Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make a Number of Clarifications and Enhancements to NSCC's Rules & Procedures, 56724-56732 [2022-19915]
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Federal Register / Vol. 87, No. 178 / Thursday, September 15, 2022 / Notices
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–2022–050 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
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All submissions should refer to File
Number SR–NASDAQ–2022–050. 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
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Persons submitting comments are
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submissions should refer to File
Number SR–NASDAQ–2022–050 and
should be submitted on or before
October 6, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
J. Matthew DeLesDernier,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95723; File No. SR–NSCC–
2022–012]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Make a Number of
Clarifications and Enhancements to
NSCC’s Rules & Procedures
September 9, 2022.
9 17
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.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to NSCC’s Rules &
Procedures (‘‘Rules’’) in order to make a
number of clarifications and
enhancements to the Rules. Specifically,
the proposed rule change would (i)
clarify the confidential treatment of
non-public information provided by
participants to NSCC as part of ongoing
membership requirements; (ii) remove
outdated rules and procedures related to
the maintenance of Sponsored
Accounts; (iii) update NSCC’s rules
concerning the acceptance and reliance
upon instructions provided by its
members; (iv) modify certain rules and
procedures related to the DTCC Limit
Monitoring Risk Management Tool; (v)
remove rules, procedures, fees, and
addenda related to the inactive Global
Clearance Network Service; (vi) remove
rules and fees related to the inactive
International Link Service; (vii) clarify
certain CNS Accounting Operation
procedures; (viii) consolidate rules
concerning the imposition of fines; (ix)
clarify rules concerning admission to
NSCC’s premises; (x) remove reference
The proposed rule change consists of
modifications to NSCC’s Rules to (i)
clarify the confidential treatment of
non-public information provided by
participants to NSCC as part of ongoing
membership requirements; (ii) remove
outdated rules and procedures related to
the maintenance of Sponsored
Accounts; (iii) update NSCC’s rules
concerning the acceptance and reliance
upon instructions provided by its
members; (iv) modify certain rules and
procedures related to the DTCC Limit
Monitoring Risk Management Tool; (v)
remove rules, procedures, fees, and
addenda related to the inactive Global
Clearance Network Service; (vi) remove
rules and fees related to the inactive
International Link Service; (vii) clarify
certain CNS Accounting Operation
procedures; (viii) consolidate rules
concerning the imposition of fines; (ix)
clarify rules concerning admission to
NSCC’s premises; (x) remove reference
to certain special services no longer
provided by NSCC; and (xi) modify
procedures concerning two-sided trade
data received from service bureaus. The
proposed changes are discussed in
detail below.
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1. Purpose
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
7 Capitalized terms not defined herein are defined
in the Rules, available at https://dtcc.com/∼/media/
Files/Downloads/legal/rules/nscc_rules.pdf.
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)(6).
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(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
5 15
1 15
CFR 200.30–3(a)(12).
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
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
September 1, 2022, 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. NSCC filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
[FR Doc. 2022–19918 Filed 9–14–22; 8:45 am]
BILLING CODE 8011–01–P
to certain special services no longer
provided by NSCC; and (xi) modify
procedures concerning two-sided trade
data received from service bureaus.
NSCC is filing the proposed rule change
for immediate effectiveness pursuant to
Section 19(b)(3)(A) of the Act 5 and Rule
19b–4(f)(6) thereunder,6 and as
described in greater detail below.7
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Federal Register / Vol. 87, No. 178 / Thursday, September 15, 2022 / Notices
(i) Non-Public Information Provided to
NSCC
NSCC recently adopted a proposed
rule change to, among other things,
revise certain provisions in the Rules
relating to the confidentiality of
information furnished by applicants,
Members, and Limited Members
(collectively, ‘‘participants’’) to NSCC.8
Specifically, the proposed rule change
amended Section 1.C. of Rule 2A
(concerning membership application
documents) and Section 3 of Rule 15
(concerning the examination and
provision of adequate assurance of the
financial responsibility and operational
capability of participants) to state that
‘‘[a]ny non-public information furnished
to the Corporation pursuant to this Rule
shall be held in confidence as may be
required under the laws, rules and
regulations applicable to the
Corporation that relate to the
confidentiality of records.’’ The
proposed rule change was intended to
provide one standard that NSCC would
apply uniformly to all participants,
which assures participants that such
information would be held in
confidence with appropriate control.
In addition to the requirements above,
Section 2 of Rule 2B requires that
participants submit to NSCC certain
reports and information as part of their
ongoing membership requirements and
monitoring. Some of the reporting
required by Section 2 of Rule 2B
includes non-public information of
participants. NSCC proposes to add
conforming language to Rule 2B to
clarify the confidential treatment of
such information consistent with the
requirements of Section 1.C. of Rule 2A
and Section 3 of Rule 15. Specifically,
NSCC proposes to amend Section 2.A.
of Rule 2B to state that ‘‘[a]ny nonpublic information furnished to the
Corporation pursuant to this Rule shall
be held in confidence as may be
required under the laws, rules and
regulations applicable to the
Corporation that relate to the
confidentiality of records.’’ Non-public
information may include certain reports,
opinions and tax and cybersecurity
confirmations as required by the Rules
and any material non-public
information or other information and
data that NSCC reasonably determines is
not made available to the public. The
proposed change would further NSCC’s
goal of setting forth one consistent
standard that NSCC would apply
uniformly to all participants, which
assures participants that such
8 See Securities Exchange Act Release No. 93278
(October 8, 2021), 86 FR 57229 (October 14, 2021)
(SR–NSCC–2021–007).
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information would be held in
confidence with appropriate control.
(ii) Sponsored Accounts
NSCC’s Rules refer to certain
circumstances under which it has the
discretionary authority to maintain
Sponsored Accounts for its Members at
The Depository Trust Company
(‘‘DTC’’). NSCC Rule 29 provides that
each Member shall be a participant in a
Qualified Securities Depository (i.e.,
DTC), and if at any time a Member is not
a participant of a Qualified Securities
Depository, NSCC may cease to act for
such Member pursuant to Rule 46. Rule
29 further provides that, during the
interim between the time that such
Member is no longer a participant in a
Qualified Securities Depository and the
time that NSCC ceases to act for the
Member, such Member shall be required
to effect securities settlement by
physical delivery or in the discretion of
NSCC through a Sponsored Account.
Rule 46 also provides that NSCC may
require a participant to effect securities
settlement through a Sponsored
Account, rather than through its own
depository account, as part of a
suspension or prohibition/limitation on
a participant’s access to services.
In addition, Procedure IX.B. provides
procedures for the maintenance of
Sponsored Accounts, including for
Members that may choose not to
maintain direct membership in a
Qualified Securities Depository.
Pursuant to this procedure, each
Member would be assigned a Qualified
Securities Depository account number
and use that account as if it were a
direct participant of the Qualified
Securities Depository; however, the
account would be maintained under the
jurisdiction of NSCC, which would be
solely responsible for all liabilities
arising from the use of the account
including the payment of fees to the
Qualified Securities Depository. NSCC
Rule 4 also contains several footnotes
concerning the treatment of Clearing
Fund deposits for such Sponsored
Accounts. Section 7 of Rule 4 further
provides, in part, that NSCC may retain
for up to two (2) years the Actual
Deposits from Members who have
Sponsored Accounts at DTC.
As a practical matter, NSCC does not
currently maintain any Sponsored
Accounts or plan to utilize Sponsored
Accounts in the foreseeable future.
NSCC does not believe there would be
a plausible scenario in which it would
continue to act for a Member and
sponsor an account at DTC to settle for
a Member whose participation at DTC
has been terminated (whether
voluntarily or through DTC ceasing to
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56725
act for the participant). In the event that
an NSCC Member was no longer an
active participant of DTC, NSCC would
cease to act for such Member pursuant
to its authority under Rule 29 and
implement the close-out procedures
contemplated in Rule 18 and related
NSCC policies and procedures (which
do not currently contemplate the use of
Sponsored Accounts). NSCC therefore
proposes to revise the last sentence of
Rule 29 to delete the reference to the
discretionary use of Sponsored
Accounts in a cease to act scenario and
revise Rule 46 to remove references to
NSCC’s authority to require a
participant to effect securities
settlement through a Sponsored
Account, rather than through its own
depository account, as part of a
suspension or prohibition/limitation of
a participant’s access to services.
NSCC also proposes to delete
Procedure IX.B. concerning the
procedures for maintaining Sponsored
Accounts for Members that choose not
to maintain direct membership in a
Qualified Securities Depository. As
noted above, NSCC Rule 29 provides
that each Member shall be a participant
in a Qualified Securities Depository,
and all current NSCC Members are
participants of DTC. NSCC does not
currently provide Sponsored Accounts
for any of its Members and does not
have plans to provide any new
Sponsored Accounts at this time.9 NSCC
would also make conforming changes to
Rule 4 to remove certain statements and
footnotes discussed above regarding the
collection and maintenance of Clearing
Fund deposits for Sponsored Accounts,
as these Rules would no longer be
applicable in the absence of any
Sponsored Accounts.
NSCC believes that removing rules
and procedures related to inactive
services and operations would improve
the accuracy and clarity of its rules.
Moreover, NSCC believes that removing
Rules concerning inactive Sponsored
Account services would avoid potential
confusion with the sponsored
membership program for NSCC’s
Securities Financing Transaction
Clearing Service.10 If NSCC would
choose to offer Sponsored Accounts or
a similar arrangement at some point in
the future, NSCC would reevaluate the
rules, procedures and operational
9 NSCC believes that its last Sponsored Account
may have been retired in 2011.
10 See Securities Exchange Act Release No. 95011
(May 31, 2022), 87 FR 34339 (June 6, 2022) (SR–
NSCC–2022–003). NSCC also filed the Securities
Financing Transaction Clearing Service proposal as
an advance notice. See Securities Exchange Act
Release No. 94998 (May 27, 2022), 87 FR 33528
(June 2, 2022) (SR–NSCC–2022–801).
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Federal Register / Vol. 87, No. 178 / Thursday, September 15, 2022 / Notices
processes necessary to provide such a
service and would file any necessary
proposed rule changes to effectuate the
change.
(iii) Reliance on Instructions
NSCC Rule 39 provides, in part, that
NSCC may accept or rely upon any
instruction given by a participant,
including wire transmission, physical
delivery or delivery by other means of
instructions recorded on magnetic tape
or other media or of facsimile copies of
instructions, in form acceptable to
NSCC and that NSCC will not act upon
any instruction purporting to have been
given by a participant which is received
by wire transmission or in the form of
facsimile copies or magnetic tape or
media other than written instructions.
NSCC proposes to revise Rule 39 to
remove specific examples of methods of
transmission of instructions to NSCC
and instead provide that NSCC may
accept or rely upon any instruction
given in any form acceptable to the
Corporation and in accordance with the
Procedures. The proposed rule change is
intended to remove outdated methods of
submitting instructions (such as
magnetic tape and facsimile copies)
from the Rules and provide flexibility to
accommodate alternative and evolving
methods of submitting instructions to
NSCC. NSCC believes the proposed
change would promote the ongoing
accuracy and clarity of its rules
regarding the transmission of
instructions to NSCC.
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(iv) DTCC Limit Monitoring Risk
Management Tool
Background—DTCC Limit Monitoring
NSCC provides its Members with a
risk management tool called DTCC
Limit Monitoring, which enables
Members to monitor trading activity on
an intraday basis of their organizations
and/or their correspondent firms
through review of post-trade data.11
DTCC Limit Monitoring was
implemented in 2014 in connection
with industry-wide efforts to develop
tools and strategies to mitigate and
address the risks associated with the
increasingly complex, interconnected,
and automated market technology (such
risks include, but are not limited to,
trade input errors, software or trading
algorithm errors, and inadequate
controls for automated processes).
