Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Clearing Agency Policy on Capital Requirements, 45263-45267 [2020-16158]
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Federal Register / Vol. 85, No. 144 / Monday, July 27, 2020 / Notices
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• 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–
BX–2020–016 on the subject line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
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All submissions should refer to File
Number SR–BX–2020–016. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of 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–BX–2020–016 and should
be submitted on or before August 17,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.91
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16165 Filed 7–24–20; 8:45 am]
BILLING CODE 8011–01–P
91 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89361; File No. SR–DTC–
2020–010]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Revise the
Clearing Agency Policy on Capital
Requirements
July 21, 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 July 15,
2020, The Depository Trust Company
(‘‘DTC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the clearing
agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(3)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to the Clearing Agency
Policy on Capital Requirements
(‘‘Capital Policy’’ or ‘‘Policy’’) of DTC
and its affiliates, National Securities
Clearing Corporation (‘‘NSCC’’) and
Fixed Income Clearing Corporation
(‘‘FICC,’’ and together with DTC and
NSCC, the ‘‘Clearing Agencies’’). In
particular, the proposed revisions to the
Capital Policy would (1) update the
frequency of the calculation of the Total
Capital Requirement (as defined below
and in the Policy) to align with the
Clearing Agencies’ quarterly financial
statements; (2) replace the description of
the calculation of the Recovery/Winddown Capital Requirement (as defined
below and in the Policy) with a
reference to the Clearing Agencies’
Recovery & Wind-down Plans 5 to
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(3).
5 See Securities Exchange Act Release Nos. 83972
(August 28, 2018), 83 FR 44964 (September 4, 2018)
(SR–DTC–2017–021); 83953 (August 27, 2018), 83
FR 44381 (August 30, 2018) (SR–DTC–2017–803);
83973 (August 28, 2018), 83 FR 44942 (September
4, 2018) (SR–FICC–2017–021); 83954 (August 27,
2018), 83 FR 44361 (August 30, 2018) (SR–FICC–
2017–805); 83974 (August 28, 2018), 83 FR 44988
(September 4, 2018) (SR–NSCC–2017–017); 83955
(August 27, 2018), 83 FR 44340 (August 30, 2018)
(SR–NSCC–2017–805).
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eliminate redundancy between these
documents; (3) revise the description of
the additional liquid net assets (‘‘LNA’’)
funded by equity, referred to as the
‘‘Buffer’’ to provide the Clearing
Agencies with flexibility in calculating
this discretionary amount; and (4) make
other updates and revisions to the
Capital Policy in order to simplify the
language and improve the clarity of the
Policy, 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 Capital Policy, which was
adopted by the Clearing Agencies in
July 2017 6 and is maintained by the
Clearing Agencies in compliance with
Rule 17Ad–22(e)(15) under the Act,7 in
order to (1) update the frequency of the
calculation of the Total Capital
Requirement to align with the Clearing
Agencies’ quarterly financial statements;
(2) replace the description of the
calculation of the Recovery/Wind-down
Capital Requirement with a reference to
the Clearing Agencies’ Recovery &
Wind-down Plans to eliminate
redundancy between these documents;
(3) revise the description of the
additional LNA funded by equity,
referred to as the ‘‘Buffer’’ to provide the
Clearing Agencies with flexibility in
calculating this discretionary amount;
and (4) make other updates and
revisions to the Capital Policy in order
to simplify the language and improve
the clarity of the Policy, as described in
greater detail below.
Overview of the Capital Policy
The Capital Policy sets forth the
manner in which each Clearing Agency
6 See Securities Exchange Act Release No. 81105
(July 7, 2017), 82 FR 32399 (July 13, 2017) (SR–
DTC–2017–003, SR–FICC–2017–007, SR–NSCC–
2017–004).
7 17 CFR 240.17Ad–22(e)(15).
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identifies, monitors, and manages its
general business risk with respect to the
requirement to hold sufficient LNA
funded by equity to cover potential
general business losses so the Clearing
Agency can continue operations and
services as a going concern if such
losses materialize.8 The amount of LNA
funded by equity to be held by each of
the Clearing Agencies for this purpose is
defined in the Policy as the General
Business Risk Capital Requirement. The
Policy provides that the General
Business Risk Requirement is calculated
for each Clearing Agency as the greatest
of three separate calculations—(1) an
amount based on that Clearing Agency’s
general business risk profile (‘‘RiskBased Capital Requirement’’), (2) an
amount based on the time estimated to
execute a recovery or orderly winddown of the critical operations of that
Clearing Agency (‘‘Recovery/Winddown Capital Requirement’’), and (3) an
amount based on an analysis of that
Clearing Agency’s estimated operating
expenses for a six month period
(‘‘Operating Expense Capital
Requirement’’). The General Business
Risk Capital Requirement for each
Clearing Agency is determined as the
greatest of these calculations.
The Capital Policy also addresses how
each Clearing Agency maintains an
amount of LNA funded by equity as a
part of its management of credit risk 9
pursuant to its respective rules,10
referred to as the ‘‘Corporate
Contribution.’’ These resources are
maintained to address losses due to a
participant default and are held in
addition to the Clearing Agencies’
General Business Risk Capital
Requirement. The Capital Policy
describes how each Clearing Agency’s
General Business Risk Capital
Requirement and Corporate
Contribution fit within the Clearing
Agencies’ Capital Framework, where the
‘‘Total Capital Requirement’’ of each
Clearing Agency is calculated as the
8 Supra
note 6.
funded by equity held as the Clearing
Agencies’ Corporate Contribution is held in
addition to resources held by the Clearing Agencies
for credit risk in compliance with Rule 17Ad–
22(e)(4) under the Act, and in addition to resources
held by the Clearing Agencies for liquidity risk in
compliance with Rule 17Ad–22(e)(7). 17 CFR
240.17Ad–22(e)(4), (7).
