2702 Federal Register / Vol. 89, No. 10 / Tuesday, January 16, 2024 / Notices 

51 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Terms not defined herein are defined in the 

NSCC Rules, as applicable, available at http://

dtcc.com/∼/media/Files/Downloads/legal/rules/ 

nscc_rules.pdf. 

4See Securities Exchange Act Release No. 99022 

(Nov. 27, 2023), 88 FR 83993 (Dec. 1, 2023) (File 

No. SR–NSCC–2023–011) (‘‘Notice of Filing’’). 

5See Rule 4 (Clearing Fund) and Procedure XV 

(Clearing Fund Formula and Other Matters) of the 

Rules, supra note 3. 

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. 

8See 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) (introduced the MLA Charge). 

9The volatility charge is designed to capture the 

market price risk associated with liquidating each 

Member’s portfolio at a 99th percentile level of 

confidence. See Notice of Filing, supra note 4, at 

83994. 

10See id. 

11NSCC excludes long positions in Family-Issued 

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

All submissions should refer to file 

number SR–CboeEDGX–2023–083. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeEDGX–2023–083 and should be 

submitted on or before February 6, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00638 Filed 1–12–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99303; File No. SR–NSCC– 

2023–011] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Granting Approval 

of a Proposed Rule Change To Refine 

the Margin Liquidity Adjustment 

(‘‘MLA’’) Charge Calculation and the 

Description of the MLA Charge 

January 9, 2024. 

I. Introduction 

On November 17, 2023, National 

Securities Clearing Corporation 

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

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change SR–NSCC–2023– 

011 (‘‘Proposed Rule Change’’) to 

modify NSCC’s Rules & Procedures 

(‘‘Rules’’) 3 to refine the Margin 

Liquidity Adjustment (‘‘MLA’’) charge 

calculation and the description of the 

MLA Charge, as described in greater 

detail below. The Proposed Rule Change 

was published for public comment in 

the Federal Register on December 1, 

2023.4 The Commission has received no 

comments on the Proposed Rule 

Change. For the reasons discussed 

below, the Commission is approving the 

Proposed Rule Change. 

II. Background 

A. Overview of NSCC’s Margin 

Methodology 

NSCC provides central counterparty 

(‘‘CCP’’) services, including clearing, 

settlement, risk management, and a 

guarantee of completion for virtually all 

broker-to-broker trades involving equity 

securities, corporate and municipal debt 

securities, and certain other securities. 

As a CCP, NSCC interposes itself as the 

buyer to every seller and seller to every 

buyer for the financial transactions it 

clears. As such, NSCC is exposed to the 

risk that one or more of its members 

may fail to make a payment or to deliver 

securities. 

A key tool that NSCC uses to manage 

its credit exposure to its members is 

determining and collecting an 

appropriate Required Fund Deposit (i.e., 

margin) for each member.5 The objective 

of a Member’s margin 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 aggregated amount of 

all members’ margin constitutes the 

NSCC Clearing Fund. NSCC would 

access its Clearing Fund should a 

defaulting Member’s own margin be 

insufficient to satisfy losses to NSCC 

caused by the liquidation of that 

Member’s portfolio.7 Each member’s 

margin consists of several components, 

each of which is designed to address 

specific risks faced by NSCC arising out 

of its members’ trading activity. 

B. NSCC’s MLA Charge 

The MLA Charge 8 is a margin 

component 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’’), thereby causing those costs to 

be higher than the amount collected for 

the Member’s volatility charge.9 A 

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 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 determining an amount of 

margin to mitigate this risk. The MLA 

Charge is calculated for different asset 

groups. Essentially, the calculation is 

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.10

Specifically, when calculating the 

MLA Charge, NSCC currently 

categorizes securities into separate asset 

groups that have similar risk profiles— 

(1) equities 11 (excluding equities 


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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. 

See id. at n.14. See also supra note 3. 

12See Rule 1 (Definitions), supra note 3. 

13See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. Additional 

details regarding the calculation of the MLA Charge 

are set forth in the NSCC’s Methodology 

Documentation for Quantitative Margin Risk 

Models (‘‘Methodology Documentation’’). NSCC 

would revise the Methodology Documentation to 

incorporate the changes in the Proposed Rule 

Change and included copies of changes to the 

Methodology Documentation in Exhibit 3b to the 

Proposed Rule Change. Pursuant to 17 CFR 

240.24b–2, NSCC requested confidential treatment 

of Exhibit 3b. 