Through this tool, NSCC Members can
monitor trading activity against limits
11 See Securities Exchange Act Release Nos.
71637 (February 28, 2014), 79 FR 12708 (March 6,
2014) (File No. SR–NSCC–2013–12) and 77990
(June 3, 2016), 81 FR 37229 (June 9, 2016) (File No.
SR–NSCC–2016–001).
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that they have pre-set and can review
notifications that are delivered when
these pre-set limits are being
approached and when they are reached.
The limit monitoring tool is intended to
supplement Members’ existing internal
risk management processes. Any actions
Members determine to take in response
to these alerts is their responsibility and
is taken away from NSCC. DTCC Limit
Monitoring is primarily discussed in
NSCC Rule 54 and Procedure XVII.
DTCC Limit Monitoring is available to
all NSCC Members; however, Rule 54
requires certain categories of Members
to register for the DTCC Limit
Monitoring tool. This requirement
applies to: (1) any Member that clears
trades for others; (2) any Member that
submits transactions to NSCC’s trade
capture system either as a Qualified
Special Representative (‘‘QSR’’) or
Special Representative, pursuant to
Procedure IV (Special Representative
Service); and (3) any Member that has
established a 9A/9B relationship in
order to allow another Member (either a
QSR or Special Representative) to
submit locked in trade data on its
behalf. In addition, Procedure XVII
requires, among other things, that
Members registered for DTCC Limit
Monitoring create and establish Risk
Entities,12 designate parameters to
associate with each Risk Entity from
certain parameter types that are
established or permitted by NSCC from
time to time, review reports and alerts
on an on-going basis and, as necessary,
modify established parameters to reflect
current trading activities within each of
their Risk Entities, and identify primary
and secondary contacts within their
firm for DTCC Limit Monitoring.
Proposed Changes to DTCC Limit
Monitoring
NSCC proposes to revise Rule 54 and
Procedure XVII to eliminate the
requirement that certain specified
Members register for the DTCC Limit
Monitoring tool (i.e., those Members
that clear trades for others, submit
transactions to NSCC’s trade capture
system either as a QSR or Special
Representative, or have established a
9A/9B relationship in order to allow
another Member (either a QSR or
Special Representative) to submit
locked in trade data on its behalf). NSCC
would also make conforming changes to
Procedure XVII to reflect that Members
12 ‘‘Risk
Entities’’ are defined by each Member
using filtering criteria to focus on activity it seeks
to monitor through the risk management tool,
including that of its correspondents, or other
entities or groups for which LM Trade Date Data is
processed through the Members’ account, including
relating to subgroups within its own business.
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may, but are not required to, create and
establish Risk Entities, designate
parameters to associate with each Risk
Entity, review reports and alerts on an
on-going basis and, as necessary, modify
established parameters to reflect current
trading activities within each of their
Risk Entities, and identify primary and
secondary contacts within their firm for
DTCC Limit Monitoring. NSCC would
continue to offer the DTCC Limit
Monitoring tool to all Members on an
optional basis but would no longer
require that any particular type of
Member register for the tool.
As noted above, DTCC Limit
Monitoring was developed as part of a
broader industry-wide effort to develop
tools and strategies to mitigate and
address trading risks. Since the
implementation of DTCC Limit
Monitoring in 2014, U.S. equity
exchanges have also implemented risk
controls to mitigate risks inherent with
direct exchange transaction flow (such
controls include, but are not limited to,
credit limits, single order limits, and kill
switch functionality).13 These exchange
risk controls are optional risk
management tools made available to
exchange members to assist them in
monitoring and managing their risks.
DTCC Limit Monitoring is intended to
supplement, and not replace, a
Member’s own internal systems and
procedures or other tools, such as
exchange pre-trade risk controls,
available to the Member for managing
its risks. NSCC also notes that while
certain Members are currently required
to register for DTCC Limit Monitoring,
NSCC does not require Members to take
any particular action(s) based on the
output of the limit monitoring tool and
any actions Members determine to take
in response to these alerts is their
responsibility and is taken away from
NSCC. Moreover, NSCC does not use the
DTCC Limit Monitoring tool for internal
risk management purposes. NSCC
therefore believes that providing DTCC
Limit Monitoring on an optional basis is
appropriate and consistent with
industry practice and would not impact
NSCC’s own risk management practices.
(v) Global Clearance Network Service
NSCC Rule 62 and Addendum U
discuss the Global Clearance Network
Service (‘‘GCN Service’’), which was a
foreign clearing, settlement, and custody
13 See, e.g., Securities Exchange Act Release Nos.
88599 (April 8, 2020) 85 FR 20793 (April 14, 2020)
(File No. SR–CboeBZX–2020–006); 88776 (April 29,
2020), 85 FR 26768 (May 5, 2020) (File No. SR–
NYSE–2020–17); 88904 (May 19, 2020) 85 FR 31560
(May 26, 2020) (File No. SR–NYSEArca–2020–43);
89225 (July 6, 2020), 85 FR 41650 (July 10, 2020)
(File No. SR–NASDAQ–2020–034).
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service provided by NSCC in
conjunction with banks, trust
companies and other entities to any
Member that is qualified to be a
customer of the bank, trust company or
other entity. The GCN Service was
previously offered by the International
Securities Clearing Corporation
(‘‘ISCC’’), which was a wholly owned
subsidiary of NSCC. ISCC ultimately
transferred its core settlement services,
including the GCN Service, to NSCC
and withdrew from registration as a
clearing agency.14
The GCN Service is a dormant service
that is no longer utilized by NSCC’s
Members. NSCC therefore proposes to
delete Rule 62 and Addendum U and
any related fees for the GCN Service in
Addendum A. NSCC believes that
removing rules, procedures, and fees for
this inactive service would improve the
accuracy and clarity of the Rules. In the
event NSCC would choose to resume
offering these services, NSCC would
reevaluate the rules, procedures and
operational processes necessary to
provide such services and would file
any necessary proposed rule changes to
effectuate the change.
(vi) International Links
NSCC Rule 61 discusses the
establishment of links and the provision
of certain services to Foreign Financial
Institutions, including the International
Link Service (‘‘ILS’’). ILS, like the GCN
Service, was a service provided by ISCC.
ISCC previously sponsored accounts at
DTC for the purpose of providing
Foreign Financial Institutions with
custody services for their U.S.
securities. ISCC transferred the ILS
service, along with the GCN Service, to
NSCC when it withdrew from
registration as a clearing agency.15
Rule 61 currently provides, in part,
that to the extent NSCC provides access
to a Qualified Security Depository (i.e.,
DTC) to a Foreign Financial Institution,
the Foreign Financial Institution would
be required to collateralize its
settlement obligations to NSCC on such
terms and by such means as agreed to
between NSCC and the Foreign
Financial Institution. NSCC does not
currently sponsor accounts or otherwise
provide Foreign Financial Institutions
access to DTC. Foreign Financial
Institutions that are participants of
NSCC and that wish to access the
services of DTC maintain direct
participation at DTC. NSCC therefore
14 See Securities Exchange Act Release Nos.
42273, (December 27, 1999), 65 FR 311 (January 4,
2000) (File No. SR–NSCC–99–12) and 42274
(December 27, 1999) 65 FR 311 (January 4, 2000)
(File No. SR–ISCC–99–01).
15 See id.
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proposes to delete this sentence of Rule
61 to improve the accuracy and clarity
of the Rules. NSCC would also remove
any fees related to ILS from Addendum
A of the Rules. In the event NSCC
would choose to resume offering these
services, NSCC would reevaluate the
rules, procedures and operational
processes necessary to provide such
services and would file any necessary
proposed rule changes to effectuate the
change.
(vii) CNS Accounting Operation
Procedures
CNS Delivery Exemptions
Section D of Procedure VII describes
the procedures for controlling deliveries
to CNS, including the process by which
Members may submit instructions to
NSCC to indicate which short positions
they do not wish to settle and should be
exempt from delivery. CNS provides for
two levels of Exemption. Level 1
Exemptions allow a Member to
designate that a portion of its short
positions should not be automatically
settled against its current Designated
Depository position or against any
securities which may be received into
its Designated Depository account as a
result of other depository activity. Level
2 Exemptions allow a Member to
designate that a portion of its short
positions should not be automatically
settled against its current depository
position, but that such a position may
be satisfied by certain types of
‘‘qualified’’ activity in its Designated
Depository account. Section D.2(b) of
Procedure VII discusses the four types
of qualified activity, which allow short
positions carrying Level 2 Exemptions
to be settled. The list of qualified
activity currently includes, among other
things, ‘‘Receipts from Member’s SubAccount,’’ which provides that, as a
result of CNS sub-accounting, a Member
may have a long position in a given
security in one CNS account and a short
position in the same security in another
CNS account, and since both CNS
accounts settle against a single
Designated Depository Account, the
Member may receive securities from
itself.16
As noted above, Section D of
Procedure VII is intended to describe
certain Member rights and obligations
associated with the delivery of securities
to CNS. Section D.2. of the procedure
specifically discusses the process by
which Members submit instructions to
indicate which short positions should
be exempt from delivery and which
types of qualified activity allow short
16 See Section D.2(b)(iv) of Procedure VII of the
Rules, supra note 7.
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56727
positions carrying Level 2 Exemptions
to be delivered and settled. Section
D.2(b)(iv), however, discusses a
hypothetical scenario under which a
Member may receive securities, which is
unrelated and not relevant to the
delivery of securities to CNS under the
exemption and qualified activity
process. Accordingly, NSCC proposes to
delete Section D.2(b)(iv) to remove
potentially confusing procedural
language and improve the clarity and
accuracy of its Rules.17
Fully-Paid-For Accounts
NSCC’s processing day is divided into
two parts. It begins with a night cycle
on the evening preceding the settlement
day for which the work is being
processed and is followed by a day
cycle which ends on the settlement day
for which the work is processed.
Pursuant to Section E.5 of Procedure
VII, if a Member with a long position
and/or a position due for settlement on
the next settlement day, in anticipation
of receiving securities from NSCC as a
result of the allocation process during
the night or day cycle for that settlement
day, instructs that securities within its
possession or control be delivered on
the next day and is subsequently not
allocated the securities during the night
or following day cycle, the Member
may, in order to meet the ‘‘customer
segregation’’ requirements of Rule 15c3–
3 of the Exchange Act, during the day
cycle for that settlement day instruct
NSCC to transfer the position(s) which
has not been allocated to a special CNS
sub-account known as the ‘‘Long Free
Account.’’ NSCC will then debit the
Member’s settlement account for the
value of the position in the Long Free
Account.
Section E.5 of Procedure VII contains
the following note related to the use of
the Long Free Account.
The SEC has stated that: ‘‘any broker/
dealer that takes advantage of proposed rule
NSCC–82–25 must recall deficits from bank
loan within shorter time intervals than those
presently allowed under Rule 15c3–3(d)(1) of
the Exchange Act. In the case of bank loan,
broker/dealers will be expected to effect a
17 CNS accounts settle against a single Designated
Depository Account. It is therefore technically
possible for a Member to deliver securities to
NSCC’s CNS account to satisfy a short position in
one CNS sub-account and receive the same
securities from NSCC’s CNS account in connection
with a long position in another CNS sub-account.
However, the Member is not delivering those
securities directly to, nor receiving securities
directly from, itself, and the Member may also
receive securities that have been delivered to
NSCC’s CNS account by another Member. This is
another potential area of confusion in the procedure
that would be addressed by the proposed deletion
of this rule text.
