Self-Regulatory Organizations; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Loss Allocation Rules and Make Other Changes, 12968-12970 [2018-06016]
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12968
Federal Register / Vol. 83, No. 58 / Monday, March 26, 2018 / Notices
For the reasons discussed above, the
Commission finds that ISE’s proposal is
consistent with the Act, including
Section 6(b)(5) thereof, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market, and, in general, to protect
investors and the public interest. In
light of the enhanced closing procedures
at the underlying markets and the
potential benefits to investors discussed
by the Exchange in the Notice,19 the
Commission finds that it is appropriate
and consistent with the Act to approve
ISE’s proposal on a pilot basis. The
collection of data during the Pilot
Program and ISE’s active monitoring of
any effects of NQX options on the
markets will help ISE and the
Commission assess any impact of P.M.
settlement in today’s market.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,20 that the
proposed rule change (SR–ISE–2017–
106), as modified by Amendment No. 1,
be, and hereby is, approved, subject to
a pilot period set to expire on the earlier
of: (1) Twelve months following the date
of the first listing of the options; or (2)
June 30, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–06017 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82910; File No. SR–NSCC–
2017–018]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Amend the Loss
Allocation Rules and Make Other
Changes
March 20, 2018.
I. Introduction
On December 18, 2017, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
proposed rule change SR–NSCC–2017–
018 to amend the loss allocation rules
and make other changes (‘‘Proposed
Rule Change’’).3 The Proposed Rule
Change was published for comment in
the Federal Register on January 8,
2018.4 The Commission did not receive
any comments on the Proposed Rule
Change. On February 8, 2018, pursuant
to Section 19(b)(2)(A)(ii)(I) of the Act,5
the Commission designated a longer
period within which to approve,
disapprove, or institute proceedings to
determine whether to approve or
disapprove the Proposed Rule Change.6
This order institutes proceedings,
pursuant to Section 19(b)(2)(B) of the
Act,7 to determine whether to approve
or disapprove the Proposed Rule
Change.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 On December 18, 2017, NSCC filed this proposal
as an advance notice (SR–NSCC–2017–806) with
the Commission pursuant to Section 806(e)(1) of the
Payment, Clearing, and Settlement Supervision Act
of 2010 (‘‘Clearing Supervision Act’’) and Rule 19b–
4(n)(1)(i) of the Act (‘‘Advance Notice’’). On January
24, 2018, the Commission extended the review
period of the Advance Notice for an additional 60
days pursuant to Section 806(e)(1)(H) of the
Clearing Supervision Act. See 12 U.S.C. 5465(e)(1);
17 CFR 240.19b–4(n)(1)(i); 12 U.S.C. 5465(e)(1)(H);
and Securities Exchange Act Release No. 82584
(January 24, 2018), 83 FR 4377 (January 30, 2018)
(SR–NSCC–2017–806).
4 Securities Exchange Act Release No. 82428
(January 2, 2018), 83 FR 897 (January 8, 2018) (SR–
NSCC–2017–018) (‘‘Notice’’).
5 15 U.S.C. 78s(b)(2)(A)(ii)(I).
6 Securities Exchange Act Release No. 82670
(February 8, 2018), 83 FR 6626 (February 14, 2018)
(SR–DTC–2017–022; SR–FICC–2017–022; SR–
NSCC–2017–018).
7 15 U.S.C. 78s(b)(2)(B).
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2 17
to information through its membership in the
Intermarket Surveillance Group with respect to the
trading of the securities underlying the NQX, as
well as tools such as large options positions reports
to assist its surveillance of NQX options. In
approving the proposed rule change, the
Commission also has relied upon the Exchange’s
representation that it has the necessary systems
capacity to support new options series that will
result from this proposal. See id.
19 See id.
20 15 U.S.C. 78s(b)(2).
21 17 CFR 200.30–3(a)(12).
