Document ID: SEC-2014-0378-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2014-03-06T05:00Z

[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Notices]
[Pages 12708-12712]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04923]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71637; File No. SR-NSCC-2013-12]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Provide Members 
With a Risk Management Tool That Will Enable Members To Monitor Trading 
Activity and Receive Notifications When Pre-Set Trading Limits Are 
Reached

February 28, 2014.

I. Introduction

    On November 15, 2013, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2013-12 (``Proposed Rule 
Change'') 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 in the Federal Register on December 3, 2013.\3\ 
NSCC voluntarily extended the Commission's period of review of the 
Proposed Rule Change on January 9, 2014. The Commission received one 
comment letter to the Proposed Rule Change \4\ and one response letter 
from NSCC.\5\ This order approves the Proposed Rule Change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Release No. 34-70946 (Nov. 26, 2013), 78 FR 72737 (Dec. 3, 
2013).
    \4\ Letter to Elizabeth M. Murphy, Secretary, Commission, from 
Manisha Kimmel, Executive Director, Financial Information Forum 
(``FIF'') (Dec. 23, 2013) (hereinafter ``FIF Letter'').
    \5\ Letter to Elizabeth M. Murphy, Secretary, Commission, from 
Murray C. Pozmanter, Managing Director, Depository Trust and 
Clearing Corporation (``DTCC'') (Jan. 15, 2014) (hereinafter ``NSCC 
Response'').
---------------------------------------------------------------------------

II. Description

    NSCC filed the Proposed Rule Change to amend its Rules & Procedures 
(``Rules'') in order to implement DTCC Limit Monitoring, a risk 
management tool.\6\ As discussed below, the tool will enable NSCC's 
members (``Members'') \7\ to view their trading exposure across markets 
and at the CUSIP and individual trade levels through Risk Entities 
created by the Member. DTCC Limit Monitoring will then alert the Member 
when trading limits for Risk Entities are approached and when limits 
are reached. Members have discretion to determine whether to take 
action in response to an alert.
---------------------------------------------------------------------------

    \6\ DTCC Limit Monitoring is separate from and will operate 
independently of other risk management tools developed by other 
market participants (e.g., registered securities exchanges). Release 
No. 34-70946, supra note 3, at 2 n.3.
    \7\ Members that clear trades for others or participate in 
special representative transactions will be required to use DTCC 
Limit Monitoring. Approximately 85 percent of Members are in this 
category.
---------------------------------------------------------------------------

A. Trading Data Captured

    Through DTCC Limit Monitoring, Members will be able to monitor the 
intraday, post-trade \8\ clearing activity of their own trading desks, 
their correspondents, and their clients.\9\ The clearing activity 
captured by DTCC Limit Monitoring will include: (i) Post-trade data 
relating to unsettled equity and fixed income securities trades that 
were compared or recorded through NSCC's trade capture mechanisms \10\ 
on that day (``LM Trade Date Data''), and (ii) other applicable trade 
positions that the Member chooses to input at the start of or 
throughout the day (``LM Member-Provided Data'') (collectively, ``LM 
Transaction Data'').\11\
---------------------------------------------------------------------------

    \8\ For the purposes of this Proposed Rule Change, ``post-
trade'' refers to the period in a transaction lifecycle after it is 
submitted to NSCC for clearing and settlement. Release No. 34-70946, 
supra note 3, at 2 n.4.
    \9\ In compliance with NSCC Rule 49, Members are only able to 
view trading activity with respect to their own clearing account(s).
    \10\ Such mechanisms include NSCC's Universal Trade Capture and 
Real-Time Trade Matching trade capture and comparisons systems.
    \11\ NSCC states that, since NSCC will not be the originator of 
the information made available through DTCC Limit Monitoring, NSCC 
will not be responsible for: (i) The completeness or accuracy of LM 
Trade Date Data; (ii) other information or data that it receives 
from Members or third parties and that is used in DTCC Limit 
Monitoring or received and compared or recorded by NSCC; or (iii) 
any errors, omissions, or delays that may occur in the transmission 
of such data or information, as provided in the Rules. Release No. 
34-70946, supra note 3, at 7-8. Additionally, because not all 
transactions are submitted to NSCC in real-time, NSCC can only 
provide Members using DTCC Limit Monitoring with LM Trade Date Data 
as it is compared or recorded through NSCC; accordingly, LM Trade 
Date Data may not reflect all transactions. Id.

