Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change To Amend Procedure VII With Respect to the Receipt of CNS Securities and Make Other Changes, 39037-39041 [2019-16940]
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Federal Register / Vol. 84, No. 153 / Thursday, August 8, 2019 / Notices
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–
FINRA–2019–022 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE,
Washington, DC 20549–1090.
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All submissions should refer to File
Number SR–FINRA–2019–022. 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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. 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–FINRA–
2019–022 and should be submitted on
or before August 29, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.59
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–16942 Filed 8–7–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, that the Commission will
host the SEC Government-Business
Forum on Small Business Capital
Formation on Wednesday, August 14,
2019 beginning at 9:00 a.m. (CT).
PLACE: The forum will be held at
Creighton University, Hixson-Lied
Auditorium in the Mike and Josie
Harper Center, 602 North 20th Street,
Omaha, NE 68178. The panel
discussions will be webcast on the
Commission’s website at www.sec.gov.
STATUS: This meeting will be open to the
public.
MATTERS TO BE CONSIDERED: The forum
will include remarks by SEC
Commissioners and panel discussions
that Commissioners may attend. The
panel discussions will explore capital
formation in the Silicon Prairie area and
the Commission’s request for public
comment on ways to harmonize private
securities offering exemptions. This
Sunshine Act notice is being issued
because a majority of the Commission
may attend the meeting.
CONTACT PERSON FOR MORE INFORMATION:
For further information, please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
TIME AND DATE:
Dated: August 6, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019–17120 Filed 8–6–19; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86556; File No. SR–NSCC–
2019–002]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of a
Proposed Rule Change To Amend
Procedure VII With Respect to the
Receipt of CNS Securities and Make
Other Changes
August 2, 2019.
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 22,
2019, National Securities Clearing
Corporation (‘‘NSCC’’) filed with the
1 15
59 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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 would
amend Procedure VII of NSCC’s Rules &
Procedures (‘‘Rules’’) 3 with respect to
the receipt of securities from NSCC’s
Continuous Net Settlement (‘‘CNS’’)
System 4 and make technical changes, as
described in greater detail 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
The purpose of this proposed rule
change is to amend Procedure VII (CNS
Accounting Operation) with respect to
the receipt of securities from the CNS
System in order to reflect a change in
the allocation algorithm used during the
night cycle.5 The proposed rule change
would also make technical changes.
(i) Background
NSCC’s CNS System is an automated
accounting and securities settlement
system that centralizes and nets the
settlement of compared and recorded
securities transactions and maintains an
orderly flow of security and money
balances. The CNS System provides
clearance for equities, corporate bonds,
3 Capitalized terms not defined herein are defined
in the Rules, available at https://www.dtcc.com/∼/
media/Files/Downloads/legal/rules/nscc_rules.pdf.
4 The CNS System and its operation are described
in Rule 11 (CNS System) and Procedure VII (CNS
Accounting Operation) of the Rules. Id.
5 Night cycle is sometimes also referred to as
‘‘evening cycle’’ in the Rules. To ensure consistent
terminology usage, NSCC is proposing technical
changes to replace references to ‘‘evening cycle’’
with ‘‘night cycle’’ as described in greater detail
below.
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unit investment trusts, and municipal
bonds that are eligible for book-entry
transfer at The Depository Trust
Company (‘‘DTC’’), an NSCC affiliate.
Under the CNS System, all eligible
compared and recorded transactions for
a particular settlement date are netted
by CUSIP 6 number into one position
per Member. The position can be net
long (buy), net short (sell) or flat. As a
continuous net system, those positions
are further netted with positions of the
same CUSIP number that remain open
after their original scheduled settlement
date (usually two business days after the
trade date or T+2), so that transactions
scheduled to settle on any day are
netted with fail positions (i.e., positions
that have failed in delivery or receipt on
the settlement date), which results in a
single deliver or receive obligation for
each Member for each CUSIP number in
which the Member has activity.
CNS relies on an interface with DTC
for the book-entry movement of
securities. Procedure VII (CNS
Accounting Operation) describes the
receipt and delivery of CNS Securities.
CNS short positions are compared
against Members’ DTC accounts to
determine availability of securities for
delivery. If securities are available, they
are transferred from the Member’s
account at DTC to NSCC’s account at
DTC to cover the Member’s short
obligations to CNS. In contrast, the
allocation of CNS long positions to
receiving Members is processed in an
order determined by an algorithm built
into the system. CNS long positions are
allocated to Members as the securities
are received by NSCC, i.e., CNS long
positions are transferred from the NSCC
account at DTC to the accounts of NSCC
Members at DTC, in accordance with
the algorithm.
For CNS Securities, NSCC uses a
modified delivery versus payment
mechanism in that when a Member
delivers securities to CNS, the Member
receives a credit, and when NSCC
delivers securities to the long receiving
Member (a long allocation), the
securities deliveries/movements are not
final until the ‘‘effective time’’ occurs
pursuant to Rule 12 (Settlement).7
Specifically, under the Rules, a CNS
6 CUSIP is a registered trademark of the American
Bankers Association. The term ‘‘CUSIP number’’
refers to the Committee on Uniform Securities
Identification Procedures identifying number.
