Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update the Clearing Agency Securities Valuation Framework, 23482-23485 [2023-07961]
Download as PDF
<![CDATA[
23482
Federal Register / Vol. 88, No. 73 / Monday, April 17, 2023 / Notices
All submissions should refer to File
Number SR–FICC–2023–004. 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 FICC 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–FICC–
2023–004 and should be submitted on
or before May 8, 2023].
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–07962 Filed 4–14–23; 8:45 am]
lotter on DSK11XQN23PROD with NOTICES1
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
and C below, of the most significant
aspects of such statements.
[Release No. 34–97280; File No. SR–NSCC–
2023–003]
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Update the Clearing
Agency Securities Valuation
Framework
April 11, 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 March 28,
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)(6) 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 consists of
amendments to the Clearing Agency
Securities Valuation Framework
(‘‘Framework’’) of NSCC and its
affiliates, Fixed Income Clearing
Corporation (‘‘FICC,’’ and together with
NSCC, the central counterparties or
‘‘CCPs’’) and The Depository Trust
Company (‘‘DTC,’’ and together with the
CCPs, the ‘‘Clearing Agencies’’), as
described below. The proposed changes
to the Framework would apply to DTC,
NSCC, and both of FICC’s divisions, the
Government Securities Division and the
Mortgage-Backed Securities Division.
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,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
17 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:57 Apr 14, 2023
Jkt 259001
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
1. Purpose
The proposed rule change consists of
modifications to the Framework to
clarify the Clearing Agencies’ practices
concerning the valuation of (i) securities
eligible for clearance and settlement
processing by the applicable Clearing
Agency and (ii) with respect to the
CCPs, eligible securities in their
respective Clearing Funds (each, a
‘‘CUSIP’’). Specifically, the proposed
rule change would clarify certain
aspects of the Framework concerning (i)
the selection of third-party pricing
vendors (‘‘Pricing Vendors’’); (ii) the
monitoring and review of Pricing
Vendor data; (iii) the processing and use
of Pricing Vendor data; and (iv) other
non-substantive aspects of the
Framework. The proposed changes are
discussed in detail below.
(i) Background
The Clearing Agencies maintain a
Framework that sets forth the manner in
which each of the Clearing Agencies
identifies, measures, monitors, and
manages the risks related to the pricing
of securities processed or otherwise
held by such Clearing Agencies,
including (i) CUSIPs eligible for
clearance and settlement processing by
the applicable Clearing Agency and (ii)
with respect to the CCPs, eligible
CUSIPs in their respective Clearing
Funds.5 The Framework describes,
among other things, the Clearing
Agencies’ use of Pricing Vendors and
the monitoring, reviewing and
processing of pricing data for end-of-day
and intraday pricing.
The Framework is owned and
managed by an officer within the DTCC
Securities Valuation team, which is part
of the Group Chief Risk Office of DTCC,
on behalf of the Clearing Agencies.6 The
processes and systems described in the
Framework, and any policies,
procedures, or other documents created
to support those processes, support the
Clearing Agencies’ compliance with the
5 See Securities Exchange Act Release No. 82006
(November 2, 2017), 82 FR 51892 (November 8,
2017) (SR–DTC–2017–016; SR–NSCC–2017–016;
SR–FICC–2017–020).
6 The parent company of the Clearing Agencies is
The Depository Trust & Clearing Corporation
(‘‘DTCC’’). DTCC operates on a shared services
model with respect to the Clearing Agencies. Most
corporate functions are established and managed on
an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that
provides a relevant service to a Clearing Agency.
E:\FR\FM\17APN1.SGM
17APN1
Federal Register / Vol. 88, No. 73 / Monday, April 17, 2023 / Notices
requirements of Rule 17Ad–22(e)(4)(i) 7
and, with respect to the CCPs, Rule
17Ad–22(e)(6)(iv) 8 under the Act.
lotter on DSK11XQN23PROD with NOTICES1
(ii) Proposed Rule Change
The Clearing Agencies propose to
revise the Framework to improve the
accuracy and clarity of the descriptions
of the Clearing Agencies’ practices
concerning securities valuation.
Specifically, the Clearing Agencies
propose to revise the Framework to: (i)
clarify certain aspects of the Pricing
Vendor selection process; (ii) clarify the
description of the Clearing Agencies’
practices for monitoring and reviewing
Pricing Vendor data; (iii) clarify the
description of the Clearing Agencies’
processes concerning the use of end-of
day and intraday CUSIP pricing data;
and (iv) make other non-substantive
clarifying and clean-up changes to the
Framework. Each of these categories of
changes are discussed in further detail
below.