---------------------------------------------------------------------------

[[Page 12709]]

B. Establishing Risk Entities

    A Member that uses DTCC Limit Monitoring will create Risk Entities 
for its own trading desks, each correspondent firm, and each client for 
which the Member clears trades. The Member will define each Risk 
Entity's rules for aggregating LM Trade Date Data and LM Member-
Provided Data and set trading limits \12\ based on the net notional 
value \13\ of the aggregated LM Transaction Data. DTCC Limit Monitoring 
will provide Members a screen-based view of their LM Transaction Data 
for a given day, aggregated and organized according to trading limits 
set by the Member.
---------------------------------------------------------------------------

    \12\ The rules governing DTCC Limit Monitoring will refer to 
such trading limits also as ``parameters.'' Id. at 5.
    \13\ For purposes of DTCC Limit Monitoring, ``net notional'' 
will mean the sum of the absolute value of exposure for each 
security ticker symbol. For example, a firm that is net-long in 
Company X for $50,000 and net-short in Company Z for $100,000 has a 
net notional exposure of $150,000. Id. at 5 n.5.
---------------------------------------------------------------------------

C. Trading Limits

    DTCC Limit Monitoring will alert a Member when a pre-set trading 
limit with respect to the trading activity of one of its Risk Entities 
is approached and when it is reached. Specifically, DTCC Limit 
Monitoring will alert a Member when the net notional value of 
aggregated LM Transaction Data for a Member's Risk Entity is:
     50 percent of the trading limit set by the Member for that 
Risk Entity;
     75 percent of the trading limit set by the Member for that 
Risk Entity;
     90 percent of the trading limit set by the Member for that 
Risk Entity; and
     100 percent of the trading limit set by the Member for 
that Risk Entity.\14\

    \14\ DTCC Limit Monitoring will also alert a Member when the 
trading activity of a Risk Entity returns below an alert threshold.

Members may elect to receive such alerts through the DTCC Limit 
Monitoring interface, email, and/or an automated electronic message. 
Members have the discretion to decide whether to take action pursuant 
to an alert.\15\ Alerts do not trigger a block by NSCC on any trading 
activity processed through NSCC.
---------------------------------------------------------------------------

    \15\ NSCC may discuss a Member's use of DTCC Limit Monitoring, 
including the trading limits set by that Member, with the Member.
---------------------------------------------------------------------------

D. Risk Entity Reports

    Risk Entity information, such as alert history, characteristics, 
and end-of-day positions, will be provided to Members in both an end-
of-day report and a monthly report.\16\ Members will be required to 
identify primary and secondary contacts within their firm to receive 
alerts and reports. Additionally, Members will be required to review 
their Risk Entities' alerts and reports on an on-going basis and, as 
deemed appropriate by the Member, modify trading limits to reflect 
current trading activities within each of their Risk Entities. Changes 
made by Members with respect to trading limits will be made in real-
time. All other updates and changes made by Members to their Risk 
Entities will take effect overnight.
---------------------------------------------------------------------------

    \16\ NSCC states that reports and data provided to Members 
through DTCC Limit Monitoring are not intended to impact the timing 
or status of NSCC's guaranty of any transaction in NSCC's Continuous 
Net Settlement or Balance Order Securities. Release No. 34-70946, 
supra note 3, at 7. Furthermore, the issuance of information or 
data, or the lack thereof, to Members through DTCC Limit Monitoring 
will not in and of itself indicate or have any bearing on the status 
of any trade, including, but not limited to, the status of a trade 
as compared, locked-in, validated, guaranteed, or not guaranteed 
trades. Id.
---------------------------------------------------------------------------

