Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Clearing Agency Investment Policy, 19037-19040 [2020-06957]
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Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices
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 the Exchange. 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–LTSE–2020–08, and should
be submitted on or before April 24,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–06958 Filed 4–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88514; File No. SR–NSCC–
2020–007]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Revise the Clearing
Agency Investment Policy
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March 30, 2020
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 26,
2020, National Securities Clearing
Corporation (‘‘NSCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. NSCC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
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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
revise the Clearing Agency Investment
Policy (‘‘Investment Policy’’) of NSCC
and its affiliates, The Depository Trust
Company (‘‘DTC’’) and Fixed Income
Clearing Corporation (‘‘FICC,’’ and
together with DTC and NSCC, the
‘‘Clearing Agencies’’) in order to (1)
include the proceeds of the issuance of
term debt by NSCC as part of the
description of ‘‘Default Liquidity
Funds’’ within the section for
‘‘Investable Funds’’; (2) clarify the
allowable investments for DTC’s
Participants Fund;5 and (3) enhance the
description of collateral that may be
posted in connection with investments
in reverse repurchase agreements; 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 Clearing Agencies are proposing
to revise the Investment Policy, which
was adopted for each clearing agency in
December 2016 6 and is maintained in
compliance with Rule 17Ad–22(e)(16)
5 The respective Clearing Funds of NSCC and
FICC, and the DTC Participants Fund are described
in the Rules & Procedures of NSCC (‘‘NSCC Rules’’),
the DTC Rules, By-laws and Organization
Certificate (‘‘DTC Rules’’), the Clearing Rules of the
Mortgage-Backed Securities Division of FICC
(‘‘MBSD Rules’’) and the Rulebook of the
Government Securities Division of FICC (‘‘GSD
Rules’’), respectively, available at https://dtcc.com/
legal/rules-and-procedures. See Rule 4 (Clearing
Fund) of the NSCC Rules, Rule 4 (Participants Fund
and Participants Investment) of the DTC Rules, Rule
4 (Clearing Fund and Loss Allocation) of the GSD
Rules and Rule 4 (Clearing Fund and Loss
Allocation) of the MBSD Rules.
6 See Securities Exchange Act Release No. 79528
(December 12, 2016), 81 FR 91232 (December 16,
2016) (SR–DTC–2016–007, SR–FICC–2016–005,
SR–NSCC–2016–003).
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under the Act,7 in order to (1) include
the proceeds of the issuance of term
debt by NSCC as part of the description
of ‘‘Default Liquidity Funds’’ within the
section for ‘‘Investable Funds’’; (2)
clarify the allowable investments for
DTC’s Participants Fund; and (3)
enhance the description of collateral
that may be posted in connection with
investments in reverse repurchase
agreements; as described in greater
detail below.
Overview of the Investment Policy
The Investment Policy governs the
management, custody and investment of
cash deposited to the respective NSCC
and FICC Clearing Funds, and the DTC
Participants Fund, the proprietary
liquid net assets (cash and cash
equivalents) of the Clearing Agencies,
and other funds held by the Clearing
Agencies pursuant to their respective
rules.
The Investment Policy identifies the
guiding principles for investments and
defines the roles and responsibilities of
DTCC staff in administering the
Investment Policy pursuant to those
principles. The Investment Policy is coowned by DTCC’s Treasury group
(‘‘Treasury’’) 8 and the Counterparty
Credit Risk team (‘‘CCR’’) within
DTCC’s Group Chief Risk Office
(‘‘GCRO’’).9 Treasury is responsible for
identifying potential counterparties to
investment transactions, establishing
and managing investment relationships
with approved investment
counterparties, and making and
monitoring all investment transactions
with respect to the Clearing Agencies.
CCR is responsible for conducting a
credit review of any potential
counterparty, updating those reviews on
a quarterly basis, and establishing an
investment limit for each counterparty.
The Investment Policy also identifies
sources of funds that may be invested,
and the permitted investments of those
funds, including the authority required
to make such investments and the
parameters of, and limitations on, each
type of investment. Allowable
investments include bank deposits,
reverse repurchase agreements, direct
obligations of the U.S. government,
7 17 CFR 240.17Ad–22(e)(16). As discussed in
this filing, the Investment Policy also addresses
compliance with the requirements of the Rule
17Ad–22(e)(3). 17 CFR 240.17Ad–22(e)(3).
