Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Decommission the DTCC Limit Monitoring Risk Management Tool, 57959-57960 [2024-15500]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 136 (Tuesday, July 16, 2024)]
[Notices]
[Pages 57959-57960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15500]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100486; File No. SR-NSCC-2024-004]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Decommission the 
DTCC Limit Monitoring Risk Management Tool

July 10, 2024.

I. Introduction

    On May 16, 2024, The National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2024-004, pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder (the ``Proposed Rule Change'').\2\ The 
Proposed Rule Change was published for comment in the Federal Register 
on June 4, 2024.\3\ The Commission has received no comments on the 
Proposed Rule Change. For the reasons discussed below, the Commission 
is approving the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100237 (May 29, 
2024), 89 FR 48019 (Jun. 4, 2024) (File No. SR-NSCC-2024-004) 
(``Notice of Filing'').
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II. Background

    DTCC Limit Monitoring is a risk management tool currently made 
available to all NSCC Members. Limit Monitoring is a voluntary tool 
that is intended to supplement, and not replace, a Member's internal 
risk management systems, procedures, or use of other available industry 
tools.\4\ Limit Monitoring enables Members to monitor trading activity 
on an intraday basis for their organizations and/or correspondent firms 
using post-trade data by allowing Members to establish pre-set limits 
to monitor trading activity and to receive notifications when these 
pre-set limits are being approached and reached.\5\ NSCC does not 
require Members to take any particular action based on the output of 
Limit Monitoring, and any response by Members to a Limit Monitoring 
alert is performed away from NSCC.\6\
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    \4\ See id. at 48019.
    \5\ See NSCC Rules and Procedures, Rule 54, available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ See Notice of Filing, supra note 3, at 48019.
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    NSCC states that DTCC Limit Monitoring was created as part of a 
broader industry-wide effort to develop tools and strategies to 
mitigate and address trading risks associated with complex, 
interconnected, and automated market technology.\7\ NSCC further states 
that, since the implementation of Limit Monitoring in 2014, U.S. equity 
exchanges have implemented certain optional risk management tools 
including, but not limited to, credit limits, single order limits, and 
kill switch functionality, which provide additional risk management 
tools for Members to supplement their internal controls.\8\ NSCC also 
states that broker-dealers have also continued to enhance their own 
internal risk management systems.\9\
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    \7\ See id.
    \8\ See id.
    \9\ See id.
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III. Description of the Proposed Rule Change

    The Proposed Rule Change would decommission the Limit Monitoring 
tool. NSCC states that the technology platform to maintain the data 
infrastructure for Limit Monitoring will soon need to be replaced, 
which would require the investment of significant resources to continue 
to offer Limit Monitoring.\10\ NSCC conducted outreach to evaluate its 
Members' use of Limit Monitoring. The outreach indicated that a 
majority of Members either do not use Limit Monitoring or do not rely 
on it extensively to manage their risks.\11\ Members that do not use or 
make only limited use of Limit Monitoring primarily rely on other 
industry or in-house tools to monitor and evaluate risks.\12\ NSCC 
conducted follow up outreach with those Members that do currently use 
Limit Monitoring, identifying no Members that raised significant 
concerns or objections to the decommissioning of Limit Monitoring.\13\ 
Therefore, NSCC has determined that it would no longer offer the Limit 
Monitoring tool, given the significant investment needed to continue to 
offer Limit Monitoring, the evolution in industry-wide risk control 
tools and processes since the implementation of Limit Monitoring in 
2014, and the limited usage of Limit Monitoring by Members.\14\
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    \10\ See id.
    \11\ See id.
    \12\ See id.
    \13\ See id.
    \14\ See id.
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    To implement the Proposed Rule Change, NSCC would remove Rule 54 
and Procedure XVII from their Rules.\15\ NSCC would also remove 
associated

[[Page 57960]]

defined terms from Rule 1.\16\ Finally, NSCC would remove Section 2(i) 
of Rule 58 concerning the limitations on NSCC's liability for the 
completeness or accuracy of LM Trade Date Data, LM Member-provided 
Data, LM Transaction Data, or other information or data which it 
receives from Members or third parties and which is utilized in DTCC 
Limit Monitoring, or for any errors, omissions or delays which may 
occur in the transmission of such data or information.
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    \15\ See supra note 5.
    \16\ ``LM Member-provided Data,'' ``LM Trade Date Data,'' ``LM 
Transaction Data,'' ``RP Member-provided Data,'' ``RP Trade Date 
Data,'' and ``RP Transaction Data.''
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IV. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \17\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. After carefully considering the Proposed Rule 
Change, the Commission finds that the Proposed Rule Change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to NSCC. In particular, the 
Commission finds that the Proposed Rule Change is consistent with 
Section 17A(b)(3)(F) \18\ of the Act.
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    \17\ 15 U.S.C. 78s(b)(2)(C).
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency, such as NSCC, be designed to, among other things, 
promote the prompt and accurate clearance and settlement of securities 
transactions and, in general, to protect investors and the public 
interest.\19\ The Commission believes that the Proposed Rule Change is 
consistent with Section 17A(b)(3)(F) of the Act for the reasons stated 
below.
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    \19\ Id.
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    As described in Part II above, Limit Monitoring is a voluntary tool 
intended to supplement a Member's internal risk management processes 
and use of other available tools. Although the tool was created in 
response to an industry-wide need due to trading risks associated with 
new market technologies in 2014, there now is a broader range of 
options available to Members to help manage these risks. Limit 
Monitoring is not a widely used risk management tool, and those who do 
use it did not raise significant concerns about its elimination. Given 
that NSCC would need to invest significant resources to continue to 
offer Limit Monitoring to its Members, decommissioning the Limit 
Monitoring tool should allow NSCC to determine where to allocate the 
resources that would have been used on updating the Limit Monitoring 
technology to better react to the changing needs of market participants 
who rely on NSCC's central role in the securities market. This ability 
to allocate resources should, in turn, help NSCC to continue to promote 
the prompt and accurate clearance and settlement of securities 
transactions by NSCC, consistent with the requirements of Section 
17A(b)(3)(F) of the Exchange Act.\20\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F)
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    Accordingly, and for the reasons stated above, the proposed changes 
are consistent with Section 17A(b)(3)(F).

V. Conclusion

    Based on the foregoing, the Commission finds that the Proposed Rule 
Change is consistent with the requirements of the Act and in particular 
with the requirements of Section 17A of the Act \21\ and the rules and 
regulations promulgated thereunder.
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    \21\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\22\ that proposed rule changes SR-NSCC-2024-004 be, and hereby are, 
approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ In approving the Proposed Rule Change, the Commission 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15500 Filed 7-15-24; 8:45 am]
BILLING CODE 8011-01-P