Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Clearing Agency Risk Management Framework, 8502-8505 [2023-02711]

Download as PDF 8502 Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES make the designation in question. Further, the disclosure of Restricted Firm designations also would indicate to investors that the firm may be subject to a Restricted Deposit Requirement and other conditions or restrictions. Therefore, this designation would be new and additive to the array of information currently available to investors. Accordingly, for the reasons set forth above, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Exchange Act,129 which requires, among other things, that FINRA rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. IV. Conclusion The Commission finds that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Exchange Act, which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. As with FINRA’s approach to disclosing a member firm’s Taping Firm status, the proposed rule change would provide disclosures to investors of information concerning the current status of member firms and former member firms that FINRA believes pose higher risks to the investing public compared to member firms and former member firms of similar sizes. This new category of information, provided in a user-friendly manner, would arm investors with information they could use to more carefully research the background of such firms. The proposed rule change could also incentivize member firms with a significant history of misconduct to change behaviors and activities to reduce risk. As such, the proposed rule change would enhance the investor-protection benefits of FINRA Rule 4111.130 While the proposed rule change may negatively impact those firms designated as Restricted Firms, as described above, the existing regulatory regime would help mitigate potential harm. Furthermore, FINRA stated that it would revisit the proposed rule change after gaining experience with disclosing Restricted Firm designations on BrokerCheck. For these reasons, the Commission finds the proposed rule change is 129 15 U.S.C. 78o–3(b)(6). FINRA Rule 4111 Order. 130 See VerDate Sep<11>2014 16:28 Feb 08, 2023 Jkt 259001 designed to protect investors and the public interest. It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act 131 that the proposed rule change (SR– FINRA–2022–015), be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.132 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–02717 Filed 2–8–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96801; File No. SR–NSCC– 2023–001] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Clearing Agency Risk Management Framework February 3, 2023. 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 January 30, 2023, 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)(4) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change amends the Clearing Agency Risk Management Framework (‘‘Risk Management Framework’’, or ‘‘Framework’’) of NSCC and its affiliates, The Depository Trust Company (‘‘DTC’’) and Fixed Income Clearing Corporation (‘‘FICC,’’ and together with NSCC, the ‘‘CCPs’’ and the CCPs together with DTC, the ‘‘Clearing Agencies’’).5 Specifically, the proposed 131 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 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)(4). 5 See Securities Exchange Act Release Nos. 81635 (September 15, 2017), 82 FR 44224 (September 21, 132 17 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 rule change would amend the Risk Management Framework to (1) update the description of the dashboards used by the Clearing Agencies as internal performance management tools to measure the effectiveness of their various operations; and (2) clarify and revise the descriptions of certain matters within the Framework and correct errors in those descriptions, as further described below. The proposed changes would update and clarify the Risk Management Framework but do not reflect changes to how the Clearing Agencies comply with the applicable requirements of Rule 17Ad–22(e), as described in greater detail below. 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 Clearing Agencies adopted the Risk Management Framework 6 to provide an outline for how each of the Clearing Agencies (i) maintains a wellfounded, clear, transparent and enforceable legal basis for each aspect of its activities; (ii) comprehensively manages legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by it; (iii) identifies, monitors, and manages risks related to links it establishes with one or more clearing agencies, financial market utilities, or trading markets; (iv) meets the requirements of its participants and the markets it serves efficiently and effectively; (v) uses, or at a minimum accommodates, relevant internationally accepted communication 2017) (File Nos. SR–DTC–2017–013; SR–FICC– 2017–016; SR–NSCC–2017–012) (‘‘Initial Filing’’) and Securities Exchange Act Release No. 89271 (July 09, 2020), 85 FR 42933 (July 15, 2020) (File No. SR–NSCC–2020–012); Securities Exchange Act Release No. 89269 (July 09, 2020), 85 FR 42954 (July 15, 2020) (File No. SR–DTC–2020–009); and Securities Exchange Act Release No. 89270 (July 09, 2020), 85 FR 42927 (July 15, 2020) (File No. SR– FICC–2020–007) (together with the Initial Filing, the ‘‘Framework Filings’’) 6 Supra note 5. E:\FR\FM\09FEN1.SGM 