Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 83993 

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 http://dtcc.com/∼/media/ 

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

4 In order to more accurately assess the impact of 

the proposed changes, the impact study included 

changes to the gap risk measure that were 

implemented on October 2, 2023 as if such changes 

had been in effect during the impact study period. 

See Securities Exchange Act Release No. 98086 

(Aug. 8, 2023), 88 FR 55100 (Aug. 14, 2023) (File 

No. SR–NSCC–2022–015) (order approving 

proposed rule change to change the gap risk 

measure). 

5See Rule 4 (Clearing Fund) and Procedure XV 

(Clearing Fund Formula and Other Matters), supra 

Continued 

POLICIES AND PRACTICES FOR STORAGE OF

RECORDS: 

Automated database, computer 

storage media, and paper. 

POLICIES AND PRACTICES FOR RETRIEVAL OF

RECORDS: 

Records relating to system 

administration are retrievable by user 

ID. 

POLICIES AND PRACTICES FOR RETENTION AND

DISPOSAL OF RECORDS: 

Records relating to system 

administration are retained for twentyfour months. 

ADMINISTRATIVE, TECHNICAL, AND PHYSICAL

SAFEGUARDS: 

Paper records, computers, and 

computer storage media are located in 

controlled-access areas under 

supervision of program personnel. 

Computer access is limited to 

authorized personnel with a current 

security clearance, and physical access 

is limited to authorized personnel who 

must be identified with a badge. 

Access to records is limited to 

individuals whose official duties require 

such access. Contractors and licensees 

are subject to contract controls and 

unannounced on-site audits and 

inspections. 

Computers are protected by 

encryption, mechanical locks, card key 

systems, or other physical access control 

methods. The use of computer systems 

is regulated with installed security 

software, computer logon 

identifications, and operating system 

controls including access controls, 

terminal and transaction logging, and 

file management software. 

RECORD ACCESS PROCEDURES: 

Requests for access must be made in 

accordance with the Notification 

Procedure above and USPS Privacy Act 

regulations regarding access to records 

and verification of identity under 39 

CFR 266.5. 

CONTESTING RECORD PROCEDURES: 

See Notification Procedure and 

Record Access Procedures above. 

NOTIFICATION PROCEDURES: 

Customers wanting to know if other 

information about them is maintained in 

this system of records must address 

inquiries in writing to the Chief 

Information Officer and Executive Vice 

President and include their name and 

address. 

EXEMPTION(S) PROMULGATED FROM THIS

SYSTEM: 

None. 

HISTORY: 

May 10th, 2021; 86 FR 24902. 

Colleen Hibbert-Kapler, 

Attorney, Ethics and Compliance. 

[FR Doc. 2023–26480 Filed 11–30–23; 8:45 am] 

BILLING CODE 7710–12–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99022; File No. SR–NSCC– 

2023–011] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of 

Proposed Rule Change To Refine the 

Margin Liquidity Adjustment (‘‘MLA’’) 

Charge Calculation and the 

Description of the MLA Charge 

November 27, 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 November 

17, 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 

modifications to NSCC’s Rules & 

Procedures (‘‘Rules’’) to refine the 

Margin Liquidity Adjustment (‘‘MLA’’) 

charge calculation and the description 

of the MLA charge, as described in 

greater detail below.3

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 refine the MLA 

charge calculation to more accurately 

calculate the impact costs of liquidating 

a security/portfolio by (i) moving all 

exchange traded products (‘‘ETPs’’) 

(other than those deemed to be Illiquid 

Securities) into the equities asset group 

and calculating impact cost at the 

security level rather than at the 

subgroup level for the equities asset 

subgroups and (ii) improving the 

calculations relating to exchange traded 

funds (‘‘ETFs’’) by adding a calculation 

for latent liquidity for equity ETFs with 

in-kind baskets, as described in more 

detail below. 

NSCC conducted an impact study of 

the proposed changes based on data 

from January 3, 2022 through June 30, 

2023.4 The impact study indicated that 

if the proposed changes had been in 

place during the impact study period, 

the proposed changes would have 

resulted in an approximately $62 

million daily average increase during 

the impact study period, which 

accounts for approximately 0.52% of the 

daily total Clearing Fund during that 

period. Currently, the daily MLA charge 

accounts for approximately 3.54% of the 

daily total Clearing Fund. With the 

proposed MLA charge refinements, the 

MLA charge would have accounted for 

approximately 4.06% of the daily total 

Clearing Fund. 

NSCC is also proposing to enhance 

the description of the MLA charge to 

clarify the description of the calculation 

with respect to SFT Positions in 

connection with Securities Financing 

Transactions, as described below. 

(i) Overview of Required Fund Deposit 

and MLA Charge 

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.5 The Required Fund Deposit 

serves as each Member’s margin. 


lotter on DSK11XQN23PROD with NOTICES1
83994 Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 

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). 

6The 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) of the Rules, supra note 3. 

7See Rule 4 (Clearing Fund), supra note 3. 

8Supra note 3. 

9Net Unsettled Positions and Net Balance Order 

Unsettled Positions refer to net positions that have 

not yet passed their settlement date or did not settle 

on their settlement date, and are referred to 

collectively in this filing as ‘‘Net Unsettled 

Positions.’’ See Procedure XV (Clearing Fund 

Formula and Other Matters) of the Rules, supra note 

3. 

10See Section I(A)(1)(a)(i) of Procedure XV of the 

Rules, supra note 3. 

11See Section I(A)(1)(a)(ii), (iii) and (iv), and 

Section I(A)(2)(a)(ii), (iii) and (iv), of Procedure XV 

of the Rules, supra note 3. 

12See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

13See Securities Exchange Act Release Nos. 

90181 (Oct. 14, 2020), 85 FR 66646 (Oct. 20, 2020) 

(File No. SR–NSCC–2020–016) and 90034 (Sep. 28, 

2020), 85 FR 62342 (Oct. 2, 2020) (File No. SR– 

NSCC–2020–804) (collectively, ‘‘MLA Charge 

Filing’’) (introduced the MLA charge). 

