Self-Regulatory Organizations; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt a Recovery & Wind-Down Plan and Related Rules, 12986-12988 [2018-06022]
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Federal Register / Vol. 83, No. 58 / Monday, March 26, 2018 / Notices
designed to enhance clarity and
transparency in FICC’s governance
arrangements, as well as to specify clear
and direct lines of responsibility for
various officer positions and the Board
within FICC’s organizational structure,
consistent with Rule 17Ad–22(e)(2)(i)
and (v) under the Act.72
III. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act, in particular the requirements of
Section 17A of the Act 73 and the rules
and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that
proposed rule change SR–FICC–2018–
002 be, and hereby is, APPROVED.74
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.75
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–06031 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82908; File No. SR–NSCC–
2017–017]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Adopt a Recovery &
Wind-Down Plan and Related Rules
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–
017 to adopt a recovery and wind-down
plan and related rules (‘‘Proposed Rule
Change’’).3 The Proposed Rule Change
72 Id.
73 15
U.S.C. 78q-1.
approving the proposed rule change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
75 17 CFR 200.30–3(a)(12).
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–2017–805) 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–
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74 In
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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.
II. Summary of the Proposed Rule
Change
As described in the Notice,8 NSCC
proposes to adopt a Recovery & Winddown Plan (‘‘R&W Plan’’) and three
proposed rules that would facilitate the
implementation of the R&W Plan: (i)
Proposed Rule 41 (Corporation Default)
(‘‘Corporation Default Rule’’), (ii)
proposed Rule 42 (Wind-down of the
Corporation) (‘‘Wind-down Rule’’), and
(iii) proposed Rule 60 (Market
Disruption and Force Majeure) (‘‘Force
Majeure Rule’’). Additionally, NSCC
proposes to re-number existing Rule 42
(Wind-down of a Member, Fund
Member or Insurance Carrier/Retirement
Services Member) to Rule 40, which is
currently reserved for future use.
NSCC states that the R&W Plan is
intended to be used by NSCC’s Board of
Directors and management in the event
that NSCC encounters scenarios that
could potentially prevent it from being
able to provide its critical services as a
going concern.9 The R&W Plan would
be structured to provide a roadmap,
define the strategy, and identify the
tools available to NSCC to either (i)
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. 82581
(January 24, 2018), 83 FR 4327 (January 30, 2018)
(SR–NSCC–2017–805).
4 Securities Exchange Act Release No. 82430
(January 2, 2018), 83 FR 841 (January 8, 2018) (SR–
NSCC–2017–017) (‘‘Notice’’).
5 15 U.S.C. 78s(b)(2)(A)(ii)(I).
6 Securities Exchange Act Release No. 82669
(February 8, 2018), 83 FR 6653 (February 14, 2018)
(SR–DTC–2017–021; SR–FICC–2017–021; SR–
NSCC–2017–017).
7 15 U.S.C. 78s(b)(2)(B).
