Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Issue Term Debt as Part of Its Liquidity Risk Management, 2187-2191 [2020-00367]

Download as PDF lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Æ Proposing amendments to the New Consolidated Data Plan or implementing other policies and procedures as necessary to ensure prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in NMS stocks and the fairness and usefulness of the form and content of that information; Æ selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of, an independent plan administrator, plan processors, an auditor, and other professional service providers, provided that any expenditures for professional services that are paid for from New Consolidated Data Plan revenues must be for activities consistent with the terms of the New Consolidated Data Plan and must be authorized by an augmented majority of the operating committee; Æ developing and maintaining fair, reasonable, and consistent terms and fees for the distribution, transmission, and aggregation of core data; Æ reviewing the performance of the plan processors; and ensuring the public reporting of plan processors’ performance and other metrics and information about the plan processors; Æ assessing the marketplace for equity market data products and ensuring that SIP data offerings are priced in a manner that is fair and reasonable, and designed to ensure the widespread availability of SIP data to investors and market participants; and Æ designing a fair and reasonable revenue allocation formula for allocating plan revenues to be applied by the independent plan administrator, and overseeing, reviewing and revising that formula as needed. • The New Consolidated Data Plan shall provide that the independent plan administrator will not be owned or controlled by a corporate entity that offers for sale its own proprietary market data product, either directly or via another subsidiary. • The New Consolidated Data Plan shall include provisions designed to address the conflicts of interest of SRO Members and Non-SRO Members. • The New Consolidated Data Plan shall include provisions designed to protect confidential and proprietary information from misuse. • The New Consolidated Data Plan shall provide that the use of executive session of SRO members will be confined to circumstances in which it is appropriate to exclude Non-SRO Members, such as, for example, discussions regarding matters that exclusively affect the SROs with respect VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 to the Commission’s oversight of the New Consolidated Data Plan (including attorney-client communications relating to such matters). • The New Consolidated Data Plan shall provide that requests to enter into an executive session of SRO members will be required to be included on a written agenda, along with a clearly stated rationale for each matter to be discussed and must be approved by a majority vote of the SRO members of the operating committee. • To the extent that those provisions are in furtherance of the purposes of the New Consolidated Data Plan as expressed in this Order and not inconsistent with any other regulatory requirements, the New Consolidated Data Plan shall adopt and include all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan, and the New Consolidated Data Plan should, to the extent possible, attempt to harmonize and combine existing provisions in the Equity Data Plans that relate to the Equity Data Plans’ separate processors. * * * * * It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the Act,269 that the Participants act jointly in developing and filing with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,270 a New Consolidated Data Plan, as described above. The Participants are ordered to file the New Consolidated Data Plan with the Commission no later than [90 days after the order is issued]. By the Commission. Vanessa Countryman, Secretary. [FR Doc. 2020–00360 Filed 1–13–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87912; File No. SR–NSCC– 2019–802] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Issue Term Debt as Part of Its Liquidity Risk Management January 8, 2020. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 269 15 270 17 PO 00000 U.S.C. 78k–1(a)(3)(B). CFR 242.608(a). Frm 00084 Fmt 4703 Sfmt 4703 2187 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Act’’),2 notice is hereby given that on December 13, 2019, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the advance notice SR–NSCC–2019–802 (‘‘Advance Notice’’) 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 Advance Notice from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This Advance Notice is filed by NSCC in connection with a proposal to raise additional prefunded liquidity resources through the periodic issuance and private placement of term debt (‘‘Debt Issuance’’). The proceeds from the Debt Issuance would supplement NSCC’s existing default liquidity risk management resources. The proposed changes are described in greater detail below. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the Advance Notice and discussed any comments it received on the Advance Notice. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections A and B below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants, or Others Written comments on the Advance Notice have not been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. (B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing Supervision Act Description of Proposed Change NSCC is proposing to raise additional prefunded liquidity through the periodic issuance and private placement of term debt to qualified institutional investors in an aggregate amount not to exceed $10 billion, as described in 1 12 2 17 E:\FR\FM\14JAN1.SGM U.S.C. 5465(e)(1). CFR 240.19b–4(n)(1)(i). 14JAN1 2188 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES greater detail below. The proceeds of the Debt Issuance would supplement NSCC’s existing default liquidity resources, which also include, for example, the proceeds of the issuance and private placement of short-term, unsecured notes in the form of commercial paper and extendable notes (‘‘Commercial Paper Program’’) 3 and cash that would be obtained by drawing upon NSCC’s committed 364-day credit facility with a consortium of banks (‘‘Line of Credit’’).4 NSCC, along with its affiliates, The Depository Trust Company (‘‘DTC’’) and Fixed Income Clearing Corporation (‘‘FICC,’’ and, together with NSCC and DTC, the ‘‘Clearing Agencies’’), maintain a Clearing Agency Liquidity Risk Management Framework (‘‘Framework’’), which sets forth the manner in which NSCC measures, monitors and manages the liquidity risks that arise in or are borne by it.5 NSCC periodically measures its liquidity needs pursuant to the Framework.6 NSCC’s default liquidity resources collectively provide NSCC with liquidity to complete end-of-day settlement in the event of the default of a Member.7 The proposed Debt Issuance would supplement its existing default liquidity resources and provide NSCC with an additional resource it may draw from to meet its future liquidity needs, as measured pursuant to the Framework.8 By supplementing NSCC’s existing default liquidity resources, the proposal 3 See Securities Exchange Act Release Nos. 75730 (August 19, 2015), 80 FR 51638 (August 25, 2015) (File No. SR–NSCC–2015–802); 82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (File No. SR– NSCC–2017–807). 4 See Securities Exchange Act Release No. 80605 (May 5, 2017), 82 FR 21850 (May 10, 2017) (File Nos. SR–DTC–2017–802; SR–NSCC–2017–802). 