Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Partial Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Partial Amendment No. 1, Concerning Modifications to the Amended and Restated Stock Options and Futures Settlement Agreement Between The Options Clearing Corporation and the National Securities Clearing Corporation, 80790-80792 [2023-25544]
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80790
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Notices
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–GEMX–2023–14 and should be
submitted on or before December 11,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–25541 Filed 11–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98930; File No. SR–NSCC–
2023–007]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of Partial
Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by Partial
Amendment No. 1, Concerning
Modifications to the Amended and
Restated Stock Options and Futures
Settlement Agreement Between The
Options Clearing Corporation and the
National Securities Clearing
Corporation
November 14, 2023.
ddrumheller on DSK120RN23PROD with NOTICES1
I. Introduction
On August 10, 2023, the National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change SR–NSCC–
2023–007 (‘‘Proposed Rule Change’’)
pursuant to section 19(b) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4 2
thereunder to modify the Amended and
Restated Stock Options and Futures
Settlement Agreement dated August 5,
2017, between OCC and National
Securities Clearing Corporation, NSCC’s
related rules.3 The Proposed Rule
Change was published for public
comment in the Federal Register on
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Notice of Filing infra note 4, at 88 FR 59976.
1 15
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17:42 Nov 17, 2023
Jkt 262001
August 30, 2023.4 The Commission has
received no comments regarding the
Proposed Rule Change.
On September 25, 2023, pursuant to
section 19(b)(2) of the Exchange 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
On November 8, 2023, NSCC filed a
Partial Amendment No. 1 to the
Proposed Rule Change.7 The
Commission is publishing this notice to
solicit comments on Partial Amendment
No. 1 from interested persons and is
instituting proceedings, pursuant to
section 19(b)(2)(B) of the Exchange Act,8
to determine whether to approve or
disapprove the proposed rule change, as
modified by the Partial Amendment No.
1 (hereinafter defined as ‘‘Proposed Rule
Change’’).
II. Summary of the Proposed Rule
Change
NSCC is a clearing agency that
provides clearing, settlement, risk
management, and central counterparty
services for trades involving equity
securities. OCC is the sole clearing
agency for standardized equity options
listed on national securities exchanges
registered with the Commission,
including options that contemplate the
physical delivery of equities cleared by
NSCC in exchange for cash (‘‘physically
settled’’ options).9 OCC also clears
certain futures contracts that, at
maturity, require the delivery of equity
securities cleared by NSCC in exchange
for cash. As a result, the exercise and
4 Securities Exchange Act Release No. 98213
(Aug. 24, 2023), 88 FR 59968 (Aug. 30, 2023) (File
No. SR–NSCC–2023–007) (‘‘Notice of Filing’’).
5 15 U.S.C. 78s(b)(2).
6 Securities Exchange Act Release No. 98508 (Sep.
25, 2023), 88 FR 67407 (Sep. 29, 2023) (File No. SR–
NSCC–2023–007).
7 Partial Amendment No. 1 delays
implementation of the proposed change. As
amended, NSCC would implement the proposed
rule change within 90 days of receiving all
necessary regulatory approvals and would
announce the specific date of implementation on its
public website at least 14 days prior to
implementation. The delay is proposed in light of
the technical system changes that are required to
implement the liquidity stress testing
enhancements and to be able to provide sufficient
notice to Clearing Members following receipt of
approval.
8 15 U.S.C. 78s(b)(2)(B).
9 The term ‘‘physically-settled’’ refers to cleared
contracts that settle into their underlying interest
(i.e., options or futures contracts that are not cashsettled). When a contract settles into its underlying
interest, shares of stock are sent (i.e., delivered) to
contract holders who have the right to receive the
shares from contract holders who are obligated to
deliver the shares at the time of exercise/assignment
in the case of an option and maturity in the case
of a future.
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assignment of certain options or
maturation of certain futures cleared by
OCC effectively results in stock
settlement obligations to be cleared by
NSCC (‘‘E&A Activity’’). NSCC and OCC
maintain a legal agreement, generally
referred to by the parties as the
‘‘Accord’’ agreement, that governs the
processing of such E&A Activity for
firms that are members of both OCC and
NSCC (‘‘Common Members’’).