14NSCC excludes long positions in Family-Issued 

Securities, as defined in Rule 1 (Definitions) of the 

Rules, from the MLA charge. NSCC believes the 

margin charge applicable to long Net Unsettled 

Positions in Family-Issued Securities pursuant to 

Sections I(A)(1)(a)(iv) and (2)(a)(iv) of Procedure XV 

of the Rules provides adequate mitigation of the 

risks presented by those Net Unsettled Positions, 

such that an MLA charge would not be triggered. 

Supra note 3. 

15See Rule 1 (Definitions), supra note 3. 

16See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

17 Id. The market capitalization categorizations 

currently are as follows: (i) micro-capitalization 

equities have a capitalization of less than $300 

million, (ii) small capitalization equities have a 

capitalization of equal to or greater than $300 

million and less than $2 billion, (iii) medium 

capitalization equities have a capitalization of equal 

to or greater than $2 billion and less than $10 

billion, and (iv) large capitalization equities have a 

capitalization of equal to or greater than $10 billion. 

NSCC reviews these categories annually, and any 

changes that NSCC deems appropriate are subject 

to NSCC’s model risk management governance 

procedures set forth in the Clearing Agency Model 

Risk Management Framework (‘‘Model Risk 

Management Framework’’). See Securities Exchange 

Act Release Nos. 81485 (Aug. 25, 2017), 82 FR 

41433 (Aug. 31, 2017) (File No. SR–NSCC–2017– 

008); 84458 (Oct. 19, 2018), 83 FR 53925 (Oct. 25, 

2018) (File No. SR–NSCC–2018–009); 88911 (May 

20, 2020), 85 FR 31828 (May 27, 2020) (File No. SR– 

NSCC–2020–008); 92381 (July 13, 2021), 86 FR 

38163 (July 19, 2021) (SR–NSCC–2021–008); and 

94272 (Feb. 17, 2022), 87 FR 10419 (Feb., 24 2022) 

(SR–NSCC–2022–001). 

18See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

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’’).6 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.7

Volatility Charge 

Pursuant to the Rules, each Member’s 

Required Fund Deposit amount consists 

of a number of applicable components, 

each of which is calculated to address 

specific risks faced by NSCC, as 

identified within Procedure XV of the 

Rules.8 Generally, the largest 

component of Members’ Required Fund 

Deposits is the volatility charge. The 

volatility charge is designed to capture 

the market price risk associated with 

each Member’s portfolio at a 99th 

percentile level of confidence. 

NSCC has two methodologies for 

calculating the volatility charge. For the 

majority of Net Unsettled Positions,9

NSCC calculates the volatility charge as 

the sum of (1) the greater of (a) the larger 

of two separate calculations that utilize 

a parametric Value at Risk (‘‘VaR’’) 

model and (b) a portfolio margin floor 

calculation based on the market values 

of the long and short positions in the 

portfolio and (2) a gap risk measure 

calculation based on the concentration 

threshold of the two largest nondiversified positions in a portfolio 

(‘‘VaR Charge’’).10 NSCC excludes 

certain Net Unsettled Positions from the 

calculation of the VaR Charge and 

instead applies a haircut-based volatility 

charge that is calculated by multiplying 

the absolute value of those Net 

Unsettled Positions by a percentage.11

MLA Charge 

NSCC applies an MLA charge 12 to 

address situations where the 

characteristics of the defaulted 

Member’s portfolio could cause the 

market impact costs to be higher than 

the amount collected for the applicable 

volatility charge.13 The MLA charge is 

designed to address the market impact 

costs of liquidating a defaulted 

Member’s portfolio that may increase 

when that portfolio includes large Net 

Unsettled Positions in a particular group 

of securities with a similar risk profile 

or in a particular asset type (referred to 

as ‘‘asset groups’’). A Member portfolio 

with large Net Unsettled Positions in a 

particular group of securities with a 

similar risk profile or in a particular 

asset type may be more difficult to 

liquidate in the market in the event the 

Member defaults because a 

concentration in that group of securities 

or in an asset type could reduce the 

marketability of those large Net 

Unsettled Positions. Therefore, such 

portfolios create a risk that NSCC may 

face increased market impact cost to 

liquidate that portfolio in the assumed 

margin period of risk of three business 

days at market prices. 

The MLA charge is calculated to 

address this increased market impact 

cost by assessing sufficient margin to 

mitigate this risk. The MLA charge is 

calculated for different asset groups. 

Essentially, the calculation is currently 

designed to compare the total market 

value of a Net Unsettled Position in a 

particular asset group, which NSCC 

would be required to liquidate in the 

event of a Member default, to the 

available trading volume of that asset 

group or equities subgroup in the 

market. 

NSCC regularly assesses market and 

liquidity risks as such risks relate to 

NSCC’s margining methodologies to 

evaluate whether margin levels are 

commensurate with the particular risk 

attributes of each relevant product, 

portfolio, and market. The proposed 

changes to enhance the MLA charge by 

improving the calculation of the impact 

costs of liquidating Net Unsettled 

Positions in certain securities, as 

described below, are the result of 

NSCC’s regular review of the 

effectiveness of its margining 

methodology and in response to 

regulatory feedback. 

(ii) Proposed Changes to Market Impact 

Cost Calculations 

Existing Market Impact Cost 

Calculations 

To calculate the MLA charge, NSCC 

currently categorizes securities into 

separate asset groups that have similar 

risk profiles—(1) equities 14 (excluding 

equities defined as Illiquid Securities 

pursuant to the Rules),15 (2) Illiquid 

Securities, (3) unit investment trusts, or 

UITs, (4) municipal bonds (including 

municipal bond ETPs), and (5) corporate 

bonds (including corporate bond 

ETPs).16 NSCC then further segments 

the equities asset group into the 

following subgroups: (i) microcapitalization equities, (ii) small 

capitalization equities, (iii) medium 

capitalization equities, (iv) large 

capitalization equities, (v) treasury 

ETPs, and (vi) all other ETPs.17

NSCC first calculates a measurement 

of market impact cost for each asset 

group and equities asset subgroup for 

which a Member has Net Unsettled 

Positions in its portfolio.18 The 

calculation of an MLA charge is 

designed to measure the potential 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 83995 

19 Id. 

20The relative weight is calculated by dividing 

the absolute market value of a single security in the 

Member’s portfolio by the total absolute market 

value of that portfolio. 

