44224 Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 

9 In approving this rule change, the Commission 

has considered the rule’s impact on efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). 

10 15 U.S.C. 78f(b)(5). 

11Notice, 82 FR at 36471. 

12 Id. 

13See id. 

14 15 U.S.C. 78s(b)(2). 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 81248 (July 

28, 2017), 82 FR 36049 (August 2, 2017) (SR–DTC– 

2017–013, SR–NSCC–2017–012, SR–FICC–2017– 

016) (‘‘Notice’’). 

4FICC and NSCC refer to their participants as 

‘‘Members,’’ while DTC refers to its participants as 

‘‘Participants.’’ These terms are defined in the 

Clearing Agencies’ Rules. In this filing, as well as 

in the Framework, ‘‘participant’’ or ‘‘participants’’ 

refers to both the Members of FICC and NSCC, and 

the Participants of DTC. 

officer or employee of a member 

organization has exercised discretionary 

authority, as the Exchange believes this 

to be important information with 

respect to a transaction. 

Rule 1027(e) Discretion as to Time or 

Price Excepted 

As discussed above the Exchange 

proposes to amend Rule 1027(e), which 

generally excludes price and time 

discretion from the requirements of Rule 

1027, to cover foreign currency options. 

The Exchange also proposes to correct 

an internal cross reference to ‘‘this 

paragraph (d)’’ which should read ‘‘this 

paragraph (e).’’ 

III. Discussion and Commission 

Findings 

After careful review of the proposed 

rule change, the Commission finds that 

the proposal is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

that are applicable to a national 

securities exchange.9 Specifically, the 

Commission finds that the proposed 

rule changes are consistent with Section 

6(b)(5) of the Exchange Act,10 which 

requires, among other things, that the 

rules of a national securities exchange 

be designed to prevent fraudulent and 

manipulative acts and practices; to 

promote just and equitable principles of 

trade; to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest. 

Section 6(b)(5) also requires that the 

rules of an exchange not be designed to 

permit unfair discrimination among 

customers, issuers, brokers, or dealers. 

The proposal is designed to ‘‘remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, by 

eliminating redundant rule text, 

clarifying certain rule text, and 

conforming parts of the rule more 

closely to CBOE Rule 9.10, 

Discretionary Accounts.’’ 11 The 

Commission notes that Phlx believes 

that harmonizing its rule regarding 

discretionary accounts with its CBOE 

counterpart will create ‘‘more efficient 

regulatory compliance by members of 

both exchanges due to reduction of 

differences in wording and consequent 

potential for inadvertent regulatory 

noncompliance.’’ 12 The Commission 

further notes that Phlx believes that 

harmonizing Rule 1027 with its CBOE 

counterpart will ‘‘further the goal of 

harmonized examinations and 

enforcement of similar rules, thus 

reducing duplicative regulatory efforts’’ 

and thus lowering overall regulatory 

costs imposed on member organizations 

and, by extension, the general public.13

The Commission notes that the proposal 

received no comments from the public. 

Taking into consideration the 

Exchange’s views about the proposed 

amendments, the Commission believes 

that the proposal will promote 

regulatory efficiency through more 

streamlined rule text that avoids 

unnecessary redundancy, clarification 

of the meaning and scope of the rule, 

and greater harmonization of regulatory 

requirements across national securities 

exchanges, thereby reducing regulatory 

burdens, without undermining strong 

regulatory protections for investors. The 

Commission believes that the approach 

proposed by the Exchange is 

appropriate and designed to protect 

investors and the public interest, 

consistent with Section 6(b)(5) of the 

Exchange Act. For these reasons, the 

Commission finds that the proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations thereunder. 

IV. Conclusion 

It is therefore ordered pursuant to 

Section 19(b)(2) 14 of the Exchange Act 

that the proposal (SR–PHLX–2017–56), 

be and hereby is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–20087 Filed 9–20–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34- 81635; File Nos. SR–DTC– 

2017–013; SR–NSCC–2017–012; SR–FICC– 

2017–016] 

Self-Regulatory Organizations; The 

Depository Trust Company; National 

Securities Clearing Corporation; Fixed 

Income Clearing Corporation; Order 

Approving Proposed Rule Changes To 

Adopt the Clearing Agency Risk 

Management Framework 

September 15, 2017. 

