59968 Federal Register / Vol. 88, No. 167 / Wednesday, August 30, 2023 / Notices 

194See FINRA Letter at 3. FINRA states that in 

2021 it began a multi-year effort to update the 

technological infrastructure for several of its 

facilities, relevant data vendor feeds, and related 

reference data. See id. The ADF’s trade reporting 

and quoting functionality were migrated onto a new 

platform in November 2021 and March 2022, 

respectively. See id. 

195See id. FINRA states that the ADF supports 

increments of nanoseconds for both its quoting and 

reporting functions. See id. 

196 Id. 

197See FINRA Letter II at 6. FINRA states that the 

ADF latency tests conducted by FINRA with 

IntelligentCross were conducted as stress tests that 

included processing volumes and sustained 

messages rates well in excess of those likely to be 

experienced in production. See id. See FINRA 

Letter II at 5–6 for additional detailed description 

of FINRA’s ADF latency tests. 

198See id. 

199See id. 

200See supra notes 195 and 196. 

201See Notice, supra note 3, at 79404; FINRA 

Letter II at 6. 

202 15 U.S.C. 78s(b)(2). 

203 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Existing Accord was previously approved 

by the Commission. See Securities Exchange Act 

Release Nos. 81266, 81260 (Jul. 31, 2017) (File Nos. 

SR–NSCC–2017–007; SR–OCC–2017–013), 82 FR 

36484 (Aug. 4, 2017). 

4Capitalized terms not defined herein are defined 

in the NSCC Rules available at www.dtcc.com/-/ 

media/Files/Downloads/legal/rules/nscc_rules.pdf. 

5OCC also has filed a proposed rule change and 

an advance notice with the Commission in 

connection with this proposal. See File Nos. SR– 

OCC–2023–007 and SR–OCC–2023–801 (the ‘‘OCC 

Filing’’). 

6The term ‘‘physically-settled’’ as used 

throughout the OCC Rulebook 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. 

quoting and trading purposes.’’ 194

FINRA also states that its recent 

technological updates to the ADF have 

significantly reduced the ADF’s 

processing latency times as compared to 

when the ADF was last operational in 

2015.195 FINRA also represents that it 

continues to conduct capacity 

requirement testing with 

IntelligentCross and ‘‘aim[s] to address 

any potential areas identified for further 

improvement prior to IntelligentCross 

becoming an ADF [p]articipant and 

sending quotes to the ADF (subject to 

SEC approval).’’ 196 Additionally, based 

on the results of FINRA’s ADF testing 

with IntelligentCross, FINRA states that 

ADF latency is generally in line with 

exchange latency to dissemination by 

the SIPs.197 FINRA also states that it 

expects the ADF latency in production 

to be lower than in the ADF test 

environment.198 Accordingly, FINRA 

believes that any processing latency for 

the ADF would generally be in line with 

exchange processing latencies once 

IntelligentCross begins quoting on the 

ADF.199

The Commission believes that FINRA 

has demonstrated that, with the recent 

technological updates to address latency 

in the ADF’s system capabilities,200

along with recent tests to the ADF 

application with IntelligentCross, the 

ADF technology infrastructure will be 

consistent with current speed and 

capacity standards for processing and 

disseminating IntelligentCross’ 

quotations. Moreover, FINRA and 

IntelligentCross have represented that 

they will continue to conduct testing 

and explore technological 

enhancements to further reduce ADF 

latency, thus ensuring that the ADF 

technology infrastructure continues to 

be consistent with current processing 

latencies.201

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,202

that the proposed rule change (SR– 

FINRA–2022–032) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.203

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18677 Filed 8–29–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98213; File No. SR–NSCC– 

2023–007] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of 

Proposed Rule Change To Modify the 

Amended and Restated Stock Options 

and Futures Settlement Agreement and 

Make Certain Revisions to the NSCC 

Rules 

August 24, 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 August 

10, 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. 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 (1) modify the Amended 

and Restated Stock Options and Futures 

Settlement Agreement dated August 5, 

2017 between NSCC and The Options 

Clearing Corporation (‘‘OCC,’’ and 

together with NSCC, the ‘‘Clearing 

Agencies’’) (‘‘Existing Accord’’) 3 and (2) 

make certain revisions to Rule 18, 

Procedure III and Addendum K of the 

NSCC Rules & Procedures (‘‘NSCC 

Rules’’) 4 in connection with the 

proposed modifications to the Existing 

Accord, as described in greater detail 

below.5

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 

Executive Summary 

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).6 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/ 

assignment of certain options or 

maturation of certain futures cleared by 

OCC effectively results in stock 

settlement obligations. NSCC and OCC 

maintain a legal agreement, generally 

referred to by the parties as the 

‘‘Accord’’ agreement, that governs the 

processing of such physically settled 

options and futures cleared by OCC that 


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7Under the Existing Accord, such options and 

futures are defined as ‘‘E&A/Delivery 

Transactions,’’ which refers to ‘‘Exercise & 

Assignment Delivery Transactions.’’ 

8See Rule 11 (CNS System) and Procedure VII 

(CNS Accounting Operation) of the NSCC Rules, 

supra note 4. 

9A firm that is both an OCC Clearing Member and 

an NSCC Member or is an OCC Clearing Member 

that has designated an NSCC Member to act on its 

behalf is referred to herein as a ‘‘Common 

Member’’. The term ‘‘Clearing Member’’ as used 

herein has the meaning provided in OCC’s By-Laws. 

See OCC’s By-laws & Rules, available at 

www.theocc.com/Company-Information/ 

Documents-and-Archives/By-Laws-and-Rules. The 

term ‘‘Member’’ as used herein has the meaning 

provided in NSCC’s Rules. See supra note 4. 

10OCC filed its analysis of the financial impact 

of alternate means of settlement as an exhibit to the 

OCC Filing. 

11See Rule 8 (Balance Order and Foreign Security 

Systems) and Procedure V (Balance Order 

Accounting Operation) of the NSCC Rules, supra 

note 4. 

result in transactions in underlying 

equity securities to be cleared by NSCC 

(‘‘Existing Accord’’). 

The Existing Accord establishes terms 

under which NSCC accepts for clearing 

certain securities transactions that result 

from the exercise and assignment of 

relevant options contracts and the 

maturity of futures contracts that are 

cleared and settled by OCC.7 It also 

establishes the time when OCC’s 

settlement guaranty in respect of those 

transactions ends and NSCC’s 

settlement guaranty begins. 

The Existing Accord allows for a 

scenario in which NSCC could choose 

not to guarantee the settlement of such 

securities arising out of transactions. 

Specifically, NSCC is not obligated to 

guarantee settlement until its member 

has met its collateral requirements at 

NSCC. If NSCC chooses not to guarantee 

settlement, OCC would engage in an 

alternate method of settlement outside 

of NSCC. This scenario presents two 

primary problems. First, the cash 

required for OCC and its Clearing 

Members in certain market conditions to 

facilitate settlement outside of NSCC 

could be significantly more than the 

amount required if NSCC were to 

guarantee the relevant transactions. This 

is because settlement of the transactions 

in the underlying equity securities 

outside of NSCC would mean that they 

would no longer receive the benefit of 

netting through the facilities of NSCC. 