8 The description of the Proposed Rule Change is
based on the statements prepared by NSCC in the
Notice. See Notice, supra note 4. Capitalized terms
used herein and not otherwise defined herein are
defined in NSCC’s Rules & Procedures, available at
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
9 See Notice, supra note 4, at 842.
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recover in the event it experiences
losses that exceed its prefunded
resources or (ii) wind-down its business
in a manner designed to permit the
continuation of its critical services in
the event that such recovery efforts are
not successful.10 The R&W Plan would
include tools that are provided for in
NSCC’s existing rules, policies,
procedures, and contractual
arrangements,11 as well as the proposed
Corporation Default Rule, the proposed
Wind-down Rule, and the proposed
Force Majeure Rule.12
NSCC states that the proposed
Corporation Default Rule, proposed
Wind-down Rule, and proposed Force
Majeure Rule are designed to (i)
facilitate the implementation of the
R&W Plan when necessary; (ii) provide
Members and Limited Members with
transparency around critical provisions
of the R&W Plan that relate to their
rights, responsibilities and obligations;
and (iii) provide NSCC with the legal
basis to implement the provisions of the
R&W Plan that concern the proposed
Corporation Default Rule, the proposed
Wind-down Rule, and the proposed
Force Majeure Rule, when necessary.13
NSCC states that it is proposing to renumber existing Rule 42 (Wind-down of
a Member, Fund Member or Insurance
Carrier/Retirement Services Member) to
Rule 40 to align the order of NSCC’s
proposed rules with the order of
comparable rules in the rulebooks of
The Depository Trust Company and
Fixed Income Clearing Corporation,14
which, together with NSCC, are
subsidiaries of The Depository Trust &
Clearing Corporation (‘‘DTCC’’), a userowned and user-governed holding
company.15
As an overview, the R&W Plan would
provide, among other matters, (i) an
overview of the business of NSCC and
its parent DTCC; (ii) an analysis of
NSCC’s intercompany arrangements and
critical links to other financial market
infrastructures; (iii) a description of
NSCC’s services, and the criteria used to
determine which services are
considered critical; (iv) a description of
the NSCC and DTCC governance
structure; (v) a description of the
governance around the overall recovery
and wind-down program; (vi) a
discussion of tools available to NSCC to
10 Id.
at 843.
11 Contractual
arrangements include, for example,
NSCC’s existing committed or pre-arranged
liquidity arrangements.
12 See Notice, supra note 4, at 842.
13 Id. at 841.
14 Id. at 851.
15 Id. at 843.
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mitigate credit/market 16 and liquidity
risks, including recovery indicators and
triggers, and the governance around
management of a stress event along a
‘‘Crisis Continuum’’ timeline; (vii) a
discussion of potential non-default
losses and the resources available to
NSCC to address such losses, including
recovery triggers and tools to mitigate
such losses; 17 (viii) an analysis of the
recovery tools’ characteristics, including
how they are comprehensive, effective,
and transparent, how the tools provide
appropriate incentives to Members to,
among other things, control and monitor
the risks they may present to NSCC, and
how NSCC seeks to minimize the
negative consequences of executing its
recovery tools; and (ix) the framework
and approach for the orderly winddown and transfer of NSCC’s business,18
including an estimate of the time and
costs to effect a recovery or orderly
wind-down of NSCC.19
16 NSCC states that NSCC manages its credit
exposure to Members as part of its market risk
management strategy. Id. at 844.
17 As described in more detail in the Notice, this
section of the R&W Plan would describe the
proposed Force Majeure Rule, which would govern
how NSCC would address extraordinary events that
may occur outside its control. See Notice, supra
note 4, at 851. The proposed Force Majeure Rule
would identify the events or circumstances that
would be considered a ‘‘Market Disruption Event,’’
including, for example, events that lead to the
suspension or limitation of trading or banking in
the markets in which NSCC operates, or the
unavailability or failure of any material payment,
bank transfer, wire or securities settlement systems.
Id. Under the proposed Force Majeure Rule, during
the pendency of a Market Disruption Event, NSCC
would be entitled to (i) suspend the provision of
any or all services; and (ii) take, or refrain from
taking, or require Members and Limited Members
to take, or refrain from taking, any actions it
considers appropriate to address, alleviate, or
mitigate the event and facilitate the continuation of
NSCC’s services as may be practicable. Id.
