Self-Regulatory Organizations; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt Intraday Volatility Charge and Eliminate Intraday Backtesting Charge, 63845-63847 [2022-22732]
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Federal Register / Vol. 87, No. 202 / Thursday, October 20, 2022 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to FR 19(b)(3)(A) 19
of the Act and subparagraph (f)(2) of
Rule 19b–4 20 thereunder, because it
establishes a due, fee, or other charge
imposed by the Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under FR 19(b)(2)(B) 21 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
lotter on DSK11XQN23PROD with NOTICES1
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–
NYSE–2022–46 on the subject line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2022–46. 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
19 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
21 15 U.S.C. 78s(b)(2)(B).
20 17
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16:50 Oct 19, 2022
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those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2022–46 and should
be submitted on or before November 10,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–22730 Filed 10–19–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96088; File No. SR–NSCC–
2022–009]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Adopt Intraday
Volatility Charge and Eliminate
Intraday Backtesting Charge
October 14, 2022.
I. Introduction
On July 7, 2022, National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–NSCC–2022–009 (the
‘‘Proposed Rule Change’’) pursuant to
FR 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 July 20, 2022,3 and
the Commission has received comments
22 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. 95286 (July
14, 2022), 87 FR 43355 (July 20, 2022) (File No. SR–
NSCC–2022–009) (‘‘Notice’’).
1 15
PO 00000
Frm 00086
Fmt 4703
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63845
regarding the changes proposed in the
Proposed Rule Change.4
On September 1, 2022, pursuant to FR
19(b)(2) of the Act,5 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.6 This order institutes
proceedings, pursuant to FR 19(b)(2)(B)
of the Act,7 to determine whether to
approve or disapprove the Proposed
Rule Change.
II. Summary of the Proposed Rule
Change
A key tool that NSCC uses to manage
its respective credit exposures to its
members is the daily collection of
margin from each member, which is
referred to as each member’s Required
Fund Deposit.8 The aggregated amount
of all members’ margin constitutes the
Clearing Fund, which NSCC would
access should a member default and the
defaulted member’s own margin be
insufficient to satisfy losses to NSCC
caused by the liquidation of that
member’s portfolio.
A. Intraday Volatility Charge
The volatility component of each
member’s Required Fund Deposit is
designed to measure market price
volatility of the start of day portfolio
and is calculated for members’ Net
Unsettled Positions. The volatility
component is designed to capture the
market price risk 9 associated with each
member’s portfolio at a 99th percentile
level of confidence. NSCC has two
methodologies for calculating the
volatility component—a ‘‘VaR Charge’’
and a haircut-based calculation. The
VaR Charge applies to the majority of
Net Unsettled Positions and is
calculated as the greater of (1) the larger
of two separate calculations that utilize
a parametric Value at Risk (‘‘VaR’’)
model, (2) a gap risk measure
calculation based on the concentration
threshold of the largest non-index
4 Comments are available at https://www.sec.gov/
comments/sr-nscc-2022-009/srnscc2022009.htm.
5 15 U.S.C. 78s(b)(2).
6 Securities Exchange Act Release No. 95650
(Sept. 1, 2022), 87 FR 55054 (Sept. 8, 2022) (SR–
NSCC–2022–009).
7 15 U.S.C. 78s(b)(2)(B).
8 The description of the Proposed Rule Change is
based on the statements prepared by NSCC 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/nscc_rules.pdf.
9 Market price risk refers to the risk that volatility
in the market causes the price of a security to
change between the execution of a trade and
settlement of that trade. This risk is also referred to
herein as market risk and volatility risk.
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Federal Register / Vol. 87, No. 202 / Thursday, October 20, 2022 / Notices
position in a portfolio, and (3) a
portfolio margin floor calculation based
on the market values of the long and
short positions in the portfolio.10 The
VaR Charge usually comprises the
largest portion of a Member’s Required
Fund Deposit.
In the Proposed Rule Change, NSCC is
proposing to implement an intraday
volatility charge, which it may collect
on an intraday basis, to better address
the volatility risks presented by
Members’ adjusted intraday Net
Unsettled Positions between start of day
collections of Required Fund Deposits.
