Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify the Rules That Describe the Buy-In Process, 48880-48884 [2018-20997]
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Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20998 Filed 9–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84259; File No. SR–NSCC–
2018–007]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Clarify the Rules That
Describe the Buy-In Process
September 21, 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
September 19, 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. NSCC filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(4)
thereunder.4 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
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The proposed rule change consists of
modifications to the Rules and
Procedures of NSCC (‘‘Rules’’) 5 in order
to enhance the rules and procedures
that describe the process by which a
Member entitled to receive securities
from the Corporation, where such
securities have failed to deliver, may
submit a notice of its intent to purchase,
or ‘‘buy-in,’’ any or all of such securities
and the processing of the subsequent
execution of that buy-in. The proposed
changes would not change how buy-ins
are processed at NSCC, but would
clarify and simplify the rules that
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
5 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.
1 15
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govern this processing, as described
below.
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 make certain
revisions to Rule 10 (Failure to Deliver
on Security Balance Orders), Section 7
of Rule 11 (CNS System), Section J of
Procedure VII (CNS Accounting
Operation), and Sections A and B of
Procedure X (Execution of Buy-Ins) of
the Rules, which describe the process by
which a Member entitled to receive
securities (such quantity of securities is
defined in the Rules as that Member’s
‘‘Long Position’’), where such securities
have failed to deliver, may provide
NSCC with notice of its intent to buyin any or all of its Long Position.6 These
rules also describe the processing of the
subsequent execution of that buy-in.
First, the proposed changes would
update and simplify the Rules by
removing statements that do not provide
important information to Members
regarding the buy-in processing service,
and NSCC believes this proposed
change would make the Rules clearer
and more easily understood by
Members. For example, these proposed
changes would remove descriptions of
processing that do not occur at NSCC,
and descriptions of rules that are not
enforced by NSCC.
Second, the proposed changes would
revise, clarify and enhance the
transparency of these rules by, for
example, (1) reorganizing the rules
governing buy-in processing such that
they appear in fewer places in the Rules,
(2) revising certain statements and
adding new descriptions of buy-in
processing to improve the transparency
of these rules, and (3) correcting and
updating the uses of defined terms.
NSCC believes making these
descriptions clearer would enhance
6 Id.
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Members’ understanding of their rights
and obligations in connection with this
service.
Each of these proposed changes is
described below.
(i) Overview of the Buy-In Process
Under the Rules, a Member with a
Long Position (referred to as the
‘‘originator’’) may submit to NSCC a
notice of its intention to buy-in any or
all of its Long Position. Such notice is
currently referred in the Rules as
‘‘Notice of Intention to Buy-In’’ and a
‘‘Buy-In Notice’’ and must specify the
quantity of securities, not exceeding the
originator’s Long Position, it intends to
buy-in (such quantity of securities is
referred to as the ‘‘Buy-In Position’’). As
described in Section J of Procedure VII
of the Rules, Buy-In Notices may be
either (1) submitted directly to NSCC by
the originator, and such Buy-In Notices
are referred to as an ‘‘Original Buy-In
Notice,’’ or (2) submitted directly to
NSCC by the originator as a ‘‘Buy-In
Retransmittal Notice’’ after the
originator has received notice that is has
failed to deliver securities away from
NSCC. References to Buy-In Notices
include both Original Buy-In Notices
and Buy-In Retransmittal Notices.
The day the Buy-In Notice is
submitted to NSCC is referred to as N,
and N+1 and N+2 refer to the
succeeding days. Original Buy-In
Notices expire on N+2 and Buy-In
Retransmittal Notices expire on N+1.
The Buy-In Position is given high
priority for allocation in NSCC’s
Continuous Net Settlement (‘‘CNS’’) 7
system through the completion of CNS
allocations in the day cycle on the day
the buy-in expires.
If, with respect to Original Buy-In
Notices, a Buy-in Position remains
unfilled after the completion of the CNS
allocation in the evening cycle on N+1,
or shortly after the receipt of a Buy-In
Retransmittal Notice, NSCC issues CNS
Retransmittal Notices to those Members
with the oldest Short Positions in those
securities in an amount equal to the
originator’s Long Position. Such notices
specify the originator and the total
quantity of securities requested in the
Buy-In Notice. If several Members have
Short Positions with the same age, all
7 CNS is an on-going accounting system which
nets each day’s settling trades with the prior day’s
closing positions, producing new Short or Long
Positions per security issue for each Member. NSCC
is always the contra side for all positions. The
positions are then passed against the Member’s
Designated Depository positions and available
securities are allocated by book-entry. This
allocation of securities is accomplished through an
evening cycle followed by a day cycle. CNS and its
operation are described in Rule 11 and Procedure
VII of the Rules. Supra note 5.
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such Members are issued CNS
Retransmittal Notices, even if the total
of their Short Position exceeds the BuyIn Position.
On the expiration of the Buy-In
Notice, if the Buy-In Position is still not
satisfied, either in full or in part, the
originator may submit to NSCC a BuyIn Order, which notifies NSCC that the
originator intends to purchase the
remaining securities (i.e., execute a buyin for the remaining securities). If a
Member does not submit the Buy-In
Order by the time specified by NSCC,
that Member’s notice to NSCC of its
intent to submit a buy-in on a Buy-In
Position (referred to as the ‘‘Buy-In
Intent’’) is canceled. If a Member does
submit the Buy-In Order by that time, it
may subsequently execute the buy-in
and then submit to NSCC a Buy-In
Execution, notifying NSCC of the
position and price of the execution.
NSCC would then allocate the quantity
bought in among the Members with
Short Positions that have been
identified on a CNS Retransmittal
Notice.