14 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). 

15See Sections I(A)(1)(g) and I(A)(2)(f) of 

Procedure XV of the Rules, supra note 3. 

16See 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. 

17See Notice of Filing, supra note 4, at 83996. 

18 Id. 

19See id. at 83995. 

20Supra 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 14. See 

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

XV of the Rules, supra note 3. 

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

Procedure XV of the Rules, supra note 3. 

defined as Illiquid Securities pursuant 

to the Rules),12 (2) Illiquid Securities, 

(3) unit investment trusts, or UITs, (4) 

municipal bonds (including municipal 

bond ETPs), and (5) corporate bonds 

(including corporate bond ETPs).13

NSCC then further segments the equities 

asset group into the following 

subgroups: (i) micro-capitalization 

equities, (ii) small capitalization 

equities, (iii) medium capitalization 

equities, (iv) large capitalization 

equities, (v) treasury ETPs, and (vi) all 

other ETPs.14 NSCC then 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.15

III. Description of the Proposed Rule 

Change 

NSCC proposes 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. In addition, NSCC 

proposes to amend the description of 

the MLA Charge to clarify the 

description of the calculation with 

respect to SFT Positions in connection 

with Securities Financing Transactions. 

A. Moving Liquid ETPs Into Equities 

Asset Group and Providing Security 

Level Market Impact Cost Calculations 

NSCC proposes 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 

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.16

NSCC also proposes 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 a 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.17

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 NSCC states has shown to be a 

more accurate calculation of market 

impact costs for these securities.18

Currently, the MLA Charge 

calculation for the equity asset 

subgroups includes a measurement of 

the concentration of the Net Unsettled 

Position in the subgroup.19 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, for each asset group or 

subgroup, NSCC currently 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 and 

compares that ratio to a threshold to 

determine if an MLA Charge is 

applicable to that asset group or 

subgroup.20 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. 

To reflect these changes in the Rules, 

NSCC would amend Sections I(A)(1)(g) 

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

Rules 21 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. 

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 

asset group would be calculated at the 

security level rather than the subgroup 


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22See Notice of Filing, supra note 4, at 83996. 

23NSCC included the ETF Study in Exhibit 3c to 

the Proposed Rule Change. Pursuant to 17 CFR 

240.24b–2, NSCC requested confidential treatment 

of Exhibit 3c. 

24 Id. When 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. 

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. 

B. Changes to ETF Calculations 

NSCC proposes to amend 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, by 

incorporating ‘‘latent’’ liquidity to more 

accurately reflect the market liquidity of 

ETFs.22 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 the underlying securities. 

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 volumes than the trading 

volume of 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 in-kind basket creation/redemption 

processes. 

The current impact cost calculation 

for the MLA Charge does not include 

calculations measuring the impact 

relating to 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.23 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.24 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 its 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 activity 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 

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 as follows: 

• First, 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; 

• Second, 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; 

• Third, 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; 

• Fourth, the impact cost calculated 

in the third step would be adjusted by 

an amount to account for the portfolio 


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25The original portfolio used in the Baseline 

Calculation and the decomposed 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. 

26The 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 14. 

27See Rule 56 (Securities Financing Transaction 

Clearing Service) of the Rules, supra note 3. 

28 15 U.S.C. 78s(b)(2)(C). 

29 15 U.S.C. 78q–1(b)(3)(F). 

30 17 CFR 240.17Ad–22(e)(4)(i) and(e)(6)(i). 

31 15 U.S.C. 78q–1(b)(3)(F). 

32 Id. 

risk difference 25 from the netted 

securities resulting from the second 

step, as compared to the original 

portfolio; 

• Fifth, 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; 26 and 

• Lastly, 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. 

To reflect these changes in the Rules, 

NSCC would 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. 

C. Changes Concerning 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.27 The Proposed Rule Change 

would update the language in Rule 56 

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, but it would 

not change how NSCC would calculate 

the MLA Charge with respect to SFT 

positions. 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. 

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. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 28

directs the Commission to approve a 

proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization. After 

carefully considering the proposed rule 

change, the Commission finds that the 

Proposed Rule Change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to NSCC. In particular, the 

Commission finds that the Proposed 

Rule Change is consistent with Section 

17A(b)(3)(F) 29 of the Act and Rules 

17Ad–22(e)(4)(i), and (e)(6)(i) 

thereunder.30

A. Consistency With Section 

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

1. Prompt and Accurate Clearance and 

Settlement 

Section 17A(b)(3)(F) of the Act 31

requires that the rules of a clearing 

agency, such as NSCC, be designed to, 

among other things, promote the prompt 

and accurate clearance and settlement of 

securities transactions and assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.32 The Commission believes 

that the Proposed Rule Change is 

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

the Act for the reasons stated below. 