21See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

22Supra note 3. NSCC’s margining methodology 

uses a three-day assumed period of risk. For 

purposes of this calculation, NSCC uses a portion 

of the applicable volatility charge that is based on 

one-day assumed period of risk and calculated by 

applying a simple square-root of time scaling, 

referred to in this proposed rule change as ‘‘1-day 

volatility charge.’’ Any changes that NSCC deems 

appropriate to this assumed period of risk would be 

subject to NSCC’s model risk management 

governance procedures set forth in the Model Risk 

Management Framework. See supra note 17. See 

also Sections I(A)(1)(g) and I(A)(2)(f) of Procedure 

XV of the Rules, supra note 3. 

23See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. The 

threshold is currently 0.4 because approximately 40 

percent of the 1-day volatility charge addresses 

market impact costs. NSCC reviews this threshold 

from time to time, and any changes that NSCC 

deems appropriate would be subject to NSCC’s 

model risk management governance procedures set 

forth in the Model Risk Management Framework. 

See id. 

24See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

25 Id. 

26 Id. 

27The multiplier is referred to as a downward 

adjusting scaling factor in Procedure XV. See id. 

additional market impact cost to NSCC 

of closing out a large Net Unsettled 

Position in that particular asset group or 

equities subgroup. 

Market Impact Cost Calculation for 

Market Capitalization Subgroups of 

Equities Asset Group 

The market impact cost for each Net 

Unsettled Position in a market 

capitalization subgroup of the equities 

asset group is currently calculated by 

multiplying four components: (1) an 

impact cost coefficient that is a multiple 

of the one-day market volatility of that 

subgroup and is designed to measure 

impact costs, (2) the gross market value 

of the Net Unsettled Position in that 

subgroup, (3) the square root of the gross 

market value of the Net Unsettled 

Position in that subgroup in the 

portfolio divided by an assumed 

percentage of the average daily trading 

volume of that subgroup, and (4) a 

measurement of the concentration of the 

Net Unsettled Position in that subgroup 

in the portfolio (as described in greater 

detail below).19 Rather than calculate 

the market impact cost for each security 

for the MLA charge, NSCC currently 

estimates market impact cost at the 

portfolio-level using aggregated volume 

data. 

The measurement of the 

concentration of the Net Unsettled 

Position in the subgroup includes 

aggregating the relative weight of each 

security in that Net Unsettled Position 

relative to the weight of that security in 

the subgroup, such that a portfolio with 

fewer positions in a subgroup would 

have a higher measure of concentration 

for that subgroup.20

Market Impact Cost Calculation for 

Other Asset Groups and Equities Asset 

Subgroups 

The market impact cost for Net 

Unsettled Positions in the municipal 

bond, corporate bond, Illiquid Securities 

and UIT asset groups, and for Net 

Unsettled Positions in the treasury ETP 

and other ETP subgroups of the equities 

asset group are currently calculated by 

multiplying three components: (1) an 

impact cost coefficient that is a multiple 

of the one-day market volatility of that 

asset group or subgroup, (2) the gross 

market value of the Net Unsettled 

Position in that asset group or subgroup, 

and (3) the square root of the gross 

market value of the Net Unsettled 

Position in that asset group or subgroup 

in the portfolio divided by an assumed 

percentage of the average daily trading 

volume of that asset group or 

subgroup.21

Total MLA Charge Calculation for Each 

Portfolio 

For each asset group or subgroup, 

NSCC compares the calculated market 

impact cost to a portion of the volatility 

charge that is allocated to Net Unsettled 

Positions in that asset group or 

subgroup (as determined by Sections 

I(A)(1)(a) and I(A)(2)(a) of Procedure XV 

of the Rules).22 If the ratio of the 

calculated market impact cost to the 

applicable 1-day volatility charge is 

greater than a threshold, an MLA charge 

is applied to that asset group or 

subgroup.23 If the ratio of these two 

amounts is equal to or less than this 

threshold, an MLA charge is not applied 

to that asset group or subgroup. The 

threshold is based on an estimate of the 

market impact cost that is incorporated 

into the calculation of the applicable 1- 

day volatility charge, such that an MLA 

charge applies only when the calculated 

market impact cost exceeds this 

threshold. 

When applicable, an MLA charge for 

each asset group or subgroup is 

calculated as a proportion of the 

product of (1) the amount by which the 

ratio of the calculated market impact 

cost to the applicable 1-day volatility 

charge exceeds the threshold, and (2) 

the 1-day volatility charge allocated to 

that asset group or subgroup.24

For each Member portfolio, NSCC 

adds the MLA charges for Net Unsettled 

Positions in each of the subgroups of the 

equities asset group to determine an 

MLA charge for the Net Unsettled 

Positions in the equities asset group. 

NSCC then adds the MLA charge for Net 

Unsettled Positions in the equities asset 

group with each of the MLA charges for 

Net Unsettled Positions in the other 

asset groups to determine a total MLA 

charge for a Member.25

The ratio of the calculated market 

impact cost to the 1-day volatility 

charge also determines if NSCC would 

apply a downward adjustment, based on 

a scaling factor, to the total MLA charge, 

and the size of any adjustment.26 For 

Net Unsettled Positions that have a 

higher ratio of calculated market impact 

cost to the 1-day volatility charge, NSCC 

applies a larger adjustment to the MLA 

charge by assuming that NSCC would 

liquidate that position on a different 

timeframe than the assumed margin 

period of risk of three business days. For 

example, NSCC may be able to mitigate 

potential losses associated with 

liquidating a Member’s portfolio by 

liquidating a Net Unsettled Position 

with a larger volatility charge over a 

longer timeframe. Therefore, when 

applicable, NSCC applies a multiplier 27

to the calculated MLA charge. When the 

ratio of calculated market impact cost to 

the 1-day volatility charge is lower, the 

multiplier is one, and no adjustment 

would be applied; as the ratio gets 

higher the multiplier decreases and the 

MLA charge is adjusted downward. 

