Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Fixed Income Clearing Corporation; Notice of Filing of Amendment No. 4, Notice of Filing Amendment No. 5, Notice of Filing Amendment No. 6, and Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendment Nos. 1, 3 and 6, To Adopt the Clearing Agency Liquidity Risk Management Framework, 61617-61622 [2017-27997]
Download as PDF
Federal Register / Vol. 82, No. 248 / Thursday, December 28, 2017 / Notices
should be submitted on or before
January 18, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27995 Filed 12–27–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82377; File Nos. SR–DTC–
2017–004; SR–NSCC–2017–005; SR–FICC–
2017–008]
Self-Regulatory Organizations; The
Depository Trust Company; National
Securities Clearing Corporation; Fixed
Income Clearing Corporation; Notice of
Filing of Amendment No. 4, Notice of
Filing Amendment No. 5, Notice of
Filing Amendment No. 6, and Order
Granting Accelerated Approval of
Proposed Rule Changes, as Modified
by Amendment Nos. 1, 3 and 6, To
Adopt the Clearing Agency Liquidity
Risk Management Framework
December 21, 2017.
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I. Introduction
On April 6, 2017, The Depository
Trust Company (‘‘DTC’’), National
Securities Clearing Corporation
(‘‘NSCC’’), and Fixed Income Clearing
Corporation (‘‘FICC,’’ each a ‘‘Clearing
Agency,’’ and collectively, the ‘‘Clearing
Agencies’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule changes SR–DTC–2017–
004, SR–NSCC–2017–005, and SR–
FICC–2017–008, respectively, pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2
On April 13, 2017, the Clearing
Agencies each filed Amendment No. 1
to their respective proposed rule
changes. Amendment No. 1 made
technical corrections to each Exhibit 5
of the proposed rule change filings. The
proposed rule changes, as modified in
each instance by Amendment No. 1,
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
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 80489
(April 19, 2017), 82 FR 19120 (April 25, 2017) (SR–
DTC–2017–004, SR–NSCC–2017–005, SR–FICC–
2017–008) (‘‘Notice’’).
1 15
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rule changes, as amended in each
instance by Amendment No. 1.4
On July 20, 2017, the Clearing
Agencies each filed Amendment No. 2
to their respective proposed rule
changes, as previously modified by
Amendment No. 1. On July 21, 2017, the
Clearing Agencies each filed
Amendment No. 3 to their respective
proposed rule changes to supersede and
replace Amendment No. 2 in its
entirety, due to a technical defect of
Amendment No. 2. The proposed rule
changes, as modified in each instance
by Amendment No. 3, were published
for comment in the Federal Register on
July 28, 2017, and the Commission
instituted proceedings under Section
19(b)(2)(B) 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,
as modified by Amendment Nos. 1 and
3.7 The Commission did not receive any
comment letters on the proposed rule
changes, as modified by Amendment
Nos. 1 and 3.
On December 15, 2017, the Clearing
Agencies each filed Amendment No. 4
to their respective proposed rule
changes, as discussed below. On the
same day, the Clearing Agencies each
filed Amendment No. 5 to their
respective proposed rule changes to
supersede and replace Amendment No.
4 in its entirety, due to technical errors
of Amendment No. 4. On December 18,
2017, Clearing Agencies each filed
Amendment No. 6 to their respective
proposed rule changes to supersede and
replace Amendment No. 5 in its
entirety. The Commission is publishing
this notice to solicit comments on
Amendment No. 6 from interested
persons and is approving on an
accelerated basis the proposed rule
changes, as modified by Amendment
Nos. 1, 3, and 6 (hereinafter, ‘‘Amended
Proposed Rule Changes’’).
4 Securities Exchange Act Release No. 80877
(June 7, 2017), 82 FR 27094 (June 13, 2017) (SR–
DTC–2017–004, SR–NSCC–2017–005, SR–FICC–
2017–008).
5 15 U.S.C. 78s(b)(2)(B).
6 Securities Exchange Act Release No. 81194 (July
24, 2017), 82 FR 35241 (July 28, 2017) (SR–DTC–
2017–004, SR–NSCC–2017–005, SR–FICC–2017–
008) (‘‘Order Instituting Proceedings’’).
7 Securities Exchange Act Release No. 81885
(October 20, 2017), 82 FR 48857 (October 20, 2017)
(SR–DTC–2017–004, SR–NSCC–2017–005, SR–
FICC–2017–008).
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61617
II. Description of the Proposed Rule
Changes as Previously Modified by
Amendment Nos. 1 and 3, and Notice
of Filing Amendment No. 6
A. Proposed Rule Changes as Previously
Modified by Amendment Nos. 1 and 3
The Clearing Agencies propose to
adopt the Clearing Agency Liquidity
Risk Management Framework
(‘‘Framework’’) of the Clearing
Agencies. The Framework would
outline the regulatory requirements that
would be applicable to each Clearing
Agency with respect to liquidity risk
management, and would be owned and
managed by the Liquidity Product Risk
Unit (‘‘LPRU’’) of DTCC.8
The Framework would, generally, set
forth the Clearing Agencies’ liquidity
resources and liquidity risk
management practices, to include
measurement and monitoring of their
respective liquidity risks.9 More
specifically, the Framework would
describe FICC and NSCC’s liquidity risk
management strategy and objectives,
which are to maintain sufficient liquid
resources to meet the potential amount
of funding required to settle outstanding
transactions of a defaulting Member, or
affiliated family (‘‘Affiliated Family’’) of
Members, in a timely manner.10 For
DTC, the Framework would describe
how DTC’s liquidity management
strategy and controls are designed to
maintain sufficient available liquid
resources to complete system-wide
settlement on each business day with a
high degree of confidence,
notwithstanding the failure to settle of
a Participant or Affiliated Family of
Participants.11 The Framework would
also state that DTC operates on a fully
collateralized basis.12
Although the Clearing Agencies
would consider the Framework to be a
rule of each Clearing Agency, the
proposed changes do not require any
changes to the Rules, By-laws and
Organization Certificate of DTC (‘‘DTC
Rules’’), the FICC Government
Securities Division (‘‘GSD’’) Rulebook
(‘‘GSD Rules’’), the FICC Mortgage8 The parent company of the Clearing Agencies is
The Depository Trust & Clearing Corporation
(‘‘DTCC’’). DTCC operates on a shared services
model with respect to the Clearing Agencies. Most
corporate functions are established and managed on
an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that
provides a relevant service to a Clearing Agency.
Notice, 82 FR at 19121.
9 Id.
10 FICC and NSCC refer to their participants as
‘‘Members,’’ while DTC refers to its participants as
‘‘Participants.’’ These terms are defined in the
respective rules of each of the Clearing Agencies.
Notice, 82 FR at 19121.
11 Id.
12 Id.
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Backed Securities Division (‘‘MBSD’’)
Clearing Rules (‘‘MBSD Rules’’), or the
Rules & Procedures of NSCC (‘‘NSCC
Rules,’’ and together with the DTC
Rules, GSD Rules, and MBSD Rules,
‘‘Rules’’), as the Framework would be a
standalone document.13
1. Liquidity Resources
The Framework would address how
each of the Clearing Agencies meets its
requirement to hold qualifying liquid
resources, as defined by Rule 17Ad–
22(a)(14) under the Act,14 sufficient to
meet its minimum liquidity resource
requirement in each relevant currency
for which it has payment obligations
owed to its Members or Participants, as
applicable.15 The Framework would
identify each of the qualifying liquid
resources available to each Clearing
Agency. Such qualifying liquid
resources include, for example, (1)
deposits to the Clearing Agencies’
respective Clearing Funds, or, for DTC,
its Participants Fund, made by Members
or Participants pursuant to the
respective rules; 16 (2) for DTC and
NSCC, an annual committed credit
facility; 17 (3) for NSCC, its Members’
Supplemental Liquidity Deposits; 18 and
(4) for GSD and MBSD, a rule-based
Capped Contingency Liquidity Facility
(‘‘CCLF’’) program.19 The Framework
would also state that the Clearing
Agencies may have access to other
available resources that may not meet
the definition of qualifying liquid
resources.20
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2. Liquidity Measurement and
Monitoring
The Framework would describe the
manner in which FICC and NSCC
measure and monitor the sufficiency of
their respective qualifying liquid
resources through daily liquidity studies
that consider certain risk scenarios. The
scenarios are designed to measure the
sufficiency of their available qualifying
liquid resources to meet the cash
settlement obligations of their respective
13 Rules, available at https://www.dtcc.com/en/
legal/rules-and-procedures.
14 17 CFR 240.17Ad–22(a)(14).
15 Notice, 82 FR at 19121.
16 DTC Rule 4 (Participants Fund and Participants
Investment), GSD Rule 4 (Clearing Fund and Loss
Allocation), MBSD Rule 4 (Clearing Fund and Loss
Allocation), NSCC Rule 4 (Clearing Fund). Rules,
supra note 13.
17 See Securities Exchange Act Release No. 77750
(April 29, 2016), 81 FR 27181 (May 5, 2016) (SR–
DTC–2016–801, SR–NSCC–2016–801). Notice, 82
FR at 19121.