8 Treasury is a part of the DTCC Finance
Department and is responsible for the safeguarding,
investment and disbursement of funds on behalf of
the Clearing Agencies and in accordance with the
principles outlined in the Investment Policy.
9 Among other responsibilities, GCRO is generally
responsible for the systems and processes designed
to identify and manage credit, market and liquidity
risks to the Clearing Agencies.
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Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices
money market mutual funds, high-grade
corporate debt, and hedge transactions.
Finally, the Investment Policy defines
the approval authority required to
exceed established investment limits.
Proposed Revisions to the Investment
Policy
The Investment Policy is reviewed
and approved by the Boards annually.
In connection with the most recent
annual review of the Investment Policy
and in order to reflect recent changes to
NSCC’s default liquidity funds, the
Clearing Agencies have decided to
propose certain revisions and updates.
These proposed revisions, described in
greater detail below, are designed to
update the Investment Policy and help
ensure that it reflects the Clearing
Agencies’ practices related to
investments of funds.
1. Include Additional NSCC Default
Liquidity in Table of Investable Funds
First, the Clearing Agencies are
proposing to amend the table of
investable funds in Section 5 of the
Investment Policy to include proceeds
from the issuance of term debt by NSCC
in the description of NSCC’s default
liquidity funds.
This table identifies the sources of
investable funds that are invested by the
Clearing Agencies, and groups these
sources of funds into separate
categories. One of the categories of
investable funds is the default liquidity
funds of NSCC, which is currently
described as including the proceeds
from the issuance of commercial paper
and extendible notes. NSCC recently
proposed to raise additional prefunded
default liquidity through the periodic
issuance and private placement of term
debt.10 The investment of these funds
would be governed by the Investment
Policy.
The proposed change to the
Investment Policy would include
proceeds from the issuance of term debt
in this category of ‘‘Investable Funds’’ to
reflect the recent effectiveness of
NSCC’s proposal.11
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2. Clarify Allowable Investments for
DTC’s Participants Fund
Second, the Clearing Agencies are
proposing to make two revisions to the
Investment Policy to clarify how DTC’s
Participants Fund may be invested. It
has historically been DTC’s practice to
invest its Participants Fund in cash
deposit accounts only, so that the funds
10 See Securities Exchange Act Release No. 88146
(February 7, 2020), 85 FR 8046 (February 12, 2020)
(SR–NSCC–2019–802).
11 Id.
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are available for same-day access and
settlement.
The Clearing Agencies are proposing
to update the Investment Policy to more
clearly reflect this practice. First, the
Clearing Agencies are proposing to
amend the table of allowable
investments in Section 6.1 of the
Investment Policy to include a separate
column to identify the DTC Participants
Fund, and show these funds as being
available for investment only in bank
deposits, including DTC’s cash deposit
account at the Federal Reserve Bank of
New York. Currently, the DTC
Participants Fund is included in the
same column as the NSCC and FICC
Clearing Funds, which may also be
invested in other investment types.
Therefore, as currently written, this
table indicates that DTC’s Participants
Fund may also be invested in those
other investment types. The proposed
change to create a separate column for
DTC’s Participants Fund would more
clearly identify the allowable
investments of these funds.
Also, the Clearing Agencies are
proposing to amend Section 6.2.1 of the
Investment Policy, which describes the
limits on investments in bank deposits,
to explicitly state that DTC’s
Participants Fund may only be invested
in demand deposit, savings or checking
bank accounts that provide same day
access to funds. This proposed change
would clearly identify the limits on
investments of DTC’s Participants Fund
in certain types of bank deposits.
The proposed changes would improve
the Investment Policy by more clearly
identifying DTC’s practice with respect
to the investment of its Participants
Fund deposits.
