Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add Fees for NSCC's MF Info Xchange Service, Modify Fees for NSCC's Alternative Investment Product Service and Make Certain Other Clarification Changes to Addendum A of the NSCC Rules, 508-513 [2021-28518]
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Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices
A proposed rule change filed under
Rule 19b–4(f)(6) 11 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),12 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay. Waiver of the operative
delay would allow the Exchange to
immediately delay the implementation
of SR–NASDAQ–2021–009 and provide
the Exchange additional time to test and
implement new LULD closing cross
functionalities. The Commission
believes that waiving the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the operative delay and
designates the proposed rule change
operative upon filing.13
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2021–105 on the subject line.
All submissions should refer to File
Number SR–NASDAQ–2021–105. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2021–105 and
should be submitted on or before
January 26, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021–28570 Filed 1–4–22; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–93873; File No. SR–NSCC–
2021–017]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Add Fees for NSCC’s
MF Info Xchange Service, Modify Fees
for NSCC’s Alternative Investment
Product Service and Make Certain
Other Clarification Changes to
Addendum A of the NSCC Rules
December 29, 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 December
27, 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
primarily by the clearing agency. NSCC
filed the proposed rule change pursuant
to Section 19(b)(3)(A) 3 of the Act and
subparagraphs (f)(2) and (f)(4) 4 of Rule
19b–4 thereunder. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
(a) The proposed rule change of
National Securities Clearing Corporation
(‘‘NSCC’’) is annexed hereto as Exhibit
5 and consists of modifications to
Addendum A (Fee Structure)
(‘‘Addendum A’’) of NSCC’s Rules &
Procedures (‘‘Rules’’) in order to (i) add
fees for NSCC’s MF Info Xchange
service, (ii) make certain adjustments in
the fees for NSCC’s Alternative
Investment Product service (‘‘AIP’’) and
(iii) make certain other clarification
changes to Addendum A, as described
below.5
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
Paper Comments
TKELLEY on DSK125TN23PROD with NOTICE
SECURITIES AND EXCHANGE
COMMISSION
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
1 15
CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6)(iii).
13 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2) and (f)(4).
5 Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such
terms in the Rules, available at https://dtcc.com/∼/
media/Files/Downloads/legal/rules/nscc_rules.pdf.
2 17
11 17
14 17
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CFR 200.30–3(a)(12).
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Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices
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) add fees for MF Info
Xchange, (ii) make certain adjustments
in the fees for AIP and (iii) make certain
clarifications to Addendum A, as
described below. The fee changes are
being made to better align fees with the
costs of services provided by NSCC by
adjusting the fees so that the revenue
received by NSCC would be closer to
the costs of building and providing the
services consistent with NSCC’s costbased plus markup fee model.6 In
general, fee levels for NSCC are set by
NSCC after periodic reviews of a
number of factors, including revenues,
operating costs and potential service
enhancements. NSCC also continuously
engages in discussions with NSCC
Members regarding proposed fee
changes and potential impacts.
TKELLEY on DSK125TN23PROD with NOTICE
(i) MF Info Xchange Fees
MF Info Xchange facilitates and
centralizes the delivery and receipt of
time-critical notifications, including
corporate actions, service disruptions,
large trade notifications and other
critical alerts. The service was launched
on November 30, 2018 with 3 event
types.7 Given the limited number of
event types available for event
notifications upon the launch of MF
Info Xchange, NSCC did not charge fees
initially for the use of the service.8
NSCC indicated that it would file with
the Commission an appropriate rule
change proposal to implement any fees
for MF Info Xchange if NSCC added fees
6 NSCC has in place procedures to control costs
and to regularly review pricing levels against costs
of operation. NSCC’s fees are cost-based plus a
markup as approved by its Board of Directors. This
markup is applied to recover development costs
and operating expenses, and to accumulate capital
sufficient to meet regulatory and economic
requirements. See NSCC Disclosure Framework for
Covered Clearing Agencies and Financial Market
Infrastructures, available at https://www.dtcc.com//media/Files/Downloads/legal/policy-andcompliance/NSCC_Disclosure_Framework.pdf, at
120.
7 See Securities Exchange Act Release No. 84611
(November 16, 2018), 83 FR 59427 (November 23,
2018) (SR–NSCC–2018–010). The initial 3 event
types were Fund Merger, Fund Closure—Hard Close
and Fund Closure—Soft Close.
8 Id.
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for the service.9 Fund Members are
typically funds or asset managers of
funds and use MF Info Xchange to send
notifications regarding the funds to their
distribution partners. NSCC Members
that are not Fund Members are typically
broker/dealers or other distributors that
use MF Info Xchange to receive and
track such notifications sent by the
Fund Members as well as send
notifications to Fund Members about
their funds.
Since the launch, MF Info Xchange
has been enhanced with an additional
25 event types and additional user
interface capabilities. NSCC believes
that it is appropriate to begin charging
fees for the service given the added
capabilities and in order to offset the
costs of building and maintaining the
service.
NSCC is proposing to implement a
two-tiered billing structure for MF Info
Xchange based on the anticipated
amount of use of the service by NSCC
Members.10 Based on a review of the
usage by NSCC Members, NSCC
believes that NSCC Members that are
not Fund Members and larger Fund
Members use the service more than
smaller Fund Members. NSCC believes
that the number of Security Issue IDs
that a Fund Member maintains on
Fund/SERV® is a good indication of the
size of the Fund Member and the level
of usage of MF Info Xchange by such
Fund Member. Most notifications in MF
Info Xchange relate to a specific security
issuance and each Security Issue ID
represents a security issuance.
Therefore, Fund Members that maintain
more Security Issue IDs, will have a
greater number of security issuances for
which notifications will need to be sent.
NSCC Members that are not Fund
Members typically receive notifications
from multiple Fund Members and often
benefit from receiving notifications for a
large number of security issuances.
Fund/SERV is an NSCC service
providing for the processing and settling
of Fund/SERV Eligible Funds.11 Each
Fund/SERV Eligible Fund that is
processed through Fund/SERV is
required to be assigned a Security Issue
ID, such as a CUSIP.12 NSCC is
9 Id.
10 For purposes of this filing, NSCC Members
refers to Members and Limited Members.
11 Fund/SERV Eligible Fund means a fund or
other pooled investment entity which are subject of
orders processed through Mutual Fund Services.
See definition of ‘‘Fund/SERV Eligible Fund, Rule
1, supra note 5 and Section 1(c) of Rule 3, supra
note 5.
12 See Section 1(c) of Rule 3, supra note 5, which
requires that unless otherwise required by NSCC,
each Fund/SERV Eligible Fund be assigned a CUSIP
number. CUSIP is a registered trademark of the
American Bankers Association.
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509
proposing to charge NSCC Members that
are not Fund Members that use MF Info
Xchange and Fund Members that
maintain more than 25 Security Issue
IDs on Fund/SERV that use MF Info
Xchange, $1,500 per month (‘‘Tier 1’’).