E. Mandatory Use

    Although DTCC Limit Monitoring will be available to all 
Members,\17\ NSCC will require the following Members to use the tool: 
(1) Any NSCC full-service Member that clears for others; (2) any NSCC 
full-service Member that submits transactions to NSCC's trade capture 
system either as a Qualified Special Representative (``QSR'') or 
Special Representative, pursuant to Procedure IV (Special 
Representative Service) of the Rules; and (3) any NSCC full-service 
Member that has established a 9A/9B relationship in order to allow 
another Member (either a QSR or Special Representative) to submit 
locked-in trade data on its behalf.\18\ However, NSCC will not charge a 
fee for the use of DTCC Limit Monitoring, whether voluntary or 
mandatory, and, according to NSCC, implementation and use of the tool 
will require minimal, if any, changes to Members' current systems.
---------------------------------------------------------------------------

    \17\ NSCC states that since the information provided by DTCC 
Limit Monitoring is to be used by the Member at the Member's 
discretion, the Proposed Rule Change provides that any Member that 
registers for DTCC Limit Monitoring shall indemnify NSCC, and any of 
NSCC's employees, officers, directors, shareholders, agents, and 
participants who may sustain any loss, liability, or expense as a 
result of a third party claim related to any act or omission by the 
Member made in reliance upon data or information transmitted to the 
Member through DTCC Limit Monitoring. Id. at 8.
    \18\ Members that are required to use DTCC Limit Monitoring will 
be required to create a Risk Entity for their own trading desks, as 
well as for all correspondents and clients for which the Members 
clear trades through NSCC.
---------------------------------------------------------------------------

III. Comment Letter and Response

    The Commission received one comment letter to the Proposed Rule 
Change \19\ and one response letter from NSCC.\20\ Below is a summary 
of the concerns raised by the commenter regarding the Proposed Rule 
Change and NSCC's responses to those concerns.
---------------------------------------------------------------------------

    \19\ See FIF Letter, supra note 4.
    \20\ See NSCC Response, supra note 5.
---------------------------------------------------------------------------

A. Completeness of Trading Data

    The commenter argues that DTCC Limit Monitoring will have 
incomplete trading information.\21\ Specifically, the commenter claims 
that the tool will not capture Institutional Delivery (``ID'') trades, 
options trades, or futures trades that may hedge or offset positions 
captured by the tool.\22\ The commenter also states that certain 
information identifying the parties to a trade is not always required 
or validated by certain exchanges or other venues that submit trades to 
NSCC for clearing; thus, DTCC Limit Monitoring may not accurately 
account for such trades.\23\ Furthermore, the commenter points out that 
not all trades are submitted to NSCC for clearance in real-time.\24\ 
The commenter argues that these issues may result in DTCC Limit 
Monitoring presenting incomplete and/or inaccurate trade positions to 
Members.\25\
---------------------------------------------------------------------------

    \21\ FIF Letter, supra note 4, at 1-2.
    \22\ Id. at 2.
    \23\ Id.
    \24\ Id.
    \25\ See id. at 1-2.
---------------------------------------------------------------------------

    In response, NSCC acknowledges that certain transactions, such as 
ID trades, options trades, and futures trades are not within the scope 
of DTCC Limit Monitoring, but it believes that Members will take that 
fact into consideration when setting trading limits and responding to 
alerts received.\26\ Moreover, NSCC believes that implementation of 
DTCC Limit Monitoring should not be delayed in order to discuss the 
expansion of the tool to incorporate transactions outside the purview 
of NSCC, which would likely be a complex endeavor.\27\ NSCC also states 
that it has recently implement a previously approved rule that requires 
all locked-in trade data submitted to NSCC for trade recording be 
submitted in real-time.\28\ Although that rule does not apply to 
correspondent clearing trades, nor is there a rule that requires all 
information identifying parties to a transaction be included with each 
trade submission, NSCC explains that Members are

[[Page 12710]]

permitted and encouraged to take such action and often do, given the 
associated benefits.\29\ Accordingly, NSCC argues that DTCC Limit 
Monitoring, as currently structured, will offer Members significant 
risk management benefits by providing a single, centralized, and 
aggregated view of all equity transactions submitted to NSCC for 
clearance.\30\
---------------------------------------------------------------------------

