44100 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 

23 15 U.S.C. 78s(b)(3)(A). 24 17 CFR 240.19b–4(f)(2). 25 15 U.S.C. 78s(b)(2)(B). 

26 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Capitalized terms not defined herein are defined 

in the Rules, available at http://dtcc.com/∼/media/ 

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

4See Rule 65 (ID Net Service) and Procedure XVI 

(ID Net Service) of the Rules, supra note 3. 

because it is a regulatory fee that 

supports regulation in furtherance of the 

purposes of the Act. The Exchange is 

obligated to ensure that the amount of 

regulatory revenue collected from the 

ORF, in combination with its other 

regulatory fees and fines, does not 

exceed regulatory costs. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 23 of the Act and 

subparagraph (f)(2) of Rule 19b-4 24

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

Exchange. 

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) 25 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

Phlx–2021–39 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–Phlx–2021–39. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for 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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File No. 

SR–Phlx–2021–39, and should be 

submitted on or before September 1, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–17089 Filed 8–10–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92566; File No. SR–NSCC– 

2021–011] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of a 

Proposed Rule Change To Remove ID 

Net Transactions From the Required 

Fund Deposit Calculations and Make 

Other Changes to the Rules 

August 5, 2021. 

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 July 27, 

2021, National Securities Clearing 

Corporation (‘‘NSCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the clearing agency. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change consists of 

modifications to NSCC’s Rules & 

Procedures (‘‘Rules’’) to (1) remove 

transactions processed through the ID 

Net Service from the calculation of 

Members’ Required Fund Deposits to 

the Clearing Fund; (2) provide greater 

transparency regarding the status of the 

ID Net Service as a non-guaranteed 

service and how transactions processed 

through the ID Net Service are handled 

following a Member default; and (3) 

make other changes to the Rules to 

implement these proposed changes, as 

described in greater detail below.3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

NSCC is proposing to revise its 

margining methodology to remove 

institutional delivery (‘‘ID’’) transactions 

that are processed through the ID Net 

Service from the calculation of 

Members’ Required Deposits to the 

Clearing Fund, as described in greater 

detail below.4 While ID transactions 

processed through the ID Net Service 

(‘‘ID Net Transactions’’) are netted with 

transactions that have been processed 

through NSCC’s continuous net 


jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 44101 

5Transactions processed through the ID Net 

Service have never been subject to NSCC’s trade 

guarantee. This service was implemented only to 

provide Members with the operational benefit of 

netting these transactions with their CNS 

obligations, as described in greater detail below. 

6For more information regarding this service, see 

https://www.dtcc.com/institutional-tradeprocessing/itp/tradesuite-id. 

7Exceptions occur when the mandatory matching 

fields (for example, security identifier or settlement 

date) do not match. 

8See Section B (Institutional Clearing Service) of 

Procedure IV (Special Representative Service) of the 

Rules, supra note 3. 

9See supra note 4. 

10Supra note 3. 

11See Rule 4 (Clearing Fund) and Procedure XV 

(Clearing Fund Formula and Other Matters), supra 

note 3. NSCC’s market risk management strategy is 

designed to comply with Rule 17Ad–22(e)(4) under 

the Act, where these risks are referred to as ‘‘credit 

risks.’’ 17 CFR 240.17Ad–22(e)(4). 

12The 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. 

13Supra note 3. 

14See Sections I(A)(1)(a) and (2)(a) of Procedure 

XV of the Rules, supra note 3. 

settlement (‘‘CNS’’) system, these 

transactions are not subject to NSCC’s 

trade guarantee.5 Therefore, the 

proposed change would improve 

NSCC’s ability to collect Required Fund 

Deposits from its Members that more 

accurately reflect the positions that it 

may be required to complete in the 

event of a Member default. 

NSCC is also proposing to amend the 

Rules to provide greater transparency 

regarding the status of the ID Net 

Service as a non-guaranteed service and 

how ID Net Transactions are handled 

following a Member default. Finally, 

NSCC is proposing to make other 

changes to the Rules to implement these 

proposed changes. 