09FEN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices procedures and standards in order to facilitate efficient payment, clearing and settlement; and (vi) publicly discloses certain information, including market data. In this way, the Risk Management Framework currently supports the Clearing Agencies’ compliance with Rules 17Ad–22(e)(1), (3), (20), (21), (22) and (23) of the Standards,7 as described in the Framework Filings. In addition to setting forth the manner in which each of the Clearing Agencies addresses these requirements, the Risk Management Framework also contains a section titled ‘‘Framework Ownership and Change Management’’ that, among other matters, describes the Framework ownership and the required governance process for review and approval of changes to the Framework. In connection with the annual review and approval of the Framework by the Board of Directors of each of NSCC, DTC and FICC (each a ‘‘Board’’ and collectively, the ‘‘Boards’’), the Clearing Agencies are proposing to make certain revisions to the Framework. First, the proposed changes would update the Risk Management Framework to reflect a change to the dashboards used by the Clearing Agencies as internal performance management tools to measure the effectiveness of various aspects of their operations, as described in greater detail below. The proposed changes would also clarify and enhance the descriptions in the Risk Management Framework and correct errors in those descriptions by, for example, (1) enhancing the description of the Clearing Agencies processes for management of certain risks through risk tolerance statements; (2) clarifying the description of the ‘‘Three Lines of Defense,’’ including but not limited to updating the descriptions of the ‘‘first line of defense,’’ the ‘‘second line of defense,’’ and the ‘‘third line of defense,’’ (3) clarifying the definition of Rules; (4) enhancing the description of the purpose and approval process of ‘‘Risk Management Frameworks;’’ (5) updating the name of the Operational Risk Management group and the Third Party Risk function. Finally, the proposed changes would capitalize terms that mistakenly were not previously capitalized but refer to a specific term, remove an unnecessary citation and make certain grammatical changes. i. Proposed Amendments To Update the Description of Performance Measurement Tools The proposed changes would update the Risk Management Framework to reflect a recent change to the dashboards that are used by the Clearing Agencies as internal performance management tools and address their compliance with the requirements of Rule 17Ad– 22(e)(21).8 Section 4.3 of the Framework identifies certain processes implemented by the Clearing Agencies to be efficient and effective in meeting the requirements of their respective participants and the markets they serve.9 This list of processes is not meant to be exhaustive, and the Clearing Agencies may use other methods to achieve their goals and meet their regulatory requirements. The proposed change would update the Framework to remove reference to a process that was previously used by the Clearing Agencies to monitor their performance and the review standards for such processes. The Clearing Agencies previously used the DTCC Core Balanced Scoreboard (‘‘BBS’’) to provide insight into the effectiveness of their various operations in meeting the needs of their participants and the markets they serve. The Clearing Agencies have eliminated the BBS and now utilize multiple other dashboards to measure the outcomes that were previously measured by the BBS. The elimination of the BBS is not a material change in how the Clearing Agencies approach risk management, as they are simply using other methods to continue to comply with the requirements of Rule 17Ad–22(e)(21).10 The use of multiple dashboards allows for a more holistic view of the performance of the Clearing Agencies and their subsidiaries. The proposed change would also enhance the descriptions of these processes by describing the annual review of this process and how results are tracked. ii. Proposed Amendment To Clarify, Enhance, and Correct Descriptions in the Framework The proposed changes would improve the clarity and comprehensiveness of the descriptions of certain matters within the Risk Management Framework and correct grammatical errors in certain descriptions. Some specific examples of such proposed changes include: 8 17 7 17 CFR 240.17Ad–22(e)(1), (3), (20), (21), (22) and (23). VerDate Sep<11>2014 16:28 Feb 08, 2023 Jkt 259001 CFR 240.17Ad–22(e)(21). 9 Id. 10 Supra PO 00000 note 8. Frm 00107 Fmt 4703 Sfmt 4703 8503 1. Proposed Change To Describe the Clearing Agencies’ Assessment and Review of Risk Tolerance Statements Section 3 of the Framework describes management’s responsibility to establish risk tolerance statements for the range of risks that arise in or are borne by the Clearing Agencies. Section 3 also outlines the review and approval process for such risk tolerance statements and the Clearing Agencies’ performance relative to those statements. The proposed change would clarify that the Clearing Agencies’ performance relative to those risk tolerance statements is assessed quarterly and is shared with senior management and the Board Risk Committees of the Clearing Agencies. 