Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Provide for a Passive Acknowledgment Process, Codify Certain Settlement Processes and Make Technical, Clarifying and Conforming Changes to the NSCC Rules & Procedures, 69687-69695 [2021-26531]

Download as PDF Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices notice to https://www.reginfo.gov/ public/do/PRAMain. Find this particular information collection by selecting ‘‘Currently under Review— Open for Public Comments’’ or by using the search function. FOR FURTHER INFORMATION CONTACT: David C. Cullison, NRC Clearance Officer, U.S. Nuclear Regulatory Commission, Washington, DC 20555– 0001; telephone: 301–415–2084; email: Infocollects.Resource@nrc.gov. SUPPLEMENTARY INFORMATION: jspears on DSK121TN23PROD with NOTICES1 I. Obtaining Information and Submitting Comments A. Obtaining Information Please refer to Docket ID NRC–2021– 0132 when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods: • Federal Rulemaking Website: Go to https://www.regulations.gov/ and search for Docket ID NRC–2021–0132. • NRC’s Agencywide Documents Access and Management System (ADAMS): You may obtain publicly available documents online in the ADAMS Public Documents collection at https://www.nrc.gov/reading-rm/ adams.html. To begin the search, select ‘‘Begin Web-based ADAMS Search.’’ For problems with ADAMS, please contact the NRC’s Public Document Room (PDR) reference staff at 1–800–397–4209, 301– 415–4737, or by email to PDR.Resource@nrc.gov. The supporting statement is available in ADAMS under Accession No. ML21330A041. • NRC’s PDR: You may examine and purchase copies of public documents, by appointment, at the NRC’s PDR, Room P1 B35, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. To make an appointment to visit the PDR, please send an email to PDR.Resource@nrc.gov or call 1–800–397–4209 or 301–415– 4737, between 8:00 a.m. and 4:00 p.m. (ET), Monday through Friday, except Federal holidays. • NRC’s Clearance Officer: A copy of the collection of information and related instructions may be obtained without charge by contacting the NRC’s Clearance Officer, David C. Cullison, Office of the Chief Information Officer, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–2084; email: Infocollects.Resource@nrc.gov. B. Submitting Comments Written comments and recommendations for the proposed information collection should be sent VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 within 30 days of publication of this notice to https://www.reginfo.gov/ public/do/PRAMain. Find this particular information collection by selecting ‘‘Currently under Review— Open for Public Comments’’ or by using the search function. The NRC cautions you not to include identifying or contact information in comment submissions that you do not want to be publicly disclosed in your comment submission. All comment submissions are posted at https:// www.regulations.gov/ and entered into ADAMS. Comment submissions are not routinely edited to remove identifying or contact information. If you are requesting or aggregating comments from other persons for submission to the OMB, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that comment submissions are not routinely edited to remove such information before making the comment submissions available to the public or entering the comment into ADAMS. II. Background Under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the NRC recently submitted a proposed collection of information to OMB for review entitled ‘‘NRC Insider Threat Program for Licensees and Others Requiring Access to Classified Information.’’ The NRC hereby informs potential respondents that an agency may not conduct or sponsor, and that a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The NRC published a Federal Register notice with a 60-day comment period on this information collection on September 22, 2021 (86 FR 52697). 1. The title of the information collection: ‘‘NRC Insider Threat Program for Licensees and Others Requiring Access to Classified Information.’’ 2. OMB approval number: An OMB control number has not yet been assigned to this proposed information collection. 3. Type of submission: New. 4. The form number, if applicable: There are no forms required under the Insider Threat Program. 5. How often the collection is required or requested: Annually or as events occur. 6. Who will be required or asked to respond: All licensees or stakeholders who have been granted access to classified information under part 95 of PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 69687 title 10 of the Code of Federal Regulations ‘‘Facility Security Clearance and Safeguarding of National Security Information and Restricted Data.’’ 7. The estimated number of annual responses: 99 (71 Reporting + 28 Recordkeepers). 8. The estimated number of annual respondents: 28. 9. The estimated number of hours needed annually to comply with the information collection requirement or request: 3,828 (2,630 Reporting hrs. + 1,198 Recordkeeping hrs.). 10. Abstract: The NRC-regulated facilities and their contractors who are authorized to access and possess classified matter are required to provide information and maintain records to demonstrate they have established and are maintaining an Insider Threat Program to identify and protect classified information against a potential insider threat. Dated: December 3, 2021. For the Nuclear Regulatory Commission. David C. Cullison, NRC Clearance Officer, Office of the Chief Information Officer. [FR Doc. 2021–26594 Filed 12–7–21; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93709; File No. SR–NSCC– 2021–013] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Provide for a Passive Acknowledgment Process, Codify Certain Settlement Processes and Make Technical, Clarifying and Conforming Changes to the NSCC Rules & Procedures December 2, 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 November 18, 2021, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the clearing agency. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 2 17 E:\FR\FM\08DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 08DEN1 69688 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would amend NSCC’s Rules & Procedures (‘‘Rules’’) 3 in order to (i) provide for a passive acknowledgment process whereby any settling bank that does not timely acknowledge that it will settle its settlement balance with NSCC (i.e., acknowledge its intention to pay to or collect from NSCC), or refuse to settle for one or more Members or Limited Members (collectively, ‘‘NSCC Members’’) or AIP Non-Member Funds for which it is the designated Settling Bank or AIP Settling Bank (collectively, ‘‘NSCC Settling Banks’’) and has not otherwise been in contact with NSCC, would be deemed to have acknowledged its settlement balances, (ii) amend the definition of ‘‘AIP Settling Bank’’ to correspond with the definition of ‘‘Settling Bank’’ and remove AIP Settling Bank Only Member as a membership category, (iii) codify certain settlement processes and (iv) make certain technical, clarifying and conforming changes. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change jspears on DSK121TN23PROD with NOTICES1 1. Purpose The purpose of this proposed rule change is to (i) provide for a passive acknowledgment process whereby any settling bank that does not timely acknowledge that it will settle its settlement balance with NSCC (i.e., acknowledge its intention to pay to or collect from NSCC), or refuse to settle for one or more NSCC Members or AIP Non-Member Funds for which it is the designated NSCC Settling Bank and has not otherwise been in contact with NSCC, would be deemed to have acknowledged its settlement balances, 3 Capitalized terms not defined herein are defined in the Rules, available at https://dtcc.com/∼/media/ Files/Downloads/legal/rules/nscc_rules.pdf. VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 (ii) amend the definition of ‘‘AIP Settling Bank’’ to correspond with the definition of ‘‘Settling Bank’’ and remove AIP Settling Bank Only Member as a membership category, (iii) codify certain settlement processes and (iv) make certain technical, clarifying and conforming changes. Background NSCC Membership; Settling Banks and AIP Settling Banks—Settlement Processes NSCC membership consists of Members that have access to NSCC’s guaranteed central counterparty services and Limited Members that have access to NSCC’s non-guaranteed services, such as Mutual Fund Services and Alternative Investment Product Services (‘‘AIP’’).4 Limited Members that only have access to AIP are referred to as AIP Members.5 For purposes of this filing, all Members and Limited Members, including AIP Members, are referred to collectively as NSCC Members. AIP Non-Member Funds are entities that are not AIP Members but that NSCC has approved to settle AIP Payments as described in Rule 53.6 NSCC provides a standardized, automated method for money settlement obligations, between NSCC and NSCC Settling Banks acting on behalf of NSCC Members and AIP Non-Member Funds. NSCC’s settlement services eliminate manual processing and reduce costs by aggregating the money settlement payments due to or from an NSCC Member or AIP Non-Member Fund, and then, automatically debiting or crediting such NSCC Member’s account or AIP Non-Member Fund’s account at its NSCC Settling Bank. Money settlement is effected via the Federal Reserve Banks’ (‘‘FRB’’) National Settlement Service (‘‘NSS’’).7 NSCC provides two separate settlement processes—(i) end of day settlement for Members and Limited Members other than AIP Members (‘‘EOD Settlement’’) and (ii) daily settlement for AIP Members and AIP Non-Member Funds (‘‘AIP Settlement’’). Both settlement processes require each NSCC Member or AIP Non-Member Fund to designate a settling bank to effect money settlement on its behalf at NSCC.8 Settling Banks settle on behalf of Members and Limited Members with 4 See Section 2 of Rule 2, supra note 3. 5 Id. 6 Definition of ‘‘AIP Non-Member Fund’’ in Rule 1, supra note 3. 7 Section D.2. of Procedure VIII of the Rules (‘‘Procedure VIII’’), supra note 3. 8 See Section 1 of Rule 12, supra note 3 and Section 7(h) of Rule 53. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 respect to EOD Settlement and AIP Settling Banks settle on behalf of AIP Members and AIP Non-Member Funds with respect to AIP Settlement. All AIP money settlement is effected on a gross basis, where on the applicable settlement date, AIP debits are collected first, and in the afternoon all contra-side credits, where the corresponding debits have been collected, are paid.9 Each NSCC Settling Bank is required by the NSCC Rules to enter into a settling bank agreement with the NSCC Member or AIP Non-Member Fund on whose behalf it settles and to abide by the Rules.10 The Rules require Settling Banks to acknowledge to NSCC their settlement balances and their intention to settle with NSCC or their refusal to settle by the settlement deadline.11 The Rules do not explicitly require AIP Settling Banks to affirmatively acknowledge or refuse to settle, however, since the inception of AIP in 2008, NSCC’s settlement procedures have required AIP Settling Banks to affirmatively acknowledge or refuse to settle in the same manner as required by Settling Banks. On a daily basis, NSCC calculates settlement payment amounts for EOD Settlement and for AIP Settlement and reports to NSCC Members and their respective NSCC Settling Banks, a settlement balance.12 Then, through the Fed Funds Settlement system (‘‘FFS’’),13 the Settling Banks and AIP Settling Banks must submit their acknowledgment of their intent to settle or refusal to settle such amounts on behalf of their respective NSCC Members or AIP Non-Member Funds by a deadline established by NSCC.14 EOD 9 See Section 7 of Rule 53, supra, note 3. 1 of Rule 55, supra note 3. 11 Section D of Procedure VIII, supra note 3. A Settling Bank that is a Member and settles solely for its own accounts may opt to not acknowledge its settlement balance. Id. 12 For EOD Settlement, Settling Banks are provided a net-net debit or net-net credit number. Section 2 of Rule 55, supra note 3. For AIP Settlement, each AIP Settling Bank is provided an aggregate gross debit number and an aggregate gross credit number with respect to each AIP Member or AIP Non-Member Fund on whose behalf it settles because for AIP Settlement, debits and credits are settled separately. Section 7 of Rule 55, supra note 3. For AIP Settlement, the net debts are paid first by AIP Settling Banks at approximately 11 a.m. and then net credits are paid to AIP Settling Banks at approximately 2 p.m. AIP settlement times are posted on NSCC’s website. 13 Section D of Procedure VIII requires Settling Banks to acknowledge settlement balances via ‘‘the terminal system’’ which is currently FFS. Section D of Procedure VIII, supra note 3. 14 Section D.1 of Procedure VIII, supra note 3. The Rules do not explicitly require AIP Settling Banks to affirmatively acknowledge or refuse to settle, however, NSCC‘s settlement procedures have required AIP Settling Banks to affirmatively acknowledge or refuse to settle in the same manner as required by Settling Banks. 10 Section E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices jspears on DSK121TN23PROD with NOTICES1 Settlement occurs at the end of the day and, from an operational perspective, is centralized with DTC’s end-of-day money settlement (‘‘DTC Settlement’’).15 For both EOD Settlement and AIP Settlement, if all of the NSCC Settling Banks submit acknowledgments of their intent to settle, then the Settlement Agent will submit the requisite file to the FRB for processing through the NSS. If an NSCC Settling Bank notifies the Settlement Agent that the NSCC Settling Bank refuses to pay the settlement balance for an NSCC Member or AIP Non-Member Fund, then NSCC will exclude that NSCC Member’s or AIP Non-Member Fund’s amount and the Settlement Agent will provide the NSCC Settling Bank with a new settlement balance that no longer includes the excluded amount. The NSCC Settling Bank must then immediately send a message to the Settlement Agent acknowledging the new amount.16 The Settlement Agent will then submit the requisite file to the FRB for processing through the NSS. If a Settling Bank does not acknowledge or refuse by the settlement acknowledgment deadline, the Settlement Agent will use the most recent contact information available to contact the NSCC Settling Bank. If the Settlement Agent is unable to contact the NSCC Settling Bank or does not receive a response from the NSCC Settling Bank as to the acknowledgment or refusal, NSCC needs to determine whether to request an NSS extension while also determining whether to remove the Settling Bank’s settlement balance from the NSS file. Today, failure of an NSCC Settling Bank to timely respond to the Settlement Agent by the settlement acknowledgment deadline could create uncertainty with respect to timely completion of settlement at NSCC. This is because today, NSCC is not permitted under the Rules and its settlement procedures 17 to submit the NSS file (through the Settlement Agent) unless all NSCC Settling Banks in the file that 15 DTC Settlement procedures and timing are set forth in the Settlement Service Guide of DTC (‘‘Settlement Service Guide’’) available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ service-guides/Settlement.pdf. Because EOD Settlement and DTC Settlement are centralized, the timing and processes for NSCC Settlement are the same as those set forth in the Settlement Service Guide. 16 Section D.1 of Procedure VIII, supra note 3. The Rules do not explicitly require acknowledgment of the new settlement balance for AIP Settling Banks, however, since the inception of AIP in 2008, NSCC’s settlement procedures have required AIP Settling Banks to affirmatively acknowledge or refuse to settle in the same manner as required by Settling Banks. 17 Id. VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 are required to acknowledge,18 have acknowledged. NSCC must therefore determine whether it should remove the settlement balance of the unresponsive NSCC Settling Bank from the NSS file in order to allow the processing of the rest of the NSS file for the other NSCC Settling Banks that are part of the NSS file. If NSCC does not remove the settlement balance of the unresponsive NSCC Settling Bank from the NSS file, then the NSS file cannot be created and settlement cannot be completed for the other NSCC Settling Banks that are part of the NSS file. As such, today, NSCC may need to remove the settlement balance of the unresponsive NSCC Settling Bank from the NSS file in order to submit the NSS file and complete settlement for the other NSCC Settling Banks that are part of the NSS file, thus potentially delaying settlement of the NSS file. Such potential delay would arise from the time needed to remove the figure of the unresponsive NSCC Settling Bank and then re-establish the NSS file. Moreover, with respect to the NSCC Members or AIP Non-Member Funds who were using the particular NSCC Settling Bank, NSCC would need to settle individually with those NSCC Members or AIP Non-Member Funds via the Fedwire Funds Service, which also presents the possibility of a delay because of the time it may take to complete this process individually with each affected NSCC Member. NSCC is proposing to implement a passive acknowledgment process for EOD Settlement and AIP Settlement to address the situation discussed above where an NSCC Settling Bank is unresponsive and cannot be reached. This would allow NSCC to submit the NSS file (through the Settlement Agent) for NSS processing more promptly, and thereby allow settlement to be completed for the other NSCC Settling Banks that are part of the NSS file. Until 2016, DTC’s rules also required settling banks that settled on behalf of DTC Participants for DTC Settlement to affirmatively acknowledge or to refuse to settle. In 2016, DTC amended the Settlement Service Guide to provide for a passive acknowledgment process, such that a settling bank which does not timely affirmatively acknowledge its settlement balance or refuse to settle would be deemed to have acknowledged its settlement balance.19 In 2020, Fixed Income Clearing Corporation (‘‘FICC’’) 18 A Settling Bank that is a Member and settles solely for its own accounts may opt to not acknowledge its settlement balance. Section D of Procedure VIII, supra note 3. 19 See Securities Exchange Act Release No. 76887 (January 13, 2016), 81 FR 3218 (January 20, 2016) (SR–DTC–2015–011). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 69689 also filed a rule filing to provide for similar passive acknowledgment process for FICC settling banks.20 The passive acknowledgment process being proposed by NSCC is the same process that DTC and FICC have put in place. NSCC Passive Acknowledgment Process NSCC proposes to introduce a settling bank passive acknowledgment process in the Rules for Settling Banks and for AIP Settling Banks to manage the collection or payment of settlement amounts in the event that any Settling Bank or AIP Settling Bank does not timely provide an affirmative acknowledgment or refusal with respect to its settlement payment amounts by the settlement acknowledgment deadline. If a Settling Bank or an AIP Settling Bank does not acknowledge or refuse its settlement amount by the settlement acknowledgment deadline and NSCC is unable to establish contact with the Settling Bank or AIP Settling Bank, NSCC proposes to deem the Settling Bank’s or AIP Settling Bank’s final settlement balance as acknowledged. Through this proposed passive acknowledgment process, NSCC will assume that the Settling Bank or AIP Settling Bank that has failed to acknowledge its figures or refused to settle by the settlement acknowledgment deadline, intends to settle for its respective NSCC Members or AIP Non-Member Funds. The Settling Bank’s or AIP Settling Bank’s final debit settlement balance or final credit settlement balance would then be debited from or credited to its account at the Federal Reserve Bank through the NSS process. Even with the implementation of the proposed passive acknowledgment process, NSCC must retain the discretion to remove the settlement balance of an NSCC Settling Bank from the NSS file.21 In other words, currently, NSCC may remove the NSCC Settling Bank’s figure from the NSS file in the situation where an NSCC Settling Bank is unresponsive and cannot be reached. Under the proposal, the need for NSCC to do so would arise in the event that an NSCC Settling Bank advises the Settlement Agent that it cannot yet determine whether to acknowledge or refuse. In such a circumstance, passive acknowledgment would not apply (as described below); however, as it gets closer to the NSS processing time, NSCC may need to remove the NSCC Settling Bank’s settlement balance from the NSS 20 See Securities Exchange Act Release No. 89593 (August 18, 2020), 85 FR 52164 (August 24, 2020) (SR–FICC–2020–006). 