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69 15 U.S.C. 78s(b)(3)(C). 

70 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). A proposed rule change 

may take effect upon filing with the Commission if 

it is designated by the exchange as ‘‘establishing or 

changing a due, fee, or other charge imposed by the 

self-regulatory organization on any person, whether 

or not the person is a member of the self-regulatory 

organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 

4See Securities Exchange Act Release No. 98396 

(September 14, 2023), 88 FR 64960 (‘‘Notice’’). 

5 15 U.S.C. 78s(b)(3)(C). 

6The term ‘‘Member’’ means any registered 

broker or dealer that has been admitted to 

membership in the Exchange. See Exchange Rule 

1.5(n). 

7A physical port is utilized by a Member or nonMember to connect to the Exchange at the data 

centers where the Exchange’s servers are located. 

8 15 U.S.C. 78s(b)(3)(C). 

9 15 U.S.C. 78s(b)(1). 

10See Notice, supra note 4, at 64960. 

11See id. 12See id. 13See id. at 64961. 14See id. 15See id. 16See id. 17See id. 18See id. 19See id. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Act,69 that File 

No. SR–PEARL–2023–35, be and hereby 

is, temporarily suspended. In addition, 

the Commission is instituting 

proceedings to determine whether the 

proposed rule change should be 

approved or disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.70

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–22034 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98653; File No. SR– 

CboeEDGX–2023–057] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Suspension of 

and Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove Proposed Rule Change To 

Amend its Fee Schedule Related to 

Physical Port Fees 

September 29, 2023. 

I. Introduction 

On September 1, 2023, Cboe EDGX 

Exchange, Inc. (the ‘‘Exchange’’ or 

‘‘EDGX’’) 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 (File Number SR– 

CboeEDGX–2023–057) to amend its fee 

schedule to increase the monthly fee for 

10 gigabit (‘‘Gb’’) physical ports. The 

proposed rule change was immediately 

effective upon filing with the 

Commission pursuant to Section 

19(b)(3)(A) of the Act.3 The proposed 

rule change was published for comment 

in the Federal Register on September 

20, 2023.4 Pursuant to Section 

19(b)(3)(C) of the Act,5 the Commission 

is hereby: (1) temporarily suspending 

the proposed rule change; and (2) 

instituting proceedings to determine 

whether to approve or disapprove the 

proposed rule change. 

II. Background and Description of the 

Proposed Rule Change 

The Exchange proposes to amend its 

fee schedule for its equities platform 

(‘‘EDGX Equities’’) relating to physical 

connectivity fees. The Exchange 

proposes to increase the monthly fee for 

10 Gb physical ports from $7,500 to 

$8,500 per port. The Exchange currently 

assesses the following physical 

connectivity fees for Members 6 and 

non-Members on a monthly basis: 

$2,500 per physical port for a 1 Gb 

circuit and $7,500 per physical port for 

a 10 Gb circuit.7 According to the 

Exchange, the physical ports may also 

be used to access the systems for the 

following affiliate exchanges and only 

one monthly fee currently (and will 

continue) to apply per port: the 

Exchange’s options platform (EDGX 

Options), Cboe BZX Exchange, Inc. 

(options and equities platforms), Cboe 

BYX Exchange, Inc., Cboe EDGA 

Exchange, Inc., and Cboe C2 Exchange, 

Inc. 

III. Suspension of the Proposed Rule 

Change 

Pursuant to Section 19(b)(3)(C) of the 

Act,8 at any time within 60 days of the 

date of filing of an immediately effective 

proposed rule change pursuant to 

Section 19(b)(1) of the Act,9 the 

Commission summarily may 

temporarily suspend the change in the 

rules of a self-regulatory organization 

(‘‘SRO’’) if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act. The Commission believes a 

temporary suspension of the proposed 

rule change is necessary and 

appropriate to allow for additional 

analysis of the proposed rule change’s 

consistency with the Act and the rules 

thereunder. 

