement in extreme but
plausible scenarios by determining the
impact of member defaults in various
scenarios. With this identification of
Cover One Requirement, the Clearing
agencies could size their margin
requirements to maintain their Cover
One Requirement. Thus, the
Commission believes the Proposed Rule
Changes are consistent with Rule 17Ad–
22(e)(4)(iii).58
Rule 17Ad–22(e)(4)(iv) under the Act
requires that a covered clearing agency
include prefunded financial resources,
exclusive of assessments for additional
guaranty fund contributions or other
resources that are not prefunded, when
calculating financial resources available
to meet the standards under Rule 17Ad–
22(e)(4)(i) through (iii) under the Act, as
applicable.59 Because the credit risks
and prefunded-financial resources of
each Clearing Agency differ, the
Framework would describe the
prefunded-financial resources and
related stress-testing methodologies of
the Clearing Agencies separately.
With respect to FICC and NSCC, the
Framework would describe the
prefunded-financial resources are their
respective clearing funds, containing
deposits from their members of both
cash and eligible securities. With
respect to DTC, the Framework would
describe that its prefunded-financial
resources are cash deposits to its
Participants Fund. The Framework
would also describe that DTC may use
its risk management control, the
Collateral Monitor, to help monitor and
ensure that the settlement obligations of
each member are fully collateralized.
Such identification is designed to meet
the financial resources availability
requirements under Rule 17Ad–
22(e)(4)(i) and (iii). Therefore, the
Commission believes the Framework is
consistent with Rule 17Ad–22(e)(4)(iv)
under the Act.60
Rule 17Ad–22(e)(4)(v) under the Act
requires that the Clearing Agencies
maintain the financial resources under
Rule 17Ad–22(e)(4)(iii) under the Act,
in combined or separately maintained
clearing or guaranty funds.61 As
described above, the Framework would
identify the sources of prefunded
resources to comply with each Clearing
Agency’s Cover One Requirement. The
Framework would require NSCC and
FICC to maintain those prefunded
sources in their respective clearing
funds. The Framework also would
require DTC to maintain its prefunded
sources in its Participants Fund. Thus,
the Commission believes the Framework
is consistent with Rule 17Ad–22(e)(v)
under the Act.62
Rule 17Ad–22(e)(4)(vi)(A) under the
Act requires that a covered clearing
agency test the sufficiency of its total
financial resources available to meet the
minimum financial resource
requirements under Rule 17Ad–
22(e)(4)(i) through (iii) under the Act by
conducting stress testing of its total
financial resources daily using standard
predetermined parameters and
assumptions.63 As described above, the
Framework would describe the Clearing
Agencies’ stress-testing methodologies
and validation. Specifically, the
Framework would state how the
Clearing Agencies would conduct stress
tests on a daily basis, and the three risk
components the Clearing Agencies
would use for the stress testing
methodologies for these tests. Likewise,
the Framework would describe how the
stress testing methodologies are
developed through risk identification,
scenario development, and risk
measurement and aggregation.
Therefore, the Commission believes the
Framework is consistent with Rule
17Ad–22(e)(4)(vi)(A) under the Act.64
Rule 17Ad–22(e)(4)(vi)(B) under the
Act requires that a covered clearing
agency test the sufficiency of its total
financial resources available to meet the
minimum financial resource
requirements under Rule 17Ad–
22(e)(4)(i) through (iii) under the Act by
conducting a comprehensive analysis on
at least a monthly basis of the existing
stress testing scenarios, models, and
underlying parameters and
assumptions, and consider
modifications to ensure they are
appropriate for determining the covered
clearing agency’s required level of
default protection in light of current and
evolving market conditions.65
As described above, the Framework,
with respect to model validation, would
state that the stress-testing
methodologies are reviewed and
61 17
CFR 240.17Ad–22(e)(4)(v).
analyzed monthly to determine if the
components continue to be appropriate
for determining sufficiency of the
Clearing Agencies’ prefunded financial
resources. The analysis would be
performed at least monthly and would
be conducted to assess whether each
Clearing Agency’s stress-testing
components appropriately determine
the sufficiency of the Clearing Agency’s
prefunded-financial resources.66 The
Framework would state that such
analysis may occur more frequently
than monthly if, for example, (i) the
products cleared or markets served by a
Clearing Agency display high volatility
or become less liquid, or (ii) the size or
concentration of positions held by the
applicable Clearing Agency’s members
increases significantly. The Framework
also would state that the results of the
analysis are reviewed monthly by the
DTCC Enterprise Stress Testing Council.
For these reasons, the Commission
believes the Framework is consistent
with Rule 17Ad–22(e)(4)(vi)(B) under
the Act.67
Rule 17Ad–22(e)(4)(vi)(C) under the
Act requires that a covered clearing
agency test the sufficiency of its total
financial resources available to meet the
minimum financial resource
requirements under Rule 17Ad–
22(e)(4)(i) through (iii) under the Act by
conducting a comprehensive analysis of
stress testing scenarios, models, and
underlying parameters and assumptions
more frequently than monthly when the
products cleared or markets served
display high volatility or become less
liquid, or when the size or
concentration of positions held by the
covered clearing agency’s members
increases significantly.68
As described above, the Framework
would describe that the stress-testing
validations are performed at least
monthly, and may occur more
frequently than monthly if, for example,
(i) the products cleared or markets
served by a Clearing Agency display
high volatility or become less liquid, or
(ii) the size or concentration of positions
held by the applicable Clearing
Agency’s members increases
significantly. The Framework also
would state that the analysis is designed
to assess whether each Clearing
Agency’s stress-testing components are
appropriate for determining the
sufficiency of its prefunded financial
resources in light of current and
evolving market conditions. As such,
the Commission believes the Framework
62 Id.
58 Id.
59 17
63 17
CFR 240.17Ad–22(e)(4)(iv).
60 Id.
VerDate Sep<11>2014
65 17
20:21 Dec 22, 2017
CFR 240.17Ad–22(e)(4)(vi)(A).
