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[Federal Register Volume 89, Number 242 (Tuesday, December 17, 2024)]
[Notices]
[Pages 102211-102214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29631]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101885; File No. SR-NSCC-2024-010]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Amend the 
Clearing Agency Investment Policy

December 11, 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 December 3, 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 Clearing 
Agency Investment Policy (``Investment Policy'', or ``Policy'') of NSCC 
and its affiliates, Fixed Income Clearing Corporation (``FICC'') and 
The Depository Trust Company (``DTC,'' and together with NSCC and FICC, 
the ``Clearing Agencies'') \3\ and would facilitate changes to the FICC 
Government Securities Division Rulebook (``GSD Rules'') that will be 
implemented by FICC.\4\
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    \3\ See Securities Exchange Act Release No. 79528 (Dec. 12, 
2016), 81 FR 91232 (Dec. 16, 2016) (SR-DTC-2016-007, SR-FICC-2016-
005, SR-NSCC-2016-003).
    \4\ See Securities Exchange Act Release No. 101695 (Nov. 21, 
2024), 89 FR 93763 (Nov. 27, 2024) (SR-FICC-2024-007) (``Account 
Segregation Filing''). The changes proposed in the Account 
Segregation Filing are expected to be implemented by no later than 
March 31, 2025, on a date to be announced by an Important Notice 
posted to FICC's website. Terms not defined herein are defined in 
the GSD Rules, available at www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_gov_rules.pdf.
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    Specifically, as described in greater detail in the Account 
Segregation Filing, FICC will implement changes to the GSD Rules that 
will, among other things, provide for FICC to (1) hold margin collected 
with respect to the proprietary transactions of a Netting Member 
separately and independently from the margin collected with respect to 
transactions that a Netting Member submits to FICC on behalf of 
indirect participants, (2) legally segregate certain margin collected 
with respect to indirect participant transactions from the margin for a 
Netting Member's proprietary transactions (as well as those of other 
indirect participants), and (3) limit investments of certain margin 
collected with respect to indirect participant transactions to only 
U.S. Treasuries with a maturity date of one year or less. The Clearing 
Agencies are proposing to amend the Policy to facilitate implementation 
of these changes and would also make other clean-up changes to the 
Policy, as described in greater detail below.
    The changes that were proposed in the Account Segregation Filing 
and the changes proposed to the Investment Policy herein are 
collectively designed to comply with certain requirements of Rule 17ad-
22(e)(6)(i) under the Act,\5\ and to ensure that FICC has appropriate 
rules to satisfy certain conditions of Note H to Rule 15c3-3a under the 
Act for a broker-dealer to record a debit in the customer and broker-
dealer proprietary account reserve formulas.\6\
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    \5\ 17 CFR 240.17ad-22(e)(6)(i). See Securities Exchange Act 
Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) 
(``Adopting Release,'' and the rules adopted therein referred to 
herein as ``Treasury Clearing Rules'').
    \6\ 17 CFR 240.15c3-3a, Note H. See id.
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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 Investment Policy governs the management, custody and 
investment of cash deposited to the respective NSCC and FICC Clearing 
Funds, and the DTC Participants Fund,\7\ the proprietary liquid net 
assets (cash and cash equivalents) of the Clearing Agencies, and other 
funds held by the Clearing Agencies pursuant to their respective rules. 
In doing this, the Investment Policy identifies the guiding principles 
for investments and defines the roles and responsibilities of DTCC \8\ 
staff in administering the Investment Policy pursuant to those 
principles. The guiding principles for investments set forth in Section 
3 of the Investment Policy address, among other things, how

[[Page 102212]]

