Self-Regulatory Organizations; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Make Certain Enhancements to the Gap Risk Measure and the VaR Charge, 17898-17900 [2023-06059]
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17898
Federal Register / Vol. 88, No. 57 / Friday, March 24, 2023 / Notices
accessible sources to ensure broad
availability of information in addition to
the SIP data and proprietary data feeds
offered by the Exchange and other SROs
that are available to subscribers. In
addition, the declaration and timing of
trading halts and the resumption of
trading is designed to avoid any
advantage to those who can react more
quickly than other participants. The
proposals encourage early and frequent
communication among the SROs, SIPs
and market participants to enable the
dissemination of timely and accurate
information concerning the market to
market participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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)(iii) of the Act 45 and
subparagraph (f)(6) of Rule 19b–4
thereunder.46
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
to determine whether the proposed rule
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.
lotter on DSK11XQN23PROD with NOTICES1
45 15
U.S.C. 78s(b)(3)(A)(iii).
46 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires the Exchange to give the
Commission written notice of its intent to file the
proposed rule change, along with a brief description
and text of the proposed rule change, at least five
business days prior to the date of filing of the
proposed rule change, or such shorter time as
designated by the Commission. The Exchange has
satisfied this requirement.
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Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–97171; File No. SR–NSCC–
2022–015]
• 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–
BX–2023–007 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–BX–2023–007. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–BX–2023–007 and
should be submitted on or before April
14, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–06054 Filed 3–23–23; 8:45 am]
BILLING CODE 8011–01–P
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Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Make Certain
Enhancements to the Gap Risk
Measure and the VaR Charge
March 20, 2023.
I. Introduction
On December 2, 2022, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule change SR–NSCC–2022–
015 (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 December 21, 2022,3 and the
Commission has received one comment
regarding the changes proposed in the
Proposed Rule Change.4
On January 24, 2023, pursuant to
Section 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
Section 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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 96511
(Dec. 15, 2022), 87 FR 78157 (Dec. 21, 2022) (File
No. SR–NSCC–2022–015) (‘‘Notice of Filing’’).
4 Comments are available at https://www.sec.gov/
comments/sr-nscc-2022-015/srnscc2022015.htm.
5 15 U.S.C. 78s(b)(2).
6 Securities Exchange Act Release No. 96740 (Jan.
24, 2023), 88 FR 5953 (Jan. 30, 2023) (SR–NSCC–
2022–015).
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.
2 17
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Federal Register / Vol. 88, No. 57 / Friday, March 24, 2023 / Notices
of all members’ margin constitutes the
Clearing Fund, which NSCC would
access should a defaulted member’s
own margin be insufficient to satisfy
losses to NSCC caused by the
liquidation of that member’s portfolio.
Each member’s margin consists of a
number of applicable components, each
of which is calculated to address
specific risks faced by NSCC.9
Generally, the largest portion of a
member’s margin is the volatility
component, often referred to as the VaR
Charge, which is designed to reflect the
amount of money that could be lost on
a portfolio over a given period within a
99th percentile level of confidence.
Under NSCC’s current rules, one of the
potential methods of calculating the
VaR Charge relies on a measure of gap
risk.10 It does not accrue for all
portfolios, but instead only serves as the
VaR Charge if it is the largest of three
potential calculations.11 The gap risk
charge was designed to address the risk
presented by a portfolio that is more
susceptible to the effects of gap risk
events, i.e., those portfolios holding
positions that represent more than a
certain percent of the entire portfolio’s
value, such that the event could impact
the entire portfolio’s value.12
To calculate the gap risk charge,
NSCC multiplies the gross market value
of the largest non-index net unsettled
position in the portfolio by a gap risk
haircut, which can be no less than 10
percent (‘‘gap risk haircut’’).13
Currently, NSCC determines the gap risk
haircut empirically as no less than the
larger of the 1st and 99th percentiles of
three-day returns of a set of CUSIPs that
are subject to the VaR Charge pursuant
to the Rules, giving equal rank to each
to determine which has the highest
movement over that three-day period.
lotter on DSK11XQN23PROD with NOTICES1
9 See
Procedure XV of the Rules, supra note 8.
