Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend the Supplemental Liquidity Deposit Requirements, 33414-33420 [2021-13413]
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33414
Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
Additional Provisions
As previously mentioned, BSTX is a
Delaware limited liability company. As
such, the LLC Agreement contains
numerous provisions that are standard
or not novel for a similarly situated
commercial business registered as a
limited liability company under the
laws of the state of Delaware.74 The
Exchange believes that these provisions
are consistent with Section 6(b)(1) of the
Act 75 because they are consistent with
corporate governance practices,
generally, and they would help ensure
that the Exchange, including in its
operation of facilities, is so organized
and has the capacity to be able to carry
out the purposes of the Act.
2. Statutory Basis
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In addition to the sections above that
discuss variations from the BOX
Options LLC Agreement and/or BOX
Holdings LLC Agreement and their
associated statutory bases, the Exchange
believes that the proposal is consistent
with the requirements of Section 6(b) of
the Act,76 in general, and furthers the
objectives of Section 6(b)(1),77 in
particular, in that it enables the
Exchange to be so organized so as to
have the capacity to be able to carry out
the purposes of the Act and to comply,
and to enforce compliance by its
exchange members and persons
associated with its exchange members,
with the provisions of the Act, the rules
and regulations thereunder, and the
rules of the Exchange. The Exchange
also believes that this filing furthers the
objectives of Section 6(b)(5) of the Act 78
in that it is designed to facilitate
transactions in securities, to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and in general, to protect
investors and the public interest.
74 See LLC Agreement Sections 2.1, 2.2, 2.4, 2.5,
2.6, 2.7, 3.1, 4.2, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1, 5.2,
5.3, 5.4, 5.6, 5.7, 6.3, 6.4, 6.5, 7.5, 7.6, 7.7, 8.3, 9.2,
9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 10.3, 10.4, 11.2, 11.3, 11.4,
11.5, 11.6, 12, 13.1, 14, 16.2, 17, 18.2, 18.3, 18.4,
18.5, 18.7, 18.9, 18.10, 18.11, and 18.12.
75 15 U.S.C. 78f(b)(1).
76 15 U.S.C. 78f(b).
77 15 U.S.C. 78f(b)(5).
78 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the Proposed Rule Change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2021–14 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BOX–2021–14. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method.
The Commission will post all
comments on the Commission’s internet
website (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
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rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BOX–2021–14 and should
be submitted on or before July 15, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.79
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13246 Filed 6–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92213; File No. SR–NSCC–
2021–002]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of Partial
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by Partial
Amendment No. 1, To Amend the
Supplemental Liquidity Deposit
Requirements
June 21, 2021.
I. Introduction
On March 5, 2021, National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–NSCC–2021–002
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2 to
amend its supplemental liquidity
79 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
deposit requirements.3 The proposed
rule change was published for comment
in the Federal Register on March 24,
2021,4 and the Commission has received
comments in support of the changes
proposed therein.5 On May 7, 2021,
pursuant to Section 19(b)(2) of the Act,6
the Commission designated a longer
period within which to approve,
disapprove, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.7
On June 17, 2021, NSCC filed Partial
Amendment No. 1 to the proposed rule
change, which provided additional
description of the proposed rule change
and did not change the substance of the
proposed rule change, as discussed in
more detail in Section II.D below. The
Commission is publishing this notice to
solicit comments on Partial Amendment
No. 1 from interested persons and, for
the reasons discussed below, is
approving the proposed rule change, as
modified by Partial Amendment No. 1
(hereinafter, ‘‘Proposed Rule Change’’),
on an accelerated basis.
II. Description of the Proposed Rule
Change
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A. Background
As a central counterparty (‘‘CCP’’),8
NSCC occupies an important role in the
securities settlement system by
interposing itself between
counterparties to financial transactions,
becoming the buyer to each seller and
seller to each buyer to ensure the
performance of the contract, thereby
reducing the risk faced by its Members 9
and contributing to global financial
stability. NSCC’s liquidity risk
3 See Notice of Filing, infra note 4, at 86 FR
15738. On March 5, 2021, NSCC also filed the
proposals contained in the proposed rule change as
advance notice SR–NSCC–2021–801 (the ‘‘Advance
Notice’’) with the Commission pursuant to Section
806(e)(1) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’), 12 U.S.C. 5465(e)(1),
and Rule 19b–4(n)(1)(i) of the Act, 17 CFR 240.19b–
4(n)(1)(i). Notice of filing of the Advance Notice
was published in the Federal Register on March 24,
2021. Securities Exchange Act Release No. 91347
(March 18, 2021), 86 FR 15750 (March 24, 2021)
(File No. SR–NSCC–2021–801).
4 Securities Exchange Act Release No. 91350
(March 18, 2021), 86 FR 15738 (March 24, 2021)
(File No. SR–NSCC–2021–002) (‘‘Notice of Filing’’).
5 Comments are available at https://www.sec.gov/
comments/sr-nscc-2021-002/srnscc2021002.htm. To
date, the comments received generally support the
proposal.
6 15 U.S.C. 78s(b)(2).
7 Securities Exchange Act Release No. 91788 (May
7, 2021), 86 FR 26112 (May 12, 2021) (File No. SR–
NSCC–2021–002).
8 17 CFR 240.17Ad–22(a)(1).
9 Capitalized terms not defined herein are defined
in NSCC’s Rules and Procedures (‘‘Rules’’),
available at https://dtcc.com/∼/media/Files/
Downloads/legal/rules/nscc_rules.pdf.
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management plays an integral part in
NSCC’s ability to perform its role as a
CCP. If a Member defaults, NSCC, as a
CCP, would need to complete settlement
of guaranteed transactions on the failing
Member’s behalf from the date of default
through the remainder of the settlement
cycle (currently two days for securities
that settle on a regular way basis in the
U.S. markets). To do so, and to meet its
related regulatory requirements, NSCC
seeks to maintain sufficient liquid
resources in order to meet the potential
funding required to settle outstanding
transactions of a defaulting Member in
a timely manner, as well as to hold
qualifying liquid resources sufficient to
meet its minimum liquidity resource
requirement in each relevant currency
for which it has payment obligations
owed to its Members.10
NSCC has a number of default
liquidity resources that it considers to
be qualifying liquid resources for the
purposes of Rule 17Ad–22(a)(14).11
These resources include: (1) Cash
deposits to the NSCC Clearing Fund; 12
(2) the proceeds of the issuance and
private placement of (a) short-term,
unsecured notes in the form of
commercial paper and extendable notes
(‘‘Commercial Paper Program’’),13 and
(b) term debt (‘‘Term Debt Issuance’’); 14
(3) cash that would be obtained by
drawing on NSCC’s committed 364-day
credit facility with a consortium of
banks (‘‘Line of Credit’’); 15 and (4)
supplemental liquidity deposits,
collected pursuant to NSCC Rule 4(A),
as discussed further below.16
10 See Securities Exchange Act Release No. 82377
(December 21, 2017), 82 FR 61617 (December 28,
2017) (File Nos. SR–DTC–2017–004; SR–FICC–
2017–008; SR–NSCC–2017–005) (approving NSCC’s
Liquidity Risk Management Framework).
11 See Notice of Filing, supra note 4, at 15738–
39. Qualifying liquid resources include, among
other things: Cash held either at the central bank
of issue or at creditworthy commercial banks, and
assets that are readily available and convertible into
cash through prearranged funding arrangements,
such as committed arrangements without material
adverse change provisions, including lines of credit,
foreign exchange swaps, and repurchase
agreements. 17 CFR 240.17Ad–22(a)(14).
12 See Rule 4 (Clearing Fund) and Procedure XV
(Clearing Fund Formula and Other Matters) of the
Rules, supra note 9.
13 See Securities Exchange Act Release Nos.
75730 (August 19, 2015), 80 FR 51638 (August 25,
2015) (File No. SR–NSCC–2015–802); 82676
(February 9, 2018), 83 FR 6912 (February 15, 2018)
(File No. SR–NSCC–2017–807).
14 See Securities Exchange Act Release No. 88146
(February 7, 2020), 85 FR 8046 (February 12, 2020)
(File No. SR–NSCC–2019–802).
15 See Securities Exchange Act Release No. 80605
(May 5, 2017), 82 FR 21850 (May 10, 2017) (File
Nos. SR–DTC–2017–802; SR–NSCC–2017–802).
