47172 Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Notices 

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://www.dtcc.com/∼/ 

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

4 26 U.S.C. 1446(f). 

5Securities Exchange Act Release No. 92437 (July 

19, 2021), 86 FR 39092 (July 23, 2021) (‘‘Notice of 

Filing’’). 

6 26 U.S.C. 1446(f)(1); Withholding of Tax and 

Information Reporting With Respect to Interests in 

Partnerships Engaged in a U.S. Trade or Business, 

85 FR 76910 (Nov. 30, 2020) (‘‘Final Regulations’’). 

7 Id.; 26 CFR 1.1446(f)–4(a). 

8Final Regulations, supra note 6, at 76922. 

9Notice of Filing, supra note 5, at 39093. 

10 Id. 

11The term ‘‘FFI Member’’ means any Member or 

Limited Member that is treated as a non-U.S. entity 

for U.S. federal income tax purposes. See Rules, 

supra note 3. 

12NSCC states that, based on the types of services 

that NSCC provides to Limited Members, 

notwithstanding any exception, NSCC would not 

need to perform Section 1446(f) Withholding with 

respect to Limited Members’ activities at NSCC. 

Notice of Filing, supra note 5, at 39093. 

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– 

FINRA–2021–019 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 

Number SR–FINRA–2021–019. 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 such 

filing also will be available for 

inspection and copying at the principal 

office of FINRA. 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–FINRA– 

2021–019 and should be submitted on 

or before September 13, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Jill Peterson, 

Assistant Secretary. 

[FR Doc. 2021–17964 Filed 8–20–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92682; File No. SR–NSCC– 

2021–009] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving a 

Proposed Rule Change To Modify the 

Rules & Procedures of National 

Securities Clearing Corporation in 

Connection With the Implementation of 

Section 1446(f) of the Internal Revenue 

Code of 1986 

August 17, 2021. 

On July 14, 2021, National Securities 

Clearing Corporation (‘‘NSCC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 proposed rule 

change SR–NSCC–2021–009 to modify 

NSCC’s Rules & Procedures (‘‘Rules’’) 3

in connection with the implementation 

of Section 1446(f) of the Internal 

Revenue Code of 1986.4 The proposed 

rule change was published for comment 

in the Federal Register on July 23, 

2021,5 and the Commission received no 

comment letters regarding the changes 

proposed in the proposed rule change. 

For the reasons discussed below, the 

Commission is approving the proposed 

rule change. 

I. Description of the Proposed Rule 

Change 

A. Background 

Section 1446(f) generally imposes a 

ten percent withholding tax on the 

payment of gross proceeds arising from 

the sale or other disposition by a nonU.S. person of an interest in a publicly 

traded partnership (‘‘Section 1446(f) 

Withholding’’) that is engaged in a U.S. 

trade or business.6 A tax withholding 

obligation is imposed on the buyer of 

the partnership interest, who is required 

to remit the withheld tax amount to the 

U.S. Internal Revenue Service (‘‘IRS’’), 

unless or to the extent an applicable 

exception applies. The buyer obligated 

to withhold the ten percent tax is liable 

for any amount that it underwithheld, 

plus associated interest and penalties. 

Further, partnerships that are publicly 

traded on exchanges (‘‘PTPs’’) in respect 

of transfers that occur on or after 

January 1, 2022 will be subject to 

Section 1446(f) Withholding. The U.S. 

Treasury Department (‘‘Treasury 

Department’’) and the IRS implemented 

a tax withholding requirement pursuant 

to Treasury Regulation Section 

1.1446(f)–4(a).7

Section 1.1446(f)–4(b) provides 

certain exceptions to 1.1446(f)–4(a). 

Under one of the exceptions, U.S. 

clearing organizations, which, under its 

definition, would include NSCC, are 

discharged from fulfilling Section 

1446(f) Withholding at this time. The 

Treasury Department and the IRS 

provided this exception because they 

understood that there are no 

nonqualified intermediary Members that 

participate directly in the net settlement 

system at a U.S. clearing organization at 

the present time.8

NSCC represents that, all of NSCC’s 

non-U.S. Members are currently of the 

types of entities permitted to perform 

the Section 1446(f) Withholding 

themselves either because (i) they are 

the types of entities allowed to perform 

U.S. tax withholdings pursuant to 

applicable Treasury Regulations, or (ii) 

they have entered into the requisite 

agreements with the IRS that allow them 

to perform U.S. tax withholdings 

(commonly known as the Qualified 

Intermediary Agreements).9 NSCC 

further represents that nearly all such 

Members have historically accepted the 

responsibility to perform all U.S. tax 

withholdings in respect of their NSCC 

accounts, and it is NSCC’s 

understanding that they would continue 

do the same for Section 1446(f) 

Withholding.10

B. Proposed Rule Changes 

NSCC proposes to amend its Rules to 

ensure that all NSCC’s FFI Members 11

that are Members would accept the 

responsibility to perform the Section 

1446(f) Withholding.12

First, NSCC proposes to add new 

definitions: Section 1446(f), Section 

1446(f) Withholding, Section 1446(f) 


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Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Notices 47173 

13Notice of Filing, supra note 5, at 39093. 

14The term ‘‘Section 1446(f) Withholding Agent’’ 

would mean an FFI Member that is a Member and 

has certified to NSCC that Section 1446(f) 

Withholding would not apply to any Gross Credit 

Balance of such FFI Member by providing to NSCC 

a Tax Certification (as defined below and in the 

proposed rule text). Id. 