The final MLA charge is calculated 

daily and, when the charge is 

applicable, as described above, is 

included as a component of Members’ 

Required Fund Deposits. 

NSCC is proposing to refine the 

calculation relating to the equity asset 

group by more accurately calculating 

the impact costs of liquidating a 

security/portfolio by (i) moving all ETPs 

(other than those deemed to be Illiquid 

Securities) into the equities asset group 

and calculating impact cost at the 

security level rather than at the 

subgroup level for the equities asset 

subgroups and (ii) improving the 

calculations relating to ETFs by adding 

a calculation for latent liquidity for 

equity ETFs with in-kind baskets, as 

described in more detail below. 

Move Liquid ETPs Into Equities Asset 

Group and Provide Security Level 

Market Impact Cost Calculations 

NSCC is proposing to move all ETPs, 

including corporate bond ETPs and 

municipal bond ETPs, other than ETPs 

that are deemed to be Illiquid Securities, 

into the equities asset group. Currently, 

corporate bond ETPs and municipal 

bond ETPs are included as corporate 


lotter on DSK11XQN23PROD with NOTICES1
83996 Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 

28See definition of ‘‘Illiquid Security’’ in Rule 1, 

supra note 3. For instance, if an ETP is not listed 

on a specified securities exchange or has a limited 

trading history, as defined in the definition, it 

would be treated as an Illiquid Security for 

purposes of the MLA charge calculations. 

29See supra note 22 and accompanying text. 

30When an ETF’s market price is higher than its 

NAV, it’s trading at a premium, when it’s lower, it’s 

trading at a discount. The spread between the 

premium or discount to the NAV represents a 

potential cost to close out the paired ETF and its 

in-kind basket. 

bonds and municipal bonds, 

respectively, for purposes of the MLA 

charge calculation. ETPs are traded on 

an exchange giving them equity-like 

properties such as trading volume data 

at the security level apart from their 

underlying assets which may not be 

actively traded. Therefore, the impact 

costs of liquidating ETPs can be 

estimated in the same manner as other 

items in the equities asset subgroups, at 

the security level, as discussed below. 

ETPs that are deemed to be Illiquid 

Securities, would be included in the 

Illiquid Securities category.28

NSCC is also proposing to revise the 

market impact cost calculation for the 

equities asset group and subgroups to 

calculate the impact cost at the security 

level. Based on the review of its margin 

methodologies (and the ETF Study 

discussed below), NSCC has determined 

that equities and liquid ETPs display a 

wide disparity of trading volumes (as 

measured by average daily volumes) 

even within subgroups, and the market 

impact costs are more dependent on 

specific securities than the subgroup. As 

a result, NSCC is proposing to calculate 

the market impact costs for securities in 

the equities asset group, including 

liquid ETPs, at the security level rather 

than at the subgroup level, which has 

shown to be a more accurate calculation 

of market impact costs for these 

securities. 

As discussed above, currently the 

MLA charge calculation for the equity 

asset subgroups includes a measurement 

of the concentration of the Net 

Unsettled Position in the subgroup. 

Since the market impact cost would be 

calculated at the security level for the 

equities asset group, rather than the 

subgroup level, this measurement 

would no longer be necessary and 

would be removed. 

In addition, currently for each asset 

group or subgroup, NSCC compares the 

calculated market impact cost to a 

portion of the volatility charge that is 

allocated to Net Unsettled Positions in 

that asset group or subgroup (as 

determined by Sections I(A)(1)(a) and 

I(A)(2)(a) of Procedure XV of the Rules) 

and compares that ratio to a threshold 

to determine if an MLA charge is 

applicable to that asset group or 

subgroup.29 Since the market impact 

cost would be calculated at the security 

level for all assets in the equity asset 

group, rather than the subgroup level, 

this comparison would be at the asset 

group level for all asset groups, 

including the equities asset group, and 

would no longer be made at the 

subgroup level for subgroups within the 

equities asset group. 

Proposed Improvements to ETF 

Calculations 

NSCC is proposing to refine the 

impact cost calculations for ETFs to 

more accurately account for the market 

impact of these securities and in 

response to regulatory feedback on 

NSCC’s margin methodologies. In 

particular, NSCC is proposing to 

incorporate ‘‘latent’’ liquidity to more 

accurately reflect the market liquidity of 

ETFs. 

ETFs are securities that are traded on 

an exchange and that track underlying 

securities, indexes or other financial 

instruments, including equities, 

corporate and municipal bonds and 

treasury instruments. Unlike mutual 

funds, ETFs are created with the 

assistance of certain financial 

institutions called authorized 

participants (‘‘APs’’), often banks, that 

are given the ability to create and 

redeem ETF shares directly from the 

ETF issuer. To create ETF shares, an AP 

can either deliver a pre-specified bundle 

of securities underlying the ETFs (i.e., 

an ‘‘in-kind basket’’) in exchange for 

ETF shares or provide cash equal to the 

value of the cost of purchasing 

underlying securities for the ETF shares. 

To redeem ETF shares, an AP would do 

the opposite—deliver ETF shares to the 

ETF issuer in exchange for an in-kind 

basket of underlying securities or cash 

equal to the value of the underlying 

securities. 

Throughout the life of an ETF, APs 

create and redeem shares depending on 

the market and arbitrage opportunities. 

As a result, ETFs, particularly those 

with in-kind creation/redemption 

mechanisms, tend to trade close to the 

value of the underlying securities. For 

instance, if the market price of the ETF 

on the secondary market (discussed 

below) is above the value of the 

securities underlying the ETF, the AP 

can purchase underlying securities (at 

the lower price) and exchange those 

securities to create new ETFs. Likewise, 

if the market price of the ETF falls 

below the value of the securities 

underlying the ETFs, an AP can buy 

ETF shares on the secondary market and 

redeem them with the ETF issuer in 

exchange for underlying securities. 

Latent Liquidity 

As a result of this structure, ETF 

market liquidity can be divided into two 

markets: the primary market and the 

secondary market. The primary market 

consists of APs creating and redeeming 

ETF shares directly with the ETF issuer. 