Selection of Pricing Vendors
Pursuant to the Framework, the
Clearing Agencies select Pricing
Vendors based on a review of their
services, which includes a review of
their securities coverage, price quality
checks, and other due diligence prior to
engagement. Once a Pricing Vendor is
engaged, the Securities Valuation team
assesses the reliability of each Pricing
Vendor at least annually.
The Clearing Agencies propose minor
modifications to the Framework
concerning the Pricing Vendor selection
process. The Clearing Agencies propose
to revise the Framework to state that
Pricing Vendors are selected based on a
‘‘service review’’ as opposed to a
‘‘review of their service.’’ The proposed
rule change is not intended to reflect a
material change to the Pricing Vendor
selection process, but rather, would
more accurately reflect the scope of any
potential review performed for Pricing
Vendors, which may include factors
beyond just the specific service
provided (e.g., it may include a review
of certain attributes of the Pricing
Vendor itself).
The Clearing Agencies also propose to
revise the Framework to clarify that
when reviewing the reliability of a
Pricing Vendor, the Clearing Agencies
would consider whether the Pricing
Vendor actually provides accurate and
timely pricing data as opposed to
whether the Pricing Vendor is ‘‘able to
provide’’ accurate and timely data. The
Clearing Agencies believe the proposed
rule change would more clearly and
7 17
8 17
CFR 240.17Ad–22(e)(4)(i).
CFR 240.17Ad–22(e)(6)(iv).
VerDate Sep<11>2014
16:57 Apr 14, 2023
Jkt 259001
accurately reflect the expectation that
the Pricing Vendor has actually
provided accurate and timely pricing
data and thereby further ensure that the
Clearing Agencies’ policies and
procedures are reasonably designed to
use reliable sources of timely price data.
Monitoring and Review of Pricing
Vendor Data
Pursuant to the Framework, the
Securities Valuation team monitors and
reviews each Pricing Vendor’s pricing at
least once each business day. This
includes a review of whether any
CUSIP’s price has remained unchanged
for an extended period of time, whether
a CUSIP has been dropped from the
Pricing Vendor’s file and whether other
circumstances exist that may call into
question the reliability of any CUSIP’s
price.
The Clearing Agencies propose to
make certain non-substantive clarifying
and grammatical corrections to the
Framework concerning the monitoring
of Pricing Vendors. The proposed
changes would clarify that the scope of
daily monitoring and review includes a
determination of whether (i) an
‘‘eligible’’ CUSIP’s price has remained
unchanged for an extended period (as
opposed to inferring ‘‘all CUSIPS’’ for
which a vendor may provide pricing in
a given file) and (ii) other ‘‘relevant’’
circumstances exist that ‘‘could’’ call
into question the reliability of a CUSIP’s
price. These proposed changes are
intended to enhance the clarity and
drafting of the Framework and are not
intended to result in a material change
to the monitoring and review processes.
Processing and Use of Pricing Vendor
Data
The Framework currently provides
that the Securities Valuation team
assigns each CUSIP a primary source
Pricing Vendor and a secondary source
Pricing Vendor and that, in the event
that the primary Pricing Vendor
becomes unavailable, unreliable, or
otherwise unusable with respect to a
CUSIP, the secondary Pricing Vendor
will be designated as the replacement
for the primary Pricing Vendor with
respect to such CUSIP. The Framework
also describes the processing of end-ofday and intraday pricing from Pricing
Vendors. Specifically, the Framework
provides that each CUSIP’s price is date
stamped (and in the case of intraday
pricing, time-stamped) and identified
with its Pricing Vendor source, and in
the event that both primary Pricing
Vendor and secondary Pricing Vendor
become unavailable, unreliable, or
otherwise unusable with respect to a
CUSIP, the Securities Valuation team
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
23483
assigns such CUSIP its last available
price.