18 NSCC Rule 4A (Supplemental Liquidity
Deposits). Rules, supra note 13.
19 MBSD Rule 17, Section 2a (Procedures for
When the Corporation Ceases to Act). Rules, supra
note 13.
20 Notice, 82 FR at 19121.
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largest Affiliated Family of Members in
a number of stressed conditions,
including extreme but plausible
scenarios applied under severely
adverse market conditions that could
coincide with the default of a Member.21
The Framework would provide three
types of scenarios: (1) Normal market
scenarios, as a baseline reference point
to assess other stress assumptions; (2)
scenarios designed to meet the
requirements set forth in Rule 17Ad–
22(e)(7)(i) under the Act; and (3)
scenarios designed to meet the
requirements set forth in Rule 17Ad–
22(e)(7)(vi) under the Act.22 The
Framework would describe the manner
in which the scenarios are developed
and selected for testing.23 The
Framework would also describe how
liquidity stress testing results are
escalated to Clearing Agency
management on at least a monthly basis,
and how these results are used to
evaluate the adequacy of the liquidity
resources of FICC and NSCC.24
With respect to DTC’s measurement of
the sufficiency of its liquidity resources,
the Framework would set forth that the
Collateral Monitor and the Net Debit
Cap 25 limit DTC’s liquidity exposure
and, thus, DTC’s liquidity requirement
in default scenarios.26 The Framework
would describe how the Collateral
Monitor and the Net Debit Cap enable
DTC to regularly test the sufficiency of
its liquid resources on an intraday and
end-of-day basis and adjust to stressed
circumstances during a settlement day
to protect DTC and its Participants
against liquidity exposure under normal
and stressed market conditions.27
The Framework would describe how
the Clearing Agencies review the limits
of outstanding investments and
collateral held (if applicable) by each
Clearing Agency’s investment
counterparties, and conduct formal
reviews of the reliability of their
liquidity providers in extreme but
plausible market conditions.28 The
Framework would further describe how
the Clearing Agencies undertake due
diligence with respect to their liquidity
providers and conduct a credit analysis
of each liquidity provider, and how
NSCC and DTC conduct operational
21 Notice,
82 FR at 19121 and 19123.
Instituting Proceedings, 82 FR at 35242.
23 Notice, 82 FR at 19121.
24 Id.
25 ‘‘Collateral Monitor’’ and ‘‘Net Debit Cap’’ are
defined in DTC Rule 1, Section 1 (Definitions), and
their calculations are further provided for in the
DTC Settlement Service Guide of the DTC Rules.
Rules, supra note 13.
26 Notice, 82 FR at 19121.
27 Id.
28 Id.
22 Order
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testing with their committed credit
facility lenders at least annually.29
The Framework would describe how
the Clearing Agencies would address
foreseeable liquidity shortfalls that
would not be covered by their existing
liquid resources.30 For example, DTC
would address a foreseeable, same-day
liquidity shortfall through adjustments
to the Net Debit Cap reductions, as
provided under the DTC Rules.31 In
addition, the Framework would
describe how the Clearing Agencies’
existing qualifying liquid resources may
be replenished in accordance with the
respective rules of the Clearing
Agencies.32 For example, the
Framework would describe how the
Clearing Agencies may use proceeds
that may be available from the
liquidation of a defaulting participant’s
portfolio (including the sale of collateral
used to secure a borrowing) to repay
liquidity borrowings, thus replenishing
the relevant Clearing Agency’s liquid
resources.33
The Framework would state that the
Clearing Agencies’ liquidity risk models
are subject to independent model
validation on at least an annual basis.34
The Framework would describe the
manner in which the liquidity risks of
the Clearing Agencies are assessed and
escalated through liquidity risk
management controls that include a
statement of risk tolerances that are
specific to liquidity risk (‘‘Liquidity
Risk Tolerance Statement’’), and an
operational risk profile of LPRU, which
contains consolidated risk and control
data.35 Finally, the Framework would
state that the Liquidity Risk Tolerance
Statement is reviewed by management
within the LPRU annually, and is
escalated to the Risk Committee of the
Board of Executives of each Clearing
Agency for review and approval at least
annually.36
B. Notice of Filing of Amendment No. 6
Amendment No. 6, which supersedes
and replaces Amendment Nos. 4 and 5,
added additional detail and clarity to
the proposal, as well as making some
technical corrections. Specifically,
Amendment No. 6 clarifies that DTC’s
structural features, including the
Collateral Monitor, Net Debit Cap, and
Participants Fund enable it to maintain
sufficient qualifying liquid resources by
limiting the liquidity requirements in
29 Notice,
82 FR at 19121 and 19123.
30 Id.
31 Notice,
82 FR at 19123.
82 FR at 19121 and 19123.
33 Notice, 82 FR at 19123.
34 Id.
35 Notice, 82 FR at 19121–19122.
36 Notice, 82 FR at 19122.
32 Notice,
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default scenarios. Similarly, in order to
more accurately describe DTC’s current
practices with respect to the Collateral
Monitor and Net Debit Cap, Amendment
No. 6 deletes a description in the
proposal stating that the Collateral
Monitor and the Net Debit Cap enable
DTC to regularly test the sufficiency of
its liquid resources on an intraday and
end-of-day basis and adjust to stressed
circumstances during a settlement day
to protect DTC and its Participants
against liquidity exposure under normal
and stressed market conditions.
Amendment No. 6 revises the
Framework to (1) update the citation of
the proposed rule change filing
regarding FICC GSD’s CCLF program,
which was approved by the Commission
on November 15, 2017, and (2) state that
FICC GSD’s CCLF program will become
a qualifying liquid resource of FICC
GSD on November 15, 2018.37
Amendment No. 6 also modifies and
elaborates FICC and NSCC’s liquidity
sufficiency testing that is performed
daily with respect to three types of
scenarios: (1) Normal market scenarios,
as a baseline reference point to assess
other stress assumptions, (2) scenarios
designed to meet the requirements set
forth in Rule 17Ad–22(e)(7)(i) 38 under
the Act (‘‘Level 2 Scenarios’’), and (3)
scenarios designed to meet the
requirements set forth in Rule 17Ad–
22(e)(7)(vi)(A) 39 under the Act (‘‘Level 3
Scenarios’’). The Framework is further
modified by Amendment No. 6 to state
that daily liquidity studies may also be
performed for informational and
monitoring purposes using stress
scenarios that exceed the requirements
of Rule 17Ad–22(e)(7)(vi)(A) under the
Act.40
Amendment No. 6 also modifies the
Framework to describe the purpose of
the three types of stress scenario
described above. Specifically,
Amendment No. 6 revised the
Framework to state that Level 2
Scenarios assume a wide range of
foreseeable stress scenarios that include,
but are not limited to, the default of the
Affiliated Family of Members that
would generate the largest aggregate
payment obligation for the FICC or
NSCC in extreme but plausible market
conditions. In this way, the Framework
would state that these daily liquidity
37 MBSD Rule 17, Section 2a (Procedures for
When the Corporation Ceases to Act). Rules, supra
note 13. See Securities Exchange Act Release Nos.
82090 (November 15, 2017), 82 FR 55427
(November 21, 2017) (SR–FICC–2017–002); 81054
(June 29, 2017), 82 FR 31356 (July 6, 2017) (SR–
FICC–2017–802).
38 17 CFR 240.17Ad–22(e)(7)(i).
39 17 CFR 240.17Ad–22(e)(7)(vi)(A).
40 Id.
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studies are designed to meet the
requirements of Rule 17Ad–22(e)(7)(i)
under the Act.41 Meanwhile,
Amendment No. 6 further revised the
Framework to state that Level 3
Scenarios assume certain standard and
predetermined parameters which are
designed to be extreme but plausible
and meet the requirements set forth in
Rule 17Ad–22(e)(7)(vi)(A) under the
Act.42
Amendment No. 6 also revises the
Framework to provide the analysis and
escalation process for any liquidity
shortfalls that are identified through the
daily studies utilizing the Level 2 and
Level 3 Scenarios. Amendment No. 6
modifies the Framework to describe
how the liquidity stress testing is
regularly reviewed and analyzed,
including an evaluation of the
appropriateness of existing scenarios,
and would also describe how these
analyses are escalated on at least a
monthly basis. The Framework is
further revised by Amendment No. 6 to
state that liquidity stress testing is
comprehensively analyzed on a weekly
basis, and how the results of the
analysis are escalated on a monthly
basis and used to evaluate the adequacy
of the qualifying liquid resources of
FICC or NSCC. Amendment No. 6 also
modifies the Framework to describe the
manner in which Level 2 and Level 3
scenarios are developed and selected for
testing.
Furthermore, Amendment No. 6
revises the Framework to state that the
Clearing Agencies may have access to
other available resources that do not
meet the definition of qualifying liquid
resources. Amendment No. 6 also
revises the Framework to state that each
of the Clearing Agencies would
annually test borrowing of their
liquidity resources to confirm providers
are operationally able to perform their
commitments and are familiar with the
drawdown process.