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recall within one Business Day instead of the
two Business Days presently allowed.
The note refers to a no action letter
issued by the Commission’s Division of
Trading and Markets (formerly, the
Division of Market Regulation) 18 in
connection with the adoption of Section
E.5 of Procedure VII as part of NSCC
filing SR–NSCC–82–25.19
NSCC proposes to delete this note
from Section E.5 of Procedure VII. The
note is potentially confusing to readers
as it (1) refers to a ‘‘proposed rule’’ as
opposed to the approved and existing
procedure and (2) does not clearly
identify the source of this Commission
statement. Moreover, NSCC does not
typically refer to Commission relief in
its Rules. NSCC believes the proposed
change would improve the clarity of its
Rules and would conform Section E.5 of
Procedure VII to more standard drafting
practices for NSCC’s Rules.
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CNS Buy-Ins
Section J.1 of Procedure VII provides
procedures for the recording of buy-ins
for equities and corporate debt
securities in CNS. The procedure
provides, in part, that a Buy-In
Retransmittal Notice shall include such
information as NSCC may determine
from time to time, including the identity
of the entity that initiated the Buy-In
against the Member.
NSCC proposes to revise this section
of the procedure to clarify that Buy-In
Retransmittal Notices must also be
submitted within such times as
determined by NSCC. NSCC believes the
proposed change would improve its
Rules by aligning the procedural
language and requirements for Buy-In
Retransmittal Notices with other
submission requirements in the Rules
(e.g., the submission of Buy-In Intents in
Section J of Procedure VII and the
submission of Buy-In Executions in
Procedure X) and maintaining
consistency across those procedural
requirements.
(viii) Payment of Fines
NSCC Rule 17 discusses NSCC’s
authority to impose fines on a Member
or Limited Member pursuant to the
Rules. Pursuant to Rule 17, fines shall
be payable in the manner and at such
time as determined by NSCC from time
to time. NSCC Rule 48 further discusses
NSCC’s authority to impose disciplinary
proceedings for a Member of Limited
18 See Letter from Michael A. Macchiaroli,
Assistant Director, Division of Market Regulation,
Commission, to Robert J. Woldow, Senior Vice
President and General Counsel, NSCC (May 10,
1984).
19 See Securities Exchange Act Release No. 20948
(May 10, 1984) (File No. SR–NSCC–82–25).
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Member for, among other things, a
violation of the Rules. Section 1 of Rule
48 provides that such disciplinary
proceedings may result in expulsion,
suspension, limitation of or restriction
on activities, functions and operations,
fine or censure or any other fitting
sanction.
NSCC proposes to delete Rule 17 and
relocate the second sentence of Rule 17,
which provides that fines shall be
payable in the manner and at such time
as determined by the Corporation from
time to time, to Section 1 of Rule 48.
NSCC would also make conforming
changes to Rule 15 and Rule 56 to
update and remove references to Rule
17, respectively. The proposed change is
intended to consolidate the rules
concerning NSCC’s authority to impose
fines into NSCC’s disciplinary
proceeding rules. The proposed change
is not intended to result in a substantive
change to NSCC’s rules.
Center.’’ 22 These Clearing Centers were
initially established at a time when both
the trading and clearance and settlement
of securities operated in a more regional
manner. Given the evolution of
technology since the adoption of these
procedures and the evolution of the
national clearance and settlement
system, NSCC no longer maintains
regional Clearing Centers. As a result,
NSCC proposes to delete Section A of
Procedure IX in its entirety and the
definitions of ‘‘Clearing Center’’ and
‘‘Primary Clearing Center’’ from
Procedure XIII. NSCC believes that
removing these outdated procedures
would improve the accuracy and clarity
of its Rules.
(x) Clearing Centers
Section A of Procedure IX discusses
NSCC’s provision of Clearing Centers in
a number of cities to serve as input/
output facilities for the convenience of
Members located near that office.
Procedure XIII further provides
definitions for the terms ‘‘Clearing
Center’’ 21 and ‘‘Primary Clearing
(xi) Data From Service Bureaus
Addendum J to the Rules contains a
policy statement regarding the
acceptance of trade data from service
bureaus. Pursuant to Section 6 of Rule
7, NSCC may accept locked-in trade
data from self-regulatory organizations
(‘‘SROs’’) on a Member’s behalf for
input into NSCC’s comparison system.
NSCC has also previously received
requests from Members to accept twosided trade data from service bureaus in
addition to locked-in data. In response,
NSCC adopted the policy statements in
Addendum J setting forth certain
minimum requirements for service
bureaus submitting two-sided trade data
to NSCC. NSCC proposes to make
certain clarifying updates to the
Addendum.
NSCC proposes to revise the
introductory paragraph of Addendum J
to clarify that NSCC may accept from
SROs and/or service bureaus, initial or
supplemental trade data on behalf of
Members for input into the
Corporation’s Comparison Operation
with respect to debt securities to
conform the language in the Addendum
to the requirements of Section 6 of Rule
7.23 NSCC also proposes to delete
references to specific SROs from which
it accepts trade data (i.e., NYSE, NYSE
Alternext, and National Association of
Securities Dealers) and replace them
with a more general reference to ‘‘SROs’’
to reflect that NSCC has accepted, and
may continue to accept, additional
SROs as trade data submitters since the
adoption of the Addendum. In addition,
NSCC would revise the Addendum to
20 NSCC notes that the proposed rule change
would also align the requirements of NSCC Rule 27
with the requirements of Rule 17 of the DTC Rules,
By-Laws and Organization Certificate (‘‘DTC
Rules’’), providing greater consistency across the
rules of NSCC and DTC. The DTC Rules are
available on DTCC’s public website, available at
https://www.dtcc.com/legal/rules-and-procedures.
21 Clearing Center is defined as ‘‘[a] branch
facility of the Corporation.’’
22 Primary Clearing Center is defined as ‘‘[t]he
Clearing Center designated as such by a Member.’’
23 All equity transactions submitted for
processing to NSCC, other than those submitted
through the Obligation Warehouse pursuant to Rule
51 and Procedure II.A, must be compared prior to
submission and submitted to NSCC on a locked-in
basis for trade recording. See Securities Exchange
Act Release No. 70263 (August 27, 2013), 78 FR
54349 (September 3, 2013) (SR–NSCC–2013–09).
(ix) Admission to NSCC’s Premises
NSCC Rule 27 provides, in part, that
no person will be permitted to enter the
premises of NSCC as the representative
of any participant unless he has first
been approved by NSCC and has been
issued such credentials as NSCC may
from time to time prescribe and such
credentials have not been canceled or
revoked. In addition, such credentials
must be shown on demand, and may
limit the portions of the premises to
which access is permitted thereunder.
NSCC proposes to revise Rule 27 to
clarify that, to gain entry to NSCC’s
premises, such credentials must be
prominently displayed while on NSCC’s
premises. NSCC does not believe the
proposed change would impose any
new material obligation or burden on its
Members since Members are already
required to obtain such credentials and
display them on demand. The proposed
rule change is simply intended to codify
this expectation in NSCC’s rules.20
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clarify that NSCC accepts locked-in
trade data for input into its trade
capture system, as opposed to its
comparison system, as the transaction
details for locked-in trades have already
been compared.
Addendum J also currently requires
that a service bureau must (a) be or
become a Member of NSCC or (b) be
affiliated with a Member of the
Corporation. In addition, the Member
(either the service bureau itself or its
affiliated Member) must make a Clearing
Fund deposit with NSCC. NSCC
proposes to delete these requirements
from Addendum J. NSCC does not
believe it is necessary for a service
bureau to be, or be affiliated with, a
Member or to maintain a Clearing Fund
deposit. The Members, on behalf of
which a service bureau may submit
trade data to NSCC, and not the service
bureau itself, are responsible for
maintaining Clearing Fund deposits to
cover the risk associated with such
positions. Moreover, the last paragraph
of Addendum J currently provides
NSCC with the authority to waive these
requirements if it is in the best interests
of NSCC and its Members to approve a
service bureau so as to assure the
prompt, accurate, and orderly
processing and settlement of securities
transactions or to otherwise carry out
the functions of the Corporation. NSCC
is proposing to eliminate these
requirements as a matter of rule rather
than through individual waivers, to
improve the transparency and clarity of
its Rules. Finally, NSCC would revise
Addendum J to make certain nonsubstantive typographical corrections in
the rule text.
(xii) Implementation Timeframe
NSCC would implement the proposed
changes no earlier than thirty (30) days
after the date of filing, or such shorter
time as the Commission may designate.
As proposed, a legend would be added
to each affected Rule stating there are
changes that were effective upon filing
but have not yet been implemented. The
legend would also state that NSCC
would implement the proposed changes
no earlier than thirty (30) days after the
date of filing, or such shorter time as the
Commission may designate. The legend
would state that the legend would
automatically be removed upon the
implementation of the proposed
changes. NSCC would announce the
implementation date of the proposed
changes by Important Notice posted to
its website.
2. Statutory Basis
NSCC believes that the proposed rule
change is consistent with the
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requirements of the Act and the rules
and regulations thereunder applicable to
a registered clearing agency. Section
17A(b)(3)(F) of Act 24 requires, in part,
that the rules of a clearing agency be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions and to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible. NSCC believes the
proposed rule change would promote
the prompt and accurate clearance and
settlement of securities transactions and
assure the safeguarding of securities and
funds which are in the custody or
control of the clearing agency or for
which it is responsible for the reasons
set for below.
Proposed Clarifications to Confidential
Treatment of Reports and Information
The proposed addition of
confidentiality requirements for
participant information to NSCC Rule
2B would enable NSCC to maintain one
consistent standard to apply uniformly
to all participants, which assures
participants that such information
would be held in confidence with
appropriate control. NSCC believes the
proposed rule change would therefore
help NSCC meet its obligations and help
each participant better understand
NSCC’s obligations for maintaining the
confidential information it shares with
NSCC, which, in turn, may facilitate the
sharing of such information and
improve NSCC’s ability to evaluate its
participants’ eligibility to maintain
access to NSCC’s clearance and
settlement services. NSCC therefore
believes the proposed rule change is
consistent with promoting the prompt
and accurate clearance and settlement of
securities transactions by NSCC.
Proposed Removal of Outdated Rules,
Procedures, Addenda, and Fees
The proposed rule change would
remove outdated rules, footnotes,
procedures, addenda, and fees related to
inactive services, such as the provision
of Sponsored Accounts, Clearing
Centers, and the GCN Service and ILS.
The proposed rule change would also
remove outdated methods of submitting
instructions to NSCC from the Rules and
provide flexibility to accommodate both
current alternative and evolving
methods of submitting instructions to
NSCC. These proposed changes are
designed to improve the accuracy,
clarity, and transparency of the NSCC
Rules and thereby allow Members to
conduct their business more efficiently
24 15
PO 00000
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Frm 00110
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56729
and effectively in accordance with the
Rules, which NSCC believes would
promote the prompt and accurate
clearance and settlement of securities
transactions.
Proposed Clarifications to CNS
Accounting Operation Procedures
The proposed rule change would also
provide additional clarity to NSCC’s
CNS Accounting Operation Procedures.
First, the proposed rule change would
clarify NSCC’s rules by deleting Section
D.2(b)(iv) of Procedure VII, which
discusses the possibility of a Member
receiving such securities from itself
through CNS. As noted above, Section D
of Procedure VII is intended to describe
certain Member rights and obligations
associated with the delivery of securities
to CNS; however, Section D.2(b)(iv)
discusses a hypothetical scenario under
which a Member may receive securities,
which is unrelated and not relevant to
the delivery of securities to CNS under
the exemption and qualified activity
process and may cause confusion to
readers trying to understand the
delivery and exemption process.