21 This practice is currently not codified in the Rules. E:\FR\FM\08DEN1.SGM 08DEN1 69690 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices file in order to allow settlement to be completed for the other NSCC Settling Banks that are part of the NSS file and have affirmatively or passively acknowledged their figure. NSCC is proposing to codify its ability to remove the settlement balance of the NSCC Settling Bank from the NSS file. As NSCC would be codifying this current practice with this proposed rule change, this proposed rule change would not change the current settlement process of NSCC Settling Banks that are excluded from the NSS file. This proposed change is discussed below. (i) Proposed Change To Introduce Passive Acknowledgment Process for NSCC Settling Banks Proposed Passive Acknowledgment Process jspears on DSK121TN23PROD with NOTICES1 NSCC proposes to establish an ‘‘Acknowledgment Cutoff Time’’ for EOD Settlement and an ‘‘AIP Acknowledgment Cutoff Time’’ for AIP Settlement after which NSCC would apply the passive acknowledgment process if it is unable to reach an NSCC Settling Bank. Since EOD Settlement is centralized with DTC Settlement, the Acknowledgment Cutoff Time will be the Acknowledgment Cutoff Time established in the Settlement Service Guide for DTC Settlement.22 To conform with current practice, the ‘‘Acknowledgment Cutoff Time’’ would be defined in Rule 1 as the time set forth as the Acknowledgment Cutoff Time in the DTC Settlement Service Guide which can be found on NSCC’s website at https://www.dtcc.com/legal/rulesand-procedures. The ‘‘AIP Acknowledgement Cutoff Time’’ would be defined in Rule 1, with respect to each AIP Settling Bank regarding AIP Settlement of AIP Debit Balances and AIP Credit Balances, as the later of (i) 30 minutes after the AIP Settling Bank has been notified of its AIP Debit Balance or AIP Credit Balance (or, the new AIP Debit Balance or new AIP Credit Balance, if readjusted as set forth herein), as applicable, and (ii) 30 minutes prior to the settlement deadline established by NSCC. NSCC would add a statement that it would post the settlement deadlines for AIP Settlement 22 The Acknowledgment Cutoff Time established in the Settlement Service Guide is currently the later of 4:15 p.m. and the time that is 30 minutes after net-net settlement balances are first made available. Page 19 of the Settlement Service Guide, supra note 15. For AIP, the current deadline for debit acknowledgment in NSCC’s settlement procedures is 9:30 a.m. and the current deadline for credit acknowledgment is 12:30 p.m. Such times are posted on NSCC’s website. VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 on the NSCC website which it currently does. If an NSCC Settling Bank does not submit either (1) an acknowledgment that it will settle the settlement balance with NSCC or (2) a refusal to pay the settlement balance by the Acknowledgment Cutoff Time or the AIP Acknowledgment Cutoff Time, as applicable, and has not been in contact with the Settlement Agent, then the Settlement Agent would attempt to contact the NSCC Settling Bank. If the Settlement Agent is able to contact the NSCC Settling Bank and it notifies the Settlement Agent that the NSCC Settling Bank cannot, at that time, submit its acknowledgment or refusal to pay its settlement balance and that it needs more time, then the NSCC Settling Bank would not be deemed to have acknowledged that it will settle such settlement balance with NSCC. However, if the NSCC Settling Bank cannot be reached, then the NSCC Settling Bank would be deemed to have acknowledged that it will settle such settlement balance with NSCC. The passive acknowledgment process described herein would also apply in situations where an NSCC Settling Bank is provided with a new settlement balance after such NSCC Settling Bank’s refusal to pay the settlement balance for one or more NSCC Members or AIP Non-Member Funds. NSCC would also revise the Rules to state that each NSCC Settling Bank must ensure that it maintains accurate contact details with the Settlement Agent so that the Settlement Agent may contact the NSCC Settling Bank regarding this settlement process and any settlement issues. Proposed Changes to Rule 1, Rule 55 and Procedure VIII The proposed passive acknowledgment process will require changes to Rule 1, Rule 55 with respect to AIP Settlement and Procedure VIII with respect to EOD Settlement. Specifically, NSCC proposes to add proposed new defined terms ‘‘Acknowledgment Cutoff Time’’ and ‘‘AIP Acknowledgment Cutoff Time’’ in Rule 1 as discussed above. NSCC proposes to add a phrase at the end of new subsection (b) of Section D.1. of Procedure VIII that would apply to Settling Banks that settle solely for their own accounts to state that if they choose to opt out of having to acknowledge their settlement balance, new subsections (c) and (e) (described below) PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 of Section D.1. of Procedure VIII would not apply to them.23 NSCC proposes to add a new subsection (c) in Section 9 of Rule 55 and in Section D.1 of Procedure VIII to provide that if the NSCC Settling Bank does not acknowledge its settlement balance or notify the Settlement Agent that it refuses to settle, then at the AIP Acknowledgment Cutoff Time or Acknowledgment Cutoff Time, as applicable, the NSCC Settling Bank is deemed to have acknowledged its settlement balance. NSCC proposes to amend the language in new subsection (d) of Section D.1 of Procedure VIII to delete the requirement that Settling Banks must send a message immediately after sending a refusal message acknowledging the new amount if it is a credit and its intention to settle if it is debit and instead provide that if the Settling Bank sends refusal messages, it must acknowledge to the Settlement Agent by the Acknowledgment Cutoff Time, its new settlement balance and its intention to settle by the settlement deadline. In addition, a sentence would be added stating that the new subsection (c) would apply with respect to the new settlement balances of the Settling Bank that sent refusal messages. Similar language would be added as a new subsection (d) of Section 9 in Rule 55 with respect to AIP Settling Banks and AIP Settlement. NSCC proposes to amend Section 9 of Rule 55 and Section D.1 of Procedure VIII to add new subsection (e) which would provide that the Settlement Agent would attempt to contact the NSCC Settling Bank if no acknowledgment or notice of refusal to settle on behalf of one or more NSCC Member or AIP Non-Member Fund, as applicable, for which it is designated as the NSCC Settling Bank is received by 23 Proposed subsections (c) and (e) describe the proposed passive acknowledgment process. As described above, if a Settling Bank that is a Member settles solely for its own account opts to not acknowledge its own settlement balance, the passive acknowledgment process would not apply to such Settling Banks because such Settling Banks cannot refuse to settle for their own accounts. For operational convenience, Settling Banks that are Members may choose to not acknowledge their own settlement balance because they cannot refuse to settle for their own accounts. Members are also required to be Participants at DTC and the Settlement Service Guide provides that a DTC Participant that acts as its own Settling Bank may not refuse to settle for itself. See p. 18 of the Settlement Service Guide, supra, note 15. As set forth below, NSCC is proposing to codify the practice in the Rules with respect to Members by adding a statement that a Settling Bank that is a Member may not refuse to settle for itself in Section D.1 of Procedure VIII. Therefore, proposed subsections (c) and (e) would not apply to such Settling Banks. E:\FR\FM\08DEN1.SGM 08DEN1 jspears on DSK121TN23PROD with NOTICES1 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices the AIP Acknowledgment Cutoff Time or Acknowledgment Cutoff Time, as applicable. The new subsections would provide that if (i) the Settlement Agent is able to contact the NSCC Settling Bank and (ii) the NSCC Settling Bank notifies the Settlement Agent that it cannot, at that time, acknowledge or refuse their settlement balance, then the NSCC Settling Bank will not be deemed to have acknowledged its settlement balance. The new subsections would provide that if the NSCC Settling Bank cannot be reached, the NSCC Settling Bank will be deemed to have acknowledged its settlement balance. In the new subsection (e) of Section D.1 of Procedure VIII, NSCC would also state that the new proposed subsection (e) would not apply to a Settling Bank that settles solely for its own account and opts not to acknowledge its settlement balance.24 As discussed in more detail below, the new subsection (e) of Section 9 of Rule 55 and Section D.1 of Procedure VIII would also contain a provision relating to NSCC’s ability to exclude an NSCC Settling Bank’s settlement balances from the NSS file if the NSCC Settling Bank has not acknowledged or been deemed to have acknowledged its settlement balance under certain circumstances. NSCC proposes to add a new subsection (g) of Section 9 in Rule 55 and a new subsection (g) of Section D.1 of Procedure VIII which would provide the Settlement Agent uses the most recent contact information provided by the NSCC Settling Bank to the Settlement Agent. These proposed subsections would also include a requirement that each NSCC Settling Bank maintains up-to-date and accurate contact details with the Settlement Agent on an ongoing basis. NSCC proposes to delete language in Section D.1 of Procedure VIII that states that if NSCC has not received funds from the Settling Bank with a net-net debit and the Settling Bank has not sent refusal messages and/or an acknowledgment message to NSCC by the deadline, NSCC begins failure to settle procedures in respect to the Settling Bank at this time. NSCC is proposing to delete this language to reflect the new passive acknowledgment process. 24 Section D.1 of Procedure VIII provides that Settling Bank that is a Member and settles solely for its own accounts may opt to not acknowledge it settlement balance. Section D.1 of Procedure VIII, supra, note 3. VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 (ii) Amend the Definition of ‘‘AIP Settling Bank’’ To Correspond With the Definition of ‘‘Settling Bank’’ and Remove AIP Settling Bank Only Member as a Membership Category. The proposed change would amend the definition of AIP Settling Bank to correspond with the definition of Settling Bank and remove AIP Settling Bank Only Member as a membership category. AIP Settling Bank is currently defined as either (i) an AIP Member which is a bank or trust company meeting certain criteria or (ii) an AIP Settling Bank Only Member meeting certain criteria and which have entered into an effective Appointment of AIP Settling Bank and AIP Settling Bank Agreement. Since the inception of AIP, AIP Members have used (a) Members that are banks or trust companies meeting certain criteria and (b) Settling Bank Only Members meeting certain criteria and which have entered into Appointments of AIP Settling Bank and AIP Settling Bank Agreements as AIP Settling Banks. Since the inception of AIP, there have been no AIP Members that have acted as AIP Settling Banks and there have been no entities that have become AIP Settling Bank Only Members. The proposed change would amend the definition of AIP Settling Bank in Rule 1 to provide that an AIP Settling Bank would be either (i) a Member which is a bank or trust company meeting certain criteria or (ii) a Settling Bank Only Member meeting certain criteria and which has entered into an effective Settling Bank Agreement which would be identical to the definition of Settling Bank. The definition of Settling Bank Agreement distinguishes between Settling Banks and AIP Settling Banks by indicating that in the Settling Bank Agreement entered into by an AIP Settling Bank, the AIP Settling Bank undertakes to perform settlement services for the AIP Member or the AIP Non-Member Fund which is a party thereto whereas Settling Banks make such undertakings with respect to Members and Limited Members that are not AIP Members. In addition, NSCC would delete the definition of AIP Settling Bank Only Member in Rule 1 and remove the term throughout the Rules, including a description of AIP Settling Bank Only Members in Section 2.(ii)(i) of Rule 2. NSCC would also change the reference to 2.(ii)(i) of Rule 2 in the definition of AIP Settling Bank to 2.(ii)(f) of Rule 2 to reflect that is referring to a Member which would qualify as a Settling Bank Only Member rather as an AIP Settling Bank Only Member. In addition, NSCC PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 69691 would amend Section 5 of Rule 3 to provide that NSCC shall maiCtain a list of Members and Settling Bank Only Members that have agreed to act as AIP Settling Banks to reflect that AIP Members would use Members and Settling Bank Only Members as AIP Settling Banks, as discussed above. Section 1 of Rule 55 would also be amended to reflect that an AIP Settling Bank shall be a Member or a Settling Bank Only Member. Addendum B would be amended to remove the references to AIP Settling Bank Only Members and to delete Section 11 which relates to membership requirements for AIP Settling Bank Only Members. (iii) Codify Certain Settlement Processes The proposed rule change would codify certain settlement processes that are currently being used by NSCC. Proposed Change to Codify Certain Settlement Processes for AIP Settlement Currently there are a number of settlement processes used in AIP Settlement that are not explicitly set forth in the Rules. These processes are the same processes that are set forth in the Section D.1 of Procedure VIII with respect to EOD Settlement and would be added in Section 9 of Rule 55 as follows: • A statement that DTC will act as Settlement Agent for NSCC and the AIP Settling Banks in a new subsection (b) • A requirement that AIP Settling Banks must acknowledge by the AIP Acknowledgment Cutoff Time via the terminal system their AIP Debit Balance and their AIP Credit Balance and their intention to settle or refusal to settle by the AIP Acknowledgment Cutoff Time in a new subsection (b); as proposed above, there would be an AIP Acknowledgment Cutoff Time with respect to AIP Settlement for the AIP Debit Balances and the AIP Credit Balances • A statement that if the AIP Settling Bank has an AIP Debit Balance, then the AIP Settling Bank’s account at the Federal Reserve Bank will be debited; if the AIP Settling Bank has an AIP Credit Balance, then the AIP Settling Bank’s Federal Reserve Bank account will be credited in new subsection (c) • A statement that if the AIP Settling Bank sends a refusal message it must acknowledge its new AIP Debit Balance and AIP Credit Balance by the AIP Acknowledgment Cutoff Time via the terminal system and its intention to settle in new subsection (d) • A statement that the AIP Settling Bank that cannot send an E:\FR\FM\08DEN1.SGM 08DEN1 69692 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices acknowledgment or refusal message may contact the Settlement Agent and instruct the Settlement Agent to act on its behalf in new subsection (f) jspears on DSK121TN23PROD with NOTICES1 Proposed Change To Allow NSCC To Exclude NSCC Settling Bank Balance From NSS file The proposed rule change would provide that if (1) passive acknowledgment does not apply because the NSCC Settling Bank has notified the Settlement Agent that it cannot yet acknowledge or refuse its settlement balance and (2) the payment deadline established by NSCC is approaching, then NSCC would have the ability to exclude the NSCC Settling Bank’s settlement balance from the NSS file. This would allow settlement to be completed for the other NSCC Settling Banks that are part of the NSS file. As described above, as it gets closer to the payment deadline, NSCC may need to remove the NSCC Member’s balance from the NSS file in order to allow settlement to be completed for the other NSCC Settling Banks that are part of the NSS file. As NSCC would be codifying its current practice with this proposed rule change, this proposed change would not change the current settlement process of NSCC Settling Banks that are excluded from the NSS file. This proposed change is reflected in the second paragraph of new subsection (e) of Section 9 of Rule 55 and new subsection (e) of Section D.1 of Procedure VIII. (iv) Proposed Technical, Clarifying and Conforming Changes NSCC is proposing to make the following technical, clarifying and conforming changes in the Rules to better clarify the meaning of certain provisions and to be consistent with other provisions in the Rules: • Remove the space after ‘‘Section 2.’’ in the new proposed reference to ‘‘Section 2. (ii)(f)’’ in two places in the definition of AIP Settlement Bank in Rule 1 for clarity • Add a definition of ‘‘FRB’’ as the Board of Governors of the Federal Reserve System and each Federal Reserve Bank, as appropriate, to reflect the usage of FRB in the Rules • Add a definition of FRBNY as the Federal Reserve Bank of New York, to reflect the usage of FRBNY in the Rules • Change the reference of ‘‘2. (ii)(j)’’ to ‘‘2.(ii)(i)’’ in the definition of Investment Manager/Agent Member in Rule 1 to reflect the proposed renumbering of that section • Add AIP Settling Banks in the definition of Settlement Agent in Rule VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 • • • • • • • • • • • • • • 1 to clarify that the Settlement Agent also acts on behalf of AIP Settling Banks with respect to AIP Settlement Add quotation marks to TPP Member in the definition of Third Party Provider Member to conform usage of quotation marks in other defined terms in the Rules Change the reference of ‘‘2. (ii)(k)’’ to ‘‘2.(ii)(j)’’ in the definition of Third Party Provider Member in Rule 1 to reflect the proposed renumbering of that section Renumber Sections 2.(ii)(j) and 2.(ii)(k) to reflect the deletion of AIP Settling Bank Only Member in Section 2.