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.43 After carefully
considering the Amended Proposed
Rule Changes, the Commission finds
that the Amended Proposed Rule
Changes are consistent with the
CFR 240.17Ad–22(e)(7)(i).
CFR 240.17Ad–22(e)(7)(vi)(A).
43 15 U.S.C. 78s(b)(2)(C).
requirements of the Act and the rules
and regulations thereunder applicable to
the Clearing Agencies. Specifically, the
Commission finds that the Amended
Proposed Rule Changes are consistent
with Section 17A(b)(3)(F) of the Act 44
and Rule 17Ad–22(e)(7) under the Act.45
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 the prompt and accurate
clearance and settlement of securities
transactions, and to assure the
safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies or for which they
are responsible.46 As described above,
the Framework would set forth the
Clearing Agencies’ liquidity risk
management strategy and objectives,
which are to maintain sufficient liquid
resources (1) in the case of FICC and
NSCC, to meet the potential amount of
funding required to settle outstanding
transactions of a defaulting Member, or
Affiliated Family of Members, in a
timely manner, or (2) in the case of DTC,
to complete system-wide settlement on
each business day with a high degree of
confidence, notwithstanding the failure
to settle of a Participant or Affiliated
Family of Participants.
The Framework would address how
each Clearing Agency holds liquid
resources to effect the cash settlement
obligations of their largest Affiliated
Family of Members or Participants. In
order to do so, the Framework would
identify each of the liquid resources
available to each Clearing Agency. In
addition, the Framework would
describe how each Clearing Agency
measures and monitors the sufficiency
of its liquid resources to meet its
obligation across a range of stress
scenarios. The Framework would
provide how the Clearing Agencies
conduct reviews of the reliability of
their liquidity providers, how the
Clearing Agencies would address
foreseeable liquidity shortfalls, and how
the Clearing Agencies would replenish
their liquid resources. The Framework
also would describe how liquidity risks
to each Clearing Agency are assessed
and escalated through liquidity risk
management controls.
By providing for the maintenance and
monitoring of each Clearing Agency’s
liquidity resources, the Framework
helps position the Clearing Agencies to
better withstand the liquidity risks that
41 17
44 15
42 17
45 17
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U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(7).
46 15 U.S.C. 78q–1(b)(3)(F).
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arise in or are borne by them and to be
better positioned to continue their
critical operations and services. In turn,
such improved positioning in these
areas could help promote the prompt
and accurate clearance and settlement of
securities transactions by the Clearing
Agencies and reduce the possibility of
the Clearing Agencies’ failure, which
could help mitigate the risk of financial
loss contagion that could be caused by
such a failure. With such aims, the
Framework could help further assure
the safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies, or for which they
are responsible. Accordingly, the
Commission finds that the Amended
Proposed Rule Changes are consistent
with the requirements of Section
17A(b)(3)(F) of the Act.47
B. Consistency With Section 17Ad–
22(e)(7)(i), (ii), (iv), (v), (vi), (vii), (viii),
and (ix)
Rule 17Ad–22(e)(7) under the Act
requires that each covered clearing
agency establish, implement, maintain
and enforce written policies and
procedures reasonably designed to,
among other things effectively measure,
monitor, and manage the liquidity risks
that arise in or are borne by the covered
clearing agency, including measuring,
monitoring, and managing its settlement
and funding flows on an ongoing and
timely basis, and its use of intraday
liquidity.48 Specifically, Rule 17Ad–
22(e)(7)(i) under the Act requires each
covered clearing agency to maintain
sufficient liquid resources at the
minimum in all relevant currencies to
effect same-day and, where appropriate,
intraday and multiday settlement of
payment obligations with a high degree
of confidence under a wide range of
foreseeable stress scenarios that
includes, but is not limited to, the
default of the participant family that
would generate the largest aggregate
payment obligation for the covered
clearing agency in extreme but plausible
market conditions.49 Meanwhile, Rule
17Ad–22(e)(7)(ii) under the Act requires
each covered clearing agency to hold
qualifying liquid resources to meet the
minimum liquidity resource
requirement under Rule 17Ad–
22(e)(7)(i) in each relevant currency for
which the covered clearing agency has
payment obligations owed to clearing
members.50
The Framework would provide that
FICC and NSCC maintain liquid
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(7).
49 17 CFR 240.17Ad–22(e)(7)(i).
50 17 CFR 240.17Ad–22(e)(7)(ii).
resources sufficient to meet the
potential amount of funding required to
settle outstanding transactions of a
defaulting Member or Affiliated Family
of Members in a timely manner. The
Framework would further provide that
DTC maintain sufficient available
liquidity resources to complete systemwide settlement on each business day,
with a high degree of confidence and
notwithstanding the failure to settle of
the Participant or Affiliated Family of
Participants with the largest settlement
obligation. The Framework would also
describe how FICC and NSCC perform
daily liquidity studies, which are
designed to measure the sufficiency of
their available liquid resources to meet
the cash settlement obligations of their
largest Affiliated Family of Members in
a number of stress conditions including
extreme but plausible scenarios applied
under severely adverse market
conditions that could coincide with the
default of a participant.
Furthermore, the Framework would
provide that the Clearing Agencies hold
qualifying liquid resources sufficient to
meet their minimum liquidity resource
requirement and identify each of the
qualifying liquid resources available to
each Clearing Agency, which include (1)
deposits to the Clearing Agencies’
respective Clearing Funds, or, for DTC,
its Participants Fund, made by Members
or Participants pursuant to the
respective rules; (2) for DTC and NSCC,
an annual committed credit facility; (3)
for NSCC, its Members’ Supplemental
Liquidity Deposits; and (4) for GSD and
MBSD, their respective rule-based CCLF
program. As such, the Commission finds
that the Framework is consistent with
Rule 17Ad–22(e)(7)(i) and (ii).51
Rule 17Ad–22(e)(7)(iv) under the Act
requires that a covered clearing agency
undertake due diligence to confirm that
it has a reasonable basis to believe each
of its liquidity providers, whether or not
such liquidity provider is a clearing
member, has (A) sufficient information
to understand and manage the liquidity
provider’s liquidity risks; and (B) the
capacity to perform as required under
its commitments to provide liquidity to
the covered clearing agency.52 Further,
Rule 17Ad–22(e)(7)(v) under the Act
requires that a covered clearing agency
maintain and test with each liquidity
provider, to the extent practicable, the
covered clearing agency’s procedures
and operational capacity for accessing
each type of relevant liquid resource
under Rule 17Ad–22(e)(7)(i) at least
annually.53
47 15
48 17
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51 17
CFR 240.17Ad–22(e)(7)(i) and (ii).
CFR 240.17Ad–22(e)(7)(iv).
53 17 CFR 240.17Ad–22(e)(7)(v).
The Framework would describe how
the Clearing Agencies undertake due
diligence with respect to their liquidity
providers, and conduct testing with
those providers at least annually. The
Framework would describe how the
Clearing Agencies review the limits of
outstanding investments and collateral
held of each Clearing Agency’s
investment counterparties, and conduct
formal reviews of the reliability of their
liquidity providers in extreme but
plausible market conditions to test the
liquidity providers’ reliability. These
reviews, as described in the Framework,
would also include a credit analysis of
each liquidity provider. Further, the
Framework would describe annual
operational testing of the DTC and
NSCC committed credit facility, which
is conducted to confirm the lenders are
operationally able to perform their
commitments and are familiar with the
drawdown process, and would state that
each of the Clearing Agencies would
annually test borrowing of their
liquidity resources to confirm providers
are operationally able to perform their
commitments and are familiar with the
drawdown process. The due diligence
and testing required above are designed
to inform the Clearing Agencies to
confirm that they have a reasonable
basis to believe each of the liquidity
providers has sufficient information to
understand and manage the liquidity
provider’s liquidity risk and the
capacity to perform as required. In
addition, the due diligence and testing
are designed to maintain and check the
Clearing Agencies’ procedures and
operational capacity for accessing their
respective liquid resources. Therefore,
the Commission finds that the
Framework is consistent with Rules
17Ad–22(e)(7)(iv) and (v) under the
Act.54
Rule 17Ad–22(e)(7)(vi) under the Act
requires that a covered clearing agency
determine the amount and regularly test
the sufficiency of the liquid resources
held for purposes of meeting the
minimum liquid resource requirement
under Rule 17Ad–22(e)(7)(i) by, at a
minimum: (A) Conducting stress testing
of its liquid resources at least once each
day using standard and predetermined
parameters and assumptions; (B)
conducting a comprehensive analysis on
at least a monthly basis of the existing
stress testing scenarios, models, and
underlying parameters and assumptions
used in evaluating liquidity needs and
resources, and considering
modifications to ensure they are
appropriate for determining the clearing
agency’s identified liquidity needs and
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resources in light of current and
evolving market conditions; (C)
conducting a comprehensive analysis of
the scenarios, models, and underlying
parameters and assumptions used in
evaluating liquidity needs and resources
more frequently than monthly when the
products cleared or markets served
display high volatility or become less
liquid, when the size or concentration of
positions held by the clearing agency’s
participants increases significantly, or
in other appropriate circumstances
described in such policies and
procedures; and (D) reporting the results
of its analyses under Rule 17Ad–
22(e)(7)(vi)(B) and (C) to appropriate
decision makers at the covered clearing
agency, including but not limited to, its
risk management committee or board of
directors, and using these results to
evaluate the adequacy of and adjust its
liquidity risk management methodology,
model parameters, and any other
relevant aspects of its liquidity risk
management framework.55
As described above, the Framework
would describe how FICC and NSCC
would use the three types of stress
scenarios to test their daily liquidity to
ensure their liquidity resources are
sufficient to meet the obligations of their
largest Affiliated Family of Members.
