46558 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 81439 

(August 18, 2017), 82 FR 40176 (August 24, 2017) 

(SR–NSCC–2017–015) (‘‘Notice’’). 4Available at http://www.dtcc.com/en/legal/ 

rules-and-procedures. 5A Member’s Required Deposit is the daily 

margin deposit that Members are required to make 

to NSCC’s clearing fund (‘‘Clearing Fund’’). 

Additional information on Required Deposits and 

the Clearing Fund can be found in NSCC’s Rules. 

Id. 6Notice, 82 FR at 40176. 

7When NSCC restricts a Member’s access to 

services generally, NSCC is said to have ‘‘ceased to 

act’’ for the Member. Rule 46 (Restrictions on 

Access to Services) of the Rules sets out the 

circumstances under which NSCC may cease to act 

for a Member and the types of actions that NSCC 

may take. Rules, supra note 4. 

8Notice, 82 FR at 40176. 

9The Settlement Date refers to the standard 

settlement cycle, as set by the U.S. Securities and 

Exchange Commission, which is T+2. See Securities 

Exchange Act Release No. 80295 (March 22, 2017), 

82 FR 15564 (March 29, 2017). 

10Notice, 82 FR at 40176. 

11The CRRM is a tool to help measure the credit 

risk that Members pose to NSCC. See Securities 

Exchange Act Release No. 80734 (May 19, 2017), 82 

FR 24177 (May 25, 2017) (SR–FICC–2017–006). The 

CRRM produces a rating based on a scale from 1 

(the strongest) to 7 (the weakest). Id. Members that 

fall within the weakest three rating categories (i.e., 

5, 6, and 7) are placed on NSCC’s ‘‘Watch List’’ and 

may be subject to enhanced surveillance or 

additional margin charges. Id. The CRRM considers 

factors that are designed to collectively reflect the 

financial and operational condition of a Member. 

Id. These factors include (i) quantitative factors, 

such as capital, assets, earnings, and liquidity; and 

(ii) qualitative factors, such as management quality, 

market position/environment, and capital and 

liquidity risk management. Id. 

12Notice, 82 FR at 40176. 

13 Id. 

14 Id. 

15 Id. 

16 Id. 

17 Id. 

18 Id. 

19 Id. 

All submissions should refer to File 

Number SR–C2–2017–025. 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 Web site (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 Web site 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; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–C2– 

2017–025, and should be submitted on 

or before October 26, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21405 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81774; File No. SR–NSCC– 

2017–015] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Amend and 

Clarify a Margin Charge Relating to 

CNS Fails Positions 

September 29, 2017. 

On August 11, 2017, National 

Securities Clearing Corporation 

(‘‘NSCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

proposed rule change SR–NSCC–2017– 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder.2

The proposed rule change was 

published for comment in the Federal 

Register on August 24, 2017.3 The 

Commission did not receive any 

comment letters on the proposed rule 

change. For the reasons discussed 

below, the Commission is granting 

approval of the proposed rule change. 

I. Description of the Proposed Rule 

Change 

NSCC proposed to change its Rules & 

Procedures (‘‘Rules’’) 4 to (1) amend an 

existing fails charge (‘‘CNS Fails 

Charge’’) that applies to each NSCC 

member (‘‘Member’’) as part of each 

Member’s required deposit (‘‘Required 

Deposit’’) 5 to the NSCC Clearing Fund; 