16 See Rule 4(A) (Supplemental Liquidity
Deposits) of the Rules, supra note 9. See also
Securities Exchange Act Release Nos. 70999
(December 5, 2013), 78 FR 75413 (December 11,
2013) (File No. SR–NSCC–2013–02); 71000
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33415
B. Current Rules Relating to
Supplemental Liquidity Deposits
Currently, NSCC only collects
supplemental liquidity deposits during
monthly options expiry periods in order
to cover the heightened liquidity
exposure resulting from increased
trading activity around options
expiration.17 NSCC only collects
supplemental liquidity deposits from its
30 largest Members or group of affiliated
Members (hereinafter, ‘‘Providers’’).18
NSCC calculates each Provider’s
supplemental liquidity obligation for an
upcoming options expiry period using
an estimate based on NSCC’s highest
liquidity need and the Provider’s
settlement activity during the prior 24months.19 Providers, in turn, must fund
their supplemental liquidity obligations
two business days prior to the start of
the options expiry period, which NSCC
will return seven business days after the
end of that period.20
In order to ensure NSCC maintains
adequate liquidity resources throughout
the options expiry period, Providers
may voluntarily prefund additional
supplemental liquidity deposits at the
start of the period, if it anticipates
increases in its trading activity,
compared to its historical activity, will
create a liquidity shortfall at NSCC.21 In
the event a Provider fails to provide
adequate voluntary prefunded deposits,
NSCC may require the Provider to fund
additional supplemental liquidity
deposits if NSCC experiences a resulting
liquidity shortfall,22 which NSCC may
hold for up to 90 days.23 The 90-day
lock-up incentivizes Providers to
voluntarily prefund their supplemental
liquidity deposits in order to ensure
NSCC maintains adequate liquidity
resources throughout the options expiry
period.
(December 5, 2013), 78 FR 75400 (December 11,
2013) (File No. SR–NSCC–2013–802).
17 See Rule 4(A), supra note 9. NSCC defines the
duration of the options expiry periods in its Rules,
which typically runs from the third Friday of the
month to the following Tuesday. See id.
18 See Section 2 of Rule 4(A), supra note 9. NSCC
may use a Provider’s supplemental liquidity deposit
to satisfy a loss or liability arising only from that
Provider’s default on its obligations to NSCC.
Supplemental liquidity deposits are not otherwise
subject to NSCC’s Loss Allocation Waterfall. See
Section 13(c) of Rule 4(A), supra note 9.
19 See Section 2 of Rule 4(A), supra note 9.
Typically, NSCC performs this calculation, at the
latest, one week prior to the start of the options
expiry period.
20 See Sections 4 and 9 of Rule 4(A), supra note
9.
21 See Section 2 of Rule 4(A), supra note 9. See
also, Notice of Filing, supra note 4, at 15739.
22 See Section 7 of Rule 4(A), supra note 9.
23 See Section 10 of Rule 4(A), supra note 9.
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
C. Proposed Changes to the Rules
Relating to Supplemental Liquidity
Deposits
As discussed above, NSCC may only
collect supplemental liquidity deposits
during monthly options expiry periods
under its current Rules.24 However,
NSCC can face sudden liquidity
shortfalls on any business day, not just
those business days that fall within
monthly options expiry periods,
particularly during volatile market
conditions unrelated to options
expiration.25 To address this issue,
NSCC proposes to change the frequency
at which it may collect supplemental
liquidity deposits to each business day,
based on a daily calculation. This
proposed approach to collecting
supplemental liquidity deposits should
allow NSCC to respond quickly to any
sudden liquidity shortfalls arising from
a Provider’s activity, regardless of when
those shortfalls occur.
NSCC also proposes the ability to
collect supplemental liquidity deposits
on an intraday basis in certain instances
where sudden intraday increases in
liquidity risk justify shortening the
amount of time NSCC is exposed to that
risk, including a mandatory intraday
collection in connection with monthly
options expiry periods. Moreover, NSCC
proposes to eliminate the up to 90 day
lock-up period of certain supplemental
liquidity deposits. Additionally, NSCC
proposes an alternative pro rata daily
calculation in the rare event its regular
daily calculation would inadvertently
result in collecting supplement liquidity
deposits from multiple Providers that,
taken together, would significantly
exceed NSCC’s liquidity needs on that
day.
1. Proposed Daily Calculation of
Supplemental Liquidity Deposits
A
will be obligated to
provide a supplemental liquidity
deposit on each business day in which
its settlement activity causes a liquidity
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Provider 26
24 The description that follows is excerpted from
the Notice of Filing, supra note 4.
25 See Notice of Filing, supra note 4, at 15740.
26 Under the proposal, Providers will continue to
be the 30 largest Members or group of affiliated
Members, but NSCC proposes to simplify how it
determines the 30 Providers in order to provide
greater transparency and predictability in its
determination. The 30 Providers will be determined
daily and will be based on the Provider’s settlement
activity during the prior 24-months. NSCC’s
determination will no longer require a calculation
of liquidity exposures the Providers presented to
NSCC based on NSCC’s qualifying liquid resources
throughout a 24 month lookback period. NSCC will
continue to make available to each Member daily
information on NSCC’s liquidity need based on that
Member’s settlement activity on the previous
business day.
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shortfall at NSCC.27 NSCC will provide
a notice to each Provider of the amount
of its supplemental liquidity deposit,
which the Provider will be required to
fund within one hour of such notice.28
NSCC proposes to return supplemental
liquidity deposits on the next business
day,29 except in certain circumstances
as described in greater detail in Section
II.C.4. below.
NSCC states that, under its proposed
calculation, it will no longer need to
estimate its liquidity need for a
Provider’s expected settlement activity
based on the Provider’s historical
settlement activity.30 Instead, each
Provider’s deposit will be calculated
based on NSCC’s actual liquidity need
based on the Provider’s daily settlement
activity in the event the Provider
defaulted on that day, which NSCC
believes will provide both NSCC and
Providers with a more reliable measure
of the liquidity risks posed to NSCC.31
NSCC provided the Commission with
the results of an impact study
comparing the proposal against the
observed regulatory liquidity needs and
NSCC’s qualifying liquid resources
available during the period from 2016
through 2020. The study assessed both
pro-forma and hypothetical impacts of
the proposal under various liquidity
scenarios. The study also analyzed
historical trends including the average
composition and rankings of the top 30
Providers at NSCC during the 2016 to
2020 period. Based on the pro-forma/
hypothetical impact as well analysis of
the top Providers, the study’s results
generally indicate that the proposal
would continue to allow NSCC to meet
its regulatory liquidity obligations, and
the largest Members would continue to
27 A liquidity shortfall will arise if NSCC’s daily
liquidity need exceeds its qualifying liquid
resources, assuming stressed market conditions.
NSCC will continue to apply stress scenarios in
determining its total qualifying liquid resources in
order to anticipate market conditions that could
cause those resources to be unavailable on that day.
Because the daily calculation will be done at the
start of each business day, it will be based on the
qualifying liquid resources available to NSCC as of
the end of the prior business day.
28 NSCC’s proposed timing would mirror the
current requirement that is applied to its Members’
Required Fund Deposits (i.e., margin), which is also
calculated and collected daily, and must be funded
within one hour of demand. NSCC expects to
deliver notification of Provider obligations by
around 8:30 a.m. ET each business day, with
deposits required by no later than 9:30 a.m. ET. See
Notice of Filing, supra note 4, at 15741.
29 Because NSCC would recalculate supplemental
liquidity deposits daily, NSCC will no longer need
to hold deposits for the extended periods under its
current Rules. See Notice of Filing, supra note 4,
at 15742.
30 See Notice of Filing, supra note 4, at 15740.
31 See id. at 15740–41.
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be the ones affected by supplemental
liquidity obligations.32
2. Proposed Intraday Supplemental
Liquidity Calls
NSCC also proposes to establish
intraday supplemental liquidity calls,
which are intended to allow NSCC to
calculate and collect additional
supplemental liquidity deposits on an
intraday basis if a Provider’s increased
daily activity levels or projected
settlement activity causes a NSCC
liquidity shortfall during a given day.33
NSCC believes the proposed intraday
supplemental liquidity calls will help to
mitigate increased liquidity exposures
presented to NSCC on an intraday basis
in specified circumstances, as discussed
further below.34
i. Proposed Mandatory Intraday
Supplemental Liquidity Call During
Options Expiry Periods
First, NSCC proposes to establish a
mandatory monthly intraday
supplemental liquidity call that is
calculated and collected, when
applicable, on the first business day
(typically a Friday) of an options expiry
period.35 A Provider’s mandatory
intraday supplemental liquidity call
will be the difference between, on the
one hand, NSCC’s qualifying liquid
resources and, on the other hand,
NSCC’s daily liquidity need based on
the Provider’s settlement activity at the
start of the business day, recalculated to
account for both the Provider’s actual
settlement activity submitted to NSCC
over the course of the day, and the
Provider’s projected settlement activity
in stock options expected to be
submitted to NSCC.36 Because NSCC’s
recalculated daily liquidity need will
not factor in late day trades or other off32 See id. at 15744. NSCC further states that if its
other qualifying liquid resources materially
decrease, it would expect to see an increase in both
number and amount of supplemental liquidity
obligations that Providers would have been
required to fund under the proposed rule. See id.
at 15744.
33 The alternative pro rata calculation described
in Section II.C.3 below would not apply to an
intraday supplemental liquidity call.
34 See Notice of Filing, supra note 4, at 15741.
35 NSCC will retain how it defines the duration
of the options expiry periods in its Rules. See supra
note 17.
36 Each business day, NSCC receives information
regarding projected settlement activity from The
Options Clearing Corporation (‘‘OCC’’) pursuant to
a Stock and Futures Settlement Agreement. That
agreement provides for the clearance and settlement
of exercises and assignments of options on eligible
securities or the maturity of eligible stock futures
contracts through NSCC. See Securities Exchange
Act Release No. 81260 (July 31, 2017), 82 FR 36484
(August 4, 2017) (File Nos. SR–NSCC–2017–803;
SR–OCC–2017–804). In this case, the recalculation
will be based on the data NSCC receives from OCC
late Thursday.