In such a scenario, the additional 

collateral required from Clearing 

Members to support OCC’s continuing 

settlement guarantee would also have to 

be sufficiently liquid to properly 

manage the risks associated with those 

transactions being due on the second 

business day following the option 

exercise, or the relevant futures contract 

maturity date. 

Based on an analysis of scenarios 

using historical data where it was 

assumed that OCC could not settle 

transactions through the facilities of 

NSCC, the worst-case outcome resulted 

in extreme liquidity demands—of over 

$300 billion—for OCC to effect 

settlement via an alternative method, 

e.g., by way of gross broker-to-broker 

settlement, as discussed in more detail 

below. OCC Clearing Members, by way 

of their contributions to the OCC 

Clearing Fund, would bear the brunt of 

this demand. Furthermore, there is no 

guarantee that OCC Clearing Members 

could fund the entire amount of any 

similar real-life scenarios. By contrast, 

projected GSPs identified during the 

study ranged from approximately $419 

million to over $6 billion, also as 

discussed in more detail below. 

The second primary problem relates 

to the significant operational 

complexities if settlement occurs 

outside of NSCC. More specifically, 

netting through NSCC reduces the 

volume and value of settlement 

obligations. For example, in 2022 it is 

estimated that netting through NSCC’s 

continuous net settlement (‘‘CNS’’) 

accounting system 8 reduced the value 

of CNS settlement obligations by 

approximately 98% or $510 trillion 

from $519 trillion to $9 trillion. If 

settlement occurred outside of NSCC, on 

a broker-to-broker basis between OCC 

Clearing Members, for example, shares 

would not be netted, and Clearing 

Members would have to coordinate 

directly with each other to settle the 

relevant transactions. The operational 

complexities and uncertainty associated 

with alternate means of settlement 

would impact every market participant 

involved in a settlement of OCC-related 

transactions. 

To address these problems, the 

Clearing Agencies are proposing to 

amend and restate the Existing Accord 

and make related changes to their 

respective rules that would allow OCC 

to elect to make a cash payment to 

NSCC following the default of a 

Common Member 9 that would cause 

NSCC to guarantee settlement of that 

Common Member’s transactions and, 

therefore, cause those transactions to be 

settled through processing by NSCC. As 

part of this proposal, OCC also would 

enhance its daily liquidity stress testing 

processes and procedures to account for 

the possibility of OCC making such a 

payment to NSCC in the event of a 

Common Member default. By making 

these enhancements to its stress testing, 

OCC could include the liquid resources 

necessary to make the payment in its 

resource planning. The Clearing 

Agencies believe that by NSCC 

accepting such a payment from OCC the 

operational efficiencies and reduced 

costs related to the settlement of 

transactions through NSCC would limit 

market disruption following a Common 

Member default because settlement 

through NSCC following such a default 

would be less operationally complex 

and would be expected to require less 

liquidity and other collateral from 

market participants than the processes 

available to OCC for closing out 

positions. Additionally, proposed 

enhancements by OCC to its liquidity 

stress testing would add assurances that 

OCC could make such a payment in the 

event of a Common Member default. 

The Clearing Agencies believe that their 

respective clearing members and all 

other participants in the markets for 

which OCC provides clearance and 

settlement would benefit from OCC’s 

ability to choose to make a cash 

payment to effect settlement through the 

facilities of NSCC. This change would 

provide more certainty around certain 

default scenarios and would blunt the 

financial and operational burdens 

market participants could experience in 

the case of most clearing member 

defaults.10

Background 

OCC acts as a central counterparty 

clearing agency for U.S.-listed options 

and futures on a number of underlying 

financial assets including common 

stocks, currencies and stock indices. In 

connection with these services, OCC 

provides the OCC Guaranty pursuant to 

its By-Laws and Rules. NSCC acts as a 

central counterparty clearing agency for 

certain equity securities, corporate and 

municipal debt, exchange traded funds 

and unit investment trusts that are 

eligible for its services. Eligible trading 

activity may be processed through 

NSCC’s CNS system or Balance Order 

Account system,11 where all eligible 

compared and recorded transactions for 

a particular settlement date are netted 

by issue into one net long (buy), net 

short (sell) or flat position. As a result, 

for each day with activity, each Member 

has a single deliver or receive obligation 

for each issue in which it has activity. 

In connection with these services, NSCC 

also provides the NSCC Guaranty 

pursuant to Addendum K of the NSCC 

Rules. 

OCC’s Rules provide that delivery of, 

and payment for, securities underlying 

certain exercised stock options and 

matured single stock futures that are 

physically settled are generally effected 

through the facilities of NSCC and are 


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12See Chapter IX of OCC’s Rules (Delivery of 

Underlying Securities and Payment), supra note 9. 

13See OCC Rule 901, supra note 9. 

14See Addendum K and Procedure III of the 

NSCC Rules, supra note 4. 

15A Common Member that has been suspended 

by OCC or for which NSCC has ceased to act is 

referred to as a ‘‘Mutually Suspended Member.’’ 

16For example, OCC evaluated certain Clearing 

Member default scenarios in which OCC assumed 

that NSCC would not accept the settlement 

obligations under the Existing Accord, including 

the default of a large Clearing Member coinciding 

with a monthly options expiration. OCC has 

estimated that in such a Clearing Member default 

scenario, the aggregate liquidity burden on OCC in 

connection with obligations having to be settled on 

a gross, broker-to-broker basis could reach a 

significantly high level. For example, in January 

2022, the largest gross broker-to-broker settlement 

amount in the case of a larger Clearing Member 

default would have resulted in liquidity needs of 

approximately $384,635,833,942. OCC provided the 

data and analysis as an exhibit to the OCC Filing. 

17 In broker-to-broker settlement, Clearing 

Member parties are responsible for coordinating 

settlement—delivery and payment—among 

themselves on a transaction-by-transaction basis. 

Once transactions settle, the parties also have an 

obligation to affirmatively notify OCC so that OCC 

can close out the transactions. If either one of or 

both of the parties do not notify OCC, the 

transaction would remain open on OCC’s books 

indefinitely until the time both parties have 

provided notice of settlement to OCC. 

18Each day that both OCC and NSCC are open for 

accepting trades for clearing is referred to as an 

‘‘Activity Date’’ in the Existing Accord. Securities 

eligible for settlement at NSCC are referred to 

collectively as ‘‘Eligible Securities’’ in the Existing 

Accord. Eligible securities are settled at NSCC 

through NSCC’s CNS Accounting Operation or 

NSCC’s Balance Order Accounting Operation. 

19The term ‘‘NSCC Clearing Fund’’ as used herein 

has the same meaning as the term ‘‘Clearing Fund’’ 

as provided in the NSCC Rules. Procedure XV of 

the NSCC Rules provides that all NSCC Clearing 

Fund requirements and other deposits must be 

made within one hour of demand, unless NSCC 

determines otherwise, supra note 4. 

20This is referred to in the Existing Accord as the 

‘‘Guaranty Substitution Time,’’ and the process of 

the substitution of the NSCC Guaranty for the OCC 

Guaranty with respect to E&A/Delivery 

Transactions is referred to as ‘‘Guaranty 

Substitution.’’ 

21 Guaranty Substitution by NSCC (discussed 

further below) does not occur with respect to an 

E&A/Delivery Transaction that is not submitted to 

NSCC in the proper format or that involves a 

security that is not identified as an Eligible Security 

on the then-current NSCC Eligibility Master File. 