(ii) Rationale for the Proposed Changes
In connection with a review of its
Rules, NSCC identified opportunities to
improve and update the rules describing
buy-in processing in order to improve
transparency to Members. For example,
NSCC identified opportunities to
reorganize the Rules such that the
descriptions of buy-in processing occur
in fewer places and the Rules are less
repetitive. NSCC also identified
opportunities remove statements that
describe processing that occurs away
from its facilities, and does not provide
Members with important information
regarding the processing of buy-ins at
NSCC. Overall, NSCC believes these
proposed changes would simplify the
Rules and, thereby, improve Members’
understanding of their rights and
obligations, and NSCC’s rights and
obligations, in connection with the
processing of buy-ins.
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(iii) Proposed Changes To Update and
Simplify the Rules
NSCC is proposing to update and
simplify the Rules that describe the
processing of buy-ins by, for example,
reorganizing the Rules and removing
repetitive descriptions, removing
descriptions of processing that occurs
away from NSCC, and removing
descriptions of discretionary rules that
does not enforce. NSCC believes that
these proposed changes would make the
rules clearer and more easily
understood by Members.
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a. Proposed Change To Move All
Processing Rules Into the Procedures
statement regarding the possibility that
such time would be modified.
NSCC is proposing to revise and
simplify the Rules by moving all
processing rules out of Section 7 of Rule
11 of the Rules and into Section J of
Procedure VII of the Rules, and then
revising these statements to avoid
repetition with statements that are
already within Section J of Procedure
VII of the Rules. In connection with this
proposed change, NSCC would add to
Section 7 of Rule 11 of the Rules a crossreference to the rules for buy-in
processing set forth in Procedure VII
and the rules for execution of buy-ins
set forth in Procedure X of the Rules.
NSCC believes that these proposed
changes would improve the
transparency of the Rules by disclosing
the processing rules in fewer locations
in the Rules, and would simplify the
Rules by removing repetitive statements.
d. Proposed Change To Remove
Statements That Describe Internal
Processes
NSCC is proposing to remove
statements in Procedure X of the Rules
that describe the steps NSCC takes
internally to reflect the execution of a
buy-in, but would retain the statement
that such execution would be reported
to Members through an existing report
on the business day following the
execution. NSCC believes that this
proposed change would simplify the
Rules by removing the description of
internal processing that does not
provide Members with important
information regarding the processing of
buy-ins. NSCC believes that the
proposed change would continue to
provide Members with information that
is useful to them regarding NSCC’s
obligation to report executions to
Members. By simplifying the Rules,
NSCC believes that the proposed change
would make the Rules more transparent
with respect to information that is
important to Members regarding buy-in
processing.
b. Proposed Change To Remove
Discretionary Fee for Unexecuted BuyIn Notices
NSCC is proposing to remove from the
Rules a discretionary fee that NSCC may
charge if a Member submits a Buy-In
Notice but does not later execute that
buy-in. Before adopting an automated
process, the processing of buy-ins by
NSCC was largely manual.8 This fee was
intended to off-set the resources
required to process a Buy-In Order that
was later not executed, and to encourage
Members to submit a Buy-In Order only
when they intended to later execute that
buy-in. NSCC has not charged this fee
since the automation of the processing
of buy-ins, over ten years ago. As such,
NSCC is proposing to remove this
discretionary fee from Section 7(e) from
Rule 11 of the Rules, in order to reflect
its practice of not charging this fee.
c. Proposed Change To Remove
Discretion To Adjust Timing of Buy-In
Execution
NSCC is proposing to revise a
statement in Section J of Procedure VII
that a buy-in may be executed if the
Buy-In Position has not been satisfied
by either a time specified in the Rules,
or, due to market events, such earlier
time as established by NSCC upon five
business days’ notice. NSCC has never
exercised its discretion to adjust the
time when a buy-in may be executed as
a result of market events. Therefore, the
proposed changes would remove this
8 See Securities Exchange Act Release No. 53032
(December 28, 2005), 71 FR 1457 (January 9, 2006)
(SR–DTC–2005–19), which approved the proposal
of NSCC’s affiliate, The Depository Trust Company,
to adopt an internet-based facility for the processing
of buy-ins called SMART/Track for Buy-Ins.
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e. Proposed Change To Remove
Description of Buy-In Processing for
Balance Orders
NSCC is proposing to remove Section
B of Procedure X of the Rules, which
describes buy-in processing for
transactions in Balance Order
Securities, and to revise Rule 10 to
clarify that such processing occurs away
from NSCC and pursuant to the rules of
the applicable marketplace. Currently,
Section B of Procedure X of the Rules
describes the rules that govern a buy-in
for transactions in Balance Order
Securities. However, these rules apply
to a process that occurs entirely away
from NSCC. The rules set forth in
Section B of Procedure X are intended
to mirror Rule 11810 of the Financial
Industry Regulatory Authority
(‘‘FINRA’’), which governs the
processing of buy-ins that are not
otherwise subject to the rules of a
registered clearing agency.9
NSCC is not involved in the
processing of buy-ins for Balance Order
Securities, which are subject to either
FIRNA Rule 11810, the rules of a
national securities exchange, or the
rules of another registered clearing
agency, as applicable. Therefore, in
order to avoid any confusion regarding
NSCC’s involvement in this processing,
9 See FIRNA Rule 11810 (Buy-In Procedures and
Requirements), available at https://
finra.complinet.com/en/display/display_
main.html?rbid=2403&element_id=9699.
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and to avoid providing Members with
rules that are available elsewhere (i.e.,
FINRA Rule 11810), NSCC is proposing
to remove Section B of Procedure X of
the Rules. The proposed change would
also revise Rule 10 of the Rules to
clarify that these buy-ins are subject to
the rules of the applicable marketplace,
which, NSCC believes, will provide
Members with clarity regarding where
to find the rules that govern these buyins.