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Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices
setting settlement activity,37 NSCC
proposes to adjust its recalculated daily
liquidity need using an estimated
netting percentage based on each
Provider’s average percentage of netting
from its off-setting settlement activity
observed over the prior 24 months.
NSCC states that the actual settlement
activity flowing into NSCC for cash
settlement of stocks underlying expiring
options is typically lower than the
projected settlement activity NSCC
receives from OCC on the Thursday
before the start of the options expiry
period due to late day offsetting trades
in stock options on that Friday;
therefore, applying this netting
percentage should more accurately
reflect the actual liquidity exposures
that will be presented to NSCC from the
Providers.38
Moreover, NSCC proposes to
eliminate the up to 90 day lock-up
period of certain supplemental liquidity
deposits. NSCC will no longer need to
hold these deposits for longer periods
because NSCC proposes to use the daily
calculation and collection of
supplemental liquidity deposits to help
ensure NSCC maintains adequate
liquidity resources each day, including
throughout options expiry periods.39
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ii. Proposed Discretionary Intraday
Supplemental Liquidity Call Other Than
During Options Expiry Periods
Second, NSCC proposes to establish a
discretionary intraday supplemental
liquidity call on any business day other
than the first business day during
options expiry periods. Under this
provision, NSCC will have the
discretion to call for additional
supplemental liquidity deposits on an
intraday basis on any such business day
if a Provider’s increased activity levels
during that day would cause a liquidity
shortfall at NSCC. The amount of a
Provider’s intraday supplemental
liquidity call, pursuant to NSCC’s
discretion, would be the difference
between NSCC’s daily liquidity need,
recalculated to take into account the
increase in the Provider’s settlement
activity during the day, and NSCC’s
qualifying liquid resources.
NSCC states that it would collect a
discretionary intraday call in
circumstances where NSCC believes it
should accelerate the collection of a
37 See Notice of Filing, supra note 4, at 15741. For
example, an affiliated Member may be entitled,
under NSCC Rules, to liquidity credits based the
trading activity of its affiliates, who are also
Members, in order to determine NSCC’s net
liquidity exposure from the affiliated family of
Members.
38 See Notice of Filing, supra note 4, at 15741.
39 See id. at 15740.
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Provider’s supplemental liquidity
obligation because that Provider’s
intraday settlement activity would cause
NSCC’s liquidity needs to exceed its
liquidity resources.40 For example,
NSCC may impose an intraday
supplemental liquidity call on a
Provider if NSCC determines that
Provider is unlikely to meet its
projected settlement obligations through
the settlement cycle due to rapidly
escalating financial stress.41 NSCC will
make this determination based on a
variety of factors, including NSCC’s
assessment of the Provider’s ability to
meet its obligations to NSCC (i.e., an
assessment of the Provider’s
creditworthiness on a particular
business day) or estimates of settlement
activity that could offset settlement
exposures and are not reflected in
NSCC’s liquidity estimates.42
3. Proposed Pro Rata Calculation of
Supplemental Liquidity Deposits
As a potential alternative to the
calculation described above, NSCC
proposes a discretionary pro rata
calculation that could apply in the event
two or more Providers each would be
obligated to provide a supplemental
liquidity deposit of more than $2 billion
on a business day pursuant to the
calculation described above.43 Under
the proposed alternative, NSCC will
have the option to allocate, on a pro rata
basis, its largest liquidity need on a
business day to all Providers that are
required to make a supplemental
liquidity deposit on that day, thereby
reducing all such Providers’ obligations
to NSCC on that day. NSCC’s
determination will be based on the
market conditions at that time. For
example, NSCC may determine that, in
certain market conditions, this
alternative approach would be
appropriate to alleviate liquidity
pressures on all Providers required to
make a supplemental liquidity deposit
on that day.44 NSCC states this
alternative would allow NSCC to use
this pro rata calculation to sufficiently
cover its liquidity exposure on that day,
without requiring that all Providers
fund the total amount of its calculated
40 See
id. at 15741–42.
id. at 15742.
42 See id.
43 NSCC represents that it has never had two or
more Providers owe more than $2 billion on a
calculation date since its adoption of the
supplemental liquidity deposit Rules in 2013.
Therefore, NSCC believes this alternative
calculation would only be available in very limited
circumstances. See Notice of Filing, supra note 4,
at 15741.
44 See Notice of Filing, supra note 4, at 15741.
41 See
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33417
supplemental liquidity deposit on that
day.
4. Proposed Clarifying Changes to the
Treatment of Supplemental Liquidity
Deposits
As described in Section II.C.1 above,
NSCC proposes to return supplemental
liquidity deposits, including any
amount funded pursuant to an intraday
supplemental liquidity call, on the next
business day. However, NSCC proposes
to clarify that, consistent with its
current Rules regarding excess Clearing
Fund deposits, it will have the right to
withhold all or any part of any
Member’s excess Clearing Fund
deposits, including supplemental
liquidity deposits, if that Member has
been placed on the Watch List pursuant
to the Rules or if NSCC determines that
the Member’s anticipated activities in
the near future may reasonably be
expected to be materially different than
its activities of the recent past.45 NSCC
states that, while the proposed
provision would not change NSCC’s
rights with respect to these funds, it
would provide Members with greater
transparency into how supplemental
liquidity deposits will be treated under
Rule 4.46
NSCC further proposes that it will
hold a retired Provider’s supplemental
liquidity deposits for 30 calendar days
after any of the Provider’s open
transactions have settled and obligations
have been satisfied,47 rather than return
such deposits on the next business day.
NSCC states that the proposed provision
will help protect NSCC from liquidity
risks presented by open transactions in
the days following a firm’s retirement
and would align the treatment of these
funds with the treatment of a retired
Member’s Required Fund Deposits.48
Additionally, NSCC proposes to
simplify and clarify NSCC’s right to
debit Providers’ accounts at NSCC if a
Provider fails to meet its supplemental
liquidity obligations, and NSCC’s
obligation to make available to
Providers the amount of the Daily
Liquidity Need that NSCC would have
had in the event the Provider defaulted
on the previous business day. NSCC
states that, while the proposed
miscellaneous changes will not
significantly alter the structure of these
provisions, they will provide
transparency to Providers regarding
45 See Section 9 of Rule 4, supra note 9. Proposed
Section 12(a) of Rule 4(A) cross-references to
Section 9 of Rule 4.
46 See Notice of Filing, supra note 4, at 15742.
47 See Section 7 of Rule 4, supra note 9. Proposed
Section 10 of Rule 4(A) cross-references to Section
7 of Rule 4.
48 See Notice of Filing, supra note 4, at 15742.
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their rights and obligations under the
Rules.49
D. Partial Amendment No. 1
On June 17, 2021, NSCC filed Partial
Amendment No. 1 to revise its
disclosure, pursuant to Item 3(a) of
Form 19b–4, relating to the purpose of
the Proposed Rule Change by including
the following language at the beginning
of its Item 3(a) disclosure:
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As described in greater detail below, NSCC
adopted the SLD requirements in 2013 to
establish supplemental liquidity deposits to
the Clearing Fund designed to ensure that
NSCC has adequate liquidity resources to
meet its liquidity needs during monthly
options expiry settlement periods when
NSCC observes significant increases in its
liquidity exposures. Since that time, NSCC
has continued to strengthen its liquidity risk
management by diversifying its sources of
qualifying liquid resources. These efforts are
aimed at, for example, managing the risk that
any one of those sources is reduced.
In connection with these ongoing efforts,
NSCC is proposing changes to the SLD
requirements. As described in greater detail
in this filing, the proposed changes include:
(1) Calculating and collecting, when
applicable, SLD on each Business Day, rather
than only during the monthly options
settlement periods.
(2) calculating SLD based on observed
Member activity, rather than based on
historical and forecasted settlement activity.
(3) adopting an intraday SLD calculation
and collection, when applicable, on the first
Business Day of the monthly options
settlement periods based on additional
exposures that are presented by options
activity submitted after the start of day.
(4) eliminating the 90-day holding period
for certain SLD.
(5) adopting a discretionary, alternative pro
rata calculation of Members’ SLD
requirements that would apply in certain
circumstances and allow NSCC to allocate its
largest liquidity need on a Business Day
among Members that are required to pay
SLD, rather than collect separate SLD from
each of those Members.
In Partial Amendment No. 1, NSCC
clarifies its disclosure describing the
purpose of the proposal, pursuant to
Item 3(a) of Form 19b–4. NSCC does
not, however, make changes to the
proposal itself, including the proposed
text of the Rules that was provided as
Exhibit 5 to the Proposed Rule Change.
Therefore, Partial Amendment No. 1,
NSCC does not alter the manner in
which the Proposed Rule Change would
nor does it alter the manner in which
the Proposed Rule Change will affect its
Members or other interested persons.
49 See
id.
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III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 50
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. After
careful consideration, the Commission
finds that the Proposed Rule Change is
consistent with the requirements of the
Act and the rules and regulations
applicable to NSCC. In particular, the
Commission finds that the Proposed
Rule Change is consistent with Section
17A(b)(3)(F) 51 of the Act and Rule
17Ad–22(e)(7) 52 thereunder.