Under certain circumstances, the
Accord currently allows NSCC not to
guaranty the settlement of securities
arising out of E&A Activity for a
defaulted Common Member. To the
extent NSCC chooses not to guaranty
such transactions, OCC would have to
engage in an alternate method of
settlement outside of NSCC to manage
the default of the Common Member,
which presents two issues. First, based
on historical data, the cash required for
such alternative settlement could be as
much as $300 billion.10 Second,
settlement outside of NSCC introduces
significant operational complexities.11
NSCC proposes to revise the Accord
to address the liquidity and operational
issues that arise under the current
Accord. Specifically, the proposed
changes to the Accord would require
NSCC to guaranty the positions of a
defaulting Common Member if OCC
makes a payment to cover the
incremental risk posed by such
positions (the ‘‘Guaranty Substitution
Payment’’ or ‘‘GSP’’). Based on
historical data, the GSP could be as
much as $6 billion (in contrast with the
potential $300 billion required for
alternative settlement).12
The total amount owed by the
Common Member would be a
combination of the member’s unpaid
deposit to the NSCC Clearing Fund
(‘‘Required Fund Deposit’’) 13 and
Supplemental Liquidity Deposit.14 The
SLD portion of the GSP would be the
unpaid SLD associated with any E&A
Activity. The Required Fund Deposit
portion of the GSP, however, would be
estimated by reference to the day-overday change in gross market value of the
Common Member’s positions at NSCC
10 See
Notice of Filing, 88 FR at 59969.
id.
12 See id.
13 The Required Fund Deposit is calculated
pursuant to Rule 4 (Clearing Fund) and Procedure
XV (Clearing Fund Formula and Other Matters) of
the NSCC Rules. See Notice of Filing, 88 FR at
59971, n.26.
14 Under the NSCC Rules, NSCC collects
additional cash deposits from those Members who
would generate the largest settlement debits in
stressed market conditions, referred to as
‘‘Supplemental Liquidity Deposits’’ or ‘‘SLD.’’ See
Rule 4A of the NSCC Rules. See also Notice of
Filing, 88 FR at 59971, n.27.
11 See
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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Notices
as a proxy for estimating what
percentage of the member’s Required
Fund Deposit is attributable to E&A
Activity. NSCC acknowledges that this
methodology overestimates or
underestimates the Required Fund
Deposit attributable to a Common
Member’s E&A activity, but states that
current technology constraints prohibit
NSCC from performing a precise
calculation of the GSP on a daily basis
for every Common Member.15 In
addition to revising the Accord, NSCC
also proposes changes to its rules in
connection with the proposed changes
to the Accord. For example, NSCC
would amend its rules to clarify that
NSCC’s guaranty would attach when
NSCC receives both the Required Fund
Deposit and Supplemental Liquidity
Deposit.16
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 Exchange Act to
determine whether the Proposed Rule
Change should be approved or
disapproved.17 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, which would
provide 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
Exchange Act,18 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 Exchange Act,19
ddrumheller on DSK120RN23PROD with NOTICES1
15 See
Notice of Filing, 88 FR at 59971. OCC and
NSCC have agreed that performing the necessary
technology build at this time would delay the
implementation of this proposal. Therefore, NSCC
would consider incorporating those technology
updates into future revisions to the Accord, for
example in connection with a move to a shorter
settlement cycle in the U.S. equities markets. See
Notice of Filing, 88 FR at 59971, n.30.
16 See Notice of Filing, 88 FR at 59975.
17 15 U.S.C. 78s(b)(2)(B).
18 Id.
19 15 U.S.C. 78q–1.
