Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change To Terminate the Commission Billing Service and the Commission Billing Limited Membership, 35041-35044 [2018-15766]

Download as PDF Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices days from that date, and September 21, 2018, is 240 days from that date. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,10 designates September 21, 2018, as the date by which the Commission shall either approve or disapprove the proposed rule change (File No. SR–NYSEArca– 2018–02). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–15768 Filed 7–23–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION TIME AND DATE: 2:00 p.m. on Thursday, July 26, 2018. Closed Commission Hearing Room 10800. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. Commissioner Jackson, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matters of the closed meeting will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. jstallworth on DSKBBY8HB2PROD with NOTICES PLACE: 10 Id. 11 17 CFR 200.30–3(a)(57). VerDate Sep<11>2014 13:59 Jul 23, 2018 For further information and to ascertain what, if any, matters have been added, deleted or postponed; please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. Dated: July 19, 2018. Brent J. Fields, Secretary. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2018–15858 Filed 7–20–18; 8:45 am] 1. Purpose NSCC is proposing to revise its Rules in order to discontinue its Commission Billing service and the Commission Billing type of limited membership, for the reasons described below. CONTACT PERSON FOR MORE INFORMATION: BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83666; File No. SR–NSCC– 2018–004] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change To Terminate the Commission Billing Service and the Commission Billing Limited Membership July 18, 2018. Sunshine Act Meetings Jkt 244001 35041 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 July 13, 2018, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the clearing agency. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change consists of amendments to Rules and Procedures of NSCC (‘‘Rules’’) in order to in order to terminate the Commission Billing service and the Commission Billing type of limited membership, as described in greater detail below.3 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Available at https://www.dtcc.com/legal/rulesand-procedures. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to such terms in the Rules. PO 00000 1 15 2 17 Frm 00061 Fmt 4703 Sfmt 4703 Overview of the Commission Billing Service As currently described in Rule 16, NSCC provides a service through which it facilitates the payment of commissions on monthly basis between its Members and Commission Billing Members.4 Brokers that use this service to charge and collect commissions are Commission Billing Members, which is a type of limited membership that allows these firms to participate in NSCC solely for the collection of commissions. Currently, Commission Billing Members are floor broker firms that are members of the New York Stock Exchange (‘‘NYSE’’) and NYSE American (formerly the American Stock Exchange), although historically the service was available to floor broker firms on any U.S. exchange. As provided for in Rule 2 of the Rules, Commission Billing Members participate solely in the collection and payment of commissions as provided for under Rule 16 of the Rules.5 Floor broker firms execute trades on behalf of their clients for a commission. In order to process commission charges applied to clients who are Members, floor broker firms that are Commission Billing Members may submit these charges to NSCC. Commission charges are submitted to NSCC in one of two ways. In most cases, where the Commission Billing Member is a member of NYSE, NYSE may act as a payment-data aggregator and creates and submits payment files to NSCC. Alternatively, Commission Billing Members may submit payments directly to NSCC through a web-based system. NSCC tabulates all payment records received on a monthly basis, and either sends amounts to The Depository Trust Company (‘‘DTC’’) for payment (for billed Members that are also Participants of DTC) or processes 4 Id. 5 Id. E:\FR\FM\24JYN1.SGM 24JYN1 35042 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices jstallworth on DSKBBY8HB2PROD with NOTICES payments through Automated Clearing House, or ‘‘ACH,’’ payments. For many years, the Commission Billing service provided these brokers and Members with an efficient way to submit and receive commission payments when few alternative payment options existed in the industry that would handle the large volume of transactions. Rationale for Terminating the Commission Billing Service and Commission Billing Limited Membership NSCC is proposing to terminate the Commission Billing service for a number of reasons, as described below. Because the Commission Billing type of limited membership exists only for the purposes of the use of this service, NSCC would terminate the existing Commission Billing memberships simultaneously with the termination of the service. Over the years, the volumes of trades handled by floor brokers firms have decreased, leading to a significant decrease in commission bill transactions and the use of this service. Between January 2017 and June 2018, the Commission Billing service processed an average of approximately 87 commission payments per month (averaging a total of approximately $370,000 each month), compared to an average