(ii)(i) Add ‘‘Rule 55’’ in Section 7(a) of Rule 53 to acknowledge that certain AIP settling processes are set forth in Rule 55 Add subsection references to Section 9 of Rule 55 for clarity Replace ‘‘the Procedures’’ with ‘‘Section 9 above’’ in Section 10 of Rule 55 to reflect that the manner and time specified for AIP Refusal is set forth in Section 9 of Rule 55 Change ‘‘Refusal’’ to ‘‘AIP Refusal’’ in Sections 10, 11 and 12 of Rule 55 to reflect the proper defined term for refusals with respect to AIP Settlement Add ‘‘or the Settlement Agent’’ in two places in Section 10 of Rule 55 to reflect that the bank used for settlement and the manner of payment of settlement may be specified by NSCC or the Settlement Agent Remove ‘‘provided in the Procedures’’ and ‘‘in the Procedures’’ and add ‘‘specified in accordance with settlement procedures adopted by the Corporation or the Settlement Agent’’ in Section 10 of Rule 55 to reflect that the bank account and manner of payment may be specified in settlement procedures adopted by NSCC or the Settlement Agent Replace ‘‘net debit’’ and ‘‘debit balance’’ with ‘‘AIP Debit Balance’’ in Section 10 of Rule 55 to reflect the existing defined term Add ‘‘settlement’’ before ‘‘procedures’’ in Section 10 of Rule 55 to clarify that the reference is to settlement procedures Change ‘‘Settling Bank’’ to ‘‘AIP Settling Bank’’ in Section 11 of Rule 55 to reflect the proper defined term for settling banks with respect to AIP Settlement Change ‘‘Settling AIP Bank’’ to ‘‘AIP Settling Bank’’ in Section 12 of Rule 55 to reflect the proper defined term Add a defined term ‘‘Settlement Member’’ in new subsection (a) in Section D.1 of Procedure VIII which PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 • • • • • • • • would be a Member, Mutual Fund/ Insurance Service Member, Insurance Carrier/Retirement Service Member or Fund Member for which a Settling Bank is the designated Settling Bank to replace the reference to ‘‘each of its participant’s accounts’’ Add a defined term ‘‘Settlement Balance’’ in new subsection (a) in Section D.1. of Procedure VIII which would be the Settling Bank’s final settlement balance and replace the phrase ‘‘settlement figure’’ with ‘‘settlement balance’’ to reflect usage elsewhere when referring to the settlement balance Replace ‘‘NSCC’’ with ‘‘Settlement Agent’’ in new subsection (b) in D.1 of Procedure VIII to reflect that the Settling Banks acknowledge to the Settlement Agent their intention to settle Replace ‘‘settlement figures’’ with ‘‘Settlement Balances’’ in new subsection (b) in Section D.1. of Procedure VIII to reflect the new defined term Replace the list of Members and Limited Members that may use a Settling Bank with the new defined term ‘‘Settlement Members’’ in new subsection (b) in Section D.1 of Procedure VIII to reflect the new defined term. Remove the sentence in new subsection (b) in D.1 of Procedure VIII that states that an acknowledgment must be sent even if the Settling Bank has wired the amount of its net net debit prior to the cut off time because the statement is unnecessary as it is unlikely that situation would occur Add a statement in new subsection (b) in D.1 of Procedure VIII to codify current practice set forth in the Settlement Service Guide with respect to Participants that applies to Members that a Settling Bank that is a Member may not refuse to settle for itself Revise new subsection (f) in Section D.1. of Procedure VIII to remove outdated references to NSCC, the telephone as the only means of contact and a number for Settlement Operations in the membership directory to reflect the current procedures such that a Settling Bank that cannot send an acknowledgment or refusal message may contact the Settlement Agent and instruct the Settlement Agent act on its behalf Replace ‘‘NSCC’’ with ‘‘Settlement Agent’’ in two places in new subsection (h) in Section D.1 of Procedure VIII to reflect that Settling Banks send their acknowledgments to the Settlement Agent E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices jspears on DSK121TN23PROD with NOTICES1 • Replace ‘‘this time’’ with ‘‘the settlement deadline’’ in the new subsection (h) in Section D.1 of Procedure VIII to clarify that it is referring to the settlement deadline • Replace the list of Members and Limited Members for which a Settling Bank may send a refusal with ‘‘Settlement Member’’ to reflect the proposed new defined term in the new subsection (i) in Section D.1 of Procedure VIII • Replace ‘‘Corporation’’ with ‘‘Settlement Agent’’ in new subsection (j) in Section D.1 of Procedure VIII to reflect that the Settlement Agent will receive funds and initiate payments to Settling Banks • Replace ‘‘Federal Reserve Bank’s National Settlement Service’’ with ‘‘NSS’’ in Section D.2. of Procedure VIII to reflect that NSCC is proposing to move the defined term NSS earlier in the Rules • Capitalize ‘‘balance’’ in Section D.2. of Procedure VIII to reflect the new defined term Settlement Balance • Make ‘‘Settlement’’ lowercase in Section D.3 of Procedure VIII to reflect that Settlement is not a defined term • Add the word ‘‘operations’’ before ‘‘department’’ in Section D.3 of Procedure VIII to reflect that the name of the department is the settlement operations department • Capitalize ‘‘settlement balance’’ in Section D.3 of Procedure VIII to reflect the new defined term 2. Statutory Basis NSCC believes this proposal is consistent with the requirements of the Act, and the rules and regulations thereunder applicable to a registered clearing agency. Specifically, NSCC believes this proposal is consistent with Section 17A(b)(3)(F) of the Act.25 Section 17A(b)(3)(F) of the Act requires, in part, that the Rules be designed to promote the prompt and accurate clearance and settlement of securities transactions.26 The EOD Settlement and AIP Settlement processes at NSCC reflect cash debits and credits of payments that are associated with securities transactions that will ultimately be subject to securities settlement. NSCC believes that failure by an NSCC Settling Bank to timely acknowledge that it will settle its settlement balance with NSCC or to refuse to pay its settlement balance creates uncertainty with respect to the timely completion of settlement at NSCC. NSCC believes that the 25 15 U.S.C. 78q–1(b)(3)(F). 26 Id. VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 introduction of the proposed passive acknowledgment process described in Item II.(A)1.(i) above would help promote the prompt and accurate clearance and settlement of securities transactions in circumstances where an NSCC Settling Bank has not responded by the Acknowledgment Cutoff Time or the AIP Acknowledgment Cutoff Time, as applicable, and cannot be reached by the Settlement Agent. In such circumstances, as described above, NSCC would deem that such NSCC Settling Bank has acknowledged that it will settle settlement balances. This would enable NSCC to submit the NSS file (through the Settlement Agent) as is for processing in a timely manner, and thereby enhance certainty with respect to the timely completion of settlement. Timely completion of such settlement at NSCC for as many members as possible promotes the prompt and accurate clearance and settlement of securities transactions as a general matter, because the EOD Settlement and AIP Settlement processes at NSCC involve debits and credits that will ultimately be subject to securities settlement. As such, NSCC believes the proposed change to introduce the passive acknowledgment process described in Item II.(A)1.(i) above is designed to promote the prompt and accurate clearance and settlement of securities transactions, consistent with Section 17A(b)(3)(F) of the Act.27 NSCC also believes that the proposal to (a) amend the definition of ‘‘AIP Settling Bank’’ to correspond with the definition of ‘‘Settling Bank’’ and remove AIP Settling Bank Only Member as a membership category described in Item II.(A)1.(ii) above and (b) codify certain settlement processes for AIP Settlement described in Item II.(A)1.(iii) above are designed to promote the prompt and accurate clearance and settlement of securities transactions.28 As discussed above settling banks used for AIP Settlement have historically been Members or Settling Bank Only Members and not AIP Members or AIP Settling Bank Only Members. In addition, there have been no entities that have become AIP Settling Bank Only Members. The existing processes related to AIP Settlement that are being added as described in Item II.(A)1.(iii) above are existing processes in AIP Settlement. NSCC believes that in each case making such provisions explicit in the Rules is consistent with Section 17(A)(b)(3)(F) of the Act 29 because such changes would enhance the clarity and transparency of the Rules with respect to AIP Settlement. By enhancing the clarity and transparency of the Rules, the proposed changes would allow AIP Members and AIP Non-Member Funds to more efficiently and effectively conduct their business in accordance with the Rules, which NSCC believes would promote the prompt and accurate clearance and settlement of securities transactions. As such, NSCC believes that the proposed changes would be consistent with Section 17A(b)(3)(F) of the Act.30 NSCC also believes that the proposal to codify NSCC’s ability to exclude an NSCC Settling Bank’s balance from the NSS file described in Item II.(A)1.(iii) above is designed to promote the prompt and accurate clearance and settlement of securities transactions.31 If an NSCC Settling Bank notifies the Settlement Agent that it cannot yet acknowledge or refuse, NSCC would not be able to submit the NSS file (through the Settlement Agent) with that NSCC Settling Bank’s settlement balance included. If the NSCC Settling Bank does not ultimately respond with either an acknowledgment or refusal, then NSCC must have the ability to exclude such NSCC Settling Bank’s settlement balance from the NSS file. In this way, settlement can be completed for all other NSCC Members. Therefore, NSCC believes the proposed changes to codify NSCC’s ability to exclude an NSCC Settling Bank’s balance from the NSS file described in in Item II.(A)1.(iii) above is designed to promote the prompt and accurate clearance and settlement of securities transactions, consistent with Section 17A(b)(3)(F) of the Act.32 NSCC also believes that the proposed rule changes to make the technical, clarifying and conforming changes, as described in Item II.(A)1.(iv) above, are designed to promote the prompt and accurate clearance and settlement of securities transactions by ensuring that the Rules remain clear and accurate to NSCC Members and that NSCC Members understand EOD Settlement and AIP Settlement. Having clear and accurate Rules would facilitate members’ understanding of those Rules and provide members with increased predictability and certainty regarding their obligations. As such, NSCC believes these proposed changes would promote the prompt and accurate clearance and settlement of securities, 27 Id. 30 Id. 28 Id. 31 Id. 29 Id. 32 Id. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 69693 E:\FR\FM\08DEN1.SGM 08DEN1 69694 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices jspears on DSK121TN23PROD with NOTICES1 consistent with Section 17A(b)(3)(F) of the Act.33 (B) Clearing Agency’s Statement on Burden on Competition NSCC does not believe that the proposed rule changes described in Item II.(A)1.(i) above to introduce the passive acknowledgment process for NSCC Settling Banks would have any impact on competition,34 because the proposed passive acknowledgment process would not have an impact on the NSCC Settling Banks’ current ability to timely acknowledge their settlement balances, as it is intended to address situations where an NSCC Settling Bank is not responding and cannot be reached. If an NSCC Settling Bank notifies the Settlement Agent that the NSCC Settling Bank cannot, at that time, submit its acknowledgment that it will settle its settlement balances with NSCC or its refusal to pay its settlement balances, then the NSCC Settling Bank would not be deemed to have acknowledged that it will settle such settlement balances with NSCC. Therefore, NSCC believes that the proposed passive acknowledgment process described in Item II.(A)1.(i) above would not have any impact on competition. NSCC also does not believe that the proposal to amend the definition of ‘‘AIP Settling Bank’’ to correspond with the definition of ‘‘Settling Bank’’ and remove AIP Settling Bank Only Member as a membership category described in Item II.(A)1.(ii) above would have any impact on competition 35 because settling banks used for AIP Settlement have historically been Members or Settling Bank Only Members and not AIP Members or AIP Settling Bank Only Members. In addition, there have been no entities that have become AIP Settling Bank Only Members. As such NSCC does not believe the proposed changes to (a) amend the definition of ‘‘AIP Settling Bank’’ to correspond with the definition of ‘‘Settling Bank’’ and remove AIP Settling Bank Only Member as a membership category described in Item II.(A)1.(ii) above would affect the rights or obligations of NSCC or NSCC Members or have any impact on competition. NSCC also does not believe that the proposed changes to exclude an NSCC Settling Bank’s balance from the NSS file, as described in Item II.(A)1.(iii) above, would have any impact on competition 36 because this proposal, if invoked, would require the affected 33 Id. 34 15 U.S.C. 78q–1(b)(3)(I). NSCC Settling Bank to send payment to NSCC by wire, which is an alternate form of payment already available to the NSCC Settling Banks. NSCC believes that ready availability of a reasonable payment alternative would result in the rights and obligations of the NSCC Settling Banks not being adversely affected. As such, NSCC does not believe that the proposed changes to exclude an NSCC Settling Bank’s balance from the NSS file, as described in Item II.(A)1.(iii) above, would have any impact on competition. NSCC also does not believe that the proposed rule changes to codify the AIP Settlement processes described in Item II.(A)1.(iii) or to make the technical, clarifying and conforming changes described in Item II.(A)1.(iv) above would have an impact on competition.37 These changes would simply provide additional clarity within the Rules and not affect NSCC Members’ rights and obligations. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others NSCC has not received or solicited any written comments relating to this proposal. If any written comments are received, they will be publicly filed as an Exhibit 2 to this filing, as required by Form 19b–4 and the General Instructions thereto. Persons submitting comments are cautioned that, according to Section IV (Solicitation of Comments) of the Exhibit 1A in the General Instructions to Form 19b–4, the Commission does not edit personal identifying information from comment submissions. Commenters should submit only information that they wish to make available publicly, including their name, email address, and any other identifying information. All prospective commenters should follow the Commission’s instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/ how-to-submit-comments. General questions regarding the rule filing process or logistical questions regarding this filing should be directed to the Main Office of the Commission’s Division of Trading and Markets at tradingandmarkets@sec.gov or 202– 551–5777. NSCC reserves the right not to respond to any comments received. 35 Id. 36 Id. VerDate Sep<11>2014 37 Id. 16:53 Dec 07, 2021 Jkt 256001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 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 such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NSCC–2021–013 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–2021–013. 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, E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Notices Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of 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– 2021–013 and should be submitted on or before December 29, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–26531 Filed 12–7–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No 270–488, OMB Control No. 3235–0542] Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Rule 605 of Regulation NMS Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information provided for in Rule 605 of Regulation NMS (‘‘Rule 605’’) (17 CFR 242.605),1 under the Securities Exchange Act of 1934 (15 U.S.C. 78a, et seq.) (‘‘Exchange Act’’). The Commission plans to submit 38 17 CFR 200.30–3(a)(12). NMS, adopted by the Commission in June 2005, redesignated the national market system rules previously adopted under Section 11A of the Exchange Act. Rule 11Ac1–5 under the Exchange Act was redesignated Rule 605 of Regulation NMS. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). In 2018, Commission amended Rule 605(a)(2) to require market centers to keep reports required pursuant to Rule 605(a)(1) posted on an internet website that is free of charge and readily accessible to the public for a period of three years from the initial date of posting on the internet website. See Securities Exchange Act Release No. 84528 (November 2, 2018), 83 FR 58338 (November 19, 2018). jspears on DSK121TN23PROD with NOTICES1 1 Regulation VerDate Sep<11>2014 16:53 Dec 07, 2021 Jkt 256001 this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 605, formerly known as, Rule 11Ac1–5, requires market centers to make available to the public monthly order execution reports in electronic form. The Commission believes that many market centers retain most, if not all, of the underlying raw data necessary to generate these reports in electronic format. Once the necessary data is collected, market centers could either program their systems to generate the statistics and reports, or transfer the data to a service provider (such as an independent company in the business of preparing such reports or a selfregulatory organization) that would generate the statistics and reports. The collection of information obligations of Rule 605 apply to all market centers that receive covered orders in national market system securities. The Commission estimates that approximately 319 market centers are subject to the collection of information obligations of Rule 605. Each of these respondents is required to respond to the collection of information on a monthly basis. The Commission staff estimates that, on average, Rule 605 causes each respondent to spend 6 hours per month to collect the data necessary to generate the reports, or 72 hours per year. With an estimated 319 market centers subject to Rule 605, the total data collection time burden to comply with the monthly reporting requirement is estimated to be 22,968 hours per year. Based on discussions with industry sources, the Commission staff estimates that an individual market center could retain a service provider to prepare a monthly report using the data collected for approximately $2,978 per month or $35,736 per year. This per-respondent estimate is based on the rate that a market center could expect to obtain if it negotiated on an individual basis. Based on the $2,978 estimate, the monthly cost to all 319 market centers to retain service providers to prepare reports would be approximately $949,982, and the total annual cost for all 319 market centers would be approximately $11,399,784. Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (b) the accuracy of the Commission’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 69695 minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to: PRA_ Mailbox@sec.gov. Dated: December 3, 2021. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–26595 Filed 12–7–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–22, OMB Control No. 3235–0006] Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Form 13F Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information discussed below. Section 13(f) 1 of the Securities Exchange Act of 1934 2 (the ‘‘Exchange Act’’) empowers the Commission to: (1) Adopt rules that create a reporting and disclosure system to collect specific information; and (2) disseminate such information to the public. Rule 13f–1 3 under the Exchange Act requires institutional investment managers that exercise investment discretion over accounts that have in the aggregate a fair market value of at least $100,000,000 of certain U.S. exchange-traded equity 1 15 U.S.C. 78m(f). U.S.C. 78a et seq. 3 17 CFR 240.13f–1. 2 15 E:\FR\FM\08DEN1.SGM 08DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 233 (Wednesday, December 8, 2021)]
[Notices]
[Pages 69687-69695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26531]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93709; File No. SR-NSCC-2021-013]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Provide for a 
Passive Acknowledgment Process, Codify Certain Settlement Processes and 
Make Technical, Clarifying and Conforming Changes to the NSCC Rules & 
Procedures