7 Pursuant to Rule 12 (Settlement), the ‘‘effective
time’’ generally occurs when it is clear that NSCC
has either been paid, or is in a credit position with
respect to a Member or its Settling Bank, and NSCC
has no obligation due with respect to a Member
pursuant to the Clearing Agency Cross-Guaranty
Agreement. Until the effective time has occurred in
accordance with the Rules, NSCC retains ownership
rights in the long allocations. Supra note 3.
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delivery transaction is complete and
final as to the delivering Member once
the securities are debited from the
delivering Member’s account at DTC
and credited to NSCC’s CNS account at
DTC; however, a CNS delivery
transaction does not become final as to
the receiving ‘‘long’’ Member until the
‘‘effective time.’’
The current settlement processing
cycle spans two business days, with a
night cycle that begins at approximately
8:30 p.m. Eastern Time (‘‘ET’’) on the
day prior to settlement date and runs
until approximately 10 p.m. ET, and a
day cycle that begins at approximately
6:30 a.m. ET on settlement date and
runs until approximately 3:10 p.m. ET.
The night cycle and the day cycle
settlement processes are essentially the
same, except that the night cycle
settlement process runs in batches and
the day cycle settlement process runs
continuously. Transactions that do not
get processed for settlement during the
night cycle are carried into the
following day cycle for settlement
processing.
Current Allocation Algorithm
NSCC employs an algorithm to
determine the order in which Members
with long allocations receive positions
from CNS; however, Members can
submit priority requests that override
NSCC’s algorithm when they have
special needs to receive securities owed
to them (e.g., the security is undergoing
a corporate action or the Member has an
urgent customer delivery). The priority
requests can be submitted for the night
cycle, the day cycle, or both.
Pursuant to Procedure VII, subsection
E (Influencing Receipts from CNS),
Members can request that they receive
priority for some or all issues on a
standing or override basis. NSCC’s Rules
also permit a Member to buy-in long
positions that have not been delivered
to it by the close of business on the
scheduled settlement date. Submission
of buy-in notices and other specified
activity will also affect the priority of a
Member’s long position.
The current priority groups are as
follows—
First, long positions in a CNS
Reorganization Sub-Account established
pursuant to paragraph H.4 of Procedure
VII of the Rules; 8
Second, long positions against which
Buy-In Intent 9 notices are due to expire
8 Supra
note 3.
7 of Rule 11 (CNS System) and
subsection J of Procedure VII (CNS Accounting
Operation) of the Rules provide that in the event a
Member has a Long Position in a CNS Security, the
Member may demand immediate delivery thereof
by submitting to NSCC a Buy-In Intent notice in
9 Section
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that day but which were not filled the
previous day;
Third, long positions against which
Buy-In Intent 10 notices are due to expire
the following day;
Fourth, (i) long positions in a
receiving ID Net Subscriber’s agency
account established at a Qualified
Securities Depository,11 and (ii) long
positions against the component
securities of index receipts;
Fifth, in descending sequence,
priority levels as specified by Standing
Priority Requests and as modified by
Priority Overrides.
Currently, when more than one long
position in a given CNS Security exists
within the same priority group, the
positions are allocated based on their
age, i.e., the ‘‘oldest’’ position is
allocated first.12 In addition, when more
than one long position in a given CNS
Security exists within the same priority
group all of which have been long the
same number of consecutive days (i.e.,
within the same age group), the
allocation rank is determined by a
computer generated random number.
The allocation algorithm currently
used for the night and day cycles is the
same but is computed separately.
(ii) Proposed Changes to Allocation
Algorithm
NSCC, together with DTC,13 is looking
to improve processing efficiency and
maximize the number of securities
transactions processed for settlement
during the night cycle.
Currently, approximately 50 percent
(50%) of the CNS transactions are
processed for settlement during the
night cycle. In order to improve
processing efficiency and maximize the
number of CNS transactions that would
get processed for settlement during the
night cycle, NSCC is proposing a
modification to the allocation algorithm
used during the night cycle. NSCC
anticipates that the proposal would
increase the percentage of CNS
such form and within such times as determined by
NSCC. Supra note 3.
10 Id.
11 ID Net Service and its operation are described
in Rule 65 (ID Net Service) and Procedure XVI (ID
Net Service) of the Rules. Supra note 3.
12 Age is defined in Procedure VII, subsection E,
as the number of consecutive days during which the
position has been long, irrespective of quantity.
Supra note 3.
13 On July 22, 2019, DTC submitted a proposed
rule change to implement a new algorithm to
optimize its settlement processing of transactions
during the night cycle (‘‘DTC settlement
optimization algorithm’’). The proposal is designed
to maximize the number of transactions processed
for settlement during the night cycle. See SR–DTC–
2019–005, which was filed with the Commission.
A copy of the proposed rule change is available at
https://www.dtcc.com/legal/sec-rule-filings.aspx.
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transactions processed for settlement
during the night cycle to approximately
65 percent (65%).
As described above, the current
allocation sequence for day cycle and
night cycle is as follows: priority
groups, age of positions, and random
number within an age group. Under the
proposal, NSCC is proposing changes to
the allocation algorithm so that age of
positions and random number within an
age group would no longer be
considered as factors when allocating
CNS long positions within the same
priority group during the night cycle.14
Instead, allocation of CNS long
positions within the same priority group
during the night cycle would be
determined by the DTC settlement
optimization algorithm.15
NSCC believes eliminating the age of
positions and random number within an
age group from being considered as
factors when allocating CNS long
positions within the same priority group
during the night cycle would help
maximize the number of transactions
processed for settlement during the
night cycle. Specifically, removing the
requirement to process transactions for
settlement during the night cycle in an
order based on the age of positions and
random number within an age group
would help the DTC settlement
optimization algorithm16 perform more
effectively in identifying the optimal
order by which transactions are
processed for settlement, which in turn
would help maximize the number of
transactions processed for settlement
during the night cycle.