More specifically, NSCC is proposing to
utilize its existing intraday monitoring
to determine when the difference
between a Member’s (1) start of day
volatility charge, collected on that
Business Day as part of the Member’s
start of day Required Fund Deposit
based on that Member’s prior end-of-day
Net Unsettled Positions, and (2) a
calculation of the volatility charge based
on that Member’s adjusted intraday Net
Unsettled Positions as of a point
intraday between the collection of the
start of day Required Fund Deposit and
end of day settlement, exceeds 100
percent and the amount that would be
collected as an intraday volatility
charge, calculated as described below,
would be greater than $250,000. The
amount of the intraday volatility charge
would be reduced by the amount
collected from that Member at the start
of that Business Day as the volatility
portion of the Margin Requirement
Differential charge, as discussed in more
detail in the Notice.
NSCC is also proposing that it would
not collect an intraday volatility charge
when the quantitative thresholds are
met, if (a) trades submitted later in the
day would offset trades submitted
earlier in the day, such that the
quantitative thresholds would not have
been met if such activity had been
submitted earlier in the day, or (b) the
threshold was met due to the
submission of an erroneous trade that
can be corrected. NSCC would continue
to monitor intraday volatility in 15minute increments throughout the day,
and the calculation of the intraday
volatility charge would be done at those
intervals. While collections may occur
multiple times throughout the day,
intraday volatility charges are more
likely to be collected later in the day,
after additional, and potentially
offsetting, activity has been submitted.
The proposed methodology would
allow NSCC to measure the change in
the volatility charge to determine if such
change presents NSCC with exposures
that are not adequately addressed by the
start of day volatility charge on deposit
in the Clearing Fund. By collecting an
amount that is measured as the
difference between the two volatility
charge calculations, NSCC would be
able to supplement the volatility charge
already on deposit in its Clearing Fund
with an amount that measures the
change in volatility that has occurred
since the Required Fund Deposit was
collected at the start of the day.
B. Intraday Backtesting Charge
The Backtesting Charge is an
additional component of a member’s
Required Fund Deposit that NSCC may
assess at either the start of the day as the
Regular Backtesting Charge, or on an
intraday basis as the Intraday
Backtesting Charge. More specifically,
NSCC may assess a Backtesting Charge
against any member that has a 12-month
trailing backtesting coverage below the
99 percent backtesting coverage target.
When calculating a member’s
backtesting coverage, NSCC excludes
amounts already collected as a
Backtesting Charge in calculating any
applicable Backtesting Charge.11
If assessed, a member’s Backtesting
Charge is generally equal to the
member’s third largest deficiency, when
calculating the Regular Backtesting
Charge, and fifth largest deficiency,
when calculating the Intraday
Backtesting Charge, that occurred
during the previous 12 months. NSCC
may adjust the Backtesting Charge if it
determines that circumstances
particular to a member’s settlement
activity and/or market price volatility
warrant a different approach to
determining or applying such charge in
a manner consistent with achieving
NSCC’s backtesting coverage target.
In the Proposed Rule Change, NSCC is
proposing to eliminate the Intraday
Backtesting Charge for several reasons,
as set forth in more detail in the Notice.
First, in connection with recent
regulatory feedback, NSCC has
determined that the current
methodology for calculating the
Intraday Backtesting Charge makes an
unreasonable assumption that NSCC
would cease to act for a member that has
paid all of its intraday margin
requirements. As a result, this
calculation methodology may
underestimate a member’s backtesting
losses and undercount potential
backtesting deficiencies. Second, NSCC
believes it will continue to be able to
adequately address both its intraday
market risk exposures and its
backtesting coverage metrics if it
eliminates the Intraday Backtesting
Charge. Additionally, NSCC would
maintain the Regular Backtesting
Charge, which is collected at the start of
the day, to support its backtesting
coverage. Studies reviewing the impact
of removing the Intraday Backtesting
Charge on NSCC’s backtesting coverage
metrics indicate that this proposal
would not have a significant impact on
NSCC’s ability to maintain its
backtesting coverage target.
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 FR 19(b)(2)(B)
of the Act 12 to determine whether the
Proposed Rule Change should be
approved or disapproved. 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 FR 19(b)(2)(B) of the
Act,13 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 FR 17A of the Act,14 and the rules
thereunder, including the following
provisions:
• Section 17A(b)(3)(F) of the Act,15
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)(i) of the Act,16
which requires that a covered clearing
agency establish, implement, maintain,
12 15
U.S.C. 78s(b)(2)(B).