3. Enhance Description of Collateral
Related to Reverse Repurchase
Agreements
Finally, the Clearing Agencies are
proposing to amend Section 6.2.2 of the
Investment Policy, which describes
investment limits on investments in
reverse repurchase agreements. The
proposed changes would include
additional detail to more clearly
describe the collateral that may be
posted by a counterparty in connection
with these investments and to identify
the required haircuts on such collateral.
More specifically, in these
arrangements, where the Clearing
Agencies are the purchaser of securities,
the counterparty to the transaction
delivers to the custodian collateral
(either securities or cash). Currently, the
Investment Policy states that securities
posted as collateral must have a market
value equal to 102% or greater of the
cash invested. The proposed changes to
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the Investment Policy would further
state that U.S. Treasury securities, U.S.
agency securities and agency mortgagebacked securities posted as collateral
must have a two percent haircut; and
cash posted as collateral shall have no
haircut, because cash does not carry any
associated market risk that could lead to
a change in collateral value.
The proposed changes would improve
the Investment Policy by more clearly
describing the limits applicable to these
types of investments.
2. Statutory Basis
The Clearing Agencies believe that the
proposed rule changes are consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a registered clearing
agency. In particular, the Clearing
Agencies believe that the proposed
modifications to the Investment Policy
are consistent with Section 17A(b)(3)(F)
of the Act 12 and Rule 17Ad–22(e)(16)
under the Act,13 for the reasons
described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of each
of the Clearing Agencies be designed to
assure the safeguarding of securities and
funds which are in the custody or
control of each of the Clearing Agencies
or for which they are responsible.14 The
investment guidelines and governance
procedures set forth in the Investment
Policy are designed to safeguard funds
which are in the custody or control of
the Clearing Agencies or for which they
are responsible. Such protections
include, for example, following a
prudent and conservative investment
philosophy that places the highest
priority on maximizing liquidity and
risk avoidance. The Clearing Agencies
believe each of these proposed changes
would help facilitate the effective
execution of the Investment Policy
pursuant to the guiding principles set
forth therein. Therefore, the Clearing
Agencies believe the proposed changes
would allow the Clearing Agencies to
continue to operate the Investment
Policy pursuant to a prudent and
conservative investment philosophy
that assures the safeguarding of
securities and funds which are in their
custody and control, or for which they
are responsible.
First, the proposed change to include
proceeds from NSCC’s issuance of term
debt in the table of ‘‘Investable Funds’’
would make investments of these funds
subject to the guidelines and restrictions
set forth in the Investment Policy, and,
12 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(16).
14 15 U.S.C. 78q–1(b)(3)(F).
13 17
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Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices
therefore, would assure the safeguarding
of these funds.
Second, the proposed changes to
clarify the allowable investments for
DTC’s Participants Fund and enhance
the description of restrictions applicable
to investments in reverse repurchase
agreements would improve the clarity
and accuracy of the Investment Policy.
By creating clearer descriptions, the
Clearing Agencies believe these
proposed changes would make the
Investment Policy more effective in
governing the management, custody,
and investment of funds of and held by
the Clearing Agencies.
For the reasons described above, the
Clearing Agencies believe the proposed
changes would improve the
effectiveness of the Investment Policy
and allow the Investment Policy to
continue to be administered in
alignment with the investment
guidelines and governance procedures
set forth therein. Given that such
guidelines and governance procedures
are designed to safeguard funds which
are in the custody or control of the
Clearing Agencies or for which they are
responsible, the Clearing Agencies
believe the proposed changes are
consistent with the requirements of
Section 17A(b)(3)(F) of the Act.15
Rule 17Ad–22(e)(16) under the Act
requires the Clearing Agencies to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to safeguard the
Clearing Agencies’ own and their
participants’ assets, minimize the risk of
loss and delay in access to these assets,
and invest such assets in instruments
with minimal credit, market, and
liquidity risks.16
The Clearing Agencies believe that the
Investment Policy follows a prudent and
conservative investment philosophy,
placing the highest priority on
maximizing liquidity and avoiding risk
of loss, by requiring the segregation of
funds of each Clearing Agency and of
types of funds of each Clearing Agency,
using external credit ratings in the
evaluation of counterparties, and
establishing investment limits by
counterparty as well as investment type.
As originally implemented, the
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15 Id.
