Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 10589 

22The Commission further notes that, while 

DMMs have certain special obligations to the SROs, 

including those relating to the maintenance of a fair 

and orderly market, Floor brokers do not have 

similar obligations. 

23Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Public Law 

94–29 (June 4, 1975), 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 a self-regulatory 

organization. See Securities Act Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 24 17 CFR 200.30–3(a)(57). 

assist them in carrying out their trading 

floor functions, such as maintaining 

order among Floor brokers manually 

trading at the DMM’s assigned panel, 

bringing Floor brokers together to 

facilitate trading, assisting Floor brokers 

with respect to their orders, and 

researching the status of orders or 

questioned trades. The SROs also 

believe that providing this information 

to Floor brokers would serve a valuable 

function by increasing the ability of 

Floor brokers to source liquidity and 

provide price discovery for block 

transactions. 

While the SRO proposals may 

improve the ability of DMMs and Floor 

brokers to trade on the SROs, they also 

would provide DMMs and Floor brokers 

access to potentially valuable 

information about individual orders on 

the SROs that is not available to other 

exchange members or market 

participants. This information would 

include the price and size of individual 

orders on the SROs, as well as the 

entering and clearing firm for such 

orders. It also would include 

information about trading interest that is 

not available to other exchange 

members or market participants even in 

aggregated form, such as Floor broker 

Reserve e-Quotes (unless there has been 

an affirmative election to withhold this 

information). As noted above, while the 

Commission has recognized that 

exchanges may legitimately confer 

special benefits on market participants 

willing to accept substantial 

responsibilities to contribute to market 

quality, such benefits must not be 

disproportionate to the services 

provided. In this case, the SROs have 

not proposed to require of DMMs or 

Floor brokers any additional obligations 

to the market that might correspond to 

the proposed informational benefits.22

Nor have the SROs clearly explained 

how the proposals might materially 

improve the quality of the SROs’ 

markets, particularly given the 

increasing amount of automated 

transactions on the SROs and the 

reduced role of the Exchange floors. As 

a result, the Commission is concerned 

that the SROs’ proposals, among other 

things, may unfairly discriminate in 

favor of DMMs and Floor brokers, may 

not be designed to protect the broad 

group of investors that trade on the 

SROs, and otherwise may be 

inequitable. 

The Commission therefore believes 

that questions remain as to whether the 

SRO Proposals are consistent with the 

requirements of Sections 6(b)(5) of the 

Act, including whether they would 

promote just and equitable principles of 

trade, perfect the mechanism of a free 

and open market and the national 

market system, protect investors and the 

public interest, and not permit unfair 

discrimination. 

IV. Solicitation of Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the SRO Proposals. 

In particular, the Commission invites 

the written views of interested persons 

concerning whether the SRO Proposals 

are inconsistent with Section 6(b)(5) or 

any other provision of the Act, or the 

rules and regulation thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval which 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.23

Interested persons are invited to 

submit written data, views and 

arguments regarding whether the SRO 

Proposals should be disapproved by 

March 14, 2012. Any person who 

wishes to file a rebuttal to any other 

person’s submission must file that 

rebuttal by March 28, 2012. 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 rulecomments@sec.gov. Please include File 

Numbers SR–NYSE–2011–56 and SR– 

NYSEAmex–2011–86 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Numbers SR–NYSE–2011–56 and SR– 

NYSEAmex–2011–86. These file 

numbers 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 Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the SRO Proposals that 

are filed with the Commission, and all 

written communications relating to the 

SRO Proposals 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 Web 

site viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE., Washington, DC 

20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filings also will be 

available for inspection and copying at 

the principal office of the Exchanges. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Numbers SR–NYSE–2011–56 and SR– 

NYSEAmex–2011–86 and should be 

submitted on or before March 14, 2012. 

Rebuttal comments should be submitted 

by March 28, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4003 Filed 2–21–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66398; File No. SR–NSCC– 

2012–02] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of 

Proposed Rule Change To Enhance Its 

Margining Methodology as Applied to 

Municipal and Corporate Bonds 

February 15, 2012. 

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

Securities Exchange Act of 1934 


srobinson on DSK4SPTVN1PROD with NOTICES
10590 Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 

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

2 17 CFR 240.19b–4. 

3The Commission has modified the text of the 

summaries prepared by NSCC. 

