[Federal Register Volume 89, Number 188 (Friday, September 27, 2024)]
[Notices]
[Pages 79324-79327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22127]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101131; File No. SR-NSCC-2024-008]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Decommission 
the ID Net Service

September 23, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 12, 2024, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the NSCC Rules & 
Procedures (``Rules'') to decommission the ID Net service (``ID Net 
Service'' or

[[Page 79325]]

``ID Net''), as described in greater detail below.\3\
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    \3\ Capitalized terms not defined herein shall have the meaning 
assigned to such terms in the Rules, available at www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend the NSCC Rules 
to permit NSCC to decommission the ID Net Service, a joint service of 
NSCC and its affiliate, The Depository Trust Company (``DTC''). The 
proposed rule change is discussed in detail below.
(i) Background
    The ID Net Service is a joint service offering of NSCC and DTC that 
allows broker/dealer users to net their affirmed institutional equity 
trades with other trades that they may have in NSCC's Continuous Net 
Settlement system (``CNS'').\4\ CNS is NSCC's system for accounting and 
settling CNS-eligible securities.\5\ To be CNS-eligible, a security 
must be eligible for book-entry transfer on the books of DTC and must 
be capable of being processed in the CNS system. All eligible compared 
and recorded transactions for a particular settlement date are netted 
by issue into one net long (buy), net short (sell) or flat position for 
each Member. As a continuous net system, those positions are further 
netted with positions of the same issue that remain open after their 
originally scheduled settlement date. NSCC, as central counterparty, 
becomes the contra-party for settlement purposes, assuming the 
obligation of its Members that are receiving securities to receive and 
pay for those securities, and the obligation of Members that are 
delivering securities to make the delivery. CNS netting thus reduces 
the costs associated with securities transfers by reducing the number 
of securities movements required to settle transactions. ID Net is a 
voluntary service available to broker/dealers that are participants of 
both NSCC and DTC and banks that are participants of DTC.
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    \4\ DTC also filed a proposed rule change with the Commission in 
connection with the retirement of the ID Net Service. See DTC filing 
SR-DTC-2024-010.
    \5\ See NSCC Rule 11 (describing the CNS System) and Procedure 
VII (describing the CNS Accounting Operation), supra note 3.
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    DTC may accept affirmed institutional transactions \6\ (``Affirmed 
Transactions'') from a matching utility (``Matching Utility'').\7\ An 
Affirmed Transaction submitted to DTC is processed on a trade-for-trade 
basis at DTC, unless it is designated for ID Net processing by the 
Matching Utility and meets certain eligibility requirements, as 
described below.
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    \6\ An institutional transaction is one between a broker/dealer 
and its institutional customer. Such institutional customers are not 
Participants of DTC. Therefore, the counterparties on an Affirmed 
Transaction submitted by a Matching Utility to DTC are a (i) DTC 
Participant, acting as clearing broker to the Affirmed Transaction 
and (ii) DTC Participant bank, acting as the custodian for an 
institutional customer.
    \7\ The Matching Utility must be (i) a clearing agency 
registered with the Commission (ii) an entity that has obtained an 
exemption from such registration from the Commission, or (iii) a 
``qualified vendor'' for trade confirmation/affirmation services as 
defined by the rules of a self-regulatory organization. See DTC 
Settlement Service Guide at 38, available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf. DTCC ITP 