I. Introduction 

On July 14, 2017, The Depository 

Trust Company (‘‘DTC’’), National 

Securities Clearing Corporation 

(‘‘NSCC’’), and Fixed Income Clearing 

Corporation (‘‘FICC,’’ each a ‘‘Clearing 

Agency,’’ and collectively the ‘‘Clearing 

Agencies’’), filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

proposed rule changes SR–DTC–2017– 

013, SR–NSCC–2017–012, and SR– 

FICC–2017–016, respectively, pursuant 

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

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

19b–4 thereunder.2 The proposed rule 

changes were published for comment in 

the Federal Register on August 2, 2017.3

The Commission did not receive any 

comment letters on the proposed rule 

changes. For the reasons discussed 

below, the Commission approves the 

proposed rule changes. 

II. Description of the Proposed Rule 

Changes 

The proposed rule changes are 

proposals by the Clearing Agencies to 

adopt the Clearing Agency Risk 

Management Framework (‘‘Framework’’) 

of the Clearing Agencies, as described 

below. 

A. Overview of the Framework 

The Framework would describe how 

each Clearing Agency (i) 

comprehensively manages legal, credit, 

liquidity, operational, general business, 

investment, custody, and other risks 

that arise in or are borne by it (‘‘Key 

Clearing Agency Risks’’); (ii) manages 

risks posed by its participants; 4 (iii) 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 44225 

5Notice, 82 FR at 36050. 

6 Id. The parent company of the Clearing 

Agencies is The Depository Trust & Clearing 

Corporation (‘‘DTCC’’). DTCC operates on a shared 

services model with respect to the Clearing 

Agencies. Most corporate functions are established 

and managed on an enterprise-wide basis pursuant 

to intercompany agreements under which it is 

generally DTCC that provides a relevant service to 

a Clearing Agency. 

7Notice, 82 FR at 36050. 

8 Id. 

9 Id. 

10 Id. 

11 Id. 

12 Id. 

13 Id. 

14 Id. 

15 Id. 

16 Id. 

17 Id. 

18 Id. 

19 Id. 

20Notice, 82 FR at 36050–51. 

21Notice, 82 FR at 36051. 

22 Id. 

23 Id. 

24 Id.; 15 U.S.C. 78s(b)(1). 

25Notice, 82 FR at 36051; 12 U.S.C. 5465(e)(1). 

26Notice, 82 FR at 36051. 

manages risks related to material 

interdependencies and external links; 

and (iv) provides services responsive to 

market needs.5 The Framework would 

be maintained by the General Counsel’s 

Office (‘‘GCO’’) of DTCC.6 The 

Framework would provide that GCO 

reviews the Framework at least 

annually, in coordination with all 

departments responsible for the 

processes described in the Framework.7

B. Comprehensive Management of Key 

Clearing Agency Risks 

The Framework would state that the 

Boards of Directors of the Clearing 

Agencies (each a ‘‘Board’’ and together, 

the ‘‘Boards’’) have delegated to DTCC 

management, on behalf of the Clearing 

Agencies, the responsibility for 

identifying, assessing, measuring, 

monitoring, mitigating, and reporting 

Key Clearing Agency Risks through a 

process of developing individual risk 

tolerance statements for identified 

risks.8 The Framework would state that 

these risk tolerance statements describe 

the applicable risk controls and other 

measures used to manage risks.9 If 

needed, residual risks may be identified 

for either further management or 

acceptance, which then follows a 

defined escalation and approval 

process.10 The Framework would also 

state that DTCC management, on behalf 

of the Clearing Agencies, is responsible 

for the day-to-day management of those 

residual risks.11 Finally, the Framework 

would describe the governance around 

updating risk tolerance statements, 

which are reviewed and approved by a 

management committee, the Risk 

Committee of the Boards, and the 

Boards at least annually.12 The 

Framework would provide that the 

Clearing Agencies manage Key Clearing 

Agency Risks through (i) a ‘‘Three Lines 

of Defense’’ approach, as described 

below, and (ii) the maintenance of risk 

management policies, procedures, 

Clearing Agencies’ Rules, and 

frameworks, as described below. 

1. Three Lines of Defense 

The Framework would provide that 

the Clearing Agencies employ a ‘‘Three 

Lines of Defense’’ approach for 

comprehensively managing Key 

Clearing Agency Risks.13 The 

Framework would describe the roles of 

personnel and business units in this risk 

management approach, which includes 

(i) a first line of defense comprised of 

the various business lines and 

functional units that support the 

products and services offered by the 

Clearing Agencies (collectively, 

‘‘Clearing Agency Business/Support 

Areas’’); (ii) a second line of defense 

comprised of control functions that 

support the Clearing Agencies, 

including the organization’s legal, 

privacy and compliance areas, as well as 

the DTCC Risk Department, which is 

specifically dedicated to risk 

management concerns (collectively, 

‘‘Clearing Agency Control Functions’’); 