NSCC is proposing to charge Fund
Members that maintain 25 or fewer
Security Issue IDs on Fund/SERV that
use MF Info Xchange $250 per month
(‘‘Tier 2’’).
NSCC believes that the tiered
structure will align the fees with the
costs of services provided by NSCC by
setting the fees so that the revenue
received by NSCC would be sufficient to
recover the costs of building and
maintaining the service. The tiered
billing structure is similar to NSCC’s
billing structure for its Mutual Fund
Profile Service (‘‘MFPS’’). Users of
MFPS that use Phases I & II 13 that have
greater than 25 Security Issue IDs in
MFPS pay $1,250.00 per month whereas
users that have 25 or fewer Security
Issue IDs registered in MFPS that use
Phases I & II pay $250.00 per month.14
Based on its experience with MFPS 15
and discussions with Fund Members,
NSCC believes that the threshold of
greater than 25 Security Issue IDs has
been a good estimation of the size of the
Fund Member and the amount of use of
the service by each Fund Member. Also
based on pricing levels and usage in
MFPS and discussions with NSCC
Members, NSCC believes that the $1,500
and $250 pricing levels are sufficient to
recover the costs of building and
maintaining the service without being
so excessive as to materially
disincentivize use of MF Info Xchange.
13 Phases I & II are also known as MFPS I (Daily
Price and Rate File) and MFPS II (Security Issue
Database and Distribution Database). The terms
Phase I and Phase II are used in the Rules because
MFPS I and MFPS II were implemented in phases
with MFPS I implemented first in 1996 and MFPS
II implemented in 1999. See Securities Exchange
Act Release No. 37171 (May 8, 1996), 61 FR 24344
(May 14, 1996) (SR–NSCC–96–04) (order approving
MFPS I implementation) and Securities Exchange
Act Release No. 40614 (October 28, 1998), 63 FR
59615 (November 4, 1998) (SR–NSCC–98–09)
(notice of filing of rule change implementing MFPS
II).
14 Section IV.J.b. of Addendum A and
accompanying footnote 5 in Addendum A, supra
note 5. See also Securities Exchange Act Release
No. 61413 (January 25, 2010), 75 FR 4894 (January
29, 2010) (SR–NSCC–2009–12) (NSCC introduced
the credit for MFPS for smaller fund families that
had 25 or fewer funds in their fund family) and
Securities Exchange Act Release No. 84771
(December 10, 2018), 83 FR 64393 (December 14,
2018) (SR–NSCC–2018–012) (NSCC reduced the
fees in MFPS to current levels) (‘‘2018 Filing’’).
15 After NSCC lowered its fees in 2019 for funds
with 25 or fewer Security IDs on MFPS from $850
to $250, the number of such funds using MFPS has
doubled. See 2018 Filing, Id.
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Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices
(ii) AIP Fee Changes
TKELLEY on DSK125TN23PROD with NOTICE
AIP is a standardized, trading and
reporting platform that links the
alternative investments industry to
securely and efficiently exchange data
and money relating to alternative
investment products, including hedge
funds, funds of funds, private equity,
non-traded real estate investment trusts,
managed futures and limited
partnerships. NSCC has undertaken a
strategic review of its pricing structure
for AIP, and developed a revenue and
pricing strategy with the goal of aligning
the pricing of AIP with costs of
providing the service. As a result of the
review, NSCC has determined that
certain fees in AIP have, over time,
become misaligned with the costs of
service as a result of increased
technology run costs relating to the
service. NSCC would also like to lower
certain fees relating to capital calls and
lower volume transfers 16 to incentivize
greater use of those products. In
connection with the realignment, NSCC
is proposing to eliminate a cap of
$250,000 currently in place for AIP
Distributors. Currently, there are certain
products for which a $250,000 fee cap
applies for AIP Distributors.17 Once an
AIP Distributor has been charged
$250,000 for transactions relating to
such products in a calendar year, it will
not pay with respect to transactions in
those products for the remainder of the
calendar year.18 The fee cap was put in
place to incentivize greater use of AIP
with respect to certain products for AIP
Distributors.19
NSCC believes that the fee cap has
been successful in incentivizing AIP
Distributors to use AIP and to require
more of their fund counterparties (i.e.,
AIP Manufacturers) to use AIP.20 Given
the growth of AIP and to readjust the
overall revenues, NSCC no longer
believes that the fee cap is necessary as
16 AIP has a tiered billing system based on
whether services are being used for higher volume
products or lower volume products. See Section
L.O.3 of Addendum A, supra note 5, which
indicates which products are considered higher
volume and which are considered lower volume.
Fees are lower with respect to higher volume
products.
17 See Section IV.O.3. of Addendum A and
accompanying footnote 12 of Addendum A, supra
note 5.
18 Id.
19 See Securities Exchange Act Release No. 63634
(January 3, 2011), 76 FR 1475 (January 10, 2011)
(SR–NSCC–2010–19) (stating that the fee cap was
implemented to ‘‘encourage broker-dealers to use
the service and expand coverage of these products
and increase the value of the overall market’’).
20 For instance, since the fee cap was put in place
in 2010, the number of Eligible AIP Products on the
AIP platform has grown from under 500 to over
7000.
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an incentive or appropriate given AIP’s
operating margin.
NSCC is also proposing to increase
lower volume record transaction fees for
AIP Manufacturers from $1 to $2 (AIP
Distributors will continue to pay $1) in
order to better align revenues of AIP
with the costs of providing the services.
NSCC is proposing to lower fees
relating to capital calls to incentivize
use of AIP with respect to capital calls.
Capital calls are considered ‘‘Trades’’ in
the Rules and higher volume Trades are
currently priced at a range from $5 per
trade to $4 per trade depending on the
number of trades in each calendar
year 21 and lower volume Trades are $10
per trade.22 In addition to capital calls,
Trades include initial purchases,
subsequent purchases, partial
redemption requests, full redemption
requests and commitments. NSCC has
received feedback from AIP Members
indicating that capital calls are
performed more frequently than other
types of Trades and as a result, AIP
Members have not been using AIP for
capital calls because the AIP Members
believe the price is currently too high
for both higher volume products and
lower volume products with respect to
capital calls. As a result, NSCC is
proposing to reduce the price for all
capital calls to $2 to incentivize use of
AIP for capital calls. This reduction
would apply to capital calls with
respect to higher volume products and
lower volume products.
NSCC is also proposing to lower fees
relating to lower volume transfers to
incentivize use of AIP with respect to
lower volume transfers. NSCC has
received feedback from AIP Members
that lower volume transfers are also
priced too high and as a result AIP
Members have not been using AIP for
lower volume transfers. NSCC is
proposing to reduce lower volume
transfers from $5 to $2 in order to
incentivize use of AIP for lower volume
transfers.
(iv) Proposed Rule Changes
(iii) Clarification Changes
C. Clarification Changes
NSCC is proposing to add a heading
‘‘Mutual Fund Services’’ in Section
IV.G. of Addendum A and proposing to
renumber Mutual Fund Services under
that heading to reflect the services that
fall within Mutual Fund Services. NSCC
is also proposing to renumber sections
following Section IV.G. to reflect the
renumbering within Section IV.G. of
Addendum A.