As described above in Sections III.A 

and B, NSCC proposes to refine the 

MLA Charge calculation to more 

accurately calculate the impact costs of 

liquidating a security/portfolio by 

moving all ETPs (except for 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 by adding a calculation 

for latent liquidity for equity ETFs. As 

a result, the proposal would better align 

the MLA Charge with the risks arising 

from position concentrations in 

portfolios containing ETPs and ETFs. 

The Commission believes that a closer 

alignment between the MLA Charge and 

the risks presented by the concentration 

of securities Member portfolios would 

help facilitate NSCC’s ability to set 

margins that more accurately reflect the 

risks posed by such portfolios. Setting 


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2706 Federal Register / Vol. 89, No. 10 / Tuesday, January 16, 2024 / Notices 

33NSCC has requested confidential treatment of 

Exhibit 3a, pursuant to 17 CFR 240.24b–2. 

34 15 U.S.C. 78q–1(b)(3)(F). 

35 Id. 

36 17 CFR 240.17Ad–22(e)(4)(i). 

37See supra note 33. 

38 17 CFR 240.17Ad–22(e)(4)(i). 

39 17 CFR 240.17Ad–22(e)(6)(i). 

40See supra note 33. 

margins that accurately reflect the risks 

posed by its members’ portfolios could 

reduce the likelihood that NSCC would 

not have collected sufficient margin to 

address losses arising out of a member 

default. Reducing the likelihood that 

NSCC holds insufficient margin to 

address default losses would, in turn, 

further assure that NSCC’s operation of 

its critical clearance and settlement 

services would not be disrupted because 

of insufficient financial resources. 

As part of the Proposed Rule Change, 

NSCC filed Exhibit 3a—Summary of 

Impact Study (‘‘Impact Study’’), which 

provided the actual MLA Charges at the 

member-level, account-level, and CCPlevel, from January 3, 2022 through June 

30, 2023, as compared to the MLA 

Charges that NSCC would have assessed 

if the proposed amendments had been 

in place during that time period.33 The 

Commission reviewed and analyzed the 

Impact Study, which showed, among 

other things, that had the proposed 

amendments been in place during that 

period, it would have resulted in an 

average daily increase of $62 million in 

the aggregate MLA Charge. Therefore, 

the Commission believes that the Impact 

Study demonstrates that the proposed 

MLA Charge calculation would enable 

NSCC to set more precise margin 

coverage levels than those using the 

current calculation, providing further 

assurance that NSCC’s operation of its 

critical clearance and settlement 

services would not be disrupted because 

of insufficient financial resources. 

As described above in Section III.C, 

NSCC proposes to provide transparency 

to the Rules by updating the language 

relating to how the MLA Charge is 

calculated with respect to SFT 

Positions. Enhancing the clarity of the 

NSCC Rules would enable members to 

more efficiently and effectively 

understand and conduct their business 

in accordance with the NSCC Rules. 

Accordingly, for the reasons above, 

the Commission finds that the Proposed 

Rule Change should help NSCC to 

continue providing prompt and accurate 

clearance and settlement of securities 

transactions, consistent with Section 

17A(b)(3)(F) of the Act.34

2. Safeguarding Securities and Funds 

In the event that a defaulted member’s 

own margin be insufficient to satisfy 

losses to NSCC caused by the 

liquidation of that member’s portfolio, 

NSCC would access the mutualized 

Clearing Fund. As discussed above in 

Section IV.A.1, NSCC’s proposed 

enhancements to the MLA Charge 

calculation discussed in Sections III.A 

and B should help facilitate NSCC’s 

ability to promptly respond to changing 

risk profiles of its members’ portfolios, 

and thereby set margins that more 

accurately reflect the risks posed by 

such portfolios. As a result, the proposal 

would better align the MLA Charge with 

the risks arising from position 

concentrations in portfolios containing 

ETPs and ETFs should help ensure that 

NSCC collects sufficient margin from its 

members. Accordingly, the Proposed 

Rule Change should help minimize the 

likelihood that NSCC would have to 

access the Clearing Fund, thereby 

limiting non-defaulting members’ 

exposure to mutualized losses. 