2. Proposed Changes To Clarify the Description of the ‘‘Three Lines of Defense’’ Section 3.1 of the Framework describes the ‘‘three lines of defense’’ approach adopted by each of the Clearing Agencies for identifying, assessing, measuring, monitoring, mitigating, and reporting the risks that arise in or are borne by it. A proposed change would remove the last sentence of this Section, which states, ‘‘While the Framework provides a general description of the Three Lines of Defense approach for risk management, the Three Lines of Defense approach may be used by the Clearing Agencies for managing specific risks, for example operational risk, which is addressed in the Operational Risk Management Framework (see Section 3 below)’’ This sentence is unnecessarily duplicative of the statements in Section 3.3.3 of the Framework which provides details of the various frameworks, separate and apart from this Framework, used by the Clearing Agencies to manage specific risks and, therefore, may cause confusion to a reader. The deletion of the sentence would resolve any such possible confusion, thereby clarifying the entirety of Section 3. The Clearing Agencies are also proposing a change to enhance the examples provided in Section 3.1.1 to illustrate the Clearing Agency Business/Support Areas role as the first line of defense in managing risk by adding two additional examples: (a) ‘‘Defining and monitoring business risk metrics applicable to their function;’’ and (b) ‘‘Clearly understanding and reporting the residual, unmitigated risk that is acceptable to their function.’’ Additionally, a proposed change to Section 3.1.3 would update the description of the responsibilities of internal audit to be in line with the internal audit charter. E:\FR\FM\09FEN1.SGM 09FEN1 8504 Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices 3. Proposed Change To Clarify the Definition of ‘‘Rules’’ Section 3.3.2 of the Framework includes a defined term for the ‘‘Rules’’ of the Clearing Agencies. The proposed change would clarify that the ‘‘Rules’’ referred to for purposes of this Framework are filed with the Commission. Therefore, the proposed change would update the definition of Rules for clarification purposes and would not substantively change the definition. 4. Enhance the Description of the Purpose and Approval Process of ‘‘Risk Management Frameworks’’ Section 3.3.3 describes the system of frameworks, maintained by the Clearing Agencies, separate and apart from this Framework to manage a range of risks. This Section outlines in greater detail certain of these risk management frameworks and their purpose. The proposed changes to this Section 3.3.3 would enhance the description of one of these frameworks; clarify that such frameworks are in support of this Framework; and clarify that such frameworks may be approved by an applicable Board committee as delegated by the Boards, pursuant to the Document Standards described in this Framework. khammond on DSKJM1Z7X2PROD with NOTICES 5. Stating a Change to the Name of the Vendor Risk Management Group and to the Third-Party Risk Function Group The Framework describes the role of the Operational Risk Management Group as the group that manages incidents, and the Third-Party Management Function manages third party risks to the Clearing Agencies. The proposed change would update the Framework to reflect a change in the name of these two groups. The Operational Risk Management Group is now referred to as Operational and Technology Risk and the Third-Party Risk Management group is now referred to as Third Party Risk. This proposed change would reflect a recent organizational name change. 6. Proposed Changes To Capitalize Defined Terms and Correct Grammatical and Formatting Errors, Removal of Citation These proposed changes would fix grammatical errors and capitalize terms that should be defined terms in the Framework or removes inconsistent wording. Some of these changes include: (i) make IOSCO a defined term in footnote 2 for clarification purposes; (ii) change the word ‘‘settlement’’ to ‘‘settling’’ in Section 4.2 for consistency; (3) remove the words ‘‘and Liquidity VerDate Sep<11>2014 16:28 Feb 08, 2023 Jkt 259001 Providers’’ from the heading ‘‘Risks Related to Investment Counterparties and Liquidity Providers’’ in Section 4.2.1 as the paragraph does not discuss liquidity providers and (4) deletion of footnote 21 as unnecessary. The proposed rule change would make additional immaterial edits to the Framework that do not alter how the Clearing Agencies comply with the applicable requirements of Rule 17Ad– 22(e). 2. Statutory Basis The Clearing Agencies believe that the proposed changes are consistent with Section 17A(b)(3)(F) of the Act 11 for the reasons described below. Section 17A(b)(3)(F) of the Act requires, in part, that the rules of a registered 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.12 The proposed changes would (1) update the Risk Management Framework to remove reference to the BBS and include a description of the governance around the dashboards used by the Clearing Agencies to measure the effectiveness of their operations, and (2) clarify the descriptions of certain matters within the Framework to improve comprehensiveness and correct errors, as described above. By creating clearer, updated descriptions and correcting errors, the Clearing Agencies believe that the proposed changes would make the Risk Management Framework more effective in providing an overview of the important