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II. Summary of the Proposed Rule
Change 8
As described in the Notice,9 NSCC
proposes to revise its Rules and
Procedures to primarily change (i) the
loss allocation process,10 (ii) the loss
allocation governance for Declared NonDefault Loss Events,11 and (iii) the
retention time for the Actual Deposit of
former members.12
A. Loss Allocation Process
NSCC states that it would retain the
current core loss allocation process.13
However, NSCC proposes to revise
certain elements and introduce certain
new loss allocation concepts, by making
five key changes to its loss allocation
process.
First, NSCC proposes to replace the
calculation of its corporate contribution
from no less than 25 percent of its
retained earnings or such higher amount
as the Board of Directors shall
determine to a defined Corporate
Contribution.14 The proposed Corporate
Contribution would be defined as an
amount equal to 50 percent of NSCC’s
General Business Risk Capital
Requirement.15 NSCC’s General
Business Risk Capital Requirement is, at
a minimum, equal to the regulatory
capital that NSCC is required to
maintain in compliance with Rule
17Ad–22(e)(15) under the Act.16 In
addition, NSCC proposes to mandatorily
apply Corporate Contribution (i) prior to
a loss allocation among Members, and
(ii) to losses arising from both
Defaulting Member Events and Declared
Non-Default Loss Events.17
Second, NSCC proposes to introduce
an Event Period to address the
allocation of losses and liabilities that
may arise from or relate to multiple
8 The Commission notes that the Summary of the
Proposed Rule Change section does not describe the
Proposed Rule Change in its entirety. Other changes
include, but are not limited to, the clarification of
defined terms, various aspects of the Clearing Fund
application, and detailed procedures of the loss
allocation. The complete Proposed Rule Change can
be found in the Notice. See Notice, supra note 4.
In addition, the text of the Proposed Rule Change
is available at https://www.dtcc.com/legal/rules-andprocedures.aspx.
9 The description of the Proposed Rule Change
herein is based on the statements prepared by NSCC
in the Notice. See Notice, supra note 4. Each
capitalized term not otherwise defined herein has
its respective meaning either (i) as set forth in the
Rules and Procedures of NSCC, available at https://
www.dtcc.com/legal/rules-and-procedures.aspx, or
(ii) as set forth in the Notice.
10 See Notice, supra note 4, at 898–901.
11 See id. at 901.
12 See id. at 901–02.
13 Id. at 898.
14 Id.
15 Id.
16 Id.; 17 CFR 240.17Ad–22(e)(15).
17 Notice, supra note 4, at 898.
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Defaulting Member Events, Declared
Non-Default Loss Events, or both that
arise in quick succession.18 The
proposal would group together
Defaulting Member Events and Declared
Non-Default Loss Events occurring in a
period of 10 business days for purposes
of allocating losses to Members in one
or more rounds, subject to the
limitations of loss allocation in the
Proposed Rule Change.19
Third, NSCC proposes to introduce a
loss allocation ‘‘round,’’ which would
mean ‘‘a series of loss allocations
relating to an Event Period, the
aggregate amount of which is limited by
the sum of the Loss Allocation Caps of
affected Members.’’ 20 NSCC would
notify Members subject to a loss
allocation of the amounts being
allocated to them.21 Each Member
would have five business days from the
issuance of such first Loss Allocation
Notice for the round to notify NSCC of
its election to withdraw from
membership with NSCC, and thereby
benefit from its Loss Allocation Cap.22
Fourth, NSCC proposes to implement
a ‘‘look-back’’ period to calculate a
Member’s loss allocation pro rata share
and its Loss Allocation Cap.23 NSCC
proposes to calculate each Member’s pro
rata share of losses and liabilities in any
round to be equal to (i) the average of
a Member’s Required Fund Deposit for
70 business days prior to the first day
of the applicable Event Period
(‘‘Average RFD’’) divided by (ii) the sum
of Average RFD amounts for all
Members that are subject to a loss
allocation in such round.24
Additionally, NSCC proposes that each
Member’s Loss Allocation Cap would be
equal to the greater of (i) its Required
Fund Deposit on the first day of the
applicable Event Period or (ii) its
Average RFD.25
Fifth, NSCC proposes to revise the cap
on a loss allocation and the withdrawal
process followed by the loss allocation.