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) 53 of the Act
requires, in part, that the rules of a
clearing agency, such as NSCC, be
designed to, among other things,
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible. The
Commission finds that the Proposed
Rule Change is consistent with Section
17A(b)(3)(F) of the Act for the reasons
stated below.
As described above in Section II.B,
NSCC can face sudden liquidity
shortfalls on any business day,
particularly during volatile market
conditions, which can be unrelated to
options expiration. As a CCP, it is
imperative that NSCC maintains
adequate resources to satisfy liquidity
needs arising from its settlement
obligations, including in the event of a
Member default. However, NSCC
currently may only collect supplemental
liquidity deposits during monthly
options expiry periods. As described
above in Section II.C.1, the Proposed
Rule Change is designed to allow NSCC
to respond quickly to sudden liquidity
shortfalls that may arise, regardless of
timing, by collecting supplemental
liquidity deposits based on a daily
calculation, instead of being limited to
only the monthly options expiration
period. The ability to calculate and
collect supplemental liquidity deposits,
as applicable, on a daily basis should
help NSCC more accurately manage its
daily liquidity exposures based on
Members’ actual activity. Moreover, the
50 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
52 17 CFR 240.17Ad–22(e)(7)(i) and (ii).
53 15 U.S.C. 78q–1(b)(3)(F).
51 15
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proposal would allow NSCC to
determine the amount of supplemental
liquidity deposits based on Members’
actual activity, providing more precise
and, potentially, lower charges for
Members than provided under the
current methodology, which uses
estimates based on a look-back period
and can, on occasion, result in NSCC
collecting more resources than needed
to cover its exposure.
Further, as described above in Section
II.C.3, the proposal will provide NSCC
with additional flexibility over the
timing and amount of collections. First,
establishing the mandatory intraday
supplemental liquidity calls on the first
business day of the monthly options
expiry periods should help NSCC
continue to manage the potential
increased liquidity exposures that may
arise from options settlement-related
activity by allowing it to accelerate the
collection of supplemental liquidity
deposits on that day, as opposed to
waiting for the proposed daily
collection that would occur on the
morning of the following business day.
Second, the proposed discretionary
intraday supplemental liquidity calls
should collect additional supplemental
liquidity deposits from Members whose
activity outside of the monthly options
expiry periods may cause a sudden
increase in NSCC’s liquidity needs on
an overnight basis. Moreover, as
described above in Section II.C.3, the
proposed alternative pro rata calculation
that NSCC may apply in certain
circumstances will provide NSCC the
flexibility to determine the total amount
collected on a business day, while
continuing to collect sufficient liquidity
to complete end-of-day settlement in the
event the Provider with the largest
payment obligation defaults.
Additionally, as described above in
Section II.C.4, the proposed clarifying
changes would make the rights and
obligations of both NSCC and its
Members under the Rules more
transparent and easier to understand. A
clearer rule supports the ability of
Members to meet their supplemental
liquidity deposit requirements and
understand how NSCC will treat such
deposits, and the liquidity provided to
NSCC through supplemental liquidity
deposits would allow it to complete
end-of-day settlement in the event the
Provider with the largest payment
obligation defaults.
For the reasons stated above, the
Commission finds the Proposed Rule
Change is designed to allow NSCC to
address potential sudden liquidity
exposures that may arise on a daily
basis. The daily calculation and
collection of supplemental liquidity
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deposits should allow NSCC to
effectively cover those liquidity
exposures and, should help NSCC
ensure it can complete settlement for all
its Members in the event one Member
defaults, which the Commission
believes should promote the prompt and
accurate clearance and settlement of
securities transactions. Moreover, the
Commission believes that enhancing
NSCC’s ability to complete settlement in
the event of a Member default should
help avoid the potential for loss
mutualization among the non-defaulting
members and potential impacts on the
broader financial system, which is
consistent with assuring the
safeguarding of securities and funds
which are in its custody or control.
Accordingly, the Commission finds the
changes proposed in the Proposed Rule
Change are consistent with Section
17A(b)(3)(F) of the Act.54
B. Consistency With Rule 17Ad–
22(e)(7)(i) and (ii)
The Commission finds the changes
proposed in the Proposed Rule Change
are consistent with Rules 17Ad–
22(e)(7)(i) and (ii), each promulgated
under the Act,55 for the reasons
described below.
Rule 17Ad–22(e)(7)(i) under the 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.56 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.57
54 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(7)(i) and (ii).
56 17 CFR 240.17Ad–22(e)(7)(i).
57 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
55 17
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As described above in Sections II.C.1
and 2, the Proposed Rule Change would
help strengthen NSCC’s ability to
maintain sufficient liquid resources to
complete end-of-day settlement in the
event of the Member default by allowing
NSCC to calculate and collect, when
applicable, supplemental liquidity
deposits every business day, or on an
intraday basis, from those Members that
pose the largest liquidity exposures to
NSCC on that day. These resources
would be available to NSCC to complete
end-of-day settlement in the event of the
default of a Member. Moreover, the
Commission has reviewed and
considered the impact study results
provided by NSCC comparing the
proposal against the observed regulatory
liquidity needs and NSCC’s qualifying
liquid resources available during the
period from 2016 through 2020, to
assess both pro-forma and hypothetical
impacts of the proposal under various
liquidity scenarios,58 and finds that
these results generally indicated that the
proposal would continue allow NSCC to
meet its regulatory liquidity obligations.
In addition, deposits made to satisfy
supplemental liquidity deposit
obligations are currently and will
continue to be required to be made as
cash deposits, which will continue to be
held by NSCC at either its cash deposit
account at the Federal Reserve Bank of
New York, at a creditworthy commercial
bank, or in other investments pursuant
to NSCC’s Clearing Agency Investment
Policy.59 Therefore, supplemental
liquidity deposits would continue to be
considered a qualifying liquid resource,
as defined by Rule 17Ad–22(a)(14),60
and would support NSCC’s ability to
hold qualifying liquid resources
sufficient to meet the minimum
liquidity resource requirement under
Rule 17Ad–22(e)(7)(i),61 as required by
Rule 17Ad–22(e)(7)(ii).62
Accordingly, the Commission finds
that implementation of the proposed
amendments to NSCC’s supplemental
liquidity deposit requirements would be
consistent with Rule 17Ad–22(e)(7)(i)
and (ii) under the Act.63
bank of issue or at creditworthy commercial banks.
17 CFR 240.17Ad–22(a)(14).
58 See supra note 32 and accompanying text.
59 See Securities Exchange Act Release Nos.
79528 (December 12, 2016), 81 FR 91232 (December
16, 2016) (File Nos. SR–DTC–2016–007, SR–FICC–
2016–005, SR–NSCC–2016–003); 84949 (December
21, 2018), 83 FR 67779 (December 31, 2018) (File
Nos. SR–DTC–2018–012, SR–FICC–2018–014, SR–
NSCC–2018–013).
60 17 CFR 240.17Ad–22(a)(14).
61 17 CFR 240.17Ad–22(e)(7)(i).
62 17 CFR 240.17Ad–22(e)(7)(ii).
63 17 CFR 240.17Ad–22(e)(7).
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33419
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Partial
Amendment No. 1, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2021–002 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–2021–002. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of 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–
2021–002 and should be submitted on
or before July 15, 2021.
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V. Accelerated Approval of the
Proposed Rule Change, as Modified by
Partial Amendment No. 1
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,64 to approve the proposed rule
change prior to the 30th day after the
date of publication of Partial
Amendment No. 1 in the Federal
Register. As discussed in Section II.D
above, in Partial Amendment No. 1,
NSCC amends its Form 19b–4, Item 3(a)
disclosure to provide additional
description of the purpose of the
Proposed Rule Change, and Partial
Amendment No. 1 does change the
substance of the proposal, the proposed
text of the Rules that was provided as
Exhibit 5 to the Proposed Rule Change,
the manner in which the Proposed Rule
Change will operate, or the manner in
which the Proposed Rule Change will
affect its Members or other interested
persons.
Furthermore, as discussed in Section
III.A above, the Commission believes
that the Proposed Rule Change, as
modified by Partial Amendment No. 1,
should help NSCC ensure it can
complete settlement for all its Members
in the event one Member defaults,
which the Commission believes should
promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F).65 Therefore, the
Commission believes the nature of the
changes in Partial Amendment No. 1
and NSCC’s intended enhancements to
its daily liquidity risk management
warrants accelerated approval of the
Proposed Rule Change. Accordingly, the
Commission finds good cause for
approving the Proposed Rule Change, as
modified by Partial Amendment No. 1,
on an accelerated basis, pursuant to
Section 19(b)(2) of the Act.66
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VI. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Change is consistent with the
requirements of the Act and in
particular with the requirements of
Section 17A of the Act 67 and the rules
and regulations promulgated
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 68 that
Proposed Rule Change, as modified by
Partial Amendment No. 1, SR–NSCC–
64 15
U.S.C. 78s(b)(2).
U.S.C. 78q–1(b)(3)(F)
66 15 U.S.C. 78s(b)(2).
67 15 U.S.C. 78q–1.