18 This section of the R&W Plan would refer to the
proposed Wind-down Rule and the proposed
Corporation Default Rule. See Notice, supra note 4,
at 847–49 (discussing wind-down), 849–51
(discussing the proposed Corporation Default Rule
and the proposed Wind-down Rule). The proposed
Wind-down Rule would provide a mechanism to
implement the framework and approach for an
orderly wind-down if recovery tools do not
successfully return NSCC to financial viability. Id.
at 847–51. As described more fully in the Notice,
the proposed Corporation Default Rule would
provide a mechanism for the termination, valuation,
and netting of unsettled, guaranteed Continuous
Net Settlement (‘‘CNS’’) transactions in the event
NSCC is unable to perform its obligations or
otherwise suffers a defined event of default, such
as entering insolvency proceedings (‘‘Corporation
Default’’). Id. at 849. Upon Corporation Default, the
proposed Corporation Default Rule would provide
that all unsettled, guaranteed CNS transactions
would be terminated and, no later than forty-five
days from the date on which the event that
constitutes a Corporation Default occurred, the
Board of Directors would determine a single net
amount owed by or to each Member with respect
to such transactions pursuant to the valuation
procedures set forth in the proposed Corporation
Default Rule. Id.
19 See Notice, supra note 4, at 842.
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The framework and approach for
orderly wind-down would provide (i)
for the transfer of NSCC’s business,
assets, and membership to another legal
entity; (ii) that NSCC would effectuate
the transfer in connection with
proceedings under Chapter 11 of the
U.S. Bankruptcy Code; 20 and (iii) that
after effectuating this transfer, NSCC
would liquidate any remaining assets in
an orderly manner in bankruptcy
proceedings.21 NSCC states that it
believes that the proposed transfer
approach to a wind-down would meet
its objectives of (i) assuring that NSCC’s
critical services will be available to the
market as long as there are Members in
good standing, and (ii) minimizing
disruption to the operations of Members
and financial markets generally that
might be caused by NSCC’s failure.22
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; and
• Rule 17Ad–22(e)(3)(ii) under the
Act,27 which requires a covered clearing
agency,28 such as NSCC, to, among other
things, establish, implement, maintain
and enforce written policies and
procedures reasonably designed to, as
applicable, maintain a sound risk
management framework for
comprehensively managing legal, credit,
liquidity, operational, general business,
investment, custody, and other risks
that arise in or are borne by NSCC,
which includes plans for the recovery
and orderly wind-down of NSCC
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.
III. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Change and Grounds for
Disapproval Under Consideration
IV. Procedure: Request for Written
Comments
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 23 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.
Pursuant to Section 19(b)(2)(B) of the
Act,24 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,25 and the
rules thereunder, including the
following provisions:
• Section 17A(b)(3)(F) of the Act,26
which requires, among other things, that
the rules of a clearing agency, such as
NSCC, must be designed to assure the
safeguarding of securities and funds
20 11
U.S.C. 101 et seq.
Notice, supra note 4, at 847.
21 See
22 Id.
23 15
U.S.C. 78s(b)(2)(B).
24 Id.
25 15
26 15
PO 00000
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
Frm 00050
Fmt 4703
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The Commission requests that
interested persons provide written
submissions of their views, data, and
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,29
Rule 17Ad–22(e)(3)(ii) under the Act,30
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,31 any request for an
opportunity to make an oral
presentation.32
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
27 17
CFR 240.17Ad–22(e)(3)(ii).
17 CFR 240.17Ad–22(a)(5) for the
definition of a covered clearing agency.
29 15 U.S.C. 78q–1(b)(3)(F).
30 17 CFR 240.17Ad–22(e)(3)(ii).
31 17 CFR 240.19b–4(g).
32 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).
28 See
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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,33 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:
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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–2017–017 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–2017–017. 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 DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2017–017 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.34
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–06022 Filed 3–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82905; File No. SR–
NASDAQ–2018–021]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Transaction Fees at Rule 7018 To
Charge No Transaction Fee for
Execution of Midpoint Extended Life
Orders
March 20, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on March 9,
2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III 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 proposes to amend the
Exchange’s transaction fees at Rule 7018
to charge no transaction fee for
execution of Midpoint Extended Life
Orders. While these amendments are
effective upon filing, the Exchange has
designated the proposed amendments to
be operative on March 12, 2018.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, 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
34 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
33 See
Notice, supra note 4.