The Commission believes that by 

helping to limit the exposure of NSCC’s 

non-defaulting members to mutualized 

losses, the Proposed Rule Change would 

help NSCC assure the safeguarding of 

securities and funds which are in its 

custody or control, consistent with 

Section 17A(b)(3)(F) of the Act.35

B. Consistency With Rule 17Ad– 

22(e)(4)(i) Under the Act 

Rule 17Ad–22(e)(4)(i) under the Act 

requires that each covered clearing 

agency that provides central 

counterparty services, such as 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.36 The Commission 

believes that the proposal is consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act for the reasons stated below. 

As discussed above in Section IV.A, 

NSCC’s proposed enhancements to the 

MLA Charge calculation would 

apportion a higher MLA Charge to those 

members’ accounts that present greater 

potential risk to NSCC due to large Net 

Unsettled Positions in a particular group 

of securities with a similar risk profile 

or asset types that may be more difficult 

to liquidate in the market in the event 

the member defaults. As a result, the 

proposal would better align the MLA 

Charge with the risks arising from 

position concentration in such 

portfolios. The Commission has 

reviewed and analyzed the filing 

materials, including the Impact Study,37

and agrees that the proposed 

enhancements to the MLA Charge 

calculation should better enable NSCC 

to collect margin amounts that are 

sufficient to mitigate NSCC’s credit 

exposures to its members’ portfolios, as 

compared to the current methodology. 

Accordingly, the Commission finds 

the Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act because it is designed to assist 

NSCC in managing its credit exposures 

to its members by maintaining sufficient 

financial resources to cover its credit 

exposure to the portfolios of members 

with ETP and equity ETF positions in 

their respective portfolios.38

C. Consistency With Rule 17Ad– 

22(e)(6)(i) Under the Act 

Rule 17Ad–22(e)(6)(i) under the Act 

requires that each covered clearing 

agency that provides central 

counterparty services, such as 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.39 The Commission believes that 

the proposal is consistent with Rule 

17Ad–22(e)(6)(i) under the Act for the 

reasons stated below. 

As discussed above in Section IV.A, 

NSCC’s proposed enhancements to the 

MLA Charge calculation would 

apportion a higher MLA Charge to those 

member accounts that present greater 

potential risk to NSCC due to large Net 

Unsettled Positions in a particular group 

of securities with a similar risk profile 

or asset types that may be more difficult 

to liquidate in the market in the event 

the member defaults. As a result, the 

proposal would better align the MLA 

Charge with the risks arising from 

position concentration in such member 

portfolios. The Commission has 

reviewed and analyzed the filing 

materials, including the Impact Study,40

and agrees that the proposed 

enhancements to the MLA Charge 

calculation would enable NSCC to set 

margins that more accurately reflect the 

risks posed by such portfolios than the 

current methodology. As a result, 

implementing the Proposed Rule 

Change would better enable NSCC to set 

and collect margin at levels 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 10 / Tuesday, January 16, 2024 / Notices 2707 

41 17 CFR 240.17Ad–22(e)(6)(i). 

42 15 U.S.C. 78q–1. 

43 15 U.S.C. 78s(b)(2). 

44 In approving the Proposed Rule Change, the 

Commission considered its impact on efficiency, 

competition, and capital formation. 15 U.S.C. 78c(f). 

45 17 CFR 200.30–3(a)(12). 

commensurate with the risks associated 

with the portfolios of its members. 

Accordingly, the Commission finds 

the Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(6)(i) under the 

Act because it 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 members’ portfolios.41

VII. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

requirements of the Act and in 

particular with the requirements of 

Section 17A of the Act 42 and the rules 

and regulations promulgated 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 43 that 

Proposed Rule Change SR–NSCC–2023– 

011, be, and hereby is, approved.44

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.45

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00630 Filed 1–12–24; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

[Docket No. 2013–0259] 

Agency Information Collection 

Activities: Requests for Comments; 

Clearance of Renewed Approval of 

Information Collection: Advisory 

Circular: Reporting of Laser 

Illumination of Aircraft 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice and request for 

comments. 

SUMMARY: In accordance with the 

Paperwork Reduction Act of 1995, FAA 

invites public comments about our 

intention to request the Office of 

Management and Budget (OMB) 

approval renew information collection. 