The secondary market consists of 

investors buying and selling ETFs 

through exchanges. Often the stocks 

underlying an ETF basket have much 

larger trading volume than the ETF 

itself. Upon the liquidation of a 

portfolio with ETFs, the ability of APs 

to create and redeem ETF shares 

provides additional liquidity, also 

called ‘‘latent liquidity,’’ which changes 

the market risk profile of ETFs with inkind basket creation/redemption 

processes. 

The current impact cost calculation 

for the MLA charge does not include 

calculations measuring the impact 

relating to the latent liquidity. NSCC 

recently commissioned a review of ETFs 

(‘‘ETF Study’’) that included an ETF 

market review, risk characteristics and 

an independent simulation of market 

impact costs associated with sample 

clearing portfolios. Based on the ETF 

Study, it was observed that most equity 

ETFs with an in-kind creation/ 

redemption process trade with very 

tight premium/discount to net asset 

value (‘‘NAV’’), or close to the value of 

the underlying securities.30 Often, 

however, the stocks underlying the 

equity ETF baskets have a much larger 

trading volume than the equity ETF 

itself, which creates latent liquidity. 

As a result, NSCC is proposing to 

include as part of an impact calculation, 

a measure of the latent liquidity for 

equity ETFs with in-kind basket 

creation/redemption processes and a 

measure of the costs associated with 

primary market arbitrage to more 

accurately assess the impact costs 

relating to liquidating portfolios 

containing equity ETFs. The proposed 

calculation would take into account 

liquidity in the primary and secondary 

market for liquid equity ETFs with inkind creation/redemption processes, by 

comparing the market impact cost of 

such equity ETFs based on a 

hypothetical liquidation in the primary 

market and in the secondary market. 

To determine the impact costs of a 

liquidation of equity ETFs with in-kind 

baskets, NSCC would run the proposed 

MLA charge calculations described 

above in two scenarios for portfolios 

that contain such ETFs and compare the 

two calculations to determine the 

impact cost. NSCC would run a baseline 

calculation (‘‘Baseline Calculation’’) to 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 83997 

31The original portfolio used in the Baseline 

Calculation and the portfolio from step two would 

have different portfolio risks. As a result, because 

such portfolios would contain different positions, 

they would have different VaR Charges if calculated 

separately. The VaR Charge of the original portfolio 

is a component of the MLA charge calculation for 

the portfolio from step two. Step four would adjust 

for those differences as part of the impact cost. 

32The haircut is calculated as an estimate of the 

cost of closing out the ETFs and underlying pairs 

using the create/redeem process. The haircut is a 

model parameter and will be reviewed at least 

monthly in accordance with the model risk 

management governance procedures set forth in the 

model Risk Management Framework. See supra 

note 17. 

33See Rule 56 (Securities Financing Transaction 

Clearing Service) of the Rules, supra note 3. 

34See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

simulate all the ETF positions being 

liquidated in the secondary market and 

the impact cost calculation would be at 

the security level (i.e., the ETF shares) 

as liquid equities (as discussed above). 

NSCC would also run an alternative 

calculation (‘‘Create/Redeem 

Calculation’’) to simulate the ETF 

positions being liquidated in the 

primary market using the creation/ 

redemption process. 

The Create/Redeem Calculation 

would be calculated in the following 

steps: 

One—the liquid equity ETFs eligible 

for in-kind create/redeem process would 

be fully decomposed into (a) the 

corresponding underlying baskets of the 

liquid equity ETFs and (b) pairs of such 

ETFs and their corresponding 

underlying baskets; 

Two—the decomposed underlying 

baskets and the residual securities in the 

portfolio (i.e., the securities in the 

original portfolio that are not ETFs 

eligible for in-kind create/redeem 

process) would be netted at the security 

level; 

Three—the impact cost on the 

portfolio from the second step would be 

calculated assuming all the securities 

would be liquidated in the secondary 

market and the impact costs would be 

calculated as described above as if such 

securities are liquid equities; 

Four—the impact cost calculated in 

the third step would be adjusted by an 

amount to account for the portfolio risk 

difference 31 from the netted securities 

from the second step to the original 

portfolio; 

Five—the impact cost for paired ETFs 

and their corresponding underlying 

baskets would be calculated by 

multiplying the gross market amount of 

the ETFs by a haircut representing the 

premium/discount,32

Six—the impact costs from step four 

and step five would be added together. 

NSCC would then use the smaller 

calculated impact costs of either the 

Baseline Calculation or the Create/ 

Redeem Calculation for purposes of 

calculating the MLA charge. 

(iii) Proposed Changes to MLA Charge 

Description With Respect to SFT 

Positions 

Rule 56 describes the SFT Clearing 

Service and contains a description of 

how the Clearing Fund formula is 

calculated with respect to SFT 

Positions, including how such positions 

are calculated with respect to the MLA 

charge.33 The proposed rule change 

would update the language relating to 

the MLA charge to clarify how NSCC 

would calculate the MLA charge with 

respect to SFT Positions for 

transparency and to reflect the proposed 

MLA charge refinements. NSCC would 

clarify how SFT Positions would be 

categorized for purposes of the MLA 

charge by replacing language stating that 

SFT Positions are ‘‘aggregated with’’ Net 

Unsettled Positions in the same asset 

group or subgroup with language that 

clarifies that SFT Positions would be 

categorized in the same asset groups or 

subgroups as the underlying SFT 

Securities in such SFT Positions. NSCC 

would also clarify language discussing 

an added calculation relating to the 

MLA charge in the event a Member’s 

portfolio contains both (i) SFT Positions 

and (ii) Net Unsettled Positions or Net 

Balance Order Unsettled Positions. The 

language in Rule 56 relating to the 

added calculation for SFT positions 

does not reference Net Balance Order 

Unsettled Positions which are treated in 

the same manner as Net Unsettled 

Positions for purposes of the added 

calculation when a portfolio contains 

both (i) SFT Positions and (ii) Net 

Unsettled Positions or Net Balance 

Order Unsettled Positions. The 

proposed language would add a 

reference to Net Balance Order 

Unsettled Positions. The clarifying 

changes to reference that SFT Positions 

would be categorized in the same asset 

group as their underlying SFT Securities 

and to reference Net Balance Order 

Unsettled Positions in the added 

calculation language would not change 

how NSCC would calculate the MLA 

charge with respect to SFT positions 

and are clarifications only. 