13 Id.
14 15
10 Procedure
XV, FRs I(A)(1)(a)(i) and (2)(a)(i) of
the Rules, supra note 8.
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16:50 Oct 19, 2022
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11 Procedure
XV, FRs I(B)(3) of the Rules, supra
note 8.
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
16 17 CFR 240.17Ad–22(e)(4)(i).
15 15
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Federal Register / Vol. 87, No. 202 / Thursday, October 20, 2022 / Notices
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, including by maintaining
sufficient financial resources to cover its
credit exposure to each participant fully
with a high degree of confidence.
• Rule 17Ad–22(e)(6)(i) of the Act,17
which requires that a covered clearing
agency establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
cover, if the covered clearing agency
provides central counterparty services,
its credit exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market.
• Rule 17Ad–22(e)(23)(ii) of the Act 18
which requires that a covered clearing
agency establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
provide sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the covered
clearing agency.
lotter on DSK11XQN23PROD with NOTICES1
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
identified above, as well as any other
concerns they may have with the
Proposed Rule Change. In particular, the
Commission invites the written views of
interested persons concerning whether
the Proposed Rule Change is consistent
with FR 17A(b)(3)(F) of the Act,19 and
Rules 17Ad–22(e)(4)(i), (e)(6)(i) and
(e)(23)(ii) of the Act,20 or any other
provision of the Act, or the rules and
regulations thereunder.
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
Proposed Rule Change should be
approved or disapproved by November
10, 2022. Any person who wishes to file
a rebuttal to any other person’s
submission must file that rebuttal by
November 25, 2022.
The Commission asks that
commenters address the sufficiency of
17 17
CFR 240.17Ad–22(e)(6)(i).
CFR 240.17Ad–22(e)(23)(ii).
19 15 U.S.C. 78q–1(b)(3)(F).
20 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i) and
(e)(23)(ii).
18 17
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16:50 Oct 19, 2022
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NSCC’s statements in support of the
Proposed Rule Change, which are set
forth in the Notice,21 in addition to any
other comments they may wish to
submit about the Proposed Rule Change.
Comments may be submitted by any
of the following methods:
63847
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–22732 Filed 10–19–22; 8:45 am]
BILLING CODE 8011–01–P
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–2022–005 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NSCC–2022–009. 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–
2022–009 and should be submitted on
or before November 10, 2022. Rebuttal
comments should be submitted by
November 25, 2022.
21 See
PO 00000
Notice, supra note 3.
Frm 00088
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96085; File No. SR–
NYSEARCA–2022–71
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify the NYSE Arca
Options Fee Schedule
October 14, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
13, 2022, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
NYSE Arca Options Fee Schedule (‘‘Fee
Schedule’’) regarding credits for Floor
Broker Qualified Contingent Cross
(‘‘QCC’’) transactions. The Exchange
proposes to implement the fee change
effective October 13, 2022.4 The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
22 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 The Exchange originally filed to amend the Fee
Schedule on October 3, 2022 (SR–NYSEArca–2022–
67) and withdrew such filing on October 13, 2022.
1 15
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]]>Agencies
[Federal Register Volume 87, Number 202 (Thursday, October 20, 2022)]
[Notices]
[Pages 63845-63847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22732]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96088; File No. SR-NSCC-2022-009]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Adopt Intraday
Volatility Charge and Eliminate Intraday Backtesting Charge
October 14, 2022.
I. Introduction
On July 7, 2022, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2022-009 (the ``Proposed
Rule Change'') pursuant to FR 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 July 20,
2022,\3\ and the Commission has received comments regarding the changes
proposed in the Proposed Rule Change.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 95286 (July 14, 2022),
87 FR 43355 (July 20, 2022) (File No. SR-NSCC-2022-009)
(``Notice'').
\4\ Comments are available at https://www.sec.gov/comments/sr-nscc-2022-009/srnscc2022009.htm.
---------------------------------------------------------------------------
On September 1, 2022, pursuant to FR 19(b)(2) of the Act,\5\ 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.\6\ This order institutes
proceedings, pursuant to FR 19(b)(2)(B) of the Act,\7\ to determine
whether to approve or disapprove the Proposed Rule Change.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2).
