Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Notice of Filings and Immediate Effectiveness of Proposed Rule Changes To Amend the Clearing Agency Operational Risk Management Framework, 81531-81534 [2020-27596]
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Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
II. Clearing Agencies’ Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Changes
[Release No. 34–90626; File Nos. SR–DTC–
2020–015; SR–FICC–2020–016; SR–NSCC–
2020–019]
In their filings with the Commission,
the Clearing Agencies included
statements concerning the purpose of
and basis for the proposed rule changes
and discussed any comments they
received on the proposed rule changes.
The text of these statements may be
examined at the places specified in Item
IV below. The Clearing Agencies have
prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
Self-Regulatory Organizations; The
Depository Trust Company; Fixed
Income Clearing Corporation; National
Securities Clearing Corporation;
Notice of Filings and Immediate
Effectiveness of Proposed Rule
Changes To Amend the Clearing
Agency Operational Risk Management
Framework
December 10, 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 December
1, 2020, The Depository Trust Company
(‘‘DTC’’), Fixed Income Clearing
Corporation (‘‘FICC’’), and National
Securities Clearing Corporation
(‘‘NSCC,’’ and collectively, the
‘‘Clearing Agencies’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
changes as described in Items I, II and
III below, which Items have been
primarily prepared by the Clearing
Agencies. The Clearing Agencies filed
the proposed rule changes 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
changes from interested persons.
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I. Clearing Agencies’ Statement of the
Terms of Substance of the Proposed
Rule Changes
The proposed rule changes consist of
amendments to the Clearing Agency
Operational Risk Management
Framework (‘‘ORM Framework’’ or
‘‘Framework’’) of Clearing Agencies.
Specifically, the proposed rule changes
would (1) include a description of the
Clearing Agencies’ incident
management procedures; (2) update the
ORM Framework to reflect recent
changes to group names and
responsibilities, and other processes and
matters described in the Framework;
and (3) enhance the descriptions of
certain matters within the ORM
Framework to improve its clarity and
comprehensiveness, as further described
below.
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).
2 17
17:32 Dec 15, 2020
1. Purpose
The Clearing Agencies adopted the
ORM Framework 5 to provide an outline
for how each of the Clearing Agencies
manages its operational risks. In this
way, the Framework supports the
Clearing Agencies’ compliance with
Rules 17Ad–22(e)(17) of the Standards
for Covered Clearing Agencies
(‘‘Standards’’) under the Act,6 as
described in the Initial Filing. In
addition to setting forth the manner in
which each of the Clearing Agencies
addresses these requirements, the ORM
Framework also contains a section titled
‘‘Framework Ownership and Change
Management’’ that, among other
matters, describes the Framework
ownership and the required governance
process for review and approval of
changes to the Framework.
In connection with the annual review
and approval of the Framework by the
Boards of Directors of each of the
Clearing Agencies (each a ‘‘Board’’ and
collectively, the ‘‘Boards’’), the Clearing
Agencies are proposing to make certain
revisions to the Framework.
Such proposed changes would
include a description of the Clearing
Agencies’ incident management
procedures in connection with its
information technology risk
management. The proposed changes
would also update the ORM Framework
to reflect recent changes to group names
and responsibilities, certain processes
and other matters described in the
Framework. Finally, the proposed
changes would enhance the descriptions
of certain matters within the ORM
Framework to improve its clarity and
comprehensiveness. Each of these
5 See Securities Exchange Act Release No. 81745
(September 28, 2017), 82 FR 46332 (October 4,
2017) (SR–DTC–2017–014; SR–NSCC–2017–013;
SR–FICC–2017–017) (‘‘Initial Filing’’).
6 17 CFR 240.17Ad–22(e)(17).
1 15
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(A) Clearing Agencies’ Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Changes
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proposed changes are further described
below.
i. Proposed Amendments To Describe
Incident Management Procedures
First, the proposed changes would
add a description of the Clearing
Agencies’ incident management
procedures in Section 5 of the
Framework, which currently describes
information technology management.
The Clearing Agencies currently follow
these incident management procedures,
which support the Clearing Agencies’
compliance with the requirements of
Rule 17Ad–22(e)(17)(i) and (ii) and
define the actions that are taken
following detection of systems
incidents.7 The purpose of these
procedures, as proposed to be described
in Section 5 of the Framework, is to
define the actions that are taken
following the detection of systems
incidents. Generally, these actions
include identification and classification,
investigation and diagnosis, and
resolution and recovery of the incidents
that affect the Clearing Agencies’
systems.
The proposed change would be to
include a description of these existing
procedures in the Framework in
connection with its description of
information technology management.