Second, the proposed rule change
would remove from Section E.5 of
Procedure VII a note referring to a no
action letter issued by the Commission’s
Division of Trading and Markets
(formerly, the Division of Market
Regulation).25 As discussed above, the
note, as currently drafted, is potentially
confusing to readers as it (1) refers to a
‘‘proposed rule’’ as opposed to the
approved and existing procedure and (2)
does not clearly identify the source of
this Commission statement. Moreover,
NSCC does not typically refer to
Commission relief in its Rules. NSCC
therefore proposes to remove the note to
improve the clarity of its Rules and
conform Section E.5 of Procedure VII to
more standard drafting practices for
NSCC’s Rules.
Third, to the proposed rule change
would revise Section J.1 of Procedure
VII concerning CNS Buy-Ins to clarify
that Buy-In Retransmittal Notices must
also be submitted within such times as
determined by NSCC. NSCC believes the
proposed change would improve its
Rules by aligning the procedural
language and requirements for Buy-In
Retransmittal Notices with other
submission requirements in the Rules
(e.g., the submission of Buy-In Intents in
Section J of Procedure VII and the
submission of Buy-In Executions in
Procedure X) and maintaining
consistency across those procedural
requirements.
25 See
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Taken together, the proposed changes
are designed to improve the accuracy,
clarity, and transparency of NSCC’s CNS
Accounting Operation Procedures.
NSCC believes the proposed rule change
would allow Members to conduct their
business more efficiently and effectively
in accordance with the Rules and
thereby promote the prompt and
accurate clearance and settlement of
securities transactions.
Proposed Changes to Limit Monitoring
Rules and Procedures
NSCC proposes to revise Rule 54 and
Procedure XVII to eliminate the
requirement that certain Members
register for the DTCC Limit Monitoring
tool. NSCC would also make conforming
changes to Procedure XVII to reflect that
Members may, but are not required to,
create and establish Risk Entities,
designate parameters to associate with
each Risk Entity, review reports and
alerts on an on-going basis and, as
necessary, modify established
parameters to reflect current trading
activities within each of their Risk
Entities, and identify primary and
secondary contacts within their firm for
DTCC Limit Monitoring.
As described above, DTCC Limit
Monitoring was developed as part of a
broader industry-wide effort to develop
tools and strategies to mitigate and
address trading risks. Since the
implementation of DTCC Limit
Monitoring in 2014, U.S. equity
exchanges have also implemented risk
controls to mitigate risks inherent with
direct exchange transaction flow to
assist them in monitoring and managing
their risks.26 Like these exchange risk
controls, DTCC Limit Monitoring is
intended to supplement, and not
replace, a Member’s own internal
systems and procedures or other tools
available to the Member for managing
its risks. NSCC would continue to offer
the DTCC Limit Monitoring tool to all
Members on an optional basis but
would no longer require that any
particular type of Member register for
the tool.
NSCC believes that providing DTCC
Limit Monitoring on an optional basis is
appropriate and consistent with
industry practice. NSCC also notes that
while certain Members are currently
required to register for DTCC Limit
Monitoring, NSCC does not require
Members to take any particular actions
based on the output of the limit
monitoring tool. Any actions Members
determine to take in response to these
alerts is their responsibility and is taken
away from NSCC. Moreover, NSCC does
26 See
supra note 13.
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not use the DTCC Limit Monitoring tool
for internal risk management purposes.
NSCC therefore believes the proposed
rule change would continue to provide
NSCC’s Members with a valuable risk
management tool to supplement its own
internal systems and procedures or
other tools available to the Member for
managing its risks, would not impact
any actions taken as a result of Limit
Monitoring, and would not have any
impact on NSCC’s own internal risk
management activities. For these
reasons, NSCC believes the proposed
rule change would continue to promote
the prompt and accurate clearance and
settlement of securities transactions and
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible.
Proposed Changes Concerning Payment
of Fines and Admission to Premises
NSCC proposes non-material
clarifying changes to its Rules
concerning the payment of fines and
admission to its premises. NSCC would
eliminate Rule 17 and relocate the
second sentence of Rule 17, which
provides that fines shall be payable in
the manner and at such time as
determined by the Corporation from
time to time, to Section 1 of Rule 48 and
make conforming changes to Rules 15
and 56. The proposed change is
intended to consolidate the rules
concerning NSCC’s authority to impose
fines into NSCC’s disciplinary
proceeding rules and is not intended to
result in a substantive change to NSCC’s
rules. NSCC also proposes to revise Rule
27 to clarify that, to gain entry to
NSCC’s premises, a Member
representative’s credentials must be
prominently displayed while on NSCC’s
premises. NSCC does not believe the
proposed change would impose any
new significant obligation or burden on
its Members since Members are already
required to obtain such credentials and
display them on demand. The proposed
changes are intended to improve the
accuracy, clarity, and transparency of
NSCC’s Rules. The proposed changes
would therefore allow Members to
conduct their business more efficiently
and effectively in accordance with the
Rules and thereby promote the prompt
and accurate clearance and settlement of
securities transactions.
Proposed Clarifications to Service
Bureau Requirements
Finally, NSCC proposes several
clarifying changes to Addendum J,
which contains a policy statement
regarding the acceptance of trade data
from service bureaus. Specifically,
PO 00000
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NSCC proposes to revise the
introductory paragraph of the
Addendum to clarify that NSCC may
accept from SROs and/or service
bureaus, initial or supplemental trade
data on behalf of Members for input into
the Corporation’s Comparison Operation
with respect to debt securities in
conformance to Section 6 of Rule 7.
NSCC also proposes to delete references
to specific SROs from which it accepts
trade data and replace them with a more
general reference to ‘‘SROs’’ to reflect
that NSCC has accepted, and may
continue to accept, additional SROs as
trade data submitters since the adoption
of the Addendum. Additionally, NSCC
would revise the Addendum to clarify
that NSCC accepts locked-in trade data
for input into its trade capture system,
as opposed to its comparison system, as
the transaction details for locked-in
trades have already been compared.
These proposed changes are designed to
improve the accuracy, clarity, and
transparency of the NSCC Rules and
thereby allow Members to conduct their
business more efficiently and effectively
in accordance with the Rules, which
NSCC believes would promote the
prompt and accurate clearance and
settlement of securities transactions.
NSCC would also delete the
requirements that a service bureau must
(a) be or become a Member of NSCC or
(b) be affiliated with a Member of the
Corporation and that the Member (either
the service bureau itself or its affiliated
Member) must make a Clearing Fund
deposit with NSCC. NSCC does not
believe it is necessary for a service
bureau to be, or be affiliated with, a
Member or to maintain a Clearing Fund
deposit. The Members, on behalf of
which a service bureau may submit
trade data to NSCC, and not the service
bureau itself, are responsible for
maintaining Clearing Fund deposits to
cover the risk associated with such
positions. Moreover, the last paragraph
of Addendum J currently provides
NSCC with the authority to waive these
requirements if it is in the best interests
of NSCC and its Members to approve a
service bureau so as to assure the
prompt, accurate, and orderly
processing and settlement of securities
transactions or to otherwise carry out
the functions of the Corporation. NSCC
is proposing to eliminate these
requirements as a matter of rule rather
than through individual waivers, to
improve the transparency and clarity of
its Rules. NSCC believes the proposed
rule change would continue to promote
the prompt and accurate clearance and
settlement of securities transactions and
assure the safeguarding of securities and
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funds which are in the custody or
control of the clearing agency or for
which it is responsible.
For the reasons set forth above, NSCC
believes the proposed rule change
would promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible, consistent
with the requirements of Section
17A(b)(3)(F) of the Act.27
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC does not believe that the
proposed rule change would have any
adverse impact, or impose any burden,
on competition. These proposed
changes are primarily designed to
improve the accuracy, clarity, and
transparency of the NSCC Rules.
Specifically, the proposed changes to
Rule 2B concerning NSCC’s obligations
for maintaining non-public information
of its participants would only impose
obligations on NSCC and would not
impose any new requirements on its
participants. Additionally, the proposed
rule change would remove outdated
rules, procedures, addenda, and fees
related to inactive services or outdated
methods of data transmission. The
proposed rule change would also
provide additional clarity to NSCC’s
CNS Accounting Operation Procedures,
which would be equally applicable to
all Members. In addition, the proposed
rule change would remove certain
requirements around the DTCC Limit
Monitoring tool and make Limit
Monitoring available to all Members on
an optional basis. The proposed changes
to Limit Monitoring would not impose
any new requirements on Members or
impact the actions Members may take in
response to Limit Monitoring. In
addition, the proposed rule change
would consolidate the rules concerning
NSCC’s authority to impose fines into
NSCC’s disciplinary proceeding rules
and clarify the requirements for
admission to NSCC’s premises. These
proposed changes would apply equally
to all Members and would not impose
any new significant obligation or burden
on Members. The proposed changes are
simply intended to improve the
accuracy, clarity, and transparency of
NSCC’s Rules. Finally, the proposed
rule change would clarify policy
statements regarding the acceptance of
trade data from service bureaus. These
proposed changes would not impose
any new requirements on service
bureaus and would in fact eliminate
certain requirements for service
bureaus. The proposed rule change
therefore would not materially affect the
rights or obligations of NSCC Members.
As a result, NSCC does not believe that
the proposed rule change would have
any adverse impact, or impose any
burden, on competition.
(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.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
(i) significantly affect the protection of
investors or the public interest;
(ii) impose any significant burden on
competition; and
(iii) become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 28 and Rule 19b–4(f)(6)
thereunder.29
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
28 15
27 15
U.S.C. 78q–1(b)(3)(F).
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56731
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–2022–012 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–2022–012. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of NSCC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2022–012 and should be submitted on
or before October 6, 2022.
E:\FR\FM\15SEN1.SGM
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56732
Federal Register / Vol. 87, No. 178 / Thursday, September 15, 2022 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19915 Filed 9–14–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95724; File No. SR–FICC–
2022–004]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend the
Stress Testing Framework and
Liquidity Risk Management Framework
September 9, 2022.
I. Introduction
On May 26, 2022, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2022–004 (the
‘‘Proposed Rule Change’’) pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The Proposed Rule
Change was published for comment in
the Federal Register on June 15, 2022,3
and the Commission has received no
comments regarding the changes
proposed in the Proposed Rule Change.
On July 14, 2022, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve, disapprove, or institute
proceedings to determine whether to
approve or disapprove the Proposed
Rule Change.5 This order institutes
proceedings, pursuant to Section
19(b)(2)(B) of the Act,6 to determine
whether to approve or disapprove the
Proposed Rule Change.
II. Summary of the Proposed Rule
Change
As described in the Notice, FICC
proposes to amend (1) the Clearing
Agency Stress Testing Framework
(Market Risk) (‘‘ST Framework’’) and
the Clearing Agency Liquidity Risk
Management Framework (‘‘LRM
30 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 95079
(June 9, 2022), 87 FR 36182 (June 15, 2022) (File
No. SR–FICC–2022–004).
4 15 U.S.C. 78s(b)(2).
5 Securities Exchange Act Release No. 95284 (July
14, 2022), 87 FR 43364 (July 20, 2022) (SR–FICC–
2022–004).