NSCC is also proposing to add a
heading for Mutual Fund Services in
Addendum A and renumber the
headings in Addendum A to reflect that
a number of services listed in
Addendum A fall within Mutual Fund
Services. NSCC would also renumber
other sections of Addendum A to reflect
the renumbering for Mutual Fund
Services.
21 Section
IV.O.1.ii of Addendum A, supra note
22 Section
IV.O.2.ii of Addendum A, supra note
5.
5.
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A. MF Info Xchange Fees
NSCC is proposing to add the fees to
MF Info Xchange in new proposed
section IV.G.5 of Addendum A.
B. AIP Fee Changes
NSCC is proposing to state that all
capital calls are $2 per trade in new
proposed Section IV.L.1.c (for higher
volume capital calls) and new proposed
Section IV.L.2.c (for lower volume
capital calls) of Addendum A. NSCC
would add ‘‘(other than capital calls)’’
in proposed sections IV.L.1.b. and
IV.L.2.b. of Addendum A to reflect that
capital calls would be separately
covered in other sections. NSCC is
proposing to increase the lower volume
record transactions fees for AIP
Manufacturers in new proposed section
IV.L.2.a. of Addendum A from $1 dollar
per trade to $2 dollar per trade. NSCC
is also proposing to reduce lower
volume transfers from $5 to $2 in new
proposed Section IV.L.2.d. of
Addendum A. NSCC is proposing to
remove the $250,000 fee cap for AIP
Distributors in new proposed Section
IV.L.3. and to remove the accompanying
footnote 12 of Addendum A.
Based on feedback from NSCC
Members and a review of other pricing
levels, NSCC believes that:
• Reducing fees to $2 for all capital
calls and reducing lower volume
transfers to $2 would incentivize
NSCC Members to begin using AIP
with respect to capital calls and with
respect to lower volume transfers
• increasing the lower volume record
transaction fees from $1 to $2 and
removing the fee cap for AIP
Distributors would raise revenue to an
appropriate level to help ensure that
AIP operates with a positive operating
margin without being so excessive as
to materially disincentivize the use of
AIP for lower volume record
transactions or the use of AIP by AIP
Distributors
(iii) Expected Member/NSCC Impact
A. MF Info Xchange Fees
The fee changes for MF Info Xchange
would impact all users of the service.
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Based on a review of users in the first
quarter of 2021, it is anticipated that
initially approximately 67% of the users
will fall within Tier 1 and be charged
$1,500 per month and approximately
33% of the users will fall within Tier 2
and be charged $250 per month. Of the
users in Tier 1, approximately 67% are
expected to be Fund Members that
maintain more than 25 Security Issue
IDs and approximately 33% are
expected to be NSCC Members that are
not Fund Members.
The fees are intended to cover the
costs of developing and maintaining MF
Info Xchange in accordance with
NSCC’s cost-based plus markup fee
model.23 Following the implementation
of fees, assuming revenues and expenses
remain constant,24 NSCC anticipates
recouping the costs of building MF Info
Xchange within approximately three
years of implementing the fees and
expects to have a positive operating
margin thereafter.
B. AIP Fee Changes
In general, NSCC anticipates that, as
result of the proposed changes to
remove the $250,000 fee cap, four AIP
Distributors will see a fee increase for
use of the affected products. Based on
a review of client invoices in June 2021,
which NSCC believes is representative
of typical AIP usage, NSCC anticipates
that as a result of all of the fee changes
approximately 59% of AIP users
comprised of mainly AIP Manufacturers
engaging in lower volume activity will
see a fee increase, approximately 40% of
AIP users comprised of mainly AIP
users engaging in higher volume activity
will see no fee impact and less than 1%
of AIP users will see a fee decrease.
The fee changes are intended to
realign AIPs revenue with its costs. AIP
had a negative operating margin in 2020
and it is anticipated to have a negative
operating margin in 2021. Following the
fee changes, AIP anticipates that it will
have a positive operating margin in
2022 and going forward, consistent with
NSCC’s cost-based plus markup fee
model.25
23 See
note 6, supra.
is not certain that revenues and expenses will
remain constant. Costs of providing the service may
change, for instance, if NSCC Members request
service enhancements or NSCC’s technology costs
change. In addition, revenues may change
depending on the number of users of the service.
NSCC regularly reviews pricing levels against costs
of operation. As with its other services, if NSCC
determines that its operating margin is too high or
too low, NSCC would change pricing levels
accordingly. See 2018 Filing, supra note 14.
25 Id.
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24 It
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(iv) Implementation Timeline
NSCC expects to implement the
proposed rule changes on January 1,
2022. As proposed, a legend would be
added to Addendum A stating there are
changes that became effective upon
filing with the Commission but have not
yet been implemented. The proposed
legend also would include January 1,
2022, as the date on which such changes
would be implemented and the file
number of this proposal, and state that,
once this proposal is implemented, the
legend would automatically be removed
from Addendum A.
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
Sections 17A(b)(3)(D) 26 and
17A(b)(3)(F) 27 of the Act and Rule
17Ad–22(e)(23)(ii),28 as promulgated
under the Act, for the reasons described
below.
Section 17A(b)(3)(D) of the Act 29
requires, in part, that the Rules provide
for the equitable allocation of reasonable
dues, fees, and other charges among its
participants. The proposed fee changes
set forth above are consistent with
17A(b)(3)(D) of the Act 30 because the
proposed fees would be allocated
equitably among the NSCC Members
that subscribe for those services based
on each NSCC Member’s use of such
services. In addition, NSCC believes that
the proposed fee changes are reasonable
because they would enable NSCC to
better align its revenue with the costs
and expenses required for NSCC to
provide the services to NSCC Members
consistent with NSCC’s cost-based plus
markup fee model.31 Specifically, NSCC
has determined that assuming revenue
and expenses remain constant,32 adding
the fee for MF Info Xchange would
allow NSCC to recoup the investments
it has made in building the service
within approximately three years and
allow it to operate with a positive
operating margin going forward. Based
on the current usage and projected
revenue for AIP, the realignment of fees
would result in overall revenue that
would be closer to the costs of providing
the service and at the same time provide
incentives for users to use AIP for
26 15
U.S.C. 78q–1(b)(3)(D).
U.S.C. 78q–1(b)(3)(F).
28 17 CFR 240.17Ad–22(e)(23)(ii).
29 15 U.S.C. 78q–1(b)(3)(D).
30 Id.
31 See note 6, supra.
32 See note 24, supra.
capital calls and lower volume transfers.
Therefore, by establishing fees that align
with the costs of delivery of these
products and services and allocating
those fees equitably among the
subscribing NSCC Members, the
proposed fee changes are consistent
with the requirements of Section
17A(b)(3)(D) of the Act.33
Section 17A(b)(3)(F) of the Act 34
requires, in part, that the Rules promote
the prompt and accurate clearance and
settlement of securities transactions.