16 When the Investment Policy was implemented,
the Clearing Agencies were subject to the
requirements of subsection (d) of Rule 17Ad–22
under the Act, and the Investment Policy was
designed to meet the requirements of Rule 17Ad–
22(d)(3). See supra note 6; 17 CFR 240.17Ad–22(d).
The Commission subsequently adopted Rule 17Ad–
22(e) and amended Rule 17Ad–22(d) such that the
Clearing Agencies became subject to the new
requirements of Rule 17Ad–22(e) and are no longer
subject to the requirements of Rule 17Ad–22(d). 17
CFR 240.17Ad–22(e).
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Investment Policy was designed to meet
the requirements of Rule 17Ad–
22(e)(16) under the Act.17
For the reasons stated above, the
Clearing Agencies believe that each of
the proposed revisions would improve
the clarity and comprehensiveness of
the Investment Policy and, therefore,
make the Investment Policy more
effective in governing the management,
custody, and investment of funds of and
held by the Clearing Agencies. In this
way, the proposed changes would better
allow the Clearing Agencies to maintain
this document in a way that is designed
to meet the requirements of Rule 17Ad–
22(e)(16). Therefore, the Clearing
Agencies believe the proposed revisions
would be consistent with the
requirements of Rule 17Ad–22(e)(16)
under the Act.18
(B) Clearing Agency’s Statement on
Burden on Competition
Each of the Clearing Agencies believes
that none of the proposed revisions to
the Investment Policy would have any
impact, or impose any burden, on
competition. The Investment Policy
applies equally to allowable
investments of FICC and NSCC Clearing
Funds and DTC Participants Fund
deposits, as applicable, of each member
of the Clearing Agencies, and
establishes a uniform policy at the
Clearing Agencies. The proposed
changes to the Investment Policy would
not affect any changes on the
fundamental purpose or operation of
this document and, as such, would also
not have any impact, or impose any
burden, on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
The Clearing Agencies have not
solicited or received any written
comments relating to this proposal. The
Clearing Agencies will notify the
Commission of any written comments
received by the Clearing Agencies.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
(i) Significantly affect the protection
of investors or the public interest;
(ii) impose any significant burden on
competition; and
(iii) become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
17 Id.
18 17
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may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 19 and Rule 19b–4(f)(6)
thereunder.20
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or 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–2020–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–NSCC–2020–007. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
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
19 15
CFR 240.17Ad–22(e)(16).
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20 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices
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–
2020–007 and should be submitted on
or before April 24, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–06957 Filed 4–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88511; File No. SR–OCC–
2020–002]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Update
The Options Clearing Corporation’s
Operational Loss Fee in OCC’s
Schedule of Fees
March 30, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on March 24, 2020, the
Options Clearing Corporation (‘‘OCC’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by OCC. OCC filed
the proposed rule change pursuant to
Section 19(b)(3)(A)(ii) 3 of the Act and
Rule 19b–4(f)(2) 4 thereunder so that the
proposal was effective upon filing with
the Commission.5 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 As noted below, the proposed change would not
become effective until the later of April 8, 2020 or
the date on which the change is deemed certified
under the Commodity Futures Trading
Commission’s (‘‘CFTC’’) Regulation 40.6.
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I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change by OCC
would revise OCC’s schedule of fees,
effective April 8, 2020, to implement a
change in the maximum contingent
Operational Loss Fee in accordance
with OCC’s Capital Management Policy.
Proposed changes to OCC’s schedule of
fees are attached [sic] as Exhibit 5 to the
filing. Material proposed to be added to
OCC’s schedule of fees as currently in
effect is underlined and material
proposed to be deleted is marked in
strikethrough text. All capitalized terms
not defined herein have the same
meaning as set forth in the OCC ByLaws and Rules.6
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these 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 revise OCC’s schedule of
fees to update the maximum aggregate
Operational Loss Fee that OCC would
charge Clearing Members in equal
shares in the unlikely event that OCC’s
shareholders’ equity (‘‘Equity’’) falls
below certain thresholds defined in
OCC’s Capital Management Policy. The
proposed fee change is designed to
enable OCC to replenish capital to
comply with Rule 17Ad–22(e)(15) under
the Exchange Act, which requires OCC,
in pertinent part, to ‘‘hold[] liquid net
assets funded by equity to the greater of
either (x) six months . . . current
operating expenses, or (y) the amount
determined by the board of directors to
be sufficient to ensure a recovery or
orderly wind-down of critical
operations and service’’ 7 and
‘‘[m]aintain[] a viable plan, approved by
the board of directors and updated at
least annually, for raising additional
equity should its equity fall close to or
6 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://optionsclearing.com/
about/publications/bylaws.jsp.