In support of the proposal, the 

Exchange states its belief that the 

proposed fee change is reasonable as it 

reflects a moderate increase in physical 

connectivity fees for 10 Gb physical 

ports.10 The Exchange states that the 

current 10 Gb physical port fee has 

remained unchanged since June 2018.11

The Exchange states that during this 5- 

year span there has been an average 

inflation rate of 3.9%, producing a 

cumulative price increase of 

approximately 21.1% inflation since the 

fee for the 10 Gb physical port was last 

modified.12 In support of its claim of 

reasonableness, the Exchange compares 

its proposed rate increase from the rates 

adopted five years ago of approximately 

13% to the cumulative inflation rate of 

21.1%.13

In further support of the proposal, the 

Exchange states that the proposed fee is 

reasonable, fair, and equitable, and not 

unfairly discriminatory.14 The Exchange 

believes that the proposed fee is 

reasonable as it is still in line with, or 

even lower than, amounts assessed by 

other exchanges for similar 

connections.15 The Exchange also states 

its belief that the fee is not unfairly 

discriminatory, because the fee would 

be assessed uniformly across all market 

participants that purchase the physical 

ports.16 The Exchange states that the fee 

is equitable because increasing the fee 

for 10 Gb physical ports and charging a 

higher fee as compared to the 1 Gb 

physical port as the 1 Gb physical port 

is 1/10 the size of the 10 Gb physical 

port and does not offer access to many 

of the products and services offered by 

the Exchange.17 The Exchange also 

states its belief the proposed fee is 

reasonably and appropriately allocated 

because, the Exchange states, market 

participants that purchase 10 Gb 

physical ports use the most bandwidth 

and therefore consume the most 

resources from the network.18

In further support of its proposed fee, 

the Exchange states that Members and 

non-Members will continue to choose 

the method of connectivity based on 

their specific needs and no brokerdealer is required to become a Member 

of, or connect directly to, the 

Exchange.19 The Exchange also states its 

belief that substitutable products and 

services are available to market 

participants, including, among other 

things, other equities exchanges that a 

market participant may connect to in 

lieu of the Exchange, indirect 

connectivity to the Exchange via a thirdparty reseller of connectivity, and/or 

trading of any equities product, such as 


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20See id. The Exchange states there are currently 

16 registered equities exchanges that trade equities 

(12 of which are not affiliated with Cboe), some of 

which have similar or lower connectivity fees; and 

based on publicly available information, no single 

equities exchange has more than approximately 

16% of the market share. 

21See id. 

22See id. 

23See id. at 64962. 

24See id. at 64961. 

25See id. The Exchange states this alternative is 

already being used by non-Members and further 

constrains the price that the Exchange is able to 

charge for connectivity to its Exchange. 

26See id. The Exchange states its belief these 

third-party resellers may purchase the Exchange’s 

physical ports and resell access to such ports either 

alone or as part of a package of services. 

27See id. 

28See id. 

29See id. at 64962. 

30See id. 

31See id. 

32See id. 

33See id. 

34See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose 

of, and Statutory Basis for, the Proposed Rule 

Change’’). 

35See id. 

36 15 U.S.C. 78f(b)(4). 

37 15 U.S.C. 78f(b)(5). 

38 15 U.S.C. 78f(b)(8). 

39See 15 U.S.C. 78f(b)(4), (5), and (8), 

respectively. 

40For purposes of temporarily suspending the 

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). 

41 15 U.S.C. 78s(b)(3)(C). Once the Commission 

temporarily suspends a proposed rule change, 

Section 19(b)(3)(C) of the Act requires that the 

Commission institute proceedings under Section 

19(b)(2)(B) to determine whether a proposed rule 

change should be approved or disapproved. 