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17:42 Nov 17, 2023
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and the rules thereunder, including the
following provisions:
• Section 17A(b)(3)(F) of the
Exchange Act,20 which requires, among
other things, that the rules of a clearing
agency are designed to promote the
prompt and accurate clearance and
settlement of securities transactions and
derivative agreements, contracts, and
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; to foster
cooperation and coordination with
persons engaged in the clearance and
settlement of securities transactions;
and, in general, to protect investors and
the public interest;
• Rule 17Ad–22(e)(1) under the
Exchange Act,21 which requires that a
covered clearing agency establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to provide for a
well-founded, clear, transparent, and
enforceable legal basis for each aspect of
its activities in all relevant jurisdictions;
• Rule 17Ad–22(e)(7) under the
Exchange Act,22 which requires, in part,
that a covered clearing agency establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to effectively
measure, monitor, and manage the
liquidity risk that arises in or is borne
by the covered clearing agency,
including measuring, monitoring, and
managing its settlement and funding
flows on an ongoing and timely basis,
and its use of intraday liquidity; and
• Rule 17Ad-22(e)(20) under the
Exchange Act,23 which requires that a
covered clearing agency establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to identify,
monitor, and manage risks related to
any link the covered clearing agency
establishes with one or more other
clearing agencies, financial market
utilities, or trading markets.
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
20 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1).
22 17 CFR 240.17Ad–22(e)(7).
23 17 CFR 240.17Ad–22(e)(17)(i).
21 17
PO 00000
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Sfmt 4703
80791
with section 17A(b)(3)(F) 24 and Rules
17Ad–22(e)(1), (e)(7), and (e)(20) 25 of
the Exchange Act, or any other
provision of the Exchange Act, or the
rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4(g)
under the Exchange Act,26 any request
for an opportunity to make an oral
presentation.27
The Commission asks that
commenters address the sufficiency of
OCC’s statements in support of the
Proposed Rule Change, which are set
forth in the Notice of Filing 28 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:
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–2023–007 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–NSCC–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
24 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1), 17 CFR 240.17Ad–
22(e)(7), and 17 CFR 240.17Ad–22(e)(20).
26 17 CFR 240.19b–4(g).
27 Section 19(b)(2) of the Exchange Act grants to
the Commission flexibility to determine what type
of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by a selfregulatory organization. See Securities Act
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
28 See Notice of Filing, supra note 4.
25 17
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80792
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Notices
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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of NSCC
and on the Depository Trust Company’s
website (https://dtcc.com/legal/sec-rulefilings.aspx).
Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection.
All submissions should refer to File
Number SR–NSCC–2023–007 and
should be submitted on or before
December 11, 2023. Rebuttal comments
should be submitted by December 26,
2023.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.29
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–25544 Filed 11–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98935; File No. SR–ISE–
2023–20]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Order Approving a Proposed
Rule Change To Permit the Listing and
Trading of P.M.-Settled Nasdasq–100
Index® Options With a Third-Friday-ofthe-Month Expiration
ddrumheller on DSK120RN23PROD with NOTICES1
November 14, 2023.
I. Introduction
On September 28, 2023, Nasdaq ISE,
LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to permit the listing and trading
of p.m.-settled Nasdaq–100 Index
options with a third-Friday-of-themonth (‘‘Third Friday’’) expiration. The
proposed rule change was published for
comment in the Federal Register on
29 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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17:42 Nov 17, 2023
Jkt 262001
October 4, 2023.3 The Commission did
not receive any comment letters and is
approving the proposed rule change.
II. Description of the Proposal
ISE proposes to amend its rules to
permit the listing and trading of p.m.settled Nasdaq–100 Index (‘‘NDXP’’)
options with a Third Friday expiration.
The Exchange currently can list a.m.settled Third Friday expirations on
Nasdaq–100 Index (‘‘NDX’’) options.4
With this proposal, the Exchange would
have Third Friday expirations on NDX
options that are both a.m.-settled and
p.m.-settled on the same day.5 The
Exchange states that the conditions for
listing options on NDXP with Third
Friday expirations will be similar to the
a.m.-settled NDX Third Friday
expirations.6 The Exchange proposes to
amend Options 4A, Section 12(a)(6) to
provide that in addition to a.m.-settled
Nasdaq–100 Index options approved for
trading on the Exchange, the Exchange
may also list options on the Nasdaq–100
Index whose exercise settlement value
is the closing value of the Nasdaq–100
Index on the expiration day.
