Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of and No Objection to Advance Notice Regarding the Renewal of a 364-Day Committed Revolving Line-of-Credit and Future Annual Renewals, 24067-24072 [2021-09428]
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91720; File No. SR–NSCC–
2021–802]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of and No
Objection to Advance Notice
Regarding the Renewal of a 364-Day
Committed Revolving Line-of-Credit
and Future Annual Renewals
April 29, 2021.
Pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
entitled the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) under the Securities
Exchange Act of 1934 (‘‘Act’’),2 notice is
hereby given that on April 8, 2021,
National Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the advance notice SR–NSCC–2021–
802. The advance notice (hereinafter,
the ‘‘Advance Notice’’) is described in
Items I, II and III below, which Items
have been prepared by the clearing
agency. The Commission is publishing
this notice to solicit comments on the
Advance Notice from interested persons
and providing notice that the
Commission does not object to the
Advance Notice.
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
NSCC is filing this advance notice in
order to (1) renew its 364-day
committed revolving line-of-credit with
a syndicate of commercial lenders
(‘‘Credit Facility’’), as described below
(hereinafter, ‘‘Current Renewal’’), and
(2) enter into future annual renewals of
the Credit Facility on substantially
similar terms and conditions as the
Current Renewal without needing to file
an advance notice, also described below
(hereinafter, ‘‘Future Renewals’’).3
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Advance Notice
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the Advance Notice and discussed any
comments it received on the Advance
Notice. The text of these statements may
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 Terms not defined herein are defined in the
Rules and Procedures of NSCC (‘‘Rules’’), https://
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
2 17
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be examined at the places specified in
Item IV below. The clearing agency has
prepared summaries, set forth in
sections A and B below, of the most
significant aspects of such statements.
(A) Clearing Agency’s Statement on
Comments on the Advance Notice
Received From Members, Participants,
or Others
NSCC has not solicited or received
any written comments to this advance
notice. NSCC will notify the
Commission of any written comments
are received by NSCC.
(B) Advance Notice Filed Pursuant to
Section 806(e) of the Clearing
Supervision Act
Description of the Proposal
NSCC is filing this advance notice in
order to enter into (1) the Current
Renewal and (2) Future Renewals, as
described below.
Background. NSCC and DTC maintain
the Credit Facility as part of their
liquidity risk management regime. The
Credit Facility provides for both NSCC
and DTC as borrowers, with an
aggregate commitment of $1.9 billion for
DTC and the amount of any excess
aggregate commitment for NSCC. As
borrowers, NSCC and DTC are not
jointly and severally liable, and each
lender to the Credit Facility has a
ratable commitment to each borrower.
NSCC and DTC have separate collateral
to secure their separate borrowings.
The Credit Facility is renewed
annually, and from 2013 through 2017,
NSCC and DTC each filed an advance
notice each year with the Commission,
pursuant to Section 806(e)(1) of the
Clearing Supervision Act 4 and Rule
19b–4(n)(1)(i) under the Exchange Act 5
as part of that renewal process.6
In 2017, NSCC and DTC proposed and
the Commission did not object to
allowing NSCC and DTC to renew the
Credit Facility, subject to specific
conditions (‘‘Evergreen Provisions’’),
without filing advance notices with the
Commission.7 The Commission found
that because the Evergreen Provisions
would ensure that future annual
renewals of the Credit Facility would be
24067
on substantially similar terms and
conditions as the 2017 Credit Facility, to
which the Commission did not object,
associated advance notice filings would
not be necessary.8 However, in the event
that an annual renewal of the Credit
Facility would not satisfy the Evergreen
Provisions, such renewal would be
subject to an advance notice filing.
Some of the Evergreen Provisions are
specific to NSCC, some to DTC, and
some to both.9 One of the NSCC specific
Evergreen Provisions is that NSCC
would not seek or accept for its portion
of the Credit Facility an aggregate
commitment amount 15 percent below
the amount NSCC sought in 2017.10 In
2017, NSCC sought an aggregate
commitment amount of $12.1 billion for
its portion of the Credit Facility, which
established a 15 percent threshold
amount of no less than $10.285
billion.11 Because NSCC now seeks an
aggregate commitment amount of no
more than $10.1 billion for its portion
of the Credit Facility, which is below
that 15 percent threshold, it is filing this
advance notice with the Commission.12
DTC need not file an advance notice for
its renewal of the Credit Facility
because DTC would continue to comply
with the Evergreen Provisions
applicable to it.13 The only Evergreen
Provision to which the Current Renewal
would not satisfy is the 15 percent
minimum threshold amount applicable
to NSCC.
Current Renewal. The terms and
conditions of the Current Renewal
would be specified in the Revolving
Credit Agreement, to be dated as of May
4, 2021, among DTC, NSCC, the lenders
party thereto, the primary
administrative and collateral agent, and
the backup administrative and collateral
agent (‘‘Renewal Agreement’’). Such
terms and conditions would be
substantially the same as the terms and
conditions of the existing credit
agreement, dated as of May 5, 2020
(‘‘Existing Agreement’’), except that
8 Id.
9 See
id.
10 Id.
4 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
6 Securities Exchange Act Release Nos. 69557
(May 10, 2013), 78 FR 28936 (May 16, 2013) (SR–
NSCC–2013–803); 72131 (May 8, 2014), 79 FR
27654 (May 14, 2014) (SR–NSCC–2014–805); 74906
(May 7, 2015), 80 FR 27714 (May 14, 2015) (SR–
NSCC–2015–801); 77750 (April 29, 2016), 81 FR
27181 (May 5, 2016) (SR–NSCC–2016–801); 80605
(May 5, 2017), 82 FR 21850 (May 10, 2017) (SR–
NSCC–2017–802).
7 Securities Exchange Act Release No. 80605 (May
5, 2017), 82 FR 21850 (May 10, 2017) (SR–NSCC–
2017–802) (‘‘2017 Filing’’).
5 17
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11 Id.
12 NSCC is seeking a reduced commitment
amount for a variety of reasons, including but not
limited to NSCC’s ability to obtain additional
liquidity from the issuance of commercial paper
and extendable notes (see Securities Exchange Act
Release Nos. 75730 (August 19, 2015), 80 FR 51638
(August 25, 2015) (SR–NSCC–2015–802); 82676
(February 9, 2018), 83 FR 6912 (February 15, 2018)
(SR–NSCC–2017–807)), as well as certain term debt
(see Securities Exchange Act Release No. 88146
(February 7, 2020), 85 FR 8046 (February 12, 2020)
(SR–NSCC–2019–802)) (‘‘Liquidity Filings’’).
13 See 2017 Filing, supra note 7.
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pricing 14 and the aggregate commitment
amount for NSCC, as discussed above, is
expected to change. The substantive
terms of the Renewal Agreement are set
forth in the Summary of Indicative
Principal Terms and Conditions, dated
March 22, 2021 (‘‘Term Sheet’’), which
is not a public document but has been
included as a confidential Exhibit 3 to
this filing.
For the Current Renewal, NSCC and
DTC are seeking an aggregate
commitment amount of no more than
$12 billion for the entire Credit Facility,
of which $1.9 billion would be
committed to DTC as borrower and any
remainder to NSCC as borrower, as
provided in the Existing Agreement.
Although NSCC and DTC are seeking an
aggregate commitment amount of no
more than $12 billion, the actual, final
amount will depend on a number of
factors, including the total commitment
amount received from lenders (i.e., it is
possible that the total aggregate
commitments received is less than the
$12 billion sought); projected market
volatility over the Credit Facility’s 364day period (‘‘Facility Period’’); potential
business initiatives over the Facility
Period; projected availability of NSCC’s
other liquidity resources (i.e., liquidity
available via NSCC’s commercial paper,
extendable notes, term debt,15 Clearing
Fund, and Supplemental Liquidity
Deposit (‘‘SLD’’) requirement 16) over
the Facility Period; and NSCC and
DTC’s long-term liquidity strategy.
NSCC and DTC would continue not to
be jointly and severally liable and each
lender would have a ratable
commitment to each borrower. DTC and
NSCC would continue to provide
separate collateral to secure their
respective borrowings.
Future Renewals. NSCC expects to
continue to renew the Credit Facility
annually on substantially similar terms
and conditions as the Current Renewal.
The terms and conditions of all Future
Renewals would be specified in
subsequent credit agreements among
DTC, NSCC, the lenders party thereto,
and the agents.
As has been standard practice for the
Credit Facility renewals, in connection
with all Future Renewals, changes
would not be made to (a) the financial
institution acting as the primary
administrative agent; or (b) the
14 ‘‘Pricing’’ of the Credit Facility refers to the
charges and fees owed by the borrowers (i.e., NSCC
and DTC) to the agents and lenders thereto with
respect to the services performed by the agents, the
commitment to lend, and the rate of interest
applicable to any borrowing under the Credit
Facility, among other such matters.
15 See Liquidity Filings, supra note 12.
16 Rule 4A (sic), Rules, supra note 3.
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commitment period, which would
continue to be 364 days.