For example, under a Level 3 Scenario,
FICC or NSCC could assume certain
standard and predetermined parameters
that are designed to be extreme but
plausible. The Framework would also
state that daily liquidity studies may be
performed for informational and
monitoring purposes using stress
scenarios that exceed the requirements
of Rule 17Ad–22(e)(7)(vi)(A).56
Furthermore, the Framework would
further describe the analysis and
escalation process for any liquidity
shortfalls that are identified through the
daily studies utilizing the Level 2 and
Level 3 Scenarios. The Framework
would also provide how liquidity stress
testing is comprehensively analyzed on
a weekly basis, and how these analyses
are escalated on at least a monthly basis
and used to evaluate the adequacy of the
qualifying liquid resources of FICC or
NSCC. Because the Framework is
designed to stress test the sufficiency of
the liquid resources daily, conduct a
comprehensive analysis of liquidity
stress testing on a weekly basis, and
report the results of such analysis to the
management committee responsible for
oversight of risk management matters,
the Commission finds that the
Framework concerning FICC and NSCC
55 17
56 17
CFR 240.17Ad–22(e)(7)(vi).
CFR 240.17Ad–22(e)(7)(vi)(A).
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is consistent with Rule 17Ad–
22(e)(7)(vi) under the Act.57
Rule 17Ad–22(e)(7)(vii) under the Act
requires that a covered clearing agency
perform a model validation of its
liquidity risk models not less than
annually or more frequently as may be
contemplated by the covered clearing
agency’s risk management framework
established pursuant to Rule 17Ad–
22(e)(3).58 The Framework would
describe how the Clearing Agencies’
liquidity risk models are subject to
independent model validations on at
least an annual basis. As such, the
Commission finds that the Framework is
consistent with Rule 17Ad–22(e)(7)(vii)
under the Act.59
Rule 17Ad–22(e)(7)(viii) under the
Act requires that a covered clearing
agency address foreseeable liquidity
shortfalls that would not be covered by
the covered clearing agency’s liquid
resources and seek to avoid unwinding,
revoking, or delaying the same-day
settlement of payment obligations.60 As
described above, the Framework would
describe how each of the Clearing
Agencies addresses foreseeable liquidity
shortfalls that would not be covered by
their existing liquid resources through,
for example, modification to its existing
liquid resources. Therefore, the
Commission finds that the Framework is
consistent with Rule 17Ad–22(e)(7)(viii)
under the Act.61
Rule 17Ad–22(e)(7)(ix) under the Act
requires that a covered clearing agency
describe the covered clearing agency’s
process to replenish any liquid
resources that the clearing agency may
employ during a stress event.62 The
Framework would describe how the
Clearing Agencies’ existing liquid
resources may be replenished in
accordance with the respective rules of
the Clearing Agencies. For example, the
Framework would describe how the
Clearing Agencies may use proceeds
that may be available from the
liquidation of a defaulting Member or
Participant’s portfolio (including the
sale of collateral used to secure a
borrowing) to repay liquidity
borrowings, thus replenishing the
relevant Clearing Agency’s liquid
resources. Therefore, the Commission
finds that the Framework is consistent
with Rule 17Ad–22(e)(7)(ix) under the
Act.63
57 17
CFR 240.17Ad–22(e)(7)(vi).
CFR 240.17Ad–22(e)(7)(vii) and 17 CFR
240.17Ad–22(e)(3).
59 17 CFR 240.17Ad–22(e)(7)(vii).
60 17 CFR 240.17Ad–22(e)(7)(viii).
61 Id.
62 17 CFR 240.17Ad–22(e)(7)(ix).
63 Id.
58 17
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61621
IV. Request for Written Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments concerning Amendment No.
6 to File Number SR–DTC–2017–004,
SR–NSCC–2017–005, or SR–FICC–
2017–008. In particular, the
Commission invites the written views of
interested persons concerning whether
Amendment No. 6 is consistent with
Section 17A(b)(3)(F) of the Act,64 Rule
17Ad–22(e)(7) under the Act,65 or any
other provision of the Act, rules, and
regulations thereunder. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2017–004, SR–NSCC–2017–005, or
SR–FICC–2017–008 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–DTC–2017–004, SR–NSCC–
2017–005, or SR–FICC–2017–008. One
of these file numbers should be
included on the subject line if email is
used. To help the Commission process
and review your comments more
efficiently, please use only one method.
The Commission will post all comments
on the Commission’s internet website
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to Amendment No. 6 that
are filed with the Commission, and all
written communications relating to
Amendment No. 6 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
filing also will be available for
inspection and copying at the principal
office of the Clearing Agencies, and on
DTCC’s website (https://dtcc.com/legal/
sec-rule-filings.aspx). All comments
received will be posted without change.
64 15
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sradovich on DSK3GMQ082PROD with NOTICES
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–2017–004, SR–NSCC–
2017–005, or SR–FICC–2017–008 and
should be submitted on or before
January 18, 2018. If comments are
received, any rebuttal comments should
be submitted on or before February 1,
2018.
V. Accelerated Approval of the
Amended Proposed Rule Changes
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,66 to approve the Amended
Proposed Rule Changes prior to the 30th
day after the date of publication of
Amendment No. 6 in the Federal
Register.
As discussed more fully above, the
Commission finds that the Framework
could help Clearing Agencies to
withstand the liquidity risks that arise
in or are borne by the Clearing Agencies,
and to continue their critical operations
and services, which helps to promote
the prompt and accurate clearance and
settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of
the Act.67 By maintaining liquidity
resources and monitoring sufficiency of
the available liquidity resources, the
Commission further finds that the
Framework is designed to help reduce
the possibility of the Clearing Agencies’
failure, as well as mitigate the risk of
financial loss contagion caused by the
Clearing Agencies’ failure. Therefore,
the Framework could help further
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).68
More specifically regarding
Amendment No. 6, the amendment
clarifies and modifies the Framework by
(1) providing more accurate descriptions
of DTC’s Collateral Monitor and Net
Debit Cap, (2) modifying and elaborating
on FICC and NSCC’s daily liquidity
stress testing to ensure that their
respective liquidity resources are
sufficient to meet the cash settlement
obligations of their respective largest
Affiliated Family of Members, and (3)
providing the analysis and escalation
process for liquidity shortfalls that are
identified through the daily testing with
respect to Level 2 and Level 3 Scenarios.
66 15
67 15
U.S.C. 78s(b)(2).
U.S.C. 78q–1(b)(3)(F).
68 Id.
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By providing more accurate
descriptions of DTC’s liquidity risk
management tools, Amendment No. 6
would help ensure that the DTC Rules
are transparent and clear, which would
help enable its Participants to better
identify and understand the risks they
incur by participating in DTC. In
addition, by providing additional detail
around FICC and NSCC’s daily liquidity
sufficiency testing, as well as the
analysis and escalation process for
liquidity shortfalls, Amendment No. 6
could help mitigate the risk that FICC
and NSCC would be unable to promptly
meet their settlement obligations due to
insufficient liquidity. By doing so, the
Commission finds that Amendment No.
6 could help FICC and NSCC to be in
a better position to withstand their
respective liquidity risks, thereby
promoting the prompt and accurate
clearance and settlement of securities,
consistent with Section 17A(b)(3)(F) of
the Act.69
Accordingly, the Commission finds
good cause for approving the Amended
Proposed Rule Changes on an
accelerated basis, pursuant to Section
19(b)(2) of the Act.70
VI. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule changes, as modified by
Amendment No. 1, 3, and 6 are
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 71 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule changes SR–DTC–2017–
004, SR–NSCC–2017–005, or SR–FICC–
2017–008 as modified by Amendment
Nos. 1, 3, and 6 be, and hereby are,
APPROVED on an accelerated basis.72
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.73
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2017–27997 Filed 12–27–17; 8:45 am]
BILLING CODE 8011–01–P
69 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78s(b)(2).
71 15 U.S.C. 78q–1.
72 In approving the Amended Proposed Rule
Changes, the Commission considered the proposals’
impact on efficiency, competition and capital
formation. 15 U.S.C. 78c(f).
73 17 CFR 200.30–3(a)(12).
70 15
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82391; File No. SR–
PEARL–2017–39]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend MIAX PEARL
Rule 510 To Extend the Penny Pilot
Program
December 22, 2017.