and (2) clarify NSCC’s current practices 

with respect to the assessment and 

collection of the CNS Fails Charge.6

A. The Required Deposit and the CNS 

Fails Charge 

NSCC collects Required Deposits from 

all Members in order to mitigate 

potential losses to NSCC associated with 

the liquidation of a Member’s portfolio, 

if NSCC ceases to act for such Member.7

In order to calculate each Member’s 

Required Deposit, NSCC uses a riskbased margin methodology comprised of 

a number of risk-based component 

charges, including the CNS Fails 

Charge.8

NSCC currently calculates and 

collects the CNS Fails Charge from 

Members with positions that did not 

settle on the applicable settlement date 

(‘‘Settlement Date’’) 9 (‘‘CNS Fails 

Positions’’).10 According to NSCC, 

NSCC imposes the CNS Fails Charge 

based on the Member’s credit rating, as 

derived from NSCC’s internal credit risk 

analysis (i.e., the Credit Risk Rating 

Matrix or ‘‘CRRM’’),11 in order to reflect 

the potential increase in credit risk from 

Members with a higher risk of default.12

NSCC is exposed to credit and market 

risks when a Member does not satisfy its 

obligation to either pay its net 

settlement proceeds or deliver its 

securities due by the applicable 

Settlement Date.13 Such exposures 

generally increase when the Member’s 

risk of default increases, as reflected by 

the Member’s credit rating derived from 

the CRRM.14 Therefore, NSCC asserts 

that to reduce NSCC’s credit risk 

exposures and to incentivize Members 

to satisfy their obligations relating to 

their outstanding trades on Settlement 

Date, NSCC collects the CNS Fails 

Charge as part of each Member’s 

Required Deposit.15

This proposed rule change would 

amend the Rules regarding the CNS 

Fails Charge. Specifically, the proposed 

rule change would amend the Rules to 

add transparency and clarify NSCC’s 

current practices with respect to the 

assessment and collection of this 

existing daily margin charge.16

B. Calculation of the CNS Fails Charge 

Currently, for a Member with CNS 

Fails Positions, the CNS Fails Charge is 

calculated by multiplying the current 

market value of such Member’s 

aggregate CNS Fails Positions by a 

percentage determined by the Member’s 

CRRM rating.17 For a Member that is 

rated 1 through 4 on the CRRM, the CNS 

Fails Charge is 5 percent of the 

Member’s aggregate CNS Fails 

Positions.18 For a Member that is rated 

5 or 6 on the CRRM, the CNS Fails 

Charge is 10 percent of the Member’s 

aggregate CNS Fails Positions.19 For a 


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Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 46559 

20 Id. 

21 Id. 

22Notice, 82 FR at 40177. 

23 Id. NSCC states that Members which are not 

rated by the CRRM are not subject to the CNS Fails 

Charge; however, these Members can be placed on 

the Watch List as deemed necessary by NSCC to 

protect itself and its Members. Id. 

24Rules, supra note 4. 

25Notice, 82 FR at 40176. 

26 Id. 

27 15 U.S.C. 78s(b)(2)(C). 

28 15 U.S.C. 78q–1(b)(3)(F); 17 CFR 240.17Ad– 

22(e)(23)(i). 

29 15 U.S.C. 78q–1(b)(3)(F). 

30 Id. 

31 17 CFR 240.17Ad–22(e)(23)(i). 

32 Id. 

33 15 U.S.C. 78q–1. 

34 In approving the proposed rule change, the 

Commission considered the proposals’ impact on 

efficiency, competition, and capital formation. 15 

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

35 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Member that is rated 7 on the CRRM, 