4 In addition to those described in this filing, 

Clearing Fund components also include (i) a markto-market component which, with certain 

exclusions, takes into account any difference 

between the contract price and market price for net 

positions of each security in a member’s portfolio 

through settlement; (ii) the Market Maker 

Domination component, or ‘‘MMDOM’’, is charged 

to Market Makers, or firms that clear for them; (iii) 

a ‘‘special charge’’ in view of price fluctuations in 

or volatility or lack of liquidity of any security; (iv) 

an additional charge (between 5–10%) of a 

member’s outstanding fail positions; (v) a ‘‘specified 

activity charge’’ for transactions scheduled to settle 

on a shortened settlement cycle (i.e., less than T+3 

or T+3 for ‘‘as-of’’ transactions); (vi) an additional 

charge which NSCC may require of members on 

surveillance status; and (vii) an ‘‘Excess Capital 

Premium’’ which takes into account the degree to 

which a member’s collateral requirement compares 

to the member’s excess net capital by applying a 

charge if a member’s Required Deposit, minus 

amounts applied from the charges described in (ii) 

and (iii) above, is above its required capital. 5 15 U.S.C. 78q–1. 

(‘‘Act’’) 1 and Rule 19b–4 thereunder 2

notice is hereby given that on February 

1, 2012, the National Securities Clearing 

Corporation (‘‘NSCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

primarily by NSCC. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of the proposed rule 

change is to enhance NSCC’s margining 

methodology as it applies to municipal 

and corporate bonds. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NSCC 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. NSCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements.3

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

Proposal Overview 

A primary objective of NSCC’s 

Clearing Fund is to have on deposit 

from each applicable member assets 

sufficient to satisfy losses that may 

otherwise be incurred by NSCC as the 

result of the default of the member and 

the resultant close out of that member’s 

unsettled positions under NSCC’s trade 

guaranty. Each member’s clearing fund 

(‘‘Clearing Fund’’) required deposit is 

calculated daily pursuant to a formula 

set forth in Procedure XV of the Rules, 

which formula is designed to provide 

sufficient funds to cover this risk of loss. 

The Clearing Fund formula accounts for 

a variety of risk factors through the 

application of a number of components, 

each described in Procedure XV.4

The volatility component or ‘‘VaR’’ is 

a core component of this formula and is 

designed to calculate the amount of 

money that may be lost on a portfolio 

over a given period of time and that is 

assumed would be necessary to 

liquidate the portfolio within a given 

level of confidence. Pursuant to 

Procedure XV, NSCC may exclude from 

this calculation net unsettled positions 

in classes of securities whose volatility 

is not amendable to generally accepted 

statistical analysis in a complex manner, 

such as illiquid municipal or corporate 

bonds. The volatility charge for such 

positions is determined by multiplying 

the absolute value of the positions by a 

predetermined percentage (‘‘haircut’’), 

which shall not be less than 2%. 

In connection with its ongoing review 

of the adequacy and appropriateness of 

its margining methodologies, NSCC is 

proposing to amend Procedure XV of 

the Rules so that NSCC will apply this 

haircut-based margining methodology, 

at a rate no less than 2%, as is currently 

permitted by Procedure XV to all 

municipal and corporate bonds 

processed through NSCC. The proposed 

rule change will make clear that to the 

extent NSCC deems appropriate NSCC 

may apply this haircut to any of the 

municipal and corporate bonds that it 

processes. As NSCC continuously 

reviews its margin models in order to 

ensure the reliability of its margining 

methodology in achieving the desired 

coverage, the proposed rule change will 

allow it to apply a margin requirement 

to these instruments that it deems 

appropriate. 

NSCC reviews its risk management 

processes against applicable regulatory 

and industry standards, including, but 

not limited to: (i) The Recommendations 

for Central Counterparties 

(‘‘Recommendations’’) of the Committee 

on Payment and Settlement Systems 

and the Technical Committee of the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) and (ii) the 

securities laws and rulemaking 

promulgated by the Commission. In 

conformance to Recommendations 3 

and 4 of the IOSCO Recommendations 

and with the Commission rules 

proposed under the Dodd–Frank Wall 

Street Reform and Consumer Protection 

Act of 2010, specifically proposed Rule 

17Ad–22(b)(1) addressing measurement 

and management of credit exposures, 

this proposed rule change will assist 

NSCC in its continuous efforts to ensure 

the reliability of its margining 

methodology and will limit NSCC’s 

exposures and losses by allowing it to 

apply a margin requirement to corporate 

and municipal bonds cleared at NSCC 

that captures the risk characteristics of 

these instruments, including historical 

price volatility and market liquidity and 

idiosyncratic risk, which are asset class 

specific. 