64 Id.
Jkt 244001
PO 00000
66 Id.
67 Id.
CFR 240.17Ad–22(e)(4)(vi)(B).
Frm 00138
Fmt 4703
Sfmt 4703
61085
68 17
E:\FR\FM\26DEN1.SGM
CFR 240.17Ad–22(e)(4)(vi)(C).
26DEN1
ethrower on DSK3G9T082PROD with NOTICES
61086
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
is consistent with Rule 17Ad–
22(e)(4)(vi)(C) under the Act.69
Rule 17Ad–22(e)(4)(vi)(D) under the
Act requires that a covered clearing
agency test the sufficiency of its total
financial resources available to meet the
minimum financial resource
requirements under Rule 17Ad–
22(e)(4)(i) through (iii) under the Act by
reporting the results of its analyses
under Rule 17Ad–22(e)(4)(vi)(B) and (C)
to appropriate decision makers at the
covered clearing agency, including but
not limited to, its risk management
committee or board of directors, and use
these results to evaluate the adequacy of
and adjust its margin methodology,
model parameters, models used to
generate clearing or guaranty fund
requirements, and any other relevant
aspects of its credit risk management
framework, in supporting compliance
with the minimum financial resources
requirements set forth in Rule 17Ad–
22(e)(4)(i) through (iii) under the Act.70
As described above, the Framework
would provide for stress-testing
governance and model validation. To
the extent the stress-testing
methodology indicates a potential
impact to a Clearing Agency’s Cover
One Requirement, the Framework
would describe the threshold
parameters that would results in the
Clearing Agency escalating internally
and analyzing to determine if (i) there
is a need to adjust the stress-testing
methodology, or (ii) the threshold
breach indicates an issue with a
particular member. Additionally, the
model validation description in the
Framework would state that the results
of the stress-testing methodologies are
reviewed monthly by the DTCC
Enterprise Stress Testing Council. The
Framework also would state that the
DTCC Enterprise Stress Testing Council
would consider the results in evaluating
the adequacy of the stress-testing
methodologies and would determine if
adjustments to the stress-testing
methodologies are appropriate to
support the Clearing Agencies’
compliance with the minimum financial
resources requirements set forth in Rule
17Ad–22(e)(4)(i) through (iii) under the
Act.
The Framework also would state that
daily stress testing results are
summarized and reported monthly to
the DTCC Risk Management Committee.
Based on its review of the information
provided, the committee may determine
to inform or further escalate any
concerns to the Risk Committees of the
Boards, as it deems necessary.
Therefore, the Commission believes that
the Framework is consistent with Rule
17Ad–22(e)(vi)(D) under the Act.71
Rule 17Ad–22(e)(4)(vii) under the Act
requires a covered clearing agency to
perform a model validation for its credit
risk models not less than annually or
more frequently as may be contemplated
by the covered clearing agency’s risk
management framework established
pursuant to Rule 17Ad–22(e)(3) under
the Act.72 As described above, the
model validation portion of the
Framework would provide that the
Clearing Agencies’ stress-testing
methodologies and models are subject to
independent model validation on at
least an annual basis. Therefore, the
Commission believes that the
Framework is consistent with Rule
17Ad–22(e)(4)(vii) under the Act.73
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether these filings, as
modified by Amendments No. 2, are
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2017–005, SR–FICC–2017–009, or
SR–NSCC–2017–006 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–2017–005, SR–FICC–
2017–009, or SR–NSCC–2017–006. 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 website (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 website 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
filings also will be available for
inspection and copying at the principal
office of DTCC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.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–DTC–
2017–005, SR–FICC–2017–009, or SR–
NSCC–2017–006 and should be
submitted on or before January 16, 2018.
V. Accelerated Approval of Proposed
Rule Changes
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Exchange Act,74 to approve the
Proposed Rule Changes prior to the 30th
day after the date of publication of
Amendments No. 2 in the Federal
Register. As discussed above,
Amendments No. 2 make clear which
specific historical scenarios, at a
minimum, the Clearing Agencies would
use for stress testing.
By listing the specific historic
scenarios, Amendments No. 2 provides
for a more clear and comprehensive
Framework, which could help improve
the Clearing Agencies’ ability to
determine and evaluate the credit risk
presented by Clearing Agencies’
members. That improved ability could
better enable the Clearing Agencies to
deploy their risk-management tools
more effectively to manage the credit
and market presented by such members
and, thus, help mitigate the risk that the
Clearing Agencies and their nondefaulting members would suffer a loss
from a member default.
Therefore, the Commission finds that
Amendments No. 2 are designed to help
assure the safeguarding of securities and
funds which are in the custody or
control of the Clearing Agencies or for
which they are responsible, consistent
with Section 17A(b)(3)(F) of the Act.75
Accordingly, the Commission finds
good cause for approving the proposed
rule changes, as modified by
Amendments No. 2, on an accelerated
71 Id.
69 Id.
70 17
72 17
CFR 240.17Ad–22(e)(4)(vi)(D).
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
CFR 240.17Ad–22(e)(4)(vii).
73 Id.
PO 00000
Frm 00139
74 15
75 15
Fmt 4703
Sfmt 4703
E:\FR\FM\26DEN1.SGM
U.S.C. 78s(b)(2).
U.S.C. 78q–1(b)(3)(F).
26DEN1
Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
basis, pursuant to Section 19(b)(2) of the
Exchange Act.76
SECURITIES AND EXCHANGE
COMMISSION
VI. Conclusion
[Release No. 34–82353; File No. SR–BOX–
2017–37]
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Changes are consistent with the
requirements of the Act, in particular
the requirements of Section 17A of the
Act 77 and the rules and regulations
promulgated thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that
proposed rule changes SR–DTC–2017–
005, SR–FICC–2017–009, and SR–
NSCC–2017–006, as modified by
Amendments Nos. 1 and 2, be, and
hereby are, APPROVED on an
accelerated basis.78
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.79
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27705 Filed 12–22–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 82 FR 60252, December
19, 2017.