As proposed, if a Member provides
notice of its withdrawal from
membership, the Member’s maximum
amount of losses with respect to any
loss allocation round would be its Loss
Allocation Cap.26 NSCC further
proposes that Members would have two
business days after NSCC issues a first
round Loss Allocation Notice to pay the
18 Id.
at 899.
19 Id.
20 Id.
should be approved or disapproved.
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the Proposed
Rule Change. Institution of proceedings
does not indicate that the Commission
has reached any conclusions with
respect to any of the issues involved.
Rather, the Commission seeks and
B. Loss Allocation Governance for
encourages interested persons to
Declared Non-Default Loss Events
comment on the Proposed Rule Change,
NSCC proposes to enhance the
and provide the Commission with
governance around Declared Nonarguments to support the Commission’s
Default Loss Events that would trigger a analysis as to whether to approve or
loss allocation by specifying that the
disapprove the Proposed Rule Change.
Board of Directors would have to
Pursuant to Section 19(b)(2)(B) of the
determine that there is a non-default
Act,35 the Commission is providing
loss that (i) may present a significant
notice of the grounds for disapproval
and substantial loss or liability, so as to
under consideration. The Commission is
materially impair the ability of NSCC to instituting proceedings to allow for
provide clearance and settlement
additional analysis of, and input from
services in an orderly manner, and (ii)
commenters with respect to, the
will potentially generate losses to be
Proposed Rule Change’s consistency
mutualized among Members in order to
with Section 17A of the Act,36 and the
ensure that NSCC may continue to offer rules thereunder, including the
clearance and settlement services in an
following provisions:
orderly manner.29 NSCC would then be
• Section 17A(b)(3)(F) of the Act,37
required to promptly notify Members of which requires, among other things, that
this determination.30
the rules of a clearing agency, such as
C. Retention Time for the Actual Deposit NSCC, must be designed to promote the
prompt and accurate clearance and
of a Former Participant
NSCC proposes that if a Member gives settlement of securities transactions, to
assure the safeguarding of securities and
notice to NSCC of its election to
funds which are in the custody or
withdraw from membership, NSCC
control of the clearing agency or for
would return the Member’s Actual
Deposit in the form of cash or securities which it is responsible, and to protect
investors and the public interest;
within 30 calendar days and Eligible
• Rule 17Ad–22(e)(13) under the
Letters of Credit within 90 calendar
Act,38 which requires, in general, a
31 The return would be made after
days.
covered clearing agency, such as NSCC,
all of the Member’s transactions have
to establish, implement, maintain and
settled, and all matured and contingent
enforce written policies and procedures
obligations to NSCC for which the
reasonably designed to ensure the
Member was responsible while a
covered clearing agency has the
Member have been satisfied, except
NSCC may retain for up to two years the authority and operational capacity to
take timely action to contain losses and
Actual Deposits from Members who
liquidity demands and continue to meet
32 This
have sponsored Accounts at DTC.
its obligations.
proposed rule would reduce the period
• Rule 17Ad–22(e)(23)(i) under the
in which NSCC may retain a Member’s
Act,39 which requires a covered clearing
Actual Deposit pursuant to the current
agency, such as NSCC, to establish,
rule.33
implement, maintain and enforce
III. Proceedings To Determine Whether written policies and procedures
To Approve or Disapprove the
reasonably designed to publicly disclose
Proposed Rule Change and Grounds for all relevant rules and material
Disapproval Under Consideration
procedures, including key aspects of its
default rules and procedures.
The Commission is instituting
proceedings pursuant to Section
IV. Procedure: Request for Written
19(b)(2)(B) of the Act 34 to determine
Comments
whether the Proposed Rule Change
The Commission requests that
interested persons provide written
27 Id. at 900 and 905.
28 Id. at 900.
submissions of their views, data, and
amount specified in such notice.27
Members would have five business days
from the issuance of the first Loss
Allocation Notice in any round to
decide whether to terminate its
membership, provided that the Member
complies with the requirements of the
proposed withdrawal process.28
21 Id.
29 Id.
22 Id.
30 Id.
23 Id.
at 900.
31 Id.
24 Id.
25 Id.
33 Id.
26 Id.
34 15
at 901.