risk management activities of the Clearing Agencies, as described therein. As described in the Framework Filings, the risk management functions described in the Risk Management Framework allow the Clearing Agencies to continue to promote the prompt and accurate clearance and settlement of securities transactions and continue to assure the safeguarding of securities and funds which are in their custody or control or for which they are responsible notwithstanding the default of a member of an affiliated family. The proposed changes to improve the clarity and accuracy of the descriptions of risk management functions within the Framework would assist the Clearing Agencies in carrying out these risk management functions. Therefore, the Clearing Agencies believe these proposed changes are consistent with 11 15 (B) Clearing Agency’s Statement on Burden on Competition The Clearing Agencies do not believe that the proposed changes to the Framework described above would have any impact, or impose any burden, on competition. As described above, the proposed rule change would improve the comprehensiveness of the Framework by creating clearer, updated descriptions and correcting errors, thereby making the Risk Management Framework more effective in providing an overview of the important risk management activities of the Clearing Agencies. As such, the Clearing Agencies do not believe that the proposed rule change would have any impact 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-submitcomments. General questions regarding the rule filing process or logistical questions regarding this filing should be directed to the Main Office of the Commission’s Division of Trading and Markets at tradingandmarkets@sec.gov or 202– 551–5777. NSCC reserves the right not to respond to any comments received. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action The foregoing rule change has become effective pursuant to Section U.S.C. 78q–1(b)(3)(F). 12 Id. PO 00000 the requirements of Section 17A(b)(3)(F) of the Act.13 Frm 00108 13 Id. Fmt 4703 Sfmt 4703 E:\FR\FM\09FEN1.SGM 09FEN1 Federal Register / Vol. 88, No. 27 / Thursday, February 9, 2023 / Notices 19(b)(3)(A) 14 of the Act and paragraph (f) 15 of Rule 19b–4 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: khammond on DSKJM1Z7X2PROD with 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– NSCC–2023–001 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–2023–001. 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 14 15 U.S.C. 78s(b)(3)(A). 15 17 CFR 240.19b–4(f). VerDate Sep<11>2014 16:28 Feb 08, 2023 Jkt 259001 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– 2023–001 and should be submitted on or before March 2, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–02711 Filed 2–8–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96797; File No. SR–OCC– 2022–012] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change Concerning the Options Clearing Corporation’s Collateral Haircuts and Standards for Clearing Banks and Letters of Credit February 3, 2023. On December 5, 2022, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2022– 012 (‘‘Proposed Rule Change’’) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’),1 and Rule 19b–4 thereunder 2 to change rules, policies, and procedures regarding collateral haircuts, minimum standards for clearing banks and letterof-credit issuers, and concentration limits for letters of credit.3 The Proposed Rule Change was published for public comment in the Federal Register on December 23, 2022.4 The Commission has received comments regarding the proposal in the Proposed Rule Change.5 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Notice of Filing infra note 4, 87 FR at 79015. 4 Securities Exchange Act Release No. 96533 (Dec. 19, 2022), 87 FR 79015 (Dec. 23, 2022) (File No. SR– OCC–2022–012) (‘‘Notice of Filing’’). 5 Comments on the Proposed Rule Change are available at https://www.sec.gov/comments/sr-occ2022-012/srocc2022012.htm. 1 15 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 8505 Section 19(b)(2) of the Exchange Act 6 provides that, within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the Notice of Filing is February 6, 2023. The Commission is extending this 45-day time period. In order to provide the Commission with sufficient time to consider the Proposed Rule Change, the Commission finds that it is appropriate to designate a longer period within which to take action on the Proposed Rule Change. Accordingly, the Commission, pursuant to section 19(b)(2) of the Exchange Act,7 designates March 23, 2023 as the date by which the Commission shall either approve, disapprove, or institute proceedings to determine whether to disapprove proposed rule change SR–OCC–2022– 012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–02715 Filed 2–8–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 34824; File No. 812–15309] Kennedy Lewis Management LP, et al. February 6, 2023. Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’). ACTION: Notice. AGENCY: Notice of application for an order under sections 17(d) and 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act to permit certain joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d–1 under the Act. SUMMARY OF APPLICATION: Applicants request an order to permit certain 6 15 U.S.C. 78s(b)(2). 7 Id. 8 17 E:\FR\FM\09FEN1.SGM CFR 200.30–3(a)(94). 09FEN1