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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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
transaction fees at Rule 7018 to charge
no transaction fee for execution of
Midpoint Extended Life Orders. On
March 7, 2018, the Commission
approved the Exchange’s proposal to
adopt a new Order Type, the Midpoint
Extended Life Order.3 The Midpoint
Extended Life Order is an Order Type
with a Non-Display Order Attribute that
is priced at the midpoint between the
NBBO and that will not be eligible to
execute until the Holding Period of one
half of a second has passed after
acceptance of the Order by the System.
Once a Midpoint Extended Life Order
becomes eligible to execute by existing
unchanged for the Holding Period, the
Order may only execute against other
eligible Midpoint Extended Life Orders.
The Exchange will begin offer Midpoint
Extended Life Orders on March 12,
2018.4
Under Rule 7018, the Exchange
assesses fees for Orders entered into the
Nasdaq System. The fees cover Orders
in all three tapes and in securities both
priced $1 and above (Rule 7018(a)), and
below $1 (Rule 7018(b)). The Exchange
is proposing initially to not charge a
transaction fee for execution of
Midpoint Extended Life Orders.
Allowing transactions to occur at no
cost will promote use of the Midpoint
Extended Life Order, which will help
bring liquidity in Midpoint Extended
Life Orders to the Exchange and
promote market quality. The Exchange
plans to adopt fees for Midpoint
Extended Life Orders in the future and
will do so through the SEC rulemaking
process.5 Accordingly, the Exchange is
proposing to amend Rule 7018(a)(1)–(3)
to note that members executing a
Midpoint Extended Life Order will be
3 See Securities Exchange Act Release No. 82825
(March 7, 2018) (SR–NASDAQ–2017–074) (pending
publication in the Federal Register).
4 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=ETA2018-20.
5 Id.
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]]>Agencies
[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12986-12988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06022]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82908; File No. SR-NSCC-2017-017]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Adopt a Recovery &
Wind-Down Plan and Related Rules
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-2017-017 to adopt a recovery and wind-down
plan and related rules (``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-2017-805) 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. 82581
(January 24, 2018), 83 FR 4327 (January 30, 2018) (SR-NSCC-2017-
805).
\4\ Securities Exchange Act Release No. 82430 (January 2, 2018),
83 FR 841 (January 8, 2018) (SR-NSCC-2017-017) (``Notice'').
\5\ 15 U.S.C. 78s(b)(2)(A)(ii)(I).
\6\ Securities Exchange Act Release No. 82669 (February 8,
2018), 83 FR 6653 (February 14, 2018) (SR-DTC-2017-021; SR-FICC-
2017-021; SR-NSCC-2017-017).
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Summary of the Proposed Rule Change
As described in the Notice,\8\ NSCC proposes to adopt a Recovery &
Wind-down Plan (``R&W Plan'') and three proposed rules that would
facilitate the implementation of the R&W Plan: (i) Proposed Rule 41
(Corporation Default) (``Corporation Default Rule''), (ii) proposed
Rule 42 (Wind-down of the Corporation) (``Wind-down Rule''), and (iii)
proposed Rule 60 (Market Disruption and Force Majeure) (``Force Majeure
Rule''). Additionally, NSCC proposes to re-number existing Rule 42
(Wind-down of a Member, Fund Member or Insurance Carrier/Retirement
Services Member) to Rule 40, which is currently reserved for future
use.
---------------------------------------------------------------------------
\8\ The description of the Proposed Rule Change is based on the
statements prepared by NSCC in the Notice. See Notice, supra note 4.
Capitalized terms used herein and not otherwise defined herein are
defined in NSCC's Rules & Procedures, available at www.dtcc.com/~/
media/Files/Downloads/legal/rules/nscc_rules.pdf.