However, as was established with the
2017 Filing,17 in connection with all
Future Renewals, changes may be made
to (1) the aggregate commitment amount
being sought for NSCC, so long as such
amount does not vary more than 15
percent above or below the aggregate
commitment amount being sought by
NSCC under the Current Renewal (i.e.,
$10.1 billion), which equates to an
amount of no more than $11.615 billion
and no less than $8.585 billion; 18 (2) the
syndicate, so long as all lenders party to
Future Renewals are subject to the same
credit review as those lenders party to
the Current Renewal; 19 (3) pricing and
collateral haircuts,20 so long as such
terms are consistent with the then
current market practice; or (4)
representations, warranties, covenants,
terms of events of default,21 and other
agreement provisions, so long as any
17 Supra
note 7.
continues to believe that a difference of
no more than 15 percent, either above or below the
aggregate commitment amount being sought by
NSCC under the Current Renewal, would not
constitute a material change in the nature or level
of risk presented by NSCC requiring an advance
notice filing (see supra notes 1 and 2) because (i)
the standing requirement that NSCC maintain, in
short, sufficient liquidity to cover the default of the
member family that would generate the largest
aggregate payment obligation, in extreme but
plausible market conditions (see Rule 17Ad–
22(e)(7)(i) under the Exchange Act, discussed
below); (ii) availability of liquidity via NSCC’s other
liquidity resources (see Liquidity Filings, supra
note 12 and see Rule 4A (sic), Rules, supra note 3);
and (iii) the average size of the commitments for
NSCC in past Credit Facilities, which have ranged
from a low of $6.18 billion in 2011, to a high of
$13.47 billion in 2014, both of which predated
NSCC’s commercial paper and term-debt offerings
(see Liquidity Filings, supra note 12), as well as the
long-term establishment of NSCC’s SLD
requirement (Rule 4A (sic), Rules, supra note 3),
which currently covers monthly options expiry
periods but has been proposed to cover all business
days (see Securities Exchange Act Release No.
91347 (March 18, 2021), 86 FR 15750 (March 24,
2021) (SR–NSCC–2021–801)). More recently,
NSCC’s Credit Facility commitment amounts have
been $12.05 (2018), $12.05 (2019), and $10.90
billion (2020).
19 Potential lenders to the Credit Facility are
analyzed to determine whether the potential lender
has an acceptable credit risk profile. Criteria
assessed can include long-term credit ratings, credit
default swap spreads, sovereign ratings (i.e., the
rating of the country of the ultimate parent), as
applicable, and any other factors that may suggest
a stronger or weaker credit risk profile, as
necessary.
20 ‘‘Collateral haircuts’’ with respect to the
collateral for any borrowing under the Credit
Facility refers to the schedule of percentages of
market value, by type of collateral, determining the
collateral value of that type of collateral, for
purposes of securing a borrowing under the Credit
Facility.
21 ‘‘Events of default’’ under the Credit Facility
refers to those events or conditions which trigger or
constitute a default of the borrowers under the
agreement (e.g., a breach of terms or conditions or
a failure to perform an obligation).
18 NSCC
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changes are immaterial to NSCC as a
borrower and do not impair NSCC’s
ability to borrow under the Credit
Facility. NSCC would not consider such
changes as materially altering the terms
and conditions of the Credit Facility.
So long as NSCC does not make
changes to the terms described in items
(a) and (b) above in any Future Renewal,
and so long as any Future Renewal
adheres to the conditions described in
items (1) through (4) above (together
with items (a) and (b) above, ‘‘Proposed
Evergreen Provisions’’), NSCC would
consider such Future Renewal as being
on substantially the same terms and
conditions as the Current Renewal, such
that NSCC proposes that it would not
need to file an advance notice pursuant
to Section 806(e)(1) of the Clearing
Supervision Act 22 and Rule 19b–
4(n)(1)(i) under the Exchange Act.23
Except for the specific dollar amounts
described above, the Proposed
Evergreen Provisions are the same as the
Evergreen Provisions applicable to
NSCC in the 2017 Filing.24
In the event that NSCC would have a
Future Renewal that would not satisfy
the Proposed Evergreen Provisions and,
thus, would not be on terms and
conditions that are substantially similar
to the Current Renewal, such renewal
would be subject to an advance notice
filing by NSCC.
Expected Effect on Risks to the Clearing
Agency, Its Participants and the Market
The Renewal Agreement and its
substantially similar predecessor
agreements have been in place since the
introduction of same day funds
settlement at NSCC. The Current
Renewal and Future Renewals subject to
the Proposed Evergreen Provisions
(‘‘Evergreen Renewals’’) would continue
to promote the reduction of liquidity
risk to NSCC, its Members, and the
securities market in general because
they would help NSCC maintain
sufficient liquidity resources to timely
meet its settlement obligations with a
high degree of confidence.
Management of Identified Risks
NSCC requires same day liquidity
resources to cover the failure-to-settle of
its Member, or affiliated family of
Members, with the largest aggregate
liquidity exposure. If a Member defaults
on its end-of-day net settlement
obligation, NSCC may borrow under the
Credit Facility to enable it, if necessary,
to fund settlement among nondefaulting Members, including
22 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
24 See 2017 Filing, supra note 7.
23 17
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settlement of guaranteed trades due to
settle. Any borrowing would be secured
principally by (i) securities deposited by
Members in NSCC’s Clearing Fund 25
(i.e., the Eligible Clearing Fund
Securities, as defined in the Rules,
pledged by Members to NSCC in lieu of
cash Clearing Fund deposits) and (ii)
securities cleared through NSCC’s
Continuous Net Settlement System that
were intended for delivery to the
defaulting Member upon payment of its
net settlement obligation.
In addition to the Credit Facility and
the Clearing Fund, NSCC has diversified
its liquidity resources through the
issuance of commercial paper and
extendable notes, as well as certain term
debt, as noted above.26 Each of these
liquidity resources are an integral part
of NSCC’s risk management structure, as
they help provide NSCC with liquidity
to complete end-of-day net funds
settlement.
Because the Renewal Agreement
would preserve substantially similar
terms and conditions to the Existing
Agreement, and Evergreen Renewals
would preserve substantially similar
terms and conditions to the Renewal
Agreement, NSCC believes that the
Current Renewal and Evergreen
Renewals would not otherwise affect or
alter the management of risk at NSCC.
Consistency With the Clearing
Supervision Act
The objectives and principles of
Section 805(b) of the Clearing
Supervision Act are to promote of
robust risk management, promote safety
and soundness, reduce systemic risks,
and support the stability of the broader
financial system.27 As discussed below,
NSCC believes that the changes
proposed in this advance notice are
consistent with those objectives and
principles.
Promoting Robust Risk Management.
NSCC believes that the changes
proposed in this advance notice are
consistent with promoting robust risk
management, particularly management
of liquidity risk presented to NSCC.
Renewing and maintaining the Credit
Facility in the manner proposed would
preserve the diversity of liquidity
resources available to NSCC to help
resolve a Member default. Additionally,
allowing Evergreen Renewals without
25 NSCC’s Clearing Fund (which operates as its
default fund) addresses potential exposure through
a number of risk-based component charges
calculated and assessed daily and includes
additional liquidity deposits by certain Members
pursuant to NSCC’s Supplemental Liquidity
Deposits rule. Rule 4(A), Rules, supra note 3.
26 See Liquidity Filings, supra note 12.
27 12 U.S.C. 5464(b).
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an additional advance notice would
provide NSCC, its Members, and market
participants with greater certainty
regarding a key source of committed
liquidity to meet NSCC’s settlement
obligations, thus mitigating NSCC’s
liquidity risk. Further, because the
Proposed Evergreen Provisions would
ensure that any Future Renewal would
be substantially similar to the Current
Renewal, NSCC believes that any such
renewals would promote robust risk
management by preserving the diversity
in liquidity resources available to NSCC
to help resolve a Member default in the
same manner as the Current Renewal.
As such, NSCC believes the proposed
changes would promote robust risk
management practices at NSCC,
consistent with Section 805(b) of the
Clearing Supervision Act.
Promoting Safety and Soundness.
NSCC believes that the changes
proposed in this advance notice are
consistent with promoting safety and
soundness. As described above, the
Current Renewal would enable NSCC to
maintain an additional liquidity
resource in the event of a Member
default. That resource promotes safety
and soundness for Members and market
participants because it would provide
NSCC with readily available liquidity to
help NSCC continue to meet its
respective obligations in a timely
fashion in the event of a Member
default, thereby helping to contain
losses and liquidity pressures from that
default. Because the Proposed Evergreen
Provisions would ensure that any
Future Renewals would be substantially
similar to the Current Renewal, even
without NSCC filing an advance notice,
such renewals also would promote
safety and soundness for the same
reasons. As such, NSCC believes the
proposed changes would promote safety
and soundness, consistent with Section
805(b) of the Clearing Supervision Act.
Reducing Systemic Risks and
Supporting the Stability of the Broader
Financial System. NSCC also believes
that the proposed changes in this
advance notice are consistent with
reducing systemic risks and supporting
the stability of the broader financial
system. As mentioned above, allowing
NSCC to enter the Current Renewal
would enable NSCC, which has been
designated a systemically important
financial market utility,28 to continue to
maintain an additional liquidity
resource that NSCC may access to help
28 The Financial Stability Oversight Council
designated NSCC a systemically important financial
market utility on July 18, 2012. See Financial
Stability Oversight Council 2012 Annual Report,
Appendix A, https://www.treasury.gov/initiatives/
fsoc/Documents/2012%20Annual%20Report.pdf.