10 See Rule 4 of the Rules, By-laws and
Organizational Certificate of DTC (‘‘DTC Rules’’),
Rule 4 of the Rulebook of the Government
Securities Division of FICC (‘‘GSD Rules’’), Rule 4
of the Clearing Rules of the Mortgage-Backed
Securities Division of FICC (‘‘MBSD Rules’’), and
Rule 4 of the Rules & Procedures of NSCC (‘‘NSCC
Rules,’’ and together with the DTC Rules, GSD
Rules and MBSD Rules, the ‘‘Clearing Agencies’
Rules’’ or ‘‘Rules’’), available at https://dtcc.com/
legal/rules-and-procedures.
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9 LNA
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sum of its General Business Risk Capital
Requirement and Corporate
Contribution. Finally, the Policy
provides a plan for the replenishment of
capital through the Clearing Agency
Capital Replenishment Plan.
Proposed Revisions to the Capital Policy
The Capital Policy is reviewed and
approved by the Boards annually. In
connection with the most recent annual
review of the Policy, the Clearing
Agencies are proposing revisions and
updates, described in greater detail
below. These proposed changes are
designed to update the Capital Policy
and enhance the clarity of the Policy to
ensure that it continues to operate as
intended.
1. Update Frequency of Calculation of
Total Capital Requirement
The Clearing Agencies are proposing
to update the Capital Policy to change
the frequency of the calculation of the
Total Capital Requirement to occur
quarterly, and clarify that the
calculation of the Total Capital
Requirement would use the most
recently completed calculations of the
General Business Risk Capital
Requirement and the Corporate
Contribution. In connection with this
proposed change, the Capital Policy
would also be amended to remove
references to the timing of the other
calculations.
As described above, the Total Capital
Requirement is the sum of the General
Business Risk Capital Requirement and
the Corporate Contribution; and the
General Business Risk Capital
Requirement is the greatest of the RiskBased Capital Requirement, Recovery/
Wind-down Capital Requirement and
the Operating Expense Capital
Requirement. Currently the Capital
Policy states that the Total Capital
Requirement is calculated monthly. The
Capital Policy also describes the
frequency of each of the other
calculations that are used in calculating
the Total Capital Requirement, which
occur at different intervals throughout
the year.
The Clearing Agencies are proposing
to update the Capital Policy to state that
the Total Capital Requirement will be
calculated quarterly, using the most
recently calculated components. This
proposed change would align the timing
of this calculation with the timing of
each of the Clearing Agencies’ quarterly
financial statements, where the results
of this calculation is reported. While the
calculation would occur less frequently
than it is currently conducted, the Total
Capital Requirement amount does not
change materially from month to
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month.11 Therefore, the Clearing
Agencies believe the calculation would
still be completed on an appropriate
frequency.
The proposed change would also
simplify the Capital Policy by removing
the reference to the frequency of each of
the other calculations. Each of the other
calculations that determine the Total
Capital Requirement are completed at
different frequencies throughout the
year, as currently described in the
Capital Policy, and all occur at least
annually. The proposed change would
state that the most recent results of these
calculations would be used in the
quarterly calculation of the Total Capital
Requirement. These calculations have
different purposes and provide the
Clearing Agencies with different
measures. Therefore, these calculations
are completed at different frequencies
during the year, generally timed to
occur when updated information is
available. By removing the frequency of
these calculations from the Capital
Policy, and only specifying the
frequency of the Total Capital
Requirement calculation, which would
use the most recent results of these
underlying calculations, the proposed
change would simplify the Policy and
would provide the Clearing Agencies
with flexibility to adjust the timing of
these calculations as necessary.
In order to reflect this change, the
Clearing Agencies are proposing to
update Section 4 of the Capital Policy to
state that the Total Capital Requirement
would be calculated quarterly, using the
most recent calculations of the General
Business Risk Capital Requirement and
Corporate Contribution. The proposed
changes would also remove statements
in Sections 5, 6, 6.1.2 and 6.3 regarding
the timing of the underlying
calculations.
2. Update Description of Recovery/
Wind-Down Capital Requirement To
Refer to the Recovery & Wind-Down
Plans of the Clearing Agencies
The Clearing Agencies are proposing
to amend the Capital Policy with respect
to the Recovery/Wind-down Capital
Requirement to update references to the
Recovery & Wind-down Plans of the
Clearing Agencies. In connection with
this change, the Capital Policy would
also be updated to clarify the role of
management in advising the Boards in
connection with their annual
determination of the Recovery/Winddown Capital Requirement.
11 The Total Capital Requirement amount has
been reported in footnote 9 to the Clearing
Agencies’ financial statements since the third
quarter of 2018, available at https://www.dtcc.com/
legal/financial-statements.
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First, the proposed changes would
replace descriptions of the calculation
of the Recovery/Wind-down Capital
Requirement with references to the
Clearing Agencies’ Recovery & Winddown Plans, which have been adopted
by the Clearing Agencies and include
detailed descriptions of the calculation
of this amount.12 The Recovery/Winddown Capital Requirement is an amount
based on the time estimated to execute
a recovery or orderly wind-down of the
critical operations of that Clearing
Agency and is used by the Clearing
Agencies to determine their General
Business Risk Capital Requirement, as
described above. Each of the Clearing
Agencies have adopted a Recovery &
Wind-down Plan, which provides plans
for the recovery and orderly wind-down
of each of the Clearing Agencies
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.13 Section 8.7 of
each of the Recovery & Wind-down
Plans includes an analysis of the
calculation of the Recovery/Wind-down
Capital Requirement.