6 15 U.S.C. 78s(b)(2)(B).
lotter on DSK11XQN23PROD with NOTICES1
1 15
VerDate Sep<11>2014
16:56 Sep 14, 2022
Jkt 256001
Framework,’’ and, together with the ST
Framework, the ‘‘Frameworks’’) of FICC
and its affiliates, The Depository Trust
Company (‘‘DTC’’) and National
Securities Clearing Corporation
(‘‘NSCC,’’ and together with FICC and
DTC, the ‘‘Clearing Agencies’’), and (2)
the Clearing Rules of the MortgageBacked Securities Division of FICC
(‘‘MBSD’’).7
First, the proposed changes would
amend both the ST Framework and the
LRM Framework to move descriptions
of the Clearing Agencies’ liquidity stress
testing activities from the LRM
Framework to the ST Framework. In
connection with this proposed change,
the Clearing Agencies propose to
recategorize the stress scenarios used for
liquidity risk management, such that all
such stress scenarios are described as
either regulatory or informational
scenarios.
Second, the proposed changes would
amend the ST Framework to (1) enhance
stress testing for the Government
Securities Division of FICC (‘‘GSD’’) to
obtain certain data utilized in stress
testing from external vendors and
implement a back-up stress testing
calculation that would be utilized in the
event such data is not supplied by its
vendors, and amend the ST Framework
to reflect these practices for both GSD
and MBSD; (2) reflect that a stress
testing team is primarily responsible for
the actions described in the ST
Framework, and (3) make other
revisions to update and clarify the
statements in the ST Framework.
Third, the proposed changes would
amend the LRM Framework to update
and clarify certain statements in the
LRM Framework.
Finally, the proposed changes would
amend the Clearing Rules of MBSD
(‘‘MBSD Rules’’) to remove disclosures
regarding the stress testing program,
which would be described in the ST
Framework.
III. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Change and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 8 to determine
whether the Proposed Rule Change
should be approved or disapproved.
7 The description of the Proposed Rule Change is
based on the statements prepared by FICC in the
Notice. See Notice, supra note 3. Capitalized terms
used herein and not otherwise defined herein are
defined in the Rules, available at https://
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/ficc_gov_rules.pdf; https://www.dtcc.com/∼/
media/Files/Downloads/legal/rules/ficc_mbsd_
rules.pdf.
8 15 U.S.C. 78s(b)(2)(B).
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the Proposed
Rule Change. Institution of proceedings
does not indicate that the Commission
has reached any conclusions with
respect to any of the issues involved.
Rather, the Commission seeks and
encourages interested persons to
comment on the Proposed Rule Change,
providing the Commission with
arguments to support the Commission’s
analysis as to whether to approve or
disapprove the Proposed Rule Change.
Pursuant to Section 19(b)(2)(B) of the
Act,9 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of, and input from
commenters with respect to, the
Proposed Rule Change’s consistency
with Section 17A of the Act,10 and the
rules thereunder, including the
following provisions:
• Section 17A(b)(3)(F) of the Act,11
which requires, among other things, that
the rules of a clearing agency must be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions, to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible, and to protect investors and
the public interest; and
• Rule 17Ad–22(e)(4) of the Act,12
which requires that a covered clearing
agency establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
effectively identify, measure, monitor,
and manage its credit exposures to
participants and those arising from its
payment, clearing, and settlement
processes.
• Rule 17Ad–22(e)(7) of the Act, 13
which requires a covered clearing
agency to effectively measure, monitor,
and manage the liquidity risk that arises
in or is borne by the covered clearing
agency, including measuring,
monitoring, and managing its settlement
and funding flows on an ongoing and
timely basis, and its use of intraday
liquidity.
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
9 Id.
10 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
12 17 CFR 240.17Ad–22(e)(4).
13 17 CFR 240.17Ad–22(e)(7).
11 15
E:\FR\FM\15SEN1.SGM
15SEN1
]]>Agencies
[Federal Register Volume 87, Number 178 (Thursday, September 15, 2022)]
[Notices]
[Pages 56724-56732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19915]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95723; File No. SR-NSCC-2022-012]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Make a Number of Clarifications and Enhancements to
NSCC's Rules & Procedures
September 9, 2022.
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 September 1, 2022, 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.
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(6).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to NSCC's Rules &
Procedures (``Rules'') in order to make a number of clarifications and
enhancements to the Rules. Specifically, the proposed rule change would
(i) clarify the confidential treatment of non-public information
provided by participants to NSCC as part of ongoing membership
requirements; (ii) remove outdated rules and procedures related to the
maintenance of Sponsored Accounts; (iii) update NSCC's rules concerning
the acceptance and reliance upon instructions provided by its members;
(iv) modify certain rules and procedures related to the DTCC Limit
Monitoring Risk Management Tool; (v) remove rules, procedures, fees,
and addenda related to the inactive Global Clearance Network Service;
(vi) remove rules and fees related to the inactive International Link
Service; (vii) clarify certain CNS Accounting Operation procedures;
(viii) consolidate rules concerning the imposition of fines; (ix)
clarify rules concerning admission to NSCC's premises; (x) remove
reference to certain special services no longer provided by NSCC; and
(xi) modify procedures concerning two-sided trade data received from
service bureaus. NSCC is filing the proposed rule change for immediate
effectiveness pursuant to Section 19(b)(3)(A) of the Act \5\ and Rule
19b-4(f)(6) thereunder,\6\ and as described in greater detail below.\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6).
\7\ Capitalized terms not defined herein are defined 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 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 proposed rule change consists of modifications to NSCC's Rules
to (i) clarify the confidential treatment of non-public information
provided by participants to NSCC as part of ongoing membership
requirements; (ii) remove outdated rules and procedures related to the
maintenance of Sponsored Accounts; (iii) update NSCC's rules concerning
the acceptance and reliance upon instructions provided by its members;
(iv) modify certain rules and procedures related to the DTCC Limit
Monitoring Risk Management Tool; (v) remove rules, procedures, fees,
and addenda related to the inactive Global Clearance Network Service;
(vi) remove rules and fees related to the inactive International Link
Service; (vii) clarify certain CNS Accounting Operation procedures;
(viii) consolidate rules concerning the imposition of fines; (ix)
clarify rules concerning admission to NSCC's premises; (x) remove
reference to certain special services no longer provided by NSCC; and
(xi) modify procedures concerning two-sided trade data received from
service bureaus. The proposed changes are discussed in detail below.
[[Page 56725]]
(i) Non-Public Information Provided to NSCC
NSCC recently adopted a proposed rule change to, among other
things, revise certain provisions in the Rules relating to the
confidentiality of information furnished by applicants, Members, and
Limited Members (collectively, ``participants'') to NSCC.\8\
Specifically, the proposed rule change amended Section 1.C. of Rule 2A
(concerning membership application documents) and Section 3 of Rule 15
(concerning the examination and provision of adequate assurance of the
financial responsibility and operational capability of participants) to
state that ``[a]ny non-public information furnished to the Corporation
pursuant to this Rule shall be held in confidence as may be required
under the laws, rules and regulations applicable to the Corporation
that relate to the confidentiality of records.'' The proposed rule
change was intended to provide one standard that NSCC would apply
uniformly to all participants, which assures participants that such
information would be held in confidence with appropriate control.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 93278 (October 8,
2021), 86 FR 57229 (October 14, 2021) (SR-NSCC-2021-007).
---------------------------------------------------------------------------
In addition to the requirements above, Section 2 of Rule 2B
requires that participants submit to NSCC certain reports and
information as part of their ongoing membership requirements and
monitoring. Some of the reporting required by Section 2 of Rule 2B
includes non-public information of participants. NSCC proposes to add
conforming language to Rule 2B to clarify the confidential treatment of
such information consistent with the requirements of Section 1.C. of
Rule 2A and Section 3 of Rule 15. Specifically, NSCC proposes to amend
Section 2.A. of Rule 2B to state that ``[a]ny non-public information
furnished to the Corporation pursuant to this Rule shall be held in
confidence as may be required under the laws, rules and regulations
applicable to the Corporation that relate to the confidentiality of
records.'' Non-public information may include certain reports, opinions
and tax and cybersecurity confirmations as required by the Rules and
any material non-public information or other information and data that
NSCC reasonably determines is not made available to the public. The
proposed change would further NSCC's goal of setting forth one
consistent standard that NSCC would apply uniformly to all
participants, which assures participants that such information would be
held in confidence with appropriate control.
(ii) Sponsored Accounts
NSCC's Rules refer to certain circumstances under which it has the
discretionary authority to maintain Sponsored Accounts for its Members
at The Depository Trust Company (``DTC''). NSCC Rule 29 provides that
each Member shall be a participant in a Qualified Securities Depository
(i.e., DTC), and if at any time a Member is not a participant of a
Qualified Securities Depository, NSCC may cease to act for such Member
pursuant to Rule 46. Rule 29 further provides that, during the interim
between the time that such Member is no longer a participant in a
Qualified Securities Depository and the time that NSCC ceases to act
for the Member, such Member shall be required to effect securities
settlement by physical delivery or in the discretion of NSCC through a
Sponsored Account. Rule 46 also provides that NSCC may require a
participant to effect securities settlement through a Sponsored
Account, rather than through its own depository account, as part of a
suspension or prohibition/limitation on a participant's access to
services.
In addition, Procedure IX.B. provides procedures for the
maintenance of Sponsored Accounts, including for Members that may
choose not to maintain direct membership in a Qualified Securities
Depository. Pursuant to this procedure, each Member would be assigned a
Qualified Securities Depository account number and use that account as
if it were a direct participant of the Qualified Securities Depository;
however, the account would be maintained under the jurisdiction of
NSCC, which would be solely responsible for all liabilities arising
from the use of the account including the payment of fees to the
Qualified Securities Depository. NSCC Rule 4 also contains several
footnotes concerning the treatment of Clearing Fund deposits for such
Sponsored Accounts. Section 7 of Rule 4 further provides, in part, that
NSCC may retain for up to two (2) years the Actual Deposits from
Members who have Sponsored Accounts at DTC.
As a practical matter, NSCC does not currently maintain any
Sponsored Accounts or plan to utilize Sponsored Accounts in the
foreseeable future. NSCC does not believe there would be a plausible
scenario in which it would continue to act for a Member and sponsor an
account at DTC to settle for a Member whose participation at DTC has
been terminated (whether voluntarily or through DTC ceasing to act for
the participant). In the event that an NSCC Member was no longer an
active participant of DTC, NSCC would cease to act for such Member
pursuant to its authority under Rule 29 and implement the close-out
procedures contemplated in Rule 18 and related NSCC policies and
procedures (which do not currently contemplate the use of Sponsored
Accounts). NSCC therefore proposes to revise the last sentence of Rule
29 to delete the reference to the discretionary use of Sponsored
Accounts in a cease to act scenario and revise Rule 46 to remove
references to NSCC's authority to require a participant to effect
securities settlement through a Sponsored Account, rather than through
its own depository account, as part of a suspension or prohibition/
limitation of a participant's access to services.
NSCC also proposes to delete Procedure IX.B. concerning the
procedures for maintaining Sponsored Accounts for Members that choose
not to maintain direct membership in a Qualified Securities Depository.
As noted above, NSCC Rule 29 provides that each Member shall be a
participant in a Qualified Securities Depository, and all current NSCC
Members are participants of DTC. NSCC does not currently provide
Sponsored Accounts for any of its Members and does not have plans to
provide any new Sponsored Accounts at this time.\9\ NSCC would also
make conforming changes to Rule 4 to remove certain statements and
footnotes discussed above regarding the collection and maintenance of
Clearing Fund deposits for Sponsored Accounts, as these Rules would no
longer be applicable in the absence of any Sponsored Accounts.
---------------------------------------------------------------------------
\9\ NSCC believes that its last Sponsored Account may have been
retired in 2011.