This proposed change would improve
the Framework by including this
important aspect of operational risk
management and providing a more
complete description of the Clearing
Agencies’ processes that support their
compliance with the requirements of
Rule 17Ad–22(e)(17)(i) and (ii).
ii. Proposed Amendments To Update
the Framework
Second, the proposed changes would
update the ORM Framework to reflect
recent developments with respect to the
names and responsibilities of groups
that take certain actions described in the
Framework. The proposed changes
would also reflect updates to processes
and other matters described in the
Framework, as described below. These
proposed changes do not substantively
impact how the Clearing Agencies
manage operational risk in compliance
with the requirements of Rule 17Ad–
22(e)(17).8
1. Proposed Change to the Name of
Business Continuity Management
Section 6 of the ORM Framework
describes the Clearing Agencies’
management of business continuity risk
and the business continuity plans that
7 17
8 17
E:\FR\FM\16DEN1.SGM
CFR 240.17Ad–22(e)(17)(i) and (ii).
CFR 240.17Ad–22(e)(17).
16DEN1
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Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices
have been established and maintained
by the Clearing Agencies in compliance
with the requirements of Rule 17Ad–
22(e)(17)(iii).9 The group responsible for
these activities was previously called
Business Continuity Management.
While the role and responsibilities of
this risk management function have not
changed, its name has been changed to
‘‘Business Continuity & Resiliency’’ to
reflect an increased focus on
strengthening the resiliency of the
Clearing Agencies and the ability of
their systems to sustain and recover
from numerous incidents. The
Framework would be updated to reflect
the change to the name of this group.
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2. Proposed Change To Revise
Description of Document Repository
Section 4.1 of the ORM Framework
describes Risk Tolerance Statements,
which document the overall risk
reduction or mitigation objectives for
the Clearing Agencies with respect to
identified risks to the Clearing Agencies.
Risk Tolerance Statements also
document the risk controls and other
measures used to manage identified
risks, including escalation requirements
in the event of risk metric breaches.
Currently, Section 4.1 states that Risk
Tolerance Statements are located in the
DTCC Enterprise Policy Repository.
The name of the repository where all
policies, procedures and related
documents are maintained has changed.
Therefore, the Clearing Agencies are
proposing to update this Section of the
Framework to refer generally to the
central repository for all policies,
procedures and related documents,
rather than refer to the specific name of
that central repository. This proposed
change would allow the Framework to
accurately describe where Risk
Tolerance Statements are maintained,
notwithstanding this recent, and any
potential future, change to the name of
that document management tool.
3. Proposed Change To Reflect
Expansion of Operating Centers
Section 6 of the ORM Framework,
which describes business continuity
risk management, currently includes a
statement that the operating centers that
support the Clearing Agencies are run
from no fewer than three geographic
regions in the United States. Since the
ORM Framework was adopted the
Clearing Agencies have expanded the
geographic spread and diversity of their
operating centers. In order to reflect this
change, the ORM Framework would be
updated to state that these operating
centers are run from geographic regions
9 17
CFR 240.17Ad–22(e)(17)(iii).
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17:32 Dec 15, 2020
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globally (i.e., without the limitation that
they are located in the United States).
iii. Proposed Amendments To Clarify
and Enhance Descriptions in the
Framework
Finally, the proposed changes would
enhance the descriptions of certain
matters within the ORM Framework to
improve its clarity and
comprehensiveness, as described below.
1. Proposed Change To Describe Annual
Approval of Framework by Boards
Section 2 of the ORM Framework
addresses the Framework’s ownership
and change management. This section
currently states that the Framework
should be reviewed by the document
owner no less frequently than annually
but does not specify the regulatory
requirement that the Framework also be
approved by the Boards on an annual
basis. The Clearing Agencies are
proposing to amend Section 2 of the
Framework to include the requirement
that the Framework be approved by the
Boards, or a duly authorized committee
of the Boards, annually.
Rule 17Ad–22(e)(3) under the Act
requires that the Clearing Agencies
maintain a sound risk management
framework for comprehensively
managing the risks that arise in or are
borne by the Clearing Agencies,
including operational risks.10 Rule
17Ad–22(e)(3)(i) under the Act requires
that the risk management policies,
procedures, and systems that are
maintained in compliance with Rule
17Ad–22(e)(3) be subject to review on a
specified periodic basis and be
approved by the Boards annually.11 As
stated above, the Framework provides
an outline for how each of the Clearing
Agencies manage operational risks, as
required by both Rules 17Ad–22(e)(3)
and (17) under the Act.12 Therefore, the
ORM Framework is reviewed and
approved by the Boards annually, as
required by Rule 17Ad–22(e)(3)(i) under
the Act.13
The Clearing Agencies are proposing
to amend Section 2 of the Framework to
state that the Framework shall be
approved by the Boards, or a duly
authorized committee of the Boards,
annually. The proposed change would
enhance the comprehensiveness of the
Framework to specify this requirement,
which is aligned with the applicable
requirements of Rule 17Ad–22(e)(3)(i)
under the Act.14
10 17
CFR 240.17Ad–22(e)(3).
CFR 240.17Ad–22(e)(3)(i).
12 17 CFR 240.17Ad–22(e)(3), (17).
13 17 CFR 240.17Ad–22(e)(3)(i).