    \26\ NSCC Response, supra note 5, at 4.
    \27\ Id.
    \28\ See id.
    \29\ Id. at 4-5.
    \30\ Id. at 4.
---------------------------------------------------------------------------

B. Benefits of Trade Alerts

    The commenter states that there are variable benefits offered by 
DTCC Limit Monitoring's post-trade alerts.\31\ For example, the 
commenter argues that some Members have dedicated significant resources 
to proprietary risk management platforms based on pre-trade and/or 
post-trade alerts, and such existing platforms may not incorporate the 
data provided by DTCC Limit Monitoring.\32\ The commenter also asserts 
that Members with sophisticated risk management tools are capable of 
measuring, monitoring, and aggregating such trade data in more detail 
than DTCC Limit Monitoring.\33\ Similarly, the commenter argues that 
DTCC Limit Monitoring does not provide sufficient granularity because 
it aggregates trades by clearing numbers or Market Participant 
Identifiers (``MPID''); thus, where a Member has multiple trading desks 
associated with a single MPID, it may prove difficult for the Member to 
identify the specific source that triggered a DTCC Limit Monitoring 
alert.\34\ Accordingly, the commenter suggests that Members should have 
flexibility within the tool to determine the level of granularity of 
the sources with respect to Risk Entities, in accordance with each 
Member's risk management preferences.\35\ Therefore, the commenter 
contends that the benefits of DTCC Limit Monitoring are limited, 
especially for self-clearing Members with no correspondents.\36\
---------------------------------------------------------------------------

    \31\ FIF Letter, supra note 4, at 2.
    \32\ Id.
    \33\ Id.
    \34\ Id.
    \35\ Id. at 3.
    \36\ Id. at 2.
---------------------------------------------------------------------------

    In response, NSCC states that DTCC consulted with its Members and 
other industry participants when developing DTCC Limit Monitoring. 
Industry participants indicated that pre-trade monitoring, as a stand-
alone risk management tool at the Member level, may not provide 
adequate protection for firms or against systemic risk.\37\ NSCC also 
states that DTCC Limit Monitoring was not developed to replace pre-
trade and real-time risk management tools, but as an independent, 
standardized, post-trade surveillance tool that would contribute to a 
multi-layered risk management system, in efforts to avoid a single 
point of failure within such a system.\38\ Additionally, NSCC 
highlights that Members will be able to integrate the data and 
information provided by DTCC Limit Monitoring with their own risk 
management processes as they see fit.\39\ Finally, NSCC states that 
DTCC Limit Monitoring uses the MPID to allocate transactions because 
the MPID is the standard industry identifier used by exchanges and 
other execution platforms for identifying the origin of an executed 
trade.\40\ Therefore, NSCC believes that each of its Members, including 
those with sophisticated, internal risk management tools, will benefit 
from using DTCC Limit Monitoring.\41\ The commenter acknowledges that 
some Members ``believe post-trade alerts disseminated by DTCC would 
increase market stability by offering an added level of protection 
against clearing firm failure.'' \42\
---------------------------------------------------------------------------

    \37\ See NSCC Response, supra note 5, at 5.
    \38\ Id.
    \39\ Id.
    \40\ Id.
    \41\ See id.
    \42\ FIF Letter, supra note 4, at 2.
---------------------------------------------------------------------------

C. Operational Burdens

    The commenter argues that the requirement to set and maintain 
trading limits imposes a significant operational burden on Members.\43\ 
Specifically, the commenter states that establishing meaningful trading 
limits is not a trivial task and will require the input of staff from 
operations, ``front office,'' risk, and compliance.\44\ Accordingly, 
the commenter contends that sufficient implementation time would be 
required in order to set meaningful trading limits that are consistent 
with the Member's existing risk management platforms.\45\ Furthermore, 
the commenter states that there will be costs associated with the 
maintenance of trading limits, including communications with NSCC 
regarding the reasonableness of such limits.\46\
---------------------------------------------------------------------------