15 Id. 

16Notice of Filing, supra note 5, at 39094. 

17Notice of Filing, supra note 5, at 39093–94. 

18 15 U.S.C. 78s(b)(2)(C). 

19 15 U.S.C. 78q–1(b)(3)(F). 

20 Id. 

21Final Regulations, supra note 6, at 76922. 

22Notice of Filing, supra note 5, at 39094. 

23 15 U.S.C. 78q–1(b)(3)(F). 

24 Id. 

25 15 U.S.C. 78q–1. 

26 15 U.S.C. 78s(b)(2). 

27 In approving the proposed rule change, the 

Commission considered the proposals’ impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

28 17 CFR 200.30–3(a)(12). 

Withholding Agent, Section 1446(f) 

Withholding Compliance Date, and Tax 

Certification.13 Second, NSCC proposes 

to revise the FATCA compliance rule to 

add that, generally, each FFI Member 

that is a Member must agree not to 

conduct any transaction or activity 

through NSCC if such FFI Member is 

not a Section 1446(f) Withholding 

Agent.14 Third, NSCC proposes to 

require FFI Members to be Section 

1446(f) Withholding Agents and to 

notify NSCC when they have reason to 

know that they are not, or will not be, 

Section 1446(f) Withholding Agents.15

Fourth, NSCC proposes to require a 

Member who is a non-U.S. entity and is 

not a Section 1446(f) Withholding Agent 

to not transact through NSCC, and a 

Member who is a non-U.S. entity to 

provide Tax Certification to certify that 

it is FATCA Compliant or a Section 

1446(f) Withholding Agent.16 Fifth, 

NSCC proposes to make certain other 

technical changes to its Rules.17

II. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 18

directs the Commission to approve a 

proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Act and 

rules and regulations thereunder 

applicable to such organization. After 

carefully considering the proposed rule 

change, the Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act. In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 17A(b)(3)(F) of the Act.19

A. Consistency With Section 

17A(b)(3)(F) 

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

requires, in part, that the rules of a 

clearing agency, such as NSCC, be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions.20

As described above, Section 1446(f) 

provides NSCC an exception from the 

obligation to perform Section 1446(f) 

Withholding at this time. However, if a 

direct clearing member of a U.S. 

clearing organization is not a type of 

entity permitted to perform Section 

1446(f) Withholding, the Treasury 

Department and the IRS will issue 

proposed guidance that would remove 

the current exception to require Section 

1446(f) Withholding by U.S. clearing 

organizations, such as NSCC, on that 

direct clearing member.21 If the 

Treasury Department and the IRS were 

to revise Section 1446(f) and revoke 

NSCC’s exception, NSCC would be 

required to clear and settle each transfer 

of PTP interest on a gross basis in order 

to perform Section 1446(f) Withholding 

on such transfer. Given that NSCC 

currently clears and settles all 

transactions on a netted basis, NSCC 

represents that any obligation imposed 

on NSCC to clear and settle transfers of 

PTP interest on a gross basis may be 

disruptive to the efficiency and liquidity 

of the trading of PTP interests in the 

capital markets.22

NSCC is proposing that, unless 

waived by NSCC, beginning on the 

Section 1446(f) Withholding 

Compliance Date, each FFI Member that 

is a Member would be required to agree 

not to conduct any transaction or 

activity through NSCC if such FFI 

Member is not a Section 1446(f) 

Withholding Agent. In addition, each 

FFI Member that is a Member would be 

required to provide periodic 

certifications to NSCC regarding its 

Section 1446(f) Withholding Agent 

status. Taken together, these 

membership requirements would help 

to ensure that all NSCC FFI Members 

that are Members would accept their 

responsibility to perform the Section 

1446(f) Withholding and to be a Section 

1446(f) Withholding Agent. 

By ensuring that all NSCC FFI 

Members that are Members would 

accept their responsibility to perform 

the Section 1446(f) Withholding, the 

Commission believes the current 

exception for NSCC with respect to 

Section 1446(f) would continue to 

operate as intended. Therefore, NSCC 

would be able to continue to clear and 

settle all transactions (including 

transfers of PTP interest) on a netted 

basis and avoid any potential disruption 

to the efficiency and liquidity of the 

trading of PTP interests in the capital 

market. By avoiding any potential 

disruption to the efficiency and 

liquidity of the trading of PTP interest 

in the capital market, the Commission 

believes that the proposal would help to 

promote the prompt and accurate 

clearance and settlement of transactions, 

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

the Act.23

The Commission believes the 

proposal to make technical changes to 

the Rules is also consistent with Section 

17A(b)(3)(F) of the Act. The proposed 

technical changes to the Rules would 

help ensure that the Rules remain 

accurate and clear to Members. Having 

accurate and clear Rules would help 

Members to better understand their 

rights and obligations regarding NSCC’s 

clearance and settlement services. The 

Commission believes that when 

Members better understand their rights 

and obligations regarding NSCC’s 

clearance and settlement services, they 

can act in accordance with the Rules. 

The Commission believes that better 

enabling Members to comply with the 

Rules would promote prompt and 

accurate clearance and settlement of 

transactions, consistent with Section 

17A(b)(3)(F) of the Act.24

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular with the requirements of 

Section 17A of the Act 25 and the rules 

and regulations promulgated 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 26 that 

proposed rule change SR–NSCC–2021– 

009, be, and hereby is, APPROVED.27

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–17963 Filed 8–20–21; 8:45 am] 

BILLING CODE 8011–01–P 


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