Pursuant to the provisions of 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 11, 2017, MIAX PEARL
LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 510,
Interpretations and Policies .01 to
extend the pilot program for the quoting
and trading of certain options in
pennies.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl, at MIAX PEARL’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
E:\FR\FM\28DEN1.SGM
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[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)]
[Notices]
[Pages 61617-61622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82377; File Nos. SR-DTC-2017-004; SR-NSCC-2017-005; SR-
FICC-2017-008]
Self-Regulatory Organizations; The Depository Trust Company;
National Securities Clearing Corporation; Fixed Income Clearing
Corporation; Notice of Filing of Amendment No. 4, Notice of Filing
Amendment No. 5, Notice of Filing Amendment No. 6, and Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by Amendment
Nos. 1, 3 and 6, To Adopt the Clearing Agency Liquidity Risk Management
Framework
December 21, 2017.
I. Introduction
On April 6, 2017, The Depository Trust Company (``DTC''), National
Securities Clearing Corporation (``NSCC''), and Fixed Income Clearing
Corporation (``FICC,'' each a ``Clearing Agency,'' and collectively,
the ``Clearing Agencies''), filed with the Securities and Exchange
Commission (``Commission'') proposed rule changes SR-DTC-2017-004, SR-
NSCC-2017-005, and SR-FICC-2017-008, 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.
---------------------------------------------------------------------------
On April 13, 2017, the Clearing Agencies each filed Amendment No. 1
to their respective proposed rule changes. Amendment No. 1 made
technical corrections to each Exhibit 5 of the proposed rule change
filings. The proposed rule changes, as modified in each instance by
Amendment No. 1, 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, as amended
in each instance by Amendment No. 1.\4\
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\3\ Securities Exchange Act Release No. 80489 (April 19, 2017),
82 FR 19120 (April 25, 2017) (SR-DTC-2017-004, SR-NSCC-2017-005, SR-
FICC-2017-008) (``Notice'').
\4\ Securities Exchange Act Release No. 80877 (June 7, 2017), 82
FR 27094 (June 13, 2017) (SR-DTC-2017-004, SR-NSCC-2017-005, SR-
FICC-2017-008).
---------------------------------------------------------------------------
On July 20, 2017, the Clearing Agencies each filed Amendment No. 2
to their respective proposed rule changes, as previously modified by
Amendment No. 1. On July 21, 2017, the Clearing Agencies each filed
Amendment No. 3 to their respective proposed rule changes to supersede
and replace Amendment No. 2 in its entirety, due to a technical defect
of Amendment No. 2. The proposed rule changes, as modified in each
instance by Amendment No. 3, were published for comment in the Federal
Register on July 28, 2017, and the Commission instituted proceedings
under Section 19(b)(2)(B) 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,
as modified by Amendment Nos. 1 and 3.\7\ The Commission did not
receive any comment letters on the proposed rule changes, as modified
by Amendment Nos. 1 and 3.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2)(B).
\6\ Securities Exchange Act Release No. 81194 (July 24, 2017),
82 FR 35241 (July 28, 2017) (SR-DTC-2017-004, SR-NSCC-2017-005, SR-
FICC-2017-008) (``Order Instituting Proceedings'').
\7\ Securities Exchange Act Release No. 81885 (October 20,
2017), 82 FR 48857 (October 20, 2017) (SR-DTC-2017-004, SR-NSCC-
2017-005, SR-FICC-2017-008).
---------------------------------------------------------------------------
On December 15, 2017, the Clearing Agencies each filed Amendment
No. 4 to their respective proposed rule changes, as discussed below. On
the same day, the Clearing Agencies each filed Amendment No. 5 to their
respective proposed rule changes to supersede and replace Amendment No.
4 in its entirety, due to technical errors of Amendment No. 4. On
December 18, 2017, Clearing Agencies each filed Amendment No. 6 to
their respective proposed rule changes to supersede and replace
Amendment No. 5 in its entirety. The Commission is publishing this
notice to solicit comments on Amendment No. 6 from interested persons
and is approving on an accelerated basis the proposed rule changes, as
modified by Amendment Nos. 1, 3, and 6 (hereinafter, ``Amended Proposed
Rule Changes'').
II. Description of the Proposed Rule Changes as Previously Modified by
Amendment Nos. 1 and 3, and Notice of Filing Amendment No. 6
A. Proposed Rule Changes as Previously Modified by Amendment Nos. 1 and
3
The Clearing Agencies propose to adopt the Clearing Agency
Liquidity Risk Management Framework (``Framework'') of the Clearing
Agencies. The Framework would outline the regulatory requirements that
would be applicable to each Clearing Agency with respect to liquidity
risk management, and would be owned and managed by the Liquidity
Product Risk Unit (``LPRU'') of DTCC.\8\
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\8\ The parent company of the Clearing Agencies is The
Depository Trust & Clearing Corporation (``DTCC''). DTCC operates on
a shared services model with respect to the Clearing Agencies. Most
corporate functions are established and managed on an enterprise-
wide basis pursuant to intercompany agreements under which it is
generally DTCC that provides a relevant service to a Clearing
Agency. Notice, 82 FR at 19121.
---------------------------------------------------------------------------
The Framework would, generally, set forth the Clearing Agencies'
liquidity resources and liquidity risk management practices, to include
measurement and monitoring of their respective liquidity risks.\9\ More
specifically, the Framework would describe FICC and NSCC's liquidity
risk management strategy and objectives, which are to maintain
sufficient liquid resources to meet the potential amount of funding
required to settle outstanding transactions of a defaulting Member, or
affiliated family (``Affiliated Family'') of Members, in a timely
manner.\10\ For DTC, the Framework would describe how DTC's liquidity
management strategy and controls are designed to maintain sufficient
available liquid resources to complete system-wide settlement on each
business day with a high degree of confidence, notwithstanding the
failure to settle of a Participant or Affiliated Family of
Participants.\11\ The Framework would also state that DTC operates on a
fully collateralized basis.\12\
---------------------------------------------------------------------------
\9\ Id.
\10\ FICC and NSCC refer to their participants as ``Members,''
while DTC refers to its participants as ``Participants.'' These
terms are defined in the respective rules of each of the Clearing
Agencies. Notice, 82 FR at 19121.
\11\ Id.
\12\ Id.
---------------------------------------------------------------------------
Although the Clearing Agencies would consider the Framework to be a
rule of each Clearing Agency, the proposed changes do not require any
changes to the Rules, By-laws and Organization Certificate of DTC
(``DTC Rules''), the FICC Government Securities Division (``GSD'')
Rulebook (``GSD Rules''), the FICC Mortgage-
[[Page 61618]]
Backed Securities Division (``MBSD'') Clearing Rules (``MBSD Rules''),
or the Rules & Procedures of NSCC (``NSCC Rules,'' and together with
the DTC Rules, GSD Rules, and MBSD Rules, ``Rules''), as the Framework
would be a standalone document.\13\
---------------------------------------------------------------------------
\13\ Rules, available at https://www.dtcc.com/en/legal/rules-and-procedures.
---------------------------------------------------------------------------
1. Liquidity Resources
The Framework would address how each of the Clearing Agencies meets
its requirement to hold qualifying liquid resources, as defined by Rule
17Ad-22(a)(14) under the Act,\14\ sufficient to meet its minimum
liquidity resource requirement in each relevant currency for which it
has payment obligations owed to its Members or Participants, as
applicable.\15\ The Framework would identify each of the qualifying
liquid resources available to each Clearing Agency. Such qualifying
liquid resources include, for example, (1) deposits to the Clearing
Agencies' respective Clearing Funds, or, for DTC, its Participants
Fund, made by Members or Participants pursuant to the respective rules;
\16\ (2) for DTC and NSCC, an annual committed credit facility; \17\
(3) for NSCC, its Members' Supplemental Liquidity Deposits; \18\ and
(4) for GSD and MBSD, a rule-based Capped Contingency Liquidity
Facility (``CCLF'') program.\19\ The Framework would also state that
the Clearing Agencies may have access to other available resources that
may not meet the definition of qualifying liquid resources.\20\
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(a)(14).
\15\ Notice, 82 FR at 19121.
\16\ DTC Rule 4 (Participants Fund and Participants Investment),
GSD Rule 4 (Clearing Fund and Loss Allocation), MBSD Rule 4
(Clearing Fund and Loss Allocation), NSCC Rule 4 (Clearing Fund).
Rules, supra note 13.
\17\ See Securities Exchange Act Release No. 77750 (April 29,
2016), 81 FR 27181 (May 5, 2016) (SR-DTC-2016-801, SR-NSCC-2016-
801). Notice, 82 FR at 19121.
\18\ NSCC Rule 4A (Supplemental Liquidity Deposits). Rules,
supra note 13.
\19\ MBSD Rule 17, Section 2a (Procedures for When the
Corporation Ceases to Act). Rules, supra note 13.
\20\ Notice, 82 FR at 19121.