NSCC is not proposing changes to the
allocation algorithm used during the
day cycle.
(iii) Proposed Rule Changes
NSCC is proposing to add a clause to
subsection C.4 of Procedure VII (CNS
Accounting Operation) to make it clear
that there would be differences in the
allocation algorithm used for receipts
from CNS between the day cycle and the
night cycle processes. NSCC is also
proposing to add a parenthetical
regarding subsection E of Procedure VII
for ease of reference.
In order to reflect the proposed
elimination of random number within
an age group as a factor when allocating
CNS long positions within the same
priority group during the night cycle,
NSCC is proposing to modify the first
14 Based on data from January through April 2019,
aged positions (i.e., positions that have failed in
delivery or receipt on their respective scheduled
settlement dates for one or more days) comprised
approximately 0.21 percent of the value of all
transactions received before netting.
15 Supra note 13.
16 Id.
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paragraph of subsection E of Procedure
VII by deleting the references to an
algorithm which changes daily.
NSCC is also proposing to revise
subsection E.4 of Procedure VII to
reflect the proposed changes to the
allocation algorithm used during the
night cycle by adding (i) ‘‘and, for the
day cycle only,’’ to the first paragraph
in subsection E.4 and (ii) ‘‘For the day
cycle only,’’ to the third and fourth
paragraphs of subsection E.4. These
changes are being proposed in order to
make it clear that age of positions and
random number within an age group
would only be considered as factors
when allocating CNS long positions
during the day cycle.
In addition, NSCC is proposing to
modify the last paragraph of subsection
E.4 of Procedure VII to make it clear that
the allocation algorithm used for the
night and day cycles is computed
separately to allow for the use of
different allocation factors in those
respective cycles.
NSCC is proposing technical changes
by replacing references to ‘‘evening
cycle’’ with ‘‘night cycle’’ in subsections
A, C.3, E.1, E.2, E.4, E.5, and H.5 of
Procedure VII. Similarly, NSCC is
proposing to replace references to (i)
‘‘evening allocation’’ with ‘‘night
allocation’’ in subsections C.3, C.4, and
J.1 of Procedure VII, (ii) ‘‘evening and
day delivery cycles’’ with ‘‘night and
day delivery cycles’’ in subsection E.4 of
Procedure VII and (iii) ‘‘evening
allocation cycle’’ with ‘‘night cycle’’ in
Section I of Addendum G. These
changes are being proposed to ensure
consistency in terminology usage in the
Rules. NSCC is also proposing technical
changes to correct cross references in
subsections E.3 and E.4(a) of Procedure
VII.
(iv) Member Outreach
Beginning in March 2018, NSCC has
conducted ongoing outreach with
Members in order to provide them with
notice of the proposed changes. As of
the date of this filing, no written
comments relating to the proposed
changes have been received in response
to this outreach. The Commission will
be notified of any written comments
received.
(v) Implementation Timeframe
Pending Commission approval, NSCC
expects to implement this proposal by
September 26, 2019 and would
announce the effective date of the
proposed change by an Important Notice
posted to its website. As proposed, a
legend would be added to Procedure VII
and Addendum G stating there are
changes that have been approved by the
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39039
Commission but have not yet been
implemented. Each proposed legend
also would include a date by which
such changes would be implemented
and the file number of this proposal,
and state that, once this proposal is
implemented, the legend would
automatically be removed from
Procedure VII and Addendum G, as
applicable.
2. Statutory Basis
NSCC believes this proposal is
consistent with the requirements of the
Act, and the rules and regulations
thereunder applicable to a registered
clearing agency. Specifically, NSCC
believes this proposal is consistent with
Section 17A(b)(3)(F) 17 of the Act for the
reasons described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the Rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions.18 NSCC believes
that the proposed changes to the
allocation algorithm used during the
night cycle would promote prompt and
accurate clearance and settlement of
securities transactions. This is because
the proposed changes would remove the
requirement to process transactions for
settlement during the night cycle in an
order based on the age of positions and
random number within an age group.
Eliminating the requirement to process
transactions in an order based on the
age of positions and random number
within an age group would help
enhance the effectiveness of the DTC
settlement optimization algorithm in
identifying the optimal order to process
transactions for settlement. Being able to
effectively identify the optimal order to
process transactions for settlement
would help maximize the number of
transactions processed for settlement
during the night cycle. Therefore, NSCC
believes that the proposed changes to
the allocation algorithm used during the
night cycle would promote the prompt
and accurate clearance and settlement of
securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.
NSCC also believes that the proposal
to make technical changes would
promote prompt and accurate clearance
and settlement of securities
transactions. This is because the
proposed technical changes would help
ensure consistency in terminology usage
and correct cross references in the
Rules, both of which would ensure the
Rules are clear and accurate. Having
clear and accurate Rules would help
Members to better understand their
17 15
U.S.C. 78q–1(b)(3)(F).