\6\ Securities Exchange Act Release No. 95650 (Sept. 1, 2022),
87 FR 55054 (Sept. 8, 2022) (SR-NSCC-2022-009).
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Summary of the Proposed Rule Change
A key tool that NSCC uses to manage its respective credit exposures
to its members is the daily collection of margin from each member,
which is referred to as each member's Required Fund Deposit.\8\ The
aggregated amount of all members' margin constitutes the Clearing Fund,
which NSCC would access should a member default and the defaulted
member's own margin be insufficient to satisfy losses to NSCC caused by
the liquidation of that member's portfolio.
---------------------------------------------------------------------------
\8\ The description of the Proposed Rule Change is based on the
statements prepared by NSCC 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/nscc_rules.pdf.
---------------------------------------------------------------------------
A. Intraday Volatility Charge
The volatility component of each member's Required Fund Deposit is
designed to measure market price volatility of the start of day
portfolio and is calculated for members' Net Unsettled Positions. The
volatility component is designed to capture the market price risk \9\
associated with each member's portfolio at a 99th percentile level of
confidence. NSCC has two methodologies for calculating the volatility
component--a ``VaR Charge'' and a haircut-based calculation. The VaR
Charge applies to the majority of Net Unsettled Positions and is
calculated as the greater of (1) the larger of two separate
calculations that utilize a parametric Value at Risk (``VaR'') model,
(2) a gap risk measure calculation based on the concentration threshold
of the largest non-index
[[Page 63846]]
position in a portfolio, and (3) a portfolio margin floor calculation
based on the market values of the long and short positions in the
portfolio.\10\ The VaR Charge usually comprises the largest portion of
a Member's Required Fund Deposit.
---------------------------------------------------------------------------
\9\ Market price risk refers to the risk that volatility in the
market causes the price of a security to change between the
execution of a trade and settlement of that trade. This risk is also
referred to herein as market risk and volatility risk.
\10\ Procedure XV, FRs I(A)(1)(a)(i) and (2)(a)(i) of the Rules,
supra note 8.
---------------------------------------------------------------------------
In the Proposed Rule Change, NSCC is proposing to implement an
intraday volatility charge, which it may collect on an intraday basis,
to better address the volatility risks presented by Members' adjusted
intraday Net Unsettled Positions between start of day collections of
Required Fund Deposits. More specifically, NSCC is proposing to utilize
its existing intraday monitoring to determine when the difference
between a Member's (1) start of day volatility charge, collected on
that Business Day as part of the Member's start of day Required Fund
Deposit based on that Member's prior end-of-day Net Unsettled
Positions, and (2) a calculation of the volatility charge based on that
Member's adjusted intraday Net Unsettled Positions as of a point
intraday between the collection of the start of day Required Fund
Deposit and end of day settlement, exceeds 100 percent and the amount
that would be collected as an intraday volatility charge, calculated as
described below, would be greater than $250,000. The amount of the
intraday volatility charge would be reduced by the amount collected
from that Member at the start of that Business Day as the volatility
portion of the Margin Requirement Differential charge, as discussed in
more detail in the Notice.
NSCC is also proposing that it would not collect an intraday
volatility charge when the quantitative thresholds are met, if (a)
trades submitted later in the day would offset trades submitted earlier
in the day, such that the quantitative thresholds would not have been
met if such activity had been submitted earlier in the day, or (b) the
threshold was met due to the submission of an erroneous trade that can
be corrected. NSCC would continue to monitor intraday volatility in 15-
minute increments throughout the day, and the calculation of the
intraday volatility charge would be done at those intervals. While
collections may occur multiple times throughout the day, intraday
volatility charges are more likely to be collected later in the day,
after additional, and potentially offsetting, activity has been
submitted.
The proposed methodology would allow NSCC to measure the change in
the volatility charge to determine if such change presents NSCC with
exposures that are not adequately addressed by the start of day
volatility charge on deposit in the Clearing Fund. By collecting an
amount that is measured as the difference between the two volatility
charge calculations, NSCC would be able to supplement the volatility
charge already on deposit in its Clearing Fund with an amount that
measures the change in volatility that has occurred since the Required
Fund Deposit was collected at the start of the day.