---------------------------------------------------------------------------
2. Liquidity Measurement and Monitoring
The Framework would describe the manner in which FICC and NSCC
measure and monitor the sufficiency of their respective qualifying
liquid resources through daily liquidity studies that consider certain
risk scenarios. The scenarios are designed to measure the sufficiency
of their available qualifying liquid resources to meet the cash
settlement obligations of their respective largest Affiliated Family of
Members in a number of stressed conditions, including extreme but
plausible scenarios applied under severely adverse market conditions
that could coincide with the default of a Member.\21\ The Framework
would provide three types of scenarios: (1) Normal market scenarios, as
a baseline reference point to assess other stress assumptions; (2)
scenarios designed to meet the requirements set forth in Rule 17Ad-
22(e)(7)(i) under the Act; and (3) scenarios designed to meet the
requirements set forth in Rule 17Ad-22(e)(7)(vi) under the Act.\22\ The
Framework would describe the manner in which the scenarios are
developed and selected for testing.\23\ The Framework would also
describe how liquidity stress testing results are escalated to Clearing
Agency management on at least a monthly basis, and how these results
are used to evaluate the adequacy of the liquidity resources of FICC
and NSCC.\24\
---------------------------------------------------------------------------
\21\ Notice, 82 FR at 19121 and 19123.
\22\ Order Instituting Proceedings, 82 FR at 35242.
\23\ Notice, 82 FR at 19121.
\24\ Id.
---------------------------------------------------------------------------
With respect to DTC's measurement of the sufficiency of its
liquidity resources, the Framework would set forth that the Collateral
Monitor and the Net Debit Cap \25\ limit DTC's liquidity exposure and,
thus, DTC's liquidity requirement in default scenarios.\26\ The
Framework would describe how the Collateral Monitor and the Net Debit
Cap enable DTC to regularly test the sufficiency of its liquid
resources on an intraday and end-of-day basis and adjust to stressed
circumstances during a settlement day to protect DTC and its
Participants against liquidity exposure under normal and stressed
market conditions.\27\
---------------------------------------------------------------------------
\25\ ``Collateral Monitor'' and ``Net Debit Cap'' are defined in
DTC Rule 1, Section 1 (Definitions), and their calculations are
further provided for in the DTC Settlement Service Guide of the DTC
Rules. Rules, supra note 13.
\26\ Notice, 82 FR at 19121.
\27\ Id.
---------------------------------------------------------------------------
The Framework would describe how the Clearing Agencies review the
limits of outstanding investments and collateral held (if applicable)
by each Clearing Agency's investment counterparties, and conduct formal
reviews of the reliability of their liquidity providers in extreme but
plausible market conditions.\28\ The Framework would further describe
how the Clearing Agencies undertake due diligence with respect to their
liquidity providers and conduct a credit analysis of each liquidity
provider, and how NSCC and DTC conduct operational testing with their
committed credit facility lenders at least annually.\29\
---------------------------------------------------------------------------
\28\ Id.
\29\ Notice, 82 FR at 19121 and 19123.
---------------------------------------------------------------------------
The Framework would describe how the Clearing Agencies would
address foreseeable liquidity shortfalls that would not be covered by
their existing liquid resources.\30\ For example, DTC would address a
foreseeable, same-day liquidity shortfall through adjustments to the
Net Debit Cap reductions, as provided under the DTC Rules.\31\ In
addition, the Framework would describe how the Clearing Agencies'
existing qualifying liquid resources may be replenished in accordance
with the respective rules of the Clearing Agencies.\32\ For example,
the Framework would describe how the Clearing Agencies may use proceeds
that may be available from the liquidation of a defaulting
participant's portfolio (including the sale of collateral used to
secure a borrowing) to repay liquidity borrowings, thus replenishing
the relevant Clearing Agency's liquid resources.\33\
---------------------------------------------------------------------------
\30\ Id.
\31\ Notice, 82 FR at 19123.
\32\ Notice, 82 FR at 19121 and 19123.
\33\ Notice, 82 FR at 19123.
---------------------------------------------------------------------------
The Framework would state that the Clearing Agencies' liquidity
risk models are subject to independent model validation on at least an
annual basis.\34\ The Framework would describe the manner in which the
liquidity risks of the Clearing Agencies are assessed and escalated
through liquidity risk management controls that include a statement of
risk tolerances that are specific to liquidity risk (``Liquidity Risk
Tolerance Statement''), and an operational risk profile of LPRU, which
contains consolidated risk and control data.\35\ Finally, the Framework
would state that the Liquidity Risk Tolerance Statement is reviewed by
management within the LPRU annually, and is escalated to the Risk
Committee of the Board of Executives of each Clearing Agency for review
and approval at least annually.\36\
---------------------------------------------------------------------------
\34\ Id.
\35\ Notice, 82 FR at 19121-19122.
\36\ Notice, 82 FR at 19122.
---------------------------------------------------------------------------
B. Notice of Filing of Amendment No. 6
Amendment No. 6, which supersedes and replaces Amendment Nos. 4 and
5, added additional detail and clarity to the proposal, as well as
making some technical corrections. Specifically, Amendment No. 6
clarifies that DTC's structural features, including the Collateral
Monitor, Net Debit Cap, and Participants Fund enable it to maintain
sufficient qualifying liquid resources by limiting the liquidity
requirements in
[[Page 61619]]
default scenarios. Similarly, in order to more accurately describe
DTC's current practices with respect to the Collateral Monitor and Net
Debit Cap, Amendment No. 6 deletes a description in the proposal
stating that the Collateral Monitor and the Net Debit Cap enable DTC to
regularly test the sufficiency of its liquid resources on an intraday
and end-of-day basis and adjust to stressed circumstances during a
settlement day to protect DTC and its Participants against liquidity
exposure under normal and stressed market conditions.
Amendment No. 6 revises the Framework to (1) update the citation of
the proposed rule change filing regarding FICC GSD's CCLF program,
which was approved by the Commission on November 15, 2017, and (2)
state that FICC GSD's CCLF program will become a qualifying liquid
resource of FICC GSD on November 15, 2018.\37\
---------------------------------------------------------------------------
\37\ MBSD Rule 17, Section 2a (Procedures for When the
Corporation Ceases to Act). Rules, supra note 13. See Securities
Exchange Act Release Nos. 82090 (November 15, 2017), 82 FR 55427
(November 21, 2017) (SR-FICC-2017-002); 81054 (June 29, 2017), 82 FR
31356 (July 6, 2017) (SR-FICC-2017-802).
---------------------------------------------------------------------------
Amendment No. 6 also modifies and elaborates FICC and NSCC's
liquidity sufficiency testing that is performed daily with respect to
three types of scenarios: (1) Normal market scenarios, as a baseline
reference point to assess other stress assumptions, (2) scenarios
designed to meet the requirements set forth in Rule 17Ad-22(e)(7)(i)
\38\ under the Act (``Level 2 Scenarios''), and (3) scenarios designed
to meet the requirements set forth in Rule 17Ad-22(e)(7)(vi)(A) \39\
under the Act (``Level 3 Scenarios''). The Framework is further
modified by Amendment No. 6 to state that daily liquidity studies may
also be performed for informational and monitoring purposes using
stress scenarios that exceed the requirements of Rule 17Ad-
22(e)(7)(vi)(A) under the Act.\40\
---------------------------------------------------------------------------
\38\ 17 CFR 240.17Ad-22(e)(7)(i).
\39\ 17 CFR 240.17Ad-22(e)(7)(vi)(A).
\40\ Id.
---------------------------------------------------------------------------
Amendment No. 6 also modifies the Framework to describe the purpose
of the three types of stress scenario described above. Specifically,
Amendment No. 6 revised the Framework to state that Level 2 Scenarios
assume a wide range of foreseeable stress scenarios that include, but
are not limited to, the default of the Affiliated Family of Members
that would generate the largest aggregate payment obligation for the
FICC or NSCC in extreme but plausible market conditions. In this way,
the Framework would state that these daily liquidity studies are
designed to meet the requirements of Rule 17Ad-22(e)(7)(i) under the
Act.\41\ Meanwhile, Amendment No. 6 further revised the Framework to
state that Level 3 Scenarios assume certain standard and predetermined
parameters which are designed to be extreme but plausible and meet the
requirements set forth in Rule 17Ad-22(e)(7)(vi)(A) under the Act.\42\
---------------------------------------------------------------------------
\41\ 17 CFR 240.17Ad-22(e)(7)(i).
\42\ 17 CFR 240.17Ad-22(e)(7)(vi)(A).
---------------------------------------------------------------------------
Amendment No. 6 also revises the Framework to provide the analysis
and escalation process for any liquidity shortfalls that are identified
through the daily studies utilizing the Level 2 and Level 3 Scenarios.
Amendment No. 6 modifies the Framework to describe how the liquidity
stress testing is regularly reviewed and analyzed, including an
evaluation of the appropriateness of existing scenarios, and would also
describe how these analyses are escalated on at least a monthly basis.
The Framework is further revised by Amendment No. 6 to state that
liquidity stress testing is comprehensively analyzed on a weekly basis,
and how the results of the analysis are escalated on a monthly basis
and used to evaluate the adequacy of the qualifying liquid resources of
FICC or NSCC. Amendment No. 6 also modifies the Framework to describe
the manner in which Level 2 and Level 3 scenarios are developed and
selected for testing.