35 Id.
at 901–902.
36 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
38 17 CFR 240.17Ad–22(e)(13).
39 17 CFR 240.17Ad–22(e)(23)(i).
32 Id.
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37 15
at 907.
U.S.C. 78s(b)(2)(B).
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12970
Federal Register / Vol. 83, No. 58 / Monday, March 26, 2018 / Notices
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
Proposed Rule Change. In particular, the
Commission invites the written views of
interested persons concerning whether
the Proposed Rule Change is consistent
with Section 17A(b)(3)(F) of the Act,40
Rule 17Ad–22(e)(13) under the Act,41
Rule 17Ad–22(e)(23)(i) under the Act,42
or any other provision of the Act, or the
rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4(g)
under the Act,43 any request for an
opportunity to make an oral
presentation.44
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
Proposed Rule Change should be
approved or disapproved by April 16,
2018. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
April 30, 2018.
The Commission asks that
commenters address the sufficiency of
NSCC’s statements in support of the
Proposed Rule Change, which are set
forth in the Notice,45 in addition to any
other comments they may wish to
submit about the Proposed Rule Change.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2017–018 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NSCC–2017–018. This file
number should be included on the
40 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(13).
42 17 CFR 240.17Ad–22(e)(23)(i).
43 17 CFR 240.19b–4(g).
44 Section 19(b)(2) of the Act grants to the
Commission flexibility to determine what type of
proceeding—either oral or notice and opportunity
for written comments—is appropriate for
consideration of a particular proposal by a selfregulatory organization. See Securities Act
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
45 See Notice, supra note 4.
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41 17
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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
filing also will be available for
inspection and copying at the principal
office of NSCC and on The Depository
Trust & Clearing Corporation’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–NSCC–
2017–018 and should be submitted on
or before April 16, 2018. Rebuttal
comments should be submitted by April
30, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–06016 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SR–DTC–2018–001, pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder.2 The proposed rule change
was published for comment in the
Federal Register on February 14, 2018.3
The Commission did not receive any
comment letters on the proposed rule
change. For the reasons discussed
below, the Commission approves the
proposed rule change.
I. Description of the Proposed Rule
Change
The proposed rule change would
amend the DTC By-Laws (‘‘By-Laws’’) 4
to (1) revise DTC’s governance
procedures, (2) change certain DTC
Board of Directors (‘‘Board’’) titles,
officer titles, and offices (and their
respective powers and duties), (3)
update the compensation section for
officers, and (4) make technical changes
and corrections, each discussed more
fully below.
A. Changes to DTC’s Governance
Procedures
Under the proposed rule change, DTC
would revise certain governance
procedures of the By-Laws. Specifically,
DTC proposes to (1) change the required
frequency of the Board’s and the
Executive Committee’s meetings, (2)
remove the word ‘‘monthly’’ from the
phrase ‘‘regular monthly meetings’’
when describing Board meetings, and
(3) permit the Board to act by
unanimous written consent.5
DTC proposes to reduce the required
frequency of its Board meetings and
Executive Committee meetings, as
provided for in Section 2.6 (Meetings) of
the By-Laws,6 to better align the
frequency of the Board meetings with
those of the Fixed Income Clearing
Corporation (‘‘FICC’’) and the National
Securities Clearing Corporation
(‘‘NSCC’’).7 Specifically, the proposal
would reduce the minimum required
number of Board meetings from ten
meetings per year (with at least two
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 82671
(February 8, 2018), 83 FR 6639 (February 14, 2018)
(SR–DTC–2018–001) (‘‘Notice’’).
4 The By-Laws are included in the Rules, By-Laws
and Organization Certificate of DTC (‘‘Rules’’),
available at https://www.dtcc.com/legal/rules-andprocedures.
5 Notice, 83 FR at 6640.
6 Hereinafter, section references will always be to
the By-Laws unless otherwise stated.