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Thursday, December 21,
2017.
The following
matter will also be considered during
the 2 p.m. Closed Meeting scheduled for
Thursday, December 21, 2017: Litigation
matter.
CHANGES IN THE MEETING:
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact the
Office of the Secretary at (202) 551–
5400.
Dated: December 20, 2017.
Brent J. Fields,
Secretary.
ethrower on DSK3G9T082PROD with NOTICES
BILLING CODE 8011–01–P
76 Id.
U.S.C. 78q–1.
approving the Proposed Rule Changes, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
79 17 CFR 200.30–3(a)(12).
78 In
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
December 19, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
13, 2017, BOX Options Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7260 by extending the Penny Pilot
Program through June 30, 2018. The text
of the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxoptions.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2017–27833 Filed 12–21–17; 11:15 am]
77 15
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
Rule 7260 by Extending the Penny
Pilot Program Through June 30, 2018
1. Purpose
The Exchange proposes to extend the
effective time period of the Penny Pilot
Program that is currently scheduled to
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00140
Fmt 4703
Sfmt 4703
61087
expire on December 31, 2017, until June
30, 2018.3 The Penny Pilot Program
permits certain classes to be quoted in
penny increments. The minimum price
variation for all classes included in the
Penny Pilot Program, except for
PowerShares QQQ Trust (‘‘QQQQ’’)®,
SPDR S&P 500 Exchange Traded Funds
(‘‘SPY’’), and iShares Russell 2000 Index
Funds (‘‘IWM’’), will continue to be
$0.01 for all quotations in options series
that are quoted at less than $3 per
contract and $0.05 for all quotations in
options series that are quoted at $3 per
contract or greater. QQQQ, SPY, and
IWM will continue to be quoted in $0.01
increments for all options series.
The Exchange may replace, on a semiannual basis, any Pilot Program classes
that have been delisted on the second
trading day following January 1, 2018.
The Exchange notes that the
replacement classes will be selected
based on trading activity for the six
month period beginning June 1, 2017
and ending November 30, 2017 for the
January 2018 replacements. The
Exchange will employ the same
parameters to prospective replacement
classes as approved and applicable
under the Pilot Program, including
excluding high-priced underlying
securities. The Exchange will distribute
a Regulatory Circular notifying
Participants which replacement classes
shall be included in the Penny Pilot
Program.
BOX is specifically authorized to act
jointly with the other options exchanges
participating in the Pilot Program in
identifying any replacement class.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
3 The Penny Pilot Program has been in effect on
the Exchange since its inception in May 2012. See
Securities Exchange Act Release Nos. 66871 (April
27, 2012), 77 FR 26323 (May 3, 2012) (File No. 10–
206, In the Matter of the Application of BOX
Options Exchange LLC for Registration as a
National Securities Exchange Findings, Opinion,
and Order of the Commission), 67328 (June 29,
2012), 77 FR 40123 (July 6, 2012) (SR–BOX–2012–
007), 68425 (December 13, 2012), 77 FR 75234
(December 19, 2013) (SR–BOX–2012–021), 69789
(June 18, 2013), 78 FR 37854 (June 24, 2013) (SR–
BOX–2013–31), 71056 (December 12, 2013), 78 FR
76691 (December 18, 2013) (SR–BOX–2013–56),
72348 (June 9, 2014), 79 FR 33976 (June 13, 2014)
(SR–BOX–2014–17), 73822 (December 11, 2014), 79
FR 75606 (December 18, 2014) (SR–BOX–2014–29),
75295 (June 25, 2015), 80 FR 37690 (July 1, 2015)
(SR–BOX–2015–23), 78172 (June 28, 2016), 81 FR
43325 (July 1, 2016) (SR–BOX–2016–24), 79429
(November 30, 2016), 81 FR 87991 (December 6,
2016) (SR–BOX–2016–55) and 80828 (May 31,
2017), 82 FR 26175 (June 6, 2017) (SR–BOX–2017–
18). The extension of the effective date and the
revision of the date to replace issues that have been
delisted are the only changes to the Penny Pilot
Program being proposed at this time.
E:\FR\FM\26DEN1.SGM
26DEN1
Agencies
[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61082-61087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27705]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82368; File Nos. SR-DTC-2017-005; SR-FICC-2017-009; SR-
NSCC-2017-006]
Self-Regulatory Organizations; The Depository Trust Company;
Fixed Income Clearing Corporation; National Securities Clearing
Corporation; Notice of Filing of Amendments No. 2 and Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Nos. 1 and 2, To Adopt the Clearing Agency Stress Testing
Framework (Market Risk)
December 19, 2017.
I. Introduction
On April 7, 2017, The Depository Trust Company (``DTC''), Fixed
Income Clearing Corporation (``FICC''), and National Securities
Clearing Corporation (``NSCC,'' each a ``Clearing Agency,'' and
collectively, the ``Clearing Agencies''), filed with the Securities and
Exchange Commission (``Commission'') proposed rule changes SR-DTC-2017-
005, SR-FICC-2017-009, and SR-NSCC-2017-006, respectively, pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The proposed rule changes were published for comment in the Federal
Register on April 25, 2017.\3\ On June 7, 2017, the Commission
designated a longer period for Commission Action on the proposed rule
changes.\4\ On July 19, 2017, the Clearing Agencies each filed
Amendments No. 1 to their respective proposed rule changes. Amendments
No. 1 would clarify how the Clearing Agencies would use scenarios to
estimate the profits and losses (``P&L'') of a member closeout.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 80485 (April 19,
2017), 82 FR 19131 (April 25, 2017) (SR-DTC-2017-005; SR-FICC-2017-
009; SR-NSCC-2017-006) (``Notice'').
\4\ See Securities Exchange Act Release No. 80876 (June 7,
2017), 82 FR 27091 (June 13, 2017) (SR-DTC-2017-005; SR-FICC-2017-
009; SR-NSCC-2017-006).