7 See 17 CFR 240.17Ad–22(e)(15)(ii).
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below the amount required [to be
held].’’ 8
On January 24, 2020, the SEC
approved OCC’s Capital Management
Policy, which includes OCC’s
replenishment plan.9 Pursuant to that
policy, OCC would charge an
Operational Loss Fee in equal shares to
Clearing Members to raise additional
capital should OCC’s Equity fall below
certain defined thresholds.10
Specifically, after applying the unvested
balance held in respect of OCC’s
Executive Deferred Compensation
Program, OCC would charge an
Operational Loss Fee in an amount to
raise Equity to 110% of OCC’s Target
Capital Requirement, up to the
maximum Operational Loss Fee
identified in OCC’s schedule of fees less
the amount of any Operational Loss
Fees previously charged and not
refunded.11 OCC calculates the
maximum aggregate Operational Loss
Fee based on the amount determined by
the Board of Directors to be sufficient
for a recovery or orderly wind-down of
critical operations and services (‘‘RWD
Amount’’),12 which is determined based
on the assumptions in OCC’s Recovery
and Orderly Wind-Down Plan (‘‘RWD
Plan’’).13 In order to account for OCC’s
tax liability for retaining the Operational
Loss Fee as earnings, OCC may apply a
tax gross-up to the RWD Amount
(‘‘Adjusted RWD Amount’’) depending
on whether the operational loss that
caused OCC’s Equity to fall below the
Trigger Event thresholds is tax
deductible.14
The RWD Amount and, in turn, the
Adjusted RWD Amount are determined
annually based on OCC’s corporate
budget, the assumptions articulated in
8 See
17 CFR 240.17Ad–22(e)(15)(iii).
Exchange Act Release No. 88029 (Jan. 24,
2020), 85 FR 5500 (Jan. 30, 2020) (SR–OCC–2019–
007) (‘‘Order Approving OCC’s Capital Management
Policy’’).
10 Id. at 5503. OCC would charge an Operational
Loss Fee for a Trigger Event, which the Capital
Management Policy defines as when OCC’s Equity
falls below 90% of OCC’s Target Capital
Requirement (i.e., the amount of Equity determined
by OCC’s Board to be sufficient for OCC to meet its
regulatory obligations and to serve market
participants and the public interest) or remains
below the Target Capital Requirement for ninety
consecutive calendar days. See id. at 5510. OCC’s
Schedule of Fees currently lists these threshold
amounts with respect to OCC’s current Target
Capital Requirement. This proposed rule change
does not implement any change to the Target
Capital Requirement or the corresponding threshold
amounts.
11 Id. at 5503.
12 Id.
13 See Exchange Act Release No. 83918 (Aug. 23,
2018), 83 FR 44091, 44094 (Aug. 29, 2018) (SR–
OCC–2017–021) (‘‘Order Approving OCC’s RWD
Plan’’).
14 Order Approving OCC’s Capital Management
Policy, 85 FR at 5503.
9 See
E:\FR\FM\03APN1.SGM
03APN1
]]>Agencies
[Federal Register Volume 85, Number 65 (Friday, April 3, 2020)]
[Notices]
[Pages 19037-19040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06957]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88514; File No. SR-NSCC-2020-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Revise the Clearing Agency Investment Policy
March 30, 2020
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 26, 2020, National Securities Clearing Corporation (``NSCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the clearing agency. NSCC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would revise the Clearing Agency
Investment Policy (``Investment Policy'') of NSCC and its affiliates,
The Depository Trust Company (``DTC'') and Fixed Income Clearing
Corporation (``FICC,'' and together with DTC and NSCC, the ``Clearing
Agencies'') in order to (1) include the proceeds of the issuance of
term debt by NSCC as part of the description of ``Default Liquidity
Funds'' within the section for ``Investable Funds''; (2) clarify the
allowable investments for DTC's Participants Fund;\5\ and (3) enhance
the description of collateral that may be posted in connection with
investments in reverse repurchase agreements; as described in greater
detail below.