Agencies

[Federal Register Volume 88, Number 27 (Thursday, February 9, 2023)]
[Notices]
[Pages 8502-8505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96801; File No. SR-NSCC-2023-001]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend the Clearing Agency Risk Management Framework

February 3, 2023.
    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 January 30, 2023, 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)(4) 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)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change amends the Clearing Agency Risk Management 
Framework (``Risk Management Framework'', or ``Framework'') of NSCC and 
its affiliates, The Depository Trust Company (``DTC'') and Fixed Income 
Clearing Corporation (``FICC,'' and together with NSCC, the ``CCPs'' 
and the CCPs together with DTC, the ``Clearing Agencies'').\5\ 
Specifically, the proposed rule change would amend the Risk Management 
Framework to (1) update the description of the dashboards used by the 
Clearing Agencies as internal performance management tools to measure 
the effectiveness of their various operations; and (2) clarify and 
revise the descriptions of certain matters within the Framework and 
correct errors in those descriptions, as further described below. The 
proposed changes would update and clarify the Risk Management Framework 
but do not reflect changes to how the Clearing Agencies comply with the 
applicable requirements of Rule 17Ad-22(e), as described in greater 
detail below.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 81635 (September 
15, 2017), 82 FR 44224 (September 21, 2017) (File Nos. SR-DTC-2017-
013; SR-FICC-2017-016; SR-NSCC-2017-012) (``Initial Filing'') and 
Securities Exchange Act Release No. 89271 (July 09, 2020), 85 FR 
42933 (July 15, 2020) (File No. SR-NSCC-2020-012); Securities 
Exchange Act Release No. 89269 (July 09, 2020), 85 FR 42954 (July 
15, 2020) (File No. SR-DTC-2020-009); and Securities Exchange Act 
Release No. 89270 (July 09, 2020), 85 FR 42927 (July 15, 2020) (File 
No. SR-FICC-2020-007) (together with the Initial Filing, the 
``Framework Filings'')
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