The Clearing Agencies believe their
respective Recovery & Wind-down Plans
are the appropriate documents for the
description of the calculation of the
Recovery/Wind-down Capital
Requirement. The proposed change
would remove redundancy between
these documents and minimize the risk
of inconsistency in this description.
In order to implement this change, the
Clearing Agencies are proposing to (1)
revise the definition of Recovery/Winddown Capital Requirement in Section 2
of the Capital Policy to refer to the
description of this amount in the
Recovery & Wind-down Plan of each
Clearing Agency; and (2) revise Section
6.2 of the Capital Policy to remove the
description of the calculation of the
Recovery/Wind-down Capital
Requirement and replace it with a
reference to this description in the
Recovery & Wind-down Plan of each of
the Clearing Agencies.
Second, the proposed changes would
clarify the role of management with
respect to the Boards’ annual
determination of the Recovery/Winddown Capital Requirement. Pursuant to
the Clearing Agencies’ Recovery &
Wind-down Plans, and in compliance
with the requirements of Rule 17Ad–
22(e)(15)(ii) under the Act,14 the Boards
are responsible for determining the
Recovery/Wind-down Capital
12 Supra
note 5.
13 Id.
14 17
CFR 240.17Ad–22(e)(15)(ii).
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Requirement for each Clearing Agency
on an annual basis.
The Treasury group of The Depository
Trust & Clearing Corporation (‘‘DTCC
Treasury group’’) and members of
management in other relevant groups
may provide the Boards with analyses
and relevant data to facilitate this
determination. Therefore, the Clearing
Agencies are proposing to amend
Section 6.2 of the Capital Policy to state
that the DTCC Treasury group and
members of management in other
relevant groups may provide such
information to the Boards.
3. Revise Description of Buffer Amount
The Clearing Agencies are proposing
to amend the Capital Policy to revise the
description of the additional,
discretionary amount of LNA funded by
equity held by the Clearing Agencies in
addition to the Total Capital
Requirement, which is referred to as a
‘‘Buffer.’’ Currently, the Capital Policy
states that the amount of LNA funded by
equity held as Buffer would be
periodically assessed by the DTCC
Treasury group and would generally
equal approximately four to six (4–6)
months of operating expenses for the
respective Clearing Agency. The
Clearing Agencies are proposing to
make two changes to the description of
the Buffer in the Capital Policy,
described below.
First, the Clearing Agencies are
proposing to remove the specificity
regarding how the Buffer amount held
by the Clearing Agencies is measured.
This proposed change would provide
the Clearing Agencies with flexibility to
manage capital when determining the
appropriate amount of LNA funded by
equity that they would each hold in
addition to the Total Capital
Requirement. The Clearing Agencies
would implement this proposed change
by amending the description of Buffer in
Section 4 of the Capital Policy to
remove the reference to four to six (4–
6) months of operating expenses, and
state simply that this amount is
determined based on various factors,
including historical fluctuations of LNA
and estimates of potential losses from
general business risk.
Second, the Clearing Agencies are
proposing to amend Section 4 of the
Capital Policy to clarify that the Buffer
will be calculated at least annually.
Currently the Capital Policy states that
the Buffer will be calculated
periodically. This proposed change
would provide more specificity
regarding the frequency of this
calculation.
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4. Technical Revisions and
Clarifications
In addition to the proposed changes
described above, the Clearing Agencies
are also proposing the following
technical revisions to the Capital Policy.
First, the proposed changes would
update the description of the Corporate
Contribution in Figure 1 of Section 4 of
the Capital Policy. The proposed change
would replace the current description of
this amount with a reference to the
Clearing Agencies’ Rules, where this
amount is defined. The proposed
change would align the description in
Figure 1 of Section 4 with the
description of the Corporate
Contribution in Section 5 of the Capital
Policy, which also describes the
Corporate Contribution by referring to
the Clearing Agencies’ Rules.
Second, the proposed changes would
revise Section 6.3 of the Capital Policy
to use the defined term for Operating
Expense Capital Requirement, which is
defined in the Glossary of Key Terms in
Section 2 of the Capital Policy.
Third, the proposed changes would
also revise Section 6.3 to clarify that the
data used to estimate prospective
Clearing Agency expenses in calculating
the Operating Expense Capital
Requirement comes from a budget
developed by the Financial Planning &
Analysis department for the respective
Clearing Agencies.
Finally, the proposed changes would
update Section 7.2 of the Capital Policy,
which describes where the Clearing
Agencies report their assessment of LNA
funded by equity against the Total
Capital Requirement. The proposed
change would state that, in addition to
internal reporting, this assessment is
also reported publicly in the Clearing
Agencies’ financial statements.
Each of these proposed changes
would make technical drafting
corrections or clarifications to the
existing descriptions in the Capital
Policy. While these proposed changes
would not substantively alter the
descriptions in the Capital Policy, they
would improve the clarity of the Policy.
2. Statutory Basis
The Clearing Agencies believe that the
proposed rule changes to the Capital
Policy 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 changes are consistent
with Section 17A(b)(3)(F) of the Act 15
15 15
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U.S.C. 78q–1(b)(3)(F).
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and Rule 17Ad–22(e)(15) under the
Act,16 for the reasons described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of the
Clearing Agencies be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions, and to assure the
safeguarding of securities and funds
which are in the custody or control of
the Clearing Agencies or for which they
are responsible.17 The Capital Policy is
designed to ensure that each of the
Clearing Agencies hold sufficient LNA
funded by equity to cover potential
general business losses so that they can
continue the prompt and accurate
clearance and settlement of securities
transactions, and can continue to assure
the safeguarding of securities and funds
which are in their custody or control or
for which they are responsible if those
losses materialize.