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manage a Member default. In addition,
because the Proposed Evergreen
Provisions would ensure that any
Future Renewals entered into without
filing an advance notice would be on
substantially similar terms as the
Current Renewal, such renewals also
would enable NSCC to continue to
maintain an additional liquidity to help
manage a Member default. Moreover,
allowing Evergreen Renewals would
reduce the risk of gaps in availability of
this liquidity resource, providing
increased certainty and stability for
NSCC, its Members, and market
participants regarding the availability of
this liquidity risk management resource
on an ongoing basis. Accordingly, NSCC
believes that the proposed changes
would help reduce systemic risk at
NSCC, which in turn helps support the
stability of the broader financial system,
consistent with Section 805(b) of the
Clearing Supervision Act.
NSCC also believes that the changes
proposed in this advance notice are
consistent with the requirements of Rule
17Ad–22(e)(7)(i) and (ii) under the
Exchange Act.29
Rule 17Ad–22(e)(7)(i) requires a
covered clearing agency, of which NSCC
is one,30 to ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [e]ffectively measure, monitor, and
manage liquidity risk that arises in or is
borne by the covered clearing agency,
including measuring, monitoring, and
managing its settlement and funding
flows on an ongoing and timely basis,
and its use of intraday liquidity by, at
a minimum . . . [m]aintaining sufficient
liquid resources at the minimum in all
relevant currencies to effect same-day
. . . settlement of payment obligations
with a high degree of confidence under
a wide range of foreseeable stress
scenarios that includes, but is not
limited to, the default of the participant
family that would generate the largest
aggregate payment of obligation for the
covered clearing agency in extreme but
plausible conditions.’’ 31
As described above, the Current
Renewal would continue to provide
NSCC with a readily available liquidity
resource, enabling NSCC to continue to
meet its respective obligations in a
timely fashion in the event of a Member
default, thereby helping to contain
losses and liquidity pressures from that
default. Additionally, because the
Proposed Evergreen Provisions would
29 17
CFR 240.17Ad–22(e)(7)(i) and (ii).
is a ‘‘covered clearing agency’’ as defined
by Rule 17Ad–22(a)(5) under the Exchange Act. 17
CFR 240.17Ad–22(a)(5).
31 17 CFR 240.17Ad–22(e)(7)(i).
30 NSCC
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ensure that any Future Renewals would
be substantially similar to the Current
Renewal, such renewals also would
provide NSCC with a readily available
liquidity resource that would enable it
to continue to meet its respective
obligations in a timely fashion in the
event of a Member default, thereby
helping to contain losses and liquidity
pressures from that default. Moreover,
allowing NSCC to enter into Evergreen
Renewals without filing an additional
advance notice would reduce the risk of
gaps in liquidity coverage and better
enable NSCC to continually maintain
sufficient liquidity resources. Therefore,
the NSCC believes that the proposed
changes in this advance notice are
consistent with Rule 17Ad–22(e)(7)(i).
Rule 17Ad–22(e)(7)(ii) under the
Exchange Act requires NSCC to
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [e]ffectively
measure, monitor, and manage liquidity
risk that arises in or is borne by the
covered clearing agency, including
measuring, monitoring, and managing
its settlement and funding flows on an
ongoing and timely basis, and its use of
intraday liquidity by, at a minimum
. . . [h]olding qualifying liquid
resources sufficient to meet the
minimum liquidity resource
requirement under [Rule 17Ad–
22(e)(7)(i) described above] in each
relevant currency for which the covered
clearing agency has payment obligations
owed to clearing members.’’ 32 Rule
17Ad–22(a)(14) under the Exchange Act
defines ‘‘qualifying liquid resources’’ to
include, among other things, lines of
credit without material adverse change
provisions, that are readily available
and convertible into cash.33
As described above, the Current
Renewal would permit NSCC to enter
into a committed line of credit that is
designed to help ensure that NSCC has
sufficient, readily-available qualifying
liquid resources to meet the cash
settlement obligations of its largest
family of affiliated Members. Similarly,
because the Proposed Evergreen
Provisions would ensure that any
Future Renewals would be substantially
similar to the Current Renewal, such
renewals also would permit NSCC to
enter into a committed line of credit that
is designed to help ensure that NSCC
has sufficient, readily-available
qualifying liquid resources to meet the
cash settlement obligations of its largest
family of affiliated Members.
Accordingly, NSCC believes that the
changes proposed in this advance notice
32 17
33 17
CFR 240.17Ad–22(e)(7)(ii).
CFR 240.17Ad–22(a)(14).
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23:06 May 04, 2021
are consistent with Rule 17Ad–
22(e)(7)(ii).
Accelerated Commission Action
Requested
Because the Term Sheet was not
finalized until approximately six weeks
prior to the expected effective date of
the Current Renewal (which is standard
practice), NSCC respectfully requests, as
it has done previously,34 that the
Commission, pursuant to Section
806(e)(1)(I) of the Clearing Supervision
Act,35 notify NSCC that it has no
objection to the proposed changes in
this advance notice no later than April
26, 2021, which is five business days
prior to the May 4, 2021 effective date
of the Current Renewal. NSCC requests
Commission action five business days in
advance of the effective date in order to
ensure that there is no period of time
that NSCC operates without this
essential liquidity resource, given its
importance to NSCC risk management
and protecting NSCC settlement.
III. Date of Effectiveness of the Advance
Notice, and Timing for Commission
Action
The proposed change may be
implemented if the Commission does
not object to the proposed change
within 60 days of the later of (i) the date
that the proposed change was filed with
the Commission or (ii) the date that any
additional information requested by the
Commission is received. The clearing
agency shall not implement the
proposed change if the Commission has
any objection to the proposed change.
The Commission may extend the
period for review by an additional 60
days if the proposed change raises novel
or complex issues, subject to the
Commission providing the clearing
agency with prompt written notice of
the extension. A proposed change may
be implemented in less than 60 days
from the date the advance notice is
filed, or the date further information
requested by the Commission is
received, if the Commission notifies the
clearing agency in writing that it does
not object to the proposed change and
authorizes the clearing agency to
implement the proposed change on an
earlier date, subject to any conditions
imposed by the Commission.
The clearing agency shall post notice
on its website of proposed changes that
are implemented.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
34 See
35 12
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supra note 6.
U.S.C. 5465(e)(1)(I).
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arguments concerning the foregoing,
including whether the Advance Notice
is consistent with the Clearing
Supervision Act. Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2021–802 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–NSCC–2021–802. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the Advance Notice that
are filed with the Commission, and all
written communications relating to the
Advance Notice between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of NSCC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2021–802 and should be submitted on
or before May 26, 2021.
V. Commission Findings and Notice of
No Objection
Although the Clearing Supervision
Act does not specify a standard of
review for an advance notice, its stated
purpose is instructive: to mitigate
systemic risk in the financial system
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and promote financial stability by,
among other things, promoting uniform
risk management standards for
systemically important financial market
utilities and strengthening the liquidity
of systemically important financial
market utilities.36 Section 805(a)(2) of
the Clearing Supervision Act 37
authorizes the Commission to prescribe
risk management standards for the
payment, clearing, and settlement
activities of designated clearing entities
and financial institutions engaged in
designated activities for which it is the
supervisory agency or the appropriate
financial regulator. Section 805(b) of the
Clearing Supervision Act 38 states that
the objectives and principles for the risk
management standards prescribed under
Section 805(a) shall be to:
• Promote robust risk management;
• promote safety and soundness;
• reduce systemic risks; and
• support the stability of the broader
financial system.39
The Commission has adopted risk
management standards under Section
805(a)(2) of the Act 40 and Section 17A
of the Act (‘‘Rule 17Ad–22’’).41 The Rule
17Ad–22 requires registered clearing
agencies to establish, implement,
maintain, and enforce written policies
and procedures that are reasonably
designed to meet certain minimum
requirements for their operations and
risk management practices on an
ongoing basis.42 Therefore, it is
appropriate for the Commission to
review changes proposed in advance
notices against Rule 17Ad–22 and the
objectives and principles of these risk
management standards as described in
Section 805(b) of the Clearing
Supervision Act.43 The Commission
believes the proposal in the Advance
Notice is consistent with the objectives
and principles described in Section
805(b) of the Act,44 and in Rule17Ad–
22, in particular, Rule 17Ad–22(e)(7)
under the Act.45
A. Consistency With Section 805(b) of
the Clearing Supervision Act
As discussed below, the Commission
believes that the changes proposed in
the Advance Notice are consistent with
Section 805(b) of the Act because they
(i) promote robust risk management; (ii)
are consistent with promoting safety
36 12
U.S.C. 5461(b).
U.S.C. 5464(a)(2).
38 12 U.S.C. 5464(b).
39 Id.
40 12 U.S.C. 5464(a)(2).
41 See 17 CFR 240.17Ad–22.
42 Id.
43 12 U.S.C. 5464(b).
44 Id.
45 17 CFR 240.17Ad–22(e)(7).
37 12
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23:06 May 04, 2021
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and soundness; and (iii) are consistent
with reducing systemic risks and
promoting the stability of the broader
financial system.