of approximately 10,000 commission payments per month in the early 2000’s. The number of Commission Billing Members has also declined, with only seven new firms joining over the last eight years. Commission Billing Members have alternative methods to process commission payments. For example, firms may process the charges and payments through their own accounts payable systems, charging and collecting payments from their clients directly. Due to the lower volumes of commission payments, this is a more reasonable alternative to the Commission Billing Service than it may have been when volumes of payments were higher. Therefore, the industry’s reliance on this service, which was built to provide an efficient way to process large volumes of payments, has been diminishing. Since the introduction of the service, NSCC has provided the Commission Billing service as a utility service to the industry and its Members; the service provided its Members and the industry with value, but it was not designed to generate profit for NSCC. Over time, the reduced volumes of transactions has caused this service to be provided at a financial loss to NSCC. Costs of VerDate Sep<11>2014 13:59 Jul 23, 2018 Jkt 244001 providing the service include engaging an ACH settling bank and ongoing system operating costs. Additionally, due to the use of legacy systems that lack automation and support features, the service continues to rely on manual processes and requires personnel involvement. While errors in the operation of the service are infrequent, the reliance on manual processes creates a risk of such errors. Remediation of such errors, if they occur, could distract support resources from higher priority tasks. NSCC would be required to invest in enhancements to the systems that support the Commission Billing service if it continued to offer the service. Therefore, due to the reduced reliance on this service by the industry, the cost of providing this service, and the availability of other methods for Members and brokers to process these payments, NSCC is proposing to terminate the Commission Billing service. In order to terminate the Commission Billing service, NSCC would amend the Rules to remove Rule 16 (Settlement of Commissions) and to remove references to the Commission Billing type of limited membership from Rule 1 (Definitions and Descriptions), Rule 2 (Members and Limited Members), Rule 2A (Initial Membership Requirements), Rule 2B (Ongoing Membership Requirements and Monitoring), Rule 18 (Procedures for When the Corporation Declines or Ceases to Act), Rule 22 (Suspension of Rules), Rule 24 (Charges for Services Rendered), Rule 26 (Bills Rendered), Rule 34 (Insurance), Rule 37 (Hearing Procedures), Rule 46 (Restrictions on Access to Services), Rule 58 (Limitations on Liability), Rule 64 (DTCC Shareholders Agreement), Addendum A (Fee Structure), Addendum B (Qualifications and Standards of Financial Responsibility, Operational Capability and Business History), Addendum D (Statement of Policy Envelope Settlement Service, Mutual Fund Services, Insurance and Retirement Processing Services, and Other Services Offered by the Corporation), and Addendum P (Fine Schedule). NSCC would also make necessary conforming changes to Addendum B (Qualifications and Standards of Financial Responsibility, Operational Capability and Business History) and Rule 1 (Definitions and Descriptions). Finally, NSCC would add a legend to each of the above listed Rules and Addenda that identifies the implementation date of the proposed changes. PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 Implementation Timeframe Given that all current Commission Billing Members are floor broker members of NYSE and NYSE American, NSCC will work closely with these exchanges to provide these firms with notice of the proposed termination of this service and their related limited memberships with NSCC. NSCC also would provide these firms with time to transition to alternative methods for the submission of charges and receipt of commission payments. Subject to the approval of this proposed rule change filing, NSCC would implement this proposed rule change and terminate the Commission Billing service by no later than November 30, 2018. 2. Statutory Basis NSCC believes that the proposed changes are consistent with the Section 17A(b)(3)(F) of the Act, which 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, for the reasons described below.6 The proposed rule change would terminate a service that takes up various resources (through its reliance on manual operations and by operating at a financial loss) and is no longer relied on by Members and the industry. Because NSCC would no longer need to divert resources to an underutilized service, the proposed rule change would afford NSCC the ability to employ those resources in a manner that could better support and promote the prompt and accurate clearance and settlement of securities transactions. In that way, NSCC believes the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act.7 Rule 17Ad–22(e)(21)(iv) under the Act requires, in part, that NSCC be efficient and effective in meeting the requirements of its participants and the markets it serves, and have the covered clearing agency’s management regularly review the efficiency and effectiveness of its use of technology and communication procedures.8 As described above, to continue providing the Commission Billing service, NSCC would need to enhance the systems and technology used to operate the system in order to implement more automation and support features. However, given that the service currently operates at a financial loss and does not provide the industry with the same value that it has in the past, NSCC has determined that it would be more efficient and effective 6 15 U.S.C. 78q–1(b)(3)(F). 