within the Over-the-Counter markets.20

Additionally, the Exchange believes that 

low barriers to entry mean that new 

exchanges may rapidly enter the market 

and offer additional substitute platforms 

to further compete with the Exchange 

and the products it offers.21 According 

to the Exchange, three new equities 

exchanges entered the market in 2020 

(i.e., Long Term Stock Exchange (LTSE), 

Members Exchange (MEMX), and MIAX 

Pearl).22

The Exchange states its belief that 

participation on the Exchange remains 

affordable (notwithstanding the 

proposed fee change) for all market 

participants, including smaller trading 

firms that may be able to take advantage 

of lower costs that result from 

mutualized connectivity.23 The 

Exchange states that a market 

participant may submit orders to the 

Exchange via a Member broker or a 

third-party reseller of connectivity.24

The Exchange notes that third-party 

non-Members also resell exchange 

connectivity, which the Exchange states 

is another viable alternative for market 

participants to trade on the Exchange 

without connecting directly to the 

Exchange (and thus not pay the 

Exchange’s connectivity fees).25 The 

Exchange states it does not preclude 

market participants from reselling its 

connectivity and has not adopted fees 

that would be assessed to third-party 

resellers on a per customer basis (i.e., 

fee based on number of Members that 

connect to the Exchange indirectly via 

the third-party).26 The Exchange notes 

that multiple Members are able to share 

a single physical port (and 

corresponding bandwidth) with other 

non-affiliated Members if purchased 

through a third-party reseller.27 The 

Exchange states its belief that this 

allows resellers to mutualize the costs of 

the ports for market participants and 

provide such ports at a price that may 

be lower than the Exchange charges due 

to this mutualized connectivity.28

Finally, the Exchange states that the 

proposed fees would not cause any 

unnecessary or inappropriate burden on 

intermarket competition because 

proposed fee is lower than some fees for 

similar connectivity on other exchanges 

and therefore may stimulate intermarket 

competition by attracting additional 

firms to connect to the Exchange or at 

least should not deter interested 

participants from connecting directly to 

the Exchange.29 The Exchange also 

states that if the changes proposed 

herein are unattractive to market 

participants, the Exchange can, and 

likely will, see a decline in connectivity 

via 10 Gb physical ports as a result.30

Furthermore, the Exchange states that it 

operates in a highly competitive market 

in which market participants can 

determine whether or not to connect 

directly to the Exchange based on the 

value received compared to the cost of 

doing so.31 The Exchange also states 

that the proposed rule change would not 

cause any unnecessary or inappropriate 

burden on intramarket competition 

because it will apply to all similarly 

situated Members equally (i.e., all 

market participants that choose to 

purchase the 10 Gb physical port).32

Additionally, the Exchange stated that it 

does not believe its proposed pricing 

will impose a barrier to entry to smaller 

participants and notes that its proposed 

connectivity pricing is associated with 

relative usage of the various market 

participants.33

To date, the Commission has not 

received any comment letters on the 

proposed rule change. 

When exchanges file their proposed 

rule changes with the Commission, 

including fee filings like the Exchange’s 

present proposal, they are required to 

provide a statement supporting the 

proposal’s basis under the Act and the 

rules and regulations thereunder 

applicable to the exchange.34 The 

instructions to Form 19b–4, on which 

exchanges file their proposed rule 

changes, specify that such statement 

‘‘should be sufficiently detailed and 

specific to support a finding that the 

proposed rule change is consistent with 

[those] requirements.’’ 35

Section 6 of the Act, including 

Sections 6(b)(4), (5), and (8), require the 

rules of an exchange to: (1) provide for 

the equitable allocation of reasonable 

fees among members, issuers, and other 

persons using the exchange’s 

facilities; 36 (2) perfect the mechanism of 

a free and open market and a national 

market system, protect investors and the 

public interest, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or 

dealers; 37 and (3) not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.38

In temporarily suspending the 

Exchange’s proposed rule change, the 

Commission intends to further consider 

whether the proposal to increase the 

monthly fee for 10 Gb physical ports 

from $7,500 to $8,500 per port for the 

Exchange is consistent with the 

statutory requirements applicable to a 

national securities exchange under the 

Act. In particular, the Commission will 

consider whether the proposed rule 

change satisfies the standards under the 

Act and the rules thereunder requiring, 

among other things, that an exchange’s 

rules provide for the equitable 

allocation of reasonable fees among 

members, issuers, and other persons 

using its facilities; not permit unfair 

discrimination between customers, 

issuers, brokers or dealers; and do not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act.39

Therefore, the Commission finds that 

it is appropriate in the public interest, 

for the protection of investors, and 

otherwise in furtherance of the purposes 

of the Act, to temporarily suspend the 

proposed rule change.40

IV. Proceedings To Determine Whether 

To Approve or Disapprove the 

Proposed Rule Change 

In addition to temporarily suspending 

the proposal, the Commission also 

hereby institutes proceedings pursuant 

to Sections 19(b)(3)(C) 41 and 19(b)(2)(B) 


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42 15 U.S.C. 78s(b)(2)(B). 

43 Id. Section 19(b)(2)(B) of the Act also provides 

that proceedings to determine whether to 

disapprove a proposed rule change must be 

concluded within 180 days of the date of 

publication of notice of the filing of the proposed 

rule change. See id. The time for conclusion of the 

proceedings may be extended for up to 60 days if 

the Commission finds good cause for such 

extension and publishes its reasons for so finding, 

or if the exchange consents to the longer period. See 

id. 

44 15 U.S.C. 78f(b)(4). 

45 15 U.S.C. 78f(b)(5). 

46 15 U.S.C. 78f(b)(8). 

47 17 CFR 201.700(b)(3). 

48See id. 