22Under NSCC’s Rules, a default would generally 

be referred to as a ‘‘cease to act’’ and could 

encompass a number of circumstances, such as an 

NSCC Member’s failure to make a Required Fund 

Deposit in a timely fashion. See NSCC Rule 46 

(Restrictions on Access to Services), supra note 4. 

An NSCC Member for which it has ceased to act is 

referred to in the Existing Accord as a ‘‘Defaulting 

NSCC Member.’’ Transactions associated with a 

Defaulting NSCC Member are referred to as 

‘‘Defaulted NSCC Member Transactions’’ in the 

Existing Accord. 

not settled through OCC’s facilities.12

OCC and NSCC executed the Existing 

Accord to facilitate, via NSCC’s systems, 

the physical settlement of securities 

arising out of options and futures 

cleared by OCC. OCC Clearing Members 

that clear and settle physically settled 

options and futures transactions through 

OCC also are required under OCC’s 

Rules 13 to be Members of NSCC or to 

have appointed or nominated a Member 

of NSCC to act on its behalf. As noted 

above, these firms are referred to as 

‘‘Common Members’’ in the Existing 

Accord. 

Summary of the Existing Accord 

The Existing Accord governs the 

transfer between OCC and NSCC of 

responsibility for settlement obligations 

that involve a delivery and receipt of 

stock in the settlement of physically 

settled options and futures that are 

cleared and settled by OCC and for 

which the underlying securities are 

eligible for clearing through the 

facilities of NSCC (‘‘E&A/Delivery 

Transactions’’). It also establishes the 

time when OCC’s settlement guarantee 

(the ‘‘OCC Guaranty’’) ends and NSCC’s 

settlement guarantee (the ‘‘NSCC 

Guaranty’’) 14 begins with respect to 

E&A/Delivery Transactions. However, in 

the case of a Common Member default 15

NSCC can reject these settlement 

obligations, in which case the 

settlement guaranty would not transfer 

from OCC to NSCC, and OCC would not 

have a right to settle the transactions 

through the facilities of NSCC. Instead, 

OCC would have to engage in 

alternative methods of settlement that 

have the potential to create significant 

liquidity and collateral requirements for 

both OCC and its non-defaulting 

Clearing Members.16 More specifically, 

this could involve broker-to-broker 

settlement between OCC Clearing 

Members.17 This settlement method is 

operationally complex because it 

requires bilateral coordination directly 

between numerous Clearing Members 

rather than relying on NSCC to facilitate 

multilateral netting to settle the relevant 

settlement obligations. As described 

above, it also potentially could result in 

significant liquidity and collateral 

requirements for both OCC and its nondefaulting Clearing Members because 

the transactions would not be netted 

through the facilities of NSCC. 

Alternatively, where NSCC accepts the 

E&A/Delivery Transactions from OCC, 

the OCC Guaranty ends and the NSCC 

Guaranty takes effect. The transactions 

are then netted through NSCC’s systems, 

which allows settlement obligations for 

the same settlement date to be netted 

into a single deliver or receive 

obligation. This netting reduces the 

costs associated with securities transfers 

by reducing the number of securities 

movements required for settlement and 

further reduces operational and market 

risk. The benefits of such netting by 

NSCC may be significant with respect to 

the large volumes of E&A/Delivery 

Transactions processed during monthly 

options expiry periods. 

Pursuant to the Existing Accord, on 

each trading day NSCC delivers to OCC 

a file that identifies the securities, 

including stocks, exchange-traded funds 

and exchange-traded notes, that are 

eligible (1) to settle through NSCC and 

(2) to be delivered in settlement of (i) 

exercises and assignments of stock 

options cleared and settled by OCC or 

(ii) delivery obligations from maturing 

stock futures cleared and settled by 

OCC. OCC, in turn, delivers to NSCC a 

file identifying securities to be 

delivered, or received, for physical 

settlement in connection with OCC 

transactions.18

After NSCC receives the list of eligible 

transactions from OCC and NSCC has 

received all required deposits to the 

NSCC Clearing Fund from all Common 

Members taking into consideration 

amounts required to physically settle 

the OCC transactions, the OCC Guaranty 

would end and the NSCC Guaranty 

would begin with respect to physical 

settlement of the eligible OCC-related 

transactions.19 At this point, NSCC is 

solely responsible for settling the 

transactions.20

Each day, NSCC is required to 

promptly notify OCC at the time the 

NSCC Guaranty takes effect. If NSCC 

rejects OCC’s transactions due to an 

improper submission 21 or if NSCC 

‘‘ceases to act’’ for a Common 

Member,22 NSCC’s Guaranty would not 

take effect for the affected transactions 

pursuant to the NSCC Rules. 

NSCC is required to promptly notify 

OCC if it ceases to act for a Common 

Member. Upon receiving such a notice, 

OCC would not continue to submit to 

NSCC any further unsettled transactions 

that involve such Common Member, 

unless authorized representatives of 

both OCC and NSCC otherwise consent. 

OCC would, however, deliver to NSCC 

a list of all transactions that have 

already been submitted to NSCC and 

that involve such Common Member. 

The NSCC Guaranty ordinarily would 

not take effect with respect to 

transactions for a Common Member for 

which NSCC has ceased to act, unless 

both Clearing Agencies agree otherwise. 

As such, NSCC does not have any 

existing contractual obligation to 

guarantee such Common Member’s 

transactions. To the extent the NSCC 

Guaranty does not take effect, OCC’s 

Guaranty would continue to apply, and, 

as described above, OCC would remain 

responsible for effecting the settlement 


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23Acceptance of such transactions by NSCC 

would be subject to NSCC’s standard validation 

criteria for incoming trades. See NSCC Rule 7, 

supra note 4. 

24The term ‘‘OCC Clearing Fund’’ as used herein 

has the same meaning as the term ‘‘Clearing Fund’’ 

in OCC’s By-Laws, supra note 9. 

25The term ‘‘Margin Assets’’ as used herein has 

the same meaning as provided in OCC’s By-Laws, 

supra note 9. 

26The 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 supra note 4. 

27Under 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, supra note 4. 

28The revised SLA has been filed as an exhibit 

to this filing. 

29The impact study was conducted at the 

Commission’s request to cover a three-day period 

and reviewed the ten Common Members with the 

largest Required Fund Deposits attributable to the 

Mutually Suspended Member’s E&A/Delivery 

Transactions. Over the 30 instances in the study, 

approximately 15 instances resulted in an 

underestimate of the Required Fund Deposit by an 

average of approximately $112,900,926; four 

instances where the proxy calculation was the same 

as the Required Fund Deposit; and eleven instances 

of an overestimate of the Required Fund Deposit by 

an average of approximately $59,654,583. NSCC 

filed additional detail related to the referenced 

study as an exhibit to this filing. 

30OCC 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. 

of such Common Member’s transactions 

pursuant to OCC’s By-Laws and Rules. 

As noted above, the Existing Accord 

does provide that the Clearing Agencies 

may agree to permit additional 

transactions for a Common Member 

default (‘‘Defaulted NSCC Member 

Transactions’’) to be processed by NSCC 

while subject to the NSCC Guaranty. 