The Commission believes that the
changes proposed in the Advance
Notice are consistent with promoting
robust risk management, in particular
management of liquidity risk presented
by NSCC. Renewing the Credit Facility
would allow NSCC to continue to
maintain it as a liquidity resource that
it may use to resolve a member default.
NSCC proposes to renew the Credit
Facility at a $10.1 billion aggregate
commitment, which is an amount less
than the $12.1 billion aggregate
commitment amount authorized in
2017, and outside the range that the
Commission approved in the 2017
Notice of No Objection. However, NSCC
has diversified and expanded its
liquidity resources since 2017.
Specifically, NSCC has expanded the
amount that is available through its
commercial paper program to $10
billion, and it has obtained
authorization to issue certain term
debt.46 Therefore, the proceeds of these
issuances are available to NSCC as an
additional, and increased, amount of
default liquidity resources that were not
available in 2017.47 In addition, NSCC
continues to have access to its Clearing
Fund, including any supplemental
liquidity deposits thereto, as an
additional liquidity resource.48
Therefore, the Commission believes that
the current renewal of the Credit
Facility would be consistent with robust
risk management by allowing NSCC to
continue to manage the liquidity risk
presented to it.49
46 See
Liquidity Filings, supra note 12.
a result of these additional and increased
liquidity resources, the Credit Facility has generally
represented a smaller portion of NSCC’s total liquid
resources since 2017, while still continuing to help
ensure that NSCC meets its regulatory liquidity risk
management obligations, as discussed in Section
III.B.2 below.
48 NSCC has the ability to collect supplemental
liquidity deposits from certain of its members
whose activity presents particular liquidity needs
for NSCC. See generally Rule 4(A) of NSCC’s Rules,
supra note 3 (as approved by the Commission in
2013, https://www.sec.gov/rules/sro/nscc/2013/3470999.pdf). These deposits serve as another
liquidity resource that NSCC may use in the event
of a member default. Currently, NSCC’s rules allow
for the collection of such deposits only in
connection with monthly options expiry periods.
49 NSCC seeks the authority to renew the Credit
Facility at an aggregate commitment amount of no
more than $10.1 billion, meaning that NSCC
potentially could renew the Credit Facility at some
amount less than $10.1 billion consistent with the
proposed authority, in light of market conditions at
the time of the renewal and NSCC’s assessment of
its liquidity needs. Regardless of the amount of the
Credit Facility into which NSCC ultimately enters,
NSCC remains subject to the same regulatory
requirements with respect to its liquidity risk, as
47 As
PO 00000
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Fmt 4703
Sfmt 4703
24071
Moreover, allowing NSCC annually to
renew the Credit Facility under certain
specified circumstances without an
additional advance notice, subject to the
proposed Evergreen Provisions, would
provide NSCC and market participants
with greater certainty regarding a
continuing source of committed
liquidity to meet its settlement
obligations and thus mitigate NSCC’
liquidity risk. Further, because the
proposed Evergreen Provisions would
continue to ensure that any such annual
renewals would be substantially similar
to the currently proposed Credit
Facility, the Commission believes that
any such renewals would promote
robust risk management by continuing
to available liquidity resources that
NSCC may use to resolve a member
default in the same manner as the
currently proposed Credit Facility. As
such, the Commission believes that the
proposal would promote robust risk
management practices at NSCC,
consistent with Section 805(b) of the
Act.50
The Commission also believes that the
changes proposed in the Advance
Notice are consistent with promoting
safety and soundness. As described
above, the currently proposed Credit
Facility would continue to provide
NSCC with a key liquidity resource in
the event of a member default. This
liquidity would promote safety and
soundness for members because it
would provide NSCC with a readily
available liquidity resource that would
enable it to continue to meet its
respective obligations in a timely
fashion in the event of a member
default, thereby helping to contain
losses and liquidity pressures from that
default. Because the Proposed Evergreen
Provisions would ensure that any
annual renewals implemented without
filing an advance notice would be
substantially similar to the currently
proposed Credit Facility, any such
annual renewals would promote safety
and soundness for the same reasons. As
such, the Commission believes it is
consistent with promoting safety and
soundness as contemplated in Section
805(b) of the Act.51
In addition, the Commission believes
that the changes proposed in the
Advance Notice are consistent with
reducing systemic risks and promoting
the stability of the broader financial
system. As mentioned above, allowing
NSCC to enter into the currently
discussed in Section V.B. below, and would have
to meet those requirements using some other
combination of available resources.
50 12 U.S.C. 5464(b).
51 Id.
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
proposed Credit Facility would enable
NSCC, which has been designated a
systemically important financial market
utility,52 to continue to maintain an
additional liquidity resource that NSCC
may access to help manage a member
default. In addition, because the
proposed Evergreen Provisions would
ensure that any annual renewals entered
into without filing an advance notice
would be on substantially similar terms
to the currently proposed Credit
Facility, such future renewals also
would enable NSCC to maintain an
additional liquidity resource that NSCC
may access to help manage a member
default. Moreover, allowing the annual
renewal of the Credit Facility under the
proposed Evergreen Provisions without
filing an additional advance notice
would reduce the risk of disruption in
availability of this liquidity resource.
Further, allowing renewal without an
advance notice in these specific
circumstances would also provide
heightened certainty and stability for
NSCC and market participants regarding
the availability of this liquidity resource
on an ongoing basis. Accordingly, the
Commission believes that the proposal
would help reduce the systemic risk of
NSCC, which in turn would help
support the stability of the broader
financial system, consistent with
Section 805(b) of the Act.53
B. Consistency With Rule 17Ad–
22(e)(7)(i) and (ii)
The Commission believes the changes
proposed in the Advance Notice are
consistent with Rules 17Ad–22(e)(7)(i)
and (ii), each promulgated under the
Exchange Act,54 for the reasons
described below.
Rule 17Ad–22(e)(7)(i) under the
Exchange Act requires that a covered
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
maintain sufficient liquid resources at
the minimum in all relevant currencies
to effect same-day and, where
appropriate, intraday and multiday
settlement of payment obligations with
a high degree of confidence under a
wide range of foreseeable stress
scenarios that includes, but is not
limited to, the default of the participant
family that would generate the largest
aggregate payment obligation for the
covered clearing agency in extreme but
plausible market conditions.55 Rule
17Ad–22(e)(7)(ii) under the Act requires
that a cover clearing agency establish,
52 See
supra note 28.
U.S.C. 5464(b).
54 17 CFR 240.17Ad–22(e)(7)(i) and (ii).
55 17 CFR 240.17Ad–22(e)(7)(i).
53 12
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23:06 May 04, 2021
Jkt 253001
implement, maintain and enforce
written policies and procedures
reasonably designed to hold qualifying
liquid resources sufficient to meet the
minimum liquidity resource
requirement under Rule 17Ad–
22(e)(7)(i) in each relevant currency for
which the covered clearing agency has
payment obligations owed to its clearing
members.56
As described above, the currently
proposed Credit Facility renewal would
provide NSCC with a readily available
liquidity resource that would enable
NSCC to continue to meet its obligations
in a timely fashion in the event of a
member default, thereby helping to
contain losses and liquidity pressures
from that default. Additionally, because
the proposed Evergreen Provisions
would ensure that any annual renewals
would be substantially similar to the
currently proposed Credit Facility, such
future renewals would also continue to
provide NSCC with a readily available
liquidity resource that would enable it
to continue to meet its respective
obligations in a timely fashion in the
event of a member default, thereby
helping to contain losses and liquidity
pressures from that default. Moreover,
allowing NSCC annually to renew the
Credit Facility pursuant to the proposed
Evergreen Provisions without filing an
additional advance notice would reduce
the risk of gaps in liquidity coverage
and better allow NSCC to continually
maintain sufficient liquidity resources.
In addition, the currently proposed
renewal of the Credit Facility would
permit NSCC to maintain a single Credit
Facility designed to help ensure that
NSCC has sufficient, readily-available
qualifying liquid resources to meet the
cash settlement obligations of its largest
family of affiliated members. Similarly,
because the proposed Evergreen
Provisions would ensure that any
annual renewals would be substantially
similar to the currently proposed
renewal of the Credit Facility, such
renewals also would permit NSCC to
maintain a single Credit Facility
designed to help ensure that NSCC has
sufficient, readily-available qualifying
liquid resources to meet the cash
settlement obligations of their largest
family of affiliated members. Therefore,
the Commission believes that NSCC’s
proposal would support its ability to
hold qualifying liquid resources
sufficient to meet the minimum
liquidity resource requirement under
Rule 17Ad–22(e)(7)(i),57 as required by
Rule 17Ad–22(e)(7)(ii).58
Accordingly, the Commission believes
that the current renewal would be
consistent with Rule 17Ad–22(e)(7)(i)
and (ii) under the Exchange Act.59
VI. Conclusion
It is therefore noticed, pursuant to
Section 806(e)(1)(I) of the Clearing
Supervision Act,60 that the Commission
does not object to Advance Notice SR–
NSCC–2021–802 and that NSCC be and
hereby is authorized to implement the
change as of the date of this notice.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09428 Filed 5–4–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91702; File No. SR–
EMERALD–2021–15]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Interpretation
and Policy .13 (Temporary Extension
of the Limited Period for Registered
Persons To Function as Principals) to
Exchange Rule 1900, Registration
Requirements, To Extend the
Expiration Date of the Temporary
Amendment Set Forth in SR–
EMERALD–2020–21 From April 30,
2021 to June 30, 2021
April 29, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on April 21, 2021, MIAX Emerald, LLC
(‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been substantially prepared by the
self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
57 17
56 17
CFR 240.17Ad–22(e)(7)(ii). For purposes of
Rule 17Ad–22(e)(7)(ii), ‘‘qualifying liquid
resources’’ are defined in Rule 17Ad–22(a)(14) as
including, in part, cash held either at the central
bank of issue or at creditworthy commercial banks.