18 Id.
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rights and obligations regarding NSCC’s
clearance and settlement services. NSCC
believes that when Members better
understand their rights and obligations
regarding NSCC’s clearance and
settlement services, they can act in
accordance with the Rules. NSCC
believes that better enabling Members to
comply with the Rules would promote
the prompt and accurate clearance and
settlement of securities transactions by
NSCC. As such, NSCC believes the
proposal to make technical changes is
consistent with Section 17A(b)(3)(F) of
the Act.19
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC believes the proposed changes
to the allocation algorithm used during
the night cycle could burden
competition. This is because by
eliminating the age of positions and
random number within an age group
from being considered as factors when
allocating CNS long positions during the
night cycle, Members with the oldest
positions would no longer receive
priority during the night cycle. While
Members with aged positions would no
longer be prioritized over other
Members within the same priority
group, NSCC does not believe such
change in priority would in and of itself
mean that the burden on competition is
significant. This is because, as described
above, aged positions only comprised
approximately 0.21 percent of the value
of all transactions received before
netting. Accordingly, NSCC does not
believe the burden on competition
would be significant.
Regardless of whether the burden on
competition is deemed significant,
NSCC believes any burden on
competition that is created by these
proposed changes would be necessary
and appropriate in furtherance of the
purposes of the Act, as permitted by
Section 17A(b)(3)(I) of the Act.20
The proposed changes to the
allocation algorithm used during the
night cycle would be necessary in
furtherance of the purposes of the Act
because the Rules must be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions.21 As described above,
NSCC believes that the proposed
changes would promote the prompt and
accurate clearance and settlement of
securities transactions by maximizing
the number of transactions processed for
settlement during the night cycle. As
such, NSCC believes these proposed
changes would be necessary in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.22
NSCC believes any burden on
competition that is created by the
proposed changes to the allocation
algorithm used during the night cycle
would also be appropriate in
furtherance of the purposes of the Act.
The proposed changes would eliminate
the age of positions and random number
within an age group from being
considered as factors when allocating
CNS long positions within the same
priority group during the night cycle,
which would in turn enhance the
effectiveness of the DTC settlement
optimization algorithm in identifying
the optimal order by which to process
transactions for settlement during the
night cycle. Being able to effectively
identify the optimal order by which to
process transactions for settlement
during the night cycle would in turn
help maximize the number of
transactions processed for settlement
during the night cycle. As such, NSCC
believes these proposed changes would
be appropriate in furtherance of the
purposes of the Act, as permitted by
Section 17A(b)(3)(I) of the Act.23
NSCC does not believe the proposal to
make technical changes would impact
competition. These changes are being
proposed to ensure consistency in
terminology usage in the Rules and to
correct cross references. They would not
change NSCC’s current practices or
affect Members’ rights and obligations.
As such, NSCC believes the proposal to
make technical changes would not have
any impact on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to this
proposed rule change have not been
solicited or received. NSCC will notify
the Commission of any written
comments received by NSCC.
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:
19 Id.
20 15
21 15
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78q–1(b)(3)(F).
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22 15
U.S.C. 78q–1(b)(3)(I).
23 Id.
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(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 rule-comments@
sec.gov. Please include File Number SR–
NSCC–2019–002 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–2019–002. 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–
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Federal Register / Vol. 84, No. 153 / Thursday, August 8, 2019 / Notices
2019–002 and should be submitted on
or before August 29, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–16940 Filed 8–7–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86553; File No. SR–FICC–
2019–003]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of Proposed Rule Change To
Revise the MBSD VaR Floor
August 2, 2019.
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 18,
2019, Fixed Income Clearing
Corporation (‘‘FICC’’) 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
a proposal to change the calculation of
the VaR Floor (as defined below) and
the corresponding description in the
FICC Mortgage-Backed Securities
Division (‘‘MBSD’’) Clearing Rules
(‘‘MBSD Rules’’) 3 to: (i) Allow FICC,
subject to the governance process set
forth in the Clearing Agency Model Risk
Management Framework
(‘‘Framework’’) 4 (as described below),
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Capitalized terms not defined herein are defined
in the MBSD Rules, available at https://
www.dtcc.com/legal/rules-and-procedures.
4 See Securities Exchange Act Release No. 81485
(August 25, 2017), 82 FR 41433 (August 31, 2017)
(SR–DTC–2017–008; SR–FICC–2017–014; SR–
NSCC–2017–008). The Framework sets forth the
model risk management practices adopted by FICC,
National Securities Clearing Corporation, and The
Depository Trust Company. The Framework is
designed to help identify, measure, monitor, and
manage the risks associated with the design,
development, implementation, use, and validation
of quantitative models. The Framework describes:
(i) Governance of the Framework; (ii) key terms; (iii)
model inventory procedures; (iv) model validation
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to adjust the ‘‘VaR Floor percentage’’ (as
defined below) within a proposed range
when FICC’s review of the VaR Floor
percentage indicates that the VaR Floor
percentage is not sufficient to cover
FICC’s credit exposure to each Clearing
Member fully with a high degree of
confidence, (ii) state that Clearing
Members would be notified in advance
of any such adjustment to the VaR Floor
percentage, (iii) designate that the VaR
Floor percentage would be subject to at
least monthly model performance
monitoring, and (iv) make certain
technical changes.