14 Id.
11 17
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2. Proposed Change To Clarify
Description of Risk Profiles
Section 4.2 of the ORM Framework
describes the Risk Profiles, which are
tools used by the Operational Risk
Management group within the Group
Chief Risk Office of The Depository
Trust & Clearing Corporation
(‘‘ORM’’) 15 to document risk
assessments and consolidate pertinent
operational risk and control data,
including, without limitation, incidents,
audit findings, compliance testing
results, and risk metrics, to support an
overall assessment of the applicable
Clearing Agency Business’ or Clearing
Agency Support Area’s inherent risk
and residual risk. The Clearing Agencies
are proposing changes to this Section to
clarify and simplify the description of
Risk Profiles.
First, the proposed changes would
clarify that the assessments documented
in Risk Profiles both (1) assess inherent
risks, and (2) identify residual risks. The
proposed changes would do this by
revising the relevant sentence and by
removing the current description of risk
acceptance of residual risks, which is a
process that is separate from the
description of Risk Profiles. The
proposed changes would focus the
description on the two types of risks
that are relevant to the Risk Profiles.
Second, the proposed change would
simplify the description of how the Risk
Profiles are created by removing
reference to ORM as the responsible
group. Currently, both ORM and the
Clearing Agency business and support
areas are jointly responsible for the tasks
related to creating and documenting
Risk Profiles. Over time, the
responsibility for these tasks has shifted
away from ORM, and to the Clearing
Agency business and support areas. The
proposed changes would continue to
identify the crucial tasks related to the
creation and maintenance of Risk
Profiles but would simplify this section
of the Framework by removing reference
to the division of responsibilities among
these groups.
Third, the proposed changes would
clarify that Clearing Agency businesses
and support areas are responsible for the
day-to-day management of all risk
applicable to their area. Currently,
Section 4.2 states that these groups are
only responsible for the management of
residual risks. The proposed change
15 The parent company of the Clearing Agencies
is The Depository Trust & Clearing Corporation
(‘‘DTCC’’). DTCC operates on a shared services
model with respect to the Clearing Agencies. Most
corporate functions are established and managed on
an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that
provides a relevant service to a Clearing Agency.
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would correct this statement and clarify
these groups’ responsibilities.
Finally, the proposed changes would
clarify that the Clearing Agency
businesses and support areas are
responsible for updating their policies
and procedures to support risk
management at the Clearing Agencies.
Currently, the relevant sentence in
Section 4.2 states that such policies and
procedures support operational risk
management at the Clearing Agencies.
The proposed change would clarify the
responsibilities of these groups and the
role of policies and procedures in risk
management.
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3. Proposed Change To Clarify the
Responsibilities of the ORM Group
Section 4.3 of the ORM Framework
describes the responsibilities of ORM.
Currently, this Section states that this
group is responsible for reviewing,
revising and creating Risk Tolerance
Statements. However, ORM is
responsible for working with the
businesses that own the relevant risks in
reviewing, revising and creating Risk
Tolerance Statements. Therefore, the
proposed changes would clarify ORM’s
responsibilities with respect to Risk
Tolerance Statements.
4. Proposed Changes To Clarify
Description of Business Continuity Risk
Management
Section 6 of the ORM Framework
describes how the Clearing Agencies
manage business continuity risks. The
Clearing Agencies are proposing
changes to this section to clarify the
description of business continuity risk
management and to make this section
more comprehensive.
First, the proposed changes would
include a reference to events that have
the potential to disrupt the Clearing
Agencies’ businesses in a statement that
refers generally to the types of events
that could impact the Clearing Agencies.
This update would make the statement
more comprehensive by including
events that are considered ‘‘near-miss’’
events, or events that did not have had
an impact on the Clearing Agencies but
had the potential of causing an impact
on their businesses. This proposed
change would align the description to
current practice, by which the Clearing
Agencies take into account ‘‘near-miss’’
events in its risk management processes.
Second, the proposed changes would
update the description of the ‘‘tiers’’
that are used to rank the criticality of
the Clearing Agencies’ businesses and
support areas. The proposed changes
would not impact the way these tiered
rankings are applied and would align
the description in the Framework to the
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17:32 Dec 15, 2020
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current description in the Clearing
Agencies’ internal procedures. Among
the updates to the description of the
tiers, the proposed changes would
include a clarifying statement that the
Clearing Agencies’ support areas are
automatically assigned the same tier as
the Clearing Agency business that they
support, and would remove references
to the Clearing Agency support areas in
the description of the process that
results in a group’s tier.
Finally, the proposed changes to
Section 6 would clarify statements in
connection with the creation of business
impact analyses (‘‘BIA’’), which are
used to assign each Clearing Agency
business with a tier. The proposed
changes would clarify, for example, that
appropriate risk controls may be applied
with respect to an applicable Clearing
Agency business at any time, and not
only during a business continuity event.
The proposed changes would also
clarify that the BIA identify product
dependencies within an applicable
Clearing Agency business. While the
process for creating BIA has not
changed, the proposed changes to
Section 6 of the Framework would
enhance the description of the process
by making it clearer and more
comprehensive.