---------------------------------------------------------------------------
On July 24, 2017, the Commission published a notice in the Federal
Register of filing Amendments No. 1 and order instituting proceedings
under Section 19(b)(2)(B)(i) of the Act \5\ to determine whether to
approve or disapprove the proposed rule changes.\6\ On October 16,
2017, the Commission designated a longer period on the proceedings to
determine whether to approve or disapprove the proposed rule
changes.\7\ On December 12, 2017, the Clearing Agencies each filed
Amendments No. 2 to their respective proposed rule changes
(hereinafter, ``Proposed Rule Changes''). Amendments No. 2 would
clarify the historical scenarios that the Clearing Agency would use for
stress testing. The Commission did not receive any comment letters on
the Proposed Rule Changes.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2)(B)(i).
\6\ See Securities Exchange Act Release No. 81192 (July 24,
2017), 82 FR 35245 (July 28, 2017) (SR-DTC-2017-005; SR-FICC-2017-
009; SR-NSCC-2017-006).
\7\ See Securities Exchange Act Release No. 81883 (October 16,
2017), 82 FR 48858 (October 20, 2017) (SR-DTC-2017-005; SR-FICC-
2017-009; SR-NSCC-2017-006).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Changes
The Proposed Rule Changes would adopt the Clearing Agency Stress
Testing Framework (Market Risk) (``Framework''), which would set the
Clearing Agencies' procedures for identifying, measuring, monitoring,
and managing their credit exposures to members. Although the Framework
would be a rule of each Clearing Agency, the Proposed Rule Changes do
not require any changes to the Rules, By-Laws and Organizational
Certificate of DTC (``DTC Rules''), the Rulebook of GSD (``GSD
Rules''), the Clearing Rules of MBSD (``MBSD Rules''), or the Rules &
Procedures of NSCC (``NSCC Rules''), as the Framework would be a
standalone document.\8\
---------------------------------------------------------------------------
\8\ Available at https://www.dtcc.com/en/legal/rules-and-procedures. FICC is comprised of two divisions: The Government
Securities Division (``GSD'') and the Mortgage-Backed Securities
Division (``MBSD''). Each division serves as a central counterparty,
becoming the buyer and seller to each of their respective members'
securities transactions and guarantying settlement of those
transactions, even if a member defaults. GSD provides, among other
things, clearance and settlement for trades in U.S. Government debt
issues. MBSD provides, among other things, clearance and settlement
for trades in mortgage-backed securities. GSD and MBSD maintain
separate sets of rules, margin models, and clearing funds. Notice,
82 FR at 19131.
---------------------------------------------------------------------------
In general, the Framework would describe the stress-testing
practices adopted by the Clearing Agencies. The Clearing Agencies
designed their stress testing to help ensure the sufficiency of each
Clearing Agency's total prefunded-financial resources.\9\ The Framework
would describe (i) the sources of each Clearing Agency's total
prefunded-financial resources; (ii) the Clearing Agencies' stress-
testing methodologies; (iii) the Clearing Agencies' stress-testing
governance and execution processes; and (iv) the Clearing Agencies'
model-validation practices.\10\
---------------------------------------------------------------------------
\9\ Notice, 82 FR at 19132.
\10\ Id.
---------------------------------------------------------------------------
A. Sources of Prefunded-Financial Resources
The Framework would outline the prefunded-financial resources and
related stress-testing methodologies of the Clearing Agencies. The
Framework would begin by describing the applicable regulatory
requirements, with respect to credit risk management, of each Clearing
Agency and how the Clearing Agencies address those requirements.\11\
The Framework would address those requirements by describing how each
Clearing Agency maintains sufficient prefunded-financial resources to
cover fully the credit exposures to each of their respective members
with a high degree of confidence.\12\ The Framework would also describe
how the Clearing Agencies maintain additional prefunded-financial
resources that, at a minimum, would enable them to cover a wide range
of foreseeable stress scenarios that include, but are not limited to,
the default of the affiliated family of members (``Affiliated Family'')
that would potentially cause the largest aggregate credit exposure to
the Clearing Agency in extreme but plausible market conditions (``Cover
One Requirement'').\13\ Because the credit risks and prefunded-
financial resources of each Clearing Agency differ, the Framework would
describe the prefunded-financial resources and related stress-testing
methodologies of the Clearing Agencies separately.\14\
---------------------------------------------------------------------------
\11\ Id.
\12\ Id.
\13\ See 17 CFR 240.17Ad-22(e)(4)(iii).
\14\ Notice, 82 FR at 19132.
---------------------------------------------------------------------------
With respect to FICC and NSCC, the Framework would describe that
the prefunded-financial resources are their respective clearing funds,
containing deposits from their members of both cash and eligible
securities.\15\ The Framework would describe that such deposits are
calculated for each individual member pursuant to the GSD Rules, MBSD
Rules, or NSCC Rules, as applicable, and each member's deposit
[[Page 61083]]
would be referred to in the Framework as its ``Required Deposit.'' \16\
---------------------------------------------------------------------------
\15\ Id. Any eligible security is subject to a haircut. GSD Rule
4 (Clearing Fund and Loss Allocation), MBSD Rule 4 (Clearing Fund
and Loss Allocation), and NSCC Rule 4 (Clearing Fund), supra note 8.
\16\ Id.
---------------------------------------------------------------------------
With respect to DTC, the Framework would describe that its
prefunded-financial resources are cash deposits to its Participants
Fund.\17\ The Framework would also describe that DTC may use its risk
management control, the Collateral Monitor, to monitor and assure that
the settlement obligations of each member are fully collateralized.\18\
---------------------------------------------------------------------------
\17\ Id. DTC Rule 4 (Participants Fund and Participants
Investment). Supra note 8.
\18\ Notice, 82 FR at 19132. ``Collateral Monitor'' is defined
in DTC Rule 1, Section 1 (Definitions), and its calculation is
further provided for in the DTC Settlement Service Guide of the DTC
Rules. Supra note 8.