and (iii) a third line of defense, which 

is performed by DTCC Internal Audit.14

For the first line of defense, the 

Framework would state that each 

Clearing Agency Business/Support Area 

would, for example, identify Key 

Clearing Agency Risks applicable to its 

function, determine the best way to 

mitigate such risks, self-test internal 

controls, and create and implement 

actions plans for risk mitigation.15 For 

the second line of defense, the 

Framework would state that each 

Clearing Agency’s Control Functions 

would, for example, work with the 

Clearing Agency Business/Support 

Areas on efforts to mitigate Key Clearing 

Agency Risks, and provide tools to those 

groups to enable them to analyze, 

monitor and proactively manage those 

risks.16 Finally, for the third line of 

defense, the Framework would identify 

the role of DTCC Internal Audit as 

including, for example, directing its 

own resources to review and test key 

controls that help mitigate significant 

Key Clearing Agency Risks, then 

reporting on the results of that testing.17

In connection with a description of 

the second and the third lines of 

defense, the Framework would state that 

personnel within the DTCC Risk 

Department and the DTCC Internal 

Audit are provided with sufficient 

authority, resources, independence from 

management, and access to the 

Boards.18 The Framework would 

provide that the DTCC Risk Department 

and the DTCC Internal Audit are 

functionally independent from all other 

Clearing Agency Business/Support 

Areas.19 The Framework would also 

explain that the personnel within the 

DTCC Risk Department and the DTCC 

Internal Audit have a direct reporting 

line to, and oversight by, the Risk 

Committee of the Boards and the Audit 

Committee of the Boards, respectively, 

which is supported by the charters of 

these committees.20 The Framework 

would state that a set of senior 

management committees provide 

oversight of the Three Lines of Defense 

approach to manage Key Clearing 

Agency Risks as well as other aspects of 

the Clearing Agencies’ risk 

management.21

2. Policies, Procedures, Clearing 

Agencies’ Rules, and Risk Management 

Frameworks 

The Framework would provide that 

the Clearing Agencies maintain a policy 

to govern the requirements for 

establishing, managing, and assessing 

the performance of internal committees 

and councils.22 The Framework would 

also describe the process by which the 

Clearing Agencies maintain risk 

management policies, procedures, 

Clearing Agencies’ Rules, frameworks, 

and other documents designed to 

identify, measure, monitor, and manage 

Key Clearing Agency Risks.23

The Framework would describe 

policies maintained by the Clearing 

Agencies that (i) govern the steps taken 

to meet their regulatory requirements 

related to proposed rule change and 

advance notice filings pursuant to 

Section 19(b)(1) of the Act,24 and 

Section 806(e)(1) of Title VIII of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, entitled the 

Payment, Clearing, and Settlement 

Supervision Act of 2010,25 and the rules 

thereunder (collectively, ‘‘Filing 

Requirements’’); and (ii) establish 

standards and a holistic approach for 

creating and managing risk management 

policies, procedures, Clearing Agencies’ 

Rules, frameworks, and other 

documents, including periodic reviews 

and governance approval of such 

documents (‘‘Document Standards’’).26

The Framework would provide that, 

with respect to those documents that 

address Key Clearing Agency Risks, the 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
44226 Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 

27 Id. 

28 Id. 

29 Id. 

30 Id. 

31 Id. 

32 Id. 

33 Id. 

34 Id. 35 Id. 36 Id. 37 Id. 38 Id. 

39 Id. 

40Notice, 82 FR at 36051–52. 

41Notice, 82 FR at 36051. 

42 Id. 

43 Id. 

44 Id. 

45Notice, 82 FR at 36052. 