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

1. Purpose
    The Clearing Agencies adopted the Risk Management Framework \6\ to 
provide an outline for how each of the Clearing Agencies (i) maintains 
a well-founded, clear, transparent and enforceable legal basis for each 
aspect of its activities; (ii) comprehensively manages legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by it; (iii) identifies, 
monitors, and manages risks related to links it establishes with one or 
more clearing agencies, financial market utilities, or trading markets; 
(iv) meets the requirements of its participants and the markets it 
serves efficiently and effectively; (v) uses, or at a minimum 
accommodates, relevant internationally accepted communication

[[Page 8503]]

procedures and standards in order to facilitate efficient payment, 
clearing and settlement; and (vi) publicly discloses certain 
information, including market data. In this way, the Risk Management 
Framework currently supports the Clearing Agencies' compliance with 
Rules 17Ad-22(e)(1), (3), (20), (21), (22) and (23) of the 
Standards,\7\ as described in the Framework Filings. In addition to 
setting forth the manner in which each of the Clearing Agencies 
addresses these requirements, the Risk Management Framework also 
contains a section titled ``Framework Ownership and Change Management'' 
that, among other matters, describes the Framework ownership and the 
required governance process for review and approval of changes to the 
Framework. In connection with the annual review and approval of the 
Framework by the Board of Directors of each of NSCC, DTC and FICC (each 
a ``Board'' and collectively, the ``Boards''), the Clearing Agencies 
are proposing to make certain revisions to the Framework.
---------------------------------------------------------------------------

    \6\ Supra note 5.
    \7\ 17 CFR 240.17Ad-22(e)(1), (3), (20), (21), (22) and (23).
---------------------------------------------------------------------------

    First, the proposed changes would update the Risk Management 
Framework to reflect a change to the dashboards used by the Clearing 
Agencies as internal performance management tools to measure the 
effectiveness of various aspects of their operations, as described in 
greater detail below.
    The proposed changes would also clarify and enhance the 
descriptions in the Risk Management Framework and correct errors in 
those descriptions by, for example, (1) enhancing the description of 
the Clearing Agencies processes for management of certain risks through 
risk tolerance statements; (2) clarifying the description of the 
``Three Lines of Defense,'' including but not limited to updating the 
descriptions of the ``first line of defense,'' the ``second line of 
defense,'' and the ``third line of defense,'' (3) clarifying the 
definition of Rules; (4) enhancing the description of the purpose and 
approval process of ``Risk Management Frameworks;'' (5) updating the 
name of the Operational Risk Management group and the Third Party Risk 
function.
    Finally, the proposed changes would capitalize terms that 
mistakenly were not previously capitalized but refer to a specific 
term, remove an unnecessary citation and make certain grammatical 
changes.
i. Proposed Amendments To Update the Description of Performance 
Measurement Tools
    The proposed changes would update the Risk Management Framework to 
reflect a recent change to the dashboards that are used by the Clearing 
Agencies as internal performance management tools and address their 
compliance with the requirements of Rule 17Ad-22(e)(21).\8\ Section 4.3 
of the Framework identifies certain processes implemented by the 
Clearing Agencies to be efficient and effective in meeting the 
requirements of their respective participants and the markets they 
serve.\9\ This list of processes is not meant to be exhaustive, and the 
Clearing Agencies may use other methods to achieve their goals and meet 
their regulatory requirements. The proposed change would update the 
Framework to remove reference to a process that was previously used by 
the Clearing Agencies to monitor their performance and the review 
standards for such processes.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(21).
    \9\ Id.
---------------------------------------------------------------------------