The proposed changes would
necessitate changes to the Methodology
and Model Operations Document—
MBSD Quantitative Risk Model (the
‘‘QRM Methodology’’).5 FICC is
requesting confidential treatment of the
QRM Methodology and has filed it
separately with the Secretary of the
Commission.6
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 purpose of the proposed rule
change is to change the calculation of
the VaR Floor (as defined below) and
the corresponding description in the
MBSD Rules to: (i) Allow FICC, subject
to the governance process set forth in
the Framework (as described below), to
procedures; (v) model approval process; and (vi)
model performance procedures.
5 Because FICC requested confidential treatment,
the QRM Methodology was filed separately with the
Commission as part of proposed rule change SR–
FICC–2016–007 (the ‘‘VaR Filing’’). See Securities
Exchange Act Release No. 79868 (January 24, 2017),
82 FR 8780 (January 30, 2017) (SR–FICC–2016–007)
(‘‘VaR Filing Approval Order’’). FICC also filed the
VaR Filing proposal as an advance notice pursuant
to Section 806(e)(1) of the Payment, Clearing, and
Settlement Supervision Act of 2010 (12 U.S.C.
5465(e)(1)) and Rule 19b–4(n)(1)(i) under the Act
(17 CFR 240.19b–4(n)(1)(i)), with respect to which
the Commission issued a Notice of No Objection.
See Securities Exchange Act Release No. 79843
(January 19, 2017), 82 FR 8555 (January 26, 2017)
(SR–FICC–2016–801).
6 17 CFR 240.24b–2.
PO 00000
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Fmt 4703
Sfmt 4703
39041
adjust the VaR Floor percentage (as
defined below) within a proposed range
when FICC’s review of the VaR Floor
percentage indicates that the VaR Floor
percentage is not sufficient to cover
FICC’s credit exposure to each Clearing
Member fully with a high degree of
confidence, (ii) state that Clearing
Members would be notified in advance
of any such adjustment to the VaR Floor
percentage, (iii) designate that the VaR
Floor percentage would be subject to at
least monthly model performance
monitoring, and (iv) make certain
technical changes. The proposed
changes would necessitate changes to
the QRM Methodology. The proposed
changes are described in detail below.
Background
On January 24, 2017, the Commission
approved FICC’s VaR Filing to make
certain enhancements to the MBSD
value-at-risk (‘‘VaR’’) margin calculation
methodology.7 The VaR Filing amended
the definition of VaR Charge to include
the VaR Floor.8 The VaR Charge
comprises the largest portion of a
Clearing Member’s Required Fund
Deposit amount. The VaR Charge is
calculated using a risk-based margin
methodology that is intended to capture
the market price risk associated with the
securities in a Clearing Member’s
portfolio. The methodology is designed
to project the potential gains or losses
that could occur in connection with the
liquidation of a defaulting Clearing
Member’s portfolio, assuming that a
portfolio would take three days to hedge
or liquidate in normal market
conditions. The projected liquidation
gains or losses are used to determine the
amount of the VaR Charge, which is
calculated to cover projected liquidation
losses at a 99 percent confidence level.9
FICC uses the VaR Floor as an
alternative to the VaR Charge amount
calculated by the VaR model for
Clearing Members’ portfolios where the
VaR Floor calculation is greater than the
model-based calculation. The VaR Floor
addresses the risk that the VaR model
may calculate too low a VaR Charge for
certain portfolios where the VaR model
applies substantial risk offsets among
long and short positions in different
classes of mortgage-backed securities
that have a high degree of historical
price correlation. FICC applies the VaR
7 See
VaR Filing Approval Order, supra note 5.
term ‘‘VaR Floor’’ is defined within the
definition of VaR Charge. See MBSD Rule 1, supra
note 3.
9 Unregistered Investment Pool Clearing Members
are subject to a VaR Charge with a minimum
targeted confidence level assumption of 99.5
percent. See MBSD Rule 4, Section 2(c), supra note
3.
8 The
E:\FR\FM\08AUN1.SGM
08AUN1
Agencies
[Federal Register Volume 84, Number 153 (Thursday, August 8, 2019)]
[Notices]
[Pages 39037-39041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16940]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86556; File No. SR-NSCC-2019-002]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change To Amend
Procedure VII With Respect to the Receipt of CNS Securities and Make
Other Changes
August 2, 2019.
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 22, 2019, 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 would amend Procedure VII of NSCC's Rules
& Procedures (``Rules'') \3\ with respect to the receipt of securities
from NSCC's Continuous Net Settlement (``CNS'') System \4\ and make
technical changes, as described in greater detail below.
---------------------------------------------------------------------------
\3\ Capitalized terms not defined herein are defined in the
Rules, available at https://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
\4\ The CNS System and its operation are described in Rule 11
(CNS System) and Procedure VII (CNS Accounting Operation) of the
Rules. Id.
---------------------------------------------------------------------------
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 purpose of this proposed rule change is to amend Procedure VII
(CNS Accounting Operation) with respect to the receipt of securities
from the CNS System in order to reflect a change in the allocation
algorithm used during the night cycle.\5\ The proposed rule change
would also make technical changes.
---------------------------------------------------------------------------
\5\ Night cycle is sometimes also referred to as ``evening
cycle'' in the Rules. To ensure consistent terminology usage, NSCC
is proposing technical changes to replace references to ``evening
cycle'' with ``night cycle'' as described in greater detail below.