NSCC believes that the proposed
clarifications adding the Mutual Fund
Services heading in Addendum A and
renumbering Addendum A as forth
above would enhance NSCC Members’
ability to understand the fees associated
with Mutual Fund Services.
Specifically, the proposed clarifications
would clarify which services fall within
Mutual Fund Services, similar to the
structure for Insurance & Retirement
Services and AIP in Addendum A. As
such, the proposed clarifications would
allow NSCC Members to have a better
understanding of the Rules in relation to
their activities and thereby assist in
promoting the requirements of Section
17A(b)(3)(F) of the Act.35
Rule 17Ad–22(e)(23)(ii) under the
Act 36 requires NSCC to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to provide
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the covered
clearing agency. The proposed
clarifications adding the Mutual Fund
Services heading in Addendum A and
renumbering Addendum A as set forth
above would help ensure that the fees
set forth in Addendum A are clear and
transparent to NSCC Members. Having a
clear and transparent Addendum A
would help NSCC Members to better
understand NSCC’s fees and help
provide NSCC Members with increased
predictability and certainty regarding
the fees they incur in participating in
NSCC. As such, by improving the clarity
and transparency of the Rules, NSCC
believes the proposed clarifications are
consistent with Rule 17Ad–22(e)(23)(ii)
under the Act.37
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC believes the proposed rule
changes to add fees for MF Info Xchange
27 15
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33 15
34 15
U.S.C. 78q–1(b)(3)(D).
U.S.C. 78q–1(b)(3)(F).
35 Id.
36 17
CFR 240.17Ad–22(e)(23)(ii).
37 Id.
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and increase certain fees for AIP, may
have an impact on competition. NSCC
believes these proposed rule changes
could burden competition by negatively
affecting such NSCC Members’
operating costs. While these NSCC
Members may experience increases in
their fees when compared to their fees
under the current fee structure, NSCC
does not believe such change in fees
would in and of itself mean that the
burden on competition is significant.
This is because even though the amount
of the fee increase may seem significant
in some instances to certain NSCC
Members (e.g., charging $1,500/mo for
MF Info Xchange when it is free now
and removing the AIP $250,000 fee cap),
NSCC believes the increase in fees
would similarly affect all NSCC
Members that utilize the services, and
therefore the burden on competition
would not be significant.
Regardless of whether the burden on
competition is deemed significant,
NSCC believes any burden on
competition that is created by these
proposed rule changes would be
necessary and appropriate in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.38
The proposed rule changes to add fees
for MF Info Xchange and increase
certain fees for AIP would be necessary
in furtherance of the purposes of the Act
because the Rules must provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
participants.39 As described above,
NSCC believes that the proposed rule
changes would result in fees that are
equitably allocated (by applying
uniformly to all NSCC Members that use
the applicable services) and would
result in reasonable fees (by allowing
NSCC to recoup its expenses in building
MF Info Xchange and allow both MF
Info Xchange and AIP to operate with a
positive operating margin). As such,
NSCC believes these proposed rule
changes would be necessary in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.40
NSCC also believes that the fees are
appropriate in furtherance of the
purposes of the Act because the fees are
set so that the revenue received by
NSCC would be closer to the costs of
building and providing the services
consistent with NSCC’s cost-based plus
markup fee model and are being
equitably allocated among NSCC
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78q–1(b)(3)(D).
40 15 U.S.C. 78q–1(b)(3)(I).
Members.41 Moreover, NSCC believes
that the fees will enable NSCC to pay for
building and continue to operate MF
Info Xchange. NSCC believes MF Info
Xchange has a positive effect on
competition among users because the
service allows data providers to more
effectively communicate event
notifications relating to funds and other
pooled investment entities (‘‘Funds’’).
The service provides data providers
with a more efficient method of
distributing event notifications to
parties that need to see such
information in order to facilitate the
trading and processing of Fund
securities. NSCC believes this enhances
competition among Funds and Fund
participants by allowing parties to
distribute such information more
quickly and in a more streamlined
manner. Based on experiences with the
similar billing structure used in MFPS
and discussions with NSCC Members,
NSCC does not believe that that the
addition of the proposed fees for MF
Info Xchange would materially
disincentivize use of MF Info Xchange.
As such, NSCC believes these proposed
rule changes would be appropriate in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.42
NSCC does not believe that any
proposed fee reductions would have a
burden on competition and may
promote competition because the
proposed fee reductions would allow
NSCC Members to engage in a greater
number of transactions with lower costs
than the prices they would incur today
for the same transactions.
NSCC does not believe that the
proposed clarifications to add the
Mutual Fund Services heading to
Addendum A and to renumber
Addendum A would have any impact
on competition because such changes
are clarifications of the Rules that would
not affect the rights or obligations of
NSCC Members.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
NSCC has conducted ongoing
outreach to NSCC Members in order to
provide them with notice of the
proposed changes to the affected fees.
NSCC has not received or solicited
any written comments relating to this
proposal. If any written comments are
received by NSCC, 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.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 43 of the Act and paragraph
(f) 44 of Rule 19b–4 thereunder. At any
time within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2021–017 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
38 15
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42 15
44 17
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U.S.C. 78q–1(b)(3)(I).
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U.S.C 78s(b)(3)(A).
CFR 240.19b–4(f).
05JAN1
Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices
Commission, 100 F Street NE,
Washington, DC 20549.
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–NSCC–2021–017. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of NSCC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2021–017 and should be submitted on
or before January 26, 2022.
[Release No. 34–93880; File No. SR–ICEEU–
2021–015]
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–28518 Filed 1–4–22; 8:45 am]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Order Approving
Proposed Rule Change Relating to
Adoption of the Counterparty Credit
Risk Policy and Counterparty Credit
Risk Procedures
December 30, 2021.
I. Introduction
On November 15, 2021, ICE Clear
Europe Limited (‘‘ICE Clear Europe’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’),1 and
Rule 19b–4,2 a proposed rule change to
adopt a new Counterparty Credit Risk
Policy (the ‘‘CC Risk Policy’’) and new
Counterparty Credit Risk Procedures
(the ‘‘CC Risk Procedures’’) and retire
the existing Futures and Options Capital
to Margin and Shortfall Margin Policy
(the ‘‘Capital to Margin Policy’’) and
existing Unsecured Credit Limits
Procedures.3 The proposed rule change
was published for comment in the
Federal Register on November 30,
2021.4 The Commission did not receive
comments regarding the proposed rule
change. For the reasons discussed
below, the Commission is approving the
proposed rule change.
II. Description of the Proposed Rule
Change
i. Background
Both the CC Risk Policy and CC Risk
Procedures would describe how ICE
Clear Europe monitors and mitigates
counterparty credit risk.5 Both
documents would define counterparty
credit risk as (i) the risk that a Clearing
Member misses its next payment to ICE
Clear Europe, leaving ICE Clear Europe
under-collateralized and therefore
increasing the risk of using the Guaranty
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Because the CC Risk Policy and CC Risk
Procedures would incorporate the information
currently found in the Capital to Margin Policy and
Unsecured Credit Limits Procedures in
substantially the same form, the proposed rule
change would retire those two documents.