46 Id. 

47 Id. 

48 Id. 

49 Id. 

50 Id. 

51 Id. 

52 Id. 

Document Standards require annual 

approval by the Boards.27

The Framework would describe how 

the Clearing Agencies maintain the 

Clearing Agencies’ Rules, which support 

the Clearing Agencies’ ability to provide 

for a well-founded, clear, transparent 

and enforceable legal basis for each 

aspect of their activities in all relevant 

jurisdictions.28 Maintenance of the 

Clearing Agencies’ Rules is supported 

by the policy governing the Filing 

Requirements and the Document 

Standards, described above.29 The 

Framework would state that the 

Clearing Agencies’ Rules establish the 

membership onboarding process of the 

Clearing Agencies.30 The Framework 

would also state that the Clearing 

Agencies may adopt and maintain other 

risk management frameworks, separate 

from the Framework, that address, in 

whole or in part, the management of 

other Key Clearing Agency Risks such as 

the management of operational, 

liquidity, and market risks.31

C. Information and Incentives for 

Management of Risks by Participants 

The Framework would describe how 

the Clearing Agencies provide their 

respective participants with information 

and incentives to enable them to 

monitor, manage, and contain the risks 

they pose (including the risks by their 

customers) to the respective Clearing 

Agencies.32 The Framework would 

identify some of the sources of the 

information that are made available to 

the Clearing Agencies’ participants, 

including, for example, (i) materials on 

the DTCC Web site, such as the Clearing 

Agencies’ Rules, user guides, and 

training courses, and regularly updated 

disclosures made pursuant to the 

guidelines published by the Committee 

on Payment and Settlement Systems 

and the Technical Committee of the 

International Organization of Securities 

Commissions; and (ii) reports regarding 

the Clearing Agencies’ margin and 

liquidity requirements and their 

transaction volumes and values, as 

applicable.33

The Framework would also describe 

some of the incentives used by the 

Clearing Agencies to enable their 

participants to monitor, manage, and 

contain risks they pose to the Clearing 

Agencies, including, for example, (i) 

daily margin requirements, pursuant to 

the Clearing Agencies’ Rules, which are 

calculated in close correlation to the 

risk each participant poses to the 

relevant Clearing Agency; and (ii) other 

tools within the Clearing Agencies’ 

Rules that enable the Clearing Agencies 

to enforce their respective Rules against 

their participants.34

D. Management of Risks Related to 

Material Interdependencies and 

External Links 

The Framework would describe how 

the Clearing Agencies regularly review 

the material risks they bear from and 

pose to other entities as a result of 

material interdependencies and external 

links.35 The Framework would identify 

some of the Clearing Agencies’ material 

interdependencies between the Clearing 

Agencies and other entities which may 

include, for example, Clearing Agencies’ 

participants, settling banks, investment 

counterparties, liquidity providers, 

vendors, and service providers.36 With 

respect to the links between the Clearing 

Agencies and material external 

interdependent entities, the Framework 

would describe how the Clearing 

Agencies review and monitor any 

resulting risks that are driven by the 

nature of the relationship.37 For 

example, risks related to the Clearing 

Agencies’ link to their respective 

participants and settling banks are 

addressed through tools found within 

the Clearing Agencies’ Rules, as these 

entities are bound by the Rules.38 The 

Framework would also describe the 

Clearing Agencies’ management and 

monitoring of risks that have the 

potential of creating systemic risks.39 In 

addition, the Framework would provide 

how the Clearing Agencies utilize a 

series of comprehensive reviews that 

include input from a cross-functional 

group to identify, monitor, and manage 

risks related to all external links of the 

Clearing Agencies.40

The Framework would provide that 

risks arising from links to vendors are 

identified, assessed, controlled, and 

monitored through a comprehensive 

review and vetting process.41 The 

Framework would describe how a riskbased approach is employed to assess 

the need and level of due diligence 

activities associated with the evaluation 

of potential vendors and with the reevaluation of existing vendors.42 The 

Framework would state that this process 

involves the review of certain 

information related to a proposed 

vendor relationship, which should focus 

on confidentiality, integrity, availability, 

and recoverability related to that 

relationship.43 The Framework would 

also describe how risk related to 

existing vendor relationships is 

reviewed periodically, throughout the 

lifecycle of the relationship.44

E. Scope of Services Responsive to 

Market Needs 

The Framework would describe how 

the Clearing Agencies meet the 

requirements of their participants and 

the markets they serve.45 The 

Framework would describe the Clearing 

Agencies’ structured approach for the 

implementation of new initiatives, 

which includes conducting a 

comprehensive risk assessment of new 

initiatives.46 These reviews address, 

among other matters, compliance with 

applicable laws, regulations, and 

standards.47

The Framework would also describe 

the Clearing Agencies’ role in industrywide strategic initiatives through 

participation on industry working 

groups and the development and 

publication of concept papers.48 The 

Framework would describe how the 

Clearing Agencies use periodic surveys 

and employ product-aligned customer 

service representatives to ensure clients 

receive the support they need.49 The 

Framework would describe the Clearing 

Agencies’ process for escalating and 

responding to certain customer 

complaints.50 The Framework would 

also describe the Clearing Agencies’ 

‘‘Core Balanced Business Scorecard,’’ 

which is used by the Clearing Agencies 

to review and track the effectiveness of 

their operations, information technology 

service levels, financial performance, 

human capital, as well as their 

participants’ experiences.51

F. Recovery and Orderly Wind-Down 

The Framework would provide that 

the Clearing Agencies may maintain 

policies and procedures to govern the 

development of plans for recovery and 

orderly wind-down.52 Such documents 

would define the roles and 

responsibilities of relevant business 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 44227 

53 Id. 54 15 U.S.C. 78s(b)(2)(C). 55 15 U.S.C. 78q–1(b)(3)(F). 56 17 CFR 240.17Ad–22(e)(1), (e)(3)(i), (e)(3)(iii), 

(e)(3)(iv), (e)(20), and (e)(21). 57 15 U.S.C. 78q–1(b)(3)(F). 