The Federal Register Notice with a 60- 

day comment period soliciting 

comments on the following collection of 

information was published on August 

17, 2023. The collection involves 

information to be collected will be used 

to and/or is necessary because Advisory 

Circular 70–2B provides guidance to 

civilian air crews on the reporting of 

laser illumination incidents and 

recommended mitigation actions to be 

taken in order to ensure continued safe 

and orderly flight operations. 

DATES: Written comments should be 

submitted by February 13, 2024. 

ADDRESSES: Please send written 

comments: 

By Electronic Docket: 

www.regulations.gov (Enter docket 

number into search field) 

By mail: Nicholas Torgerson, Federal 

Aviation Administration, AJR–223, 800 

Independence Ave. SW, Washington, 

DC 20591. 

FOR FURTHER INFORMATION CONTACT: 

Nicholas Torgerson, by email at: 

Nicholas.d.torgerson@faa.gov; phone: 

202–322–4157 

SUPPLEMENTARY INFORMATION: 

Public Comments Invited: You are 

asked to comment on any aspect of this 

information collection, including (a) 

Whether the proposed collection of 

information is necessary for FAA’s 

performance; (b) the accuracy of the 

estimated burden; (c) ways for FAA to 

enhance the quality, utility and clarity 

of the information collection; and (d) 

ways that the burden could be 

minimized without reducing the quality 

of the collected information. The agency 

will summarize and/or include your 

comments in the request for OMB’s 

clearance of this information collection. 

OMB Control Number: 2120–0698. 

Title: Advisory Circular (AC): 

Reporting of Laser Illumination of 

Aircraft. 

Form Numbers: Advisory Circular 70– 

2B, Reporting of Laser Illumination of 

Aircraft. 

Type of Review: Renewal of an 

information collection. 

Background: The Federal Register 

Notice with a 60-day comment period 

soliciting comments on the following 

collection of information was published 

on August 17, 2023 (88 FR 58633). 

Advisory Circular 70–2B provides 

guidance to civilian air crews on the 

reporting of laser illumination incidents 

and recommended mitigation actions to 

be taken in order to ensure continued 

safe and orderly flight operations. 

Information is collected from pilots and 

aircrews that are affected by an 

unauthorized illumination by lasers. 

The requested reporting involves an 

immediate broadcast notification to Air 

Traffic Control (ATC) when the incident 

occurs, as well as a broadcast warning 

of the incident if the aircrew is flying in 

uncontrolled airspace. In addition, the 

AC requests that the aircrew supply a 

written report of the incident and send 

it by fax or email to the Washington 

Operations Control Complex (WOCC) as 

soon as possible. 

Respondents: Approximately 1,100 

pilots and crewmembers. 

Frequency: Information is collected 

on occasion. 

Estimated Average Burden per 

Response: 10 minutes. 

Estimated Total Annual Burden: 183 

hours. 

Issued in Washington, DC, on January 10, 

2024. 

Sandra L. Ray, 

Aviation Safety Inspector, AFS–260. 

[FR Doc. 2024–00687 Filed 1–12–24; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF TRANSPORTATION 

Federal Railroad Administration 

[Docket Number FRA–2023–0066] 

Petition for Waivers of Compliance 

Under part 211 of title 49 Code of 

Federal Regulations (CFR), this 

document provides the public notice 

that on August 10, 2023, Georgia Central 

Railway, L.P. and Heart of Georgia 

Railroad, Inc. (Petitioners) submitted a 

request to the Federal Railroad 

Administration (FRA) under 49 CFR 

211.51 for approval of a test program, 

and the temporary suspension of certain 

FRA safety regulations in connection 

with that program (Program). Petitioners 

explain that the proposed test program 

involves a system of a ‘‘novel, selfpropelled, zero-emission, batteryelectric rail vehicle’’ (Vehicle) and its 

associated computer and telemetry 

technology (System), manufactured by 

Parallel Systems, Inc. Petitioners state 

that the goal of the technology is to 

provide smaller freight railroads an 

opportunity to meaningfully compete in 

the short-haul transportation of 

containers, and the technology also 

provides ‘‘numerous public benefits for 

the environment, the economy, the 

national highway system, and 

communities disproportionately 

impacted by highway movement of 

containers.’’ Petitioners contend that 

‘‘safety is an overriding focus of the 

proposed program’’ and the Pilot Test 

Safety Plan is included in Exhibit C of 

the submission. Petitioners state that the 

Program is ‘‘designed to evaluate the 

effectiveness of the system and new 

operational approaches to rail vehicle 

technology in the short-haul movement 

of containers.’’ 


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