Matching (US) LLC (``ITP''), an NSCC and DTC affiliate, is currently 
the only Matching Utility that submits Affirmed Transactions to DTC.
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    In order for an Affirmed Transaction to be eligible for processing 
in ID Net, (i) both counterparties to the Affirmed Transaction must be 
a Member of NSCC and a Participant of DTC, or a bank that is a 
Participant of DTC, that has subscribed to ID Net and (ii) the 
transaction must be (a) in a security eligible for processing through 
CNS and (b) affirmed within established timeframes set forth in the DTC 
Settlement Service Guide.\8\
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    \8\ See DTC Settlement Service Guide, supra note 7 at 40-41.
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    If an Affirmed Transaction is designated for ID Net and meets the 
eligibility criteria described above, then DTC will direct the 
transaction to ID Net, which facilitates the netting of a broker/
dealer's side of an Affirmed Transaction with that broker/dealer's CNS 
activity, via omnibus accounts, that are maintained by NSCC at DTC and 
designated for ID Net activity. If a bank is a counterparty to the ID 
Net-eligible Affirmed Transaction, then it will either receive or 
deliver the subject shares versus payment, on a trade-for-trade basis, 
via the ID Net omnibus accounts.
    While ID Net was designed to allow broker/dealers to realize the 
benefit of netting for Affirmed Transactions by allowing the broker/
dealer to net its ID Net-eligible Affirmed Transactions with its 
transactions in CNS, banks using ID Net settle ID Net transactions on a 
trade-for-trade basis as they would for other Affirmed Transactions, as 
described above. In this regard, ID Net's main benefit is to streamline 
clearance and settlement of ID Net-eligible Affirmed Transactions for 
broker/dealers.
    The ID Net Service is primarily described in NSCC Rule 65 and 
Procedure XVI of the Rules.
(ii) Proposed Changes to the Rules
    NSCC and DTC continually evaluate the efficiency and effectiveness 
of the services they each provide. As part of these evaluations, and in 
furtherance of their ongoing modernization efforts, NSCC and DTC are 
seeking to streamline and simplify their services and processes, 
including through the elimination of underutilized services. NSCC and 
DTC have identified ID Net as an underused service that may be 
eliminated as part of these modernization efforts. They each propose to 
retire the ID Net Service due to a number of factors, which include: 
(i) limited uptake and usage of the service since its adoption; (ii) 
the operational complexity of maintaining the service, which also 
connects with and impacts other core clearance and settlement 
processes; \9\ and (iii) the prior elimination of the NSCC Clearing 
Fund offset for ID Net transactions.\10\
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    \9\ This complexity includes (i) special eligibility checks 
versus the ID Net eligibility criteria described above and (ii) 
leveraging of the above-mentioned omnibus accounts to simultaneously 
allow (a) a bank to process ID Net-eligible transactions on a trade-
for-trade basis and (b) the broker/dealer side of an ID Net-eligible 
transaction to settle CNS.
    \10\ In 2021, NSCC adopted a proposed rule change to remove 
transactions processed through the ID Net Service from the 
calculation of Members' Required Deposits to the Clearing Fund. See 
Securities Exchange Act Release No. 93070 (Sep. 20, 2021), 86 FR 
53125 (Sep. 24, 2021) (SR-NSCC-2021-011).
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    To implement the proposed change, NSCC would remove Rule 65 and 
Procedure XVI from the Rules and make other conforming changes 
throughout the Rules to reflect the retirement of the service. The ID 
Net Service is primarily described in NSCC Rule 65 and Procedure XVI, 
and these rules would no longer be necessary or relevant upon the 
retirement of the ID Net Service. As a result, Rule 65 and Procedure 
XVI would be deleted in their entirety and would be reserved for future 
use by NSCC.