---------------------------------------------------------------------------
NSCC states that the R&W Plan is intended to be used by NSCC's
Board of Directors and management in the event that NSCC encounters
scenarios that could potentially prevent it from being able to provide
its critical services as a going concern.\9\ The R&W Plan would be
structured to provide a roadmap, define the strategy, and identify the
tools available to NSCC to either (i) recover in the event it
experiences losses that exceed its prefunded resources or (ii) wind-
down its business in a manner designed to permit the continuation of
its critical services in the event that such recovery efforts are not
successful.\10\ The R&W Plan would include tools that are provided for
in NSCC's existing rules, policies, procedures, and contractual
arrangements,\11\ as well as the proposed Corporation Default Rule, the
proposed Wind-down Rule, and the proposed Force Majeure Rule.\12\
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\9\ See Notice, supra note 4, at 842.
\10\ Id. at 843.
\11\ Contractual arrangements include, for example, NSCC's
existing committed or pre-arranged liquidity arrangements.
\12\ See Notice, supra note 4, at 842.
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NSCC states that the proposed Corporation Default Rule, proposed
Wind-down Rule, and proposed Force Majeure Rule are designed to (i)
facilitate the implementation of the R&W Plan when necessary; (ii)
provide Members and Limited Members with transparency around critical
provisions of the R&W Plan that relate to their rights,
responsibilities and obligations; and (iii) provide NSCC with the legal
basis to implement the provisions of the R&W Plan that concern the
proposed Corporation Default Rule, the proposed Wind-down Rule, and the
proposed Force Majeure Rule, when necessary.\13\
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\13\ Id. at 841.
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NSCC states that it is proposing to re-number existing Rule 42
(Wind-down of a Member, Fund Member or Insurance Carrier/Retirement
Services Member) to Rule 40 to align the order of NSCC's proposed rules
with the order of comparable rules in the rulebooks of The Depository
Trust Company and Fixed Income Clearing Corporation,\14\ which,
together with NSCC, are subsidiaries of The Depository Trust & Clearing
Corporation (``DTCC''), a user-owned and user-governed holding
company.\15\
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\14\ Id. at 851.
\15\ Id. at 843.
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As an overview, the R&W Plan would provide, among other matters,
(i) an overview of the business of NSCC and its parent DTCC; (ii) an
analysis of NSCC's intercompany arrangements and critical links to
other financial market infrastructures; (iii) a description of NSCC's
services, and the criteria used to determine which services are
considered critical; (iv) a description of the NSCC and DTCC governance
structure; (v) a description of the governance around the overall
recovery and wind-down program; (vi) a discussion of tools available to
NSCC to
[[Page 12987]]
mitigate credit/market \16\ and liquidity risks, including recovery
indicators and triggers, and the governance around management of a
stress event along a ``Crisis Continuum'' timeline; (vii) a discussion
of potential non-default losses and the resources available to NSCC to
address such losses, including recovery triggers and tools to mitigate
such losses; \17\ (viii) an analysis of the recovery tools'
characteristics, including how they are comprehensive, effective, and
transparent, how the tools provide appropriate incentives to Members
to, among other things, control and monitor the risks they may present
to NSCC, and how NSCC seeks to minimize the negative consequences of
executing its recovery tools; and (ix) the framework and approach for
the orderly wind-down and transfer of NSCC's business,\18\ including an
estimate of the time and costs to effect a recovery or orderly wind-
down of NSCC.\19\
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\16\ NSCC states that NSCC manages its credit exposure to
Members as part of its market risk management strategy. Id. at 844.
\17\ As described in more detail in the Notice, this section of
the R&W Plan would describe the proposed Force Majeure Rule, which
would govern how NSCC would address extraordinary events that may
occur outside its control. See Notice, supra note 4, at 851. The
proposed Force Majeure Rule would identify the events or
circumstances that would be considered a ``Market Disruption
Event,'' including, for example, events that lead to the suspension
or limitation of trading or banking in the markets in which NSCC
operates, or the unavailability or failure of any material payment,
bank transfer, wire or securities settlement systems. Id. Under the
proposed Force Majeure Rule, during the pendency of a Market
Disruption Event, NSCC would be entitled to (i) suspend the
provision of any or all services; and (ii) take, or refrain from
taking, or require Members and Limited Members to take, or refrain
from taking, any actions it considers appropriate to address,
alleviate, or mitigate the event and facilitate the continuation of
NSCC's services as may be practicable. Id.