17 CFR 240.17Ad–22(a)(14).
PO 00000
Frm 00159
Fmt 4703
Sfmt 4703
CFR 240.17Ad–22(e)(7)(i).
CFR 240.17Ad–22(e)(7)(ii).
59 17 CFR 240.17Ad–22(e)(7).
60 12 U.S.C. 5465(e)(1)(I).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
58 17
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]]>Agencies
[Federal Register Volume 86, Number 85 (Wednesday, May 5, 2021)]
[Notices]
[Pages 24067-24072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09428]
[[Page 24067]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91720; File No. SR-NSCC-2021-802]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of and No Objection to Advance Notice
Regarding the Renewal of a 364-Day Committed Revolving Line-of-Credit
and Future Annual Renewals
April 29, 2021.
Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010 (``Clearing
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on April
8, 2021, National Securities Clearing Corporation (``NSCC'') filed with
the Securities and Exchange Commission (``Commission'') the advance
notice SR-NSCC-2021-802. The advance notice (hereinafter, the ``Advance
Notice'') is described in Items I, II and III below, which Items have
been prepared by the clearing agency. The Commission is publishing this
notice to solicit comments on the Advance Notice from interested
persons and providing notice that the Commission does not object to the
Advance Notice.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
NSCC is filing this advance notice in order to (1) renew its 364-
day committed revolving line-of-credit with a syndicate of commercial
lenders (``Credit Facility''), as described below (hereinafter,
``Current Renewal''), and (2) enter into future annual renewals of the
Credit Facility on substantially similar terms and conditions as the
Current Renewal without needing to file an advance notice, also
described below (hereinafter, ``Future Renewals'').\3\
---------------------------------------------------------------------------
\3\ Terms not defined herein are defined in the Rules and
Procedures of NSCC (``Rules''), https://www.dtcc.com/~/media/Files/
Downloads/legal/rules/nscc_rules.pdf.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the Advance Notice
and discussed any comments it received on the Advance Notice. The text
of these statements may be examined at the places specified in Item IV
below. The clearing agency has prepared summaries, set forth in
sections A and B below, of the most significant aspects of such
statements.
(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants, or Others
NSCC has not solicited or received any written comments to this
advance notice. NSCC will notify the Commission of any written comments
are received by NSCC.
(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing
Supervision Act
Description of the Proposal
NSCC is filing this advance notice in order to enter into (1) the
Current Renewal and (2) Future Renewals, as described below.
Background. NSCC and DTC maintain the Credit Facility as part of
their liquidity risk management regime. The Credit Facility provides
for both NSCC and DTC as borrowers, with an aggregate commitment of
$1.9 billion for DTC and the amount of any excess aggregate commitment
for NSCC. As borrowers, NSCC and DTC are not jointly and severally
liable, and each lender to the Credit Facility has a ratable commitment
to each borrower. NSCC and DTC have separate collateral to secure their
separate borrowings.
The Credit Facility is renewed annually, and from 2013 through
2017, NSCC and DTC each filed an advance notice each year with the
Commission, pursuant to Section 806(e)(1) of the Clearing Supervision
Act \4\ and Rule 19b-4(n)(1)(i) under the Exchange Act \5\ as part of
that renewal process.\6\
---------------------------------------------------------------------------
\4\ 12 U.S.C. 5465(e)(1).
\5\ 17 CFR 240.19b-4(n)(1)(i).
\6\ Securities Exchange Act Release Nos. 69557 (May 10, 2013),
78 FR 28936 (May 16, 2013) (SR-NSCC-2013-803); 72131 (May 8, 2014),
79 FR 27654 (May 14, 2014) (SR-NSCC-2014-805); 74906 (May 7, 2015),
80 FR 27714 (May 14, 2015) (SR-NSCC-2015-801); 77750 (April 29,
2016), 81 FR 27181 (May 5, 2016) (SR-NSCC-2016-801); 80605 (May 5,
2017), 82 FR 21850 (May 10, 2017) (SR-NSCC-2017-802).
---------------------------------------------------------------------------
In 2017, NSCC and DTC proposed and the Commission did not object to
allowing NSCC and DTC to renew the Credit Facility, subject to specific
conditions (``Evergreen Provisions''), without filing advance notices
with the Commission.\7\ The Commission found that because the Evergreen
Provisions would ensure that future annual renewals of the Credit
Facility would be on substantially similar terms and conditions as the
2017 Credit Facility, to which the Commission did not object,
associated advance notice filings would not be necessary.\8\ However,
in the event that an annual renewal of the Credit Facility would not
satisfy the Evergreen Provisions, such renewal would be subject to an
advance notice filing.
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 80605 (May 5, 2017), 82
FR 21850 (May 10, 2017) (SR-NSCC-2017-802) (``2017 Filing'').
\8\ Id.
---------------------------------------------------------------------------
Some of the Evergreen Provisions are specific to NSCC, some to DTC,
and some to both.\9\ One of the NSCC specific Evergreen Provisions is
that NSCC would not seek or accept for its portion of the Credit
Facility an aggregate commitment amount 15 percent below the amount
NSCC sought in 2017.\10\ In 2017, NSCC sought an aggregate commitment
amount of $12.1 billion for its portion of the Credit Facility, which
established a 15 percent threshold amount of no less than $10.285
billion.\11\ Because NSCC now seeks an aggregate commitment amount of
no more than $10.1 billion for its portion of the Credit Facility,
which is below that 15 percent threshold, it is filing this advance
notice with the Commission.\12\ DTC need not file an advance notice for
its renewal of the Credit Facility because DTC would continue to comply
with the Evergreen Provisions applicable to it.\13\ The only Evergreen
Provision to which the Current Renewal would not satisfy is the 15
percent minimum threshold amount applicable to NSCC.
---------------------------------------------------------------------------
\9\ See id.
\10\ Id.
\11\ Id.
\12\ NSCC is seeking a reduced commitment amount for a variety
of reasons, including but not limited to NSCC's ability to obtain
additional liquidity from the issuance of commercial paper and
extendable notes (see Securities Exchange Act Release Nos. 75730
(August 19, 2015), 80 FR 51638 (August 25, 2015) (SR-NSCC-2015-802);
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (SR-NSCC-
2017-807)), as well as certain term debt (see Securities Exchange
Act Release No. 88146 (February 7, 2020), 85 FR 8046 (February 12,
2020) (SR-NSCC-2019-802)) (``Liquidity Filings'').
\13\ See 2017 Filing, supra note 7.
---------------------------------------------------------------------------
Current Renewal. The terms and conditions of the Current Renewal
would be specified in the Revolving Credit Agreement, to be dated as of
May 4, 2021, among DTC, NSCC, the lenders party thereto, the primary
administrative and collateral agent, and the backup administrative and
collateral agent (``Renewal Agreement''). Such terms and conditions
would be substantially the same as the terms and conditions of the
existing credit agreement, dated as of May 5, 2020 (``Existing
Agreement''), except that
[[Page 24068]]
pricing \14\ and the aggregate commitment amount for NSCC, as discussed
above, is expected to change. The substantive terms of the Renewal
Agreement are set forth in the Summary of Indicative Principal Terms
and Conditions, dated March 22, 2021 (``Term Sheet''), which is not a
public document but has been included as a confidential Exhibit 3 to
this filing.
---------------------------------------------------------------------------
\14\ ``Pricing'' of the Credit Facility refers to the charges
and fees owed by the borrowers (i.e., NSCC and DTC) to the agents
and lenders thereto with respect to the services performed by the
agents, the commitment to lend, and the rate of interest applicable
to any borrowing under the Credit Facility, among other such
matters.
---------------------------------------------------------------------------
For the Current Renewal, NSCC and DTC are seeking an aggregate
commitment amount of no more than $12 billion for the entire Credit
Facility, of which $1.9 billion would be committed to DTC as borrower
and any remainder to NSCC as borrower, as provided in the Existing
Agreement. Although NSCC and DTC are seeking an aggregate commitment
amount of no more than $12 billion, the actual, final amount will
depend on a number of factors, including the total commitment amount
received from lenders (i.e., it is possible that the total aggregate
commitments received is less than the $12 billion sought); projected
market volatility over the Credit Facility's 364-day period (``Facility
Period''); potential business initiatives over the Facility Period;
projected availability of NSCC's other liquidity resources (i.e.,
liquidity available via NSCC's commercial paper, extendable notes, term
debt,\15\ Clearing Fund, and Supplemental Liquidity Deposit (``SLD'')
requirement \16\) over the Facility Period; and NSCC and DTC's long-
term liquidity strategy.
---------------------------------------------------------------------------
\15\ See Liquidity Filings, supra note 12.