5 See Securities Exchange Act Release Nos. 82377 (December 21, 2017), 82 FR 61617 (December 28, 2017) (File Nos. SR–DTC–2017–004; SR–FICC– 2017–008; SR–NSCC–2017–005). Following approval of this proposal, the Clearing Agencies would file a proposed rule change to amend the Framework to include the proceeds of the Debt Issuance as an additional qualifying liquidity resource of NSCC. 6 Id. 7 Terms not defined herein are defined in NSCC’s Rules and Procedures (‘‘Rules’’) available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ rules/nscc_rules.pdf. The events that constitute a Member default are specified in Rule 46 (Restrictions on Access to Services) of the Rules, which provides that NSCC’s Board of Directors may suspend a Member or prohibit or limit a Member’s access to NSCC’s services in enumerated circumstances; this includes default in delivering funds or securities to NSCC, or a Member’s experiencing such financial or operational difficulties that NSCC determines, in its discretion, that restriction on access to services is necessary for its protection and for the protection of its membership. Id. 8 Supra note 5. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 would mitigate risks to NSCC that it is unable to secure default liquidity resources in an amount necessary to meet its liquidity needs. For example, the proposal would help mitigate the risks that investor demand for the shortterm notes issued under the Commercial Paper Program weakens, or that NSCC is unable to renew its Line of Credit at the targeted amount. Terms of the Debt Issuance. NSCC would engage a trustee and underwriting banks to issue the term debt to qualified institutional investors through a private placement and offering in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933.9 NSCC would be party to certain transaction documents in connection with each issuance and private placement, including an indenture with the trustee and purchase agreements. The purchase agreements would each be based on the standard form of dealer agreement for similar debt issuances, which is published by the Securities Industry and Financial Markets Association. The material terms and conditions of the Debt Issuance are summarized below. NSCC is proposing to issue up to an aggregate amount of $10 billion in term debt, with an expected average amount issued and outstanding at any time of approximately $2–3 billion, as necessitated by liquidity needs. While, at the time of this filing, NSCC’s current liquidity needs would not require it to issue up to an aggregate amount of $10 billion, NSCC believes that is advisable to authorize up to this aggregate amount in order to help manage its potential future liquidity needs and the potential risk that it is not able to obtain the requisite amounts from its other sources of default liquidity. NSCC estimates that each issuance would be in an amount between approximately $250 million and $1.5 billion, with an initial issuance expected to be approximately $1 billion.10 NSCC believes an initial issuance should be at an amount that would attract the attention of potential investors. Therefore, NSCC believes that approximately $1 billion would be an appropriate amount for the initial issuance for this reason. The term debt would be represented by unsecured, unsubordinated and nonconvertible medium-term and long-term global notes held in the name of The Depository Trust Company (‘‘DTC’’), or its nominee, Cede & Co. The notes 9 15 U.S.C. 77d(a)(2). market conditions at the time of the inaugural issuance are favorable, NSCC may issue an initial aggregate amount of more than $1 billion. 10 If PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 would be issued and transferred only through the book-entry system of DTC. The term debt would be interest bearing at either fixed or floating interest rates that are set at market rates customary for such type of debt and reflective of the creditworthiness of NSCC. NSCC expects the average maturity of the term debt issued under the Debt Issuance would range between two and ten years, which are the typical lengths of medium- and long-term debt. NSCC already issues short-term debt through the Commercial Paper Program,11 and NSCC does not believe maturities over ten years would be suitable as debt with longer maturities are generally more expensive to issue and may present higher risks related to interest rates. NSCC would time each debt issuance and stagger maturity dates of each issuance in order to ladder the maturities. NSCC would have the ability to make use of optional features to call any of the issued term debt, in whole or in part, at any time prior to the maturity date of that debt. The issued term debt may also contain renewable terms. NSCC would hold the proceeds from the Debt Issuance in either its cash deposit account at the Federal Reserve Bank of New York (‘‘FRBNY’’) or in accounts at other creditworthy financial institutions in accordance with the Clearing Agency Investment Policy.12 These amounts would be available to draw to complete settlement as needed. NSCC Liquidity Risk Management. As a central counterparty (‘‘CCP’’), NSCC occupies an important role in the securities settlement system by interposing itself between counterparties to financial transactions, thereby reducing the risk faced by its Members and contributing to global financial stability. NSCC’s liquidity risk management plays an integral part in NSCC’s ability to perform its role as a CCP. If a Member defaults, as a CCP, NSCC will need to complete settlement of guaranteed transactions on the failing Member’s behalf from the date of default through the remainder of the settlement cycle (currently two days for securities 11 Supra note 3. Securities Exchange Act Release Nos. 79528 (December 12, 2016), 81 FR 91232 (December 16, 2016) (File Nos. SR–DTC–2016–007, SR–FICC– 2016–005, SR–NSCC–2016–003); 84949 (December 21, 2018), 83 FR 67779 (December 31, 2018) (File Nos. SR–DTC–2018–012, SR–FICC–2018–014, SR– NSCC–2018–013). Following notice of no-objection by the Commission of this proposal, the Clearing Agencies would file a proposed rule change to amend the Clearing Agency Investment Policy to include the proceeds of the Debt Issuance as default liquidity funds, within the definition of ‘‘Investable Funds,’’ as such term is defined therein, and provide that such amounts would be held in bank deposits at eligible commercial banks or at NSCC’s cash deposit account at the FRBNY. 12 See E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES that settle on a regular way basis in the U.S. markets). As noted above, the Framework describes NSCC’s liquidity risk management strategy to maintain sufficient liquidity resources in order to meet the potential funding required to settle outstanding transactions of a defaulting Member, or affiliated family of Members, in a timely manner.13 The Framework also addresses how NSCC meets its requirement to hold qualifying liquid resources, as such term is defined in Rule 17Ad–22(a)(14) under the Act,14 sufficient to meet its minimum liquidity resource requirement in each relevant currency for which it has payment obligations owed to its Members. NSCC considers each of its existing default liquidity resources to be qualifying liquid resources.15 These resources include: (1) The cash in NSCC’s Clearing Fund; 16 (2) the cash that would be obtained by drawing upon its Line of Credit; (3) additional cash deposits, known as ‘‘Supplemental Liquidity Deposits’’, designed to cover the heightened liquidity exposure arising around monthly option expiry periods, required from those Members whose activity would pose the largest liquidity exposure to NSCC; 17 and (4) cash proceeds from the Commercial Paper Program. The proceeds from the Debt Issuance would also be default liquidity that is considered a qualifying liquid resource. By providing NSCC with additional, prefunded, and readily available qualifying liquid resources to be used to complete end-of-day settlement as needed in the event of a Member default, the Debt Issuance would provide additional certainty, stability, and safety to NSCC, its Members, and the U.S. equities market that it serves as a CCP. NSCC believes the Debt Issuance may also reduce its concentration risk with respect to its default liquidity resources. NSCC would not limit the potential qualified institutional investors that purchase term debt and, therefore, is not able to ensure that the Debt Issuance would reduce concentration risk. However, the types of entities who typically invest in term debt include, for example, insurance companies, asset managers and pension funds, and these entities are generally not Members of NSCC or lenders under the Line of Credit. While these types of entities are 13 Supra 14 17 note 5. CFR 240.17Ad–22(a)(14). 