December 2, 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 November 18, 2021, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 69688]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would amend NSCC's Rules & Procedures 
(``Rules'') \3\ in order to (i) provide for a passive acknowledgment 
process whereby any settling bank that does not timely acknowledge that 
it will settle its settlement balance with NSCC (i.e., acknowledge its 
intention to pay to or collect from NSCC), or refuse to settle for one 
or more Members or Limited Members (collectively, ``NSCC Members'') or 
AIP Non-Member Funds for which it is the designated Settling Bank or 
AIP Settling Bank (collectively, ``NSCC Settling Banks'') and has not 
otherwise been in contact with NSCC, would be deemed to have 
acknowledged its settlement balances, (ii) amend the definition of 
``AIP Settling Bank'' to correspond with the definition of ``Settling 
Bank'' and remove AIP Settling Bank Only Member as a membership 
category, (iii) codify certain settlement processes and (iv) make 
certain technical, clarifying and conforming changes.
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    \3\ Capitalized terms not defined herein are defined in the 
Rules, available at https://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to (i) provide for a 
passive acknowledgment process whereby any settling bank that does not 
timely acknowledge that it will settle its settlement balance with NSCC 
(i.e., acknowledge its intention to pay to or collect from NSCC), or 
refuse to settle for one or more NSCC Members or AIP Non-Member Funds 
for which it is the designated NSCC Settling Bank and has not otherwise 
been in contact with NSCC, would be deemed to have acknowledged its 
settlement balances, (ii) amend the definition of ``AIP Settling Bank'' 
to correspond with the definition of ``Settling Bank'' and remove AIP 
Settling Bank Only Member as a membership category, (iii) codify 
certain settlement processes and (iv) make certain technical, 
clarifying and conforming changes.
Background
NSCC Membership; Settling Banks and AIP Settling Banks--Settlement 
Processes
    NSCC membership consists of Members that have access to NSCC's 
guaranteed central counterparty services and Limited Members that have 
access to NSCC's non-guaranteed services, such as Mutual Fund Services 
and Alternative Investment Product Services (``AIP'').\4\ Limited 
Members that only have access to AIP are referred to as AIP Members.\5\ 
For purposes of this filing, all Members and Limited Members, including 
AIP Members, are referred to collectively as NSCC Members. AIP Non-
Member Funds are entities that are not AIP Members but that NSCC has 
approved to settle AIP Payments as described in Rule 53.\6\
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    \4\ See Section 2 of Rule 2, supra note 3.
    \5\ Id.
    \6\ Definition of ``AIP Non-Member Fund'' in Rule 1, supra note 
3.
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    NSCC provides a standardized, automated method for money settlement 
obligations, between NSCC and NSCC Settling Banks acting on behalf of 
NSCC Members and AIP Non-Member Funds. NSCC's settlement services 
eliminate manual processing and reduce costs by aggregating the money 
settlement payments due to or from an NSCC Member or AIP Non-Member 
Fund, and then, automatically debiting or crediting such NSCC Member's 
account or AIP Non-Member Fund's account at its NSCC Settling Bank. 
Money settlement is effected via the Federal Reserve Banks' (``FRB'') 
National Settlement Service (``NSS'').\7\
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    \7\ Section D.2. of Procedure VIII of the Rules (``Procedure 
VIII''), supra note 3.
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    NSCC provides two separate settlement processes--(i) end of day 
settlement for Members and Limited Members other than AIP Members 
(``EOD Settlement'') and (ii) daily settlement for AIP Members and AIP 
Non-Member Funds (``AIP Settlement''). Both settlement processes 
require each NSCC Member or AIP Non-Member Fund to designate a settling 
bank to effect money settlement on its behalf at NSCC.\8\ Settling 
Banks settle on behalf of Members and Limited Members with respect to 
EOD Settlement and AIP Settling Banks settle on behalf of AIP Members 
and AIP Non-Member Funds with respect to AIP Settlement. All AIP money 
settlement is effected on a gross basis, where on the applicable 
settlement date, AIP debits are collected first, and in the afternoon 
all contra-side credits, where the corresponding debits have been 
collected, are paid.\9\
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    \8\ See Section 1 of Rule 12, supra note 3 and Section 7(h) of 
Rule 53.
    \9\ See Section 7 of Rule 53, supra, note 3.
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    Each NSCC Settling Bank is required by the NSCC Rules to enter into 
a settling bank agreement with the NSCC Member or AIP Non-Member Fund 
on whose behalf it settles and to abide by the Rules.\10\ The Rules 
require Settling Banks to acknowledge to NSCC their settlement balances 
and their intention to settle with NSCC or their refusal to settle by 
the settlement deadline.\11\ The Rules do not explicitly require AIP 
Settling Banks to affirmatively acknowledge or refuse to settle, 
however, since the inception of AIP in 2008, NSCC's settlement 
procedures have required AIP Settling Banks to affirmatively 
acknowledge or refuse to settle in the same manner as required by 
Settling Banks. On a daily basis, NSCC calculates settlement payment 
amounts for EOD Settlement and for AIP Settlement and reports to NSCC 
Members and their respective NSCC Settling Banks, a settlement 
balance.\12\ Then, through the Fed Funds Settlement system 
(``FFS''),\13\ the Settling Banks and AIP Settling Banks must submit 
their acknowledgment of their intent to settle or refusal to settle 
such amounts on behalf of their respective NSCC Members or AIP Non-
Member Funds by a deadline established by NSCC.\14\ EOD