49See id. 

50See 15 U.S.C. 78f(b)(4), (5), and (8). 

51 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act 

grants 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 an 

SRO. See Securities Acts Amendments of 1975, 

Report of the Senate Committee on Banking, 

Housing and Urban Affairs to Accompany S. 249, 

S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 52 15 U.S.C. 78s(b)(3)(C). 

of the Act 42 to determine whether the 

Exchange’s proposed rule change 

should be approved or disapproved. 

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 provide additional 

comment on the proposed rule change 

to inform the Commission’s analysis of 

whether to approve or disapprove the 

proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,43 the Commission is providing 

notice of the grounds for possible 

disapproval under consideration: 

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(4) of the 

Act, which requires that the rules of a 

national securities exchange ‘‘provide 

for the equitable allocation of reasonable 

dues, fees, and other charges among its 

members and issuers and other persons 

using its facilities’’; 44

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(5) of the 

Act, which requires, among other 

things, that the rules of a national 

securities exchange not be ‘‘designed to 

permit unfair discrimination between 

customers, issuers, brokers, or 

dealers’’; 45 and 

• Whether the Exchange has 

demonstrated how the proposed fees are 

consistent with Section 6(b)(8) of the 

Act, which requires that the rules of a 

national securities exchange ‘‘not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of [the Act].’’ 46

As discussed in Section III above, the 

Exchange made various arguments in 

support of their proposal. The 

Commission believes that there are 

questions as to whether the Exchange 

has provided sufficient information to 

demonstrate that the proposed fees are 

consistent with the Act and the rules 

thereunder. 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the [Act] and the rules 

and regulations issued thereunder . . . 

is on the [SRO] that proposed the rule 

change.’’ 47 The description of a 

proposed rule change, its purpose and 

operation, its effect, and a legal analysis 

of its consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,48 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Act and the applicable rules 

and regulations.49

The Commission is instituting 

proceedings to allow for additional 

consideration and comment on the 

issues raised herein, including as to 

whether the proposed fees are 

consistent with the Act, and 

specifically, with its requirements that 

exchange fees be reasonable and 

equitably allocated, not be unfairly 

discriminatory, and not impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act.50

V. Commission’s Solicitation of 

Comments 

The Commission requests written 

views, data, and arguments with respect 

to the concerns identified above as well 

as any other relevant concerns. Such 

comments should be submitted by 

October 25, 2023. Rebuttal comments 

should be submitted by November 8, 

2023. 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, any 

request for an opportunity to make an 

oral presentation.51

The Commission asks that 

commenters address the sufficiency and 

merit of the Exchange’s statements in 

support of the proposal, in addition to 

any other comments they may wish to 

submit about the proposed rule change. 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeEDGX–2023–057 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–CboeEDGX–2023–057. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

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–CboeEDGX–2023–057 and should be 

submitted on or before October 25, 

2023. Rebuttal comments should be 

submitted by November 8, 2023. 

VI. Conclusion 

IT IS THEREFORE ORDERED, 

pursuant to Section 19(b)(3)(C) of the 

Act,52 that File No. SR–CboeEDGX– 

2023–057, be and hereby is, temporarily 


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53 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

3Capitalized terms not defined herein are defined 

in the Rules, available at www.dtcc.com/∼/media/ 

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

4See Rule 4 (Clearing Fund) and Procedure XV 

(Clearing Fund Formula and Other Matters), supra 

note 3. NSCC’s market risk management strategy is 

designed to comply with Rule 17Ad–22(e)(4) under 

the Act, where these risks are referred to as ‘‘credit 

risks.’’ 17 CFR 240.17Ad–22(e)(4). 

5The Rules identify when NSCC may cease to act 

for a member and the types of actions NSCC may 

take. For example, NSCC may suspend a firm’s 

membership with NSCC or prohibit or limit a 

member’s access to NSCC’s services in the event 

that member defaults on a financial or other 

obligation to NSCC. See Rule 46 (Restrictions on 

Access to Services), supra note 3. 

6See Rule 4, Section 1, supra note 3. 

7See Rule 1 (Definitions) for applicable 

definitions, including Eligible Clearing Fund 

Securities and its components, which are Eligible 

Clearing Fund Agency Securities, Eligible Clearing 

Fund Mortgage-Backed Securities, and Eligible 

Clearing Fund Treasury Securities. Supra note 3. 