(iv) Proposed Changes To Revise, Clarify
and Enhance the Rules
NSCC is proposing to revise and
clarify the Rules in order to enhance the
transparency of the descriptions of buyin processing. These changes would
include reorganizing the Rules by
including subheadings and moving
statements regarding the same steps in
buy-in processing so they appear
together. The proposed changes would
also clarify and simplify statements to
more clearly and directly describe the
rights and obligations of both Members
and NSCC in buy-in processing. Finally,
the proposed changes would correct the
use of certain defined terms. NSCC
believes these proposed changes would
improve the readability of the Rules,
making them more transparent to
Members and, thereby, improving
Members’ understanding of the
processing of buy-ins.
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a. Proposed Change To Reorganize
Section J.1 of Procedure VII of the Rules
NSCC is proposing to re-organize
Section J.1 of Procedure VII of the Rules
by moving the definitions of terms used
within this Section to the same location
at the beginning of the Section, and then
using subheadings throughout the
Section to more clearly identify the
different steps in buy-in processing.
Such subheadings would appear in
chronological order and would include,
‘‘Defined Terms,’’ ‘‘Buy-In Intent,’’
‘‘CNS Allocation Priority and CNS
Retransmittal Notices,’’ and ‘‘Buy-In
Execution.’’ This proposed change
would enhance the transparency of the
Rules by more clearly identifying for
Members the defined terms used in this
Section, and the different steps of buyin processing.
b. Proposed Change to Descriptions of
Processing Buy-Ins for Municipal
Securities
NSCC is proposing to amend Section
7 of Rule 11 of the Rules to move
information related to the processing of
buy-ins for positions in municipal
securities out of a footnote and into the
body of this Rule. The proposed change
would make this statement clearer to
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Members and would improve their
understanding of the processing of these
buy-ins. In connection with this change,
NSCC is proposing changes that would
clarify Section J of Procedure VII of the
Rules by creating titles for the two
existing subheadings. These subtitles
would clarify that Section J.1 describes
rules applicable to buy-ins for positions
in equity securities and corporate debt
securities, and Section J.2 describes
rules applicable to buy-ins for positions
in municipal securities.
Also in connection with these
changes, NSCC is proposing to revise
the title of the current Section A of
Procedure X of the Rules to clarify that
the rules in this section are applicable
only to the processing of buy-ins for
positions in equity securities and
corporate debt securities. NSCC is also
proposing to remove from Section A of
Procedure X of the Rules the description
of processing of buy-ins for positions in
municipal securities, as these
descriptions are already included in
both Section 7 of Rule 11 and Section
J.2 of Procedure VII of the Rules. NSCC
believes that these revisions would
provide Members with both enhanced
transparency with respect to the
processing buy-ins for positions in
municipal securities, and while still
simplifying the Rules by removing
repetitive statements.
c. Proposed Change To Clarify the
Method of Delivery of Notices
NSCC is proposing to revise
references in Section J of Procedure VII
of the Rules to the ‘‘filing’’ of notices
with NSCC, with the ‘‘submission’’ of
such notices to NSCC. This proposed
change would not alter the meaning of
these statements, but would describe the
method of delivering these notices to
NSCC in a way that conforms to similar
statements in other places in the Rules.
d. Proposed Change To Revise Cut-Off
Times in Buy-In Processing
NSCC is proposing to revise
references to the time, on the applicable
date, after which (1) a buy-in may be
executed if the Buy-In Position has not
been satisfied, as provided for in
Section J.1 of Procedure VII of the Rules,
and (2) Members with the oldest Short
Positions on the expiration date of a
Buy-In Intent would be first held liable
for the execution of that buy-in, as
provided for in the current Section A of
Procedure X of the Rules. Currently,
both of these cut-off times are specified
in the Rules as 3:00 p.m. on the
applicable date. NSCC is proposing to
change this time to the conclusion of the
CNS allocation in the day cycle, which
generally occurs around 3:00 p.m. EST
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each business day. The current specified
time of 3:00 p.m. was intended to align
with the conclusion of the CNS
allocation in the day cycle because a
Buy-In Position may be satisfied, in
whole or in part, during this allocation
process. Therefore, NSCC believes that
the proposed change would more
clearly specify the event that was
intended as the cut-off time trigger in
both of these circumstances, and would
avoid any unintended consequences of
this cut-off time occurring prior to the
completion of this CNS allocation.
e. Proposed Change To Clarify
Submission of Buy-In Order and Buy-In
Execution
NSCC is proposing to add statements
to clarify the distinction between the
Buy-In Order and the subsequent BuyIn Execution notices. Currently,
Procedure X does not clearly specify
that an originator must submit a Buy-In
Order on the expiration date of a BuyIn Intent, prior to submitting a Buy-In
Execution later that same day. In order
to more clearly identify these two,
separate notices, and the consequences
of failing to properly submit either on
the expiration date of the Buy-In Order,
the proposed changes would (1) revise
existing statements to clarify that the
Buy-In Order and the Buy-In Execution
are two separate, required notifications,
(2) relocate the statement that an
originator that has not submitted a BuyIn Order may not later submit a Buy-In
Execution and is required to
recommence the buy-in process by
submitting a new Buy-In Intent, and (3)
add a parallel statement that an
originator that has submitted a Buy-In
Order but does not later execute that
buy-in must recommence the buy-in
process be submitting a new Buy-In
Intent. These proposed changes would
more clearly identify the notifications
that are required to be submitted in
connection with the execution of a buyin, and the consequences of failing to
submit either of these notifications.