    \43\ Id. at 3.
    \44\ Id.
    \45\ Id.
    \46\ Id.
---------------------------------------------------------------------------

    In response, NSCC states that Members should not incur a 
significant burden in initiating and maintaining their Risk Entities in 
DTCC Limit Monitoring.\47\ For example, NSCC states that subscribing to 
the tool will not require any system changes for Members.\48\ NSCC also 
states that it has made available various information documents, 
conducted numerous webinars, held group and one-on-one information and 
training sessions, and met with industry groups and individual Members 
to discuss DTCC Limit Monitoring and to support Members in anticipation 
of implementing the tool and reducing efforts needed to maintain 
it.\49\ NSCC asserts that it will continue to provide such support.\50\ 
NSCC also states that many Members already have risk management staff 
in place to manage proprietary risk management platforms, but NSCC 
acknowledges that the use of DTCC Limit Monitoring will require 
additional time and effort by such staff.\51\ Nevertheless, NSCC 
believes that any time spent using DTCC Limit Monitoring is justified 
by the risk management benefits offered by the tool to Members and the 
industry.\52\
---------------------------------------------------------------------------

    \47\ NSCC Response, supra note 5, at 6.
    \48\ Id.
    \49\ Id.
    \50\ See id.
    \51\ Id.
    \52\ Id.
---------------------------------------------------------------------------

D. Consistency of Mandatory Requirement With Industry Practice

    The commenter argues that the mandatory use of DTCC Limit 
Monitoring for certain Members is inconsistent with other risk 
management tools offered by other self-regulatory organizations 
(``SRO'').\53\ For example, the commenter references risk management 
tools by NYSE \54\ and BATS,\55\ neither of which are mandatory for 
their respective members.\56\ However, the commenter acknowledges the 
unique position of NSCC as an industry-wide utility that impacts a 
greater breadth of participants than any single exchange.\57\
---------------------------------------------------------------------------

    \53\ FIF Letter, supra note 4, at 3.
    \54\ See Release No. 34-71164 (Dec. 20, 2013), 78 FR 79044 (Dec. 
27, 2013) (SR-NYSE-2013-08).
    \55\ See Release No. 34-68330 (Nov. 30, 2012), 77 FR 72894 (Dec. 
6, 2012) (SR-BATS-2012-045).
    \56\ FIF Letter, supra note 4, at 3.
    \57\ Id.
---------------------------------------------------------------------------

    In response, NSCC highlights that trading activity processed 
through those SROs is subject to other mandatory risk management 
requirements (e.g., exchange rules regarding ``clearly erroneous'' 
trades).\58\ NSCC also notes that those SROs do not assume the same 
level of risks as NSCC, which, as a central counterparty (``CCP''), has 
a greater stake in ensuring that its Members implement effective risk 
management tools.\59\ NSCC believes that Members that clear for others 
or participate in special representative transactions must use DTCC 
Limit

[[Page 12711]]

Monitoring for it to be maximally effective because those Members have 
less control when clearing and settling trading activity that is 
executed by another firm.\60\
---------------------------------------------------------------------------

    \58\ NSCC Response, supra note 5, at 7.
    \59\ Id.
    \60\ Id. at 3, 7.
---------------------------------------------------------------------------

E. Additional Time To Discuss

    Finally, given the concerns it raises, the commenter believes that 
additional discussion is necessary before use of DTCC Limit Monitoring 
is required and that an opportunity exists for a phased implementation 
of the tool that will balance the needs of the Members.\61\
---------------------------------------------------------------------------

    \61\ FIF Letter, supra note 4, at 4.
---------------------------------------------------------------------------

    NSCC responded that it does not believe the concerns raised by the 
commenter warrant additional discussion before making DTCC Limit 
Monitoring a requirement for certain Members.\62\ NSCC states that the 
launch of DTCC Limit Monitoring will be followed by a six-month phase-
in period, during which Members can seek additional support from NSCC 
in establishing any internal procedures with respect to DTCC Limit 
Monitoring.\63\
---------------------------------------------------------------------------