Furthermore, Amendment No. 6 revises the Framework to state that
the Clearing Agencies may have access to other available resources that
do not meet the definition of qualifying liquid resources. Amendment
No. 6 also revises the Framework to state that each of the Clearing
Agencies would annually test borrowing of their liquidity resources to
confirm providers are operationally able to perform their commitments
and are familiar with the drawdown process.
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.\43\ After carefully considering the Amended Proposed Rule
Changes, the Commission finds that the Amended Proposed Rule Changes
are consistent with the requirements of the Act and the rules and
regulations thereunder applicable to the Clearing Agencies.
Specifically, the Commission finds that the Amended Proposed Rule
Changes are consistent with Section 17A(b)(3)(F) of the Act \44\ and
Rule 17Ad-22(e)(7) under the Act.\45\
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(2)(C).
\44\ 15 U.S.C. 78q-1(b)(3)(F).
\45\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------
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 the prompt and
accurate clearance and settlement of securities transactions, and to
assure the safeguarding of securities and funds which are in the
custody or control of the Clearing Agencies or for which they are
responsible.\46\ As described above, the Framework would set forth the
Clearing Agencies' liquidity risk management strategy and objectives,
which are to maintain sufficient liquid resources (1) in the case of
FICC and NSCC, to meet the potential amount of funding required to
settle outstanding transactions of a defaulting Member, or Affiliated
Family of Members, in a timely manner, or (2) in the case of DTC, to
complete system-wide settlement on each business day with a high degree
of confidence, notwithstanding the failure to settle of a Participant
or Affiliated Family of Participants.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The Framework would address how each Clearing Agency holds liquid
resources to effect the cash settlement obligations of their largest
Affiliated Family of Members or Participants. In order to do so, the
Framework would identify each of the liquid resources available to each
Clearing Agency. In addition, the Framework would describe how each
Clearing Agency measures and monitors the sufficiency of its liquid
resources to meet its obligation across a range of stress scenarios.
The Framework would provide how the Clearing Agencies conduct reviews
of the reliability of their liquidity providers, how the Clearing
Agencies would address foreseeable liquidity shortfalls, and how the
Clearing Agencies would replenish their liquid resources. The Framework
also would describe how liquidity risks to each Clearing Agency are
assessed and escalated through liquidity risk management controls.
By providing for the maintenance and monitoring of each Clearing
Agency's liquidity resources, the Framework helps position the Clearing
Agencies to better withstand the liquidity risks that
[[Page 61620]]
arise in or are borne by them and to be better positioned to continue
their critical operations and services. In turn, such improved
positioning in these areas could help promote the prompt and accurate
clearance and settlement of securities transactions by the Clearing
Agencies and reduce the possibility of the Clearing Agencies' failure,
which could help mitigate the risk of financial loss contagion that
could be caused by such a failure. With such aims, the Framework could
help further assure the safeguarding of securities and funds which are
in the custody or control of the Clearing Agencies, or for which they
are responsible. Accordingly, the Commission finds that the Amended
Proposed Rule Changes are consistent with the requirements of Section
17A(b)(3)(F) of the Act.\47\
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Section 17Ad-22(e)(7)(i), (ii), (iv), (v), (vi),
(vii), (viii), and (ix)
Rule 17Ad-22(e)(7) under the Act requires that each covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to, among other things
effectively measure, monitor, and manage the liquidity risks that arise
in or are borne by the covered clearing agency, including measuring,
monitoring, and managing its settlement and funding flows on an ongoing
and timely basis, and its use of intraday liquidity.\48\ Specifically,
Rule 17Ad-22(e)(7)(i) under the Act requires each covered clearing
agency to maintain sufficient liquid resources at the minimum in all
relevant currencies to effect same-day and, where appropriate, intraday
and multiday settlement of payment obligations with a high degree of
confidence under a wide range of foreseeable stress scenarios that
includes, but is not limited to, the default of the participant family
that would generate the largest aggregate payment obligation for the
covered clearing agency in extreme but plausible market conditions.\49\
Meanwhile, Rule 17Ad-22(e)(7)(ii) under the Act requires each covered
clearing agency to hold qualifying liquid resources to meet the minimum
liquidity resource requirement under Rule 17Ad-22(e)(7)(i) in each
relevant currency for which the covered clearing agency has payment
obligations owed to clearing members.\50\
---------------------------------------------------------------------------
\48\ 17 CFR 240.17Ad-22(e)(7).
\49\ 17 CFR 240.17Ad-22(e)(7)(i).
\50\ 17 CFR 240.17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------
The Framework would provide that FICC and NSCC maintain liquid
resources sufficient to meet the potential amount of funding required
to settle outstanding transactions of a defaulting Member or Affiliated
Family of Members in a timely manner. The Framework would further
provide that DTC maintain sufficient available liquidity resources to
complete system-wide settlement on each business day, with a high
degree of confidence and notwithstanding the failure to settle of the
Participant or Affiliated Family of Participants with the largest
settlement obligation. The Framework would also describe how FICC and
NSCC perform daily liquidity studies, which are designed to measure the
sufficiency of their available liquid resources to meet the cash
settlement obligations of their largest Affiliated Family of Members in
a number of stress conditions including extreme but plausible scenarios
applied under severely adverse market conditions that could coincide
with the default of a participant.
Furthermore, the Framework would provide that the Clearing Agencies
hold qualifying liquid resources sufficient to meet their minimum
liquidity resource requirement and identify each of the qualifying
liquid resources available to each Clearing Agency, which include (1)
deposits to the Clearing Agencies' respective Clearing Funds, or, for
DTC, its Participants Fund, made by Members or Participants pursuant to
the respective rules; (2) for DTC and NSCC, an annual committed credit
facility; (3) for NSCC, its Members' Supplemental Liquidity Deposits;
and (4) for GSD and MBSD, their respective rule-based CCLF program. As
such, the Commission finds that the Framework is consistent with Rule
17Ad-22(e)(7)(i) and (ii).\51\
---------------------------------------------------------------------------
\51\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(iv) under the Act requires that a covered
clearing agency undertake due diligence to confirm that it has a
reasonable basis to believe each of its liquidity providers, whether or
not such liquidity provider is a clearing member, has (A) sufficient
information to understand and manage the liquidity provider's liquidity
risks; and (B) the capacity to perform as required under its
commitments to provide liquidity to the covered clearing agency.\52\
Further, Rule 17Ad-22(e)(7)(v) under the Act requires that a covered
clearing agency maintain and test with each liquidity provider, to the
extent practicable, the covered clearing agency's procedures and
operational capacity for accessing each type of relevant liquid
resource under Rule 17Ad-22(e)(7)(i) at least annually.\53\
---------------------------------------------------------------------------
\52\ 17 CFR 240.17Ad-22(e)(7)(iv).
\53\ 17 CFR 240.17Ad-22(e)(7)(v).
---------------------------------------------------------------------------
The Framework would describe how the Clearing Agencies undertake
due diligence with respect to their liquidity providers, and conduct
testing with those providers at least annually. The Framework would
describe how the Clearing Agencies review the limits of outstanding
investments and collateral held of each Clearing Agency's investment
counterparties, and conduct formal reviews of the reliability of their
liquidity providers in extreme but plausible market conditions to test
the liquidity providers' reliability. These reviews, as described in
the Framework, would also include a credit analysis of each liquidity
provider. Further, the Framework would describe annual operational
testing of the DTC and NSCC committed credit facility, which is
conducted to confirm the lenders are operationally able to perform
their commitments and are familiar with the drawdown process, and would
state that each of the Clearing Agencies would annually test borrowing
of their liquidity resources to confirm providers are operationally
able to perform their commitments and are familiar with the drawdown
process. The due diligence and testing required above are designed to
inform the Clearing Agencies to confirm that they have a reasonable
basis to believe each of the liquidity providers has sufficient
information to understand and manage the liquidity provider's liquidity
risk and the capacity to perform as required. In addition, the due
diligence and testing are designed to maintain and check the Clearing
Agencies' procedures and operational capacity for accessing their
respective liquid resources. Therefore, the Commission finds that the
Framework is consistent with Rules 17Ad-22(e)(7)(iv) and (v) under the
Act.\54\
---------------------------------------------------------------------------
\54\ 17 CFR 240.17Ad-22(e)(7)(iv) and (v).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(vi) under the Act requires that a covered
clearing agency determine the amount and regularly test the sufficiency
of the liquid resources held for purposes of meeting the minimum liquid
resource requirement under Rule 17Ad-22(e)(7)(i) by, at a minimum: (A)
Conducting stress testing of its liquid resources at least once each
day using standard and predetermined parameters and assumptions; (B)
conducting a comprehensive analysis on at least a monthly basis of the
existing stress testing scenarios, models, and underlying parameters
and assumptions used in evaluating liquidity needs and resources, and
considering modifications to ensure they are appropriate for
determining the clearing agency's identified liquidity needs and
[[Page 61621]]
resources in light of current and evolving market conditions; (C)
conducting a comprehensive analysis of the scenarios, models, and
underlying parameters and assumptions used in evaluating liquidity
needs and resources more frequently than monthly when the products
cleared or markets served display high volatility or become less
liquid, when the size or concentration of positions held by the
clearing agency's participants increases significantly, or in other
appropriate circumstances described in such policies and procedures;
and (D) reporting the results of its analyses under Rule 17Ad-
22(e)(7)(vi)(B) and (C) to appropriate decision makers at the covered
clearing agency, including but not limited to, its risk management
committee or board of directors, and using these results to evaluate
the adequacy of and adjust its liquidity risk management methodology,
model parameters, and any other relevant aspects of its liquidity risk
management framework.\55\
---------------------------------------------------------------------------
\55\ 17 CFR 240.17Ad-22(e)(7)(vi).