4 Self-Regulatory Organizations; ICE Clear Europe
Limited; Notice of Filing of Proposed Rule Change
Relating to Amendments to the Counterparty Credit
Risk Policy and Counterparty Credit Risk
Procedures, Exchange Act Release No. 93668 (Nov.
24, 2021); 86 FR 68014 (Nov. 30, 2021) (SR–ICEEU–
2021–015) (‘‘Notice’’).
5 Capitalized terms not otherwise defined herein
have the meanings assigned to them in the CC Risk
Policy and CC Risk Procedures.
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45 17
CFR 200.30–3(a)(12).
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513
Fund contributions of other Clearing
Members and ICE Clear Europe to
manage a potential default of that
Clearing Member and (ii) the risk that a
Financial Service Provider (‘‘FSP’’)
defaults without returning cash to ICE
Clear Europe, leaving ICE Clear Europe
with a loss on its investments or
expected return of cash. Both the CC
Risk Policy and CC Risk Procedures also
would define ICE Clear Europe’s overall
objective with respect to counterparty
credit risk as managing and minimizing
this risk.
To achieve this objective, ICE Clear
Europe, under both the CC Risk Policy
and CC Risk Procedures, would (i) set
and monitor credit eligibility criteria for
Clearing Members and FSPs; (ii)
establish credit scores for Clearing
Members and FSPs; (iii) take mitigating
actions to reduce ICE Clear Europe’s
exposure; (iv) perform trigger-based and
periodic risk reviews of Clearing
Members and FSPs; and (v) set and
monitor exposure limits for Clearing
Members and FSPs. The CC Risk Policy
would explain in general how ICE Clear
Europe would carry out these actions,
and the CC Risk Procedures would
supplement the CC Risk Policy with
further detail regarding these actions.
Thus, the description below is
organized according to these five steps,
with an explanation of those actions
under both the CC Risk Policy and CC
Risk Procedures.6
ii. Credit Eligibility Criteria
ICE Clear Europe would first assess
prospective entities against certain
credit eligibility criteria. The criteria
that ICE Clear Europe would use for this
assessment would be set forth in a new
Counterparty Credit Risk Parameters
and Reviews document, which would
be a supporting document of the CC
Risk Policy and CC Risk Procedures.7
Overall, ICE Clear Europe would use
this assessment against the credit
criteria to assess the financial stability
of Clearing Members and FSPs. ICE
Clear Europe would assess prospective
Clearing Members and FSPs against
such criteria during onboarding and
review existing Clearing Members and
FSPs against such criteria at least
annually.
After conducting the assessment, ICE
Clear Europe would produce a credit
recommendation for prospective
Clearing Members based on financial
6 As noted further below, ICE Clear Europe is
taking the processes described in section vi from
the existing Capital to Margin Policy and Unsecured
Credit Limits Procedures.
7 ICE Clear Europe included the Counterparty
Credit Risk Parameters and Reviews document as a
confidential Exhibit 3 to the filing.
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]]>Agencies
[Federal Register Volume 87, Number 3 (Wednesday, January 5, 2022)]
[Notices]
[Pages 508-513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28518]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93873; File No. SR-NSCC-2021-017]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Add Fees for NSCC's MF Info Xchange Service, Modify Fees
for NSCC's Alternative Investment Product Service and Make Certain
Other Clarification Changes to Addendum A of the NSCC Rules
December 29, 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 December 27, 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 primarily by the clearing
agency. NSCC filed the proposed rule change pursuant to Section
19(b)(3)(A) \3\ of the Act and subparagraphs (f)(2) and (f)(4) \4\ of
Rule 19b-4 thereunder. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2) and (f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
(a) The proposed rule change of National Securities Clearing
Corporation (``NSCC'') is annexed hereto as Exhibit 5 and consists of
modifications to Addendum A (Fee Structure) (``Addendum A'') of NSCC's
Rules & Procedures (``Rules'') in order to (i) add fees for NSCC's MF
Info Xchange service, (ii) make certain adjustments in the fees for
NSCC's Alternative Investment Product service (``AIP'') and (iii) make
certain other clarification changes to Addendum A, as described
below.\5\
---------------------------------------------------------------------------
\5\ Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Rules,
available at https://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
---------------------------------------------------------------------------
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
[[Page 509]]
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) add fees for MF
Info Xchange, (ii) make certain adjustments in the fees for AIP and
(iii) make certain clarifications to Addendum A, as described below.
The fee changes are being made to better align fees with the costs of
services provided by NSCC by adjusting the fees so that the revenue
received by NSCC would be closer to the costs of building and providing
the services consistent with NSCC's cost-based plus markup fee
model.\6\ In general, fee levels for NSCC are set by NSCC after
periodic reviews of a number of factors, including revenues, operating
costs and potential service enhancements. NSCC also continuously
engages in discussions with NSCC Members regarding proposed fee changes
and potential impacts.
---------------------------------------------------------------------------
\6\ NSCC has in place procedures to control costs and to
regularly review pricing levels against costs of operation. NSCC's
fees are cost-based plus a markup as approved by its Board of
Directors. This markup is applied to recover development costs and
operating expenses, and to accumulate capital sufficient to meet
regulatory and economic requirements. See NSCC Disclosure Framework
for Covered Clearing Agencies and Financial Market Infrastructures,
available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf, at 120.
---------------------------------------------------------------------------
(i) MF Info Xchange Fees
MF Info Xchange facilitates and centralizes the delivery and
receipt of time-critical notifications, including corporate actions,
service disruptions, large trade notifications and other critical
alerts. The service was launched on November 30, 2018 with 3 event
types.\7\ Given the limited number of event types available for event
notifications upon the launch of MF Info Xchange, NSCC did not charge
fees initially for the use of the service.\8\ NSCC indicated that it
would file with the Commission an appropriate rule change proposal to
implement any fees for MF Info Xchange if NSCC added fees for the
service.\9\ Fund Members are typically funds or asset managers of funds
and use MF Info Xchange to send notifications regarding the funds to
their distribution partners. NSCC Members that are not Fund Members are
typically broker/dealers or other distributors that use MF Info Xchange
to receive and track such notifications sent by the Fund Members as
well as send notifications to Fund Members about their funds.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 84611 (November 16,
2018), 83 FR 59427 (November 23, 2018) (SR-NSCC-2018-010). The
initial 3 event types were Fund Merger, Fund Closure--Hard Close and
Fund Closure--Soft Close.
\8\ Id.
\9\ Id.
---------------------------------------------------------------------------
Since the launch, MF Info Xchange has been enhanced with an
additional 25 event types and additional user interface capabilities.
NSCC believes that it is appropriate to begin charging fees for the
service given the added capabilities and in order to offset the costs
of building and maintaining the service.