58 Id. 

59 17 CFR 240.17Ad–22(e)(1). 

60 Id. 

61 17 CFR 240.17Ad–22(e)(3)(i). 

units in the development and 

documentation of the plans and would 

outline the general content of the 

plans.53

III. Discussion and Commission 

Findings 

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

the Commission to approve a proposed 

rule change of a self-regulatory 

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.54 After carefully 

considering the proposed rule changes, 

the Commission finds that the proposed 

rule changes are consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

the Clearing Agencies. Specifically, the 

Commission finds that the proposed 

rule changes are consistent with Section 

17A(b)(3)(F) of the Act 55 and Rules 

17Ad–22(e)(1), (e)(3)(i), (e)(3)(iii), 

(e)(3)(iv), (e)(20), and (e)(21) under the 

Act.56

A. Consistency With Section 

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

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 the custody or 

control of the Clearing Agencies or for 

which they are responsible.57

As described above, the Framework 

would provide some of the ways the 

Clearing Agencies comprehensively 

manage Key Clearing Agency Risks, 

which include legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by the Clearing 

Agencies. For example, the Framework 

would describe how the Clearing 

Agencies use the ‘‘Three Lines of 

Defense’’ approach to assessing, 

measuring, monitoring, mitigating, and 

reporting those risks, and would 

identify the roles and responsibilities of 

each line of defense within that 

approach. The Framework would also 

provide other risk management 

activities, including the establishment 

and maintenance of certain management 

committees that would perform 

oversight of the Clearing Agencies’ 

businesses and related risk 

management. Furthermore, the 

Framework would describe information 

and incentives offered by the Clearing 

Agencies to their participants to manage 

and contain the risks. The Framework 

would also describe some of the ways to 

manage risks posed by material 

interdependency relationships and 

external links, and address the market 

needs efficiently and effectively. 

By providing transparency to their 

risk management practices, the 

Framework is designed to help the 

Clearing Agencies be in a better position 

to prevent and manage the risks that 

arise in or are borne by the Clearing 

Agencies. By better managing the risks 

that arise in or are borne by the Clearing 

Agencies, the Framework is designed to 

help reduce the possibility that a 

Clearing Agency fails. By better 

positioning the Clearing Agencies to 

continue their critical operations and 

services, and mitigating the risk of 

financial loss contagion caused by a 

Clearing Agency failure, the Framework 

is designed to help assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the Clearing Agencies, or for which they 

are responsible. Accordingly, the 

Commission believes that the proposed 

rule changes are consistent with Section 

17A(b)(3)(F) of the Act.58

B. Consistency With Rule 17Ad–22(e)(1) 

Rule 17Ad–22(e)(1) under the Act 

requires that each covered clearing 

agency establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to, 

provide for a well-founded, clear, 

transparent and enforceable legal basis 

for each aspect of its activities in all 

relevant jurisdictions.59

As described above, the Framework 

would describe the policies maintained 

by the Clearing Agencies that govern the 

Filing Requirements and the Document 

Standards. In addition, the Framework 

would describe how the Clearing 

Agencies maintain the Clearing 

Agencies’ Rules. The Clearing Agencies’ 

Rules are the key legal basis for each of 

the Clearing Agencies’ respective 

activities described in the Clearing 

Agencies’ Rules. For example, as part of 

the membership onboarding process, all 

participants must execute membership 

agreements, which binds them to the 

relevant Clearing Agency’s Rules and 

subjects them to an enforceable contract 

governing the rights and obligations of 

the Clearing Agencies and those 

participants. The Framework would also 

describe how the Clearing Agencies’ 

Rules are published on the DTCC Web 

site, and how the Clearing Agencies 

adhere to the Filing Requirements. The 

Framework would also describe how the 

Clearing Agencies review and assess 

risk related to their contractual 

arrangements with vendors, service 

providers, and other external parties 

with which the Clearing Agencies may 

establish links. The Framework would 

also describe the process by which the 

Clearing Agencies review new 

initiatives prior to implementation, 

which include a review of the legal risks 

that may be posed by those initiatives. 