\16\ Rule 4A (sic), Rules, supra note 3.
---------------------------------------------------------------------------
NSCC and DTC would continue not to be jointly and severally liable
and each lender would have a ratable commitment to each borrower. DTC
and NSCC would continue to provide separate collateral to secure their
respective borrowings.
Future Renewals. NSCC expects to continue to renew the Credit
Facility annually on substantially similar terms and conditions as the
Current Renewal. The terms and conditions of all Future Renewals would
be specified in subsequent credit agreements among DTC, NSCC, the
lenders party thereto, and the agents.
As has been standard practice for the Credit Facility renewals, in
connection with all Future Renewals, changes would not be made to (a)
the financial institution acting as the primary administrative agent;
or (b) the commitment period, which would continue to be 364 days.
However, as was established with the 2017 Filing,\17\ in connection
with all Future Renewals, changes may be made to (1) the aggregate
commitment amount being sought for NSCC, so long as such amount does
not vary more than 15 percent above or below the aggregate commitment
amount being sought by NSCC under the Current Renewal (i.e., $10.1
billion), which equates to an amount of no more than $11.615 billion
and no less than $8.585 billion; \18\ (2) the syndicate, so long as all
lenders party to Future Renewals are subject to the same credit review
as those lenders party to the Current Renewal; \19\ (3) pricing and
collateral haircuts,\20\ so long as such terms are consistent with the
then current market practice; or (4) representations, warranties,
covenants, terms of events of default,\21\ and other agreement
provisions, so long as any changes are immaterial to NSCC as a borrower
and do not impair NSCC's ability to borrow under the Credit Facility.
NSCC would not consider such changes as materially altering the terms
and conditions of the Credit Facility.
---------------------------------------------------------------------------
\17\ Supra note 7.
\18\ NSCC continues to believe that a difference of no more than
15 percent, either above or below the aggregate commitment amount
being sought by NSCC under the Current Renewal, would not constitute
a material change in the nature or level of risk presented by NSCC
requiring an advance notice filing (see supra notes 1 and 2) because
(i) the standing requirement that NSCC maintain, in short,
sufficient liquidity to cover the default of the member family that
would generate the largest aggregate payment obligation, in extreme
but plausible market conditions (see Rule 17Ad-22(e)(7)(i) under the
Exchange Act, discussed below); (ii) availability of liquidity via
NSCC's other liquidity resources (see Liquidity Filings, supra note
12 and see Rule 4A (sic), Rules, supra note 3); and (iii) the
average size of the commitments for NSCC in past Credit Facilities,
which have ranged from a low of $6.18 billion in 2011, to a high of
$13.47 billion in 2014, both of which predated NSCC's commercial
paper and term-debt offerings (see Liquidity Filings, supra note
12), as well as the long-term establishment of NSCC's SLD
requirement (Rule 4A (sic), Rules, supra note 3), which currently
covers monthly options expiry periods but has been proposed to cover
all business days (see Securities Exchange Act Release No. 91347
(March 18, 2021), 86 FR 15750 (March 24, 2021) (SR-NSCC-2021-801)).
More recently, NSCC's Credit Facility commitment amounts have been
$12.05 (2018), $12.05 (2019), and $10.90 billion (2020).
\19\ Potential lenders to the Credit Facility are analyzed to
determine whether the potential lender has an acceptable credit risk
profile. Criteria assessed can include long-term credit ratings,
credit default swap spreads, sovereign ratings (i.e., the rating of
the country of the ultimate parent), as applicable, and any other
factors that may suggest a stronger or weaker credit risk profile,
as necessary.
\20\ ``Collateral haircuts'' with respect to the collateral for
any borrowing under the Credit Facility refers to the schedule of
percentages of market value, by type of collateral, determining the
collateral value of that type of collateral, for purposes of
securing a borrowing under the Credit Facility.
\21\ ``Events of default'' under the Credit Facility refers to
those events or conditions which trigger or constitute a default of
the borrowers under the agreement (e.g., a breach of terms or
conditions or a failure to perform an obligation).
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So long as NSCC does not make changes to the terms described in
items (a) and (b) above in any Future Renewal, and so long as any
Future Renewal adheres to the conditions described in items (1) through
(4) above (together with items (a) and (b) above, ``Proposed Evergreen
Provisions''), NSCC would consider such Future Renewal as being on
substantially the same terms and conditions as the Current Renewal,
such that NSCC proposes that it would not need to file an advance
notice pursuant to Section 806(e)(1) of the Clearing Supervision Act
\22\ and Rule 19b-4(n)(1)(i) under the Exchange Act.\23\ Except for the
specific dollar amounts described above, the Proposed Evergreen
Provisions are the same as the Evergreen Provisions applicable to NSCC
in the 2017 Filing.\24\
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\22\ 12 U.S.C. 5465(e)(1).
\23\ 17 CFR 240.19b-4(n)(1)(i).
\24\ See 2017 Filing, supra note 7.
---------------------------------------------------------------------------
In the event that NSCC would have a Future Renewal that would not
satisfy the Proposed Evergreen Provisions and, thus, would not be on
terms and conditions that are substantially similar to the Current
Renewal, such renewal would be subject to an advance notice filing by
NSCC.
Expected Effect on Risks to the Clearing Agency, Its Participants and
the Market
The Renewal Agreement and its substantially similar predecessor
agreements have been in place since the introduction of same day funds
settlement at NSCC. The Current Renewal and Future Renewals subject to
the Proposed Evergreen Provisions (``Evergreen Renewals'') would
continue to promote the reduction of liquidity risk to NSCC, its
Members, and the securities market in general because they would help
NSCC maintain sufficient liquidity resources to timely meet its
settlement obligations with a high degree of confidence.
Management of Identified Risks
NSCC requires same day liquidity resources to cover the failure-to-
settle of its Member, or affiliated family of Members, with the largest
aggregate liquidity exposure. If a Member defaults on its end-of-day
net settlement obligation, NSCC may borrow under the Credit Facility to
enable it, if necessary, to fund settlement among non-defaulting
Members, including
[[Page 24069]]
settlement of guaranteed trades due to settle. Any borrowing would be
secured principally by (i) securities deposited by Members in NSCC's
Clearing Fund \25\ (i.e., the Eligible Clearing Fund Securities, as
defined in the Rules, pledged by Members to NSCC in lieu of cash
Clearing Fund deposits) and (ii) securities cleared through NSCC's
Continuous Net Settlement System that were intended for delivery to the
defaulting Member upon payment of its net settlement obligation.
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\25\ NSCC's Clearing Fund (which operates as its default fund)
addresses potential exposure through a number of risk-based
component charges calculated and assessed daily and includes
additional liquidity deposits by certain Members pursuant to NSCC's
Supplemental Liquidity Deposits rule. Rule 4(A), Rules, supra note
3.
---------------------------------------------------------------------------
In addition to the Credit Facility and the Clearing Fund, NSCC has
diversified its liquidity resources through the issuance of commercial
paper and extendable notes, as well as certain term debt, as noted
above.\26\ Each of these liquidity resources are an integral part of
NSCC's risk management structure, as they help provide NSCC with
liquidity to complete end-of-day net funds settlement.
---------------------------------------------------------------------------
\26\ See Liquidity Filings, supra note 12.
---------------------------------------------------------------------------
Because the Renewal Agreement would preserve substantially similar
terms and conditions to the Existing Agreement, and Evergreen Renewals
would preserve substantially similar terms and conditions to the
Renewal Agreement, NSCC believes that the Current Renewal and Evergreen
Renewals would not otherwise affect or alter the management of risk at
NSCC.
Consistency With the Clearing Supervision Act
The objectives and principles of Section 805(b) of the Clearing
Supervision Act are to promote of robust risk management, promote
safety and soundness, reduce systemic risks, and support the stability
of the broader financial system.\27\ As discussed below, NSCC believes
that the changes proposed in this advance notice are consistent with
those objectives and principles.
---------------------------------------------------------------------------
\27\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
Promoting Robust Risk Management. NSCC believes that the changes
proposed in this advance notice are consistent with promoting robust
risk management, particularly management of liquidity risk presented to
NSCC. Renewing and maintaining the Credit Facility in the manner
proposed would preserve the diversity of liquidity resources available
to NSCC to help resolve a Member default. Additionally, allowing
Evergreen Renewals without an additional advance notice would provide
NSCC, its Members, and market participants with greater certainty
regarding a key source of committed liquidity to meet NSCC's settlement
obligations, thus mitigating NSCC's liquidity risk. Further, because
the Proposed Evergreen Provisions would ensure that any Future Renewal
would be substantially similar to the Current Renewal, NSCC believes
that any such renewals would promote robust risk management by
preserving the diversity in liquidity resources available to NSCC to
help resolve a Member default in the same manner as the Current
Renewal. As such, NSCC believes the proposed changes would promote
robust risk management practices at NSCC, consistent with Section
805(b) of the Clearing Supervision Act.