7 Id. 8 17 E:\FR\FM\24JYN1.SGM CFR 240.17Ad–22(e)(21)(iv). 24JYN1 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices jstallworth on DSKBBY8HB2PROD with NOTICES in meeting the requirements of its Members to eliminate the service and instead use its resources for higher priority services. Therefore, NSCC believes the proposed rule change is consistent with Rule 17Ad– 22(e)(21)(iv).9 (B) Clearing Agency’s Statement on Burden on Competition The proposed rule change could have an impact on competition because Commission Billing Members that currently use the service to process their commission bills, and firms that may apply to use the service in the future, would no longer be able to do so. However, NSCC does not believe that the impact of this proposed rule change on competition would be significant. First, the proposal is unlikely to have a significant impact because the use of the service has diminished over time, as described above. NSCC has not onboarded a new Commission Billing Member in over two years, and the number of active Commission Billing Members has declined over time. Therefore, elimination of the service is unlikely to impact many firms that may wish to join as Commission Billing Members in the future. Second, while current Commission Billing Members would need to use other methods to process commission payments, alternatives currently exist, including using their own accounts payable system. Given that volumes of commission bills have trended lower over the past few years, these firms should not incur a significant cost in processing commission bills and collecting commission payments through their own internal billing systems. Therefore, NSCC does not believe that the proposed rule change would have a significant impact on competition. NSCC also believes that any impact the proposed rule change may have on competition would be both necessary and appropriate in furtherance of the purposes of the Act. The proposed rule change would afford NSCC the option to utilize its resources for matters that better support and promote the prompt and accurate clearance and settlement of securities transactions, consistent with Section 17A(b)(3)(F) of the Act.10 The proposed rule change would also allow NSCC to be more efficient and effective in meeting the requirements of its Members by using its resources for higher priority services, consistent with Rule 17Ad–22(e)(21)(iv) under the Act.11 Therefore, by advancing NSCC’s ability to meet the requirements of both Section 17A(b)(3)(F) of the Act 12 and Rule 17Ad–22(e)(21)(iv) under the Act,13 NSCC believes any impact the proposed rule change may have on competition would be necessary in furtherance of the purposes of the Act. Additionally, NSCC believes that the proposed rule change is a reasonable method of advancing NSCC’s ability to meet these requirements. As noted above, Members’ use of this service has reduced over time, and the cost to NSCC of providing the service has outweighed the benefit it provides to the industry. NSCC would provide Members and Commission Billing Members with notice and time to transition to other viable methods for processing these payments. Therefore, NSCC believes the proposed rule change is a reasonable method of advancing NSCC’s ability to meet the requirements of both Section 17A(b)(3)(F) of the Act 14 and Rule 17Ad–22(e)(21)(iv) under the Act.15 Therefore, NSCC does not believe that the proposed rule change would have a significant impact on competition, and further believes that any such impact would be both necessary and appropriate in furtherance of the purposes of the Act. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others NSCC has not solicited or received any written comments relating to this proposal. NSCC will notify the Commission of any written comments that it receives. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. 9 Id. 10 15 U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 13:59 Jul 23, 2018 Jkt 244001 PO 00000 11 17 CFR 240.17Ad–22(e)(21)(iv). U.S.C. 78q–1(b)(3)(F). 13 17 CFR 240.17Ad–22(e)(21)(iv). 14 15 U.S.C. 78q–1(b)(3)(F). 15 17 CFR 240.17Ad–22(e)(21)(iv). 12 15 Frm 00063 Fmt 4703 Sfmt 4703 35043 IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NSCC–2018–004 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to File Number SR–NSCC–2018–004. 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– 2018–004 and should be submitted on or before August 14, 2018. E:\FR\FM\24JYN1.SGM 24JYN1 35044 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–15766 Filed 7–23–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83667; File No. SR–DTC– 2018–006] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Rule 35 To Provide for Designated Accounts for Use With Designated Collateral Management Service Providers July 18, 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 July 9, 2018, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the clearing agency. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change of DTC would amend Rule 35 3 to permit a Participant or Pledgee to designate one or more collateral management service providers,4 acting on behalf of the Participant or Pledgee, to receive reports and information from, and provide certain instructions to, DTC with respect to specified Accounts of the Participant or Pledgee. In addition, the proposed rule change would make ministerial changes to Rule 35, as discussed below. 