2. Statutory Basis
The Clearing Agencies believe that the
proposed changes are consistent with
Section 17A(b)(3)(F) of the Act 16 and
Rule 17Ad–22(e)(3)(i), and (17)(i) and
(ii) promulgated under the Act,17 for the
reasons described below.
The Clearing Agencies believe that the
proposed changes are consistent with
Section 17A(b)(3)(F) of the Act, which
requires, in part, that the rules of a
registered clearing agency be designed
to promote the prompt and accurate
clearance and settlement of securities
transactions, and to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible, for the reasons described
below.18 The proposed changes would
update and clarify the Framework and
would make it more comprehensive in
how it describes operational risk
management of the Clearing Agencies,
as described above. By creating clearer,
updated and more comprehensive
descriptions, the Clearing Agencies
believe the proposed changes would
make the ORM Framework more
effective in providing an overview of the
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(17)(i) and (ii).
18 15 U.S.C. 78q–1(b)(3)(F).
important risk management activities
described therein.
As described in the Initial Filing, the
risk management functions described in
the ORM Framework allow the Clearing
Agencies to continue the prompt and
accurate clearance and settlement of
securities and can continue to assure the
safeguarding of securities and funds
which are in their custody or control or
for which they are responsible
notwithstanding the default of a
member of an affiliated family. The
proposed changes to improve the clarity
and accuracy of the descriptions of
these functions within the ORM
Framework would assist the Clearing
Agencies in carrying out these risk
management functions. Therefore, the
Clearing Agencies believe the proposed
changes are consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.19
Rule 17Ad–22(e)(3)(i) under the Act
requires, in part, that each covered
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
maintain a sound risk management
framework for comprehensively
managing operational risks that arise in
or are borne by the covered clearing
agency, which includes risk
management policies, procedures, and
systems that are subject to review on a
specified periodic basis and approved
by the board of directors annually.20 As
described above, the Framework is
currently approved by the Board
annually, in compliance with the
requirements of Rule 17Ad–22(e)(3)(i).
The proposed changes would describe
this annual approval in Section 2 of the
Framework, where the Framework’s
ownership and change management is
addressed. By including a description of
the required annual Board approval of
the Framework, the proposed changes
are consistent with the requirements of
Rule 17Ad–22(e)(3)(i) under the Act.21
Rule 17Ad–22(e)(17) under the Act
requires, in part, that each covered
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
manage the covered clearing agency’s
operational risks by (i) identifying the
plausible sources of operational risk,
both internal and external, and
mitigating their impact through the use
of appropriate systems, policies,
procedures, and controls; and (ii)
ensuring that systems have a high
degree of security, resiliency,
16 15
19 Id.
17 17
20 17
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81533
CFR 240.17Ad–22(e)(3)(i).
21 Id.
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Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices
operational reliability, and adequate,
scalable capacity.22
The Framework would be amended to
include a description of the Clearing
Agencies’ incident management
procedures. As described above, these
procedures address how the Clearing
Agencies detect, identify, investigate
and resolve incidents that affect the
Clearing Agencies’ systems. These
procedures are designed to help address
the Clearing Agencies’ compliance with
the requirements of Rule 17Ad–
22(e)(17)(i) and (ii).23 Therefore, the
Clearing Agencies believe that the
proposed rule changes to include a
description of these procedures in the
Risk Management Framework is
consistent with Rule 17Ad–22(e)(17)(i)
and (ii).24
(B) Clearing Agencies’ Statement on
Burden on Competition
The Clearing Agencies do not believe
that the proposed changes to the ORM
Framework described above would have
any impact, or impose any burden, on
competition. As described above, the
proposed rule changes would update
the Framework and would improve the
clarity and comprehensiveness of the
descriptions of certain matters within
the Framework. Therefore, the proposed
changes are technical and non-material
in nature, relating mostly to the
operation of the ORM Framework rather
than the risk management functions
described therein. As such, the Clearing
Agencies do not believe that the
proposed rule changes would have any
impact on competition.
(C) Clearing Agencies’ Statement on
Comments on the Proposed Rule
Changes 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.
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III. Date of Effectiveness of the
Proposed Rule Changes, and Timing for
Commission Action
The foregoing rule changes have
become effective pursuant to Section
19(b)(3)(A) 25 of the Act and paragraph
(f) 26 of Rule 19b–4 thereunder. At any
time within 60 days of the filing of the
proposed rule changes, the Commission
summarily may temporarily suspend
22 17
CFR 240.17Ad–22(e)(17)(i) and (ii).
23 Id.
24 Id.
25 15
26 17
U.S.C 78s(b)(3)(A).
CFR 240.19b–4(f).