---------------------------------------------------------------------------
B. Stress-Testing Methodology
The Framework would describe the stress-testing methodologies that
the Clearing Agencies use to test the sufficiency of their total
prefunded-financial resources against the Cover One Requirement. The
Framework would state that the stress testing is designed to identify
potential weaknesses in the methodologies used to calculate members'
Required Deposits and to determine collateral haircuts.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
The Framework would describe in detail the three key components of
the development of stress-testing methodologies:
1. Risk Identification. The Clearing Agencies would identify the
principal credit-risk drivers that are representative and specific to
each Clearing Agency's clearing and/or collateral portfolio under
stressed market conditions.\20\
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
2. Scenario Development. The Clearing Agencies would construct
comprehensive and relevant sets of extreme but plausible historical and
hypothetical stress scenarios for the identified risk drivers.\21\ The
Framework would describe how the Clearing Agencies would develop and
select both historical and hypothetical scenarios that reflect stressed
market conditions.\22\ Historical scenarios would be based on stressed
market conditions that occurred on specific dates in the past.\23\ In
contrast, hypothetical stress scenarios would be theoretical market
conditions.\24\
---------------------------------------------------------------------------
\21\ Id.
\22\ Id.
\23\ Notice, 82 FR at 19133.
\24\ Id.
---------------------------------------------------------------------------
3. Risk Measurement and Aggregation. The Clearing Agencies would
calculate the risk metrics of each Clearing Agency's actual portfolio
to estimate the P&L of a close out over a suitable stressed period of
risk, deficiencies, and coverage ratios.\25\ The Framework would
describe how the Clearing Agencies would develop P&L estimation
methodologies, and how they would calculate risk metrics that are
applicable to such methodologies under the chosen stress-testing
scenarios.\26\ The Clearing Agencies could use a number of P&L
methodologies for stress-testing purposes, including risk sensitivity,
index mapping, and actual or approximate historical shock
approaches.\27\
---------------------------------------------------------------------------
\25\ Id.
\26\ Id.
\27\ Id.
---------------------------------------------------------------------------
The Framework would further describe the stress-testing methodology
by stating that the Clearing Agencies would calculate member stress
deficiencies,\28\ Affiliated Family deficiencies,\29\ and Cover One
Ratios daily.\30\
---------------------------------------------------------------------------
\28\ The Framework would define ``member stress deficiency'' for
each scenario as, with respect to FICC and NSCC, the stress loss
exceeding the applicable member's Required Deposits. The Framework
would define ``member stress deficiency'' for each scenario at DTC
as the shortfall of a member's Collateral Monitor. Id.
\29\ The Framework would define ``Affiliated Family deficiency''
as the aggregate of all member stress deficiencies within the
applicable Affiliated Family. Id.
\30\ The Framework would define ``Cover One Ratio'' as the ratio
of Affiliated Family deficiency over the total value of the relevant
Clearing Agency's clearing fund (or, for DTC, the Participants
Fund), excluding the value of the applicable Affiliated Family's
Required Deposits. Id.
---------------------------------------------------------------------------
The Framework would further state that FICC and NSCC would consider
non-Cover-One Ratio coverages, such as comparing member stress
deficiencies against such member's known financial resources (e.g.,
equity capital base), to keep abreast of potential financial
vulnerabilities facing such member.\31\ Additionally, the Framework
would state that DTC would also test the adequacy of its collateral
haircuts by measuring the amount of stress losses that exceed the
haircut applied to the collateral securities (i.e., ``Haircut
Deficiency'').\32\
---------------------------------------------------------------------------
\31\ Id.
\32\ Id.
---------------------------------------------------------------------------
Moreover, the Framework would state that the Clearing Agencies
measure both specific and generic wrong-way risk for each Clearing
Agency's members and Affiliated Families.\33\ To measure specific
wrong-way risk, for each given Member and its Affiliated Family and
each given scenario, the securities issued by the Affiliated Family
would be subject to shocks that reflect the default of a Member's
Affiliated Family. To measure general wrong-way risk, the Framework
would apply historical scenarios during the 2008 financial crisis to
securities issued by the Affiliated Family as well as securities issued
by the non-Affiliated Family.
---------------------------------------------------------------------------
\33\ Id.
---------------------------------------------------------------------------
The Framework would also describe the reverse stress-testing
analysis that is performed by FICC and NSCC on at least a semi-annual
basis.\34\ The analysis would provide another means for FICC and NSCC,
as central counterparties, to test the sufficiency of the Clearing
Agencies' respective prefunded financial resources.\35\ In conducting
reverse stress-testing, FICC and NSCC would utilize scenarios of
multiple defaults, extreme market shocks, or shocks for other risk
factors, which would cause those Clearing Agencies, as applicable, to
exhaust all of their respective prefunded financial resources.\36\
---------------------------------------------------------------------------
\34\ Id.
\35\ Id.
\36\ Id.
---------------------------------------------------------------------------
C. Stress-Testing Governance and Execution Process
The Framework would describe the Clearing Agencies' stress-testing
governance and execution processes. Stress testing would be conducted
daily for each of the Clearing Agencies, and stress-testing risk
metrics also would be generated each day.\37\ The Cover One Ratios and
member stress deficiencies would be monitored against pre-established
thresholds.\38\ Breaches of these pre-established thresholds would
initially be subject to more detailed studies to identify any potential
impact to the applicable Clearing Agencies' Cover One Requirement.\39\
The Framework would describe that, to the extent such studies indicate
a potential impact to a Clearing Agency's Cover One Requirement, the
threshold breach would be escalated internally and analyzed to
determine if (i) there is a need to adjust the stress-testing
methodology, or (ii) the threshold breach indicates an issue with a
particular member.\40\ Based on that analysis, the Clearing Agencies
would determine the appropriate course of action.\41\
---------------------------------------------------------------------------
\37\ Id.
\38\ According to the Clearing Agencies, risk-threshold levels
are chosen to assist each Clearing Agency in achieving a high degree
of confidence that its Cover One Requirement is met daily. Id.
\39\ Id.
\40\ Id.
\41\ Id.