[[Page 69689]]

Settlement occurs at the end of the day and, from an operational 
perspective, is centralized with DTC's end-of-day money settlement 
(``DTC Settlement'').\15\ For both EOD Settlement and AIP Settlement, 
if all of the NSCC Settling Banks submit acknowledgments of their 
intent to settle, then the Settlement Agent will submit the requisite 
file to the FRB for processing through the NSS.
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    \10\ Section 1 of Rule 55, supra note 3.
    \11\ Section D of Procedure VIII, supra note 3. A Settling Bank 
that is a Member and settles solely for its own accounts may opt to 
not acknowledge its settlement balance. Id.
    \12\ For EOD Settlement, Settling Banks are provided a net-net 
debit or net-net credit number. Section 2 of Rule 55, supra note 3. 
For AIP Settlement, each AIP Settling Bank is provided an aggregate 
gross debit number and an aggregate gross credit number with respect 
to each AIP Member or AIP Non-Member Fund on whose behalf it settles 
because for AIP Settlement, debits and credits are settled 
separately. Section 7 of Rule 55, supra note 3. For AIP Settlement, 
the net debts are paid first by AIP Settling Banks at approximately 
11 a.m. and then net credits are paid to AIP Settling Banks at 
approximately 2 p.m. AIP settlement times are posted on NSCC's 
website.
    \13\ Section D of Procedure VIII requires Settling Banks to 
acknowledge settlement balances via ``the terminal system'' which is 
currently FFS. Section D of Procedure VIII, supra note 3.
    \14\ Section D.1 of Procedure VIII, supra note 3. The Rules do 
not explicitly require AIP Settling Banks to affirmatively 
acknowledge or refuse to settle, however, NSCC`s settlement 
procedures have required AIP Settling Banks to affirmatively 
acknowledge or refuse to settle in the same manner as required by 
Settling Banks.
    \15\ DTC Settlement procedures and timing are set forth in the 
Settlement Service Guide of DTC (``Settlement Service Guide'') 
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
service-guides/Settlement.pdf. Because EOD Settlement and DTC 
Settlement are centralized, the timing and processes for NSCC 
Settlement are the same as those set forth in the Settlement Service 
Guide.
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    If an NSCC Settling Bank notifies the Settlement Agent that the 
NSCC Settling Bank refuses to pay the settlement balance for an NSCC 
Member or AIP Non-Member Fund, then NSCC will exclude that NSCC 
Member's or AIP Non-Member Fund's amount and the Settlement Agent will 
provide the NSCC Settling Bank with a new settlement balance that no 
longer includes the excluded amount. The NSCC Settling Bank must then 
immediately send a message to the Settlement Agent acknowledging the 
new amount.\16\ The Settlement Agent will then submit the requisite 
file to the FRB for processing through the NSS.
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    \16\ Section D.1 of Procedure VIII, supra note 3. The Rules do 
not explicitly require acknowledgment of the new settlement balance 
for AIP Settling Banks, however, since the inception of AIP in 2008, 
NSCC's settlement procedures have required AIP Settling Banks to 
affirmatively acknowledge or refuse to settle in the same manner as 
required by Settling Banks.
---------------------------------------------------------------------------