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17:32 Dec 15, 2020
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such rule changes 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
changes are 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–2020–015, SR–FICC–2020–016, or
SR–NSCC–2020–019 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–2020–015, SR–FICC–
2020–016, or SR–NSCC–2020–019. 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
changes that are filed with the
Commission, and all written
communications relating to the
proposed rule changes 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 Clearing Agencies 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
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submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–DTC–2020–015, SR–FICC–
2020–016, or SR–NSCC–2020–019 and
should be submitted on or before
January 6, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27596 Filed 12–15–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90629; File No. SR–
NYSEArca–2020–109]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Modifying the NYSE Arca
Options Fee Schedule Regarding the
Criteria To Qualify for the Market
Maker Incentive for Penny Issues
December 10, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
7, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III 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 modify the
NYSE Arca Options Fee Schedule (‘‘Fee
Schedule’’) regarding the criteria to
qualify for a Market Maker Incentive for
Penny Issues. The Exchange proposes to
implement the fee change effective
December 7, 2020.4 The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 The Exchange originally filed to amend the Fee
Schedule on December 1, 2020 (SR–NYSEArca–
2020–106) and withdrew such filing on December
7, 2020.
1 15
E:\FR\FM\16DEN1.SGM
16DEN1
]]>Agencies
[Federal Register Volume 85, Number 242 (Wednesday, December 16, 2020)]
[Notices]
[Pages 81531-81534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27596]
[[Page 81531]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90626; File Nos. SR-DTC-2020-015; SR-FICC-2020-016; SR-
NSCC-2020-019]
Self-Regulatory Organizations; The Depository Trust Company;
Fixed Income Clearing Corporation; National Securities Clearing
Corporation; Notice of Filings and Immediate Effectiveness of Proposed
Rule Changes To Amend the Clearing Agency Operational Risk Management
Framework
December 10, 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 December 1, 2020, The Depository Trust Company (``DTC''), Fixed
Income Clearing Corporation (``FICC''), and National Securities
Clearing Corporation (``NSCC,'' and collectively, the ``Clearing
Agencies'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes as described in Items I, II
and III below, which Items have been primarily prepared by the Clearing
Agencies. The Clearing Agencies filed the proposed rule changes
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 changes 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)(3).
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I. Clearing Agencies' Statement of the Terms of Substance of the
Proposed Rule Changes
The proposed rule changes consist of amendments to the Clearing
Agency Operational Risk Management Framework (``ORM Framework'' or
``Framework'') of Clearing Agencies. Specifically, the proposed rule
changes would (1) include a description of the Clearing Agencies'
incident management procedures; (2) update the ORM Framework to reflect
recent changes to group names and responsibilities, and other processes
and matters described in the Framework; and (3) enhance the
descriptions of certain matters within the ORM Framework to improve its
clarity and comprehensiveness, as further described below.
II. Clearing Agencies' Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Changes
In their filings with the Commission, the Clearing Agencies
included statements concerning the purpose of and basis for the
proposed rule changes and discussed any comments they received on the
proposed rule changes. The text of these statements may be examined at
the places specified in Item IV below. The Clearing Agencies have
prepared summaries, set forth in sections A, B, and C below, of the
most significant aspects of such statements.
(A) Clearing Agencies' Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Changes
1. Purpose
The Clearing Agencies adopted the ORM Framework \5\ to provide an
outline for how each of the Clearing Agencies manages its operational
risks. In this way, the Framework supports the Clearing Agencies'
compliance with Rules 17Ad-22(e)(17) of the Standards for Covered
Clearing Agencies (``Standards'') under the Act,\6\ as described in the
Initial Filing. In addition to setting forth the manner in which each
of the Clearing Agencies addresses these requirements, the ORM
Framework also contains a section titled ``Framework Ownership and
Change Management'' that, among other matters, describes the Framework
ownership and the required governance process for review and approval
of changes to the Framework.
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\5\ See Securities Exchange Act Release No. 81745 (September 28,
2017), 82 FR 46332 (October 4, 2017) (SR-DTC-2017-014; SR-NSCC-2017-
013; SR-FICC-2017-017) (``Initial Filing'').
\6\ 17 CFR 240.17Ad-22(e)(17).
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In connection with the annual review and approval of the Framework
by the Boards of Directors of each of the Clearing Agencies (each a
``Board'' and collectively, the ``Boards''), the Clearing Agencies are
proposing to make certain revisions to the Framework.
Such proposed changes would include a description of the Clearing
Agencies' incident management procedures in connection with its
information technology risk management. The proposed changes would also
update the ORM Framework to reflect recent changes to group names and
responsibilities, certain processes and other matters described in the
Framework. Finally, the proposed changes would enhance the descriptions
of certain matters within the ORM Framework to improve its clarity and
comprehensiveness. Each of these proposed changes are further described
below.
i. Proposed Amendments To Describe Incident Management Procedures
First, the proposed changes would add a description of the Clearing
Agencies' incident management procedures in Section 5 of the Framework,
which currently describes information technology management. The
Clearing Agencies currently follow these incident management
procedures, which support the Clearing Agencies' compliance with the
requirements of Rule 17Ad-22(e)(17)(i) and (ii) and define the actions
that are taken following detection of systems incidents.\7\ The purpose
of these procedures, as proposed to be described in Section 5 of the
Framework, is to define the actions that are taken following the
detection of systems incidents. Generally, these actions include
identification and classification, investigation and diagnosis, and
resolution and recovery of the incidents that affect the Clearing
Agencies' systems.