---------------------------------------------------------------------------
(i) Background
NSCC's CNS System is an automated accounting and securities
settlement system that centralizes and nets the settlement of compared
and recorded securities transactions and maintains an orderly flow of
security and money balances. The CNS System provides clearance for
equities, corporate bonds,
[[Page 39038]]
unit investment trusts, and municipal bonds that are eligible for book-
entry transfer at The Depository Trust Company (``DTC''), an NSCC
affiliate.
Under the CNS System, all eligible compared and recorded
transactions for a particular settlement date are netted by CUSIP \6\
number into one position per Member. The position can be net long
(buy), net short (sell) or flat. As a continuous net system, those
positions are further netted with positions of the same CUSIP number
that remain open after their original scheduled settlement date
(usually two business days after the trade date or T+2), so that
transactions scheduled to settle on any day are netted with fail
positions (i.e., positions that have failed in delivery or receipt on
the settlement date), which results in a single deliver or receive
obligation for each Member for each CUSIP number in which the Member
has activity.
---------------------------------------------------------------------------
\6\ CUSIP is a registered trademark of the American Bankers
Association. The term ``CUSIP number'' refers to the Committee on
Uniform Securities Identification Procedures identifying number.
---------------------------------------------------------------------------
CNS relies on an interface with DTC for the book-entry movement of
securities. Procedure VII (CNS Accounting Operation) describes the
receipt and delivery of CNS Securities. CNS short positions are
compared against Members' DTC accounts to determine availability of
securities for delivery. If securities are available, they are
transferred from the Member's account at DTC to NSCC's account at DTC
to cover the Member's short obligations to CNS. In contrast, the
allocation of CNS long positions to receiving Members is processed in
an order determined by an algorithm built into the system. CNS long
positions are allocated to Members as the securities are received by
NSCC, i.e., CNS long positions are transferred from the NSCC account at
DTC to the accounts of NSCC Members at DTC, in accordance with the
algorithm.
For CNS Securities, NSCC uses a modified delivery versus payment
mechanism in that when a Member delivers securities to CNS, the Member
receives a credit, and when NSCC delivers securities to the long
receiving Member (a long allocation), the securities deliveries/
movements are not final until the ``effective time'' occurs pursuant to
Rule 12 (Settlement).\7\ Specifically, under the Rules, a CNS delivery
transaction is complete and final as to the delivering Member once the
securities are debited from the delivering Member's account at DTC and
credited to NSCC's CNS account at DTC; however, a CNS delivery
transaction does not become final as to the receiving ``long'' Member
until the ``effective time.''
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\7\ Pursuant to Rule 12 (Settlement), the ``effective time''
generally occurs when it is clear that NSCC has either been paid, or
is in a credit position with respect to a Member or its Settling
Bank, and NSCC has no obligation due with respect to a Member
pursuant to the Clearing Agency Cross-Guaranty Agreement. Until the
effective time has occurred in accordance with the Rules, NSCC
retains ownership rights in the long allocations. Supra note 3.
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The current settlement processing cycle spans two business days,
with a night cycle that begins at approximately 8:30 p.m. Eastern Time
(``ET'') on the day prior to settlement date and runs until
approximately 10 p.m. ET, and a day cycle that begins at approximately
6:30 a.m. ET on settlement date and runs until approximately 3:10 p.m.
ET. The night cycle and the day cycle settlement processes are
essentially the same, except that the night cycle settlement process
runs in batches and the day cycle settlement process runs continuously.
Transactions that do not get processed for settlement during the night
cycle are carried into the following day cycle for settlement
processing.
Current Allocation Algorithm
NSCC employs an algorithm to determine the order in which Members
with long allocations receive positions from CNS; however, Members can
submit priority requests that override NSCC's algorithm when they have
special needs to receive securities owed to them (e.g., the security is
undergoing a corporate action or the Member has an urgent customer
delivery). The priority requests can be submitted for the night cycle,
the day cycle, or both.
Pursuant to Procedure VII, subsection E (Influencing Receipts from
CNS), Members can request that they receive priority for some or all
issues on a standing or override basis. NSCC's Rules also permit a
Member to buy-in long positions that have not been delivered to it by
the close of business on the scheduled settlement date. Submission of
buy-in notices and other specified activity will also affect the
priority of a Member's long position.
The current priority groups are as follows--
First, long positions in a CNS Reorganization Sub-Account
established pursuant to paragraph H.4 of Procedure VII of the Rules;
\8\
---------------------------------------------------------------------------
\8\ Supra note 3.
---------------------------------------------------------------------------
Second, long positions against which Buy-In Intent \9\ notices are
due to expire that day but which were not filled the previous day;
---------------------------------------------------------------------------
\9\ Section 7 of Rule 11 (CNS System) and subsection J of
Procedure VII (CNS Accounting Operation) of the Rules provide that
in the event a Member has a Long Position in a CNS Security, the
Member may demand immediate delivery thereof by submitting to NSCC a
Buy-In Intent notice in such form and within such times as
determined by NSCC. Supra note 3.
---------------------------------------------------------------------------
Third, long positions against which Buy-In Intent \10\ notices are
due to expire the following day;
---------------------------------------------------------------------------
\10\ Id.