B. Intraday Backtesting Charge
The Backtesting Charge is an additional component of a member's
Required Fund Deposit that NSCC may assess at either the start of the
day as the Regular Backtesting Charge, or on an intraday basis as the
Intraday Backtesting Charge. More specifically, NSCC may assess a
Backtesting Charge against any member that has a 12-month trailing
backtesting coverage below the 99 percent backtesting coverage target.
When calculating a member's backtesting coverage, NSCC excludes amounts
already collected as a Backtesting Charge in calculating any applicable
Backtesting Charge.\11\
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\11\ Procedure XV, FRs I(B)(3) of the Rules, supra note 8.
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If assessed, a member's Backtesting Charge is generally equal to
the member's third largest deficiency, when calculating the Regular
Backtesting Charge, and fifth largest deficiency, when calculating the
Intraday Backtesting Charge, that occurred during the previous 12
months. NSCC may adjust the Backtesting Charge if it determines that
circumstances particular to a member's settlement activity and/or
market price volatility warrant a different approach to determining or
applying such charge in a manner consistent with achieving NSCC's
backtesting coverage target.
In the Proposed Rule Change, NSCC is proposing to eliminate the
Intraday Backtesting Charge for several reasons, as set forth in more
detail in the Notice. First, in connection with recent regulatory
feedback, NSCC has determined that the current methodology for
calculating the Intraday Backtesting Charge makes an unreasonable
assumption that NSCC would cease to act for a member that has paid all
of its intraday margin requirements. As a result, this calculation
methodology may underestimate a member's backtesting losses and
undercount potential backtesting deficiencies. Second, NSCC believes it
will continue to be able to adequately address both its intraday market
risk exposures and its backtesting coverage metrics if it eliminates
the Intraday Backtesting Charge. Additionally, NSCC would maintain the
Regular Backtesting Charge, which is collected at the start of the day,
to support its backtesting coverage. Studies reviewing the impact of
removing the Intraday Backtesting Charge on NSCC's backtesting coverage
metrics indicate that this proposal would not have a significant impact
on NSCC's ability to maintain its backtesting coverage target.
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 FR
19(b)(2)(B) of the Act \12\ to determine whether the Proposed Rule
Change should be approved or disapproved. 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.
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\12\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to FR 19(b)(2)(B) of the Act,\13\ 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 FR 17A of the Act,\14\ and the rules
thereunder, including the following provisions:
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\13\ Id.
\14\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Act,\15\ 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
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(4)(i) of the Act,\16\ which requires that
a covered clearing agency establish, implement, maintain,
[[Page 63847]]
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, including by maintaining sufficient financial
resources to cover its credit exposure to each participant fully with a
high degree of confidence.
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\16\ 17 CFR 240.17Ad-22(e)(4)(i).
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Rule 17Ad-22(e)(6)(i) of the Act,\17\ which requires that
a covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to cover, if the
covered clearing agency provides central counterparty services, its
credit exposures to its participants by establishing a risk-based
margin system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market.
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\17\ 17 CFR 240.17Ad-22(e)(6)(i).
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Rule 17Ad-22(e)(23)(ii) of the Act \18\ which requires
that a covered clearing agency establish, implement, maintain, and
enforce written policies and procedures reasonably designed to provide
sufficient information to enable participants to identify and evaluate
the risks, fees, and other material costs they incur by participating
in the covered clearing agency.
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\18\ 17 CFR 240.17Ad-22(e)(23)(ii).
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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 identified above, as well as any other concerns they may have
with the Proposed Rule Change. In particular, the Commission invites
the written views of interested persons concerning whether the Proposed
Rule Change is consistent with FR 17A(b)(3)(F) of the Act,\19\ and
Rules 17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii) of the Act,\20\ or
any other provision of the Act, or the rules and regulations
thereunder.
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by November 10, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 25, 2022.
The Commission asks that commenters address the sufficiency of
NSCC's statements in support of the Proposed Rule Change, which are set
forth in the Notice,\21\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
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\21\ See Notice, supra note 3.
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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-2022-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSCC-2022-009. 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-2022-009 and should be submitted on
or before November 10, 2022. Rebuttal comments should be submitted by
November 25, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(31).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22732 Filed 10-19-22; 8:45 am]
BILLING CODE 8011-01-P