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\7\ 17 CFR 240.17Ad-22(e)(17)(i) and (ii).
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The proposed change would be to include a description of these
existing procedures in the Framework in connection with its description
of information technology management. This proposed change would
improve the Framework by including this important aspect of operational
risk management and providing a more complete description of the
Clearing Agencies' processes that support their compliance with the
requirements of Rule 17Ad-22(e)(17)(i) and (ii).
ii. Proposed Amendments To Update the Framework
Second, the proposed changes would update the ORM Framework to
reflect recent developments with respect to the names and
responsibilities of groups that take certain actions described in the
Framework. The proposed changes would also reflect updates to processes
and other matters described in the Framework, as described below. These
proposed changes do not substantively impact how the Clearing Agencies
manage operational risk in compliance with the requirements of Rule
17Ad-22(e)(17).\8\
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\8\ 17 CFR 240.17Ad-22(e)(17).
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1. Proposed Change to the Name of Business Continuity Management
Section 6 of the ORM Framework describes the Clearing Agencies'
management of business continuity risk and the business continuity
plans that
[[Page 81532]]
have been established and maintained by the Clearing Agencies in
compliance with the requirements of Rule 17Ad-22(e)(17)(iii).\9\ The
group responsible for these activities was previously called Business
Continuity Management. While the role and responsibilities of this risk
management function have not changed, its name has been changed to
``Business Continuity & Resiliency'' to reflect an increased focus on
strengthening the resiliency of the Clearing Agencies and the ability
of their systems to sustain and recover from numerous incidents. The
Framework would be updated to reflect the change to the name of this
group.
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\9\ 17 CFR 240.17Ad-22(e)(17)(iii).
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2. Proposed Change To Revise Description of Document Repository
Section 4.1 of the ORM Framework describes Risk Tolerance
Statements, which document the overall risk reduction or mitigation
objectives for the Clearing Agencies with respect to identified risks
to the Clearing Agencies. Risk Tolerance Statements also document the
risk controls and other measures used to manage identified risks,
including escalation requirements in the event of risk metric breaches.
Currently, Section 4.1 states that Risk Tolerance Statements are
located in the DTCC Enterprise Policy Repository.
The name of the repository where all policies, procedures and
related documents are maintained has changed. Therefore, the Clearing
Agencies are proposing to update this Section of the Framework to refer
generally to the central repository for all policies, procedures and
related documents, rather than refer to the specific name of that
central repository. This proposed change would allow the Framework to
accurately describe where Risk Tolerance Statements are maintained,
notwithstanding this recent, and any potential future, change to the
name of that document management tool.
3. Proposed Change To Reflect Expansion of Operating Centers
Section 6 of the ORM Framework, which describes business continuity
risk management, currently includes a statement that the operating
centers that support the Clearing Agencies are run from no fewer than
three geographic regions in the United States. Since the ORM Framework
was adopted the Clearing Agencies have expanded the geographic spread
and diversity of their operating centers. In order to reflect this
change, the ORM Framework would be updated to state that these
operating centers are run from geographic regions globally (i.e.,
without the limitation that they are located in the United States).
iii. Proposed Amendments To Clarify and Enhance Descriptions in the
Framework
Finally, the proposed changes would enhance the descriptions of
certain matters within the ORM Framework to improve its clarity and
comprehensiveness, as described below.
1. Proposed Change To Describe Annual Approval of Framework by Boards
Section 2 of the ORM Framework addresses the Framework's ownership
and change management. This section currently states that the Framework
should be reviewed by the document owner no less frequently than
annually but does not specify the regulatory requirement that the
Framework also be approved by the Boards on an annual basis. The
Clearing Agencies are proposing to amend Section 2 of the Framework to
include the requirement that the Framework be approved by the Boards,
or a duly authorized committee of the Boards, annually.
Rule 17Ad-22(e)(3) under the Act requires that the Clearing
Agencies maintain a sound risk management framework for comprehensively
managing the risks that arise in or are borne by the Clearing Agencies,
including operational risks.\10\ Rule 17Ad-22(e)(3)(i) under the Act
requires that the risk management policies, procedures, and systems
that are maintained in compliance with Rule 17Ad-22(e)(3) be subject to
review on a specified periodic basis and be approved by the Boards
annually.\11\ As stated above, the Framework provides an outline for
how each of the Clearing Agencies manage operational risks, as required
by both Rules 17Ad-22(e)(3) and (17) under the Act.\12\ Therefore, the
ORM Framework is reviewed and approved by the Boards annually, as
required by Rule 17Ad-22(e)(3)(i) under the Act.\13\
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\10\ 17 CFR 240.17Ad-22(e)(3).
\11\ 17 CFR 240.17Ad-22(e)(3)(i).
\12\ 17 CFR 240.17Ad-22(e)(3), (17).
\13\ 17 CFR 240.17Ad-22(e)(3)(i).
