[Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)]
[Notices]
[Pages 35041-35044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83666; File No. SR-NSCC-2018-004]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change To Terminate 
the Commission Billing Service and the Commission Billing Limited 
Membership

July 18, 2018.
    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 July 13, 2018, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to Rules and 
Procedures of NSCC (``Rules'') in order to in order to terminate the 
Commission Billing service and the Commission Billing type of limited 
membership, as described in greater detail below.\3\
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    \3\ Available at http://www.dtcc.com/legal/rules-and-procedures. 
Capitalized terms used herein and not otherwise defined shall have 
the meaning assigned to such terms in the Rules.
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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 revise its Rules in order to discontinue its 
Commission Billing service and the Commission Billing type of limited 
membership, for the reasons described below.
Overview of the Commission Billing Service
    As currently described in Rule 16, NSCC provides a service through 
which it facilitates the payment of commissions on monthly basis 
between its Members and Commission Billing Members.\4\ Brokers that use 
this service to charge and collect commissions are Commission Billing 
Members, which is a type of limited membership that allows these firms 
to participate in NSCC solely for the collection of commissions.
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    \4\ Id.
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    Currently, Commission Billing Members are floor broker firms that 
are members of the New York Stock Exchange (``NYSE'') and NYSE American 
(formerly the American Stock Exchange), although historically the 
service was available to floor broker firms on any U.S. exchange. As 
provided for in Rule 2 of the Rules, Commission Billing Members 
participate solely in the collection and payment of commissions as 
provided for under Rule 16 of the Rules.\5\
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    \5\ Id.
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    Floor broker firms execute trades on behalf of their clients for a 
commission. In order to process commission charges applied to clients 
who are Members, floor broker firms that are Commission Billing Members 
may submit these charges to NSCC. Commission charges are submitted to 
NSCC in one of two ways. In most cases, where the Commission Billing 
Member is a member of NYSE, NYSE may act as a payment-data aggregator 
and creates and submits payment files to NSCC. Alternatively, 
Commission Billing Members may submit payments directly to NSCC through 
a web-based system. NSCC tabulates all payment records received on a 
monthly basis, and either sends amounts to The Depository Trust Company 
(``DTC'') for payment (for billed Members that are also Participants of 
DTC) or processes

[[Page 35042]]

payments through Automated Clearing House, or ``ACH,'' payments.
    For many years, the Commission Billing service provided these 
brokers and Members with an efficient way to submit and receive 
commission payments when few alternative payment options existed in the 
industry that would handle the large volume of transactions.
Rationale for Terminating the Commission Billing Service and Commission 
Billing Limited Membership
    NSCC is proposing to terminate the Commission Billing service for a 
number of reasons, as described below. Because the Commission Billing 
type of limited membership exists only for the purposes of the use of 
this service, NSCC would terminate the existing Commission Billing 
memberships simultaneously with the termination of the service.
    Over the years, the volumes of trades handled by floor brokers 
firms have decreased, leading to a significant decrease in commission 
bill transactions and the use of this service. Between January 2017 and 
June 2018, the Commission Billing service processed an average of 
approximately 87 commission payments per month (averaging a total of 
approximately $370,000 each month), compared to an average of 
approximately 10,000 commission payments per month in the early 2000's. 
The number of Commission Billing Members has also declined, with only 
seven new firms joining over the last eight years. Commission Billing 
Members have alternative methods to process commission payments. For 
example, firms may process the charges and payments through their own 
accounts payable systems, charging and collecting payments from their 
clients directly. Due to the lower volumes of commission payments, this 
is a more reasonable alternative to the Commission Billing Service than 
it may have been when volumes of payments were higher. Therefore, the 
industry's reliance on this service, which was built to provide an 
efficient way to process large volumes of payments, has been 
diminishing.
    Since the introduction of the service, NSCC has provided the 
Commission Billing service as a utility service to the industry and its 
Members; the service provided its Members and the industry with value, 
but it was not designed to generate profit for NSCC. Over time, the 
reduced volumes of transactions has caused this service to be provided 
at a financial loss to NSCC. Costs of providing the service include 
engaging an ACH settling bank and ongoing system operating costs.
    Additionally, due to the use of legacy systems that lack automation 
and support features, the service continues to rely on manual processes 
and requires personnel involvement. While errors in the operation of 
the service are infrequent, the reliance on manual processes creates a 
risk of such errors. Remediation of such errors, if they occur, could 
distract support resources from higher priority tasks. NSCC would be 
required to invest in enhancements to the systems that support the 
Commission Billing service if it continued to offer the service.
    Therefore, due to the reduced reliance on this service by the 
industry, the cost of providing this service, and the availability of 
other methods for Members and brokers to process these payments, NSCC 
is proposing to terminate the Commission Billing service.
    In order to terminate the Commission Billing service, NSCC would 
amend the Rules to remove Rule 16 (Settlement of Commissions) and to 
remove references to the Commission Billing type of limited membership 
from Rule 1 (Definitions and Descriptions), Rule 2 (Members and Limited 
Members), Rule 2A (Initial Membership Requirements), Rule 2B (Ongoing 
Membership Requirements and Monitoring), Rule 18 (Procedures for When 
the Corporation Declines or Ceases to Act), Rule 22 (Suspension of 
Rules), Rule 24 (Charges for Services Rendered), Rule 26 (Bills 
Rendered), Rule 34 (Insurance), Rule 37 (Hearing Procedures), Rule 46 
(Restrictions on Access to Services), Rule 58 (Limitations on 
Liability), Rule 64 (DTCC Shareholders Agreement), Addendum A (Fee 
Structure), Addendum B (Qualifications and Standards of Financial 
Responsibility, Operational Capability and Business History), Addendum 
D (Statement of Policy Envelope Settlement Service, Mutual Fund 
Services, Insurance and Retirement Processing Services, and Other 
Services Offered by the Corporation), and Addendum P (Fine Schedule). 
NSCC would also make necessary conforming changes to Addendum B 
(Qualifications and Standards of Financial Responsibility, Operational 
Capability and Business History) and Rule 1 (Definitions and 
Descriptions). Finally, NSCC would add a legend to each of the above 
listed Rules and Addenda that identifies the implementation date of the 
proposed changes.
Implementation Timeframe
    Given that all current Commission Billing Members are floor broker 
members of NYSE and NYSE American, NSCC will work closely with these 
exchanges to provide these firms with notice of the proposed 
termination of this service and their related limited memberships with 
NSCC. NSCC also would provide these firms with time to transition to 
alternative methods for the submission of charges and receipt of 
commission payments. Subject to the approval of this proposed rule 
change filing, NSCC would implement this proposed rule change and 
terminate the Commission Billing service by no later than November 30, 
2018.
2. Statutory Basis
    NSCC believes that the proposed changes are consistent with the 
Section 17A(b)(3)(F) of the Act, which requires, in part, that the 
rules of a registered clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions, for 
the reasons described below.\6\ The proposed rule change would 
terminate a service that takes up various resources (through its 
reliance on manual operations and by operating at a financial loss) and 
is no longer relied on by Members and the industry. Because NSCC would 
no longer need to divert resources to an underutilized service, the 
proposed rule change would afford NSCC the ability to employ those 
resources in a manner that could better support and promote the prompt 
and accurate clearance and settlement of securities transactions. In 
that way, NSCC believes the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act.\7\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ Id.
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    Rule 17Ad-22(e)(21)(iv) under the Act requires, in part, that NSCC 
be efficient and effective in meeting the requirements of its 
participants and the markets it serves, and have the covered clearing 
agency's management regularly review the efficiency and effectiveness 
of its use of technology and communication procedures.\8\ As described 
above, to continue providing the Commission Billing service, NSCC would 
need to enhance the systems and technology used to operate the system 
in order to implement more automation and support features. However, 
given that the service currently operates at a financial loss and does 
not provide the industry with the same value that it has in the past, 
NSCC has determined that it would be more efficient and effective