the Clearing Agencies segregate and separately hold cash deposited to 
the NSCC Clearing Fund, the Clearing Fund of FICC's Government 
Securities Division (``GSD''), the Clearing Fund of FICC's Mortgage-
Backed Securities Division (``MBSD'') and the DTC Participants Fund. 
The Investment Policy also identifies sources of funds that may be 
invested, and the permitted investments of those funds, including the 
authority required to make such investments and the parameters of, and 
limitations on, each type of investment.
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    \7\ The respective Clearing Funds of NSCC, FICC's GSD and FICC's 
MBSD, and the DTC Participants Fund are described further in the 
Rules & Procedures of NSCC (``NSCC Rules''), the DTC Rules, By-laws 
and Organization Certificate (``DTC Rules''), the Clearing Rules of 
the Mortgage-Backed Securities Division of FICC (``MBSD Rules'') or 
the GSD Rules, respectively, available at http://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, 
Rule 4 (Participants Fund and Participants Investment) of the DTC 
Rules, Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules, 
and Rule 4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
    \8\ The Depository Trust & Clearing Corporation (``DTCC'') is 
the parent company of the Clearing Agencies.
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    The Commission recently adopted amendments to Rule 17ad-22(e)(6)(i) 
under the Act that are applicable to FICC as a covered clearing agency 
that provides, through GSD, central counterparty services for 
transactions in U.S. Treasury securities.\9\ These amendments require, 
among other things, that FICC hold margin from a direct participant for 
its proprietary transactions separately and independently from the 
margin calculated and collected for the transactions of an indirect 
participant that relies on the services provided by the direct 
participant to access FICC's payment, clearing, or settlement 
facilities.\10\
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    \9\ 17 CFR 240.17ad-22(e)(6)(i).
    \10\ Id.
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    In the Treasury Clearing Rules, the Commission also amended its 
customer protection rule (``Rule 15c3-3'') \11\ and the reserve 
formulas thereunder (``Rule 15c3-3a''),\12\ to permit broker-dealers to 
include margin required and on deposit at FICC as a debit item in the 
reserve formula under certain conditions. One of the conditions for the 
relief is that the margin be collected in accordance with the GSD Rules 
that impose certain requirements, which include, among other things, 
that FICC (i) only invest cash margin in U.S. Treasuries with a 
maturity of one year or less, and (ii) must hold the margin itself or 
at an account of a Federal Reserve Bank or an FDIC-insured bank, which 
account must be segregated from any other account of FICC or any other 
person at a U.S. Federal Reserve Bank or FDIC-insured bank and used 
exclusively to hold customer assets to meet the current margin 
requirements of FICC resulting from positions in U.S. Treasury 
securities of the customers of the broker-dealer members of FICC.\13\
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    \11\ 17 CFR 240.15c3-3.
    \12\ 17 CFR 240.15c3-3a.
    \13\ Id.
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    In the Account Segregation Filing, FICC proposed changes to the GSD 
Rules to comply with the requirements of the Treasury Clearing Rules. 
Such changes are expected to be implemented in the GSD Rules by no 
later than March 31, 2025 and will, among other things, (1) provide for 
FICC to calculate, collect, and hold margin for the proprietary 
transactions of a Netting Member separately and independently from the 
margin for transactions that the Netting Member submits to FICC on 
behalf of indirect participants, and (2) allow Netting Members to elect 
for margin for indirect participant transactions to be calculated on a 
gross basis (i.e., an indirect participant-by-indirect participant 
basis) and legally segregated from the margin for the Netting Member's 
proprietary transactions (as well as those of other indirect 
participants).\14\
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    \14\ Supra note 4.
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    The proposed changes to the Investment Policy would facilitate the 
implementation of the changes that will be made to the GSD Rules 
pursuant to the Account Segregation Filing, as described in greater 
detail below.
i. Separately Holding Indirect Participant Margin
    First, the proposed changes to the Investment Policy would 
facilitate the implementation of the changes to the GSD Rules that will 
require FICC to calculate, collect, and hold margin for the proprietary 
transactions of a GSD Netting Member separately and independently from 
margin collected with respect to transactions that a Netting Member 
submits to FICC on behalf of indirect participants.
    The proposed changes to the Policy would do this by first amending 
Section 2 to include a definition of Indirect Participants Clearing 
Fund Deposits to mean ``the total amount deposited in the GSD Clearing 
Fund to support activity in Agent Clearing Member Omnibus Accounts and 
Sponsoring Member Omnibus Accounts, other than Segregated Indirect 
Participants Accounts, as such terms are defined in the FICC Government 
Securities Division (``GSD'') Rulebook (``GSD Rules'').'' Next, the 
proposed changes would amend Section 3.2 (Section 3 describes the 
guiding principles that underpin the Policy) regarding the separation 
and segregation of cash deposits to the NSCC, GSD and MBSD Clearing 
Funds, and the DTC Participants Fund. Within this section, the proposed 
changes would specify that Indirect Participants Clearing Fund Deposits 
shall be held separately and independently on FICC's books and records 
from all other deposits to the GSD Clearing Fund.
    In connection with this change, the proposed changes to the Policy 
would also amend Section 5, which describes investable funds that are 
invested by the Clearing Agencies pursuant to the Policy. The changes 
to this section would provide that Indirect Participants Clearing Fund 
Deposits are included in the GSD Clearing Fund. This proposed change 
would clarify that these funds are considered investable funds under 
the Policy, to be invested similarly to other cash deposits to the GSD 
Clearing Fund.
ii. Legally Segregating and Limiting Investments of Segregated Customer 
Margin
    Second, the proposed changes to the Investment Policy would 
facilitate implementation of the changes that will be made to the GSD 
Rules pursuant to the Account Segregation Filing that will require FICC 
to legally segregate certain Indirect Participants Clearing Fund 
Deposits that have been designated by GSD Netting Members for such 
segregation (``Segregated Customer Margin''), and to hold and invest 
such funds in a manner that meets the conditions set forth in the 
Commission's amendments to Rule 15c3-3 and Rule 15c3-3a.\15\
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    \15\ 17 CFR 240.15c3-3 and 15c3-3a.
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    The GSD Rules will describe the manner in which FICC will meet the 
requirements of Rule 15c3-3 and Rule 15c3-3a with respect to Segregated 
Customer Margin. The standards that FICC must adhere to in holding, 
investing and legally segregating Segregated Customer Margin are 
critical to its Netting Members' ability to obtain certain relief with 
respect to these funds. Therefore, the Clearing Agencies believe it is 
appropriate for these provisions to be described publicly in the GSD 
Rules, which are published to the DTCC website.\16\
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    \16\ Supra note 7.
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    While the manner in which FICC would hold and invest Segregated 
Customer Margin will primarily be described in the GSD Rules, the 
proposed changes would incorporate Segregated Customer Margin into the 
Investment Policy such that the general governance and investment 
philosophy underpinning the Policy, described in Section 3.1 as ``a 
prudent and conservative investment philosophy that places highest 
priority on maximizing liquidity and risk avoidance,'' would apply to 
these funds.
    The proposed changes would amend Section 2 to include a definition 
of Segregated Customer Margin as having ``the meaning given such term 
in the