By organizing and describing in a 

central location the policies and 

procedures that the Clearing Agencies 

use to manage Key Clearing Agency 

Risks, as well as the Clearing Agencies’ 

policies, procedures, Rules, frameworks, 

and other documents, the Framework is 

designed to help the Clearing Agencies 

manage, in a more clear and transparent 

way, the policies and procedures that 

define the rights and obligations of the 

Clearing Agencies, their participants, 

and other external parties. In doing so, 

the Framework also helps provide for a 

well-founded and enforceable legal 

basis for the activities of the Clearing 

Agencies. Therefore, the Commission 

believes that the Framework is 

consistent with the requirements of Rule 

17Ad–22(e)(1).60

C. Consistency With Rule 17Ad– 

22(e)(3)(i), (e)(3)(iii), and (e)(3)(iv) 

Rule 17Ad–22(e)(3)(i) under the Act 

requires, in part, that each covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody and other risks that 

arise in or are borne by the covered 

clearing agency, which includes risk 

management policies, procedures and 

systems designed to identify, measure, 

monitor and manage the range of risks 

that arise in or are borne by the covered 

clearing agency, that are subject to 

review on a specified periodic basis and 

approved by the board of directors 

annually.61

As described above, the Framework 

would describe how the Clearing 

Agencies maintain comprehensive 

policies, procedures, and other 

documents, including the Framework 

and certain other risk management 

frameworks, which are designed to help 

identify, measure, monitor, and manage 

Key Clearing Agency Risks. The 

Framework would state that the 

documents that address Key Clearing 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
44228 Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 

62 Id. 

63 17 CFR 240.17Ad–22(e)(3)(iii). 

64 Id. 

65 17 CFR 240.17Ad–22(e)(3)(iv). 

66 Id. 

67 17 CFR 240.17Ad–22(e)(20). 

68 Id. 

69 17 CFR 240.17Ad–22(e)(21). 

70 Id. 

Agency Risks are subject to annual 

approval by each of the Boards pursuant 

to the Document Standards. 

Furthermore, the Framework would 

describe how the Clearing Agencies 

identify, assess, measure, monitor, 

mitigate, and report risks through 

individual risk tolerance statements for 

identified risks, which are reviewed and 

approved by the Boards at least 

annually. Accordingly, the Commission 

believes that the Framework is 

consistent with Rule 17Ad–22(e)(3)(i).62

Rule 17Ad–22(e)(3)(iii) under the Act 

requires, in part, that each covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody and other risks that 

arise in or are borne by the covered 

clearing agency, which provides risk 

management and internal audit 

personnel with sufficient authority, 

resources, independence from 

management, and access to the board of 

directors.63

As described above, in connection 

with a description of the second and the 

third lines of defense, the Framework 

would state that personnel within the 

DTCC Risk Department and the DTCC 

Internal Audit are provided with 

sufficient authority, resources, 

independence from management, and 

access to the Boards. In particular, the 

Framework would describe how both 

the DTCC Risk Department and the 

DTCC Internal Audit are functionally 

independent from all other Clearing 

Agency Business/Support Areas. The 

Framework would also indicate how the 

senior management within both of those 

groups report directly to appropriate 

committees of the Boards. Accordingly, 

the Commission believes that the 

Framework is consistent with Rule 

17Ad–22(e)(3)(iii).64

Rule 17Ad–22(e)(3)(iv) under the Act 

requires, in part, that each covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody and other risks that 

arise in or are borne by the covered 

clearing agency, which provides risk 

management and internal audit 

personnel with a direct reporting line to, 

and oversight by, a risk management 

committee and an independent audit 

committee of the board of directors, 

respectively.65

As described above, the Framework 

would describe, as the third line of 

defense, how senior management within 

the DTCC Risk Department and the 

DTCC Internal Audit have a direct 

reporting line to, and oversight by, the 

Risk Committee of the Boards and the 

Audit Committee of the Boards, 

respectively, which is supported by the 

charters of these committees. 

Accordingly, the Commission believes 

that the Framework is consistent with 

Rule 17Ad–22(e)(3)(iv).66

D. Consistency With Rule 17Ad– 

22(e)(20) 

Rule 17Ad–22(e)(20) under the Act 

requires that each covered clearing 

agency establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

identify, monitor and manage risks 

related to any link the covered clearing 

agency establishes with one or more 

other clearing agencies, financial market 

utilities, or trading markets.67

As described above, the Framework 

would describe how the Clearing 

Agencies review both proposed and 

existing links with other entities, 

including those links that may result in 

material interdependencies. For 

example, the Framework would 

describe some of the ways the Clearing 

Agencies manage risks related to their 

links with, as applicable, participants, 

settling banks, investment 

counterparties, liquidity providers, 

vendors, and service providers, and 

would also describe how the Clearing 

Agencies identify and address risks that 

have the potential of creating systemic 

impact. With respect to links with 

vendors, the Framework would describe 

how the Clearing Agencies apply a 

comprehensive vendor review and 

vetting process. 