7 Notice, 83 FR at 6640. DTC, FICC, and NSCC are
subsidiaries of the Depository Trust and Clearing
Corporation (‘‘DTCC’’), each having the same Board
of Directors as DTCC. See Securities Exchange Act
Release No. 74142 (January 27, 2015), 80 FR 5188
(January 30, 2015) (SR–FICC–2014–810, SR–NSCC–
2014–811, SR–DTC–2014–812).
2 17
[Release No. 34–82915; File No. SR–DTC–
2018–001]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Approving Proposed Rule Change To
Amend the By-Laws
March 20, 2018.
On February 2, 2018, The Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
46 17
PO 00000
CFR 200.30–3(a)(57).
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]]>Agencies
[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12968-12970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06016]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82910; File No. SR-NSCC-2017-018]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Amend the Loss
Allocation Rules and Make Other Changes
March 20, 2018.
I. Introduction
On December 18, 2017, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\
proposed rule change SR-NSCC-2017-018 to amend the loss allocation
rules and make other changes (``Proposed Rule Change'').\3\ The
Proposed Rule Change was published for comment in the Federal Register
on January 8, 2018.\4\ The Commission did not receive any comments on
the Proposed Rule Change. On February 8, 2018, pursuant to Section
19(b)(2)(A)(ii)(I) of the Act,\5\ the Commission designated a longer
period within which to approve, disapprove, or institute proceedings to
determine whether to approve or disapprove the Proposed Rule Change.\6\
This order institutes proceedings, pursuant to Section 19(b)(2)(B) of
the Act,\7\ to determine whether to approve or disapprove the Proposed
Rule Change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On December 18, 2017, NSCC filed this proposal as an advance
notice (SR-NSCC-2017-806) with the Commission pursuant to Section
806(e)(1) of the Payment, Clearing, and Settlement Supervision Act
of 2010 (``Clearing Supervision Act'') and Rule 19b-4(n)(1)(i) of
the Act (``Advance Notice''). On January 24, 2018, the Commission
extended the review period of the Advance Notice for an additional
60 days pursuant to Section 806(e)(1)(H) of the Clearing Supervision
Act. See 12 U.S.C. 5465(e)(1); 17 CFR 240.19b-4(n)(1)(i); 12 U.S.C.
5465(e)(1)(H); and Securities Exchange Act Release No. 82584
(January 24, 2018), 83 FR 4377 (January 30, 2018) (SR-NSCC-2017-
806).
\4\ Securities Exchange Act Release No. 82428 (January 2, 2018),
83 FR 897 (January 8, 2018) (SR-NSCC-2017-018) (``Notice'').
\5\ 15 U.S.C. 78s(b)(2)(A)(ii)(I).
\6\ Securities Exchange Act Release No. 82670 (February 8,
2018), 83 FR 6626 (February 14, 2018) (SR-DTC-2017-022; SR-FICC-
2017-022; SR-NSCC-2017-018).
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Summary of the Proposed Rule Change 8
---------------------------------------------------------------------------
\8\ The Commission notes that the Summary of the Proposed Rule
Change section does not describe the Proposed Rule Change in its
entirety. Other changes include, but are not limited to, the
clarification of defined terms, various aspects of the Clearing Fund
application, and detailed procedures of the loss allocation. The
complete Proposed Rule Change can be found in the Notice. See
Notice, supra note 4. In addition, the text of the Proposed Rule
Change is available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
---------------------------------------------------------------------------
As described in the Notice,\9\ NSCC proposes to revise its Rules
and Procedures to primarily change (i) the loss allocation process,\10\
(ii) the loss allocation governance for Declared Non-Default Loss
Events,\11\ and (iii) the retention time for the Actual Deposit of
former members.\12\
---------------------------------------------------------------------------
\9\ The description of the Proposed Rule Change herein is based
on the statements prepared by NSCC in the Notice. See Notice, supra
note 4. Each capitalized term not otherwise defined herein has its
respective meaning either (i) as set forth in the Rules and
Procedures of NSCC, available at https://www.dtcc.com/legal/rules-and-procedures.aspx, or (ii) as set forth in the Notice.
\10\ See Notice, supra note 4, at 898-901.
\11\ See id. at 901.
\12\ See id. at 901-02.