Pricing Vendor Assignments
The Clearing Agencies propose to
revise the Framework to remove the
statement that the Securities Valuation
team assigns each CUSIP a primary and
secondary source Pricing Vendor and
remove corresponding references to
‘‘Primary Pricing Vendor’’ and
‘‘Secondary Pricing Vendor’’ throughout
the Framework. The Clearing Agencies
maintain relationships with more than
one Pricing Vendor for the majority of
their products; however, this may not be
the case in all circumstances. For
example, the Clearing Agencies may not
maintain multiple Pricing Vendors for
products that are cleared based on the
pricing of another similar product for
which they also maintain Pricing
Vendor relationships. The Clearing
Agencies also may not perform intra-day
pricing for certain asset classes that are
not subject to clearance and netting
services. The Clearing Agencies
therefore believe the proposed change
would more accurately reflect the
Clearing Agencies’ practices for
maintaining Pricing Vendors. The
proposed changes would further clarify
that the Clearing Agencies may not
maintain ‘‘primary’’ and ‘‘secondary’’
vendors for all CUSIPs, and that the
Clearing Agencies may use whichever
Pricing Vendor proves to be available
and reliable for a CUSIP at a given time
without relying on such ‘‘primary’’ and
‘‘secondary’’ designations. The
proposed changes would also provide
additional clarity and flexibility for the
Clearing Agencies to maintain more
than two Pricing Vendors for a product
area/CUSIP or, where appropriate,
reduce the number of Pricing Vendor
relationships it may maintain for any
given product area or CUSIP, as
governed by applicable Securities
Valuation policies and procedures.
The Clearing Agencies would also
revise the Framework to specify that in
the event a Pricing Vendor becomes
unavailable, unreliable, or otherwise
unusable with respect to a CUSIP, backup pricing would be utilized to provide
accurate and timely pricing data with
respect to such CUSIP. The proposed
change would more accurately reflect
that backup pricing may be sourced
from an alternative Pricing Vendor,
where applicable, or may also be
determined, in the absence of an
alternative Pricing Vendor, pursuant to
the Clearing Agencies’ applicable
policies and procedures to ensure that
timely pricing data is applied.
E:\FR\FM\17APN1.SGM
17APN1
23484
Federal Register / Vol. 88, No. 73 / Monday, April 17, 2023 / Notices
End-of-Day and Intraday Price
Processing
The Clearing Agencies also propose to
clarify their processes for recording endof-day and intraday pricing. The
Clearing Agencies would revise the
Framework to clarify that, with respect
to end-of-day and intraday pricing, if
Pricing Vendor data is unavailable,
unreliable, or otherwise unusable for a
CUSIP, the Securities Valuation team
does not ‘‘assign’’ the last available
price to the CUSIP, but rather, the last
available price is recorded in the
Clearing Agencies’ pricing database,
which is consumable for applicable
stakeholders. The proposed rule change
would also further clarify that this
process would apply if pricing data
were unavailable, unreliable, or
otherwise unusable from ‘‘all’’ Pricing
Vendors, and not just the primary or
secondary Pricing Vendors, for the
reasons discussed above. The Clearing
Agencies believe the proposed changes
concerning end-of-day and intraday
price processing would improve the
accuracy and clarity of the Framework.
lotter on DSK11XQN23PROD with NOTICES1
Other Non-Substantive Clean-Up
Changes
Finally, the Clearing Agencies
propose to make several non-substantive
changes to the Framework. For example,
the Clearing Agencies would revise a
statement that the Securities Valuation
team values each ‘‘applicable’’ CUSIP to
say each ‘‘eligible’’ CUSIP to align this
statement more clearly with the scope of
the policy (i.e., those securities eligible
for clearance and settlement or for each
CCPs’ clearing fund). The Clearing
Agencies would also revise the
definition of ‘‘Pricing Vendors’’ to
define them as third-party pricing
‘‘suppliers’’ as opposed to ‘‘vendors’’ to
eliminate redundancy in the definition
and align with other language used in
the Framework concerning their role in
supplying prices. Additionally, the
Clearing Agencies would make several
non-substantive, grammatical, and
punctuation-related clean-up changes
throughout the Framework (including
revisions to a footnote in the policy
regarding the possibility that certain
CUSIPs might not be priced as
expected). The proposed changes are
not intended to change the meaning or
purpose of the Framework but rather
improve the drafting and clarity of the
Framework.
applicable to a registered clearing
agency. In particular, the Clearing
Agencies believe the proposed rule
change is consistent with Section
17A(b)(3)(F) of the Act 9 and Rules
17Ad–22(e)(4)(i) 10 and (e)(6)(iv) 11
under the Act, for the reasons set forth
below.
Section 17A(b)(3)(F) of the Act 12
requires, in part, that the rules of a
clearing agency be designed to promote
the prompt and accurate clearance and
settlement of securities transactions and
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible. The proposed
rule change would improve descriptions
of the Clearing Agencies’ processes for
selecting Pricing Vendors, reviewing the
reliability of Pricing Vendors,
monitoring and reviewing each Pricing
Vendor’s pricing data, and the
processing and use of Pricing Vendor
data for securities valuation purposes.