The proposed changes described
above would not materially alter how
the Capital Policy accomplishes this
goal. The proposed changes would
update the frequency of the calculation
of the amount of LNA funded by equity
held by the Clearing Agencies. Changing
this frequency would not alter the
Clearing Agencies’ ability to hold an
amount needed to cover potential
general business losses, as the result of
these calculations do not currently
change materially on a month to month
basis. The proposed change to refer to
the Clearing Agencies’ Recovery &
Wind-down Plans for the description of
the Recovery/Wind-down Capital
Requirement would reduce the
redundancy between the Policy and
these plans, and would not alter the
calculation of this amount. The
proposed change to the description of
the Buffer would provide the Clearing
Agencies with additional flexibility in
calculating this amount, which is held
in addition to the amounts needed to
meet compliance with their regulatory
requirements. Finally, the proposed
technical revisions would simplify and
clarify the descriptions in the Policy,
and would not alter the way the Policy
operates.
The proposed revisions would not
materially change how the Policy
ensures that each of the Clearing
Agencies hold sufficient LNA funded by
equity to cover potential general
business losses but would allow the
Clearing Agencies to maintain this
document to operate in the way it was
intended. Therefore, such proposed
revisions would be consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.18
Rule 17Ad–22(e)(15) under the Act
requires the Clearing Agencies to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to identify,
monitor, and manage their respective
general business risk and hold sufficient
liquid net assets funded by equity to
cover potential general business losses
so that the Clearing Agencies can
continue operations and services as a
going concern if those losses
materialize.19 As originally
implemented, the Capital Policy was
designed to meet the requirements of
Rule 17Ad–22(e)(15). For the reasons
described above, the proposed revisions
would not materially alter how the
Clearing Agencies comply with their
requirements under this rule. Therefore,
the proposed changes would allow the
Clearing Agencies to maintain the
Capital Policy in a way that continues
to be consistent with the requirements
of Rule 17Ad–22(e)(15) under the Act.20
(B) Clearing Agency’s Statement on
Burden on Competition
Each of the Clearing Agencies believes
that none of the proposed revisions to
the Capital Policy would have any
impact, or impose any burden, on
competition. The Policy is maintained
by the Clearing Agencies in order to
satisfy their regulatory requirements and
generally reflect internal tools and
procedures. Tools and procedures that
have a direct impact on the rights,
responsibilities or obligations of
members or participants of the Clearing
Agencies are reflected in the Clearing
Agencies’ Rules. Accordingly, the
Capital Policy enhances the Clearing
Agencies’ regulatory compliance and
internal management and does not have
any impact, or impose any burden, on
competition.
The proposed revisions would not
effect any changes to the fundamental
purpose or materially impact the
operation of the Capital Policy. As such,
the proposed changes also would 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
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 21 of the Act and paragraph
(f) 22 of Rule 19b–4 thereunder. At any
time within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2020–010 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–DTC–2020–010. 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,
18 Id.
16 17
CFR 240.17Ad–22(e)(15).
17 15 U.S.C. 78q–1(b)(3)(F).
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19 17
CFR 240.17Ad–22(e)(15).
20 Id.
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E:\FR\FM\27JYN1.SGM
U.S.C 78s(b)(3)(A).
CFR 240.19b–4(f).
27JYN1
Federal Register / Vol. 85, No. 144 / Monday, July 27, 2020 / Notices
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 DTC 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–DTC–
2020–010 and should be submitted on
or before August 17, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16158 Filed 7–24–20; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 1.1E To
Include Active Proxy Portfolio Shares,
Tracking Fund Shares, Proxy Portfolio
Shares, and Index Fund Shares
July 21, 2020.
jbell on DSKJLSW7X2PROD with NOTICES
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on July 10,
2020, NYSE American LLC (‘‘NYSE
American’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 1.1E to include Active Proxy
Portfolio Shares, Tracking Fund Shares,
Proxy Portfolio Shares, and Index Fund
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
VerDate Sep<11>2014
19:31 Jul 24, 2020
Jkt 250001
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1. Purpose
[Release No. 34–89367; File No. SR–
NYSEAMER–2020–49]
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
23 17
Shares in the definition of ‘‘UTP
Exchange Traded Product.’’ The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
The Exchange proposes to amend
Rule 1.1E(bbb), which sets forth the
meanings of ‘‘Exchange Traded
Product’’ and ‘‘UTP Exchange Traded
Product’’ as those terms are used in
Exchange rules.
Specifically, the Exchange proposes to
amend the definition of ‘‘UTP Exchange
Traded Product’’ to include Active
Proxy Portfolio Shares listed pursuant to
NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule
8.601–E, Tracking Fund Shares listed
pursuant to Cboe BZX Exchange, Inc.
(‘‘BZX’’) Rule 14.11(m), and Proxy
Portfolio Shares which may in the
future be listed pursuant to Nasdaq
Stock Market LLC (‘‘Nasdaq’’) Rule
5750 4 as additional types of Exchange
Traded Products (‘‘ETPs’’) that may
4 Active Proxy Portfolio Shares, Tracking Fund
Shares, and Proxy Portfolio Shares are substantially
similar products with different names and generally
refer to shares of actively managed exchange-traded
funds for which the portfolio is disclosed in
accordance with standard mutual fund disclosure
rules. See Securities Exchange Act Release No.