10 Gap risk events have been generally understood
as idiosyncratic issuer events (for example, earning
reports, management changes, merger
announcements, insolvency, or other unexpected,
issuer-specific events) that cause a rapid shift in
price volatility levels.
11 Specifically, the VaR Charge is the greatest of
(1) the larger of two separate calculations based on
different underlying estimates that utilize a
parametric VaR model, which addresses the market
risk of a member’s portfolio (referred to as the core
parametric estimation), (2) the gap risk calculation,
and (3) a portfolio margin floor calculation based
on the market values of the long and short positions
in the portfolio, which addresses risks that might
not be adequately addressed with the other
volatility component calculations.
12 See Section I(A)(1)(a)(i)II and I(A)(2)(a)(i)II of
Procedure XV of the Rules, supra note 8. See also
Exchange Act Release Nos. 82780 (Feb. 26, 2018),
83 FR 9035 (Mar. 2, 2018) (SR–NSCC–2017–808);
82781 (Feb. 26, 2018), 83 FR 9042 (Mar. 2, 2018)
(SR–NSCC–2017–020) (‘‘Initial Filing’’).
13 See Section I(A)(1)(a)(i)II and I(A)(2)(a)(i)II of
Procedure XV, supra note 8.
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NSCC uses a look-back period of not
less than ten years plus a one-year stress
period, and if the one-year stress period
overlaps with the look-back period, only
the non-overlapping period would be
combined with the look-back period.
The resulting haircut is then rounded
up to the nearest whole percentage and
applied to the largest non-index net
unsettled position to determine the gap
risk charge.
As described in the Notice, NSCC
proposes to modify Procedure XV
(Clearing Fund Formula and Other
Matters) of NSCC’s Rules & Procedures
(‘‘Rules’’) to make the following changes
to the gap risk charge: (1) make the gap
risk charge an additive component of
the member’s total VaR Charge when it
is applicable, rather than being applied
as the applicable VaR Charge only when
it is the largest of three separate
calculations, (2) adjusting the gap risk
charge to be based on the two largest
positions in a portfolio, rather than
based on the single largest position, (3)
changing the floor of the gap risk haircut
from 10 percent to 5 percent for the
largest position, adding a floor of the
gap risk haircut of 2.5 percent for the
second largest position, and providing
that gap risk haircuts would be
determined based on backtesting and
impact analysis, and (4) amending
which ETF positions are excluded from
the gap risk charge to more precisely
include ETFs that are more prone to gap
risk, i.e., are non-diversified.
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 14 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 Section 19(b)(2)(B) of the
Act,15 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
14 15
U.S.C. 78s(b)(2)(B).
15 Id.
PO 00000
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17899
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,16 and the
rules thereunder, including the
following provisions:
• Section 17A(b)(3)(F) of the Act,17
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, 18
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, 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,19
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.
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 Section 17A(b)(3)(F) of the Act,20
and Rules 17Ad–22(e)(4)(i), (e)(6)(i) and
(e)(23)(ii) of the Act,21 or any other
16 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
18 17 CFR 240.17Ad–22(e)(4)(i).
19 17 CFR 240.17Ad–22(e)(6)(i).
20 15 U.S.C. 78q–1(b)(3)(F).
21 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i) and
(e)(23)(ii).
17 15
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Federal Register / Vol. 88, No. 57 / Friday, March 24, 2023 / Notices
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 April 14,
2023. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
April 28, 2023.
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,22 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:
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–
NSCC–2022–015 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–2022–015. 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
22 See
Notice, supra note 3.
VerDate Sep<11>2014
19:18 Mar 23, 2023
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–
2022–015 and should be submitted on
or before April 14, 2023. Rebuttal
comments should be submitted by April
28, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–06059 Filed 3–23–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–580, OMB Control No.
3235–0642]
Submission for OMB Review;
Comment Request; Extension:
Investment Company Interactive Data
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Certain funds have current
requirements to submit to the
Commission information included in
their registration statements, or
information included in or amended by
any post-effective amendments to such
registration statements, in response to
certain form items in structured data
language (‘‘Investment Company
Interactive Data’’). This also includes
the requirement for funds to submit
interactive data to the Commission for
any form of prospectus filed pursuant to
17 CFR 230.497(c) or 17 CFR 230.497(e)
under the Securities Act of 1933
(‘‘Securities Act’’) [15 U.S.C. 77a et seq.]
that includes information in response to
certain form items. This collection of
information relates to regulations and
forms adopted under the Securities Act,
and the Investment Company Act of
23 17
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1940 (‘‘Investment Company Act’’) [15
U.S.C. 80a–1 et seq.], that set forth
disclosure requirements for funds and
other issuers.