This optional feature, however, creates 

uncertainty for the Clearing Agencies 

and market participants about how 

Defaulted NSCC Member Transactions 

may be processed following a Common 

Member default and also does not 

provide NSCC with the ability to collect 

collateral from OCC that it may need to 

close out these additional transactions. 

While the optional feature would 

remain in the agreement as part of this 

proposal, the proposed changes to the 

Existing Accord, as described below, 

could significantly reduce the 

likelihood that it would be utilized. 

Proposed Changes to the Existing 

Accord 

The proposed changes to the Existing 

Accord would permit OCC to make a 

cash payment, referred to as the 

‘‘Guaranty Substitution Payment’’ or 

‘‘GSP,’’ to NSCC. This cash payment 

could occur on either or both of the day 

that the Common Clearing Member 

becomes a Mutually Suspended Member 

and on the next business day. Upon 

NSCC’s receipt of the Guaranty 

Substitution Payment from OCC, the 

NSCC Guaranty would take effect for the 

Common Member’s transactions, and 

they would be accepted by NSCC for 

clearance and settlement.23 OCC could 

use all Clearing Member contributions 

to the OCC Clearing Fund 24 and certain 

Margin Assets 25 of a defaulted Clearing 

Member to pay the GSP, as described in 

more detail below. 

NSCC would calculate the Guaranty 

Substitution Payment as the sum of the 

Mutually Suspended Member’s unpaid 

required deposit to the NSCC Clearing 

Fund (‘‘Required Fund Deposit’’) 26 and 

the unpaid Supplemental Liquidity 

Deposit 27 obligation that is attributable 

to E&A/Delivery Transactions. The 

proposed changes to the Existing 

Accord define how NSCC would 

calculate the Guaranty Substitution 

Payment. 

More specifically, NSCC would first 

determine how much of the member’s 

unpaid Clearing Fund requirement 

would be included in the GSP. NSCC 

would look at the day-over-day change 

in gross market value of the Mutually 

Suspended Member’s positions as well 

as day-over-day change in the member’s 

NSCC Clearing Fund requirements. 

Based on such changes, NSCC would 

identify how much of the change in the 

Clearing Fund requirement was 

attributable to E&A/Delivery 

Transactions coming from OCC. If 100 

percent of the day-over-day change in 

the NSCC Clearing Fund requirement is 

attributable to activity coming from 

OCC, then the GSP would include 100 

percent of the member’s NSCC Clearing 

Fund requirement. If less than 100 

percent of the change is attributable to 

activity coming from OCC, then the GSP 

would include that percent of the 

member’s unpaid NSCC Clearing Fund 

requirement attributable to activity 

coming from OCC. NSCC would then 

determine the portion of the member’s 

unpaid SLD obligation that is 

attributable to E&A/Delivery 

Transactions. As noted above, the GSP 

would be the sum of these two amounts. 

A member’s NSCC Clearing Fund 

requirement and SLD obligation at 

NSCC are designed to address the credit 

and liquidity risks that a member poses 

to NSCC. The GSP calculation is 

intended to assess how much of a 

member’s obligations arise out of 

activity coming from OCC so that the 

amount paid by OCC is commensurate 

with the risk to NSCC of guarantying 

such activity. 

To permit OCC to anticipate the 

potential resources it would need to pay 

the GSP for a Mutually Suspended 

Member, each business day NSCC 

would provide OCC with (1) Required 

Fund Deposit and Supplemental 

Liquidity Deposit obligations, as 

calculated pursuant to the NSCC Rules, 

and (2) the gross market value of the 

E&A/Delivery Transactions and the 

gross market value of total Net Unsettled 

Positions (as such term is defined in the 

NSCC Rules). On options expiry days 

that fall on a Friday, NSCC would also 

provide OCC with information regarding 

liquidity needs and resources, and any 

intraday SLD requirements of Common 

Members. Such information would be 

delivered pursuant to the ongoing 

information sharing obligations under 

the Existing Accord (as proposed to be 

amended) and the Service Level 

Agreement (‘‘SLA’’) to which both 

NSCC and OCC are a party pursuant to 

Section 2 of the Existing Accord.28 The 

SLA addresses specifics regarding the 

time, form and manner of various 

required notifications and actions 

described in the Accord and also 

includes information applicable under 

the Accord. 

NSCC and OCC believe the proposed 

calculation of the Required Fund 

Deposit portion of the GSP is 

appropriate because it is designed to 

provide a reasonable proxy for the 

impact of the Mutually Suspended 

Member’s E&A/Delivery Transactions 

on its Required Fund Deposit. While 

impact study data did show that the 

proposed calculation could result in a 

GSP that overestimates or 

underestimates the Required Fund 

Deposit attributable to the Mutually 

Suspended Member’s E&A/Delivery 

Transactions,29 current technology 

constraints prohibit NSCC from 

performing a precise calculation of the 

GSP on a daily basis for every Common 

Member.30

Implementing the ability for OCC to 

make the GSP and cause the E&A/ 

Delivery Transactions to be cleared and 

settled through NSCC would promote 

the ability of OCC and NSCC to be 

efficient and effective in meeting the 

requirements of the markets they serve. 

This is because data demonstrates that 

the expected size of the GSP would be 

smaller than the amount of cash that 

would otherwise be needed by OCC and 

its Clearing Members to facilitate 

settlement outside of NSCC. More 

specifically, based on a historical study 


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31OCC filed additional detail related to the 

referenced study as an exhibit to the OCC Filing. 

32As of Mar. 31, 2023, OCC held approximately 

$10.37 billion in qualifying liquid resources. See 

OCC Quantitative Disclosure, Jan.–Mar. 2023, 

available at www.theocc.com/risk-management/ 

pfmi-disclosures. 

33CNS reduces the value of obligations that 

require financial settlement by approximately 98 

percent, where, for example, approximately $519 

trillion in trades could be netted down to 

approximately $9 trillion in net settlements. 

34OCC filed data regarding simulated events as an 

exhibit to the OCC Filing. 

35The term ‘‘Stock Options’’ is defined in the 

Existing Accord within the definition of ‘‘Eligible 

Securities’’ and refers to options issued by OCC. 36The term ‘‘Stock Futures’’ is defined in the 

Existing Accord within the definition of ‘‘Eligible 

Securities,’’ described below, and refers to stock 

futures contracts cleared by OCC. 37 11 U.S.C. 101 et seq., including §§ 362(b)(6), 

(7), (17), (25) and (27) (exceptions to the automatic 

stay), §§ 546(e)–(g) and (j) (limitations on avoiding 

powers), and §§ 555–556 and 559–562 (contractual 

right to liquidate, terminate or accelerate certain 

contracts). 38 15 U.S.C. 78aaa–lll, including § 78eee(b)(2)(C) 

(exceptions to the stay). 39The term ‘‘OCC Participating Member’’ is 

defined in the Existing Accord to mean ‘‘(i) a 

Common Member; (ii) an OCC Clearing Member 

that is an ‘Appointing Clearing Member’ (as defined 

in Article I of OCC’s By-Laws) and has appointed 

an Appointed Clearing Member that is an NSCC 

Member to effect settlement of E&A/Delivery 

Transactions through NSCC on the Appointing 

Clearing Member’s behalf; (iii) an OCC Clearing 

Member that is an Appointed Clearing Member; or 

(iv) a Canadian Clearing Member.’’ No changes are 

proposed to this definition. 