15 Id. 16 See Rule 4 and Procedure XV of the Rules, supra note 5. 17 Supplemental Liquidity Deposits are described in Rule 4A of the Rules, supra note 7. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 the same types of entities that invest in commercial paper, the firms that invest in term debt are generally not the same firms that invest in commercial paper. Therefore, the prospective investors in the term debt are not expected to be the same firms that currently provide any material amount of default liquidity resources to NSCC either through the Commercial Paper Program or the Line of Credit, nor as NSCC Members. Anticipated Effect on and Management of Risk NSCC’s consistent ability to timely complete settlement is a key part of NSCC’s role as a CCP and allows NSCC to mitigate counterparty risk within the U.S. markets. In order to sufficiently perform this key role in promoting market stability, it is critical that NSCC has access to adequate liquidity resources to enable it to complete endof-day settlement, notwithstanding the default of a Member. NSCC believes that the overall impact of the proposed Debt Issuance on risks presented by NSCC would be to reduce the liquidity risks associated with NSCC’s operation as a CCP by providing it with an additional source of liquidity to complete end-ofday settlement in the event of a Member default. NSCC further believes that a reduction in its liquidity risk would reduce systemic risk and would have a positive impact on the safety and soundness of the clearing system. While the proposed Debt Issuance, like any liquidity resource, would involve certain risks, most of these risks are standard in any debt issuance. One risk associated with the proposed Debt Issuance would be the risk that NSCC does not have sufficient funds to repay issued term debt when the notes mature. NSCC believes that this risk is extremely remote, as the proceeds of the Debt Issuance would be used only in the event of a Member default, and NSCC would replenish that cash, as it would replenish any of its liquidity resources that are used to facilitate settlement in the event of a Member default, with the proceeds of the close out of that defaulted Member’s portfolio. This notwithstanding, in the event that proceeds from the close out are insufficient to fully repay a liquidity borrowing, then NSCC would look to its loss waterfall to repay any outstanding liquidity borrowings.18 NSCC would further mitigate this risk through the timing of each debt issuance and by staggering the maturity dates of the issued term debt in a way that would provide NSCC with time to complete the 18 See Rule 4 (Clearing Fund) of the Rules, supra note 7. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 2189 close out of a defaulted Member’s portfolio. A second risk is that NSCC may be unable to issue new term debt as issued notes mature due to, for example, stressed markets at the time the issued debt matures. This risk is mitigated by the fact that NSCC maintains a number of different default liquidity resources, described above, and would not depend on the Debt Issuance as its sole source of liquidity. NSCC may face interest rate risk, which is the risk that the borrowing interest rate on issued debt is higher than the interest rate at which proceeds of issued debt would be invested. NSCC would mitigate this risk by issuing term debt at different maturities and at both fixed interest rates and floating interest rates. The interest rates for the term debt issued at floating interest rates would generally correlate with the rates on investments of those proceeds and would be expected to result in a largely stable net spread between the borrowing interest rate and the investment interest rate, mitigating this risk. For the term debt issued at a flat interest rate, NSCC would consider interest rate swaps as a method to mitigate interest rate risk, depending on market environment at that time. NSCC could also face a related financial risk that the expense of a Debt Issuance exceeds NSCC’s income and negatively impacts NSCC’s financial health or its creditworthiness. NSCC would mitigate this risk by evaluating the expected interest rate risk (discussed above) and expense of a Debt Issuance prior to issuing any debt, and if the financing costs for the issuance of term debt increase, such that it is not financially advisable to issue additional term debt, then NSCC may determine to use its alternative liquidity resources to meet its liquidity needs during those market conditions. NSCC believes that the significant systemic risk mitigation benefits of providing NSCC with additional, prefunded liquidity resources outweigh these risks. Consistency With Clearing Supervision Act NSCC believes that that proposal would be consistent with Title VIII of the Clearing Supervision Act, specifically with the risk management objectives and principles of Section 802(b)(1), and with certain of the risk management standards adopted by the Commission pursuant to Section 805(a)(2), for the reasons described below.19 19 12 E:\FR\FM\14JAN1.SGM U.S.C. 5464(a)(2) and (b)(1). 14JAN1 lotter on DSKBCFDHB2PROD with NOTICES 2190 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices (i) Consistency With Section 805(b)(1) of the Clearing Supervision Act (ii) Consistency With Rule 17Ad– 22(e)(7)(i) and (ii) Under the Act Although the Clearing Supervision Act does not specify a standard of review for an advance notice, its stated purpose is instructive: To mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.20 NSCC believes the proposal is consistent with Section 805(b)(1) of the Clearing Supervision Act because it would support the mitigation of systemic risk in the financial system and promote financial stability in the event of a Member default by strengthening NSCC’s liquidity. The proposed Debt Issuance is designed to reduce NSCC’s liquidity risks by providing it with an additional source of liquidity to complete end-of-day settlement in the event of a Member default. By supplementing NSCC’s existing default liquidity resources with prefunded liquidity, the proposal would contribute to NSCC’s goal of assuring that NSCC has adequate liquidity resources to meet its settlement obligations notwithstanding the default of any of its Members. In its critical role as a CCP, NSCC itself between counterparties to financial transactions, thereby reducing the risk faced by its Members and contributing to global financial stability. NSCC’s liquidity risk management plays an integral part in NSCC’s ability to perform its role as a CCP. Therefore, a reduction of NSCC’s liquidity risk would be expected to also reduce systemic risk in the financial system and would promote financial stability by having a positive impact on the safety and soundness of the clearing system. As a result, NSCC believes the proposed Debt Issuance would be consistent with the objectives and principles of Section 805(b)(1) of the Clearing Supervision Act, which specify the promotion of robust risk management, promotion of safety and soundness, reduction of systemic risks and support of the stability of the broader financial system by, among other things, strengthening the liquidity of systemically important financial market utilities, such as NSCC. Section 805(a)(2) of the Clearing Supervision Act authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like NSCC, and financial institutions engaged in designated activities for which the Commission is the supervisory agency or the appropriate financial regulator.21 The Commission has accordingly adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act 22 and Section 17A of the Act (‘‘Covered Clearing Agency Standards’’).23 The Covered Clearing Agency Standards require covered clearing agencies to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.24 NSCC believes that the proposed Debt Issuance is consistent with Rule 17Ad22(e)(7)(i) and (ii) of the Covered Clearing Agency Standards for the reasons described below.25 Rule 17Ad–22(e)(7)(i) under the Act requires that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain sufficient liquid resources at the minimum in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes, but is not limited to, the default of the participant family that would generate the largest aggregate payment obligation for the covered clearing agency in extreme but plausible market conditions.26 Rule 17Ad– 22(e)(7)(ii) under the Act requires that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to hold qualifying liquid resources sufficient to meet the minimum liquidity resource requirement under Rule 17Ad– 22(e)(7)(i) in each relevant currency for which NSCC has payment obligations owed to its Members.27 20 12 U.S.C. 5464(b)(1). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 21 12 U.S.C. 5464(a)(2). As described above, the proposed Debt Issuance would provide NSCC with an additional resource of prefunded default liquidity, which it would use to complete end-of-day settlement in the event of the default of a Member. The proceeds of the Debt Issuance would be cash held by NSCC at either its cash deposit account at the FRBNY or at a creditworthy commercial bank, pursuant to the Clearing Agency Investment Policy.28 Therefore, the proceeds of the Debt Issuance would be considered a qualifying liquid resource, as defined by Rule 17Ad–22(a)(14).29 As such, the proposed Debt Issuance would support NSCC’s ability to hold sufficient qualifying liquid resources to meet its minimum liquidity resource requirement under Rule 17Ad– 22(e)(7)(i).30 For these reasons, NSCC believes the proposal would support NSCC’s compliance with Rule 17Ad–22(e)(7)(i) and (ii) by providing it with an additional qualifying liquid resource.31 III. Date of Effectiveness of the Advance Notice, and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date that the proposed change was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. The clearing agency shall not implement the proposed change if the Commission has any objection to the proposed change. The Commission may extend the period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. The clearing agency shall post notice on its website of proposed changes that are implemented. 22 Id. 23 17 CFR 240.17Ad–22(e). 24 Id. 25 17 CFR 240.17Ad–22(e)(7)(i), (ii). CFR 240.17Ad–22(e)(7)(i). 27 17 CFR 240.17Ad–22(e)(7)(ii). For purposes of this Rule, ‘‘qualifying liquid resources’’ are defined in Rule 17Ad–22(a)(14) as including, in part, cash 26 17 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 held either at the central bank of issue or at creditworthy commercial banks. 17 CFR 240.17Ad– 22(a)(14). 28 Supra note 12. 29 17 CFR 240.17Ad-22(a)(14). 30 17 CFR 240.17Ad–22(e)(7)(i). 31 17 CFR 240.17Ad–22(e)(7)(i), (ii). E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the Advance Notice is consistent with the Clearing Supervision 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–2019–802 on the subject line. Paper Comments lotter on DSKBCFDHB2PROD with NOTICES • 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–2019–802. 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 Advance Notice that are filed with the Commission, and all written communications relating to the Advance Notice 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– 2019–802 and should be submitted on or before January 29, 2020. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 By the Commission. Jill M. Peterson, Assistant Secretary. [FR Doc. 2020–00367 Filed 1–13–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87914; File No. SR–NYSE– 2019–62] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change To Amend Article II, Section 2.03 of the Twelfth Amended and Restated Operating Agreement of the Exchange To Remove the Independence Requirement for the Director Elected by Exchange Membership Organizations January 8, 2020. Introduction On November 15, 2019, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Article II, Section 2.03 of the Twelfth Amended and Restated Operating Agreement (‘‘Operating Agreement’’) of the Exchange to remove the independence requirement for the director elected by Exchange membership organizations, and make additional conforming and nonsubstantive edits. The proposed rule change was published for comment in the Federal Register on November 29, 2019.3 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. Description of the Proposal The Exchange proposes to amend Article II, Section 2.03 of the Exchange’s Operating Agreement to remove the independence requirement for the director elected by Exchange membership organizations, and make additional conforming and nonsubstantive edits. Currently, pursuant to the Operating Agreement, at least twenty percent of the Exchange’s board of directors (‘‘Board’’) must be composed of persons who are not members of the board of 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 87588 (November 22, 2019), 84 FR 65875 (November 29, 2019) (‘‘Notice’’). 2 17 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 2191 directors of Intercontinental Exchange, Inc. (‘‘ICE’’), the Exchange’s ultimate parent company, but who qualify as independent under the Exchange’s director independence policy (such policy, the ‘‘Independence Policy’’, and such directors, the ‘‘Non-Affiliated Directors’’).4 The Non-Affiliated Directors are nominated by the member organizations of the Exchange (‘‘Member Organizations’’),5 through a process set forth in the Operating Agreement.6 Under the Independence Policy,7 a director is not independent—and therefore cannot be a Non-Affiliated Director—if, among other things, the director: • Or one of his or her immediate family members is, or within the last year was, a Member 8 of the Exchange; • is, or within the last year was, employed by a Member Organization; 9 • has within the last year received from any Member Organization more than $100,000 per year in direct compensation, or received from Member Organizations in the aggregate an amount of direct compensation which in any one year is more than 10 percent of the director’s annual gross income for such year,10 or • is affiliated, directly or indirectly, with a Member Organization. As the Exchange states, the requirement that Non-Affiliated Directors qualify as independent precludes the Member Organizations from nominating a candidate from among their own numbers or who was recently employed by a Member or Member Organization. Because of this, the Exchange believes, the current requirement limits members’ ability to 4 See Operating Agreement, Article II, Section 2.03(a)(iii). 5 ‘‘Member Organizations’’ includes ‘‘members, allied members and member organizations of the [Exchange].’’ See Operating Agreement, Article II, Section 2.02 (Rules; Supervision of Member Organizations). As discussed below, the Exchange proposes to amend the definition to delete as obsolete the reference to ‘‘allied members.’’ 6 See id., Section 2.03(a)(iii)–(v). Other than to remove the independence requirement, the Exchange does not propose to amend the process for nominating the Non-Affiliated Directors. 7 The Independence Policy is available at: https:// www.nyse.com/publicdocs/nyse/regulation/nyse/ Director_Independence_Policy_of_New_York_ Stock_Exchange_LLC.pdf. 8 The term ‘‘Member’’ is used in the Independence Policy as defined in Section 3(a)(3)(A)(i) of the Exchange Act. See 15 U.S.C. 78c(a)(3)(A)(i). 9 The term ‘‘Member Organization’’ is used in the Independence Policy as defined in Section 3(a)(3)(A)(ii), 3(a)(3)(A)(iii), and 3(a)(3)(A)(iv) of the Exchange Act. See 15 U.S.C. 78c(a)(3)(A)(ii)–(iv). 10 Such limitations exclude director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). E:\FR\FM\14JAN1.SGM 14JAN1