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Each capitalized term not otherwise defined herein has its respective meaning as set forth in the Rules, By-Laws and Organization Certificate of The Depository Trust Company (the ‘‘Rules’’), available at https://www.dtcc.com/legal/rules-andprocedures.aspx. 4 Collateral management generally involves calculating collateral requirements and facilitating the transfer of collateral between counterparties. See Securities Exchange Act Release No. 64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (S7–28–11). jstallworth on DSKBBY8HB2PROD with NOTICES 1 15 VerDate Sep<11>2014 13:59 Jul 23, 2018 Jkt 244001 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change of DTC would amend Rule 35 to permit a Participant or Pledgee to designate one or more collateral management service providers, acting on behalf of the Participant or Pledgee, to receive reports and information from, and provide certain instructions to, DTC with respect to specified Accounts of the Participant or Pledgee. In addition, the proposed rule change would make ministerial changes to Rule 35, as discussed below. A. Background i. Rule 35 On May 4, 2017, the Commission approved a DTC rule change that added Rule 35.5 DTC introduced Rule 35 at the request of DTCC Euroclear Global Collateral Ltd. (‘‘DEGCL’’) 6 in accordance with DEGCL specifications. The purpose of Rule 35 was to permit a Participant to authorize DEGCL to receive certain reports and information with respect to Securities held by the Participant at DTC in one or more subaccounts (each, a ‘‘CMS Sub-Account’’) so that DEGCL might provide collateral management services with respect to such Securities.7 5 See Securities Exchange Act Release No. 80598 (May 4, 2017), 82 FR 21837 (May 10, 2017) (SR– DTC–2017–001). 6 DEGCL is a joint venture of The Depository Trust & Clearing Corporation, the corporate parent of DTC, and Euroclear S.A./N.V. and was formed for the purpose of offering global information, record keeping, and processing services for derivatives collateral transactions and other types of financing transactions. DEGCL offers service options for the selection of collateral to satisfy the collateral obligations of its users (‘‘DEGCL CMS’’). One option relates exclusively to Securities held at DTC, and is dependent on Rule 35. For more information on DEGCL and DEGCL CMS, see Securities Exchange Act Release No. 80280 (March 20, 2017), 82 FR 15081 (March 24, 2017) (SR–DTC–2017–001). 7 Rule 35 provides that by establishing a CMS Sub-Account, a Participant authorizes DEGCL to receive from DTC (x) a ‘‘CMS Report,’’ which PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 As DEGCL sought to expand its activities under Rule 35, which would have required one or more amendments to the rule, DTC considered whether a more comprehensive approach to Rule 35 might better serve the collateral management needs of its Participants and Pledgees. ii. Proposed Rule Changes The proposed rule change to amend Rule 35 would apply to any collateral management service provider that satisfies the requirements of the rule, and to any Account designated by a Participant or Pledgee. The amended rule would authorize DTC to provide information to the collateral management service provider (as it does for DEGCL currently) but, further, to act on instructions of the collateral management service provider. More specifically, the proposed rule change would: (1) Introduce the concept of a ‘‘CMSP,’’ a collateral management service provider designated to DTC by a Participant or Pledgee to act on behalf of the Participant or Pledgee under the proposed rule. The concept of a CMSP would replace the singular designation of DEGCL to act under this rule; 8 (2) Introduce the concept of a ‘‘CMSP Account,’’ an Account of a Participant or Pledgee that the Participant or Pledgee, respectively, has designated as subject to the proposed rule. The scope of a CMSP Account would replace the narrower concept of the existing CMS Sub-Account; 9 (3) Add the concept of a ‘‘CMSP Instruction,’’ an instruction of a CMSP to DTC for the Delivery, Pledge, or Release of Securities to or from a CMSP Account for which the CMSP is designated under the proposed rule; and (4) Introduce the defined terms ‘‘CMSP Position Report’’ and ‘‘CMSP Information’’ (collectively, ‘‘CMSP provides information regarding Securities credited to the CMS Sub-Account of such Participant at the time of the report, and (y) ‘‘CMS Delivery Information,’’ which provides real-time information regarding any Delivery or Pledge from, or Delivery or Release to, the CMS Sub-Account of such Participant. 8 DTC understands that DEGCL expects to be a CMSP under proposed Rule 35 and expects to offer collateral management services under the amended rule. 9 Rule 35 currently requires that a designated Account must be a sub-Account, and can only be designated by a Participant, which were DEGCL specifications. By expanding the rule to Accounts more generally, which could be designated by any Participant or Pledgee, the proposed rule would provide a Participant or a Pledgee flexibility to choose among CMSPs with different models for collateral management services and to structure its Accounts in a manner that aligns most efficiently with its collateral management needs and the specifications of its designated CMSP(s). E:\FR\FM\24JYN1.SGM 24JYN1