NSCC believes that this proposed
change would improve the transparency
of the Rules regarding Member’s
obligations in connection with this
process.
f. Proposed Change To Clarify Rules
Regarding Execution of a Buy-In
NSCC is proposing to clarify in
Procedure X the process by which buyins are executed. This proposed change
would make clearer that an originator
must provide NSCC with the details of
the execution after the execution is
completed to allow NSCC to reflect the
positions by journal entry. This
proposed change would also provide
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Members with notice that NSCC is not
responsible for verifying the terms of the
an executed buy-in that are reported to
NSCC by an originator, and that any
disputes regarding such terms should be
addressed away from NSCC. Finally,
this proposed change would remove a
note that states a Buy-In Order should
contain instructions regarding the
execution of buy-ins. This information
is not required by NSCC in a Buy-In
Order. NSCC believes that this proposed
change would provide Members with
more transparency regarding their rights
and obligations with respect to the
execution of buy-ins by more clearly
describing the process.
g. Proposed Change To Revise and
Correct Defined Terms
NSCC is proposing to revise and
correct the defined terms used in the
rules that describe buy-in processing.
This proposed change would revise the
use of the term ‘‘Notice of Intention to
Buy-In’’ and ‘‘Buy-In Notice,’’ which are
currently used interchangeably, with a
new defined term, ‘‘Buy-In Intent.’’ This
proposed change would ensure
consistent use of one defined term to
refer to this notice, and would use a
new term that is both brief and
descriptive of the purpose of this notice.
In connection with this proposed
change, NSCC would also replace
references to the ‘‘Buy-In Notice’’ in
Sections E.3 and E.4 of Procedure VII
with ‘‘Buy-In Intent’’ and ‘‘Buy-In Intent
notices,’’ as applicable.
NSCC is also proposing to revise a
reference to ‘‘tender offer’’ in Section J
of Procedure VII of the Rules, to refer
more generally to ‘‘voluntary
reorganizations.’’ The sentence where
this term appears states that, with
respect to securities subject to voluntary
reorganizations, Members may not
submit a Buy-In Intent after the
expiration of the event. Currently the
sentence only refers to the expiration
date of the tender offer, but was
intended to more generally include any
voluntary reorganization events. NSCC
believes that the proposed change
would clarify the intended meaning of
this sentence.
Finally, NSCC is proposing to correct
and update the uses of terms that are
defined elsewhere in the Rules. For
example, the proposed changes would
use the capitalized, defined terms for
Long Position and Short Position, when
appropriate. In connection with this
change, the proposed changes would
also correct internal cross-references to
refer to ‘‘Section,’’ where the term
‘‘paragraph’’ is currently used, and to
refer to ‘‘Procedure,’’ where the term
‘‘section’’ is currently used, for example.
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NSCC believes that this proposed
change would improve Members’ ability
to understand these Rules.
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.10 As
described above, the proposed rule
change is designed to increase
transparency of the Rules by
simplifying, updating and revising the
descriptions of the processing of buyins. The buy-in process promotes the
prompt and accurate clearance and
settlement of securities transactions by
providing Members with Long Positions
with a process that facilitates the
purchase of securities when delivery of
such securities previously failed. NSCC
believes that the proposed changes to
enhance the description of this process
in the Rules and help Members to more
readily understand their rights and
obligations in connection with the use
of this service would facilitate the
functioning of the buy-in process. As
such, the proposed changes would
promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.11
Rule 17Ad–22(e)(23)(i) under the Act
requires, in part, that NSCC establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to provide for
publicly disclosing all relevant rules
and material procedures.12 As described
above, the proposed rule change would
improve the transparency, clarity and
accuracy of the Rules such that these
provisions of the Rules would better
disclose all relevant and material
aspects of the buy-in process. Therefore,
NSCC believes the proposed rule
changes are consistent with Rule 17Ad–
22(e)(23)(i).13
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC does not believe that the
proposed rule changes would have any
impact, or impose any burden, on
competition. The proposed rule changes
are designed to improve Members’
understanding of their rights and
obligations with respect to the use of the
buy-in processing service. These
10 15
U.S.C. 78q–1(b)(3)(F).
proposed changes would be applicable
to all Members that utilize this service,
and would not alter Members’ rights or
obligations. Therefore, NSCC does not
believe that the proposed rule changes
would have any impact on competition.
(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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 14 and paragraph (f) of Rule
19b–4 thereunder.15 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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–2018–007 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–2018–007. 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
11 Id.
12 17
CFR 240.17Ad–22(e)(23)(i).
13 Id.
PO 00000
Frm 00091
14 15
15 17
Fmt 4703
Sfmt 4703
48883
E:\FR\FM\27SEN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
27SEN1
48884
Federal Register / Vol. 83, No. 188 / Thursday, September 27, 2018 / Notices
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–
2018–007 and should be submitted on
or before October 18, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20997 Filed 9–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33244; 812–14906]
Distillate Capital Partners LLC, et al.
September 24, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
daltland on DSKBBV9HB2PROD with NOTICES
AGENCY:
Notice of an application for an order
under section 6(c) of the Investment
Company Act of 1940 (the ‘‘Act’’) for an
exemption from sections 2(a)(32),
5(a)(1), 22(d), and 22(e) of the Act and
rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act. The requested order would
permit (a) index-based series of certain
open-end management investment
companies (‘‘Funds’’) to issue shares
16 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:20 Sep 26, 2018
Jkt 244001
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Fund shares to occur at
negotiated market prices rather than at
net asset value (‘‘NAV’’); (c) certain
Funds to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of shares for
redemption; (d) certain affiliated
persons of a Fund to deposit securities
into, and receive securities from, the
Fund in connection with the purchase
and redemption of Creation Units; and
(e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
Funds (‘‘Funds of Funds’’) to acquire
shares of the Funds.
APPLICANTS: Distillate Capital Partners
LLC (the ‘‘Initial Adviser’’), an Illinois
limited liability company that is
registered as an investment adviser
under the Investment Advisers Act of
1940, ETF Series Solutions (the
‘‘Trust’’), a Delaware statutory trust
registered under the Act as an open-end
management investment company with
multiple series, and Quasar Distributors,
LLC, (the ‘‘Distributor’’), a Delaware
limited liability company and brokerdealer registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’).