NSCC is also proposing to add a 

sentence in Sections I(A)(1)(g) and 

I(A)(2)(f) of Procedure XV of the Rules 

clarifying that if a Member’s portfolio 

contains both (i) SFT Positions and (ii) 

Net Unsettled Positions or Net Balance 

Order Unsettled Positions, the MLA 

charge shall be calculated as set forth in 

Rule 56. 

(iv) Proposed Changes to NSCC Rules 

The proposal described above would 

be implemented into Sections I(A)(1)(g) 

and I(A)(2)(f) of Procedure XV of the 

Rules.34 These sections would be 

amended to move all ETP categories as 

subgroups in the equities asset group 

other than ETPs that are deemed to be 

Illiquid Securities, which would be 

categorized as Illiquid Securities. A 

footnote in each of these sections would 

be added to the ‘‘all other ETPs’’ 

category to clarify that ETPs with 

underlying securities separately 

categorized in an equities asset 

subgroup would be categorized by the 

asset types and capitalizations of their 

underlying securities, and that ETPs 

that are deemed Illiquid Securities 

would be categorized in the Illiquid 

Securities asset group. 

NSCC would also add language in 

Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV stating that the impact 

cost for ETFs with in-kind baskets 

would include calculations comparing 

impact costs in the secondary market 

and the primary market for such equity 

ETFs, as discussed above. NSCC would 

indicate that it would calculate impact 

costs in two scenarios: (1) a baseline 

calculation to simulate such ETFs being 

liquidated in the secondary market 

where the impact costs would be 

calculated at the security level (i.e., the 

ETF shares) utilizing the equities asset 

subgroup security level and (2) a create/ 

redeem calculation to simulate an 

authorized participant using the 

primary market to liquidate such ETFs 

using the creation/redemption process. 

The proposed language would include a 

description of the how the impact costs 

for the create/redeem calculation would 

be calculated by decomposing the ETFs 

into their underlying securities and 

calculating impact costs of such 

underlying securities utilizing the 

equity asset subgroup calculations (as 

discussed above). The proposed 

language would also state that an 

adjustment would be made in the 

create/redeem calculation to reflect the 

different portfolio risks of the original 

portfolio used in the baseline 

calculation and the decomposed 

portfolio used in the create/redeem 

calculation. The proposed language 

would provide that NSCC would then 

use the smaller calculated impact costs 

of the scenarios for purposes of the MLA 

charge for such ETFs. 

Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV would be restructured to 

reflect that the market impact 

calculation for securities in the equities 


lotter on DSK11XQN23PROD with NOTICES1
83998 Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 

35 15 U.S.C. 78q–1(b)(3)(F). 

36 17 CFR 240.17Ad–22(e)(4)(i) and (e)(6)(i). 

37 15 U.S.C. 78q–1(b)(3)(F). 

38 Id. 

39 Id. 

40 17 CFR 240.17Ad–22(e)(4)(i). 

asset group would be calculated at the 

security level rather than the subgroup 

level, as discussed above. As a result of 

this change, the current component that 

measures the concentration of each Net 

Unsettled Position in a subgroup would 

be removed from Sections I(A)(1)(g)(i)(4) 

and I(A)(2)(f)(i)(4) of Procedure XV. 

References to subgroup calculations 

would also be removed in applicable 

provisions, including the provisions 

relating to comparing the calculated 

market impact cost at the subgroup level 

to the volatility charge applicable to the 

Net Unsettled Positions and an 

applicable MLA charge at the subgroup 

level and a sentence that states that all 

MLA charges for each of the equities 

subgroups shall be added together to 

result in one MLA charge for the 

equities subgroup. In addition, 

references to subgroups with respect to 

calculations relating to asset groups 

other than the equities asset group 

currently in Sections I(A)(1)(g)(ii) and 

I(A)(2)(f)(ii) (i.e., references to the 

treasury ETP and other ETP subgroups) 

would be removed since those would be 

calculated as part of the equities asset 

group, as discussed above. 

NSCC would add language to clarify 

that for each Member, all MLA charges 

for each of the asset groups shall be 

added together to result in a total MLA 

charge. 

The description of the MLA charge 

with respect to SFT Positions would be 

updated in Rule 56 and Sections 

I(A)(1)(g) and I(A)(2)(f) of Procedure XV 

would be updated to reference Rule 56, 

as described above. 

(v) Implementation Timeframe 

NSCC would implement the proposed 

rule change no later than 90 Business 

Days after the approval of the proposed 

rule change by the Commission. NSCC 

would announce the effective date of 

the proposed rule change by Important 

Notice posted to its website. 

2. Statutory Basis 

NSCC believes that the proposed rule 

change is consistent with the 

requirements of the Act, and the rules 

and regulations thereunder applicable to 

a registered clearing agency. In 

particular, NSCC believes the proposed 

changes are consistent with section 

17A(b)(3)(F) of the Act,35 and Rules 

17Ad–22(e)(4)(i) and (e)(6)(i), each 

promulgated under the Act,36 for the 

reasons described below. 

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

requires that the rules of NSCC be 

designed to, among other things, assure 

the safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.37 NSCC believes the 

proposed change to enhance the MLA 

charge is designed to assure the 

safeguarding of securities and funds 

which are in NSCC’s custody or control 

or for which it is responsible because 

such change is designed to more 

accurately calculate the market impact 

costs to NSCC of liquidating a Member’s 

portfolio in the event of that Member’s 

default. Specifically, the proposed 

enhancements to the MLA charge would 

allow NSCC to collect sufficient 

financial resources to cover the 

exposure that NSCC may face regarding 

increased market impact costs in 

liquidating Net Unsettled Positions in a 

particular group of securities with a 

similar risk profile or in a particular 

asset type that are not captured by the 

volatility charge. The proposed 

enhancements would result in a more 

accurate calculation of the impact costs 

of liquidating a security/portfolio by 

moving all ETPs (except for Illiquid 

Securities) into the equities asset group 

and adding a calculation for latent 

liquidity for equity ETFs and therefore 

improve NSCC’s ability to address the 

market impact costs of liquidating a 

defaulted Member’s portfolio that may 

increase when that portfolio includes 

large Net Unsettled Positions in a 

particular group of securities with a 

similar risk profile or in particular asset 

groups. 