68 15 U.S.C. 78s(b)(2).
65 15
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2021–002, be, and hereby is, Approved
on an accelerated basis.69 70
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.70
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13413 Filed 6–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92185; File No. SR–FICC–
2021–003]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Designation of Longer Period for
Commission Action on a Proposed
Rule Change To Add the Sponsored
GC Service and Make Other Changes
June 15, 2021.
On May 12, 2021, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2021–003
(‘‘Proposed Rule Change’’) pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The Proposed Rule
Change was published for comment in
the Federal Register on June 1, 2021.3
The Commission has received no
comment letters on the Proposed Rule
Change.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
69 In approving the Proposed Rule Change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
70 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 92014 (May
25, 2021), 86 FR 29334 (June 1, 2021) (SR–FICC–
2021–003) (‘‘Notice’’). FICC also filed the proposal
contained in the Proposed Rule Change as advance
notice SR–FICC–2021–801 (‘‘Advance Notice’’) with
the Commission pursuant to Section 806(e)(1) of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act entitled the Payment, Clearing, and
Settlement Supervision Act of 2010 (‘‘Clearing
Supervision Act’’). 12 U.S.C. 5465(e)(1); 17 CFR
240.19b–4(n)(1)(i). Notice of filing of the Advance
Notice was published for comment in the Federal
Register on June 3, 2021. Securities Exchange Act
Release No. 92019 (May 27, 2021), 86 FR 29834
(June 3, 2021) (SR–FICC–2021–801) (‘‘Notice of
Filing’’). The proposal contained in the Proposed
Rule Change and the Advance Notice shall not take
effect until all regulatory actions required with
respect to the proposal are completed.
4 15 U.S.C. 78s(b)(2).
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reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for the
Proposed Rule Change is July 16, 2021.
The Commission is extending the 45day period for Commission action on
the Proposed Rule Change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the Proposed
Rule Change so that it has sufficient
time to consider and take action on the
Proposed Rule Change.
Accordingly, pursuant to Section
19(b)(2) of the Act 5 and for the reasons
stated above, the Commission
designates August 30, 2021, as the date
by which the Commission should either
approve or disapprove the Proposed
Rule Change SR–FICC–2021–003.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13287 Filed 6–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92180; File No. SR–
NASDAQ–2021–044]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Equity 4, Rules 4702 and 4703 in Light
of Planned Changes to the System
June 15, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 4,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33414-33420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13413]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92213; File No. SR-NSCC-2021-002]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Partial Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Amend the Supplemental Liquidity Deposit
Requirements
June 21, 2021.
I. Introduction
On March 5, 2021, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2021-002 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder \2\ to amend its supplemental liquidity
[[Page 33415]]
deposit requirements.\3\ The proposed rule change was published for
comment in the Federal Register on March 24, 2021,\4\ and the
Commission has received comments in support of the changes proposed
therein.\5\ On May 7, 2021, pursuant to Section 19(b)(2) of the Act,\6\
the Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the proposed rule change.\7\ On June 17, 2021, NSCC filed
Partial Amendment No. 1 to the proposed rule change, which provided
additional description of the proposed rule change and did not change
the substance of the proposed rule change, as discussed in more detail
in Section II.D below. The Commission is publishing this notice to
solicit comments on Partial Amendment No. 1 from interested persons
and, for the reasons discussed below, is approving the proposed rule
change, as modified by Partial Amendment No. 1 (hereinafter, ``Proposed
Rule Change''), on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing, infra note 4, at 86 FR 15738. On March
5, 2021, NSCC also filed the proposals contained in the proposed
rule change as advance notice SR-NSCC-2021-801 (the ``Advance
Notice'') with the Commission pursuant to Section 806(e)(1) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act entitled
the Payment, Clearing, and Settlement Supervision Act of 2010
(``Clearing Supervision Act''), 12 U.S.C. 5465(e)(1), and Rule 19b-
4(n)(1)(i) of the Act, 17 CFR 240.19b-4(n)(1)(i). Notice of filing
of the Advance Notice was published in the Federal Register on March
24, 2021. Securities Exchange Act Release No. 91347 (March 18,
2021), 86 FR 15750 (March 24, 2021) (File No. SR-NSCC-2021-801).
\4\ Securities Exchange Act Release No. 91350 (March 18, 2021),
86 FR 15738 (March 24, 2021) (File No. SR-NSCC-2021-002) (``Notice
of Filing'').
\5\ Comments are available at https://www.sec.gov/comments/sr-nscc-2021-002/srnscc2021002.htm. To date, the comments received
generally support the proposal.
\6\ 15 U.S.C. 78s(b)(2).
\7\ Securities Exchange Act Release No. 91788 (May 7, 2021), 86
FR 26112 (May 12, 2021) (File No. SR-NSCC-2021-002).
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II. Description of the Proposed Rule Change
A. Background
As a central counterparty (``CCP''),\8\ NSCC occupies an important
role in the securities settlement system by interposing itself between
counterparties to financial transactions, becoming the buyer to each
seller and seller to each buyer to ensure the performance of the
contract, thereby reducing the risk faced by its Members \9\ and
contributing to global financial stability. NSCC's liquidity risk
management plays an integral part in NSCC's ability to perform its role
as a CCP. If a Member defaults, NSCC, as a CCP, would need to complete
settlement of guaranteed transactions on the failing Member's behalf
from the date of default through the remainder of the settlement cycle
(currently two days for securities that settle on a regular way basis
in the U.S. markets). To do so, and to meet its related regulatory
requirements, NSCC seeks to maintain sufficient liquid resources in
order to meet the potential funding required to settle outstanding
transactions of a defaulting Member in a timely manner, as well as to
hold qualifying liquid resources sufficient to meet its minimum
liquidity resource requirement in each relevant currency for which it
has payment obligations owed to its Members.\10\
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\8\ 17 CFR 240.17Ad-22(a)(1).
\9\ Capitalized terms not defined herein are defined in NSCC's
Rules and Procedures (``Rules''), available at https://dtcc.com/~/
media/Files/Downloads/legal/rules/nscc_rules.pdf.
\10\ See Securities Exchange Act Release No. 82377 (December 21,
2017), 82 FR 61617 (December 28, 2017) (File Nos. SR-DTC-2017-004;
SR-FICC-2017-008; SR-NSCC-2017-005) (approving NSCC's Liquidity Risk
Management Framework).
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NSCC has a number of default liquidity resources that it considers
to be qualifying liquid resources for the purposes of Rule 17Ad-
22(a)(14).\11\ These resources include: (1) Cash deposits to the NSCC
Clearing Fund; \12\ (2) the proceeds of the issuance and private
placement of (a) short-term, unsecured notes in the form of commercial
paper and extendable notes (``Commercial Paper Program''),\13\ and (b)
term debt (``Term Debt Issuance''); \14\ (3) cash that would be
obtained by drawing on NSCC's committed 364-day credit facility with a
consortium of banks (``Line of Credit''); \15\ and (4) supplemental
liquidity deposits, collected pursuant to NSCC Rule 4(A), as discussed
further below.\16\
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\11\ See Notice of Filing, supra note 4, at 15738-39. Qualifying
liquid resources include, among other things: Cash held either at
the central bank of issue or at creditworthy commercial banks, and
assets that are readily available and convertible into cash through
prearranged funding arrangements, such as committed arrangements
without material adverse change provisions, including lines of
credit, foreign exchange swaps, and repurchase agreements. 17 CFR
240.17Ad-22(a)(14).
\12\ See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund
Formula and Other Matters) of the Rules, supra note 9.
\13\ See Securities Exchange Act Release Nos. 75730 (August 19,
2015), 80 FR 51638 (August 25, 2015) (File No. SR-NSCC-2015-802);
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (File No.
SR-NSCC-2017-807).
\14\ See Securities Exchange Act Release No. 88146 (February 7,
2020), 85 FR 8046 (February 12, 2020) (File No. SR-NSCC-2019-802).
\15\ See Securities Exchange Act Release No. 80605 (May 5,
2017), 82 FR 21850 (May 10, 2017) (File Nos. SR-DTC-2017-802; SR-
NSCC-2017-802).
\16\ See Rule 4(A) (Supplemental Liquidity Deposits) of the
Rules, supra note 9. See also Securities Exchange Act Release Nos.
70999 (December 5, 2013), 78 FR 75413 (December 11, 2013) (File No.
SR-NSCC-2013-02); 71000 (December 5, 2013), 78 FR 75400 (December
11, 2013) (File No. SR-NSCC-2013-802).
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B. Current Rules Relating to Supplemental Liquidity Deposits
Currently, NSCC only collects supplemental liquidity deposits
during monthly options expiry periods in order to cover the heightened
liquidity exposure resulting from increased trading activity around
options expiration.\17\ NSCC only collects supplemental liquidity
deposits from its 30 largest Members or group of affiliated Members
(hereinafter, ``Providers'').\18\ NSCC calculates each Provider's
supplemental liquidity obligation for an upcoming options expiry period
using an estimate based on NSCC's highest liquidity need and the
Provider's settlement activity during the prior 24-months.\19\
Providers, in turn, must fund their supplemental liquidity obligations
two business days prior to the start of the options expiry period,
which NSCC will return seven business days after the end of that
period.\20\
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\17\ See Rule 4(A), supra note 9. NSCC defines the duration of
the options expiry periods in its Rules, which typically runs from
the third Friday of the month to the following Tuesday. See id.