Overview of ID Transactions and the ID 

Net Service 

The parties involved in an ID 

transaction include the institutional 

investor (such as mutual funds, 

insurance companies, hedge funds, bank 

trust departments and pension funds), 

the investment manager (who enters 

trade orders on behalf of institutional 

investors), the buying broker and the 

selling broker, and custodian banks. 

After execution, the trade allocation 

details of ID transactions are matched 

between the executing broker and the 

investment manager or institutional 

investor’s custodian bank. After an 

executing broker has provided a final 

notice of execution, most investment 

managers will provide client trade 

allocation details to the executing 

broker using a service provided by 

NSCC’s affiliate, Institutional Trade 

Processing (‘‘ITP’’). 

When the executing broker accepts 

and processes the trade allocations, an 

electronic confirmation is provided 

through ITP’s TradeSuite IDTM service 

to the investment manager or the 

institutional investor’s custodian bank 

for affirmation.6 ITP links with the 

various parties to institutional trades to 

provide real-time central matching 

electronically comparing trade details 

and notifying parties of any exceptions.7

After the trade allocation details are 

affirmed, the institutional delivery 

details are sent to The Depository Trust 

Company (‘‘DTC’’) where the trade is 

settled. NSCC risk management receives 

a daily feed from ITP that includes both 

ID transactions that have only been 

confirmed as well as those that have 

also been affirmed. Some eligible ID 

transactions may be processed through 

NSCC’s CNS Accounting Operation or 

Balance Order Accounting Operation, as 

applicable, for clearance and settlement 

with the buying broker and selling 

broker as counterparties.8

Alternatively, Members may subscribe 

for the ID Net Service and direct ID 

transactions to be submitted to NSCC 

and DTC pursuant to this service. The 

ID Net Service is a joint service of NSCC 

and DTC that allows the executing 

brokers that are subscribers to the 

service to net affirmed eligible ID 

transactions that are held at DTC with 

transactions have been processed 

through CNS. ID Net Transactions net 

with CNS obligations to create 

efficiencies in settlement but these 

transactions are not processed through 

CNS. The ID Net Service accepts 

affirmed transactions in Eligible ID Net 

Securities (as defined in Rule 65 (ID Net 

Service) of the Rules) and nets the 

broker-dealer side of such transactions 

with the broker-dealer’s CNS 

obligations.9 Most equity securities that 

are eligible for processing through CNS 

are Eligible ID Net Securities. 

Participation in the ID Net Service is 

voluntary. Eligibility for the ID Net 

Service requires that the broker-dealer 

in the ID transaction be an NSCC 

Member and a participant of DTC. The 

custodian bank in the ID transaction 

must be a DTC participant. In addition, 

eligibility for ID Net Service processing 

is based on the underlying security 

being processed, the type of transaction 

submitted for processing, and the timing 

of affirmation. As described in 

Procedure XVI of the Rules, ID Net 

Transactions that are not completed by 

the cut-off time established by NSCC 

(currently 11:30 a.m. EST) on settlement 

day are exited from NSCC’s systems and 

must be settled on a trade-for-trade basis 

away from NSCC.10

This service provides Members with 

the operational benefit of netting these 

transactions with their CNS obligations, 

allowing them to combine their affirmed 

ID transactions with other trades in 

CNS. As noted above, ID Net 

transactions are not subject to NSCC’s 

trade guarantee. 

Required Fund Deposit and Risk 

Management of ID Net Transactions 

As part of its market risk management 

strategy, NSCC manages its credit 

exposure to Members by determining 

the appropriate Required Fund Deposits 

to the Clearing Fund and monitoring its 

sufficiency, as provided for in the 

Rules.11 The Required Fund Deposit 

serves as each Member’s margin. The 

objective of a Member’s Required Fund 

Deposit is to mitigate potential losses to 

NSCC associated with liquidating a 

Member’s portfolio in the event NSCC 

ceases to act for that Member 

(hereinafter referred to as a ‘‘default’’).12

The aggregate of all Members’ Required 

Fund Deposits constitutes the Clearing 

Fund of NSCC. NSCC would access its 

Clearing Fund should a defaulting 

Member’s own Required Fund Deposit 

be insufficient to satisfy losses to NSCC 

caused by the liquidation of that 

Member’s portfolio. 