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The Clearing Agencies are proposing to amend Section 2 of the
Framework to state that the Framework shall be approved by the Boards,
or a duly authorized committee of the Boards, annually. The proposed
change would enhance the comprehensiveness of the Framework to specify
this requirement, which is aligned with the applicable requirements of
Rule 17Ad-22(e)(3)(i) under the Act.\14\
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\14\ Id.
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2. Proposed Change To Clarify Description of Risk Profiles
Section 4.2 of the ORM Framework describes the Risk Profiles, which
are tools used by the Operational Risk Management group within the
Group Chief Risk Office of The Depository Trust & Clearing Corporation
(``ORM'') \15\ to document risk assessments and consolidate pertinent
operational risk and control data, including, without limitation,
incidents, audit findings, compliance testing results, and risk
metrics, to support an overall assessment of the applicable Clearing
Agency Business' or Clearing Agency Support Area's inherent risk and
residual risk. The Clearing Agencies are proposing changes to this
Section to clarify and simplify the description of Risk Profiles.
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\15\ The parent company of the Clearing Agencies is The
Depository Trust & Clearing Corporation (``DTCC''). DTCC operates on
a shared services model with respect to the Clearing Agencies. Most
corporate functions are established and managed on an enterprise-
wide basis pursuant to intercompany agreements under which it is
generally DTCC that provides a relevant service to a Clearing
Agency.
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First, the proposed changes would clarify that the assessments
documented in Risk Profiles both (1) assess inherent risks, and (2)
identify residual risks. The proposed changes would do this by revising
the relevant sentence and by removing the current description of risk
acceptance of residual risks, which is a process that is separate from
the description of Risk Profiles. The proposed changes would focus the
description on the two types of risks that are relevant to the Risk
Profiles.
Second, the proposed change would simplify the description of how
the Risk Profiles are created by removing reference to ORM as the
responsible group. Currently, both ORM and the Clearing Agency business
and support areas are jointly responsible for the tasks related to
creating and documenting Risk Profiles. Over time, the responsibility
for these tasks has shifted away from ORM, and to the Clearing Agency
business and support areas. The proposed changes would continue to
identify the crucial tasks related to the creation and maintenance of
Risk Profiles but would simplify this section of the Framework by
removing reference to the division of responsibilities among these
groups.
Third, the proposed changes would clarify that Clearing Agency
businesses and support areas are responsible for the day-to-day
management of all risk applicable to their area. Currently, Section 4.2
states that these groups are only responsible for the management of
residual risks. The proposed change
[[Page 81533]]
would correct this statement and clarify these groups'
responsibilities.
Finally, the proposed changes would clarify that the Clearing
Agency businesses and support areas are responsible for updating their
policies and procedures to support risk management at the Clearing
Agencies. Currently, the relevant sentence in Section 4.2 states that
such policies and procedures support operational risk management at the
Clearing Agencies. The proposed change would clarify the
responsibilities of these groups and the role of policies and
procedures in risk management.
3. Proposed Change To Clarify the Responsibilities of the ORM Group
Section 4.3 of the ORM Framework describes the responsibilities of
ORM. Currently, this Section states that this group is responsible for
reviewing, revising and creating Risk Tolerance Statements. However,
ORM is responsible for working with the businesses that own the
relevant risks in reviewing, revising and creating Risk Tolerance
Statements. Therefore, the proposed changes would clarify ORM's
responsibilities with respect to Risk Tolerance Statements.
4. Proposed Changes To Clarify Description of Business Continuity Risk
Management
Section 6 of the ORM Framework describes how the Clearing Agencies
manage business continuity risks. The Clearing Agencies are proposing
changes to this section to clarify the description of business
continuity risk management and to make this section more comprehensive.
First, the proposed changes would include a reference to events
that have the potential to disrupt the Clearing Agencies' businesses in
a statement that refers generally to the types of events that could
impact the Clearing Agencies. This update would make the statement more
comprehensive by including events that are considered ``near-miss''
events, or events that did not have had an impact on the Clearing
Agencies but had the potential of causing an impact on their
businesses. This proposed change would align the description to current
practice, by which the Clearing Agencies take into account ``near-
miss'' events in its risk management processes.
Second, the proposed changes would update the description of the
``tiers'' that are used to rank the criticality of the Clearing
Agencies' businesses and support areas. The proposed changes would not
impact the way these tiered rankings are applied and would align the
description in the Framework to the current description in the Clearing
Agencies' internal procedures. Among the updates to the description of
the tiers, the proposed changes would include a clarifying statement
that the Clearing Agencies' support areas are automatically assigned
the same tier as the Clearing Agency business that they support, and
would remove references to the Clearing Agency support areas in the
description of the process that results in a group's tier.
Finally, the proposed changes to Section 6 would clarify statements
in connection with the creation of business impact analyses (``BIA''),
which are used to assign each Clearing Agency business with a tier. The
proposed changes would clarify, for example, that appropriate risk
controls may be applied with respect to an applicable Clearing Agency
business at any time, and not only during a business continuity event.