The Clearing Fund is a key tool that 

NSCC uses to mitigate potential losses 

to NSCC associated with liquidating a 

Member’s portfolio in the event of 

Member default. Therefore, the 

proposed change to enhance the MLA 

charge would enable NSCC to better 

address the increased market impact 

costs of liquidating Net Unsettled 

Positions, in particular securities with 

risk profiles dependent on the particular 

trading market of the security, such that, 

in the event of Member default, NSCC’s 

operations would not be disrupted, and 

non-defaulting Members would not be 

exposed to losses they cannot anticipate 

or control. In this way, the proposed 

rule change to enhance the MLA charge 

is designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of NSCC or for which 

it is responsible, consistent with section 

17A(b)(3)(F) of the Act.38

NSCC also believes the proposed 

changes to provide transparency to the 

Rules by updating the language relating 

to how the MLA charge is calculated 

with respect to SFT Positions are 

consistent with the requirements of 

section 17A(b)(3)(F) of the Act.39

Specifically, by enhancing the 

transparency of the Rules, the proposed 

changes would allow Members to more 

efficiently and effectively conduct their 

business in accordance with the Rules, 

which NSCC believes would promote 

the prompt and accurate clearance and 

settlement of securities transactions. 

Rule 17Ad–22(e)(4)(i) under the Act 

requires that NSCC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to effectively 

identify, measure, monitor, and manage 

its credit exposures to participants and 

those arising from its payment, clearing, 

and settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence.40

As described above, NSCC believes 

that the proposed changes would enable 

it to better identify, measure, monitor, 

and, through the collection of Members’ 

Required Fund Deposits, manage its 

credit exposures to Members by 

maintaining sufficient financial 

resources to cover those credit 

exposures fully with a high degree of 

confidence. 

Specifically, NSCC believes that the 

proposed enhancements to the MLA 

charge would effectively mitigate the 

risks related to large Net Unsettled 

Positions of securities in the equities 

asset group within a portfolio and 

would address the potential increased 

risks NSCC may face related to its 

ability to liquidate such positions in the 

event of a Member default. The 

proposed enhancements would result in 

a more accurate calculation of the 

impact costs of liquidating a security/ 

portfolio by moving all ETPs (except for 

Illiquid Securities) into the equities 

asset group and adding a calculation for 

latent liquidity for equity ETFs and 

therefore improve NSCC’s ability to 

address the market impact costs of 

liquidating a defaulted Member’s 

portfolio that may increase when that 

portfolio includes large Net Unsettled 

Positions in a particular group of 

securities with a similar risk profile or 

in particular asset groups. 

Therefore, NSCC believes that the 

proposal would enhance NSCC’s ability 

to effectively identify, measure and 

monitor its credit exposures and would 

enhance its ability to maintain sufficient 

financial resources to cover its credit 

exposure to each participant fully with 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 83999 

41 Id. 

42 17 CFR 240.17Ad–22(e)(6)(i). 

43 Id. 

44 15 U.S.C. 78q–1(b)(3)(I). 

45 15 U.S.C. 78q–1(b)(3)(F). 

46 Id. 

47 17 CFR 240.17Ad–22(e)(4)(i) and (e)(6)(i). 

48 Id. 

a high degree of confidence. As such, 

NSCC believes the proposed changes are 

consistent with Rule 17Ad–22(e)(4)(i) 

under the Act.41

Rule 17Ad–22(e)(6)(i) under the Act 

requires that NSCC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.42

Required Fund Deposits are made up 

of risk-based components (as margin) 

that are calculated and assessed daily to 

limit NSCC’s credit exposures to 

Members, including the VaR Charge. 

NSCC’s proposed change to enhance the 

MLA charge is designed to more 

effectively address the risks presented 

by Net Unsettled Positions in the 

proposed equities asset group, including 

equity ETFs with in-kind creation/ 

redemption processes. NSCC believes 

the enhancements of the MLA charge 

would enable NSCC to assess a more 

appropriate level of margin that 

accounts for these risks. The proposed 

enhancements would result in a more 

accurate calculation of the impact costs 

of liquidating a security/portfolio by 

moving all ETPs (except for Illiquid 

Securities) into the equities asset group 

and adding a calculation for latent 

liquidity for equity ETFs and therefore 

improve NSCC’s ability to address the 

market impact costs of liquidating a 

defaulted Member’s portfolio that may 

increase when that portfolio includes 

large Net Unsettled Positions in a 

particular group of securities with a 

similar risk profile or in particular asset 

groups. This proposed change is 

designed to assist NSCC in maintaining 

a risk-based margin system that 

considers, and produces margin levels 

commensurate with, the risks and 

particular attributes of portfolios that 

contain large Net Unsettled Positions in 

the same asset group and may be more 

difficult to liquidate in the event of a 

Member default. Therefore, NSCC 

believes the proposed rule change is 

consistent with Rule 17Ad–22(e)(6)(i) 

under the Act.43

(B) Clearing Agency’s Statement on 

Burden on Competition 

NSCC does not believe the proposed 

changes to provide transparency to the 

Rules by updating the language relating 

to how the MLA charge is calculated 

with respect to SFT Positions would 

impact competition. These proposed 

rule changes would merely enhance the 

transparency of the Rules. Therefore, 

this proposed changes would not affect 

NSCC’s operations or the rights and 

obligations of Members. As such, NSCC 

believes this proposed rule change to 

improve the transparency of the Rules 

would not have any impact on 

competition. 

NSCC believes that the proposed 

changes to refine the MLA charge 

calculation could have an impact on 

competition. Specifically, NSCC 

believes the proposed changes could 

burden competition because they would 

result in larger Required Fund Deposit 

amounts for Members when the 

additional MLA charges are applicable 

and result in Required Fund Deposits 

that are greater than the amounts 

calculated pursuant to the current 

formula. However, NSCC believes any 

burden on competition that may result 

from the proposed rule change would be 

necessary and appropriate in 

furtherance of the purposes of the Act,44

for the reasons described below. 