On October 26, 2022, the Commission
adopted rule and form amendments that
require open-end management
investment companies (‘‘open-end
funds’’) to transmit concise and visually
engaging annual and semi-annual
reports to shareholders that highlight
key information that is particularly
important for retail investors to assess
and monitor their fund investments.1
The Commission also adopted
amendments to Form N–1A, Form N–
CSR, and rule 405 of Regulation S–T to
require certain new structured data
requirements for open-end funds.2
Specifically, the final rule and form
amendments require open-end funds to
tag their shareholder report contents
using Inline eXtensible Business
Reporting Language or ‘‘Inline XBRL.’’
These requirements will make open-end
funds’ shareholder report disclosure
more readily available and easily
accessible for aggregation, comparison,
filtering, and other analysis.
The Commission estimates that the
total current annual hour burden
associated with the Investment
Company Interactive Data requirements
is approximately 252,684 hours. Based
on estimates of 11,840 open-end funds,
each incurring 6 hours on average
annually to tag their shareholder reports
using Inline XBRL, the Commission
estimates that, in the aggregate, funds
will incur an additional 71,040 annual
burden hours. The Commission
therefore estimates that, in the
aggregate, Investment Company
Interactive Data requirements will result
in approximately 323,724 annual
burden hours (252,684 currentlyestimated annual burden hours + 71,040
additional estimated annual burden
hours).
The Commission estimates that the
current average cost burden associated
with the Investment Company
Interactive Data requirements is
approximately $15,449,450 per year.
Based on the estimate of 11,840 openend funds, each incurring
approximately $50 additional annual
external cost associated with tagging
their shareholder reports using Inline
XBRL, the Commission estimates that,
in the aggregate, funds will incur an
1 See Tailored Shareholder Reports for Mutual
Funds and Exchange-Traded Funds; Fee
Information in Investment Company
Advertisements, Investment Company Act Release
No. 34731 (Oct. 26, 2022) (‘‘Shareholder Reports
Adopting Release’’).
2 See Shareholder Reports Adopting Release at
section II.H.
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]]>Agencies
[Federal Register Volume 88, Number 57 (Friday, March 24, 2023)]
[Notices]
[Pages 17898-17900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06059]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97171; File No. SR-NSCC-2022-015]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Make Certain
Enhancements to the Gap Risk Measure and the VaR Charge
March 20, 2023.
I. Introduction
On December 2, 2022, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2022-015 (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
December 21, 2022,\3\ and the Commission has received one comment
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\ See Securities Exchange Act Release No. 96511 (Dec. 15,
2022), 87 FR 78157 (Dec. 21, 2022) (File No. SR-NSCC-2022-015)
(``Notice of Filing'').
\4\ Comments are available at https://www.sec.gov/comments/sr-nscc-2022-015/srnscc2022015.htm.
---------------------------------------------------------------------------
On January 24, 2023, pursuant to Section 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 Section 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. 96740 (Jan. 24, 2023),
88 FR 5953 (Jan. 30, 2023) (SR-NSCC-2022-015).
\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
[[Page 17899]]
of all members' margin constitutes the Clearing Fund, which NSCC would
access should a 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.
---------------------------------------------------------------------------
Each member's margin consists of a number of applicable components,
each of which is calculated to address specific risks faced by NSCC.\9\
Generally, the largest portion of a member's margin is the volatility
component, often referred to as the VaR Charge, which is designed to
reflect the amount of money that could be lost on a portfolio over a
given period within a 99th percentile level of confidence. Under NSCC's
current rules, one of the potential methods of calculating the VaR
Charge relies on a measure of gap risk.\10\ It does not accrue for all
portfolios, but instead only serves as the VaR Charge if it is the
largest of three potential calculations.\11\ The gap risk charge was
designed to address the risk presented by a portfolio that is more
susceptible to the effects of gap risk events, i.e., those portfolios
holding positions that represent more than a certain percent of the
entire portfolio's value, such that the event could impact the entire
portfolio's value.\12\
---------------------------------------------------------------------------
\9\ See Procedure XV of the Rules, supra note 8.