By providing written policies and 

procedures to identify, monitor, and 

manage risks related to links that the 

Clearing Agencies’ establish, the 

Commission believes that the 

Framework is consistent with Rule 

17Ad–22(e)(20).68

E. Consistency With Rule 17Ad– 

22(e)(21) 

Rule 17Ad–22(e)(21) under the Act 

requires that each covered clearing 

agency establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to be 

efficient and effective in meeting the 

requirements of its participants and the 

markets it serves, and have the covered 

clearing agency’s management regularly 

review the efficiency and effectiveness 

of its (i) clearing and settlement 

arrangements; (ii) operating structure, 

including risk management policies, 

procedures, and systems; (iii) scope of 

products cleared or settled; and (iv) use 

of technology and communication 

procedures.69

As described above, the Framework 

would describe some of the ways in 

which the Clearing Agencies review the 

efficiency and effectiveness of their 

businesses and operations. For example, 

the Framework would describe how the 

Clearing Agencies employ a structured 

approach to the pre-implementation 

reviews of new initiatives (including 

initiatives related to their clearing and 

settlement arrangements, scope of 

products cleared or settled, and use of 

technology and communication 

procedures). The Framework would also 

describe the Clearing Agencies’ Core 

Balanced Business Scorecard, which is 

used to review the effectiveness of the 

Clearing Agencies’ operations, 

information technology services levels, 

financial performance, and other aspects 

of their business, including their 

respective participants’ experiences. 

The Framework would also describe 

some of the steps the Clearing Agencies 

take in order to be efficient and effective 

in reviewing and meeting the 

requirements of their participants and 

the markets they serve, including the 

maintenance of a policy to address 

escalation, tracking, and resolution of 

certain customer complaints. 

By establishing a framework that 

would (i) help support bring initiatives 

to market in a more timely and efficient 

manner through the pre-implementation 

reviews; (ii) help provide the Clearing 

Agencies insight into the efficiency and 

effectiveness of their businesses and 

operations through the Core Balanced 

Business Scorecard; and (iii) help 

manage the Clearing Agencies’ 

participants’ complaints through a 

specific policy, the Commission 

believes that the Framework is 

consistent with Rule 17Ad–22(e)(21).70

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule changes are consistent with the 

requirements of the Act and in 

particular with the requirements of 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
Federal Register / Vol. 82, No. 182 / Thursday, September 21, 2017 / Notices 44229 

71 15 U.S.C. 78q–1. 

72 In approving the Proposed Rule Changes, the 

Commission considered the proposals’ impact on 

efficiency, competition and capital formation. 15 

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

73 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 80933 

(June 15, 2017), 82 FR 28200 (June 20, 2017). 

5See Securities Exchange Act Release No. 81309 

(August 3, 2017), 82 FR 37244 (August 9, 2017). 

6See Notice, infra note 7, at n. 8, which describes 

the changes proposed in Amendment No. 2 from 

the original proposal. Amendment No. 2 replaced 

the original proposal in its entirety so the 

description below describes the proposal, as 

modified by Amendment No. 2. 

7See Securities Exchange Act Release No. 81440 

(August 18, 2017), 82 FR 40183 (August 24, 2017) 

(‘‘Notice’’). 

8See Letter from James J. Angel, Associate 

Professor of Finance, Georgetown University, to 

SEC (July 28, 2017). 

9Section 102.01B of the Manual states that a 

company must demonstrate ‘‘. . . an aggregate 

market value of publicly-held shares of $40 million 

for companies that list either at the time of their IPO 

(C) or as a result of a spin-off or under the Affiliated 

Company standard or, for companies that list at the 

time of their Initial Firm Commitment Underwritten 

Public Offering (C), and $100,000,000 for other 

companies (D)(E).’’ Section 102.01B also requires a 

company to have a closing price, or if listing in 

connection with an IPO or Initial Firm Commitment 

Underwritten Public Offering, a price per share of 

at least $4.00 at the time of initial listing. 

10See Section 102.01B, Footnote (C) of the 

Manual which states that for companies listing at 

the time of their IPO or Initial Firm Commitment 

Underwritten Public Offering, the Exchange will 

rely on a written commitment from the underwriter 

to represent the anticipated value of the company’s 

offering. For spin-offs, the Exchange will rely on a 

representation from the parent company’s 

investment banker (or other financial advisor) in 

order to estimate the market value based upon the 

distribution ratio. 

11The reference to a registration statement refers 

to a registration statement effective under the 

Securities Act of 1933 (‘‘Securities Act’’). 

12See Section 102.01B, Footnote (E) of the 

Manual. 