The proposed rule change is designed to
improve the accuracy and clarity of the
Framework document. The Framework
and the policies and procedures that
support the Framework help assure that
each Clearing Agency is using reliable
sources of timely price data for
collateral valuation, risk management
and settlement purposes. Since margin
and collateral play key roles in the
applicable Clearing Agency’s risk
management process, having accurate
margin system and collateral valuation
facilitates the Clearing Agencies’ ability
to continue the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds which are in
their custody or control or for which
they are responsible. The Clearing
Agencies therefore believe that
enhancing the quality and accuracy of
the Framework is consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.
Rule 17Ad–22(e)(4)(i) 13 under the Act
requires that each 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 by maintaining sufficient
financial resources to cover its credit
exposure to each participant fully with
a high degree of confidence. The
2. Statutory Basis
The Clearing Agencies believe that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
VerDate Sep<11>2014
16:57 Apr 14, 2023
Jkt 259001
9 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4)(i).
11 17 CFR 240.17Ad–22(e)(6)(iv).
12 15 U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(e)(4)(i).
10 17
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
Framework describes how the Clearing
Agencies identify, measure, monitor,
and manage the risks related to the
pricing of securities processed or
otherwise held by the Clearing
Agencies. The processes, systems, and
controls used by the Clearing Agencies
to identify, measure, monitor, and
manage such risks, as described in the
Framework, and the policies and
procedures that support these activities,
help assure that each Clearing Agency is
using (i) reliable sources of timely price
data when pricing securities processed
or otherwise held by the applicable
Clearing Agency and (ii) procedures and
sound valuation models when pricing
data are not readily available or reliable.
The proposed rule change would
enhance the Framework by providing
additional clarity and accuracy
concerning the Clearing Agencies’
securities valuation practices, and
specifically, its processes for selecting
Pricing Vendors, reviewing the
reliability of Pricing Vendors,
monitoring and reviewing each Pricing
Vendor’s pricing data, and the
processing and use of Pricing Vendor
data. By appropriately pricing
securities, the Clearing Agencies can
more accurately calculate the value of
the securities that the Clearing Agencies
monitor or hold for risk management
purposes. The proposed changes are
therefore intended to facilitate the
maintenance of policies and procedures
that are reasonably designed to
effectively identify, measure, monitor
and manage the Clearing Agencies’
credit exposures to participants and
those arising from its payment, clearing,
and settlement processes and determine
the amount of financial resources
required to cover its credit exposure to
each participant with a high degree of
confidence in accordance with the
requirements of Rule 17Ad–22(e)(4)(i).
Rule 17Ad–22(e)(6)(iv) 14 under the
Act requires each covered clearing
agency that is a CCP to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, uses reliable
sources of timely price data and uses
procedures and sound valuation models
for addressing circumstances in which
pricing data are not readily available or
reliable. The Framework describes how
the CCPs identify, measure, monitor,
and manage the risks related to the
pricing of securities processed or
otherwise held by the CCPs. As noted
above, the proposed rule change would
14 17
E:\FR\FM\17APN1.SGM
CFR 240.17Ad–22(e)(6)(iv).
17APN1
Federal Register / Vol. 88, No. 73 / Monday, April 17, 2023 / Notices
enhance the Framework by providing
additional clarity and accuracy
concerning the Clearing Agencies’
securities valuation practices, and
specifically, its processes for selecting
Pricing Vendors, reviewing the
reliability of Pricing Vendors,
monitoring and reviewing each Pricing
Vendor’s pricing data, and the
processing and use of Pricing Vendor
data. The processes, systems, and
controls used by the CCPs to identify,
measure, monitor, and manage such
risks, as described in the Framework,
and the policies and procedures that
support these activities, help assure that
each CCP is using reliable sources of
timely price data as well as procedures
and sound valuation models when
pricing data are not readily available or
reliable. The Clearing Agencies
therefore believe the proposed changes
to the Framework are consistent with
the requirements of Rule 17Ad–
22(e)(6)(iv).
lotter on DSK11XQN23PROD with NOTICES1
(B) Clearing Agency’s Statement on
Burden on Competition
The Clearing Agencies do not believe
that the proposed rule change would
have any impact, or impose any burden,
on competition. The proposed changes
would enhance the Framework by
providing additional clarity and
accuracy concerning the Clearing
Agencies’ securities valuation processes.
The Framework itself, and the proposed
rule changes described herein, would
not advantage or disadvantage any
particular participant or user of the
Clearing Agencies’ services or unfairly
inhibit access to the Clearing Agencies’
services. The Clearing Agencies
therefore do not believe that the
proposed rule change would have any
impact, or impose any burden, on
competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
The Clearing Agencies have 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
VerDate Sep<11>2014
16:57 Apr 14, 2023
Jkt 259001
name, email address, and any other
identifying information.