of alternate means of settlement 

available to OCC from September 2021 

through September 2022, in the event 

that NSCC did not accept E&A/Delivery 

Transactions, the worst-case scenario 

peak liquidity need OCC identified was 

$384,635,833,942 for settlement to occur 

on a gross broker-to-broker basis. OCC 

estimates that the corresponding GSP in 

this scenario would have been 

$863,619,056. OCC also analyzed 

several other large liquidity demand 

amounts that were identified during the 

study if OCC effected settlement on a 

gross broker-to-broker basis.31 These 

liquidity demand amounts and the 

largest liquidity demand amount OCC 

observed of $384,635,833,942 

substantially exceed the amount of 

liquid resources currently available to 

OCC.32 By contrast, projected GSPs 

identified during the study ranged from 

$419,297,734 to $6,281,228,428. For 

each of these projected GSP amounts, 

OCC observed that the Margin Assets 

and OCC Clearing Fund contributions 

that would have been required of 

Clearing Members in these scenarios 

would have been sufficient to satisfy the 

amount of the projected GSPs. 

To help address the current 

technology constraint that prohibits 

NSCC from performing a precise 

calculation of the GSP on a daily basis 

for every Common Member, proposed 

Section 6(b)(i) of the Existing Accord 

and related Section 7(d) of the SLA 

would provide that, with respect to a 

Mutually Suspended Member, either 

NSCC or OCC may require that the 

Required Fund Deposit portion of the 

GSP be re-calculated by calculating the 

Required Fund Deposit for the Mutually 

Suspended Member both before and 

after the delivery of the E&A/Delivery 

Transactions and utilize the precise 

amount that is attributable to that 

activity in the final GSP. If such a 

recalculation is required, the result 

would replace the Required Fund 

Deposit component of the GSP that was 

initially calculated. The SLD component 

of the GSP would be unchanged by such 

recalculation. 

As the above demonstrates, the GSP is 

intended to address the significant 

collateral and liquidity requirements 

that could be required of OCC Clearing 

Members in the event of a Common 

Member default. 

Allowing OCC to make a GSP 

payment also is intended to allow for 

settlement processing to take place 

through the facilities of NSCC to retain 

operational efficiencies associated with 

the settlement process. Alternative 

settlement means such as broker-to 

broker settlement add operational 

burdens because transactions would 

need to be settled individually on oneoff bases. In contrast, NSCC’s netting 

reduces the volume and value of 

settlement obligations that would need 

to be closed out in the market.33

Because the clearance and settlement of 

obligations through NSCC’s facilities 

following a Common Member default, 

including netting of E&A/Delivery 

Transactions with a Common Member’s 

positions at NSCC would avoid these 

potentially significant operational 

burdens for OCC and its Clearing 

Members, OCC and NSCC believe that 

the proposed changes would limit 

market disruption relating to a Common 

Member default. NSCC netting 

significantly reduces the total number of 

obligations that require the exchange of 

money for settlement. Allowing more 

activity to be processed through NSCC’s 

netting systems would minimize risk 

associated with the close out of those 

transactions following the default of a 

Common Member. 

Amending the Existing Accord to 

define the terms and conditions under 

which Guaranty Substitution may occur, 

at OCC’s election, with respect to 

Defaulted NSCC Member Transactions 

after a Common Member becomes a 

Mutually Suspended Member would 

also provide more certainty to both the 

Clearing Agencies and market 

participants generally about how a 

Mutually Suspended Member’s 

Defaulted NSCC Member Transactions 

may be processed. 

NSCC and OCC have agreed it is 

appropriate to limit the availability of 

the proposed provision to the day of the 

Common Member default and the next 

business day because, based on 

historical cease to act events and 

simulations of cease to act events 

involving Common Members, most 

activity of a Mutually Suspended 

Member is closed out on those days.34

Furthermore, the benefits of netting 

through NSCC’s systems would be 

reduced for any activity submitted to 

NSCC after that time. 

To implement these proposed changes 

to the Existing Accord, OCC and NSCC 

propose to make the following changes. 

Section 1—Definitions 

First, new definitions would be 

added, and existing definitions would 

be amended in Section 1, which is the 

Definitions section. 

The new defined terms would be as 

follows. 

• The term ‘‘Close Out Transaction’’ 

would be defined to mean ‘‘the 

liquidation, termination or acceleration 

of one or more exercised or matured 

Stock Options 35 or Stock Futures 36

contracts, securities contracts, 

commodity contracts, forward contracts, 

repurchase agreements, swap 

agreements, master netting agreements 

or similar agreements of a Mutually 

Suspended Member pursuant to OCC 

Rules 1101 through 1111 and/or NSCC 

Rule 18.’’ This proposed definition 

would make it clear that the payment of 

the Guaranty Substitution Payment and 

NSCC’s subsequent acceptance of 

Defaulted NSCC Member Transactions 

for clearance and settlement are 

intended to fall within the ‘‘safe 

harbors’’ provided in the Bankruptcy 

Code,37 the Securities Investor 

Protection Act,38 and other similar laws. 

• The term ‘‘Guaranty Substitution 

Payment’’ would be defined to mean 

‘‘an amount calculated by NSCC in 

accordance with the calculations set 

forth in Appendix A [to the Existing 

Accord (as proposed to be amended)], to 

include two components: (i) a portion of 

the Mutually Suspended Member’s 

Required Fund Deposit deficit to NSCC 

at the time of the cease to act and (ii) 

a portion of the Mutually Suspended 

Member’s unpaid Supplemental 

Liquidity Deposit obligation at the time 

of the cease to act.’’ 

• The term ‘‘Mutually Suspended 

Member’’ would mean ‘‘any OCC 

Participating Member 39 that has been 


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40The term ‘‘NSCC Participating Member’’ is 

defined in the Existing Accord to mean ‘‘(i) a 

Common Member; (ii) an NSCC Member that is an 

‘Appointed Clearing Member’ (as defined in Article 

I of OCC’s By-Laws); or (iii) [The Canadian 

Depository for Securities Limited, or ‘‘CDS’’]. For 

the avoidance of doubt, the Clearing Agencies agree 

that CDS is an NSCC Member for purposes of this 

Agreement.’’ No changes are proposed to this 

definition. 

41See Rule 46 (Restrictions on Access to Services) 

of the NSCC Rules, supra note 4. 

42The section of the Existing Accord that 

addresses circumstances in which NSCC ceases to 

act and/or an NSCC Member defaults is currently 

part of Section 6(a). It would be re-designated as 

Section 6(b) for organizational purposes. 

43The 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 supra note 4. 

44The Supplemental Liquidity Deposit is 

calculated pursuant to Rule 4A (Supplemental 

Liquidity Deposits) of the NSCC Rules, see supra 

note 4. 

45The time by which OCC would be required to 

notify NSCC of its intent would be defined in the 

Service Level Agreement. As of the time of this 

filing, the parties intend to set that time as one hour 

after OCC’s receipt of the calculated Guaranty 

Substitution Payment from NSCC. 

suspended by OCC that is also an NSCC 

Participating Member 40 for which 

NSCC has ceased to act.’’ 