Pursuant to the Rules, each Member’s 

Required Fund Deposit amount consists 

of a number of applicable components, 

each of which is calculated to address 

specific risks faced by NSCC, and are 

described in Procedure XV of the 

Rules.13 Because ID Net Transactions 

are netted with CNS transactions, these 

transactions are currently included in 

the netted positions that are used to 

calculate certain components of 

Members’ Required Fund Deposits. 

These components include the volatility 

component, the mark-to-market 

component, which includes both a 

Regular Mark-to-Market charge and an 

ID Net Mark-to-Market charge, the 

Margin Requirement Differential 

component (‘‘MRD charge’’), and a 

margin liquidity adjustment charge 

(‘‘MLA charge’’). 

The volatility component of each 

Member’s Required Fund Deposit is 

designed to measure market price 

volatility and is calculated for Members’ 

net of unsettled pending positions, 

defined as ‘‘Net Unsettled Positions.’’ 14

Currently, Members’ Net Unsettled 

Positions, for purposes of calculating 


jbell on DSKJLSW7X2PROD with NOTICES
44102 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 

15As described in Procedure XV, Section 

I(A)(1)(a)(ii), (iii) and (iv), and Section I(A)(2)(a)(ii), 

(iii) and (iv) of the Rules, Net Unsettled Positions 

in certain securities are excluded from the VaR 

Charge and instead charged a volatility component 

that is calculated by multiplying the absolute value 

of those Net Unsettled Positions by a percentage. 

Supra note 3. 

16See Section I(A)(1)(b) of Procedure XV of the 

Rules, supra note 3. See also the definition of 

‘‘Current Market Price’’ in Rule 1 (Definitions and 

Descriptions), id. 

17See Section I(A)(1)(c) of Procedure XV of the 

Rules, supra note 3. 

18See id. 

19See Section I(A)(1)(f) and (d) of Procedure XV 

of the Rules, supra note 3. 

20See supra note 3. 

21For example, if the inclusion of ID Net 

Transactions in a Member’s Net Unsettled Positions 

results in a lower margin charge (as compared to the 

margin charge that would have been calculated for 

that Member if those ID Net Transactions were 

excluded from its Net Unsettled Positions), NSCC 

could be under-margining on that Net Unsettled 

Position. 

22See Section 5(b) of Rule 65 (ID Net Service) and 

Section 1 of Rule 46 (Restrictions on Access to 

Services) of the Rules, supra note 3. 

23See supra note 3. 

24See Securities Exchange Act Release No. 57901 

(June 2, 2008), 73 FR 32373, at 32375 (June 6, 2008) 