---------------------------------------------------------------------------
A. Loss Allocation Process
NSCC states that it would retain the current core loss allocation
process.\13\ However, NSCC proposes to revise certain elements and
introduce certain new loss allocation concepts, by making five key
changes to its loss allocation process.
---------------------------------------------------------------------------
\13\ Id. at 898.
---------------------------------------------------------------------------
First, NSCC proposes to replace the calculation of its corporate
contribution from no less than 25 percent of its retained earnings or
such higher amount as the Board of Directors shall determine to a
defined Corporate Contribution.\14\ The proposed Corporate Contribution
would be defined as an amount equal to 50 percent of NSCC's General
Business Risk Capital Requirement.\15\ NSCC's General Business Risk
Capital Requirement is, at a minimum, equal to the regulatory capital
that NSCC is required to maintain in compliance with Rule 17Ad-
22(e)(15) under the Act.\16\ In addition, NSCC proposes to mandatorily
apply Corporate Contribution (i) prior to a loss allocation among
Members, and (ii) to losses arising from both Defaulting Member Events
and Declared Non-Default Loss Events.\17\
---------------------------------------------------------------------------
\14\ Id.
\15\ Id.
\16\ Id.; 17 CFR 240.17Ad-22(e)(15).
\17\ Notice, supra note 4, at 898.
---------------------------------------------------------------------------
Second, NSCC proposes to introduce an Event Period to address the
allocation of losses and liabilities that may arise from or relate to
multiple
[[Page 12969]]
Defaulting Member Events, Declared Non-Default Loss Events, or both
that arise in quick succession.\18\ The proposal would group together
Defaulting Member Events and Declared Non-Default Loss Events occurring
in a period of 10 business days for purposes of allocating losses to
Members in one or more rounds, subject to the limitations of loss
allocation in the Proposed Rule Change.\19\
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\18\ Id. at 899.
\19\ Id.
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Third, NSCC proposes to introduce a loss allocation ``round,''
which would mean ``a series of loss allocations relating to an Event
Period, the aggregate amount of which is limited by the sum of the Loss
Allocation Caps of affected Members.'' \20\ NSCC would notify Members
subject to a loss allocation of the amounts being allocated to
them.\21\ Each Member would have five business days from the issuance
of such first Loss Allocation Notice for the round to notify NSCC of
its election to withdraw from membership with NSCC, and thereby benefit
from its Loss Allocation Cap.\22\
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\20\ Id.
\21\ Id.
\22\ Id.
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Fourth, NSCC proposes to implement a ``look-back'' period to
calculate a Member's loss allocation pro rata share and its Loss
Allocation Cap.\23\ NSCC proposes to calculate each Member's pro rata
share of losses and liabilities in any round to be equal to (i) the
average of a Member's Required Fund Deposit for 70 business days prior
to the first day of the applicable Event Period (``Average RFD'')
divided by (ii) the sum of Average RFD amounts for all Members that are
subject to a loss allocation in such round.\24\ Additionally, NSCC
proposes that each Member's Loss Allocation Cap would be equal to the
greater of (i) its Required Fund Deposit on the first day of the
applicable Event Period or (ii) its Average RFD.\25\
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\23\ Id. at 900.
\24\ Id.
\25\ Id.
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Fifth, NSCC proposes to revise the cap on a loss allocation and the
withdrawal process followed by the loss allocation. As proposed, if a
Member provides notice of its withdrawal from membership, the Member's
maximum amount of losses with respect to any loss allocation round
would be its Loss Allocation Cap.\26\ NSCC further proposes that
Members would have two business days after NSCC issues a first round
Loss Allocation Notice to pay the amount specified in such notice.\27\
Members would have five business days from the issuance of the first
Loss Allocation Notice in any round to decide whether to terminate its
membership, provided that the Member complies with the requirements of
the proposed withdrawal process.\28\
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\26\ Id.
\27\ Id. at 900 and 905.
\28\ Id. at 900.