• The term ‘‘Required Fund Deposit’’ 

would have the meaning ‘‘provided in 

Rule 4 of NSCC’s Rules and Procedures 

(or any replacement or substitute rule), 

the version of which, with respect to 

any transaction or obligation incurred 

that is the subject of this Agreement, is 

in effect at the time of such transaction 

or incurrence of obligation.’’ 

• The term ‘‘Supplemental Liquidity 

Deposit’’ would have the meaning 

‘‘provided in Rule 4A of NSCC’s Rules 

and Procedures (or any replacement or 

substitute rule), the version of which, 

with respect to any transaction or 

obligation incurred that is the subject of 

this Agreement, is in effect at the time 

of such transaction or incurrence of 

obligation.’’ 

The defined terms that would be 

amended in Section 1 of the Existing 

Accord are as follows. 

• The definition for the term ‘‘E&A/ 

Delivery Transaction’’ generally 

contemplates a transaction that involves 

a delivery and receipt of stock in the 

settlement of physically settled options 

and futures that are cleared and settled 

by OCC and for which the underlying 

securities are eligible for clearing 

through the facilities of NSCC. The 

definition would be amended to make 

clear that it would apply in respect of 

a ‘‘Close Out Transaction’’ of a 

‘‘Mutually Suspended Member’’ as 

those terms are proposed to be defined 

(described above). 

• The definition for the term ‘‘Eligible 

Securities’’ generally contemplates the 

securities that are eligible to be used for 

physical settlement under the Existing 

Accord. The term would be modified to 

clarify that this may include, for 

example, equities, exchange-traded 

funds and exchange-traded notes that 

are underlying securities for options 

issued by OCC. 

Section 6—Default by an NSCC 

Participating Member or OCC 

Participating Member 

Section 6 of the Existing Accord 

provides that NSCC is required to 

provide certain notice to OCC in 

circumstances in which NSCC has 

ceased to act for a Common Member. 

Currently, Section 6(A)(ii) of the 

Existing Accord also requires NSCC to 

notify OCC if a Common Member has 

failed to satisfy its Clearing Fund 

obligations to NSCC, but for which 

NSCC has not yet ceased to act. In 

practice, this provision would trigger a 

number of obligations (described below) 

when a Common Member fails to satisfy 

its NSCC Clearing Fund obligations for 

any reason, including those due to an 

operational delay. Therefore, OCC and 

NSCC are proposing to remove the 

notification requirement under Section 

6(A)(ii) from the Existing Accord. Under 

Section 7(d) of the Existing Accord, 

NSCC and OCC are required to provide 

each other with general surveillance 

information regarding Common 

Members, which includes information 

regarding any Common Member that is 

considered by the other party to be in 

distress. Therefore, if a Common 

Member has failed to satisfy its NSCC 

Clearing Fund obligations and NSCC 

believes this failure is due to, for 

example, financial distress and not, for 

example, due to a known operational 

delay, and NSCC has not yet ceased to 

act for that Common Member, such 

notification to OCC would still occur 

but would be done pursuant to Section 

7(d) of the Existing Accord (as proposed 

to be amended), and not Section 

6(A)(ii). Notifications under Section 6 of 

the Existing Accord (as proposed to be 

amended) would be limited to instances 

when NSCC has actually ceased to act 

for a Common Member pursuant to the 

NSCC Rules.41

Following notice by NSCC that it has 

ceased to act for a Common Member, 

OCC is obligated in turn to deliver to 

NSCC a list of all E&A/Delivery 

Transactions (excluding certain 

transactions for which Guaranty 

Substitution does not occur) involving 

the Common Member.42 This provision 

would be amended to clarify that it 

applies in respect of such E&A/Delivery 

Transactions for the Common Member 

for which the NSCC Guaranty has not 

yet attached—meaning that Guaranty 

Substitution has not yet occurred. 

As described above in the summary of 

the Existing Accord, where NSCC has 

ceased to act for a Common Member, the 

Existing Accord refers to the Common 

Member as the Defaulting NSCC 

Member and also refers to the relevant 

E&A/Delivery Transactions in 

connection with that Defaulting NSCC 

Member for which a Guaranty 

Substitution has not yet occurred as 

Defaulted NSCC Member Transactions. 

If the Defaulting NSCC Member is also 

suspended by OCC, it would be covered 

by the proposed definition that is 

described above for a Mutually 

Suspended Member. For such a 

Mutually Suspended Member, the 

proposed changes in Section 6(b) would 

provide that NSCC, by a time agreed 

upon by the parties, would provide OCC 

with the amount of the Guaranty 

Substitution Payment as calculated by 

NSCC and related documentation 

regarding the calculation. The Guaranty 

Substitution Payment would be 

calculated pursuant to NSCC’s Rules as 

that portion of the unmet Required 

Fund Deposit 43 and Supplemental 

Liquidity Deposit 44 obligations of the 

Mutually Suspended Member 

attributable to the Defaulted NSCC 

Member Transactions. By a time agreed 

upon by the parties,45 OCC would then 

be required to either notify NSCC of its 

intent to make the full amount of the 

Guaranty Substitution Payment to NSCC 

or notify NSCC that it would not make 

the Guaranty Substitution Payment. If 

OCC makes the full amount of the 

Guaranty Substitution Payment, NSCC’s 

guaranty would take effect at the time of 

NSCC’s receipt of that payment and the 

OCC Guaranty would end. 

The proposed changes would further 

provide that if OCC does not suspend 

the Common Member (such that the 

Common Member would therefore not 

meet the proposed definition of a 

Mutually Suspended Member) or if OCC 

elects to not make the full amount of the 

Guaranty Substitution Payment to 

NSCC, then all of the Defaulted NSCC 

Member Transactions would be exited 

from NSCC’s CNS Accounting 

Operation and/or NSCC’s Balance Order 

Accounting Operation, as applicable, 

and Guaranty Substitution would not 

occur in respect thereof. Therefore, 

NSCC would continue to have no 

obligation to guarantee or settle the 

Defaulted NSCC Member Transactions, 

and the OCC Guaranty would continue 


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46Under the current and proposed terms of the 

Existing Accord, NSCC would be permitted to 

voluntarily guaranty and settle the Defaulted NSCC 

Member Transactions. 47Such amounts would be returned to OCC as 

appropriate and in accordance with a Netting 

Contract and Limited Cross-Guaranty, by and 

among The Depository Trust Company, Fixed 

Income Clearing Corporation, NSCC and OCC, 

dated as of Jan. 1, 2003, as amended. 

48See supra note 4. 

49The Existing Accord is currently the only 

agreement that would be considered a ‘‘Close-Out 

Agreement’’ under this new Section 9(b). 

50See id. 

to apply to them pursuant to OCC’s ByLaws and Rules.46

Proposed changes to the Existing 

Accord would also address the 

application of any Guaranty 

Substitution Payment by NSCC. 