[[Page 102213]]

GSD Rules.'' The proposed changes would also amend Section 3.2 to 
include a separate statement that refers to the provisions of the GSD 
Rules, specifically, but not limited to, Section 1a of GSD Rule 4, 
which would, following implementation of the changes that were proposed 
by the Account Segregation Filing, address how FICC would segregate and 
hold Segregated Customer Margin in compliance with the applicable 
conditions set forth in Rule 15c3-3 and Rule 15c3-3a.
    The proposed changes to the Policy would amend Section 5 to 
identify Segregated Customer Margin as a source of investable funds and 
to state that ``Segregated Customer Margin is described in the GSD 
Rules, including, but not limited to, Section 1a of GSD Rule 4.'' The 
proposed changes to Section 5 would also clarify the description of 
``Participants Fund and Clearing Funds'' to make clear that Segregated 
Customer Margin is not treated as general FICC Clearing Fund. Finally, 
the proposed changes would include ``Segregated Customer Margin'' as a 
separate category of ``Allowable Investments'' in Section 6.1, showing 
that these funds may only be invested in bank deposits, including a 
Federal Reserve Bank. Under Section 6.2.1, which describes limits on 
bank deposit investments, the proposed changes would include a 
statement that refers back to GSD Rule 4 as describing the manner in 
which Segregated Customer Margin may be invested and would also provide 
that higher investment limits may be applied to investments of 
Segregated Customer Margin.
iii. Clean-Up Proposed Changes
    The proposed changes to the Policy would replace references to the 
``Management Committee'' with the ``senior most management committee,'' 
which accurately describes this internal governing body without 
referring to it by formal name. The DTCC Management Committee is 
comprised of the executive members of DTCC's management team and is the 
senior most management committee in the organization. The Policy 
currently requires that certain actions and authorizations described 
therein be taken by a member of this body. For example, Section 4.3 of 
the Policy requires that the establishment of any new investment 
relationships be authorized by specified persons, which include a 
member of the Management Committee.
    The Management Committee has recently changed its name to the 
Executive Committee. Therefore, the proposed change to replace the 
formal name of this body would continue to correctly refer to the group 
but would ensure that the group continues to be accurately described in 
the Policy in the event of any future changes to its formal name. The 
proposed changes would include a new defined term for ``senior most 
management committee'' in Section 2 to provide clarity that this term 
is intended to refer to the highest-level committee of DTCC. Conforming 
changes would also be made to Section 4.3 (regarding authorization to 
establish new investment relationships), Section 6.2.3 (regarding 
authorization of investment transactions in U.S. Treasury securities), 
Section 6.2.5 (regarding authorization of investment transactions in 
high-grade corporate debt) and Section 7.2 (regarding authorization to 
exceed investment limits).
Implementation Timeframe
    The Clearing Agencies expect to implement the proposal by no later 
than March 31, 2025, or such earlier date on which the changes proposed 
by the Account Segregation Filing are effective.
2. Statutory Basis
    The Clearing Agencies believe that the proposed changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency, 
particularly, Section 17A(b)(3)(F) of the Act \17\ and Rule 17ad-
22(e)(6)(i) under the Act,\18\ for the reasons described below.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17ad-22(e)(6)(i).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a registered clearing agency be designed to assure the safeguarding 
of securities and funds which are in their custody or control or for 
which they are responsible.\19\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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    The investment guidelines and governance procedures set forth in 
the Investment Policy are designed to safeguard funds that are in the 
custody or control of the Clearing Agencies or for which they are 
responsible. Such protections include, for example, following a prudent 
and conservative investment philosophy that places the highest priority 
on maximizing liquidity and risk avoidance. The Clearing Agencies 
believe the proposed changes would allow them to continue to adhere to 
these guidelines by addressing the segregation, separation and 
investment of Indirect Participants Clearing Fund Deposits and 
Segregated Customer Margin, consistent with the changes that were 
proposed in the Account Segregation Filing. The proposed changes would 
reflect a prudent and conservative investment philosophy by limiting 
FICC's ability to hold Segregated Customer Margin in either an account 
of a Federal Reserve Bank or an FDIC-insured bank. Therefore, the 
Clearing Agencies believe the proposed rule change would allow the 
Clearing Agencies to continue to operate the Investment Policy pursuant 
to a prudent and conservative investment philosophy that assures the 
safeguarding of securities and funds that are in their custody and 
control, or for which they are responsible, consistent with Section 
17A(b)(3)(F) of the Act.\20\
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    \20\ Id.
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    The proposed changes to more generally describe the senior most 
management committee would ensure that the Policy remains clear and 
accurate in describing the governance around important actions 
described therein. By creating clearer descriptions, the Clearing 
Agencies believe these proposed changes would make the Investment 
Policy more effective in governing the management, custody, and 
investment of funds of and held by the Clearing Agencies. The Clearing 
Agencies believe the proposed changes would improve the effectiveness 
of the Investment Policy and allow the Investment Policy to continue to 
be administered in alignment with the investment guidelines and 
governance procedures set forth therein. Given that such guidelines and 
governance procedures are designed to safeguard funds which are in the 
custody or control of the Clearing Agencies or for which they are 
responsible, the Clearing Agencies believe the proposed changes are 
consistent with Section 17A(b)(3)(F) of the Act.\21\
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    \21\ Id.
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    Rule 17ad-22(e)(6)(i) under the Act requires, in part, FICC to 
establish written policies and procedures reasonably designed to 
calculate, collect, and hold margin amounts from a direct participant 
for its proprietary positions in Treasury securities separately and 
independently from margin calculated and collected from that direct 
participant in connection with U.S. Treasury securities transactions by 
an indirect participant that relies on the services provided by the 
direct participant to access FICC's payment, clearing, or settlement 
facilities.\22\ As described above, the proposed changes would amend 
Section 3.2, which describes the separation and