NSCC is proposing to implement a two-tiered billing structure for
MF Info Xchange based on the anticipated amount of use of the service
by NSCC Members.\10\ Based on a review of the usage by NSCC Members,
NSCC believes that NSCC Members that are not Fund Members and larger
Fund Members use the service more than smaller Fund Members. NSCC
believes that the number of Security Issue IDs that a Fund Member
maintains on Fund/SERV[supreg] is a good indication of the size of the
Fund Member and the level of usage of MF Info Xchange by such Fund
Member. Most notifications in MF Info Xchange relate to a specific
security issuance and each Security Issue ID represents a security
issuance. Therefore, Fund Members that maintain more Security Issue
IDs, will have a greater number of security issuances for which
notifications will need to be sent. NSCC Members that are not Fund
Members typically receive notifications from multiple Fund Members and
often benefit from receiving notifications for a large number of
security issuances.
---------------------------------------------------------------------------
\10\ For purposes of this filing, NSCC Members refers to Members
and Limited Members.
---------------------------------------------------------------------------
Fund/SERV is an NSCC service providing for the processing and
settling of Fund/SERV Eligible Funds.\11\ Each Fund/SERV Eligible Fund
that is processed through Fund/SERV is required to be assigned a
Security Issue ID, such as a CUSIP.\12\ NSCC is proposing to charge
NSCC Members that are not Fund Members that use MF Info Xchange and
Fund Members that maintain more than 25 Security Issue IDs on Fund/SERV
that use MF Info Xchange, $1,500 per month (``Tier 1''). NSCC is
proposing to charge Fund Members that maintain 25 or fewer Security
Issue IDs on Fund/SERV that use MF Info Xchange $250 per month (``Tier
2'').
---------------------------------------------------------------------------
\11\ Fund/SERV Eligible Fund means a fund or other pooled
investment entity which are subject of orders processed through
Mutual Fund Services. See definition of ``Fund/SERV Eligible Fund,
Rule 1, supra note 5 and Section 1(c) of Rule 3, supra note 5.
\12\ See Section 1(c) of Rule 3, supra note 5, which requires
that unless otherwise required by NSCC, each Fund/SERV Eligible Fund
be assigned a CUSIP number. CUSIP is a registered trademark of the
American Bankers Association.
---------------------------------------------------------------------------
NSCC believes that the tiered structure will align the fees with
the costs of services provided by NSCC by setting the fees so that the
revenue received by NSCC would be sufficient to recover the costs of
building and maintaining the service. The tiered billing structure is
similar to NSCC's billing structure for its Mutual Fund Profile Service
(``MFPS''). Users of MFPS that use Phases I & II \13\ that have greater
than 25 Security Issue IDs in MFPS pay $1,250.00 per month whereas
users that have 25 or fewer Security Issue IDs registered in MFPS that
use Phases I & II pay $250.00 per month.\14\ Based on its experience
with MFPS \15\ and discussions with Fund Members, NSCC believes that
the threshold of greater than 25 Security Issue IDs has been a good
estimation of the size of the Fund Member and the amount of use of the
service by each Fund Member. Also based on pricing levels and usage in
MFPS and discussions with NSCC Members, NSCC believes that the $1,500
and $250 pricing levels are sufficient to recover the costs of building
and maintaining the service without being so excessive as to materially
disincentivize use of MF Info Xchange.
---------------------------------------------------------------------------
\13\ Phases I & II are also known as MFPS I (Daily Price and
Rate File) and MFPS II (Security Issue Database and Distribution
Database). The terms Phase I and Phase II are used in the Rules
because MFPS I and MFPS II were implemented in phases with MFPS I
implemented first in 1996 and MFPS II implemented in 1999. See
Securities Exchange Act Release No. 37171 (May 8, 1996), 61 FR 24344
(May 14, 1996) (SR-NSCC-96-04) (order approving MFPS I
implementation) and Securities Exchange Act Release No. 40614
(October 28, 1998), 63 FR 59615 (November 4, 1998) (SR-NSCC-98-09)
(notice of filing of rule change implementing MFPS II).
\14\ Section IV.J.b. of Addendum A and accompanying footnote 5
in Addendum A, supra note 5. See also Securities Exchange Act
Release No. 61413 (January 25, 2010), 75 FR 4894 (January 29, 2010)
(SR-NSCC-2009-12) (NSCC introduced the credit for MFPS for smaller
fund families that had 25 or fewer funds in their fund family) and
Securities Exchange Act Release No. 84771 (December 10, 2018), 83 FR
64393 (December 14, 2018) (SR-NSCC-2018-012) (NSCC reduced the fees
in MFPS to current levels) (``2018 Filing'').
\15\ After NSCC lowered its fees in 2019 for funds with 25 or
fewer Security IDs on MFPS from $850 to $250, the number of such
funds using MFPS has doubled. See 2018 Filing, Id.
---------------------------------------------------------------------------
[[Page 510]]
(ii) AIP Fee Changes
AIP is a standardized, trading and reporting platform that links
the alternative investments industry to securely and efficiently
exchange data and money relating to alternative investment products,
including hedge funds, funds of funds, private equity, non-traded real
estate investment trusts, managed futures and limited partnerships.
NSCC has undertaken a strategic review of its pricing structure for
AIP, and developed a revenue and pricing strategy with the goal of
aligning the pricing of AIP with costs of providing the service. As a
result of the review, NSCC has determined that certain fees in AIP
have, over time, become misaligned with the costs of service as a
result of increased technology run costs relating to the service. NSCC
would also like to lower certain fees relating to capital calls and
lower volume transfers \16\ to incentivize greater use of those
products. In connection with the realignment, NSCC is proposing to
eliminate a cap of $250,000 currently in place for AIP Distributors.
Currently, there are certain products for which a $250,000 fee cap
applies for AIP Distributors.\17\ Once an AIP Distributor has been
charged $250,000 for transactions relating to such products in a
calendar year, it will not pay with respect to transactions in those
products for the remainder of the calendar year.\18\ The fee cap was
put in place to incentivize greater use of AIP with respect to certain
products for AIP Distributors.\19\
---------------------------------------------------------------------------
\16\ AIP has a tiered billing system based on whether services
are being used for higher volume products or lower volume products.
See Section L.O.3 of Addendum A, supra note 5, which indicates which
products are considered higher volume and which are considered lower
volume. Fees are lower with respect to higher volume products.
\17\ See Section IV.O.3. of Addendum A and accompanying footnote
12 of Addendum A, supra note 5.
\18\ Id.
\19\ See Securities Exchange Act Release No. 63634 (January 3,
2011), 76 FR 1475 (January 10, 2011) (SR-NSCC-2010-19) (stating that
the fee cap was implemented to ``encourage broker-dealers to use the
service and expand coverage of these products and increase the value
of the overall market'').
---------------------------------------------------------------------------
NSCC believes that the fee cap has been successful in incentivizing
AIP Distributors to use AIP and to require more of their fund
counterparties (i.e., AIP Manufacturers) to use AIP.\20\ Given the
growth of AIP and to readjust the overall revenues, NSCC no longer
believes that the fee cap is necessary as an incentive or appropriate
given AIP's operating margin.