FILING DATES: The application was filed
on May 17, 2018, and amended on
August 29, 2018.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 19, 2018, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit, or for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–1090;
Applicants: Distillate Capital Partners
LLC, 53 West Jackson Blvd., Suite 530,
Chicago, Illinois 60604; ETF Series
Solutions, 615 East Michigan Street,
Milwaukee, Wisconsin 53202; Quasar
Distributors, LLC, 777 East Wisconsin
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
Avenue, 6th Floor, Milwaukee,
Wisconsin, 53202.
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel, at
(202) 551–6990, or Andrea Ottomanelli
Magovern, Branch Chief, at (202) 551–
6821 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Summary of the Application
1. Applicants request an order that
would allow Funds to operate as index
exchange traded funds (‘‘ETFs’’).1 Fund
shares will be purchased and redeemed
at their NAV in Creation Units only. All
orders to purchase Creation Units and
all redemption requests will be placed
by or through an ‘‘Authorized
Participant,’’ which will have signed a
participant agreement with the
Distributor. Shares will be listed and
traded individually on a national
securities exchange, where share prices
will be based on the current bid/offer
market. Any order granting the
requested relief would be subject to the
terms and conditions stated in the
application.
2. Each Fund will hold investment
positions selected to correspond
generally to the performance of an
Underlying Index. In the case of SelfIndexing Funds, an affiliated person, as
defined in section 2(a)(3) of the Act
(‘‘Affiliated Person’’), or an affiliated
person of an Affiliated Person (‘‘SecondTier Affiliate’’), of the Trust or a Fund,
of the Adviser, of any sub-adviser to or
promoter of a Fund, or of the Distributor
will compile, create, sponsor or
maintain the Underlying Index.2
1 Applicants request that the order apply to the
Distillate U.S. Fundamental Stability & Value ETF
and any additional series of the Trust and any other
open-end management investment company or
series thereof (each, included in the term ‘‘Fund’’),
each of which will operate as an ETF and will track
a specified index comprised of domestic and/or
foreign equity securities and/or domestic and/or
foreign fixed income securities (each, an
‘‘Underlying Index’’). Each Fund will (a) be advised
by the Initial Adviser or an entity controlling,
controlled by, or under common control with the
Initial Adviser (each such entity and any successor
thereto, an ‘‘Adviser’’) and (b) comply with the
terms and conditions of the application. For
purposes of the requested order, the term
‘‘successor’’ is limited to an entity or entities that
result from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 Each Self-Indexing Fund will post on its website
the identities and quantities of the investment
E:\FR\FM\27SEN1.SGM
27SEN1
]]>Agencies
[Federal Register Volume 83, Number 188 (Thursday, September 27, 2018)]
[Notices]
[Pages 48880-48884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84259; File No. SR-NSCC-2018-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Clarify the Rules That Describe the Buy-In Process
September 21, 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 September 19, 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.
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(4) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to the Rules and
Procedures of NSCC (``Rules'') \5\ in order to enhance the rules and
procedures that describe the process by which a Member entitled to
receive securities from the Corporation, where such securities have
failed to deliver, may submit a notice of its intent to purchase, or
``buy-in,'' any or all of such securities and the processing of the
subsequent execution of that buy-in. The proposed changes would not
change how buy-ins are processed at NSCC, but would clarify and
simplify the rules that govern this processing, as described below.
---------------------------------------------------------------------------
\5\ 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 make certain revisions to Rule 10 (Failure to
Deliver on Security Balance Orders), Section 7 of Rule 11 (CNS System),
Section J of Procedure VII (CNS Accounting Operation), and Sections A
and B of Procedure X (Execution of Buy-Ins) of the Rules, which
describe the process by which a Member entitled to receive securities
(such quantity of securities is defined in the Rules as that Member's
``Long Position''), where such securities have failed to deliver, may
provide NSCC with notice of its intent to buy-in any or all of its Long
Position.\6\ These rules also describe the processing of the subsequent
execution of that buy-in.
---------------------------------------------------------------------------
\6\ Id.
---------------------------------------------------------------------------
First, the proposed changes would update and simplify the Rules by
removing statements that do not provide important information to
Members regarding the buy-in processing service, and NSCC believes this
proposed change would make the Rules clearer and more easily understood
by Members. For example, these proposed changes would remove
descriptions of processing that do not occur at NSCC, and descriptions
of rules that are not enforced by NSCC.
Second, the proposed changes would revise, clarify and enhance the
transparency of these rules by, for example, (1) reorganizing the rules
governing buy-in processing such that they appear in fewer places in
the Rules, (2) revising certain statements and adding new descriptions
of buy-in processing to improve the transparency of these rules, and
(3) correcting and updating the uses of defined terms. NSCC believes
making these descriptions clearer would enhance Members' understanding
of their rights and obligations in connection with this service.
Each of these proposed changes is described below.
(i) Overview of the Buy-In Process
Under the Rules, a Member with a Long Position (referred to as the
``originator'') may submit to NSCC a notice of its intention to buy-in
any or all of its Long Position. Such notice is currently referred in
the Rules as ``Notice of Intention to Buy-In'' and a ``Buy-In Notice''
and must specify the quantity of securities, not exceeding the
originator's Long Position, it intends to buy-in (such quantity of
securities is referred to as the ``Buy-In Position''). As described in
Section J of Procedure VII of the Rules, Buy-In Notices may be either
(1) submitted directly to NSCC by the originator, and such Buy-In
Notices are referred to as an ``Original Buy-In Notice,'' or (2)
submitted directly to NSCC by the originator as a ``Buy-In
Retransmittal Notice'' after the originator has received notice that is
has failed to deliver securities away from NSCC. References to Buy-In
Notices include both Original Buy-In Notices and Buy-In Retransmittal
Notices.