When the proposal results in a larger 

Required Fund Deposit, the proposed 

change could burden competition for 

Members that have lower operating 

margins or higher costs of capital 

compared to other Members. However, 

the increase in Required Fund Deposit 

would be in direct relation to the 

specific risks presented by each 

Member’s Net Unsettled Positions, and 

each Member’s Required Fund Deposit 

would continue to be calculated with 

the same parameters and at the same 

confidence level for each Member. 

Therefore, Members that present similar 

Net Unsettled Positions, regardless of 

the type of Member, would have similar 

impacts on their Required Fund Deposit 

amounts. As such, NSCC believes that 

any burden on competition imposed by 

the proposed changes would be both 

necessary and appropriate in 

furtherance of NSCC’s efforts to mitigate 

risks and meet the requirements of the 

Act, as described in this filing and 

further below. 

NSCC believes the above described 

burden on competition that may be 

created by the proposed enhancements 

to the MLA charge would be necessary 

in furtherance of the Act, specifically 

section 17A(b)(3)(F) of the Act.45 As 

stated above, the proposed 

enhancements to the MLA charge are 

designed to more effectively address the 

market impact costs to NSCC of 

liquidating a Member portfolio in the 

event of the Member’s default. 

Specifically, the proposed 

enhancements to the MLA charge would 

allow NSCC to collect sufficient 

financial resources to cover the 

exposure that NSCC may face regarding 

increased market impact costs in 

liquidating Net Unsettled Positions that 

are not captured by the volatility charge. 

Therefore, NSCC believes this proposed 

change is consistent with the 

requirements of section 17A(b)(3)(F) of 

the Act, which requires that the Rules 

be designed to assure the safeguarding 

of securities and funds that are in 

NSCC’s custody or control or for which 

it is responsible.46

NSCC believes these proposed 

changes would also support NSCC’s 

compliance with Rules 17Ad–22(e)(4)(i) 

and (e)(6)(i) under the Act, which 

require NSCC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

(x) effectively identify, measure, 

monitor, and manage its credit 

exposures to participants and those 

arising from its payment, clearing, and 

settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence; and (y) cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.47

As described above, the 

enhancements to the MLA charge would 

allow NSCC to employ a risk-based 

methodology that would better address 

the increased market impact costs that 

NSCC could face when liquidating Net 

Unsettled Positions in particular 

securities. Therefore, NSCC believes the 

proposed changes would better limit 

NSCC’s credit exposures to Members, 

consistent with the requirements of 

Rules 17Ad–22(e)(4)(i) and (e)(6)(i) 

under the Act.48

The proposed enhancements to the 

MLA charge would also enable NSCC to 

produce margin levels more 

commensurate with the risks and 

particular attributes of each Member’s 

portfolio by measuring the increased 

market impact costs that NSCC may face 

when liquidating a defaulted Member’s 

portfolio that includes Net Unsettled 

Positions in particular securities. 

Therefore, because the proposed 


lotter on DSK11XQN23PROD with NOTICES1
84000 Federal Register / Vol. 88, No. 230 / Friday, December 1, 2023 / Notices 

49 15 U.S.C. 78q–1(b)(3)(F). 

50 17 CFR 240.17Ad–22(e)(4)(i) and (e)(6)(i). 51 17 CFR 200.30–3(a)(12). 

changes are designed to provide NSCC 

with an appropriate measure of the risks 

related to market impact costs presented 

by Members’ portfolios, NSCC believes 

the proposal is appropriately designed 

to meet NSCC’s risk management goals 

and its regulatory obligations. 

NSCC believes that it has designed the 

proposed changes in an appropriate way 

in order to meet compliance with its 

obligations under the Act. Specifically, 

the proposal would improve the riskbased margining methodology that 

NSCC employs to set margin 

requirements and better limit NSCC’s 

credit exposures to its Members. 

Therefore, as described above, NSCC 

believes the proposed changes are 

necessary and appropriate in 

furtherance of NSCC’s obligations under 

the Act, specifically section 17A(b)(3)(F) 

of the Act,49 and Rules 17Ad–22(e)(4)(i) 

and (e)(6)(i) under the Act.50

(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 to not 

respond to any comments received. 

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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NSCC–2023–011 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–2023–011. 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 NSCC 

and on DTCC’s website (https://

dtcc.com/legal/sec-rule-filings.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–2023–011 and 

should be submitted on or before 

December 22, 2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Christina Z. Milnor, 

Assistant Secretary. 

[FR Doc. 2023–26390 Filed 11–30–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–803, OMB Control No. 

3235–0754] 

Submission for OMB Review; 

Comment Request; Extension: Rule 

30b1–10, Form N–RN 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Notice is hereby given that, pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.), the Securities 

and Exchange Commission (the 

‘‘Commission’’) has submitted to the 

Office of Management and Budget a 

request for extension of the previously 

approved collection of information 

discussed below. 

Rule 30b1–10 [17 CFR 270.30b1–10] 

and Form N–RN [17 CFR 274.223] 

require registered open-end 

management investment companies (not 

including entities regulated as money 

market funds under 17 CFR 270.2a–7), 

registered closed-end funds, and 

business development companies 

(collectively, ‘‘funds’’), to file a current 

report on Form N–RN on a non-public 

basis when certain events related to 

their liquidity and events regarding 

funds’ compliance with the VaR-based 

limit on fund leverage risk in 17 CFR 

270.18f–4 (‘‘rule 18f–4’’) occur. The first 

category of information reported on 

Form N–RN concerns events under 

which more than 15% of an open-end 

fund’s net assets are, or become, illiquid 

investments that are assets as defined in 

17 CFR 270.22e–4 (‘‘rule 22e–4’’) and 

when holdings in illiquid investments 

are assets that previously exceeded 15% 

of a fund’s net assets have changed to 

be less than or equal to 15% of the 

fund’s net assets. The second category of 


lotter on DSK11XQN23PROD with NOTICES1