All prospective commenters should
follow the Commission’s instructions on
how to submit comments, available at
https://www.sec.gov/regulatory-actions/
how-to-submit-comments. General
questions regarding the rule filing
process or logistical questions regarding
this filing should be directed to the
Main Office of the Commission’s
Division of Trading and Markets at
tradingandmarkets@sec.gov or 202–
551–5777.
The Clearing Agencies reserve the
right not to respond to any comments
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) of the
Act 15 and Rule 19b–4(f)(6)
thereunder.16
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSCC–2023–003 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
15 15
16 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00096
Fmt 4703
Sfmt 4703
23485
All submissions should refer to File
Number SR–NSCC–2023–003. 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–
2023–003 and should be submitted on
or before May 8, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–07961 Filed 4–14–23; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #17866 and #17867;
Tennessee Disaster Number TN–00143]
Presidential Declaration of a Major
Disaster for the State of Tennessee
Small Business Administration.
Notice.
AGENCY:
ACTION:
This is a Notice of the
Presidential declaration of a major
disaster for the State of Tennessee
(FEMA–4701–DR), dated 04/07/2023.
Incident: Severe Storms, Straight-line
Winds, and Tornadoes.
SUMMARY:
17 17
E:\FR\FM\17APN1.SGM
CFR 200.30–3(a)(12).
17APN1
]]>Agencies
[Federal Register Volume 88, Number 73 (Monday, April 17, 2023)]
[Notices]
[Pages 23482-23485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07961]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97280; File No. SR-NSCC-2023-003]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Update the Clearing Agency Securities Valuation
Framework
April 11, 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 March 28, 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)(6) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to the Clearing
Agency Securities Valuation Framework (``Framework'') of NSCC and its
affiliates, Fixed Income Clearing Corporation (``FICC,'' and together
with NSCC, the central counterparties or ``CCPs'') and The Depository
Trust Company (``DTC,'' and together with the CCPs, the ``Clearing
Agencies''), as described below. The proposed changes to the Framework
would apply to DTC, NSCC, and both of FICC's divisions, the Government
Securities Division and the Mortgage-Backed Securities Division.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The proposed rule change consists of modifications to the Framework
to clarify the Clearing Agencies' practices concerning the valuation of
(i) securities eligible for clearance and settlement processing by the
applicable Clearing Agency and (ii) with respect to the CCPs, eligible
securities in their respective Clearing Funds (each, a ``CUSIP'').
Specifically, the proposed rule change would clarify certain aspects of
the Framework concerning (i) the selection of third-party pricing
vendors (``Pricing Vendors''); (ii) the monitoring and review of
Pricing Vendor data; (iii) the processing and use of Pricing Vendor
data; and (iv) other non-substantive aspects of the Framework. The
proposed changes are discussed in detail below.
(i) Background
The Clearing Agencies maintain a Framework that sets forth the
manner in which each of the Clearing Agencies identifies, measures,
monitors, and manages the risks related to the pricing of securities
processed or otherwise held by such Clearing Agencies, including (i)
CUSIPs eligible for clearance and settlement processing by the
applicable Clearing Agency and (ii) with respect to the CCPs, eligible
CUSIPs in their respective Clearing Funds.\5\ The Framework describes,
among other things, the Clearing Agencies' use of Pricing Vendors and
the monitoring, reviewing and processing of pricing data for end-of-day
and intraday pricing.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 82006 (November 2,
2017), 82 FR 51892 (November 8, 2017) (SR-DTC-2017-016; SR-NSCC-
2017-016; SR-FICC-2017-020).
---------------------------------------------------------------------------
The Framework is owned and managed by an officer within the DTCC
Securities Valuation team, which is part of the Group Chief Risk Office
of DTCC, on behalf of the Clearing Agencies.\6\ The processes and
systems described in the Framework, and any policies, procedures, or
other documents created to support those processes, support the
Clearing Agencies' compliance with the
[[Page 23483]]
requirements of Rule 17Ad-22(e)(4)(i) \7\ and, with respect to the
CCPs, Rule 17Ad-22(e)(6)(iv) \8\ under the Act.
---------------------------------------------------------------------------
\6\ The parent company of the Clearing Agencies is The
Depository Trust & Clearing Corporation (``DTCC''). DTCC operates on
a shared services model with respect to the Clearing Agencies. Most
corporate functions are established and managed on an enterprise-
wide basis pursuant to intercompany agreements under which it is
generally DTCC that provides a relevant service to a Clearing
Agency.