the volatility component, include ID Net 

Transactions. The volatility component 

captures the market price risk associated 

with each Member’s portfolio at a 99th 

percentile level of confidence. NSCC 

has two methodologies for calculating 

the volatility component. The volatility 

component applicable to most Net 

Unsettled Positions is calculated using a 

parametric Value at Risk (‘‘VaR’’) model 

and usually comprises the largest 

portion of a Member’s Required Fund 

Deposit (‘‘VaR Charge’’).15

The mark-to-market component 

measures the unrealized profit or loss 

using the contract price versus the 

Current Market Price (which is the price 

for a security determined daily for 

purposes of the CNS system; generally, 

the prior day’s closing price).16 NSCC 

calculates both a Regular Mark-toMarket charge and, for Members that 

subscribe to the ID Net Service, NSCC 

also calculates a separate ID Net markto-market component with respect to 

only ID Net Transactions, using the 

same calculation, referred to in the 

Rules as the ID Net Mark-to-Market 

charge.17 For both calculations, and 

only with respect to Members that use 

the ID Net Service, if the mark-to-market 

calculation results in a positive number, 

there is no mark-to-market charge 

applied.18

The MRD charge is designed to help 

mitigate the risks posed to NSCC by 

day-over-day fluctuations in a Member’s 

portfolio by forecasting future changes 

in a Member’s portfolio based on a 100- 

day historical look-back at each 

Member’s portfolio over a given time 

period.19 Currently, the charge is 

calculated as the sum of the changes in 

a Member’s Regular Mark-to-Market 

charge, ID Net Mark-to-Market charge, 

and volatility component over the lookback period. Finally, the MLA charge is 

designed to address the risk presented 

to NSCC when a Member’s portfolio 

contains large Net Unsettled Positions 

in a particular group of securities with 

a similar risk profile or in a particular 

asset type.20 Similar to the volatility 

component, the MLA charge is 

calculated on a Member’s Net Unsettled 

Positions, which currently includes ID 

Net Transactions. 

Proposed Enhancement to NSCC’s 

Margining Methodology 

NSCC is proposing to enhance its 

margining methodology to remove ID 

Net Transactions from the calculation of 

Members’ Required Fund Deposits. 

NSCC does not guaranty the completion 

of these ID Net Transactions, so, in the 

event of a Member default, these 

transactions are excluded from NSCC’s 

operations to be settled away from 

NSCC. By removing ID Net Transactions 

from the calculation of Members’ 

Required Fund Deposits, NSCC would 

be able to calculate and collect an 

amount that more accurately reflects the 

risks presented by positions it would be 

obligated to complete in the event of a 

Member default. 

Including ID Net Transactions in the 

margin calculations presents the risk 

that NSCC is either under-margining or 

over-margining the positions of 

Members that use the ID Net Service.21

However, NSCC does not expect the 

proposed change to have a material 

impact on the size of its Clearing Fund. 

At the time of this filing, only twelve 

Members are subscribed to the ID Net 

Service, and their Required Fund 

Deposits are driven primarily by their 

CNS and Balance Order activity. For 

most of these Members, the inclusion of 

ID Net Transactions in margin 

calculations has an immaterial impact 

on these Members’ Required Fund 

Deposits on a typical business day. In 

connection with its regular review of its 

margining methodology, NSCC has 

determined that it could more 

accurately and, therefore, more 

effectively measure the risks it faces 

following a Member default by 

removing these non-guaranteed 

positions from its margining 

methodology. 

In order to implement this proposed 

change, NSCC would remove ID Net 

Transactions from Members’ Net 

Unsettled Positions for purposes of 

calculating the volatility charge and the 

MLA charge. NSCC would also (1) 

eliminate the ID Net Mark-to-Market 

charge from the Required Fund Deposit 

calculations by removing Section 

I(A)(1)(c) from Procedure XV of the 

Rules and (2) amend Section I(A)(1)(b) 

of Procedure XV of the Rules to make 

clear that ID Net Transactions are not 

included in the calculation of the 

Regular Mark-to-Market charge. Finally, 

NSCC would amend Section I(A)(1)(f) 

(which will be renamed Section 

I(A)(1)(e) following implementation of 

the proposed changes) and Section 

I(A)(2)(d) of Procedure XV of the Rules, 

which describe the calculation of the 

MRD charge, to remove the ID Net Markto-Market charge from this description. 

NSCC is not proposing any other 

changes to the calculation of these 

margin charges and is not proposing any 

changes to the operation of the ID Net 

Service. 

Proposed Changes to Clarify the NonGuaranteed Status of ID Net Service 

NSCC is also proposing to amend 

Rule 65 (ID Net Service) and Rule 18 

(Procedures for when the Corporation 

Declines or Ceases to Act) to provide 

greater transparency and clarity into 

how ID Net Transactions are processed 

in the event of a Member default. As 

stated above, the ID Net Service 

provides Members with the operational 

benefit of netting these transactions 

through NSCC’s CNS system, allowing 

them to combine their affirmed ID 

transactions with other trades in CNS. 

However, ID Net Transactions are not 

subject to NSCC’s trade guarantee and 

would be exited from NSCC’s systems in 

the event of a Member default. 