Specifically, new Section 6(d) would 

provide that any Guaranty Substitution 

Payment made by OCC may be used by 

NSCC to satisfy any liability or 

obligation of the Mutually Suspended 

Clearing Member to NSCC on account of 

transactions involving the Mutually 

Suspended Clearing Member for which 

the NSCC Guaranty applies and to the 

extent that any amount of assets 

otherwise held by NSCC for the account 

of the Mutually Suspended Member 

(including any Required Fund Deposit 

or Supplemental Liquidity Deposit) are 

insufficient to satisfy its obligations 

related to transactions for which the 

NSCC Guaranty applies. Proposed 

changes to Section 6(d) would further 

provide for the return to OCC of any 

unused portion of the GSP. With regard 

to the portion of the Guaranty 

Substitution Payment that corresponds 

to a member’s Supplemental Liquidity 

Deposit obligation, NSCC must return 

any unused amount to OCC within 

fourteen (14) days following the 

conclusion of NSCC’s settlement, closeout and/or liquidation. With regard to 

the portion of the Guaranty Substitution 

Payment that corresponds to a Required 

Fund Deposit, NSCC must return any 

unused amount to OCC under terms 

agreed to by the parties.47

Other Proposed Changes 

Certain other technical changes are 

also proposed to the Existing Accord to 

conform it to the proposed changes 

described above. For example, the 

preamble and the ‘‘whereas’’ clauses in 

the Preliminary Statement would be 

amended to clarify that the agreement is 

an amended and restated agreement and 

to summarize that the agreement would 

be modified to contemplate the 

Guaranty Substitution Payment 

structure. Section 1(c), which addresses 

the terms in the Existing Accord that are 

defined by reference to NSCC’s Rules 

and Procedures and OCC’s By-Laws and 

Rules would be modified to state that 

such terms would have the meaning 

then in effect at the time of any 

transaction or obligation that is covered 

by the agreement rather than stating that 

such terms have the meaning given to 

them as of the effective date of the 

agreement. This change is proposed to 

help ensure that the meaning of such 

terms in the agreement would not 

become inconsistent with the meaning 

in the NSCC Rules and/or OCC By-Laws 

and Rules, as they may be modified 

through proposed rule changes with the 

Commission. 

Technical changes would be made to 

Sections 3(d) and (e) of the Existing 

Accord to provide that those provisions 

would not apply in the event new 

Section 6(b) described above, is 

triggered. Section 3(d) generally 

provides that OCC would no longer 

submit E&A/Delivery Transactions to 

NSCC involving a suspended OCC 

Participating Member. Similarly, 

Section 3(e) generally provides that OCC 

would no longer submit E&A/Delivery 

Transactions to NSCC involving an 

NSCC Participating Member for which 

NSCC has ceased to act. A proposed 

change would also be made to Section 

5 of the Existing Accord to modify a 

reference to Section 5 of Article VI of 

OCC’s By-Laws to instead provide that 

the updated cross-reference should be to 

Chapter IV of OCC’s Rules. 

Section 5 would also be amended to 

clarify that Guaranty Substitution 

occurs when NSCC has received both 

the Required Fund Deposit and 

Supplemental Liquidity Deposit, as 

calculated by NSCC in its sole 

discretion, from Common Members. The 

addition of the collection of the 

Supplemental Liquidity Deposit to the 

definition of the Guaranty Substitution 

Time in this Section 5 would reflect 

OCC and NSCC’s agreement that both 

amounts are components of the 

Guaranty Substitution Payment (as 

described above) and would make this 

definition consistent with that 

agreement. 

In Section 7 of the Existing Accord, 

proposed changes would be made to 

provide that NSCC would provide to 

OCC information regarding a Common 

Member’s Required Fund Deposit and 

Supplemental Liquidity Deposit 

obligations, to include the 

Supplemental Liquidity Deposit 

obligation in this notice requirement, 

and additionally that NSCC would 

provide OCC with information regarding 

the potential Guaranty Substitution 

Payment for the Common Member. On 

an options expiration date that is a 

Friday, NSCC would, by close of 

business on that day, also provide to 

OCC information regarding the intra-day 

liquidity requirement, intra-day 

liquidity resources and intra-day calls 

for a Common Member that is subject to 

a Supplemental Liquidity Deposit at 

NSCC. 

Finally, Section 14 of the Existing 

Accord would be modernized to provide 

that notices between the parties would 

be provided by email rather than by 

hand, overnight delivery service or firstclass mail. 

Proposed Changes to NSCC Rules 

In connection with the proposed 

changes to the Existing Accord, NSCC is 

also proposing changes to its Rules, 

described below. 

First, NSCC would amend Rule 18 

(Procedures for When the Corporation 

Ceases to Act), which describes the 

actions NSCC would take with respect 

to the transactions of a Member after 

NSCC has ceased to act for that 

Member.48 The proposed changes 

would include a new Section 9(a) to 

specify that following a Member default, 

NSCC may continue to act and provide 

the NSCC Guaranty pursuant to a 

‘‘Close-Out Agreement’’ such as the 

Existing Accord (as it is proposed to be 

amended); 49 a new Section 9(b) to 

specify that any transactions undertaken 

pursuant to a Close-Out Agreement 

would be treated as having been 

received, provided or undertaken for the 

account of the Member for which NSCC 

has ceased to act, but that any deposit, 

payment, financial assurance or other 

accommodation provided to NSCC 

pursuant to a Close-Out Agreement shall 

be returned or released as provided for 

in the agreement; and a new Section 

9(c), to provide that NSCC shall have a 

lien upon, and may apply, any property 

of the defaulting Member in satisfaction 

of any obligation, liability or loss that 

relates to a transaction undertaken or 

service provided pursuant to a CloseOut Agreement. 

NSCC would also propose 

clarifications to Sections 4, 6(b)(iii)(B) 

and 8 to use more precise references to 

the legal entity described in those 

sections of this Rule. 

Second, NSCC would amend Section 

B of Procedure III and Addendum K of 

the NSCC Rules 50 to provide that the 

NSCC Guaranty would not attach to 

Defaulted NSCC Member Transactions 

except as provided for in the Existing 

Accord (as it is proposed to be 

amended), and that the NSCC Guaranty 

attaches, with respect to obligations 

arising from the exercise or assignment 

of OCC options settled at NSCC or stock 

futures contracts cleared by OCC, as 


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51 15 U.S.C. 78q–1(b)(3)(F). 

52 17 CFR 240.17Ad–22(e)(7), (20). 

53 15 U.S.C. 78q–1(b)(3)(F). 

54 17 CFR 240.17Ad–22(e)(7). 

55 17 CFR 240.17Ad–22(e)(20). 56 15 U.S.C. 78q–1(b)(3)(I). 

provided for in the Existing Accord (as 

it is proposed to be amended) or other 

arrangement with OCC. Finally, the 

proposed changes to Procedure III 

would clarify that Guaranty Substitution 

occurs when NSCC has received both 

the Required Fund Deposit and 

Supplemental Liquidity Deposit, 

consistent with the proposed revisions 

to Section 5 of the Current Accord, 

described above. As noted above, the 

proposal to include the collection of the 

Supplemental Liquidity Deposit in 

connection with the Guaranty 

Substitution reflect OCC and NSCC’s 

agreement that both amounts are 

components of the Guaranty 

Substitution Payment. 

Collectively, these proposed changes 

would establish and clarify the rights of 

both NSCC and a Member for which 

NSCC has ceased to act with respect to 

property held by NSCC and the 

operation and applicability of any 

Close-Out Agreement, and would make 

it clear that any payments received 

pursuant to a Close-Out Agreement and 

NSCC’s acceptance of a Mutually 

Suspended Member’s transactions for 

clearance and settlement pursuant to a 

Close-Out Agreement are intended to 

fall within the Bankruptcy Code and 

Securities Investor Protection Act ‘‘safe 

harbors.’’ 