89185 (June 29, 2020) (order approving NYSE Arca
Rule 8.601–E); Securities Exchange Act Release No.
88887 (May 15, 2020), 85 FR 30990 (May 21, 2020)
(order approving BZX Rule 14.11(m)); Securities
Exchange Act Release No. 89110 (June 22, 2020), 85
FR 38461 (June 26, 2020) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
to Adopt Nasdaq Rule 5750 to List and Trade Proxy
Portfolio Shares). On June 4, 2020, BZX commenced
trading its first securities listed under BZX Rule
14.11(m) (Fidelity Blue Chip Growth ETF (FBCG),
Fidelity Blue Chip Value ETF (FBCV), and Fidelity
New Millennium ETF (FMIL)). Although Nasdaq
has rules pertaining to Proxy Portfolio Shares, it
does not yet list any such product.
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
45267
trade on the Exchange pursuant to
unlisted trading privileges (‘‘UTP’’).
To effect this change, the Exchange
proposes to add a bullet point listing
‘‘Active Proxy Portfolio Shares listed
pursuant to NYSE Arca, Inc. Rule
8.601–E, Tracking Fund Shares listed
pursuant to Cboe BZX Exchange, Inc.
Rule 14.11(m), and Proxy Portfolio
Shares listed pursuant to Nasdaq Stock
Market LLC Rule 5750’’ in Rule
1.1E(bbb) to include them in the
enumerated list of ETPs that may trade
on the Exchange on a UTP basis. The
Exchange also proposes non-substantive
changes to accommodate the addition of
this bullet point as the final item in the
bulleted list in Rule 1.1E(bbb).
The Exchange also proposes to amend
Rule 1.1E(bbb) to include Index Fund
Shares listed pursuant to BZX Rule
14.11(c) or Nasdaq Rule 5705(b) as a
type of ETP that may trade pursuant to
UTP. To effect this change, the
Exchange proposes to amend the
existing bullet point listing ‘‘Investment
Company Units’’ to include Index Fund
Shares as the alternative name for the
same product. Accordingly, the
Exchange proposes to revise the bullet
point to list ‘‘Investment Company
Units listed pursuant to NYSE Arca, Inc.
Rule 5.2–E(j)(3) and Index Fund Shares
listed pursuant to Cboe BZX Exchange,
Inc. Rule 14.11(c) or Nasdaq Stock
Exchange LLC Rule 5705(b).’’
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,5 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,6 in particular, because it is
designed to remove impediments to and
perfect the mechanism of a free and
open market, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest.
The proposed rule change is designed
to remove impediments to and perfect
the mechanism of a free and open
market, promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest
because it modifies Rule 1.1E(bbb) to
state the complete list of ETPs that may
trade on a UTP basis on the Exchange,
providing specificity, clarity, and
transparency in the Exchange’s rules.
Moreover, the proposed rule change will
facilitate the trading of additional types
of ETPs on the Exchange pursuant to
UTP, thereby enhancing competition
among market participants for the
benefit of investors and the marketplace.
5 15
6 15
E:\FR\FM\27JYN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(4) & (5).
27JYN1
]]>Agencies
[Federal Register Volume 85, Number 144 (Monday, July 27, 2020)]
[Notices]
[Pages 45263-45267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16158]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89361; File No. SR-DTC-2020-010]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Revise the Clearing Agency Policy on Capital Requirements
July 21, 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 July 15, 2020, The Depository Trust Company (``DTC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II and III below, which Items have been
prepared by the clearing agency. DTC filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(3)
thereunder.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(3).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to the Clearing
Agency Policy on Capital Requirements (``Capital Policy'' or
``Policy'') of DTC and its affiliates, National Securities Clearing
Corporation (``NSCC'') and Fixed Income Clearing Corporation (``FICC,''
and together with DTC and NSCC, the ``Clearing Agencies''). In
particular, the proposed revisions to the Capital Policy would (1)
update the frequency of the calculation of the Total Capital
Requirement (as defined below and in the Policy) to align with the
Clearing Agencies' quarterly financial statements; (2) replace the
description of the calculation of the Recovery/Wind-down Capital
Requirement (as defined below and in the Policy) with a reference to
the Clearing Agencies' Recovery & Wind-down Plans \5\ to eliminate
redundancy between these documents; (3) revise the description of the
additional liquid net assets (``LNA'') funded by equity, referred to as
the ``Buffer'' to provide the Clearing Agencies with flexibility in
calculating this discretionary amount; and (4) make other updates and
revisions to the Capital Policy in order to simplify the language and
improve the clarity of the Policy, as described in greater detail
below.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release Nos. 83972 (August 28,
2018), 83 FR 44964 (September 4, 2018) (SR-DTC-2017-021); 83953
(August 27, 2018), 83 FR 44381 (August 30, 2018) (SR-DTC-2017-803);
83973 (August 28, 2018), 83 FR 44942 (September 4, 2018) (SR-FICC-
2017-021); 83954 (August 27, 2018), 83 FR 44361 (August 30, 2018)
(SR-FICC-2017-805); 83974 (August 28, 2018), 83 FR 44988 (September
4, 2018) (SR-NSCC-2017-017); 83955 (August 27, 2018), 83 FR 44340
(August 30, 2018) (SR-NSCC-2017-805).