    \62\ NSCC Response, supra note 5, at 7.
    \63\ Id. at 6.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    Section 19(b)(2)(C)(i) of the Act \64\ directs the Commission to 
approve a proposed rule change of an SRO if the Commission finds the 
proposed rule change consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to such an 
organization. After a thorough review and careful consideration of the 
comments received, the Commission finds that the Proposed Rule Change 
is consistent with the requirements of the Act, in particular the 
requirements of Section 17A of the Act, and the applicable rules and 
regulations thereunder.\65\ Specifically, the Commission finds that the 
Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act 
\66\ and Commission Rule 17Ad-22(b)(1),\67\ as discussed below.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78s(b)(2)(C)(i).
    \65\ 15 U.S.C. 78q-1. In approving the Proposed Rule Change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \66\ 15 U.S.C. 78q-1(b)(3)(F).
    \67\ 17 CFR 240.17Ad-22(b)(1).
---------------------------------------------------------------------------

A. Assessment of the Commenter's Concerns and NSCC's Responses

    The Commission fully considered the comment letter and NSCC's 
response as it carefully assessed the Proposed Rule Change for 
consistency with the Act. The commenter raises no issues, as detailed 
above and addressed below, that convinced the Commission that the 
Proposed Rule Change is inconsistent with the Act and the applicable 
rules and regulations thereunder--the standard by which the Commission 
must evaluate proposed rule changes.\68\ Additionally, the Commission 
believes that NSCC articulates colorable arguments in its response to 
the concerns expressed by the commenter,\69\ thus satisfying NSCC's 
burden to demonstrate that the Propose Rule Change is adequately 
designed to comply with the Act.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78s(b)(2)(C)(i).
    \69\ See generally NSCC Response, supra note 5.
---------------------------------------------------------------------------

    First, the Commission understands that the trading information 
captured by DTCC Limit Monitoring will not reflect every trade or every 
detail of every trade made by Members, as identified by the commenter 
and acknowledged by NSCC.\70\ Nevertheless, the Commission believes 
that the information captured is sufficiently extensive to provide a 
useful risk management tool for Members. Furthermore DTCC Limit 
Monitoring permits Members to input LM Member-Provided Data.
---------------------------------------------------------------------------

    \70\ See FIF Letter, supra note 4, at 1-2; NSCC Response, supra 
note 5, at 3-4.
---------------------------------------------------------------------------

    Second, the Commission recognizes that Members may disagree on the 
usefulness of DTCC Limit Monitoring. The Commission believes that DTCC 
Limit Monitoring will serve as a practical risk management tool for 
Members that do not currently employ such a tool. Alternatively, for 
Members that already use an internal risk management system, DTCC Limit 
Monitoring can serve as a meaningful backstop to that system in the 
event of failure, thus increasing market stability, as acknowledged by 
the commenter.\71\
---------------------------------------------------------------------------

    \71\ See FIF Letter, supra note 4, at 2.
---------------------------------------------------------------------------

    Third, regarding the operational costs that DTCC Limit Monitoring 
may impose on Members, the Commission understands that: (i) Access to 
the tool will require little, if any, changes to a Member's systems; 
(ii) NSCC has provided and will continue to provide support for all 
Members implementing and using the tool; and (iii) a six-month ``phase-
in'' period will follow the enactment of the tool, in order to 
accommodate Members that need additional time or assistance. 
Consequently, the Commission believes that Members should experience 
minimal additional costs, either in time or money, in implementing and 
maintaining DTCC Limit Monitoring.
    Fourth, the Commission understands that NSCC will require 
approximately 85 percent of its Members to use DTCC Limit Monitoring. 
Given the unique risks carried by NSCC as a prominent CCP, which the 
commenter acknowledges,\72\ and given that there will be no fee charged 
for using DTCC Limit Monitoring, the Commission finds that the 
mandatory nature of the tool for Members that clear trades for other 
firms or allow special representative transactions is reasonable and 
appropriate.\73\
---------------------------------------------------------------------------