2. Statutory Basis 

NSCC believes the proposed changes 

to the Existing Accord and its Rules are 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

registered clearing agency. In particular, 

NSCC believes the proposed change is 

consistent with Section 17A(b)(3)(F) of 

the Act 51 and Rules 17Ad–22(e)(7) and 

(20), each promulgated under the Act,52

for the reasons described below. 

Section 17A(b)(3)(F) of the Exchange 

Act requires, among other things, that 

the rules of a clearing agency be 

designed, in general, to protect investors 

and the public interest.53 As described 

above, NSCC believes that providing 

OCC with the ability to make a Guaranty 

Substitution Payment to it with respect 

to any unmet obligations of a Mutually 

Suspended Member would promote 

prompt and accurate clearance and 

settlement because it would allow 

relevant securities settlement 

obligations to be accepted by NSCC for 

clearance and settlement, which would 

reduce the size of the related settlement 

obligations for both the Mutually 

Suspended Member and its assigned 

delivery counterparties through netting 

through NSCC’s CNS Accounting 

Operation and/or NSCC’s Balance Order 

Accounting Operation. Further, this 

proposal would reduce the 

circumstances in which OCC’s Guaranty 

would continue to apply to these 

settlement obligations, to be settled on 

a broker-to-broker basis between OCC 

Clearing Members, which could result 

in substantial collateral and liquidity 

requirements for OCC Clearing Members 

and that, in turn, could also increase a 

risk of default by the affected OCC 

Clearing Members at a time when a 

Common Member has already been 

suspended. For these reasons, NSCC 

believes that the proposed changes 

would be beneficial to and protective of 

OCC, NSCC, their participants, and the 

markets that they serve and that the 

proposed changes are therefore 

designed, in general, to protect investors 

and the public interest. 

Rule 17Ad–22(e)(7) requires NSCC, in 

relevant part, to 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 NSCC and to, among 

other things, address foreseeable 

liquidity shortfalls that would not be 

covered by NSCC’s liquid resources.54

NSCC believes the proposal is 

consistent the requirements of Rule 

17Ad–22(e)(7) because, any increase to 

NSCC’s liquidity needs that may be 

created by applying the NSCC Guaranty 

to Defaulted Member Transactions 

would occur with a simultaneous 

increase to its liquidity resources in the 

form of the Guaranty Substitution 

Payment. Therefore, NSCC believes it 

will continue to adhere to the 

requirements of Rule 17Ad–22(e)(7) 

under the proposal. 

Finally, Rule 17Ad–22(e)(20) requires 

NSCC to establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

identify, monitor and manage risks 

related to any link that NSCC 

establishes with one or more other 

clearing agencies, financial market 

utilities, or trading markets.55 The 

Existing Accord between OCC and 

NSCC is one such link. As described 

above, NSCC believes that 

implementation of the proposal would 

help manage the risks presented by the 

settlement link because, when the 

proposed provision is triggered by OCC, 

NSCC would receive the Guaranty 

Substitution Payment with respect to 

the relevant securities settlement 

obligations. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

Section 17A(b)(3)(I) of the Act 56

requires that the rules of a clearing 

agency not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. NSCC does not 

believe that the proposal would impose 

any burden on competition. This is 

because it would implement changes 

that would permit OCC in certain 

circumstances to make a Guaranty 

Substitution Payment to NSCC so that 

the NSCC Guaranty would take effect for 

the Defaulted NSCC Member 

Transactions, and the OCC Guaranty 

would end. The proposed changes 

would not inhibit access to NSCC’s 

services in any way, applies to all 

Members and does not disadvantage or 

favor any particular user in relationship 

to another user. Accordingly, NSCC 

does not believe that the proposed rule 

change would have any impact or 

impose a burden on competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

NSCC has not received or solicited 

any written comments relating to this 

proposal. If any written comments are 

received, they will be publicly filed as 

an Exhibit 2 to this filing, as required by 

Form 19b–4 and the General 

Instructions thereto. 

Persons submitting comments are 

cautioned that, according to Section IV 

(Solicitation of Comments) of the 

Exhibit 1A in the General Instructions to 

Form 19b–4, the Commission does not 

edit personal identifying information 

from comment submissions. 

Commenters should submit only 

information that they wish to make 

available publicly, including their 

name, email address, and any other 

identifying information. 

All prospective commenters should 

follow the Commission’s instructions on 

how to submit comments, available at 

www.sec.gov/regulatory-actions/how-tosubmit-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. 

NSCC reserves the right not to 

respond to any comments received. 


lotter on DSK11XQN23PROD with NOTICES1
59976 Federal Register / Vol. 88, No. 167 / Wednesday, August 30, 2023 / Notices 

57 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Existing Accord was previously approved 

by the Commission. See Securities Exchange Act 

Release Nos. 81266, 81260 (July 31, 2017) (File Nos. 

SR–NSCC–2017–007; SR–OCC–2017–013), 82 FR 

36484 (Aug. 4, 2017). 

4OCC By-Laws are available at https://

www.theocc.com/getmedia/3309eceb-56cf-48fcb3b3-498669a24572/occ_bylaws.pdf and OCC Rules 

are available at https://www.theocc.com/getmedia/ 

9d3854cd-b782-450f-bcf7-33169b0576ce/occ_

rules.pdf. 

5NSCC also has filed a proposed rule change with 

the Commission in connection with this proposal. 

See SR–NSCC–2023–007. 

III. Date of Effectiveness of the 

Proposed Rule Change, and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://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. 

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 (http://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 

(http://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 

September 20, 2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.57

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–18670 Filed 8–29–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98215; File No. SR–OCC– 

2023–007] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Concerning Modifications to the 

Amended and Restated Stock Options 

and Futures Settlement Agreement 

Between The Options Clearing 

Corporation and the National 

Securities Clearing Corporation 

August 24, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on August 10, 2023, the 

Options Clearing Corporation (‘‘OCC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by OCC. 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 

This proposed rule change would (1) 

modify the Amended and Restated 

Stock Options and Futures Settlement 

Agreement dated August 5, 2017 

between OCC and National Securities 

Clearing Corporation (‘‘NSCC,’’ and 

together with OCC, the ‘‘Clearing 

Agencies’’) (‘‘Existing Accord’’) 3 and (2) 

make certain revisions to OCC By-Laws, 

OCC Rules,4 OCC’s Comprehensive 

Stress Testing & Clearing Fund 

Methodology, and Liquidity Risk 

Management Description and OCC’s 

Liquidity Risk Management Framework 

in connection with the proposed 

modifications to the Existing Accord, as 

described in greater detail below.5

The proposed changes would permit 

OCC to elect to make a cash payment to 

NSCC following the default of a 

common clearing participant that would 

cause NSCC’s central counterparty trade 

guaranty to attach to certain obligations 

of that participant, as described in 

greater detail below. 

The proposed changes are included in 

Exhibits 5A and 5B and confidential 

Exhibits 5C, 5D, and 5E to File No. SR– 

OCC–2023–007. Material proposed to be 

added is underlined and material 

proposed to be deleted is marked in 

strikethrough text. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC 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. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(1) Purpose 

Executive Summary 

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 


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