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\5\ The respective Clearing Funds of NSCC and FICC, and the DTC
Participants Fund are described in the Rules & Procedures of NSCC
(``NSCC Rules''), the DTC Rules, By-laws and Organization
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') and the Rulebook
of the Government Securities Division of FICC (``GSD Rules''),
respectively, available at https://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4
(Participants Fund and Participants Investment) of the DTC Rules,
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule
4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
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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 Clearing Agencies are proposing to revise the Investment
Policy, which was adopted for each clearing agency in December 2016 \6\
and is maintained in compliance with Rule 17Ad-22(e)(16) under the
Act,\7\ in order to (1) include the proceeds of the issuance of term
debt by NSCC as part of the description of ``Default Liquidity Funds''
within the section for ``Investable Funds''; (2) clarify the allowable
investments for DTC's Participants Fund; and (3) enhance the
description of collateral that may be posted in connection with
investments in reverse repurchase agreements; as described in greater
detail below.
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\6\ See Securities Exchange Act Release No. 79528 (December 12,
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
\7\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the
Investment Policy also addresses compliance with the requirements of
the Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------
Overview of the Investment Policy
The Investment Policy governs the management, custody and
investment of cash deposited to the respective NSCC and FICC Clearing
Funds, and the DTC Participants Fund, the proprietary liquid net assets
(cash and cash equivalents) of the Clearing Agencies, and other funds
held by the Clearing Agencies pursuant to their respective rules.
The Investment Policy identifies the guiding principles for
investments and defines the roles and responsibilities of DTCC staff in
administering the Investment Policy pursuant to those principles. The
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'')
\8\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group
Chief Risk Office (``GCRO'').\9\ Treasury is responsible for
identifying potential counterparties to investment transactions,
establishing and managing investment relationships with approved
investment counterparties, and making and monitoring all investment
transactions with respect to the Clearing Agencies. CCR is responsible
for conducting a credit review of any potential counterparty, updating
those reviews on a quarterly basis, and establishing an investment
limit for each counterparty.
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\8\ Treasury is a part of the DTCC Finance Department and is
responsible for the safeguarding, investment and disbursement of
funds on behalf of the Clearing Agencies and in accordance with the
principles outlined in the Investment Policy.
\9\ Among other responsibilities, GCRO is generally responsible
for the systems and processes designed to identify and manage
credit, market and liquidity risks to the Clearing Agencies.
---------------------------------------------------------------------------
The Investment Policy also identifies sources of funds that may be
invested, and the permitted investments of those funds, including the
authority required to make such investments and the parameters of, and
limitations on, each type of investment. Allowable investments include
bank deposits, reverse repurchase agreements, direct obligations of the
U.S. government,
[[Page 19038]]
money market mutual funds, high-grade corporate debt, and hedge
transactions. Finally, the Investment Policy defines the approval
authority required to exceed established investment limits.
Proposed Revisions to the Investment Policy
The Investment Policy is reviewed and approved by the Boards
annually. In connection with the most recent annual review of the
Investment Policy and in order to reflect recent changes to NSCC's
default liquidity funds, the Clearing Agencies have decided to propose
certain revisions and updates. These proposed revisions, described in
greater detail below, are designed to update the Investment Policy and
help ensure that it reflects the Clearing Agencies' practices related
to investments of funds.
1. Include Additional NSCC Default Liquidity in Table of Investable
Funds
First, the Clearing Agencies are proposing to amend the table of
investable funds in Section 5 of the Investment Policy to include
proceeds from the issuance of term debt by NSCC in the description of
NSCC's default liquidity funds.