---------------------------------------------------------------------------
NSCC believes that removing rules and procedures related to
inactive services and operations would improve the accuracy and clarity
of its rules. Moreover, NSCC believes that removing Rules concerning
inactive Sponsored Account services would avoid potential confusion
with the sponsored membership program for NSCC's Securities Financing
Transaction Clearing Service.\10\ If NSCC would choose to offer
Sponsored Accounts or a similar arrangement at some point in the
future, NSCC would reevaluate the rules, procedures and operational
[[Page 56726]]
processes necessary to provide such a service and would file any
necessary proposed rule changes to effectuate the change.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 95011 (May 31,
2022), 87 FR 34339 (June 6, 2022) (SR-NSCC-2022-003). NSCC also
filed the Securities Financing Transaction Clearing Service proposal
as an advance notice. See Securities Exchange Act Release No. 94998
(May 27, 2022), 87 FR 33528 (June 2, 2022) (SR-NSCC-2022-801).
---------------------------------------------------------------------------
(iii) Reliance on Instructions
NSCC Rule 39 provides, in part, that NSCC may accept or rely upon
any instruction given by a participant, including wire transmission,
physical delivery or delivery by other means of instructions recorded
on magnetic tape or other media or of facsimile copies of instructions,
in form acceptable to NSCC and that NSCC will not act upon any
instruction purporting to have been given by a participant which is
received by wire transmission or in the form of facsimile copies or
magnetic tape or media other than written instructions.
NSCC proposes to revise Rule 39 to remove specific examples of
methods of transmission of instructions to NSCC and instead provide
that NSCC may accept or rely upon any instruction given in any form
acceptable to the Corporation and in accordance with the Procedures.
The proposed rule change is intended to remove outdated methods of
submitting instructions (such as magnetic tape and facsimile copies)
from the Rules and provide flexibility to accommodate alternative and
evolving methods of submitting instructions to NSCC. NSCC believes the
proposed change would promote the ongoing accuracy and clarity of its
rules regarding the transmission of instructions to NSCC.
(iv) DTCC Limit Monitoring Risk Management Tool
Background--DTCC Limit Monitoring
NSCC provides its Members with a risk management tool called DTCC
Limit Monitoring, which enables Members to monitor trading activity on
an intraday basis of their organizations and/or their correspondent
firms through review of post-trade data.\11\ DTCC Limit Monitoring was
implemented in 2014 in connection with industry-wide efforts to develop
tools and strategies to mitigate and address the risks associated with
the increasingly complex, interconnected, and automated market
technology (such risks include, but are not limited to, trade input
errors, software or trading algorithm errors, and inadequate controls
for automated processes). Through this tool, NSCC Members can monitor
trading activity against limits that they have pre-set and can review
notifications that are delivered when these pre-set limits are being
approached and when they are reached. The limit monitoring tool is
intended to supplement Members' existing internal risk management
processes. Any actions Members determine to take in response to these
alerts is their responsibility and is taken away from NSCC. DTCC Limit
Monitoring is primarily discussed in NSCC Rule 54 and Procedure XVII.
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release Nos. 71637 (February
28, 2014), 79 FR 12708 (March 6, 2014) (File No. SR-NSCC-2013-12)
and 77990 (June 3, 2016), 81 FR 37229 (June 9, 2016) (File No. SR-
NSCC-2016-001).
---------------------------------------------------------------------------
DTCC Limit Monitoring is available to all NSCC Members; however,
Rule 54 requires certain categories of Members to register for the DTCC
Limit Monitoring tool. This requirement applies to: (1) any Member that
clears trades for others; (2) any Member that submits transactions to
NSCC's trade capture system either as a Qualified Special
Representative (``QSR'') or Special Representative, pursuant to
Procedure IV (Special Representative Service); and (3) any Member that
has established a 9A/9B relationship in order to allow another Member
(either a QSR or Special Representative) to submit locked in trade data
on its behalf. In addition, Procedure XVII requires, among other
things, that Members registered for DTCC Limit Monitoring create and
establish Risk Entities,\12\ designate parameters to associate with
each Risk Entity from certain parameter types that are established or
permitted by NSCC from time to time, review reports and alerts on an
on-going basis and, as necessary, modify established parameters to
reflect current trading activities within each of their Risk Entities,
and identify primary and secondary contacts within their firm for DTCC
Limit Monitoring.
---------------------------------------------------------------------------
\12\ ``Risk Entities'' are defined by each Member using
filtering criteria to focus on activity it seeks to monitor through
the risk management tool, including that of its correspondents, or
other entities or groups for which LM Trade Date Data is processed
through the Members' account, including relating to subgroups within
its own business.
---------------------------------------------------------------------------
Proposed Changes to DTCC Limit Monitoring
NSCC proposes to revise Rule 54 and Procedure XVII to eliminate the
requirement that certain specified Members register for the DTCC Limit
Monitoring tool (i.e., those Members that clear trades for others,
submit transactions to NSCC's trade capture system either as a QSR or
Special Representative, or have established a 9A/9B relationship in
order to allow another Member (either a QSR or Special Representative)
to submit locked in trade data on its behalf). NSCC would also make
conforming changes to Procedure XVII to reflect that Members may, but
are not required to, create and establish Risk Entities, designate
parameters to associate with each Risk Entity, review reports and
alerts on an on-going basis and, as necessary, modify established
parameters to reflect current trading activities within each of their
Risk Entities, and identify primary and secondary contacts within their
firm for DTCC Limit Monitoring. NSCC would continue to offer the DTCC
Limit Monitoring tool to all Members on an optional basis but would no
longer require that any particular type of Member register for the
tool.
As noted above, DTCC Limit Monitoring was developed as part of a
broader industry-wide effort to develop tools and strategies to
mitigate and address trading risks. Since the implementation of DTCC
Limit Monitoring in 2014, U.S. equity exchanges have also implemented
risk controls to mitigate risks inherent with direct exchange
transaction flow (such controls include, but are not limited to, credit
limits, single order limits, and kill switch functionality).\13\ These
exchange risk controls are optional risk management tools made
available to exchange members to assist them in monitoring and managing
their risks. DTCC Limit Monitoring is intended to supplement, and not
replace, a Member's own internal systems and procedures or other tools,
such as exchange pre-trade risk controls, available to the Member for
managing its risks. NSCC also notes that while certain Members are
currently required to register for DTCC Limit Monitoring, NSCC does not
require Members to take any particular action(s) based on the output of
the limit monitoring tool and any actions Members determine to take in
response to these alerts is their responsibility and is taken away from
NSCC. Moreover, NSCC does not use the DTCC Limit Monitoring tool for
internal risk management purposes. NSCC therefore believes that
providing DTCC Limit Monitoring on an optional basis is appropriate and
consistent with industry practice and would not impact NSCC's own risk
management practices.
---------------------------------------------------------------------------
\13\ See, e.g., Securities Exchange Act Release Nos. 88599
(April 8, 2020) 85 FR 20793 (April 14, 2020) (File No. SR-CboeBZX-
2020-006); 88776 (April 29, 2020), 85 FR 26768 (May 5, 2020) (File
No. SR-NYSE-2020-17); 88904 (May 19, 2020) 85 FR 31560 (May 26,
2020) (File No. SR-NYSEArca-2020-43); 89225 (July 6, 2020), 85 FR
41650 (July 10, 2020) (File No. SR-NASDAQ-2020-034).
---------------------------------------------------------------------------
(v) Global Clearance Network Service
NSCC Rule 62 and Addendum U discuss the Global Clearance Network
Service (``GCN Service''), which was a foreign clearing, settlement,
and custody
[[Page 56727]]
service provided by NSCC in conjunction with banks, trust companies and
other entities to any Member that is qualified to be a customer of the
bank, trust company or other entity. The GCN Service was previously
offered by the International Securities Clearing Corporation
(``ISCC''), which was a wholly owned subsidiary of NSCC. ISCC
ultimately transferred its core settlement services, including the GCN
Service, to NSCC and withdrew from registration as a clearing
agency.\14\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release Nos. 42273, (December
27, 1999), 65 FR 311 (January 4, 2000) (File No. SR-NSCC-99-12) and
42274 (December 27, 1999) 65 FR 311 (January 4, 2000) (File No. SR-
ISCC-99-01).
---------------------------------------------------------------------------
The GCN Service is a dormant service that is no longer utilized by
NSCC's Members. NSCC therefore proposes to delete Rule 62 and Addendum
U and any related fees for the GCN Service in Addendum A. NSCC believes
that removing rules, procedures, and fees for this inactive service
would improve the accuracy and clarity of the Rules. In the event NSCC
would choose to resume offering these services, NSCC would reevaluate
the rules, procedures and operational processes necessary to provide
such services and would file any necessary proposed rule changes to
effectuate the change.
(vi) International Links
NSCC Rule 61 discusses the establishment of links and the provision
of certain services to Foreign Financial Institutions, including the
International Link Service (``ILS''). ILS, like the GCN Service, was a
service provided by ISCC. ISCC previously sponsored accounts at DTC for
the purpose of providing Foreign Financial Institutions with custody
services for their U.S. securities. ISCC transferred the ILS service,
along with the GCN Service, to NSCC when it withdrew from registration
as a clearing agency.\15\
---------------------------------------------------------------------------
\15\ See id.
---------------------------------------------------------------------------
Rule 61 currently provides, in part, that to the extent NSCC
provides access to a Qualified Security Depository (i.e., DTC) to a
Foreign Financial Institution, the Foreign Financial Institution would
be required to collateralize its settlement obligations to NSCC on such
terms and by such means as agreed to between NSCC and the Foreign
Financial Institution. NSCC does not currently sponsor accounts or
otherwise provide Foreign Financial Institutions access to DTC. Foreign
Financial Institutions that are participants of NSCC and that wish to
access the services of DTC maintain direct participation at DTC. NSCC
therefore proposes to delete this sentence of Rule 61 to improve the
accuracy and clarity of the Rules. NSCC would also remove any fees
related to ILS from Addendum A of the Rules. In the event NSCC would
choose to resume offering these services, NSCC would reevaluate the
rules, procedures and operational processes necessary to provide such
services and would file any necessary proposed rule changes to
effectuate the change.
(vii) CNS Accounting Operation Procedures
CNS Delivery Exemptions
Section D of Procedure VII describes the procedures for controlling
deliveries to CNS, including the process by which Members may submit
instructions to NSCC to indicate which short positions they do not wish
to settle and should be exempt from delivery. CNS provides for two
levels of Exemption. Level 1 Exemptions allow a Member to designate
that a portion of its short positions should not be automatically
settled against its current Designated Depository position or against
any securities which may be received into its Designated Depository
account as a result of other depository activity. Level 2 Exemptions
allow a Member to designate that a portion of its short positions
should not be automatically settled against its current depository
position, but that such a position may be satisfied by certain types of
``qualified'' activity in its Designated Depository account. Section
D.2(b) of Procedure VII discusses the four types of qualified activity,
which allow short positions carrying Level 2 Exemptions to be settled.
The list of qualified activity currently includes, among other things,
``Receipts from Member's Sub-Account,'' which provides that, as a
result of CNS sub-accounting, a Member may have a long position in a
given security in one CNS account and a short position in the same
security in another CNS account, and since both CNS accounts settle
against a single Designated Depository Account, the Member may receive
securities from itself.\16\
---------------------------------------------------------------------------
\16\ See Section D.2(b)(iv) of Procedure VII of the Rules, supra
note 7.