---------------------------------------------------------------------------
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 Capital Policy,
which was adopted by the Clearing Agencies in July 2017 \6\ and is
maintained by the Clearing Agencies in compliance with Rule 17Ad-
22(e)(15) under the Act,\7\ in order to (1) update the frequency of the
calculation of the Total Capital Requirement to align with the Clearing
Agencies' quarterly financial statements; (2) replace the description
of the calculation of the Recovery/Wind-down Capital Requirement with a
reference to the Clearing Agencies' Recovery & Wind-down Plans to
eliminate redundancy between these documents; (3) revise the
description of the additional LNA funded by equity, referred to as the
``Buffer'' to provide the Clearing Agencies with flexibility in
calculating this discretionary amount; and (4) make other updates and
revisions to the Capital Policy in order to simplify the language and
improve the clarity of the Policy, as described in greater detail
below.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 81105 (July 7,
2017), 82 FR 32399 (July 13, 2017) (SR-DTC-2017-003, SR-FICC-2017-
007, SR-NSCC-2017-004).
\7\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------
Overview of the Capital Policy
The Capital Policy sets forth the manner in which each Clearing
Agency
[[Page 45264]]
identifies, monitors, and manages its general business risk with
respect to the requirement to hold sufficient LNA funded by equity to
cover potential general business losses so the Clearing Agency can
continue operations and services as a going concern if such losses
materialize.\8\ The amount of LNA funded by equity to be held by each
of the Clearing Agencies for this purpose is defined in the Policy as
the General Business Risk Capital Requirement. The Policy provides that
the General Business Risk Requirement is calculated for each Clearing
Agency as the greatest of three separate calculations--(1) an amount
based on that Clearing Agency's general business risk profile (``Risk-
Based Capital Requirement''), (2) an amount based on the time estimated
to execute a recovery or orderly wind-down of the critical operations
of that Clearing Agency (``Recovery/Wind-down Capital Requirement''),
and (3) an amount based on an analysis of that Clearing Agency's
estimated operating expenses for a six month period (``Operating
Expense Capital Requirement''). The General Business Risk Capital
Requirement for each Clearing Agency is determined as the greatest of
these calculations.
---------------------------------------------------------------------------
\8\ Supra note 6.
---------------------------------------------------------------------------
The Capital Policy also addresses how each Clearing Agency
maintains an amount of LNA funded by equity as a part of its management
of credit risk \9\ pursuant to its respective rules,\10\ referred to as
the ``Corporate Contribution.'' These resources are maintained to
address losses due to a participant default and are held in addition to
the Clearing Agencies' General Business Risk Capital Requirement. The
Capital Policy describes how each Clearing Agency's General Business
Risk Capital Requirement and Corporate Contribution fit within the
Clearing Agencies' Capital Framework, where the ``Total Capital
Requirement'' of each Clearing Agency is calculated as the sum of its
General Business Risk Capital Requirement and Corporate Contribution.
Finally, the Policy provides a plan for the replenishment of capital
through the Clearing Agency Capital Replenishment Plan.
---------------------------------------------------------------------------
\9\ LNA funded by equity held as the Clearing Agencies'
Corporate Contribution is held in addition to resources held by the
Clearing Agencies for credit risk in compliance with Rule 17Ad-
22(e)(4) under the Act, and in addition to resources held by the
Clearing Agencies for liquidity risk in compliance with Rule 17Ad-
22(e)(7). 17 CFR 240.17Ad-22(e)(4), (7).
\10\ See Rule 4 of the Rules, By-laws and Organizational
Certificate of DTC (``DTC Rules''), Rule 4 of the Rulebook of the
Government Securities Division of FICC (``GSD Rules''), Rule 4 of
the Clearing Rules of the Mortgage-Backed Securities Division of
FICC (``MBSD Rules''), and Rule 4 of the Rules & Procedures of NSCC
(``NSCC Rules,'' and together with the DTC Rules, GSD Rules and MBSD
Rules, the ``Clearing Agencies' Rules'' or ``Rules''), available at
https://dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
Proposed Revisions to the Capital Policy
The Capital Policy is reviewed and approved by the Boards annually.
In connection with the most recent annual review of the Policy, the
Clearing Agencies are proposing revisions and updates, described in
greater detail below. These proposed changes are designed to update the
Capital Policy and enhance the clarity of the Policy to ensure that it
continues to operate as intended.
1. Update Frequency of Calculation of Total Capital Requirement
The Clearing Agencies are proposing to update the Capital Policy to
change the frequency of the calculation of the Total Capital
Requirement to occur quarterly, and clarify that the calculation of the
Total Capital Requirement would use the most recently completed
calculations of the General Business Risk Capital Requirement and the
Corporate Contribution. In connection with this proposed change, the
Capital Policy would also be amended to remove references to the timing
of the other calculations.
As described above, the Total Capital Requirement is the sum of the
General Business Risk Capital Requirement and the Corporate
Contribution; and the General Business Risk Capital Requirement is the
greatest of the Risk-Based Capital Requirement, Recovery/Wind-down
Capital Requirement and the Operating Expense Capital Requirement.
Currently the Capital Policy states that the Total Capital Requirement
is calculated monthly. The Capital Policy also describes the frequency
of each of the other calculations that are used in calculating the
Total Capital Requirement, which occur at different intervals
throughout the year.
The Clearing Agencies are proposing to update the Capital Policy to
state that the Total Capital Requirement will be calculated quarterly,
using the most recently calculated components. This proposed change
would align the timing of this calculation with the timing of each of
the Clearing Agencies' quarterly financial statements, where the
results of this calculation is reported. While the calculation would
occur less frequently than it is currently conducted, the Total Capital
Requirement amount does not change materially from month to month.\11\
Therefore, the Clearing Agencies believe the calculation would still be
completed on an appropriate frequency.
---------------------------------------------------------------------------
\11\ The Total Capital Requirement amount has been reported in
footnote 9 to the Clearing Agencies' financial statements since the
third quarter of 2018, available at https://www.dtcc.com/legal/financial-statements.