This table identifies the sources of investable funds that are
invested by the Clearing Agencies, and groups these sources of funds
into separate categories. One of the categories of investable funds is
the default liquidity funds of NSCC, which is currently described as
including the proceeds from the issuance of commercial paper and
extendible notes. NSCC recently proposed to raise additional prefunded
default liquidity through the periodic issuance and private placement
of term debt.\10\ The investment of these funds would be governed by
the Investment Policy.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 88146 (February 7,
2020), 85 FR 8046 (February 12, 2020) (SR-NSCC-2019-802).
---------------------------------------------------------------------------
The proposed change to the Investment Policy would include proceeds
from the issuance of term debt in this category of ``Investable Funds''
to reflect the recent effectiveness of NSCC's proposal.\11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
2. Clarify Allowable Investments for DTC's Participants Fund
Second, the Clearing Agencies are proposing to make two revisions
to the Investment Policy to clarify how DTC's Participants Fund may be
invested. It has historically been DTC's practice to invest its
Participants Fund in cash deposit accounts only, so that the funds are
available for same-day access and settlement.
The Clearing Agencies are proposing to update the Investment Policy
to more clearly reflect this practice. First, the Clearing Agencies are
proposing to amend the table of allowable investments in Section 6.1 of
the Investment Policy to include a separate column to identify the DTC
Participants Fund, and show these funds as being available for
investment only in bank deposits, including DTC's cash deposit account
at the Federal Reserve Bank of New York. Currently, the DTC
Participants Fund is included in the same column as the NSCC and FICC
Clearing Funds, which may also be invested in other investment types.
Therefore, as currently written, this table indicates that DTC's
Participants Fund may also be invested in those other investment types.
The proposed change to create a separate column for DTC's Participants
Fund would more clearly identify the allowable investments of these
funds.
Also, the Clearing Agencies are proposing to amend Section 6.2.1 of
the Investment Policy, which describes the limits on investments in
bank deposits, to explicitly state that DTC's Participants Fund may
only be invested in demand deposit, savings or checking bank accounts
that provide same day access to funds. This proposed change would
clearly identify the limits on investments of DTC's Participants Fund
in certain types of bank deposits.
The proposed changes would improve the Investment Policy by more
clearly identifying DTC's practice with respect to the investment of
its Participants Fund deposits.
3. Enhance Description of Collateral Related to Reverse Repurchase
Agreements
Finally, the Clearing Agencies are proposing to amend Section 6.2.2
of the Investment Policy, which describes investment limits on
investments in reverse repurchase agreements. The proposed changes
would include additional detail to more clearly describe the collateral
that may be posted by a counterparty in connection with these
investments and to identify the required haircuts on such collateral.
More specifically, in these arrangements, where the Clearing
Agencies are the purchaser of securities, the counterparty to the
transaction delivers to the custodian collateral (either securities or
cash). Currently, the Investment Policy states that securities posted
as collateral must have a market value equal to 102% or greater of the
cash invested. The proposed changes to the Investment Policy would
further state that U.S. Treasury securities, U.S. agency securities and
agency mortgage-backed securities posted as collateral must have a two
percent haircut; and cash posted as collateral shall have no haircut,
because cash does not carry any associated market risk that could lead
to a change in collateral value.
The proposed changes would improve the Investment Policy by more
clearly describing the limits applicable to these types of investments.
2. Statutory Basis
The Clearing Agencies believe that the proposed rule changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a registered clearing agency. In
particular, the Clearing Agencies believe that the proposed
modifications to the Investment Policy are consistent with Section
17A(b)(3)(F) of the Act \12\ and Rule 17Ad-22(e)(16) under the Act,\13\
for the reasons described below.
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(e)(16).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of each of the Clearing Agencies be designed to assure the safeguarding
of securities and funds which are in the custody or control of each of
the Clearing Agencies or for which they are responsible.\14\ The
investment guidelines and governance procedures set forth in the
Investment Policy are designed to safeguard funds which are in the
custody or control of the Clearing Agencies or for which they are
responsible. Such protections include, for example, following a prudent
and conservative investment philosophy that places the highest priority
on maximizing liquidity and risk avoidance. The Clearing Agencies
believe each of these proposed changes would help facilitate the
effective execution of the Investment Policy pursuant to the guiding
principles set forth therein. Therefore, the Clearing Agencies believe
the proposed changes would allow the Clearing Agencies to continue to
operate the Investment Policy pursuant to a prudent and conservative
investment philosophy that assures the safeguarding of securities and
funds which are in their custody and control, or for which they are
responsible.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
First, the proposed change to include proceeds from NSCC's issuance
of term debt in the table of ``Investable Funds'' would make
investments of these funds subject to the guidelines and restrictions
set forth in the Investment Policy, and,
[[Page 19039]]
therefore, would assure the safeguarding of these funds.