\7\ 17 CFR 240.17Ad-22(e)(4)(i).
\8\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
(ii) Proposed Rule Change
The Clearing Agencies propose to revise the Framework to improve
the accuracy and clarity of the descriptions of the Clearing Agencies'
practices concerning securities valuation. Specifically, the Clearing
Agencies propose to revise the Framework to: (i) clarify certain
aspects of the Pricing Vendor selection process; (ii) clarify the
description of the Clearing Agencies' practices for monitoring and
reviewing Pricing Vendor data; (iii) clarify the description of the
Clearing Agencies' processes concerning the use of end-of day and
intraday CUSIP pricing data; and (iv) make other non-substantive
clarifying and clean-up changes to the Framework. Each of these
categories of changes are discussed in further detail below.
Selection of Pricing Vendors
Pursuant to the Framework, the Clearing Agencies select Pricing
Vendors based on a review of their services, which includes a review of
their securities coverage, price quality checks, and other due
diligence prior to engagement. Once a Pricing Vendor is engaged, the
Securities Valuation team assesses the reliability of each Pricing
Vendor at least annually.
The Clearing Agencies propose minor modifications to the Framework
concerning the Pricing Vendor selection process. The Clearing Agencies
propose to revise the Framework to state that Pricing Vendors are
selected based on a ``service review'' as opposed to a ``review of
their service.'' The proposed rule change is not intended to reflect a
material change to the Pricing Vendor selection process, but rather,
would more accurately reflect the scope of any potential review
performed for Pricing Vendors, which may include factors beyond just
the specific service provided (e.g., it may include a review of certain
attributes of the Pricing Vendor itself).
The Clearing Agencies also propose to revise the Framework to
clarify that when reviewing the reliability of a Pricing Vendor, the
Clearing Agencies would consider whether the Pricing Vendor actually
provides accurate and timely pricing data as opposed to whether the
Pricing Vendor is ``able to provide'' accurate and timely data. The
Clearing Agencies believe the proposed rule change would more clearly
and accurately reflect the expectation that the Pricing Vendor has
actually provided accurate and timely pricing data and thereby further
ensure that the Clearing Agencies' policies and procedures are
reasonably designed to use reliable sources of timely price data.
Monitoring and Review of Pricing Vendor Data
Pursuant to the Framework, the Securities Valuation team monitors
and reviews each Pricing Vendor's pricing at least once each business
day. This includes a review of whether any CUSIP's price has remained
unchanged for an extended period of time, whether a CUSIP has been
dropped from the Pricing Vendor's file and whether other circumstances
exist that may call into question the reliability of any CUSIP's price.
The Clearing Agencies propose to make certain non-substantive
clarifying and grammatical corrections to the Framework concerning the
monitoring of Pricing Vendors. The proposed changes would clarify that
the scope of daily monitoring and review includes a determination of
whether (i) an ``eligible'' CUSIP's price has remained unchanged for an
extended period (as opposed to inferring ``all CUSIPS'' for which a
vendor may provide pricing in a given file) and (ii) other ``relevant''
circumstances exist that ``could'' call into question the reliability
of a CUSIP's price. These proposed changes are intended to enhance the
clarity and drafting of the Framework and are not intended to result in
a material change to the monitoring and review processes.
Processing and Use of Pricing Vendor Data
The Framework currently provides that the Securities Valuation team
assigns each CUSIP a primary source Pricing Vendor and a secondary
source Pricing Vendor and that, in the event that the primary Pricing
Vendor becomes unavailable, unreliable, or otherwise unusable with
respect to a CUSIP, the secondary Pricing Vendor will be designated as
the replacement for the primary Pricing Vendor with respect to such
CUSIP. The Framework also describes the processing of end-of-day and
intraday pricing from Pricing Vendors. Specifically, the Framework
provides that each CUSIP's price is date stamped (and in the case of
intraday pricing, time-stamped) and identified with its Pricing Vendor
source, and in the event that both primary Pricing Vendor and secondary
Pricing Vendor become unavailable, unreliable, or otherwise unusable
with respect to a CUSIP, the Securities Valuation team assigns such
CUSIP its last available price.
Pricing Vendor Assignments
The Clearing Agencies propose to revise the Framework to remove the
statement that the Securities Valuation team assigns each CUSIP a
primary and secondary source Pricing Vendor and remove corresponding
references to ``Primary Pricing Vendor'' and ``Secondary Pricing
Vendor'' throughout the Framework. The Clearing Agencies maintain
relationships with more than one Pricing Vendor for the majority of
their products; however, this may not be the case in all circumstances.