Currently, Rule 65 current describes 

the circumstances in which NSCC may 

remove a Member’s status as an ID Net 

Subscriber, which include the 

circumstances that provide NSCC with 

the right to suspend, prohibit or limit a 

Member’s access to NSCC’s services 

under Rule 46 (Restrictions on Access to 

Services) of the Rules.22 Additionally, 

Procedure XVI (ID Net Service) of the 

Rules describes NSCC’s ability to exit ID 

Net Transactions from its operations.23

Because the ID Net Service is not a 

guaranteed service, NSCC would rely on 

these rules to exit ID Net Transactions 

from its operations in the event of a 

Member default. Specifically, if NSCC 

ceases to act for a Member that is an ID 

Net Subscriber, that firm would no 

longer be eligible to use the service 

pursuant to Rule 65, and NSCC would 

exit its ID Net Transactions from its 

operations, and those transactions 

would be settled on a trade-for-trade 

basis outside the ID Net Service.24 NSCC 


jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 44103 

(File Nos. SR–DTC–2007–14; SR–NSCC–2007–14) 

(‘‘If the transaction becomes ineligible for any 

reason, the transaction will be exited from the ID 

Net Service processing and will be settled on a 

trade-for-trade basis between the ID Net Firm and 

the ID Net Bank outside of the ID Net Service at 

DTC.’’) 

25See Rule 50 (Automated Customer Account 

Transfer Service) and Rule 51 (Obligation 

Warehouse), supra note 3. 

26See Section I(A)(1)(c) of Procedure XV of the 

Rules, supra note 3. 

27See Section I(B)(2) of Procedure XV of the 

Rules, supra note 3. 

28 15 U.S.C. 78q–1(b)(3)(F). 

29 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i). 

30 15 U.S.C. 78q–1(b)(3)(F). 

31 Id. 

32 17 CFR 240.17Ad–22(e)(4)(i). 

is proposing to amend Rules 65 and 18 

of the Rules to improve the transparency 

of the Rules in describing this service as 

non-guaranteed and to provide clarity 

on how these transactions will be 

processed in the event of a Member 

default. 

First, NSCC would include a 

statement in a new Section 5(c) of Rule 

65 of the Rules that states the ID Net 

Service is not a guaranteed service, and 

refers to Rule 18 of the Rules to describe 

how ID Net Transactions would be 

treated if NSCC ceases to act for a 

Member that is an ID Net Subscriber. 

Second, NSCC would amend Section 

2(a) of Rule 18 of the Rules to make it 

clear that uncompleted transactions 

processed through the ID Net Service in 

accordance with Rule 65 would be 

excluded from NSCC’s operations if 

NSCC ceased to act for a Member that 

is an ID Net Subscriber pursuant to Rule 

46 of the Rules. 

The proposed changes to Rules 65 and 

18 of the Rules would use language that 

is similar to language used to describe 

two other non-guaranteed NSCC 

services—the Automated Customer 

Account Transfer Service (‘‘ACATS’’) 

and the Obligation Warehouse (‘‘OW’’) 

service.25 By using parallel language in 

describing the nature of each of these 

services as non-guaranteed and how 

transactions processed through these 

services would be excluded from 

NSCC’s operations following a Member 

default, the proposed changes would 

create consistency and clarity within the 

Rules, improving the Rules’ 

transparency to Members. 

Other Proposed Changes to the NSCC 

Rules To Implement the Proposal 

NSCC is proposing additional changes 

to the Rules in order implement the 

proposed changes described above. 

First, NSCC would move the definitions 

of ‘‘Net Unsettled Positions’’ and ‘‘Net 

Balance Order Unsettled Positions’’ 

from Procedure XV (Clearing Fund 

Formula and Other Matters) to Rule 1 

(Definitions and Descriptions) of the 

Rules. In moving the definition of this 

term, which is used for the calculation 

of both the volatility component and the 

MLA charge, to Rule 1 of the Rules, 

NSCC would simplify the description of 

the calculation of these charges. NSCC 

would also amend the definition of Net 

Unsettled Positions to implement the 

proposed change to remove ID Net 

Transactions from these positions. Other 

than with respect to the removal of ID 

Net Transactions from these positions, 

the meaning of the term ‘‘Net Unsettled 

Positions’’ would not change from its 

current meaning. 