The day the Buy-In Notice is submitted to NSCC is referred to as N,
and N+1 and N+2 refer to the succeeding days. Original Buy-In Notices
expire on N+2 and Buy-In Retransmittal Notices expire on N+1. The Buy-
In Position is given high priority for allocation in NSCC's Continuous
Net Settlement (``CNS'') \7\ system through the completion of CNS
allocations in the day cycle on the day the buy-in expires.
---------------------------------------------------------------------------
\7\ CNS is an on-going accounting system which nets each day's
settling trades with the prior day's closing positions, producing
new Short or Long Positions per security issue for each Member. NSCC
is always the contra side for all positions. The positions are then
passed against the Member's Designated Depository positions and
available securities are allocated by book-entry. This allocation of
securities is accomplished through an evening cycle followed by a
day cycle. CNS and its operation are described in Rule 11 and
Procedure VII of the Rules. Supra note 5.
---------------------------------------------------------------------------
If, with respect to Original Buy-In Notices, a Buy-in Position
remains unfilled after the completion of the CNS allocation in the
evening cycle on N+1, or shortly after the receipt of a Buy-In
Retransmittal Notice, NSCC issues CNS Retransmittal Notices to those
Members with the oldest Short Positions in those securities in an
amount equal to the originator's Long Position. Such notices specify
the originator and the total quantity of securities requested in the
Buy-In Notice. If several Members have Short Positions with the same
age, all
[[Page 48881]]
such Members are issued CNS Retransmittal Notices, even if the total of
their Short Position exceeds the Buy-In Position.
On the expiration of the Buy-In Notice, if the Buy-In Position is
still not satisfied, either in full or in part, the originator may
submit to NSCC a Buy-In Order, which notifies NSCC that the originator
intends to purchase the remaining securities (i.e., execute a buy-in
for the remaining securities). If a Member does not submit the Buy-In
Order by the time specified by NSCC, that Member's notice to NSCC of
its intent to submit a buy-in on a Buy-In Position (referred to as the
``Buy-In Intent'') is canceled. If a Member does submit the Buy-In
Order by that time, it may subsequently execute the buy-in and then
submit to NSCC a Buy-In Execution, notifying NSCC of the position and
price of the execution. NSCC would then allocate the quantity bought in
among the Members with Short Positions that have been identified on a
CNS Retransmittal Notice.
(ii) Rationale for the Proposed Changes
In connection with a review of its Rules, NSCC identified
opportunities to improve and update the rules describing buy-in
processing in order to improve transparency to Members. For example,
NSCC identified opportunities to reorganize the Rules such that the
descriptions of buy-in processing occur in fewer places and the Rules
are less repetitive. NSCC also identified opportunities remove
statements that describe processing that occurs away from its
facilities, and does not provide Members with important information
regarding the processing of buy-ins at NSCC. Overall, NSCC believes
these proposed changes would simplify the Rules and, thereby, improve
Members' understanding of their rights and obligations, and NSCC's
rights and obligations, in connection with the processing of buy-ins.
(iii) Proposed Changes To Update and Simplify the Rules
NSCC is proposing to update and simplify the Rules that describe
the processing of buy-ins by, for example, reorganizing the Rules and
removing repetitive descriptions, removing descriptions of processing
that occurs away from NSCC, and removing descriptions of discretionary
rules that does not enforce. NSCC believes that these proposed changes
would make the rules clearer and more easily understood by Members.
a. Proposed Change To Move All Processing Rules Into the Procedures
NSCC is proposing to revise and simplify the Rules by moving all
processing rules out of Section 7 of Rule 11 of the Rules and into
Section J of Procedure VII of the Rules, and then revising these
statements to avoid repetition with statements that are already within
Section J of Procedure VII of the Rules. In connection with this
proposed change, NSCC would add to Section 7 of Rule 11 of the Rules a
cross-reference to the rules for buy-in processing set forth in
Procedure VII and the rules for execution of buy-ins set forth in
Procedure X of the Rules. NSCC believes that these proposed changes
would improve the transparency of the Rules by disclosing the
processing rules in fewer locations in the Rules, and would simplify
the Rules by removing repetitive statements.
b. Proposed Change To Remove Discretionary Fee for Unexecuted Buy-In
Notices
NSCC is proposing to remove from the Rules a discretionary fee that
NSCC may charge if a Member submits a Buy-In Notice but does not later
execute that buy-in. Before adopting an automated process, the
processing of buy-ins by NSCC was largely manual.\8\ This fee was
intended to off-set the resources required to process a Buy-In Order
that was later not executed, and to encourage Members to submit a Buy-
In Order only when they intended to later execute that buy-in. NSCC has
not charged this fee since the automation of the processing of buy-ins,
over ten years ago. As such, NSCC is proposing to remove this
discretionary fee from Section 7(e) from Rule 11 of the Rules, in order
to reflect its practice of not charging this fee.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 53032 (December 28,
2005), 71 FR 1457 (January 9, 2006) (SR-DTC-2005-19), which approved
the proposal of NSCC's affiliate, The Depository Trust Company, to
adopt an internet-based facility for the processing of buy-ins
called SMART/Track for Buy-Ins.
---------------------------------------------------------------------------
c. Proposed Change To Remove Discretion To Adjust Timing of Buy-In
Execution
NSCC is proposing to revise a statement in Section J of Procedure
VII that a buy-in may be executed if the Buy-In Position has not been
satisfied by either a time specified in the Rules, or, due to market
events, such earlier time as established by NSCC upon five business
days' notice. NSCC has never exercised its discretion to adjust the
time when a buy-in may be executed as a result of market events.