\18\ See Section 2 of Rule 4(A), supra note 9. NSCC may use a
Provider's supplemental liquidity deposit to satisfy a loss or
liability arising only from that Provider's default on its
obligations to NSCC. Supplemental liquidity deposits are not
otherwise subject to NSCC's Loss Allocation Waterfall. See Section
13(c) of Rule 4(A), supra note 9.
\19\ See Section 2 of Rule 4(A), supra note 9. Typically, NSCC
performs this calculation, at the latest, one week prior to the
start of the options expiry period.
\20\ See Sections 4 and 9 of Rule 4(A), supra note 9.
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In order to ensure NSCC maintains adequate liquidity resources
throughout the options expiry period, Providers may voluntarily prefund
additional supplemental liquidity deposits at the start of the period,
if it anticipates increases in its trading activity, compared to its
historical activity, will create a liquidity shortfall at NSCC.\21\ In
the event a Provider fails to provide adequate voluntary prefunded
deposits, NSCC may require the Provider to fund additional supplemental
liquidity deposits if NSCC experiences a resulting liquidity
shortfall,\22\ which NSCC may hold for up to 90 days.\23\ The 90-day
lock-up incentivizes Providers to voluntarily prefund their
supplemental liquidity deposits in order to ensure NSCC maintains
adequate liquidity resources throughout the options expiry period.
---------------------------------------------------------------------------
\21\ See Section 2 of Rule 4(A), supra note 9. See also, Notice
of Filing, supra note 4, at 15739.
\22\ See Section 7 of Rule 4(A), supra note 9.
\23\ See Section 10 of Rule 4(A), supra note 9.
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[[Page 33416]]
C. Proposed Changes to the Rules Relating to Supplemental Liquidity
Deposits
As discussed above, NSCC may only collect supplemental liquidity
deposits during monthly options expiry periods under its current
Rules.\24\ However, NSCC can face sudden liquidity shortfalls on any
business day, not just those business days that fall within monthly
options expiry periods, particularly during volatile market conditions
unrelated to options expiration.\25\ To address this issue, NSCC
proposes to change the frequency at which it may collect supplemental
liquidity deposits to each business day, based on a daily calculation.
This proposed approach to collecting supplemental liquidity deposits
should allow NSCC to respond quickly to any sudden liquidity shortfalls
arising from a Provider's activity, regardless of when those shortfalls
occur.
---------------------------------------------------------------------------
\24\ The description that follows is excerpted from the Notice
of Filing, supra note 4.
\25\ See Notice of Filing, supra note 4, at 15740.
---------------------------------------------------------------------------
NSCC also proposes the ability to collect supplemental liquidity
deposits on an intraday basis in certain instances where sudden
intraday increases in liquidity risk justify shortening the amount of
time NSCC is exposed to that risk, including a mandatory intraday
collection in connection with monthly options expiry periods. Moreover,
NSCC proposes to eliminate the up to 90 day lock-up period of certain
supplemental liquidity deposits. Additionally, NSCC proposes an
alternative pro rata daily calculation in the rare event its regular
daily calculation would inadvertently result in collecting supplement
liquidity deposits from multiple Providers that, taken together, would
significantly exceed NSCC's liquidity needs on that day.
1. Proposed Daily Calculation of Supplemental Liquidity Deposits
A Provider \26\ will be obligated to provide a supplemental
liquidity deposit on each business day in which its settlement activity
causes a liquidity shortfall at NSCC.\27\ NSCC will provide a notice to
each Provider of the amount of its supplemental liquidity deposit,
which the Provider will be required to fund within one hour of such
notice.\28\ NSCC proposes to return supplemental liquidity deposits on
the next business day,\29\ except in certain circumstances as described
in greater detail in Section II.C.4. below.
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\26\ Under the proposal, Providers will continue to be the 30
largest Members or group of affiliated Members, but NSCC proposes to
simplify how it determines the 30 Providers in order to provide
greater transparency and predictability in its determination. The 30
Providers will be determined daily and will be based on the
Provider's settlement activity during the prior 24-months. NSCC's
determination will no longer require a calculation of liquidity
exposures the Providers presented to NSCC based on NSCC's qualifying
liquid resources throughout a 24 month lookback period. NSCC will
continue to make available to each Member daily information on
NSCC's liquidity need based on that Member's settlement activity on
the previous business day.
\27\ A liquidity shortfall will arise if NSCC's daily liquidity
need exceeds its qualifying liquid resources, assuming stressed
market conditions. NSCC will continue to apply stress scenarios in
determining its total qualifying liquid resources in order to
anticipate market conditions that could cause those resources to be
unavailable on that day. Because the daily calculation will be done
at the start of each business day, it will be based on the
qualifying liquid resources available to NSCC as of the end of the
prior business day.
\28\ NSCC's proposed timing would mirror the current requirement
that is applied to its Members' Required Fund Deposits (i.e.,
margin), which is also calculated and collected daily, and must be
funded within one hour of demand. NSCC expects to deliver
notification of Provider obligations by around 8:30 a.m. ET each
business day, with deposits required by no later than 9:30 a.m. ET.
See Notice of Filing, supra note 4, at 15741.
\29\ Because NSCC would recalculate supplemental liquidity
deposits daily, NSCC will no longer need to hold deposits for the
extended periods under its current Rules. See Notice of Filing,
supra note 4, at 15742.
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NSCC states that, under its proposed calculation, it will no longer
need to estimate its liquidity need for a Provider's expected
settlement activity based on the Provider's historical settlement
activity.\30\ Instead, each Provider's deposit will be calculated based
on NSCC's actual liquidity need based on the Provider's daily
settlement activity in the event the Provider defaulted on that day,
which NSCC believes will provide both NSCC and Providers with a more
reliable measure of the liquidity risks posed to NSCC.\31\
---------------------------------------------------------------------------
\30\ See Notice of Filing, supra note 4, at 15740.
\31\ See id. at 15740-41.
---------------------------------------------------------------------------
NSCC provided the Commission with the results of an impact study
comparing the proposal against the observed regulatory liquidity needs
and NSCC's qualifying liquid resources available during the period from
2016 through 2020. The study assessed both pro-forma and hypothetical
impacts of the proposal under various liquidity scenarios. The study
also analyzed historical trends including the average composition and
rankings of the top 30 Providers at NSCC during the 2016 to 2020
period. Based on the pro-forma/hypothetical impact as well analysis of
the top Providers, the study's results generally indicate that the
proposal would continue to allow NSCC to meet its regulatory liquidity
obligations, and the largest Members would continue to be the ones
affected by supplemental liquidity obligations.\32\
---------------------------------------------------------------------------
\32\ See id. at 15744. NSCC further states that if its other
qualifying liquid resources materially decrease, it would expect to
see an increase in both number and amount of supplemental liquidity
obligations that Providers would have been required to fund under
the proposed rule. See id. at 15744.
---------------------------------------------------------------------------
2. Proposed Intraday Supplemental Liquidity Calls
NSCC also proposes to establish intraday supplemental liquidity
calls, which are intended to allow NSCC to calculate and collect
additional supplemental liquidity deposits on an intraday basis if a
Provider's increased daily activity levels or projected settlement
activity causes a NSCC liquidity shortfall during a given day.\33\ NSCC
believes the proposed intraday supplemental liquidity calls will help
to mitigate increased liquidity exposures presented to NSCC on an
intraday basis in specified circumstances, as discussed further
below.\34\
---------------------------------------------------------------------------
\33\ The alternative pro rata calculation described in Section
II.C.3 below would not apply to an intraday supplemental liquidity
call.
\34\ See Notice of Filing, supra note 4, at 15741.
---------------------------------------------------------------------------
i. Proposed Mandatory Intraday Supplemental Liquidity Call During
Options Expiry Periods
First, NSCC proposes to establish a mandatory monthly intraday
supplemental liquidity call that is calculated and collected, when
applicable, on the first business day (typically a Friday) of an
options expiry period.\35\ A Provider's mandatory intraday supplemental
liquidity call will be the difference between, on the one hand, NSCC's
qualifying liquid resources and, on the other hand, NSCC's daily
liquidity need based on the Provider's settlement activity at the start
of the business day, recalculated to account for both the Provider's
actual settlement activity submitted to NSCC over the course of the
day, and the Provider's projected settlement activity in stock options
expected to be submitted to NSCC.\36\ Because NSCC's recalculated daily
liquidity need will not factor in late day trades or other off-
[[Page 33417]]
setting settlement activity,\37\ NSCC proposes to adjust its
recalculated daily liquidity need using an estimated netting percentage
based on each Provider's average percentage of netting from its off-
setting settlement activity observed over the prior 24 months. NSCC
states that the actual settlement activity flowing into NSCC for cash
settlement of stocks underlying expiring options is typically lower
than the projected settlement activity NSCC receives from OCC on the
Thursday before the start of the options expiry period due to late day
offsetting trades in stock options on that Friday; therefore, applying
this netting percentage should more accurately reflect the actual
liquidity exposures that will be presented to NSCC from the
Providers.\38\
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\35\ NSCC will retain how it defines the duration of the options
expiry periods in its Rules. See supra note 17.