---------------------------------------------------------------------------
As described above, the Framework would describe how FICC and NSCC
would use the three types of stress scenarios to test their daily
liquidity to ensure their liquidity resources are sufficient to meet
the obligations of their largest Affiliated Family of Members. For
example, under a Level 3 Scenario, FICC or NSCC could assume certain
standard and predetermined parameters that are designed to be extreme
but plausible. The Framework would also state that daily liquidity
studies may be performed for informational and monitoring purposes
using stress scenarios that exceed the requirements of Rule 17Ad-
22(e)(7)(vi)(A).\56\ Furthermore, the Framework would further describe
the analysis and escalation process for any liquidity shortfalls that
are identified through the daily studies utilizing the Level 2 and
Level 3 Scenarios. The Framework would also provide how liquidity
stress testing is comprehensively analyzed on a weekly basis, and how
these analyses are escalated on at least a monthly basis and used to
evaluate the adequacy of the qualifying liquid resources of FICC or
NSCC. Because the Framework is designed to stress test the sufficiency
of the liquid resources daily, conduct a comprehensive analysis of
liquidity stress testing on a weekly basis, and report the results of
such analysis to the management committee responsible for oversight of
risk management matters, the Commission finds that the Framework
concerning FICC and NSCC is consistent with Rule 17Ad-22(e)(7)(vi)
under the Act.\57\
---------------------------------------------------------------------------
\56\ 17 CFR 240.17Ad-22(e)(7)(vi)(A).
\57\ 17 CFR 240.17Ad-22(e)(7)(vi).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(vii) under the Act requires that a covered
clearing agency perform a model validation of its liquidity risk models
not less than annually or more frequently as may be contemplated by the
covered clearing agency's risk management framework established
pursuant to Rule 17Ad-22(e)(3).\58\ The Framework would describe how
the Clearing Agencies' liquidity risk models are subject to independent
model validations on at least an annual basis. As such, the Commission
finds that the Framework is consistent with Rule 17Ad-22(e)(7)(vii)
under the Act.\59\
---------------------------------------------------------------------------
\58\ 17 CFR 240.17Ad-22(e)(7)(vii) and 17 CFR 240.17Ad-22(e)(3).
\59\ 17 CFR 240.17Ad-22(e)(7)(vii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(viii) under the Act requires that a covered
clearing agency address foreseeable liquidity shortfalls that would not
be covered by the covered clearing agency's liquid resources and seek
to avoid unwinding, revoking, or delaying the same-day settlement of
payment obligations.\60\ As described above, the Framework would
describe how each of the Clearing Agencies addresses foreseeable
liquidity shortfalls that would not be covered by their existing liquid
resources through, for example, modification to its existing liquid
resources. Therefore, the Commission finds that the Framework is
consistent with Rule 17Ad-22(e)(7)(viii) under the Act.\61\
---------------------------------------------------------------------------
\60\ 17 CFR 240.17Ad-22(e)(7)(viii).
\61\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(ix) under the Act requires that a covered
clearing agency describe the covered clearing agency's process to
replenish any liquid resources that the clearing agency may employ
during a stress event.\62\ The Framework would describe how the
Clearing Agencies' existing liquid resources may be replenished in
accordance with the respective rules of the Clearing Agencies. For
example, the Framework would describe how the Clearing Agencies may use
proceeds that may be available from the liquidation of a defaulting
Member or Participant's portfolio (including the sale of collateral
used to secure a borrowing) to repay liquidity borrowings, thus
replenishing the relevant Clearing Agency's liquid resources.
Therefore, the Commission finds that the Framework is consistent with
Rule 17Ad-22(e)(7)(ix) under the Act.\63\
---------------------------------------------------------------------------
\62\ 17 CFR 240.17Ad-22(e)(7)(ix).
\63\ Id.
---------------------------------------------------------------------------
IV. Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments concerning Amendment
No. 6 to File Number SR-DTC-2017-004, SR-NSCC-2017-005, or SR-FICC-
2017-008. In particular, the Commission invites the written views of
interested persons concerning whether Amendment No. 6 is consistent
with Section 17A(b)(3)(F) of the Act,\64\ Rule 17Ad-22(e)(7) under the
Act,\65\ or any other provision of the Act, rules, and regulations
thereunder. Comments may be submitted by any of the following methods:
---------------------------------------------------------------------------
\64\ 15 U.S.C. 78q-1(b)(3)(F).
\65\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------
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-2017-004, SR-NSCC-2017-005, or SR-FICC-2017-008 on
the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-DTC-2017-004, SR-NSCC-
2017-005, or SR-FICC-2017-008. One of these file numbers should be
included on the subject line if email is used. To help the Commission
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (https://www.sec.gov/rules/sro.shtml). Copies of the
submission, all subsequent amendments, all written statements with
respect to Amendment No. 6 that are filed with the Commission, and all
written communications relating to Amendment No. 6 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 filing also will be available for inspection and copying at the
principal office of the Clearing Agencies, and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change.
[[Page 61622]]
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-2017-004, SR-NSCC-2017-
005, or SR-FICC-2017-008 and should be submitted on or before January
18, 2018. If comments are received, any rebuttal comments should be
submitted on or before February 1, 2018.
V. Accelerated Approval of the Amended Proposed Rule Changes
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\66\ to approve the Amended Proposed Rule Changes prior to the
30th day after the date of publication of Amendment No. 6 in the
Federal Register.
---------------------------------------------------------------------------
\66\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
As discussed more fully above, the Commission finds that the
Framework could help Clearing Agencies to withstand the liquidity risks
that arise in or are borne by the Clearing Agencies, and to continue
their critical operations and services, which helps to promote the
prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\67\ By
maintaining liquidity resources and monitoring sufficiency of the
available liquidity resources, the Commission further finds that the
Framework is designed to help reduce the possibility of the Clearing
Agencies' failure, as well as mitigate the risk of financial loss
contagion caused by the Clearing Agencies' failure. Therefore, the
Framework could help further 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).\68\
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78q-1(b)(3)(F).
\68\ Id.
---------------------------------------------------------------------------
More specifically regarding Amendment No. 6, the amendment
clarifies and modifies the Framework by (1) providing more accurate
descriptions of DTC's Collateral Monitor and Net Debit Cap, (2)
modifying and elaborating on FICC and NSCC's daily liquidity stress
testing to ensure that their respective liquidity resources are
sufficient to meet the cash settlement obligations of their respective
largest Affiliated Family of Members, and (3) providing the analysis
and escalation process for liquidity shortfalls that are identified
through the daily testing with respect to Level 2 and Level 3
Scenarios.
By providing more accurate descriptions of DTC's liquidity risk
management tools, Amendment No. 6 would help ensure that the DTC Rules
are transparent and clear, which would help enable its Participants to
better identify and understand the risks they incur by participating in
DTC. In addition, by providing additional detail around FICC and NSCC's
daily liquidity sufficiency testing, as well as the analysis and
escalation process for liquidity shortfalls, Amendment No. 6 could help
mitigate the risk that FICC and NSCC would be unable to promptly meet
their settlement obligations due to insufficient liquidity. By doing
so, the Commission finds that Amendment No. 6 could help FICC and NSCC
to be in a better position to withstand their respective liquidity
risks, thereby promoting the prompt and accurate clearance and
settlement of securities, consistent with Section 17A(b)(3)(F) of the
Act.\69\
---------------------------------------------------------------------------
\69\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Accordingly, the Commission finds good cause for approving the
Amended Proposed Rule Changes on an accelerated basis, pursuant to
Section 19(b)(2) of the Act.\70\
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule changes, as modified by Amendment No. 1, 3, and 6 are
consistent with the requirements of the Act and in particular with the
requirements of Section 17A of the Act \71\ and the rules and
regulations thereunder.
---------------------------------------------------------------------------
\71\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule changes SR-DTC-2017-004, SR-NSCC-2017-005, or
SR-FICC-2017-008 as modified by Amendment Nos. 1, 3, and 6 be, and
hereby are, APPROVED on an accelerated basis.\72\
---------------------------------------------------------------------------
\72\ In approving the Amended Proposed Rule Changes, the
Commission considered the proposals' impact on efficiency,
competition and capital formation. 15 U.S.C. 78c(f).
\73\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2017-27997 Filed 12-27-17; 8:45 am]
BILLING CODE 8011-01-P