---------------------------------------------------------------------------
Fourth, (i) long positions in a receiving ID Net Subscriber's
agency account established at a Qualified Securities Depository,\11\
and (ii) long positions against the component securities of index
receipts;
---------------------------------------------------------------------------
\11\ ID Net Service and its operation are described in Rule 65
(ID Net Service) and Procedure XVI (ID Net Service) of the Rules.
Supra note 3.
---------------------------------------------------------------------------
Fifth, in descending sequence, priority levels as specified by
Standing Priority Requests and as modified by Priority Overrides.
Currently, when more than one long position in a given CNS Security
exists within the same priority group, the positions are allocated
based on their age, i.e., the ``oldest'' position is allocated
first.\12\ In addition, when more than one long position in a given CNS
Security exists within the same priority group all of which have been
long the same number of consecutive days (i.e., within the same age
group), the allocation rank is determined by a computer generated
random number.
---------------------------------------------------------------------------
\12\ Age is defined in Procedure VII, subsection E, as the
number of consecutive days during which the position has been long,
irrespective of quantity. Supra note 3.
---------------------------------------------------------------------------
The allocation algorithm currently used for the night and day
cycles is the same but is computed separately.
(ii) Proposed Changes to Allocation Algorithm
NSCC, together with DTC,\13\ is looking to improve processing
efficiency and maximize the number of securities transactions processed
for settlement during the night cycle.
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\13\ On July 22, 2019, DTC submitted a proposed rule change to
implement a new algorithm to optimize its settlement processing of
transactions during the night cycle (``DTC settlement optimization
algorithm''). The proposal is designed to maximize the number of
transactions processed for settlement during the night cycle. See
SR-DTC-2019-005, which was filed with the Commission. A copy of the
proposed rule change is available at https://www.dtcc.com/legal/sec-rule-filings.aspx.
---------------------------------------------------------------------------
Currently, approximately 50 percent (50%) of the CNS transactions
are processed for settlement during the night cycle. In order to
improve processing efficiency and maximize the number of CNS
transactions that would get processed for settlement during the night
cycle, NSCC is proposing a modification to the allocation algorithm
used during the night cycle. NSCC anticipates that the proposal would
increase the percentage of CNS
[[Page 39039]]
transactions processed for settlement during the night cycle to
approximately 65 percent (65%).
As described above, the current allocation sequence for day cycle
and night cycle is as follows: priority groups, age of positions, and
random number within an age group. Under the proposal, NSCC is
proposing changes to the allocation algorithm so that age of positions
and random number within an age group would no longer be considered as
factors when allocating CNS long positions within the same priority
group during the night cycle.\14\ Instead, allocation of CNS long
positions within the same priority group during the night cycle would
be determined by the DTC settlement optimization algorithm.\15\
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\14\ Based on data from January through April 2019, aged
positions (i.e., positions that have failed in delivery or receipt
on their respective scheduled settlement dates for one or more days)
comprised approximately 0.21 percent of the value of all
transactions received before netting.
\15\ Supra note 13.
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NSCC believes eliminating the age of positions and random number
within an age group from being considered as factors when allocating
CNS long positions within the same priority group during the night
cycle would help maximize the number of transactions processed for
settlement during the night cycle. Specifically, removing the
requirement to process transactions for settlement during the night
cycle in an order based on the age of positions and random number
within an age group would help the DTC settlement optimization
algorithm\16\ perform more effectively in identifying the optimal order
by which transactions are processed for settlement, which in turn would
help maximize the number of transactions processed for settlement
during the night cycle.
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\16\ Id.
---------------------------------------------------------------------------
NSCC is not proposing changes to the allocation algorithm used
during the day cycle.
(iii) Proposed Rule Changes
NSCC is proposing to add a clause to subsection C.4 of Procedure
VII (CNS Accounting Operation) to make it clear that there would be
differences in the allocation algorithm used for receipts from CNS
between the day cycle and the night cycle processes. NSCC is also
proposing to add a parenthetical regarding subsection E of Procedure
VII for ease of reference.
In order to reflect the proposed elimination of random number
within an age group as a factor when allocating CNS long positions
within the same priority group during the night cycle, NSCC is
proposing to modify the first paragraph of subsection E of Procedure
VII by deleting the references to an algorithm which changes daily.
NSCC is also proposing to revise subsection E.4 of Procedure VII to
reflect the proposed changes to the allocation algorithm used during
the night cycle by adding (i) ``and, for the day cycle only,'' to the
first paragraph in subsection E.4 and (ii) ``For the day cycle only,''
to the third and fourth paragraphs of subsection E.4. These changes are
being proposed in order to make it clear that age of positions and
random number within an age group would only be considered as factors
when allocating CNS long positions during the day cycle.
In addition, NSCC is proposing to modify the last paragraph of
subsection E.4 of Procedure VII to make it clear that the allocation
algorithm used for the night and day cycles is computed separately to
allow for the use of different allocation factors in those respective
cycles.
NSCC is proposing technical changes by replacing references to
``evening cycle'' with ``night cycle'' in subsections A, C.3, E.1, E.2,
E.4, E.5, and H.5 of Procedure VII. Similarly, NSCC is proposing to
replace references to (i) ``evening allocation'' with ``night
allocation'' in subsections C.3, C.4, and J.1 of Procedure VII, (ii)
``evening and day delivery cycles'' with ``night and day delivery
cycles'' in subsection E.4 of Procedure VII and (iii) ``evening
allocation cycle'' with ``night cycle'' in Section I of Addendum G.