---------------------------------------------------------------------------
The proposed change would also simplify the Capital Policy by
removing the reference to the frequency of each of the other
calculations. Each of the other calculations that determine the Total
Capital Requirement are completed at different frequencies throughout
the year, as currently described in the Capital Policy, and all occur
at least annually. The proposed change would state that the most recent
results of these calculations would be used in the quarterly
calculation of the Total Capital Requirement. These calculations have
different purposes and provide the Clearing Agencies with different
measures. Therefore, these calculations are completed at different
frequencies during the year, generally timed to occur when updated
information is available. By removing the frequency of these
calculations from the Capital Policy, and only specifying the frequency
of the Total Capital Requirement calculation, which would use the most
recent results of these underlying calculations, the proposed change
would simplify the Policy and would provide the Clearing Agencies with
flexibility to adjust the timing of these calculations as necessary.
In order to reflect this change, the Clearing Agencies are
proposing to update Section 4 of the Capital Policy to state that the
Total Capital Requirement would be calculated quarterly, using the most
recent calculations of the General Business Risk Capital Requirement
and Corporate Contribution. The proposed changes would also remove
statements in Sections 5, 6, 6.1.2 and 6.3 regarding the timing of the
underlying calculations.
2. Update Description of Recovery/Wind-Down Capital Requirement To
Refer to the Recovery & Wind-Down Plans of the Clearing Agencies
The Clearing Agencies are proposing to amend the Capital Policy
with respect to the Recovery/Wind-down Capital Requirement to update
references to the Recovery & Wind-down Plans of the Clearing Agencies.
In connection with this change, the Capital Policy would also be
updated to clarify the role of management in advising the Boards in
connection with their annual determination of the Recovery/Wind-down
Capital Requirement.
[[Page 45265]]
First, the proposed changes would replace descriptions of the
calculation of the Recovery/Wind-down Capital Requirement with
references to the Clearing Agencies' Recovery & Wind-down Plans, which
have been adopted by the Clearing Agencies and include detailed
descriptions of the calculation of this amount.\12\ The Recovery/Wind-
down Capital Requirement is an amount based on the time estimated to
execute a recovery or orderly wind-down of the critical operations of
that Clearing Agency and is used by the Clearing Agencies to determine
their General Business Risk Capital Requirement, as described above.
Each of the Clearing Agencies have adopted a Recovery & Wind-down Plan,
which provides plans for the recovery and orderly wind-down of each of
the Clearing Agencies necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.\13\
Section 8.7 of each of the Recovery & Wind-down Plans includes an
analysis of the calculation of the Recovery/Wind-down Capital
Requirement.
---------------------------------------------------------------------------
\12\ Supra note 5.
\13\ Id.
---------------------------------------------------------------------------
The Clearing Agencies believe their respective Recovery & Wind-down
Plans are the appropriate documents for the description of the
calculation of the Recovery/Wind-down Capital Requirement. The proposed
change would remove redundancy between these documents and minimize the
risk of inconsistency in this description.
In order to implement this change, the Clearing Agencies are
proposing to (1) revise the definition of Recovery/Wind-down Capital
Requirement in Section 2 of the Capital Policy to refer to the
description of this amount in the Recovery & Wind-down Plan of each
Clearing Agency; and (2) revise Section 6.2 of the Capital Policy to
remove the description of the calculation of the Recovery/Wind-down
Capital Requirement and replace it with a reference to this description
in the Recovery & Wind-down Plan of each of the Clearing Agencies.
Second, the proposed changes would clarify the role of management
with respect to the Boards' annual determination of the Recovery/Wind-
down Capital Requirement. Pursuant to the Clearing Agencies' Recovery &
Wind-down Plans, and in compliance with the requirements of Rule 17Ad-
22(e)(15)(ii) under the Act,\14\ the Boards are responsible for
determining the Recovery/Wind-down Capital Requirement for each
Clearing Agency on an annual basis.
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(e)(15)(ii).
---------------------------------------------------------------------------
The Treasury group of The Depository Trust & Clearing Corporation
(``DTCC Treasury group'') and members of management in other relevant
groups may provide the Boards with analyses and relevant data to
facilitate this determination. Therefore, the Clearing Agencies are
proposing to amend Section 6.2 of the Capital Policy to state that the
DTCC Treasury group and members of management in other relevant groups
may provide such information to the Boards.
3. Revise Description of Buffer Amount
The Clearing Agencies are proposing to amend the Capital Policy to
revise the description of the additional, discretionary amount of LNA
funded by equity held by the Clearing Agencies in addition to the Total
Capital Requirement, which is referred to as a ``Buffer.'' Currently,
the Capital Policy states that the amount of LNA funded by equity held
as Buffer would be periodically assessed by the DTCC Treasury group and
would generally equal approximately four to six (4-6) months of
operating expenses for the respective Clearing Agency. The Clearing
Agencies are proposing to make two changes to the description of the
Buffer in the Capital Policy, described below.
First, the Clearing Agencies are proposing to remove the
specificity regarding how the Buffer amount held by the Clearing
Agencies is measured. This proposed change would provide the Clearing
Agencies with flexibility to manage capital when determining the
appropriate amount of LNA funded by equity that they would each hold in
addition to the Total Capital Requirement. The Clearing Agencies would
implement this proposed change by amending the description of Buffer in
Section 4 of the Capital Policy to remove the reference to four to six
(4-6) months of operating expenses, and state simply that this amount
is determined based on various factors, including historical
fluctuations of LNA and estimates of potential losses from general
business risk.