The proposed changes would also clarify that the BIA identify product
dependencies within an applicable Clearing Agency business. While the
process for creating BIA has not changed, the proposed changes to
Section 6 of the Framework would enhance the description of the process
by making it clearer and more comprehensive.
2. Statutory Basis
The Clearing Agencies believe that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act \16\ and Rule 17Ad-
22(e)(3)(i), and (17)(i) and (ii) promulgated under the Act,\17\ for
the reasons described below.
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 17 CFR 240.17Ad-22(e)(17)(i) and (ii).
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The Clearing Agencies believe that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act, which requires, in
part, that the rules of a registered clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions, and to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible, for the reasons described below.\18\ The proposed
changes would update and clarify the Framework and would make it more
comprehensive in how it describes operational risk management of the
Clearing Agencies, as described above. By creating clearer, updated and
more comprehensive descriptions, the Clearing Agencies believe the
proposed changes would make the ORM Framework more effective in
providing an overview of the important risk management activities
described therein.
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
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As described in the Initial Filing, the risk management functions
described in the ORM Framework allow the Clearing Agencies to continue
the prompt and accurate clearance and settlement of securities and can
continue to assure the safeguarding of securities and funds which are
in their custody or control or for which they are responsible
notwithstanding the default of a member of an affiliated family. The
proposed changes to improve the clarity and accuracy of the
descriptions of these functions within the ORM Framework would assist
the Clearing Agencies in carrying out these risk management functions.
Therefore, the Clearing Agencies believe the proposed changes are
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\19\
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\19\ Id.
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Rule 17Ad-22(e)(3)(i) under the Act requires, in part, that each
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to maintain a sound
risk management framework for comprehensively managing operational
risks that arise in or are borne by the covered clearing agency, which
includes risk management policies, procedures, and systems that are
subject to review on a specified periodic basis and approved by the
board of directors annually.\20\ As described above, the Framework is
currently approved by the Board annually, in compliance with the
requirements of Rule 17Ad-22(e)(3)(i). The proposed changes would
describe this annual approval in Section 2 of the Framework, where the
Framework's ownership and change management is addressed. By including
a description of the required annual Board approval of the Framework,
the proposed changes are consistent with the requirements of Rule 17Ad-
22(e)(3)(i) under the Act.\21\
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\20\ 17 CFR 240.17Ad-22(e)(3)(i).
\21\ Id.
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Rule 17Ad-22(e)(17) under the Act requires, in part, that each
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to manage the
covered clearing agency's operational risks by (i) identifying the
plausible sources of operational risk, both internal and external, and
mitigating their impact through the use of appropriate systems,
policies, procedures, and controls; and (ii) ensuring that systems have
a high degree of security, resiliency,
[[Page 81534]]
operational reliability, and adequate, scalable capacity.\22\
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\22\ 17 CFR 240.17Ad-22(e)(17)(i) and (ii).
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The Framework would be amended to include a description of the
Clearing Agencies' incident management procedures. As described above,
these procedures address how the Clearing Agencies detect, identify,
investigate and resolve incidents that affect the Clearing Agencies'
systems. These procedures are designed to help address the Clearing
Agencies' compliance with the requirements of Rule 17Ad-22(e)(17)(i)
and (ii).\23\ Therefore, the Clearing Agencies believe that the
proposed rule changes to include a description of these procedures in
the Risk Management Framework is consistent with Rule 17Ad-22(e)(17)(i)
and (ii).\24\
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\23\ Id.
\24\ Id.
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(B) Clearing Agencies' Statement on Burden on Competition
The Clearing Agencies do not believe that the proposed changes to
the ORM Framework described above would have any impact, or impose any
burden, on competition. As described above, the proposed rule changes
would update the Framework and would improve the clarity and
comprehensiveness of the descriptions of certain matters within the
Framework. Therefore, the proposed changes are technical and non-
material in nature, relating mostly to the operation of the ORM
Framework rather than the risk management functions described therein.
As such, the Clearing Agencies do not believe that the proposed rule
changes would have any impact on competition.
(C) Clearing Agencies' Statement on Comments on the Proposed Rule
Changes 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 Changes, and Timing for
Commission Action
The foregoing rule changes have become effective pursuant to
Section 19(b)(3)(A) \25\ of the Act and paragraph (f) \26\ of Rule 19b-
4 thereunder. At any time within 60 days of the filing of the proposed
rule changes, the Commission summarily may temporarily suspend such
rule changes 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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\25\ 15 U.S.C 78s(b)(3)(A).
\26\ 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
changes are 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-2020-015, SR-FICC-2020-016, or SR-NSCC-2020-019 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-2020-015, SR-FICC-
2020-016, or SR-NSCC-2020-019. 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 changes that are filed with the Commission, and all
written communications relating to the proposed rule changes 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 Clearing Agencies 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-2020-015, SR-FICC-2020-016, or SR-
NSCC-2020-019 and should be submitted on or before January 6, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27596 Filed 12-15-20; 8:45 am]
BILLING CODE 8011-01-P