Therefore, the proposed changes would remove this statement regarding
the possibility that such time would be modified.
d. Proposed Change To Remove Statements That Describe Internal
Processes
NSCC is proposing to remove statements in Procedure X of the Rules
that describe the steps NSCC takes internally to reflect the execution
of a buy-in, but would retain the statement that such execution would
be reported to Members through an existing report on the business day
following the execution. NSCC believes that this proposed change would
simplify the Rules by removing the description of internal processing
that does not provide Members with important information regarding the
processing of buy-ins. NSCC believes that the proposed change would
continue to provide Members with information that is useful to them
regarding NSCC's obligation to report executions to Members. By
simplifying the Rules, NSCC believes that the proposed change would
make the Rules more transparent with respect to information that is
important to Members regarding buy-in processing.
e. Proposed Change To Remove Description of Buy-In Processing for
Balance Orders
NSCC is proposing to remove Section B of Procedure X of the Rules,
which describes buy-in processing for transactions in Balance Order
Securities, and to revise Rule 10 to clarify that such processing
occurs away from NSCC and pursuant to the rules of the applicable
marketplace. Currently, Section B of Procedure X of the Rules describes
the rules that govern a buy-in for transactions in Balance Order
Securities. However, these rules apply to a process that occurs
entirely away from NSCC. The rules set forth in Section B of Procedure
X are intended to mirror Rule 11810 of the Financial Industry
Regulatory Authority (``FINRA''), which governs the processing of buy-
ins that are not otherwise subject to the rules of a registered
clearing agency.\9\
---------------------------------------------------------------------------
\9\ See FIRNA Rule 11810 (Buy-In Procedures and Requirements),
available at https://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9699.
---------------------------------------------------------------------------
NSCC is not involved in the processing of buy-ins for Balance Order
Securities, which are subject to either FIRNA Rule 11810, the rules of
a national securities exchange, or the rules of another registered
clearing agency, as applicable. Therefore, in order to avoid any
confusion regarding NSCC's involvement in this processing,
[[Page 48882]]
and to avoid providing Members with rules that are available elsewhere
(i.e., FINRA Rule 11810), NSCC is proposing to remove Section B of
Procedure X of the Rules. The proposed change would also revise Rule 10
of the Rules to clarify that these buy-ins are subject to the rules of
the applicable marketplace, which, NSCC believes, will provide Members
with clarity regarding where to find the rules that govern these buy-
ins.
(iv) Proposed Changes To Revise, Clarify and Enhance the Rules
NSCC is proposing to revise and clarify the Rules in order to
enhance the transparency of the descriptions of buy-in processing.
These changes would include reorganizing the Rules by including
subheadings and moving statements regarding the same steps in buy-in
processing so they appear together. The proposed changes would also
clarify and simplify statements to more clearly and directly describe
the rights and obligations of both Members and NSCC in buy-in
processing. Finally, the proposed changes would correct the use of
certain defined terms. NSCC believes these proposed changes would
improve the readability of the Rules, making them more transparent to
Members and, thereby, improving Members' understanding of the
processing of buy-ins.
a. Proposed Change To Reorganize Section J.1 of Procedure VII of the
Rules
NSCC is proposing to re-organize Section J.1 of Procedure VII of
the Rules by moving the definitions of terms used within this Section
to the same location at the beginning of the Section, and then using
subheadings throughout the Section to more clearly identify the
different steps in buy-in processing. Such subheadings would appear in
chronological order and would include, ``Defined Terms,'' ``Buy-In
Intent,'' ``CNS Allocation Priority and CNS Retransmittal Notices,''
and ``Buy-In Execution.'' This proposed change would enhance the
transparency of the Rules by more clearly identifying for Members the
defined terms used in this Section, and the different steps of buy-in
processing.
b. Proposed Change to Descriptions of Processing Buy-Ins for Municipal
Securities
NSCC is proposing to amend Section 7 of Rule 11 of the Rules to
move information related to the processing of buy-ins for positions in
municipal securities out of a footnote and into the body of this Rule.
The proposed change would make this statement clearer to Members and
would improve their understanding of the processing of these buy-ins.
In connection with this change, NSCC is proposing changes that would
clarify Section J of Procedure VII of the Rules by creating titles for
the two existing subheadings. These subtitles would clarify that
Section J.1 describes rules applicable to buy-ins for positions in
equity securities and corporate debt securities, and Section J.2
describes rules applicable to buy-ins for positions in municipal
securities.
Also in connection with these changes, NSCC is proposing to revise
the title of the current Section A of Procedure X of the Rules to
clarify that the rules in this section are applicable only to the
processing of buy-ins for positions in equity securities and corporate
debt securities. NSCC is also proposing to remove from Section A of
Procedure X of the Rules the description of processing of buy-ins for
positions in municipal securities, as these descriptions are already
included in both Section 7 of Rule 11 and Section J.2 of Procedure VII
of the Rules. NSCC believes that these revisions would provide Members
with both enhanced transparency with respect to the processing buy-ins
for positions in municipal securities, and while still simplifying the
Rules by removing repetitive statements.
c. Proposed Change To Clarify the Method of Delivery of Notices
NSCC is proposing to revise references in Section J of Procedure
VII of the Rules to the ``filing'' of notices with NSCC, with the
``submission'' of such notices to NSCC. This proposed change would not
alter the meaning of these statements, but would describe the method of
delivering these notices to NSCC in a way that conforms to similar
statements in other places in the Rules.
d. Proposed Change To Revise Cut-Off Times in Buy-In Processing
NSCC is proposing to revise references to the time, on the
applicable date, after which (1) a buy-in may be executed if the Buy-In
Position has not been satisfied, as provided for in Section J.1 of
Procedure VII of the Rules, and (2) Members with the oldest Short
Positions on the expiration date of a Buy-In Intent would be first held
liable for the execution of that buy-in, as provided for in the current
Section A of Procedure X of the Rules. Currently, both of these cut-off
times are specified in the Rules as 3:00 p.m. on the applicable date.
NSCC is proposing to change this time to the conclusion of the CNS
allocation in the day cycle, which generally occurs around 3:00 p.m.