The proposed contract would use a
$100 multiplier, and the minimum
trading increment would be $0.05 for
options trading below $3.00 and $0.10
for all other series.7 Strike price
intervals would be set at no less than
$2.50.8 Consistent with existing rules
for index options, the Exchange would
allow up to nine near-term expiration
months 9 as well as LEAPS.10 The
product would have European-style
exercise. Because the product is based
on NDX, there would be no position
limits.11
NDXP options are series of the NDX
options class.12 Currently, these NDXP
options may expire any day of the week:
Mondays, Tuesdays, Wednesdays,
Thursdays, Fridays, as applicable (other
than third-Friday-of-the-month), and the
last trading day of the month.13 Third
Friday p.m.-settled options trading
under the NDXP symbol will be a new
3 See Securities Exchange Act Release No. 98643
(September 29, 2023), 88 FR 68843 (‘‘Notice’’).
4 See Notice, supra note 3 at 68842.
5 See id.
6 See id.
7 See Options 3, Section 3, Minimum Increments.
8 See Options 4A, Section 12(c)(1).
9 The Exchange proposes the same expiration
month options for NDXP as are permitted for the
Nasdaq–100 Index, since both options classes are
derived from the Nasdaq–100 Index.
10 See Options 4A, Section 12(b)(1).
11 For a more detailed description of the proposed
Third Friday NDXP contract, see Notice, supra note
3.
12 See Notice, supra note 3 at 68842.
13 See Supplementary Material .07(a) to Options
4, Section 5.
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type of series under the Nasdaq–100
Index options class and not a new
options class—therefore all ThirdFriday NDXP options will be aggregated
together with all other standard
expirations for applicable reporting and
other requirements.14
As with NDX, whenever the Exchange
determines that additional margin is
warranted in light of the risks associated
with an under-hedged NDXP option
position, including Third Friday NDXP,
the Exchange may consider imposing
additional margin upon the account
maintaining such under-hedged
position pursuant to its authority
pursuant to Exchange Rules Options 6E,
Section 2.15 The trading hours for
NDXP, including Third Friday NDXP,
will be from 9:30 a.m. to 4:15 p.m.
Eastern Time.16
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the Act and the rules
and regulations thereunder applicable to
a national securities exchange.17 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,18 which
requires, among other things, that the
Exchange’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
In support of its proposal, the
Exchange notes that the Commission
recently approved trading of Third
Friday expirations for options based on
1⁄5 the value of the Nasdaq–100 Index
(‘‘NQX’’).19 The Exchange states that the
introduction of Third Friday NDXP will
attract order flow to the Exchange,
increase the variety of listed options to
investors, and provide a valuable hedge
tool to investors.20 The Exchange
14 See
Options 3, Section 6(c) and (d).
Notice, supra note 3 at 68843.
16 The Exchange notes that trading in NDXP will
ordinarily cease at 4:00 p.m. on the day on which
the exercise-settlement value is calculated. See
Notice, supra note 3 at 68843, n. 16.
17 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
19 See Securities Exchange Act Release No. 98450
(September 20, 2023), 88 FR 66 111 (September 26,
2023) (SR–ISE–2023–08) (Order Granting Approval
of a Proposed Rule Change, as Modified by
Amendment No. 1, to Make Permanent Certain
P.M.-Settled Pilots) (‘‘ISE Pilot Approval’’).
20 See Notice, supra note 3 at 68843.
15 See
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]]>Agencies
[Federal Register Volume 88, Number 222 (Monday, November 20, 2023)]
[Notices]
[Pages 80790-80792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25544]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98930; File No. SR-NSCC-2023-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Partial Amendment No. 1 and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by Partial Amendment No. 1,
Concerning Modifications to the Amended and Restated Stock Options and
Futures Settlement Agreement Between The Options Clearing Corporation
and the National Securities Clearing Corporation
November 14, 2023.
I. Introduction
On August 10, 2023, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-NSCC-2023-007 (``Proposed
Rule Change'') pursuant to section 19(b) of the Securities Exchange Act
of 1934 (``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to modify
the Amended and Restated Stock Options and Futures Settlement Agreement
dated August 5, 2017, between OCC and National Securities Clearing
Corporation, NSCC's related rules.\3\ The Proposed Rule Change was
published for public comment in the Federal Register on August 30,
2023.\4\ The Commission has received no comments regarding the Proposed
Rule Change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, at 88 FR 59976.
\4\ Securities Exchange Act Release No. 98213 (Aug. 24, 2023),
88 FR 59968 (Aug. 30, 2023) (File No. SR-NSCC-2023-007) (``Notice of
Filing'').