[[Page 79326]]

    NSCC would also remove associated defined terms ``Eligible ID Net 
Security'' and ``ID Net Subscriber'' from Rule 1 and remove a reference 
to ID Net transactions from the definition of ``Net Unsettled 
Position'' in Rule 1. In addition, NSCC would remove Section 1(f) of 
Rule 3, concerning certain lists required to be maintained by NSCC, to 
reflect that NSCC would no longer be required to maintain a list of 
Eligible ID Net Securities and would make a conforming change to 
renumber existing Section 1(g) of Rule 3 to Section 1(f). NSCC would 
also remove Section 2(a)(vii) of Rule 18, which concerns procedures for 
when NSCC ceases to act for a Member, to reflect that uncompleted ID 
Net Service transactions would no longer be considered for purposes of 
determining excluded transactions in a cease to act scenario.
    Additionally, NSCC would modify Procedure VII, concerning its CNS 
Accounting Operation, to remove various references to the ID Net 
Service and ID Net transactions. Specifically, NSCC would revise the 
Introduction in Section A to remove a reference to Eligible ID Net 
Securities being included in CNS Securities for purpose of Procedure 
VII. NSCC would also modify Section D.1., concerning the process for 
exemptions from deliveries, to remove a statement regarding the 
treatment of securities available in an agency account established at a 
Qualified Securities Depository for the processing of transactions 
through the ID Net Service. In addition, NSCC would modify Section E.4, 
concerning the allocation algorithm for CNS deliveries, to remove a 
statement regarding the treatment of long positions in a receiving ID 
Net Subscriber's agency account established at a Qualified Securities 
Depository. NSCC would also delete Section H.5. of Procedure VII 
concerning the reporting of ID Net transactions on NSCC's Miscellaneous 
Activity Report and make conforming changes to renumber subsequent 
rules in Section H.
    Finally, NSCC would update Section I.(A)(1)(b) of Procedure XV, 
concerning NSCC's Clearing Fund calculations, to remove a reference to 
ID Net transactions from the Mark-to-Market component of the Clearing 
Fund formula.
    NSCC believes that the retirement of the ID Net Service would have 
minimal impact on its Members. Only 13 broker/dealers and 20 banks are 
subscribed to the ID Net Service, and the service is not used by all of 
those broker/dealers and banks.\11\ Furthermore, Affirmed Transactions 
can simply settle trade-for-trade, directly between the counterparties, 
if not eligible for ID Net, like they do today. NSCC also notes that 
there would be minimal impact to risk management from both an NSCC and 
Member perspective given that the ID Net Service is a non-guaranteed 
service of NSCC \12\ and there is no longer a Clearing Fund offset for 
ID Net transactions.\13\
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    \11\ Active users of the ID Net service constitute less than 10% 
of NSCC's full-service Members. NSCC believes that ID Net usage has 
been limited since its implementation in 2008 because, in part, the 
service needs both parties to an ID Net transaction to be 
subscribers of ID Net, as described above, which is not always the 
case.
    \12\ See NSCC Rule 65, Section 5(c), supra note 3.
    \13\ See supra note 10.
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    NSCC has performed direct outreach to Members that use the ID Net 
Service and has also announced its plans to decommission the ID Net 
Service through Important Notice. There have been no material 
objections or concerns raised by Members.
Implementation Timeframe
    Subject to approval by the Commission, DTC and NSCC would implement 
the proposed rule change using a phased approach. First, DTC 
Participants and NSCC Members have been informed that they may be 
unsubscribed from ID Net voluntarily at any time prior to termination 
of the service on November 15, 2024. Second, upon approval of the 
proposed rule change by the Commission prior to November 15, 2024, any 
DTC Participants and NSCC Members that have been inactive in the 
service for at least the last twelve (12) months will be offboarded 
from the service. Finally, NSCC and DTC will continue to fully support 
ID Net processing for any remaining active users until November 15, 
2024, at which time the service will be fully retired. NSCC and DTC 
will work with their respective Members and Participants to support all 
required offboarding activities.
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. Section 17A(b)(3)(F) of the 
Act \14\ requires that the rules of a clearing agency be designed to, 
among other things, promote the prompt and accurate clearance and 
settlement of securities transactions. NSCC believes the proposed rule 
change is consistent with the requirements of Section 17A(b)(3)(F) of 
the Act for the reasons stated below.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change would modify the NSCC Rules to 
decommission the ID Net Service because the service is hardly used yet 
challenging to maintain. As discussed above, NSCC believes that the 
retirement of the ID Net Service would have minimal impact on its 
Members, particularly given the limited usage of the service. 
Furthermore, Affirmed Transactions that would have otherwise been 
directed to ID Net can simply settle trade-for-trade, directly between 
the counterparties, like most other Affirmed Transactions do today. As 
a result, these transactions would continue to settle promptly and 
accurately, as other Affirmed Transactions do, outside of the ID Net 
Service. For these reasons, NSCC believes its Rules would continue to 
promote the prompt and accurate clearance and settlement of securities 
transactions in accordance with Section 17A(b)(3)(F) of the Act.\15\
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    \15\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \16\ requires that the rules of the 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the Act. NSCC does not believe the 
proposed rule change would present a burden on competition. While there 
may be some operational impact to the small segment of Members using 
the ID Net Service, NSCC believes the operational impact to these 
Members and their clients would be minimal. While broker/dealer Members 
using the service may see some reduced netting benefit from eligible 
Affirmed Transactions being processed through CNS, NSCC does not 
believe the elimination of this service would rise to the level of a 
burden on Members given the limited usage of the service. Meanwhile, 
banks using ID Net would continue to process affected Affirmed 
Transactions trade-for-trade, albeit directly with their counterparties 
rather than the ID Net omnibus accounts, described above. Furthermore, 
NSCC notes that there would be no risk management impact for the 
proposed rule change given that the ID Net Service is a non-guaranteed 
service of NSCC and there is no Clearing Fund offset for ID Net 
transactions.\17\ NSCC therefore believes the proposed rule change 
would not present any burden on competition.
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    \16\ 15 U.S.C. 78q-1(b)(3)(I).
    \17\ See supra notes 10 and 12.

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[[Page 79327]]

(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-to-submit-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 <a href="/cdn-cgi/l/email-protection#daaea8bbbeb3b4bdbbb4beb7bba8b1bfaea99aa9bfb9f4bdb5ac"><span class="__cf_email__" data-cfemail="b9cdcbd8ddd0d7ded8d7ddd4d8cbd2dccdcaf9cadcda97ded6cf">[email protected]</span></a> or 202-551-5777.
    NSCC reserves the right not to 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

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe">[email protected]</span></a>. Please include 
file number SR-NSCC-2024-008 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to file number SR-NSCC-2024-008. 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 (www.dtcc.com/legal/sec-rule-filings). 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-2024-008 and should be submitted on or 
before October 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22127 Filed 9-26-24; 8:45 am]
BILLING CODE 8011-01-P


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