EST each business day. The current specified time of 3:00 p.m. was
intended to align with the conclusion of the CNS allocation in the day
cycle because a Buy-In Position may be satisfied, in whole or in part,
during this allocation process. Therefore, NSCC believes that the
proposed change would more clearly specify the event that was intended
as the cut-off time trigger in both of these circumstances, and would
avoid any unintended consequences of this cut-off time occurring prior
to the completion of this CNS allocation.
e. Proposed Change To Clarify Submission of Buy-In Order and Buy-In
Execution
NSCC is proposing to add statements to clarify the distinction
between the Buy-In Order and the subsequent Buy-In Execution notices.
Currently, Procedure X does not clearly specify that an originator must
submit a Buy-In Order on the expiration date of a Buy-In Intent, prior
to submitting a Buy-In Execution later that same day. In order to more
clearly identify these two, separate notices, and the consequences of
failing to properly submit either on the expiration date of the Buy-In
Order, the proposed changes would (1) revise existing statements to
clarify that the Buy-In Order and the Buy-In Execution are two
separate, required notifications, (2) relocate the statement that an
originator that has not submitted a Buy-In Order may not later submit a
Buy-In Execution and is required to recommence the buy-in process by
submitting a new Buy-In Intent, and (3) add a parallel statement that
an originator that has submitted a Buy-In Order but does not later
execute that buy-in must recommence the buy-in process be submitting a
new Buy-In Intent. These proposed changes would more clearly identify
the notifications that are required to be submitted in connection with
the execution of a buy-in, and the consequences of failing to submit
either of these notifications. NSCC believes that this proposed change
would improve the transparency of the Rules regarding Member's
obligations in connection with this process.
f. Proposed Change To Clarify Rules Regarding Execution of a Buy-In
NSCC is proposing to clarify in Procedure X the process by which
buy-ins are executed. This proposed change would make clearer that an
originator must provide NSCC with the details of the execution after
the execution is completed to allow NSCC to reflect the positions by
journal entry. This proposed change would also provide
[[Page 48883]]
Members with notice that NSCC is not responsible for verifying the
terms of the an executed buy-in that are reported to NSCC by an
originator, and that any disputes regarding such terms should be
addressed away from NSCC. Finally, this proposed change would remove a
note that states a Buy-In Order should contain instructions regarding
the execution of buy-ins. This information is not required by NSCC in a
Buy-In Order. NSCC believes that this proposed change would provide
Members with more transparency regarding their rights and obligations
with respect to the execution of buy-ins by more clearly describing the
process.
g. Proposed Change To Revise and Correct Defined Terms
NSCC is proposing to revise and correct the defined terms used in
the rules that describe buy-in processing. This proposed change would
revise the use of the term ``Notice of Intention to Buy-In'' and ``Buy-
In Notice,'' which are currently used interchangeably, with a new
defined term, ``Buy-In Intent.'' This proposed change would ensure
consistent use of one defined term to refer to this notice, and would
use a new term that is both brief and descriptive of the purpose of
this notice. In connection with this proposed change, NSCC would also
replace references to the ``Buy-In Notice'' in Sections E.3 and E.4 of
Procedure VII with ``Buy-In Intent'' and ``Buy-In Intent notices,'' as
applicable.
NSCC is also proposing to revise a reference to ``tender offer'' in
Section J of Procedure VII of the Rules, to refer more generally to
``voluntary reorganizations.'' The sentence where this term appears
states that, with respect to securities subject to voluntary
reorganizations, Members may not submit a Buy-In Intent after the
expiration of the event. Currently the sentence only refers to the
expiration date of the tender offer, but was intended to more generally
include any voluntary reorganization events. NSCC believes that the
proposed change would clarify the intended meaning of this sentence.
Finally, NSCC is proposing to correct and update the uses of terms
that are defined elsewhere in the Rules. For example, the proposed
changes would use the capitalized, defined terms for Long Position and
Short Position, when appropriate. In connection with this change, the
proposed changes would also correct internal cross-references to refer
to ``Section,'' where the term ``paragraph'' is currently used, and to
refer to ``Procedure,'' where the term ``section'' is currently used,
for example. NSCC believes that this proposed change would improve
Members' ability to understand these Rules.
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.\10\ As described above, the proposed rule
change is designed to increase transparency of the Rules by
simplifying, updating and revising the descriptions of the processing
of buy-ins. The buy-in process promotes the prompt and accurate
clearance and settlement of securities transactions by providing
Members with Long Positions with a process that facilitates the
purchase of securities when delivery of such securities previously
failed. NSCC believes that the proposed changes to enhance the
description of this process in the Rules and help Members to more
readily understand their rights and obligations in connection with the
use of this service would facilitate the functioning of the buy-in
process. As such, the proposed changes would promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\11\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ Id.
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Rule 17Ad-22(e)(23)(i) under the Act requires, in part, that NSCC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for publicly disclosing all
relevant rules and material procedures.\12\ As described above, the
proposed rule change would improve the transparency, clarity and
accuracy of the Rules such that these provisions of the Rules would
better disclose all relevant and material aspects of the buy-in
process. Therefore, NSCC believes the proposed rule changes are
consistent with Rule 17Ad-22(e)(23)(i).\13\
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\12\ 17 CFR 240.17Ad-22(e)(23)(i).
\13\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule changes would have any
impact, or impose any burden, on competition. The proposed rule changes
are designed to improve Members' understanding of their rights and
obligations with respect to the use of the buy-in processing service.
These proposed changes would be applicable to all Members that utilize
this service, and would not alter Members' rights or obligations.
Therefore, NSCC does not believe that the proposed rule changes would
have any impact on competition.
(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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \14\ and paragraph (f) of Rule 19b-4
thereunder.\15\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f).
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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-2018-007 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-2018-007. 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
[[Page 48884]]
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-2018-007
and should be submitted on or before October 18, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20997 Filed 9-26-18; 8:45 am]
BILLING CODE 8011-01-P