---------------------------------------------------------------------------
\20\ For instance, since the fee cap was put in place in 2010,
the number of Eligible AIP Products on the AIP platform has grown
from under 500 to over 7000.
---------------------------------------------------------------------------
NSCC is also proposing to increase lower volume record transaction
fees for AIP Manufacturers from $1 to $2 (AIP Distributors will
continue to pay $1) in order to better align revenues of AIP with the
costs of providing the services.
NSCC is proposing to lower fees relating to capital calls to
incentivize use of AIP with respect to capital calls. Capital calls are
considered ``Trades'' in the Rules and higher volume Trades are
currently priced at a range from $5 per trade to $4 per trade depending
on the number of trades in each calendar year \21\ and lower volume
Trades are $10 per trade.\22\ In addition to capital calls, Trades
include initial purchases, subsequent purchases, partial redemption
requests, full redemption requests and commitments. NSCC has received
feedback from AIP Members indicating that capital calls are performed
more frequently than other types of Trades and as a result, AIP Members
have not been using AIP for capital calls because the AIP Members
believe the price is currently too high for both higher volume products
and lower volume products with respect to capital calls. As a result,
NSCC is proposing to reduce the price for all capital calls to $2 to
incentivize use of AIP for capital calls. This reduction would apply to
capital calls with respect to higher volume products and lower volume
products.
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\21\ Section IV.O.1.ii of Addendum A, supra note 5.
\22\ Section IV.O.2.ii of Addendum A, supra note 5.
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NSCC is also proposing to lower fees relating to lower volume
transfers to incentivize use of AIP with respect to lower volume
transfers. NSCC has received feedback from AIP Members that lower
volume transfers are also priced too high and as a result AIP Members
have not been using AIP for lower volume transfers. NSCC is proposing
to reduce lower volume transfers from $5 to $2 in order to incentivize
use of AIP for lower volume transfers.
(iii) Clarification Changes
NSCC is also proposing to add a heading for Mutual Fund Services in
Addendum A and renumber the headings in Addendum A to reflect that a
number of services listed in Addendum A fall within Mutual Fund
Services. NSCC would also renumber other sections of Addendum A to
reflect the renumbering for Mutual Fund Services.
(iv) Proposed Rule Changes
A. MF Info Xchange Fees
NSCC is proposing to add the fees to MF Info Xchange in new
proposed section IV.G.5 of Addendum A.
B. AIP Fee Changes
NSCC is proposing to state that all capital calls are $2 per trade
in new proposed Section IV.L.1.c (for higher volume capital calls) and
new proposed Section IV.L.2.c (for lower volume capital calls) of
Addendum A. NSCC would add ``(other than capital calls)'' in proposed
sections IV.L.1.b. and IV.L.2.b. of Addendum A to reflect that capital
calls would be separately covered in other sections. NSCC is proposing
to increase the lower volume record transactions fees for AIP
Manufacturers in new proposed section IV.L.2.a. of Addendum A from $1
dollar per trade to $2 dollar per trade. NSCC is also proposing to
reduce lower volume transfers from $5 to $2 in new proposed Section
IV.L.2.d. of Addendum A. NSCC is proposing to remove the $250,000 fee
cap for AIP Distributors in new proposed Section IV.L.3. and to remove
the accompanying footnote 12 of Addendum A.
Based on feedback from NSCC Members and a review of other pricing
levels, NSCC believes that:
Reducing fees to $2 for all capital calls and reducing lower
volume transfers to $2 would incentivize NSCC Members to begin using
AIP with respect to capital calls and with respect to lower volume
transfers
increasing the lower volume record transaction fees from $1 to
$2 and removing the fee cap for AIP Distributors would raise revenue to
an appropriate level to help ensure that AIP operates with a positive
operating margin without being so excessive as to materially
disincentivize the use of AIP for lower volume record transactions or
the use of AIP by AIP Distributors
C. Clarification Changes
NSCC is proposing to add a heading ``Mutual Fund Services'' in
Section IV.G. of Addendum A and proposing to renumber Mutual Fund
Services under that heading to reflect the services that fall within
Mutual Fund Services. NSCC is also proposing to renumber sections
following Section IV.G. to reflect the renumbering within Section IV.G.
of Addendum A.
(iii) Expected Member/NSCC Impact
A. MF Info Xchange Fees
The fee changes for MF Info Xchange would impact all users of the
service.
[[Page 511]]
Based on a review of users in the first quarter of 2021, it is
anticipated that initially approximately 67% of the users will fall
within Tier 1 and be charged $1,500 per month and approximately 33% of
the users will fall within Tier 2 and be charged $250 per month. Of the
users in Tier 1, approximately 67% are expected to be Fund Members that
maintain more than 25 Security Issue IDs and approximately 33% are
expected to be NSCC Members that are not Fund Members.
The fees are intended to cover the costs of developing and
maintaining MF Info Xchange in accordance with NSCC's cost-based plus
markup fee model.\23\ Following the implementation of fees, assuming
revenues and expenses remain constant,\24\ NSCC anticipates recouping
the costs of building MF Info Xchange within approximately three years
of implementing the fees and expects to have a positive operating
margin thereafter.
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\23\ See note 6, supra.
\24\ It is not certain that revenues and expenses will remain
constant. Costs of providing the service may change, for instance,
if NSCC Members request service enhancements or NSCC's technology
costs change. In addition, revenues may change depending on the
number of users of the service. NSCC regularly reviews pricing
levels against costs of operation. As with its other services, if
NSCC determines that its operating margin is too high or too low,
NSCC would change pricing levels accordingly. See 2018 Filing, supra
note 14.
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B. AIP Fee Changes
In general, NSCC anticipates that, as result of the proposed
changes to remove the $250,000 fee cap, four AIP Distributors will see
a fee increase for use of the affected products. Based on a review of
client invoices in June 2021, which NSCC believes is representative of
typical AIP usage, NSCC anticipates that as a result of all of the fee
changes approximately 59% of AIP users comprised of mainly AIP
Manufacturers engaging in lower volume activity will see a fee
increase, approximately 40% of AIP users comprised of mainly AIP users
engaging in higher volume activity will see no fee impact and less than
1% of AIP users will see a fee decrease.
The fee changes are intended to realign AIPs revenue with its
costs. AIP had a negative operating margin in 2020 and it is
anticipated to have a negative operating margin in 2021. Following the
fee changes, AIP anticipates that it will have a positive operating
margin in 2022 and going forward, consistent with NSCC's cost-based
plus markup fee model.\25\
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\25\ Id.
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(iv) Implementation Timeline
NSCC expects to implement the proposed rule changes on January 1,
2022. As proposed, a legend would be added to Addendum A stating there
are changes that became effective upon filing with the Commission but
have not yet been implemented. The proposed legend also would include
January 1, 2022, as the date on which such changes would be implemented
and the file number of this proposal, and state that, once this
proposal is implemented, the legend would automatically be removed from
Addendum A.