[[Page 102214]]

segregation of cash deposits to the NSCC, GSD and MBSD Clearing Funds, 
and the DTC Participants Fund. The proposed changes would specify in 
this section that Indirect Participants Clearing Fund Deposits shall be 
held separately and independently on FICC's books and records from all 
other deposits to the GSD Clearing Fund. Together with the changes to 
be implemented to the GSD Rules pursuant to the Account Segregation 
Filing, the proposed changes to the Policy would support FICC's 
compliance with the requirements of Rule 17ad-22(e)(6)(i) by providing 
that Indirect Participants Clearing Fund Deposits shall be held 
separately and independently from margin held for GSD Netting Members' 
proprietary activity.
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    \22\ 17 CFR 240.17ad-22(e)(6)(i).
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(B) Clearing Agency's Statement on Burden on Competition

    The Clearing Agencies believe that the proposed revisions to the 
Investment Policy would not have any impact, or impose any burden, on 
competition. The Investment Policy applies equally to allowable 
investments of Clearing Fund and Participants Fund deposits, as 
applicable, of each member of the Clearing Agencies, and establishes a 
uniform policy at the Clearing Agencies. The proposed changes to the 
Investment Policy would not effect any changes on the fundamental 
purpose or operation of this document and, as such, would also not have 
any impact, or impose any burden, on competition.
    The Clearing Agencies do not believe the proposed rule changes to 
make clean-up changes to the Policy would impact competition. These 
changes would ensure the clarity and accuracy of the descriptions in 
the Policy and would not affect participants' rights and obligations. 
As such, the Clearing Agencies believe the proposed clean-up changes 
would not have any impact on competition.

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

    The Clearing Agencies have 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 [email protected] or 202-551-5777.
    The Clearing Agencies reserve 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

     Use the Commission's internet comment form (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2024-010 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-2024-010. 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-regulations/self-regulatory-organization-rulemaking). 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-2024-010 and should be submitted on or before January 7, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29631 Filed 12-16-24; 8:45 am]
BILLING CODE 8011-01-P
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