NSCC is also proposing to change the 

defined term ‘‘Regular Mark-to-Market’’ 

charge to the ‘‘Mark-to-Market’’ charge 

in Procedure XV of the Rules.26

Following the proposed change to 

eliminate the ID Net Mark-to-Market 

charge, as described above, the Regular 

Mark-to-Market charge would be the 

only mark-to-market charge that is 

calculated by NSCC. Therefore, it will 

no longer be necessary to refer to this 

charge as the ‘‘Regular’’ mark-to-market 

charge. 

Finally, NSCC is proposing to renumber the margin components in 

Section I(A)(1) of Procedure XV of the 

Rules to reflect the deletion of the ID 

Mark-to-Market charge, and to update 

the references to these components in 

the description of the Excess Capital 

Premium charge.27

(i) Implementation Timeframe 

NSCC would implement the proposed 

changes no later than 10 Business Days 

after the approval of the proposed rule 

change by the Commission. NSCC 

would announce the effective date of 

the proposed changes by Important 

Notice posted to its website. 

2. Statutory Basis 

NSCC believes that the proposed 

changes are consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a registered clearing agency. In 

particular, NSCC believes the proposed 

changes are consistent with Section 

17A(b)(3)(F) of the Act,28 and Rules 

17Ad–22(e)(4)(i) and (e)(6)(i), each 

promulgated under the Act,29 for the 

reasons described below. 

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

requires that the rules of NSCC be 

designed to, among other things, assure 

the safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.30 The proposed change to 

remove ID Net Transactions from the 

calculation of the Members’ Required 

Fund Deposits would allow NSCC to 

calculate these amounts using only the 

positions that it may be required to 

complete in the event of a Member 

default. The proposed change would 

assist NSCC in calculating and 

collecting margin requirements that 

better reflect the risks it may face in 

liquidating a defaulted Member’s 

positions. The Clearing Fund is a key 

tool that NSCC uses to mitigate potential 

losses to NSCC associated with 

liquidating a Member’s portfolio in the 

event of Member default. The proposal 

to enhance the calculation of margin 

requirements by removing nonguaranteed positions would enable 

NSCC to better measure the risks it faces 

in the event of a Member default, such 

that NSCC’s operations would not be 

disrupted and non-defaulting Members 

would not be exposed to losses they 

cannot anticipate or control in such an 

event. 

Additionally, the proposed changes to 

include transparency around the nature 

of the ID Net Service as a nonguaranteed service and clarity on how 

ID Net Transactions are processed 

following a Member default, and to 

update the Rules to implement the other 

proposed changes, would make the 

Rules more effective in communicating 

Members’ rights and obligations in 

connection with the use of the ID Net 

Service. When Members better 

understand their rights and obligations 

regarding the Rules, they are more likely 

to act in accordance with the Rules, 

which NSCC believes would promote 

the prompt and accurate clearance and 

settlement of securities transactions. 

Therefore, the proposed changes are 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of NSCC or for which 

it is responsible, consistent with Section 

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

Rule 17Ad–22(e)(4)(i) under the Act 

requires, in part, that NSCC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to effectively 

identify, measure, monitor, and manage 

its credit exposures to participants and 

those arising from its payment, clearing, 

and settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence.32 As described above, the 

proposed change to remove ID Net 

Transactions from the calculation of 

Required Fund Deposits of Members 

that are ID Net Subscribers would 

enable NSCC to more accurately 

measure the risks presented by those 

Members’ guaranteed positions. 


jbell on DSKJLSW7X2PROD with NOTICES
44104 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 

33 Id. 

34 17 CFR 240.17Ad–22(e)(6)(i). 

35 Id. 

36 15 U.S.C. 78q–1(b)(3)(F). 