Promoting Safety and Soundness. NSCC believes that the changes
proposed in this advance notice are consistent with promoting safety
and soundness. As described above, the Current Renewal would enable
NSCC to maintain an additional liquidity resource in the event of a
Member default. That resource promotes safety and soundness for Members
and market participants because it would provide NSCC with readily
available liquidity to help NSCC continue to meet its respective
obligations in a timely fashion in the event of a Member default,
thereby helping to contain losses and liquidity pressures from that
default. Because the Proposed Evergreen Provisions would ensure that
any Future Renewals would be substantially similar to the Current
Renewal, even without NSCC filing an advance notice, such renewals also
would promote safety and soundness for the same reasons. As such, NSCC
believes the proposed changes would promote safety and soundness,
consistent with Section 805(b) of the Clearing Supervision Act.
Reducing Systemic Risks and Supporting the Stability of the Broader
Financial System. NSCC also believes that the proposed changes in this
advance notice are consistent with reducing systemic risks and
supporting the stability of the broader financial system. As mentioned
above, allowing NSCC to enter the Current Renewal would enable NSCC,
which has been designated a systemically important financial market
utility,\28\ to continue to maintain an additional liquidity resource
that NSCC may access to help manage a Member default. In addition,
because the Proposed Evergreen Provisions would ensure that any Future
Renewals entered into without filing an advance notice would be on
substantially similar terms as the Current Renewal, such renewals also
would enable NSCC to continue to maintain an additional liquidity to
help manage a Member default. Moreover, allowing Evergreen Renewals
would reduce the risk of gaps in availability of this liquidity
resource, providing increased certainty and stability for NSCC, its
Members, and market participants regarding the availability of this
liquidity risk management resource on an ongoing basis. Accordingly,
NSCC believes that the proposed changes would help reduce systemic risk
at NSCC, which in turn helps support the stability of the broader
financial system, consistent with Section 805(b) of the Clearing
Supervision Act.
---------------------------------------------------------------------------
\28\ The Financial Stability Oversight Council designated NSCC a
systemically important financial market utility on July 18, 2012.
See Financial Stability Oversight Council 2012 Annual Report,
Appendix A, https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
---------------------------------------------------------------------------
NSCC also believes that the changes proposed in this advance notice
are consistent with the requirements of Rule 17Ad-22(e)(7)(i) and (ii)
under the Exchange Act.\29\
---------------------------------------------------------------------------
\29\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(i) requires a covered clearing agency, of which
NSCC is one,\30\ to ``establish, implement, maintain and enforce
written policies and procedures reasonably designed to . . .
[e]ffectively measure, monitor, and manage liquidity risk that arises
in or is borne by the covered clearing agency, including measuring,
monitoring, and managing its settlement and funding flows on an ongoing
and timely basis, and its use of intraday liquidity by, at a minimum .
. . [m]aintaining sufficient liquid resources at the minimum in all
relevant currencies to effect same-day . . . settlement of payment
obligations with a high degree of confidence under a wide range of
foreseeable stress scenarios that includes, but is not limited to, the
default of the participant family that would generate the largest
aggregate payment of obligation for the covered clearing agency in
extreme but plausible conditions.'' \31\
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\30\ NSCC is a ``covered clearing agency'' as defined by Rule
17Ad-22(a)(5) under the Exchange Act. 17 CFR 240.17Ad-22(a)(5).
\31\ 17 CFR 240.17Ad-22(e)(7)(i).
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As described above, the Current Renewal would continue to provide
NSCC with a readily available liquidity resource, enabling NSCC to
continue to meet its respective obligations in a timely fashion in the
event of a Member default, thereby helping to contain losses and
liquidity pressures from that default. Additionally, because the
Proposed Evergreen Provisions would
[[Page 24070]]
ensure that any Future Renewals would be substantially similar to the
Current Renewal, such renewals also would provide NSCC with a readily
available liquidity resource that would enable it to continue to meet
its respective obligations in a timely fashion in the event of a Member
default, thereby helping to contain losses and liquidity pressures from
that default. Moreover, allowing NSCC to enter into Evergreen Renewals
without filing an additional advance notice would reduce the risk of
gaps in liquidity coverage and better enable NSCC to continually
maintain sufficient liquidity resources. Therefore, the NSCC believes
that the proposed changes in this advance notice are consistent with
Rule 17Ad-22(e)(7)(i).
Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires NSCC to
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [e]ffectively measure, monitor,
and manage liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity by, at a minimum . . . [h]olding qualifying
liquid resources sufficient to meet the minimum liquidity resource
requirement under [Rule 17Ad-22(e)(7)(i) described above] in each
relevant currency for which the covered clearing agency has payment
obligations owed to clearing members.'' \32\ Rule 17Ad-22(a)(14) under
the Exchange Act defines ``qualifying liquid resources'' to include,
among other things, lines of credit without material adverse change
provisions, that are readily available and convertible into cash.\33\
---------------------------------------------------------------------------
\32\ 17 CFR 240.17Ad-22(e)(7)(ii).
\33\ 17 CFR 240.17Ad-22(a)(14).
---------------------------------------------------------------------------
As described above, the Current Renewal would permit NSCC to enter
into a committed line of credit that is designed to help ensure that
NSCC has sufficient, readily-available qualifying liquid resources to
meet the cash settlement obligations of its largest family of
affiliated Members. Similarly, because the Proposed Evergreen
Provisions would ensure that any Future Renewals would be substantially
similar to the Current Renewal, such renewals also would permit NSCC to
enter into a committed line of credit that is designed to help ensure
that NSCC has sufficient, readily-available qualifying liquid resources
to meet the cash settlement obligations of its largest family of
affiliated Members. Accordingly, NSCC believes that the changes
proposed in this advance notice are consistent with Rule 17Ad-
22(e)(7)(ii).
Accelerated Commission Action Requested
Because the Term Sheet was not finalized until approximately six
weeks prior to the expected effective date of the Current Renewal
(which is standard practice), NSCC respectfully requests, as it has
done previously,\34\ that the Commission, pursuant to Section
806(e)(1)(I) of the Clearing Supervision Act,\35\ notify NSCC that it
has no objection to the proposed changes in this advance notice no
later than April 26, 2021, which is five business days prior to the May
4, 2021 effective date of the Current Renewal. NSCC requests Commission
action five business days in advance of the effective date in order to
ensure that there is no period of time that NSCC operates without this
essential liquidity resource, given its importance to NSCC risk
management and protecting NSCC settlement.
---------------------------------------------------------------------------
\34\ See supra note 6.
\35\ 12 U.S.C. 5465(e)(1)(I).
---------------------------------------------------------------------------
III. Date of Effectiveness of the Advance Notice, and Timing for
Commission Action
The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date that the proposed change was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received. The clearing agency shall not implement the proposed change
if the Commission has any objection to the proposed change.
The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an earlier date, subject to any conditions imposed
by the Commission.
The clearing agency shall post notice on its website of proposed
changes that are implemented.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the Advance
Notice is consistent with the Clearing Supervision Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NSCC-2021-802 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2021-802. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the Advance Notice that are filed with the
Commission, and all written communications relating to the Advance
Notice between the Commission and any person, other than those that may
be withheld from the public in accordance with the provisions of 5
U.S.C. 552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2021-802 and should be submitted on
or before May 26, 2021.
V. Commission Findings and Notice of No Objection
Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, its stated purpose is instructive: to
mitigate systemic risk in the financial system
[[Page 24071]]
and promote financial stability by, among other things, promoting
uniform risk management standards for systemically important financial
market utilities and strengthening the liquidity of systemically
important financial market utilities.\36\ Section 805(a)(2) of the
Clearing Supervision Act \37\ authorizes the Commission to prescribe
risk management standards for the payment, clearing, and settlement
activities of designated clearing entities and financial institutions
engaged in designated activities for which it is the supervisory agency
or the appropriate financial regulator. Section 805(b) of the Clearing
Supervision Act \38\ states that the objectives and principles for the
risk management standards prescribed under Section 805(a) shall be to:
---------------------------------------------------------------------------
\36\ 12 U.S.C. 5461(b).
\37\ 12 U.S.C. 5464(a)(2).
\38\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
Promote robust risk management;
promote safety and soundness;
reduce systemic risks; and
support the stability of the broader financial system.\39\
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
The Commission has adopted risk management standards under Section
805(a)(2) of the Act \40\ and Section 17A of the Act (``Rule 17Ad-
22'').\41\ The Rule 17Ad-22 requires registered clearing agencies to
establish, implement, maintain, and enforce written policies and
procedures that are reasonably designed to meet certain minimum
requirements for their operations and risk management practices on an
ongoing basis.\42\ Therefore, it is appropriate for the Commission to
review changes proposed in advance notices against Rule 17Ad-22 and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act.\43\ The
Commission believes the proposal in the Advance Notice is consistent
with the objectives and principles described in Section 805(b) of the
Act,\44\ and in Rule17Ad-22, in particular, Rule 17Ad-22(e)(7) under
the Act.\45\
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\40\ 12 U.S.C. 5464(a)(2).
\41\ See 17 CFR 240.17Ad-22.
\42\ Id.
\43\ 12 U.S.C. 5464(b).
\44\ Id.
\45\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 805(b) of the Clearing Supervision Act
As discussed below, the Commission believes that the changes
proposed in the Advance Notice are consistent with Section 805(b) of
the Act because they (i) promote robust risk management; (ii) are
consistent with promoting safety and soundness; and (iii) are
consistent with reducing systemic risks and promoting the stability of
the broader financial system.