Agencies

[Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)]
[Notices]
[Pages 35041-35044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83666; File No. SR-NSCC-2018-004]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change To Terminate 
the Commission Billing Service and the Commission Billing Limited 
Membership

July 18, 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 July 13, 2018, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to Rules and 
Procedures of NSCC (``Rules'') in order to in order to terminate the 
Commission Billing service and the Commission Billing type of limited 
membership, as described in greater detail below.\3\
---------------------------------------------------------------------------

    \3\ Available at https://www.dtcc.com/legal/rules-and-procedures. 
Capitalized terms used herein and not otherwise defined shall have 
the meaning assigned to such terms in the Rules.
---------------------------------------------------------------------------

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

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

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

1. Purpose
    NSCC is proposing to revise its Rules in order to discontinue its 
Commission Billing service and the Commission Billing type of limited 
membership, for the reasons described below.
Overview of the Commission Billing Service
    As currently described in Rule 16, NSCC provides a service through 
which it facilitates the payment of commissions on monthly basis 
between its Members and Commission Billing Members.\4\ Brokers that use 
this service to charge and collect commissions are Commission Billing 
Members, which is a type of limited membership that allows these firms 
to participate in NSCC solely for the collection of commissions.
---------------------------------------------------------------------------

    \4\ Id.
---------------------------------------------------------------------------

    Currently, Commission Billing Members are floor broker firms that 
are members of the New York Stock Exchange (``NYSE'') and NYSE American 
(formerly the American Stock Exchange), although historically the 
service was available to floor broker firms on any U.S. exchange. As 
provided for in Rule 2 of the Rules, Commission Billing Members 
participate solely in the collection and payment of commissions as 
provided for under Rule 16 of the Rules.\5\
---------------------------------------------------------------------------

    \5\ Id.
---------------------------------------------------------------------------

    Floor broker firms execute trades on behalf of their clients for a 
commission. In order to process commission charges applied to clients 
who are Members, floor broker firms that are Commission Billing Members 
may submit these charges to NSCC. Commission charges are submitted to 
NSCC in one of two ways. In most cases, where the Commission Billing 
Member is a member of NYSE, NYSE may act as a payment-data aggregator 
and creates and submits payment files to NSCC. Alternatively, 
Commission Billing Members may submit payments directly to NSCC through 
a web-based system. NSCC tabulates all payment records received on a 
monthly basis, and either sends amounts to The Depository Trust Company 
(``DTC'') for payment (for billed Members that are also Participants of 
DTC) or processes