Agencies

[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Notices]
[Pages 2187-2191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00367]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87912; File No. SR-NSCC-2019-802]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Advance Notice To Issue Term Debt as 
Part of Its Liquidity Risk Management

January 8, 2020.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on 
December 13, 2019, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
advance notice SR-NSCC-2019-802 (``Advance Notice'') 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 Advance Notice from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This Advance Notice is filed by NSCC in connection with a proposal 
to raise additional prefunded liquidity resources through the periodic 
issuance and private placement of term debt (``Debt Issuance''). The 
proceeds from the Debt Issuance would supplement NSCC's existing 
default liquidity risk management resources. The proposed changes are 
described in greater detail below.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

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

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    Written comments on the Advance Notice have not been solicited or 
received. NSCC will notify the Commission of any written comments 
received by NSCC.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing 
Supervision Act

Description of Proposed Change
    NSCC is proposing to raise additional prefunded liquidity through 
the periodic issuance and private placement of term debt to qualified 
institutional investors in an aggregate amount not to exceed $10 
billion, as described in

[[Page 2188]]

greater detail below. The proceeds of the Debt Issuance would 
supplement NSCC's existing default liquidity resources, which also 
include, for example, the proceeds of the issuance and private 
placement of short-term, unsecured notes in the form of commercial 
paper and extendable notes (``Commercial Paper Program'') \3\ and cash 
that would be obtained by drawing upon NSCC's committed 364-day credit 
facility with a consortium of banks (``Line of Credit'').\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 75730 (August 19, 
2015), 80 FR 51638 (August 25, 2015) (File No. SR-NSCC-2015-802); 
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (File No. 
SR-NSCC-2017-807).
    \4\ See Securities Exchange Act Release No. 80605 (May 5, 2017), 
82 FR 21850 (May 10, 2017) (File Nos. SR-DTC-2017-802; SR-NSCC-2017-
802).
---------------------------------------------------------------------------

    NSCC, along with its affiliates, The Depository Trust Company 
(``DTC'') and Fixed Income Clearing Corporation (``FICC,'' and, 
together with NSCC and DTC, the ``Clearing Agencies''), maintain a 
Clearing Agency Liquidity Risk Management Framework (``Framework''), 
which sets forth the manner in which NSCC measures, monitors and 
manages the liquidity risks that arise in or are borne by it.\5\ NSCC 
periodically measures its liquidity needs pursuant to the Framework.\6\ 
NSCC's default liquidity resources collectively provide NSCC with 
liquidity to complete end-of-day settlement in the event of the default 
of a Member.\7\ The proposed Debt Issuance would supplement its 
existing default liquidity resources and provide NSCC with an 
additional resource it may draw from to meet its future liquidity 
needs, as measured pursuant to the Framework.\8\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 82377 (December 21, 
2017), 82 FR 61617 (December 28, 2017) (File Nos. SR-DTC-2017-004; 
SR-FICC-2017-008; SR-NSCC-2017-005). Following approval of this 
proposal, the Clearing Agencies would file a proposed rule change to 
amend the Framework to include the proceeds of the Debt Issuance as 
an additional qualifying liquidity resource of NSCC.
    \6\ Id.
    \7\ Terms not defined herein are defined in NSCC's Rules and 
Procedures (``Rules'') available at https://www.dtcc.com/~/media/
Files/Downloads/legal/rules/nscc_rules.pdf. The events that 
constitute a Member default are specified in Rule 46 (Restrictions 
on Access to Services) of the Rules, which provides that NSCC's 
Board of Directors may suspend a Member or prohibit or limit a 
Member's access to NSCC's services in enumerated circumstances; this 
includes default in delivering funds or securities to NSCC, or a 
Member's experiencing such financial or operational difficulties 
that NSCC determines, in its discretion, that restriction on access 
to services is necessary for its protection and for the protection 
of its membership. Id.
    \8\ Supra note 5.
---------------------------------------------------------------------------