The Commission believes that the changes proposed in the Advance
Notice are consistent with promoting robust risk management, in
particular management of liquidity risk presented by NSCC. Renewing the
Credit Facility would allow NSCC to continue to maintain it as a
liquidity resource that it may use to resolve a member default. NSCC
proposes to renew the Credit Facility at a $10.1 billion aggregate
commitment, which is an amount less than the $12.1 billion aggregate
commitment amount authorized in 2017, and outside the range that the
Commission approved in the 2017 Notice of No Objection. However, NSCC
has diversified and expanded its liquidity resources since 2017.
Specifically, NSCC has expanded the amount that is available through
its commercial paper program to $10 billion, and it has obtained
authorization to issue certain term debt.\46\ Therefore, the proceeds
of these issuances are available to NSCC as an additional, and
increased, amount of default liquidity resources that were not
available in 2017.\47\ In addition, NSCC continues to have access to
its Clearing Fund, including any supplemental liquidity deposits
thereto, as an additional liquidity resource.\48\ Therefore, the
Commission believes that the current renewal of the Credit Facility
would be consistent with robust risk management by allowing NSCC to
continue to manage the liquidity risk presented to it.\49\
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\46\ See Liquidity Filings, supra note 12.
\47\ As a result of these additional and increased liquidity
resources, the Credit Facility has generally represented a smaller
portion of NSCC's total liquid resources since 2017, while still
continuing to help ensure that NSCC meets its regulatory liquidity
risk management obligations, as discussed in Section III.B.2 below.
\48\ NSCC has the ability to collect supplemental liquidity
deposits from certain of its members whose activity presents
particular liquidity needs for NSCC. See generally Rule 4(A) of
NSCC's Rules, supra note 3 (as approved by the Commission in 2013,
https://www.sec.gov/rules/sro/nscc/2013/34-70999.pdf). These
deposits serve as another liquidity resource that NSCC may use in
the event of a member default. Currently, NSCC's rules allow for the
collection of such deposits only in connection with monthly options
expiry periods.
\49\ NSCC seeks the authority to renew the Credit Facility at an
aggregate commitment amount of no more than $10.1 billion, meaning
that NSCC potentially could renew the Credit Facility at some amount
less than $10.1 billion consistent with the proposed authority, in
light of market conditions at the time of the renewal and NSCC's
assessment of its liquidity needs. Regardless of the amount of the
Credit Facility into which NSCC ultimately enters, NSCC remains
subject to the same regulatory requirements with respect to its
liquidity risk, as discussed in Section V.B. below, and would have
to meet those requirements using some other combination of available
resources.
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Moreover, allowing NSCC annually to renew the Credit Facility under
certain specified circumstances without an additional advance notice,
subject to the proposed Evergreen Provisions, would provide NSCC and
market participants with greater certainty regarding a continuing
source of committed liquidity to meet its settlement obligations and
thus mitigate NSCC' liquidity risk. Further, because the proposed
Evergreen Provisions would continue to ensure that any such annual
renewals would be substantially similar to the currently proposed
Credit Facility, the Commission believes that any such renewals would
promote robust risk management by continuing to available liquidity
resources that NSCC may use to resolve a member default in the same
manner as the currently proposed Credit Facility. As such, the
Commission believes that the proposal would promote robust risk
management practices at NSCC, consistent with Section 805(b) of the
Act.\50\
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\50\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
The Commission also believes that the changes proposed in the
Advance Notice are consistent with promoting safety and soundness. As
described above, the currently proposed Credit Facility would continue
to provide NSCC with a key liquidity resource in the event of a member
default. This liquidity would promote safety and soundness for members
because it would provide NSCC with a readily available liquidity
resource that would enable it to continue to meet its respective
obligations in a timely fashion in the event of a member default,
thereby helping to contain losses and liquidity pressures from that
default. Because the Proposed Evergreen Provisions would ensure that
any annual renewals implemented without filing an advance notice would
be substantially similar to the currently proposed Credit Facility, any
such annual renewals would promote safety and soundness for the same
reasons. As such, the Commission believes it is consistent with
promoting safety and soundness as contemplated in Section 805(b) of the
Act.\51\
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
In addition, the Commission believes that the changes proposed in
the Advance Notice are consistent with reducing systemic risks and
promoting the stability of the broader financial system. As mentioned
above, allowing NSCC to enter into the currently
[[Page 24072]]
proposed Credit Facility would enable NSCC, which has been designated a
systemically important financial market utility,\52\ to continue to
maintain an additional liquidity resource that NSCC may access to help
manage a member default. In addition, because the proposed Evergreen
Provisions would ensure that any annual renewals entered into without
filing an advance notice would be on substantially similar terms to the
currently proposed Credit Facility, such future renewals also would
enable NSCC to maintain an additional liquidity resource that NSCC may
access to help manage a member default. Moreover, allowing the annual
renewal of the Credit Facility under the proposed Evergreen Provisions
without filing an additional advance notice would reduce the risk of
disruption in availability of this liquidity resource. Further,
allowing renewal without an advance notice in these specific
circumstances would also provide heightened certainty and stability for
NSCC and market participants regarding the availability of this
liquidity resource on an ongoing basis. Accordingly, the Commission
believes that the proposal would help reduce the systemic risk of NSCC,
which in turn would help support the stability of the broader financial
system, consistent with Section 805(b) of the Act.\53\
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\52\ See supra note 28.
\53\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(7)(i) and (ii)
The Commission believes the changes proposed in the Advance Notice
are consistent with Rules 17Ad-22(e)(7)(i) and (ii), each promulgated
under the Exchange Act,\54\ for the reasons described below.
---------------------------------------------------------------------------
\54\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(i) under the Exchange Act requires that a
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to maintain
sufficient liquid resources at the minimum in all relevant currencies
to effect same-day and, where appropriate, intraday and multiday
settlement of payment obligations with a high degree of confidence
under a wide range of foreseeable stress scenarios that includes, but
is not limited to, the default of the participant family that would
generate the largest aggregate payment obligation for the covered
clearing agency in extreme but plausible market conditions.\55\ Rule
17Ad-22(e)(7)(ii) under the Act requires that a cover clearing agency
establish, implement, maintain and enforce written policies and
procedures reasonably designed to hold qualifying liquid resources
sufficient to meet the minimum liquidity resource requirement under
Rule 17Ad-22(e)(7)(i) in each relevant currency for which the covered
clearing agency has payment obligations owed to its clearing
members.\56\
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\55\ 17 CFR 240.17Ad-22(e)(7)(i).
\56\ 17 CFR 240.17Ad-22(e)(7)(ii). For purposes of Rule 17Ad-
22(e)(7)(ii), ``qualifying liquid resources'' are defined in Rule
17Ad-22(a)(14) as including, in part, cash held either at the
central bank of issue or at creditworthy commercial banks. 17 CFR
240.17Ad-22(a)(14).
---------------------------------------------------------------------------
As described above, the currently proposed Credit Facility renewal
would provide NSCC with a readily available liquidity resource that
would enable NSCC to continue to meet its obligations in a timely
fashion in the event of a member default, thereby helping to contain
losses and liquidity pressures from that default. Additionally, because
the proposed Evergreen Provisions would ensure that any annual renewals
would be substantially similar to the currently proposed Credit
Facility, such future renewals would also continue to provide NSCC with
a readily available liquidity resource that would enable it to continue
to meet its respective obligations in a timely fashion in the event of
a member default, thereby helping to contain losses and liquidity
pressures from that default. Moreover, allowing NSCC annually to renew
the Credit Facility pursuant to the proposed Evergreen Provisions
without filing an additional advance notice would reduce the risk of
gaps in liquidity coverage and better allow NSCC to continually
maintain sufficient liquidity resources.
In addition, the currently proposed renewal of the Credit Facility
would permit NSCC to maintain a single Credit Facility designed to help
ensure that NSCC has sufficient, readily-available qualifying liquid
resources to meet the cash settlement obligations of its largest family
of affiliated members. Similarly, because the proposed Evergreen
Provisions would ensure that any annual renewals would be substantially
similar to the currently proposed renewal of the Credit Facility, such
renewals also would permit NSCC to maintain a single Credit Facility
designed to help ensure that NSCC has sufficient, readily-available
qualifying liquid resources to meet the cash settlement obligations of
their largest family of affiliated members. Therefore, the Commission
believes that NSCC's proposal would support its ability to hold
qualifying liquid resources sufficient to meet the minimum liquidity
resource requirement under Rule 17Ad-22(e)(7)(i),\57\ as required by
Rule 17Ad-22(e)(7)(ii).\58\
---------------------------------------------------------------------------
\57\ 17 CFR 240.17Ad-22(e)(7)(i).
\58\ 17 CFR 240.17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------
Accordingly, the Commission believes that the current renewal would
be consistent with Rule 17Ad-22(e)(7)(i) and (ii) under the Exchange
Act.\59\
---------------------------------------------------------------------------
\59\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act,\60\ that the Commission does not object to
Advance Notice SR-NSCC-2021-802 and that NSCC be and hereby is
authorized to implement the change as of the date of this notice.
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\60\ 12 U.S.C. 5465(e)(1)(I).
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09428 Filed 5-4-21; 8:45 am]
BILLING CODE 8011-01-P