---------------------------------------------------------------------------
D. Model Validation
The Framework would describe the process the Clearing Agencies
would use to validate their stress-testing
[[Page 61084]]
procedures. The Clearing Agencies would each conduct a comprehensive
analysis of their respective daily stress-testing results, existing
scenario sets (including any changes to such scenarios for the period
since the last review), and the performance of the stress-testing
methodologies along with key underlying parameters and assumptions.\42\
The analysis would be performed at least monthly and would be conducted
to assess whether each Clearing Agency's stress-testing components
appropriately determine the sufficiency of the Clearing Agency's
prefunded-financial resources.\43\ The Framework would state that such
analysis may occur more frequently than monthly if, for example, (i)
the products cleared or markets served by a Clearing Agency display
high volatility or become less liquid, or (ii) the size or
concentration of positions held by the applicable Clearing Agency's
members increases significantly.\44\
---------------------------------------------------------------------------
\42\ Id.
\43\ Id.
\44\ Id.
---------------------------------------------------------------------------
The Framework would state that the results of the analysis are
reviewed monthly by the DTCC Enterprise Stress Testing Council.\45\ The
Framework would also state that daily stress-testing results are
summarized and reported monthly to the DTCC Risk Management
Committee.\46\ Finally, the Framework would state that stress-testing
methodologies and related models are subject to independent model
validation on at least an annual basis.\47\
---------------------------------------------------------------------------
\45\ Id.
\46\ Id.
\47\ Id.
---------------------------------------------------------------------------
E. Notice of Filing of Amendments No. 2
As proposed, the Framework did not specify the historical scenarios
the Clearing Agencies would use in their stress testing. The Clearing
Agencies filed Amendments No. 2 to clarify that, at a minimum, the
Clearing Agencies would use certain specific historical scenarios.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and rules and regulations thereunder applicable to such
organization.\48\ After carefully considering the Proposed Rule
Changes, the Commission finds that the Proposed Rule Changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to the Clearing Agencies. In
particular, the Commission believes the proposal is consistent with
Section 17A(b)(3)(F) of the Act,\49\ as well as Rule 17Ad-22(e)(4)
thereunder.\50\
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78s(b)(2)(C).
\49\ 15 U.S.C. 78q-1(b)(3)(F).
\50\ 17 CFR 240.17Ad-22(e)(4).
---------------------------------------------------------------------------
A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a registered clearing agency be designed to promote prompt and
accurate clearance and settlement, and assure the safeguarding of
securities and funds which are in the custody or control of the
Clearing Agencies or for which they are responsible.\51\
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the Framework would describe (i) the sources of
each Clearing Agency's total prefunded-financial resources; (ii) the
Clearing Agencies' stress-testing methodologies; (iii) the Clearing
Agencies' stress-testing governance and execution processes; and (iv)
the Clearing Agencies' model-validation practices. Moreover, the
Framework would describe the Clearing Agencies' stress testing
practices in a clear and comprehensive manner. Therefore, the Framework
could help improve the Clearing Agencies' ability to determine and
evaluate the credit risk presented by Clearing Agencies' members by
testing (i) the sufficiency of their credit resources in a variety of
extreme but plausible scenarios, and (ii) the potential losses to the
Clearing Agencies from a participant default.
The improved ability to evaluate credit risk could enable the
Clearing Agencies to deploy their risk-management tools more
effectively to manage the credit and market presented by such members.
Through such preparation, the Framework could decrease the possibility
of a member default. By enabling the Clearing Agencies to use their
risk-management tools to monitor its credit and market more
effectively, the proposed Framework is designed to help mitigate the
risk that the Clearing Agencies and their non-defaulting members would
suffer a loss from a member default.
Therefore, the Commission finds that the proposed rule changes are
designed to help promote prompt and accurate clearance and settlement,
and assure the safeguarding of securities and funds which are in the
custody or control of the Clearing Agencies or for which they are
responsible, consistent with Section 17A(b)(3)(F) of the Act.\52\
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(4)(i), (iii), (iv), (v), and (vi)
Rule 17Ad-22(e)(4) under the Act requires, in part, that the
Clearing Agencies establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage their credit exposures to participants and
those arising from its payment, clearing, and settlement processes.\53\
Specifically, Rule 17Ad-22(e)(4)(i) under the Act requires that a
covered clearing agency maintain sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence.\54\ As described above, the descriptions in the
Framework, both individually and collectively, are designed by the
Clearing Agencies to evaluate the credit exposure presented by many of
the Clearing Agencies' members. The Clearing Agencies would construct
comprehensive and relevant sets of extreme but plausible historical and
hypothetical stress scenarios for the identified risk drivers.\55\ The
Clearing Agencies would also calculate the risk metrics of each
Clearing Agency's actual portfolio to estimate the P&L of resolving a
participant default over a suitable stressed period of risk,
deficiencies, and coverage ratios. Thus, the Framework would help the
Clearing Agencies to determine the financial resources necessary to
cover their credit exposure, as applicable, with a high degree of
confidence, consistent with Rule 17Ad-22(e)(4)(i).\56\
---------------------------------------------------------------------------
\53\ 17 CFR 240.17Ad-22(e)(4).
\54\ 17 CFR 240.17Ad-22(e)(4)(i).
\55\ Id.
\56\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(iii) under the Act requires that, to the extent
not already maintained pursuant to Rule 17Ad-22(e)(4)(i) under the Act,
the Clearing Agencies maintain additional financial resources that, at
minimum, enable them to cover a wide range of foreseeable stress
scenarios that include, but are not limited to, the default of the
participant family that would potentially cause the largest aggregate
credit exposure for the covered clearing agency in extreme but
plausible market conditions.\57\
---------------------------------------------------------------------------
\57\ 17 CFR 240.17Ad-22(e)(4)(iii).
---------------------------------------------------------------------------
As described above, the Framework would describe how the Clearing
Agencies have developed and carried out a credit-risk management
strategy to (i) maintain prefunded financial
[[Page 61085]]
resources to comply with a Cover One Requirement; (ii) test the
sufficiency; (iii) provide governance for the testing; and (iv)
validate the testing models for the requirement. The Framework would
also describe how each Clearing Agency tests the sufficiency of its
prefunded resources daily to support compliance with this requirement.