    By supplementing NSCC's existing default liquidity resources, the 
proposal would mitigate risks to NSCC that it is unable to secure 
default liquidity resources in an amount necessary to meet its 
liquidity needs. For example, the proposal would help mitigate the 
risks that investor demand for the short-term notes issued under the 
Commercial Paper Program weakens, or that NSCC is unable to renew its 
Line of Credit at the targeted amount.
    Terms of the Debt Issuance. NSCC would engage a trustee and 
underwriting banks to issue the term debt to qualified institutional 
investors through a private placement and offering in reliance on an 
exemption from registration under Section 4(a)(2) of the Securities Act 
of 1933.\9\ NSCC would be party to certain transaction documents in 
connection with each issuance and private placement, including an 
indenture with the trustee and purchase agreements. The purchase 
agreements would each be based on the standard form of dealer agreement 
for similar debt issuances, which is published by the Securities 
Industry and Financial Markets Association. The material terms and 
conditions of the Debt Issuance are summarized below.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 77d(a)(2).
---------------------------------------------------------------------------

    NSCC is proposing to issue up to an aggregate amount of $10 billion 
in term debt, with an expected average amount issued and outstanding at 
any time of approximately $2-3 billion, as necessitated by liquidity 
needs. While, at the time of this filing, NSCC's current liquidity 
needs would not require it to issue up to an aggregate amount of $10 
billion, NSCC believes that is advisable to authorize up to this 
aggregate amount in order to help manage its potential future liquidity 
needs and the potential risk that it is not able to obtain the 
requisite amounts from its other sources of default liquidity.
    NSCC estimates that each issuance would be in an amount between 
approximately $250 million and $1.5 billion, with an initial issuance 
expected to be approximately $1 billion.\10\ NSCC believes an initial 
issuance should be at an amount that would attract the attention of 
potential investors. Therefore, NSCC believes that approximately $1 
billion would be an appropriate amount for the initial issuance for 
this reason.
---------------------------------------------------------------------------

    \10\ If market conditions at the time of the inaugural issuance 
are favorable, NSCC may issue an initial aggregate amount of more 
than $1 billion.
---------------------------------------------------------------------------

    The term debt would be represented by unsecured, unsubordinated and 
non-convertible medium-term and long-term global notes held in the name 
of The Depository Trust Company (``DTC''), or its nominee, Cede & Co. 
The notes would be issued and transferred only through the book-entry 
system of DTC. The term debt would be interest bearing at either fixed 
or floating interest rates that are set at market rates customary for 
such type of debt and reflective of the creditworthiness of NSCC.
    NSCC expects the average maturity of the term debt issued under the 
Debt Issuance would range between two and ten years, which are the 
typical lengths of medium- and long-term debt. NSCC already issues 
short-term debt through the Commercial Paper Program,\11\ and NSCC does 
not believe maturities over ten years would be suitable as debt with 
longer maturities are generally more expensive to issue and may present 
higher risks related to interest rates. NSCC would time each debt 
issuance and stagger maturity dates of each issuance in order to ladder 
the maturities. NSCC would have the ability to make use of optional 
features to call any of the issued term debt, in whole or in part, at 
any time prior to the maturity date of that debt. The issued term debt 
may also contain renewable terms.
---------------------------------------------------------------------------

    \11\ Supra note 3.
---------------------------------------------------------------------------

    NSCC would hold the proceeds from the Debt Issuance in either its 
cash deposit account at the Federal Reserve Bank of New York 
(``FRBNY'') or in accounts at other creditworthy financial institutions 
in accordance with the Clearing Agency Investment Policy.\12\ These 
amounts would be available to draw to complete settlement as needed.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release Nos. 79528 (December 
12, 2016), 81 FR 91232 (December 16, 2016) (File Nos. SR-DTC-2016-
007, SR-FICC-2016-005, SR-NSCC-2016-003); 84949 (December 21, 2018), 
83 FR 67779 (December 31, 2018) (File Nos. SR-DTC-2018-012, SR-FICC-
2018-014, SR-NSCC-2018-013). Following notice of no-objection by the 
Commission of this proposal, the Clearing Agencies would file a 
proposed rule change to amend the Clearing Agency Investment Policy 
to include the proceeds of the Debt Issuance as default liquidity 
funds, within the definition of ``Investable Funds,'' as such term 
is defined therein, and provide that such amounts would be held in 
bank deposits at eligible commercial banks or at NSCC's cash deposit 
account at the FRBNY.
---------------------------------------------------------------------------

    NSCC Liquidity Risk Management. As a central counterparty 
(``CCP''), NSCC occupies an important role in the securities settlement 
system by interposing itself between counterparties to financial 
transactions, thereby reducing the risk faced by its Members and 
contributing to global financial stability. NSCC's liquidity risk 
management plays an integral part in NSCC's ability to perform its role 
as a CCP. If a Member defaults, as a CCP, NSCC will need to complete 
settlement of guaranteed transactions on the failing Member's behalf 
from the date of default through the remainder of the settlement cycle 
(currently two days for securities