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B. Loss Allocation Governance for Declared Non-Default Loss Events
NSCC proposes to enhance the governance around Declared Non-Default
Loss Events that would trigger a loss allocation by specifying that the
Board of Directors would have to determine that there is a non-default
loss that (i) may present a significant and substantial loss or
liability, so as to materially impair the ability of NSCC to provide
clearance and settlement services in an orderly manner, and (ii) will
potentially generate losses to be mutualized among Members in order to
ensure that NSCC may continue to offer clearance and settlement
services in an orderly manner.\29\ NSCC would then be required to
promptly notify Members of this determination.\30\
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\29\ Id. at 901.
\30\ Id.
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C. Retention Time for the Actual Deposit of a Former Participant
NSCC proposes that if a Member gives notice to NSCC of its election
to withdraw from membership, NSCC would return the Member's Actual
Deposit in the form of cash or securities within 30 calendar days and
Eligible Letters of Credit within 90 calendar days.\31\ The return
would be made after all of the Member's transactions have settled, and
all matured and contingent obligations to NSCC for which the Member was
responsible while a Member have been satisfied, except NSCC may retain
for up to two years the Actual Deposits from Members who have sponsored
Accounts at DTC.\32\ This proposed rule would reduce the period in
which NSCC may retain a Member's Actual Deposit pursuant to the current
rule.\33\
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\31\ Id. at 901-902.
\32\ Id.
\33\ Id. at 907.
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III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \34\ to determine whether the Proposed Rule
Change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the Proposed Rule Change. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the Proposed Rule Change,
and provide the Commission with arguments to support the Commission's
analysis as to whether to approve or disapprove the Proposed Rule
Change.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\35\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the Proposed
Rule Change's consistency with Section 17A of the Act,\36\ and the
rules thereunder, including the following provisions:
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\35\ Id.
\36\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Act,\37\ which requires, among
other things, that the rules of a clearing agency, such as NSCC, must
be designed to promote the prompt and accurate clearance and settlement
of securities transactions, to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible, and to protect investors and the public
interest;
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\37\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(13) under the Act,\38\ which requires, in
general, a covered clearing agency, such as NSCC, to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to ensure the covered clearing agency has the
authority and operational capacity to take timely action to contain
losses and liquidity demands and continue to meet its obligations.
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\38\ 17 CFR 240.17Ad-22(e)(13).
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Rule 17Ad-22(e)(23)(i) under the Act,\39\ which requires a
covered clearing agency, such as NSCC, to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to publicly disclose all relevant rules and material
procedures, including key aspects of its default rules and procedures.
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\39\ 17 CFR 240.17Ad-22(e)(23)(i).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and
[[Page 12970]]
arguments with respect to the issues identified above, as well as any
other concerns they may have with the Proposed Rule Change. In
particular, the Commission invites the written views of interested
persons concerning whether the Proposed Rule Change is consistent with
Section 17A(b)(3)(F) of the Act,\40\ Rule 17Ad-22(e)(13) under the
Act,\41\ Rule 17Ad-22(e)(23)(i) under the Act,\42\ or any other
provision of the Act, or the rules and regulations thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4(g) under the Act,\43\ any request for an opportunity to make an
oral presentation.\44\
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\40\ 15 U.S.C. 78q-1(b)(3)(F).
\41\ 17 CFR 240.17Ad-22(e)(13).
\42\ 17 CFR 240.17Ad-22(e)(23)(i).
\43\ 17 CFR 240.19b-4(g).
\44\ Section 19(b)(2) of the Act grants to the Commission
flexibility to determine what type of proceeding--either oral or
notice and opportunity for written comments--is appropriate for
consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by April 16, 2018. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
April 30, 2018.
The Commission asks that commenters address the sufficiency of
NSCC's statements in support of the Proposed Rule Change, which are set
forth in the Notice,\45\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
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\45\ See Notice, supra note 4.
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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-NSCC-2017-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSCC-2017-018. 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 filing also will be available for inspection
and copying at the principal office of NSCC and on The Depository Trust
& Clearing Corporation'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-NSCC-2017-018 and should be
submitted on or before April 16, 2018. Rebuttal comments should be
submitted by April 30, 2018.
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\46\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06016 Filed 3-23-18; 8:45 am]
BILLING CODE 8011-01-P