Second, the Clearing Agencies are proposing to amend Section 4 of
the Capital Policy to clarify that the Buffer will be calculated at
least annually. Currently the Capital Policy states that the Buffer
will be calculated periodically. This proposed change would provide
more specificity regarding the frequency of this calculation.
4. Technical Revisions and Clarifications
In addition to the proposed changes described above, the Clearing
Agencies are also proposing the following technical revisions to the
Capital Policy.
First, the proposed changes would update the description of the
Corporate Contribution in Figure 1 of Section 4 of the Capital Policy.
The proposed change would replace the current description of this
amount with a reference to the Clearing Agencies' Rules, where this
amount is defined. The proposed change would align the description in
Figure 1 of Section 4 with the description of the Corporate
Contribution in Section 5 of the Capital Policy, which also describes
the Corporate Contribution by referring to the Clearing Agencies'
Rules.
Second, the proposed changes would revise Section 6.3 of the
Capital Policy to use the defined term for Operating Expense Capital
Requirement, which is defined in the Glossary of Key Terms in Section 2
of the Capital Policy.
Third, the proposed changes would also revise Section 6.3 to
clarify that the data used to estimate prospective Clearing Agency
expenses in calculating the Operating Expense Capital Requirement comes
from a budget developed by the Financial Planning & Analysis department
for the respective Clearing Agencies.
Finally, the proposed changes would update Section 7.2 of the
Capital Policy, which describes where the Clearing Agencies report
their assessment of LNA funded by equity against the Total Capital
Requirement. The proposed change would state that, in addition to
internal reporting, this assessment is also reported publicly in the
Clearing Agencies' financial statements.
Each of these proposed changes would make technical drafting
corrections or clarifications to the existing descriptions in the
Capital Policy. While these proposed changes would not substantively
alter the descriptions in the Capital Policy, they would improve the
clarity of the Policy.
2. Statutory Basis
The Clearing Agencies believe that the proposed rule changes to the
Capital Policy 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
changes are consistent with Section 17A(b)(3)(F) of the Act \15\
[[Page 45266]]
and Rule 17Ad-22(e)(15) under the Act,\16\ for the reasons described
below.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of the Clearing Agencies be designed to promote the prompt and accurate
clearance and settlement of securities transactions, and to assure the
safeguarding of securities and funds which are in the custody or
control of the Clearing Agencies or for which they are responsible.\17\
The Capital Policy is designed to ensure that each of the Clearing
Agencies hold sufficient LNA funded by equity to cover potential
general business losses so that they can continue the prompt and
accurate clearance and settlement of securities transactions, and can
continue to assure the safeguarding of securities and funds which are
in their custody or control or for which they are responsible if those
losses materialize.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The proposed changes described above would not materially alter how
the Capital Policy accomplishes this goal. The proposed changes would
update the frequency of the calculation of the amount of LNA funded by
equity held by the Clearing Agencies. Changing this frequency would not
alter the Clearing Agencies' ability to hold an amount needed to cover
potential general business losses, as the result of these calculations
do not currently change materially on a month to month basis. The
proposed change to refer to the Clearing Agencies' Recovery & Wind-down
Plans for the description of the Recovery/Wind-down Capital Requirement
would reduce the redundancy between the Policy and these plans, and
would not alter the calculation of this amount. The proposed change to
the description of the Buffer would provide the Clearing Agencies with
additional flexibility in calculating this amount, which is held in
addition to the amounts needed to meet compliance with their regulatory
requirements. Finally, the proposed technical revisions would simplify
and clarify the descriptions in the Policy, and would not alter the way
the Policy operates.
The proposed revisions would not materially change how the Policy
ensures that each of the Clearing Agencies hold sufficient LNA funded
by equity to cover potential general business losses but would allow
the Clearing Agencies to maintain this document to operate in the way
it was intended. Therefore, such proposed revisions would be consistent
with the requirements of Section 17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------
\18\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(15) under the Act requires the Clearing Agencies to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to identify, monitor, and manage their
respective general business risk and hold sufficient liquid net assets
funded by equity to cover potential general business losses so that the
Clearing Agencies can continue operations and services as a going
concern if those losses materialize.\19\ As originally implemented, the
Capital Policy was designed to meet the requirements of Rule 17Ad-
22(e)(15). For the reasons described above, the proposed revisions
would not materially alter how the Clearing Agencies comply with their
requirements under this rule. Therefore, the proposed changes would
allow the Clearing Agencies to maintain the Capital Policy in a way
that continues to be consistent with the requirements of Rule 17Ad-
22(e)(15) under the Act.\20\
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\19\ 17 CFR 240.17Ad-22(e)(15).
\20\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Each of the Clearing Agencies believes that none of the proposed
revisions to the Capital Policy would have any impact, or impose any
burden, on competition. The Policy is maintained by the Clearing
Agencies in order to satisfy their regulatory requirements and
generally reflect internal tools and procedures. Tools and procedures
that have a direct impact on the rights, responsibilities or
obligations of members or participants of the Clearing Agencies are
reflected in the Clearing Agencies' Rules. Accordingly, the Capital
Policy enhances the Clearing Agencies' regulatory compliance and
internal management and does not have any impact, or impose any burden,
on competition.
The proposed revisions would not effect any changes to the
fundamental purpose or materially impact the operation of the Capital
Policy. As such, the proposed changes also would 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \21\ of the Act and paragraph (f) \22\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\21\ 15 U.S.C 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2020-010 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-DTC-2020-010. 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,
[[Page 45267]]
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 DTC 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-DTC-2020-010 and should be submitted on
or before August 17, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16158 Filed 7-24-20; 8:45 am]
BILLING CODE 8011-01-P