    The Clearing Agencies previously used the DTCC Core Balanced 
Scoreboard (``BBS'') to provide insight into the effectiveness of their 
various operations in meeting the needs of their participants and the 
markets they serve. The Clearing Agencies have eliminated the BBS and 
now utilize multiple other dashboards to measure the outcomes that were 
previously measured by the BBS. The elimination of the BBS is not a 
material change in how the Clearing Agencies approach risk management, 
as they are simply using other methods to continue to comply with the 
requirements of Rule 17Ad-22(e)(21).\10\ The use of multiple dashboards 
allows for a more holistic view of the performance of the Clearing 
Agencies and their subsidiaries. The proposed change would also enhance 
the descriptions of these processes by describing the annual review of 
this process and how results are tracked.
---------------------------------------------------------------------------

    \10\ Supra note 8.
---------------------------------------------------------------------------

ii. Proposed Amendment To Clarify, Enhance, and Correct Descriptions in 
the Framework
    The proposed changes would improve the clarity and 
comprehensiveness of the descriptions of certain matters within the 
Risk Management Framework and correct grammatical errors in certain 
descriptions. Some specific examples of such proposed changes include:
1. Proposed Change To Describe the Clearing Agencies' Assessment and 
Review of Risk Tolerance Statements
    Section 3 of the Framework describes management's responsibility to 
establish risk tolerance statements for the range of risks that arise 
in or are borne by the Clearing Agencies. Section 3 also outlines the 
review and approval process for such risk tolerance statements and the 
Clearing Agencies' performance relative to those statements. The 
proposed change would clarify that the Clearing Agencies' performance 
relative to those risk tolerance statements is assessed quarterly and 
is shared with senior management and the Board Risk Committees of the 
Clearing Agencies.
2. Proposed Changes To Clarify the Description of the ``Three Lines of 
Defense''
    Section 3.1 of the Framework describes the ``three lines of 
defense'' approach adopted by each of the Clearing Agencies for 
identifying, assessing, measuring, monitoring, mitigating, and 
reporting the risks that arise in or are borne by it. A proposed change 
would remove the last sentence of this Section, which states, ``While 
the Framework provides a general description of the Three Lines of 
Defense approach for risk management, the Three Lines of Defense 
approach may be used by the Clearing Agencies for managing specific 
risks, for example operational risk, which is addressed in the 
Operational Risk Management Framework (see Section 3 below)'' This 
sentence is unnecessarily duplicative of the statements in Section 
3.3.3 of the Framework which provides details of the various 
frameworks, separate and apart from this Framework, used by the 
Clearing Agencies to manage specific risks and, therefore, may cause 
confusion to a reader. The deletion of the sentence would resolve any 
such possible confusion, thereby clarifying the entirety of Section 3. 
The Clearing Agencies are also proposing a change to enhance the 
examples provided in Section 3.1.1 to illustrate the Clearing Agency 
Business/Support Areas role as the first line of defense in managing 
risk by adding two additional examples: (a) ``Defining and monitoring 
business risk metrics applicable to their function;'' and (b) ``Clearly 
understanding and reporting the residual, unmitigated risk that is 
acceptable to their function.'' Additionally, a proposed change to 
Section 3.1.3 would update the description of the responsibilities of 
internal audit to be in line with the internal audit charter.

[[Page 8504]]