[[Page 35043]]

in meeting the requirements of its Members to eliminate the service and 
instead use its resources for higher priority services. Therefore, NSCC 
believes the proposed rule change is consistent with Rule 17Ad-
22(e)(21)(iv).\9\
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    \8\ 17 CFR 240.17Ad-22(e)(21)(iv).
    \9\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    The proposed rule change could have an impact on competition 
because Commission Billing Members that currently use the service to 
process their commission bills, and firms that may apply to use the 
service in the future, would no longer be able to do so. However, NSCC 
does not believe that the impact of this proposed rule change on 
competition would be significant. First, the proposal is unlikely to 
have a significant impact because the use of the service has diminished 
over time, as described above. NSCC has not onboarded a new Commission 
Billing Member in over two years, and the number of active Commission 
Billing Members has declined over time. Therefore, elimination of the 
service is unlikely to impact many firms that may wish to join as 
Commission Billing Members in the future. Second, while current 
Commission Billing Members would need to use other methods to process 
commission payments, alternatives currently exist, including using 
their own accounts payable system. Given that volumes of commission 
bills have trended lower over the past few years, these firms should 
not incur a significant cost in processing commission bills and 
collecting commission payments through their own internal billing 
systems. Therefore, NSCC does not believe that the proposed rule change 
would have a significant impact on competition.
    NSCC also believes that any impact the proposed rule change may 
have on competition would be both necessary and appropriate in 
furtherance of the purposes of the Act.
    The proposed rule change would afford NSCC the option to utilize 
its resources for matters that better support and promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\10\ The proposed rule 
change would also allow NSCC to be more efficient and effective in 
meeting the requirements of its Members by using its resources for 
higher priority services, consistent with Rule 17Ad-22(e)(21)(iv) under 
the Act.\11\ Therefore, by advancing NSCC's ability to meet the 
requirements of both Section 17A(b)(3)(F) of the Act \12\ and Rule 
17Ad-22(e)(21)(iv) under the Act,\13\ NSCC believes any impact the 
proposed rule change may have on competition would be necessary in 
furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(e)(21)(iv).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(21)(iv).
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    Additionally, NSCC believes that the proposed rule change is a 
reasonable method of advancing NSCC's ability to meet these 
requirements. As noted above, Members' use of this service has reduced 
over time, and the cost to NSCC of providing the service has outweighed 
the benefit it provides to the industry. NSCC would provide Members and 
Commission Billing Members with notice and time to transition to other 
viable methods for processing these payments. Therefore, NSCC believes 
the proposed rule change is a reasonable method of advancing NSCC's 
ability to meet the requirements of both Section 17A(b)(3)(F) of the 
Act \14\ and Rule 17Ad-22(e)(21)(iv) under the Act.\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(21)(iv).
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    Therefore, NSCC does not believe that the proposed rule change 
would have a significant impact on competition, and further believes 
that any such impact would be both necessary and appropriate in 
furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not solicited or received any written comments relating to 
this proposal. NSCC will notify the Commission of any written comments 
that it receives.

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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email protected]</span></a>. Please include 
File Number SR-NSCC-2018-004 on the subject line.

Paper Comments

    <bullet> 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-2018-004. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSCC-2018-004 and should be submitted on 
or before August 14, 2018.


[[Page 35044]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15766 Filed 7-23-18; 8:45 am]
BILLING CODE 8011-01-P


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