[[Page 35042]]

payments through Automated Clearing House, or ``ACH,'' payments.
    For many years, the Commission Billing service provided these 
brokers and Members with an efficient way to submit and receive 
commission payments when few alternative payment options existed in the 
industry that would handle the large volume of transactions.
Rationale for Terminating the Commission Billing Service and Commission 
Billing Limited Membership
    NSCC is proposing to terminate the Commission Billing service for a 
number of reasons, as described below. Because the Commission Billing 
type of limited membership exists only for the purposes of the use of 
this service, NSCC would terminate the existing Commission Billing 
memberships simultaneously with the termination of the service.
    Over the years, the volumes of trades handled by floor brokers 
firms have decreased, leading to a significant decrease in commission 
bill transactions and the use of this service. Between January 2017 and 
June 2018, the Commission Billing service processed an average of 
approximately 87 commission payments per month (averaging a total of 
approximately $370,000 each month), compared to an average of 
approximately 10,000 commission payments per month in the early 2000's. 
The number of Commission Billing Members has also declined, with only 
seven new firms joining over the last eight years. Commission Billing 
Members have alternative methods to process commission payments. For 
example, firms may process the charges and payments through their own 
accounts payable systems, charging and collecting payments from their 
clients directly. Due to the lower volumes of commission payments, this 
is a more reasonable alternative to the Commission Billing Service than 
it may have been when volumes of payments were higher. Therefore, the 
industry's reliance on this service, which was built to provide an 
efficient way to process large volumes of payments, has been 
diminishing.
    Since the introduction of the service, NSCC has provided the 
Commission Billing service as a utility service to the industry and its 
Members; the service provided its Members and the industry with value, 
but it was not designed to generate profit for NSCC. Over time, the 
reduced volumes of transactions has caused this service to be provided 
at a financial loss to NSCC. Costs of providing the service include 
engaging an ACH settling bank and ongoing system operating costs.
    Additionally, due to the use of legacy systems that lack automation 
and support features, the service continues to rely on manual processes 
and requires personnel involvement. While errors in the operation of 
the service are infrequent, the reliance on manual processes creates a 
risk of such errors. Remediation of such errors, if they occur, could 
distract support resources from higher priority tasks. NSCC would be 
required to invest in enhancements to the systems that support the 
Commission Billing service if it continued to offer the service.
    Therefore, due to the reduced reliance on this service by the 
industry, the cost of providing this service, and the availability of 
other methods for Members and brokers to process these payments, NSCC 
is proposing to terminate the Commission Billing service.
    In order to terminate the Commission Billing service, NSCC would 
amend the Rules to remove Rule 16 (Settlement of Commissions) and to 
remove references to the Commission Billing type of limited membership 
from Rule 1 (Definitions and Descriptions), Rule 2 (Members and Limited 
Members), Rule 2A (Initial Membership Requirements), Rule 2B (Ongoing 
Membership Requirements and Monitoring), Rule 18 (Procedures for When 
the Corporation Declines or Ceases to Act), Rule 22 (Suspension of 
Rules), Rule 24 (Charges for Services Rendered), Rule 26 (Bills 
Rendered), Rule 34 (Insurance), Rule 37 (Hearing Procedures), Rule 46 
(Restrictions on Access to Services), Rule 58 (Limitations on 
Liability), Rule 64 (DTCC Shareholders Agreement), Addendum A (Fee 
Structure), Addendum B (Qualifications and Standards of Financial 
Responsibility, Operational Capability and Business History), Addendum 
D (Statement of Policy Envelope Settlement Service, Mutual Fund 
Services, Insurance and Retirement Processing Services, and Other 
Services Offered by the Corporation), and Addendum P (Fine Schedule). 
NSCC would also make necessary conforming changes to Addendum B 
(Qualifications and Standards of Financial Responsibility, Operational 
Capability and Business History) and Rule 1 (Definitions and 
Descriptions). Finally, NSCC would add a legend to each of the above 
listed Rules and Addenda that identifies the implementation date of the 
proposed changes.
Implementation Timeframe
    Given that all current Commission Billing Members are floor broker 
members of NYSE and NYSE American, NSCC will work closely with these 
exchanges to provide these firms with notice of the proposed 
termination of this service and their related limited memberships with 
NSCC. NSCC also would provide these firms with time to transition to 
alternative methods for the submission of charges and receipt of 
commission payments. Subject to the approval of this proposed rule 
change filing, NSCC would implement this proposed rule change and 
terminate the Commission Billing service by no later than November 30, 
2018.
2. Statutory Basis
    NSCC believes that the proposed changes are consistent with the 
Section 17A(b)(3)(F) of the Act, which 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, for 
the reasons described below.\6\ The proposed rule change would 
terminate a service that takes up various resources (through its 
reliance on manual operations and by operating at a financial loss) and 
is no longer relied on by Members and the industry. Because NSCC would 
no longer need to divert resources to an underutilized service, the 
proposed rule change would afford NSCC the ability to employ those 
resources in a manner that could better support and promote the prompt 
and accurate clearance and settlement of securities transactions. In 
that way, NSCC believes the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(21)(iv) under the Act requires, in part, that NSCC 
be efficient and effective in meeting the requirements of its 
participants and the markets it serves, and have the covered clearing 
agency's management regularly review the efficiency and effectiveness 
of its use of technology and communication procedures.\8\ As described 
above, to continue providing the Commission Billing service, NSCC would 
need to enhance the systems and technology used to operate the system 
in order to implement more automation and support features. However, 
given that the service currently operates at a financial loss and does 
not provide the industry with the same value that it has in the past, 
NSCC has determined that it would be more efficient and effective