Such testing could better enable the Clearing Agencies to determine
their respective Cover One Requirement in extreme but plausible
scenarios by determining the impact of member defaults in various
scenarios. With this identification of Cover One Requirement, the
Clearing agencies could size their margin requirements to maintain
their Cover One Requirement. Thus, the Commission believes the Proposed
Rule Changes are consistent with Rule 17Ad-22(e)(4)(iii).\58\
---------------------------------------------------------------------------
\58\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(iv) under the Act requires that a covered
clearing agency include prefunded financial resources, exclusive of
assessments for additional guaranty fund contributions or other
resources that are not prefunded, when calculating financial resources
available to meet the standards under Rule 17Ad-22(e)(4)(i) through
(iii) under the Act, as applicable.\59\ Because the credit risks and
prefunded-financial resources of each Clearing Agency differ, the
Framework would describe the prefunded-financial resources and related
stress-testing methodologies of the Clearing Agencies separately.
---------------------------------------------------------------------------
\59\ 17 CFR 240.17Ad-22(e)(4)(iv).
---------------------------------------------------------------------------
With respect to FICC and NSCC, the Framework would describe the
prefunded-financial resources are their respective clearing funds,
containing deposits from their members of both cash and eligible
securities. With respect to DTC, the Framework would describe that its
prefunded-financial resources are cash deposits to its Participants
Fund. The Framework would also describe that DTC may use its risk
management control, the Collateral Monitor, to help monitor and ensure
that the settlement obligations of each member are fully
collateralized. Such identification is designed to meet the financial
resources availability requirements under Rule 17Ad-22(e)(4)(i) and
(iii). Therefore, the Commission believes the Framework is consistent
with Rule 17Ad-22(e)(4)(iv) under the Act.\60\
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(v) under the Act requires that the Clearing
Agencies maintain the financial resources under Rule 17Ad-22(e)(4)(iii)
under the Act, in combined or separately maintained clearing or
guaranty funds.\61\ As described above, the Framework would identify
the sources of prefunded resources to comply with each Clearing
Agency's Cover One Requirement. The Framework would require NSCC and
FICC to maintain those prefunded sources in their respective clearing
funds. The Framework also would require DTC to maintain its prefunded
sources in its Participants Fund. Thus, the Commission believes the
Framework is consistent with Rule 17Ad-22(e)(v) under the Act.\62\
---------------------------------------------------------------------------
\61\ 17 CFR 240.17Ad-22(e)(4)(v).
\62\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(vi)(A) under the Act requires that a covered
clearing agency test the sufficiency of its total financial resources
available to meet the minimum financial resource requirements under
Rule 17Ad-22(e)(4)(i) through (iii) under the Act by conducting stress
testing of its total financial resources daily using standard
predetermined parameters and assumptions.\63\ As described above, the
Framework would describe the Clearing Agencies' stress-testing
methodologies and validation. Specifically, the Framework would state
how the Clearing Agencies would conduct stress tests on a daily basis,
and the three risk components the Clearing Agencies would use for the
stress testing methodologies for these tests. Likewise, the Framework
would describe how the stress testing methodologies are developed
through risk identification, scenario development, and risk measurement
and aggregation. Therefore, the Commission believes the Framework is
consistent with Rule 17Ad-22(e)(4)(vi)(A) under the Act.\64\
---------------------------------------------------------------------------
\63\ 17 CFR 240.17Ad-22(e)(4)(vi)(A).
\64\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(vi)(B) under the Act requires that a covered
clearing agency test the sufficiency of its total financial resources
available to meet the minimum financial resource requirements under
Rule 17Ad-22(e)(4)(i) through (iii) under the Act by conducting a
comprehensive analysis on at least a monthly basis of the existing
stress testing scenarios, models, and underlying parameters and
assumptions, and consider modifications to ensure they are appropriate
for determining the covered clearing agency's required level of default
protection in light of current and evolving market conditions.\65\
---------------------------------------------------------------------------
\65\ 17 CFR 240.17Ad-22(e)(4)(vi)(B).
---------------------------------------------------------------------------
As described above, the Framework, with respect to model
validation, would state that the stress-testing methodologies are
reviewed and analyzed monthly to determine if the components continue
to be appropriate for determining sufficiency of the Clearing Agencies'
prefunded financial resources. The analysis would be performed at least
monthly and would be conducted to assess whether each Clearing Agency's
stress-testing components appropriately determine the sufficiency of
the Clearing Agency's prefunded-financial resources.\66\ The Framework
would state that such analysis may occur more frequently than monthly
if, for example, (i) the products cleared or markets served by a
Clearing Agency display high volatility or become less liquid, or (ii)
the size or concentration of positions held by the applicable Clearing
Agency's members increases significantly. The Framework also would
state that the results of the analysis are reviewed monthly by the DTCC
Enterprise Stress Testing Council. For these reasons, the Commission
believes the Framework is consistent with Rule 17Ad-22(e)(4)(vi)(B)
under the Act.\67\
---------------------------------------------------------------------------
\66\ Id.
\67\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(vi)(C) under the Act requires that a covered
clearing agency test the sufficiency of its total financial resources
available to meet the minimum financial resource requirements under
Rule 17Ad-22(e)(4)(i) through (iii) under the Act by conducting a
comprehensive analysis of stress testing scenarios, models, and
underlying parameters and assumptions more frequently than monthly when
the products cleared or markets served display high volatility or
become less liquid, or when the size or concentration of positions held
by the covered clearing agency's members increases significantly.\68\
---------------------------------------------------------------------------
\68\ 17 CFR 240.17Ad-22(e)(4)(vi)(C).