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 Sections 17A(b)(3)(D) \26\ and 17A(b)(3)(F) \27\ of
the Act and Rule 17Ad-22(e)(23)(ii),\28\ as promulgated under the Act,
for the reasons described below.
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\26\ 15 U.S.C. 78q-1(b)(3)(D).
\27\ 15 U.S.C. 78q-1(b)(3)(F).
\28\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act \29\ requires, in part, that the
Rules provide for the equitable allocation of reasonable dues, fees,
and other charges among its participants. The proposed fee changes set
forth above are consistent with 17A(b)(3)(D) of the Act \30\ because
the proposed fees would be allocated equitably among the NSCC Members
that subscribe for those services based on each NSCC Member's use of
such services. In addition, NSCC believes that the proposed fee changes
are reasonable because they would enable NSCC to better align its
revenue with the costs and expenses required for NSCC to provide the
services to NSCC Members consistent with NSCC's cost-based plus markup
fee model.\31\ Specifically, NSCC has determined that assuming revenue
and expenses remain constant,\32\ adding the fee for MF Info Xchange
would allow NSCC to recoup the investments it has made in building the
service within approximately three years and allow it to operate with a
positive operating margin going forward. Based on the current usage and
projected revenue for AIP, the realignment of fees would result in
overall revenue that would be closer to the costs of providing the
service and at the same time provide incentives for users to use AIP
for capital calls and lower volume transfers. Therefore, by
establishing fees that align with the costs of delivery of these
products and services and allocating those fees equitably among the
subscribing NSCC Members, the proposed fee changes are consistent with
the requirements of Section 17A(b)(3)(D) of the Act.\33\
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\29\ 15 U.S.C. 78q-1(b)(3)(D).
\30\ Id.
\31\ See note 6, supra.
\32\ See note 24, supra.
\33\ 15 U.S.C. 78q-1(b)(3)(D).
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Section 17A(b)(3)(F) of the Act \34\ requires, in part, that the
Rules promote the prompt and accurate clearance and settlement of
securities transactions. NSCC believes that the proposed clarifications
adding the Mutual Fund Services heading in Addendum A and renumbering
Addendum A as forth above would enhance NSCC Members' ability to
understand the fees associated with Mutual Fund Services. Specifically,
the proposed clarifications would clarify which services fall within
Mutual Fund Services, similar to the structure for Insurance &
Retirement Services and AIP in Addendum A. As such, the proposed
clarifications would allow NSCC Members to have a better understanding
of the Rules in relation to their activities and thereby assist in
promoting the requirements of Section 17A(b)(3)(F) of the Act.\35\
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\34\ 15 U.S.C. 78q-1(b)(3)(F).
\35\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act \36\ requires NSCC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency. The proposed clarifications adding the Mutual Fund Services
heading in Addendum A and renumbering Addendum A as set forth above
would help ensure that the fees set forth in Addendum A are clear and
transparent to NSCC Members. Having a clear and transparent Addendum A
would help NSCC Members to better understand NSCC's fees and help
provide NSCC Members with increased predictability and certainty
regarding the fees they incur in participating in NSCC. As such, by
improving the clarity and transparency of the Rules, NSCC believes the
proposed clarifications are consistent with Rule 17Ad-22(e)(23)(ii)
under the Act.\37\
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\36\ 17 CFR 240.17Ad-22(e)(23)(ii).
\37\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC believes the proposed rule changes to add fees for MF Info
Xchange
[[Page 512]]
and increase certain fees for AIP, may have an impact on competition.
NSCC believes these proposed rule changes could burden competition by
negatively affecting such NSCC Members' operating costs. While these
NSCC Members may experience increases in their fees when compared to
their fees under the current fee structure, NSCC does not believe such
change in fees would in and of itself mean that the burden on
competition is significant. This is because even though the amount of
the fee increase may seem significant in some instances to certain NSCC
Members (e.g., charging $1,500/mo for MF Info Xchange when it is free
now and removing the AIP $250,000 fee cap), NSCC believes the increase
in fees would similarly affect all NSCC Members that utilize the
services, and therefore the burden on competition would not be
significant.
Regardless of whether the burden on competition is deemed
significant, NSCC believes any burden on competition that is created by
these proposed rule changes would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\38\
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\38\ 15 U.S.C. 78q-1(b)(3)(I).
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The proposed rule changes to add fees for MF Info Xchange and
increase certain fees for AIP would be necessary in furtherance of the
purposes of the Act because the Rules must provide for the equitable
allocation of reasonable dues, fees, and other charges among its
participants.\39\ As described above, NSCC believes that the proposed
rule changes would result in fees that are equitably allocated (by
applying uniformly to all NSCC Members that use the applicable
services) and would result in reasonable fees (by allowing NSCC to
recoup its expenses in building MF Info Xchange and allow both MF Info
Xchange and AIP to operate with a positive operating margin). As such,
NSCC believes these proposed rule changes would be necessary in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\40\
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\39\ 15 U.S.C. 78q-1(b)(3)(D).
\40\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC also believes that the fees are appropriate in furtherance of
the purposes of the Act because the fees are set so that the revenue
received by NSCC would be closer to the costs of building and providing
the services consistent with NSCC's cost-based plus markup fee model
and are being equitably allocated among NSCC Members.\41\ Moreover,
NSCC believes that the fees will enable NSCC to pay for building and
continue to operate MF Info Xchange. NSCC believes MF Info Xchange has
a positive effect on competition among users because the service allows
data providers to more effectively communicate event notifications
relating to funds and other pooled investment entities (``Funds''). The
service provides data providers with a more efficient method of
distributing event notifications to parties that need to see such
information in order to facilitate the trading and processing of Fund
securities. NSCC believes this enhances competition among Funds and
Fund participants by allowing parties to distribute such information
more quickly and in a more streamlined manner. Based on experiences
with the similar billing structure used in MFPS and discussions with
NSCC Members, NSCC does not believe that that the addition of the
proposed fees for MF Info Xchange would materially disincentivize use
of MF Info Xchange. As such, NSCC believes these proposed rule changes
would be appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\42\
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\41\ See note 6, supra.
\42\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC does not believe that any proposed fee reductions would have a
burden on competition and may promote competition because the proposed
fee reductions would allow NSCC Members to engage in a greater number
of transactions with lower costs than the prices they would incur today
for the same transactions.
NSCC does not believe that the proposed clarifications to add the
Mutual Fund Services heading to Addendum A and to renumber Addendum A
would have any impact on competition because such changes are
clarifications of the Rules that would not affect the rights or
obligations of NSCC Members.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has conducted ongoing outreach to NSCC Members in order to
provide them with notice of the proposed changes to the affected fees.
NSCC has not received or solicited any written comments relating to
this proposal. If any written comments are received by NSCC, 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \43\ of the Act and paragraph (f) \44\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\43\ 15 U.S.C 78s(b)(3)(A).
\44\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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-2021-017 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 513]]
Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2021-017. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2021-017 and should be submitted on
or before January 26, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-28518 Filed 1-4-22; 8:45 am]
BILLING CODE 8011-01-P