13See Section 102.01B, Footnote (E) of the 

Manual which sets forth specific requirements for 

the Valuation. Among other factors, any Valuation 

used for purposes of Footnote (E) must be provided 

by an entity that has significant experience and 

demonstrable competence in the provision of such 

valuations. 

14Section 102.01B, Footnote (E) also sets forth 

specific factors for relying on a Private Placement 

Market Price including that such price must be a 

Continued 

Section 17A of the Act 71 and the rules 

and regulations thereunder. 

It is therefore ordered, pursuant to 

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

proposed rule changes SR–DTC–2017– 

013, SR–NSCC–2017–012, and SR– 

FICC–2017–016 be, and hereby are, 

approved.72

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.73

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–20089 Filed 9–20–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81640; File No. SR–NYSE– 

2017–30] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change, as Modified by 

Amendment No. 2, To Amend Section 

102.01B of the NYSE Listed Company 

Manual To Provide for the Listing of 

Companies That List Without a Prior 

Exchange Act Registration and That 

Are Not Listing in Connection With an 

Underwritten Initial Public Offering and 

Related Changes to Rules 15, 104, and 

123D 

September 15, 2017. 

I. Introduction 

On June 13, 2017, New York Stock 

Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’), 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’) 2 and Rule 19b–4 

thereunder,3 a proposed rule change to 

amend (i) Footnote (E) to Section 

102.01B of the NYSE Listed Company 

Manual (the ‘‘Manual’’) to modify the 

provisions relating to the qualification 

of companies listing without a prior 

Exchange Act registration; (ii) Rule 15 to 

add a Reference Price for when a 

security is listed under Footnote (E) to 

Section 102.01B; (iii) Rule 104 to 

specify DMM requirements when a 

security is listed under Footnote (E) to 

Section 102.10B and there has been no 

trading in the private market for such 

security; and (iv) Rule 123D to specify 

that the Exchange may declare a 

regulatory halt in a security that is the 

subject of an initial listing on the 

Exchange. 

The proposed rule change was 

published for comment in the Federal 

Register on June 20, 2017.4 The 

Exchange filed Amendment No. 1 to the 

proposed rule change on July 28, 2017 

which, as noted below, was later 

withdrawn. On August 3, 2017, the 

Commission extended the time period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to approve or 

disapprove the proposed rule change, to 

September 18, 2017.5 On August 16, 

2017, the Exchange withdrew 

Amendment No. 1 and filed 

Amendment No. 2 to the proposed rule 

change, which amended and replaced 

the proposed rule change as originally 

filed.6 Amendment No. 2 was published 

for comment in the Federal Register on 

August 24, 2017.7 The Commission 

received one comment on the proposal.8

This order institutes proceedings under 

Section 19(b)(2)(B) of the Exchange Act 

to determine whether to approve or 

disapprove the proposal. 

II. Description of the Amended 

Proposal 

1. Listing Standards 

Generally, Section 102 of the Manual 

sets forth the minimum numerical 

standards for domestic companies, or 

foreign private issuers that choose to 

follow the domestic standards, to list 

equity securities on the Exchange. 

Section 102.01B of the Manual requires 

a listed company to demonstrate at the 

time of listing an aggregate market value 

of publicly-held shares of either $40 

million or $100 million, depending on 

the type of listing.9 Section 102.01B also 

states that, in these cases, the Exchange 

relies on written representations from 

the underwriter, investment banker or 

other financial advisor, as applicable, 

with respect to this valuation.10 While 

Footnote (E) to Section 102.01B states 

that the Exchange generally expects to 

list companies in connection with a firm 

commitment underwritten initial public 

offering (‘‘IPO’’), upon transfer from 

another market, or pursuant to a spinoff, Section 102.01B of the Manual also 

contemplates that companies that have 

not previously had their common equity 

securities registered under the Exchange 

Act, but which have sold common 

equity securities in a private placement, 

may wish to list their common equity 

securities on the Exchange at the time 

of effectiveness of a registration 

statement 11 filed solely for the purpose 

of allowing existing shareholders to sell 

their shares.12 Specifically, Footnote (E) 

to Section 102.01B of the Manual 

permits the Exchange, on a case by case 

basis, to exercise discretion to list such 

companies and provides that the 

Exchange will determine that such a 

company has met the $100 million 

aggregate market value of publicly-held 

shares requirement based on a 

combination of both (i) an independent 

third-party valuation (a ‘‘Valuation’’) 13

of the company and (ii) the most recent 

trading price for the company’s common 

stock in a trading system for 

unregistered securities operated by a 

national securities exchange or a 

registered broker-dealer (a ‘‘Private 

Placement Market’’).14 Under the 


asabaliauskas on DSKBBXCHB2PROD with NOTICES