[[Page 2189]]

that settle on a regular way basis in the U.S. markets).
    As noted above, the Framework describes NSCC's liquidity risk 
management strategy to maintain sufficient liquidity resources in order 
to meet the potential funding required to settle outstanding 
transactions of a defaulting Member, or affiliated family of Members, 
in a timely manner.\13\ The Framework also addresses how NSCC meets its 
requirement to hold qualifying liquid resources, as such term is 
defined in Rule 17Ad-22(a)(14) under the Act,\14\ sufficient to meet 
its minimum liquidity resource requirement in each relevant currency 
for which it has payment obligations owed to its Members. NSCC 
considers each of its existing default liquidity resources to be 
qualifying liquid resources.\15\ These resources include: (1) The cash 
in NSCC's Clearing Fund; \16\ (2) the cash that would be obtained by 
drawing upon its Line of Credit; (3) additional cash deposits, known as 
``Supplemental Liquidity Deposits'', designed to cover the heightened 
liquidity exposure arising around monthly option expiry periods, 
required from those Members whose activity would pose the largest 
liquidity exposure to NSCC; \17\ and (4) cash proceeds from the 
Commercial Paper Program. The proceeds from the Debt Issuance would 
also be default liquidity that is considered a qualifying liquid 
resource.
---------------------------------------------------------------------------

    \13\ Supra note 5.
    \14\ 17 CFR 240.17Ad-22(a)(14).
    \15\ Id.
    \16\ See Rule 4 and Procedure XV of the Rules, supra note 5.
    \17\ Supplemental Liquidity Deposits are described in Rule 4A of 
the Rules, supra note 7.
---------------------------------------------------------------------------

    By providing NSCC with additional, prefunded, and readily available 
qualifying liquid resources to be used to complete end-of-day 
settlement as needed in the event of a Member default, the Debt 
Issuance would provide additional certainty, stability, and safety to 
NSCC, its Members, and the U.S. equities market that it serves as a 
CCP.
    NSCC believes the Debt Issuance may also reduce its concentration 
risk with respect to its default liquidity resources. NSCC would not 
limit the potential qualified institutional investors that purchase 
term debt and, therefore, is not able to ensure that the Debt Issuance 
would reduce concentration risk. However, the types of entities who 
typically invest in term debt include, for example, insurance 
companies, asset managers and pension funds, and these entities are 
generally not Members of NSCC or lenders under the Line of Credit. 
While these types of entities are the same types of entities that 
invest in commercial paper, the firms that invest in term debt are 
generally not the same firms that invest in commercial paper. 
Therefore, the prospective investors in the term debt are not expected 
to be the same firms that currently provide any material amount of 
default liquidity resources to NSCC either through the Commercial Paper 
Program or the Line of Credit, nor as NSCC Members.
Anticipated Effect on and Management of Risk
    NSCC's consistent ability to timely complete settlement is a key 
part of NSCC's role as a CCP and allows NSCC to mitigate counterparty 
risk within the U.S. markets. In order to sufficiently perform this key 
role in promoting market stability, it is critical that NSCC has access 
to adequate liquidity resources to enable it to complete end-of-day 
settlement, notwithstanding the default of a Member. NSCC believes that 
the overall impact of the proposed Debt Issuance on risks presented by 
NSCC would be to reduce the liquidity risks associated with NSCC's 
operation as a CCP by providing it with an additional source of 
liquidity to complete end-of-day settlement in the event of a Member 
default. NSCC further believes that a reduction in its liquidity risk 
would reduce systemic risk and would have a positive impact on the 
safety and soundness of the clearing system.
    While the proposed Debt Issuance, like any liquidity resource, 
would involve certain risks, most of these risks are standard in any 
debt issuance. One risk associated with the proposed Debt Issuance 
would be the risk that NSCC does not have sufficient funds to repay 
issued term debt when the notes mature. NSCC believes that this risk is 
extremely remote, as the proceeds of the Debt Issuance would be used 
only in the event of a Member default, and NSCC would replenish that 
cash, as it would replenish any of its liquidity resources that are 
used to facilitate settlement in the event of a Member default, with 
the proceeds of the close out of that defaulted Member's portfolio. 
This notwithstanding, in the event that proceeds from the close out are 
insufficient to fully repay a liquidity borrowing, then NSCC would look 
to its loss waterfall to repay any outstanding liquidity 
borrowings.\18\ NSCC would further mitigate this risk through the 
timing of each debt issuance and by staggering the maturity dates of 
the issued term debt in a way that would provide NSCC with time to 
complete the close out of a defaulted Member's portfolio. A second risk 
is that NSCC may be unable to issue new term debt as issued notes 
mature due to, for example, stressed markets at the time the issued 
debt matures. This risk is mitigated by the fact that NSCC maintains a 
number of different default liquidity resources, described above, and 
would not depend on the Debt Issuance as its sole source of liquidity.
---------------------------------------------------------------------------

    \18\ See Rule 4 (Clearing Fund) of the Rules, supra note 7.
---------------------------------------------------------------------------

    NSCC may face interest rate risk, which is the risk that the 
borrowing interest rate on issued debt is higher than the interest rate 
at which proceeds of issued debt would be invested. NSCC would mitigate 
this risk by issuing term debt at different maturities and at both 
fixed interest rates and floating interest rates. The interest rates 
for the term debt issued at floating interest rates would generally 
correlate with the rates on investments of those proceeds and would be 
expected to result in a largely stable net spread between the borrowing 
interest rate and the investment interest rate, mitigating this risk. 
For the term debt issued at a flat interest rate, NSCC would consider 
interest rate swaps as a method to mitigate interest rate risk, 
depending on market environment at that time.
    NSCC could also face a related financial risk that the expense of a 
Debt Issuance exceeds NSCC's income and negatively impacts NSCC's 
financial health or its creditworthiness. NSCC would mitigate this risk 
by evaluating the expected interest rate risk (discussed above) and 
expense of a Debt Issuance prior to issuing any debt, and if the 
financing costs for the issuance of term debt increase, such that it is 
not financially advisable to issue additional term debt, then NSCC may 
determine to use its alternative liquidity resources to meet its 
liquidity needs during those market conditions.
    NSCC believes that the significant systemic risk mitigation 
benefits of providing NSCC with additional, prefunded liquidity 
resources outweigh these risks.
Consistency With Clearing Supervision Act
    NSCC believes that that proposal would be consistent with Title 
VIII of the Clearing Supervision Act, specifically with the risk 
management objectives and principles of Section 802(b)(1), and with 
certain of the risk management standards adopted by the Commission 
pursuant to Section 805(a)(2), for the reasons described below.\19\
---------------------------------------------------------------------------

    \19\ 12 U.S.C. 5464(a)(2) and (b)(1).