Implementation Timeframe 

Pending Commission approval of this 

proposed rule change, members will be 

advised of the implementation date 

through issuance of an NSCC Important 

Notice. 

Proposed Rule Changes 

In order make clear that, to the extent 

NSCC deems appropriate, a haircutbased margining methodology may be 

applied to all municipal and corporate 

bonds processed at NSCC, NSCC 

proposes to amend Sections I(A)(1)(a)(ii) 

and I(A)(2)(a)(ii) of Procedure XV, as 

marked on Exhibit 5 attached to the 

proposed rule filing by removing the 

qualifier ‘‘illiquid’’ before ‘‘municipal or 

corporate bonds.’’ No other changes to 

the Rules are contemplated by this 

proposed rule change. 

As a central counterparty, NSCC 

occupies an important role in the 

securities settlement system by 

interposing itself between 

counterparties to financial transactions, 

thereby reducing the risk faced by 

participants and contributing to global 

financial stability. The effectiveness of a 

central counterparty’s risk controls and 

the adequacy of its financial resources 

are critical to achieving these riskreducing goals. The proposed rule 

change will assist NSCC in its 

continuous efforts to ensure the 

reliability of its margining methodology 

and will limit NSCC’s exposures and 

losses by allowing it to apply a margin 

requirement to corporate and municipal 

bonds cleared at NSCC that captures the 

risk characteristics of these instruments. 

NSCC believes the proposed rule change 

is consistent with the requirements of 

Section 17A of the Act 5 and the rules 

and regulations thereunder applicable to 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 35 / Wednesday, February 22, 2012 / Notices 10591 

6 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78s(b)(3)(A)(i). 

3 17 CFR 240.19b–4(f)(1). 

4The Commission has modified the text of the 

summaries prepared by NSCC. 

NSCC, specifically with proposed Rule 

17Ad–22(b)(1) that addresses 

measurement and management of credit 

exposures, as well as with the IOSCO 

Recommendations 3 and 4. The 

proposed rule change is not inconsistent 

with the existing rules of NSCC, 

including any other rules proposed to be 

amended. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

NSCC believes that the proposed rule 

change will not impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. The proposed rule 

change will allow NSCC to apply a 

margin requirement to corporate and 

municipal bonds cleared at NSCC that 

captures the risk characteristics of these 

instruments. Therefore, the proposed 

rule change will help NSCC to limit its 

exposures and losses to these 

instruments and as such will contribute 

to the goal of financial stability in the 

event of member default and will render 

not unreasonable or inappropriate any 

burden on competition that the changes 

could be regarded as imposing. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. NSCC will notify 

the Commission of any written 

comments received by NSCC. 

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 the 

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–2012–02 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NSCC–2012–02. 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 Web site (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 Web site viewing and 

printing in the Commission’s Public 

Reference Section, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filings 

will also be available for inspection and 

copying at the principal office of NSCC 

and on NSCC’s Web site at http://www.

dtcc.com/downloads/legal/rule_filings/

2012/nscc/2012-02.pdf. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NSCC–2012–02 and should 

be submitted on or before March 14, 

2012. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Kevin O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4004 Filed 2–21–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66399; File No. SR–NSCC– 

2012–01] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Make a Technical 

Correction With Respect to the Excess 

Capital Premium as Set Forth in 

Procedure XV (Clearing Fund Formula) 

of NSCC’s Rules and Procedures 

February 15, 2012. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

February 1, 2012, the National 

Securities Clearing Corporation 

(‘‘NSCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change described in 

Items I and II below, which Items have 

been prepared primarily by NSCC. 

NSCC filed the proposal pursuant to 

Section 19(b)(3)(A) (i) of the Act 2 and 

Rule 19b–4(f)(1) 3 thereunder so that the 

proposal was effective upon filing with 

the Commission. The Commission is 

publishing this notice to solicit 

comments on the rule change from 

interested parties. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of this filing is to make 

a technical correction with respect to 

the Excess Capital Premium as set forth 

in Procedure XV (Clearing Fund 

Formula) of NSCC’s Rules and 

Procedures. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NSCC 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. NSCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements.4


srobinson on DSK4SPTVN1PROD with NOTICES