\36\ Each business day, NSCC receives information regarding
projected settlement activity from The Options Clearing Corporation
(``OCC'') pursuant to a Stock and Futures Settlement Agreement. That
agreement provides for the clearance and settlement of exercises and
assignments of options on eligible securities or the maturity of
eligible stock futures contracts through NSCC. See Securities
Exchange Act Release No. 81260 (July 31, 2017), 82 FR 36484 (August
4, 2017) (File Nos. SR-NSCC-2017-803; SR-OCC-2017-804). In this
case, the recalculation will be based on the data NSCC receives from
OCC late Thursday.
\37\ See Notice of Filing, supra note 4, at 15741. For example,
an affiliated Member may be entitled, under NSCC Rules, to liquidity
credits based the trading activity of its affiliates, who are also
Members, in order to determine NSCC's net liquidity exposure from
the affiliated family of Members.
\38\ See Notice of Filing, supra note 4, at 15741.
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Moreover, NSCC proposes to eliminate the up to 90 day lock-up
period of certain supplemental liquidity deposits. NSCC will no longer
need to hold these deposits for longer periods because NSCC proposes to
use the daily calculation and collection of supplemental liquidity
deposits to help ensure NSCC maintains adequate liquidity resources
each day, including throughout options expiry periods.\39\
---------------------------------------------------------------------------
\39\ See id. at 15740.
---------------------------------------------------------------------------
ii. Proposed Discretionary Intraday Supplemental Liquidity Call Other
Than During Options Expiry Periods
Second, NSCC proposes to establish a discretionary intraday
supplemental liquidity call on any business day other than the first
business day during options expiry periods. Under this provision, NSCC
will have the discretion to call for additional supplemental liquidity
deposits on an intraday basis on any such business day if a Provider's
increased activity levels during that day would cause a liquidity
shortfall at NSCC. The amount of a Provider's intraday supplemental
liquidity call, pursuant to NSCC's discretion, would be the difference
between NSCC's daily liquidity need, recalculated to take into account
the increase in the Provider's settlement activity during the day, and
NSCC's qualifying liquid resources.
NSCC states that it would collect a discretionary intraday call in
circumstances where NSCC believes it should accelerate the collection
of a Provider's supplemental liquidity obligation because that
Provider's intraday settlement activity would cause NSCC's liquidity
needs to exceed its liquidity resources.\40\ For example, NSCC may
impose an intraday supplemental liquidity call on a Provider if NSCC
determines that Provider is unlikely to meet its projected settlement
obligations through the settlement cycle due to rapidly escalating
financial stress.\41\ NSCC will make this determination based on a
variety of factors, including NSCC's assessment of the Provider's
ability to meet its obligations to NSCC (i.e., an assessment of the
Provider's creditworthiness on a particular business day) or estimates
of settlement activity that could offset settlement exposures and are
not reflected in NSCC's liquidity estimates.\42\
---------------------------------------------------------------------------
\40\ See id. at 15741-42.
\41\ See id. at 15742.
\42\ See id.
---------------------------------------------------------------------------
3. Proposed Pro Rata Calculation of Supplemental Liquidity Deposits
As a potential alternative to the calculation described above, NSCC
proposes a discretionary pro rata calculation that could apply in the
event two or more Providers each would be obligated to provide a
supplemental liquidity deposit of more than $2 billion on a business
day pursuant to the calculation described above.\43\ Under the proposed
alternative, NSCC will have the option to allocate, on a pro rata
basis, its largest liquidity need on a business day to all Providers
that are required to make a supplemental liquidity deposit on that day,
thereby reducing all such Providers' obligations to NSCC on that day.
NSCC's determination will be based on the market conditions at that
time. For example, NSCC may determine that, in certain market
conditions, this alternative approach would be appropriate to alleviate
liquidity pressures on all Providers required to make a supplemental
liquidity deposit on that day.\44\ NSCC states this alternative would
allow NSCC to use this pro rata calculation to sufficiently cover its
liquidity exposure on that day, without requiring that all Providers
fund the total amount of its calculated supplemental liquidity deposit
on that day.
---------------------------------------------------------------------------
\43\ NSCC represents that it has never had two or more Providers
owe more than $2 billion on a calculation date since its adoption of
the supplemental liquidity deposit Rules in 2013. Therefore, NSCC
believes this alternative calculation would only be available in
very limited circumstances. See Notice of Filing, supra note 4, at
15741.
\44\ See Notice of Filing, supra note 4, at 15741.
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4. Proposed Clarifying Changes to the Treatment of Supplemental
Liquidity Deposits
As described in Section II.C.1 above, NSCC proposes to return
supplemental liquidity deposits, including any amount funded pursuant
to an intraday supplemental liquidity call, on the next business day.
However, NSCC proposes to clarify that, consistent with its current
Rules regarding excess Clearing Fund deposits, it will have the right
to withhold all or any part of any Member's excess Clearing Fund
deposits, including supplemental liquidity deposits, if that Member has
been placed on the Watch List pursuant to the Rules or if NSCC
determines that the Member's anticipated activities in the near future
may reasonably be expected to be materially different than its
activities of the recent past.\45\ NSCC states that, while the proposed
provision would not change NSCC's rights with respect to these funds,
it would provide Members with greater transparency into how
supplemental liquidity deposits will be treated under Rule 4.\46\
---------------------------------------------------------------------------
\45\ See Section 9 of Rule 4, supra note 9. Proposed Section
12(a) of Rule 4(A) cross-references to Section 9 of Rule 4.
\46\ See Notice of Filing, supra note 4, at 15742.
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NSCC further proposes that it will hold a retired Provider's
supplemental liquidity deposits for 30 calendar days after any of the
Provider's open transactions have settled and obligations have been
satisfied,\47\ rather than return such deposits on the next business
day. NSCC states that the proposed provision will help protect NSCC
from liquidity risks presented by open transactions in the days
following a firm's retirement and would align the treatment of these
funds with the treatment of a retired Member's Required Fund
Deposits.\48\
---------------------------------------------------------------------------
\47\ See Section 7 of Rule 4, supra note 9. Proposed Section 10
of Rule 4(A) cross-references to Section 7 of Rule 4.
\48\ See Notice of Filing, supra note 4, at 15742.
---------------------------------------------------------------------------
Additionally, NSCC proposes to simplify and clarify NSCC's right to
debit Providers' accounts at NSCC if a Provider fails to meet its
supplemental liquidity obligations, and NSCC's obligation to make
available to Providers the amount of the Daily Liquidity Need that NSCC
would have had in the event the Provider defaulted on the previous
business day. NSCC states that, while the proposed miscellaneous
changes will not significantly alter the structure of these provisions,
they will provide transparency to Providers regarding
[[Page 33418]]
their rights and obligations under the Rules.\49\
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\49\ See id.
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D. Partial Amendment No. 1
On June 17, 2021, NSCC filed Partial Amendment No. 1 to revise its
disclosure, pursuant to Item 3(a) of Form 19b-4, relating to the
purpose of the Proposed Rule Change by including the following language
at the beginning of its Item 3(a) disclosure:
As described in greater detail below, NSCC adopted the SLD
requirements in 2013 to establish supplemental liquidity deposits to
the Clearing Fund designed to ensure that NSCC has adequate
liquidity resources to meet its liquidity needs during monthly
options expiry settlement periods when NSCC observes significant
increases in its liquidity exposures. Since that time, NSCC has
continued to strengthen its liquidity risk management by
diversifying its sources of qualifying liquid resources. These
efforts are aimed at, for example, managing the risk that any one of
those sources is reduced.
In connection with these ongoing efforts, NSCC is proposing
changes to the SLD requirements. As described in greater detail in
this filing, the proposed changes include:
(1) Calculating and collecting, when applicable, SLD on each
Business Day, rather than only during the monthly options settlement
periods.
(2) calculating SLD based on observed Member activity, rather
than based on historical and forecasted settlement activity.
(3) adopting an intraday SLD calculation and collection, when
applicable, on the first Business Day of the monthly options
settlement periods based on additional exposures that are presented
by options activity submitted after the start of day.
(4) eliminating the 90-day holding period for certain SLD.
(5) adopting a discretionary, alternative pro rata calculation
of Members' SLD requirements that would apply in certain
circumstances and allow NSCC to allocate its largest liquidity need
on a Business Day among Members that are required to pay SLD, rather
than collect separate SLD from each of those Members.
In Partial Amendment No. 1, NSCC clarifies its disclosure
describing the purpose of the proposal, pursuant to Item 3(a) of Form
19b-4. NSCC does not, however, make changes to the proposal itself,
including the proposed text of the Rules that was provided as Exhibit 5
to the Proposed Rule Change. Therefore, Partial Amendment No. 1, NSCC
does not alter the manner in which the Proposed Rule Change would nor
does it alter the manner in which the Proposed Rule Change will affect
its Members or other interested persons.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \50\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. After careful consideration, the
Commission finds that the Proposed Rule Change is consistent with the
requirements of the Act and the rules and regulations applicable to
NSCC. In particular, the Commission finds that the Proposed Rule Change
is consistent with Section 17A(b)(3)(F) \51\ of the Act and Rule 17Ad-
22(e)(7) \52\ thereunder.