\18\ This section of the R&W Plan would refer to the proposed
Wind-down Rule and the proposed Corporation Default Rule. See
Notice, supra note 4, at 847-49 (discussing wind-down), 849-51
(discussing the proposed Corporation Default Rule and the proposed
Wind-down Rule). The proposed Wind-down Rule would provide a
mechanism to implement the framework and approach for an orderly
wind-down if recovery tools do not successfully return NSCC to
financial viability. Id. at 847-51. As described more fully in the
Notice, the proposed Corporation Default Rule would provide a
mechanism for the termination, valuation, and netting of unsettled,
guaranteed Continuous Net Settlement (``CNS'') transactions in the
event NSCC is unable to perform its obligations or otherwise suffers
a defined event of default, such as entering insolvency proceedings
(``Corporation Default''). Id. at 849. Upon Corporation Default, the
proposed Corporation Default Rule would provide that all unsettled,
guaranteed CNS transactions would be terminated and, no later than
forty-five days from the date on which the event that constitutes a
Corporation Default occurred, the Board of Directors would determine
a single net amount owed by or to each Member with respect to such
transactions pursuant to the valuation procedures set forth in the
proposed Corporation Default Rule. Id.
\19\ See Notice, supra note 4, at 842.
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The framework and approach for orderly wind-down would provide (i)
for the transfer of NSCC's business, assets, and membership to another
legal entity; (ii) that NSCC would effectuate the transfer in
connection with proceedings under Chapter 11 of the U.S. Bankruptcy
Code; \20\ and (iii) that after effectuating this transfer, NSCC would
liquidate any remaining assets in an orderly manner in bankruptcy
proceedings.\21\ NSCC states that it believes that the proposed
transfer approach to a wind-down would meet its objectives of (i)
assuring that NSCC's critical services will be available to the market
as long as there are Members in good standing, and (ii) minimizing
disruption to the operations of Members and financial markets generally
that might be caused by NSCC's failure.\22\
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\20\ 11 U.S.C. 101 et seq.
\21\ See Notice, supra note 4, at 847.
\22\ Id.
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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 \23\ 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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\23\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\24\ 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,\25\ and the
rules thereunder, including the following provisions:
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\24\ Id.
\25\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Act,\26\ which requires, among
other things, that the rules of a clearing agency, such as NSCC, must
be designed 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; and
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\26\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(3)(ii) under the Act,\27\ which requires a
covered clearing agency,\28\ such as NSCC, to, among other things,
establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable, maintain a sound risk
management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by NSCC, which includes plans
for the recovery and orderly wind-down of NSCC necessitated by credit
losses, liquidity shortfalls, losses from general business risk, or any
other losses.
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\27\ 17 CFR 240.17Ad-22(e)(3)(ii).
\28\ See 17 CFR 240.17Ad-22(a)(5) for the definition of a
covered clearing agency.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and 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,\29\
Rule 17Ad-22(e)(3)(ii) under the Act,\30\ 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,\31\ any request for an opportunity to make an oral
presentation.\32\
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\29\ 15 U.S.C. 78q-1(b)(3)(F).
\30\ 17 CFR 240.17Ad-22(e)(3)(ii).
\31\ 17 CFR 240.19b-4(g).
\32\ 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
[[Page 12988]]
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,\33\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
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\33\ 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-2017-017 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-2017-017. 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 DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2017-017 and should be submitted on
or before April 16, 2018. Rebuttal comments should be submitted by
April 30, 2018.
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\34\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06022 Filed 3-23-18; 8:45 am]
BILLING CODE 8011-01-P
