Document ID: SEC-2016-1003-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2016-06-09T04:00Z

[Federal Register Volume 81, Number 111 (Thursday, June 9, 2016)]
[Notices]
[Pages 37229-37231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13613]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77990; File No. SR-NSCC-2016-001]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Remove From the 
DTCC Limit Monitoring Tool the 50% Early Warning Limit Alert and Make 
Technical Revisions to the Rules

June 3, 2016.
    On April 18, 2016, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2016-001 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ to amend NSCC's Rules and Procedures 
(``Rules'') \3\ in order to (i) remove from the DTCC Limit Monitoring 
tool the alert that is sent to Members when trading activity in any of 
their Risk Entities reaches 50% of the pre-set trading limits for that 
Risk Entity and (ii) to make related technical changes and corrections 
to the Rules, as more fully described below. The proposed rule change 
was published for comment

[[Page 37230]]

in the Federal Register on May 2, 2016.\4\ 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Available at http://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf. Terms not defined herein are defined in the 
Rules.
    \4\ See Securities Exchange Act Release No. 77709 (April 26, 
2016), 81 FR 26274 (May 2, 2016) (SR-NSCC-2016-001).
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I. Description of the Proposed Rule Change

    The following is a description of the proposed rule change, as 
provided by NSCC:
    Reasons for Adopting the Proposed Rule Change. NSCC provides its 
Members with a risk management tool called DTCC Limit Monitoring, for 
which certain types of Members are required to register.\5\ DTCC Limit 
Monitoring enables Members that use the tool to monitor post-trade 
activity and to be notified when pre-set trading limits are reached. To 
use the tool, Members must (1) define one or more ``Risk Entities,'' 
which may include (i) the trading activity of a single trading desk 
within the firm; (ii) for Members that clear trades for other firms, 
i.e., their correspondents, the trading activity of a correspondent 
firm; (iii) for Members acting as a Special Representative or a QSR, as 
such terms are defined in the Rules,\6\ the trading activity of a firm 
with which it has a clearing relationship; (iv) the trading activity of 
a single clearing number within the Member's NSCC account structure; or 
(v) all trading activity of the Member submitted to NSCC for clearing; 
and (2) set a trading limit, at a net notional value, for each Risk 
Entity. DTCC Limit Monitoring then sets early warning limits at 50%, 
75%, and 90% of those trading limits.\7\ Members receive alerts when 
trading activity for their Risk Entities reaches each of these early 
warning limits, as well as the pre-set trading limits.
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    \5\ Rule 54 (DTCC Limit Monitoring) and Procedure XVII (DTCC 
Limit Monitoring), supra note 3; see Securities Exchange Act Release 
No. 71637 (February 28, 2014), 79 FR 12708 (March 6, 2014) (SR-NSCC-
2013-12).
    \6\ Rule 7 (Comparison and Trade Recording Operation) and 
Procedure IV (Special Representative Service), supra note 3.
    \7\ Rule 54 (DTCC Limit Monitoring) and Procedure XVII (DTCC 
Limit Monitoring, supra note 3.
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    Since the implementation of DTCC Limit Monitoring in 2014, NSCC has 
periodically met with a working group of its Members to discuss the 
functioning of the tool and to confirm it provides Members with 
effective post-trade surveillance as intended. In response to Member 
feedback provided during these discussions, NSCC has proposed to remove 
the 50% early warning alert for the reasons described below.
    Additionally, NSCC has proposed to make technical revisions to 
Procedure XVII (DTCC Limit Monitoring Procedure) primarily to revise 
the verb tense and add clarity regarding use of the tool.
    Issues the Proposed Rule Change Is Intended to Address. The 
proposed rule change will address concerns that (1) the 50% early 
warning alert is set too low and, thus, may not provide Members with 
useful information for purposes of effective post-trade monitoring; (2) 
the frequency of the 50% early warning alert could have a negative 
impact on Member responsiveness to more critical alerts; and (3) the 
verb tense and certain other language in the Rule may be unclear and/or 
technically inaccurate.
    Manner in which the Proposed Rule Change Will Operate to Resolve 
the Issues. The proposed rule change will remove the 50% early warning 
alert from DTCC Limit Monitoring. DTCC Limit Monitoring will retain the 
75% and 90% early warning alerts, which continue to provide Members 
with valuable notice of changes in their post-trade activity for 
purposes of effective risk management.
    Additionally, the proposed rule change will make certain technical 
changes that will clarify the Rule, primarily by updating the verb 
tense from future tense to present tense to reflect the present 
applicability of the Rule and by making certain other technical 
clarifications to language used in the Rule.
    Manner in which the Proposed Rule Change Will Affect Various 
Persons. Members that use DTCC Limit Monitoring will no longer receive 
the 50% early warning alert, but they will continue to receive alerts 
when their trading activity in each Risk Entity reaches 75% and 90% of 
their pre-set trading limits. No other changes are proposed with 
respect to the functioning of DTCC Limit Monitoring.
    The proposed technical changes are not anticipated to have any 
effect on Members that use DTCC Limit Monitoring.
    Significant Problems Known to the Self-Regulatory Organization that 
Persons Affected Are Likely to Have in Complying with the Proposed Rule 
Change. Members that use DTCC Limit Monitoring will not have to take 
any action as a result of the proposed rule change, and NSCC is not 
aware of any problems that Members will have in continuing to comply 
with the Rules \8\ that address DTCC Limit Monitoring after the 
implementation of the proposed rule change.
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    \8\ Id.
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    As stated above, the proposed technical changes are not anticipated 
to have any effect on Members that use DTCC Limit Monitoring.
    Description of the Proposed Rule Change. In order to implement this 
proposed rule change, NSCC will amend Section 4 of Procedure XVII (DTCC 
Limit Monitoring Procedure) of the Rules to remove reference to the 50% 
early warning alert and to make certain technical clarifications to 
language used in the Rule, primarily by updating the verb tense used 
therein. No other changes to the Rules are contemplated by this 
proposed rule change.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \9\ 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. The Commission believes the proposal is 
consistent with Section 17A(b)(3)(F) of the Act,\10\ as described in 
detail below.
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    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and to 
protect investors and the public interest.\11\ As described above, the 
50% early warning alert may not provide Members with information that 
is useful for purposes of post-trade monitoring, but, rather, may 
distract Members from such information. By removing the 50% alert, a 
distraction is removed, thus increasing the effectiveness of the DTCC 
Limit Monitoring tool for Members to monitor their post-trade activity. 
Therefore, the proposed rule change will enhance Members' ability to 
manage risks from their trades, facilitating the protection of 
investors and the public interest from such risks.
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    \11\ Id.
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    As the proposed rule change pertains to technical changes to the 
Rules, the Commission finds the technical changes also consistent with 
Section 17A(b)(3)(F) of the Act \12\ because technical updates to the 
Rules to make them more clear, consistent, and current for Members that 
rely on the Rules supports the prompt and accurate

[[Page 37231]]

clearance and settlement of securities transactions.
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    \12\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \13\ and the 
rules and regulations thereunder.
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    \13\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-NSCC-2016-001 be, and hereby is, 
approved.\14\
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    \14\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-13613 Filed 6-8-16; 8:45 am]
 BILLING CODE 8011-01-P