---------------------------------------------------------------------------
As noted above, Section D of Procedure VII is intended to describe
certain Member rights and obligations associated with the delivery of
securities to CNS. Section D.2. of the procedure specifically discusses
the process by which Members submit instructions to indicate which
short positions should be exempt from delivery and which types of
qualified activity allow short positions carrying Level 2 Exemptions to
be delivered and settled. Section D.2(b)(iv), however, discusses a
hypothetical scenario under which a Member may receive securities,
which is unrelated and not relevant to the delivery of securities to
CNS under the exemption and qualified activity process. Accordingly,
NSCC proposes to delete Section D.2(b)(iv) to remove potentially
confusing procedural language and improve the clarity and accuracy of
its Rules.\17\
---------------------------------------------------------------------------
\17\ CNS accounts settle against a single Designated Depository
Account. It is therefore technically possible for a Member to
deliver securities to NSCC's CNS account to satisfy a short position
in one CNS sub-account and receive the same securities from NSCC's
CNS account in connection with a long position in another CNS sub-
account. However, the Member is not delivering those securities
directly to, nor receiving securities directly from, itself, and the
Member may also receive securities that have been delivered to
NSCC's CNS account by another Member. This is another potential area
of confusion in the procedure that would be addressed by the
proposed deletion of this rule text.
---------------------------------------------------------------------------
Fully-Paid-For Accounts
NSCC's processing day is divided into two parts. It begins with a
night cycle on the evening preceding the settlement day for which the
work is being processed and is followed by a day cycle which ends on
the settlement day for which the work is processed. Pursuant to Section
E.5 of Procedure VII, if a Member with a long position and/or a
position due for settlement on the next settlement day, in anticipation
of receiving securities from NSCC as a result of the allocation process
during the night or day cycle for that settlement day, instructs that
securities within its possession or control be delivered on the next
day and is subsequently not allocated the securities during the night
or following day cycle, the Member may, in order to meet the ``customer
segregation'' requirements of Rule 15c3-3 of the Exchange Act, during
the day cycle for that settlement day instruct NSCC to transfer the
position(s) which has not been allocated to a special CNS sub-account
known as the ``Long Free Account.'' NSCC will then debit the Member's
settlement account for the value of the position in the Long Free
Account.
Section E.5 of Procedure VII contains the following note related to
the use of the Long Free Account.
The SEC has stated that: ``any broker/dealer that takes
advantage of proposed rule NSCC-82-25 must recall deficits from bank
loan within shorter time intervals than those presently allowed
under Rule 15c3-3(d)(1) of the Exchange Act. In the case of bank
loan, broker/dealers will be expected to effect a
[[Page 56728]]
recall within one Business Day instead of the two Business Days
presently allowed.
The note refers to a no action letter issued by the Commission's
Division of Trading and Markets (formerly, the Division of Market
Regulation) \18\ in connection with the adoption of Section E.5 of
Procedure VII as part of NSCC filing SR-NSCC-82-25.\19\
---------------------------------------------------------------------------
\18\ See Letter from Michael A. Macchiaroli, Assistant Director,
Division of Market Regulation, Commission, to Robert J. Woldow,
Senior Vice President and General Counsel, NSCC (May 10, 1984).
\19\ See Securities Exchange Act Release No. 20948 (May 10,
1984) (File No. SR-NSCC-82-25).
---------------------------------------------------------------------------
NSCC proposes to delete this note from Section E.5 of Procedure
VII. The note is potentially confusing to readers as it (1) refers to a
``proposed rule'' as opposed to the approved and existing procedure and
(2) does not clearly identify the source of this Commission statement.
Moreover, NSCC does not typically refer to Commission relief in its
Rules. NSCC believes the proposed change would improve the clarity of
its Rules and would conform Section E.5 of Procedure VII to more
standard drafting practices for NSCC's Rules.
CNS Buy-Ins
Section J.1 of Procedure VII provides procedures for the recording
of buy-ins for equities and corporate debt securities in CNS. The
procedure provides, in part, that a Buy-In Retransmittal Notice shall
include such information as NSCC may determine from time to time,
including the identity of the entity that initiated the Buy-In against
the Member.
NSCC proposes to revise this section of the procedure to clarify
that Buy-In Retransmittal Notices must also be submitted within such
times as determined by NSCC. NSCC believes the proposed change would
improve its Rules by aligning the procedural language and requirements
for Buy-In Retransmittal Notices with other submission requirements in
the Rules (e.g., the submission of Buy-In Intents in Section J of
Procedure VII and the submission of Buy-In Executions in Procedure X)
and maintaining consistency across those procedural requirements.
(viii) Payment of Fines
NSCC Rule 17 discusses NSCC's authority to impose fines on a Member
or Limited Member pursuant to the Rules. Pursuant to Rule 17, fines
shall be payable in the manner and at such time as determined by NSCC
from time to time. NSCC Rule 48 further discusses NSCC's authority to
impose disciplinary proceedings for a Member of Limited Member for,
among other things, a violation of the Rules. Section 1 of Rule 48
provides that such disciplinary proceedings may result in expulsion,
suspension, limitation of or restriction on activities, functions and
operations, fine or censure or any other fitting sanction.
NSCC proposes to delete Rule 17 and relocate the second sentence of
Rule 17, which provides that fines shall be payable in the manner and
at such time as determined by the Corporation from time to time, to
Section 1 of Rule 48. NSCC would also make conforming changes to Rule
15 and Rule 56 to update and remove references to Rule 17,
respectively. The proposed change is intended to consolidate the rules
concerning NSCC's authority to impose fines into NSCC's disciplinary
proceeding rules. The proposed change is not intended to result in a
substantive change to NSCC's rules.
(ix) Admission to NSCC's Premises
NSCC Rule 27 provides, in part, that no person will be permitted to
enter the premises of NSCC as the representative of any participant
unless he has first been approved by NSCC and has been issued such
credentials as NSCC may from time to time prescribe and such
credentials have not been canceled or revoked. In addition, such
credentials must be shown on demand, and may limit the portions of the
premises to which access is permitted thereunder.
NSCC proposes to revise Rule 27 to clarify that, to gain entry to
NSCC's premises, such credentials must be prominently displayed while
on NSCC's premises. NSCC does not believe the proposed change would
impose any new material obligation or burden on its Members since
Members are already required to obtain such credentials and display
them on demand. The proposed rule change is simply intended to codify
this expectation in NSCC's rules.\20\
---------------------------------------------------------------------------
\20\ NSCC notes that the proposed rule change would also align
the requirements of NSCC Rule 27 with the requirements of Rule 17 of
the DTC Rules, By-Laws and Organization Certificate (``DTC Rules''),
providing greater consistency across the rules of NSCC and DTC. The
DTC Rules are available on DTCC's public website, available at
https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
(x) Clearing Centers
Section A of Procedure IX discusses NSCC's provision of Clearing
Centers in a number of cities to serve as input/output facilities for
the convenience of Members located near that office. Procedure XIII
further provides definitions for the terms ``Clearing Center'' \21\ and
``Primary Clearing Center.'' \22\ These Clearing Centers were initially
established at a time when both the trading and clearance and
settlement of securities operated in a more regional manner. Given the
evolution of technology since the adoption of these procedures and the
evolution of the national clearance and settlement system, NSCC no
longer maintains regional Clearing Centers. As a result, NSCC proposes
to delete Section A of Procedure IX in its entirety and the definitions
of ``Clearing Center'' and ``Primary Clearing Center'' from Procedure
XIII. NSCC believes that removing these outdated procedures would
improve the accuracy and clarity of its Rules.
---------------------------------------------------------------------------
\21\ Clearing Center is defined as ``[a] branch facility of the
Corporation.''
\22\ Primary Clearing Center is defined as ``[t]he Clearing
Center designated as such by a Member.''
---------------------------------------------------------------------------
(xi) Data From Service Bureaus
Addendum J to the Rules contains a policy statement regarding the
acceptance of trade data from service bureaus. Pursuant to Section 6 of
Rule 7, NSCC may accept locked-in trade data from self-regulatory
organizations (``SROs'') on a Member's behalf for input into NSCC's
comparison system. NSCC has also previously received requests from
Members to accept two-sided trade data from service bureaus in addition
to locked-in data. In response, NSCC adopted the policy statements in
Addendum J setting forth certain minimum requirements for service
bureaus submitting two-sided trade data to NSCC. NSCC proposes to make
certain clarifying updates to the Addendum.
NSCC proposes to revise the introductory paragraph of Addendum J to
clarify that NSCC may accept from SROs and/or service bureaus, initial
or supplemental trade data on behalf of Members for input into the
Corporation's Comparison Operation with respect to debt securities to
conform the language in the Addendum to the requirements of Section 6
of Rule 7.\23\ NSCC also proposes to delete references to specific SROs
from which it accepts trade data (i.e., NYSE, NYSE Alternext, and
National Association of Securities Dealers) and replace them with a
more general reference to ``SROs'' to reflect that NSCC has accepted,
and may continue to accept, additional SROs as trade data submitters
since the adoption of the Addendum. In addition, NSCC would revise the
Addendum to
[[Page 56729]]
clarify that NSCC accepts locked-in trade data for input into its trade
capture system, as opposed to its comparison system, as the transaction
details for locked-in trades have already been compared.
---------------------------------------------------------------------------
\23\ All equity transactions submitted for processing to NSCC,
other than those submitted through the Obligation Warehouse pursuant
to Rule 51 and Procedure II.A, must be compared prior to submission
and submitted to NSCC on a locked-in basis for trade recording. See
Securities Exchange Act Release No. 70263 (August 27, 2013), 78 FR
54349 (September 3, 2013) (SR-NSCC-2013-09).
---------------------------------------------------------------------------
Addendum J also currently requires that a service bureau must (a)
be or become a Member of NSCC or (b) be affiliated with a Member of the
Corporation. In addition, the Member (either the service bureau itself
or its affiliated Member) must make a Clearing Fund deposit with NSCC.
NSCC proposes to delete these requirements from Addendum J. NSCC does
not believe it is necessary for a service bureau to be, or be
affiliated with, a Member or to maintain a Clearing Fund deposit. The
Members, on behalf of which a service bureau may submit trade data to
NSCC, and not the service bureau itself, are responsible for
maintaining Clearing Fund deposits to cover the risk associated with
such positions. Moreover, the last paragraph of Addendum J currently
provides NSCC with the authority to waive these requirements if it is
in the best interests of NSCC and its Members to approve a service
bureau so as to assure the prompt, accurate, and orderly processing and
settlement of securities transactions or to otherwise carry out the
functions of the Corporation. NSCC is proposing to eliminate these
requirements as a matter of rule rather than through individual
waivers, to improve the transparency and clarity of its Rules. Finally,
NSCC would revise Addendum J to make certain non-substantive
typographical corrections in the rule text.
(xii) Implementation Timeframe
NSCC would implement the proposed changes no earlier than thirty
(30) days after the date of filing, or such shorter time as the
Commission may designate. As proposed, a legend would be added to each
affected Rule stating there are changes that were effective upon filing
but have not yet been implemented. The legend would also state that
NSCC would implement the proposed changes no earlier than thirty (30)
days after the date of filing, or such shorter time as the Commission
may designate. The legend would state that the legend would
automatically be removed upon the implementation of the proposed
changes. NSCC would announce the implementation date of the proposed
changes by Important Notice posted to its website.