For example, the Clearing Agencies may not maintain multiple Pricing
Vendors for products that are cleared based on the pricing of another
similar product for which they also maintain Pricing Vendor
relationships. The Clearing Agencies also may not perform intra-day
pricing for certain asset classes that are not subject to clearance and
netting services. The Clearing Agencies therefore believe the proposed
change would more accurately reflect the Clearing Agencies' practices
for maintaining Pricing Vendors. The proposed changes would further
clarify that the Clearing Agencies may not maintain ``primary'' and
``secondary'' vendors for all CUSIPs, and that the Clearing Agencies
may use whichever Pricing Vendor proves to be available and reliable
for a CUSIP at a given time without relying on such ``primary'' and
``secondary'' designations. The proposed changes would also provide
additional clarity and flexibility for the Clearing Agencies to
maintain more than two Pricing Vendors for a product area/CUSIP or,
where appropriate, reduce the number of Pricing Vendor relationships it
may maintain for any given product area or CUSIP, as governed by
applicable Securities Valuation policies and procedures.
The Clearing Agencies would also revise the Framework to specify
that in the event a Pricing Vendor becomes unavailable, unreliable, or
otherwise unusable with respect to a CUSIP, back-up pricing would be
utilized to provide accurate and timely pricing data with respect to
such CUSIP. The proposed change would more accurately reflect that
backup pricing may be sourced from an alternative Pricing Vendor, where
applicable, or may also be determined, in the absence of an alternative
Pricing Vendor, pursuant to the Clearing Agencies' applicable policies
and procedures to ensure that timely pricing data is applied.
[[Page 23484]]
End-of-Day and Intraday Price Processing
The Clearing Agencies also propose to clarify their processes for
recording end-of-day and intraday pricing. The Clearing Agencies would
revise the Framework to clarify that, with respect to end-of-day and
intraday pricing, if Pricing Vendor data is unavailable, unreliable, or
otherwise unusable for a CUSIP, the Securities Valuation team does not
``assign'' the last available price to the CUSIP, but rather, the last
available price is recorded in the Clearing Agencies' pricing database,
which is consumable for applicable stakeholders. The proposed rule
change would also further clarify that this process would apply if
pricing data were unavailable, unreliable, or otherwise unusable from
``all'' Pricing Vendors, and not just the primary or secondary Pricing
Vendors, for the reasons discussed above. The Clearing Agencies believe
the proposed changes concerning end-of-day and intraday price
processing would improve the accuracy and clarity of the Framework.
Other Non-Substantive Clean-Up Changes
Finally, the Clearing Agencies propose to make several non-
substantive changes to the Framework. For example, the Clearing
Agencies would revise a statement that the Securities Valuation team
values each ``applicable'' CUSIP to say each ``eligible'' CUSIP to
align this statement more clearly with the scope of the policy (i.e.,
those securities eligible for clearance and settlement or for each
CCPs' clearing fund). The Clearing Agencies would also revise the
definition of ``Pricing Vendors'' to define them as third-party pricing
``suppliers'' as opposed to ``vendors'' to eliminate redundancy in the
definition and align with other language used in the Framework
concerning their role in supplying prices. Additionally, the Clearing
Agencies would make several non-substantive, grammatical, and
punctuation-related clean-up changes throughout the Framework
(including revisions to a footnote in the policy regarding the
possibility that certain CUSIPs might not be priced as expected). The
proposed changes are not intended to change the meaning or purpose of
the Framework but rather improve the drafting and clarity of the
Framework.
2. Statutory Basis
The Clearing Agencies believe that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a registered clearing agency. In
particular, the Clearing Agencies believe the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act \9\ and Rules 17Ad-
22(e)(4)(i) \10\ and (e)(6)(iv) \11\ under the Act, for the reasons set
forth below.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ 17 CFR 240.17Ad-22(e)(4)(i).