[[Page 35043]]

in meeting the requirements of its Members to eliminate the service and 
instead use its resources for higher priority services. Therefore, NSCC 
believes the proposed rule change is consistent with Rule 17Ad-
22(e)(21)(iv).\9\
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(21)(iv).
    \9\ Id.
---------------------------------------------------------------------------

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

    The proposed rule change could have an impact on competition 
because Commission Billing Members that currently use the service to 
process their commission bills, and firms that may apply to use the 
service in the future, would no longer be able to do so. However, NSCC 
does not believe that the impact of this proposed rule change on 
competition would be significant. First, the proposal is unlikely to 
have a significant impact because the use of the service has diminished 
over time, as described above. NSCC has not onboarded a new Commission 
Billing Member in over two years, and the number of active Commission 
Billing Members has declined over time. Therefore, elimination of the 
service is unlikely to impact many firms that may wish to join as 
Commission Billing Members in the future. Second, while current 
Commission Billing Members would need to use other methods to process 
commission payments, alternatives currently exist, including using 
their own accounts payable system. Given that volumes of commission 
bills have trended lower over the past few years, these firms should 
not incur a significant cost in processing commission bills and 
collecting commission payments through their own internal billing 
systems. Therefore, NSCC does not believe that the proposed rule change 
would have a significant impact on competition.
    NSCC also believes that any impact the proposed rule change may 
have on competition would be both necessary and appropriate in 
furtherance of the purposes of the Act.
    The proposed rule change would afford NSCC the option to utilize 
its resources for matters that better support and promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\10\ The proposed rule 
change would also allow NSCC to be more efficient and effective in 
meeting the requirements of its Members by using its resources for 
higher priority services, consistent with Rule 17Ad-22(e)(21)(iv) under 
the Act.\11\ Therefore, by advancing NSCC's ability to meet the 
requirements of both Section 17A(b)(3)(F) of the Act \12\ and Rule 
17Ad-22(e)(21)(iv) under the Act,\13\ NSCC believes any impact the 
proposed rule change may have on competition would be necessary in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(e)(21)(iv).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(21)(iv).
---------------------------------------------------------------------------

    Additionally, NSCC believes that the proposed rule change is a 
reasonable method of advancing NSCC's ability to meet these 
requirements. As noted above, Members' use of this service has reduced 
over time, and the cost to NSCC of providing the service has outweighed 
the benefit it provides to the industry. NSCC would provide Members and 
Commission Billing Members with notice and time to transition to other 
viable methods for processing these payments. Therefore, NSCC believes 
the proposed rule change is a reasonable method of advancing NSCC's 
ability to meet the requirements of both Section 17A(b)(3)(F) of the 
Act \14\ and Rule 17Ad-22(e)(21)(iv) under the Act.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(21)(iv).
---------------------------------------------------------------------------

    Therefore, NSCC does not believe that the proposed rule change 
would have a significant impact on competition, and further believes 
that any such impact would be both necessary and appropriate in 
furtherance of the purposes of the Act.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2018-004 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2018-004. 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-2018-004 and should be submitted on 
or before August 14, 2018.


[[Page 35044]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15766 Filed 7-23-18; 8:45 am]
BILLING CODE 8011-01-P
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