NSCC charges 20 percent of the 

Member’s aggregate CNS Fails 

Positions.20

NSCC explains that of the 20 percent 

charge, 10 percent is imposed pursuant 

to Procedure XV, Section I.(A)(1)(f) of 

the Rules, which describes NSCC’s 

current CNS Fail Charge,21 while the 

remaining 10 percent of the charge is 

imposed pursuant to Procedure XV, 

Section I.(B)(1) of the Rules, which 

authorizes NSCC’s to require Members 

on the Watch List to make additional 

Clearing Fund deposits as determined 

by NSCC.22 To clarify NSCC’s current 

practices with respect to the assessment 

and collection of the CNS Fails Charge 

in the Rules, NSCC proposes to amend 

the Rules to clearly state that, for any 

Member that is rated 7 on the CRRM, 

the CNS Fails Charge would be 20 

percent of the Member’s aggregate CNS 

Fails Positions.23

C. Detailed Description of the Proposed 

Rule Changes 

To effectuate the proposed change, 

NSCC proposes to amend Rule 1 of the 

Rules 24 to add a definition for CNS 

Fails Position. The proposed definition 

would provide that the term ‘‘CNS Fails 

Position’’ means either a Long Position 

or a Short Position that did not settle on 

the Settlement Date.25 NSCC is also 

proposing to amend Procedure XV, 

Section I.(A)(1)(f) of the Rules to 

provide that a Member’s Clearing Fund 

contribution shall include an amount 

that is calculated by multiplying the 

current market value for such Member’s 

aggregate CNS Fails Positions by (i) 5 

percent for Members rated 1 through 4 

on the CRRM; (ii) 10 percent for 

Members rated 5 or 6 on the CRRM; or 

(iii) 20 percent for Members rated 7 on 

the CRRM.26

II. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 27

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. The 

Commission believes the proposal is 

consistent with Act, specifically Section 

17A(b)(3)(F) of the Act and Rule 17Ad– 

22(e)(23)(i) 28 under the Act, as 

discussed below. 

A. Consistency With Section 

17A(b)(3)(F) 

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

requires, in part, that NSCC’s Rules be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions.29

The proposed rule change would 

clarify and provide additional 

transparency to NSCC members 

regarding NSCC’s current practices 

surrounding the assessment and 

collection of the CNS Fails Charges 

associated with each Member. 

Specifically, the proposed Rule would 

clearly state that Members with a CRRM 

rating of 7 are charged 20 percent of the 

Member’s aggregate CNS Fails Positions 

(instead of the less transparent approach 

of charging 10 percent pursuant to the 

CNS Fails Charge and 10 pursuant to a 

separate Watch List charge). By doing 

so, this proposed rule change would 

help the Rules to be more transparent, 

accurate, and clear, which would better 

enable Members to understand their 

respective rights and obligations with 

respect to their NSCC membership and, 

in turn, support NSCC’s clearance and 

settlement of securities transactions. 

Therefore, the Commission believes that 

the proposed rule change related to the 

CNS Fails Charge would promote the 

prompt and accurate clearance and 

settlement of securities transactions, 

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

the Act.30

B. Consistency With Rule 17Ad– 

22(e)(23)(i) 

Rule 17Ad–22(e)(23)(i) under the Act 

requires NSCC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

publicly disclose all relevant rules and 

material procedures.31

As described above, the proposed rule 

change seeks to clarify in NSCC’s Rules 

the current practices with respect to the 

assessment and collection of the CNS 

Fails Charge. Specifically, NSCC 

proposes to amend the Rules to include 

a definition for CNS Fails Position and 

clearly state NSCC’s current practices 

regarding the assessment and collection 

of the CNS Fails Charge, including the 

percentages that NSCC charges Members 

according to their CRRM rating. In doing 

so, the Commission believes that 

proposed rule change would help 

promote disclosure of relevant rules and 

material procedures relating to the CNS 

Fails Charge, consistent with Rule 

17Ad–22(e)(23)(i) under the Act.32

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act, in particular the requirements of 

Section 17A of the Act 33 and the rules 

and regulations thereunder. 

It is therefore ordered, pursuant to 

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

proposed rule change SR–NSCC–2017– 

015 be, and hereby is, approved.34

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21409 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81781; File No. SR–FINRA– 

2017–027] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving a 

Proposed Rule Change Relating to 

Capital Acquisition Broker Rules 203 

(Engaging in Distribution and 

Solicitation Activities With 

Government Entities) and 458 (Books 

and Records Requirements for 

Government Distribution and 

Solicitation Activities) 

September 29, 2017. 

I. Introduction 

On August 17, 2017, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

adopt Capital Acquisition Broker Rules 

203 (Engaging in Distribution and 

Solicitation Activities with Government 


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