3. Proposed Change To Clarify the Definition of ``Rules''
    Section 3.3.2 of the Framework includes a defined term for the 
``Rules'' of the Clearing Agencies. The proposed change would clarify 
that the ``Rules'' referred to for purposes of this Framework are filed 
with the Commission. Therefore, the proposed change would update the 
definition of Rules for clarification purposes and would not 
substantively change the definition.
4. Enhance the Description of the Purpose and Approval Process of 
``Risk Management Frameworks''
    Section 3.3.3 describes the system of frameworks, maintained by the 
Clearing Agencies, separate and apart from this Framework to manage a 
range of risks. This Section outlines in greater detail certain of 
these risk management frameworks and their purpose. The proposed 
changes to this Section 3.3.3 would enhance the description of one of 
these frameworks; clarify that such frameworks are in support of this 
Framework; and clarify that such frameworks may be approved by an 
applicable Board committee as delegated by the Boards, pursuant to the 
Document Standards described in this Framework.
5. Stating a Change to the Name of the Vendor Risk Management Group and 
to the Third-Party Risk Function Group
    The Framework describes the role of the Operational Risk Management 
Group as the group that manages incidents, and the Third-Party 
Management Function manages third party risks to the Clearing Agencies. 
The proposed change would update the Framework to reflect a change in 
the name of these two groups. The Operational Risk Management Group is 
now referred to as Operational and Technology Risk and the Third-Party 
Risk Management group is now referred to as Third Party Risk. This 
proposed change would reflect a recent organizational name change.
6. Proposed Changes To Capitalize Defined Terms and Correct Grammatical 
and Formatting Errors, Removal of Citation
    These proposed changes would fix grammatical errors and capitalize 
terms that should be defined terms in the Framework or removes 
inconsistent wording. Some of these changes include: (i) make IOSCO a 
defined term in footnote 2 for clarification purposes; (ii) change the 
word ``settlement'' to ``settling'' in Section 4.2 for consistency; (3) 
remove the words ``and Liquidity Providers'' from the heading ``Risks 
Related to Investment Counterparties and Liquidity Providers'' in 
Section 4.2.1 as the paragraph does not discuss liquidity providers and 
(4) deletion of footnote 21 as unnecessary.
    The proposed rule change would make additional immaterial edits to 
the Framework that do not alter how the Clearing Agencies comply with 
the applicable requirements of Rule 17Ad-22(e).
2. Statutory Basis
    The Clearing Agencies believe that the proposed changes are 
consistent with Section 17A(b)(3)(F) of the Act \11\ for the reasons 
described below. Section 17A(b)(3)(F) of the Act requires, in part, 
that the rules of a registered 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.\12\ The proposed changes would (1) update the Risk 
Management Framework to remove reference to the BBS and include a 
description of the governance around the dashboards used by the 
Clearing Agencies to measure the effectiveness of their operations, and 
(2) clarify the descriptions of certain matters within the Framework to 
improve comprehensiveness and correct errors, as described above. By 
creating clearer, updated descriptions and correcting errors, the 
Clearing Agencies believe that the proposed changes would make the Risk 
Management Framework more effective in providing an overview of the 
important risk management activities of the Clearing Agencies, as 
described therein.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ Id.
---------------------------------------------------------------------------

    As described in the Framework Filings, the risk management 
functions described in the Risk Management Framework allow the Clearing 
Agencies to continue to promote the prompt and accurate clearance and 
settlement of securities transactions and continue to assure the 
safeguarding of securities and funds which are in their custody or 
control or for which they are responsible notwithstanding the default 
of a member of an affiliated family. The proposed changes to improve 
the clarity and accuracy of the descriptions of risk management 
functions within the Framework would assist the Clearing Agencies in 
carrying out these risk management functions. Therefore, the Clearing 
Agencies believe these proposed changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\13\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

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

    The Clearing Agencies do not believe that the proposed changes to 
the Framework described above would have any impact, or impose any 
burden, on competition. As described above, the proposed rule change 
would improve the comprehensiveness of the Framework by creating 
clearer, updated descriptions and correcting errors, thereby making the 
Risk Management Framework more effective in providing an overview of 
the important risk management activities of the Clearing Agencies. As 
such, the Clearing Agencies do not believe that the proposed rule 
change would have any impact 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-submitcomments. General questions 
regarding the rule filing process or logistical questions regarding 
this filing should be directed to the Main Office of the Commission's 
Division of Trading and Markets at [email protected] or 202-
551-5777.
    NSCC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section

[[Page 8505]]

19(b)(3)(A) \14\ of the Act and paragraph (f) \15\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2023-001 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-2023-001. 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-2023-001 and should be submitted on 
or before March 2, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02711 Filed 2-8-23; 8:45 am]
BILLING CODE 8011-01-P
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