---------------------------------------------------------------------------
As described above, the Framework would describe that the stress-
testing validations are performed at least monthly, and may occur more
frequently than monthly if, for example, (i) the products cleared or
markets served by a Clearing Agency display high volatility or become
less liquid, or (ii) the size or concentration of positions held by the
applicable Clearing Agency's members increases significantly. The
Framework also would state that the analysis is designed to assess
whether each Clearing Agency's stress-testing components are
appropriate for determining the sufficiency of its prefunded financial
resources in light of current and evolving market conditions. As such,
the Commission believes the Framework
[[Page 61086]]
is consistent with Rule 17Ad-22(e)(4)(vi)(C) under the Act.\69\
---------------------------------------------------------------------------
\69\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(vi)(D) under the Act requires that a covered
clearing agency test the sufficiency of its total financial resources
available to meet the minimum financial resource requirements under
Rule 17Ad-22(e)(4)(i) through (iii) under the Act by reporting the
results of its analyses under Rule 17Ad-22(e)(4)(vi)(B) and (C) to
appropriate decision makers at the covered clearing agency, including
but not limited to, its risk management committee or board of
directors, and use these results to evaluate the adequacy of and adjust
its margin methodology, model parameters, models used to generate
clearing or guaranty fund requirements, and any other relevant aspects
of its credit risk management framework, in supporting compliance with
the minimum financial resources requirements set forth in Rule 17Ad-
22(e)(4)(i) through (iii) under the Act.\70\
---------------------------------------------------------------------------
\70\ 17 CFR 240.17Ad-22(e)(4)(vi)(D).
---------------------------------------------------------------------------
As described above, the Framework would provide for stress-testing
governance and model validation. To the extent the stress-testing
methodology indicates a potential impact to a Clearing Agency's Cover
One Requirement, the Framework would describe the threshold parameters
that would results in the Clearing Agency escalating internally and
analyzing to determine if (i) there is a need to adjust the stress-
testing methodology, or (ii) the threshold breach indicates an issue
with a particular member. Additionally, the model validation
description in the Framework would state that the results of the
stress-testing methodologies are reviewed monthly by the DTCC
Enterprise Stress Testing Council. The Framework also would state that
the DTCC Enterprise Stress Testing Council would consider the results
in evaluating the adequacy of the stress-testing methodologies and
would determine if adjustments to the stress-testing methodologies are
appropriate to support the Clearing Agencies' compliance with the
minimum financial resources requirements set forth in Rule 17Ad-
22(e)(4)(i) through (iii) under the Act.
The Framework also would state that daily stress testing results
are summarized and reported monthly to the DTCC Risk Management
Committee. Based on its review of the information provided, the
committee may determine to inform or further escalate any concerns to
the Risk Committees of the Boards, as it deems necessary. Therefore,
the Commission believes that the Framework is consistent with Rule
17Ad-22(e)(vi)(D) under the Act.\71\
---------------------------------------------------------------------------
\71\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(vii) under the Act requires a covered clearing
agency to perform a model validation for its credit risk models not
less than annually or more frequently as may be contemplated by the
covered clearing agency's risk management framework established
pursuant to Rule 17Ad-22(e)(3) under the Act.\72\ As described above,
the model validation portion of the Framework would provide that the
Clearing Agencies' stress-testing methodologies and models are subject
to independent model validation on at least an annual basis. Therefore,
the Commission believes that the Framework is consistent with Rule
17Ad-22(e)(4)(vii) under the Act.\73\
---------------------------------------------------------------------------
\72\ 17 CFR 240.17Ad-22(e)(4)(vii).
\73\ Id.
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether these filings, as
modified by Amendments No. 2, are consistent with the Act. Comments may
be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2017-005, SR-FICC-2017-009, or SR-NSCC-2017-006 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-2017-005, SR-FICC-
2017-009, or SR-NSCC-2017-006. 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 website
(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 website 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 filings also will be available for inspection and copying at the
principal office of DTCC and on DTCC's website (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-DTC-2017-005,
SR-FICC-2017-009, or SR-NSCC-2017-006 and should be submitted on or
before January 16, 2018.
V. Accelerated Approval of Proposed Rule Changes
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Exchange Act,\74\ to approve the Proposed Rule Changes prior to the
30th day after the date of publication of Amendments No. 2 in the
Federal Register. As discussed above, Amendments No. 2 make clear which
specific historical scenarios, at a minimum, the Clearing Agencies
would use for stress testing.
---------------------------------------------------------------------------
\74\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
By listing the specific historic scenarios, Amendments No. 2
provides for a more clear and comprehensive Framework, which could help
improve the Clearing Agencies' ability to determine and evaluate the
credit risk presented by Clearing Agencies' members. That improved
ability could better enable the Clearing Agencies to deploy their risk-
management tools more effectively to manage the credit and market
presented by such members and, thus, help mitigate the risk that the
Clearing Agencies and their non-defaulting members would suffer a loss
from a member default.
Therefore, the Commission finds that Amendments No. 2 are designed
to help assure the safeguarding of securities and funds which are in
the custody or control of the Clearing Agencies or for which they are
responsible, consistent with Section 17A(b)(3)(F) of the Act.\75\
Accordingly, the Commission finds good cause for approving the proposed
rule changes, as modified by Amendments No. 2, on an accelerated
[[Page 61087]]
basis, pursuant to Section 19(b)(2) of the Exchange Act.\76\
---------------------------------------------------------------------------
\75\ 15 U.S.C. 78q-1(b)(3)(F).
\76\ Id.
---------------------------------------------------------------------------
VI. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Changes are consistent with the requirements of the Act,
in particular the requirements of Section 17A of the Act \77\ and the
rules and regulations promulgated thereunder.
---------------------------------------------------------------------------
\77\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule changes SR-DTC-2017-005, SR-FICC-2017-009, and SR-
NSCC-2017-006, as modified by Amendments Nos. 1 and 2, be, and hereby
are, APPROVED on an accelerated basis.\78\
---------------------------------------------------------------------------
\78\ In approving the Proposed Rule Changes, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\79\
---------------------------------------------------------------------------
\79\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27705 Filed 12-22-17; 8:45 am]
BILLING CODE 8011-01-P