---------------------------------------------------------------------------
On September 25, 2023, pursuant to section 19(b)(2) of the Exchange
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\ On November 8, 2023,
NSCC filed a Partial Amendment No. 1 to the Proposed Rule Change.\7\
The Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons and is instituting proceedings,
pursuant to section 19(b)(2)(B) of the Exchange Act,\8\ to determine
whether to approve or disapprove the proposed rule change, as modified
by the Partial Amendment No. 1 (hereinafter defined as ``Proposed Rule
Change'').
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2).
\6\ Securities Exchange Act Release No. 98508 (Sep. 25, 2023),
88 FR 67407 (Sep. 29, 2023) (File No. SR-NSCC-2023-007).
\7\ Partial Amendment No. 1 delays implementation of the
proposed change. As amended, NSCC would implement the proposed rule
change within 90 days of receiving all necessary regulatory
approvals and would announce the specific date of implementation on
its public website at least 14 days prior to implementation. The
delay is proposed in light of the technical system changes that are
required to implement the liquidity stress testing enhancements and
to be able to provide sufficient notice to Clearing Members
following receipt of approval.
\8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Summary of the Proposed Rule Change
NSCC is a clearing agency that provides clearing, settlement, risk
management, and central counterparty services for trades involving
equity securities. OCC is the sole clearing agency for standardized
equity options listed on national securities exchanges registered with
the Commission, including options that contemplate the physical
delivery of equities cleared by NSCC in exchange for cash (``physically
settled'' options).\9\ OCC also clears certain futures contracts that,
at maturity, require the delivery of equity securities cleared by NSCC
in exchange for cash. As a result, the exercise and assignment of
certain options or maturation of certain futures cleared by OCC
effectively results in stock settlement obligations to be cleared by
NSCC (``E&A Activity''). NSCC and OCC maintain a legal agreement,
generally referred to by the parties as the ``Accord'' agreement, that
governs the processing of such E&A Activity for firms that are members
of both OCC and NSCC (``Common Members'').
---------------------------------------------------------------------------
\9\ The term ``physically-settled'' refers to cleared contracts
that settle into their underlying interest (i.e., options or futures
contracts that are not cash-settled). When a contract settles into
its underlying interest, shares of stock are sent (i.e., delivered)
to contract holders who have the right to receive the shares from
contract holders who are obligated to deliver the shares at the time
of exercise/assignment in the case of an option and maturity in the
case of a future.
---------------------------------------------------------------------------
Under certain circumstances, the Accord currently allows NSCC not
to guaranty the settlement of securities arising out of E&A Activity
for a defaulted Common Member. To the extent NSCC chooses not to
guaranty such transactions, OCC would have to engage in an alternate
method of settlement outside of NSCC to manage the default of the
Common Member, which presents two issues. First, based on historical
data, the cash required for such alternative settlement could be as
much as $300 billion.\10\ Second, settlement outside of NSCC introduces
significant operational complexities.\11\
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\10\ See Notice of Filing, 88 FR at 59969.
\11\ See id.
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NSCC proposes to revise the Accord to address the liquidity and
operational issues that arise under the current Accord. Specifically,
the proposed changes to the Accord would require NSCC to guaranty the
positions of a defaulting Common Member if OCC makes a payment to cover
the incremental risk posed by such positions (the ``Guaranty
Substitution Payment'' or ``GSP''). Based on historical data, the GSP
could be as much as $6 billion (in contrast with the potential $300
billion required for alternative settlement).\12\
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\12\ See id.
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The total amount owed by the Common Member would be a combination
of the member's unpaid deposit to the NSCC Clearing Fund (``Required
Fund Deposit'') \13\ and Supplemental Liquidity Deposit.\14\ The SLD
portion of the GSP would be the unpaid SLD associated with any E&A
Activity. The Required Fund Deposit portion of the GSP, however, would
be estimated by reference to the day-over-day change in gross market
value of the Common Member's positions at NSCC
[[Page 80791]]
as a proxy for estimating what percentage of the member's Required Fund
Deposit is attributable to E&A Activity. NSCC acknowledges that this
methodology overestimates or underestimates the Required Fund Deposit
attributable to a Common Member's E&A activity, but states that current
technology constraints prohibit NSCC from performing a precise
calculation of the GSP on a daily basis for every Common Member.\15\ In
addition to revising the Accord, NSCC also proposes changes to its
rules in connection with the proposed changes to the Accord. For
example, NSCC would amend its rules to clarify that NSCC's guaranty
would attach when NSCC receives both the Required Fund Deposit and
Supplemental Liquidity Deposit.\16\
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\13\ The Required Fund Deposit is calculated pursuant to Rule 4
(Clearing Fund) and Procedure XV (Clearing Fund Formula and Other
Matters) of the NSCC Rules. See Notice of Filing, 88 FR at 59971,
n.26.