\10\ Gap risk events have been generally understood as
idiosyncratic issuer events (for example, earning reports,
management changes, merger announcements, insolvency, or other
unexpected, issuer-specific events) that cause a rapid shift in
price volatility levels.
\11\ Specifically, the VaR Charge is the greatest of (1) the
larger of two separate calculations based on different underlying
estimates that utilize a parametric VaR model, which addresses the
market risk of a member's portfolio (referred to as the core
parametric estimation), (2) the gap risk calculation, and (3) a
portfolio margin floor calculation based on the market values of the
long and short positions in the portfolio, which addresses risks
that might not be adequately addressed with the other volatility
component calculations.
\12\ See Section I(A)(1)(a)(i)II and I(A)(2)(a)(i)II of
Procedure XV of the Rules, supra note 8. See also Exchange Act
Release Nos. 82780 (Feb. 26, 2018), 83 FR 9035 (Mar. 2, 2018) (SR-
NSCC-2017-808); 82781 (Feb. 26, 2018), 83 FR 9042 (Mar. 2, 2018)
(SR-NSCC-2017-020) (``Initial Filing'').
---------------------------------------------------------------------------
To calculate the gap risk charge, NSCC multiplies the gross market
value of the largest non-index net unsettled position in the portfolio
by a gap risk haircut, which can be no less than 10 percent (``gap risk
haircut'').\13\ Currently, NSCC determines the gap risk haircut
empirically as no less than the larger of the 1st and 99th percentiles
of three-day returns of a set of CUSIPs that are subject to the VaR
Charge pursuant to the Rules, giving equal rank to each to determine
which has the highest movement over that three-day period. NSCC uses a
look-back period of not less than ten years plus a one-year stress
period, and if the one-year stress period overlaps with the look-back
period, only the non-overlapping period would be combined with the
look-back period. The resulting haircut is then rounded up to the
nearest whole percentage and applied to the largest non-index net
unsettled position to determine the gap risk charge.
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\13\ See Section I(A)(1)(a)(i)II and I(A)(2)(a)(i)II of
Procedure XV, supra note 8.
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As described in the Notice, NSCC proposes to modify Procedure XV
(Clearing Fund Formula and Other Matters) of NSCC's Rules & Procedures
(``Rules'') to make the following changes to the gap risk charge: (1)
make the gap risk charge an additive component of the member's total
VaR Charge when it is applicable, rather than being applied as the
applicable VaR Charge only when it is the largest of three separate
calculations, (2) adjusting the gap risk charge to be based on the two
largest positions in a portfolio, rather than based on the single
largest position, (3) changing the floor of the gap risk haircut from
10 percent to 5 percent for the largest position, adding a floor of the
gap risk haircut of 2.5 percent for the second largest position, and
providing that gap risk haircuts would be determined based on
backtesting and impact analysis, and (4) amending which ETF positions
are excluded from the gap risk charge to more precisely include ETFs
that are more prone to gap risk, i.e., are non-diversified.
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 \14\ 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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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\15\ 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,\16\ and the
rules thereunder, including the following provisions:
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\15\ Id.
\16\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Act,\17\ 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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\17\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(4)(i) of the Act, \18\ 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, 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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\18\ 17 CFR 240.17Ad-22(e)(4)(i).
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Rule 17Ad-22(e)(6)(i) of the Act,\19\ 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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\19\ 17 CFR 240.17Ad-22(e)(6)(i).
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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 Section 17A(b)(3)(F) of the Act,\20\ and
Rules 17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii) of the Act,\21\ or
any other
[[Page 17900]]
provision of the Act, or the rules and regulations thereunder.
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 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 April 14, 2023. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
April 28, 2023.
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,\22\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
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\22\ 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-2022-015 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-2022-015. 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-2022-015 and should be submitted on
or before April 14, 2023. Rebuttal comments should be submitted by
April 28, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(31).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06059 Filed 3-23-23; 8:45 am]
BILLING CODE 8011-01-P