2. Statutory Basis
NSCC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Section 17A(b)(3)(F) of Act
\24\ requires, in part, that the rules of a clearing agency be designed
to promote the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible. NSCC believes the proposed rule change
would promote the prompt and accurate clearance and settlement of
securities transactions and assure the safeguarding of securities and
funds which are in the custody or control of the clearing agency or for
which it is responsible for the reasons set for below.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Proposed Clarifications to Confidential Treatment of Reports and
Information
The proposed addition of confidentiality requirements for
participant information to NSCC Rule 2B would enable NSCC to maintain
one consistent standard to apply uniformly to all participants, which
assures participants that such information would be held in confidence
with appropriate control. NSCC believes the proposed rule change would
therefore help NSCC meet its obligations and help each participant
better understand NSCC's obligations for maintaining the confidential
information it shares with NSCC, which, in turn, may facilitate the
sharing of such information and improve NSCC's ability to evaluate its
participants' eligibility to maintain access to NSCC's clearance and
settlement services. NSCC therefore believes the proposed rule change
is consistent with promoting the prompt and accurate clearance and
settlement of securities transactions by NSCC.
Proposed Removal of Outdated Rules, Procedures, Addenda, and Fees
The proposed rule change would remove outdated rules, footnotes,
procedures, addenda, and fees related to inactive services, such as the
provision of Sponsored Accounts, Clearing Centers, and the GCN Service
and ILS. The proposed rule change would also remove outdated methods of
submitting instructions to NSCC from the Rules and provide flexibility
to accommodate both current alternative and evolving methods of
submitting instructions to NSCC. These proposed changes are designed to
improve the accuracy, clarity, and transparency of the NSCC Rules and
thereby allow Members to conduct their business more efficiently and
effectively in accordance with the Rules, which NSCC believes would
promote the prompt and accurate clearance and settlement of securities
transactions.
Proposed Clarifications to CNS Accounting Operation Procedures
The proposed rule change would also provide additional clarity to
NSCC's CNS Accounting Operation Procedures. First, the proposed rule
change would clarify NSCC's rules by deleting Section D.2(b)(iv) of
Procedure VII, which discusses the possibility of a Member receiving
such securities from itself through CNS. As noted above, Section D of
Procedure VII is intended to describe certain Member rights and
obligations associated with the delivery of securities to CNS; however,
Section D.2(b)(iv) discusses a hypothetical scenario under which a
Member may receive securities, which is unrelated and not relevant to
the delivery of securities to CNS under the exemption and qualified
activity process and may cause confusion to readers trying to
understand the delivery and exemption process.
Second, the proposed rule change would remove from Section E.5 of
Procedure VII a note referring to a no action letter issued by the
Commission's Division of Trading and Markets (formerly, the Division of
Market Regulation).\25\ As discussed above, the note, as currently
drafted, is potentially confusing to readers as it (1) refers to a
``proposed rule'' as opposed to the approved and existing procedure and
(2) does not clearly identify the source of this Commission statement.
Moreover, NSCC does not typically refer to Commission relief in its
Rules. NSCC therefore proposes to remove the note to improve the
clarity of its Rules and conform Section E.5 of Procedure VII to more
standard drafting practices for NSCC's Rules.
---------------------------------------------------------------------------
\25\ See supra note 18.
---------------------------------------------------------------------------
Third, to the proposed rule change would revise Section J.1 of
Procedure VII concerning CNS Buy-Ins to clarify that Buy-In
Retransmittal Notices must also be submitted within such times as
determined by NSCC. NSCC believes the proposed change would improve its
Rules by aligning the procedural language and requirements for Buy-In
Retransmittal Notices with other submission requirements in the Rules
(e.g., the submission of Buy-In Intents in Section J of Procedure VII
and the submission of Buy-In Executions in Procedure X) and maintaining
consistency across those procedural requirements.
[[Page 56730]]
Taken together, the proposed changes are designed to improve the
accuracy, clarity, and transparency of NSCC's CNS Accounting Operation
Procedures. NSCC believes the proposed rule change would allow Members
to conduct their business more efficiently and effectively in
accordance with the Rules and thereby promote the prompt and accurate
clearance and settlement of securities transactions.
Proposed Changes to Limit Monitoring Rules and Procedures
NSCC proposes to revise Rule 54 and Procedure XVII to eliminate the
requirement that certain Members register for the DTCC Limit Monitoring
tool. NSCC would also make conforming changes to Procedure XVII to
reflect that Members may, but are not required to, create and establish
Risk Entities, designate parameters to associate with each Risk Entity,
review reports and alerts on an on-going basis and, as necessary,
modify established parameters to reflect current trading activities
within each of their Risk Entities, and identify primary and secondary
contacts within their firm for DTCC Limit Monitoring.
As described above, DTCC Limit Monitoring was developed as part of
a broader industry-wide effort to develop tools and strategies to
mitigate and address trading risks. Since the implementation of DTCC
Limit Monitoring in 2014, U.S. equity exchanges have also implemented
risk controls to mitigate risks inherent with direct exchange
transaction flow to assist them in monitoring and managing their
risks.\26\ Like these exchange risk controls, DTCC Limit Monitoring is
intended to supplement, and not replace, a Member's own internal
systems and procedures or other tools available to the Member for
managing its risks. NSCC would continue to offer the DTCC Limit
Monitoring tool to all Members on an optional basis but would no longer
require that any particular type of Member register for the tool.
---------------------------------------------------------------------------
\26\ See supra note 13.
---------------------------------------------------------------------------
NSCC believes that providing DTCC Limit Monitoring on an optional
basis is appropriate and consistent with industry practice. NSCC also
notes that while certain Members are currently required to register for
DTCC Limit Monitoring, NSCC does not require Members to take any
particular actions based on the output of the limit monitoring tool.
Any actions Members determine to take in response to these alerts is
their responsibility and is taken away from NSCC. Moreover, NSCC does
not use the DTCC Limit Monitoring tool for internal risk management
purposes. NSCC therefore believes the proposed rule change would
continue to provide NSCC's Members with a valuable risk management tool
to supplement its own internal systems and procedures or other tools
available to the Member for managing its risks, would not impact any
actions taken as a result of Limit Monitoring, and would not have any
impact on NSCC's own internal risk management activities. For these
reasons, NSCC believes the proposed rule change would continue to
promote the prompt and accurate clearance and settlement of securities
transactions and to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible.
Proposed Changes Concerning Payment of Fines and Admission to Premises
NSCC proposes non-material clarifying changes to its Rules
concerning the payment of fines and admission to its premises. NSCC
would eliminate Rule 17 and relocate the second sentence of Rule 17,
which provides that fines shall be payable in the manner and at such
time as determined by the Corporation from time to time, to Section 1
of Rule 48 and make conforming changes to Rules 15 and 56. The proposed
change is intended to consolidate the rules concerning NSCC's authority
to impose fines into NSCC's disciplinary proceeding rules and is not
intended to result in a substantive change to NSCC's rules. NSCC also
proposes to revise Rule 27 to clarify that, to gain entry to NSCC's
premises, a Member representative's credentials must be prominently
displayed while on NSCC's premises. NSCC does not believe the proposed
change would impose any new significant obligation or burden on its
Members since Members are already required to obtain such credentials
and display them on demand. The proposed changes are intended to
improve the accuracy, clarity, and transparency of NSCC's Rules. The
proposed changes would therefore allow Members to conduct their
business more efficiently and effectively in accordance with the Rules
and thereby promote the prompt and accurate clearance and settlement of
securities transactions.
Proposed Clarifications to Service Bureau Requirements
Finally, NSCC proposes several clarifying changes to Addendum J,
which contains a policy statement regarding the acceptance of trade
data from service bureaus. Specifically, NSCC proposes to revise the
introductory paragraph of the Addendum to clarify that NSCC may accept
from SROs and/or service bureaus, initial or supplemental trade data on
behalf of Members for input into the Corporation's Comparison Operation
with respect to debt securities in conformance to Section 6 of Rule 7.
NSCC also proposes to delete references to specific SROs from which it
accepts trade data and replace them with a more general reference to
``SROs'' to reflect that NSCC has accepted, and may continue to accept,
additional SROs as trade data submitters since the adoption of the
Addendum. Additionally, NSCC would revise the Addendum to clarify that
NSCC accepts locked-in trade data for input into its trade capture
system, as opposed to its comparison system, as the transaction details
for locked-in trades have already been compared. These proposed changes
are designed to improve the accuracy, clarity, and transparency of the
NSCC Rules and thereby allow Members to conduct their business more
efficiently and effectively in accordance with the Rules, which NSCC
believes would promote the prompt and accurate clearance and settlement
of securities transactions.
NSCC would also delete the requirements that a service bureau must
(a) be or become a Member of NSCC or (b) be affiliated with a Member of
the Corporation and that the Member (either the service bureau itself
or its affiliated Member) must make a Clearing Fund deposit with NSCC.
NSCC does not believe it is necessary for a service bureau to be, or be
affiliated with, a Member or to maintain a Clearing Fund deposit. The
Members, on behalf of which a service bureau may submit trade data to
NSCC, and not the service bureau itself, are responsible for
maintaining Clearing Fund deposits to cover the risk associated with
such positions. Moreover, the last paragraph of Addendum J currently
provides NSCC with the authority to waive these requirements if it is
in the best interests of NSCC and its Members to approve a service
bureau so as to assure the prompt, accurate, and orderly processing and
settlement of securities transactions or to otherwise carry out the
functions of the Corporation. NSCC is proposing to eliminate these
requirements as a matter of rule rather than through individual
waivers, to improve the transparency and clarity of its Rules. NSCC
believes the proposed rule change would continue to promote the prompt
and accurate clearance and settlement of securities transactions and
assure the safeguarding of securities and
[[Page 56731]]
funds which are in the custody or control of the clearing agency or for
which it is responsible.
For the reasons set forth above, NSCC believes the proposed rule
change would promote the prompt and accurate clearance and settlement
of securities transactions and assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible, consistent with the requirements of
Section 17A(b)(3)(F) of the Act.\27\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would have any
adverse impact, or impose any burden, on competition. These proposed
changes are primarily designed to improve the accuracy, clarity, and
transparency of the NSCC Rules. Specifically, the proposed changes to
Rule 2B concerning NSCC's obligations for maintaining non-public
information of its participants would only impose obligations on NSCC
and would not impose any new requirements on its participants.
Additionally, the proposed rule change would remove outdated rules,
procedures, addenda, and fees related to inactive services or outdated
methods of data transmission. The proposed rule change would also
provide additional clarity to NSCC's CNS Accounting Operation
Procedures, which would be equally applicable to all Members. In
addition, the proposed rule change would remove certain requirements
around the DTCC Limit Monitoring tool and make Limit Monitoring
available to all Members on an optional basis. The proposed changes to
Limit Monitoring would not impose any new requirements on Members or
impact the actions Members may take in response to Limit Monitoring. In
addition, the proposed rule change would consolidate the rules
concerning NSCC's authority to impose fines into NSCC's disciplinary
proceeding rules and clarify the requirements for admission to NSCC's
premises. These proposed changes would apply equally to all Members and
would not impose any new significant obligation or burden on Members.
The proposed changes are simply intended to improve the accuracy,
clarity, and transparency of NSCC's Rules. Finally, the proposed rule
change would clarify policy statements regarding the acceptance of
trade data from service bureaus. These proposed changes would not
impose any new requirements on service bureaus and would in fact
eliminate certain requirements for service bureaus. The proposed rule
change therefore would not materially affect the rights or obligations
of NSCC Members. As a result, NSCC does not believe that the proposed
rule change would have any adverse impact, or impose any burden, on
competition.
(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.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \28\ and
Rule 19b-4(f)(6) thereunder.\29\
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 [email protected]. Please include
File Number SR-NSCC-2022-012 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-2022-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2022-012 and should be submitted on
or before October 6, 2022.
[[Page 56732]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19915 Filed 9-14-22; 8:45 am]
BILLING CODE 8011-01-P