    \72\ FIF Letter, supra note 4, at 3.
    \73\ The Commission notes that other SROs have implemented 
mandatory risk management tools. See, e.g., Release Nos. 34-70132 
(Aug. 7, 2013), 78 FR 49311 (Aug. 13, 2013) (SR-ISE-2013-38) and 34-
71252 (Jan. 7, 2014), 79 FR 2224 (Jan. 13, 2014) (SR-NYSEMKT-2013-
106).
---------------------------------------------------------------------------

    Finally, the Commission does not believe that further discussions 
are needed prior to approving the Proposed Rule Change and the 
implementation of DTCC Limit Monitoring because the Commission finds 
the Proposed Rule Change consistent with the Act, even in consideration 
of the concerns raised by the commenter, and because DTCC Limit 
Monitoring will be phased in over a six-month period.

B. Compliance With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act \74\ requires, among other things, 
that the rules of a registered clearing agency ``are designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions . . ., to assure the safeguarding of securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible.'' \75\
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78q-1(b)(3)(F).
    \75\ Id.
---------------------------------------------------------------------------

    As a CCP, NSCC occupies an important role in the securities 
settlement system by interposing itself between counterparties to 
financial transactions, thereby reducing certain risks faced by Members 
and contributing to global financial stability. In this role, NSCC is 
necessarily subject to certain risks in the event of a Member default--
risks that could also affect other Members and the marketplace as a 
whole. DTCC Limit Monitoring is designed to help mitigate the risk of a 
Member default by providing all Members with a tool to monitor their 
aggregated net notional trading activity, via Risk Entities, for 
transactions submitted to NSCC and any other transactions included by 
the Member as LM Member-Provided Data. By enabling all Members to 
monitor intraday trading activity for their Risk Entities and by 
alerting a Member when its activity approaches and breaches Member-set

[[Page 12712]]

trading limits, DTCC Limit Monitoring can notify a Member of trading 
abnormalities that could threaten the stability of the Member and, 
potentially, NSCC's ability to clear and settle transactions or 
safeguard securities in its possession. Therefore, the Commission finds 
the Proposed Rule Change compliant with Section 17A(b)(3)(F) of the 
Act.\76\
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

C. Compliance With Commission Rule 17Ad-22(b)(1)

    Commission Rule 17Ad-22(b)(1) regarding measurement and management 
of credit exposure requires a CCP to establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to 
measure its credit exposures to its participants at least once a day 
and limit its exposures to potential losses from defaults by its 
participants under normal market conditions so that the operations of 
the CCP would not be disrupted and non-defaulting participants would 
not be exposed to losses that they cannot anticipate or control.\77\
---------------------------------------------------------------------------

    \77\ 17 CFR 240.17Ad-22(b)(1). Commission Rule 17Ad-22(b)(1) was 
adopted as part of the Clearing Agency Standards. Release No. 34-
68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 2012).
---------------------------------------------------------------------------

    DTCC Limit Monitoring will enable Members to monitor intraday 
trading activity for each of their Risk Entities and will alert Members 
when such activity approaches and breaches Member-set trading limits. 
At NSCC, that trading activity manifests as credit risk borne by NSCC. 
Therefore, by providing Members notification of possible trading 
abnormalities, DTCC Limit Monitoring serves as an NSCC risk management 
tool. Moreover, absent the tool's alert feature, particularly where a 
Member lacks an internal risk management system or such system has 
failed, trading abnormalities may go unnoticed, which could increase 
the likelihood of a Member default, including NSCC's and non-defaulting 
Members' risk. As such, the Commission finds the Proposed Rule Change 
consistent with Rule 17Ad-22(b)(1).\78\
---------------------------------------------------------------------------

    \78\ Id.
---------------------------------------------------------------------------

V. Conclusion

    On the basis of the foregoing, the Commission finds the Proposed 
Rule Change consistent with the requirements of the Act, particularly 
with the requirements of Section 17A of the Act,\79\ and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\80\ that the proposed rule change SR-NSCC-2013-12 be and hereby is 
approved as of the date of this order.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78s(b)(2).
    \81\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\81\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04923 Filed 3-5-14; 8:45 am]
BILLING CODE 8011-01-P