8See Section III.(A) of Procedure XV, supra note 

3. Section III.(A) was last modified in 2011 in order 

to conform the haircuts to requirements of NSCC’s 

lenders under its credit facilities. See Securities 

Exchange Act Release No. 64487 (May 13, 2011), 76 

FR 29019 (May 19, 2011) (SR–NSCC–2011–02). 

suspended. In addition, the Commission 

is instituting proceedings to determine 

whether the proposed rule change 

should be approved or disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–22031 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98589; File No. SR–NSCC– 

2023–009] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of 

Proposed Rule Change Relating to the 

Schedule of Haircuts for Eligible 

Clearing Fund Securities 

September 28, 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 

September 22, 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 primarily 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 

modifications to NSCC’s Rules & 

Procedures (‘‘Rules’’) 3 in order to 

modify the schedule of haircuts for 

Eligible Clearing Fund Securities and 

remove it from Procedure XV of the 

Rules (‘‘Procedure XV’’), and make other 

clarifying changes, as described in 

greater detail below. 

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 

NSCC is proposing to modify the 

schedule of haircuts for Eligible 

Clearing Fund Securities, and to remove 

it and the related concentration limits 

from Procedure XV, and make other 

clarifying changes, as described in 

greater detail below. 

Background 

As part of its market risk management 

strategy, NSCC manages its credit 

exposure to members by determining 

the appropriate Required Fund Deposits 

to the Clearing Fund and monitoring its 

sufficiency, as provided for in the 

Rules.4 The Required Fund Deposit 

serves as each member’s margin. 

The objective of a member’s Required 

Fund Deposit is to mitigate potential 

losses to NSCC associated with 

liquidating a member’s portfolio in the 

event NSCC ceases to act for that 

member (hereinafter referred to as a 

‘‘default’’).5 The aggregate of all 

members’ Required Fund Deposits 

constitutes the Clearing Fund of NSCC. 

NSCC would access its Clearing Fund 

should a defaulting member’s own 

Required Fund Deposit be insufficient 

to satisfy losses to NSCC caused by the 

liquidation of that member’s portfolio. 

The Clearing Fund reduces the risk that 

NSCC would need to mutualize any 

losses among non-defaulting members 

during the liquidation process. 

Under Rule 4 (Clearing Fund), 

members are required to make deposits 

to the Clearing Fund, with the amount 

of each member’s Required Fund 

Deposit being determined by NSCC in 

accordance with Rule 4. A member may 

satisfy its Required Fund Deposit with 

cash or an open account indebtedness 

secured by Eligible Clearing Fund 

Securities.6 Eligible Clearing Fund 

Securities, comprised of certain agency, 

mortgage-backed, and Treasury 

securities, are valued based on the prior 

Business Day’s closing market price, 

less a haircut, and may be subject to a 

concentration limit.7 Haircuts are used 

to protect NSCC and its members from 

price fluctuations, i.e., if NSCC is 

required to liquidate collateral of an 

insolvent member and such collateral is 

worth less at the time of liquidation 

than when it is pledged to NSCC. 

Concentration limits are intended to 

reduce NSCC’s risk by limiting the 

percentage of certain types of Eligible 

Clearing Fund Securities pledged by 

members to secure the Clearing Fund 

deposits. This is because when a 

member’s portfolio contains large net 

unsettled positions in a particular group 

of securities with a similar risk profile 

or in a particular asset type, such 

securities could present additional risk 

to NSCC. 

Currently, collateral haircuts 

applicable to relevant security types and 

remaining maturity terms are specified 

as fixed percentages in Section III.(A) of 

Procedure XV (‘‘Section III.(A)’’).8 The 

sufficiency of collateral haircuts is 

evaluated through use of back-tests, 

stress-tests and market observations. To 

ensure the sufficiency of the collateral 

haircuts, a backtesting analysis of 

members’ collateral deposits is 

conducted daily, and summary reviews 

are completed quarterly, each by the 

NSCC market risk group pursuant to 

NSCC’s internal market risk 

management policies and procedures. 

NSCC performs daily backtesting of 

collateral by comparing the collateral 

haircut for each member in simulated 

liquidations with the member’s actual 

collateral held on deposit at NSCC. Any 

exceptions noted are escalated to 

management daily to assess the root 

cause and determine whether further 

analysis and/or review would be 

appropriate. Specifically, if NSCC 

determines that a particular security 

may present inherent volatility and/or 

liquidity risks that could likely result in 

an erosion in the value of the security 

exceeding the applicable collateral 


lotter on DSK11XQN23PROD with NOTICES1