These changes are being proposed to ensure consistency in terminology
usage in the Rules. NSCC is also proposing technical changes to correct
cross references in subsections E.3 and E.4(a) of Procedure VII.
(iv) Member Outreach
Beginning in March 2018, NSCC has conducted ongoing outreach with
Members in order to provide them with notice of the proposed changes.
As of the date of this filing, no written comments relating to the
proposed changes have been received in response to this outreach. The
Commission will be notified of any written comments received.
(v) Implementation Timeframe
Pending Commission approval, NSCC expects to implement this
proposal by September 26, 2019 and would announce the effective date of
the proposed change by an Important Notice posted to its website. As
proposed, a legend would be added to Procedure VII and Addendum G
stating there are changes that have been approved by the Commission but
have not yet been implemented. Each proposed legend also would include
a date by which such changes would be implemented and the file number
of this proposal, and state that, once this proposal is implemented,
the legend would automatically be removed from Procedure VII and
Addendum G, as applicable.
2. Statutory Basis
NSCC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, NSCC believes this proposal
is consistent with Section 17A(b)(3)(F) \17\ of the Act for the reasons
described below.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\18\ NSCC believes that the proposed changes
to the allocation algorithm used during the night cycle would promote
prompt and accurate clearance and settlement of securities
transactions. This is because the proposed changes would remove the
requirement to process transactions for settlement during the night
cycle in an order based on the age of positions and random number
within an age group. Eliminating the requirement to process
transactions in an order based on the age of positions and random
number within an age group would help enhance the effectiveness of the
DTC settlement optimization algorithm in identifying the optimal order
to process transactions for settlement. Being able to effectively
identify the optimal order to process transactions for settlement would
help maximize the number of transactions processed for settlement
during the night cycle. Therefore, NSCC believes that the proposed
changes to the allocation algorithm used during the night cycle would
promote the prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------
\18\ Id.
---------------------------------------------------------------------------
NSCC also believes that the proposal to make technical changes
would promote prompt and accurate clearance and settlement of
securities transactions. This is because the proposed technical changes
would help ensure consistency in terminology usage and correct cross
references in the Rules, both of which would ensure the Rules are clear
and accurate. Having clear and accurate Rules would help Members to
better understand their
[[Page 39040]]
rights and obligations regarding NSCC's clearance and settlement
services. NSCC believes that when Members better understand their
rights and obligations regarding NSCC's clearance and settlement
services, they can act in accordance with the Rules. NSCC believes that
better enabling Members to comply with the Rules would promote the
prompt and accurate clearance and settlement of securities transactions
by NSCC. As such, NSCC believes the proposal to make technical changes
is consistent with Section 17A(b)(3)(F) of the Act.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
NSCC believes the proposed changes to the allocation algorithm used
during the night cycle could burden competition. This is because by
eliminating the age of positions and random number within an age group
from being considered as factors when allocating CNS long positions
during the night cycle, Members with the oldest positions would no
longer receive priority during the night cycle. While Members with aged
positions would no longer be prioritized over other Members within the
same priority group, NSCC does not believe such change in priority
would in and of itself mean that the burden on competition is
significant. This is because, as described above, aged positions only
comprised approximately 0.21 percent of the value of all transactions
received before netting. Accordingly, NSCC does not believe the burden
on competition would be significant.
Regardless of whether the burden on competition is deemed
significant, NSCC believes any burden on competition that is created by
these proposed changes would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
The proposed changes to the allocation algorithm used during the
night cycle would be necessary in furtherance of the purposes of the
Act because the Rules must be designed to promote the prompt and
accurate clearance and settlement of securities transactions.\21\ As
described above, NSCC believes that the proposed changes would promote
the prompt and accurate clearance and settlement of securities
transactions by maximizing the number of transactions processed for
settlement during the night cycle. As such, NSCC believes these
proposed changes would be necessary in furtherance of the purposes of
the Act, as permitted by Section 17A(b)(3)(I) of the Act.\22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
NSCC believes any burden on competition that is created by the
proposed changes to the allocation algorithm used during the night
cycle would also be appropriate in furtherance of the purposes of the
Act. The proposed changes would eliminate the age of positions and
random number within an age group from being considered as factors when
allocating CNS long positions within the same priority group during the
night cycle, which would in turn enhance the effectiveness of the DTC
settlement optimization algorithm in identifying the optimal order by
which to process transactions for settlement during the night cycle.
Being able to effectively identify the optimal order by which to
process transactions for settlement during the night cycle would in
turn help maximize the number of transactions processed for settlement
during the night cycle. As such, NSCC believes these proposed changes
would be appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\23\
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
NSCC does not believe the proposal to make technical changes would
impact competition. These changes are being proposed to ensure
consistency in terminology usage in the Rules and to correct cross
references. They would not change NSCC's current practices or affect
Members' rights and obligations. As such, NSCC believes the proposal to
make technical changes would not have any impact on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to this proposed rule change have not
been solicited or received. NSCC will notify the Commission of any
written comments received by NSCC.
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-2019-002 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-2019-002. 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-
[[Page 39041]]
2019-002 and should be submitted on or before August 29, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16940 Filed 8-7-19; 8:45 am]
BILLING CODE 8011-01-P