37 Id. 

38 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i). 

39 Id. 

40 15 U.S.C. 78q–1(b)(3)(F). 

41 17 CFR 240.17Ad–22(e)(4)(i), (e)(6)(i). 

Therefore, NSCC believes the proposal 

would enhance NSCC’s ability to 

effectively identify, measure, monitor 

and, through the collection of Required 

Fund Deposits, manage its credit 

exposures to Members by maintaining 

sufficient financial resources to cover its 

credit exposure fully with a high degree 

of confidence. As such, NSCC believes 

the proposed changes are consistent 

with Rule 17Ad–22(e)(4)(i) under the 

Act.33

Rule 17Ad–22(e)(6)(i) under the Act 

requires, in part, that NSCC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.34 The Required Fund Deposits 

are made up of risk-based components 

(as margin) that are calculated and 

assessed daily to limit NSCC’s credit 

exposures to Members. NSCC’s proposal 

to remove ID Net Transactions from the 

calculation of Required Fund Deposits 

is designed to enable NSCC to more 

effectively measure the risks presented 

by its Members’ guaranteed positions 

and, therefore, assess a more 

appropriate level of margin. The 

proposed change is designed to assist 

NSCC in maintaining a risk-based 

margin system that considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of Members’ portfolios. Therefore, NSCC 

believes the proposed change is 

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

under the Act.35

(B) Clearing Agency’s Statement on 

Burden on Competition 

NSCC believes that the proposed 

change to remove ID Net Transactions 

from the calculation of Required Fund 

Deposits of Members that are ID Net 

Subscribers could have an impact on 

competition. Specifically, NSCC 

believes the proposed change could 

burden competition because it may 

result in either larger or smaller 

Required Fund Deposit amounts for 

those Members. When the proposal 

results in a larger Required Fund 

Deposit, the proposed change could 

burden competition for Members that 

have lower operating margins or higher 

costs of capital compared to other 

Members. However, any increase or 

decrease in a Required Fund Deposit is 

not expected to be material and would 

be the result of a margin calculation that 

more accurately reflects the risks 

presented by each Member’s guaranteed 

positions. As such, NSCC believes that 

any burden on competition imposed by 

the proposed change would not be 

significant and, further, would be both 

necessary and appropriate in 

furtherance of NSCC’s efforts to mitigate 

risks and meet the requirements of the 

Act, as described in this filing and 

further below. 

NSCC believes the above described 

burden on competition that may be 

created by the proposed change would 

be necessary in furtherance of the Act, 

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

Act.36 As stated above, the proposal is 

designed to assist NSCC in better 

estimating and collecting margin 

requirements that reflect the risks it may 

face in liquidating a defaulted Member’s 

guaranteed positions. Therefore, NSCC 

believes this proposed change is 

consistent with the requirements of 

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

requires that the Rules be designed to 

assure the safeguarding of securities and 

funds that are in NSCC’s custody or 

control or which it is responsible.37

NSCC believes the proposal would 

also support NSCC’s compliance with 

Rules 17Ad–22(e)(4)(i) and Rule 17Ad– 

22(e)(6)(i) under the Act, which require 

NSCC to establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to (x) 

effectively identify, measure, monitor, 

and manage its credit exposures to 

participants and those arising from its 

payment, clearing, and settlement 

processes, including by maintaining 

sufficient financial resources to cover its 

credit exposure to each participant fully 

with a high degree of confidence; and 

(y) cover its credit exposures to its 

participants by establishing a risk-based 

margin system that, at a minimum, 

considers, and produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market.38

As described above, NSCC believes 

the proposal to remove ID Net 

Transactions from the calculation of 

Required Fund Deposits would enable it 

to more effectively measure the risks 

presented by its Members’ guaranteed 

positions, and improve its ability to 

maintain a risk-based margin system 

that considers, and produces margin 

levels commensurate with, the risks of 

each Member’s portfolio. Therefore, the 

proposed change would better limit 

NSCC’s credit exposures to Members, 

consistent with the requirements of 

Rules 17Ad–22(e)(4)(i) and Rule 17Ad– 

22(e)(6)(i) under the Act.39 NSCC 

believes that the above described 

burden on competition that could be 

created by the proposed change would 

be appropriate in furtherance of the Act 

because such change has been 

appropriately designed to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

NSCC or for which it is responsible, as 

described in detail above. The proposal 

would also enable NSCC to produce 

margin levels more commensurate with 

the risks and particular attributes of 

each Member’s portfolio by removing 

non-guaranteed positions from the 

calculation of Required Fund Deposits. 