\11\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act \12\ requires, in part, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible. The proposed rule change would improve descriptions of the
Clearing Agencies' processes for selecting Pricing Vendors, reviewing
the reliability of Pricing Vendors, monitoring and reviewing each
Pricing Vendor's pricing data, and the processing and use of Pricing
Vendor data for securities valuation purposes. The proposed rule change
is designed to improve the accuracy and clarity of the Framework
document. The Framework and the policies and procedures that support
the Framework help assure that each Clearing Agency is using reliable
sources of timely price data for collateral valuation, risk management
and settlement purposes. Since margin and collateral play key roles in
the applicable Clearing Agency's risk management process, having
accurate margin system and collateral valuation facilitates the
Clearing Agencies' ability to continue the prompt and accurate
clearance and settlement of securities transactions and assure the
safeguarding of securities and funds which are in their custody or
control or for which they are responsible. The Clearing Agencies
therefore believe that enhancing the quality and accuracy of the
Framework is consistent with the requirements of Section 17A(b)(3)(F)
of the Act.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(i) \13\ under the Act requires that each 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 by
maintaining sufficient financial resources to cover its credit exposure
to each participant fully with a high degree of confidence. The
Framework describes how the Clearing Agencies identify, measure,
monitor, and manage the risks related to the pricing of securities
processed or otherwise held by the Clearing Agencies. The processes,
systems, and controls used by the Clearing Agencies to identify,
measure, monitor, and manage such risks, as described in the Framework,
and the policies and procedures that support these activities, help
assure that each Clearing Agency is using (i) reliable sources of
timely price data when pricing securities processed or otherwise held
by the applicable Clearing Agency and (ii) procedures and sound
valuation models when pricing data are not readily available or
reliable. The proposed rule change would enhance the Framework by
providing additional clarity and accuracy concerning the Clearing
Agencies' securities valuation practices, and specifically, its
processes for selecting Pricing Vendors, reviewing the reliability of
Pricing Vendors, monitoring and reviewing each Pricing Vendor's pricing
data, and the processing and use of Pricing Vendor data. By
appropriately pricing securities, the Clearing Agencies can more
accurately calculate the value of the securities that the Clearing
Agencies monitor or hold for risk management purposes. The proposed
changes are therefore intended to facilitate the maintenance of
policies and procedures that are reasonably designed to effectively
identify, measure, monitor and manage the Clearing Agencies' credit
exposures to participants and those arising from its payment, clearing,
and settlement processes and determine the amount of financial
resources required to cover its credit exposure to each participant
with a high degree of confidence in accordance with the requirements of
Rule 17Ad-22(e)(4)(i).
---------------------------------------------------------------------------
\13\ 17 CFR 240.17Ad-22(e)(4)(i).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(6)(iv) \14\ under the Act requires each covered
clearing agency that is a CCP to establish, implement, maintain and
enforce written policies and procedures reasonably designed to cover
its credit exposures to its participants by establishing a risk-based
margin system that, at a minimum, uses reliable sources of timely price
data and uses procedures and sound valuation models for addressing
circumstances in which pricing data are not readily available or
reliable. The Framework describes how the CCPs identify, measure,
monitor, and manage the risks related to the pricing of securities
processed or otherwise held by the CCPs. As noted above, the proposed
rule change would
[[Page 23485]]
enhance the Framework by providing additional clarity and accuracy
concerning the Clearing Agencies' securities valuation practices, and
specifically, its processes for selecting Pricing Vendors, reviewing
the reliability of Pricing Vendors, monitoring and reviewing each
Pricing Vendor's pricing data, and the processing and use of Pricing
Vendor data. The processes, systems, and controls used by the CCPs to
identify, measure, monitor, and manage such risks, as described in the
Framework, and the policies and procedures that support these
activities, help assure that each CCP is using reliable sources of
timely price data as well as procedures and sound valuation models when
pricing data are not readily available or reliable. The Clearing
Agencies therefore believe the proposed changes to the Framework are
consistent with the requirements of Rule 17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
The Clearing Agencies do not believe that the proposed rule change
would have any impact, or impose any burden, on competition. The
proposed changes would enhance the Framework by providing additional
clarity and accuracy concerning the Clearing Agencies' securities
valuation processes. The Framework itself, and the proposed rule
changes described herein, would not advantage or disadvantage any
particular participant or user of the Clearing Agencies' services or
unfairly inhibit access to the Clearing Agencies' services. The
Clearing Agencies therefore do not believe that the proposed rule
change would have any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
The Clearing Agencies have not received or solicited any written
comments relating to this proposal. If any written comments are
received, they will be publicly filed as an Exhibit 2 to this filing,
as required by Form 19b-4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
[email protected] or 202-551-5777.
The Clearing Agencies reserve the right not to respond to any
comments 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) of the Act \15\ and
Rule 19b-4(f)(6) thereunder.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NSCC-2023-003 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-2023-003. 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-2023-003 and should be submitted on
or before May 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-07961 Filed 4-14-23; 8:45 am]
BILLING CODE 8011-01-P