    If a Settling Bank does not acknowledge or refuse by the settlement 
acknowledgment deadline, the Settlement Agent will use the most recent 
contact information available to contact the NSCC Settling Bank. If the 
Settlement Agent is unable to contact the NSCC Settling Bank or does 
not receive a response from the NSCC Settling Bank as to the 
acknowledgment or refusal, NSCC needs to determine whether to request 
an NSS extension while also determining whether to remove the Settling 
Bank's settlement balance from the NSS file.
    Today, failure of an NSCC Settling Bank to timely respond to the 
Settlement Agent by the settlement acknowledgment deadline could create 
uncertainty with respect to timely completion of settlement at NSCC. 
This is because today, NSCC is not permitted under the Rules and its 
settlement procedures \17\ to submit the NSS file (through the 
Settlement Agent) unless all NSCC Settling Banks in the file that are 
required to acknowledge,\18\ have acknowledged. NSCC must therefore 
determine whether it should remove the settlement balance of the 
unresponsive NSCC Settling Bank from the NSS file in order to allow the 
processing of the rest of the NSS file for the other NSCC Settling 
Banks that are part of the NSS file. If NSCC does not remove the 
settlement balance of the unresponsive NSCC Settling Bank from the NSS 
file, then the NSS file cannot be created and settlement cannot be 
completed for the other NSCC Settling Banks that are part of the NSS 
file. As such, today, NSCC may need to remove the settlement balance of 
the unresponsive NSCC Settling Bank from the NSS file in order to 
submit the NSS file and complete settlement for the other NSCC Settling 
Banks that are part of the NSS file, thus potentially delaying 
settlement of the NSS file. Such potential delay would arise from the 
time needed to remove the figure of the unresponsive NSCC Settling Bank 
and then re-establish the NSS file. Moreover, with respect to the NSCC 
Members or AIP Non-Member Funds who were using the particular NSCC 
Settling Bank, NSCC would need to settle individually with those NSCC 
Members or AIP Non-Member Funds via the Fedwire Funds Service, which 
also presents the possibility of a delay because of the time it may 
take to complete this process individually with each affected NSCC 
Member.
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    \17\ Id.
    \18\ A Settling Bank that is a Member and settles solely for its 
own accounts may opt to not acknowledge its settlement balance. 
Section D of Procedure VIII, supra note 3.
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    NSCC is proposing to implement a passive acknowledgment process for 
EOD Settlement and AIP Settlement to address the situation discussed 
above where an NSCC Settling Bank is unresponsive and cannot be 
reached. This would allow NSCC to submit the NSS file (through the 
Settlement Agent) for NSS processing more promptly, and thereby allow 
settlement to be completed for the other NSCC Settling Banks that are 
part of the NSS file.
    Until 2016, DTC's rules also required settling banks that settled 
on behalf of DTC Participants for DTC Settlement to affirmatively 
acknowledge or to refuse to settle. In 2016, DTC amended the Settlement 
Service Guide to provide for a passive acknowledgment process, such 
that a settling bank which does not timely affirmatively acknowledge 
its settlement balance or refuse to settle would be deemed to have 
acknowledged its settlement balance.\19\ In 2020, Fixed Income Clearing 
Corporation (``FICC'') also filed a rule filing to provide for similar 
passive acknowledgment process for FICC settling banks.\20\ The passive 
acknowledgment process being proposed by NSCC is the same process that 
DTC and FICC have put in place.
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    \19\ See Securities Exchange Act Release No. 76887 (January 13, 
2016), 81 FR 3218 (January 20, 2016) (SR-DTC-2015-011).
    \20\ See Securities Exchange Act Release No. 89593 (August 18, 
2020), 85 FR 52164 (August 24, 2020) (SR-FICC-2020-006).
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NSCC Passive Acknowledgment Process
    NSCC proposes to introduce a settling bank passive acknowledgment 
process in the Rules for Settling Banks and for AIP Settling Banks to 
manage the collection or payment of settlement amounts in the event 
that any Settling Bank or AIP Settling Bank does not timely provide an 
affirmative acknowledgment or refusal with respect to its settlement 
payment amounts by the settlement acknowledgment deadline. If a 
Settling Bank or an AIP Settling Bank does not acknowledge or refuse 
its settlement amount by the settlement acknowledgment deadline and 
NSCC is unable to establish contact with the Settling Bank or AIP 
Settling Bank, NSCC proposes to deem the Settling Bank's or AIP 
Settling Bank's final settlement balance as acknowledged. Through this 
proposed passive acknowledgment process, NSCC will assume that the 
Settling Bank or AIP Settling Bank that has failed to acknowledge its 
figures or refused to settle by the settlement acknowledgment deadline, 
intends to settle for its respective NSCC Members or AIP Non-Member 
Funds. The Settling Bank's or AIP Settling Bank's final debit 
settlement balance or final credit settlement balance would then be 
debited from or credited to its account at the Federal Reserve Bank 
through the NSS process.
    Even with the implementation of the proposed passive acknowledgment 
process, NSCC must retain the discretion to remove the settlement 
balance of an NSCC Settling Bank from the NSS file.\21\ In other words, 
currently, NSCC may remove the NSCC Settling Bank's figure from the NSS 
file in the situation where an NSCC Settling Bank is unresponsive and 
cannot be reached. Under the proposal, the need for NSCC to do so would 
arise in the event that an NSCC Settling Bank advises the Settlement 
Agent that it cannot yet determine whether to acknowledge or refuse. In 
such a circumstance, passive acknowledgment would not apply (as 
described below); however, as it gets closer to the NSS processing 
time, NSCC may need to remove the NSCC Settling Bank's settlement 
balance from the NSS

[[Page 69690]]

file in order to allow settlement to be completed for the other NSCC 
Settling Banks that are part of the NSS file and have affirmatively or 
passively acknowledged their figure. NSCC is proposing to codify its 
ability to remove the settlement balance of the NSCC Settling Bank from 
the NSS file. As NSCC would be codifying this current practice with 
this proposed rule change, this proposed rule change would not change 
the current settlement process of NSCC Settling Banks that are excluded 
from the NSS file. This proposed change is discussed below.
---------------------------------------------------------------------------

    \21\ This practice is currently not codified in the Rules.
---------------------------------------------------------------------------

(i) Proposed Change To Introduce Passive Acknowledgment Process for 
NSCC Settling Banks
Proposed Passive Acknowledgment Process
    NSCC proposes to establish an ``Acknowledgment Cutoff Time'' for 
EOD Settlement and an ``AIP Acknowledgment Cutoff Time'' for AIP 
Settlement after which NSCC would apply the passive acknowledgment 
process if it is unable to reach an NSCC Settling Bank. Since EOD 
Settlement is centralized with DTC Settlement, the Acknowledgment 
Cutoff Time will be the Acknowledgment Cutoff Time established in the 
Settlement Service Guide for DTC Settlement.\22\ To conform with 
current practice, the ``Acknowledgment Cutoff Time'' would be defined 
in Rule 1 as the time set forth as the Acknowledgment Cutoff Time in 
the DTC Settlement Service Guide which can be found on NSCC's website 
at https://www.dtcc.com/legal/rules-and-procedures. The ``AIP 
Acknowledgement Cutoff Time'' would be defined in Rule 1, with respect 
to each AIP Settling Bank regarding AIP Settlement of AIP Debit 
Balances and AIP Credit Balances, as the later of (i) 30 minutes after 
the AIP Settling Bank has been notified of its AIP Debit Balance or AIP 
Credit Balance (or, the new AIP Debit Balance or new AIP Credit 
Balance, if readjusted as set forth herein), as applicable, and (ii) 30 
minutes prior to the settlement deadline established by NSCC. NSCC 
would add a statement that it would post the settlement deadlines for 
AIP Settlement on the NSCC website which it currently does.
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    \22\ The Acknowledgment Cutoff Time established in the 
Settlement Service Guide is currently the later of 4:15 p.m. and the 
time that is 30 minutes after net-net settlement balances are first 
made available. Page 19 of the Settlement Service Guide, supra note 
15. For AIP, the current deadline for debit acknowledgment in NSCC's 
settlement procedures is 9:30 a.m. and the current deadline for 
credit acknowledgment is 12:30 p.m. Such times are posted on NSCC's 
website.
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    If an NSCC Settling Bank does not submit either (1) an 
acknowledgment that it will settle the settlement balance with NSCC or 
(2) a refusal to pay the settlement balance by the Acknowledgment 
Cutoff Time or the AIP Acknowledgment Cutoff Time, as applicable, and 
has not been in contact with the Settlement Agent, then the Settlement 
Agent would attempt to contact the NSCC Settling Bank. If the 
Settlement Agent is able to contact the NSCC Settling Bank and it 
notifies the Settlement Agent that the NSCC Settling Bank cannot, at 
that time, submit its acknowledgment or refusal to pay its settlement 
balance and that it needs more time, then the NSCC Settling Bank would 
not be deemed to have acknowledged that it will settle such settlement 
balance with NSCC. However, if the NSCC Settling Bank cannot be 
reached, then the NSCC Settling Bank would be deemed to have 
acknowledged that it will settle such settlement balance with NSCC.
    The passive acknowledgment process described herein would also 
apply in situations where an NSCC Settling Bank is provided with a new 
settlement balance after such NSCC Settling Bank's refusal to pay the 
settlement balance for one or more NSCC Members or AIP Non-Member 
Funds.
    NSCC would also revise the Rules to state that each NSCC Settling 
Bank must ensure that it maintains accurate contact details with the 
Settlement Agent so that the Settlement Agent may contact the NSCC 
Settling Bank regarding this settlement process and any settlement 
issues.
Proposed Changes to Rule 1, Rule 55 and Procedure VIII
    The proposed passive acknowledgment process will require changes to 
Rule 1, Rule 55 with respect to AIP Settlement and Procedure VIII with 
respect to EOD Settlement. Specifically, NSCC proposes to add proposed 
new defined terms ``Acknowledgment Cutoff Time'' and ``AIP 
Acknowledgment Cutoff Time'' in Rule 1 as discussed above. NSCC 
proposes to add a phrase at the end of new subsection (b) of Section 
D.1. of Procedure VIII that would apply to Settling Banks that settle 
solely for their own accounts to state that if they choose to opt out 
of having to acknowledge their settlement balance, new subsections (c) 
and (e) (described below) of Section D.1. of Procedure VIII would not 
apply to them.\23\
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    \23\ Proposed subsections (c) and (e) describe the proposed 
passive acknowledgment process. As described above, if a Settling 
Bank that is a Member settles solely for its own account opts to not 
acknowledge its own settlement balance, the passive acknowledgment 
process would not apply to such Settling Banks because such Settling 
Banks cannot refuse to settle for their own accounts. For 
operational convenience, Settling Banks that are Members may choose 
to not acknowledge their own settlement balance because they cannot 
refuse to settle for their own accounts. Members are also required 
to be Participants at DTC and the Settlement Service Guide provides 
that a DTC Participant that acts as its own Settling Bank may not 
refuse to settle for itself. See p. 18 of the Settlement Service 
Guide, supra, note 15. As set forth below, NSCC is proposing to 
codify the practice in the Rules with respect to Members by adding a 
statement that a Settling Bank that is a Member may not refuse to 
settle for itself in Section D.1 of Procedure VIII. Therefore, 
proposed subsections (c) and (e) would not apply to such Settling 
Banks.
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    NSCC proposes to add a new subsection (c) in Section 9 of Rule 55 
and in Section D.1 of Procedure VIII to provide that if the NSCC 
Settling Bank does not acknowledge its settlement balance or notify the 
Settlement Agent that it refuses to settle, then at the AIP 
Acknowledgment Cutoff Time or Acknowledgment Cutoff Time, as 
applicable, the NSCC Settling Bank is deemed to have acknowledged its 
settlement balance.
    NSCC proposes to amend the language in new subsection (d) of 
Section D.1 of Procedure VIII to delete the requirement that Settling 
Banks must send a message immediately after sending a refusal message 
acknowledging the new amount if it is a credit and its intention to 
settle if it is debit and instead provide that if the Settling Bank 
sends refusal messages, it must acknowledge to the Settlement Agent by 
the Acknowledgment Cutoff Time, its new settlement balance and its 
intention to settle by the settlement deadline. In addition, a sentence 
would be added stating that the new subsection (c) would apply with 
respect to the new settlement balances of the Settling Bank that sent 
refusal messages. Similar language would be added as a new subsection 
(d) of Section 9 in Rule 55 with respect to AIP Settling Banks and AIP 
Settlement.
    NSCC proposes to amend Section 9 of Rule 55 and Section D.1 of 
Procedure VIII to add new subsection (e) which would provide that the 
Settlement Agent would attempt to contact the NSCC Settling Bank if no 
acknowledgment or notice of refusal to settle on behalf of one or more 
NSCC Member or AIP Non-Member Fund, as applicable, for which it is 
designated as the NSCC Settling Bank is received by