NSCC believes that it has designed the 

proposed change in an appropriate way 

in order to meet compliance with its 

obligations under the Act. Specifically, 

the proposal would improve the riskbased margining methodology that 

NSCC employs to set margin 

requirements and better limit NSCC’s 

credit exposures to its Members. 

Therefore, as described above, NSCC 

believes the proposed change is 

necessary and appropriate in 

furtherance of NSCC’s obligations under 

the Act, specifically Section 

17A(b)(3)(F) of the Act 40 and Rules 

17Ad–22(e)(4)(i) and Rule 17Ad– 

22(e)(6)(i) under the Act.41

The proposed rule changes to increase 

transparency regarding the ID Net 

Service and to update the Rules to 

implement the other proposed changes 

would help ensure that the Rules 

remain clear and accurate. In addition, 

these changes would facilitate Members’ 

understanding of the Rules and their 

obligations thereunder. These changes 

would not affect NSCC’s operations or 

the rights and obligations of the 

membership. As such, NSCC believes 

these proposed rule 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 

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 


jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices 44105 

42 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3OCC’s By-Laws and Rules can be found on 

OCC’s public website at https://www.theocc.com/ 

Company-Information/Documents-and-Archives/ 

By-Laws-and-Rules. OCC’s Board and Board 

Committee Charters are also available on OCC’s 

public website: https://www.theocc.com/about/ 

corporate-information/board-charter. 

(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 

https://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 

tradingandmarkets@sec.gov 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 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NSCC–2021–011 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–NSCC–2021–011. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for 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 

10:00 a.m. and 3:00 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 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–NSCC– 

2021–011 and should be submitted on 

or before September 1, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.42

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–17074 Filed 8–10–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92584; File No. SR–OCC– 

2021–007] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Concerning The Options Clearing 

Corporation’s Governance 

Arrangements 

August 5, 2021. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on July 30, 2021, The Options 

Clearing Corporation (‘‘OCC’’) 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 primarily by OCC. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

This proposed rule change by OCC 

would provide OCC’s Board of Directors 

(‘‘Board’’) with the discretion to elect 

either an Executive Chairman or a NonExecutive Chairman to preside over the 

Board, provide OCC’s Board and 

stockholders with the discretion to elect 

a Management Director, clarify the 

respective authority and responsibility 

of any Executive Chairman or NonExecutive Chairman, and make other 

clarifying, conforming, and 

administrative changes to OCC’s rules. 

The proposed changes to OCC’s ByLaws, Rules, Board of Directors Charter 

and Corporate Governance Principles 

(‘‘Board Charter’’), Audit Committee 

Charter, Compensation and Performance 

Committee Charter, Governance and 

Nominating Committee Charter, Risk 

Committee Charter, Technology 

Committee Charter (such committee 

charters collectively being the ‘‘Board 

Committee Charters’’), and Amended 

and Restated Stockholders Agreement 

(‘‘Stockholders Agreement’’) (all 

collectively, the ‘‘OCC Governing 

Documents’’) have been provided as 

Exhibits 5A–5I of OCC filing SR–OCC– 

2021–007. Material proposed to be 

added to the OCC Governing Documents 

is marked by underlining. Material 

proposed to be deleted from the OCC 

Governing Documents is marked by 

strikethrough. All terms with initial 

capitalization that are not otherwise 

defined herein have the same meaning 

as set forth in OCC’s By-Laws and 

Rules.3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 


jbell on DSKJLSW7X2PROD with NOTICES