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\50\ 15 U.S.C. 78s(b)(2)(C).
\51\ 15 U.S.C. 78q-1(b)(3)(F).
\52\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) \53\ of the Act requires, in part, that the
rules of a clearing agency, such as NSCC, be designed to, among other
things, promote the prompt and accurate clearance and settlement of
securities transactions and assure the safeguarding of securities and
funds which are in the custody or control of the clearing agency or for
which it is responsible. The Commission finds that the Proposed Rule
Change is consistent with Section 17A(b)(3)(F) of the Act for the
reasons stated below.
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above in Section II.B, NSCC can face sudden liquidity
shortfalls on any business day, particularly during volatile market
conditions, which can be unrelated to options expiration. As a CCP, it
is imperative that NSCC maintains adequate resources to satisfy
liquidity needs arising from its settlement obligations, including in
the event of a Member default. However, NSCC currently may only collect
supplemental liquidity deposits during monthly options expiry periods.
As described above in Section II.C.1, the Proposed Rule Change is
designed to allow NSCC to respond quickly to sudden liquidity
shortfalls that may arise, regardless of timing, by collecting
supplemental liquidity deposits based on a daily calculation, instead
of being limited to only the monthly options expiration period. The
ability to calculate and collect supplemental liquidity deposits, as
applicable, on a daily basis should help NSCC more accurately manage
its daily liquidity exposures based on Members' actual activity.
Moreover, the proposal would allow NSCC to determine the amount of
supplemental liquidity deposits based on Members' actual activity,
providing more precise and, potentially, lower charges for Members than
provided under the current methodology, which uses estimates based on a
look-back period and can, on occasion, result in NSCC collecting more
resources than needed to cover its exposure.
Further, as described above in Section II.C.3, the proposal will
provide NSCC with additional flexibility over the timing and amount of
collections. First, establishing the mandatory intraday supplemental
liquidity calls on the first business day of the monthly options expiry
periods should help NSCC continue to manage the potential increased
liquidity exposures that may arise from options settlement-related
activity by allowing it to accelerate the collection of supplemental
liquidity deposits on that day, as opposed to waiting for the proposed
daily collection that would occur on the morning of the following
business day. Second, the proposed discretionary intraday supplemental
liquidity calls should collect additional supplemental liquidity
deposits from Members whose activity outside of the monthly options
expiry periods may cause a sudden increase in NSCC's liquidity needs on
an overnight basis. Moreover, as described above in Section II.C.3, the
proposed alternative pro rata calculation that NSCC may apply in
certain circumstances will provide NSCC the flexibility to determine
the total amount collected on a business day, while continuing to
collect sufficient liquidity to complete end-of-day settlement in the
event the Provider with the largest payment obligation defaults.
Additionally, as described above in Section II.C.4, the proposed
clarifying changes would make the rights and obligations of both NSCC
and its Members under the Rules more transparent and easier to
understand. A clearer rule supports the ability of Members to meet
their supplemental liquidity deposit requirements and understand how
NSCC will treat such deposits, and the liquidity provided to NSCC
through supplemental liquidity deposits would allow it to complete end-
of-day settlement in the event the Provider with the largest payment
obligation defaults.
For the reasons stated above, the Commission finds the Proposed
Rule Change is designed to allow NSCC to address potential sudden
liquidity exposures that may arise on a daily basis. The daily
calculation and collection of supplemental liquidity
[[Page 33419]]
deposits should allow NSCC to effectively cover those liquidity
exposures and, should help NSCC ensure it can complete settlement for
all its Members in the event one Member defaults, which the Commission
believes should promote the prompt and accurate clearance and
settlement of securities transactions. Moreover, the Commission
believes that enhancing NSCC's ability to complete settlement in the
event of a Member default should help avoid the potential for loss
mutualization among the non-defaulting members and potential impacts on
the broader financial system, which is consistent with assuring the
safeguarding of securities and funds which are in its custody or
control. Accordingly, the Commission finds the changes proposed in the
Proposed Rule Change are consistent with Section 17A(b)(3)(F) of the
Act.\54\
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\54\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(7)(i) and (ii)
The Commission finds the changes proposed in the Proposed Rule
Change are consistent with Rules 17Ad-22(e)(7)(i) and (ii), each
promulgated under the Act,\55\ for the reasons described below.
---------------------------------------------------------------------------
\55\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(i) under the 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.\56\ 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.\57\
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\56\ 17 CFR 240.17Ad-22(e)(7)(i).
\57\ 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).
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As described above in Sections II.C.1 and 2, the Proposed Rule
Change would help strengthen NSCC's ability to maintain sufficient
liquid resources to complete end-of-day settlement in the event of the
Member default by allowing NSCC to calculate and collect, when
applicable, supplemental liquidity deposits every business day, or on
an intraday basis, from those Members that pose the largest liquidity
exposures to NSCC on that day. These resources would be available to
NSCC to complete end-of-day settlement in the event of the default of a
Member. Moreover, the Commission has reviewed and considered the impact
study results provided by NSCC comparing the proposal against the
observed regulatory liquidity needs and NSCC's qualifying liquid
resources available during the period from 2016 through 2020, to assess
both pro-forma and hypothetical impacts of the proposal under various
liquidity scenarios,\58\ and finds that these results generally
indicated that the proposal would continue allow NSCC to meet its
regulatory liquidity obligations.
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\58\ See supra note 32 and accompanying text.
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In addition, deposits made to satisfy supplemental liquidity
deposit obligations are currently and will continue to be required to
be made as cash deposits, which will continue to be held by NSCC at
either its cash deposit account at the Federal Reserve Bank of New
York, at a creditworthy commercial bank, or in other investments
pursuant to NSCC's Clearing Agency Investment Policy.\59\ Therefore,
supplemental liquidity deposits would continue to be considered a
qualifying liquid resource, as defined by Rule 17Ad-22(a)(14),\60\ and
would support NSCC's ability to hold qualifying liquid resources
sufficient to meet the minimum liquidity resource requirement under
Rule 17Ad-22(e)(7)(i),\61\ as required by Rule 17Ad-22(e)(7)(ii).\62\
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\59\ See Securities Exchange Act Release Nos. 79528 (December
12, 2016), 81 FR 91232 (December 16, 2016) (File Nos. SR-DTC-2016-
007, SR-FICC-2016-005, SR-NSCC-2016-003); 84949 (December 21, 2018),
83 FR 67779 (December 31, 2018) (File Nos. SR-DTC-2018-012, SR-FICC-
2018-014, SR-NSCC-2018-013).
\60\ 17 CFR 240.17Ad-22(a)(14).
\61\ 17 CFR 240.17Ad-22(e)(7)(i).
\62\ 17 CFR 240.17Ad-22(e)(7)(ii).
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Accordingly, the Commission finds that implementation of the
proposed amendments to NSCC's supplemental liquidity deposit
requirements would be consistent with Rule 17Ad-22(e)(7)(i) and (ii)
under the Act.\63\
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\63\ 17 CFR 240.17Ad-22(e)(7).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NSCC-2021-002 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-2021-002. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of 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-2021-002 and should be submitted on
or before July 15, 2021.
[[Page 33420]]
V. Accelerated Approval of the Proposed Rule Change, as Modified by
Partial Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\64\ to approve the proposed rule change prior to the 30th day
after the date of publication of Partial Amendment No. 1 in the Federal
Register. As discussed in Section II.D above, in Partial Amendment No.
1, NSCC amends its Form 19b-4, Item 3(a) disclosure to provide
additional description of the purpose of the Proposed Rule Change, and
Partial Amendment No. 1 does change the substance of the proposal, the
proposed text of the Rules that was provided as Exhibit 5 to the
Proposed Rule Change, the manner in which the Proposed Rule Change will
operate, or the manner in which the Proposed Rule Change will affect
its Members or other interested persons.
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\64\ 15 U.S.C. 78s(b)(2).
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Furthermore, as discussed in Section III.A above, the Commission
believes that the Proposed Rule Change, as modified by Partial
Amendment No. 1, should help NSCC ensure it can complete settlement for
all its Members in the event one Member defaults, which the Commission
believes should promote the prompt and accurate clearance and
settlement of securities transactions, consistent with Section
17A(b)(3)(F).\65\ Therefore, the Commission believes the nature of the
changes in Partial Amendment No. 1 and NSCC's intended enhancements to
its daily liquidity risk management warrants accelerated approval of
the Proposed Rule Change. Accordingly, the Commission finds good cause
for approving the Proposed Rule Change, as modified by Partial
Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2)
of the Act.\66\
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\65\ 15 U.S.C. 78q-1(b)(3)(F)
\66\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act \67\ and
the rules and regulations promulgated thereunder.
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\67\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\68\ that Proposed Rule Change, as modified by Partial Amendment No. 1,
SR-NSCC-2021-002, be, and hereby is, Approved on an accelerated
basis.69 70
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\68\ 15 U.S.C. 78s(b)(2).
\69\ In approving the Proposed Rule Change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\70\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\70\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13413 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P