[[Page 69691]]

the AIP Acknowledgment Cutoff Time or Acknowledgment Cutoff Time, as 
applicable. The new subsections would provide that if (i) the 
Settlement Agent is able to contact the NSCC Settling Bank and (ii) the 
NSCC Settling Bank notifies the Settlement Agent that it cannot, at 
that time, acknowledge or refuse their settlement balance, then the 
NSCC Settling Bank will not be deemed to have acknowledged its 
settlement balance. The new subsections would provide that if the NSCC 
Settling Bank cannot be reached, the NSCC Settling Bank will be deemed 
to have acknowledged its settlement balance. In the new subsection (e) 
of Section D.1 of Procedure VIII, NSCC would also state that the new 
proposed subsection (e) would not apply to a Settling Bank that settles 
solely for its own account and opts not to acknowledge its settlement 
balance.\24\ As discussed in more detail below, the new subsection (e) 
of Section 9 of Rule 55 and Section D.1 of Procedure VIII would also 
contain a provision relating to NSCC's ability to exclude an NSCC 
Settling Bank's settlement balances from the NSS file if the NSCC 
Settling Bank has not acknowledged or been deemed to have acknowledged 
its settlement balance under certain circumstances.
---------------------------------------------------------------------------

    \24\ Section D.1 of Procedure VIII provides that Settling Bank 
that is a Member and settles solely for its own accounts may opt to 
not acknowledge it settlement balance. Section D.1 of Procedure 
VIII, supra, note 3.
---------------------------------------------------------------------------

    NSCC proposes to add a new subsection (g) of Section 9 in Rule 55 
and a new subsection (g) of Section D.1 of Procedure VIII which would 
provide the Settlement Agent uses the most recent contact information 
provided by the NSCC Settling Bank to the Settlement Agent. These 
proposed subsections would also include a requirement that each NSCC 
Settling Bank maintains up-to-date and accurate contact details with 
the Settlement Agent on an ongoing basis.
    NSCC proposes to delete language in Section D.1 of Procedure VIII 
that states that if NSCC has not received funds from the Settling Bank 
with a net-net debit and the Settling Bank has not sent refusal 
messages and/or an acknowledgment message to NSCC by the deadline, NSCC 
begins failure to settle procedures in respect to the Settling Bank at 
this time. NSCC is proposing to delete this language to reflect the new 
passive acknowledgment process.
(ii) Amend the Definition of ``AIP Settling Bank'' To Correspond With 
the Definition of ``Settling Bank'' and Remove AIP Settling Bank Only 
Member as a Membership Category.
    The proposed change would amend the definition of AIP Settling Bank 
to correspond with the definition of Settling Bank and remove AIP 
Settling Bank Only Member as a membership category. AIP Settling Bank 
is currently defined as either (i) an AIP Member which is a bank or 
trust company meeting certain criteria or (ii) an AIP Settling Bank 
Only Member meeting certain criteria and which have entered into an 
effective Appointment of AIP Settling Bank and AIP Settling Bank 
Agreement. Since the inception of AIP, AIP Members have used (a) 
Members that are banks or trust companies meeting certain criteria and 
(b) Settling Bank Only Members meeting certain criteria and which have 
entered into Appointments of AIP Settling Bank and AIP Settling Bank 
Agreements as AIP Settling Banks. Since the inception of AIP, there 
have been no AIP Members that have acted as AIP Settling Banks and 
there have been no entities that have become AIP Settling Bank Only 
Members.
    The proposed change would amend the definition of AIP Settling Bank 
in Rule 1 to provide that an AIP Settling Bank would be either (i) a 
Member which is a bank or trust company meeting certain criteria or 
(ii) a Settling Bank Only Member meeting certain criteria and which has 
entered into an effective Settling Bank Agreement which would be 
identical to the definition of Settling Bank. The definition of 
Settling Bank Agreement distinguishes between Settling Banks and AIP 
Settling Banks by indicating that in the Settling Bank Agreement 
entered into by an AIP Settling Bank, the AIP Settling Bank undertakes 
to perform settlement services for the AIP Member or the AIP Non-Member 
Fund which is a party thereto whereas Settling Banks make such 
undertakings with respect to Members and Limited Members that are not 
AIP Members. In addition, NSCC would delete the definition of AIP 
Settling Bank Only Member in Rule 1 and remove the term throughout the 
Rules, including a description of AIP Settling Bank Only Members in 
Section 2.(ii)(i) of Rule 2. NSCC would also change the reference to 
2.(ii)(i) of Rule 2 in the definition of AIP Settling Bank to 2.(ii)(f) 
of Rule 2 to reflect that is referring to a Member which would qualify 
as a Settling Bank Only Member rather as an AIP Settling Bank Only 
Member. In addition, NSCC would amend Section 5 of Rule 3 to provide 
that NSCC shall maiCtain a list of Members and Settling Bank Only 
Members that have agreed to act as AIP Settling Banks to reflect that 
AIP Members would use Members and Settling Bank Only Members as AIP 
Settling Banks, as discussed above. Section 1 of Rule 55 would also be 
amended to reflect that an AIP Settling Bank shall be a Member or a 
Settling Bank Only Member. Addendum B would be amended to remove the 
references to AIP Settling Bank Only Members and to delete Section 11 
which relates to membership requirements for AIP Settling Bank Only 
Members.
(iii) Codify Certain Settlement Processes
    The proposed rule change would codify certain settlement processes 
that are currently being used by NSCC.
    Proposed Change to Codify Certain Settlement Processes for AIP 
Settlement
    Currently there are a number of settlement processes used in AIP 
Settlement that are not explicitly set forth in the Rules. These 
processes are the same processes that are set forth in the Section D.1 
of Procedure VIII with respect to EOD Settlement and would be added in 
Section 9 of Rule 55 as follows:

 A statement that DTC will act as Settlement Agent for NSCC and 
the AIP Settling Banks in a new subsection (b)
 A requirement that AIP Settling Banks must acknowledge by the 
AIP Acknowledgment Cutoff Time via the terminal system their AIP Debit 
Balance and their AIP Credit Balance and their intention to settle or 
refusal to settle by the AIP Acknowledgment Cutoff Time in a new 
subsection (b); as proposed above, there would be an AIP Acknowledgment 
Cutoff Time with respect to AIP Settlement for the AIP Debit Balances 
and the AIP Credit Balances
 A statement that if the AIP Settling Bank has an AIP Debit 
Balance, then the AIP Settling Bank's account at the Federal Reserve 
Bank will be debited; if the AIP Settling Bank has an AIP Credit 
Balance, then the AIP Settling Bank's Federal Reserve Bank account will 
be credited in new subsection (c)
 A statement that if the AIP Settling Bank sends a refusal 
message it must acknowledge its new AIP Debit Balance and AIP Credit 
Balance by the AIP Acknowledgment Cutoff Time via the terminal system 
and its intention to settle in new subsection (d)
 A statement that the AIP Settling Bank that cannot send an

[[Page 69692]]

acknowledgment or refusal message may contact the Settlement Agent and 
instruct the Settlement Agent to act on its behalf in new subsection 
(f)
Proposed Change To Allow NSCC To Exclude NSCC Settling Bank Balance 
From NSS file
    The proposed rule change would provide that if (1) passive 
acknowledgment does not apply because the NSCC Settling Bank has 
notified the Settlement Agent that it cannot yet acknowledge or refuse 
its settlement balance and (2) the payment deadline established by NSCC 
is approaching, then NSCC would have the ability to exclude the NSCC 
Settling Bank's settlement balance from the NSS file. This would allow 
settlement to be completed for the other NSCC Settling Banks that are 
part of the NSS file. As described above, as it gets closer to the 
payment deadline, NSCC may need to remove the NSCC Member's balance 
from the NSS file in order to allow settlement to be completed for the 
other NSCC Settling Banks that are part of the NSS file. As NSCC would 
be codifying its current practice with this proposed rule change, this 
proposed change would not change the current settlement process of NSCC 
Settling Banks that are excluded from the NSS file.
    This proposed change is reflected in the second paragraph of new 
subsection (e) of Section 9 of Rule 55 and new subsection (e) of 
Section D.1 of Procedure VIII.
(iv) Proposed Technical, Clarifying and Conforming Changes
    NSCC is proposing to make the following technical, clarifying and 
conforming changes in the Rules to better clarify the meaning of 
certain provisions and to be consistent with other provisions in the 
Rules:

 Remove the space after ``Section 2.'' in the new proposed 
reference to ``Section 2. (ii)(f)'' in two places in the definition of 
AIP Settlement Bank in Rule 1 for clarity
 Add a definition of ``FRB'' as the Board of Governors of the 
Federal Reserve System and each Federal Reserve Bank, as appropriate, 
to reflect the usage of FRB in the Rules
 Add a definition of FRBNY as the Federal Reserve Bank of New 
York, to reflect the usage of FRBNY in the Rules
 Change the reference of ``2. (ii)(j)'' to ``2.(ii)(i)'' in the 
definition of Investment Manager/Agent Member in Rule 1 to reflect the 
proposed renumbering of that section
 Add AIP Settling Banks in the definition of Settlement Agent 
in Rule 1 to clarify that the Settlement Agent also acts on behalf of 
AIP Settling Banks with respect to AIP Settlement
 Add quotation marks to TPP Member in the definition of Third 
Party Provider Member to conform usage of quotation marks in other 
defined terms in the Rules
 Change the reference of ``2. (ii)(k)'' to ``2.(ii)(j)'' in the 
definition of Third Party Provider Member in Rule 1 to reflect the 
proposed renumbering of that section
 Renumber Sections 2.(ii)(j) and 2.(ii)(k) to reflect the 
deletion of AIP Settling Bank Only Member in Section 2.(ii)(i)
 Add ``Rule 55'' in Section 7(a) of Rule 53 to acknowledge that 
certain AIP settling processes are set forth in Rule 55
 Add subsection references to Section 9 of Rule 55 for clarity
 Replace ``the Procedures'' with ``Section 9 above'' in Section 
10 of Rule 55 to reflect that the manner and time specified for AIP 
Refusal is set forth in Section 9 of Rule 55
 Change ``Refusal'' to ``AIP Refusal'' in Sections 10, 11 and 
12 of Rule 55 to reflect the proper defined term for refusals with 
respect to AIP Settlement
 Add ``or the Settlement Agent'' in two places in Section 10 of 
Rule 55 to reflect that the bank used for settlement and the manner of 
payment of settlement may be specified by NSCC or the Settlement Agent
 Remove ``provided in the Procedures'' and ``in the 
Procedures'' and add ``specified in accordance with settlement 
procedures adopted by the Corporation or the Settlement Agent'' in 
Section 10 of Rule 55 to reflect that the bank account and manner of 
payment may be specified in settlement procedures adopted by NSCC or 
the Settlement Agent
 Replace ``net debit'' and ``debit balance'' with ``AIP Debit 
Balance'' in Section 10 of Rule 55 to reflect the existing defined term
 Add ``settlement'' before ``procedures'' in Section 10 of Rule 
55 to clarify that the reference is to settlement procedures
 Change ``Settling Bank'' to ``AIP Settling Bank'' in Section 
11 of Rule 55 to reflect the proper defined term for settling banks 
with respect to AIP Settlement
 Change ``Settling AIP Bank'' to ``AIP Settling Bank'' in 
Section 12 of Rule 55 to reflect the proper defined term
 Add a defined term ``Settlement Member'' in new subsection (a) 
in Section D.1 of Procedure VIII which would be a Member, Mutual Fund/
Insurance Service Member, Insurance Carrier/Retirement Service Member 
or Fund Member for which a Settling Bank is the designated Settling 
Bank to replace the reference to ``each of its participant's accounts''
 Add a defined term ``Settlement Balance'' in new subsection 
(a) in Section D.1. of Procedure VIII which would be the Settling 
Bank's final settlement balance and replace the phrase ``settlement 
figure'' with ``settlement balance'' to reflect usage elsewhere when 
referring to the settlement balance
 Replace ``NSCC'' with ``Settlement Agent'' in new subsection 
(b) in D.1 of Procedure VIII to reflect that the Settling Banks 
acknowledge to the Settlement Agent their intention to settle
 Replace ``settlement figures'' with ``Settlement Balances'' in 
new subsection (b) in Section D.1. of Procedure VIII to reflect the new 
defined term
 Replace the list of Members and Limited Members that may use a 
Settling Bank with the new defined term ``Settlement Members'' in new 
subsection (b) in Section D.1 of Procedure VIII to reflect the new 
defined term.
 Remove the sentence in new subsection (b) in D.1 of Procedure 
VIII that states that an acknowledgment must be sent even if the 
Settling Bank has wired the amount of its net net debit prior to the 
cut off time because the statement is unnecessary as it is unlikely 
that situation would occur
 Add a statement in new subsection (b) in D.1 of Procedure VIII 
to codify current practice set forth in the Settlement Service Guide 
with respect to Participants that applies to Members that a Settling 
Bank that is a Member may not refuse to settle for itself
 Revise new subsection (f) in Section D.1. of Procedure VIII to 
remove outdated references to NSCC, the telephone as the only means of 
contact and a number for Settlement Operations in the membership 
directory to reflect the current procedures such that a Settling Bank 
that cannot send an acknowledgment or refusal message may contact the 
Settlement Agent and instruct the Settlement Agent act on its behalf
 Replace ``NSCC'' with ``Settlement Agent'' in two places in 
new subsection (h) in Section D.1 of Procedure VIII to reflect that 
Settling Banks send their acknowledgments to the Settlement Agent

[[Page 69693]]

 Replace ``this time'' with ``the settlement deadline'' in the 
new subsection (h) in Section D.1 of Procedure VIII to clarify that it 
is referring to the settlement deadline
 Replace the list of Members and Limited Members for which a 
Settling Bank may send a refusal with ``Settlement Member'' to reflect 
the proposed new defined term in the new subsection (i) in Section D.1 
of Procedure VIII
 Replace ``Corporation'' with ``Settlement Agent'' in new 
subsection (j) in Section D.1 of Procedure VIII to reflect that the 
Settlement Agent will receive funds and initiate payments to Settling 
Banks
 Replace ``Federal Reserve Bank's National Settlement Service'' 
with ``NSS'' in Section D.2. of Procedure VIII to reflect that NSCC is 
proposing to move the defined term NSS earlier in the Rules
 Capitalize ``balance'' in Section D.2. of Procedure VIII to 
reflect the new defined term Settlement Balance
 Make ``Settlement'' lowercase in Section D.3 of Procedure VIII 
to reflect that Settlement is not a defined term
 Add the word ``operations'' before ``department'' in Section 
D.3 of Procedure VIII to reflect that the name of the department is the 
settlement operations department
 Capitalize ``settlement balance'' in Section D.3 of Procedure 
VIII to reflect the new defined term
2. Statutory Basis
    NSCC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, NSCC believes this proposal 
is consistent with Section 17A(b)(3)(F) of the Act.\25\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\26\ The EOD Settlement and AIP Settlement 
processes at NSCC reflect cash debits and credits of payments that are 
associated with securities transactions that will ultimately be subject 
to securities settlement. NSCC believes that failure by an NSCC 
Settling Bank to timely acknowledge that it will settle its settlement 
balance with NSCC or to refuse to pay its settlement balance creates 
uncertainty with respect to the timely completion of settlement at 
NSCC. NSCC believes that the introduction of the proposed passive 
acknowledgment process described in Item II.(A)1.(i) above would help 
promote the prompt and accurate clearance and settlement of securities 
transactions in circumstances where an NSCC Settling Bank has not 
responded by the Acknowledgment Cutoff Time or the AIP Acknowledgment 
Cutoff Time, as applicable, and cannot be reached by the Settlement 
Agent. In such circumstances, as described above, NSCC would deem that 
such NSCC Settling Bank has acknowledged that it will settle settlement 
balances. This would enable NSCC to submit the NSS file (through the 
Settlement Agent) as is for processing in a timely manner, and thereby 
enhance certainty with respect to the timely completion of settlement. 
Timely completion of such settlement at NSCC for as many members as 
possible promotes the prompt and accurate clearance and settlement of 
securities transactions as a general matter, because the EOD Settlement 
and AIP Settlement processes at NSCC involve debits and credits that 
will ultimately be subject to securities settlement. As such, NSCC 
believes the proposed change to introduce the passive acknowledgment 
process described in Item II.(A)1.(i) above is designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions, consistent with Section 17A(b)(3)(F) of the Act.\27\
---------------------------------------------------------------------------

    \26\ Id.
    \27\ Id.
---------------------------------------------------------------------------

    NSCC also believes that the proposal to (a) amend the definition of 
``AIP Settling Bank'' to correspond with the definition of ``Settling 
Bank'' and remove AIP Settling Bank Only Member as a membership 
category described in Item II.(A)1.(ii) above and (b) codify certain 
settlement processes for AIP Settlement described in Item II.(A)1.(iii) 
above are designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\28\ As discussed above settling 
banks used for AIP Settlement have historically been Members or 
Settling Bank Only Members and not AIP Members or AIP Settling Bank 
Only Members. In addition, there have been no entities that have become 
AIP Settling Bank Only Members. The existing processes related to AIP 
Settlement that are being added as described in Item II.(A)1.(iii) 
above are existing processes in AIP Settlement. NSCC believes that in 
each case making such provisions explicit in the Rules is consistent 
with Section 17(A)(b)(3)(F) of the Act \29\ because such changes would 
enhance the clarity and transparency of the Rules with respect to AIP 
Settlement. By enhancing the clarity and transparency of the Rules, the 
proposed changes would allow AIP Members and AIP Non-Member Funds to 
more efficiently and effectively conduct their business in accordance 
with the Rules, which NSCC believes would promote the prompt and 
accurate clearance and settlement of securities transactions. As such, 
NSCC believes that the proposed changes would be consistent with 
Section 17A(b)(3)(F) of the Act.\30\
---------------------------------------------------------------------------

    \28\ Id.
    \29\ Id.
    \30\ Id.
---------------------------------------------------------------------------

    NSCC also believes that the proposal to codify NSCC's ability to 
exclude an NSCC Settling Bank's balance from the NSS file described in 
Item II.(A)1.(iii) above is designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\31\ If an NSCC 
Settling Bank notifies the Settlement Agent that it cannot yet 
acknowledge or refuse, NSCC would not be able to submit the NSS file 
(through the Settlement Agent) with that NSCC Settling Bank's 
settlement balance included. If the NSCC Settling Bank does not 
ultimately respond with either an acknowledgment or refusal, then NSCC 
must have the ability to exclude such NSCC Settling Bank's settlement 
balance from the NSS file. In this way, settlement can be completed for 
all other NSCC Members. Therefore, NSCC believes the proposed changes 
to codify NSCC's ability to exclude an NSCC Settling Bank's balance 
from the NSS file described in in Item II.(A)1.(iii) above is designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions, consistent with Section 17A(b)(3)(F) of the 
Act.\32\
---------------------------------------------------------------------------

    \31\ Id.
    \32\ Id.
---------------------------------------------------------------------------

    NSCC also believes that the proposed rule changes to make the 
technical, clarifying and conforming changes, as described in Item 
II.(A)1.(iv) above, are designed to promote the prompt and accurate 
clearance and settlement of securities transactions by ensuring that 
the Rules remain clear and accurate to NSCC Members and that NSCC 
Members understand EOD Settlement and AIP Settlement. Having clear and 
accurate Rules would facilitate members' understanding of those Rules 
and provide members with increased predictability and certainty 
regarding their obligations. As such, NSCC believes these proposed 
changes would promote the prompt and accurate clearance and settlement 
of securities,

[[Page 69694]]

consistent with Section 17A(b)(3)(F) of the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule changes described in 
Item II.(A)1.(i) above to introduce the passive acknowledgment process 
for NSCC Settling Banks would have any impact on competition,\34\ 
because the proposed passive acknowledgment process would not have an 
impact on the NSCC Settling Banks' current ability to timely 
acknowledge their settlement balances, as it is intended to address 
situations where an NSCC Settling Bank is not responding and cannot be 
reached. If an NSCC Settling Bank notifies the Settlement Agent that 
the NSCC Settling Bank cannot, at that time, submit its acknowledgment 
that it will settle its settlement balances with NSCC or its refusal to 
pay its settlement balances, then the NSCC Settling Bank would not be 
deemed to have acknowledged that it will settle such settlement 
balances with NSCC. Therefore, NSCC believes that the proposed passive 
acknowledgment process described in Item II.(A)1.(i) above would not 
have any impact on competition.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    NSCC also does not believe that the proposal to amend the 
definition of ``AIP Settling Bank'' to correspond with the definition 
of ``Settling Bank'' and remove AIP Settling Bank Only Member as a 
membership category described in Item II.(A)1.(ii) above would have any 
impact on competition \35\ because settling banks used for AIP 
Settlement have historically been Members or Settling Bank Only Members 
and not AIP Members or AIP Settling Bank Only Members. In addition, 
there have been no entities that have become AIP Settling Bank Only 
Members. As such NSCC does not believe the proposed changes to (a) 
amend the definition of ``AIP Settling Bank'' to correspond with the 
definition of ``Settling Bank'' and remove AIP Settling Bank Only 
Member as a membership category described in Item II.(A)1.(ii) above 
would affect the rights or obligations of NSCC or NSCC Members or have 
any impact on competition.
---------------------------------------------------------------------------

    \35\ Id.
---------------------------------------------------------------------------

    NSCC also does not believe that the proposed changes to exclude an 
NSCC Settling Bank's balance from the NSS file, as described in Item 
II.(A)1.(iii) above, would have any impact on competition \36\ because 
this proposal, if invoked, would require the affected NSCC Settling 
Bank to send payment to NSCC by wire, which is an alternate form of 
payment already available to the NSCC Settling Banks. NSCC believes 
that ready availability of a reasonable payment alternative would 
result in the rights and obligations of the NSCC Settling Banks not 
being adversely affected. As such, NSCC does not believe that the 
proposed changes to exclude an NSCC Settling Bank's balance from the 
NSS file, as described in Item II.(A)1.(iii) above, would have any 
impact on competition.
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

    NSCC also does not believe that the proposed rule changes to codify 
the AIP Settlement processes described in Item II.(A)1.(iii) or to make 
the technical, clarifying and conforming changes described in Item 
II.(A)1.(iv) above would have an impact on competition.\37\ These 
changes would simply provide additional clarity within the Rules and 
not affect NSCC Members' rights and obligations.
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    NSCC reserves the right not to respond to any comments received.

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 such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2021-013 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-2021-013. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE,

[[Page 69695]]

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-2021-013 and should be 
submitted on or before December 29, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26531 Filed 12-7-21; 8:45 am]
BILLING CODE 8011-01-P

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