\14\ Under the NSCC Rules, NSCC collects additional cash
deposits from those Members who would generate the largest
settlement debits in stressed market conditions, referred to as
``Supplemental Liquidity Deposits'' or ``SLD.'' See Rule 4A of the
NSCC Rules. See also Notice of Filing, 88 FR at 59971, n.27.
\15\ See Notice of Filing, 88 FR at 59971. OCC and NSCC have
agreed that performing the necessary technology build at this time
would delay the implementation of this proposal. Therefore, NSCC
would consider incorporating those technology updates into future
revisions to the Accord, for example in connection with a move to a
shorter settlement cycle in the U.S. equities markets. See Notice of
Filing, 88 FR at 59971, n.30.
\16\ See Notice of Filing, 88 FR at 59975.
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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 Exchange Act to determine whether the Proposed Rule
Change should be approved or disapproved.\17\ 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,
which would provide 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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\17\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to section 19(b)(2)(B) of the Exchange Act,\18\ 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 Exchange
Act,\19\ and the rules thereunder, including the following provisions:
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\18\ Id.
\19\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Exchange Act,\20\ which
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts, and
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; to foster cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions;
and, in general, to protect investors and the public interest;
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(1) under the Exchange Act,\21\ which
requires that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
provide for a well-founded, clear, transparent, and enforceable legal
basis for each aspect of its activities in all relevant jurisdictions;
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\21\ 17 CFR 240.17Ad-22(e)(1).
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Rule 17Ad-22(e)(7) under the Exchange Act,\22\ which
requires, in part, that a covered clearing agency establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to effectively measure, monitor, and manage the liquidity risk
that arises in or is borne by the covered clearing agency, including
measuring, monitoring, and managing its settlement and funding flows on
an ongoing and timely basis, and its use of intraday liquidity; and
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\22\ 17 CFR 240.17Ad-22(e)(7).
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Rule 17Ad-22(e)(20) under the Exchange Act,\23\ which
requires that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
identify, monitor, and manage risks related to any link the covered
clearing agency establishes with one or more other clearing agencies,
financial market utilities, or trading markets.
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\23\ 17 CFR 240.17Ad-22(e)(17)(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) \24\ and Rules
17Ad-22(e)(1), (e)(7), and (e)(20) \25\ of the Exchange Act, or any
other provision of the Exchange Act, or the rules and regulations
thereunder. Although there do not appear to be any issues relevant to
approval or disapproval that would be facilitated by an oral
presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4(g) under the Exchange Act,\26\ any
request for an opportunity to make an oral presentation.\27\
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\24\ 15 U.S.C. 78q-1(b)(3)(F).
\25\ 17 CFR 240.17Ad-22(e)(1), 17 CFR 240.17Ad-22(e)(7), and 17
CFR 240.17Ad-22(e)(20).
\26\ 17 CFR 240.19b-4(g).
\27\ Section 19(b)(2) of the Exchange Act grants to the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency of
OCC's statements in support of the Proposed Rule Change, which are set
forth in the Notice of Filing \28\ in addition to any other comments
they may wish to submit about the Proposed Rule Change.
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\28\ See Notice of Filing, supra note 4.
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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-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-NSCC-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
[[Page 80792]]
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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of NSCC and on the
Depository Trust Company's website (https://dtcc.com/legal/sec-rule-filings.aspx).
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-NSCC-2023-007 and
should be submitted on or before December 11, 2023. Rebuttal comments
should be submitted by December 26, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(31).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25544 Filed 11-17-23; 8:45 am]
BILLING CODE 8011-01-P