---------------------------------------------------------------------------

[[Page 2190]]

(i) Consistency With Section 805(b)(1) of the Clearing Supervision Act
    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive: To 
mitigate systemic risk in the financial system and promote financial 
stability by, among other things, promoting uniform risk management 
standards for systemically important financial market utilities and 
strengthening the liquidity of systemically important financial market 
utilities.\20\
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

    NSCC believes the proposal is consistent with Section 805(b)(1) of 
the Clearing Supervision Act because it would support the mitigation of 
systemic risk in the financial system and promote financial stability 
in the event of a Member default by strengthening NSCC's liquidity. The 
proposed Debt Issuance is designed to reduce NSCC's liquidity risks by 
providing it with an additional source of liquidity to complete end-of-
day settlement in the event of a Member default. By supplementing 
NSCC's existing default liquidity resources with prefunded liquidity, 
the proposal would contribute to NSCC's goal of assuring that NSCC has 
adequate liquidity resources to meet its settlement obligations 
notwithstanding the default of any of its Members.
    In its critical role as a CCP, NSCC itself between counterparties 
to financial transactions, thereby reducing the risk faced by its 
Members and contributing to global financial stability. NSCC's 
liquidity risk management plays an integral part in NSCC's ability to 
perform its role as a CCP. Therefore, a reduction of NSCC's liquidity 
risk would be expected to also reduce systemic risk in the financial 
system and would promote financial stability by having a positive 
impact on the safety and soundness of the clearing system.
    As a result, NSCC believes the proposed Debt Issuance would be 
consistent with the objectives and principles of Section 805(b)(1) of 
the Clearing Supervision Act, which specify the promotion of robust 
risk management, promotion of safety and soundness, reduction of 
systemic risks and support of the stability of the broader financial 
system by, among other things, strengthening the liquidity of 
systemically important financial market utilities, such as NSCC.
(ii) Consistency With Rule 17Ad-22(e)(7)(i) and (ii) Under the Act
    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like NSCC, and financial institutions engaged in designated activities 
for which the Commission is the supervisory agency or the appropriate 
financial regulator.\21\ The Commission has accordingly adopted risk 
management standards under Section 805(a)(2) of the Clearing 
Supervision Act \22\ and Section 17A of the Act (``Covered Clearing 
Agency Standards'').\23\ The Covered Clearing Agency Standards require 
covered clearing agencies to establish, implement, maintain, and 
enforce written policies and procedures that are reasonably designed to 
meet certain minimum requirements for their operations and risk 
management practices on an ongoing basis.\24\
---------------------------------------------------------------------------

    \21\ 12 U.S.C. 5464(a)(2).
    \22\ Id.
    \23\ 17 CFR 240.17Ad-22(e).
    \24\ Id.
---------------------------------------------------------------------------

    NSCC believes that the proposed Debt Issuance is consistent with 
Rule 17Ad-22(e)(7)(i) and (ii) of the Covered Clearing Agency Standards 
for the reasons described below.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17Ad-22(e)(7)(i), (ii).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(i) under the Act requires that NSCC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain sufficient liquid resources at the 
minimum in all relevant currencies to effect same-day and, where 
appropriate, intraday and multiday settlement of payment obligations 
with a high degree of confidence under a wide range of foreseeable 
stress scenarios that includes, but is not limited to, the default of 
the participant family that would generate the largest aggregate 
payment obligation for the covered clearing agency in extreme but 
plausible market conditions.\26\ Rule 17Ad-22(e)(7)(ii) under the Act 
requires that NSCC establish, implement, maintain and enforce written 
policies and procedures reasonably designed to hold qualifying liquid 
resources sufficient to meet the minimum liquidity resource requirement 
under Rule 17Ad-22(e)(7)(i) in each relevant currency for which NSCC 
has payment obligations owed to its Members.\27\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(7)(i).
    \27\ 17 CFR 240.17Ad-22(e)(7)(ii). For purposes of this Rule, 
``qualifying liquid resources'' are defined in Rule 17Ad-22(a)(14) 
as including, in part, cash held either at the central bank of issue 
or at creditworthy commercial banks. 17 CFR 240.17Ad-22(a)(14).
---------------------------------------------------------------------------

    As described above, the proposed Debt Issuance would provide NSCC 
with an additional resource of prefunded default liquidity, which it 
would use to complete end-of-day settlement in the event of the default 
of a Member. The proceeds of the Debt Issuance would be cash held by 
NSCC at either its cash deposit account at the FRBNY or at a 
creditworthy commercial bank, pursuant to the Clearing Agency 
Investment Policy.\28\ Therefore, the proceeds of the Debt Issuance 
would be considered a qualifying liquid resource, as defined by Rule 
17Ad-22(a)(14).\29\ As such, the proposed Debt Issuance would support 
NSCC's ability to hold sufficient qualifying liquid resources to meet 
its minimum liquidity resource requirement under Rule 17Ad-
22(e)(7)(i).\30\
---------------------------------------------------------------------------

    \28\ Supra note 12.
    \29\ 17 CFR 240.17Ad-22(a)(14).
    \30\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    For these reasons, NSCC believes the proposal would support NSCC's 
compliance with Rule 17Ad-22(e)(7)(i) and (ii) by providing it with an 
additional qualifying liquid resource.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 240.17Ad-22(e)(7)(i), (ii).
---------------------------------------------------------------------------

III. Date of Effectiveness of the Advance Notice, and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The clearing agency shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    The clearing agency shall post notice on its website of proposed 
changes that are implemented.

[[Page 2191]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the Advance 
Notice is consistent with the Clearing Supervision 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-2019-802 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-2019-802. 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 Advance Notice that are filed with the 
Commission, and all written communications relating to the Advance 
Notice 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-2019-802 and should be submitted on 
or before January 29, 2020.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-00367 Filed 1-13-20; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.