Second, the proposed changes to clarify the allowable investments
for DTC's Participants Fund and enhance the description of restrictions
applicable to investments in reverse repurchase agreements would
improve the clarity and accuracy of the Investment Policy. By creating
clearer descriptions, the Clearing Agencies believe these proposed
changes would make the Investment Policy more effective in governing
the management, custody, and investment of funds of and held by the
Clearing Agencies.
For the reasons described above, the Clearing Agencies believe the
proposed changes would improve the effectiveness of the Investment
Policy and allow the Investment Policy to continue to be administered
in alignment with the investment guidelines and governance procedures
set forth therein. Given that such guidelines and governance procedures
are designed to safeguard funds which are in the custody or control of
the Clearing Agencies or for which they are responsible, the Clearing
Agencies believe the proposed changes are consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\15\
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\15\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to safeguard the Clearing Agencies' own
and their participants' assets, minimize the risk of loss and delay in
access to these assets, and invest such assets in instruments with
minimal credit, market, and liquidity risks.\16\
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\16\ When the Investment Policy was implemented, the Clearing
Agencies were subject to the requirements of subsection (d) of Rule
17Ad-22 under the Act, and the Investment Policy was designed to
meet the requirements of Rule 17Ad-22(d)(3). See supra note 6; 17
CFR 240.17Ad-22(d). The Commission subsequently adopted Rule 17Ad-
22(e) and amended Rule 17Ad-22(d) such that the Clearing Agencies
became subject to the new requirements of Rule 17Ad-22(e) and are no
longer subject to the requirements of Rule 17Ad-22(d). 17 CFR
240.17Ad-22(e).
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The Clearing Agencies believe that the Investment Policy follows a
prudent and conservative investment philosophy, placing the highest
priority on maximizing liquidity and avoiding risk of loss, by
requiring the segregation of funds of each Clearing Agency and of types
of funds of each Clearing Agency, using external credit ratings in the
evaluation of counterparties, and establishing investment limits by
counterparty as well as investment type. As originally implemented, the
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\17\
---------------------------------------------------------------------------
\17\ Id.
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For the reasons stated above, the Clearing Agencies believe that
each of the proposed revisions would improve the clarity and
comprehensiveness of the Investment Policy and, therefore, make the
Investment Policy more effective in governing the management, custody,
and investment of funds of and held by the Clearing Agencies. In this
way, the proposed changes would better allow the Clearing Agencies to
maintain this document in a way that is designed to meet the
requirements of Rule 17Ad-22(e)(16). Therefore, the Clearing Agencies
believe the proposed revisions would be consistent with the
requirements of Rule 17Ad-22(e)(16) under the Act.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 240.17Ad-22(e)(16).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
Each of the Clearing Agencies believes that none of the proposed
revisions to the Investment Policy would have any impact, or impose any
burden, on competition. The Investment Policy applies equally to
allowable investments of FICC and NSCC Clearing Funds and DTC
Participants Fund deposits, as applicable, of each member of the
Clearing Agencies, and establishes a uniform policy at the Clearing
Agencies. The proposed changes to the Investment Policy would not
affect any changes on the fundamental purpose or operation of this
document and, as such, would also not have any impact, or impose any
burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
The Clearing Agencies have not solicited or received any written
comments relating to this proposal. The Clearing Agencies will notify
the Commission of any written comments received by the Clearing
Agencies.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and
Rule 19b-4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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-2020-007 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2020-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent 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
[[Page 19040]]
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-2020-007 and should be
submitted on or before April 24, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06957 Filed 4-2-20; 8:45 am]
BILLING CODE 8011-01-P
